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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 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 |
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This Year | Last Year | |||
Assets | ||||
Current assets: | ||||
Cash | $ | 970,000 | $ | 1,210,000 |
Marketable securities | 0 | 300,000 | ||
Accounts receivable, net | 2,740,000 | 1,840,000 | ||
Inventory | 3,610,000 | 2,100,000 | ||
Prepaid expenses | 260,000 | 200,000 | ||
Total current assets | 7,580,000 | 5,650,000 | ||
Plant and equipment, net | 9,540,000 | 9,060,000 | ||
Total assets | $ | 17,120,000 | $ | 14,710,000 |
Liabilities and Stockholders' Equity | ||||
Liabilities: | ||||
Current liabilities | $ | 4,020,000 | $ | 3,000,000 |
Note payable, 10% | 3,680,000 | 3,080,000 | ||
Total liabilities | 7,700,000 | 6,080,000 | ||
Stockholders' equity: | ||||
Common stock, $70 par value | 7,000,000 | 7,000,000 | ||
Retained earnings | 2,420,000 | 1,630,000 | ||
Total stockholders' equity | 9,420,000 | 8,630,000 | ||
Total liabilities and stockholders' equity | $ | 17,120,000 | $ | 14,710,000 |
Lydex Company Comparative Income Statement and Reconciliation |
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This Year | Last Year | |||
Sales (all on account) | $ | 15,870,000 | $ | 13,680,000 |
Cost of goods sold | 12,696,000 | 10,260,000 | ||
Gross margin | 3,174,000 | 3,420,000 | ||
Selling and administrative expenses | 1,106,000 | 1,608,000 | ||
Net operating income | 2,068,000 | 1,812,000 | ||
Interest expense | 368,000 | 308,000 | ||
Net income before taxes | 1,700,000 | 1,504,000 | ||
Income taxes (30%) | 510,000 | 451,200 | ||
Net income | 1,190,000 | 1,052,800 | ||
Common dividends | 400,000 | 526,400 | ||
Net income retained | 790,000 | 526,400 | ||
Beginning retained earnings | 1,630,000 | 1,103,600 | ||
Ending retained earnings | $ | 2,420,000 | $ | 1,630,000 |
To begin your assignment you gather the following financial data and ratios that are typical of companies in Lydex Company’s industry:
Current ratio | 2.4 | |
Acid-test ratio | 1.1 | |
Average collection period | 40 | days |
Average sale period | 60 | days |
Return on assets | 9.4 | % |
Debt-to-equity ratio | 0.7 | |
Times interest earned ratio | 5.7 | |
Price-earnings ratio | 10 | |
3. You decide, finally, to assess the company’s liquidity and asset management. For both this year and last year, compute:
a. Working capital.
b. The current ratio. (Round your final answers to 2 decimal places.)
c. The acid-test ratio. (Round your final answers to 2 decimal places.)
d. The average collection period. (The accounts receivable at the beginning of last year totaled $1,680,000.) (Use 365 days in a year. Round your intermediate calculations and final answers to 2 decimal place.)
e. The average sale period. (The inventory at the beginning of last year totaled $2,040,000.) (Use 365 days in a year. Round your intermediate calculations and final answers to 2 decimal place.)
f. The operating cycle. (Round your intermediate calculations and final answers to 2 decimal place.)
g. The total asset turnover. (The total assets at the beginning of last year totaled $14,620,000.) (Round your final answers to 2 decimal places.)
Current Year | Calculation | Last Year | Calculation | ||
a | Working capital(Current Assets - Current Liabilities) | $35,60,000 | $7,580,000 - $4,020,000 | 2650000 | $5,650,000 - $3,000,000 |
b | Current Ratio(Current Assets/Current liabilities) | 1.89 | $7,580,000 / $4,020,000 | 1.88 | $5,650,000 / $3,000,000 |
c | Acid-test Ratio[(Current Assets - Inventories - Prepaid expenses)/Current laibilities] | 0.92 | ($7,580,000-$3,610,000-$260,000)/$4,020,000 | 1.12 | ($5,650,000-$2,100,000-$200,000)/$3,000,000 |
d | Average accounts receivable =(Beginning Accounts Receivable+Clsoing Accounts Receivable)/2 | $22,90,000 | ($1,840,000+$2,740,000)/2 | 1760000 | ($1,680,000+$1,840,000)/2 |
Accounts receivable turnover =Net sales / Average accounts receivable | 6.93 | $15,870,000/$2,290,000 | 7.77 | $13,680,000/$1,760,000 | |
Average collection period =365 days/Accounts receivable turnover | 52.67 days | 365 days / 6.93 | 46.96 days | 365 days / 7.77 | |
e | Average Inventory =(Opening Inventory + Closing Inventory)/2 | $28,55,000 | ($2,100,000+$3,610,000)/2 | 2070000 | ($2,040,000+$2,100,000)/2 |
Inventory Turnover ratio =Cost of goods sold / Average Inventory | 4.45 | $12,696,000/$2,855,000 | 4.96 | $10,260,000/$2,070,000 | |
Avearage Sales period =365 days / Inventory Turnover ratio | 82.08 days | 365 days / 4.45 | 73.64 days | 365 days / 4.96 | |
f | Operating Cycle =Inventory Period + Accounts receivable period | 134.75 days | 120.60 days | ||
g | Average Total Assets =(Opening Total Assets + Closing Total Assets) / 2 | $1,59,15,000 | ($14,710,000+$17,120,000)/2 | $1,46,65,000 | ($14,620,000+$14,710,000)/2 |
Total Assets Turnover =Net Sales / Average Total Assets | 1.00 | $15,870,000/$15,915,000 | 0.93 | $13,680,000/$14,665,000 | |
Required information [The following information applies to the questions displayed below.] You have just been hired...
Required information [The following information applies to the questions displayed below.] 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 $ 970,000 $ 1,210,000...
Required information [The following information applies to the questions displayed below.] 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...
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 $ 970,000 $ 1,210,000 Marketable securities 0 300,000 Accounts receivable, net 2,740,000 1,840,000 Inventory 3,610,000...
Required information [The following information applies to the questions displayed below.] 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 $ 880,000 $ 1,120,000...
Required information [The following information applies to the questions displayed below.] 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 $ 1,020,000 $ 1,260,000...
[The following information applies to the questions displayed below.] 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: Last Year 0 Lydex Company Comparative Balance Sheet This Year Assets Current assets: Cash $ 890,000 Marketable securities Accounts...
Required information [The following information applies to the questions displayed below.] 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 $ 980,000 0 2,780,000 3,620,000 260,000 7,640,000 9,560,000...
Required information [The following information applies to the questions displayed below.] 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 $ 1,040,000 0 3,020,000 3,680,000 270,000 8,010,000 9,680,000...
Required information [The following information applies to the questions displayed below.] 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 $ 1,040,000 0 3,020,000 3,680,000 270,000 8,010,000 9,680,000...
Required information [The following information applies to the questions displayed below.] 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: Last Year Lydex Company Comparative Balance Sheet This Year Assets Current assets: Cash $ 900,000 Marketable securities...