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Question 5 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.]
Question 5
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 | $ 920,000 | $ 1,160,000 |
Marketable securities | 0 | 300,000 |
Accounts receivable, net | 2,540,000 | 1,640,000 |
Inventory | 3,560,000 | 2,100,000 |
Prepaid expenses | 250,000 | 190,000 |
Total current assets | 7,270,000 | 5,390,000 |
Plant and equipment, net | 9,440,000 | 9,010,000 |
Total assets | $ 16,710,000 | $ 14,400,000 |
Liabilities and Stockholders' Equity | ||
Liabilities: | ||
Current liabilities | $ 3,970,000 | $ 2,900,000 |
Note payable, 10% | 3,640,000 | 3,040,000 |
Total liabilities | 7,610,000 | 5,940,000 |
Stockholders' equity: | ||
Common stock, $75 par value | 7,500,000 | 7,500,000 |
Retained earnings | 1,600,000 | 960,000 |
Total stockholders' equity | 9,100,000 | 8,460,000 |
Total liabilities and stockholders' equity | $ 16,710,000 | $ 14,400,000 |
Lydex Company Comparative Income Statement and Reconciliation | ||
This Year | Last Year | |
---|---|---|
Sales (all on account) | $ 15,820,000 | $ 13,180,000 |
Cost of goods sold | 12,656,000 | 9,885,000 |
Gross margin | 3,164,000 | 3,295,000 |
Selling and administrative expenses | 1,400,000 | 1,588,000 |
Net operating income | 1,764,000 | 1,707,000 |
Interest expense | 364,000 | 304,000 |
Net income before taxes | 1,400,000 | 1,403,000 |
Income taxes (30%) | 420,000 | 420,900 |
Net income | 980,000 | 982,100 |
Common dividends | 340,000 | 491,050 |
Net income retained | 640,000 | 491,050 |
Beginning retained earnings | 960,000 | 468,950 |
Ending retained earnings | $ 1,600,000 | $ 960,000 |
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 | 1.1 | |
Average collection period | 40 | days |
Average sale period | 60 | days |
Return on assets | 8.8% | |
Debt-to-equity ratio | 0.7 | |
Times interest earned ratio | 5.8 | |
Price-earnings ratio | 10 |
3. You decide, finally, to assess the companys liquidity and asset management. For both this year and last year, compute:
a. Working capital.
b. The current ratio. (Round your final answers to 2 decimal places.)
c. The acid-test ratio. (Round your final answers to 2 decimal places.)
d. The average collection period. (The accounts receivable at the beginning of last year totaled $1,630,000.) (Use 365 days in a year. Round your intermediate calculations and final answers to 2 decimal place.)
e. The average sale period. (The inventory at the beginning of last year totaled $1,990,000.) (Use 365 days in a year. Round your intermediate calculations and final answers to 2 decimal place.)
f. The operating cycle. (Round your intermediate calculations and final answers to 2 decimal place.)
g. The total asset turnover. (The total assets at the beginning of last year totaled $13,030,000.) (Round your final answers to 2 decimal places.)
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