CASE PRESENTATION

QUALITY FURNITURE COMPANY

MBA 206

Maria Arlene (Bam) T. Disimulacion

QUALITY FURNITURE COMPANY

• Manufactures a limited line of high-quality home

furnishings

• Distributed to department stores, independent

home furnishing retailers and regional chains

• Headquarters in Scranton, Pennsylvania, USA

• Advertised its lines nationally to maintain

intensive coverage of its trading areas
QUALITY FURNITURE COMPANY

• Distributed through stores strategically located

within a particular marketing area

• Challenges: Quality of product/service; credit

terms and financing of dealers; need to support
numerous customers in order to maintain
adequate distribution for its products

• Sources of data: Reports

QUALITY FURNITURE COMPANY
Customers
LLOYD’S COMPANY THE EMPORIUM
• Has 3 locations • Medium-sized department store in
(1) in downtown Minneapolis St. Paul
(2) in nearby suburban areas
• Retailed high-quality furnishings in 3 • Retailed low-quality furniture
locations
•Sales:
75% cash/credit cards
25% on 6-month installment with a
25% down payment & 6 equal monthly
payments
• Initially a partnership, then incorporated
• June 2001, two partners sold their
shares
• Customer for more than 30 years • Established account in 1993
• Terms: 2/10, net 30 • Terms: 2/10, net 30
• Limit: $50,0000 • Limit: $85,000
LLOYD’S COMPANY & THE EMPORIUM
Ratios

CURRENT RATIO (Liquidity)

Current Assets/ Current Liabilities

Measures a company’s liquidity and short-term debt paying ability

LLOYD’S EMPORIUM NOTES
2002 2001 2002 2001
2.70:1 2.28:1 1.46:1 1.39:1 Current ratios for both companies increased in
2002

For every dollar of current liabilities, Lloyd's has

$2.70 of current assets in 2002. This is higher than
the previous year (2001) which was $2.28 of
current assets to a dollar of current liabilities

For every dollar of current liabilities, The Emporium

has $1.46 of current assets in 2002 and
$1.39 in 2001
LLOYD’S COMPANY & THE EMPORIUM
Ratios
INVENTORY TURNOVER
Cost of Goods Sold/Average Inventory
Average Inventory = Beg Inv + End Inv/2

Inventory Turnover measures the number of times on average

the inventory is sold during the period
LLOYD’S EMPORIUM NOTES
2002 2001 2002 2001
2.80x 3.57x Lloyd's has an average turnover of 2.79 times and an
average selling period of 130 days*
(* 365/2.8x = 130.43 days: Average selling period)

The Emporium has an average turnover of 3.57 times

and an average selling period of 102 days*
(* 365/3.57 = 102 days: Average selling period)

Generally, the faster the inventory turnover, the less

cash is tied up in inventory and the less chance of
inventory obsolescence.
LLOYD’S COMPANY & THE EMPORIUM
Ratios

PROFIT MARGIN RATIO (Profitability)

Net Income/Net Sales

Measure of the percentage of each dollar of sales that results in net income
LLOYD’S EMPORIUM NOTES
2002 2001 2002 2001
(41.52% (11.79%) 0.02% 1.06% Lloyd’s: For both periods (2002 & 2001), each
dollar of sales did not add to profit

The Emporium: Although each dollar of sales

produced less in 2002 (0.02%) than in 2001
(1.06%), the numbers are positive

These percentages can be seen in the VERTICAL ANALYSIS

of the Income Statements of both customers
LLOYD’S COMPANY & THE EMPORIUM
VERTICAL ANALYSIS – Income Statement
Technique for evaluating financial data that expresses each item within a financial statement as a
percent of a base amount - NET SALES
It also shows the percentage change in the individual income and expense accounts

LLOYD'S COMPANY

1/31/2002 1/31/2001
Amount Percent Amount Percent
Gross Sales 9,160 108.66% 9,600 113.14%
Less: Returns and Allowances 730 8.66% 1,115 13.14%
Net Sales 8,430 100.00% 8,485 100.00%
Cost of Goods Sold 5,100 60.50% 5,125 60.40%
Gross Margin 3,330 39.50% 3,360 39.60%

