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 $ 890,000 $ 1,020,000 Marketable securities 0 300,000 Accounts receivable, net 2,420,000 1,520,000 Inventory 3,530,000 2,300,000 Prepaid expenses 240,000 180,000 Total current assets 7,080,000 5,320,000 Plant and equipment, net 9,380,000 8,980,000 Total assets $ 16,460,000 $ 14,300,000 Liabilities and Stockholders' Equity Liabilities: Current liabilities $ 3,960,000 $ 2,860,000 Note payable, 10% 3,620,000 3,020,000 Total liabilities 7,580,000 5,880,000 Stockholders' equity: Common stock, $70 par value 7,000,000 7,000,000 Retained earnings 1,880,000 1,420,000 Total stockholders' equity 8,880,000 8,420,000 Total liabilities and stockholders' equity $ 16,460,000 $ 14,300,000 Lydex Company Comparative Income Statement and Reconciliation This Year Last Year Sales (all on account) $ 15,790,000 $ 12,880,000 Cost of goods sold 12,632,000 9,660,000 Gross margin 3,158,000 3,220,000 Selling and administrative expenses 1,638,857 1,576,000 Net operating income 1,519,143 1,644,000 Interest expense 362,000 302,000 Net income before taxes 1,157,143 1,342,000 Income taxes (30%) 347,143 402,600 Net income 810,000 939,400 Common dividends 350,000 469,700 Net income retained 460,000 469,700 Beginning retained earnings 1,420,000 950,300 Ending retained earnings $ 1,880,000 $ 1,420,000 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 40 days Average sale period 60 days Return on assets 8.5% Debt-to-equity ratio 0.69 Times interest earned ratio 5.8 Price-earnings ratio 10 Required: 1. Present the balance sheet in common-size format. 2. Present the income statement in common-size format down through net income.

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 $ 890,000 $ 1,020,000 Marketable securities 0 300,000 Accounts receivable, net 2,420,000 1,520,000 Inventory 3,530,000 2,300,000 Prepaid expenses 240,000 180,000 Total current assets 7,080,000 5,320,000 Plant and equipment, net 9,380,000 8,980,000 Total assets $ 16,460,000 $ 14,300,000 Liabilities and Stockholders' Equity Liabilities: Current liabilities $ 3,960,000 $ 2,860,000 Note payable, 10% 3,620,000 3,020,000 Total liabilities 7,580,000 5,880,000 Stockholders' equity: Common stock, $70 par value 7,000,000 7,000,000 Retained earnings 1,880,000 1,420,000 Total stockholders' equity 8,880,000 8,420,000 Total liabilities and stockholders' equity $ 16,460,000 $ 14,300,000 Lydex Company Comparative Income Statement and Reconciliation This Year Last Year Sales (all on account) $ 15,790,000 $ 12,880,000 Cost of goods sold 12,632,000 9,660,000 Gross margin 3,158,000 3,220,000 Selling and administrative expenses 1,638,857 1,576,000 Net operating income 1,519,143 1,644,000 Interest expense 362,000 302,000 Net income before taxes 1,157,143 1,342,000 Income taxes (30%) 347,143 402,600 Net income 810,000 939,400 Common dividends 350,000 469,700 Net income retained 460,000 469,700 Beginning retained earnings 1,420,000 950,300 Ending retained earnings $ 1,880,000 $ 1,420,000 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 40 days Average sale period 60 days Return on assets 8.5% Debt-to-equity ratio 0.69 Times interest earned ratio 5.8 Price-earnings ratio 10 Required: 1. Present the balance sheet in common-size format. 2. Present the income statement in common-size format down through net income.

Managerial Accounting: The Cornerstone of Business Decision-Making

7th Edition

ISBN:9781337115773

Author:Maryanne M. Mowen, Don R. Hansen, Dan L. Heitger

Publisher:Maryanne M. Mowen, Don R. Hansen, Dan L. Heitger

Chapter15: Financial Statement Analysis

Section: Chapter Questions

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	This Year	Last Year
Lydex Company Comparative Balance Sheet
Assets
Current assets:
Cash	$ 890,000	$ 1,020,000
Marketable securities	0	300,000
Accounts receivable, net	2,420,000	1,520,000
Inventory	3,530,000	2,300,000
Prepaid expenses	240,000	180,000
Total current assets	7,080,000	5,320,000
Plant and equipment, net	9,380,000	8,980,000
Total assets	$ 16,460,000	$ 14,300,000
Liabilities and Stockholders' Equity
Liabilities:
Current liabilities	$ 3,960,000	$ 2,860,000
Note payable, 10%	3,620,000	3,020,000
Total liabilities	7,580,000	5,880,000
Stockholders' equity:
Common stock, $70 par value	7,000,000	7,000,000
Retained earnings	1,880,000	1,420,000
Total stockholders' equity	8,880,000	8,420,000
Total liabilities and stockholders' equity	$ 16,460,000	$ 14,300,000

	This Year	Last Year
Lydex Company Comparative Income Statement and Reconciliation
Sales (all on account)	$ 15,790,000	$ 12,880,000
Cost of goods sold	12,632,000	9,660,000
Gross margin	3,158,000	3,220,000
Selling and administrative expenses	1,638,857	1,576,000
Net operating income	1,519,143	1,644,000
Interest expense	362,000	302,000
Net income before taxes	1,157,143	1,342,000
Income taxes (30%)	347,143	402,600
Net income	810,000	939,400
Common dividends	350,000	469,700
Net income retained	460,000	469,700
Beginning retained earnings	1,420,000	950,300
Ending retained earnings	$ 1,880,000	$ 1,420,000

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	40	days
Average sale period	60	days
Return on assets	8.5%
Debt-to-equity ratio	0.69
Times interest earned ratio	5.8
Price-earnings ratio	10

Required:

1. Present the balance sheet in common-size format.

2. Present the income statement in common-size format down through net income.

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