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: Lydex Company Comparative Balance Sheet This Year Last Year Assets Current assets: Cash Marketable securities Accounts receivable, net Inventory Prepaid expenses $ 1,030,000 $ 1,270,000 300,000 2,080,000 2,200,000 210,000 0 2,980,000 3,670,000 270,000 7,950,000 9,660,000 6,060,000 9,120,000 Total current assets Plant and equipment, net Total assets $ 17,610,000 $ 15,180,000 Liabilities and Stockholders' Equity Liabilities: Current liabilities Note payable, 10% $ 4,080,000 $ 3,120,000 3,120,000 3,720,000 Total liabilities 7,800,000 6,240,000 Stockholders' equity: Common stock, $70 par value Retained earnings 7,000,000 2,810,000 7,000,000 1,940,000 Total stockholders' equity 9,810,000 8,940,000 Total liabilities and stockholders' equity $ 17,610,000 $ 15,180,000

Explanation / Answer

d) return on total assets = Earning before interest and tax / Total Assets

current year $ 2072000 / 17610000

= 11.8 %

Last year $ 1938000 / 15180000

= 12.8%

e) return on equity = Net Income / Shareholder's equity

Current year $ 1190000 / 9810000 = 12.1%

Last year $ 1138200 / 8940000 = 12.7%

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