When you do the following assignment and analyze the financial statements of companies, you will also be able to understand how your knowledge of finance can enable you to provide future service to a family member or a friend. In the future, you may work in a field that lets you help others with their financial planning or that helps them to raise needed capital for their business. In this way, your knowledge of finance will provide a valued service to your community.

Goal: To help your uncle decide whether or not he should invest his retirement fund in Lamar Swimwear.

Role: you and your team are business majors. Lets assume that you are siblings and want to help your uncle make a wise decision.

Audience: your target audience is your uncle who is considering investing his retirement fund in buying an ownership interest in Lamar Swimwear. He would do this by buying 15% of the companys shares.

Situation: your uncle asks you and your siblings to help him by doing a financial analysis of the company to see if it is a company that will do well in the future or not.

Product/Performance and Purpose: Given the size of your uncles investment, he hopes to get a sizable return on his investment. Since the company does not pay dividends to its shareholders, his return would have to come from the stock price going up. He hopes for gains in the stock price to be much better than gains in the stock market overall. That will only happen if the company is healthy financially. Of course, the company would also have to have robust growth in sales and profits. Since we cannot forecast the future with any accuracy, your primary role is to evaluate the financial health of the company.

Standards and Criteria for Success:

1. Carefully analyze the ratios and the financial statements.

2. Write two or three paragraphs describing any key areas of concern in the Income Statement and Balance Sheet.

3. Write a paragraph or two for each type of calculated ratio discussing in detail the comparison between Lamar and the Industry (profitability, liquidity, asset utilization, debt. Analyze rather than describe. Point out any problems that exist. You will write a minimum of four paragraphs in total, one for each type of ratio. Often there is a mixed pattern with some ratios looking good and others looking bad.

4. Your job is to write a final recommendation about the purchase, based on your analysis of the ratios. Your final paper should be double-spaced and three-to-five pages in length.

Lamar Swimwear (Trend Analysis and Industry Comparisons)

It is early in 2019 and no one has any idea that COVID 19 will emerge in 2020. You should ignore what you know about COVID-19 and base your decision in the following case on the data presented.

You and your siblings are a team. You have recently been approached by your uncle, John Tanaka, who has asked for your team to help him decide whether or not he should invest his retirement fund in buying a 15 percent interest in Lamar Swimwear. The firm manufactures stylish bathing suits and sunscreen products. He would likely have to spend over $100,000 on this investment.

Your team tells the president of Lamar Swimwear, Bob Lamar, that you are doing an analysis for your uncle and arrange a meeting with him. President Lamar gives you copies of the financial statements of the company for the last three years and a copy of the major ratios calculated for that year.

President Lamar is quick to point out that there has been an increase in sales over the last three years as indicated in the income statement, Exhibit 1. The annual growth rate is 25 percent. A balance sheet for a similar time period is shown in Exhibit 2, and selected industry ratios are presented in Exhibit 3.

Note the swimsuit industry growth rate in sales is only 10 to 12 percent per year. There was a steady real growth of 3 to 4 percent in gross domestic product during the period under study.

Write two or three paragraphs describing any key areas of concern in the Income Statement and Balance Sheet.

1. Debt

(Debt to total assets, Times Interest Earned, Fixed Charge Coverage)

