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 | 2,400,000 | ||
Prepaid expenses | 270,000 | 210,000 | ||
Total current assets | 7,770,000 | 6,110,000 | ||
Plant and equipment, net | 9,600,000 | 9,090,000 | ||
Total assets | $ | 17,370,000 | $ | 15,200,000 |
Liabilities and Stockholders' Equity | ||||
Liabilities: | ||||
Current liabilities | $ | 4,050,000 | $ | 3,060,000 |
Note payable, 10% | 3,700,000 | 3,100,000 | ||
Total liabilities | 7,750,000 | 6,160,000 | ||
Stockholders' equity: | ||||
Common stock, $75 par value | 7,500,000 | 7,500,000 | ||
Retained earnings | 2,120,000 | 1,540,000 | ||
Total stockholders' equity | 9,620,000 | 9,040,000 | ||
Total liabilities and stockholders' equity | $ | 17,370,000 | $ | 15,200,000 |
Lydex Company Comparative Income Statement and Reconciliation |
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This Year | Last Year | |||
Sales (all on account) | $ | 15,900,000 | $ | 13,980,000 |
Cost of goods sold | 12,720,000 | 10,485,000 | ||
Gross margin | 3,180,000 | 3,495,000 | ||
Selling and administrative expenses | 1,410,000 | 1,620,000 | ||
Net operating income | 1,770,000 | 1,875,000 | ||
Interest expense | 370,000 | 310,000 | ||
Net income before taxes | 1,400,000 | 1,565,000 | ||
Income taxes (30%) | 420,000 | 469,500 | ||
Net income | 980,000 | 1,095,500 | ||
Common dividends | 400,000 | 547,750 | ||
Net income retained | 580,000 | 547,750 | ||
Beginning retained earnings | 1,540,000 | 992,250 | ||
Ending retained earnings | $ | 2,120,000 | $ | 1,540,000 |
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 | 32 | days |
Average sale period | 60 | days |
Return on assets | 9.7 | % |
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 $1,710,000.) (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 $2,070,000.) (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 $14,650,000.) (Round your final answers to 2 decimal places.)
Part A
Working capital = current assets – current liabilities
This year = 7770000-4050000 = 3720000
Last year =6110000-3060000 = 3050000
Part B
Current ratio = current assets /current liabilities
This year = 7770000/4050000 = 1.92
Last year =6110000/3060000 = 2.00
Part C
Quick ratio = (cash +marketable securities + accounts receivable)/ current liabilities
This year = (1000000+2860000)/4050000 = 0.95
Last year = (1240000+300000+1960000)/3060000 = 1.14
Part D
Average collection period = 365*average accounts receivable / sales
This year = 365*((2860000+1960000)/2)/15900000 = 55.32
Last year = 365*((1960000+1710000)/2)/13980000 = 47.91
Part E
Average sale period = 365* average inventory / cost of goods sold
This year= 365*((3640000+2400000)/2)/12720000 = 86.66
Last year = 365*((2400000+2070000)/2)/10485000 = 77.80
Part F
Operating cycle = Average collection period + Average sale period
This year = 55.32+86.66 = 141.98
Last year = 47.91+77.80 = 125.71
Part G
Total asset turnover = sales / average total assets
This year = 15900000 / ((17370000+15200000)/2) = 0.98
Last year = 13980000/((15200000+14650000)/2) = 0.94
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 $ 1,000,000 $ 1,240,000 Marketable securities 0 300,000 Accounts receivable, net 2,860,000 1,960,000 Inventory 3,640,000...
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...
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: To begin your assignment you gather the following financial data and ratios that are typical of companies in Lydex Company’s industry: Problem 14-15 Part 1 Required: 1. You...
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: Lydex Company Comparative Balance Sheet This Year Last Year Assets Current assets: Cash $ 970,000 $ 1,210,000 Marketable securities 0 300,000 Accounts receivable, net 2,740,000 1,840,000 Inventory 3,610,000...
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: 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...
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 $ 1,050,000 0 3,060,000 3,400,000 240,000 7,750,000 9,700,000 $ 17,450,000 $ 1,290,000 300,000 2,160,000 2,400,000 220,000 6, 370,000 9,...
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...
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 $ 920,000 0 2,540,000 3,560,000 250,000 7,270,000 9,440,000 $ 16,710,000 $ 1,160,000 300,000 1,640,000 2,100,000 190,000 5,390,000 9,010,000 $14,400,000...
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 comprehenslve 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 Marketable securities Accounts recelvable, net Inventory Prepaid expenses $ 1,050,000 $ 1,290,000 300,000 2,160,000 2,400,000...