Nature of the Business: Haefren Baum is a retail home furnishing company, which has recently expanded to include three outlet stores.
Situated in downtown Cologne, Haefren Baum is high-end retailer of home furnishing. When it comes to marketing, Haefren Baum could not have picked a better company to establish a partnership because the Wiegandt company has established its name in the industry, and is highly advertised. Competition is evident in all industries of business. Haefren Baum experienced competition from new companies entering into the home furnishing business. Competition and the economy caused a decrease in sales by -21% between 1993 and 1994, and a decrease of -1.24% between 1994 and 1995. Theses influences on the demand for Haefren Baum’s products reflect cyclical demand because different seasons did not cause the decline in sales, rather the economy and outside competition. Overall, the company’s market position seems to be improving, as seen in the change in sales growth; however, I cannot say that the company will be successful in the future.
When it comes to the operations of Haefren Baum, the company has not been successful. Not only has the indirect statement of cash flows indicated a negative operating cash flow for 1993-1994 and 1994-1995, but also it is evident through the decline in net sales. The decline in net sales was not handled correctly between the 1994 and 1995 period when net sales were equal to $13,397 and $13,231 respectively, yet there was an increase in Cost of Goods Sold from $8,189 to $8,237. Why is the company increasing Cost of Goods Sold when sales of the company are clearly on the decline? Although the company does not appear to be asset intensive, mismanagement within the company is reflected in the total asset turnover ratio. Between the three-year time period, total asset turnover decreased from 2.096 to 1.496. This decline in asset...