You have just been hired as a financial analyst for Lydex Company, a manufacture
ID: 2498138 • 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.)
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:
Explanation / Answer
a) Time interest earned = Net operating income / interest earned
This year = 2,170,000/ 370,000 = 5.86
Last year = 1,917,000/ 310,000 = 6.18
b) debt to equity ratio = debt / (equity+ retained earnings)
This year = 3,700,000 / 9,760,000 = 0.38
Last year = 3,100,000 / 8,820,000 = 0.35
c) gross margin percentage = gross profit / net sales * 100
This year = 3,184,000/ 15,920,000*100 = 20%
Last year = 3,545,000/ 14,180,000 *100 = 25%
d) The return on total assets = EBIT / Net assets
where Net assets = Asset in beginning + Assets at end / 2
Net asset this year = $13,130,000+ 15,020,000/2 = 14075000
Net asset last year = 15,020,000 + 17,530,000/2 = 16275000
return on total assets (this year) = 2,170,000/ 14075000 = 15.42%
return on total assets (last year) = 1,917,000/ 16275000 = 11.78%
e) The return on equity= Net income/ share holder's equity
where shareholders equity = shareholders in beginning + shareholders at end / 2
share holder's equity (this year) = 8,257,550 + 7,500,000/2 = 7,878,775
share holder's equity (Last year) = 7,500,000 + 7,500,000/2 = 7,500,000
return on equity (this year) = 940,000/ 7,878,775 = 11.93%
return on equity (Last year) = 562,450/ 7,500,000 = 7.50%
f) financial leverage = EBIT/EBT
company financial leverage(this year) = 2,170,000/ 1,800,000 = 1.21
company financial leverage(Last year)= 1,917,000/ 1,607,000 = 1.19
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