Problem $16-15($Algo$)$ Comprehensive Ratio Analysis $[$LO$16-2,$ LO$16-3,$ LO$16-4,$ LO$16-5,$ LO$16-6]$

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

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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:

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Lydex Company

Comparative Balance Sheet$$This YearLast YearAssets$$Current assets:$$Cash$ $910,000$$ $1,150,000$Marketable securities$0300,000$Accounts receivable, net$2,500,0001,600,000$Inventory$3,550,0002,000,000$Prepaid expenses$250,000190,000$Total current assets$7,210,0005,240,000$Plant and equipment, net$9,420,0009,000,000$Total assets$ $16,630,000$$ $14,240,000$Liabilities and Stockholders' Equity$$Liabilities:$$Current liabilities$ $3,960,000$$ $2,880,000$Note payable, $10\%3,640,0003,040,000$Total liabilities$7,600,0005,920,000$Stockholders' equity:$$Common stock, $$70$ par value$7,000,0007,000,000$Retained earnings$2,030,0001,320,000$Total stockholders' equity$9,030,0008,320,000$Total liabilities and stockholders' equity$ $16,630,000$$ $14,240,000$

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Lydex Company

Comparative Income Statement and Reconciliation$$This YearLast YearSales $($all on account$)$$ $15,810,000$$ $13,080,000$Cost of goods sold$12,648,0009,810,000$Gross margin$3,162,0003,270,000$Selling and administrative expenses$1,298,0001,584,000$Net operating income$1,864,0001,686,000$Interest expense$364,000304,000$Net income before taxes$1,500,0001,382,000$Income taxes $(30\%)450,000414,600$Net income$1,050,000967,400$Common dividends$340,000483,700$Net income retained$710,000483,700$Beginning retained earnings$1,320,000836,300$Ending retained earnings$ $2,030,000$$ $1,320,000$

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To begin your assignment you gather the following financial data and ratios that are typical of companies in Lydex Company$$s industry:

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Current ratio$2\mathrm{.}3$Acid$-$test ratio$1\mathrm{.}0$Average collection period$40$daysAverage sale period$60$daysReturn on assets$8\mathrm{.}7\%$Debt$-$to$-$equity ratio$0\mathrm{.}7$Times interest earned ratio$5\mathrm{.}7$Price$-$earnings ratio$10$

Problem $16-15$ Part $1($Algo$)$

Required:

$1.$ You decide first to assess the company$$s performance in terms of debt management and profitability. Compute the following for both this year and last year: $($Round your "Percentage" answers to $1$ decimal place and other answers to $2$ decimal places.$)$

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a$.$ The times interest earned ratio.

b$.$ The debt$-$to$-$equity ratio.

c$.$ The gross margin percentage.

d$.$ The return on total assets. $($Total assets at the beginning of last year were $$13,020,000.)$

e$.$ The return on equity. $($Stockholders$$ equity at the beginning of last year totaled $$7,836,300.$ There has been no change in common stock over the last two years.$)$

f$.$ Is the company$$s financial leverage positive or negative?