Scandi Home Furnishings Case

Kaj Rasmussen founded Scandi Home Furnishings as a corporation during mid-2007. Gross saless during the first full twelvemonth ( 2008 ) of operation reached $ 1. 3 million. Gross saless increased by 15 per centum in 2009 and another 20 per centum in 2010. However. net incomes after increasing in 2009 over 2008 fell aggressively in 2010 doing Kaj to inquire what was go oning to his “pride and joy” concern venture. After all. Kaj has continued to work every bit near as possible to a 24/7 gait get downing with the startup of Scandi and through the first three full old ages of operation. Scandi Home Furnishings. located in eastern North Carolina. designs. industries. and sells Scandinavian-designed furniture and accoutrements to home trappingss retail merchants. The modern Scandinavian design has a streamlined and unlittered expression. While this furniture manner is chiefly associated with Denmark. both Norway and Sweden interior decorators have contributed to the temptingness of Norse place trappingss.

Some say that the inspiration for the Norse design can be traced to the “elegant curves” of art nouveau from which interior decorators were able to bring forth aesthetically delighting. structurally strong modern furniture. Danish trappingss and the place trappingss produced by the other Norse countries—Sweden. Norway. and Finland—are made utilizing wood ( chiefly oak. maple. and ash ) . aluminium. steel. and top-quality plastics. Kaj grew up in Copenhagen. Denmark and received a college grade from a proficient university in Sweden. As is typically in Europe. Kaj began his concern calling as an learner at a major place trappingss maker in Copenhagen. After “learning the trade. ” he rapidly moved into a direction place in the house. However. after a few old ages. Kaj realized that what he truly wanted to make was to get down and run his ain Scandinavian place trappingss concern. At the same clip. after going throughout the universe including the U. S. . he was certain that he wanted to be an enterpriser in the United States. Therefore. while it was difficult to give up the Tivoli Gardens with its many amusement and dining activities. every bit good as the other attractive forces in Copenhagen. Kaj moved to the U. S. in early 2007. With $ 140. 000 of his personal assets. and $ 210. 000 from venture investors. he began operations in mid-2007.

Kaj. with a 40 per centum ownership involvement and industry-related direction expertness. was allowed to run the venture in a manner that he thought was best for Scandi. Four old ages subsequently. Kaj is certain he did the right thing. Following are the three old ages of income statements and balance sheets for the Scandi Home Furnishings Corporation. Kaj has felt that in order to keep a competitory advantage that he would necessitate to go on to spread out gross revenues. After first concentrating on selling Norse place trappingss in the nor’-east in 2008 and 2009. he decided to come in the west seashore market.

An addition in disbursals associated with placing. reaching. and selling to place trappingss retail merchants in California. Oregon. and Washington. Kaj Rasmussen was trusting that you could assist him better understand what has been go oning to Scandi Home Furnishings both from operating and fiscal point of views.

SCANDI HOME FURNISHINGS. INC.

Income Statements
2008 2009 2010

Net Gross saless $ 1. 300. 000 $ 1. 500. 000 $ 1. 800. 000 Cost of Goods Sold 780. 000 900. 000 1. 260. 000
Gross Net income 520. 000 600. 000540. 000 Marketing 130. 000 150. 000 200. 000 General & A ; Administrative 150. 000 150. 000 200. 000 Depreciation 40. 000 53. 000 60. 000 EBIT 200. 000 247. 000 80. 000 Interest 45. 000 57. 000 70. 000 Net incomes Before Taxes 155. 000 190. 000 10. 000 Income Taxes ( 40 % ) 62. 000 76. 000 4. 000

Net Income $ 93. 000 $ 114. 000 $ 6. 000 Cash Dividends $ 0 $ 74. 000 $ 0

SCANDI HOME FURNISHINGS. INC.

Balance Sheets
2008 2009 2010

Cash $ 50. 000 $ 40. 000 $ 10. 000
Histories Receivables 200. 000 260. 000 360. 000 Inventories 450. 000 500. 000600. 000 Entire Current Assets 700. 000 800. 000 970. 000 Fixed Assets. Net 300. 000 400. 000500. 000 Entire Assets $ 1. 000. 000 $ 1. 200. 000 $ 1. 470. 000

Histories Collectible $ 130. 000 $ 170. 000 $ 180. 000 Accumulations 50. 000 70. 000 80. 000 Bank Loan 90. 000 90. 000184. 000

Entire Current Liabilities 270. 000 330. 000444. 000 Long-run Debt 300. 000 400. 000550. 000 Common Stock ( $ 10 par ) * 300. 000 300. 000300. 000 Capital Surplus 50. 000 50. 000 50. 000 Retained Net incomes 80. 000 120. 000126. 000 Entire Liab. & A ; Equity $ 1. 000. 000 $ 1. 200. 000 $ 1. 470. 000

Note: 30. 000 portions of common stock were issued to Kaj Rasmussen and the venture investors when Scandi Home Furnishings was incorporated in mid-2007.

