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: Lydex Company Comparative Balance Sheet This Year Last Year Assets Current assets: Cash Marketable securities $ 1,280,000 300,000 2,120,000 2,300,000 210,000 $1,040,000 3,020,000 3,680,000 270,000 Accounts receivable, net Inventory Prepaid expenses 6,210,000 9,130,000 Total current assets 8,010,000 9,680,000 Plant and equipment, net $17,690,000 Total assets $15,340,000 Liabilities and Stockholders' Equity Liabilities: Current liabilities Note payable, 10% $ 4,090,000 3,720,000 $3,140,000 3,120,000 Total liabilities 7,810,000 6,260,000 Stockholders' equity: Common stock, $75 par value Retained earnings 7,500,000 2,380,000 7,500,000 1,580,000 Total stockholders' equity 9,880,000 9,080,000 Total liabilities and stockholders' equity $17,690,000 $15,340,000

Answer 1

Solution

Lydex Company
Comparative Balance Sheet
	This Year		Last Year
Assets
Current assets:
Cash		5.9%		8.3%
Marketable securities		0.0%		2.0%
Accounts receivable, net		17.1%		13.8%
Inventory		20.8%		15.0%
Prepaid expenses		1.5%		1.4%
Total current assets		45.3%		40.5%
Plant and equipment, net		54.7%		59.5%
Total assets		100.0%		100.0%
Liabilities and Stockholders' Equity
Liabilities:
Current liabilities		23.1%		20.5%
Note payable, 10%		21.0%		20.3%
Total liabilities		44.1%		40.8%
Stockholders' equity:
Common stock, $75 par value		42.4%		48.9%
Retained earnings		13.5%		10.3%
Total stockholders' equity		55.9%		59.2%
Total liabilities and stockholders' equity		100.0%		100.0%

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Lydex Company
Comparative Income Statement
	This Year		Last Year
Sales (all on account)		100.0%		100.0%
Cost of goods sold		80.0%		75.0%
Gross margin		20.0%		25.0%
Selling and administrative expenses		7.6%		11.4%
Net operating income		12.4%		13.6%
Interest expense		2.3%		2.2%
Net income before taxes		10.0%		11.5%
Income taxes (30%)		3.0%		3.4%
Net income		7.0%		8.0%