|
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 |
$ |
820,000 |
$ |
1,250,000 |
| 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 |
|
|
|
|
|
| Total current assets |
|
6,860,000 |
|
5,130,000 |
| Plant and equipment, net |
|
9,320,000 |
|
8,950,000 |
|
|
|
|
|
| Total assets |
$ |
16,180,000 |
$ |
14,080,000 |
|
|
|
|
|
| Liabilities and Stockholders' Equity |
|
|
|
|
| Liabilities: |
|
|
|
|
| Current liabilities |
$ |
3,910,000 |
$ |
2,780,000 |
| Note payable, 10% |
|
3,600,000 |
|
3,000,000 |
|
|
|
|
|
| Total liabilities |
|
7,510,000 |
|
5,780,000 |
|
|
|
|
|
| Stockholders' equity: |
|
|
|
|
| Common stock, $75 par
value |
|
7,500,000 |
|
7,500,000 |
| Retained earnings |
|
1,170,000 |
|
800,000 |
|
|
|
|
|
| Total stockholders' equity |
|
8,670,000 |
|
8,300,000 |
|
|
|
|
|
| Total liabilities and stockholders' equity |
$ |
16,180,000 |
$ |
14,080,000 |
|
|
|
|
|
|
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 |
|
|
|
|
|
| Gross margin |
|
3,152,000 |
|
3,145,000 |
| Selling and administrative expenses |
|
1,863,429 |
|
1,564,000 |
|
|
|
|
|
| Net operating income |
|
1,288,571 |
|
1,581,000 |
| Interest expense |
|
360,000 |
|
300,000 |
|
|
|
|
|
| Net income before taxes |
|
928,571 |
|
1,281,000 |
| Income taxes (30%) |
|
278,571 |
|
384,300 |
|
|
|
|
|
| Net income |
|
650,000 |
|
896,700 |
| Common dividends |
|
280,000 |
|
448,350 |
|
|
|
|
|
| Net income retained |
|
370,000 |
|
448,350 |
| Beginning retained earnings |
|
800,000 |
|
351,650 |
|
|
|
|
|
| Ending retained earnings |
$ |
1,170,000 |
$ |
800,000 |
|
|
|
|
|
|
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 |
30 |
days |
| Average sale period |
60 |
days |
| Return on assets |
8.2 |
% |
| Debt-to-equity ratio |
0.66 |
|
| Times interest earned ratio |
5.8 |
|
| 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.)
Lydex CompanyCommon-Size Balance SheetsThis YearLast
YearAssetsCurrent assets:Cash%%Marketable securitiesAccounts
receivable, netInventoryPrepaid expensesTotal current
assets0.00.0Plant and equipment, netTotal assets0.0%0.0%Liabilities
and Stockholders' EquityLiabilities:Current liabilities%%Note
payable, 10%Total liabilities0.00.0Stockholders’ equity:Common
stock, $75 par valueRetained earningsTotal stockholders’
equity0.00.0Total liabilities and equity0.0%0.0%
|
|
| 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.)
|
Lydex CompanyCommon-Size Income StatementsThis YearLast
YearSales%%Cost of goods soldGross marginSelling and administrative
expensesNet operating incomeInterest expenseNet income before
taxesIncome taxes (30%)Net income%%