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Investing in the Furniture Business

Introduction

The report focuses on the furniture industry. The report aims to present the reasons for investing in one preferred furniture entity. The presentation includes financial statement ratios. The ratios compare the financial performance of three chosen furniture competitors.

Haverty’s Furniture

Haverty’s Furniture is perfectly established in Atlanta Georgia. The company offers discounts to its current and future customers. The discounts persuade the prospective buyers to patronize the Haverty brand. The company offers both cash and installment sales. The company’s mission includes ensuring customers pay for quality products and services1. Table1 shows the financial ratios of Haverty’s Furniture Inc. for the past three years. In terms of maximizing the company’s assets to generate net profits, the company’s return on assets is favorable. The company’s 2010 return on assets ratio (2 percent) had increased to 4 percent during 2011. However, the company’s return on asset ratio for 2012 stalled at the 4 percent level. Evidently, the company was able to maximize its total assets to generate the net profits2. Further, the company’s return on investments ratio shows how the company’s investments generated the net profit. For 2010, the company’s return on investment ratio was 28 percent. The ratio favorably increased to 51 percent in 2010. However, the company’s 2011 performance declined to the lower 49 percent in 2012. Clearly, the company was able to favorably maximize its investments to generate profits3. The company’s return on equity ratio indicated a favorable image of the company. The company’s return on equity ratio for 2010 reached 3 percent. The same ratio doubled during 2011. However, the ratio was fixed at the 6 percent level during 2012. Evidently, the company positively maximized its stockholders’ equity to generate net profits4.

The company’s current ratio shows whether the company can use available current assets to pay maturing current obligations, liabilities. The company’s current ratio for 2010 was 251 percent. During 2011, the ratio unfavorably declined to only 246 percent. During 2012, the company’s current ratio further dropped to the unfavorable 200 percent. Surely, the company has enough current assets available for the payment of the company’s current liabilities. Further, the company’s debt to equity ratio shows the relationship between the company’s total debts and the company’s stockholders’ equity. The best ratio is a one to one ratio. This means that the company’s total liabilities should equal the stockholders’ equity figure. During 2010, the company’s debt to equity ratio was 4 percent. During 2011, the ratio increased to 5 percent. However, the company was able to bring up its debt to equity ratio to the favorable 55 percent level. Surely, the company’s debt to equity ratio shows the company should strive for best ratio, 100 percent.

Ethan Allen

Ethan Allen is another furniture competitor. The company’s strategically located headquarters is in Danbury, CT. The company’s major products include home furnishings and accessories. The company sells in both the retail market and the wholesale market. The company also sells products like chairs, recliners, sofas, sleepers, and loveseats. Additional related home furnishings include the beddings and bedspreads, rugs, and garden furnishings5.

Using Table 2, the company generated a favorable return on assets ratio. During 2011, the company’s prior year’s 5 percent return on assets ratio rose to the more favorable 8 percent. However, the company’s ratio unfavorable fell to only 5 percent during 2012. Evidently, the company was able to maximize its total assets to generate the net profits.

The company’s return on investments ratio was also favorable. During the year 2010, the company produced a 6,043 percent return on investment ratio. The ratio favorably climbed to the higher 10,246 percent during 2011. However, the company’s 2011 performance unfavorably dove to only 6,683 percent. Evidently, the company favorably maximized its investments to reach a very high net profit picture6.

Further, the company’s debt to equity ratio shows the relationship between the company’s total debts and the company’s stockholders’ equity. The best ratio is a one to one ratio. This means that the company’s total liabilities should equal the stockholders’ equity figure. During 2010, the company’s debt to equity ratio was 4 percent. During 2011, the ratio increased to 5 percent. However, the company was able to bring up its debt to equity ratio to the favorable 55 percent level. Surely, the company’s debt to equity ratio shows the company should strive for best ratio, 100 percent.

La Z Boy

La-Z-Boy is one of the competitors in the furniture industry. With headquarters in Michigan, U.S.A, the company’s major products are manufactured, imported and distributed to retail outsides. The target markets are the local United States as well as Canadian prospects. The products include sofas, chairs, tables and recliners. Specifically, the company sells goods within the upholstery and retail environments. Ethan Allen is another furniture competitor. The company’s strategically located headquarters is in Danbury, CT. The company’s major products include home furnishings and accessories. The company sells in both the retail market and the wholesale market. The company also sells products like chairs, recliners, sofas, sleepers, and loveseats. Additional related home furnishings include the beddings and bedspreads, rugs, and garden furnishings.

Using Table 3, the company produced a positive return on assets ratio. During 2011, the company increased its prior year’s 4 percent ratio to 13 percent. However, 2012 showed the company’s ratio had dropped to the lower 6 percent level. Surely, the company maximized its total assets achieve the desired net profits7. The company’s return on investments ratio was also favorable. During the year 2010, the company generated a 46 ratio. The ratio favorably climbed to the bigger 168 percent ratio during 2011. However, the company’s 2011 ratio dropped to only 89 percent during 2012. Vividly, the company favorably maximized its scarce investments to produce profits.

