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

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 Company$$s industry:

Current ratio $2\mathrm{.}4$

Acid$-$test ratio $1\mathrm{.}1$

Average collection period $40$ days

Average sale period $60$ days

Return on assets $9\mathrm{.}2\%$

Debt$-$to$-$equity ratio $0\mathrm{.}7$

Times interest earned ratio $5\mathrm{.}8$

Price$-$earnings ratio $10$

$1.$ To assess the company$$s performance in terms of debt management and profitability, compute the following for this year and 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. $($Total assets at the beginning of last year were $$13,060,000.)$

e$.$ The return on equity. $($Stockholders$$ equity at the beginning of last year totaled $$8,357,600.$ There has been no change in common stock over the last two years.$)$

f$.$ Is the company$$s financial leverage positive or negative?

$2.$ To assess the company$$s stock market performance, compute the following for this year and last year. Assume Lydex$$s stock price at the end of this year and last year was $$92$ and $$60,$ respectively.

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.