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:

Lydex Company

Comparative Balance Sheet

This Year Last Year

Assets

Current assets:

Cash $ $960,000$ $ $1,260,000$

Marketable securities $0300,000$

Accounts receivable, net $2,700,0001,800,000$

Inventory $3,900,0002,400,000$

Prepaid expenses $240,000180,000$

Total current assets $7,800,0005,940,000$

Plant and equipment, net $9,300,0008,940,000$

Total assets $ $17,100,000$ $ $14,880,000$

Liabilities and Stockholders' Equity

Liabilities:

Current liabilities $ $3,900,000$ $ $2,760,000$

Note payable, $10\%3,600,0003,000,000$

Total liabilities $7,500,0005,760,000$

Stockholders' equity:

Common stock, $$78$ par value $7,800,0007,800,000$

Retained earnings $1,800,0001,320,000$

Total stockholders' equity $9,600,0009,120,000$

Total liabilities and stockholders' equity $ $17,100,000$ $ $14,880,000$

Lydex Company

Comparative Income Statement and Reconciliation

This Year Last Year

Sales $($all on account$)$ $ $15,750,000$ $ $12,480,000$

Cost of goods sold $12,600,0009,900,000$

Gross margin $3,150,0002,580,000$

Selling and administrative expenses $1,590,0001,560,000$

Net operating income $1,560,0001,020,000$

Interest expense $360,000300,000$

Net income before taxes $1,200,000720,000$

Income taxes $(30\%)360,000216,000$

Net income $840,000504,000$

Common dividends $360,000252,000$

Net income retained $480,000252,000$

Beginning retained earnings $1,320,0001,068,000$

Ending retained earnings $ $1,800,000$ $ $1,320,000$

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

Current ratio $2\mathrm{.}3$

Acid$-$test ratio $1\mathrm{.}2$

Average collection period $30$ days

Average sale period $60$ days

Return on assets $9\mathrm{.}5\%$

Debt$-$to$-$equity ratio $0\mathrm{.}65$

Times interest earned ratio $5\mathrm{.}7$

Price$-$earnings ratio $10$

Problem $14-15$ Part $3($Static$)$

$3.$ You decide, finally, to assess the company$$s 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 $$1,560,000.)($Use $365$ days in a year. Round your intermediate calculations and final answers to $1$ decimal place.$)$

e$.$ The average sale period. $($The inventory at the beginning of last year totaled $$1,920,000.)($Use $365$ days in a year. Round your intermediate calculations and final answers to $1$ decimal place.$)$

f$.$ The operating cycle. $($Round your intermediate calculations and final answers to $1$ decimal place.$)$

g$.$ The total asset turnover. $($The total assets at the beginning of last year totaled $$12,960,000.)($Round your final answers to $2$ decimal places.$)$