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[Instructor Name] 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…
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Download file to see previous pages 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 ...Download file to see next pagesRead More
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