Problem 1515 Comprehensive Ratio Analysis LO152 LO153 LO154

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 2

2. You decide next to assess the company’s stock market performance. Assume that Lydex’s stock price at the end of this year is $86 per share and that at the end of last year it was $54. For both this year and last year, compute: (Round your \"Percentage\" answers to 1 decimal place and other intermediate and final answers to 2 decimal places.)

a. The earnings per share.

b. The dividend yield ratio.

c. The dividend payout ratio.

d. The price-earnings ratio.

e. The book value per share of common stock.

Lydex Company Comparative 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

Solution

1) LYDEX CO INDUSTRY Current ratio (7270000/3970000) 1.8 2.3 Acid-test ratio [(920000+2540000)/3970000] 0.9 1.1 Average collection period = [(2540000+1640000)*365/(15820000*2)] 48 days 40 days Average sale period = [(3970000+2900000)*365/(12656000*2)} 99 days 60 days Return on assets [1764000*70%*2/(16710000+14400000)] 7.9 % 8.8 % Debt-to-equity ratio (7610000/9100000) 0.8 0.7 Times interest earned ratio (1764000/364000) 4.8 5.8 Price-earnings ratio ( 10 2) This year Last year a) EPS = Net Income/# of shares = 980000/100000 = $         9.80 (982100/100000) $            9.8 b) Dividend yield ratio = Dividend per share/Price = 3.4/86 = 4.0% (4.91/54) 9.1% c) Dividend payout ratio = Dividend paid/Net income =340000/980000 = 34.7% (491050/982100) 50.0% d) Price-earnings ratio = EPS/Price = 9.8/86 = 11.4% (9.8/54) 18.1% e) Book value per share = Total equity/# of shares = 9100000/100000 = $       91.00 (8460000/100000) 84.6