You have just been hired as a financial analyst for Lydex Company, a manufacturer of...
90.2K
Verified Solution
Link Copied!
Question
Accounting
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 nancial statements for the last two years are as follows: Lydex Company Comparative Balance Sheet This Year Last Year Assets Current assets: Cash $ 1,050,000 $ 1,290,000 Marketable securities 0 300,000 Accounts receivable, net 3,060,000 2,160,000 Inventory 3,400,000 2,400,000 Prepaid expenses 240,000 220,000 Total current assets 7,750,000 6,370,000 Plant and equipment, net 9,700,000 9,140,000 Total assets $ 17,450,000 $15,510,000 Liabilities and Stockholders, Equity Liabilities: Current liabilities $ 4,400,000 $ 3,160,000 Note payable, 10% 3,720,000 3,120,000 Total liabilities 8,120,000 6,280,000 Stockholders' equity: Common stock, $70 par value 7,000,000 7,000,000 Retained earnings 2,330,000 2,230,000 Total stockholders3 equity 9,330,000 9,230,000 Total liabilities and stockholders' equity $17,450,000 $15,510,000 Lydex Company Comparative Income Statement and Reconciliation This Year Last Year Sales (all on account) $ 15,950,000 $ 14,480,000 Cost of goods sold 12,760,000 10,860,000 Gross margin 3,190,000 3,620,000 Selling and administrative expenses 1,918,000 1,640,000 Net operating income 1,272,000 1,980,000 Interest expense 372,000 312,000 Net income before taxes 900,000 1,668,000 Income taxes (30%) 270,000 500,400 Net income 630,000 1,167,600 Common dividends 530,000 583,800 Net income retained 100,000 583,800 Beginning retained earnings 2,230,000 1,646,200 Ending retained earnings $ 2,330,000 $ 2,230,000 To begin your assignment you gather the following nancial 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 32days Average sale period 60days Return on assets 8.7% Debt-to-equity ratio 0.7 Times interest earned ratio 5.9 Priceearnings ratio 10 Problem 15-15 Part 3 3. You decide, finally, to assess the company's 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 $1,760,000.) (Use 365 days in a year. Round your intermediate calculations and final answer to 2 decimal place.) e. The average sale period. (The inventory at the beginning of last year totaled $2,120,000.) (Use 365 days in a year. Round your intermediate calculations and final answer to 2 decimal place.) f. The operating cycle. (Round your intermediate calculations and final answer to 2 decimal place.) g. The total asset turnover. (The total assets at the beginning of last year totaled $14,700,000.) (Round your final answers to 2 decimal places.) This Year Last Year a. Working capital 3,350,000 3,210,000 b. The current ratio 1.76 2.02 C. The acid-test ratio 0.93 1.19 d. The average collection period days days e. The average sale period days days f. The operating cycle days days g. The total asset turnover
Answer & Explanation
Solved by verified expert
Get Answers to Unlimited Questions
Join us to gain access to millions of questions and expert answers. Enjoy exclusive benefits tailored just for you!
Membership Benefits:
Unlimited Question Access with detailed Answers
Zin AI - 3 Million Words
10 Dall-E 3 Images
20 Plot Generations
Conversation with Dialogue Memory
No Ads, Ever!
Access to Our Best AI Platform: Flex AI - Your personal assistant for all your inquiries!