Problem 13-15A Comprehensive Ratio Analysis [LO13-2, LO13-3,LO13-4, LO13-5, LO13-6]
[The followinginformation applies to the questions displayed below.] You have just been hired as a financial analyst for LydexCompany, a manufacturer of safety helmets. Your boss has asked youto perform a comprehensive analysis of the companyâs financialstatements, including comparing Lydexâs performance to its majorcompetitors. The companyâs financial statements for the last twoyears are as follows:
Lydex Company
Comparative Balance Sheet This Year Last Year Assets Current assets: Cash $ 940,000 $ 1,180,000 Marketable securities 0 300,000 Accounts receivable, net 2,620,000 1,720,000 Inventory 3,580,000 2,300,000 Prepaid expenses 250,000 190,000 Total current assets 7,390,000 5,690,000 Plant and equipment, net 9,480,000 9,030,000 Total assets $ 16,870,000 $ 14,720,000 Liabilities and Stockholders' Equity Liabilities: Current liabilities $ 3,990,000 $ 2,940,000 Note payable, 10% 3,660,000 3,060,000 Total liabilities 7,650,000 6,000,000 Stockholders' equity: Common stock, $75 parvalue 7,500,000 7,500,000 Retained earnings 1,720,000 1,220,000 Total stockholders' equity 9,220,000 8,720,000 Total liabilities and stockholders' equity $ 16,870,000 $ 14,720,000
Lydex Company
Comparative Income Statement and Reconciliation This Year Last Year Sales (all on account) $ 15,840,000 $ 13,380,000 Costof goods sold 12,672,000 10,035,000 Gross margin 3,168,000 3,345,000 Selling and administrative expenses 1,602,000 1,596,000 Netoperating income 1,566,000 1,749,000 Interest expense 366,000 306,000 Netincome before taxes 1,200,000 1,443,000 Income taxes (30%) 360,000 432,900 Netincome 840,000 1,010,100 Common dividends 340,000 505,050 Netincome retained 500,000 505,050 Beginning retained earnings 1,220,000 714,950 Ending retained earnings $ 1,720,000 $ 1,220,000
To begin yourassigment you gather the following financial data and ratios thatare typical of companies in Lydex Companyâs industry:
Current ratio 2.4 Acid-test ratio 1.1 Average collection period 40 days Average sale period 60 days Return on assets 9.1 % Debt-to-equity ratio .69 Times interest earned ratio 5.7 Price-earnings ratio 10 You decide first to assess the companyâs performance in terms ofdebt management and profitability. Compute the following for boththis year and last year: (Round your intermediatecalculations and final percentage answers to 1 decimal place. i.e.,0.123 should be considered as 12.3%. Round the rest of theintermediate calculations and final answers to 2 decimalplaces.)
a. The timesinterest earned ratio. b. Thedebt-to-equity ratio. c. The gross marginpercentage. d. The return ontotal assets. (Total assets at the beginning of last year were$13,050,000.) e. The return onequity. (Stockholdersâ equity at the beginning of last year totaled$8,214,950. There has been no change in common stock over the lasttwo years.) f.Is the companyâs financial leverage positive or negative?
Part 2
2. You decide next to assess the companyâs stock marketperformance. Assume that Lydexâs stock price at the end of thisyear is $90 per share and that at the end of last year it was $58.For both this year and last year, compute: (Round yourintermediate calculations and final answers to 2 decimal places.For percentages 0.1234 should be considered as12.34%.)
a. The earnings pershare. b. The dividendyield ratio. c. The dividendpayout ratio. d. Theprice-earnings ratio. e. The book value per share of common stock.
Part 3
3. You decide, finally, to assess the companyâs liquidity and assetmanagement. For both this year and last year, compute: (Use365 days in a year. Round your intermediate calculations and finalanswer to 2 decimal places.)
a. Workingcapital. b. The currentratio. c. The acid-testratio. d. The averagecollection period. (The accounts receivable at the beginning oflast year totaled $1,650,000.) e. The average saleperiod. (The inventory at the beginning of last year totaled$2,010,000.) f. The operatingcycle. g. The total assetturnover. (The total assets at the beginning of last year totaled$13,050,000.)
