You have just been hired as a financial analyst for Lydex Company, a manufacture
ID: 2488033 • 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:
rev: 09_17_2014_QC_54324, 12_11_2014_QC_CS-386
Garrison 15e Recheck 2015-1-19
1.
value:
33.33 points
Required information
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.)
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:
33.33 points Required 1. 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.) a. The times interest earned ratio. b. The debt-to-equity ratio c. The gross margin percentage. d. The return on total assets. (Total assets at the beginning of last year were $13,080,000.) e. The return on equity. (Stockholders' equity at the beginning of last year totaled $8,103,600. There has been no change in common stock over the last two years.) f. Is the company's financial leverage positive or negative? This Year Last Year 5.62 0.82 20.0% 5.88 0.70 25.0 % a. C. e.Explanation / Answer
Lydex Company All Amounts in $ This Year Last Year a. Times Interest Earned Ratio = EBIT / Interest Expense EBIT 2068000 1812000 Interest Expense 368000 308000 Times Interest Earned Ratio 5.62 : 1 5.88 : 1 b. Debt-To-Equity Ratio = Total Debt / Total Equity Total Debt = Total Liabilities Total Equity 7700000 6080000 Debt-To-Equity Ratio 9420000 8630000 81.74% 70.45% c. Gross Margin Percentage = Gross Margin / Turnover Gross Margin Value 3174000 3420000 Turnover 15870000 13680000 Gross Margin % 20.00% 25.00% d. Return on Total Assets = Net Income after Taxes / Average Total Assets Average Total Assets = (Opening Assets + Closing Assets) / 2 15915000 13895000 Net Income after Taxes 1190000 1052800 Return on Total Assets 7.48% 7.58% e. Return on Equity = Net Income after Taxes / Average Shareholders' Equity Average Shareholders' Equity = (Opening Equity + Closing Equity) / 2 9025000 8366800 Net Income after Taxes 1190000 1052800 Return on Equity 13.19% 12.58% f. From the ratios calculated above, and on a comparison with industry standards, it can be inferred that the financial leverage of Lydex Company is negative.
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