EXERCISE 1–1 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:

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 Liabilities and Shareholders’ Equity Current liabilities Accounts payable . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . $ 2,950,000 $ 3,426,000 Accrued expenses . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 1,575,000 1,644,000 Federal taxes payable . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 875,000 750,000 Current maturities on long-term debt . . . . . . . . . . . . . . . . . . . . . . . . . . 500,000 500,000 Total current liabilities . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 5,900,000 6,320,000 Other liabilities 5% sinking fund debentures, due January 1, Year 16 ($500,000 redeemable annually) . . . . . . . . . . . . . . . . . . . . . 5,000,000 5,500,000 Deferred taxes on income, due to depreciation . . . . . . . . . . . . . . . . . . . 350,000 210,000 Total other liabilities . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 5,350,000 5,710,000 Shareholders’ equity Preferred stock, $1 cumulative, $20 par, preference on liquidation $100 per share (authorized: 100,000 shares;
issued and outstanding: 50,000 shares) . . . . . . . . . . . . . . . . . . . . . 1,000,000 1,000,000 Common stock, $1 par (authorized: 900,000 shares;
issued and outstanding: Year 5, 550,000 shares;
Year 4, 500,000 shares) . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 550,000 500,000 Capital in excess of par value on common stock . . . . . . . . . . . . . . . . . . 3,075,000 625,000 Retained earnings . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 7,250,000 7,965,000 Total shareholders’ equity . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 11,875,000 10,090,000 Total liabilities and shareholders’ equity . . . . . . . . . . . . . . . . . . . . . . . . . . $23,125,000 $22,120,000 LAKELAND CORPORATION Statement of Income and Retained Earnings For Years Ended December 31, Year 5 and Year 4 Year 5 Year 4 Revenues Net sales . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . $48,400,000 $41,700,000 Royalties . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 70,000 25,000 Interest . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 30,000 —
Total revenues . . . . . . . . . . . . . . . . . . . . . . . . . . $48,500,000 $41,725,000 Costs and expenses Cost of sales . . . . . . . . . . . . . . . . . . . . . . . . . . . . $31,460,000 $29,190,000 Selling, general, and administrative . . . . . . . . . 12,090,000 8,785,000 Interest on 5% sinking fund debentures . . . . . . 275,000 300,000 Provision for Federal income taxes . . . . . . . . . . . 2,315,000 1,695,000 Total costs and expenses . . . . . . . . . . . . . . . . . . $46,140,000 $39,970,000 Net income . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . $ 2,360,000 $ 1,755,000 Retained earnings, beginning of year . . . . . . . . . . . 7,965,000 6,760,000 Subtotal . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . $10,325,000 $ 8,515,000 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.
3. Cash dividends for both preferred and common stock are declared and paid in June and December of each year.
The stock dividend on common stock is declared and distributed in August of Year 5.
4. Plant and equipment disposals during Year 5 and Year 4 are $375,000 and $425,000, respectively. Related accumulated depreciation is $215,000 in Year 5 and $335,000 in Year 4. At December 31, Year 3, the plant and equipment asset balance is $21,470,000, and its related accumulated depreciation is $11,650,000.
Required:
Compute the following financial ratios and figures for both Year 5 and Year 4. Identify and discuss any significant year-to-year changes.

At December 31: For year ended December 31:

a. Current ratio.

d. Gross profit margin ratio.

b. Acid-test ratio.

e. Days to sell inventory.

c. Book value per common share.

f. Times interest earned.
g. Common stock price-to-earnings ratio (end-of-year value).
h. Gross capital expenditures.