Problem 13-15A Comprehensive Ratio Analysis [LO13-2, LO13-3,LO13-4, LO13-5, LO13-6]
| [The followinginformation applies to the questions displayed below.] |
You have just been hired as a financial analyst for LydexCompany, a manufacturer of safety helmets. Your boss has asked youto perform a comprehensive analysis of the companyâs financialstatements, including comparing Lydexâs performance to its majorcompetitors. The companyâs financial statements for the last twoyears are as follows: |
| Lydex Company Comparative Balance Sheet | ||||
| This Year | Last Year | |||
| Assets | ||||
| Current assets: | ||||
| Cash | $ | 940,000 | $ | 1,180,000 |
| Marketable securities | 0 | 300,000 | ||
| Accounts receivable, net | 2,620,000 | 1,720,000 | ||
| Inventory | 3,580,000 | 2,300,000 | ||
| Prepaid expenses | 250,000 | 190,000 | ||
| Total current assets | 7,390,000 | 5,690,000 | ||
| Plant and equipment, net | 9,480,000 | 9,030,000 | ||
| Total assets | $ | 16,870,000 | $ | 14,720,000 |
| Liabilities and Stockholders' Equity | ||||
| Liabilities: | ||||
| Current liabilities | $ | 3,990,000 | $ | 2,940,000 |
| Note payable, 10% | 3,660,000 | 3,060,000 | ||
| Total liabilities | 7,650,000 | 6,000,000 | ||
| Stockholders' equity: | ||||
| Common stock, $75 parvalue | 7,500,000 | 7,500,000 | ||
| Retained earnings | 1,720,000 | 1,220,000 | ||
| Total stockholders' equity | 9,220,000 | 8,720,000 | ||
| Total liabilities and stockholders' equity | $ | 16,870,000 | $ | 14,720,000 |
| Lydex Company Comparative Income Statement and Reconciliation | ||||
| This Year | Last Year | |||
| Sales (all on account) | $ | 15,840,000 | $ | 13,380,000 |
| Costof goods sold | 12,672,000 | 10,035,000 | ||
| Gross margin | 3,168,000 | 3,345,000 | ||
| Selling and administrative expenses | 1,602,000 | 1,596,000 | ||
| Netoperating income | 1,566,000 | 1,749,000 | ||
| Interest expense | 366,000 | 306,000 | ||
| Netincome before taxes | 1,200,000 | 1,443,000 | ||
| Income taxes (30%) | 360,000 | 432,900 | ||
| Netincome | 840,000 | 1,010,100 | ||
| Common dividends | 340,000 | 505,050 | ||
| Netincome retained | 500,000 | 505,050 | ||
| Beginning retained earnings | 1,220,000 | 714,950 | ||
| Ending retained earnings | $ | 1,720,000 | $ | 1,220,000 |
To begin yourassigment you gather the following financial data and ratios thatare typical of companies in Lydex Companyâs industry: |
| Current ratio | 2.4 | |||||||||||||
| Acid-test ratio | 1.1 | |||||||||||||
| Average collection period | 40 | days | ||||||||||||
| Average sale period | 60 | days | ||||||||||||
| Return on assets | 9.1 | % | ||||||||||||
| Debt-to-equity ratio | .69 | |||||||||||||
| Times interest earned ratio | 5.7 | |||||||||||||
| Price-earnings ratio | 10 | |||||||||||||
| You decide first to assess the companyâs performance in terms ofdebt management and profitability. Compute the following for boththis year and last year: (Round your intermediatecalculations and final percentage answers to 1 decimal place. i.e.,0.123 should be considered as 12.3%. Round the rest of theintermediate calculations and final answers to 2 decimalplaces.)
| ||||||||||||||
Part 2
| 2. | You decide next to assess the companyâs stock marketperformance. Assume that Lydexâs stock price at the end of thisyear is $90 per share and that at the end of last year it was $58.For both this year and last year, compute: (Round yourintermediate calculations and final answers to 2 decimal places.For percentages 0.1234 should be considered as12.34%.) |
| a. | The earnings pershare. |
| b. | The dividendyield ratio. |
| c. | The dividendpayout ratio. |
| d. | Theprice-earnings ratio. |
| e. | The book value per share of common stock. |
Part 3
| 3. | You decide, finally, to assess the companyâs liquidity and assetmanagement. For both this year and last year, compute: (Use365 days in a year. Round your intermediate calculations and finalanswer to 2 decimal places.) |
| a. | Workingcapital. |
| b. | The currentratio. |
| c. | The acid-testratio. |
| d. | The averagecollection period. (The accounts receivable at the beginning oflast year totaled $1,650,000.) |
| e. | The average saleperiod. (The inventory at the beginning of last year totaled$2,010,000.) |
| f. | The operatingcycle. |
| g. | The total assetturnover. (The total assets at the beginning of last year totaled$13,050,000.) |
Related questions
Problem 13-15A Comprehensive Ratio Analysis [LO13-2, LO13-3, LO13-4, LO13-5, LO13-6]
| [The following information applies to the questions displayed below.] |
| 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 companyâs financial statements, including comparing Lydexâs performance to its major competitors. The companyâs financial statements for the last two years are as follows: |
| Lydex Company Comparative Balance Sheet | ||||
| This Year | Last Year | |||
| Assets | ||||
| Current assets: | ||||
| Cash | $ | 950,000 | $ | 1,190,000 |
