You have j ust been hired as a financial analyst for Lydex Company, a manufactur

Question

You have j ust 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 financial 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:

Present the balance sheet in common-size format. (Round your percentage answers to 1 decimal place (i.e., 0.123 is considered as 12.3.) Due to rounding, figures may not fully reconcile down a column.)

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Present the income statement in common-size format down through net income. (Round your percentage answers to 1 decimal place i.e., 0.123 is considered as 12.3. Due to rounding, figures may not fully reconcile down a column.)

Lydex Company
Comparative Balance Sheet This Year Last Year   Assets   Current assets:      Cash $ 1,050,000     $ 1,360,000          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     6,440,000       Plant and equipment, net 9,700,000     9,140,000       Total assets $ 17,450,000     $ 15,580,000     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     2,300,000       Total stockholders' equity 9,330,000     9,300,000       Total liabilities and stockholders' equity $ 17,450,000     $ 15,580,000    

Explanation / Answer

1)         Common size balance Sheet Lydex Company            This year            Last year Value % Value % Assets Current Assets Cash 1050000 6.0% 1360000 8.7%    Marketable securities 0 0.0% 300000 1.9%     Accounts receivable 3060000 17.5% 2160000 13.9%     Inventory 3400000 19.5% 2400000 15.4%     Prepaid Expenses 240000 1.4% 220000 1.4% Total current assets 7750000 44.4% 6440000 41.3% Plant and equipment 9700000 55.6% 9140000 58.7% Total assets 17450000 100.0% 15580000 100.0% Liabilities and stockholders equity Liabilities    Current liabilities 4400000 25.2% 3160000 20.3%    Note payable 10% 3720000 21.3% 3120000 20.0% Total liabilities 8120000 46.5% 6280000 40.3% stockholders equity     Common stock 7000000 40.1% 7000000 44.9%     Retained earnings 2330000 13.4% 2300000 14.8% Total stockholders equity 9330000 53.5% 9300000 59.7% Total liabilities and stockholders equity 17450000 100.0% 15580000 100.0% 2)         Common size Income Statement Lydex Company            This year            Last year Value % Value % Sales 15950000 100.0% 14480000 100.0% Cost of goods sold 12760000 80.0% 10860000 75.0% Gross Margin 3190000 20.0% 3620000 25.0% Selling and distribution expenses 2018000 12.7% 1640000 11.3% Net operating income 1172000 7.3% 1980000 13.7% Interest expense 372000 2.3% 312000 2.2% Net income before taxes 800000 5.0% 1668000 11.5% Income taxes ( 30%) 240000 1.5% 500400 3.5% Net income 560000 3.5% 1167600 8.1%

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