Please help as soon as possible You have just been hired as a finançai analyst f

Question

Please help as soon as possible

You have just been hired as a finançai analyst for Lydex Company, a manufacturer of safety helmets. Your boss nas asked you to perform a comprenensive analysis of the company's finançai statements, including comparing Lydex's performance to its major competitors. The company's finançai statements for the last two years are as follows: To begin your assigment you gather the following financial data and ratios that are typical of companies in Lydex Company's industry: 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.) The times interest earned ratio. The debt-to-equity ratio. The gross margin percentage. The return on total assets. (Total assets at the beginning of last year were $13,030,000.) The return on equity. (Stockholders' equity at the beginning of last year totaled $7,968,950. There has been no change in common stock over the last two years.) Is the company's financial leverage positive or negative?

Explanation / Answer

Lydex Company All Amounts in $ a. Times Interest Earned Ratio = Earnings before Income and Taxes / Interest Component This Year 4.85 : 1 Last Year 5.62 : 1 b. Debt/Equity Ratio = Debt / Equity This Year 83.63% Last Year 71.05% c. Gross Margin Percentage = Gross Margin / Sales This Year 20.00% Last Year 25.00% d. Return on Total Assets = Net Income after Taxes / Average Total Assets Average Total Assets in This Year 15555000 Last Year 13715000 Return on Total Assets for This Year 6.30% Last Year 7.16% e. Return on Equity = Net Income after Taxes / Average Equity Average Equity in This Year 8780000 Last Year 8214475 Return on Equity for This Year 11.16% Last Year 11.96% f. Given that the standard debt-equity ratio is 0.67 or 67%, and the same ratio for Lydex Company for the previous two years is 83.63% and 71.05% respectively, it can be stated that the Company's financial leverage is negative, since it is relying more on borrowed funds for its capital structure, instead of own funds through issue of common stock.

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