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 $ 1,020,000 $ 1,260,000

Marketable securities 0 300,000

Accounts receivable, net 2,940,000 2,040,000

Inventory 3,660,000 2,100,000

Prepaid expenses 270,000 210,000

Total current assets 7,890,000 5,910,000

Plant and equipment, net 9,640,000 9,110,000

Total assets $ 17,530,000 $ 15,020,000

Liabilities and Stockholders' Equity Liabilities:

Current liabilities $ 4,070,000 $ 3,100,000

Note payable, 10%. 3,700,000 3,100,000

Total liabilities 7,770,000 6,200,000

Stockholders' equity:

Common stock, $75 par value 7,500,000 7,500,000

Retained earnings 2,260,000 1,320,000

Total stockholders' equity 9,760,000 8,820,000

Total liabilities and stockholders' equity. $ 17,530,000 $ 15,020,000

Lydex Company

Comparative Income Statement and Reconciliation

This Year Last Year

Sales (all on account) $ 15,920,000 $ 14,180,000

Cost of goods sold 12,736,000 10,635,000

Gross margin 3,184,000 3,545,000

Selling and administrative expenses 1,014,000 1,628,000

Net operating income 2,170,000 1,917,000

Interest expense 370,000 310,000

Net income before taxes 1,800,000 1,607,000

Income taxes (30%) 540,000 482,100

Net income 1,260,000 1,124,900

Common dividends 320,000 562,450

Net income retained 940,000 562,450

Beginning retained earnings 1,320,000 757,550

Ending retained earnings $ 2,260,000 $ 1,320,000

To begin your assignment you gather the following financial data and ratios that are typical of companies in Lydex Companys industry:

Current ratio 2.3

Acid-test ratio 1.1

Average collection period 32 days

Average sale period 60 days

Return on assets 9.9%

Debt-to-equity ratio 0.7

Times interest earned ratio 5.9

Price-earnings ratio 10

Required:

1. You decide first to assess the companys 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 companys financial leverage positive or negative?

2. You decide next to assess the companys stock market performance. Assume that Lydexs stock price at the end of this year is $106 per share and that at the end of last year it was $74. For both this year and last year, compute: (Round your "Percentage" answers to 1 decimal place and other intermediate and final answers to 2 decimal places.) a. The earnings per share. b. The dividend yield ratio. c. The dividend payout ratio. d. The price-earnings ratio. e. The book value per share of common stock.

3. You decide, finally, to assess the companys liquidity and asset management. For both this year and last year, compute: a. Working capital.b. The current ratio. (Round your final answers to 2 decimal places.)c. The acid-test ratio. (Round your final answers to 2 decimal places.)d. The average collection period. (The accounts receivable at the beginning of last year totaled $1,730,000.) (Use 365 days in a year. Round your intermediate calculations and final answers to 2 decimal place.)e. The average sale period. (The inventory at the beginning of last year totaled $2,090,000.) (Use 365 days in a year. Round your intermediate calculations and final answers to 2 decimal place.)f. The operating cycle. (Round your intermediate calculations and final answers to 2 decimal place.)g. The total asset turnover. (The total assets at the beginning of last year totaled $13,130,000.) (Round your final answers to 2 decimal places.)