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

$

1,250,000

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

5,480,000

Plant and equipment, net

9,440,000

9,010,000

Total assets

$

16,710,000

$

14,490,000

Liabilities and Stockholders' Equity

Liabilities:

Current liabilities

$

3,600,000

$

2,900,000

Note payable, 10%

3,640,000

3,040,000

Total liabilities

7,240,000

5,940,000

Stockholders' equity:

Common stock, $75 par value

7,500,000

7,500,000

Retained earnings

1,970,000

1,050,000

Total stockholders' equity

9,470,000

8,550,000

Total liabilities and stockholders' equity

$

16,710,000

$

14,490,000

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

1,000,000

1,588,000

Net operating income

2,164,000

1,707,000

Interest expense

364,000

304,000

Net income before taxes

1,800,000

1,403,000

Income taxes (30%)

540,000

420,900

Net income

1,260,000

982,100

Common dividends

340,000

491,050

Net income retained

920,000

491,050

Beginning retained earnings

1,050,000

558,950

Ending retained earnings

$

1,970,000

$

1,050,000

To begin your assigment you gather the following financial data and ratios that are typical of companies in Lydex Companys industry:

Current ratio2.3 Acid-test ratio1.2 Average collection period40 days Average sale period60 days Return on assets8.8 % Debt-to-equity ratio0.67 Times interest earned ratio5.8 Price-earnings ratio10

Required:

PART1.

Present the balance sheet in common-size format. (Round your percentage answers to 1 decimal place i.e., 0.123 is considered as 12.3. Due to rounding, figures may not fully reconcile down a column.)

Lydex Company
Common-Size Balance Sheets
	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, $75 par value
Retained earnings
Total stockholders equity
Total liabilities and equity

PART2.

Present the income statement in common-size format down through net income. (Round your percentage answers to 1 decimal place i.e., 0.123 is considered as 12.3. Due to rounding, figures may not fully reconcile down a column.)

Lydex Company
Common-Size Income Statements
	This Year		Last Year
Sales		%		%
Cost of goods sold
Gross margin
Selling and administrative expenses
Net operating income
Interest expense
Net income before taxes
Income taxes (30%)
Net income