ou 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 $ 960,000 $ 1,260,000 Marketable securities 0 300,000 Accounts receivable, net 2,700,000 1,800,000 Inventory 3,900,000 2,400,000 Prepaid expenses 240,000 180,000 Total current assets 7,800,000 5,940,000 Plant and equipment, net 9,300,000 8,940,000 Total assets $ 17,100,000 $ 14,880,000 Liabilities and Stockholders' Equity Liabilities: Current liabilities $ 3,900,000 $ 2,760,000 Note payable, 10% 3,600,000 3,000,000 Total liabilities 7,500,000 5,760,000 Stockholders' equity: Common stock, $78 par value 7,800,000 7,800,000 Retained earnings 1,800,000 1,320,000 Total stockholders' equity 9,600,000 9,120,000 Total liabilities and stockholders' equity $ 17,100,000 $ 14,880,000 Lydex Company Comparative Income Statement and Reconciliation This Year Last Year Sales (all on account) $ 15,750,000 $ 12,480,000 Cost of goods sold 12,600,000 9,900,000 Gross margin 3,150,000 2,580,000 Selling and administrative expenses 1,590,000 1,560,000 Net operating income 1,560,000 1,020,000 Interest expense 360,000 300,000 Net income before taxes 1,200,000 720,000 Income taxes (30%) 360,000 216,000 Net income 840,000 504,000 Common dividends 360,000 252,000 Net income retained 480,000 252,000 Beginning retained earnings 1,320,000 1,068,000 Ending retained earnings $ 1,800,000 $ 1,320,000 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 1.2 Average collection period 30 days Average sale period 60 days Return on assets 9.5% Debt-to-equity ratio 0.65 Times interest earned ratio 5.7 Price-earnings ratio 10 Required 2. Present the income statement in common-size format down through net income.
ou 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 $ 960,000 $ 1,260,000 Marketable securities 0 300,000 Accounts receivable, net 2,700,000 1,800,000 Inventory 3,900,000 2,400,000 Prepaid expenses 240,000 180,000 Total current assets 7,800,000 5,940,000 Plant and equipment, net 9,300,000 8,940,000 Total assets $ 17,100,000 $ 14,880,000 Liabilities and Stockholders' Equity Liabilities: Current liabilities $ 3,900,000 $ 2,760,000 Note payable, 10% 3,600,000 3,000,000 Total liabilities 7,500,000 5,760,000 Stockholders' equity: Common stock, $78 par value 7,800,000 7,800,000 Retained earnings 1,800,000 1,320,000 Total stockholders' equity 9,600,000 9,120,000 Total liabilities and stockholders' equity $ 17,100,000 $ 14,880,000 Lydex Company Comparative Income Statement and Reconciliation This Year Last Year Sales (all on account) $ 15,750,000 $ 12,480,000 Cost of goods sold 12,600,000 9,900,000 Gross margin 3,150,000 2,580,000 Selling and administrative expenses 1,590,000 1,560,000 Net operating income 1,560,000 1,020,000 Interest expense 360,000 300,000 Net income before taxes 1,200,000 720,000 Income taxes (30%) 360,000 216,000 Net income 840,000 504,000 Common dividends 360,000 252,000 Net income retained 480,000 252,000 Beginning retained earnings 1,320,000 1,068,000 Ending retained earnings $ 1,800,000 $ 1,320,000 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 1.2 Average collection period 30 days Average sale period 60 days Return on assets 9.5% Debt-to-equity ratio 0.65 Times interest earned ratio 5.7 Price-earnings ratio 10 Required 2. Present the income statement in common-size format down through net income.
Chapter1: Financial Statements And Business Decisions
Section: Chapter Questions
Problem 1Q
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Question
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 | $ 960,000 | $ 1,260,000 |
| Marketable securities | 0 | 300,000 |
| 2,700,000 | 1,800,000 | |
| Inventory | 3,900,000 | 2,400,000 |
| Prepaid expenses | 240,000 | 180,000 |
| Total current assets | 7,800,000 | 5,940,000 |
| Plant and equipment, net | 9,300,000 | 8,940,000 |
| Total assets | $ 17,100,000 | $ 14,880,000 |
| Liabilities and |
||
| Liabilities: | ||
| Current liabilities | $ 3,900,000 | $ 2,760,000 |
| Note payable, 10% | 3,600,000 | 3,000,000 |
| Total liabilities | 7,500,000 | 5,760,000 |
| Stockholders' equity: | ||
| Common stock, $78 par value | 7,800,000 | 7,800,000 |
| 1,800,000 | 1,320,000 | |
| Total stockholders' equity | 9,600,000 | 9,120,000 |
| Total liabilities and stockholders' equity | $ 17,100,000 | $ 14,880,000 |
| Lydex Company Comparative Income Statement and Reconciliation |
||
| This Year | Last Year | |
|---|---|---|
| Sales (all on account) | $ 15,750,000 | $ 12,480,000 |
| Cost of goods sold | 12,600,000 | 9,900,000 |
| Gross margin | 3,150,000 | 2,580,000 |
| Selling and administrative expenses | 1,590,000 | 1,560,000 |
| Net operating income | 1,560,000 | 1,020,000 |
| Interest expense | 360,000 | 300,000 |
| Net income before taxes | 1,200,000 | 720,000 |
| Income taxes (30%) | 360,000 | 216,000 |
| Net income | 840,000 | 504,000 |
| Common dividends | 360,000 | 252,000 |
| Net income retained | 480,000 | 252,000 |
| Beginning retained earnings | 1,320,000 | 1,068,000 |
| Ending retained earnings | $ 1,800,000 | $ 1,320,000 |
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 | 1.2 | |
| Average collection period | 30 | days |
| Average sale period | 60 | days |
| Return on assets | 9.5% | |
| Debt-to-equity ratio | 0.65 | |
| Times interest earned ratio | 5.7 | |
| Price-earnings ratio | 10 |
Required
2. Present the income statement in common-size format down through net income.
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