Operating Expenses 3,045 36.12% 3,090 36.42%

Operating Profit 285 3.38% 270 3.18%
Other Income 85 1.01% 65 0.77%
Net Profit after other income 370 4.39% 335 3.95%
Other Deductions 405 4.80% 345 4.07%
Net Profit (Loss) Before Tax -35 -0.42% -10 -0.12%

Income and Other Tax Expense 0 0.00% 0 0.00%

Net Profit (Loss) -35 -0.42% -10 -0.12%
LLOYD’S COMPANY & THE EMPORIUM
VERTICAL ANALYSIS – Income Statement
Technique for evaluating financial data that expresses each item within a financial statement as a
percent of a base amount - NET SALES
It also shows the percentage change in the individual income and expense accounts

THE EMPORIUM
1/31/2002 1/31/2001
Amount Percent Amount Percent
Gross Sales 28,970 108.28% 31,265 110.11%
Less: Returns and Allowances 2,215 8.28% 2,870 10.11%
Net Sales 26,755 100.00% 28,395 100.00%
Cost of Goods Sold 18,385 68.72% 17,850 62.86%
Gross Margin 8,370 31.28% 10,545 37.14%

Operating Expenses 9,780 36.55% 8,995 31.68%

Operating Profit (Loss) -1,410 -5.27% 1,550 5.46%
Adjustments:
Elimination - Reserves for inventory losses 870 3.25% 0 0.00%
Reduction - Bad debt reserve 105 0.39% 0 0.00%
Tax carryback 445 1.66% 0 0.00%
Federal income and other tax expense 0 0.00% 650 2.29%
Net Profit before dividends 10 0.04% 900 3.17%
Dividends Paid 5 0.02% 600 2.11%
Net Profit to retained earnings 5 0.02% 300 1.06%
LLOYD’S COMPANY & THE EMPORIUM
Ratios

ASSET TURNOVER (Efficiency)

Sales Revenue/Total Assets

Asset turnover measures how efficiently assets were used to generate sales
LLOYD’S EMPORIUM NOTES
2002 2001 2002 2001
1.70x 1.85x 1.75x 1.81x The resulting ratios for both companies in two
periods have only slight differences.

But The Emporium generated higher gross

sales than Lloyd’s for both periods.

The gross sales amounts can be seen in the VERTICAL

ANALYSIS of the Income Statements of both customers
LLOYD’S COMPANY & THE EMPORIUM
VERTICAL ANALYSIS
Technique for evaluating financial data that expresses each item
within a financial statement as a percent of a base amount - NET SALES
It also shows the percentage change in the individual income and expense accounts

LLOYD'S COMPANY

1/31/2002 1/31/2001
Amount Percent Amount Percent
Gross Sales 9,160 108.66% 9,600 113.14%
Less: Returns and Allowances 730 8.66% 1,115 13.14%
Net Sales 8,430 100.00% 8,485 100.00%
Cost of Goods Sold 5,100 60.50% 5,125 60.40%
Gross Margin 3,330 39.50% 3,360 39.60%

Operating Expenses 3,045 36.12% 3,090 36.42%

Operating Profit 285 3.38% 270 3.18%
Other Income 85 1.01% 65 0.77%
Net Profit after other income 370 4.39% 335 3.95%
Other Deductions 405 4.80% 345 4.07%
Net Profit (Loss) Before Tax -35 -0.42% -10 -0.12%

Income and Other Tax Expense 0 0.00% 0 0.00%

Net Profit (Loss) -35 -0.42% -10 -0.12%
LLOYD’S COMPANY & THE EMPORIUM
VERTICAL ANALYSIS
Technique for evaluating financial data that expresses each item
within a financial statement as a percent of a base amount - NET SALES
It also shows the percentage change in the individual income and expense accounts

THE EMPORIUM
1/31/2002 1/31/2001
Amount Percent Amount Percent
Gross Sales 28,970 108.28% 31,265 110.11%
Less: Returns and Allowances 2,215 8.28% 2,870 10.11%
Net Sales 26,755 100.00% 28,395 100.00%
Cost of Goods Sold 18,385 68.72% 17,850 62.86%
Gross Margin 8,370 31.28% 10,545 37.14%

