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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 companys financial statements, including comparing Lydexs performance to its major competitors. The companys financial statements for the last two years are as follows:

Lydex Company Comparative Balance Sheet
	This Year		Last Year
Assets
Current assets:
Cash	$	880,000	$	1,120,000
Marketable securities		0		300,000
Accounts receivable, net		2,380,000		1,480,000
Inventory		3,520,000		2,200,000
Prepaid expenses		240,000		180,000
Total current assets		7,020,000		5,280,000
Plant and equipment, net		9,360,000		8,970,000
Total assets	$	16,380,000	$	14,250,000
Liabilities and Stockholders' Equity
Liabilities:
Current liabilities	$	3,930,000	$	2,820,000
Note payable, 10%		3,620,000		3,020,000
Total liabilities		7,550,000		5,840,000
Stockholders' equity:
Common stock, $75 par value		7,500,000		7,500,000
Retained earnings		1,330,000		910,000
Total stockholders' equity		8,830,000		8,410,000
Total liabilities and stockholders' equity	$	16,380,000	$	14,250,000
Lydex Company Comparative Income Statement and Reconciliation This Year Last Year Sales (all on account) $ 15,780,000 $ 12,780,000 Cost of goods sold 12,624,000 9,585,000 Gross margin 3,156,000 3,195,000 Selling and administrative expenses 1,794,000 1,572,000 Net operating income 1,362,000 1,623,000 Interest expense 362,000 302,000 Net income before taxes 1,000,000 1,321,000 Income taxes (30%) 300,000 396,300 Net income 700,000 924,700 Common dividends 280,000 462,350 Net income retained 420,000 462,350 Beginning retained earnings 910,000 447,650 Ending retained earnings $ 1,330,000 $ 910,000 Required: 1. You decide first to assess the companys 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 $12,990,000.) e. The return on equity. (Stockholders equity at the beginning of last year totaled $7,947,650. There has been no change in common stock over the last two years.) f. Is the companys financial leverage positive or negative?

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