Exhibit 1 Sales (all on credit).... Cost of goods sold... Gross profit Selling and administrative expense* Operating profit (EBIT). Interest expense Net income before taxes Taxes .... Net income Shares Earnings per share LAMAR SWIMWEAR Income Sheet 2016 $1,200,000 800,000 400,000 239,900 160,100 35,000 125,100 36,900 88,200 30,000 2.94 2017 1,500,000 1,040,000 460,000 274,000 186,000 45,000 141,000 49,200 91,800 30,000 $ 3.06 2018 $1,875,000 1,310,000 565,000 304,700 260,300 85,000 175,300 55,600 119,700 38,000 $ 3.15 *Includes $15,000 in lease payments for each year. Exhibit 2 Assets Cash Marketable securities Accounts receivable. Inventory...... Total current assets. Net plant and equipment Total assets. LAMAR SWIMWEAR, Balance Sheet 2016 30,000 20,000 170,000 230,000 450,000 650,000 $1,100,000 2017 40,000 25,000 259,000 261,000 585,000 765,000 $1,350,000 2018 30,000 30,000 360,000 290,000 710,000 1,390,000 2,100,000 Liabilities and Stockholders' Equity Accounts payable. Accrued expenses..... Total current liabilities Long-term liabilities Total liabilities Common stock ($2 par) Capital paid in excess of par Retained earnings .... Total stockholders' equity Total liabilities and stockholders' equity 200,000 20,400 220,400 325,000 545,400 60,000 190,000 304,600 554,600 310,000 30,000 340,000 363,600 703,600 60,000 190,000 396,400 646,400 505,000 35,000 540,000 703,900 1,243,900 76,000 264,000 516,100 856,100 $1,100,000 $1,350,000 2,100,000 Exhibit 3 Selected Industry Ratios 2016 Growth in sales............ Profit margin .............. Return on assets (investment) Return on equity ...... Receivable turnover ........... Average collection period Inventory turnover..... Fixed asset turnover.... Total asset turnover .... Current ratio......... Quick ratio .......... Debt to total assets ..... Times interest earned ........ Fixed charge coverage. Growth in EPS............. 7.71% 7.94% 14.31% 9.02x 39.9 days 4.24x 1.60X 1.05X 1.96x 1.37x 43.47% .50X 4.70x 2017 10.00% 7.82% 8.86% 15.26% 8.86x 40.6 days 5.10X 1.64x 1.10X 2.25X 1.41X 43.11% 5.99% 4.69X 10.10% 2018 12.00% 7.96% 8.95% 16.01% 9.31% 38.7 days 5.11x 1.75X 1.12x 2.40X 1.38X 44.10% 6.61X 4.73x 13.30% The stock in the corporation has become available due to the ill health of a current stockholder, who needs cash. The issue here is not to determine the exact price for the stock, but rather The stock in the corporation has become available due to the ill health of a current stockholder, who needs cash. The issue here is not to determine the exact price for the stock, but rather 3 4 whether Lamar Swimwear is an attractive investment situation. Although your team has a primary interest in the profitability ratios, you will look closely at all the ratios. Your team will want to analyze the overall condition of the firm. The firm does not currently pay a cash dividend, and return to the investor must come from selling the stock in the future. Generally, a company with good ratios that has healthy increases in sales and profit over time enjoys increases in its stock prices. After doing a thorough analysis (including ratios for each year and comparisons to the industry), what comments and recommendations can your team offer to Mr. Adkins? Growth in sales Profit margin Return on assets Return on equity Receivable turnover Average collection period Inventory turnover Lamar Swimwear 2016 (Company) (Industry) (Company) 7.35% (Industry) 7.71% (Company) 8.02% (Industry) 7.94% (Company) 15.90% (Industry) 14.31% (Company) 7.06x (Industry) 9.02x (Company) 51.0 days (Industry) 39.9 days (Company) 5.22x (Industry) 4.24x (Company) 1.85x (Industry) 1.60x (Company) 1.09x (Industry) 1.05x (Company) 2.04x (Industry) 1.96x (Company) 1.00x (Industry) 1.37x (Company) 49.58% (Industry) 43.47% (Company) 4.57x (Industry) 6.50x (Company) 3.50x (Industry) 4.70x (Company) (Industry) Fixed asset turnover 2017 25% 10% 6.12% 7.82% 6.80% 8.68% 14.20% 15.26% 5.79x 8.86x 62.2 days 40.6 days 5.75x 5.10x 1.96x 1.64 1.11x 1.10x 1.72x 2.25x .95x 1.41x 52.12% 43.11% 4.13x 5.99x 3.35x 4.69x 4.1% 10.1% 2018 25% 12% 6.38% 7.96% 5.70% 8.95% 13.98% 16.01% 5.21x 9.31x 69.1 days 38.7 days 6.47x 5.11x 1.35x 1.75x 0.89x 1.12x 1.31x 2.40x 0.78x 1.38x 59.23% 44.10% 3.06x 6.61x 2.75x 4.73x 2.9% 13.3% Total asset turnover Current ratio Quick ratio Debt to total assets Times interest earned Fixed charge coverage Growth in