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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 | $ | 930,000 | $ | 1,170,000 |
Marketable securities | 0 | 300,000 | ||
Accounts receivable, net | 2,580,000 | 1,680,000 | ||
Inventory | 3,570,000 | 2,200,000 | ||
Prepaid expenses | 250,000 | 190,000 | ||
Total current assets | 7,330,000 | 5,540,000 | ||
Plant and equipment, net | 9,460,000 | 9,020,000 | ||
Total assets | $ | 16,790,000 | $ | 14,560,000 |
Liabilities and Stockholders' Equity | ||||
Liabilities: | ||||
Current liabilities | $ | 3,980,000 | $ | 2,920,000 |
Note payable, 10% | 3,640,000 | 3,040,000 | ||
Total liabilities | 7,620,000 | 5,960,000 | ||
Stockholders' equity: | ||||
Common stock, $70 par value | 7,000,000 | 7,000,000 | ||
Retained earnings | 2,170,000 | 1,600,000 | ||
Total stockholders' equity | 9,170,000 | 8,600,000 | ||
Total liabilities and stockholders' equity | $ | 16,790,000 | $ | 14,560,000 |
Lydex Company Comparative Income Statement and Reconciliation |
||||
This Year | Last Year | |||
Sales (all on account) | $ | 15,830,000 | $ | 13,280,000 |
Cost of goods sold | 12,664,000 | 9,960,000 | ||
Gross margin | 3,166,000 | 3,320,000 | ||
Selling and administrative expenses | 1,402,000 | 1,592,000 | ||
Net operating income | 1,764,000 | 1,728,000 | ||
Interest expense | 364,000 | 304,000 | ||
Net income before taxes | 1,400,000 | 1,424,000 | ||
Income taxes (30%) | 420,000 | 427,200 | ||
Net income | 980,000 | 996,800 | ||
Common dividends | 410,000 | 498,400 | ||
Net income retained | 570,000 | 498,400 | ||
Beginning retained earnings | 1,600,000 | 1,101,600 | ||
Ending retained earnings | $ | 2,170,000 | $ | 1,600,000 |
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 | 40 | days |
Average sale period | 60 | days |
Return on assets | 8.9 | % |
Debt-to-equity ratio | 0.7 | |
Times interest earned ratio | 5.9 | |
Price-earnings ratio | 10 | |
3. You decide, finally, to assess the company’s liquidity and asset management. For both this year and last year, compute:
a. Working capital.
b. The current ratio. (Round your final answers to 2 decimal places.)
c. The acid-test ratio. (Round your final answers to 2 decimal places.)
d. The average collection period. (The accounts receivable at the beginning of last year totaled $1,640,000.) (Use 365 days in a year. Round your intermediate calculations and final answers to 2 decimal place.)
e. The average sale period. (The inventory at the beginning of last year totaled $2,000,000.) (Use 365 days in a year. Round your intermediate calculations and final answers to 2 decimal place.)
f. The operating cycle. (Round your intermediate calculations and final answers to 2 decimal place.)
g. The total asset turnover. (The total assets at the beginning of last year totaled $14,580,000.) (Round your final answers to 2 decimal places.)
Answer:
a. Working capital. = Current Assets - Current Liabilities
This Year = 7330000 - 3980000 = 3350000
Last Year = 5540000 - 2920000 = 2620000
b.Current Ratio = Current Assets / Current Liabilities
This Year = 7330000 / 3980000 = 1.84
Last Year = 5540000 / 2920000 = 1.897
c.Acid Test Ratio = Quick Assets / Current Liabilities
This Year = (930000 + 2580000 ) / 3980000 = 0.88
Last Year = (1170000 + 300000 + 1680000 ) / 2920000 = 1.08
d. The average collection period. = 365 / (Sales / Avg. Accounts Receivable)
This Year = 365 / ( 15830000 / ( 2580000 + 1680000 ) / 2 ) = 365 / (15830000 / 2130000 ) = 365 / 7.43 = 49.13 Days
Last Year = 365 / ( 13280000 / ( 1640000 + 1680000 ) / 2 ) = 365 / (13280000 / 1660000 ) = 365 / 8 = 45.63 Days
e. The average sale period = 365 / (Cost of goods sold / Avg. Inventory)
This Year = 365 / (12664000 / ( 3570000 + 2200000 ) / 2 ) = 365 / (12664000 / 2885000 ) = 365 / 4.39 = 83.14 Days
Last Year = 365 / ( 9960000 / ( 2000000 + 2200000 ) / 2 ) = 365 / (9960000 / 2100000 ) = 365 / 4.74 = 77 Days
f. The operating cycle = Average Collection Period + Average Sale Period
This Year = 49.13 Days + 83.14 Days = 132.27 Days
Last Year = 45.63 Days + 77 Days = 122.63 Days
g. The total asset turnover. = Sales / Avg. Total Assets
This Year = 15830000 / (16790000 + 14560000 ) / 2 = 15830000 / 15675000 = 1.009
Last Year = 13280000 / ( 14580000 + 14560000 ) / 2 = 13280000 / 14570000 = 0.911
Required information [The following information applies to the questions displayed below.] You have just been hired...
Required information [The following information applies to the questions displayed below.] 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 $ 930,000 $ 1,170,000...
Required information [The following information applies to the questions displayed below.] 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 $ 930,000 $ 1,170,000...
Required information [The following information applies to the questions displayed below.] 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 $ 1,020,000 $ 1,260,000...
Required information [The following information applies to the questions displayed below.] 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 $ 970,000 $ 1,210,000...
Required information [The following information applies to the questions displayed below.] 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...
Required information [The following information applies to the questions displayed below.] 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 $ 980,000 0 2,780,000 3,620,000 260,000 7,640,000 9,560,000...
Required information [The following information applies to the questions displayed below.] 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 $ 1,040,000 0 3,020,000 3,680,000 270,000 8,010,000 9,680,000...
Required information [The following information applies to the questions displayed below.] 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 $ 1,040,000 0 3,020,000 3,680,000 270,000 8,010,000 9,680,000...
Required information (The following information applies to the questions displayed below.) 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: Last Lydex Company Comparative Balance Sheet This Year Assets Current assets: Cash $ 1,040,000 Marketable securities Accounts...
HomeWUIK 1 Check my work Required information [The following information applies to the questions displayed below. 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 is Year Last Year $ 930,000 930,000...