Required information Problem 14-15 (Static) 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: 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, $78 par value Retained earnings Total stockholders' equity Total liabilities and stockholders' equity $ 960,000 0 2,700,000 3,900,000 240,000 7,800,000 9,300,000 $ 17,100,000 $ 1,260,000 300,000 1,800,000 2,400,000 180,000 5,940,000 8,940,000 $ 14,880,000 $ 3,900,000 3,600,000 7,500,000 7,800,000 1,800,000 $ 2,760,000 3,000,000 5,760,000 7,800,000 1,320,000 9,600,000 9,120,000 $ 17,100,000 $ 14,880,000 Lydex Company Comparative Income Statement and Reconciliation Sales (all on account) Cost of goods sold This Year $ 15,750,000 12,600,000 3,150,000 1,590,000 Last Year $ 12,480,000 9,900,000 2,580,000 1,560,000 1,560,000 1,020,000 360,000 300,000 1,200,000 720,000 360,000 216,000 840,000 504,000 360,000 252,000 480,000 252,000 1,068,000 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 1,320,000 $ 1,800,000 $ 1,320,000 Income taxes (30%) Net income Common dividends Net income retained Beginning retained earnings Ending retained earnings 360,000 216,000 840,000 504,000 360,000 252,000 480,000 252,000 1,320,000 $ 1,800,000 1,068,000 $ 1,320,000 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 2.3 1.2 Average collection period 30 days Average sale period 60 days Return on assets 9.5% Debt-to-equity ratio 0.65 Times interest earned ratio Price-earnings ratio 5.7 10 Problem 14-15 Part 3 (Static) 3. You decide, finally, to assess the company's 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 $1,560,000.) (Use 365 days in a year. Round your intermediate calculations and final answers to 1 decimal place.) e. The average sale period. (The inventory at the beginning of last year totaled $1,920,000.) (Use 365 days in a year. Round your intermediate calculations and final answers to 1 decimal place.) f. The operating cycle. (Round your intermediate calculations and final answers to 1 decimal place.) g. The total asset turnover. (The total assets at the beginning of last year totaled $12,960,000.) (Round your final answers to 2 decimal places.) > Answer is complete but not entirely correct. This Year Last Year a. Working capital 3,900,000 3,180,000 b. The current ratio 2.00 2.15 c. The acid-test ratio 0.94 1.22 d. The average collection period 52.1 days 49.3 days e. The average sale period 91.3 days 79.6 days f. The operating cycle 143.4 days 128.9 days g. The total asset turnover 0.98 0.90