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 $13,110,000.)

e. The return on equity. (Stockholders equity at the beginning of last year totaled $8,492,250. There has been no change in common stock over the last two years.)

f. Is the companys financial leverage positive or negative?

Lydex Company Comparative Balance Sheet This Year Last Year Assets Current assets: $1,000,000 1,240,000 300,000 1,960,000 2,400,000 210,000 6,110,000 9,090,000 $17,370,000 $15,200,000 Cash Marketable securities Accounts receivable, net 2,860,000 3,640,000 270,000 7,770,000 9,600,000 Inventory Prepaid expenses Total current assets Plant and equipment, net Total assets Liabilities and Stockholders Equity Liabilities: Current liabilities 4,050,000 3,060,000 3.100,000 6,160,000 3,700,000 7,750,000 Note payable, 108 Stockholdersequity: Retained earnings Total liabilities and Total liabilities 7,500,000 1,540,000 9,040,000 $17,370,000 $15,200,000 7,500,000 2,120,000 9,620,000 Common stock, $75 par value Total stockholders' equity stockholders' equity Lydex Company Comparative Income Statement and Reconciliation This Year Last Year Sales (all on account) 15,900,000 $13,980,000 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 2,120,000 $ 1,540,000 12.720.000 10.485.000 3,180,000 3,495,000 1,410,000 1,620,000 1,770,000 1,875,000 310,000 1,400,000 1,565,000 469,500 980,000 1,095,500 547,750 547,750 992,250 370,000 420,000 400,000 580,000 1,540,000 To begin your assignment you gather the following financial data and ratios that are typical of companies in Lydex Company's industry: Current ratio Acid-test ratio Average collection Average sale period Return on assets Debt-to-equity ratio Times interest earned ratio Price-earnings ratio 60 days