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

3. You decide, finally, to assess the company’s liquidity and asset management. For both this year and last year, compute:

d. The average collection period. (The accounts receivable at the beginning of last year totaled $1,720,000.) (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 $2,080,000.) (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 $13,120,000.) (Round your final answers to 2 decimal places.)

Transcribed Image Text: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 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 $1,720,000.) (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 $2,080,000.) (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 $13,120,000.) (Round your final answers to 2 decimal places.) 2 decimal places.) Part 3 of 3 0.48 points O Answer is not complete. This Year Last Year Working capital 3,770,000 O 2,680,000 O a. b. The current ratio 1.92 V 1.87 O The acid-test ratio 0.96 O 1.15 O C. d. The average collection period days days The average sale period days days е. f. The operating cycle days days g. The total asset turnover 00

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 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

3. You decide, finally, to assess the company’s liquidity and asset management. For both this year and last year, compute:

d. The average collection period. (The accounts receivable at the beginning of last year totaled $1,720,000.) (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 $2,080,000.) (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 $13,120,000.) (Round your final answers to 2 decimal places.)

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
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 $1,720,000.) (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 $2,080,000.) (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 $13,120,000.) (Round your final answers to 2 decimal
places.)
2 decimal places.)
Part 3 of 3
0.48
points
O Answer is not complete.
This Year
Last Year
Working capital
3,770,000 O
2,680,000 O
a.
b.
The current ratio
1.92 V
1.87 O
The acid-test ratio
0.96 O
1.15 O
C.
d.
The average collection period
days
days
The average sale period
days
days
е.
f.
The operating cycle
days
days
g.
The total asset turnover
00

Accepted Answer

D) 
Accounts Receivable Turnover=Credit Sales/Average Accounts Receivable.

This Year
Last Year…