You have j ust been hired as a financial analyst for Lydex Company, a manufactur
ID: 2481463 • Letter: Y
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:
Lydex Company
Comparative Balance Sheet
This Year
Last Year
Assets
Current assets:
Cash
$
1,040,000
$
1,280,000
Marketable securities
0
300,000
Accounts receivable, net
3,020,000
2,120,000
Inventory
3,680,000
2,300,000
Prepaid expenses
270,000
210,000
Total current assets
8,010,000
6,210,000
Plant and equipment, net
9,680,000
9,130,000
Total assets
$
17,690,000
$
15,340,000
Liabilities and Stockholders' Equity
Liabilities:
Current liabilities
$
4,090,000
$
3,140,000
Note payable, 10%
3,720,000
3,120,000
Total liabilities
7,810,000
6,260,000
Stockholders' equity:
Common stock, $75 par value
7,500,000
7,500,000
Retained earnings
2,380,000
1,580,000
Total stockholders' equity
9,880,000
9,080,000
Total liabilities and stockholders' equity
$
17,690,000
$
15,340,000
Lydex Company
Comparative Income Statement and Reconciliation
This Year
Last Year
Sales (all on account)
$
15,940,000
$
14,380,000
Cost of goods sold
12,752,000
10,785,000
Gross margin
3,188,000
3,595,000
Selling and administrative expenses
1,216,000
1,636,000
Net operating income
1,972,000
1,959,000
Interest expense
372,000
312,000
Net income before taxes
1,600,000
1,647,000
Income taxes (30%)
480,000
494,100
Net income
1,120,000
1,152,900
Common dividends
320,000
576,450
Net income retained
800,000
576,450
Beginning retained earnings
1,580,000
1,003,550
Ending retained earnings
$
2,380,000
$
1,580,000
To begin your assigment you gather the following financial 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
32
days
Average sale period
60
days
Return on assets
8.6
%
Debt-to-equity ratio
0.69
Times interest earned ratio
5.8
Price-earnings ratio
10
Required:
1.
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.)
Required:
1.
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.)
Lydex Company
Common-Size Balance Sheets
This Year
Last Year
Assets
Current assets:
Cash
%
%
Marketable securities
Accounts receivable, net
Inventory
Prepaid expenses
Total current assets
0.0
0.0
Plant and equipment, net
Total assets
0.0
%
0.0
%
Liabilities and Stockholders' Equity
Liabilities:
Current liabilities
%
%
Note payable, 10%
Total liabilities
0.0
0.0
Stockholders’ equity:
Common stock, $75 par value
Retained earnings
Total stockholders’ equity
0.0
0.0
Total liabilities and equity
0.0
%
0.0
%
2.
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:
Explanation / Answer
Lydex Company Common Size balance Sheet This year % last year % Current Assest: Cash 1040000 5.9% 1,280,000 8.3% marketeable Securities 0 0.0% 300,000 2.0% Account Receivable 3020000 17.1% 2120000 13.8% Inventory 3680000 20.8% 2300000 15.0% Prepaid Expenses 270000 1.5% 210000 1.4% Total Current assets 8010000 45.3% 6210000 40.5% Plant & Equipment net 9680000 54.7% 9130000 59.5% Total Assest 17690000 100.0% 15340000 100.0% Liabilties & Stock holders Equity Liabilties Current Liabilities 4090000 23.1% 3140000 20.5% Notes payable 10% 3720000 21.0% 3120000 20.3% Total Liabilites 7810000 44.1% 6260000 40.8% Stock holders Equity 0.0% Common Stock 7500000 42.4% 7500000 48.9% Retained Earning 2380000 13.5% 1580000 10.3% Total Stock Holders equity 9880000 55.9% 9080000 59.2% Total Liabilties & Stock holders Equity 17690000 100.0% 15340000 100.0% Lydex Company Common Size Income Statement This year % Last year % Sales 15,940,000 100.0% 14,380,000 100.0% Cost of goods Sold 12752000 80.0% 10785000 75.0% Gross margin 3,188,000 20.0% 3,595,000 25.0% Selling & Administrative Expenses 1216000 7.6% 1636000 11.4% Net Operating income 1,972,000 12.4% 1,959,000 13.6% Interest Expenses 372000 2.3% 312000 2.2% Net income before tax 1,600,000 10.0% 1,647,000 11.5% Income tax 30% 480,000 3.0% 494,100 3.4% net Income 1,120,000 7.0% 1,152,900 8.0%
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