Problem 16-15 (Algo) Comprehensive Ratio Analysis [LO16-2, LO16-3, LO16-4, LO16-5, LO16-6] [The following information applies to the questions displayed below.] Lydex Company's financial statements for the last two years are as follows: Lydex Company Comparative Balance Sheet This Year Last Year Assets Current assets: Cash Marketable securities Accounts receivable, net Inventory Prepaid expenses Total current assets Plant and equipment, net Total assets Liabilities and Stockholders' Equity Liabilities: Current liabilities Note payable, 10% Total liabilities Stockholders' equity: Common stock, $70 par value $ 930,000 0 $ 1,170,000 300,000 2,580,000 3,570,000 250,000 7,330,000 9,460,000 $ 16,790,000 1,680,000 2,200,000 190,000 5,540,000 9,020,000 $ 14,560,000 $ 3,980,000 3,640,000 7,620,000 7,000,000 $ 2,920,000 3,040,000 5,960,000 7,000,000 Retained earnings Total stockholders' equity. Total liabilities and stockholders' equity 2,170,000 1,600,000 9,170,000 8,600,000 $ 16,790,000 $ 14,560,000 Lydex Company Comparative Income Statement and Reconciliation This Year Last Year Sales (all on account) $ 15,830,000 Cost of goods sold Gross margin Selling and administrative expenses Net operating income Interest expense Net income before taxes Income taxes (30%) Net income Common dividends Net income retained Beginning retained earnings Ending retained earnings 12,664,000 3,166,000 1,402,000 1,764,000 $ 13,280,000 9,960,000 3,320,000 1,592,000 1,728,000 364,000 304,000 1,400,000 1,424,000 420,000 427,200 980,000 996,800 410,000 498,400 570,000 498,400 1,101,600 1,600,000 $ 2,170,000 $ 1,600,000 The following financial data and ratios are typical of companies in Lydex Company's industry: Current ratio Acid-test ratio Average collection period 2.3 1.1 40 days Average sale period 60 days Return on assets 8.9% Debt-to-equity ratio 0.7 Times interest earned ratio Price-earnings ratio 5.9 10 Problem 16-15 Part 1 (Algo) Required: 1. To assess the company's performance in terms of debt management and profitability, compute the following for this year and last year: Note: Round your "Percentage" answers to 1 decimal place and other answers to 2 decimal places. a. The times interest earned ratio. b. The debt-to-equity ratio. c. The gross margin percentage. d. The return on total assets. (Total assets at the beginning of last year were $13,040,000.) e. The return on equity. (Stockholders' equity at the beginning of last year totaled $8,101,600. There has been no change in common stock over the last two years.) f. Is the company's financial leverage positive or negative? a. The times interest earned ratio b. The debt-to-equity ratio c. The gross margin percentage This Year Last Year % % d. The return on total assets e. The return on equity % % % % f. Is the company's financial leverage positive or negative?