PLEASE HELP

Bonus Semester Assignment(100 points)

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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

$

1,040,000    

$

1,280,000    

     Marketable securities

0    

300,000    

     Accounts receivable, net

3,020,000    

2,120,000    

     Inventory

3,680,000    

2,300,000    

     Prepaid expenses

270,000    

210,000    

  Total current assets

8,010,000    

6,210,000    

  Plant and equipment, net

9,680,000    

9,130,000    

  Total assets

$

17,690,000    

$

15,340,000    

  Liabilities and Stockholders' Equity

  Liabilities:

     Current liabilities

$

4,090,000    

$

3,140,000    

     Note payable, 10%

3,720,000    

3,120,000    

  Total liabilities

7,810,000    

6,260,000    

  Stockholders' equity:

      Common stock, $75 par value

7,500,000    

7,500,000    

      Retained earnings

2,380,000    

1,580,000    

  Total stockholders' equity

9,880,000    

9,080,000    

  Total liabilities and stockholders' equity

$

17,690,000    

$

15,340,000    

Lydex Company Comparative Income Statement and Reconciliation

This Year

Last Year

  Sales (all on account)

$

15,940,000   

$

14,380,000   

  Cost of goods sold

12,752,000   

10,785,000   

  Gross margin

3,188,000   

3,595,000   

  Selling and administrative expenses

1,216,000   

1,636,000   

  Net operating income

1,972,000   

1,959,000   

  Interest expense

372,000   

312,000   

  Net income before taxes

1,600,000   

1,647,000   

  Income taxes (30%)

480,000   

494,100   

  Net income

1,120,000   

1,152,900   

  Common dividends

320,000   

576,450   

  Net income retained

800,000   

576,450  

  Beginning retained earnings

1,580,000   

1,003,550   

  Ending retained earnings

$

2,380,000   

$

1,580,000   

       To begin your assigment 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

32

 days     

  Average sale period

60

 days     

  Return on assets

8.6

 %          

  Debt-to-equity ratio

.69

  Times interest earned ratio

5.8

  Price-earnings ratio

10

Required:

1.

You decide first to assess the company’s performance in terms of debt management and profitability. Compute the following for both this year and last year: (Round your intermediate calculations and final percentage answers to 1 decimal place. i.e., 0.123 should be considered as 12.3%. Round the rest of the intermediate calculations and final answers to 2 decimal places.)

a.

The times interest earned ratio.

b.

The debt-to-equity ratio.

c.

The gross margin percentage.

d.

The return on total assets. (Total assets at the beginning of last year were $13,150,000.)

e.

The return on equity. (Stockholders’ equity at the beginning of last year totaled $8,503,550. There has been no change in common stock over the last two years.)

f.

Is the company’s financial leverage positive or negative?

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 $110 per share and that at the end of last year it was $78. For both this year and last year, compute: (Round your intermediate calculations and final percentage answers to 1 decimal place. i.e., 0.123 should be considered as 12.3%. Round the rest of the intermediate calculations 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.

3.

You decide, finally, to assess the company’s liquidity and asset management. For both this year and last year, compute: (Use 365 days in a year. Round "days" intermediate calculations and final answers to 1 decimal place. Round all other intermediate calculations and final answers to 2 decimal places.)

a.

Working capital.

b.

The current ratio.

c.

The acid-test ratio.

d.

The average collection period. (The accounts receivable at the beginning of last year totaled $1,750,000.)

e.

The average sale period. (The inventory at the beginning of last year totaled $2,110,000.)

f.

The operating cycle.

g.

The total asset turnover. (The total assets at the beginning of last year totaled $14,690,000.)