ARJAN VHIN L.

ALEJO ACT 121 OCTOBER 22,2024

HORIZONTAL ANALYSIS BALANCE SHEET

Lydex Company
Comparative Balance Sheet
Increase Changes
Line Item This Year Last Year
(Decrease) in %
ASSETS

Current Assets:

Cash $ 960,000 $ 1,260,000 - 300,000 -23.81%

Marketable securities 0 300,000 - 300,000 -100%

Accounts receivable, net 2,700,000 1,800,000 900,000 50%

Inventory 3,900,000 2,400,000 1,500,000 62.50%

Prepaid expenses 240,000 180,000 60,000 33.33%

Total current assets 7,800,000 5,940,000 1,860,000 31.31%

Plant and equipment, net 9,300,000 8,940,000 360,000 4.03%

Total assets $17,100,000 $14,880,000 2,220,000 14.92%

Liabilities and Stockholder's
Equity
LIABILITIES

Current Liabilities $ 3,900,000 $ 2,760,000 1,140,000 41.30%

Note payable, 10% 3,600,000 3,000,000 600,000 20%

Total Liabilities 7,500,000 5,760,000 1,740,000 30.21%

STOCKHOLDERS' EQUITY

Common stock, $78 par value 7,800,000 7,800,000 - 0%

Retained earnings 1,800,000 1,320,000 480,000 36.36%

Total stockholders' equity 9,600,000 9,120,000 480,000 5.26%

Total liabilities and stockholders'
$17,100,000 $14,880,000 2,220,000 14.92%
equity

HORIZONTAL ANALYSIS INCOME STATEMENT

Lydex Company
Comparative Income Statement and Reconciliation
Increase Changes
This Year Last Year (Decrease) in %
Sales (all on account) $15,750,000 $12,480,000 3,270,000 26.20%
Cost of goods sold 12,600,000 9,900,000 2,700,000 27.27%
Gross Margin 3,150,000 2,580,000 570,000 22.09%
Selling and administrative expenses 1,590,000 1,560,000 30,000 1.92%
Net operating income 1,560,000 1,020,000 540,000 52.94%
Interest expense 360,000 300,000 60,000 20.00%
Net income before taxes 1,200,000 720,000 480,000 66.67%
Income taxes (30%) 360,000 216,000 144,000 66.67%
Net income 840,000 504,000 336,000 66.67%
Common dividends 360,000 252,000 108,000 42.86%
Net income retained 480,000 252,000 228,000 90.48%
Beginning retained earnings 1,320,000 1,068,000 252,000 23.60%
Ending retained earnings $ 1,800,000 $ 1,320,000 480,000 36.36%
VERTICAL ANALYSIS BALANCE
SHEET
Lydex Company
Comparative Balance Sheet
Common Size
Percentage
This Last
Line Item This Year Last Year
Year Year
Assets
Current Assets:
Cash $ 960,000 $ 1,260,000 5.61% 8.47%
Marketable securities 0 300,000 0% 2.02%
Accounts receivable, net 2,700,000 1,800,000 15.79% 12.10%
Inventory 3,900,000 2,400,000 22.81% 16.13%
Prepaid expenses 240,000 180,000 1.40% 1.21%
Total current assets 7,800,000 5,940,000 45.61% 39.92%
Plant and equipment, net 9,300,000 8,940,000 54.39% 60.08%
Total assets $ 17,100,000 $ 14,880,000 100% 100%
Liabilities and Stockholder's Equity
Liabilities:
Current Liabilities $ 3,900,000 $ 2,760,000 22.81% 18.55%
Note payable, 10% 3,600,000 3,000,000 21.05% 20.16%
Total Liabilities 7,500,000 5,760,000 43.86% 38.71%
Stockholders' equity:
Common stock, $78 par value 7,800,000 7,800,000 45.61% 52.42%
Retained earnings 1,800,000 1,320,000 10.53% 8.87%
Total stockholders' equity 9,600,000 9,120,000 56.14% 61.29%
Total liabilities and stockholders' equity $ 17,100,000 $ 14,880,000 100% 100%
VERTICAL ANALYSIS INCOME STATEMENT
Lydex Company
Comparative Income Statement and Reconciliation
Common Size
Percentage
This Last
This Year Last Year Year Year
Sales (all on account) $ 15,750,000 $12,480,000 100% 100%
Cost of goods sold 12,600,000 9,900,000 80% 79.33%
Gross Margin 3,150,000 2,580,000 20% 20.67%
Selling and administrative expenses 1,590,000 1,560,000 10.10% 12.50%
Net operating income 1,560,000 1,020,000 9.90% 8.17%
Interest expense 360,000 300,000 2.29% 2.40%
Net income before taxes 1,200,000 720,000 7.62% 5.77%
Income taxes (30%) 360,000 216,000 2.29% 1.73%
Net income 840,000 504,000 5.33% 4.04%
Common dividends 360,000 252,000 2.29% 2.02%
Net income retained 480,000 252,000 3.05% 2.02%
Beginning retained earnings 1,320,000 1,068,000 8.38% 8.56%
Ending retained earnings $ 1,800,000 $ 1,320,000 11.43% 10.58%

3. EVALUATION OF THE FINANCIAL PERFORMANCE AND FINANCIAL

CONDITION OF THE COMPANY
Using horizontal analysis, the Lydex Company's financial performance demonstrated
strong growth, with net income increasing 66.67% and sales increasing 26.2%.
However, future profits can be affected because the cost of goods sold increases
slightly faster than sales. Liabilities increased by 30.21% while assets increased by
14.92%, raising questions about the company's capacity to manage its increasing debt.
A 52.94% increase in operating income suggests that selling and administrative costs
were handled well. A 31.31% jump in current assets was the primary cause of the
balance sheet's 14.92% increase in total assets. However, the company's current
liabilities increased by 41.3%, raising the possibility of future financial concerns if they
are not properly managed.
According to vertical analysis, Lydex's financial structure has improved, with current
assets making up 45.61% of total assets, indicating greater short-term stability.
Liabilities, on the other hand, have gone up from 38.71% to 43.86%, suggesting that
rising debt levels are causing greater financial risk. Despite this, the majority of
stockholders' equity, with 56.14%, is still held, and profitability has increased, rising from
4.04% to 5.33% as a percentage of sales. Lydex should keep an eye on its rising debt
levels even if the company still has a strong capital structure.