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

2. You decide next to assess the company’s stock market performance. Assume that Lydex’s stock price at the end of this year is $76 per share and that at the end of last year it was $44. For both this year and last year, compute: (Round your "Percentage" answers to 1 decimal place and other intermediate and final answers to 2 decimal places.)

a. The earnings per share.

b. The dividend yield ratio.

c. The dividend payout ratio.

d. The price-earnings ratio.

e. The book value per share of common stock.

Lydex Company
Comparative Balance Sheet This Year Last Year Assets Current assets: Cash $ 870,000 $ 1,110,000 Marketable securities 0 300,000 Accounts receivable, net 2,340,000 1,440,000 Inventory 3,510,000 2,100,000 Prepaid expenses 240,000 180,000 Total current assets 6,960,000 5,130,000 Plant and equipment, net 9,340,000 8,960,000 Total assets $ 16,300,000 $ 14,090,000 Liabilities and Stockholders' Equity Liabilities: Current liabilities $ 3,920,000 $ 2,800,000 Note payable, 10% 3,600,000 3,000,000 Total liabilities 7,520,000 5,800,000 Stockholders' equity: Common stock, $70 par value 7,000,000 7,000,000 Retained earnings 1,780,000 1,290,000 Total stockholders' equity 8,780,000 8,290,000 Total liabilities and stockholders' equity $ 16,300,000 $ 14,090,000

Explanation / Answer

No of common shares= 7,000,000 / $70 = 100000 shares

a) Earning per share = Net Income / No. of common shares outstanding
This year = 840000 / 100000 = 8.4 per share
Last year = 911400 / 100000 = 9.11 per share

b). Dividend yeild ratio = Annual dividend per share / Price per share
This Year = 3.5 / 76 = 4.61%
Last Year = 4.55 / 44 = 10.34%
Annual dividend per share = Annual dividend / No. of shares
This Year = 350000 / 100000 = 3.5 per share
Last Year = 455700 / 100000 = 4.557 per share

c). Dividend payout ratio = Dividend for the period / Net Income available to common shareholders
This year = 350000 / 840000 = 0.4166 or 41.67%
Last Year = 455700 / 911400 = 0.5 or 50%

d). Price earnig ratio = Market value per share / EPS
This year = 76 / 8.4 = 9
Last year = 44 / 9.11 = 4.83

e). Book Value per share = Total shareholder's equity / Total outstanding shares
This year = 8780000 / 100000 = 87.8
Last Year = 8290000 / 100000 = 82.9

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