The company’s return on investments ratio was also favorable. During the year 2010, the company generated a 46 ratio. The ratio favorably climbed to the bigger 168 percent ratio during 2011. However, the company’s 2011 ratio dropped to only 89 percent during 2012. Vividly, the company favorably maximized its scarce investments to produce profits.

Moreover, the company’s return on equity ratio indicated an unfavorable 2012 picture. During 2010, the company’s ratio started at 7 percent. During 2011, the ratio ballooned to 20 percent. However, the ratio fell to the lower 10 percent level. Clearly the company’s debt to equity ratio shows a favorable picture of the company. There are other important factors pointing to La Z Boy as a good investment preference8. Table 3a shows La Z boy’s financial position in relation to the Furniture Industry Leaders. In terms of the price earnings ratio, the industry leader with the stock market symbol AGA.L generated a 1,553.67 ratio. On the other hand, La Z Boy produced a 22.53 price earnings ratio. In terms of rank, La Z Boy ranks 19th out of 101 Industry players. In terms of Earnings per Share growth, the industry leader having the stock market symbol AMWD generated a 1004.9 percent rate. On the other hand, La Z Boy produced a lower 125 percent growth rate. In terms of rank, La Z Boy ranked 8th out of 101 industry competitors.

In terms of Dividend Yield, the industry competitor with the symbol LEG generated a 4.10 Percent rate. On the other hand, La Z Boy produced a lower 0.70 percent rate. La Z Boy ranked 7th out of 101 players. In terms of market capitalization, the industry leader, Carpetright, invested 429.8 million. On the other hand, La Z Boy invested 1.12 billion in the furniture business. La Z Boy ranked 33th out of 101 competitors. Evidently, La Z Boy furniture high industry ranking in several aspects persuades everyone that La Z Boy furniture is a profitable investment venture9.

Furniture Industry (Competitors)

Table 4 shows a comparative discussion of the tree competitors. In terms of Return of assets ratio, La Z Boy generated the highest ratio, 6 percent. In terms of the return on investment ratio, Ethan Allen produced the best ratio, 668 percent. Focusing on the return on equity ratio, Both La Z Boy and Ethan Allen produced equally higher ratios. Scrutinizing the current ratio, La Z Boy generated the highest ratio, 10 percent. Focusing on the current ratio, La Z Boy reached the highest ratio, 334 percent. Discussing the debt to equity ratio, Ethan Allen produced the highest ratio, 85 percent10.

Comparison with Furniture Industry

Based on Table 5, the study of the furniture industry indicates which company is the best investment prerogative11. In terms of earnings per share ratio, Ethan Allen generated the highest at $ 1.11 per share. Haverty’s Furniture got the lowest ratio, 2 percent. On the other hand, La Z Boy produced $ 0.95 per share. On the other hand, the Furniture industry’s Earnings per share ratio is $ 0.04 per share.

In terms of revenue, La Z Boy furniture produced the highest revenue, $ 1.35 Billion. Ethan Allen follows far behind at $ 729 million. The same table indicates Haverty’s Furniture produced only 670 million revenues. The table clearly shows that La Z Boy is the best investment alternative12.

Research on the United States Furniture Industry

The United States Furniture Industry is not exempted from global economic pressures. Demand for furniture influences the furniture company’s sales outputs. Placing lots of Furniture stocks in a display store does not automatically translate to higher revenues. To increase furniture revenues, the company must meet the prospective customers’ every discriminating demand. Demands include the type of furniture wood material, paint choices, design, and size of the furniture. The most important characteristics of the popular furniture offers high quality workmanship. Consequently, reasonably priced furniture product will increase customer demands13. As proof, a research was conducted in the United States14. The research indicated that the global furniture industry is on the road towards rapid global standards. The changes include reducing the costs and expenses. With the removal of certain import barriers, furniture manufacturers from different countries are flooding their high quality products into the saturated United States furniture market. Since the production costs of Chinese and other countries’ furniture manufacturing facilities are cheaper than the costs and expenses of the local United States furniture manufacturing companies, the imported furniture products are sold at lower store prices. China delivers 50 percent of the total United States imported furniture. Consequently, the unemployment rate of the local United States production facilities decreased.

Recommendation

The analysis of the three competitors shows that La Z Boy is the best investment alternative. The company generated the highest revenue, $ 1.35 billion. With higher revenues, the corresponding net profit also increase. Likewise, the investors’ dividend per share amount is bigger. With smaller revenues, the net profit figure is smaller. Consequently, the investor will receive lower dividends. Since all the companies generate favorable ratios, decision making focuses on which company generated the better financial statement ratios. Consequently, La Z Boy Furniture should be the best investment choice.

