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
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
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
Problem 14-15 (Algo) Comprehensive Ratio Analysis [LO14-2, LO14-3, LO14-4, LO14-5, LO14-6]
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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
$ 860,000
$ 1,100,000
Marketable securities
0
300,000
Accounts receivable, net
2,300,000
1,400,000
Inventory
3,500,000
2,000,000
Prepaid expenses
240,000
180,000
Total current assets
6,900,000
4,980,000
Plant and equipment, net
9,320,000
8,950,000
Total assets
$ 16,220,000
$ 13,930,000
Liabilities and Stockholders' Equity
Liabilities:
Current liabilities
$ 3,910,000
$ 2,780,000
Note payable, 10%
3,600,000
3,000,000
Total liabilities
7,510,000
5,780,000
Stockholders' equity:
Common stock, $75 par value
7,500,000
7,500,000
Retained earnings
1,210,000
650,000
Total stockholders' equity
8,710,000
8,150,000
Total liabilities and stockholders' equity
$ 16,220,000
$ 13,930,000
Lydex Company Comparative Income Statement and Reconciliation
This Year
Last Year
Sales (all on account)
$ 15,760,000
$ 12,580,000
Cost of goods sold
12,608,000
9,435,000
Gross margin
3,152,000
3,145,000
Selling and administrative expenses
1,592,000
1,564,000
Net operating income
1,560,000
1,581,000
Interest expense
360,000
300,000
Net income before taxes
1,200,000
1,281,000
Income taxes (30%)
360,000
384,300
Net income
840,000
896,700
Common dividends
280,000
448,350
Net income retained
560,000
448,350
Beginning retained earnings
650,000
201,650
Ending retained earnings
$ 1,210,000
$ 650,000
To begin your assignment 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
1.0
Average collection period
30
days
Average sale period
60
days
Return on assets
8.2%
Debt-to-equity ratio
0.7
Times interest earned ratio
5.8
Price-earnings ratio
10
Problem 14-15 Part 3 (Algo)
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 $1,570,000.) (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 $1,930,000.) (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 $12,970,000.) (Round your final answers to 2 decimal places.)
Transcribed Image Text: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
Definition Definition Assets available to stockholders after a company's liabilities are paid off. Stockholders’ equity is also sometimes referred to as owner's equity. A stockholders’ equity or book value generally includes common stock, preferred stock, and retained earnings and is an indicator of a company's financial strength.
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