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 $ 940,000 $ 1,200,000
Marketable securities 0 300,000
Accounts receivable, net 2,620,000 1,720,000
Inventory 3,580,000 2,300,000
Prepaid expenses 250,000 190,000
Total current assets 7,390,000 5,710,000
Plant and equipment, net 9,480,000 9,030,000
Total assets $ 16,870,000 $ 14,740,000
Liabilities and Stockholders' Equity Liabilities:
Current liabilities $ 3,880,000 $ 2,940,000
Note payable, 10% 3,660,000 3,060,000
Total liabilities 7,540,000 6,000,000
Stockholders' equity:
Common stock, $75 par value 7,500,000 7,500,000
Retained earnings 1,830,000 1,240,000
Total stockholders' equity 9,330,000 8,740,000
Total liabilities and stockholders' equity $ 16,870,000 $ 14,740,000
Lydex Company Comparative Income Statement and Reconciliation This Year Last Year Sales (all on account)
$ 15,840,000 $ 13,380,000 Cost of goods sold
12,672,000 10,035,000 Gross margin
3,168,000 3,345,000 Selling and administrative expenses
1,473,429 1,596,000 Net operating income
1,694,571 1,749,000 Interest expense
366,000 306,000 Net income before taxes
1,328,571 1,443,000 Income taxes (30%)
398,571 432,900 Net income
930,000 1,010,100 Common dividends
340,000 505,050 Net income retained
590,000 505,050 Beginning retained earnings
1,240,000 734,950 Ending retained earnings
$ 1,830,000 $ 1,240,000
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 40 days Average sale period 60 days Return on assets 9.1 % Debt-to-equity ratio 0.69 Times interest earned ratio 5.7 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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