Lakeland Corporation Year 5 Year 4 Assets: Chapter One - Overview of Financial Statement Analysis
Lakeland Corporation Year 5 Year 4 Assets: Chapter One - Overview of Financial Statement Analysis
Lakeland Corporation Year 5 Year 4 Assets: Chapter One - Overview of Financial Statement Analysis
1. As a consultant to MCR Company, you are told it is considering the acquisition of Lakeland
Corporation. MCR Company requests that you prepare certain financial statistics and analysis for
Year 5 and Year 4 using Lakeland’s financial statements that follow :
Chapter One | Overview of Financial Statement Analysis 57
LAKELAND CORPORATION
Balance Sheet
December 31, Year 5 and Year 4
Year 5 Year 4
Assets
Current assets
Cash . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . $ 1,610,000 $ 1,387,000
Marketable securities . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 510,000 —
Accounts receivable, less allowance for bad debts
Year 5, $125,000; Year 4, $110,000 . . . . . . . . . . . . . . . . . . . . . . . . . 4,075,000 3,669,000
Inventories, at lower of cost or market . . . . . . . . . . . . . . . . . . . . . . . . . 7,250,000 7,050,000
Prepaid expenses . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 125,000 218,000
Total current assets . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 13,570,000 12,324,000
Plant and equipment, at cost
Land and buildings . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 13,500,000 13,500,000
Machinery and equipment . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 9,250,000 8,520,000
Total plant and equipment . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 22,750,000 22,020,000
Less: Accumulated depreciation . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 13,470,000 12,549,000
Total plant and equipment—net . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 9,280,000 9,471,000
Long-term receivables . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 250,000 250,000
Deferred charges . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 25,000 75,000
Total assets . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . $23,125,000 $22,120,000
Dividends paid
Preferred stock, $1.00 per share in cash . . . . . . 50,000 50,000
Common stock
Cash—$1.00 per share . . . . . . . . . . . . . . . . . 525,000 500,000
Stock—(10%)—50,000 shares at
market value of $50 per share . . . . . . . . . . 2,500,000 —
Total dividends paid . . . . . . . . . . . . . . . . . . . . $ 3,075,000 $ 550,000
Retained earnings, end of year . . . . . . . . . . . . . . . . $ 7,250,000 $ 7,965,000
Additional Information:
1. Inventory at January 1, Year 4, is $6,850,000.
2. Market prices of common stock at December 31, Year 5 and Year 4, are $73.50 and $47.75, respectively.
Required:
Compute the following financial ratios and figures for both Year 5 and Year 4. Identify and discuss
any significant year-to-year changes.
2.Selected ratios for three different companies that operate in three different industries (merchandising,
pharmaceuticals, utilities) are reported in the table below:
Ratio Co. A Co. B Co. C
Gross profit margin ratio . . . . . . . . . . . . . . . 18% 53% n.a.
Net profit margin ratio . . . . . . . . . . . . . . . . 2% 14% 8%
Research and development to sales . . . . . . 0% 17% 0.1%
Advertising to sales . . . . . . . . . . . . . . . . . . . 7% 4% 0.1%
Interest expense to sales . . . . . . . . . . . . . . . 1% 1% 15%
Return on assets . . . . . . . . . . . . . . . . . . . . . 11% 12% 7%
Accounts receivable turnover . . . . . . . . . . . 95 times 5 times 11 times
Inventory turnover . . . . . . . . . . . . . . . . . . . . 9 times 3 times n.a.
Long-term debt to equity . . . . . . . . . . . . . . . 64% 45% 89%
Required:
Identify the industry that each of the companies, A, B, and C, operate in. Give at least two reasons
supporting each of your selections.
3.
Assume you are an analyst evaluating Mesco Company. The following data are available in your
financial analysis (unless otherwise indicated, all data are as of December 31, Year 5):
Common stock: RM15 par value; 11,000 shares issued and outstanding; issued at RM21 per
share
Required:
Using these data, construct the December 31, Year 5, balance sheet for your analysis. Operating
expenses (excluding taxes and cost of goods sold for Year 5) are RM198,000. The tax rate is
40%. Assume a 360-day year in ratio computations. No cash dividends are paid in either Year 4
or Year 5. Current assets consist of cash, accounts receivable, and inventories.