You have just been hired as a financial analyst for Lydex Company, a manufacture
ID: 2498805 • 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
This Year
a)
Working capital = Total current assets - Current liabilities
Working capital = 7580000-4020000
Working capital = 3560000
b)
current ratio = Total current assets/ Current liabilities
current ratio = 7580000/4020000
current ratio = 1.89
3)
Acid-test ratio = Quick Asset/Current liability
Acid-test ratio = (cash + Marketable securities + accounts receivable net)/Current liability
Acid-test ratio = (970000+0+2740000)/4020000
Acid-test ratio = 0.92
d)
Average collection period = 365 * Average Account Recievable/ Sale
Average Account Recievable = (2740000+1840000)/2
Average Account Recievable = 2290000
Average collection period = 365 * 2290000/15870000
Average collection period = 52.67 Days
e)
Average sale period. = 365 * Average Inventory/Cost of Good Sold
Average Inventory = (3610000+2100000)/2
Average Inventory = 2855000
Average sale period. = 365 * (2855000/12696000)
Average sale period. = 82.08 Days
f)
operating cycle = Average collection period + Average sale period.
operating cycle = 52.67 + 82.08
operating cycle = 134.75 Days
g)
Total asset turnover. = Sale/Average Total Asset
Average Total Asset = (17120000+14710000)/2
Average Total Asset = 15915000
Total asset turnover. = 15870000/15915000
Total asset turnover. = 1.00
Last Year
a)
Working capital = Total current assets - Current liabilities
Working capital = 5650000-3000000
Working capital = 2650000
b)
current ratio = Total current assets/ Current liabilities
current ratio = 5650000/3000000
current ratio = 1.88
3)
Acid-test ratio = Quick Asset/Current liability
Acid-test ratio = (cash + Marketable securities + accounts receivable net)/Current liability
Acid-test ratio = (1210000+300000+1840000)/3000000
Acid-test ratio = 1.12
d)
Average collection period = 365 * Average Account Recievable/ Sale
Average Account Recievable = (1680000+1840000)/2
Average Account Recievable = 1760000
Average collection period = 365 * 1760000/13680000
Average collection period = 46.96 Days
e)
Average sale period. = 365 * Average Inventory/Cost of Good Sold
Average Inventory = (2040000+2100000)/2
Average Inventory = 2070000
Average sale period. = 365 * (2070000/10260000)
Average sale period. =73.64 Days
f)
operating cycle = Average collection period + Average sale period.
operating cycle = 46.96 + 73.64
operating cycle = 120.60 Days
g)
Total asset turnover. = Sale/Average Total Asset
Average Total Asset = (14620000+14710000)/2
Average Total Asset = 14665000
Total asset turnover. = 13680000/14665000
Total asset turnover. = 0.93
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