Question
Problem 16-15 (Algo) Comprehensive Ratio Analysis [LO16-2, LO16-3, LO16-4, LO16-5, LO16-6] Skip to question [The following information applies to the questions displayed below.] You have
Problem 16-15 (Algo) Comprehensive Ratio Analysis [LO16-2, LO16-3, LO16-4, LO16-5, LO16-6]
Skip to question
[The following information applies to the questions displayed below.]
You have just been hired as a financial analyst for Lydex Company, a manufacturer of safety helmets. Your boss has asked you to perform a comprehensive analysis of the companys financial statements, including comparing Lydexs performance to its major competitors. The companys financial statements for the last two years are as follows:
Lydex Company Comparative Balance Sheet | ||
This Year | Last Year | |
---|---|---|
Assets | ||
Current assets: | ||
Cash | $ 860,000 | $ 1,100,000 |
Marketable securities | 0 | 300,000 |
Accounts receivable, net | 2,300,000 | 1,400,000 |
Inventory | 3,500,000 | 2,000,000 |
Prepaid expenses | 240,000 | 180,000 |
Total current assets | 6,900,000 | 4,980,000 |
Plant and equipment, net | 9,320,000 | 8,950,000 |
Total assets | $ 16,220,000 | $ 13,930,000 |
Liabilities and Stockholders' Equity | ||
Liabilities: | ||
Current liabilities | $ 3,910,000 | $ 2,780,000 |
Note payable, 10% | 3,600,000 | 3,000,000 |
Total liabilities | 7,510,000 | 5,780,000 |
Stockholders' equity: | ||
Common stock, $75 par value | 7,500,000 | 7,500,000 |
Retained earnings | 1,210,000 | 650,000 |
Total stockholders' equity | 8,710,000 | 8,150,000 |
Total liabilities and stockholders' equity | $ 16,220,000 | $ 13,930,000 |
Lydex Company Comparative Income Statement and Reconciliation | ||
This Year | Last Year | |
---|---|---|
Sales (all on account) | $ 15,760,000 | $ 12,580,000 |
Cost of goods sold | 12,608,000 | 9,435,000 |
Gross margin | 3,152,000 | 3,145,000 |
Selling and administrative expenses | 1,592,000 | 1,564,000 |
Net operating income | 1,560,000 | 1,581,000 |
Interest expense | 360,000 | 300,000 |
Net income before taxes | 1,200,000 | 1,281,000 |
Income taxes (30%) | 360,000 | 384,300 |
Net income | 840,000 | 896,700 |
Common dividends | 280,000 | 448,350 |
Net income retained | 560,000 | 448,350 |
Beginning retained earnings | 650,000 | 201,650 |
Ending retained earnings | $ 1,210,000 | $ 650,000 |
To begin your assignment you gather the following financial data and ratios that are typical of companies in Lydex Companys industry:
Current ratio | 2.3 | |
---|---|---|
Acid-test ratio | 1.0 | |
Average collection period | 30 | days |
Average sale period | 60 | days |
Return on assets | 8.2% | |
Debt-to-equity ratio | 0.7 | |
Times interest earned ratio | 5.8 | |
Price-earnings ratio | 10 |
rev: 04_27_2020_QC_CS-209476
Problem 16-15 Part 1 (Algo)
Required:
1. You decide first to assess the companys performance in terms of debt management and profitability. Compute the following for both this year and last year: (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 $12,970,000.)
e. The return on equity. (Stockholders equity at the beginning of last year totaled $7,701,650. There has been no change in common stock over the last two years.)
f. Is the companys financial leverage positive or negative?
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