Tivoli Home Furnishings Mini Case Anders Jensen founded TivoliHome Furnishings as a corporation during mid-2015. Sales during thefirst full year (2016) of operation reached $1.3 million. Salesincreased by 15% in 2017 and another 20% in 2018. However, profits,after increasing in 2017 over 2016, fell sharply in 2018, causingAnders to wonder what was happening to his âpride-and-joyâ businessventure. After all, Anders has continued to work as closely aspossible to a 24/7 pace beginning with the startup of Tivoli andthrough the first three full years of operation. Tivoli HomeFurnishings, located in eastern North Carolina, designs,manufactures, and sells Scandinavian-designed furniture andaccessories to home furnishings retailers. The modern Scandinaviandesign has a streamlined and uncluttered look. While this furniturestyle is primarily associated with Denmark, both Norwegian andSwedish designers have contributed to the allure of Scandinavianhome furnishings. Some say that the inspiration for theScandinavian design can be traced to the elegant curves of artnouveau from which designers were able to produce aestheticallypleasing, structurally strong modern furniture. Danish furnishingsand the home furnishings produced by the other ScandinaviancountriesââSweden, Norway, and Finlandââ are made using wood(primarily oak, maple, and ash), aluminum, steel, and high-gradeplastics. Anders grew up in Copenhagen, Denmark, and received anundergraduate degree from a technical university in Sweden. As istypical in Europe, Anders began his business career as anapprentice at a major home furnishings manufacturer in Copenhagen.After learning the trade, he quickly moved into a managementposition in the firm. However, after a few years, Anders realizedthat what he really wanted to do was to start and operate his ownScandinavian home furnishings business. At the same time, aftertraveling throughout the world, including the United States, he wassure that he wanted to be an entrepreneur in the United States.Anders moved to the U.S. in early 2015. With $140,000 of hispersonal assets and $210,000 from venture investors, he beganoperations in mid-2015. Anders, with 40% ownership interest andindustry-related management expertise, was allowed to operate theventure in a way that he thought was best for Tivoli. Four yearslater, Anders is sure he did the right thing. Following are thethree years of income statements and balance sheets for Tivoli HomeFurnishings. Anders felt that in order to maintain a competitiveadvantage, he would need to continue to expand sales. After firstconcentrating on selling Scandinavian home furnishings in thenortheast in 2016 and 2017, he decided to enter the west coastmarket. An increase in expenses occurred associated withidentifying, contacting, and selling to home furnishings retailersin California, Oregon, and Washington. Anders Jensen hopes that youcan help him better understand what has been happening to TivoliHome Furnishings from both operating and financial standpoints. âTivoli Home Furnishings, Inc. Income Statements 2016 2017 2018 Netsales $ 1,300,000 $ 1,500,000 $ 1,800,000 Cost of goods sold780,000 900,000 1,260,000 Gross profit 520,000 600,000 540,000Marketing expenses 130,000 150,000 200,000 General andadministrative 150,000 150,000 200,000 Depreciation expense 40,00053,000 60,000 EBIT 200,000 247,000 80,000 Interest expense 45,00057,000 70,000 Earnings before taxes 155,000 190,000 10,000 Incometaxes (40%) 62,000 76,000 4,000 Net income $ 93,000 $ 114,000 $6,000 Tivoli Home Furnishings, Inc. Balance Sheets 2016 2017 2018Cash $ 50,000 $ 40,000 $ 10,000 Accounts receivable 200,000 260,000360,000 Inventories 450,000 500,000 600,000 Total current assets700,000 800,000 970,000 Fixed assets, net 300,000 400,000 500,000Total assets $1,000,000 $1,200,000 $1,470,000 Accounts payable $130,000 $ 170,000 $ 180,000 Accruals 50,000 70,000 80,000 Bank loan90,000 90,000 184,000 Total current liabilities 270,000 330,000444,000 Long-term debt 300,000 400,000 550,000 Common stock ($10par)* 300,000 300,000 300,000 Capital surplus 