Problem 15-15 Comprehensive Ratio Analysis [LO15-2, LO15-3, LO15-4, LO15-5, LO15
ID: 2391309 • Letter: P
Question
Problem 15-15 Comprehensive Ratio Analysis [LO15-2, LO15-3, LO15-4, LO15-5, LO15-6]
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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:
To begin your assignment you gather the following financial data and ratios that are typical of companies in Lydex Company’s industry:
Problem 15-15 Part 3
3. You decide, finally, to assess the company’s liquidity and asset management. For both this year and last year, compute:
e. The average sale period. (The inventory at the beginning of last year totaled $1,990,000.) (Use 365 days in a year. Round your intermediate calculations and final answer to 2 decimal place.)
f. The operating cycle. (Round your intermediate calculations and final answer to 2 decimal place.)
g. The total asset turnover. (The total assets at the beginning of last year totaled $14,570,000.) (Round your final answers to 2 decimal places.)
Lydex CompanyComparative Balance Sheet This Year Last Year Assets Current assets: Cash $ 920,000 $ 1,160,000 Marketable securities 0 300,000 Accounts receivable, net 2,540,000 1,640,000 Inventory 3,560,000 2,100,000 Prepaid expenses 250,000 190,000 Total current assets 7,270,000 5,390,000 Plant and equipment, net 9,440,000 9,010,000 Total assets $ 16,710,000 $ 14,400,000 Liabilities and Stockholders' Equity Liabilities: Current liabilities $ 3,970,000 $ 2,900,000 Note payable, 10% 3,640,000 3,040,000 Total liabilities 7,610,000 5,940,000 Stockholders' equity: Common stock, $75 par value 7,500,000 7,500,000 Retained earnings 1,600,000 960,000 Total stockholders' equity 9,100,000 8,460,000 Total liabilities and stockholders' equity $ 16,710,000 $ 14,400,000
Explanation / Answer
This Year
Last Year
1
Current Ratio:
- Current Assets (CA)
7270000
5390000
- Current Liabilities (CL)
3970000
2900000
CA/CL
1.83
1.86
2
Acid-test Ratio:
- Quick Assets (cash + marketable securities + accounts receivables)
3460000
3100000
- Current Liabilities (CL)
3970000
2900000
QA/CL
0.87
1.07
3
Average Sale Period
- Inventory (Opening + Closing / 2)
2830000
2045000
- COGS
12656000
9885000
= (365 * Inventory)/COGS
81.62
75.51
4
Average Collection Period
- Accounts Receivables
2540000
1640000
- Net Credit Sales
15820000
13180000
= (365 * Accounts receivables)/Net Credit Sales
58.60
45.42
5
Average Payment Period
- Accounts Payable (Assumes current liabilities
3970000
2900000
- Net Credit Purchase (COGS - Opening Inventory + Closing Inventory)
14116000
9995000
= (365 * Accounts Payable)/ Net Credit Purchase
102.65
105.90
6
Operating Cycle
- Average Sales Period (A)
81.62
75.51
- Average Collection Period (B)
58.60
45.42
- Average Payment Period ©
-102.65
-105.9
= A + B - C
37.57
15.03
7
Total Assets Turnover
- Net sales
15820000
13180000
- Average Total Assets (Opening + Closing /2)
15555000
14485000
= Net Sales / Average Total Assets
1.02
0.91
Notes:
1. As opening accounts receivables for the last year is not available, so average collection period is calculated using current year’s accounts receivable otherwise average is taken of opening and closing balance.
2. As information about the accounts payable is not available, so to calculate average payment period, current liabilities is assumed as accounts payables
3. Net Purchase is calculated as follow:
COGS = opening inventory + Net Purchases – Closing Inventory, so
Net Purchases = COGS + Closing Inventory – Opening Inventory.
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This Year
Last Year
1
Current Ratio:
- Current Assets (CA)
7270000
5390000
- Current Liabilities (CL)
3970000
2900000
CA/CL
1.83
1.86
2
Acid-test Ratio:
- Quick Assets (cash + marketable securities + accounts receivables)
3460000
3100000
- Current Liabilities (CL)
3970000
2900000
QA/CL
0.87
1.07
3
Average Sale Period
- Inventory (Opening + Closing / 2)
2830000
2045000
- COGS
12656000
9885000
= (365 * Inventory)/COGS
81.62
75.51
4
Average Collection Period
- Accounts Receivables
2540000
1640000
- Net Credit Sales
15820000
13180000
= (365 * Accounts receivables)/Net Credit Sales
58.60
45.42
5
Average Payment Period
- Accounts Payable (Assumes current liabilities
3970000
2900000
- Net Credit Purchase (COGS - Opening Inventory + Closing Inventory)
14116000
9995000
= (365 * Accounts Payable)/ Net Credit Purchase
102.65
105.90
6
Operating Cycle
- Average Sales Period (A)
81.62
75.51
- Average Collection Period (B)
58.60
45.42
- Average Payment Period ©
-102.65
-105.9
= A + B - C
37.57
15.03
7
Total Assets Turnover
- Net sales
15820000
13180000
- Average Total Assets (Opening + Closing /2)
15555000
14485000
= Net Sales / Average Total Assets
1.02
0.91