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
Total current assets		7,580,000		5,650,000
Plant and equipment, net		9,540,000		9,060,000
Total assets	$	17,120,000	$	14,710,000
Liabilities and Stockholders' Equity
Liabilities:
Current liabilities	$	4,020,000	$	3,000,000
Note payable, 10%		3,680,000		3,080,000
Total liabilities		7,700,000		6,080,000
Stockholders' equity:
Common stock, $70 par value		7,000,000		7,000,000
Retained earnings		2,420,000		1,630,000
Total stockholders' equity		9,420,000		8,630,000
Total liabilities and stockholders' equity	$	17,120,000	$	14,710,000

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
Gross margin		3,174,000		3,420,000
Selling and administrative expenses		1,106,000		1,608,000
Net operating income		2,068,000		1,812,000
Interest expense		368,000		308,000
Net income before taxes		1,700,000		1,504,000
Income taxes (30%)		510,000		451,200
Net income		1,190,000		1,052,800
Common dividends		400,000		526,400
Net income retained		790,000		526,400
Beginning retained earnings		1,630,000		1,103,600
Ending retained earnings	$	2,420,000	$	1,630,000

To begin your assignment you gather the following financial data and ratios that are typical of companies in Lydex Companys industry:

Current ratio

2.4

Acid-test ratio

1.2

Average collection period

40

days

Average sale period

60

days

Return on assets

9.4

%

Debt-to-equity ratio

0.67

Times interest earned ratio

5.7

Price-earnings ratio

10

Lydex Company
Common-Size Income Statements
	This Year		Last 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		%		%