Lydex Company Comparative Income Statement and Reconciliation This Year 15,900,0
ID: 2475518 • Letter: L
Question
Lydex Company Comparative Income Statement and Reconciliation This Year 15,900,000 $ 13,980,000 Last Year Sales (all on account) Cost of goods sold 12,720,000 10,485,000 Gross margin Selling and administrative expenses 3,180,000 1,410,000 3,495,000 1,620,000 Net operating income Interest expense 1,770,000 370,000 1,875,000 310,000 Net income before taxes Income taxes (30%) 1,400,000 420,000 1,565,000 469,500 Net income Common dividends 980,000 400,000 1,095,500 547,750 580,000 1,540,000 547,750 992,250 Net income retained Beginning retained earnings Ending retained earnings $ 2,120,000 $ 1,540,000 To begin your assigment you gather the following financial data and ratios that are typical of companies in Lydex Company's industry: 2.3 Current ratio Acid-test ratio Average collection period Average sale period Return on assets Debt-to-equity ratio Times interest earned ratio Price-earnings ratio 32 days 60 days 97 % 65 5.7 10Explanation / Answer
Times Interest Earned Ratio = Income before interest and taxes or EBIT / Interest Expenses
This year Last Year
Net operating income (EBIT) $1,770,000 $1,875,000
Interest Expenses $370,000 $310,000
Times Interest Earned Ratio 4.78 6.05
Debt-to-equity ratio = Total Liabilities / Total equity
This yearLast Year
Total liabilities$7,750,000$6,160,000
Total equity$9,620,000$9,040,000
Debt equity ratio0.810.68
Gross margin percentage = (Gross margin / Sales revenue) * 100
This year last Year
Gross margin $3,180,000 $3,495,000
Sales revenue $15,900,000 $13,980,000
Gross margin 20% or 0.2 25% or 0.25
Return on total assets = EBIT or Net Income / Average Assets
This year Last Year
EBIT $1,770,000 $1,875,000
Average asset:
Beginning $15,200,000 $13,110,000
Closing $17,370,000 $15,200,000
Average asset $16,285,000 $14,155,000
Return on total Asset 0.1086 0.1324
ROE = Annual Net income / Average stockholder’s Equity
This year Last Year
Net Income $980,000 1,095,500
Stockholder’s equity
Beginning $9,040,000 $8,492,250
Closing $9,620,000 $9,040,000
Average $9,330,000 $8,766,125
ROE 0.1050 0.1250
Financial leverage is the amount of debt that an entity uses to buy more assets. Leverage is employed to avoid using too much equity to fund operations. An excessive amount of financial leverage increases the risk of failure, since it becomes more difficult to repay debt.
This year Last Year
Positive Positive
This Year
Last Year
a
4.78
6.05
b
0.81
0.68
c
20%
25%
d
0.1086
0.1324
e
0.105
0.125
f
Positive
Positive
This Year
Last Year
a
4.78
6.05
b
0.81
0.68
c
20%
25%
d
0.1086
0.1324
e
0.105
0.125
f
Positive
Positive
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