The Financial Analysis of Haefren Baum - Essay Example

? Business Analysis: Haefren Baum Financial Analysis The financial analysis of Haefren Baum indicates that the company’ total assets are DM.847mn in 1995 up by 3% but majority of them consist of high receivables pending and inventory holding by the company. The company’s cash position is also declining as it holds a cash position of just DM80,000 in 1995 which could cause major problems for the company to meets its obligations and it may then require selling off its assets which are already not so liquid because of the market conditions in Germany. The current ratio which is well above the benchmark of 1 should not be viewed as a healthy sign because the company is having major issues with its receivables and inventory management. The company has large amount of receivables pending resulting in high receivables days and the situation is the same for the company’s inventories. The company has good asset turnover but it is also declining over the period from 1993 to 1995. The company has a negative profitability in 1994 and 1995 because of its inability to generate profits. Though the company paid dividend in 1993 and 1994 the amount due from stockholders has been significant which could further dampen the company’s capital position. The financial ratios have been attached to this report as Appendix II. The company’s operating cash flow has declined sharply in 1995 leading to a negative figure of DM494,000 which surely have implications for the long term survival of the company if it is not able to recoup its business by altering its marketing and operating strategies. Marketing Analysis Haefren Baum is a home furnishing retailer which is engaged in selling high quality home furniture products of a German manufacturer Wiegandt GmbH Cologne. The understanding of the high-end furniture market suggests that the demand in this market is cyclical which is affected by two major factors – consumer buying confidence and also by the overall economic conditions. Due to the fall in the German economy during the year 1993 i.e. GDP indicated a negative growth of 1.2% the demand for furniture dropped and sales deteriorated. Haefren Baum’s sales also declined after 1993 showed as YoY decline of -19% (1994) and -5% (1995). In order to tackle the challenges the company cut down its pricing and also opened up new outlets Rhineland suburban areas however due to the competition attracting to the market it is difficult for a small retailer like Haefren Baum to survive for long as it is also facing problems with generating profits and maintain a strong cash position (Crane and Millett). Operations Analysis Since the company sells home furniture of Wiegandt GmBH Cologne therefore the amount payable to the company has reached DM 54,017.18. From the analysis it could be indicated that the operational efficiency of the company is becoming weak as the number of days that receivables are due for payment and the inventory held in its stock are increasing. Furthermore, the company is taking longer period to pay off its liabilities. The company has generated loss in 1994 and 1995 which suggests that the company is facing major difficulties in devising its strategies to coup up with the tough market conditions prevailing in Germany. Due to expansion of outlets the company’s borrowing has increased significantly and no positive outcome has been achieved. The credit department of the company must lay off loans and sell of non-profitable outlets to cut down pressure on its cash position. Appendix I: Cash Flow Statement Cash From Operating Activities 1994 1995 DM ‘000s DM ‘000s Net Profit -16 -55 -16 -55 (Increase)/Decrease in Receivables -386 35 (Increase)/Decrease in Inventory 8 -8 Increase/Decrease in Accounts Payables 8 88 Deferred Charges 32 0 Miscellaneous Accruals 74 -331 Current Maturities on Long-Term Debt 327 -223 Estimated Federal Income Tax -104 0 -41 -439 -57 -494 Cash Flow from Investing Activities Sale / (Purchase) of Net Buildings, Fixtures and Equipment 138 -162 Due from Stockholders -344 -119 -206 -281 Cash Flow from Financing Activities Notes Payables - Employees 16 0 Mortgage Loan -16 607 Notes Payables - Bank 567 -40 Capital Stock 0 184 Dividend Paid -336 0 231 