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 |
Marketable securities | 0 | 300,000 | ||
Accounts receivable, net | 2,380,000 | 1,480,000 | ||
Inventory | 3,520,000 | 2,200,000 | ||
Prepaid expenses | 240,000 | 180,000 | ||
Total current assets | 7,020,000 | 5,280,000 | ||
Plant and equipment, net | 9,360,000 | 8,970,000 | ||
Total assets | $ | 16,380,000 | $ | 14,250,000 |
Liabilities and Stockholders' Equity | ||||
Liabilities: | ||||
Current liabilities | $ | 3,930,000 | $ | 2,820,000 |
Note payable, 10% | 3,620,000 | 3,020,000 | ||
Total liabilities | 7,550,000 | 5,840,000 | ||
Stockholders' equity: | ||||
Common stock, $75 par value | 7,500,000 | 7,500,000 | ||
Retained earnings | 1,330,000 | 910,000 | ||
Total stockholders' equity | 8,830,000 | 8,410,000 | ||
Total liabilities and stockholders' equity | $ | 16,380,000 | $ | 14,250,000 |
Lydex Company Comparative Income Statement and Reconciliation |
||||
This Year | Last Year | |||
Sales (all on account) | $ | 15,780,000 | $ | 12,780,000 |
Cost of goods sold | 12,624,000 | 9,585,000 | ||
Gross margin | 3,156,000 | 3,195,000 | ||
Selling and administrative expenses | 1,794,000 | 1,572,000 | ||
Net operating income | 1,362,000 | 1,623,000 | ||
Interest expense | 362,000 | 302,000 | ||
Net income before taxes | 1,000,000 | 1,321,000 | ||
Income taxes (30%) | 300,000 | 396,300 | ||
Net income | 700,000 | 924,700 | ||
Common dividends | 280,000 | 462,350 | ||
Net income retained | 420,000 | 462,350 | ||
Beginning retained earnings | 910,000 | 447,650 | ||
Ending retained earnings | $ | 1,330,000 | $ | 910,000 |
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 | 1.0 | |
Average collection period | 30 | days |
Average sale period | 60 | days |
Return on assets | 8.4 | % |
Debt-to-equity ratio | 0.7 | |
Times interest earned ratio | 5.7 | |
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 $1,590,000.) (Use 365 days in a year. Round your intermediate calculations and final answer to 2 decimal place.)
e. The average sale period. (The inventory at the beginning of last year totaled $1,950,000.) (Use 365 days in a year. Round your intermediate calculations and final answer to 2 decimal place.)
f. The operating cycle. (Round your intermediate calculations and final answer to 2 decimal place.)
g. The total asset turnover. (The total assets at the beginning of last year totaled $14,530,000.) (Round your final answers to 2 decimal places.)
(a)
working capital = current assets - current liabilities
for this year,
working capital = $7020000 - $3930000 = $3090000
for last year,
working capital = $5280000 - $2820000 = $2460000
(b)
current ratio = current assets/current liabilities
for this year,
Current ratio = $7020000/$3930000 = 1.79 times
for last year,
current ratio = $5280000/$2820000 = 1.87 times
(c)
acid test ratio = (Cash + marketable securities + accounts receivables)/current liabilities
for this year,
Acid test ratio = ($880000 + $2380000)/$3930000 = 0.83 times
for last year,
Acid test ratio = ($1120000 + $300000 + $1480000)/$2820000 = 1.03 times
(d)
average collection period = Average accounts receivable ÷ (Annual sales ÷ 365 days)
for this year,
average collection period = {($2380000 + $1480000)/2} / ($15780000/365)
= $1930000/$43232.88 = 44.64 days
for last year,
average collection period = {($1590000 + $1480000)/2} / ($12780000/365)
= $1535000/$35013.70 = 43.84 days
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 $ 880,000 $ 1,120,000...
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 $ 880,000 $ 1,120,000 Marketable securities 0 300,000 Accounts receivable, net 2,380,000 1,480,000 Inventory 3,520,000...
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 $ 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: Lydex Company Comparative Balance Sheet This Year Last Year $ 940,000 2,620,000 3,580,000 250,000 7,390,000 9,480,000 $...
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 Year Lydex Company Comparative Balance Sheet This Year Assets Current assets: Cash $ 900,000 Marketable securities...
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...
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...