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 | ||||
Current assets: | ||||
Cash | $ | 970,000 | $ | 1,210,000 |
Marketable securities | 0 | 300,000 | ||
Accounts receivable, net | 2,740,000 | 1,840,000 | ||
Inventory | 3,610,000 | 2,100,000 | ||
Prepaid expenses | 260,000 | 200,000 | ||
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Total current assets | 7,580,000 | 5,650,000 | ||
Plant and equipment, net | 9,540,000 | 9,060,000 | ||
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Total assets | $ | 17,120,000 | $ | 14,710,000 |
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Liabilities and Stockholders' Equity | ||||
Liabilities: | ||||
Current liabilities | $ | 4,020,000 | $ | 3,000,000 |
Note payable, 10% | 3,680,000 | 3,080,000 | ||
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Total liabilities | 7,700,000 | 6,080,000 | ||
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Stockholders' equity: | ||||
Common stock, $70 par value | 7,000,000 | 7,000,000 | ||
Retained earnings | 2,420,000 | 1,630,000 | ||
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Total stockholders' equity | 9,420,000 | 8,630,000 | ||
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Total liabilities and stockholders' equity | $ | 17,120,000 | $ | 14,710,000 |
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Lydex Company Comparative Income Statement and Reconciliation | ||||
This Year | Last Year | |||
Sales (all on account) | $ | 15,870,000 | $ | 13,680,000 |
Cost of goods sold | 12,696,000 | 10,260,000 | ||
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Gross margin | 3,174,000 | 3,420,000 | ||
Selling and administrative expenses | 1,106,000 | 1,608,000 | ||
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Net operating income | 2,068,000 | 1,812,000 | ||
Interest expense | 368,000 | 308,000 | ||
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Net income before taxes | 1,700,000 | 1,504,000 | ||
Income taxes (30%) | 510,000 | 451,200 | ||
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Net income | 1,190,000 | 1,052,800 | ||
Common dividends | 400,000 | 526,400 | ||
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Net income retained | 790,000 | 526,400 | ||
Beginning retained earnings | 1,630,000 | 1,103,600 | ||
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Ending retained earnings | $ | 2,420,000 | $ | 1,630,000 |
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To begin your assigment you gather the following financial data and ratios that are typical of companies in Lydex Companys industry: |
Current ratio | 2.4 | |
Acid-test ratio | 1.1 | |
Average collection period | 40 | days |
Average sale period | 60 | days |
Return on assets | 9.4 | % |
Debt-to-equity ratio | .67 | |
Times interest earned ratio | 5.7 | |
Price-earnings ratio | 10 | |
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rev: 09_17_2014_QC_54324, 12_11_2014_QC_CS-386
Garrison 15e Recheck 2015-1-19
1.
value: 33.33 points
Required information
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 $13,080,000.) |
e. | The return on equity. (Stockholders equity at the beginning of last year totaled $8,103,600. There has been no change in common stock over the last two years.) |
f. | Is the companys financial leverage positive or negative? |
33.33 points 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 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 $13,080,000.) e. The return on equity. (Stockholders' equity at the beginning of last year totaled $8,103,600. There has been no change in common stock over the last two years.) f. Is the company's financial leverage positive or negative? This Year Last Year 5.62 0.82 20.0% 5.88 0.70 25.0 % a. C. e
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