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 |
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| This Year |
| Last Year |
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Assets |
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Current assets: |
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Cash | $ | 950,000 | $ | 1,200,000 |
Marketable securities |
| 0 |
| 300,000 |
Accounts receivable, net |
| 2,660,000 |
| 1,760,000 |
Inventory |
| 3,590,000 |
| 2,400,000 |
Prepaid expenses |
| 260,000 |
| 200,000 |
Total current assets |
| 7,460,000 |
| 5,860,000 |
Plant and equipment, net |
| 9,500,000 |
| 9,040,000 |
Total assets | $ | 16,960,000 | $ | 14,900,000 |
Liabilities and Stockholders' Equity |
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Liabilities: |
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Current liabilities | $ | 3,990,000 | $ | 2,960,000 |
Note payable, 10% |
| 3,660,000 |
| 3,060,000 |
Total liabilities |
| 7,650,000 |
| 6,020,000 |
Stockholders' equity: |
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Common stock, $70 par value |
| 7,000,000 |
| 7,000,000 |
Retained earnings |
| 2,310,000 |
| 1,880,000 |
Total stockholders' equity |
| 9,310,000 |
| 8,880,000 |
Total liabilities and stockholders' equity | $ | 16,960,000 | $ | 14,900,000 |
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Lydex Company Comparative Income Statement and Reconciliation |
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| This Year |
| Last Year |
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Sales (all on account) | $ | 15,850,000 | $ | 13,480,000 |
Cost of goods sold |
| 12,680,000 |
| 10,110,000 |
Gross margin |
| 3,170,000 |
| 3,370,000 |
Selling and administrative expenses |
| 1,704,000 |
| 1,600,000 |
Net operating income |
| 1,466,000 |
| 1,770,000 |
Interest expense |
| 366,000 |
| 306,000 |
Net income before taxes |
| 1,100,000 |
| 1,464,000 |
Income taxes (30%) |
| 330,000 |
| 439,200 |
Net income |
| 770,000 |
| 1,024,800 |
Common dividends |
| 340,000 |
| 512,400 |
Net income retained |
| 430,000 |
| 512,400 |
Beginning retained earnings |
| 1,880,000 |
| 1,367,600 |
Ending retained earnings | $ | 2,310,000 | $ | 1,880,000 |
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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 | 2.4 |
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Acid-test ratio | 1.2 |
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Average collection period | 40 | days |
Average sale period | 60 | days |
Return on assets | 9.2 | % |
Debt-to-equity ratio | 0.65 |
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Times interest earned ratio | 5.8 |
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Price-earnings ratio | 10 |
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Required:
1. Present the balance sheet in common-size format.
2. Present the income statement in common-size format down through net income.
Complete this question by entering your answers in the tabs below. Required 1 Required 2 Present the balance sheet in common-size format. (Round your answers to 1 decimal place. Due to rounding, figures may not fully reconcile down a column.) Last Year % % Lydex Company Common-Size Balance Sheets This Year Assets Current assets: Cash Marketable securities Accounts receivable, net Inventory Prepaid expenses Total current assets Plant and equipment, net Total assets Liabilities and Stockholders' Equity Liabilities: Current liabilities Note payable, 10% Total liabilities Stockholders' equity: Common stock, $70 par value Retained earnings Total stockholders' equity Total liabilities and equity % % % % % % Complete this question by entering your answers in the tabs below. Required 1 Required 2 Present the income statement in common-size format down through net income. (Round your answers to 1 decimal place. Due to rounding, figures may not fully reconcile down a column.) Last Year % Lydex Company Common-Size Income Statements This Year Sales % Cost of goods sold Gross margin Selling and administrative expenses Net operating income Interest expense Net income before taxes Income taxes (30%) Net income % %Step by Step Solution
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