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: Cash Marketable securities Accounts receivable, net Inventory Prepaid expenses Total current assets Plant and equipment, net Total assets Lydex Company Comparative Balance Sheet This Year Last Year $ 1,030,000 D Liabilities and Stockholders' Equity Liabilities: Current liabilities Note payable, 10% 2,980,000 3,670,000 270,000 7,950,000 9,660,000 $ 17,610,000 $ 1,270,000 300,000 2,080,000 2,200,000 210,000 6,060,000 9,120,000 $ 15,180,000 Total liabilities Stockholders' equity: Common stock, $70 par value Retained earnings Total stockholders' equity Total liabilities and stockholders' equity Lydex Company $ 4,080,000 3,720,000 7,800,000 7,000,000 2,810,000 9,810,000 $ 17,610,000 Comparative Income Statement and Reconciliation Sales (all on account) Cost of goods sold Gross margin This Year $ 15,930,000 12,744,000 3,186,000 1,114,000 $ 3,120,000 3,120,000 6,240,000 7,000,000 1,940,000 8,940,000 $ 15,180,000 Last Year $14,280,000 10,710,000 3,570,000 Selling and administrative expenses Net operating incone Interest expense Net income before taxes Income taxes (30%) Net income Common dividends Net income retained Beginning retained earnings Ending retained earnings 2,072,000 372,000 1,700,000 510,000 1,190,000 320,000 870,000 1,940,000 $ 2,810,000 1.632,000 1,938,000 312,000 1,626,000 487,800 1,138,200 569,100 569,100 1,370,900 $ 1,940,000 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 1.1 Average collection period 32 days Average sale period 60 days Return on assets 8.56 Debt-to-equity ratio 0.7 Times interest earned ratio 5.7 Price-earnings ratio 10