Haefren Baum Business Analysis Essay

Haefren Baum is a furniture retailer, established in 1965 and was incorporated in 1970. Haefren Baum receives its trade in from Wiegandt GmbH Cologne, a nearby manufacturer, whose business relationship equals over twenty-seven years. The club has one retail location in Cologne, Germany and three freshly constructed going stores in nearby suburban beas. train and product sales are influenced by consumer discretionary income. In 1993, an economic bust in the German economy resulted in a major dip in GDP. Demand for the industry is cyclical and is influenced by the overall economy. There is no distinguish of seasonality. In response to the German economic downturn in 1993, the social club began to open outlets with wide selections and lower prices to oblige sales volume.This was a stylus 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 externalize fierce challenger from Europ ean furniture retailers. This was a concern for the Wiegandt, who see 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 receivable to the influx of competition. trading operations AnalysisHaefren Baum being a retailer inquires a big amount of inventory and summations in order to generate sales. To turn profits, the bon ton needs to be efficient in both inventory trouble and asset turnover. Recently, the Haefren Baum is showing very high values for inventory geezerhood, and an overall decline in its TAT and FAT ratios. Figures for total and fixed asset turnover steadily decline from 1993-1995. These figures could be a result of the refinement and building of outlet stores, as well as slower sales. innate 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. Haef ren Baums land investment has remained constant over this period, but buildings and equipment investments suffer changed, again a result from the building of the three outlet stores. scrutinize daysshow and annex from 103 in 1993 to 129 in 1995.Such 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 mediocre out collection period has also shown significant make ups, 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 prissy efficiency due to the increase in inventory days and average collection period. The shun values for net income and results from the previous sentence desist why the firm has seen a decrease and negative values for hard roe and ROA.Financial AnalysisHaefren Baums strategy of selling product at lo wer prices seems to be ineffective in generating profits. The firms operational 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 financing 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 citation term, 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 equity ratio of 5.84%, this is a problem due to the biggish debt compared to equity owned. T he 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 novel outlet stores have no sales support and are feeding profits with staggering mortgage cost. The firm needs to be to a greater extent effective and efficient with inventory and credit lines. Arranging new credit terms in order to receive discounts and improve margins are in order for the firm to generate profits.