superior living, inc. andré a. marks finc615 – 1004b – 01: applied managerial finance...
TRANSCRIPT
André A. MarksAndré A. MarksFINC615 – 1004B – 01: Applied FINC615 – 1004B – 01: Applied
Managerial FinanceManagerial FinanceInstructor: Dr. Samara KramerInstructor: Dr. Samara Kramer
November 26, 2010November 26, 2010
Objectives
To give a brief financial introduction to the furniture industry
To discuss the four primary financial statements used by Superior Living, Inc.
Explain how data is collected to develop these financial statements
Discuss what the financial statements measure
Explain the linkage among the financial statements
Introduction to the industry
There has been a dramatic dropped in high-end furniture purchases due to affluent consumers restructuring their priorities. They are only buying what they need.
Consumer confidence crippled by a housing crisis has caused the bottom to drop out of the U.S. furniture market with a 13% decline in sales in the forth quarter of 2008 compared to forth quarter sales in 2007.*
There are about 1 million fewer affluent household buying luxury furniture which equated to a $2 billion drop in the sales of high-end furniture between 2007 and 2008.*
In the first 6 months of 2009, Ethan Allen sales were down by 30%, the most it had been since the great depression.**
Ethan Allen introduces new technology to drive sales, and it is working. Consumers can upload photos of actual rooms in there homes and completely furnished their homes online or on their iPads with Ethan Allen furniture and accessories.
During the first nine months of 2010, Ethan Allen sales increased by about 15% and the company recently opened its 45th store in China, of which over 280 operate worldwide.**
Ethan Allen is making it work in America with over 70% of their products being manufactured in the U.S. and over 60% of their sales made abroad. This is a long-term strategy for recovery and growth.**
Source: MarketResearch.com* and Forbes.com**
Four financial statements…
The Balance Sheet
The Income Statement
Statement of Retain Earnings
Statement of Cash Flows
Balance Sheet
Assets Current assets
Cash
Accounts Receivable
Inventory
Total
Fixed assets
Net Plant and equipment
Trademarks and patents
Total assets
Liabilities and Owners’ Equity Current liabilities
Accounts payable
Notes payable
Total
Long term debt
Owners’ equity
Common stock and paid-in-surplus
Retain earnings
Total
Total liabilities and owners’ equity
Source: Ross, Westerfield, & Jordon, Fundamentals of Corporate Finance, 9th edition, page 52.
Income Statement
Sales
Cost of goods sold
Depreciation
Earnings before interest and taxes
Interest paid
Taxable income
Taxes (30%)
Net income
Dividends
Addition to retain earnings
Source: Ross, Westerfield, & Jordon, Fundamentals of Corporate Finance, 9th edition, page 53.
Statement of Retained Earnings
Retained Earnings, December 31, previous year
Plus: Net Income current year
Total:
Minus: Dividends Paid current year
Retained Earnings, December 31, current year
Statement of Cash Flows
Cash, beginning of year Operating activity
Net Income
Plus:
Depreciation
Increase in accounts payable
Less:
Increase in accounts receivable
Increase in inventory
Net cash from operating activity
Investment activity Fixed assets acquisitions
Net cash from investment activity
Financing activity
Decrease in notes payable
Decrease in long-term debt
Dividends paid
Increase in common stock
Net cash from financing activity
Net increase in cash
Cash, end of year
Source: Ross, Westerfield, & Jordon, Fundamentals of Corporate Finance, 9th edition, page 50.
Sources and Uses of Cash
Sources of cash Cash beginning of the year
Operations:
Net income
Depreciation
Working Capital:
Increase in accounts payable
Long term financing
Increases in common stock
Total sources of cash
Uses of cash Working capital:
Increases in accounts receivables
Increase in inventory
Decrease in notes payable
Long term financing: Decrease in long term debt
Fixed asset acquisitions
Dividends paid Total uses of cash
Net addition to cash
Cash, end of year
Source: Ross, Westerfield, & Jordon, Fundamentals of Corporate Finance, 9th edition, page 50.
How is the data collected?
The Bookkeeping process
As the company records financial transactions over a period of time, the financial statements begin to appear. (Peavler, n.d.)
What do they measure? The
Balance Sheet shows how much the company is worth. It shows the book value of the company’s net worth.
The Income Statement is sometimes called the statement of profit and loss because it shows the company’s profitability.
The Statement of Cash Flows measures the difference in cash flow for the year. It is divided into operations, investments, and finance.
The Statement of Retain Earnings shows the change in the retained earnings account and dividends over a period of time.
Source: Rosemary Peavler, About.com Guide
What links the statements… The balance sheet mirrors the
accounting equation and state items in terms of book value. It is linked to the income statement by the DuPont Identity.
The income statement is linked to the balance sheet because owners equity is made up of revenue and expenses, which is how the income statement is developed. It is also linked to the balance sheet by the DuPont Identity.
The statement of retained earnings uses data from the balance sheet and income statement to make it’s calculations.
The statement of cash flows uses data from the balance sheet and income statement to track the flow of cash.
References
Brennan, M. (2010). Ethan Allen’s sales rebound from consumer confidence woes. Retrieved
on November 25, 2010 from http://blogs.forbes.com/morganbrennan/2010/11/23/ethan-
allens-sales-rebound-from- consumer-confidence-woes/?partner=yahootix
Finance.Yahoo.com. (n.d.). Ethan Allen Interiors Inc. Retrieved on November 18, 2010 from
http:// finance.yahoo.com/q/bs?s=ETH+Balance+Sheet&annual
Investopedia.com. (n.d.). Statement of retained earnings. Retrieved on November 25, 2010
from http://www.investopedia.com/terms/s/statement-of-retained-earnings.asp
Peavler, R. (n.d.). The relationship between the financial statements. Retrieved on November
25, 2010 from
http://bizfinance.about.com/od/yourfinancialposition/qt/Relation_FinSt.htm
Peavler, R. (n.d.). Statement of retained earnings. Retrieved on November 25, 2010 from
http:// bizfinance.about.com/od/yourfinancialposition/tp/Statement_Retained_Earnings.htm
References
Peavler, R. (n.d.). How to prepare a statement of cash flow. Retrieved on November
25, 2010 from http://
bizfinance.about.com/od/yourfinancialposition/a/statecashflow.htm
Ross, S. A., Westerfield R. W., & Jordon, B. D. (2010). Fundamentals of Corporate
Finance (9th edition). New York, NY: McGraw – Hill/Irwin.
Unity Marketing Inc. (2009). High end furniture market trend report. Retrieved on
November 18, 2010 from http://www.marketresearch.com/product/print/default.asp?
SID=84965223-488059349-403130034&productid=2219103