Conclusion

Based on the above discussion, investing in the furniture industry should be based on research. The research ratios the three companies generate favorable financial ratios. The ratios include the current ratio, debt to equity ratio, and return on assets ratio. The report includes the three financially feasible investment alternatives. Overwhelmingly, the ratios prove that investing in La Z Boy furniture is a very profitable stock market decision.

References

“Allen, Ethan”, 2013. Web.

Bhimani, Al. Management Accounting. New York: Elsevier, 2009.

Drayse, Mark. “Globalization and Regional Change in the U.S. Furniture Industry,” Growth and Change, 39 no. 4 (2008): 252 -282.

Epstein, Marc. Advances in Management Accounting. New York: Emerald, 2012.

“FBNIQ”, 2013. Web.

“Furniture Stores.” 2013. Web.

“Haverty’s Furniture,” 2013. Web.

“Haverty’s Furniture,” 2013. Web.

“Industry Ratio.” 2013. Web.

“La Z Boy Furniture.” 2013. Web.

“La Z Boy Furniture.” 2013. Web.

Wahlen, James. Financial Reporting, (New York: Cengage Learning, 2011).

Warren, Carl. Managerial Accounting. New York: Cengage Learning, 2011.

Wickramasinghe, Danture. Management Accounting (New York: Routledge, 2012).

Appendix

Table 1: Haverty’s Furniture

Ratio 2012 2011 2010
Return on Assets 4 percent 4 percent 2 percent
Return on Investments 49 percent 51 percent 28 percent
Return on Equity 6 percent 6 percent 3 percent
Current Ratio 200 percent 246 percent 251 percent
Quick Ratio 70 percent 84 percent 102 percent
Debt to Equity Ratio 55 percent 5 percent 4 percent

Table 2: Ethan Allen Furniture

Ratio 2012 2011 2010
Return on Assets 5 percent 8 percent 5 percent
Return on Investments 6683 percent 10246
Percent
6043 percent
Return on Equity 10 percent 15 percent 10 percent
Current Ratio 196 percent 187 percent 174 percent
Quick Ratio 76 percent 69 percent 69 percent
Debt to Equity Ratio 85 percent 100 percent 123 percent

Table 3: La Z Boy Furniture

Ratio 2012 2011 2010
Return on Assets 6 percent 13 percent 4 percent
Return on Investments 89 percent 168 percent 46 percent
Return on Equity 10 percent 20 percent 7 percent
Current Ratio 334 percent 334 percent 327 percent
Quick Ratio 216 percent 228 percent 209 percent
Debt to Equity Ratio 55 percent 5 percent 4 percent

Table 3a

Ratio Industry Leader La Z Boy La Z Boy Rank/ Industry
Price Earnings Ratio AGA.L (1,553.67) 22.53 19/101
EPS Growth AMWD (1004.9 %) 125% 8/101
Dividend Yield LEG (4.10 %) 0.70% 7/101
Market Capitalization Carpetright (429.8 M) 1.12 Billion 33/101

Table 4

Ratio La Z Boy Ethan Allen Haverty’s
Return on Assets 6 percent 5 percent 4 percent
Return on Investments 89 percent 668 percent 49 percent
Return on Equity 10 percent 10 percent 6 percent
Current Ratio 334 percent 196 percent 200 percent
Debt to Equity ratio 49 percent 85 percent 55 percent

Table 5: Furniture Industry

Ratio Lazy Boy Ethan Allen Haverty’s Furniture Industry
Earnings Per share 0.95 1.11 0.02 0.04
Revenue 1.35 Billion 729 Million 670 Million 458 Million

Footnotes

  1. “Haverty’s Furniture,” Web.
  2. James Wahlen, Financial Reporting, Financial Statement Analysis (New York: Cengage Learning, 2011), 283.
  3. “Haverty’s Furniture.” Web.
  4. Marc Esptein, Advances in Management Accounting (New York: Emerald, 2012), 29.
  5. “Ethan Allen,” 2013. Web.
  6. Carl Warren, Managerial Accounting (New York: Cengage Learning, 2011), 89.
  7. “La Z Boy Furniture.” 2013. Web.
  8. “La Z Boy.”2013. Web.
  9. Danture Wickramasinghe, Management Accounting (New York: Routledge, 2012) 72.
  10. “Industry Ratio.” 2013. Web.
  11. “Furniture Stores.” 2013. Web.
  12. “FBNIQ”. Web.
  13. Al Bhimani, 2009. Management Accounting (New York: Elsevier, 2009), 48.
  14. Mark Drayse. 2008. “Globalization and Regional Change in the U.S. Furniture Industry,” Growth and Change, 39 no. 2 (2008): 252.

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