Managerial Accounting-
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
|
$ 1,040,000
|
$ 1,280,000
|
|
Marketable securities
|
0
|
300,000
|
|
Accounts receivable, net
|
3,020,000
|
2,120,000
|
|
Inventory
|
3,680,000
|
2,300,000
|
|
Prepaid expenses
|
270,000
|
210,000
|
|
Total current assets
|
8,010,000
|
6,210,000
|
|
Plant and equipment, net
|
9,680,000
|
9,130,000
|
|
Total assets
|
$ 17,690,000
|
$ 15,340,000
|
|
Liabilities and Stockholders' Equity
|
|
|
|
Liabilities:
|
|
|
|
Current liabilities
|
$ 4,090,000
|
$ 3,140,000
|
|
Note payable, 10%
|
3,720,000
|
3,120,000
|
|
Total liabilities
|
7,810,000
|
6,260,000
|
|
Stockholders' equity:
|
|
|
|
Common stock, $75 par value
|
7,500,000
|
7,500,000
|
|
Retained earnings
|
2,380,000
|
1,580,000
|
|
Total stockholders' equity
|
9,880,000
|
9,080,000
|
|
Total liabilities and stockholders' equity
|
$ 17,690,000
|
$ 15,340,000
|
|
Lydex Company
Comparative Income Statement and Reconciliation
|
|
|
This Year
|
Last Year
|
|
Sales (all on account)
|
$ 15,940,000
|
$ 14,380,000
|
|
Cost of goods sold
|
12,752,000
|
10,785,000
|
|
Gross margin
|
3,188,000
|
3,595,000
|
|
Selling and administrative expenses
|
1,216,000
|
1,636,000
|
|
Net operating income
|
1,972,000
|
1,959,000
|
|
Interest expense
|
372,000
|
312,000
|
|
Net income before taxes
|
1,600,000
|
1,647,000
|
|
Income taxes (30%)
|
480,000
|
494,100
|
|
Net income
|
1,120,000
|
1,152,900
|
|
Common dividends
|
320,000
|
576,450
|
|
Net income retained
|
800,000
|
576,450
|
|
Beginning retained earnings
|
1,580,000
|
1,003,550
|
|
Ending retained earnings
|
$ 2,380,000
|
$ 1,580,000
|
To begin your assigment you gather the following financial data and ratios that are typical of companies in Lydex Company's industry:
|
Current ratio
|
2.3
|
|
Acid-test ratio
|
1.2
|
|
Average collection period
|
32 days
|
|
Average sale period
|
60 days
|
|
Return on assets
|
8.6 %
|
|
Debt-to-equity ratio
|
.69
|
|
Times interest earned ratio
|
5.8
|
|
Price-earnings ratio
|
10
|
1. 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.)
a. The times interest earned ratio.
b. The debt-to-equity ratio.
c. The gross margin percentage.
d. The return on total assets. (Total assets at the beginning of last year were $13,150,000.)
e. The return on equity. (Stockholders' equity at the beginning of last year totaled $8,503,550. There has been no change in common stock over the last two years.)
f. Is the company's financial leverage positive or negative?
2. You decide next to assess the company's stock market performance. Assume that Lydex's stock price at the end of this year is $110 per share and that at the end of last year it was $78. 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.)
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.
3. 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 "days" intermediate calculations and final answers to 1 decimal place. Round all other intermediate calculations and final answers to 2 decimal places.)
a. Working capital.
b. The current ratio.
c. The acid-test ratio.
d. The average collection period. (The accounts receivable at the beginning of last year totaled $1,750,000.)
e. The average sale period. (The inventory at the beginning of last year totaled $2,110,000.)
f. The operating cycle.
g. The total asset turnover. (The total assets at the beginning of last year totaled $14,690,000.)