You have just been hired as a financial analyst for Lydex Company, a manufacture
ID: 2477396 • 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:
To begin your assigment you gather the following financial data and ratios that are typical of companies in Lydex Company’s industry:
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.)
Lydex CompanyComparative Balance Sheet This Year Last Year Assets Current assets: Cash $ 940,000 $ 1,180,000 Marketable securities 0 300,000 Accounts receivable, net 2,620,000 1,720,000 Inventory 3,580,000 2,300,000 Prepaid expenses 250,000 190,000 Total current assets 7,390,000 5,690,000 Plant and equipment, net 9,480,000 9,030,000 Total assets $ 16,870,000 $ 14,720,000 Liabilities and Stockholders' Equity Liabilities: Current liabilities $ 3,990,000 $ 2,940,000 Note payable, 10% 3,660,000 3,060,000 Total liabilities 7,650,000 6,000,000 Stockholders' equity: Common stock, $75 par value 7,500,000 7,500,000 Retained earnings 1,720,000 1,220,000 Total stockholders' equity 9,220,000 8,720,000 Total liabilities and stockholders' equity $ 16,870,000 $ 14,720,000
Explanation / Answer
Answer:
g. Total Asset turnover ratio=(Sales/Average Assets)*100
This year=(15,840,000/(16,870,000+14,720,000 )/2)*100
=(15840000/15795000)*100=100.28%
Last year=(13,380,000/(14720000+$14,590,000)/2)*100
=(13380000/14655000)*100
=91.30%
a. Working capital=CA-CL
This year=7,390,000- 3,990,000=3400,000
Last year=5690,000-2940,000=2750,000
b. current ratio=CA/CL
This year=7,390,000/ 3,990,000=1.85
Last year=5690,000/2940,000=1.94
c. Acid test ratio=Quick Asset/CL
This year=(7,390,000-3,580,000 -250000)/ 3,990,000=0.892
Last year=(5690,000-2,300,000-190000)/2940,000=1.09
d. Average collection period=365 days/DTR
This year=(365 days/(15,840,000/(2,620,000+1720000)/2))=365 days/7.30=50 days
Last year=(365 days/(13,380,000 /(1720000+$1,650,000)/2)=365 days/7.94=45.97 days
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