In: Accounting
[The following information applies to the questions displayed below.] |
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 | $ | 1,000,000 | $ | 1,240,000 |
Marketable securities | 0 | 300,000 | ||
Accounts receivable, net | 2,860,000 | 1,960,000 | ||
Inventory | 3,640,000 | 2,400,000 | ||
Prepaid expenses | 270,000 | 210,000 | ||
Total current assets | 7,770,000 | 6,110,000 | ||
Plant and equipment, net | 9,600,000 | 9,090,000 | ||
Total assets | $ | 17,370,000 | $ | 15,200,000 |
Liabilities and Stockholders' Equity | ||||
Liabilities: | ||||
Current liabilities | $ | 4,050,000 | $ | 3,060,000 |
Note payable, 10% | 3,700,000 | 3,100,000 | ||
Total liabilities | 7,750,000 | 6,160,000 | ||
Stockholders' equity: | ||||
Common stock, $75 par value | 7,500,000 | 7,500,000 | ||
Retained earnings | 2,120,000 | 1,540,000 | ||
Total stockholders' equity | 9,620,000 | 9,040,000 | ||
Total liabilities and stockholders' equity | $ | 17,370,000 | $ | 15,200,000 |
Lydex Company Comparative Income Statement and Reconciliation |
||||
This Year | Last Year | |||
Sales (all on account) | $ | 15,900,000 | $ | 13,980,000 |
Cost of goods sold | 12,720,000 | 10,485,000 | ||
Gross margin | 3,180,000 | 3,495,000 | ||
Selling and administrative expenses | 1,410,000 | 1,620,000 | ||
Net operating income | 1,770,000 | 1,875,000 | ||
Interest expense | 370,000 | 310,000 | ||
Net income before taxes | 1,400,000 | 1,565,000 | ||
Income taxes (30%) | 420,000 | 469,500 | ||
Net income | 980,000 | 1,095,500 | ||
Common dividends | 400,000 | 547,750 | ||
Net income retained | 580,000 | 547,750 | ||
Beginning retained earnings | 1,540,000 | 992,250 | ||
Ending retained earnings | $ | 2,120,000 | $ | 1,540,000 |
To begin your assigment 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 | 9.7 | % |
Debt-to-equity ratio | .65 | |
Times interest earned ratio | 5.7 | |
Price-earnings ratio | 10 | |
rev: 09_22_2016_QC_CS-61528, 08_02_2017_QC_CS-78100
References
Section BreakProblem 13-15A Comprehensive Ratio Analysis [LO13-2, LO13-3, LO13-4, LO13-5, LO13-6]
1.
value:
5.00 points
Required information
Part 1
Required: |
1. |
You decide first to assess the company’s performance in terms of debt management and profitability. Compute the following for both this year and last year: (Round your intermediate calculations and final percentage answers to 1 decimal place. i.e., 0.123 should be considered as 12.3%. Round the rest of the intermediate calculations and final answers to 2 decimal places.) |
a. | The times interest earned ratio. |
b. | The debt-to-equity ratio. |
c. | The gross margin percentage. |
d. | The return on total assets. (Total assets at the beginning of last year were $13,110,000.) |
e. | The return on equity. (Stockholders’ equity at the beginning of last year totaled $8,492,250. There has been no change in common stock over the last two years.) |
f. | Is the company’s financial leverage positive or negative? |
References
eBook & Resources
WorksheetLearning Objective: 13-02 Compute and interpret financial ratios that managers use to assess liquidity.Learning Objective: 13-05 Compute and interpret financial ratios that managers use to assess profitability.
Part 1Learning Objective: 13-03 Compute and interpret financial ratios that managers use for asset management purposes.Learning Objective: 13-06 Compute and interpret financial ratios that managers use to assess market performance.
Difficulty: 1 EasyLearning Objective: 13-04 Compute and interpret financial ratios that managers use for debt management purposes.
Check my work
2.
value:
5.00 points
Required information
Part 2
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 $102 per share and that at the end of last year it was $70. For both this year and last year, compute: (Round your intermediate calculations and final answers to 2 decimal places. For percentages 0.1234 should be considered as 12.34%.) |
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. |
References
eBook & Resources
WorksheetLearning Objective: 13-02 Compute and interpret financial ratios that managers use to assess liquidity.Learning Objective: 13-05 Compute and interpret financial ratios that managers use to assess profitability.
Part 2Learning Objective: 13-03 Compute and interpret financial ratios that managers use for asset management purposes.Learning Objective: 13-06 Compute and interpret financial ratios that managers use to assess market performance.
Difficulty: 1 EasyLearning Objective: 13-04 Compute and interpret financial ratios that managers use for debt management purposes.
Check my work
3.
value:
5.00 points
Required information
Part 3
3. |
You decide, finally, to assess the company’s liquidity and asset management. For both this year and last year, compute: (Use 365 days in a year. Round "days" intermediate calculations and final answers to 1 decimal place. Round all other intermediate calculations and final answers to 2 decimal places.) |
a. | Working capital. |
b. | The current ratio. |
c. | The acid-test ratio. |
d. | The average collection period. (The accounts receivable at the beginning of last year totaled $1,710,000.) |
e. | The average sale period. (The inventory at the beginning of last year totaled $2,070,000.) |
f. | The operating cycle. |
g. | The total asset turnover. (The total assets at the beginning of last year totaled $13,110,000.) |