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 | $ | 910,000 | $ | 1,150,000 |
Marketable securities | 0 | 300,000 | ||
Accounts receivable, net | 2,500,000 | 1,600,000 | ||
Inventory | 3,550,000 | 2,000,000 | ||
Prepaid expenses | 250,000 | 190,000 | ||
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Total current assets | 7,210,000 | 5,240,000 | ||
Plant and equipment, net | 9,420,000 | 9,000,000 | ||
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Total assets | $ | 16,630,000 | $ | 14,240,000 |
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Liabilities and Stockholders' Equity | ||||
Liabilities: | ||||
Current liabilities | $ | 3,960,000 | $ | 2,880,000 |
Note payable, 10% | 3,640,000 | 3,040,000 | ||
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Total liabilities | 7,600,000 | 5,920,000 | ||
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Stockholders' equity: | ||||
Common stock, $70 par value | 7,000,000 | 7,000,000 | ||
Retained earnings | 2,030,000 | 1,320,000 | ||
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Total stockholders' equity | 9,030,000 | 8,320,000 | ||
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Total liabilities and stockholders' equity | $ | 16,630,000 | $ | 14,240,000 |
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Lydex Company Comparative Income Statement and Reconciliation | ||||||||||||||||||||||||||||
This Year | Last Year | |||||||||||||||||||||||||||
Sales (all on account) | $ | 15,810,000 | $ | 13,080,000 | ||||||||||||||||||||||||
Cost of goods sold | 12,648,000 | 9,810,000 | ||||||||||||||||||||||||||
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Gross margin | 3,162,000 | 3,270,000 | ||||||||||||||||||||||||||
Selling and administrative expenses | 1,298,000 | 1,584,000 | ||||||||||||||||||||||||||
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Net operating income | 1,864,000 | 1,686,000 | ||||||||||||||||||||||||||
Interest expense | 364,000 | 304,000 | ||||||||||||||||||||||||||
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Net income before taxes | 1,500,000 | 1,382,000 | ||||||||||||||||||||||||||
Income taxes (30%) | 450,000 | 414,600 | ||||||||||||||||||||||||||
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Net income | 1,050,000 | 967,400 | ||||||||||||||||||||||||||
Common dividends | 340,000 | 483,700 | ||||||||||||||||||||||||||
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Net income retained | 710,000 | 483,700 | ||||||||||||||||||||||||||
Beginning retained earnings | 1,320,000 | 836,300 | ||||||||||||||||||||||||||
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Ending retained earnings | $ | 2,030,000 | $ | 1,320,000 | ||||||||||||||||||||||||
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