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 company's financial statements, including comparing Lydex's performance to its major competitors. The company's financial statements for the last two years are as follows Lydex Company Comparative Balance Sheet This Year Last Year AssetS Current assets: Cash Marketable securities Accounts receivable, net Inventory Prepaid expenses $880,000 1,120,000 300,000 1,480,000 2,200,000 180,000 5,280,000 8,970,000 $16,380,000 $14,250,000 2,380,000 3,520,000 240,000 7,020,000 9,360,000 Total current assets Plant and equipment, net Total assets Liabilities and Stockholders' Equity Liabilities: current liabilities Note payable, 10% $3,930,000 2,820,000 3,020,000 5,840,000 3,620,000 7,550,000 Total liabilities Stockholders' equity: Common stock, $75 par value Retained earnings 7,500,000 1,330,000 8,830,000 7,500,000 910,000 Total stockholders' equity 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) Cost of goods sold Gross margin Selling and administrative expenses Net operating income Interest expense Net income before taxes Income taxes (30%) Net income Common dividends Net income retained Beginning retained earnings Ending retained earnings $ 15,780,000 12,780,000 9,585,000 3,195,000 1,572,000 1,623,000 302,000 1,321,000 396,300 924,700 462,350 462,350 447,650 $ 1,330,000 $910,000 12,624,000 3,156, 000 1,794,000 1,362,000 362,000 1,000,000 300,000 700,000 280,000 420,000 910,000 To begin your assignment you gather the following financial data and ratios that are typical of companies in Lydex Company's industry: To begin your assignment you gather the following financial data and ratios that are typical of companies in Lydex Company's industry: Current ratio Acid-test ratio Average collection period Average sale period Return on assets Debt-to-equity ratio Times interest earned ratio Price-earnings ratio 2.3 30 days 60 days 8.4 % 5.7 10 Problem 15-15 Part 1 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 "Percentage" answers to 1 decimal place and other 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 company's financial leverage positive or negative? This Year Last Year a. The times interest earned ratio b. The debt-to-equity ratio c. The gross margin percentage d. The return on total assets e. The return on equity f. Is the company's financial leverage positive or negative? 3.62 0.86 20.0% 5.37 0.69 25.01 % 11.91 % 11.31 % 8.91% 4.61%