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 $ 890,000 2,420,000 3,530,000 240,000 7,080,000 9,380,000 $16,460,000 $ 1,020,000 300,000 1,520,000 2,300,000 180,000 5 , 320,000 8,980,000 $14,300,000 Assets Current assets: Cash Marketable securities Accounts receivable, net Inventory Prepaid expenses Total current assets Plant and equipment, net Total assets Liabilities and Stockholders' Equity Liabilities: Current liabilities Note payable, 10% Total liabilities Stockholders' equity: Common stock, $ 70 par value Retained earnings Total stockholders' equity Total liabilities and stockholders' equity $ 3,960,000 3,620,000 7,580,000 $ 2,860,000 3,020,000 5,880,000 7,000,000 1,880,000 8,880,000 $ 16, 460,000 7,000,000 1,420,000 8,420,000 $14,300,000

Required: 1. Present the balance sheet in common-size format. 2. Present the income statement in common-size format down through net income.

Answer 1

Solution

Lydex Company
Common size Balance Sheet
	This Year		Last Year
Assets
Current assets:
Cash		5.4%		7.1%
Marketable securities		0.0%		2.1%
Accounts receivable, net		14.7%		10.6%
Inventory		21.4%		16.1%
Prepaid expenses		1.5%		1.3%
Total current assets		43.0%		37.2%
Plant and equipment, net		57.0%		62.8%
Total assets		100.0%		100.0%
Liabilities and Stockholders' Equity
Liabilities:
Current liabilities		24.1%		20.0%
Bonds payable, 12%		22.0%		21.1%
Total liabilities		46.1%		41.1%
Stockholders' equity:
Common stock, $15 par value		42.5%		49.0%
Retained earnings		11.4%		9.9%
Total stockholders' equity		53.9%		58.9%
Total liabilities and stockholders' equity		100.0%		100.0%

.

Lydex Company
Common size Income statement
	This Year		Last Year
Sales (all on account)		100.0%		100.0%
Cost of goods sold		80.0%		75.0%
Gross margin		20.0%		25.0%
Selling and administrative expenses		10.4%		12.2%
Net operating income		9.6%		12.8%
Interest expense		2.3%		2.3%
Net income before taxes		7.3%		10.4%
Income taxes (30%)		2.2%		3.1%
Net income		5.1%		7.3%