Nature of the business:
Haefren Baum is a retailer of high quality home furniture located in Cologne, Germany. They have also added three outlet stores in Rhineland, a nearby suburban area.
Haefren retails high quality furniture manufactured by Wiegandt has advertised aggressively in order to build and maintain a strong brand image. Haefren benefited tremendously from the successful marketing provided by Wiegandt. Wiegandt has
However, because the nature of the product is high-end and durable, sales are subject to fluctuations of the business cycle. During the economic boom leading up to 1993 Haefren, as well as the industry in general, enjoyed strong sales. However, …show more content…
Financial Analysis: Haefren’s funding has come from bank loans and utilizing credit from its vendors. Funding needs increased due to the addition of 3 new outlet stores. These outlet stores have increased Haefren’s debt over the three years in questions. Along with this new debt, two of the original partners sold their shares to the other two partners. It seems like there are too many changes going on at Haefren all at once. In regards to cash flows, Haefren is performing poorly. Cash flows from operations are unhealthy and the total cash on hand has declined over the three years in question. Total cash flow from operations is positive, however, they appear to be driven by depreciation. Their negative net income (net loss), is not driving operations cash flow in a positive direction. They are also carrying a great deal of inventory which is consuming their cash. In order for them to drive up net income they need to find a way to decrease their inventories. Accounts receivables are also impacting cash flows in a negative way. A/R have increased each year, which can be attributed to the weak economy. This drag in A/R is causing them to receive cash-in after cash goes out. Their cash flow problems are evident when analyzing their account payable days. Wiegdant has given them competitive terms (2% 10, net 30), however, Haefren cannot