LAKELAND CORPORATION

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1) Comparative Analysis – Problem 1-9

As a consultant to MSR 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 as follows:

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
		(continued)

Liabilities and Shareholders' Equity		(continued)
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
Merest	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	2,215,000	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 l, 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.

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:

a. Current ratio.

b. Acid-test ratio.

c. Book value per common share.

For year ended December 31:

d. Gross profit margin ratio.

e. Days to sell inventory.

f. Times interest earned.

g. Common stock price-to-earnings ratio (end-of-year value).

h. Gross capital expenditures.