Question

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 $17, 200,000 $1,220,000 300,000 1,880,000 2,200,000 200,000 5,800,000 9,070,000 $14,870,000 Assets Current assets: Cash Marketable securities Accounts receivable, net Inventory Prepaid expenses Total current assets Plant and equipment, net Total assets Liabilities and Stockholders' Equity Liabilities: Current liabilities Note payable, 10% Total liabilities Stockholders' equity: Common stock, $75 par value Retained earnings Total stockholders' equity Total liabilities and stockholders' equity $ 4,030,000 3,680,000 7,710,000 $3,020,000 3,080,000 6,100,000 7,500,000 1,990,000 9, 490,000 $17, 200,000 7,500,000 1,270,000 8,770,000 $14,870,000 Lydex Company Comparative Income Statement and Reconciliation This Year Last Year Sales (all on account) $ 15,880,000 $ 13,780,000 Cost of goods sold 12,704,000 10,335,000 Gross margin 3,176,000 3,445,000 Selling and administrative expenses 1,208,000 1,612,000 Net operating income 1,968,000 1,833,000 Interest expense 368,000 308,000 Net income before taxes 1,600,000 1,525,000 Income taxes (30%) 480,000 457,500 Net income 1,120,000 1,067,500 Common dividends 400,000 533,750 Net income retained 720,000 533,750 Beginning retained earnings 1,270,000 736,250 Ending retained earnings $ 1,990,000 $ 1,270,000

Answer 1

Answers

	This Year	Last year
Working capital	$ 3,610,000	$ 2,780,000
Current Ratio	1.90	1.92
Acid Test ratio	0.93	1.13
Average collection period	53.55	47.28

Calculations:

	Particulars	This Year	Last year
A	Current assets	$    7,640,000	$    5,800,000
B	Current liablites	$    4,030,000	$    3,020,000
A-B	Working Capital	$   3,610,000	$   2,780,000
A	Current assets	$    7,640,000	$    5,800,000
B	Current liablites	$    4,030,000	$    3,020,000
A/B	Current Ratio	1.90	1.92
	Particulars	Amount	Amount
A	Quick assets (Current Assets - Prepaid expense - Inventory)	$    3,760,000	$    3,400,000
B	Current liablites	$    4,030,000	$    3,020,000
A/B	Acid Test ratio	0.93	1.13
	Particulars	Amount	Amount
A	Credit Sales	$ 15,880,000	$ 13,780,000
B	Average Debtors(Opening + Closing)/2	$    2,330,000	$    1,785,000
A/B	Account Receiveables Turnover Ratio	6.82	7.72
	Particulars	Amount	Amount
A	365	365	365
B	Account Receivables Turnover Ratio	$             6.82	$             7.72
A/B	Average collection period	53.55	47.28

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