Question
Required information Skip to question [The following information applies to the questions displayed below.] You have just been hired as a financial analyst for Lydex
Required information
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[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 | $ 980,000 | $ 1,220,000 |
Marketable securities | 0 | 300,000 |
Accounts receivable, net | 2,780,000 | 1,880,000 |
Inventory | 3,620,000 | 2,200,000 |
Prepaid expenses | 260,000 | 200,000 |
Total current assets | 7,640,000 | 5,800,000 |
Plant and equipment, net | 9,560,000 | 9,070,000 |
Total assets | $ 17,200,000 | $ 14,870,000 |
Liabilities and Stockholders' Equity | ||
Liabilities: | ||
Current liabilities | $ 4,030,000 | $ 3,020,000 |
Note payable, 10% | 3,680,000 | 3,080,000 |
Total liabilities | 7,710,000 | 6,100,000 |
Stockholders' equity: | ||
Common stock, $75 par value | 7,500,000 | 7,500,000 |
Retained earnings | 1,990,000 | 1,270,000 |
Total stockholders' equity | 9,490,000 | 8,770,000 |
Total liabilities and stockholders' equity | $ 17,200,000 | $ 14,870,000 |
Lydex Company Comparative Income Statement and Reconciliation | ||
---|---|---|
This Year | Last Year | |
Sales (all on account) | $ 15,880,000 | $ 13,780,000 |
Cost of goods sold | 12,704,000 | 10,335,000 |
Gross margin | 3,176,000 | 3,445,000 |
Selling and administrative expenses | 1,208,000 | 1,612,000 |
Net operating income | 1,968,000 | 1,833,000 |
Interest expense | 368,000 | 308,000 |
Net income before taxes | 1,600,000 | 1,525,000 |
Income taxes (30%) | 480,000 | 457,500 |
Net income | 1,120,000 | 1,067,500 |
Common dividends | 400,000 | 533,750 |
Net income retained | 720,000 | 533,750 |
Beginning retained earnings | 1,270,000 | 736,250 |
Ending retained earnings | $ 1,990,000 | $ 1,270,000 |
To begin your assignment you gather the following financial data and ratios that are typical of companies in Lydex Companys industry:
Current ratio | 2.4 | |
---|---|---|
Acid-test ratio | 1.1 | |
Average collection period | 32 | days |
Average sale period | 60 | days |
Return on assets | 9.5% | |
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 $1,690,000.) (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 $2,050,000.) (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 $13,090,000.) (Round your final answers to 2 decimal places.)
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