Problem 15-15 Comprehensive Ratio Analysis ou have just been hired as a financia
ID: 2489790 • Letter: P
Question
Problem 15-15 Comprehensive Ratio Analysis
ou 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 assigment you gather the following financial data and ratios that are typical of companies in Lydex Company’s industry:
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.)
You decide next to assess the company’s stock market performance. Assume that Lydex’s stock price at the end of this year is $72 per share and that at the end of last year it was $40. 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.)
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 your intermediate calculations and final answer to 2 decimal places.)
ou 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:
Explanation / Answer
Lydex Company Formula This Year Last Year a Times Interest Earned =EBIT/Interest expense 4.33 3.40 b Debt Equity Ratio= =Total Debt (Liability)/Equity 0.78 0.63 c Gross Margin % =Gross Profit/sales= 20.00% 20.7% d Return on Total Assets =Net Income/Avg Assets Average Assets 15,990,000 13,920,000 ROA = 5.25% 3.62% e Return on Equity =Net income/Avg Stock holders equity Average stockholders equity 9,360,000 9,084,000 ROE= 9.0% 5.5% Share Price at the end of Year 72 40 No of outstanding common stocks 100,000 100,000 a EPS =Net Income/Outstanding shares $ 8.40 $ 5.04 b Dividend yield =Dividend per share/Price Dividend paid to common stockholders 360,000 252,000 DPS = $ 3.60 $ 2.52 Dividend Yield= DPS/Price per share 5.00% 6.30% c Dividend Payout Ratio= Dividend paid/Net Income= 42.86% 50.00% d P/E ratio= =Price per share/EPS= 8.57 7.94 e Book Value per share= Stockholders Equity/Outstanding shares $ 96.00 $ 91.20 Lydex Ratios This Year Last Year a Working Capital= Current Asset-Current Laib= 3,900,000 3,180,000 b Current Ratio=Current Asset/ Current Liab= 2.00 2.15 c Acid test Ratio=(Current Asset-Inventory-Prepaid Expense)/Current Liab 0.94 1.22 d Avg collection period Accounts receivable Turnover=Sales/Avg AR Avg Accounts receivable= 2,250,000 1,680,000 Accounts receivable Turnover=Sales/Avg AR 7.00 7.43 Average collection period= 365/AR Turnover= 52.14 49.13 e Average inventory = 3,150,000 2,160,000 Inventory Turn=COGS/Avg Inventory = 4.00 4.58 Sales Days=365/Inventory Turn= 91.25 79.64 f Operating Cycle= Avg Collcetion period+Sales Days= 143.39 128.77 g Total Asset Turnover=Sales/Total Avg. Assets Avg Assets 15,990,000 14,690,000 Total Asset Turnover = 0.98 0.85