Part A
Your first challenge is to rede Kaj on what has been go oning with Scandi Home Furnishings from a liquidness position.

A. Kaj was peculiarly concerned by the bead in hard currency from $ 50. 000 in 2008 ( non 2007 ) to $ 10. 000 in 2010. Calculate the mean current ratio. the speedy ratio. and the networking capital to entire assets ratio for 2008-2009
and 2009-2010. What has happened to Scandi’s liquidness place?

Note: ratio computations affecting plus points on the balance sheet are norms of the anterior and current old ages. For illustration. the ratios for 2009 usage mean balance sheet history sums for 2008 and 2009. Likewise. ratios for 2010 usage mean balance sheet history sums for 2009 and 2010.
Liquidity Ratios:
20092010Change
Current Ratio
Quick Ratio
NWC-to-Total-Assets

B. An analysis of the hard currency transition rhythm should besides assist Kaj understand what has been go oning to the operations of Scandi. Prepare an analysis of the mean transition periods for the three constituents of the hard currency transition rhythm for 2008-2009 and 2009-2010. Explain was has happened in footings of each constituent of the rhythm.

Ratios are based on the current year’s income statement sums and mean sums ( past twelvemonth and current twelvemonth ) for balance sheet points.

Cash Conversion Cycle ( in Days ) :
2009 2010 Change
Inventory-to-Sale
Sale-to-Cash
Purchase-to-Payment
Cash Conversion Cycle

C. Kaj should be interested in cognizing whether Scandi has been constructing or firing hard currency. Compare the hard currency physique. hard currency burn. and the net hard currency build/burn places for 2009 and 2010. What. if any. alterations have occurred?

Cash Build Versus Cash Burn:
2009 2010
Cash Build:
XXXX
XXXX
Cash Build

Cash Burn:
XXXX
XXXX
XXXX
XXXX
XXXX
Cash Burn from Inc. Stmt.
XXXX
XXXX
XXXX
XXXX
XXXX
Inc. in Gross Fixed Assetss

Cash Burn

Net Cash Build ( Burn )

Part B
Your 2nd challenge is to rede Kaj on what has been go oning to Scandi from a fiscal purchase. profitableness. and efficiency position.

A. Creditors. every bit good as direction. are besides concerned about the ability of the venture to run into its debt duties as they come due. the proportion of current liabilities to entire debt. the handiness of assets to run into debt duties in the event of fiscal hurt. and the comparative size of equity investings to debt degrees. Calculate mean ratios in each of these countries for the 2008-2009 and 2009-2010 periods. Interpret your consequences and explicate what has happened to Scandi.

Fiscal Leverage:
2009 2010 Change
Total-Debt-to-Total-Assets0. 645
Equity Multiplier2. 444
Debt-to-Equity Ratio1. 822
Current-Liab. -to-Total Debt0. 462
Interest Coverage5. 263

B. Of importance to Kaj and the venture investors is the efficiency of the operations of the venture. Several net income border ratios associating to the income statement are available to assist analyse Scandi’s public presentation. Calculate mean net income border ratios for 2008-2009 and 2009-2010 and depict what is go oning to the profitableness of Scandi Home Furnishings.

Profitability Ratios:
2009 2010 Change
Gross Profit Margin0. 3500
Operating Net income Margin0. 1593
Net Net income Margin0. 0397
NOPAT Margin0. 0627

C. Kaj and the venture investors are besides interested in how expeditiously Scandi is able to change over their equity investing. every bit good as the venture’s entire assets. into gross revenues. Calculate several ratios that combine informations from the income statements and balance sheets and compare what has happened between the 2008-2009 and 20097-2010 periods.

Efficiency and Return Ratios:
2009 2010 Change
Sales-to-Total-Assets1. 3636
Operating Return on Assets0. 0599
Tax return on Assetss ( ROA ) 0. 0045
Tax return on Equity ( ROE ) 0. 2533

D. A ROA theoretical account dwelling of the merchandise of two ratios provides an overview of a venture’s efficiency and profitableness at the same clip. A ROE theoretical account consists of the merchandise of three ratios and at the same time shows an overview of a venture’s efficiency. profitableness. and leverage public presentation. Calculate ROA and ROE theoretical accounts for the 2008-2009 and 2009-2010 periods. Supply an reading of your findings.

ROA 2009:
ROA 2010:
ROE 2009:
ROE 2010:
Part C
Your 3rd challenge is to rede Kaj on what has been go oning to Scandi relation to fiscal developments in the place trappingss industry.

A. Kaj has been able to obtain some industry ratio informations from the place trappingss industry trade association of which he is a member. The industry association collects proprietary fiscal information from members of the association. compiles norms to protect the proprietary nature of the information. and provides norms for usage by single trade association members.

Over the 2008-2009 and 2009-2010 periods. the inventory-to-sale transition period has averaged 200 yearss. while the sale-to-cash transition period ( yearss of gross revenues outstanding ) for the industry has mean 60 yearss. How did Scandi’s operations in footings of these two constituents of the hard currency transition rhythm comparison with these industry norms?