Haefren Baum Essay

831 WordsApr 10, 20124 Pages
Name of the business: Haefren Baum Nature of the business: Home furnishings retailer Marketing analysis: Haefren Baum sells high quality home furniture, which is manufactured by German company, Wiegandt GmbH Cologne. The demand for high-end furniture is cyclical and influenced by consumer confidence and the overall economy. They have been incorporated since 1970, therefore they do have a reputation and brand image already built. They have been a customer of Wiegandt since 1968 and have maintained good relations so far. The German economy had a bust in 1993, which lead to a decline in furniture sales. This is evident in the sales dropping in 1993 to 1995 from $18,647 to $14,397. Much of the industry has to cut back prices to keep…show more content…
Their increase in cash conversion days shows their inefficiency that was caused by their increase in accounts receivable days from 53 to 77 and inventory days from 103 to 130. They are also suffering from a decrease in operating profits due to the decline in sales. I expect operations to remain steady at this level, as Wiegandt will continue to offer flexible credit to maintain their own sales volume. This is dangerous and can eventually lead to financial collapse if Haefren does not increase their sales. Financial analysis: Haefren Baum is funding itself from bank loans, mortgages, and their supplier’s flexible credit. The major change in consumer demand, from the economic bust, in 1993, lead to lower sales and extended account payable days. The cash flow statements are unhealthy as they negative operating cash flows generated from a negative net income and high account payables. The company is far from liquid with 1.26 quick ratio in 1995 and high account payable days. The company has profitability issues, which is seen in their decrease in operating profit and negative return on equity. As stated earlier this is due to their decline in sales, tough economic conditions, and increased competition. They are highly leveraged company, which is risky. Their debt to equity ratio jumped from 5.84 in 1993 to 8.22 in 1995, which means it is hard for them to sustain that debt with their low equity. For

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