You have just been hired as a financial analyst for Lydex Company, a manufacture
ID: 2413464 • Letter: Y
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
$
950,000
$
1,190,000
Marketable securities
0
300,000
Accounts receivable, net
2,660,000
1,760,000
Inventory
3,590,000
2,400,000
Prepaid expenses
260,000
200,000
Total current assets
7,460,000
5,850,000
Plant and equipment, net
9,500,000
9,040,000
Total assets
$
16,960,000
$
14,890,000
Liabilities and Stockholders' Equity
Liabilities:
Current liabilities
$
4,000,000
$
2,960,000
Note payable, 10%
3,660,000
3,060,000
Total liabilities
7,660,000
6,020,000
Stockholders' equity:
Common stock, $70 par value
7,000,000
7,000,000
Retained earnings
2,300,000
1,870,000
Total stockholders' equity
9,300,000
8,870,000
Total liabilities and stockholders' equity
$
16,960,000
$
14,890,000
Lydex Company
Comparative Income Statement and Reconciliation
This Year
Last Year
Sales (all on account)
$
15,850,000
$
13,480,000
Cost of goods sold
12,680,000
10,110,000
Gross margin
3,170,000
3,370,000
Selling and administrative expenses
1,704,000
1,600,000
Net operating income
1,466,000
1,770,000
Interest expense
366,000
306,000
Net income before taxes
1,100,000
1,464,000
Income taxes (30%)
330,000
439,200
Net income
770,000
1,024,800
Common dividends
340,000
512,400
Net income retained
430,000
512,400
Beginning retained earnings
1,870,000
1,357,600
Ending retained earnings
$
2,300,000
$
1,870,000
To begin your assignment you gather the following financial data and ratios that are typical of companies in Lydex Company’s industry:
Current ratio
2.4
Acid-test ratio
1.1
Average collection period
40
days
Average sale period
60
days
Return on assets
9.2
%
Debt-to-equity ratio
0.7
Times interest earned ratio
5.8
Price-earnings ratio
10
Lydex Company
Comparative Balance Sheet
This Year
Last Year
Assets
Current assets:
Cash
$
950,000
$
1,190,000
Marketable securities
0
300,000
Accounts receivable, net
2,660,000
1,760,000
Inventory
3,590,000
2,400,000
Prepaid expenses
260,000
200,000
Total current assets
7,460,000
5,850,000
Plant and equipment, net
9,500,000
9,040,000
Total assets
$
16,960,000
$
14,890,000
Liabilities and Stockholders' Equity
Liabilities:
Current liabilities
$
4,000,000
$
2,960,000
Note payable, 10%
3,660,000
3,060,000
Total liabilities
7,660,000
6,020,000
Stockholders' equity:
Common stock, $70 par value
7,000,000
7,000,000
Retained earnings
2,300,000
1,870,000
Total stockholders' equity
9,300,000
8,870,000
Total liabilities and stockholders' equity
$
16,960,000
$
14,890,000
Lydex Company
Comparative Income Statement and Reconciliation
This Year
Last Year
Sales (all on account)
$
15,850,000
$
13,480,000
Cost of goods sold
12,680,000
10,110,000
Gross margin
3,170,000
3,370,000
Selling and administrative expenses
1,704,000
1,600,000
Net operating income
1,466,000
1,770,000
Interest expense
366,000
306,000
Net income before taxes
1,100,000
1,464,000
Income taxes (30%)
330,000
439,200
Net income
770,000
1,024,800
Common dividends
340,000
512,400
Net income retained
430,000
512,400
Beginning retained earnings
1,870,000
1,357,600
Ending retained earnings
$
2,300,000
$
1,870,000
To begin your assignment you gather the following financial data and ratios that are typical of companies in Lydex Company’s industry:
Current ratio
2.4
Acid-test ratio
1.1
Average collection period
40
days
Average sale period
60
days
Return on assets
9.2
%
Debt-to-equity ratio
0.7
Times interest earned ratio
5.8
Price-earnings ratio
10
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 f. The operating cycle g. The total asset turnover days days days days days days
Explanation / Answer
Answer a.
This Year:
Working Capital = Current Assets - Current Liabilities
Working Capital = $7,460,000 - $4,000,000
Working Capital = $3,460,000
Last Year:
Working Capital = Current Assets - Current Liabilities
Working Capital = $5,850,000 - $2,960,000
Working Capital = $2,890,000
Answer b.
This Year:
Current Ratio = Current Assets / Current Liabilities
Current Ratio = $7,460,000 / $4,000,000
Current Ratio = 1.87
Last Year:
Current Ratio = Current Assets / Current Liabilities
Current Ratio = $5,850,000 / $2,960,000
Current Ratio = 1.98
Answer c.
This Year:
Acid-test Ratio = (Current Assets - Prepaid Expenses - Inventory) / Current Liabilities
Acid-test Ratio = ($7,460,000 - $260,000 - $3,590,000) / $4,000,000
Acid-test Ratio = 0.90
Last Year:
Acid-test Ratio = (Current Assets - Prepaid Expenses - Inventory) / Current Liabilities
Acid-test Ratio = ($5,850,000 - $200,000 - $2,400,000) / $2,960,000
Acid-test Ratio = 1.10
Answer d.
This Year:
Average Collection Period = 365 * Accounts Receivable / Sales
Average Collection Period = 365 * $2,660,000 / $15,850,000
Average Collection Period = 61.26 days
Last Year:
Average Collection Period = 365 * Accounts Receivable / Sales
Average Collection Period = 365 * $1,760,000 / $13,480,000
Average Collection Period = 47.66 days
Answer e.
This Year:
Average Sales Period = 365 * Inventory / Cost of Goods Sold
Average Sales Period = 365 * $3,590,000 / $12,680,000
Average Sales Period = 103.34 days
Last Year:
Average Sales Period = 365 * Inventory / Cost of Goods Sold
Average Sales Period = 365 * $2,400,000 / $10,110,000
Average Sales Period = 86.65 days
Answer f.
This Year:
Operating Cycle = Average Collection Period + Average Sales Period
Operating Cycle = 61.26 days + 103.34 days
Operating Cycle = 164.60 days
Last Year:
Operating Cycle = Average Collection Period + Average Sales Period
Operating Cycle = 47.66 days + 86.65 days
Operating Cycle = 134.31 days
Answer g.
This Year:
Total Asset Turnover = Sales / Total Assets
Total Asset Turnover = $15,850,000 / $16,960,000
Total Asset Turnover = 0.93
Last Year:
Total Asset Turnover = Sales / Total Assets
Total Asset Turnover = $13,480,000 / $14,890,000
Total Asset Turnover = 0.91
Related Questions
drjack9650@gmail.com
Navigate
Integrity-first tutoring: explanations and feedback only — we do not complete graded work. Learn more.