Chapter 5: Evaluating Operating and Financial Performance 191 MINICASE Scandi Home Furnishings, Inc. Kaj Rasmussen founded Scandi Home Furnishings as a corporation during mid-2013. Sales during the first full year (2014) of operation reached $1.3 million Sales increased by 15 percent in 2015 and another 20 percent in 2016. However, after increasing in 2015 over 2014 profits fell sharply in 2016, causing Kaj to wonder what was happening to his pride and jor business venture. After all, kaj worked as closely as possible to a 24/7 paco, beginning with the startup of Scandi and continuing through the first three full years of operation Scandi Home Furnishings, located in easter North Carolina, designs, manufactures, and sells Scandinavian designed furniture and accessories to home furishing retailers. The modern Scandinavian design has a streamlined and unclut tered look. While this furniture style is primarily associated with Denmark, both Norwegian and Swedish designers have contributed to the allure of Scandinavian home furnishings. Some say that the inspiration for the Scandinavian design can be traced to the elegant curves of art nouveau from which designers were able to produce aesthetically pleasing, Structurally strong modem fumiture. Danish furnishings and the home furnishings produced by other Scandinavian countries,Sweden, Norway, and Finland--are made using wood (primarily oak, maple, and ashl, aluminum, steel, and high-grade plastics Kaj grew up in Copenhagen, Denmark, and received an undergraduate degree from a technical University in Sweden As is typical in Europe, kaj began his business career as an apprentice at a major home furnishings manufacturer in Copenhagen. After leaming the trade, he quickly moved into a management position in the firm. However, after a few years, Kaj realized that what he really wanted to do was to start and operate his own Scandinavian home furnishings business. At the same time, after travelling throughout the world, he was sure that he wanted to be an entrepreneur in the United States. Kaj moved to the United States in early 2013 With $140.000 of his personal assets and $210,000 from venture investors, he began operations in mid-2013. Kaj, with a 40 percent ownership interest and industry-related management expertise, was allowed to operate the venture in a way that he thought was best for Scandi. Four years later, Kaj is sure he did the right thing Following are the three years of income statements and balance sheets for Scandi Home Furnishings. Kaj felt that he would need to continue to expand sales to maintain a competitive advantage. After first concentrating on selling Scandinavian home furnishings in the Northeast in 2014 and 2015, he decided to enter the West Coast market. An in- crease in expenses occurred associated with identifying contacting, and selling to home furnishings retailers in Califomia, Oregon, and Washington. Kaj Rasmussen hopes that you can help him better understand what has been happening to Scandi Home Furnishings from both operating and financial standpoints SCANDI HOME FURNISHINGS, INC. INCOME STATEMENTS 2014 2015 2016 Net sales Cost of goods sold Gross profit Marketing General and administrative Depreciation EBIT Interest Earnings before taxes Income taxes (40%) Net income Cash Dividends $1,300,000 780,000 520,000 130,000 150,000 40.000 200,000 45,000 155,000 62,003 $ 93.000 $ 0 $1,500,000 900.000 600.000 150.000 150.000 53 000 247.000 57.000 190.000 76.000 $ 114000 $ 74000 $1,800.000 1,260,000 510,000 200,000 200,000 30.000 80,000 70,000 10,000 4,000 $ 6.000 $ (continued on next page Chapter 5: Evaluating Operating and Financial Performance 191 MINICASE Scandi Home Furnishings, Inc. Kaj Rasmussen founded Scandi Home Furnishings as a corporation during mid-2013. Sales during the first full year (2014) of operation reached $1.3 million Sales increased by 15 percent in 2015 and another 20 percent in 2016. However, after increasing in 2015 over 2014 profits fell sharply in 2016, causing Kaj to wonder what was happening to his pride and jor business venture. After all, kaj worked as closely as possible to a 24/7 paco, beginning with the startup of Scandi and continuing through the first three full years of operation Scandi Home Furnishings, located in easter North Carolina, designs, manufactures, and sells Scandinavian designed furniture and accessories to home furishing retailers. The modern Scandinavian design has a streamlined and unclut tered look. While this furniture style is primarily associated with Denmark, both Norwegian and Swedish designers have contributed to the allure of Scandinavian home furnishings. Some say that the inspiration for the Scandinavian design can be traced to the elegant curves of art nouveau from which designers were able to produce aesthetically pleasing, Structurally strong modem fumiture. Danish furnishings and the home furnishings produced by other Scandinavian countries,Sweden, Norway, and Finland--are made using wood (primarily oak, maple, and ashl, aluminum, steel, and high-grade plastics Kaj grew up in Copenhagen, Denmark, and received an undergraduate degree from a technical University in Sweden As is typical in Europe, kaj began his business career as an apprentice at a major home furnishings manufacturer in Copenhagen. After leaming the trade, he quickly moved into a management position in the firm. However, after a few years, Kaj realized that what he really wanted to do was to start and operate his own Scandinavian home furnishings business. At the same time, after travelling throughout the world, he was sure that he wanted to be an entrepreneur in the United States. Kaj moved to the United States in early 2013 With $140.000 of his personal assets and $210,000 from venture investors, he began operations in mid-2013. Kaj, with a 40 percent ownership interest and industry-related management expertise, was allowed to operate the venture in a way that he thought was best for Scandi. Four years later, Kaj is sure he did the right thing Following are the three years of income statements and balance sheets for Scandi Home Furnishings. Kaj felt that he would need to continue to expand sales to maintain a competitive advantage. After first concentrating on selling Scandinavian home furnishings in the Northeast in 2014 and 2015, he decided to enter the West Coast market. An in- crease in expenses occurred associated with identifying contacting, and selling to home furnishings retailers in Califomia, Oregon, and Washington. Kaj Rasmussen hopes that you can help him better understand what has been happening to Scandi Home Furnishings from both operating and financial standpoints SCANDI HOME FURNISHINGS, INC. INCOME STATEMENTS 2014 2015 2016 Net sales Cost of goods sold Gross profit Marketing General and administrative Depreciation EBIT Interest Earnings before taxes Income taxes (40%) Net income Cash Dividends $1,300,000 780,000 520,000 130,000 150,000 40.000 200,000 45,000 155,000 62,003 $ 93.000 $ 0 $1,500,000 900.000 600.000 150.000 150.000 53 000 247.000 57.000 190.000 76.000 $ 114000 $ 74000 $1,800.000 1,260,000 510,000 200,000 200,000 30.000 80,000 70,000 10,000 4,000 $ 6.000 $ (continued on next page