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: Lydex Company Comparative Balance Sheet This Year Last Year Assets Current assets: Cash Marketable securities Accounts receivable, net Inventory Prepaid expenses 870,000 0 2,340,000 3,510,000 240,000 $1,110,000 300,000 1,440,000 2,100,000 180,000 Total current assets Plant and equipment, net 5,130,000 ৪,960,000 6,960,000 9,340,000 Total assets $16,300,000 $14,090,000 Liabilities and Stockholders' Equity Liabilities: Current liabilities Note payable, 10% $ 2,660,000 3,000,000 $ 3,750,000 3,600,000 Total liabilities 7,350,000 5,660,000 Stockholders' equity Common stock, $70 par value Retained eamings 7,000,000 1,430,000 7,000,000 1,950,000 Total stockholders' equity 8,950,000 8,430,000 $14,090,000 Total liabilities and stockholders' equity $16,300,000

Answer 1

Requirement 1:

Common Size Balance Sheet denotes comparing % of each individual asset items to total assets and similarly % of each individual liabilities to total liabilities (i.e.) to know how much % gets contributed by each individual item to the total asset and liabilities.

This is in contrast to the comparative balance sheet, which compares increase or decrease from year 1 to year 2 and / or increase or decrease from another company's balance sheet in same industry.

Thus, Common size balance sheet as below:

Please update only "shaded" column in your output and other columns are presented for your understanding of the calculations. As instructed, percentages are rounded off to 1 decimal place.

Lydex Company Common-size balance sheet This Year Ref to % % to total Ref to assets Amount Last Year Ref to Amount ($) % % to total assets Ref to Amount Amount ($) 870,000.00 - 2,340,000.00 3,510,000.00 240,000.00 6,960,000.00 9,340,000.00 16,300,000.00 A/H B/H c/H D/H E/H F/H G/H H/H 5.3% A 0.0% B 14.4% C 21.5% D 1.5% E 42.7% F=A+B+C+D+E 57.3% G 100.0% H=F+G 1,110,000.00 300,000.00 1,440,000.00 2,100,000.00 180,000.00 5,130,000.00 8,960,000.00 14,090,000.00 A/H B/H C/H D/H E/H F/H G/H H/H 7.9% 2.1% 10.2% 14.9% 1.3% 36.4% 63.6% 100.0% F=A+B+C+D+E H=F+G Description Assets: Cash Marketable Securities Accounts, Receivable, Net Inventory Prepaid Expense Total Current Assets Plant and Equipment, net Total Assets Liabilities and Stockholder's Equity Liabilities: Current Liabilities Note payable, 10% Total Liabilities Stockholders' equity Common stock $ 70 par value Retained Earnings Total Stockholders' equity Total Liabilities and Equity 3,750,000.00 3,600,000.00 7,350,000.00 1/P J/P K/P 23.0% 22.1%) 45.1%|K=+J 2,660,000.00 3,000,000.00 5,660,000.00 1/P J/P K/P 18.9% 21.3% 40.2% K=I+] 7,000,000.00 1,950,000.00 8,950,000.00 16,300,000.00 L/P M/P N/P P/P 42.9% 12.0% M 54.9% N=L+M 100.0% P=K+N 7,000,000.00 1,430,000.00 8,430,000.00 14,090,000.00 L/P M/P N/P P/P 49.7% 10.1% 59.8% 100.0% N=L+M PEK+N

Requirement 2:

Common Size Income statement denotes comparing % of each individual expense items to total sales (i.e.) to know how much % of expense incurred to arrive at the sales. and how much profit earned from the total sales. This is more commonly used by all company for various reasons like - to know an expense item which is more, to plan for any future expansion, to plan to achieve desired profit from budgeted sales, etc...

Thus, Common size Income statement as below:

Please update only "shaded" column in your output and other columns are presented for your understanding of the calculations. As instructed, percentages are rounded off to 1 decimal place.

Lydex Company Common-size Income Statement This Year Ref to Description Ref to Amount Amount ($) % Sales (all on account) 15,770,000.00 A/I Cost of goods sold 12,616,000.00 B/ Gross Margin C=A-B 3,154,000.00 c/1 Selling and administrative expense D 1,551,143.00D/ Net Operating Income E=C-D 1,602,857.00 E/ Interest Expense 360,000.00 F/1 Net Income before taxes G=E-F 1,242,857.00 G/L Income taxes (30%) H=G*30% 372,857.00 H/1 Net Income I=G-H 870,000.00 1/1 % to total Ref to sales Amount 100% A 80.0% B 20.0% CEA-B 9.8% D 10.2% E=C-D 2.3% F 7.9% G=E-F 2.4% H=G*30% 5.5% I=G-H Last Year Ref to Amount ($) % 12,680,000.00 A/I 9,510,000.00 B/1 3,170,000.00 c/ 1,568,000.00D/1 1,602,000.00 E/ 300,000.00 F/ 1,302,000.00 G/ 390,600.00 H/1 911,400.00 1/1 % to total sales 100% 75.0% 25.0% 12.4% 12.6% 2.4% 10.3% 3.1% 7.2%