You have just been hired as a financial analyst for Lydex Company, a manufacture
ID: 2498008 • Letter: Y
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:
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.)
Is the company’s financial leverage positive or negative?
You decide next to assess the company’s stock market performance. Assume that Lydex’s stock price at the end of this year is $92 per share and that at the end of last year it was $60. For both this year and last year, compute: (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 book value per share of common stock.
You decide, finally, to assess the company’s liquidity and asset management. For both this year and last year, compute: (Use 365 days in a year. Round your intermediate calculations and final answer to 2 decimal places.)
Lydex CompanyComparative Balance Sheet This Year Last Year Assets Current assets: Cash $ 950,000 $ 1,190,000 Marketable securities 0 300,000 Accounts receivable, net 2,660,000 1,760,000 Inventory 3,590,000 2,400,000 Prepaid expenses 260,000 200,000 Total current assets 7,460,000 5,850,000 Plant and equipment, net 9,500,000 9,040,000 Total assets $ 16,960,000 $ 14,890,000 Liabilities and Stockholders' Equity Liabilities: Current liabilities $ 4,000,000 $ 2,960,000 Note payable, 10% 3,660,000 3,060,000 Total liabilities 7,660,000 6,020,000 Stockholders' equity: Common stock, $70 par value 7,000,000 7,000,000 Retained earnings 2,300,000 1,870,000 Total stockholders' equity 9,300,000 8,870,000 Total liabilities and stockholders' equity $ 16,960,000 $ 14,890,000
Explanation / Answer
Answer:-
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:
Sr.no
Ratios
This year
Last Year
a
The times interest earned ratio.
2.10
3.35
b.
The debt-to-equity ratio.
0.82
0.68
c.
The gross margin percentage.
20.00%
25.00%
d.
The return on total assets. (Total assets at the beginning of last year were $13,060,000.)
0.05
0.11
e.
The return on equity. (Stockholders’ equity at the beginning of last year totaled $8,357,600. There has been no change in common stock over the last two years.)
0.08
0.11
The times interest earned ratio.
Net income/Annual Interest Expense
The debt-to-equity ratio.
Total liabilties/Total equity
The gross margin percentage.
Gross margin/Sales
The return on total assets. (Total assets at the beginning of last year were $13,060,000.)
Net income/Average total asset
The return on equity. (Stockholders’ equity at the beginning of last year totaled $8,357,600. There has been no change in common stock over the last two years.)
Net income/Average Shareholder's equity
You decide next to assess the company’s stock market performance. Assume that Lydex’s stock price at the end of this year is $92 per share and that at the end of last year it was $60. For both this year and last year, compute:
You decide, finally, to assess the company’s liquidity and asset management. For both this year and last year, compute
Sr.no
Ratios
This year
Last Year
a
The times interest earned ratio.
2.10
3.35
b.
The debt-to-equity ratio.
0.82
0.68
c.
The gross margin percentage.
20.00%
25.00%
d.
The return on total assets. (Total assets at the beginning of last year were $13,060,000.)
0.05
0.11
e.
The return on equity. (Stockholders’ equity at the beginning of last year totaled $8,357,600. There has been no change in common stock over the last two years.)
0.08
0.11
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