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Book/movie review
22/08/2022
Individual Paper 1 Mini Case SCANDI HOME FURNISHINGS, INC.
NOTES:
· Submit this assignment as a soft copy
· Provide spreadsheets for all numeric answers and include formulas in the cells with appropriate linking.
Marks possible per question:
A. 10 marks
B. 7 marks
C. 15 marks
D. 8 marks
E. 8 marks
F. 8 marks
G. 6 marks
H. 8 marks
I. 8 marks
Spreadsheet structure and overall presentation: 12 marks
TOTAL 90 MARKS
Kaj Rasmussen founded Scandi Home Furnishings as a corporation during mid-2007. Sales during the first full year (2008) of operation reached $1.3 million. Sales increased by 15 percent in 2009 and another 20 percent in 2010. However, profits after increasing in 2009 over 2008 fell sharply in 2010 causing Kaj to wonder what was happening to his “pride and joy” business venture. After all, Kaj has continued to work as close as possible to a 24/7 pace beginning with the startup of Scandi and through the first three full years of operation.
Scandi Home Furnishings, located in eastern North Carolina, designs, manufactures, and sells Scandinavian-designed furniture and accessories to home furnishings retailers. The modern Scandinavian design has a streamlined and uncluttered look. While this furniture style is primarily associated with Denmark, both Norway and Sweden designers have contributed to the allure of Scandinavian home furnishings. Some say that the inspiration for the Scandinavian design can be traced to the “elegant curves” of art nouveau from which designers were able to produce aesthetically pleasing, structurally strong modern furniture. Danish furnishings and the home furnishings produced by the other Scandinavian countries—Sweden, Norway, and Finland—are made using wood (primarily oak, maple, and ash), aluminum, steel, and high-grade plastics.
Kaj grew up in Copenhagen, Denmark and received a college degree from a technical university in Sweden. As is typically in Europe, Kaj began his business career as an apprentice at a major home furnishings manufacturer in Copenhagen. After “learning the trade,” he quickly moved into a management position in the firm. However, after a few years, Kaj realized that what he really wanted to do was to start and operate his own Scandinavian home furnishings business. At the same time, after traveling throughout the world including the U.S., he was sure that he wanted to be an entrepreneur in the United States. Thus, while it was hard to give up the Tivoli Gardens with its many entertainment and dining activities, as well as the other attractions 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 percent ownership interest and industry-related management expertise, was allowed to operate the venture in a way that he thought was best for Scandi. Four years later, Kaj is sure he did the right thing.
Following are the three years of income statements and balance sheets for the Scandi Home Furnishings Corporation. Kaj has felt that in order to maintain a competitive advantage that he would need to continue to expand sales. After first concentrating on selling Scandinavian home furnishings in the northeast in 2008 and 2009, he decided to enter the west coast market. An increase in expenses associated with identifying, contacting, and selling to home furnishings retailers in California, Oregon, and Washington. Kaj Rasmussen was hoping that you could help him better understand what has been happening to Scandi Home Furnishings both from operating and financial standpoints.
SCANDI HOME FURNISHINGS, INC.
Income Statements
2008 2009 2010
Net Sales $1,300,000 $1,500,000 $1,800,000
Cost of Goods Sold 780,000 900,000 1,260,000
Gross Profit 520,000 600,000 540,000
Marketing 130,000 150,000 200,000
General & Administrative 150,000 150,000 200,000
Depreciation 40,00053,000 60,000
EBIT 200,000 247,000 80,000
Interest 45,000 57,000 70,000
Earnings 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
Accounts Receivables 200,000 260,000 360,000
Inventories 450,000 500,000 600,000
Total Current Assets 700,000 800,000 970,000
Fixed Assets, Net 300,000 400,000 500,000
Total Assets $1,000,000 $1,200,000 $1,470,000
Accounts Payable $130,000 $170,000 $180,000
Accruals 50,000 70,000 80,000
Bank Loan 90,000 90,000 184,000
Total Current Liabilities 270,000 330,000 444,000
Long-Term Debt 300,000 400,000 550,000
Common Stock ($10 par)* 300,000 300,000 300,000
Capital Surplus 50,000 50,000 50,000
Retained Earnings 80,000 120,000 126,000
Total Liab.& Equity $1,000,000 $1,200,000 $1,470,000
Note: 30,000 shares 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 advise Kaj on what has been happening with Scandi Home Furnishings from a liquidity perspective.
Note: ratio calculations involving asset items on the balance sheet are averages of the prior and current years. For example, the ratios for 2009 use average balance sheet account amounts for 2008 and 2009. Likewise, ratios for 2010 use average balance sheet account amounts for 2009 and 2010.
g. Summarise your findings on a table as below:
Liquidity Ratios:
2009 2010 Change
Current Ratio ____ _____ Lower/Higher/No change
Quick Ratio ____ _____ Lower/Higher/No change
NWC-to-Total-Assets ____ _____ Lower/Higher/No change
h. What has happened to Scandi’s liquidity position?
