Lumar Swimwear

Lumar Swimwear : Trend Analysis and Industry Comparisons

I. Introduction

Lamar Swimwear is growing its sales over the last three years. The company manufactures stylish bathing suits and sunscreen products. The issue is that one of the current holders has to sale his stock; therefore, this stock is available for anyone who wants to take it. In this case, Ed Lamar approached his cousin with a proposal to buy 15% interest in Lamar Swinwear; hence, Mr. Adkins will take a look at the investment situation and analyze all the ratios, whether it is attractive or not. In this case, there are three financial ratios used to analyze the company performance such as profitability ratios, asset utilization ratios, and debt utilization ratios.

II. Analysis

A. Profitability Ratios

There are three formulas for this ratio used in this case:

1). Profit Margin = Net Income/ Net Sales (Bruns, 2004);

2). Return on Assets (ROA) = Income/ Assets (Bruns, 2004);

3). Return on Equity (ROE) = Net Income/ Stockholders’ Equity (Bruns, 2004);

While the profit margin is decreasing from the first years (7.35% to 6.12% to 6.38% in the last year), the Growth in sales has increased rapidly 25% per year. Even though this company is likely no economies of scale, the problem seems to be happened from interest expense and higher costs of goods sold. During 201X, the return on asset is 8.02 and more than the industry average 0.08 and declined in 201Y and 201Z, which the company average is lower than the industry average (5.70% versus 8.95%). The declining of return on asset is severed, and can be the cause of declining profit margin and slowing total asset turnover from1.09x to 0.89x in the last year (asset utilization ratios).

For the return on equity, the company average is higher than the industry average during the first year (15.90% versus 14.31%) but declined after that (14.20% versus 15.26% in 201Y and 13.98% versus 16.01% in 201Z). This happened particularly because of the...