Question

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 comprehenslve 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 Marketable securities Accounts recelvable, net Inventory Prepaid expenses $ 1,050,000 $ 1,290,000 300,000 2,160,000 2,400,000 220,000 0 3,060,000 3,400,000 240,000 Total current assets Plant and equipment, net 7750,000 9,700,000 6,370,000 9,140,000 Total assets $17,450,000 $15,510,000 Liabilities and Stockholders' Equity Liabilities: Current liabilities Note payable, 10 % $ 4,400,000 3,720,000 $ 3,160,000 3,120,000 Total liabilities 8,120,000 6,280,000 Stockholders' equity Common stock, $70 par value Retained earnings 7,000,000 2,330,000 7,000,000 2,230,000 .. Total stockholders' equity 9,330,000 9,230,000 ... ole $ 15,510,000 Total liabilities and stockholders' equity $17450,000

Answer 1

1.

Attaching the excel with solutions and formulas :-

Times interest earned ratio is calculated by dividing Earnings before interest and income taxes or Net Operating Income by the interest expense.

A ܝܙ ܚ ܚ This year Last Year ܙ ܟ ܗ ܢ ܣ ܩ Net Operating Income Interest Expense 1,272,000 372,000 1,980,000 312,000 Times Interest earned ratio 3.42 6.35 10

C D This year Last Year Net Operating Income Interest Expense 1272000 372000 1980000 312000 Times Interest earned ratio=C6/07 =D6/D7

Debt to Equity Ratio

A Debt Equity This year 3,720,000.00 9,330,000.00 Last Year 3,120,000.00 9,230,000.00 Debt to equity 39.9% 33.8%

Debt Equity This year Last Year 3720000 3120000 9330000 9230000 Debt to equity =C12/C13 =D12/D13

c.

Gross Margin percentage is calculated by dividing Gross Profit by sales

А в C D vear Debt Equity This year 3,720,000.00 9,330,000.00 Last Year 3,120,000.00 9,230,000.00 Debt to equity 39.9% 33.8% Gross Profit Sales Gross Margin This year 3,190,000.00 15,950,000.00 20.0% Last Year 3,620,000 14,480,000 25.0%

Debt Equity This year 3720000 9330000 Last Year 3120000 9230000 Debt to equity =C12/C13 =D12/D13 Gross Profit Sales Gross Margin This year 3190000 15950000 =C18/019 Last Year 3620000 14480000 =D18/D19

D

Return on Total Assets is computed by dividing Net Profit by average of opening and closing balance of Total assets

12 A C Gross Profit Sales Gross Margin This year 3,190,000.00 15,950,000.00 20.0% Last Year 3,620,000 14,480,000 25.0% Net Profit Total Assets (Closing balance) Total Assets (Opening balance) Average Return on Total Assets This year Last Year 630,000 1,167,600 17,450,000 15,510,000 15,510,000 13,160,000 16,480,000 14,335,000 3.82% 8.15%

Α. B Gross Profit Sales Gross Margin This year 3190000 15950000 =C18/C19 Last Year 3620000 14480000 =D18/D19 Net Profit Total Assets (Closing balance) Total Assets (Opening balance) Average Return on Total Assets This year 630000 17450000 15510000 AVERAGE(C24:C25) =C23/C26 Last Year 1167600 15510000 13160000 AVERAGE(D24:D25) =D23/D26

E.

Return on Equity is computed by dividing Net Profit by average of opening and closing balance of Stockholders' Equity

Net Profit Stockholders equity (Closing balance) Stockholders equity (Opening balance) Average Return on Equity This year Last Year 630,000 1,167,600 9,330,000 9,230,000 9,230,000 8,646,200 9,280,000 8,938,100 6.79% 13.06%

This year Net Profit 630000 Stockholders equity (Closing balance) 9330000 Stockholders equity (Opening balance) 9230000 Average FAVERAGE(C31:C32) Return on Equity =C30/C33 Last Year 1167600 9230000 8646200 =AVERAGE(D31:032) =D30/D33

f.

company's financial leverage is positive