Question

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.

Answer 1

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