Question
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
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 |
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Current assets: |
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Cash | $ | 890,000 | $ | 1,130,000 |
Marketable securities |
| 0 |
| 300,000 |
Accounts receivable, net |
| 2,420,000 |
| 1,520,000 |
Inventory |
| 3,530,000 |
| 2,300,000 |
Prepaid expenses |
| 240,000 |
| 180,000 |
Total current assets |
| 7,080,000 |
| 5,430,000 |
Plant and equipment, net |
| 9,380,000 |
| 8,980,000 |
Total assets | $ | 16,460,000 | $ | 14,410,000 |
Liabilities and Stockholders' Equity |
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Liabilities: |
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Current liabilities | $ | 3,940,000 | $ | 2,840,000 |
Note payable, 10% |
| 3,620,000 |
| 3,020,000 |
Total liabilities |
| 7,560,000 |
| 5,860,000 |
Stockholders' equity: |
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|
|
|
Common stock, $70 par value |
| 7,000,000 |
| 7,000,000 |
Retained earnings |
| 1,900,000 |
| 1,550,000 |
Total stockholders' equity |
| 8,900,000 |
| 8,550,000 |
Total liabilities and stockholders' equity | $ | 16,460,000 | $ | 14,410,000 |
Lydex Company Comparative Income Statement and Reconciliation | ||||
| This Year | Last Year | ||
Sales (all on account) | $ | 15,790,000 | $ | 12,880,000 |
Cost of goods sold |
| 12,632,000 |
| 9,660,000 |
Gross margin |
| 3,158,000 |
| 3,220,000 |
Selling and administrative expenses |
| 1,796,000 |
| 1,576,000 |
Net operating income |
| 1,362,000 |
| 1,644,000 |
Interest expense |
| 362,000 |
| 302,000 |
Net income before taxes |
| 1,000,000 |
| 1,342,000 |
Income taxes (30%) |
| 300,000 |
| 402,600 |
Net income |
| 700,000 |
| 939,400 |
Common dividends |
| 350,000 |
| 469,700 |
Net income retained |
| 350,000 |
| 469,700 |
Beginning retained earnings |
| 1,550,000 |
| 1,080,300 |
Ending retained earnings | $ | 1,900,000 | $ | 1,550,000 |
To begin your assignment you gather the following financial data and ratios that are typical of companies in Lydex Companys industry:
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Current ratio | 2.3 |
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Acid-test ratio | 1.0 |
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Average collection period | 40 | days |
Average sale period | 60 | days |
Return on assets | 8.5 | % |
Debt-to-equity ratio | 0.7 |
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Times interest earned ratio | 5.8 |
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Price-earnings ratio | 10 |
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You decide next to assess the companys stock market performance. Assume that Lydexs stock price at the end of this year is $80 per share and that at the end of last year it was $48. 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.
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