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 | $ | 950,000 | $ | 1,110,000 |
Marketable securities | 0 | 300,000 | ||
Accounts receivable, net | 2,500,000 | 1,600,000 | ||
Inventory | 3,550,000 | 2,000,000 | ||
Prepaid expenses | 250,000 | 190,000 | ||
Total current assets | 7,250,000 | 5,200,000 | ||
Plant and equipment, net | 9,420,000 | 9,000,000 | ||
Total assets | $ | 16,670,000 | $ | 14,200,000 |
Liabilities and Stockholders' Equity | ||||
Liabilities: | ||||
Current liabilities | $ | 3,960,000 | $ | 2,880,000 |
Note payable, 10% | 3,640,000 | 3,040,000 | ||
Total liabilities | 7,600,000 | 5,920,000 | ||
Stockholders' equity: | ||||
Common stock, $70 par value | 7,000,000 | 7,000,000 | ||
Retained earnings | 2,070,000 | 1,280,000 | ||
Total stockholders' equity | 9,070,000 | 8,280,000 | ||
Total liabilities and stockholders' equity | $ | 16,670,000 | $ | 14,200,000 |
Lydex Company Comparative Income Statement and Reconciliation |
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This Year | Last Year | |||
Sales (all on account) | $ | 15,810,000 | $ | 13,080,000 |
Cost of goods sold | 12,648,000 | 9,810,000 | ||
Gross margin | 3,162,000 | 3,270,000 | ||
Selling and administrative expenses | 1,183,714 | 1,584,000 | ||
Net operating income | 1,978,286 | 1,686,000 | ||
Interest expense | 364,000 | 304,000 | ||
Net income before taxes | 1,614,286 | 1,382,000 | ||
Income taxes (30%) | 484,286 | 414,600 | ||
Net income | 1,130,000 | 967,400 | ||
Common dividends | 340,000 | 483,700 | ||
Net income retained | 790,000 | 483,700 | ||
Beginning retained earnings | 1,280,000 | 796,300 | ||
Ending retained earnings | $ | 2,070,000 | $ | 1,280,000 |
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 | 1.2 | |
Average collection period | 40 | days |
Average sale period | 60 | days |
Return on assets | 8.7 | % |
Debt-to-equity ratio | 0.66 | |
Times interest earned ratio | 5.7 | |
Price-earnings ratio | 10 | |
Required:
1. Present the balance sheet in common-size format.
2. Present the income statement in common-size format down through net income.
Ans. 1 | LYDEX COMPANY | |||||
Common Size Analysis of Balance Sheet | ||||||
This Year | Percentage | Last Year | Percentage | |||
Assets | ||||||
Current Assets: | ||||||
Cash | $950,000 | 5.70% | $1,110,000 | 7.82% | ||
Marketable securities | $0 | 0.00% | $300,000 | 2.11% | ||
Accounts receivable (net) | $2,500,000 | 15.00% | $1,600,000 | 11.27% | ||
Inventories | $3,550,000 | 21.30% | $2,000,000 | 14.08% | ||
Prepaid expenses | $250,000 | 1.50% | $190,000 | 1.34% | ||
Total current assets | $7,250,000 | 43.49% | $5,200,000 | 36.62% | ||
Plant and equipment, net | $9,420,000 | 56.51% | $9,000,000 | 63.38% | ||
Total assets | $16,670,000 | 100.00% | $14,200,000 | 100.00% | ||
Liabilities and Stockholder's Equity: | ||||||
Liabilities: | ||||||
Current Liabilities | $3,960,000 | 23.76% | $2,880,000 | 20.28% | ||
Notes payable, 10% | $3,640,000 | 21.84% | $3,040,000 | 21.41% | ||
Total liabilities | $7,600,000 | 45.59% | $5,920,000 | 41.69% | ||
Stockholder's equity: | ||||||
Common stock, $70 par value | $7,000,000 | 41.99% | $7,000,000 | 49.30% | ||
Retained earnings | $2,070,000 | 12.42% | $1,280,000 | 9.01% | ||
Total stockholder's equity | $9,070,000 | 54.41% | $8,280,000 | 58.31% | ||
Total liabilities and owner's equity | $16,670,000 | 100.00% | $14,200,000 | 100.00% | ||
*In a common size balance sheet, all precentages are calculated on the base of total assets. | ||||||
Amount is percentage for Current year = Particular amount of Current year / Total assets * 100 | ||||||
Amount is percentage for Last year = Particular amount of Last year / Total assets * 100 | ||||||
Ans. 2 | LYDEX COMPANY | |||||
Common - Size Income Statements | ||||||
This Year | Last Year | |||||
Amount | % | Amount | % | |||
Sales (all on account) | $15,810,000 | 100.00% | $13,080,000 | 100.00% | ||
Cost of goods sold | $12,648,000 | 80.00% | $9,810,000 | 75.00% | ||
Gross profit | $3,162,000 | 20.00% | $3,270,000 | 25.00% | ||
Selling and administrative expenses | $1,183,714 | 7.49% | $1,584,000 | 12.11% | ||
Net operating income | $1,978,286 | 12.51% | $1,686,000 | 12.89% | ||
Interest expense | $364,000 | 2.30% | $304,000 | 2.32% | ||
Net income before taxes | $1,614,286 | 10.21% | $1,382,000 | 10.57% | ||
Income taxes | $484,286 | 3.06% | $414,600 | 3.17% | ||
Net income | $1,130,000 | 7.15% | $967,400 | 7.40% | ||
*In a common size income statement, all precentages are calculated on the base of sales. | ||||||
Amount is percentage for Current year = Particular amount of Current year / Sales * 100 | ||||||
Amount is percentage for Last year = Particular amount of Last year / Sales * 100 | ||||||
You have just been hired as a financial analyst for Lydex Company, a manufacturer of safety...
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 $ 1,030,000 $ 1,270,000 Marketable securities 0 300,000 Accounts receivable, net 2,980,000 2,080,000 Inventory 3,670,000...
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: Required: 1. Present the balance sheet in common-size format. 2. Present the income statement in common-size format down through net income. Lydex Company Comparative Balance Sheet This Year...
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 $ 1,040,000 $ 1,280,000 Marketable securities 0 300,000 Accounts receivable, net 3,020,000 2,120,000 Inventory 3,680,000...
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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 This Year Last Year Assets Current assets: Cash $ 880,000 $ 1,120,000 Marketable securities 0 300,000 Accounts receivable, net 2,380,000 1,480,000 Inventory 3,520,000...
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 $ 1,000,000 $ 1,240,000 Marketable securities 0 300,000 Accounts receivable, net 2,860,000 1,960,000 Inventory 3,640,000...
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