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 | $ | 860,000 | $ | 1,100,000 |
Marketable securities | 0 | 300,000 | ||
Accounts receivable, net | 2,300,000 | 1,400,000 | ||
Inventory | 3,500,000 | 2,000,000 | ||
Prepaid expenses | 240,000 | 180,000 | ||
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Total current assets | 6,900,000 | 4,980,000 | ||
Plant and equipment, net | 9,320,000 | 8,950,000 | ||
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Total assets | $ | 16,220,000 | $ | 13,930,000 |
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Liabilities and Stockholders' Equity | ||||
Liabilities: | ||||
Current liabilities | $ | 3,910,000 | $ | 2,780,000 |
Note payable, 10% | 3,600,000 | 3,000,000 | ||
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Total liabilities | 7,510,000 | 5,780,000 | ||
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Stockholders' equity: | ||||
Common stock, $75 par value | 7,500,000 | 7,500,000 | ||
Retained earnings | 1,210,000 | 650,000 | ||
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Total stockholders' equity | 8,710,000 | 8,150,000 | ||
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Total liabilities and stockholders' equity | $ | 16,220,000 | $ | 13,930,000 |
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Lydex Company Comparative Income Statement and Reconciliation | ||||
This Year | Last Year | |||
Sales (all on account) | $ | 15,760,000 | $ | 12,580,000 |
Cost of goods sold | 12,608,000 | 9,435,000 | ||
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Gross margin | 3,152,000 | 3,145,000 | ||
Selling and administrative expenses | 1,592,000 | 1,564,000 | ||
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Net operating income | 1,560,000 | 1,581,000 | ||
Interest expense | 360,000 | 300,000 | ||
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Net income before taxes | 1,200,000 | 1,281,000 | ||
Income taxes (30%) | 360,000 | 384,300 | ||
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Net income | 840,000 | 896,700 | ||
Common dividends | 280,000 | 448,350 | ||
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Net income retained | 560,000 | 448,350 | ||
Beginning retained earnings | 650,000 | 201,650 | ||
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Ending retained earnings | $ | 1,210,000 | $ | 650,000 |
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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 | 2.3 | ||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||
Acid-test ratio | 1.0 | ||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||
Average collection period | 30 | days | |||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||
Average sale period | 60 | days | |||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||
Return on assets | 8.2 | % | |||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||
Debt-to-equity ratio | .66 | ||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||
Times interest earned ratio | 5.8 | ||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||
Price-earnings ratio | 10 | ||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||
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