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 Lydex Company Comparative Balance Sheet This Year Last Year 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 $ 880,000 0 2,380,000 $ 1,120,000 300,000 1,480,000 2,200,000 3,520,000 240,000 7,020,000 9,360,000 $16,380,000 180,000 5,280,000 8,970,000 $14,250,000 $ 3,930,000 3,620,000 7,550,000 $ 2,820,000 3,020,000 5,840,000 7,500,000 7,500,000 1,330,000 910,000 8,830,000 8,410,000 $16,380,000 $14,250,000 Lydex Company 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 Net income retained Beginning retained earnings Ending retained earnings This Year $ 15,780,000 12,624,000 3,156,000 Last Year $ 12,780,000 9,585,000 3,195,000 1,794,000 1,572,000 1,362,000 1,623,000 362,000 302,000 1,000,000 1,321,000 300,000 396,300 700,000 924,700 280,000 462,350 420,000 462,350 910,000 447,650 $ 1,330,000 $ 910,000 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 Average collection period Average sale period Return on assets 2.3 1.0 30 days 60 days 8.4 % Debt-to-equity ratio 0.7 Times interest earned ratio 5.7 Price-earnings ratio 10 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 $12,990,000.) e. The return on equity. (Stockholders' equity at the beginning of last year totaled $7,947,650. There has been no change in common stock over the last two years.) f. Is the company's financial leverage positive or negative? a. The times interest earned ratio b. The debt-to-equity ratio c. The gross margin percentage d. The return on total assets e. The return on equity f. Is the company's financial leverage positive or negative? This Year 3.33 Last Year 3.33 0.86 0.69 20.0 % 25.0 % % % % % 2. You decide next to assess the company's stock market performance. Assume that Lydex's stock price at the end of this year is $78 per share and that at the end of last year it was $46. 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. 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 This Year Last Year % % % % 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 $1,590,000.) (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 $1,950,000.) (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 $12,990,000.) (Round your final answers to 2 decimal places.) a. Working capital b. The current ratio c. The acid-test ratio This Year Last Year d. The average collection period days days e. The average sale period days days f. The operating cycle days days g. The total asset turnover