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 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	$	1,000,000	$	1,240,000
Marketable securities		0		300,000
Accounts receivable, net		2,860,000		1,960,000
Inventory		3,640,000		2,400,000
Prepaid expenses		270,000		210,000
Total current assets		7,770,000		6,110,000
Plant and equipment, net		9,600,000		9,090,000
Total assets	$	17,370,000	$	15,200,000
Liabilities and Stockholders' Equity
Liabilities:
Current liabilities	$	4,050,000	$	3,060,000
Note payable, 10%		3,700,000		3,100,000
Total liabilities		7,750,000		6,160,000
Stockholders' equity:
Common stock, $75 par value		7,500,000		7,500,000
Retained earnings		2,120,000		1,540,000
Total stockholders' equity		9,620,000		9,040,000
Total liabilities and stockholders' equity	$	17,370,000	$	15,200,000

Lydex Company Comparative Income Statement and Reconciliation
	This Year		Last Year
Sales (all on account)	$	15,900,000	$	13,980,000
Cost of goods sold		12,720,000		10,485,000
Gross margin		3,180,000		3,495,000
Selling and administrative expenses		1,410,000		1,620,000
Net operating income		1,770,000		1,875,000
Interest expense		370,000		310,000
Net income before taxes		1,400,000		1,565,000
Income taxes (30%)		420,000		469,500
Net income		980,000		1,095,500
Common dividends		400,000		547,750
Net income retained		580,000		547,750
Beginning retained earnings		1,540,000		992,250
Ending retained earnings	$	2,120,000	$	1,540,000

To begin your assignment you gather the following financial data and ratios that are typical of companies in Lydex Company’s industry:

Current ratio	2.3
Acid-test ratio	1.1
Average collection period	32	days
Average sale period	60	days
Return on assets	9.7	%
Debt-to-equity ratio	0.7
Times interest earned ratio	5.7
Price-earnings ratio	10

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 $102 per share and that at the end of last year it was $70. For both this year and last year, compute: (Round your "Percentage" answers to 1 decimal place and other intermediate and final answers to 2 decimal places.)

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.

Answer 1

Lydex Company
	This Year	Last Year		Ans a	This Year	Last Year
Net income	980,000.00	1,095,500.00		Earnings per share	9.80	10.96
				Net Income/ Number of shares outstanding
Total Stockholders' Equity	9,620,000.00	9,040,000.00
				Ans b
Market price of common share	102.00	70.00		Dividend Yield Ratio	3.9%	7.8%
				Dividend per share/ Market price of common share
Dividend declared and paid	39.00	16.00
				Ans c
Common stock value	7,500,000.00	7,500,000.00		Dividend Payout Ratio	40.8%	50.0%
Par value	75.00	75.00		Dividend per share/ Earnings per share
Number of shares outstanding	100,000.00	100,000.00
				Ans d
Common dividends	400,000.00	547,750.00		Price Earning Ratio	10.41	6.39
Dividend per share	4.00	5.48		Market price of common share/ Earnings per share
				Ans e
				Book value per share of common stock	96.20	90.40
				Total Stockholders' Equity/ Number of shares outstanding