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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 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 Comparat ive Balance Sheet This Vear Last Year Assets Current assets $860, 000 $ Cash Marketable securities Account s rece ivab le, net Inventory Prepaid expenses 1,100, 000 300, 000 1,400, 000 2, 000, 000 180, 000 2, 300, 000 3, 500, 000 240, 000 6, 900, 000 9, 320, 000 $16,220, 000 Total current asset s Plant and equipment, net Total assets Liabilities and Stockholders Equity 8, 960, 000 13,930, 000 $ $ 3,910, 000 $ 3, 600, 000 7, 510, 000 2,780, 000 3, 000, 000 5, T80, 000 Current iabi Note payable, 10 Stockho lders' equity Common stock, $5 par val ue Ret ai ned earnings 7, 500, 000 1,210, 000 8, 710, 000 7, 500, 000 660, 000 8, 150, 000 13,930, 000 Total stockho lders' equity Total iabi lities and stockho lders equity $16,220, 000 $ Lydex Company Comparative Income St at ement and Reconc iliation This Year $ Last Year $ Sales (alI on account) Cost of goods sold Gross margin Sel ling and adm inistrat ive expenses Net operating income Interest expense Net income before taxes Income taxes (30%) Net income Common dividends Net income retained Beg inning retai ned earnings Ending retained earnings 15, T60, 000 12, 608, 000 3, 152, 000 1,592, 000 1, 560, 000 360, 000 1, 200, 000 860, 000 840, 000 280, 000 560, 000 650, 000 12, 580, 000 9, 435, 000 3, 145, 000 1,564, 000 1,581,000 300, 000 384, 300 896, T00 448, 360 448, 360 201, 860 660, 000 $1,210, 000 To begin your assignment you gather the following financial data and ratios that are typical of companies in Lydex Company's industry: Current rat io Acid-test rat io Average col lect ion period Average sale period Ret urn on assets Debt-to-equity ratio Times interest earned rat io Price-earnings ratio 3. You decide, finally, to assess the company's liquidity and asset management. For both this year and last year, compute a. Working capital b. The current ratio. (Round your final answers to 2 decimal places.) c. The acid-test ratio. (Round your final answers to 2 decimal places.) d. The average collection period. (The accounts receivable at the beginning of last year totaled $1,570,000.) (Use 365 days in a year. Round your intermediate calculations and final answer to 2 decimal place.) e. The average sale period. (The inventory at the beginning of last year totaled $1,930,000.) (Use 365 days in a year. Round your intermediate calculations and final answer to 2 decimal place.) f. The operating cycle. (Round your intermediate calculations and final answer to 2 decimal place.) g. The total asset turnover. (The total assets at the beginning of last year totaled $14,510,000.) (Round your final answers to 2 decimal places.) This Year Last Year a. Working capital b. The current ratio c. The acid-test ratio d. The average collection period e. The average sale period f. The operating cycle g. The total asset turnover 2,990,000 1.76 0.81 2,200,000 1.79 1.01 days days days days days days
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