You have just been hired as a financial analyst for Lydex Company, a manufacture
ID: 2499091 • 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: Lydex Company Comparative Balance Sheet This Year Last Year Assets Current assets: Cash Marketable securities Accounts receivable, net Inventory Prepaid expenses $ 1,030,000 $ 1,270,000 300,000 2,080,000 2,200,000 210,000 0 2,980,000 3,670,000 270,000 7,950,000 9,660,000 6,060,000 9,120,000 Total current assets Plant and equipment, net Total assets $ 17,610,000 $ 15,180,000 Liabilities and Stockholders' Equity Liabilities: Current liabilities Note payable, 10% $ 4,080,000 $ 3,120,000 3,120,000 3,720,000 Total liabilities 7,800,000 6,240,000 Stockholders' equity: Common stock, $70 par value Retained earnings 7,000,000 2,810,000 7,000,000 1,940,000 Total stockholders' equity 9,810,000 8,940,000 Total liabilities and stockholders' equity $ 17,610,000 $ 15,180,000Explanation / Answer
d) Current Year:
Account receivable turnover
= Net Credit sales for the year / Average Accounts receivable
= $15930000 / [$ (2980000+2080000) / 2]
= 6.30
Average Collection period
= 365 days / account receivable turnover
= 365 days / 6.3
= 57.97 days
Last year:
Account receivable turnover
= Net Credit sales for the year / Average Accounts receivable
= $14280000 / [$ (2080000 + 1740000) / 2]
= 7.48
Average Collection period
= 365 days / account receivable turnover
= 365 days / 7.48
= 48.82 days
e)
Current Year:
Inventory Turnover
= Cost of goods sold for this year / average inventory
= $ 12744000 / [$ (2200000 + 3670000) / 2] = 4.34
The average sale period
= 365 days / inventory turnover
= 365 days / 4.34
= 84.10 days
Last Year:
Inventory Turnover
= Cost of goods sold for last year / average inventory
= $ 10710000 / [$ (2200000 + 2100000) / 2] = 4.98
The average sale period
= 365 days / inventory turnover
= 365 days / 4.98
= 73.29 days
f) Operating Cycle
= the days' sales in inventory + the average collection period
For Current Year:
Operating cycle
= 84.10 days + 57.97 days = 142.07 days
For Last year:
Operating cycle
= 73.29 days + 48.82 days = 122.11 days
g) Current Year:
Total asset turnover
= Net sales of the current year / average total assets employed
= $ 15930000 / $ [ (17610000 + 15180000) / 2]
= 0.97
Last year:
Total asset turnover
= Net sales of the last year / average total assets employed
= $ 14280000 / $ [ (15180000 + 14680000) / 2] = 0.96
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