You have just been hired as a financial analyst for Lydex Company, a manufacture
ID: 2754544 • 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 $80 per share and that at the end of last year it was $48. 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.)
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)
This Year
a) The times interest earned ratio. = Net operating income/Interest Expenses
The times interest earned ratio. = 1362000/362000
The times interest earned ratio. = 3.76 times
b) The debt-to-equity ratio. = Debt/Equity
The debt-to-equity ratio = 7560000/8900000
The debt-to-equity ratio. = 84.9%
c) Gross margin percentage. = Gross margin/Sale
Gross margin percentage. = 3158000/15790000
Gross margin percentage. = 20%
d) The return on total assets= Net operating Income/Average Total Asset
Average Total Asset = (16460000+14410000)/2
Average Total Asset = 15435000
The return on total assets= 1362000/15435000
The return on total assets= 8.8%
e)
The return on equity. = Net Income/Average Stockholders Equity
Average Stockholders Equity = (8900000+8550000)/2
Average Stockholders Equity = 8725000
The return on equity. = 700000/8725000
The return on equity. = 8.0%
Last Year
a) The times interest earned ratio. = Net operating income/Interest Expenses
The times interest earned ratio. = 1644000/302000
The times interest earned ratio. = 5.44 times
b) The debt-to-equity ratio. = Debt/Equity
The debt-to-equity ratio = 5860000/8550000
The debt-to-equity ratio. = 68.5%
c) Gross margin percentage. = Gross margin/Sale
Gross margin percentage. = 3220000/12880000
Gross margin percentage. = 25%
d) The return on total assets= Net operating Income/Average Total Asset
Average Total Asset = (13000000+14410000)/2
Average Total Asset = 13705000
The return on total assets= 1644000/13705000
The return on total assets= 12.0%
e)
The return on equity. = Net Income/Average Stockholders Equity
Average Stockholders Equity = (8080300+8550000)/2
Average Stockholders Equity = 8315150
The return on equity. = 939400/8315150
The return on equity. = 11.3%
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