[The following information applies to the questions displayed below.]Lydex Company’s financial statements for the last two years are as follows:Lydex CompanyComparative Balance Sheet This YearLast YearAssets Current assets: Cash$ 1,020,000$ 1,260,000Marketable securities0300,000Accounts receivable, net2,940,0002,040,000Inventory3,660,0002,100,000Prepaid expenses270,000210,000Total current assets7,890,0005,910,000Plant and equipment, net9,640,0009,110,000Total assets$ 17,530,000$ 15,020,000Liabilities and Stockholders' Equity Liabilities: Current liabilities$ 4,070,000$ 3,100,000Note payable, 10%3,700,0003,100,000Total liabilities7,770,0006,200,000Stockholders' equity: Common stock, $75 par value7,500,0007,500,000Retained earnings2,260,0001,320,000Total stockholders' equity9,760,0008,820,000Total liabilities and stockholders' equity$ 17,530,000$ 15,020,000Lydex CompanyComparative Income Statement and Reconciliation This YearLast YearSales (all on account)$ 15,920,000$ 14,180,000Cost of goods sold12,736,00010,635,000Gross margin3,184,0003,545,000Selling and administrative expenses1,014,0001,628,000Net operating income2,170,0001,917,000Interest expense370,000310,000Net income before taxes1,800,0001,607,000Income taxes (30%)540,000482,100Net income1,260,0001,124,900Common dividends320,000562,450Net income retained940,000562,450Beginning retained earnings1,320,000757,550Ending retained earnings$ 2,260,000$ 1,320,000The following financial data and ratios are typical of companies in Lydex Company’s industry:Current ratio2.3 Acid-test ratio1.1 Average collection period32daysAverage sale period60daysReturn on assets9.9% Debt-to-equity ratio0.7 Times interest earned ratio5.9 Price-earnings ratio10 3. To assess the company’s liquidity and asset management, compute the following for this year and last year:The average collection period. (The accounts receivable at the beginning of last year totaled $1,730,000.)Note: Use 365 days in a year. Round your intermediate calculations and final answers to 2 decimal place.The average sale period. (The inventory at the beginning of last year totaled $2,090,000.)Note: Use 365 days in a year. Round your intermediate calculations and final answers to 2 decimal place.The operating cycle.Note: Round your intermediate calculations and final answers to 2 decimal place.The total asset turnover. (The total assets at the beginning of last year totaled $13,130,000.)Note: Round your final answers to 2 decimal places.

Average Collection Period is a metric used to analyze a company's collection efficiency and also…

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Managerial Accounting

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ISBN:9781337912020

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Publisher:Carl Warren, Ph.d. Cma William B. Tayler

Chapter16: Financial Statement Analysis

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[The following information applies to the questions displayed below.]

Lydex Company’s financial statements for the last two years are as follows:

	This Year	Last Year
Lydex Company
Comparative Balance Sheet
Assets
Current assets:
Cash	$ 1,020,000	$ 1,260,000
Marketable securities	0	300,000
Accounts receivable, net	2,940,000	2,040,000
Inventory	3,660,000	2,100,000
Prepaid expenses	270,000	210,000
Total current assets	7,890,000	5,910,000
Plant and equipment, net	9,640,000	9,110,000
Total assets	$ 17,530,000	$ 15,020,000
Liabilities and Stockholders' Equity
Liabilities:
Current liabilities	$ 4,070,000	$ 3,100,000
Note payable, 10%	3,700,000	3,100,000
Total liabilities	7,770,000	6,200,000
Stockholders' equity:
Common stock, $75 par value	7,500,000	7,500,000
Retained earnings	2,260,000	1,320,000
Total stockholders' equity	9,760,000	8,820,000
Total liabilities and stockholders' equity	$ 17,530,000	$ 15,020,000

	This Year	Last Year
Lydex Company
Comparative Income Statement and Reconciliation
Sales (all on account)	$ 15,920,000	$ 14,180,000
Cost of goods sold	12,736,000	10,635,000
Gross margin	3,184,000	3,545,000
Selling and administrative expenses	1,014,000	1,628,000
Net operating income	2,170,000	1,917,000
Interest expense	370,000	310,000
Net income before taxes	1,800,000	1,607,000
Income taxes (30%)	540,000	482,100
Net income	1,260,000	1,124,900
Common dividends	320,000	562,450
Net income retained	940,000	562,450
Beginning retained earnings	1,320,000	757,550
Ending retained earnings	$ 2,260,000	$ 1,320,000

The following financial data and ratios are typical of companies in Lydex Company’s industry:

Current ratio	2.3
Acid-test ratio	1.1
Average collection period	32	days
Average sale period	60	days
Return on assets	9.9%
Debt-to-equity ratio	0.7
Times interest earned ratio	5.9
Price-earnings ratio	10

3. To assess the company’s liquidity and asset management, compute the following for this year and last year:

The average collection period. (The accounts receivable at the beginning of last year totaled $1,730,000.)

Note: Use 365 days in a year. Round your intermediate calculations and final answers to 2 decimal place.
The average sale period. (The inventory at the beginning of last year totaled $2,090,000.)

Note: Use 365 days in a year. Round your intermediate calculations and final answers to 2 decimal place.
The operating cycle.

Note: Round your intermediate calculations and final answers to 2 decimal place.
The total asset turnover. (The total assets at the beginning of last year totaled $13,130,000.)

Note: Round your final answers to 2 decimal places.

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