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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 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 | $ | 820,000 | $ | 1,060,000 |
Marketable securities | 0 | 300,000 | ||
Accounts receivable, net | 2,860,000 | 1,960,000 | ||
Inventory | 3,640,000 | 2,400,000 | ||
Prepaid expenses | 270,000 | 210,000 | ||
Total current assets | 7,590,000 | 5,930,000 | ||
Plant and equipment, net | 9,600,000 | 9,090,000 | ||
Total assets | $ | 17,190,000 | $ | 15,020,000 |
Liabilities and Stockholders' Equity | ||||
Liabilities: | ||||
Current liabilities | $ | 4,050,000 | $ | 3,060,000 |
Note payable, 10% | 3,700,000 | 3,100,000 | ||
Total liabilities | 7,750,000 | 6,160,000 | ||
Stockholders' equity: | ||||
Common stock, $75 par value | 7,500,000 | 7,500,000 | ||
Retained earnings | 1,940,000 | 1,360,000 | ||
Total stockholders' equity | 9,440,000 | 8,860,000 | ||
Total liabilities and stockholders' equity | $ | 17,190,000 | $ | 15,020,000 |
Lydex Company Comparative Income Statement and Reconciliation | ||||
This Year | Last Year | |||
Sales (all on account) | $ | 15,900,000 | $ | 13,980,000 |
Cost of goods sold | 12,720,000 | 10,485,000 | ||
Gross margin | 3,180,000 | 3,495,000 | ||
Selling and administrative expenses | 1,410,000 | 1,620,000 | ||
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Net operating income | 1,770,000 | 1,875,000 | ||
Interest expense | 370,000 | 310,000 | ||
Net income before taxes | 1,400,000 | 1,565,000 | ||
Income taxes (30%) | 420,000 | 469,500 | ||
Net income | 980,000 | 1,095,500 | ||
Common dividends | 400,000 | 547,750 | ||
Net income retained | 580,000 | 547,750 | ||
Beginning retained earnings | 1,360,000 | 812,250 | ||
Ending retained earnings | $ | 1,940,000 | $ | 1,360,000 |
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 | 1.2 | |
Average collection period | 32 | days |
Average sale period | 60 | days |
Return on assets | 9.7 | % |
Debt-to-equity ratio | 0.65 | |
Times interest earned ratio | 5.7 | |
Price-earnings ratio | 10 | |
Present the balance sheet in common-size format. (Round your percentage answers to 1 decimal place i.e., 0.123 is considered as 12.3. Due to rounding, figures may not fully reconcile down a column.) Lydex Company Common-Size Balance Sheets This Year Last Year Assets Current assets Cash Marketable securities Accounts receivable, net Inventory Prepaid expenses 0.0 Total current assets Plant and equipment, net Total assets Liabilities and Stockholders' Equity Liabilities 0.0 0.01% 0.01% Current liabilities Note payable, 10% Total liabilities 0.0 0.0 Stockholders' equity: Common stock, $75 par value Retained earnings Total stockholders' equity Total liabilities and equity 0.0 0.01 % 0.0 0.01% Present the income statement in common-size format down through net income. (Round your percentage answers to 1 decimal place ie, 0.123 is considered as 12.3. Due to rounding, figures may not fully reconcile down a column.) 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
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