Haefren Baum Business Analysis Essay

Haefren Baum is a furniture retailer, established in 1965 and was incorporated in 1970. Haefren Baum receives its merchandise from Wiegandt GmbH Cologne, a near manufacturer, whose business relationship equals all over twenty-seven years. The company has one retail location in Cologne, Germany and three recently constructed outlet stores in nearby suburban beas. Demand and product sales are influenced by consumer discretionary income. In 1993, an frugal bust in the German economy resulted in a study dip in GDP. Demand for the industry is cyclical and is influenced by the boilersuit economy. There is no evidence of seasonality. In response to the German economic downswing in 1993, the company began to open outlets with wide selections and lower prices to maintain sales volume.This was a trend used by all in the industry, but sales volumes were not affected and remained flat. As the German economy recovered, Haefren Baums business began to see fierce competition from European fu rniture retailers. This was a concern for the Wiegandt, who aphorism its retailers losing market share, and began aggressively advertising its brand. The strategies involving aggressive branding and offering wider selections at lower prices proved to be unsuccessful, mainly due to the influx of competition.Operations epitomeHaefren Baum being a retailer needs a large amount of inventory and assets in order to generate sales. To turn profits, the company needs to be efficient in both inventory management and asset turnover. Recently, the Haefren Baum is showing very high values for inventory days, and an overall decline in its gumminess and FAT ratios. Figures for total and fixed asset turnover steadily decline from 1993-1995. These figures could be a result of the expansion and building of outlet stores, as healthful as slower sales. Total assets turnover equals 2.1 in 1993 to 1.5 in 1995. As for fixed asset turnover, 1993 equals 6.98 to 5.39 in 1995. Haefren Baums land investme nt has remained constant over this period, but buildings and equipment investments have changed, again a result from the building of the three outlet stores. Inventory daysshow and increase from 103 in 1993 to 129 in 1995. much(prenominal) a dramatic change shows that the firm is getting less efficient in managing its inventory, which could be a result of increasing competition throughout the industry. The amount collection period has also shown significant increases, going from 53 days in 1993 to 77 days in 1994 and 1995. It seems that Haefren Baum has had difficulty obtaining capital due from customers. The overall operations of the company seem to be lacking proper efficiency due to the increase in inventory days and average collection period. The controvert values for sugar income and results from the previous sentence conclude why the firm has seen a decrease and negative values for ROE and ROA.Financial AnalysisHaefren Baums strategy of selling product at lower prices seems to be ineffective in generating profits. The firms operating activities can be misleading, although it seems that its improving, the net figures are still negative. The increase in investing activities is explained by the recent construction of outlets, and is shown in the buildings and equipment account. The recent buyout from the other investors is shown in the payables from stockholders. Financing activities seem to be the source of funding for the firm. Haefren Baums liquidity has been mildly volatile. The current ratios for the firm have changed from 2.26 in 1993 to 2.53 in 1995. Accounts payable days saw a major increase going from 49 days in 93, to 65 days in 94.Although Wiegandt has been flexible with credit hurt, Baum is far exceeding the net 30 terms and is not taking advantage of any discounts. Haefren Baum is showing high leverage risk with its debt to justness ratio of 5.84%, this is a problem due to the large debt compared to equity owned. The NPM of the company is zero, due to the failure to generate profits. The GPM, though positive, shows a steady decline in profitability. Haefren Baum is primarily using financing activities to maintain operations of the business. They are basically staying alive by debt, and will need to re-evaluate its processes to stay in business.SummaryHaefren Baum has been severely impacted by competition and the value of its inventory stemming from the economic downturn in 1993. The firm is producing negative cash flows and in turn producing zero profits. The construction andbuilding of the new outlet stores have no sales support and are eating profits with staggering mortgage cost. The firm needs to be more effective and efficient with inventory and credit lines. written text new credit terms in order to receive discounts and improve margins are in order for the firm to generate profits.