Help with questions A & B MINICASE Scandi Home Furnishings, Inc. Kaj Rasmussen f

Question

Help with questions A & B

MINICASE Scandi Home Furnishings, Inc. Kaj Rasmussen founded Scandi Home Furnishings as a corporation during mid-2013. Sales during the first full year (2014) of operation reached $1.3 million. Sales increased by 15 percent in 2015 and another 20 percent in 2016. However, after increasing in 2015 over 2014, profits fell sharply in 2016, causing Kaj to wonder what was happening to his pride-and- joy" business venture. After al, Kaj worked as closely as possible to a 24/7 pace, 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, manufactures, and sells Scandinavian-designed furniture and accessories to home furnishings retailers. The modern Scandinavian design has a streamlined and unclut tered look. While this furniture style is primarily associated with Denmark, both Norwegian and Swedish 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 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 an undergraduate degree from a technical university in Sweden. As is typical 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 (continued on next page)

Explanation / Answer

The company's days debtors outstaning has increased from 56 days in 2014 to 73 days in 2016, which is not the good sign as the it indicates the days which the company take to recieve its payments from its customers. Moreover, company's days creditors outstaning has also deterioated as it decreased from 61 days in 2014 to 52 days in 2016.

However, the improvement in days inventory outstanding with 211 days in 2014 to 174 days in 2016 has also improved the cash conversion cycle from 206 days in 2014 to 195 days in 2016 which indicates the number of days a company takes to covert its raw materials into actual cash by recieving the payment from its customers.

B. Company,s Days inventory outstaning in 2016 is 174 days which is way lower than the industry average of 200 days which is considered good as compared to industry average. However, days sales outstanding/ days debtors outstanding of the company in 2016 is 73 days which is higher tahn industry average of 60 days and is not considered good.

Ratios Formulas 2014 2015 2016 Debtors turnover ratio =Total Revenue/Debtors 6.5x 5.8x 5.0x Creditors turnover ratio =COGS/Creditors 6.0x 5.3x 7.0x Inventory turnover ratio =COGS/Inventory 1.7x 1.8x 2.1x Days debtors outstanding (Days) 365/Debtors turnover ratio 56 63 73 Days Creditors outstanding (Days) 365/Creditors turnover ratio 61 69 52 Days Inventory outstanding (Days) 365/Inventory turnover ratio 211 203 174 Cash conversion cycle (Days) Debtors turnover ratio - Creditors turnover ratio + Inventory turnover ratio 206 197 195

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