50.1K

Verified Solution

Link Copied!

$[$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 companys financial statements, including comparing Lydexs performance to its major competitors. The companys financial statements for the last two years are as follows:$$Lydex CompanyComparative Balance Sheet$$This YearLast YearAssets$$Current assets:$$Cash$ $920,000$$ $1,160,000$Marketable securities$0300,000$Accounts receivable, net$2,540,0001,640,000$Inventory$3,560,0002,100,000$Prepaid expenses$250,000190,000$Total current assets$7,270,0005,390,000$Plant and equipment, net$9,440,0009,010,000$Total assets$ $16,710,000$$ $14,400,000$Liabilities and Stockholders' Equity$$Liabilities:$$Current liabilities$ $3,970,000$$ $2,900,000$Note payable, $10\%3,640,0003,040,000$Total liabilities$7,610,0005,940,000$Stockholders' equity:$$Common stock, $$75$ par value$7,500,0007,500,000$Retained earnings$1,600,000960,000$Total stockholders' equity$9,100,0008,460,000$Total liabilities and stockholders' equity$ $16,710,000$$ $14,400,000$Lydex CompanyComparative Income Statement and Reconciliation$$This YearLast YearSales $($all on account$)$$ $15,820,000$$ $13,180,000$Cost of goods sold$12,656,0009,885,000$Gross margin$3,164,0003,295,000$Selling and administrative expenses$1,400,0001,588,000$Net operating income$1,764,0001,707,000$Interest expense$364,000304,000$Net income before taxes$1,400,0001,403,000$Income taxes $(30\%)420,000420,900$Net income$980,000982,100$Common dividends$340,000491,050$Net income retained$640,000491,050$Beginning retained earnings$960,000468,950$Ending retained earnings$ $1,600,000$$ $960,000$To begin your assignment you gather the following financial data and ratios that are typical of companies in Lydex Companys industry:$$Current ratio$2\mathrm{.}3$Acid$-$test ratio$1\mathrm{.}1$Average collection period$40$daysAverage sale period$60$daysReturn on assets$8\mathrm{.}8\%$Debt$-$to$-$equity ratio$0\mathrm{.}7$Times interest earned ratio$5\mathrm{.}8$Price$-$earnings ratio$103.$ You decide, finally, to assess the companys liquidity and asset management. For both this year and last year, compute:$$a$.$ Working capital.b$.$ The current ratio. $($Round your final answers to $2$ decimal places.$)$c$.$ The acid$-$test ratio. $($Round your final answers to $2$ decimal places.$)$d$.$ The average collection period. $($The accounts receivable at the beginning of last year totaled $$1,630,000.)($Use $365$ days in a year. Round your intermediate calculations and final answers to $2$ decimal place.$)$e$.$ The average sale period. $($The inventory at the beginning of last year totaled $$1,990,000.)($Use $365$ days in a year. Round your intermediate calculations and final answers to $2$ decimal place.$)$f$.$ The operating cycle. $($Round your intermediate calculations and final answers to $2$ decimal place.$)$g$.$ The total asset turnover. $($The total assets at the beginning of last year totaled $$13,030,000.)($Round your final answers to $2$ decimal places.$)$This YearLast Yeara. Working capital$3,300,000$selected answer correct$2,490,000$selected answer correctb. The current ratio$1\mathrm{.}83$selected answer correct$1\mathrm{.}86$selected answer correctc. The acid$-$test ratio$0\mathrm{.}94$selected answer incorrect$1\mathrm{.}26$selected answer incorrectd. The average collection period$62\mathrm{.}30$selected answer incorrectdays$49\mathrm{.}91$selected answer incorrectdayse. The average sale period$101\mathrm{.}77$selected answer incorrectdays$97\mathrm{.}36$selected answer incorrectdaysf. The operating cycle$164\mathrm{.}07$selected answer incorrectdays$147\mathrm{.}27$selected answer incorrectdaysg. The total asset turnover$1\mathrm{.}10$selected answer incorrect$1\mathrm{.}01$selected answer incorrect

Answer & Explanation Solved by verified expert

See Answer