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 $ 980,000 2,780,000 3,620,000 260,000 7,640,000 9,560,000 $ 17,200,000 $ 1,220,000 300,000 1,880,000 2,200,000 200,000 5,800,000 9,070,000 $ 14,870,000 Assets Current assets: 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 $ 4,030,000 3,680,000 7,710,000 $ 3,020,000 3,080,000 6,100,000 7,500,000 1,990,000 9,490,000 $ 17,200,000 7,500,000 1,270,000 8,770,000 $ 14,870,000 Lydex Company Comparative Income Statement and Reconciliation This Year Sales (all on account) $ 15,880,000 Cost of goods sold 12,704,000 Gross margin 3,176,000 Selling and administrative expenses 1,208,000 Net operating income 1,968,000 Interest expense 368,000 Net income before taxes 1,600,000 Income taxes (30%) 480,000 Net income 1,120,000 Common dividends 400,000 Net income retained 720,000 Beginning retained earnings 1,270,000 Ending retained earnings $ 1,990,000 Last Year $ 13,780,000 10,335,000 3,445,000 1,612,000 1,833,000 308,000 1,525,000 457,500 +37250 1,067,500 533,750 533,750 736,250 $ 1,270,000 To begin your assignment you gather the following financial data and ratios that are typical of companies in Lydex Company's industry: 2.4 1.1 32 days 60 days Current ratio Acid-test ratio Average collection period Average sale period Return on assets Debt-to-equity ratio Times interest earned ratio Price-earnings ratio 9.5% 0.7 5.8 10 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 $13,090,000.) e. The return on equity. (Stockholders' equity at the beginning of last year totaled $8,236,250. 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 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? % % % %