Operating Expenses 9,780 36.55% 8,995 31.68%

Operating Profit (Loss) -1,410 -5.27% 1,550 5.46%
Adjustments:
Elimination - Reserves for inventory losses 870 3.25% 0 0.00%
Reduction - Bad debt reserve 105 0.39% 0 0.00%
Tax carryback 445 1.66% 0 0.00%
Federal income and other tax expense 0 0.00% 650 2.29%
Net Profit before dividends 10 0.04% 900 3.17%
Dividends Paid 5 0.02% 600 2.11%
Net Profit to retained earnings 5 0.02% 300 1.06%
LLOYD’S COMPANY & THE EMPORIUM
Ratios

DEBT TO TOTAL ASSETS (Solvency)

Total Debt/Total Assets

Measures the percentage of total assets provided by creditors.

It also provides an indication of the company’s ability to withstand losses without impairing
the interests of creditors.
LLOYD’S EMPORIUM NOTES
2002 2001 2002 2001
88.88% 89.97% 46.14% 48.33% Lloyd’s: In 2002, 89% of its total assets were
provided by its creditors

The Emporium: In 2002, 46% of its total assets

were from creditors

The higher the percentage of debt to total assets, the greater

the risk that the company may be unable to meet its
maturing obligations.
LLOYD’S COMPANY & THE EMPORIUM
VERTICAL ANALYSIS – Balance Sheet
Technique for evaluating financial data that expresses each item
within a financial statement as a percent of a base amount - TOTAL ASSETS

It also shows the percentage change in the individual asset, liability and stockholder's equity items

LLOYD’S
1/31/2002 1/31/2001
LIABILITIES Amount Percent Amount Percent
Accounts Payable 925 17.15% 870 16.78%
Notes Payable - Employees 80 1.48% 80 1.54%
Estimated Federal Income Tax 0 0.00% 0 0.00%
Current Maturities on Long-term Debt 220 4.08% 360 6.94%
Miscellaneous Accruals 65 1.20% 205 3.95%
Total Current Liabilities 1,290 23.91% 1,515 29.22%
Notes Payable - Bank 875 16.22% 900 17.36%
Mortgage Notes Payable 2,630 48.75% 2,250 43.39%
TOTAL LIABILITIES 4,795 88.88% 4,665 89.97%
LLOYD’S COMPANY & THE EMPORIUM
VERTICAL ANALYSIS – Balance Sheet
Technique for evaluating financial data that expresses each item
within a financial statement as a percent of a base amount - TOTAL ASSETS

It also shows the percentage change in the individual asset, liability and stockholder's equity items

THE EMPORIUM
1/31/2002 1/31/2001
LIABILITIES and NET WORTH Amount Percent Amount Percent
Notes Payable - Industrial Finance Corp 4,300 25.97% 5,310 30.77%
Accounts Payable 2,660 16.06% 2,440 14.14%
Miscellaneous Accruals 680 4.11% 590 3.42%
Total Current Liabilities 7,640 46.14% 8,340 48.33%
LLOYD’S COMPANY & THE EMPORIUM
HORIZONTAL ANALYSIS – Balance Sheet
Technique for evaluating a series of financial statements data over a period of time
Its purpose is to determine the increase/decrease that has taken place

LLOYD’S
Increase/Decrease
during 2002
1/31/2002 1/31/2001 Amount Percent
ASSETS
Cash 50 65 (15) (23.08)
Accts Receivable, net 1,610 1,565 45 2.88
Inventory 1,825 1,820 5 0.27
Total Current Assets 3,485 3,450 35 1.01

Land 355 355 0 0.00

Buildings, fixtures & Equipment 1,575 1,370 205 14.96
Less: Accumulated Depreciation 395 290 105 36.21
Net Buildings, fixtures & Equipment 1,180 180 1,000 555.56
Investments 65 65 0 0.00
Due from Stockholders 290 215 75 34.88
Deferred Charges 20 20 0 0.00
TOTAL ASSETS 5,395 5,185 210 4.05
LLOYD’S COMPANY & THE EMPORIUM
HORIZONTAL ANALYSIS – Balance Sheet
Technique for evaluating a series of financial statements data over a period of time
Its purpose is to determine the increase/decrease that has taken place

