Marks possible per question: 10 marks 7 marks 15 marks 8 marks 8 marks 8 marks 6 marks 8 marks 8 marks Spreadsheet structure and

Marks possible per question: 10 marks 7 marks 15 marks 8 marks 8 marks 8 marks 6 marks 8 marks 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 him better understand what has been happening to Scandi Home Furnishings both from operating and financial standpoints. Net Sales $1,300,000 $1,500,000 $1,800,000 Cost of Goods Sold Marketing 130,000 150,000 200,000 General & Administrative 150,000 150,000 200,000 Depreciation EBIT 200,000 247,000 80,000 Interest Earnings Before Taxes 155,000 190,000 10,000 Income Taxes (40%) Cash Dividends $0 $74,000 $0 Cash $50,000 $40,000 $10,000 Accounts Receivables 200,000 260,000 360,000 Inventories Total Current Assets 700,000 800,000 970,000 Fixed Assets, Net 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 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 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. Summarise your findings on a table as below: Current Ratio ____ _____ Lower/Higher/No change Quick Ratio ____ _____ Lower/Higher/No change NWC-to-Total-Assets ____ _____ Lower/Higher/No change ________________________________________________________________________________________________________________________________________________________________________________________________________________________________________________________________________________________________________________________________________________________________________________________________________________________________________________________________________________________________________________________________________________________________________________________________ _____________ _____ _____ Better/Worse/No Change _____________ _____ _____ Better/Worse/No Change _____________ _____ _____ Better/Worse/No Change Cash Conversion Cycle _____ _____ Better/Worse/No Change ________________________________________________________________________________________________________________________________________________________________________________________________________________________________________________________________________________________________________________________________________________________________________________________________________________________________________________________________________________________________________________________________________________________________________________________________ ___________ ___________ ___________ ___________ ___________ ___________ Cash Build ___________ ___________ ___________ ___________ ___________ ___________ ___________ ___________ ___________ ___________ ___________ ___________ ___________ ___________ ___________ ___________ ___________ Cash Burn from Inc. Stmt. ___________ ___________ ___________ ___________ ___________ ___________ ___________ ___________ ___________ ___________ ___________ ___________ ___________ ___________ ___________ ___________ ___________ Cash Burn ___________ ___________ Net Cash Build (Burn) ___________ ___________ ________________________________________________________________________________________________________________________________________________________________________________________________________________________________________________________________________________________________________________________________________________________________________________________________________________________________________________________________________________________________________________________________________________________________________________________________ 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 ________________________________________________________________________________________________________________________________________________________________________________________________________________________________________________________________________________________________________________________________________________________________________________________________________________________________________________________________________________________________________________________________________________________________________________________________ ____________ _____ _____ Higher/Lower/No Change____________ _____ _____ Higher/Lower/No Change____________ _____ _____ Higher/Lower/No Change____________ _____ _____ Higher/Lower/No Change ________________________________________________________________________________________________________________________________________________________________________________________________________________________________________________________________________________________________________________________________________________________________________________________________________________________________________________________________________________________________________________________________________________________________________________________________ ____________ _____ _____ Higher/Lower/No Change ____________ _____ _____ Higher/Lower/No Change ____________ _____ _____ Higher/Lower/No Change____________ _____ _____ Higher/Lower/No Change ________________________________________________________________________________________________________________________________________________________________________________________________________________________________________________________________________________________________________________________________________________________________________________________________________________________________________________________________________________________________________________________________________________________________________________________________ ROA 2009: ______________________ ROA 2010: ______________________ ROE 2009: ______________________ ROE 2010: ______________________ ________________________________________________________________________________________________________________________________________________________________________________________________________________________________________________________________________________________________________________________________________________________________________________________________________________________________________________________________________________________________________________________________________________________________________________________________ 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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