Question
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
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 | $ | 860,000 | $ | 1,230,000 |
Marketable securities | 0 | 300,000 | ||
Accounts receivable, net | 2,820,000 | 1,920,000 | ||
Inventory | 3,630,000 | 2,300,000 | ||
Prepaid expenses | 260,000 | 200,000 | ||
Total current assets | 7,570,000 | 5,950,000 | ||
Plant and equipment, net | 9,580,000 | 9,080,000 | ||
Total assets | $ | 17,150,000 | $ | 15,030,000 |
Liabilities and Stockholders' Equity | ||||
Liabilities: | ||||
Current liabilities | $ | 4,550,000 | $ | 3,040,000 |
Note payable, 10% | 3,680,000 | 3,080,000 | ||
Total liabilities | 8,230,000 | 6,120,000 | ||
Stockholders' equity: | ||||
Common stock, $70 par value | 7,000,000 | 7,000,000 | ||
Retained earnings | 1,920,000 | 1,910,000 | ||
Total stockholders' equity | 8,920,000 | 8,910,000 | ||
Total liabilities and stockholders' equity | $ | 17,150,000 | $ | 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 | 12,712,000 | 10,410,000 | ||
Gross margin | 3,178,000 | 3,470,000 | ||
Selling and administrative expenses | 2,124,286 | 1,616,000 | ||
Net operating income | 1,053,714 | 1,854,000 | ||
Interest expense | 368,000 | 308,000 | ||
Net income before taxes | 685,714 | 1,546,000 | ||
Income taxes (30%) | 205,714 | 463,800 | ||
Net income | 480,000 | 1,082,200 | ||
Common dividends | 470,000 | 541,100 | ||
Net income retained | 10,000 | 541,100 | ||
Beginning retained earnings | 1,910,000 | 1,368,900 | ||
Ending retained earnings | $ | 1,920,000 | $ | 1,910,000 |
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 | 1.2 | |
Average collection period | 32 | days |
Average sale period | 60 | days |
Return on assets | 9.6 | % |
Debt-to-equity ratio | 0.69 | |
Times interest earned ratio | 5.9 | |
Price-earnings ratio | 10 | |
Required:
1. Present the balance sheet in common-size format.
2. Present the income statement in common-size format down through net income.
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