In: Accounting
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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 | $ | 1,010,000 | $ | 1,250,000 |
Marketable securities | 0 | 300,000 | ||
Accounts receivable, net | 2,900,000 | 2,000,000 | ||
Inventory | 3,650,000 | 2,000,000 | ||
Prepaid expenses | 270,000 | 210,000 | ||
Total current assets | 7,830,000 | 5,760,000 | ||
Plant and equipment, net | 9,620,000 | 9,100,000 | ||
Total assets | $ | 17,450,000 | $ | 14,860,000 |
Liabilities and Stockholders' Equity | ||||
Liabilities: | ||||
Current liabilities | $ | 4,060,000 | $ | 3,080,000 |
Note payable, 10% | 3,700,000 | 3,100,000 | ||
Total liabilities | 7,760,000 | 6,180,000 | ||
Stockholders' equity: | ||||
Common stock, $70 par value | 7,000,000 | 7,000,000 | ||
Retained earnings | 2,690,000 | 1,680,000 | ||
Total stockholders' equity | 9,690,000 | 8,680,000 | ||
Total liabilities and stockholders' equity | $ | 17,450,000 | $ | 14,860,000 |
Lydex Company Comparative Income Statement and Reconciliation |
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This Year | Last Year | |||
Sales (all on account) | $ | 15,910,000 | $ | 14,080,000 |
Cost of goods sold | 12,728,000 | 10,560,000 | ||
Gross margin | 3,182,000 | 3,520,000 | ||
Selling and administrative expenses | 912,000 | 1,624,000 | ||
Net operating income | 2,270,000 | 1,896,000 | ||
Interest expense | 370,000 | 310,000 | ||
Net income before taxes | 1,900,000 | 1,586,000 | ||
Income taxes (30%) | 570,000 | 475,800 | ||
Net income | 1,330,000 | 1,110,200 | ||
Common dividends | 320,000 | 555,100 | ||
Net income retained | 1,010,000 | 555,100 | ||
Beginning retained earnings | 1,680,000 | 1,124,900 | ||
Ending retained earnings | $ | 2,690,000 | $ | 1,680,000 |
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 | 1.1 | |
Average collection period | 32 | days |
Average sale period | 60 | days |
Return on assets | 9.8 | % |
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 $104 per share and that at the end of last year it was $72. 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.