You have just been hired as a financial analyst for Lydex Company, a manufacture

Question

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 financial statements for the last two years are as follows: Lydex Company Comparative Balance Sheet This Year Last Year Assets Current assets: Cash Marketable securities Accounts receivable, net $890,000 1130,000 300,000 1,520,000 2,300,000 180,000 0 2,420,000 3,530,000 240,000 Prepaid expenses Total current assets Plant and equipment, net 7080,000 9,380,000 5.430,000 8,980,000 Total assets 16,460,000 14,410,000 Liabilities and Stockholders' Equity Liabilities: Current liabilities Note payable, 10% $ 3,940,000 $. 2.840,000 3,020,000 3,620,000 Total liabilities 7560,000 5,860,000 Stockholders' equity Common stock, $70 par value Retained earnings 7000,000 1900,000 7000,000 1,550,000 Total stockholders' equity 8,900,000 8,550,000 Total liabilities and stockholders' equity 16,460,000 14,410,000

Explanation / Answer

Formula Calculation This year Calculations Last year Current assets - current liabilities 7080000-3940000 $ 31,40,000 5430000-2840000 $ 25,90,000 Currnet asset/current liabilitites 7080000/3940000 1.80 5430000/2840000 1.91 (current assets - inventory - prepaid expenses) / current liabilities (7080000 - 3530000-240000)/3940000 0.84 (5430000 - 2300000-180000)/2840000 1.04 (average accounts receivable / Net sales on account) * 365 days (((2420000+1520000)/2) / 15790000)*365 45.54 days (((1520000+1600000)/2)/12880000)*365 44.21 days (average inventory / Cost of goods sold) * 365 days (((3530000+2300000)/2)/12632000)*365 84.23 days (((2300000+ 1960000)/2)/9660000)*365 80.48 days Average collection period + Average sales period 129.77 days 124.69 days Net sales for the year/ Average total assets (15790000 / ((16460000+14410000)/2) 1.02 (1288000 /(14410000+14540000)/2) 0.02

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