50,000 50,000 50,000Retained earnings 80,000 120,000 126,000 Total liabilities andequity $1,000,000 $1,200,000 $1,470,000 * 30,000 shares of commonstock were issued to Anders Jensen and the venture investors whenTivoli Home Furnishings was incorporated in mid-2015. â A.Calculate the current ratio and the quick ratio for each of theyears. What has happened to Tivoliâs liquidity position? CurrentRatio: Quick Ratio: B. Calculate the inventory turnover, days salesin inventory, receivables turnover, and days sales in receivablesfor each of the years and interpret the results. InventoryTurnover: Day Sales in Inventory: Receivables Turnover: Days Salesin Receivables: C. Creditors as well as management are alsoconcerned about the ability of the venture to meet its debtobligations as they come due. For each year, calculate total debt,debt to equity, equity multiplier, and the times interest earnedratios. Interpret your results and explain what has happened toTivoli. Total Debt: Debt to Equity: Equity Multiplier: Total Assets/Total Equity (Assets â Liabilities) Times Interest Earned Ratios:D. Of importance to Anders and the venture investors is theprofitability of the venture. Calculate the profit margin, ROA, andROE for each year and describe what is happening to theprofitability of Tivoli Home Furnishings. E. Anders and the ventureinvestors are also interested in how efficiently Tivoli is able toconvert the firmâs total assets into sales. Calculate the totalasset turnover ratio for each year and interpret. F. Perform a DuPont decomposition for each year and provide an interpretation ofyour findings. G. Trade association data show an average profitmargin of 6.5 percent, a sales to asset ratio of 1.3 times, and atotal debt ratio of 55 percent over the 2016-2018 period. Comparethe components of the Du Pont analysis with the industry averages âcompare each component, as well as the product of the components.How does Tivoli compare with the rest of the industry? H. What isgoing on with Tivoli and what is the likely solution?
Tivoli Home Furnishings Mini Case Anders Jensen founded TivoliHome Furnishings as a corporation during mid-2015. Sales during thefirst full year (2016) of operation reached $1.3 million. Salesincreased by 15% in 2017 and another 20% in 2018. However, profits,after increasing in 2017 over 2016, fell sharply in 2018, causingAnders to wonder what was happening to his âpride-and-joyâ businessventure. After all, Anders has continued to work as closely aspossible to a 24/7 pace beginning with the startup of Tivoli andthrough the first three full years of operation. Tivoli HomeFurnishings, located in eastern North Carolina, designs,manufactures, and sells Scandinavian-designed furniture andaccessories to home furnishings retailers. The modern Scandinaviandesign has a streamlined and uncluttered look. While this furniturestyle is primarily associated with Denmark, both Norwegian andSwedish designers have contributed to the allure of Scandinavianhome furnishings. Some say that the inspiration for theScandinavian design can be traced to the elegant curves of artnouveau from which designers were able to produce aestheticallypleasing, structurally strong modern furniture. Danish furnishingsand the home furnishings produced by the other ScandinaviancountriesââSweden, Norway, and Finlandââ are made using wood(primarily oak, maple, and ash), aluminum, steel, and high-gradeplastics. Anders grew up in Copenhagen, Denmark, and received anundergraduate degree from a technical university in Sweden. As istypical in Europe, Anders began his business career as anapprentice at a major home furnishings manufacturer in Copenhagen.After learning the trade, he quickly moved into a managementposition in the firm. However, after a few years, Anders realizedthat what he really wanted to do was to start and operate his ownScandinavian home furnishings business. At the same time, aftertraveling throughout the world, including the United States, he wassure that he wanted to be an entrepreneur in the United States.Anders moved to the U.S. in early 