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 $ $990,000$ $ $1,230,000$

Marketable securities $0300,000$

Accounts receivable, net $2,820,0001,920,000$

Inventory $3,630,0002,300,000$

Prepaid expenses $260,000200,000$

Total current assets $7,700,0005,950,000$

Plant and equipment, net $9,580,0009,080,000$

Total assets $ $17,280,000$ $ $15,030,000$

Liabilities and Stockholders' Equity

Liabilities:

Current liabilities $ $4,040,000$ $ $3,040,000$

Note payable, $10\%3,680,0003,080,000$

Total liabilities $7,720,0006,120,000$

Stockholders' equity:

Common stock, $$70$ par value $7,000,0007,000,000$

Retained earnings $2,560,0001,910,000$

Total stockholders' equity $9,560,0008,910,000$

Total liabilities and stockholders' equity $ $17,280,000$ $ $15,030,000$

Lydex Company

Comparative Income Statement and Reconciliation

This Year Last Year

Sales $($all on account$)$ $ $15,890,000$ $ $13,880,000$

Cost of goods sold $12,712,00010,410,000$

Gross margin $3,178,0003,470,000$

Selling and administrative expenses $1,210,0001,616,000$

Net operating income $1,968,0001,854,000$

Interest expense $368,000308,000$

Net income before taxes $1,600,0001,546,000$

Income taxes $(30\%)480,000463,800$

Net income $1,120,0001,082,200$

Common dividends $470,000541,100$

Net income retained $650,000541,100$

Beginning retained earnings $1,910,0001,368,900$

Ending retained earnings $ $2,560,000$ $ $1,910,000$

To begin your assignment you gather the following financial data and ratios that are typical of companies in Lydex Company$$s industry:

Current ratio $2\mathrm{.}4$

Acid$-$test ratio $1\mathrm{.}1$

Average collection period $32$ days

Average sale period $60$ days

Return on assets $9\mathrm{.}6\%$

Debt$-$to$-$equity ratio $0\mathrm{.}7$

Times interest earned ratio $5\mathrm{.}9$

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?