You have just been hired as a financial analyst for Lydex Company, a manufacture
ID: 2470455 • 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:
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 $ 860,000 $1,100,000 300,000 1,400,000 2,000,000 180,000 0 2,300,000 3,500,000 240,000 Total current assets Plant and equipment, net 6,900,000 9,320,000 4,980,000 8,950,000 Total assets $16,220,000 $ 13,930,000 Liabilities and Stockholders' Equity Liabilities: Current liabilities Note payable, 10% $ 3,910,000 $ 2,780,000 3,000,000 3,600,000 Total liabilities 7,510,000 5,780,000 Stockholders' equity: Common stock, $75 par value Retained earnings 7,500,000 1,210,000 7,500,000 650,000 Total stockholders' equity 8,710,000 8,150,000 Total liabilities and stockholders' equity $16,220,000 $ 13,930,000Explanation / Answer
1. Company's performance in terms of debt management and equity
1,560,000/360,000
= 4.33
1,581,000/300,000
= 5.27
7,510,000/8,710,000
= 0.86
5,780,000/8,150,000
= 0.71
3,152,000/15,760,000
= 20%
3,145,000/12,580,000
= 25%
1,560,000/(13,930,000+16,220,000)/2
= 10.35%
1,581,000/(12,970,000+13,930,000)/2
= 11.75%
840,000/ (8,150,000+8,710,000)/2
= 9.96%
896,700/ (7,701,650+8,150,000)/2
= 11.31%
2. Co's Stock Market Performance
840,000/(100,000+100,000)/2
= 8.4
896,700/(100,000+100,000)/2
= 8.97
DPS=280,000/100,000= 2.8
DYR= 2.8/74*100=3.78%
DPS=448,350/100,000=4.48
DYR=4.48/42*100=10.68%
42/8.97 = 4.68
8,710,000/(100,000+100,000)/2
=87.1
8,150,000/(100,000+100,000)/2
= 81.5
3. Co's liquidity and asset management
6,900,000-3,910,000
= $2,990,000
4,980,000-2,780,000
= $2,200,000
6,900,000/3,910,000
=1.76
4,980,000/2,780,000
= 1.79
6,900,000-3,500,000-240,000/3,910,000
= 0.81
4,980,000-2,000,000-180,000/2,780,000
= 1
365*{(2,300,000+1,400,000/2)}/ 15,760,000
= 43 days
365*{(1,570,000+1,400,000/2)}/12,580,000
=43 days
inventory turnover=COGS/avg inventory
= 12,608,000/(3,500,000+2,000,000)/2 = 4.58
ASP= 365/4.58 = 80 days
inventory turnover=9,435,000/(1,930,000+2,000,000)/2 = 4.8
ASP= 365/4.8 = 76 days
43 days + 80 days
= 123 days
43 days+ 76 days
= 119 days
15,760,000/(16,220,000+13,930,000)/2
= 1.05
12,580,000/(13,930,000+14,510,000)/2
=0.88
This Year Last Year a. Times interest earned ratio = EBIT/ Interest Expense1,560,000/360,000
= 4.33
1,581,000/300,000
= 5.27
b. Debt to Equity Ratio = Total Liabilities/Total Equity7,510,000/8,710,000
= 0.86
5,780,000/8,150,000
= 0.71
c. Gross margin % = Gross Margin/ Net Sales3,152,000/15,760,000
= 20%
3,145,000/12,580,000
= 25%
d. Return On Total assets= EBIT/ Average Total assets1,560,000/(13,930,000+16,220,000)/2
= 10.35%
1,581,000/(12,970,000+13,930,000)/2
= 11.75%
e. Return on Equity = Net Income/Average Stockholder's equity840,000/ (8,150,000+8,710,000)/2
= 9.96%
896,700/ (7,701,650+8,150,000)/2
= 11.31%
f. Financial Leverage Positive PositiveRelated Questions
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