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 Current assets: Lydex Company Comparative Balance Sheet This Year Last Year $860,000 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 Retained earnings Total stockholders' equity Total liabilities and stockholders' equity Lydex Company 2,300,000 3,500,000 240,000 6,900,000 9,320,000 $ 16,220,000 $ 1,100,000 300,000 1,400,000 2,000,000 180,000 4,980,000 8,950,000 $ 13,930,000 $2,780,000 3,000,000 $ 3,910,000 3,600,000 7,510,000 5,780,000 7,500,000 1,210,000 8,710,000 $16,220,000 7,500,000 650,000 8,150,000 $ 13,930,000 Comparative Income Statement and Reconciliation This Year Sales (all on account) Cost of goods sold Gross margin Selling and administrative expenses $ 15,760,000 12,608,000 3,152,000 1,592,000 Last Year $ 12,580,000 9,435,000 3,145,000 1,564,000 total 11a011ities Stockholders' equity: Common stock, $75 par value Retained earnings Total stockholders' equity Total liabilities and stockholders' equity Lydex Company 7,510,000 5,780,00 7,500,000 1,210,000 8,710,000 $ 16,220,000 7,500,000 650,000 8,150,000 $ 13,930,000 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 $ 15,760,000 12,608,000 3,152,000 1,592,000 1,560,000 360,000 1,200,000 Last Year $ 12,580,000 9,435,000 3,145,000 1,564,000 1,581,000 300,000 1,281,000 Net income retained Beginning retained earnings Ending retained earnings 360,000 384, 300 840,000 896,700 280,000 448,350 560,000 448,350 650,000 201,650 $ 1,210,000 $650,000 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 2.3 1.0 Average collection period Average sale period 30 days 60 days Return on assets 8.2% Debt-to-equity ratio 0.7 Times interest earned ratio 5.8 Price-earnings ratio: 10 R Pray www A 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 $12.970,000.) e. The return on equity. (Stockholders' equity at the beginning of last year totaled $7,701,650. There has been no change in common stock over the last two years.) f. Is the company's financial leverage positive or negative? This Year Last Year a The times interest earned ratio 4 33 5.27 b The debt-to-equity ratio 0.86 0.71 c. The gross margin percentage 20.0% 25.0 % d. The return on total assets % e The return on equity % f Is the company's financial leverage positive or negative? Positive Positive