You have just been hired as a financial analyst for Lydex Company, a manufacture

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:

       To begin your assigment you gather the following financial data and ratios that are typical of companies in Lydex Company’s industry:

You 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 intermediate calculations and final percentage answers to 1 decimal place. i.e., 0.123 should be considered as 12.3%. Round the rest of the intermediate calculations and final answers to 2 decimal places.)

Is the company’s financial leverage positive or negative?

This year vs Last year

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 intermediate calculations and final percentage answers to 1 decimal place. i.e., 0.123 should be considered as 12.3%. Round the rest of the intermediate calculations and final answers to 2 decimal places.)

The book value per share of common stock.

This year vs Last year

You decide, finally, to assess the company’s liquidity and asset management. For both this year and last year, compute: (Use 365 days in a year. Round your intermediate calculations and final answer to 2 decimal places.)

The total asset turnover. (The total assets at the beginning of last year totaled $14,590,000.)

This year vs Last year

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:

Explanation / Answer

1 (a) Times interest earned ratio          = EBIT / Interest Expense Current Yr EBIT 1566000 Interest expense 366000 Times interest earned ratio          = 4.3 Last Yr EBIT 1749000 Interest expense 306000 Times interest earned ratio          = 5.7 (b) Debt to equity ratio           = Debt/ Equity Current Yr Debt 7650000 Stockholders' equity 9220000 Debt to equity ratio           = 0.8 Last Yr Debt 6000000 Stockholders' equity 8720000 Debt to equity ratio           = 0.7 (c ) Gross margin %               = Gross Margin/Sales Current Yr Gross margin 3168000 Sales 15840000 Gross margin %               = 20% Last Yr Gross margin 3345000 Sales 13380000 Gross margin %               = 25% (d) Return on total Assets             = Net Income/ Average Total Assets Current Yr Net Income 1200000 Avereage Total Assets 15795000 Return on total Assets             = 7.6% Last Yr Net Income 1443000 Avereage Total Assets 13885000 Return on total Assets             = 10.4% (e) Return on equity              = Net Income/ Average Shareholders' equity Current Yr Net Income 840000 Average Shareholders' equity 7500000 Return on equity              = 11.2% Last Yr Net Income 1010100 Average Shareholders' equity 7500000 Return on equity              = 13.5% f) Company's financial leverage is positive. 2 (a) Earning per share           = Net income/ Average outstanding shares Current Yr Net income 840000 Outstanding shares Earning per share           = 8.4 Last Yr Net income 1010100 Outstanding shares 100000 Earning per share           = 10.1 (b) Dividend yeild ratio            = Cash dividend per share/ market value per share Current Yr Cash Dividend 3.4 market value 75 Dividend yeild ratio            = 0.05 Last Yr Cash Dividend 5.0505 market value 75 Dividend yeild ratio            = 0.07 (c ) Dividend payout ratio       = Total Dividend/Net income Current Yr Total Dividend 340000 Net income 840000 Dividend payout ratio       = 0.4 Last Yr Total Dividend 505050 Net income 1010100 Dividend payout ratio       = 0.5 (d) Price earning ratio Market value per share/ EPS Current Yr Market Value 75 EPS 8.4 Price earning ratio 8.9 Last Yr Market Value 75 EPS 10.1 Price earning ratio 7.4 (f) Book Value per share Shareholders' equity / Outstanding shares Current Yr Shareholders' equity 9220000 Outstanding Shares 100000 Book Value per share 92.2 Last Yr Shareholders' equity 8720000 Outstanding Shares 100000 Book Value per share 87.2 3 (a) Working capital current assets- current liabilities Current Assets 7390000 Current Liabilities 3990000 Working capital 3400000 Current Assets 5690000 Current Liabilities 2940000 Working capital 2750000 (b) Current ratio Current Yr Current Assets 7390000 Current Liabilities 3990000 Current ratio 1.9 Last Yr Current Assets 5690000 Current Liabilities Current ratio 1.9 © Acid Test ratio (Cash +cash equi+short term investmen+current receivable)/current liabilities Current Yr Current assets 3560000 Current Liabilities 3990000 Acid Test ratio 0.9 Last Yr Current assets 3200000 Current Liabilities 2940000 Acid Test ratio 1.1 (d) average collection period No. of working days/ debtors turnover ratio Current Yr No of working days 360 Debtor turnover ratio Credit sales/net receivable 6 average collection period 59.5 days Last Yr No of working days 360 Debtor turnover ratio Credit sales/net receivable 8 average collection period 46.3 days

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