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 $ $930,000$ $ $1,170,000$

Marketable securities $0300,000$

Accounts receivable, net $2,580,0001,680,000$

Inventory $3,570,0002,200,000$

Prepaid expenses $250,000190,000$

Total current assets $7,330,0005,540,000$

Plant and equipment, net $9,460,0009,020,000$

Total assets $ $16,790,000$ $ $14,560,000$

Liabilities and Stockholders' Equity

Liabilities:

Current liabilities $ $3,980,000$ $ $2,920,000$

Note payable, $10\%3,640,0003,040,000$

Total liabilities $7,620,0005,960,000$

Stockholders' equity:

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

Retained earnings $2,170,0001,600,000$

Total stockholders' equity $9,170,0008,600,000$

Total liabilities and stockholders' equity $ $16,790,000$ $ $14,560,000$

Lydex Company

Comparative Income Statement and Reconciliation

This Year Last Year

Sales $($all on account$)$ $ $15,830,000$ $ $13,280,000$

Cost of goods sold $12,664,0009,960,000$

Gross margin $3,166,0003,320,000$

Selling and administrative expenses $1,402,0001,592,000$

Net operating income $1,764,0001,728,000$

Interest expense $364,000304,000$

Net income before taxes $1,400,0001,424,000$

Income taxes $(30\%)420,000427,200$

Net income $980,000996,800$

Common dividends $410,000498,400$

Net income retained $570,000498,400$

Beginning retained earnings $1,600,0001,101,600$

Ending retained earnings $ $2,170,000$ $ $1,600,000$

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

Current ratio $2\mathrm{.}3$

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

Average collection period $40$ days

Average sale period $60$ days

Return on assets $8\mathrm{.}9\%$

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

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

Price$-$earnings ratio $10$

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 $$13,040,000.)$

e$.$ The return on equity. $($Stockholders$$ equity at the beginning of last year totaled $$8,101,600.$ There has been no change in common stock over the last two years.$)$

f$.$ Is the company$$s financial leverage positive or negative?