|
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 |
1.2 |
|
| Average collection period |
40 |
days |
| Average sale period |
60 |
days |
| Return on assets |
8.9 |
% |
| Debt-to-equity ratio |
0.68 |
|
| Times interest earned ratio |
5.9 |
|
| Price-earnings ratio |
10 |
|
|
| Required: |
|
1. 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.)
| 2. |
Present the income statement in common-size format down through
net income. (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.)
|
|
|
|