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 Income Statement and Reconciliation
	This Year		Last Year
Sales (all on account)	$	15,900,000	$	13,980,000
Cost of goods sold		12,720,000		10,485,000
Gross margin		3,180,000		3,495,000
Selling and administrative expenses		1,410,000		1,620,000
Net operating income		1,770,000		1,875,000
Interest expense		370,000		310,000
Net income before taxes		1,400,000		1,565,000
Income taxes (30%)		420,000		469,500
Net income		980,000		1,095,500
Common dividends		400,000		547,750
Net income retained		580,000		547,750
Beginning retained earnings		1,540,000		992,250
Ending retained earnings	$	2,120,000	$	1,540,000

To begin your assigment you gather the following financial data and ratios that are typical of companies in Lydex Companys industry:

Current ratio	2.3
Acid-test ratio	1.1
Average collection period	32	days
Average sale period	60	days
Return on assets	9.7	%
Debt-to-equity ratio	.65
Times interest earned ratio	5.7
Price-earnings ratio	10

Required information

Required:

1.

You decide first to assess the companys performance in terms of debt management and profitability. Compute the following for both this year and last year: (Round your intermediate calculations and final percentage answers to 1 decimal place. i.e., 0.123 should be considered as 12.3%. Round the rest of the intermediate calculations and final 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 $13,110,000.)
e.	The return on equity. (Stockholders equity at the beginning of last year totaled $8,492,250. There has been no change in common stock over the last two years.)
f.	Is the companys financial leverage positive or negative?