E.P.S. Exhibit 1 Sales (all on credit).... Cost of goods sold... Gross profit Selling and administrative expense* Operating profit (EBIT). Interest expense Net income before taxes Taxes .... Net income Shares Earnings per share LAMAR SWIMWEAR Income Sheet 2016 $1,200,000 800,000 400,000 239,900 160,100 35,000 125,100 36,900 88,200 30,000 2.94 2017 1,500,000 1,040,000 460,000 274,000 186,000 45,000 141,000 49,200 91,800 30,000 $ 3.06 2018 $1,875,000 1,310,000 565,000 304,700 260,300 85,000 175,300 55,600 119,700 38,000 $ 3.15 *Includes $15,000 in lease payments for each year. Exhibit 2 Assets Cash Marketable securities Accounts receivable. Inventory...... Total current assets. Net plant and equipment Total assets. LAMAR SWIMWEAR, Balance Sheet 2016 30,000 20,000 170,000 230,000 450,000 650,000 $1,100,000 2017 40,000 25,000 259,000 261,000 585,000 765,000 $1,350,000 2018 30,000 30,000 360,000 290,000 710,000 1,390,000 2,100,000 Liabilities and Stockholders' Equity Accounts payable. Accrued expenses..... Total current liabilities Long-term liabilities Total liabilities Common stock ($2 par) Capital paid in excess of par Retained earnings .... Total stockholders' equity Total liabilities and stockholders' equity 200,000 20,400 220,400 325,000 545,400 60,000 190,000 304,600 554,600 310,000 30,000 340,000 363,600 703,600 60,000 190,000 396,400 646,400 505,000 35,000 540,000 703,900 1,243,900 76,000 264,000 516,100 856,100 $1,100,000 $1,350,000 2,100,000 Exhibit 3 Selected Industry Ratios 2016 Growth in sales............ Profit margin .............. Return on assets (investment) Return on equity ...... Receivable turnover ........... Average collection period Inventory turnover..... Fixed asset turnover.... Total asset turnover .... Current ratio......... Quick ratio .......... Debt to total assets ..... Times interest earned ........ Fixed charge coverage. Growth in EPS............. 7.71% 7.94% 14.31% 9.02x 39.9 days 4.24x 1.60X 1.05X 1.96x 1.37x 43.47% .50X 4.70x 2017 10.00% 7.82% 8.86% 15.26% 8.86x 40.6 days 5.10X 1.64x 1.10X 2.25X 1.41X 43.11% 5.99% 4.69X 10.10% 2018 12.00% 7.96% 8.95% 16.01% 9.31% 38.7 days 5.11x 1.75X 1.12x 2.40X 1.38X 44.10% 6.61X 4.73x 13.30% The stock in the corporation has become available due to the ill health of a current stockholder, who needs cash. The issue here is not to determine the exact price for the stock, but rather The stock in the corporation has become available due to the ill health of a current stockholder, who needs cash. The issue here is not to determine the exact price for the stock, but rather 3 4 whether Lamar Swimwear is an attractive investment situation. Although your team has a primary interest in the profitability ratios, you will look closely at all the ratios. Your team will want to analyze the overall condition of the firm. The firm does not currently pay a cash dividend, and return to the investor must come from selling the stock in the future. Generally, a company with good ratios that has healthy increases in sales and profit over time enjoys increases in its stock prices. After doing a thorough analysis (including ratios for each year and comparisons to the industry), what comments and recommendations can your team offer to Mr. Adkins? Growth in sales Profit margin Return on assets Return on equity Receivable turnover Average collection period Inventory turnover Lamar Swimwear 2016 (Company) (Industry) (Company) 7.35% (Industry) 7.71% (Company) 8.02% (Industry) 7.94% (Company) 15.90% (Industry) 14.31% (Company) 7.06x (Industry) 9.02x (Company) 51.0 days (Industry) 39.9 days (Company) 5.22x (Industry) 4.24x (Company) 1.85x (Industry) 1.60x (Company) 1.09x (Industry) 1.05x (Company) 2.04x (Industry) 1.96x (Company) 1.00x (Industry) 1.37x (Company) 49.58% (Industry) 43.47% (Company) 4.57x (Industry) 6.50x (Company) 3.50x (Industry) 4.70x (Company) (Industry) Fixed asset turnover 2017 25% 10% 6.12% 7.82% 6.80% 8.68% 14.20% 15.26% 5.79x 8.86x 62.2 days 40.6 days 5.75x 5.10x 1.96x 1.64 1.11x 1.10x 1.72x 2.25x .95x 1.41x 52.12% 43.11% 4.13x 5.99x 3.35x 4.69x 4.1% 10.1% 2018 25% 12% 6.38% 7.96% 5.70% 8.95% 13.98% 16.01% 5.21x 9.31x 69.1 days 38.7 days 6.47x 5.11x 1.35x 1.75x 0.89x 1.12x 1.31x 2.40x 0.78x 1.38x 59.23% 44.10% 3.06x 6.61x 2.75x 4.73x 2.9% 13.3% Total asset turnover Current ratio Quick ratio Debt to total assets Times interest earned Fixed charge coverage Growth in E.P.S