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 $ 1,010,000 $ 1,250,000 Marketable securities 0 300,000 Accounts receivable, net 2,900,000 2,000,000 Inventory 3,650,000 2,000,000 Prepaid expenses 270,000 210,000 Total current assets 7,830,000 5,760,000 Plant and equipment, net 9,620,000 9,100,000 Total assets $ 17,450,000 $ 14,860,000 Liabilities and Stockholders' Equity Liabilities: Current liabilities $ 4,060,000 $ 3,080,000 Note payable, 10% 3,700,000 3,100,000 Total liabilities 7,760,000 6,180,000 Stockholders' equity: Common stock, $70 par value 7,000,000 7,000,000 Retained earnings 2,690,000 1,680,000 Total stockholders' equity 9,690,000 8,680,000 Total liabilities and stockholders' equity $ 17,450,000 $ 14,860,000 Lydex Company Comparative Income Statement and Reconciliation This Year Last Year Sales (all on account) $ 15,910,000 $ 14,080,000 Cost of goods sold 12,728,000 10,560,000 Gross margin 3,182,000 3,520,000 Selling and administrative expenses 912,000 1,624,000 Net operating income 2,270,000 1,896,000 Interest expense 370,000 310,000 Net income before taxes 1,900,000 1,586,000 Income taxes (30%) 570,000 475,800 Net income 1,330,000 1,110,200 Common dividends 320,000 555,100 Net income retained 1,010,000 555,100 Beginning retained earnings 1,680,000 1,124,900 Ending retained earnings $ 2,690,000 $ 1,680,000 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 1.1 Average collection period 32 days Average sale period 60 days Return on assets 9.8 % Debt-to-equity ratio 0.7 Times interest earned ratio 5.8 Price-earnings ratio 10 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 $104 per share and that at the end of last year it was $72. For both this year and last year, compute: (Round your "Percentage" answers to 1 decimal place and other intermediate 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. This Year Last Year 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
Dividend Valuation
Dividend refers to a reward or cash that a company gives to its shareholders out of the profits. Dividends can be issued in various forms such as cash payment, stocks, or in any other form as per the company norms. It is usually a part of the profit that the company shares with its shareholders.
Dividend Discount Model
Dividend payments are generally paid to investors or shareholders of a company when the company earns profit for the year, thus representing growth. The dividend discount model is an important method used to forecast the price of a company’s stock. It is based on the computation methodology that the present value of all its future dividends is equivalent to the value of the company.
Capital Gains Yield
It may be referred to as the earnings generated on an investment over a particular period of time. It is generally expressed as a percentage and includes some dividends or interest earned by holding a particular security. Cases, where it is higher normally, indicate the higher income and lower risk. It is mostly computed on an annual basis and is different from the total return on investment. In case it becomes too high, indicates that either the stock prices are going down or the company is paying higher dividends.
Stock Valuation
In simple words, stock valuation is a tool to calculate the current price, or value, of a company. It is used to not only calculate the value of the company but help an investor decide if they want to buy, sell or hold a company's stocks.
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 | $ | 1,010,000 | $ | 1,250,000 |
| Marketable securities | 0 | 300,000 | ||
| 2,900,000 | 2,000,000 | |||
| Inventory | 3,650,000 | 2,000,000 | ||
| Prepaid expenses | 270,000 | 210,000 | ||
| Total current assets | 7,830,000 | 5,760,000 | ||
| Plant and equipment, net | 9,620,000 | 9,100,000 | ||
| Total assets | $ | 17,450,000 | $ | 14,860,000 |
| Liabilities and |
||||
| Liabilities: | ||||
| Current liabilities | $ | 4,060,000 | $ | 3,080,000 |
| Note payable, 10% | 3,700,000 | 3,100,000 | ||
| Total liabilities | 7,760,000 | 6,180,000 | ||
| Stockholders' equity: | ||||
| Common stock, $70 par value | 7,000,000 | 7,000,000 | ||
| 2,690,000 | 1,680,000 | |||
| Total stockholders' equity | 9,690,000 | 8,680,000 | ||
| Total liabilities and stockholders' equity | $ | 17,450,000 | $ | 14,860,000 |
| Lydex Company Comparative Income Statement and Reconciliation |
||||
| This Year | Last Year | |||
| Sales (all on account) | $ | 15,910,000 | $ | 14,080,000 |
| Cost of goods sold | 12,728,000 | 10,560,000 | ||
| Gross margin | 3,182,000 | 3,520,000 | ||
| Selling and administrative expenses | 912,000 | 1,624,000 | ||
| Net operating income | 2,270,000 | 1,896,000 | ||
| Interest expense | 370,000 | 310,000 | ||
| Net income before taxes | 1,900,000 | 1,586,000 | ||
| Income taxes (30%) | 570,000 | 475,800 | ||
| Net income | 1,330,000 | 1,110,200 | ||
| Common dividends | 320,000 | 555,100 | ||
| Net income retained | 1,010,000 | 555,100 | ||
| Beginning retained earnings | 1,680,000 | 1,124,900 | ||
| Ending retained earnings | $ | 2,690,000 | $ | 1,680,000 |
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 | 1.1 | |
| Average collection period | 32 | days |
| Average sale period | 60 | days |
| Return on assets | 9.8 | % |
| Debt-to-equity ratio | 0.7 | |
| Times interest earned ratio | 5.8 | |
| Price-earnings ratio | 10 | |
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 $104 per share and that at the end of last year it was $72. For both this year and last year, compute: (Round your "Percentage" answers to 1 decimal place and other intermediate 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.
|
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