| Marketable securities | 0 | 300,000 | ||
| Accounts receivable, net | 2,660,000 | 1,760,000 | ||
| Inventory | 3,590,000 | 2,400,000 | ||
| Prepaid expenses | 260,000 | 200,000 | ||
| Total current assets | 7,460,000 | 5,850,000 | ||
| Plant and equipment, net | 9,500,000 | 9,040,000 | ||
| Total assets | $ | 16,960,000 | $ | 14,890,000 |
| Liabilities and Stockholders' Equity | ||||
| Liabilities: | ||||
| Current liabilities | $ | 4,000,000 | $ | 2,960,000 |
| Note payable, 10% | 3,660,000 | 3,060,000 | ||
| Total liabilities | 7,660,000 | 6,020,000 | ||
| Stockholders' equity: | ||||
| Common stock, $70 par value | 7,000,000 | 7,000,000 | ||
| Retained earnings | 2,300,000 | 1,870,000 | ||
| Total stockholders' equity | 9,300,000 | 8,870,000 | ||
| Total liabilities and stockholders' equity | $ | 16,960,000 | $ | 14,890,000 |
| Lydex Company Comparative Income Statement and Reconciliation | ||||
| This Year | Last Year | |||
| Sales (all on account) | $ | 15,850,000 | $ | 13,480,000 |
| Cost of goods sold | 12,680,000 | 10,110,000 | ||
| Gross margin | 3,170,000 | 3,370,000 | ||
| Selling and administrative expenses | 1,704,000 | 1,600,000 | ||
| Net operating income | 1,466,000 | 1,770,000 | ||
| Interest expense | 366,000 | 306,000 | ||
| Net income before taxes | 1,100,000 | 1,464,000 | ||
| Income taxes (30%) | 330,000 | 439,200 | ||
| Net income | 770,000 | 1,024,800 | ||
| Common dividends | 340,000 | 512,400 | ||
| Net income retained | 430,000 | 512,400 | ||
| Beginning retained earnings | 1,870,000 | 1,357,600 | ||
| Ending retained earnings | $ | 2,300,000 | $ | 1,870,000 |
| To begin your assigment you gather the following financial data and ratios that are typical of companies in Lydex Companyâs industry: |
| Current ratio | 2.4 | |||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||
| Acid-test ratio | 1.1 | |||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||
| Average collection period | 40 | days | ||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||
| Average sale period | 60 | days | ||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||
| Return on assets | 9.2 | % | ||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||
| Debt-to-equity ratio | .65 | |||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||
| Times interest earned ratio | 5.8 | |||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||
| Price-earnings ratio | 10 | |||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||
| Part 1
Part 2
Part 3
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You have just been hired as a financial analyst for LydexCompany, a manufacturer of safety helmets. Your boss has asked youto perform a comprehensive analysis of the companyâs financialstatements, including comparing Lydexâs performance to its majorcompetitors. The companyâs financial statements for the last twoyears are as follows:
| Lydex Company Comparative Balance Sheet | ||||
| This Year | Last Year | |||
| Assets | ||||
| Current assets: | ||||
| Cash | $ | 970,000 | $ | 1,210,000 |
| Marketable securities | 0 | 300,000 | ||
| Accounts receivable, net | 2,740,000 | 1,840,000 | ||
| Inventory | 3,610,000 | 2,100,000 | ||
| Prepaid expenses | 260,000 | 200,000 | ||
| Total current assets | 7,580,000 | 5,650,000 | ||
| Plant and equipment, net | 9,540,000 | 9,060,000 | ||
| Total assets | $ | 17,120,000 | $ | 14,710,000 |
| Liabilities andStockholders' Equity | ||||
| Liabilities: | ||||
| Current liabilities | $ | 4,020,000 | $ | 3,000,000 |
| Note payable, 10% | 3,680,000 | 3,080,000 | ||
| Total liabilities | 7,700,000 | 6,080,000 | ||
| Stockholders' equity: | ||||
| Common stock, $70 par value | 7,000,000 | 7,000,000 | ||
| Retained earnings | 2,420,000 | 1,630,000 | ||
| Total stockholders' equity | 9,420,000 | 8,630,000 | ||
| Total liabilities andstockholders' equity | $ | 17,120,000 | $ | 14,710,000 |
| Lydex Company Comparative Income Statement and Reconciliation | ||||
| This Year | Last Year | |||
| Sales (all on account) | $ | 15,870,000 | $ | 13,680,000 |
| Cost of goods sold | 12,696,000 | 10,260,000 | ||
| Gross margin | 3,174,000 | 3,420,000 | ||
| Selling and administrativeexpenses | 1,106,000 | 1,608,000 | ||
| Net operating income | 2,068,000 | 1,812,000 | ||
| Interest expense | 368,000 | 308,000 | ||
| Net income before taxes | 1,700,000 | 1,504,000 | ||
| Income taxes (30%) | 510,000 | 451,200 | ||
| Net income | 1,190,000 | 1,052,800 | ||
| Common dividends | 400,000 | 526,400 | ||
| Net income retained | 790,000 | 526,400 | ||
| Beginning retained earnings | 1,630,000 | 1,103,600 | ||
| Ending retained earnings | $ | 2,420,000 | $ | 1,630,000 |
To begin your assignment you gather the following financial dataand ratios that are typical of companies in Lydex Companyâsindustry:
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Required information
[The following information applies to the questionsdisplayed below.]
