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 $ 930,000 $ 1,170,000 Marketable securities 0 300,000 Accounts receivable, net 2,580,000 1,680,000 Inventory 3,570,000 2,200,000 Prepaid expenses 250,000 190,000 Total current assets 7,330,000 5,540,000 Plant and equipment, net 9,460,000 9,020,000 Total assets $ 16,790,000 $ 14,560,000 Liabilities and Stockholders' Equity Liabilities: Current liabilities $ 3,980,000 $ 2,920,000 Note payable, 10% 3,640,000 3,040,000 Total liabilities 7,620,000 5,960,000 Stockholders' equity: Common stock, $70 par value 7,000,000 7,000,000 Retained earnings 2,170,000 1,600,000 Total stockholders' equity 9,170,000 8,600,000 Total liabilities and stockholders' equity $ 16,790,000 $ 14,560,000 Lydex Company Comparative Income Statement and Reconciliation This Year Last Year Sales (all on account) $ 15,830,000 $ 13,280,000 Cost of goods sold 12,664,000 9,960,000 Gross margin 3,166,000 3,320,000 Selling and administrative expenses 1,402,000 1,592,000 Net operating income 1,764,000 1,728,000 Interest expense 364,000 304,000 Net income before taxes 1,400,000 1,424,000 Income taxes (30%) 420,000 427,200 Net income 980,000 996,800 Common dividends 410,000 498,400 Net income retained 570,000 498,400 Beginning retained earnings 1,600,000 1,101,600 Ending retained earnings $ 2,170,000 $ 1,600,000 To begin your assigment you gather the following financial data and ratios that are typical of companies in Lydex Company’s industry: Current ratio 2.3 Acid-test ratio 1.1 Average collection period 40 days Average sale period 60 days Return on assets 8.9 % Debt-to-equity ratio .68 Times interest earned ratio 5.9 Price-earnings ratio 10 rev: 09_22_2016_QC_CS-61528, 08_02_2017_QC_CS-78100 References Section BreakProblem 13-15A Comprehensive Ratio Analysis [LO13-2, LO13-3, LO13-4, LO13-5, LO13-6] 1.value: 5.00 pointsRequired information 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 intermediate calculations and final percentage answers to 1 decimal place. i.e., 0.123 should be considered as 12.3%. Round the rest of the intermediate calculations and final 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 $13,040,000.) e. The return on equity. (Stockholders’ equity at the beginning of last year totaled $8,101,600. There has been no change in common stock over the last two years.) f. Is the company’s financial leverage positive or negative? ReferenceseBook & Resources WorksheetLearning Objective: 13-02 Compute and interpret financial ratios that managers use to assess liquidity.Learning Objective: 13-05 Compute and interpret financial ratios that managers use to assess profitability. Part 1Learning Objective: 13-03 Compute and interpret financial ratios that managers use for asset management purposes.Learning Objective: 13-06 Compute and interpret financial ratios that managers use to assess market performance. Difficulty: 1 EasyLearning Objective: 13-04 Compute and interpret financial ratios that managers use for debt management purposes. Check my work 2.value: 5.00 pointsRequired information Part 2 2. You decide next to assess the company’s stock market performance. Assume that Lydex’s stock price at the end of this year is $88 per share and that at the end of last year it was $56. For both this year and last year, compute: (Round your intermediate calculations and final answers to 2 decimal places. For percentages 0.1234 should be considered as 12.34%.) a. The earnings per share. b. The dividend yield ratio. c. The dividend payout ratio. d. The price-earnings ratio. e. The book value per share of common stock.
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|This Year||Last Year|
|1. Times Interest Earned||Earning before income tax and interest/Interest Expense||1764000/364000||4.85||1728000/304000||5.68|
|2. Debt to Equity Ratio||Total Debt/Total Equity||7620000/9170000||83.10%||5960000/8600000||69.3%|
|3. Gross Margin Percentage||Gross Margin/Sales||3166000/15830000||20.0%||3320000/13280000||25%|
|4. Return on total asset||EBIT/Average Asset||1764000/((16790000+14560000)/2)||11.25%||1728000/((14560000+13040000)/2)||12.5%|
|5. Return on Stockholder Equity||Net Income/Average Shareholder Equity||980000/((9170000+8600000)/2)||11.0%||996800/((8600000+8101600)/2)||11.9%|
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