Answered step by step
Verified Expert Solution
Link Copied!

Question

1 Approved Answer

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

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 $ 950,000 $ 1,190,000
Marketable securities 0300,000
Accounts receivable, net 2,660,0001,760,000
Inventory 3,590,0002,400,000
Prepaid expenses 260,000200,000
Total current assets 7,460,0005,850,000
Plant and equipment, net 9,500,0009,040,000
Total assets $ 16,960,000 $ 14,890,000
Liabilities and Stockholders' Equity
Liabilities:
Current liabilities $ 4,000,000 $ 2,960,000
Note payable, 10%3,660,0003,060,000
Total liabilities 7,660,0006,020,000
Stockholders' equity:
Common stock, $70 par value 7,000,0007,000,000
Retained earnings 2,300,0001,870,000
Total stockholders' equity 9,300,0008,870,000
Total liabilities and stockholders' equity $ 16,960,000 $ 14,890,000
Lydex Company
Comparative Income Statement and Reconciliation
This Year Last Year
Sales (all on account) $ 15,850,000 $ 13,480,000
Cost of goods sold 12,680,00010,110,000
Gross margin 3,170,0003,370,000
Selling and administrative expenses 1,704,0001,600,000
Net operating income 1,466,0001,770,000
Interest expense 366,000306,000
Net income before taxes 1,100,0001,464,000
Income taxes (30%)330,000439,200
Net income 770,0001,024,800
Common dividends 340,000512,400
Net income retained 430,000512,400
Beginning retained earnings 1,870,0001,357,600
Ending retained earnings $ 2,300,000 $ 1,870,000
To begin your assignment you gather the following financial data and ratios that are typical of companies in Lydex Companys industry:
Current ratio 2.4
Acid-test ratio 1.1
Average collection period 40 days
Average sale period 60 days
Return on assets 9.2%
Debt-to-equity ratio 0.7
Times interest earned ratio 5.8
Price-earnings ratio 10
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 $1,660,000.)(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 $2,020,000.)(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 $13,060,000.)(Round your final answers to 2 decimal places.)

Step by Step Solution

There are 3 Steps involved in it

Step: 1

blur-text-image

Get Instant Access to Expert-Tailored Solutions

See step-by-step solutions with expert insights and AI powered tools for academic success

Step: 2

blur-text-image

Step: 3

blur-text-image

Ace Your Homework with AI

Get the answers you need in no time with our AI-driven, step-by-step assistance

Get Started

Recommended Textbook for

Political Standards

Authors: Karthik Ramanna

1st Edition

022652809X, 9780226528090

More Books

Students also viewed these Accounting questions