751 Net Cash Flow -32 -24 Opening Cash 136 104 Ending Cash 104 80 Appendix II: Financial Ratios Financial Ratios     1993 1994 1995 Liquidity Ratios       Current Ratio 2.26 2.12 2.53         Operating Efficiency Ratios       Receivables Turnover 6.93 4.73 4.73 Receivables Days 52.63 77.18 77.19 Inventory Turnover 3.54 2.82 2.82 Inventory Days 103.11 129.62 129.21 Payable Turnover 7.47 5.89 5.57 Payable Days 48.87 61.96 65.49         Profitability Ratios       Assets Turnover 209.6% 155.5% 149.6% Return on Assets 14.8% -0.2% -0.6% Gross Profit Margin 39.2% 38.9% 37.7% Net Profit Margin 7.1% -0.1% -0.4% Appendix III: Common Size Statements – Horizontal Analysis Balance Sheet 31-Jan-93 31-Jan-94 Change DM Change % 31-Jan-95 Change DM Change % Assets Cash 136 104 -32 -24% 80 -24 -23% Accounts Receivables, Net 2447 2833 386 16% 2798 -35 -1% Inventory 2916 2908 -8 0% 2916 8 0% Total Current Assets 5499 5845 346 6% 5794 -51 -1% Land 567 567 0 0% 567 0 0% Buildings, Fixtures and Equipment 2167 2188 21 1% 2518 330 15% Less: Reserve for Depreciation 304 463 159 52% 631 168 36% Net Buildings, Fixtures and Equipment 1863 1725 -138 -7% 1887 162 9% Investments 104 104 0 0% 104 0 0% Due from Stockholders 0 344 344 #DIV/0! 463 119 35% Deferred Charges 64 32 -32 -50% 32 0 0% Total Assets 8097 8617 520 6% 8847 230 3% Liabilities and Net Worth Accounts Payable 1382 1390 8 1% 1478 88 6% Notes Payable - Employees 112 128 16 14% 128 0 0% Estimated Federal Income Tax 104 0 -104 -100% 0 0 #DIV/0! Current Maturities on Long-Term Debt 248 575 327 132% 352 -223 -39% Miscellaneous Accruals 586 660 74 13% 329 -331 -50% Total Current Liabilities 2432 2753 321 13% 2287 -466 -17% Notes Payable - Bank 871 1438 567 65% 1398 -40 -3% Mortgage Loan 3611 3595 -16 0% 4202 607 17% Capital Stock 879 879 0 0% 1063 184 21% Earned Surplus 304 -48 -352 -116% -103 -55 115% Total Liabilities and Net Worth 8097 8617 520 6% 8847 230 3% Income Statement 31-Jan-93 31-Jan-94 31-Jan-95 Sales 18647 15179 -3468 -19% 14397 -782 -5% Less Returns and Allowances 1678 1782 104 6% 1166 -616 -35% Net Sales 16969 13397 -3572 -21% 13231 -166 -1% Cost of Goods Sold 10322 8189 -2133 -21% 8237 48 1% Gross Profit 6647 5208 -1439 -22% 4994 -214 -4% Less Operating Expenses 5704 4937 -767 -13% 4778 -159 -3% Operating Profit 943 271 -672 -71% 216 -55 -20% Other Income 639 104 -535 -84% 136 32 31% Net After Other Income 1582 375 -1207 -76% 352 -23 -6% Other Deductions 383 391 8 2% 407 16 4% Net Profit /(Loss) Before Tax 1199 -16 -1215 -101% -55 -39 244% Dividends Paid 336 336 0 0% 0 -336 -100% Appendix IV: Common Size Statements – Vertical Analysis 31-Jan-93 31-Jan-94 31-Jan-95 Assets Cash 136 2% 104 1% 80 1% Accounts Receivables, Net 2447 30% 2833 33% 2798 32% Inventory 2916 36% 2908 34% 2916 33% Total Current Assets 5499 68% 5845 68% 5794 65% Land 567 7% 567 7% 567 6% Buildings, Fixtures and Equipment 2167 27% 2188 25% 2518 28% Less: Reserve for Depreciation 304 4% 463 5% 631 7% Net Buildings, Fixtures and Equipment 1863 23% 1725 20% 1887 21% Investments 104 1% 104 1% 104 1% Due from Stockholders 0 0% 344 4% 463 5% Deferred Charges 64 1% 32 0% 32 0% Total Assets 8097 100% 8617 100% 8847 100% Liabilities and Net Worth Accounts Payable 1382 17% 1390 16% 1478 17% Notes Payable - Employees 112 1% 128 1% 128 1% Estimated Federal Income Tax 104 1% 0 0% 0 0% Current Maturities on Long-Term Debt 248 3% 575 7% 352 4% Miscellaneous Accruals 586 7% 660 8% 329 4% Total Current Liabilities 2432 30% 2753 32% 2287 26% Notes Payable – Bank 871 11% 1438 17% 1398 16% Mortgage Loan 3611 45% 3595 42% 4202 47% Capital Stock 879 11% 879 10% 1063 12% Earned Surplus 304 4% -48 -1% -103 -1% Total Liabilities and Net Worth 8097 100% 8617 100% 8847 100% 31-Jan-93 31-Jan-94 31-Jan-95 Sales 18647 110% 15179 113% 14397 109% Less Returns and Allowances 1678 10% 1782 13% 1166 9% Net Sales 16969 100% 13397 100% 13231 100% Cost of Goods Sold 10322 61% 8189 61% 8237 62% Gross Profit 6647 39% 5208 39% 4994 38% Less Operating Expenses 5704 34% 4937 37% 4778 36% Operating Profit 943 6% 271 2% 216 2% Other Income 639 4% 104 1% 136 1% Net After Other Income 1582 9% 375 3% 352 3% Other Deductions 383 2% 391 3% 407 3% Net Profit /(Loss) Before Tax 1199 7% -16 0% -55 0% Dividends Paid 336 2% 336 3% 0 0% Read More