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 $ $940,000$ $ $1,180,000$

Marketable securities $0300,000$

Accounts receivable, net $2,620,0001,720,000$

Inventory $3,580,0002,300,000$

Prepaid expenses $250,000190,000$

Total current assets $7,390,0005,690,000$

Plant and equipment, net $9,480,0009,030,000$

Total assets $ $16,870,000$ $ $14,720,000$

Liabilities and Stockholders' Equity

Liabilities:

Current liabilities $ $3,990,000$ $ $2,940,000$

Note payable, $10\%3,660,0003,060,000$

Total liabilities $7,650,0006,000,000$

Stockholders' equity:

Common stock, $$75$ par value $7,500,0007,500,000$

Retained earnings $1,720,0001,220,000$

Total stockholders' equity $9,220,0008,720,000$

Total liabilities and stockholders' equity $ $16,870,000$ $ $14,720,000$

Lydex Company

Comparative Income Statement and Reconciliation

This Year Last Year

Sales $($all on account$)$ $ $15,840,000$ $ $13,380,000$

Cost of goods sold $12,672,00010,035,000$

Gross margin $3,168,0003,345,000$

Selling and administrative expenses $1,602,0001,596,000$

Net operating income $1,566,0001,749,000$

Interest expense $366,000306,000$

Net income before taxes $1,200,0001,443,000$

Income taxes $(30\%)360,000432,900$

Net income $840,0001,010,100$

Common dividends $340,000505,050$

Net income retained $500,000505,050$

Beginning retained earnings $1,220,000714,950$

Ending retained earnings $ $1,720,000$ $ $1,220,000$

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 $9\mathrm{.}1\%$

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

Times interest earned ratio $5\mathrm{.}7$

Price$-$earnings ratio $10$

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 $$13,050,000.)$

e$.$ The return on equity. $($Stockholders$$ equity at the beginning of last year totaled $$8,214,950.$ There has been no change in common stock over the last two years.$)$

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$$s stock price at the end of this year is $$90$ per share and that at the end of last year it was $$58.$ 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. $3.$ 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 $$1,650,000.)($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 $$2,010,000.)($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 $$13,050,000.)($Round your final answers to $2$ decimal places.$)$