F. An ROA model consisting of the product of two ratios provides an overview of a venture ’ s efficiency and profitability at the same time. An ROE model consists of the product of three ratios and simultaneously shows an overview of a venture ’ s efficiency, profitability, and leverage performance. Calculate ROA and ROE models for the 2014 – 2015 and 2015 – 2016 periods. Provide an interpretation of your findings.

Essentials Of Investments
11th Edition
ISBN:9781260013924
Author:Bodie, Zvi, Kane, Alex, MARCUS, Alan J.
Publisher:Bodie, Zvi, Kane, Alex, MARCUS, Alan J.
Chapter1: Investments: Background And Issues
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F. An ROA model consisting of the product of two ratios provides an overview of a venture ’ s efficiency and profitability at the same time. An ROE model consists of the product of three ratios and simultaneously shows an overview of a venture ’ s efficiency, profitability, and leverage performance. Calculate ROA and ROE models for the 2014 – 2015 and 2015 – 2016 periods. Provide an interpretation of your findings.

Scandi Home Furnishings, Inc. (Continued)
SCANDI HOME FURNISHINGS, INC.
BALANCE SHEETS
2011
2012
2013
Cash
$ 50,000
$ 40,000
$ 10,000
Accounts receivable
200,000
260,000
360,000
Inventories
450,000
500,000
600,000
Total current assets
700,000
800,000
970,000
Fixed assets, net
300,000
400,000
$1,200,000
500,000
Total assets
$1,000,000
$1,470,000
Accounts payable
$ 130,000
$ 170,000
$ 180,000
Accruals
50,000
70,000
80,000
Bank loan
90,000
90,000
184,000
Total current liabilities
270,000
330,000
444,000
Long-term debt
300,000
400,000
550,000
Common stock*
350,000
350,000
350,000
Retained earnings
80,000
120,000
126,000
Total liabilities and equity
$1,000,000
$1,200,000
$1,470,000
*350,000 shares of common stock were issued to Kaj Rasmussen and the venture investors when
Scandi Home Furnishings was incorporated in mid-2010.
Transcribed Image Text:Scandi Home Furnishings, Inc. (Continued) SCANDI HOME FURNISHINGS, INC. BALANCE SHEETS 2011 2012 2013 Cash $ 50,000 $ 40,000 $ 10,000 Accounts receivable 200,000 260,000 360,000 Inventories 450,000 500,000 600,000 Total current assets 700,000 800,000 970,000 Fixed assets, net 300,000 400,000 $1,200,000 500,000 Total assets $1,000,000 $1,470,000 Accounts payable $ 130,000 $ 170,000 $ 180,000 Accruals 50,000 70,000 80,000 Bank loan 90,000 90,000 184,000 Total current liabilities 270,000 330,000 444,000 Long-term debt 300,000 400,000 550,000 Common stock* 350,000 350,000 350,000 Retained earnings 80,000 120,000 126,000 Total liabilities and equity $1,000,000 $1,200,000 $1,470,000 *350,000 shares of common stock were issued to Kaj Rasmussen and the venture investors when Scandi Home Furnishings was incorporated in mid-2010.
MINICASE
Scandi Home Furnishings, Inc.
Kaj Rasmussen founded Scandi Home Furnishings as a corporation during mid-2010. Sales during the first full year (2011)
of operation reached $1.3 million. Sales increased by 15 percent in 2012 and another 20 percent in 2013. However, after
increasing in 2012 over 2011, profits fell sharply in 2013, causing Kaj to wonder what was happening to his "pride-and-
joy" business venture. After all, Kaj worked as closely as possible to a 24/7 pace, beginning with the startup of Scandi
and continuing through the first three full years of operation.
Scandi Home Furnishings, located in eastern North Carolina, designs, manufactures, and sells Scandinavian-designed
furniture and accessories to home furnishings 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 modern furniture. Danish furnishings and the home furnishings produced by the other Scandinavian
countries-Sweden, Norway, and Finland-are made using wood (primarily oak, maple, and ash), aluminium, 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 learning 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
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 2010. With $140,000 of his personal assets and $210,000
from venture investors, he began operations in mid-2010. 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 that
he would need to continue to expand sales to maintain a competitive advantage. After first concentrating on selling Scan-
dinavian home furnishings in the Northeast in 2011 and 2012, he decided to enter the West Coast market. An increase in
expenses occurred associated with identifying, contacting, and selling to home furnishings retailers in California, 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.
was to start and operate his own Scandinavian home furnishings
SCANDI HOME FURNISHINGS, INC.
INCOME STATEMENTS
2011
2012
2013
Net sales
$1,300,000
$1,500,000
$1,800,000
Cost of goods sold
780,000
900,000
1,260,000
Gross profit
520,000
600,000
540,000
Marketing
130,000
150,000
200,000
General and administrative
150,000
150,000
200,000
Depreciation
40,000
53,000
60,000
EBIT
200,000
247,000
80,000
Interest
45,000
57,000
70,000
Earnings before taxes
155,000
190,000
10,000
Income taxes (40%)
62,000
76,000
4,000
$ 93,000
$ 114,000
$ 74,000
Net income
$
6,000
Cash Dividends
$
$0
(continued on next page)
Transcribed Image Text:MINICASE Scandi Home Furnishings, Inc. Kaj Rasmussen founded Scandi Home Furnishings as a corporation during mid-2010. Sales during the first full year (2011) of operation reached $1.3 million. Sales increased by 15 percent in 2012 and another 20 percent in 2013. However, after increasing in 2012 over 2011, profits fell sharply in 2013, causing Kaj to wonder what was happening to his "pride-and- joy" business venture. After all, Kaj worked as closely as possible to a 24/7 pace, beginning with the startup of Scandi and continuing through the first three full years of operation. Scandi Home Furnishings, located in eastern North Carolina, designs, manufactures, and sells Scandinavian-designed furniture and accessories to home furnishings 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 modern furniture. Danish furnishings and the home furnishings produced by the other Scandinavian countries-Sweden, Norway, and Finland-are made using wood (primarily oak, maple, and ash), aluminium, 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 learning 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 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 2010. With $140,000 of his personal assets and $210,000 from venture investors, he began operations in mid-2010. 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 that he would need to continue to expand sales to maintain a competitive advantage. After first concentrating on selling Scan- dinavian home furnishings in the Northeast in 2011 and 2012, he decided to enter the West Coast market. An increase in expenses occurred associated with identifying, contacting, and selling to home furnishings retailers in California, 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. was to start and operate his own Scandinavian home furnishings SCANDI HOME FURNISHINGS, INC. INCOME STATEMENTS 2011 2012 2013 Net sales $1,300,000 $1,500,000 $1,800,000 Cost of goods sold 780,000 900,000 1,260,000 Gross profit 520,000 600,000 540,000 Marketing 130,000 150,000 200,000 General and administrative 150,000 150,000 200,000 Depreciation 40,000 53,000 60,000 EBIT 200,000 247,000 80,000 Interest 45,000 57,000 70,000 Earnings before taxes 155,000 190,000 10,000 Income taxes (40%) 62,000 76,000 4,000 $ 93,000 $ 114,000 $ 74,000 Net income $ 6,000 Cash Dividends $ $0 (continued on next page)
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