University Case Study: Analyzing Lamar Swimwear's Profitability Ratios

This case study analyzes the financial performance of Lamar Swimwear from 2011 to 2013, focusing on profitability ratios. The analysis includes a review of the gross profit margin, net profit margin, return on assets (ROA), and return on equity (ROE), revealing a decline in these ratios over the observed period. The report indicates that Lamar Swimwear's ability to generate profits has decreased, and its performance lags behind industry averages. Based on these findings, the report recommends against a proposed investment in Lamar Swimwear due to the declining profitability and increasing operational costs, despite sales growth. The conclusion emphasizes the importance of cost control for improving the company's financial health and investment attractiveness.

Running Head: CASE STUDY
CASE STUDY
Name of the Student
Name of the University
Author Note

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Table of Contents
Introduction................................................................................................................................2
Discussion..................................................................................................................................2
Profitability Ratio Analysis of Lamar Swimwear..................................................................2
Conclusion..................................................................................................................................4

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Introduction
The analysis of financial statement is defined as analyzing and reviewing financial
statements of the company for making better economic decisions. It refers to the activity for
assessing financial statements and judging about financial performance of company.
Financial analysis is the method for determining financial strength as well as weakness of
entity with the help of establishing strategic relationship in between the items of balance
sheet, income statement and the other financial statement. Hence, this report aims to analyze
profitability ratios of Lamar Swimwear. Further, this report will provide comments and
recommendations to Mr. Adkins, based on the thorough analysis of Lamar Swimwear’s
financial performance.
Discussion
Profitability Ratio Analysis of Lamar Swimwear
Gross Profit Margin Ratio
As per Lesakova, evaluation of the profitability performance appears to be significant
lesson for the managers. The numerical performance measures are the valuable technique that
assess company’s profitability. The ratio of gross profit margin helps in providing
information about profitability of goods and services. The gross profit margin ratio of Lamar
Swimwear from year 2011-2013 has been decreased. This shows that the firm’s ability for
earning money from its sales after deducting all its associated costs has been decreased. It
indicates that company’s cost has been highly increased. The sales of company have grown
by 25%, which is more than average of industry.
Net Profit Margin Ratio

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Net profit margin ratio measures overall firm’s profitability by considering all indirect
and indirect costs. It is the percentage of revenue, which is left after all expenses have been
reduced from the sales. The net profit margin of Lamar Swimwear from 2011 to 2013 shows
that the ratio has been reduced over the years. This indicates that Lamar Swimwear is not
able to earn profit from its sales. Further, industry average of net profit margin ratio shows
that company is not performing in line with the benchmark and performance set by the
industry.
Return on Assets Ratio
Return on the assets helps in measuring the effectiveness of company for generating
income from their assets. It is the financial ratio, which shows profit percentage, which is
earned by firm, in relation to their overall resources. According to Shingjergji, ROA is the
indicator that shows that how well firm utilizes its assets to determine profitability of firm in
relative to its assets. Further, the trend of return on assets of Lamar Swimwear shows that
from 2011 to 2013, the ratio has been decreased. This indicates that company’s ability for
earning income from its total net assets has been reduced. The assets of Lamar Swimwear are
not able to generate enough income for income. Further, industry average of the return on
assets ratio over the years shows that Lamar Swimwear is not performing in line with the
average set by the industry.
Return on Equity Ratio
The return on equity is the profitability ratio, which measures firm’s ability for
generating earnings from the shareholders investments in firm. According to Khadafi, return
on equity is the measure that helps in analyzing effectiveness of management in using
company’s assets for creating profits. This particular ratio also helps in measuring how
profitably funds of owners have been utilized for generating revenues of company. The trend

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of return on equity of Lamar Swimwear shows that firm’s ability for generating income from
the investment of its shareholders has been decreased from the year 2011-2013. Further, the
average of industry indicates that Lamar Swimwear is not able to perform in line with the
average set by industry.
Conclusion
Therefore, this report concludes that the financial condition of Lamar Swimwear has
been decreased over years. The calculated profitability ratio specifies that gross profit margin
ratio, net profit margin ratio, ROA and ROE has been decreased from year 2011 to year 2012.
Further, this report has also analyzed that the company is not able to perform in accordance
with the average set by the industry. Hence, the proposal to buy fifteen percent interest in the
Lamar Swimwear will not be the good option for Bob Adkins. It is because of the falling
profitability of company. Over last three years, operational cost of company is increasing at
higher rate with the increase in sales of company. If Lamar Swimwear will control its costs,
then only company will be able to achieve higher profit. Therefore, Mr. Bob Adkins is
recommended for not to invest in Lamar Swimwear because the company is not representing
attractive situation of investment.