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
Please answer D,E,F and G
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 |
||
| This Year | Last Year | |
|---|---|---|
| Assets | ||
| Current assets: | ||
| Cash | $ 860,000 | $ 1,100,000 |
| Marketable securities | 0 | 300,000 |
| 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 |
||
| 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 |
| 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:
| 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.
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.)
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