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	$	920,000	$	1,250,000
Marketable securities		0		300,000
Accounts receivable, net		2,540,000		1,640,000
Inventory		3,560,000		2,100,000
Prepaid expenses		250,000		190,000
Total current assets		7,270,000		5,480,000
Plant and equipment, net		9,440,000		9,010,000
Total assets	$	16,710,000	$	14,490,000
Liabilities and Stockholders' Equity
Liabilities:
Current liabilities	$	3,600,000	$	2,900,000
Note payable, 10%		3,640,000		3,040,000
Total liabilities		7,240,000		5,940,000
Stockholders' equity:
Common stock, $75 par value		7,500,000		7,500,000
Retained earnings		1,970,000		1,050,000
Total stockholders' equity		9,470,000		8,550,000
Total liabilities and stockholders' equity	$	16,710,000	$	14,490,000
Lydex Company Comparative Income Statement and Reconciliation This Year Last Year   Sales (all on account) $ 15,820,000    $ 13,180,000      Cost of goods sold 12,656,000    9,885,000      Gross margin 3,164,000    3,295,000      Selling and administrative expenses 1,000,000    1,588,000      Net operating income 2,164,000    1,707,000      Interest expense 364,000    304,000      Net income before taxes 1,800,000    1,403,000      Income taxes (30%) 540,000    420,900      Net income 1,260,000    982,100      Common dividends 340,000    491,050      Net income retained 920,000    491,050      Beginning retained earnings 1,050,000    558,950      Ending retained earnings $ 1,970,000    $ 1,050,000    To begin your assigment you gather the following financial data and ratios that are typical of companies in Lydex Company’s industry: Current ratio2.3    Acid-test ratio1.2    Average collection period40 days       Average sale period60 days       Return on assets8.8 %            Debt-to-equity ratio0.67   Times interest earned ratio5.8   Price-earnings ratio10 Required: PART1. Present the balance sheet in common-size format. (Round your percentage answers to 1 decimal place i.e., 0.123 is considered as 12.3. Due to rounding, figures may not fully reconcile down a column.) Lydex Company Common-Size Balance Sheets This Year Last Year Assets Current assets: Cash % % Marketable securities Accounts receivable, net Inventory Prepaid expenses Total current assets Plant and equipment, net Total assets % % Liabilities and Stockholders' Equity Liabilities: Current liabilities % % Note payable, 10% Total liabilities Stockholders’ equity: Common stock, $75 par value Retained earnings Total stockholders’ equity Total liabilities and equity PART2. Present the income statement in common-size format down through net income. (Round your percentage answers to 1 decimal place i.e., 0.123 is considered as 12.3. Due to rounding, figures may not fully reconcile down a column.) Lydex Company Common-Size Income Statements This Year Last Year Sales % % Cost of goods sold Gross margin Selling and administrative expenses Net operating income Interest expense Net income before taxes Income taxes (30%) Net income

Answer 1

Lydex Company
Common-Size Balance Sheets
	This Year	%	Last Year	%
Assets
Current assets:
Cash	$920,000	5.5	1250000	8.6
Marketable securities	0	0.0	300000	2.1
Accounts receivable, net	$2,540,000	15.2	1640000	11.3
Inventory	3560000	21.3	2100000	14.5
Prepaid expenses	$250,000	1.5	190000	1.3
Total current assets	$7,270,000	43.5	$5,480,000	37.8
Plant and equipment, net	$9,440,000	56.5	$9,010,000	62.2
Total assets	$16,710,000	100	$14,490,000	100
Liabilities and Stockholders' Equity
Liabilities:
Current liabilities	3600000	21.5	2900000	20.0
Note payable, 10%	3640000	21.8	3040000	21.0
Total liabilities	7240000	43.3	5940000	41.0
Stockholders’ equity:
Common stock, $75 par value	7500000	44.9	7500000	51.8
Retained earnings	1970000	11.8	1050000	7.2
Total stockholders’ equity	9470000	56.7	8550000	59.0
Total liabilities and equity	16710000	100.0	14490000	100.0
PART2.
	Lydex Company
	Common-Size Income Statements
	This Year	%	Last Year
Sales	15820000	100	13180000	100
Cost of goods sold	12656000	80	9885000	75
Gross margin	3164000	20	3295000	25
Selling and administrative expenses	1000000	6.3	1588000	12.0
Net operating income	2164000	13.7	1707000	13.0
Interest expense	364000	2.3	304000	2.3
Net income before taxes	1800000	11.4	1403000	10.6
Income taxes (30%)	540000	3.4	420900	3.2
Net income	1260000	8.0	982100	7.5
For Balance sheet take base at Total assets than calculate
Line item/Total assets*100
same of liabilities &stockholder equity
Retained earnings
1970000/16710000*100	11.80%
For Income statemnet taxes Sales as base and than used formula
line item/sales*100