You have just been hired as a financial analyst for LydexCompany, a manufacturer of safety helmets. Your boss has asked youto perform a comprehensive analysis of the companyâs financialstatements, including comparing Lydexâs performance to its majorcompetitors. The companyâs financial statements for the last twoyears are as follows:
| Lydex Company Comparative Balance Sheet | ||||
| This Year | Last Year | |||
| Assets | ||||
| Current assets: | ||||
| Cash | $ | 980,000 | $ | 1,220,000 |
| Marketable securities | 0 | 300,000 | ||
| Accounts receivable, net | 2,780,000 | 1,880,000 | ||
| Inventory | 3,620,000 | 2,200,000 | ||
| Prepaid expenses | 260,000 | 200,000 | ||
| Total current assets | 7,640,000 | 5,800,000 | ||
| Plant and equipment, net | 9,560,000 | 9,070,000 | ||
| Total assets | $ | 17,200,000 | $ | 14,870,000 |
| Liabilities andStockholders' Equity | ||||
| Liabilities: | ||||
| Current liabilities | $ | 4,030,000 | $ | 3,020,000 |
| Note payable, 10% | 3,680,000 | 3,080,000 | ||
| Total liabilities | 7,710,000 | 6,100,000 | ||
| Stockholders' equity: | ||||
| Common stock, $75 par value | 7,500,000 | 7,500,000 | ||
| Retained earnings | 1,990,000 | 1,270,000 | ||
| Total stockholders' equity | 9,490,000 | 8,770,000 | ||
| Total liabilities andstockholders' equity | $ | 17,200,000 | $ | 14,870,000 |
| Lydex Company Comparative Income Statement and Reconciliation | ||||
| This Year | Last Year | |||
| Sales (all on account) | $ | 15,880,000 | $ | 13,780,000 |
| Cost of goods sold | 12,704,000 | 10,335,000 | ||
| Gross margin | 3,176,000 | 3,445,000 | ||
| Selling and administrativeexpenses | 1,208,000 | 1,612,000 | ||
| Net operating income | 1,968,000 | 1,833,000 | ||
| Interest expense | 368,000 | 308,000 | ||
| Net income before taxes | 1,600,000 | 1,525,000 | ||
| Income taxes (30%) | 480,000 | 457,500 | ||
| Net income | 1,120,000 | 1,067,500 | ||
| Common dividends | 400,000 | 533,750 | ||
| Net income retained | 720,000 | 533,750 | ||
| Beginning retained earnings | 1,270,000 | 736,250 | ||
| Ending retained earnings | $ | 1,990,000 | $ | 1,270,000 |
To begin your assignment you gather the following financial dataand ratios that are typical of companies in Lydex Companyâsindustry:
| Current ratio | 2.4 | |
| Acid-test ratio | 1.1 | |
| Average collection period | 32 | days |
| Average sale period | 60 | days |
| Return on assets | 9.5 | % |
| Debt-to-equity ratio | 0.7 | |
| Times interest earned ratio | 5.8 | |
| Price-earnings ratio | 10 | |
2. You decide next to assess the companyâs stock marketperformance. Assume that Lydexâs stock price at the end of thisyear is $98 per share and that at the end of last year it was $66.For both this year and last year, compute: (Round your"Percentage" answers to 1 decimal place and other intermediate andfinal answers to 2 decimal places.)
a. The earnings per share.
b. The dividend yield ratio.
c. The dividend payout ratio.
d. The price-earnings ratio.
e. The book value per share of common stock.
