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 $ 1,020,000 0 2,940,000 3,660,000 270,000 7,890,000 9,640,000 $ 17,530,000 $ 1,260,000 300,000 2,040,000 2,100,000 210,000 5,910,000 9,110,000 $ 15,020,000 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 $ 4,070,000 3,700,000 7,770,000 $ 3,100,000 3,100,000 6,200,000 7,500,000 2,260,000 9,760,000 $ 17,530,000 7,500,000 1,320,000 8,820,000 $ 15,020,000 Lydex Company Comparative Income Statement and Reconciliation This Year Sales (all on account) $ 15,920,000 Cost of goods sold 12,736,000 Gross margin 3,184,000 Selling and administrative expenses 1,014,000 Net operating income 2,170,000 Interest expense 370,000 Net income before taxes 1,800,000 Income taxes (30%) 540,000 Net income 1,260,000 Common dividends 320,000 Net income retained 940,000 Beginning retained earnings 1,320,000 Ending retained earnings $ 2,260,000 Last Year $ 14, 180,000 10,635,000 3,545,000 1,628,000 1,917,000 310,000 1,607,000 482,100 1,124,900 562,450 562,450 757,550 $ 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 Acid-test ratio Average collection period Average sale period Return on assets Debt-to-equity ratio Times interest earned ratio Price-earnings ratio 2.3 1.1 32 days 60 days 9.9% 0.7 5.9 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 $13,130,000.) e. The return on equity. (Stockholders' equity at the beginning of last year totaled $8,257,550. 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? % % % 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 $106 per share and that at the end of last year it was $74. 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. This Year Last Year % % 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 % % 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 $1,730,000.) (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 $2,090,000.) (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 $13,130,000.) (Round your final answers to 2 decimal places.) This Year Last Year a. Working capital b. The current ratio c. The acid-test ratio d. The average collection period e. The average sale period f. The operating cycle 9. The total asset turnover days days days days days days