Problem 15-15 Comprehensive Ratio Analysis [LO15-2, LO15-3, LO15-4, L015-5, LO15
ID: 2336806 • Letter: P
Question
Problem 15-15 Comprehensive Ratio Analysis [LO15-2, LO15-3, LO15-4, L015-5, LO15-6] The following information applies to the questions displayed below 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 Assets Current assets: Cash Marketable securities Accounts receivoble, net Inventory Prepaid expenses s 870,000 1110,000 300,000 1,440,000 2,100,000 180,000 5,130,000 9,340,000 8,960,000 2.340,000 3,510,000 240,000 6,960,000 Total current assets Plant and equipment, net Total assets Liabilities and Stockholders' Equity Liabilities: 16,300,000 14,090,000 Current liabilities Note payable, 10% $ 3,920,000 $ 2,800,000 3,000,000 5,800,000 3,600.000 7.520,000 Total liabilities Stockholders' equity Common stock, $70 par valuc Retained earnings 7,000,000 1,290,000 8,290,000 $ 16,300,000 $ 14.090,000 7,000,000 1,780,000 8,780,000 Total stockholders' equity Total liabilities and stockholders' equity Lydex Company Comparative Income Statement and Reconciliation This Year Last Year Seles (all on account Cost of goods sold Gross margin Selling and administrative expenses Net operating income Interest expense Net income before taxes Income taxes (30%) Net income Common dividends Net income retained Beginning retained earnings Ending retained earnings S 15,770,000 $ 12,680.000 9,510,000 3,170,000 1,568.000 1,602,000 300,000 1302.000 390,600 911,400 455,700 12,616.000 3,154,000 1594,000 1,560,000 360,000 1,200,000 360,000 840,000 350,000 490,000 1.290.000 455 834.300 $ 1,780,000 $ 1,290,000 /20/201
Explanation / Answer
Working:
d. Return on total assets = Net operating income / Average total assets
Average total assets = (Beginning total assets + Ending total assets)/2
This Year:
Return on total assets = $1560000/$15195000 = 10.3%
Average total assets = ($14090000 + $16300000)/2 = $30390000/2 = $15195000
Last Year:
Return on total assets = $1602000/$13535000 = 11.8%
Average total assets = ($12980000 + $14090000)/2 = $27070000/2 = $13535000
This Year Last Year d. The return on total assets 10.3% 11.8%