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:

Comparative Balance Sheet

	This Year	Last Year
Assets
Current assets:
Cash	1,050,000	1,290,000
Marketable securities	0	300,000
Accounts receivable, net	3,060,000	2,160,000
Inventory	3,400,000	2,400,000
Prepaid expenses	240,000	220,000
Total current assets	7,750,000	6,370,000
Plant and equipment, net	9,700,000	9,140,000
Total assets	17,450,000	15,510,000
Liabilities and Stockholders' Equity
Liabilities:
Current liabiliites	4,400,000	3,160,000
Note payable, 10%	3,720,000	3,120,000
Total liabilities	8,120,000	6,280,000
Stockhodlers' equity:
Common stock, $70 par value	7,000,000	7,000,000
Retained earnings	2,330,000	2,230,000
Total stockholders' equity	9,330,000	9,230,000
Total liabilities and stockholders' equity	17,450,000	15,510,000

Comparative Income Statement and Reconciliation

	This year	Last year
Sales (all on account)	15,950,000	14,480,000
Cost of goods sold	12,760,000	10,860,000
gross margin	3,190,000	3,620,000
selling and administrative expenses	1,918,000	1,640,000
net operating income	1,272,000	1,980,000
interest expense	372,000	312,000
net income before taxes	900,000	1,668,000
income taxes (30%)	270,000	500,400
net income	630,000	1,167,600
common dividends	530,000	583,800
net income retained	100,000	583,800
beginnning retained earnings	2,230,000	1,646,200
ending retained earnings	2,330,000	2,230,000

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
adid-test ratio	1.2
average collection period	32 days
average sale period	60 days
return on assets	8.7%
debt-to-equity ratio	.65
times interest earned ratio	5.9
price-earnings ratio	10

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 $13,160,000.)

e.

The return on equity. (Stockholders equity at the beginning of last year totaled $8,646,200. There has been no change in common stock over the last two years.)

f.

Is the companys financial leverage positive or negative?

	This year	Last year
a	3.42	6.35
b	0.87	0.68
c	20.0%	25.0%
d	%	%
e	%	%
f	positive	positive

2.

You decide next to assess the companys stock market performance. Assume that Lydexs stock price at the end of this year is $112 per share and that at the end of last year it was $80. For both this year and last year, compute: (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 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
b	%	%
c	%	%
d
e

3.

You decide, finally, to assess the companys liquidity and asset management. For both this year and last year, compute: (Use 365 days in a year. Round "days" intermediate calculations and final answers to 1 decimal place. Round all other intermediate calculations and final answers to 2 decimal places.)

a.

Working capital.

b.

The current ratio.

c.

The acid-test ratio.

d.

The average collection period. (The accounts receivable at the beginning of last year totaled $1,760,000.)

e.

The average sale period. (The inventory at the beginning of last year totaled $2,120,000.)

f.

The operating cycle.

g.

The total asset turnover. (The total assets at the beginning of last year totaled $14,700,000.)

	This year	Last year
a
b
c
d	days	days
e	days	days
f	days	days
g