Question

14-15

Lydex Company Comparative Balance Sheet
	This Year		Last Year
Assets
Current assets:
Cash	$	980,000	$	1,220,000
Marketable securities		0		300,000
Accounts receivable, net		2,780,000		1,880,000
Inventory		3,620,000		2,200,000
Prepaid expenses		260,000		200,000
Total current assets		7,640,000		5,800,000
Plant and equipment, net		9,560,000		9,070,000
Total assets	$	17,200,000	$	14,870,000
Liabilities and Stockholders' Equity
Liabilities:
Current liabilities	$	4,030,000	$	3,020,000
Note payable, 10%		3,680,000		3,080,000
Total liabilities		7,710,000		6,100,000
Stockholders' equity:
Common stock, $75 par value		7,500,000		7,500,000
Retained earnings		1,990,000		1,270,000
Total stockholders' equity		9,490,000		8,770,000
Total liabilities and stockholders' equity	$	17,200,000	$	14,870,000

Lydex Company Comparative Income Statement and Reconciliation
	This Year		Last Year
Sales (all on account)	$	15,880,000	$	13,780,000
Cost of goods sold		12,704,000		10,335,000
Gross margin		3,176,000		3,445,000
Selling and administrative expenses		1,208,000		1,612,000
Net operating income		1,968,000		1,833,000
Interest expense		368,000		308,000
Net income before taxes		1,600,000		1,525,000
Income taxes (30%)		480,000		457,500
Net income		1,120,000		1,067,500
Common dividends		400,000		533,750
Net income retained		720,000		533,750
Beginning retained earnings		1,270,000		736,250
Ending retained earnings	$	1,990,000	$	1,270,000

Current ratio	2.4
Acid-test ratio	1.1
Average collection period	32	days
Average sale period	60	days
Return on assets	9.5	%
Debt-to-equity ratio	0.7
Times interest earned ratio	5.8
Price-earnings ratio	10

Problem 14-15 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 $98 per share and that at the end of last year it was $66. 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.

Answer 1

(1)

earning per share = net income/numbers of common shares outstanding

for this year,

= $1120000/100000 = $11.20 per share

for last year,

= $1067500/$100000 = $10.68 per share

Where,

number of common shares outstanding = $7500000/$75 = 100000

(2)

Dividend yield ratio = dividend per share/market price per share

for this year,

dividend per share = $400000/100000 = $4 per share

dividend yield ratio = $4/$98

= 4.1%

for last year,

dividend per share = $533750/100000 = $5.34 per share

dividend yield ratio = $5.34/$66

= 8.1%

(3)

Dividend payout ratio = dividend per share/earning per share

for this year,

= $4/$11.20

= 35.7%

for this year,

= $5.34/$10.68

= 50%

(4)

Price-earning ratio = market price per share/earning per share

For this year,

= $98/$11.20

= 8.75 times

For last year,

= $66/$10.68

= 6.18 times

(5)

Book value per share = (total stockholders equity - preferred stock)/number of common stock

for this year,

= ($9490000 - $0)/100000

= $94.90

for last year,

= ($8770000 - $0)/100000

= $87.70