Question

Lydex Company Comparative Balance Sheet
	This Year		Last Year
Assets
Current assets:
Cash	$	960,000	$	1,200,000
Marketable securities		0		300,000
Accounts receivable, net		2,700,000		1,800,000
Inventory		3,600,000		2,000,000
Prepaid expenses		260,000		200,000
Total current assets		7,520,000		5,500,000
Plant and equipment, net		9,520,000		9,050,000
Total assets	$	17,040,000	$	14,550,000
Liabilities and Stockholders' Equity
Liabilities:
Current liabilities	$	4,010,000	$	2,980,000
Note payable, 10%		3,660,000		3,060,000
Total liabilities		7,670,000		6,040,000
Stockholders' equity:
Common stock, $75 par value		7,500,000		7,500,000
Retained earnings		1,870,000		1,010,000
Total stockholders' equity		9,370,000		8,510,000
Total liabilities and stockholders' equity	$	17,040,000	$	14,550,000

Lydex Company Comparative Income Statement and Reconciliation
	This Year		Last Year
Sales (all on account)	$	15,860,000	$	13,580,000
Cost of goods sold		12,688,000		10,185,000
Gross margin		3,172,000		3,395,000
Selling and administrative expenses		1,006,000		1,604,000
Net operating income		2,166,000		1,791,000
Interest expense		366,000		306,000
Net income before taxes		1,800,000		1,485,000
Income taxes (30%)		540,000		445,500
Net income		1,260,000		1,039,500
Common dividends		400,000		519,750
Net income retained		860,000		519,750
Beginning retained earnings		1,010,000		490,250
Ending retained earnings	$	1,870,000	$	1,010,000

Current ratio	2.4
Acid-test ratio	1.1
Average collection period	40	days
Average sale period	60	days
Return on assets	9.3	%
Debt-to-equity ratio	0.7
Times interest earned ratio	5.9
Price-earnings ratio	10

You decide, finally, to assess the company’s liquidity and asset management. For both this year and last year, compute:

Working capital & The current ratio (Round your final answers to 2 decimal places) & The acid-test ratio (Round your final answers to 2 decimal places )The average collection period (The accounts receivable at the beginning of last year totaled $1,670,000) (Use 365 days in a year Round your intermediate calculations and final answer to 2 decimal place) The average sale period (The inventory at the beginning of last year totaled $2,030,000.) (Use 365 days in a year Round your intermediate calculations and final answer to 2 decimal place) The operating cycle (Round your intermediate calculations and final answer to 2 decimal place)The total asset turnover. (The total assets at the beginning of last year totaled $14,610,000) (Round your final answers to 2 decimal places)?

Answer 1

		This Year		Last Year
Working Capital Ratio
Current Assets minus Current Liabilities
		7520000-4010000		5500000-2980000
	i.e.	3510000		2520000
Current Ratio
Current Assets/Current Liabilities
		7520000/4010000		5500000/2980000
	i.e.	1.88		1.85
Acid Test Ratio
Quick Assets/ Current Liabiites
		(960000+2700000)/4010000		(1200000+300000+1800000)/2980000
	i.e.	0.91		1.11
Average Collection Period
365/Debtor turover ratio		51.77		46.62
where Debtor turnover ratio means		15860000 /{(27 Lacs +18 Lacs)/2}		13580000 /{(18Lacs +16.7 Lacs)/2}
(Net Credit Sales/ Avg Debtors)		7.05		7.83
Average Sales Period
365/Inventory Turover Ratio		80.57		72.28
where Inventory turnover ratio means		12688000/ {(36 Lacs + 20 Lacs)/2}		10185000/ {(20 Lacs + 20.3 Lacs)/2}
(COGS/ Avg Inventory)		4.53		5.05
Operating Cycle Period
Average Collection Period + Average Sales Period		132.35		118.89
Assets Turover ratio
Net Sales/ Avg Fixed Assets		1.71		1.15
		15860000/{(9520000+9050000)/2}		13580000/{(9050000+14610000)/2}