Problem 14-15 (Algo) Comprehensive Ratio Analysis [LO14-2, LO14-3, LO14-4, LO14-5, LO14-6] [The following information ap

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Problem 14 15 Algo Comprehensive Ratio Analysis Lo14 2 Lo14 3 Lo14 4 Lo14 5 Lo14 6 The Following Information Ap 1 (147.34 KiB) Viewed 13 times

Problem 14-15 (Algo) Comprehensive Ratio Analysis [LO14-2, LO14-3, LO14-4, LO14-5, LO14-6] [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 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: Assets Current assets: Cash Marketable securities Accounts receivable, net Inventory Prepaid expenses Total current assets Plant and equipment, net Total assets Liabilities and Stockholders' Equity Liabilities: Current liabilities Note payable, 10% Total liabilities Stockholders' equity: Common stock, $75 par value. Retained earnings Lydex Company Comparative Balance Sheet Total stockholders' equity Total liabilities and stockholders' equity Sales (all on account) Cost of goods sold Gross margin Selling and administrative expenses Net operating income Interest expense Net income before taxes Income taxes (30%) Net income Common dividends Net income retained Beginning retained earnings Ending retained earnings Lydex Company Comparative Income Statement and Reconciliation This Year $ 15,860,000 12,688,000 3,172,000 1,006,000 2,166,000 366,000 Current ratio Acid-test ratio. Average collection period Average sale period Return on assets. Debt-to-equity ratio Times interest earned ratio Price-earnings ratio 2.4 1.1 This Year 40 days. 60 days. $ 960,000 2,700,000 3,600,000 260,000 9.3% 0.7 5.9 10 $ 4,010,000 3,660,000 7,670,000 5,500,000 7,520,000 9,520,000 9,050,000 $ 17,040,000 $ 14,550,000 7,500,000 1,870,000 9,370,000 $ 17,040,000 Last Year 1,800,000 540,000 1,260,000 400,000 860,000 1,010,000 $ 1,870,000 $ 1,200,000 300,000 1,800,000 2,000,000 200,000 $ 2,980,000 3,060,000 6,040,000 To begin your assignment you gather the following financial data and ratios that are typical of companies in Lydex Company's industry: 7,500,000 1,010,000 8,510,000 $ 14,550,000 Last Year $ 13,580,000 10,185,000 3,395,000 1,604,000 1,791,000 306,000 1,485,000 445,500 1,039,500 519,750 519,750 490,250 $ 1,010,000

Required: 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 "Percentage" answers to 1 decimal place and other 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 $13,070,000.) e. The return on equity. (Stockholders' equity at the beginning of last year totaled $7,990,250. There has been no change in common stock over the last two years.) f. Is the company's financial leverage positive or negative? a. The times interest earned ratio b. The debt-to-equity ratio c. The gross margin percentage d. The return on total assets e. The return on equity f. Is the company's financial leverage positive or negative? This Year 5.92 0.82 20.0 % 9.6 % % Last Year 5.85 0.71 25.0 % 9.1 % %

3. You decide, finally, to assess the company's liquidity and asset management. For both this year and last year, compute: a. Working capital. b. The current ratio. (Round your final answers to 2 decimal places.) c. The acid-test ratio. (Round your final answers to 2 decimal places.) d. The average collection period. (The accounts receivable at the beginning of last year totaled $1,670,000.) (Use 365 days in a year. Round your intermediate calculations and final answers to 2 decimal place.) e. The average sale period. (The inventory at the beginning of last year totaled $2,030,000.) (Use 365 days in a year. Round your intermediate calculations and final answers to 2 decimal place.) f. The operating cycle. (Round your intermediate calculations and final answers to 2 decimal place.) g. The total asset turnover. (The total assets at the beginning of last year totaled $13,070,000.) (Round your final answers to 2 decimal places.) a. Working capital b. The current ratio c. The acid-test ratio d. The average collection period e. The average sale period f. The operating cycle g. The total asset turnover This Year days days days Last Year days days days