You have just been hired as a financial analyst for Lydex Company, a manufacture
ID: 2498683 • 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, 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.)
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
1) Current ratio=Current Assets/Current Liabilities
a. Last Year
Current Assets=5280000
Current Liabilities=2820000
Current ratio=1.87
b. Current Year
Current Ratio=7020000/3930000=1.78
2) Acid test ratio =Liquid Assets/Current Liabilities
Liquid Assets=Stock and Prepaid expenses are not included
a. Last Year
Liquid Assets=1120000+300000+1480000=2900000
Current Liabilities =2820000
Acid test ratio=2900000/2820000=1.02
b. Current Year
Liquid Assets =880000+2380000=3260000
Current Liabilities=3930000
Acid test ratio=0.82
3. Average collection period =365/Accounts receivable turnover ratio
Accounts receivable turnover ratio=Net credit sales/Average accounts receivable
a. Last Year
Net credit sales =12,780,000
Accounts receivable turnover ratio=12,780,000/1480000=8.63 times
Average collection period =365/8.63=42.29 days
b.Current Year
Net Credit sales =15,780,000
Accounts receivable turnover ratio=15,780,000/2,380,000=6.63 times
Average collection period=365/6.63=55.05 days
4.Working capital=Current Assets-Current Liabilities
5.Average sale period=365/Inventory turnover ratio
Inventory turnover ratio=Cost of goods sold/Average inventory
6.The operating cycle
7.Total assets turnover =Sales/Total assets
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