Ssc100 Research Success Assignment

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Leon’s furniture is ranked number two hundred and ten on the globe and mail’s report on

business top 1000, earning a profit of $56,666. The focus of this report will be on the financial

position of Leon’s furniture. For any business, the financial position of the company will be

viewed by both internal and external users and stakeholders because it shows how well the

business is doing financially. The net income of the company will affect the financial position of

the business because based on the profit or loss incurred, it will define if the business is

successful or not. Moreover, shareholders will be interested in the financial statements since it

determines the earnings per share.

The first article is “Leon’s EPS falls 18.8% in Q2” which reports about the financial

situation of Leon’s and briefly explained the causes of the fall. Judging from the title of the

article, it is obvious that it will impact Leon’s furniture in a negative fashion. Sales are decreased

from $11.2 million to $9 million between 2011 and 2012 (Knell). This suggests that net income

and earnings per share has dropped significantly. It is reported that the decrease in sales is due to

the continuation of waning customer confidence, decrease in housing starts, and continued high

customer debt (Knell). Customer confidence plays a great part when customers are debating on

whether they should purchase the furniture or not. Since the world is still recovering from the

economic crisis years ago, the higher unemployment rates and lower GDPs will create less

customer confidence when a decision needs to be made. Hence, they are less likely to purchase

the products. The start of a decrease in housing means that less houses are being built compared

to before. Moreover, less new home owners will shop at furniture stores like Leon’s furniture. In

addition, high consumer debt nowadays is another reason why there’s a reduction in customer

spending. “Also, affecting probability in the second quarter were marketing expenses.” (Knell)

Since Leon’s have been opening new stores, the occupancy costs are increased by $1.2 million.

These increases and decreases in numbers will ultimately reduce the sales volume and result in a

decrease in net income.

“Leon’s earning decline 15% in third quarter” is another article that reports a negative

impact relating to their financial position. Similar to the earnings declined in the second quarter,

the third quarter of the year is still a tough period for Leon’s. They claim that this is due to the

increase in operating costs in a time of flat sales growth (Knell). The newly renovated stores in

Sault. Ste. Marie and Sudbury, Ontario are opened in the third quarter of 2012 and will further

increase the operating cost. Financially, this means that Leon’s is continuing to expand and

opening new store and increasing its operating expenses, but the market is only providing them

will a flat growth rate of sales. If the sales volume remains unchanged and operating costs

continues to grow, the amount of the money earned will logically start to decrease. “The

company said its growth margin fell 1.5 points to 40.9% mainly because a weakening Canadian

dollar hiked the cost of imported product” (Knell). This means that more Canadian dollars are

needed to buy the foreign products that used less Canadian dollars to buy years ago. This effects

the financial position because more assets are used to import foreign products.

Lastly, the third article is called “Leon’s to acquire The Brick”. As the title suggests

Leon’s will buyout The Brick and will merge the two companies in one. This can have both

positive and negative impacts for Leon’s financially. “The transaction, valued at about C$700

million, is expected to close in the first quarter.” (Knell) This can be considered a negative

impact for the company financially since an...
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