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: Last Year Lydex Company Comparative Balance Sheet This Year Assets Current assets: Cash $ 820,000 Marketable securities Accounts receivable, net 2,860,000 Inventory 3,640,000 Prepaid expenses 270,000 $ 1,060,000 300,000 1,960,000 2,400,000 210,000 Total current assets Plant and equipment, net 7,590,000 9,600,000 5,930,000 9,090,000 Total assets $17,190,000 $15,020,000 Liabilities and Stockholders' Equity Liabilities: Current liabilities Note payable, 10% $ 4,050,000 3,700,000 $ 3,060,000 3,100,000 Total liabilities 7,750,000 6,160,000 Stockholders' equity: Common stock, $75 par value Retained earnings 7,500,000 1,940,000 7,500,000 1,360,000 Total stockholders' equity 8,860,000 9,440,000 $17,190,000 Total liabilities and stockholders' equity $15,020,000

Answer 1

Answer:

Current Ratio = Current Assets / Current Liabilities

This Year = 7590000 / 4050000 = 1.87

Last Year = 5930000 / 3060000 = 1.94

Acid Test Ratio = Quick Assets / Current Liabilities

This Year = 3680000 / 4050000 = 0.91

Last Year = 3320000 / 3060000 = 1.08

Average Collection Period = 365 / (Sales / Avg Accounts Receivables)

This Year = 365 / ( 15900000 / ( 2860000 + 1960000 ) /2 = 365 / ( 15900000 / 2410000 ) = 365 / 6.597 = 55.33 Days

Average Sale Period = 365 / (Cost of goods sold / Avg.Inventory)

This Year = 365 / (12720000 / ( 3640000 + 2400000 ) /2 = 365 / ( 12720000 / 3020000 ) = 365 / 4.21 = 86.70 Days

Return on Assets = Net Income / Avg. Total Assets

This Year = 980000 / ( 17190000 + 15020000)/2 = 980000 / 16105000 = 6.09%

Debt to Equity Ratio = Total Liabilities / Total Equity

This Year = 7750000 / 9440000 = 0.821

Last Year = 6160000 / 8860000 = 0.695

Times Interest Earned Ratio = Net Operating Income / Interest Expense

This Year = 1770000 / 370000 = 4.78

Last Year = 1875000 / 310000 = 6.048

Price Earnings Ratio = Market Price not provided

Lydex Company Common Size Balance sheets This Year Last Year Amount Amount Assets Current Assets Cash 4.77% 7.06% 820000 1060000 Marketable Securities 0.00% 2.00% 0 300000 Accounts Receivable net 16.64% 13.05% 2860000 1960000 3640000 21.18% 15.98% Inventory 2400000 Prepaid Expenses 1.57% 1.40% 210000 Total Current Assets 44.15% 39.48% 7590000 5930000 Plant and Equipment, net 9600000 55.85% 9090000 60.52% 17190000 100.00% 15020000 100.00 % Total Assets Liabilities and Stockholders Equity Liabilities: Current Liabilities 4050000 23.56% 3060000 20.37% 21.52% Note Payable 10% 3700000 3100000 20.64% Total Liabilities 7750000 45.08% 6160000 41.01% Stockholders Equity Common Stock $75 par value Retained Earnings 43.63% 49,93% 7500000 7500000 11.29% 9.05% 1940000 1360000 Total Stockholders Equity 58.99% 54.92% 9440000 8860000 Total Liabilities and Stockholders Equity 17190000 100.00% 15020000 100.00% Common Size Income Statement This Year Last Year Amount Amount 15900000 100.00 % 13980000 100.00 % Sales 75.00% Cost of goods sold 10485000 12720000 80.00% Gross Margin Selling and administrative expenses 20.00% 3495000 25.00% 3180000 8.87% 11.59% 1620000 1410000 Net Operating Income Interest Expense 11.13% 1875000 13.41% 1770000 2.33% 2.22% 370000 310000 Net Income before taxes 11.19% 1400000 8.81% 1565000 Income tax (30%) 420000 2.64% 469500 3.36% 6.16% 7.84% Net Income 980000 1095500

C E Lydex Company 2 3 Common Size Balance sheets 4 This Year Last Year 5 Amount Amount 6 Assets Current Assets D8/$D$ 15 D9/$D$ 15 B8/B$ 15 =B9/B$ 15 Cash 820000 1060000 9 Marketable Securities 0 300000 Accounts Receivable net Inventory Prepaid EHpenses 13 Plant and Equipment, net 10 2860000 =B10/$B$15 1960000 =D10/$D$15 =D11/$D$ 15 =D12/$D$ 15 D13/$D$ 15 D14/D$ 15 2400000 11 3640000 =B11/$B$15 =B12/$B$ 15 =B13/$B$ 15 12 270000 210000 Total Current Assets =SUM(B8:B12) =SUMID8:D12) 14 9600000 B14/B$15 9090000 =SUM(B13: B14 ) =SUM(D13:D14 ) 15 Total Assets 1 1 16 Liabilities and Stockholders Equit Liabilities 17 18 4050000 B19/$B$28 19 Current Liabilities 3060000 D19/D$28 20 3100000 D20/D$ 28 Note Payable 10% 3700000 B20/B$28 21 22 Total Liabilities SUM(B19:B21 =B22/$B$28 =SUMID19:D21) =D22/$D$28 23 Stockholders Equity Common Stook $75 par value Retained Earnings Total Stockholders Equity 24 7500000 D25/$D$28 25 7500000 B25/B$28 1360000 =SUM(D25:D26) 26 1940000 B261$B$28 =D26/$D $ 28 =B271B$ 28 =D271#D$ 28 27 =SUM(B25:B26) 28 Total Liabilities and Stockholders EquityB22+B27 1 D22+D27 1 29 30 Common Size Income Statement This Year Last Year 31 32 Amount Amount 33 Sales 15900000 1 13980000 1 34 Cost of goods sold Gross Margin Selling and administrative expenses 37 12720000 B341$B$33 10485000 D34/$D$33 -B35/B$ 33 D35/D$33 35 B33-B34 D33-D34 D36/D$ 33 D37D$ 33 36 1410000 B36/B$33 1620000 B35-B36 Net Operating Income Interest Expense Net Income before taxes Income tax (30% ) Net Income =B37B$33 =D35-D36 =B38/$B$ 33 =B39/$B$33 310000 38 370000 D38/#D$33 D37-D38 D39/$D$33 39 B37-B38 D40/D# 33 =D41/D$ 33 40 420000 B40/B$33 469500 41 -B39-B40 B41B$33 =D39-D40 42 d3