Homework SourseRequired information Problem 1515 Comprehensive Ratio Analys
Required information
Problem 15-15 Comprehensive Ratio Analysis [LO15-2, LO15-3, LO15-4, LO15-5, LO15-6]
[The following information applies to the questions displayed below.]
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.)
d. The price-earnings ratio.
| 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
Answer:
Price-Earnings Ratio = Price per Share / Earnings per Share
This Year:
Price per Share = $86
Earnings per Share = Net Income / Shares Outstanding
Shares Outstanding = 7,500,000 / 75 = 100,000 Shares
Earnings per Share = 980,000 / 100,000
Earnings per Share = $9.80
Price-Earnings Ratio = 86/ 9.80
Price-Earnings Ratio = 8.78
This Year:
Price per Share = $54
Earnings per Share = Net Income / Shares Outstanding
Shares Outstanding = 7,500,000 / 75 = 100,000 Shares
Earnings per Share = 982,100 / 100,000
Earnings per Share = $9.82
Price-Earnings Ratio = 54/ 9.82
Price-Earnings Ratio = 5.50
![Required information Problem 15-15 Comprehensive Ratio Analysis [LO15-2, LO15-3, LO15-4, LO15-5, LO15-6] [The following information applies to the questions dis](/WebImages/38/required-information-problem-1515-comprehensive-ratio-analys-1117111-1761593615-0.webp "Required information Problem 15-15 Comprehensive Ratio Analysis [LO15-2, LO15-3, LO15-4, LO15-5, LO15-6] [The following information applies to the questions dis")
![Required information Problem 15-15 Comprehensive Ratio Analysis [LO15-2, LO15-3, LO15-4, LO15-5, LO15-6] [The following information applies to the questions dis](/WebImages/38/required-information-problem-1515-comprehensive-ratio-analys-1117111-1761593615-1.webp "Required information Problem 15-15 Comprehensive Ratio Analysis [LO15-2, LO15-3, LO15-4, LO15-5, LO15-6] [The following information applies to the questions dis")