2015. With $140,000 of hispersonal assets and $210,000 from venture investors, he beganoperations in mid-2015. Anders, with 40% ownership interest andindustry-related management expertise, was allowed to operate theventure in a way that he thought was best for Tivoli. Four yearslater, Anders is sure he did the right thing. Following are thethree years of income statements and balance sheets for Tivoli HomeFurnishings. Anders felt that in order to maintain a competitiveadvantage, he would need to continue to expand sales. After firstconcentrating on selling Scandinavian home furnishings in thenortheast in 2016 and 2017, he decided to enter the west coastmarket. An increase in expenses occurred associated withidentifying, contacting, and selling to home furnishings retailersin California, Oregon, and Washington. Anders Jensen hopes that youcan help him better understand what has been happening to TivoliHome Furnishings from both operating and financial standpoints. âTivoli Home Furnishings, Inc. Income Statements 2016 2017 2018 Netsales $ 1,300,000 $ 1,500,000 $ 1,800,000 Cost of goods sold780,000 900,000 1,260,000 Gross profit 520,000 600,000 540,000Marketing expenses 130,000 150,000 200,000 General andadministrative 150,000 150,000 200,000 Depreciation expense 40,00053,000 60,000 EBIT 200,000 247,000 80,000 Interest expense 45,00057,000 70,000 Earnings before taxes 155,000 190,000 10,000 Incometaxes (40%) 62,000 76,000 4,000 Net income $ 93,000 $ 114,000 $6,000 Tivoli Home Furnishings, Inc. Balance Sheets 2016 2017 2018Cash $ 50,000 $ 40,000 $ 10,000 Accounts receivable 200,000 260,000360,000 Inventories 450,000 500,000 600,000 Total current assets700,000 800,000 970,000 Fixed assets, net 300,000 400,000 500,000Total assets $1,000,000 $1,200,000 $1,470,000 Accounts payable $130,000 $ 170,000 $ 180,000 Accruals 50,000 70,000 80,000 Bank loan90,000 90,000 184,000 Total current liabilities 270,000 330,000444,000 Long-term debt 300,000 400,000 550,000 Common stock ($10par)* 300,000 300,000 300,000 Capital surplus 50,000 50,000 50,000Retained earnings 80,000 120,000 126,000 Total liabilities andequity $1,000,000 $1,200,000 $1,470,000 * 30,000 shares of commonstock were issued to Anders Jensen and the venture investors whenTivoli Home Furnishings was incorporated in mid-2015. â A.Calculate the current ratio and the quick ratio for each of theyears. What has happened to Tivoliâs liquidity position? CurrentRatio: Quick Ratio: B. Calculate the inventory turnover, days salesin inventory, receivables turnover, and days sales in receivablesfor each of the years and interpret the results. InventoryTurnover: Day Sales in Inventory: Receivables Turnover: Days Salesin Receivables: C. Creditors as well as management are alsoconcerned about the ability of the venture to meet its debtobligations as they come due. For each year, calculate total debt,debt to equity, equity multiplier, and the times interest earnedratios. Interpret your results and explain what has happened toTivoli. Total Debt: Debt to Equity: Equity Multiplier: Total Assets/Total Equity (Assets â Liabilities) Times Interest Earned Ratios:D. Of importance to Anders and the venture investors is theprofitability of the venture. Calculate the profit margin, ROA, andROE for each year and describe what is happening to theprofitability of Tivoli Home Furnishings. E. Anders and the ventureinvestors are also interested in how efficiently Tivoli is able toconvert the firmâs total assets into sales. Calculate the totalasset turnover ratio for each year and interpret. F. Perform a DuPont decomposition for each year and provide an interpretation ofyour findings. G. Trade association data show an average profitmargin of 6.5 percent, a sales to asset ratio of 1.3 times, and atotal debt ratio of 55 percent over the 2016-2018 period. Comparethe components of the Du Pont analysis with the industry averages âcompare each component, as well as the product of the components.How does Tivoli compare with the rest of the industry? H. What isgoing on with Tivoli and what is the likely solution?
