Question

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:

You decide, finally, to assess the company’s liquidity and asset management. For both this year and last year, compute:

a. Working capital.

b. The current ratio. (Round your final answers to 2 decimal places.)

c. The acid-test ratio. (Round your final answers to 2 decimal places.)

d. The average collection period. (The accounts receivable at the beginning of last year totaled $1,750,000.) (Use 365 days in a year. Round your intermediate calculations and final answer to 2 decimal place.)

e. The average sale period. (The inventory at the beginning of last year totaled $2,110,000.) (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 $14,690,000.) (Round your final answers to 2 decimal places.)
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: $ 1,280,000 $ 1,040,000 Cash Marketable securities 300,000 2,120,000 2,300,000 210,000 3,020,000 3,680,000 270,000 Accounts receivable, net Inventory Prepaid expenses Total current assets 8,010,000 9,680,000 6,210,000 9,130,000 Plant and equipment, net $15,340,000 Total assets $17,690,000 Liabilities and Stockholders' Equity Liabilities: $ 4,090,000 Current liabilities 3,140,000 3,120,000 Note payable, 10% Total liabilities Stockholders equity: Common stock, $75 par value Retained earnings Total stockholders' equity 3,720,000 6,260,000 7,810,000 7,500,000 2,380,000 7,500,000 1,580,000 9,880,000 9,080,000 Total liabilities and stockholders' equity $15,340,000 17,690,000 Tuday Comnanu

Answer 1

a.working capital = current asset -current liabilities

	This year	Last year
current assets	8,010,000	6,210,000
current liabilities	4,090,000	3,140,000
working capital	$3,920,000[8,010,000-4,090,000]	$3,070,000[6,210,000-3,140,000]

b.current ratio = current asset / current liabilities

	This year	Last year
current assets	8,010,000	6,210,000
current liabilities	4,090,000	3,140,000
current ratio	1.96[8,010,000/4,090,000]	1.98[6,210,000/3,140,000]

c. acid test ratio =cash +marketable security+account receivable / current liabilities

	This year	Last year
cash +marketable securities+account receivable	4,060,000 [1,040,000+3,020,000]	3,700,000 [1,280,000+300,000+2,120,000]
current liabilities	4,090,000	3,140,000
current ratio	0.99[4,060,000/4,090,000]	1.18[3,700,000/3,140,000]

d.average collection period=(average account receivable /net sales)*365

	This year	Last years
Account receivable beginning	2,120,000	$1,750,000
account receivable end	3,020,000	2,120,000
net sales	15,940,000	14,380,000
average receivable	2,570,000[(2,120,000+3,020,000)/2]	1,935,000[(1,750,000+2,120,000)/2]
Average collection period	58.85days[(2,570,000/15,940,000)*365]	49.12 days [(1,935,000/1438000)]*365