Required information Problem 14-15 (Algo) Comprehensive Ratio Analysis [LO14-2, LO14-3, LO14-4, LO14-5, LO14-6] [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 company's financial statements, including comparing Lydex's performance to its major competitors. The company's financial statements for the last two years are as follows: Assets Current assets: Cash Marketable securities Accounts receivable, net Inventory Prepaid expenses Total current assets Plant and equipment, net Total assets Lydex Company Comparative Balance Sheet This Year Last Year $ 990,000 0 Liabilities and Stockholders' Equity Liabilities: Current liabilities Note payable, 10% Total liabilities Stockholders' equity: Common stock, $70 par value 2,820,000 3,630,000 260,000 7,700,000 9,580,000 $ 17,280,000 $ 4,040,000 3,680,000 7,720,000 7,000,000 Retained earnings 2,560,000 Total stockholders' equity 9,560,000 Total liabilities and stockholders' equity $ 17,280,000 Lydex Company $ 1,230,000 300,000 1,920,000 2,300,000 200,000 5,950,000 9,080,000 $ 15,030,000 $ 3,040,000 3,080,000 6,120,000 7,000,000 1,910,000 8,910,000 $ 15,030,000 Comparative Income Statement and Reconciliation Sales (all on account) Cost of goods sold This Year $ 15,890,000 12,712,000 Last Year $ 13,880,000 10,410,000 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 3,178,000 1,210,000 1,968,000 3,470,000 368,000 1,600,000 480,000 1,120,000 1,616,000 1,854,000 308,000 1,546,000 463,800 1,082,200 470,000 650,000 1,910,000 541,100 541,100 1,368,900 $ 2,560,000 $ 1,910,000 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 2.4 1.1 Average collection period 32 days Average sale period Return on assets 60 days 9.6% Debt-to-equity ratio 0.7 Times interest earned ratio 5.9 Price-earnings ratio 10 Problem 14-15 Part 1 (Algo) Required: 1. You decide first to assess the company's 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 $13,100,000.) e. The return on equity. (Stockholders' equity at the beginning of last year totaled $8,368,900. 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 This Year Last Year b. The debt-to-equity ratio c. The gross margin percentage d. The return on total assets e. The return on equity % % % % % % f. Is the company's financial leverage positive or negative?