In: Accounting
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.
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