LLOYD’S Increase/Decrease
during 2002
1/31/2002 1/31/2001 Amount Percent
LIABILITIES and NET WORTH
Accounts Payable 925 870 55 6.32
Notes Payable - Employees 80 80 0 0.00
Estimated Federal Income Tax 0 0 0 0.00
Current Maturities on Long-term Debt 220 360 (140) (38.89)
Miscellaneous Accruals 65 205 (140) (68.29)
Total Current Liabilities 1,290 1,515 (225) (14.85)

Notes Payable - Bank 875 900 (25) (2.78)

Mortgage Notes Payable 2,630 2,250 380 16.89

TOTAL LIABILITIES 4,795 4,665 130 2.79

Preferred Stock - 5% Cumulative 190 190 0 0.00

Common Stock 360 360 0 0.00
Additional Paid-in Capital 115 0 115 0.00
Retained Earnings - Deficit -65 -30 (35) 116.67
TOTAL LIABILITIES and NET WORTH 5,395 5,185 210 4.05
LLOYD’S COMPANY & THE EMPORIUM
HORIZONTAL ANALYSIS – Balance Sheet
Technique for evaluating a series of financial statements data over a period of time
Its purpose is to determine the increase/decrease that has taken place

THE EMPORIUM
Increase/Decrease
during 2002
1/31/2002 1/31/2001 Amount Percent
ASSETS
Cash 475 740 (265) (35.81)
Notes and Accounts Receivable 5,305 5,500 (195) (3.55)
Inventory 4,925 5,370 (445) (8.29)
Tax Carryback claim 445 0 445 0.00
Total Current Assets 11,150 11,610 (460) (3.96)

Fixed Assets, net 1,325 1,465 (140) (9.56)

Leasehold Improvements, net 3,460 3,590 (130) (3.62)
Cash value life insurance 275 280 (5) (1.79)
Investments 55 55 0 0.00
Notes Receivable - Officers and Employees 140 110 30 27.27
Prepaid and deferred items 155 145 10 6.90
TOTAL ASSETS 16,560 17,255 (695) (4.03)
LLOYD’S COMPANY & THE EMPORIUM
HORIZONTAL ANALYSIS – Balance Sheet
Technique for evaluating a series of financial statements data over a period of time
Its purpose is to determine the increase/decrease that has taken place

THE EMPORIUM

Increase/Decrease
during 2002
1/31/2002 1/31/2001 Amount Percent
LIABILITIES and NET WORTH
Notes Payable - Industrial Finance Corp 4,300 5,310 (1,010) (19.02)
Accounts Payable 2,660 2,440 220 9.02
Miscellaneous Accruals 680 590 90 15.25
Total Current Liabilities 7,640 8,340 (700) (8.39)

Common Stock and Additional Paid-in Capital 3,420 3,420 0 0.00

Retained Earnings 5,500 5,495 5 0.09
TOTAL LIABILITIES and NET WORTH 16,560 17,255 (695) (4.03)
LLOYD’S COMPANY & THE EMPORIUM
Aging of Receivables

30-60 days 61-90 days 91-180 days

Current past due past due past due TOTALS
Lloyd's 6,168 34,819
January 5,480
February 21,146
Subtotals, Lloyd's 6,168 26,626 34,819 67,613

Emporium 54,749 29,304 2285* 2,285

January 6,153
February 26,112
Subtotals, Emporium 54,749 32,265 29,304 116,318

TOTALS 60,917 58,891 64,123 186,216

* Customer claimed damaged merchandise `

LLOYD’S COMPANY & THE EMPORIUM
Aging of Receivables

Status, as of March 31, 2002

Amount Estimated Percent Allowance for

Classification Outstanding Uncollectible Doubtful Accounts
Current 60,917 1.00% 609
Overdue:
30-60 days past due 58,891 5.00% 2,945
61-90 days past due 64,123 10.00% 6,412
91-180 days past due 2,285 20.00% 457

Total 186,216 10,423

THANK YOU

Maria Arlene (Bam) T. Disimulacion