________________________________________________________________________________________________________________________________________________________________________________________________________________________________________________________________________________________________________________________________________________________________________________________________________________________________________________________________________________________________________________________________________________________________________________________________
i. Conversion Period 1:________________
ii. Conversion Period 2:________________
iii. Conversion Period 3:________________
Hint:Ratios are based on the current year’s income statement amounts and average amounts (past year and current year) for balance sheet items.
Cash Conversion Cycle (in Days):
2009 2010 Change
_____________ _____ _____ Better/Worse/No Change
_____________ _____ _____ Better/Worse/No Change
_____________ _____ _____ Better/Worse/No Change
Cash Conversion Cycle _____ _____ Better/Worse/No Change
e. Explain was has happened in terms of each component of the cycle i.e. what was the change due to?
________________________________________________________________________________________________________________________________________________________________________________________________________________________________________________________________________________________________________________________________________________________________________________________________________________________________________________________________________________________________________________________________________________________________________________________________
Cash Build Versus Cash Burn:
2009 2010
Cash Build:
___________ ___________ ___________
___________ ___________ ___________
Cash Build ___________ ___________
Cash Burn:
___________ ___________ ___________
___________ ___________ ___________
___________ ___________ ___________
___________ ___________ ___________
___________ ___________ ___________
Cash Burn from Inc. Stmt. ___________ ___________
___________ ___________ ___________
___________ ___________ ___________
___________ ___________ ___________
___________ ___________ ___________
___________ ___________ ___________
Cash Burn ___________ ___________
Net Cash Build (Burn) ___________ ___________
________________________________________________________________________________________________________________________________________________________________________________________________________________________________________________________________________________________________________________________________________________________________________________________________________________________________________________________________________________________________________________________________________________________________________________________________
Part B
Your second challenge is to advise Kaj on what has been happening to Scandi from a financial leverage, profitability, and efficiency perspective.
a. Calculate each of these areas for the 2008-2009 and 2009-2010 periods and complete the table below.Caution: some of these user average values!
Financial Leverage:
2009 2010 Change
Total-Debt-to-Total-Assets _____ _____ Higher/Lower/No Change
Equity Multiplier _____ _____ Higher/Lower/No Change Debt-to-Equity Ratio _____ _____ Higher/Lower/No Change Current-Liab.-to-Total Debt _____ _____ Higher/Lower/No Change Interest Coverage _____ _____ Higher/Lower/No Change
________________________________________________________________________________________________________________________________________________________________________________________________________________________________________________________________________________________________________________________________________________________________________________________________________________________________________________________________________________________________________________________________________________________________________________________________
Profitability Ratios:
2009 2010 Change
____________ _____ _____ Higher/Lower/No Change____________ _____ _____ Higher/Lower/No Change____________ _____ _____ Higher/Lower/No Change____________ _____ _____ Higher/Lower/No Change
b. Briefly describe what is happening to the profitability of Scandi Home Furnishings.
________________________________________________________________________________________________________________________________________________________________________________________________________________________________________________________________________________________________________________________________________________________________________________________________________________________________________________________________________________________________________________________________________________________________________________________________
Efficiency and Return Ratios:
2009 2010 Change
____________ _____ _____ Higher/Lower/No Change
____________ _____ _____ Higher/Lower/No Change
____________ _____ _____ Higher/Lower/No Change____________ _____ _____ Higher/Lower/No Change
b. Make a brief comment on what has happened between the 2008-2009 and 2009-2010 periods.
________________________________________________________________________________________________________________________________________________________________________________________________________________________________________________________________________________________________________________________________________________________________________________________________________________________________________________________________________________________________________________________________________________________________________________________________
ROA 2009: ______________________
ROA 2010: ______________________
ROE 2009: ______________________
ROE 2010: ______________________
b. Provide an interpretation of your findings.
________________________________________________________________________________________________________________________________________________________________________________________________________________________________________________________________________________________________________________________________________________________________________________________________________________________________________________________________________________________________________________________________________________________________________________________________
Part C
Your third challenge is to advise Kaj on what has been happening to Scandi relative to financial developments in the home furnishings industry.
________________________________________________________________________________________________________________________________________________________________________________________________________________________________________________________________________________________________________________________________________________________________________________________________________________________________________________________________________________________________________________________________________________________________________________________________
________________________________________________________________________________________________________________________________________________________________________________________________________________________________________________________________________________________________________________________________________________________________________________________________________________________________________________________________________________________________________________________________________________________________________________________________
________________________________________________________________________
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