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