Using relevant ratios covered in Lecture 4 to analyze Scandi Home Furnishings operating and financing performance.

Answer QB

MINICASE Scandi Home Furnishings, Inc. Kaj Rasmussen founded Scandi Home Fumishings as a corporation during mid 2010 Sales during the first full year (2011) of operation reached $1.3 million Sales increased by 15 percent in 2012 and another 20 percent in 2013. However, after increasing in 2012 over 2017 , profits fell sharply in 2013. causing Kej to wonder what was happening to his "pride-and- joy" business venture. After all, Kaj worked as closely as possible to a 24/7 gece, beginning with the startup of Scandi and continuing through the first three full years of operation Scandi Home Furnishings, located in eastern North Carolina, designs, mandactures, and sells Scandinavian designed furniture and accessories to home furnishings retailers. The modern Scandinavian design has a streamlined and uncut- tered look. While this furniture style is primarily associated with Denmark, both Norwegian and Swedish designers have contributed to the allure of Scandinavian home furishings. Some say that the inspiration for the Scandinavian design can be traced to the ciegant 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-Switden, Norway, and Finlandere made using wood primarily cak mapien, and ashl, aluminium, steel, and high-grade plastics Kaj grew up in Copenhagen, Denmark, and received an undergraduate degree from a technical university in Sweden. As is typical in Europe, Kij began his business Carteras an apprentice at a major home furnishings manufacturer in Copenhagen. After teaming 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 travelling throughout the world, he was sure that he wanted to be an entrepreneur in the United States. Kaj moved to the United States in early 2010. With $140,000 of his personal assets and $210,000 from venture investors, he began operations in mid-2010. 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 Scandi Home Fumishings. Kaj felt that that he would need to continue to expand sales to maintain a competitive advantage. After first concentrating on selling Scan- dinavian home furnishings in the Northeast in 2011 and 2012. he decided to enter the West Coast market. An increase in expenses occurred associated with identifying, contacting, and soling to home furnishings retailers in California, Oregon, and Washington. Kaj Rasmussen hopes that you can help him better understand what has been happening to Scandi Home Furnishings from both operating and financial standpoints. SCANDI HOME FURNISHINGS, INC. INCOME STATEMENTS 2011 2012 Net sales $1.300.000 $1.500.000 $1,800.000 Cost of goods sold 900.000 1.200.000 Gross profit 300.000 Murating General and administrative 200.000 Depreciation 0000 53.000 50.000 EBIT 200.000 20.000 80,000 Interest 15.000 97000 70.000 Earnings before tots tecome tutto 25.000 4000 Net income $ 114.000 Cash Dividends $ 74000 (continued on next page! 2013 780.000 520000 130.000 150.000 540.000 200.000 150 000 150.000 190.000 10,000 155.000 52.000 $93.000 $ 0 5.000 Scandi Home Furnishings, Inc. (Continued) SCANDI HOME FURNISHINGS, INC. BALANCE SHEETS 2011 2012 2013 Cash $ 50,000 $ 40,000 $10,000 Accounts receivable 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 300,000 550,000 Common stock 350,000 350.000 350.000 Retained earnings 80.000 120.000 126,000 Total liabilities and equity $1,000,000 $1,200,000 $1,470,000 *350,000 shares of common stock were issued to Kaj Rasmussen and the venture investors when Scandi Home Furnishings was incorporated in mid-2010. Part A Your first challenge is to advise Kaj on what has been happening with Scandi Home Furnishings from a liquidity perspective. A. Kaj was particularly concerned by the drop in cash from $50,000 in 2011 to $10,000 in 2013. Calculate the average current ratio, the quick ratio, and the NWC-to-total-assets ratio for 2011-2012 and 2012-2013. What has happened to Scandi's liquidity position? B. Kaj should be interested in knowing whether Scandi has been building or burning cash. Compare the cash build, cash burn, and the net cash build/burn positions for 2012 and 2013. What, if any, changes have occurred? 400,000