Question

In: Accounting

ou have just been hired as a financial analyst for Lydex Company, a manufacturer of safety...

ou 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 $ 1,040,000 $ 1,280,000
Marketable securities 0 300,000
Accounts receivable, net 3,020,000 2,120,000
Inventory 3,680,000 2,300,000
Prepaid expenses 270,000 210,000
Total current assets 8,010,000 6,210,000
Plant and equipment, net 9,680,000 9,130,000
Total assets $ 17,690,000 $ 15,340,000
Liabilities and Stockholders' Equity
Liabilities:
Current liabilities $ 4,090,000 $ 3,140,000
Note payable, 10% 3,720,000 3,120,000
Total liabilities 7,810,000 6,260,000
Stockholders' equity:
Common stock, $75 par value 7,500,000 7,500,000
Retained earnings 2,380,000 1,580,000
Total stockholders' equity 9,880,000 9,080,000
Total liabilities and stockholders' equity $ 17,690,000 $ 15,340,000
Lydex Company
Comparative Income Statement and Reconciliation
This Year Last Year
Sales (all on account) $ 15,940,000 $ 14,380,000
Cost of goods sold 12,752,000 10,785,000
Gross margin 3,188,000 3,595,000
Selling and administrative expenses 1,216,000 1,636,000
Net operating income 1,972,000 1,959,000
Interest expense 372,000 312,000
Net income before taxes 1,600,000 1,647,000
Income taxes (30%) 480,000 494,100
Net income 1,120,000 1,152,900
Common dividends 320,000 576,450
Net income retained 800,000 576,450
Beginning retained earnings 1,580,000 1,003,550
Ending retained earnings $ 2,380,000 $ 1,580,000

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

Current ratio 2.3
Acid-test ratio 1.2
Average collection period 32 days
Average sale period 60 days
Return on assets 8.6 %
Debt-to-equity ratio 0.7
Times interest earned ratio 5.8
Price-earnings ratio 10

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 $110 per share and that at the end of last year it was $78. 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.

Solutions

Expert Solution

Solution

Part 2

a.

Earnings Per Share

This Year

Last Year

Net Income for Year (A)

$1,120,000

$1,152,900

Number of Common Shares Outstanding (B)

100000

100000

Earnings Per Share (A/B)

$11.20

$11.53

b.

Dividend Yield

This Year

Last Year

Dividend Per Share

Common Dividends

$320,000

$576,450

/ Number of Common Shares

100000

100000

Dividend Per Share

$3.20

$5.76

Market Price Per Share (MPS)

$110

$78

Dividend Yield Ratio (Dividend Per Share / Market Price Per Share x 100)

2.9%

7.4%

c.

Dividend Payout Ratio

This Year

Last Year

Dividend Per Share (Refer Part b)

$3.20

$5.76

Earnings Per Share (Refer Part a)

$11.20

$11.53

Dividend Payout Ratio (DPS / EPS x 100)

28.6%

50.0%

d.

Price Earnings Ratio

Market Price Per Share (MPS)

$110

$78

Earnings Per Share (Refer part a) (EPS)

$11.20

$11.53

Price Earnings Ratio (MPS / EPS)

9.82

6.77

Times

Times

e.

Book Value Per Share

This Year

Last Year

Total Assets

$17,690,000

$15,340,000

Less: Total Liabilities

$7,810,000

$6,260,000

Net Assets Value (Net Assets Book Value)

$9,880,000

$9,080,000

Number of Shares Outstanding

100000

100000

Book Value Per Share (Net Assets Value / Number of Common Shares outstanding)

$98.80

$90.80

Hope the above calculations, working and explanations are clear to you and help you in understanding the concept of question.... please rate my answer...in case any doubt, post a comment and I will try to resolve the doubt ASAP…thank you


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