Problem 15-15 Comprehensive Ratio Analysis [LO15-2, LO15-3, LO15-4, LO15-5, LO15
ID: 2498938 • Letter: P
Question
Problem 15-15 Comprehensive Ratio Analysis [LO15-2, LO15-3, LO15-4, LO15-5, LO15-6]
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 assigment you gather the following financial data and ratios that are typical of companies in Lydex Company’s industry:
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.)
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:
Explanation / Answer
e) The average sale period = 365 days / Inventory turnover ratio
Inventory turnover ratio = Cost of goods sold / average inventory = $ 12736000 / (2100000+3660000)/2
= 4.42
average sale period = 365 days / 4.42 = 82.58 days
f) operating Cycle = Inventory period + accounts receivable period
Inventory period = 365 days / inventory turnover = 82.58 days
accounts receivable period = 365 days / accounts receivable turnover
accounts receivable turnover = Credit Sales / Average accounts receivable
= $ 15920000 / (2040000+2940000)/2
= 6.39
accounts receivable period = 365 / 6.39 = 57.12 days
The operating cycle = 82.58 + 57.12 = 139.7
g) total asset turnover = Sales / Average Total Assets = $ 15920000 / (15020000+ 17530000)/2
= 0.98