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 $ 960,000 $ 1,260,000
Marketable securities 0 300,000
Accounts receivable, net 2,700,000 1,800,000
Inventory 3,900,000 2,400,000
Prepaid expenses 240,000 180,000
Total current assets 7,800,000 5,940,000
Plant and equipment, net 9,300,000 8,940,000
Total assets $ 17,100,000 $ 14,880,000
Liabilities and Stockholders' Equity
Liabilities:
Current liabilities $ 3,900,000 $ 2,760,000
Note payable, 10% 3,600,000 3,000,000
Total liabilities 7,500,000 5,760,000
Stockholders' equity:
Common stock, $78 par value 7,800,000 7,800,000
Retained earnings 1,800,000 1,320,000
Total stockholders' equity 9,600,000 9,120,000
Total liabilities and stockholders' equity $ 17,100,000 $ 14,880,000
Lydex Company
Comparative Income Statement and Reconciliation
This Year Last Year
Sales (all on account) $ 15,750,000 $ 12,480,000
Cost of goods sold 12,600,000 9,900,000
Gross margin 3,150,000 2,580,000
Selling and administrative expenses 1,590,000 1,560,000
Net operating income 1,560,000 1,020,000
Interest expense 360,000 300,000
Net income before taxes 1,200,000 720,000
Income taxes (30%) 360,000 216,000
Net income 840,000 504,000
Common dividends 360,000 252,000
Net income retained 480,000 252,000
Beginning retained earnings 1,320,000 1,068,000
Ending retained earnings $ 1,800,000 $ 1,320,000

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 30 days
Average sale period 60 days
Return on assets 9.5 %
Debt-to-equity ratio 0.65
Times interest earned ratio 5.7
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.

Solutions

Expert Solution

Answer-1)-

Lydex Company
Common-Size Income Statements
Particulars This Year % Last Year %
$ $
Current Assets:-
Cash 960000 5.6 1260000 8.5
Marketable securities 0 0.0 300000 2.0
Accounts receivable, net 2700000 15.8 1800000 12.1
Inventory 3900000 22.8 2400000 16.1
Prepaid Expenses 240000 1.4 180000 1.2
Total Current Assets 7800000 45.6 5940000 39.9
Plan & Equipments, net 9300000 54.4 8940000 60.1
Total Assets 17100000 100.0 14880000 100.0
Liabilities & Stockhoder's equity
Liabilities:-
Current Liabilities 3900000 22.8 2760000 18.5
Note payable, 10% 3600000 21.1 3000000 20.2
Total Liabilities 7500000 43.9 5760000 38.7
Stockholder's Equity:-
Common stock $70 par value 7800000 45.6 7800000 52.4
Retained earnings 1800000 10.5 1320000 8.9
Total stcokholders equity 9600000 56.1 9120000 61.3
Total liabililties & stockholder equity 17100000 100.0 14880000 100.0

2)-

LYDES COMPANY
COMMON-SIZE COMPARATIVE INCOME STATEMENTS
FOR THE YEAR ENDED
YEARS This Year % Last Year %
$ $
Sales 15750000 100.0 12480000 100.0
Cost of goods sold 12600000 80.0 9900000 79.3
Gross profit 3150000 20.0 2580000 20.7
Selling & administrative expenses 1590000 10.1 1560000 12.5
Net operating income 1560000 9.9 1020000 8.2
Less- Interest expense 360000 2.3 300000 2.4
Net Income before taxes 1200000 7.6 720000 5.8
Income taxes 360000 2.3 216000 1.7
Net Income 840000 5.3 504000 4.0

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