In: Accounting
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 |
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This Year | Last Year | |||
Assets | ||||
Current assets: | ||||
Cash | $ | 980,000 | $ | 1,140,000 |
Marketable securities | 0 | 300,000 | ||
Accounts receivable, net | 2,780,000 | 1,880,000 | ||
Inventory | 3,620,000 | 2,200,000 | ||
Prepaid expenses | 260,000 | 200,000 | ||
Total current assets | 7,640,000 | 5,720,000 | ||
Plant and equipment, net | 9,560,000 | 9,070,000 | ||
Total assets | $ | 17,200,000 | $ | 14,790,000 |
Liabilities and Stockholders' Equity | ||||
Liabilities: | ||||
Current liabilities | $ | 4,030,000 | $ | 2,780,000 |
Note payable, 10% | 3,680,000 | 3,080,000 | ||
Total liabilities | 7,710,000 | 5,860,000 | ||
Stockholders' equity: | ||||
Common stock, $75 par value | 7,500,000 | 7,500,000 | ||
Retained earnings | 1,990,000 | 1,430,000 | ||
Total stockholders' equity | 9,490,000 | 8,930,000 | ||
Total liabilities and stockholders' equity | $ | 17,200,000 | $ | 14,790,000 |
Lydex Company Comparative Income Statement and Reconciliation |
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This Year | Last Year | |||
Sales (all on account) | $ | 15,880,000 | $ | 13,780,000 |
Cost of goods sold | 12,704,000 | 10,335,000 | ||
Gross margin | 3,176,000 | 3,445,000 | ||
Selling and administrative expenses | 1,436,571 | 1,612,000 | ||
Net operating income | 1,739,429 | 1,833,000 | ||
Interest expense | 368,000 | 308,000 | ||
Net income before taxes | 1,371,429 | 1,525,000 | ||
Income taxes (30%) | 411,429 | 457,500 | ||
Net income | 960,000 | 1,067,500 | ||
Common dividends | 400,000 | 533,750 | ||
Net income retained | 560,000 | 533,750 | ||
Beginning retained earnings | 1,430,000 | 896,250 | ||
Ending retained earnings | $ | 1,990,000 | $ | 1,430,000 |
To begin your assignment you gather the following financial data and ratios that are typical of companies in Lydex Company’s industry:
Current ratio | 2.4 | |
Acid-test ratio | 1.2 | |
Average collection period | 32 | days |
Average sale period | 60 | days |
Return on assets | 9.5 | % |
Debt-to-equity ratio | 0.68 | |
Times interest earned ratio | 5.8 | |
Price-earnings ratio | 10 | |
Required:
1. Present the balance sheet in common-size format.
2. Present the income statement in common-size format down through net income.
Present the balance sheet in common-size format. (Round your answers to 1 decimal place. Due to rounding, figures may not fully reconcile down a column.)
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>Income Statement, all percentage values are calculated by taking ‘Sales’ amount as the denominator value.
Lydex Company |
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Comparative Balance Sheet |
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This Year |
Last Year |
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Assets |
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Current assets: |
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Cash |
$ 980,000.00 |
5.7% |
$ 1,140,000.00 |
7.7% |
Marketable securities |
$ - |
0.0% |
$ 300,000.00 |
2.0% |
Accounts receivable, net |
$ 2,780,000.00 |
16.2% |
$ 1,880,000.00 |
12.7% |
Inventory |
$ 3,620,000.00 |
21.0% |
$ 2,200,000.00 |
14.9% |
Prepaid expenses |
$ 260,000.00 |
1.5% |
$ 200,000.00 |
1.4% |
Total current assets |
$ 7,640,000.00 |
44.4% |
$ 5,720,000.00 |
38.7% |
Plant and equipment, net |
$ 9,560,000.00 |
55.6% |
$ 9,070,000.00 |
61.3% |
Total assets |
$ 17,200,000.00 |
100.0% |
$ 14,790,000.00 |
100.0% |
Liabilities and Stockholders' Equity |
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Liabilities: |
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Current liabilities |
$ 4,030,000.00 |
23.4% |
$ 2,780,000.00 |
18.8% |
Note payable, 10% |
$ 3,680,000.00 |
21.4% |
$ 3,080,000.00 |
20.8% |
Total liabilities |
$ 7,710,000.00 |
44.8% |
$ 5,860,000.00 |
39.6% |
Stockholders' equity: |
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Common stock, $75 par value |
$ 7,500,000.00 |
43.6% |
$ 7,500,000.00 |
50.7% |
Retained earnings |
$ 1,990,000.00 |
11.6% |
$ 1,430,000.00 |
9.7% |
Total stockholders' equity |
$ 9,490,000.00 |
55.2% |
$ 8,930,000.00 |
60.4% |
Total liabilities and stockholders' equity |
$ 17,200,000.00 |
100.0% |
$ 14,790,000.00 |
100.0% |
Lydex Company |
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Comparative Income Statement and Reconciliation |
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This Year |
Last Year |
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Sales (all on account) |
$ 15,880,000.00 |
100.0% |
$ 13,780,000.00 |
100.0% |
Cost of goods sold |
$ 12,704,000.00 |
80.0% |
$ 10,335,000.00 |
75.0% |
Gross margin |
$ 3,176,000.00 |
20.0% |
$ 3,445,000.00 |
25.0% |
Selling and administrative expenses |
$ 1,436,571.00 |
9.0% |
$ 1,612,000.00 |
11.7% |
Net operating income |
$ 1,739,429.00 |
11.0% |
$ 1,833,000.00 |
13.3% |
Interest expense |
$ 368,000.00 |
2.3% |
$ 308,000.00 |
2.2% |
Net income before taxes |
$ 1,371,429.00 |
8.6% |
$ 1,525,000.00 |
11.1% |
Income taxes (30%) |
$ 411,429.00 |
2.6% |
$ 457,500.00 |
3.3% |
Net income |
$ 960,000.00 |
6.0% |
$ 1,067,500.00 |
7.7% |