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, 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.)

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

Formula Calculatio c. Working capital. Current assets-Current liabilites 8010000-4090000 $3,920,000 b. The current ratio. Current assets/Current liabilites 8010000/4090000 1.9584 c. The acid-test ratio. (Current assets-Inventory-Prepaid expenses)/Current liabilites (8010000-3680000-270000)/4090000 0.9927 d. The average collection period. (The accounts receivable at the beginning of last year totaled $1,750,000.) 365*Average accounts receivable/ credit Sales 365* {(1750000+3020000)/2}/15940000 54.61261 Days e. The average sale period. (The inventory at the beginning of last year totaled $2,110,000.) Cost of goods sold/Average inventory 365/{12752000/[(3,680,000+2,110,000)/2]} 82.8633 Days Lydex Company Industry Remarks c. Working capital. $3,920,000 b. The current ratio. 1.96 2.30 Lydex Company current ratio is lower than the industry ratio. Hence, Lydex Company need to improve its ratio c. The acid-test ratio. 0.9927 1.20 Lydex Company Acid test ratio is lower than the industry ratio. Hence, Lydex Company need to improve its acid assets to meet its current liabilities. d. The average collection period. (The accounts receivable at the beginning of last year totaled $1,750,000.) 54.61261 Days 32 Days Lydex Company collection period is higher than the industry Collection period. Hence, Lydex Company need to improve its collection procedures e. The average sale period. (The inventory at the beginning of last year totaled $2,110,000.) 82.8633 Days 60 Days Lydex Company Average sale period is higher than the industry sale period period. Hence, Lydex Company need to improve its Sale procedures

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