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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 $ 960,000 $ 1,260,000
Marketable securities 0 300,000
Accounts receivable, net 2,700,000 1,800,000
Inventory 3,900,000 2,400,000
Prepaid expenses 240,000 180,000

Total current assets 7,800,000 5,940,000
Plant and equipment, net 9,300,000 8,940,000

Total assets $ 17,100,000 $ 14,880,000

Liabilities and Stockholders' Equity
Liabilities:
Current liabilities $ 3,900,000 $ 2,760,000
Note payable, 10% 3,600,000 3,000,000

Total liabilities 7,500,000 5,760,000

Stockholders' equity:
Common stock, $78 par value 7,800,000 7,800,000
Retained earnings 1,800,000 1,320,000

Total stockholders' equity 9,600,000 9,120,000

Total liabilities and stockholders' equity $ 17,100,000 $ 14,880,000

Lydex Company Comparative Income Statement and Reconciliation
This Year Last Year
Sales (all on account) $ 15,750,000 $ 12,480,000
Cost of goods sold 12,600,000 9,900,000

Gross margin 3,150,000 2,580,000
Selling and administrative expenses 1,590,000 1,560,000

Net operating income 1,560,000 1,020,000
Interest expense 360,000 300,000

Net income before taxes 1,200,000 720,000
Income taxes (30%) 360,000 216,000

Net income 840,000 504,000
Common dividends 360,000 252,000

Net income retained 480,000 252,000
Beginning retained earnings 1,320,000 1,068,000

Ending retained earnings $ 1,800,000 $ 1,320,000

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 30 days
Average sale period 60 days
Return on assets 9.5 %
Debt-to-equity ratio 0.65
Times interest earned ratio 5.7
Price-earnings ratio 10

3.

You decide, finally, to assess the companys liquidity and asset management. For both this year and last year, compute: (Use 365 days in a year. Round "days" intermediate calculations and final answers to 1 decimal place. Round all other intermediate calculations and final answers to 2 decimal places.)

a. Working capital.
b. The current ratio.
c. The acid-test ratio.
d. The average collection period. (The accounts receivable at the beginning of last year totaled $1,560,000.)
e. The average sale period. (The inventory at the beginning of last year totaled $1,920,000.)
f. The operating cycle.
g. The total asset turnover. (The total assets at the beginning of last year totaled $12,960,000.)

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