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: Assets Lydex Company Comparative Balance Sheet This Year Last Year 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 $ 1,020,000 0 2,940,000 3,660,000 270,000 7,890,000 9,640,000 17,530,000 $ 4,070,000 3,700,000 7,770,000 $ 1,260,000 300,000 2,040,000 2,100,000 210,000 5,910,000 9,110,000 $ 15,020,000 $ 3,100,000 3,100,000 6,200,000 7,500,000 1,320,000 Retained earnings 7,500,000 2,260,000 Total stockholders' equity 9,760,000 Total liabilities and stockholders' equity' $ 17,530,000 Lydex Company 8,820,000 $ 15,020,000 Comparative Income Statement and Reconciliation Sales (all on account) Cost of goods sold Gross margin Selling and administrative expenses Net operating income Interest expense Net income before taxes Income taxes (30%) Net income Common dividends This Year $ 15,920,000 12,736,000 3,184,000 1,014,000 2,170,000 Last Year $ 14,180,000 10,635,000 3,545,000 1,628,000 1,917,000 310,000 370,000 1,800,000 540,000 1,260,000 320,000 1,607,000 482,100 1,124,900 562,450 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 stockholders' equity Lydex Company $ 17,530,000 $ 15,020,000 $ 4,070,000 3,700,000 $ 3,100,000 3,100,000 200,000 7,500,000 7,770,000 7,500,000 2,260,000 9,760,000 1,320,000 8,820,000 $ 17,530,000 $ 15,020,000 Comparative Income Statement and Reconciliation. Sales (all on account) This Year $ 15,920,000 12,736,000 3,184,000 1,014,000 2,170,000 370,000 Last Year $ 14,180,000 10,635,000 3,545,000 1,628,000 1,917,000 Cost of goods sold Gross margin Selling and administrative expenses. Net operating income. Interest expense Net income before taxes Income taxes (30%) Net income Common dividends Net income retained Beginning retained earnings Ending retained earnings 1,800,000 549,000 1,260,000 320,000 940,000 1,320,000 $ 2,260,000 310,000 1,607,000 482,100 1,124,900 562,450 562,450 757,550 $ 1,320,000 To begin your assignment you gather the following financial data and ratios that are typical of companies in Lydex Company's industry. Current ratio. Acid-test ratio Average collection period Average sale period 2.3 1.1 32 days 60 days Return on assets 9.98 Debt-to-equity ratio. 0.7 Times interest earned ratio 5.9 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 $13,130,000.) e. The return on equity. (Stockholders' equity at the beginning of last year totaled $8,257,550. There has been no change in common stock over the last two years.) f. Is the company's financial leverage positive or negative? a. The times interest earned ratio b. The debt-to-equity ratio c. The gross margin percentage This Year Last Year % % d. The return on total assets e. The return on equity % % % f. Is the company's financial leverage positive or negative?