Question

Please answer part 1, 2 and 3.

Required information Problem 15-15 Comprehensive Ratio Analysis [L015-2, Lo15-3, LO15-4, Lo15-5, LO15-6) 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 Marketable securities Accounts receivable, net Inventory Prepaid expenses $940,000 1,180,000 300,000 2,620,000 1,720,000 2,300,000 190,000 5, 690,000 9,480,000 9,030,000 $16,870,000 $14,720,000 3,580,000 250,000 7,390,000 Total current assetS Plant and equipment, net Total assets Liabilities and Stockholders' Equity Liabilities: $ 3,990,000 2,940,000 Current liabilities Note payable, 108 3,660,000 7: 650,000 0003,060,000 6,000,000 Total liabilities Stockholders' equity Common stock, $75 par value 7,500,0007,500,000 Total assets $16,870,000 $14,720,000 Liabilities and Stockholders Equity Liabilities: Current liabilities Note payable, 10% $3,990,000 2,940,000 3,060,000 6,000,000 3,660,000 Total liabilities stockholders' equity: Common stock, $75 par value Retained earnings 7,500,000 7,500,000 1,220,000 9,220,0008,720,000 $16,870,000 $14,720,000 1,720,000 Total stockholders' equity Total liabilities and stockholders' equity Lydex Company Comparative Income Statement and Reconciliation This Year LastY Sales (all on account) Cost of goods sold Gross margin Selling and administrative expenses1,602 Net operating income Interest expense Net income before taxes Income taxes (308) Net income Common dividends Net income retained Beginning retained earnings Ending retained earnings 15,840,000 13,380,000 12,672,000 10,035,000 3,168,000 3,345,000 1,596,000 1,566,000 1,749,000 306,000 1,443,000 432,900 1,010,100 505,050 505,050 714,950 1,720,000 1,220,000 1,602,000 366,000 1,200,000 360,000 840,000 340,000 500,000 1,220,00 To begin your assignment you gather the following financial data and ratios that are typical of companies in Lydex Company's industry To begin your assignment you gather the following financial data and ratios that are typical of companies in Lydex Company's industry: Current ratic Acid-test ratio Average collection period Average sale period Return on assets Debt-to-equity ratio Times interest earned ratio Price-earnings ratio 2.4 1.1 40 days 60 days 9.1% 0.7 5.7 10 Problem 15-15 Part 1 Required: decide first to assess the company's performance in terms of debt management and profitability, Compute the following for both this year and last year: (Round your "Percentage" answers to 1 decimal place and other answers to 2 decimal places.) a. The times interest earned ratio. b. The debt-to-equity ratio. C. The gross margin percentage. d. The return on total assets. Total assets at the beginning of last year were $13,050,000.) e. The return on equity. (Stockholders' equity at the beginning of last year totaled $8,214,950. There has been no change in common stock over the last two years.) f ls the company's financial leverage positive or negative? This Year Last Year a. The times interest eaned ratio b. The debt-to-equity ratio c. The gross margin percentage d. The return on total assets e. The return on equity f. Is the company's financial leverage positive or negative? Problem 15-15 Part 2 2. You decide next to assess the company's stock market performance. Assume that Lydex's stock price at the end of this year is $90 per share and that at the end of last year it was $58. For both this year and last year, compute: (Round your "Percentage" answers to 1 decimal place and other intermediate and final answers to 2 decimal places.) a. The earnings per share. b. The dividend yield ratio. c. The dividend payout ratio. d. The price-earnings ratio. e. The book value per share of common stock Last Year a. The earnings per share b. The dividend yield ratio c. The dividend payout ratio d. The price-earnings rato e. The book value per share of common stock Problem 15-15 Part 3 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 $1.650,000,) (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 $2,010,000.) (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 $14,590,000) (Round your final answers to 2 decimal places.) This Year Last Year a. Working capital b. The current ratio C. The acid-test ratio d. The average collection period e. The average sale period t. The operating cycle g. The total asset turnover days days days days days days 9

Answer 1

	Current Year	Last Year	ratios of other company's
The time interest earned ratio	4.27 (1566000/366000)	5.72 (1749000/306000)	5.7
Debt equity ratio	0.83 (7650000/9220000)	0.69 (6000000/8720000)	0.7
Gross Margin %	20% [(15840000-12672000)/15840000]*100	25% [(13380000-10035000)/13380000]*100
return on total asset	9.9% (1566000/15795000)*100	11.7% (1749000/14960000)*100	9.1%

1. time interest earned ratio = income before interest and taxes / interest.

2. Debt to Equity Ratio = (short term debt + long term debt + fixed payment obligations) / Shareholders’ Equity

3. Gross Margin % = [( revenue- cost of goods sold)/ revenue]*100

4.return on total asset = Net income before interest and taxes / Average total asset

average total asset current year = (14720000+16870000 ) / 2 = 15795000

average total asset last year = (16870000+13050000)/2=14960000