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 Balance Sheet

This Year

Last Year

Assets

Current assets:

Cash

$

880,000

$

1,120,000

Marketable securities

0

300,000

Accounts receivable, net

2,380,000

1,480,000

Inventory

3,520,000

2,200,000

Prepaid expenses

240,000

180,000

Total current assets

7,020,000

5,280,000

Plant and equipment, net

9,360,000

8,970,000

Total assets

$

16,380,000

$

14,250,000

Liabilities and Stockholders' Equity

Liabilities:

Current liabilities

$

3,930,000

$

2,820,000

Note payable, 10%

3,620,000

3,020,000

Total liabilities

7,550,000

5,840,000

Stockholders' equity:

Common stock, $75 par value

7,500,000

7,500,000

Retained earnings

1,330,000

910,000

Total stockholders' equity

8,830,000

8,410,000

Total liabilities and stockholders' equity

$

16,380,000

$

14,250,000

Lydex Company Comparative Income Statement and Reconciliation
	This Year		Last Year
Sales (all on account)	$	15,780,000	$	12,780,000
Cost of goods sold		12,624,000		9,585,000
Gross margin		3,156,000		3,195,000
Selling and administrative expenses		1,794,000		1,572,000
Net operating income		1,362,000		1,623,000
Interest expense		362,000		302,000
Net income before taxes		1,000,000		1,321,000
Income taxes (30%)		300,000		396,300
Net income		700,000		924,700
Common dividends		280,000		462,350
Net income retained		420,000		462,350
Beginning retained earnings		910,000		447,650
Ending retained earnings	$	1,330,000	$	910,000

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 $12,990,000.)
e.	The return on equity. (Stockholders equity at the beginning of last year totaled $7,947,650. There has been no change in common stock over the last two years.)
f.	Is the companys financial leverage positive or negative?