5/5 - (3 votes)

Kaj Rasmussen founded Scandi Home Furnishings as a corporation during mid-2002.  Sales during the first full year (2003) of operation reached $1.3 million.  Sales increased by 15 percent in 2004 and another 20 percent in 2005.  However, profits after increasing in 2004 over 2003 fell sharply in 2005 causing Kaj to wonder what was happening to his “pride and joy” business venture.  After all, Kaj has continued to work as close as possible to a 24/7 pace beginning with the startup of Scandi and through the first three full years of operation.

            Scandi Home Furnishings, located in eastern North Carolina, designs, manufactures, and sells to home furnishings retailers Scandinavian-designed furniture and accessories.  The modern Scandinavian design has a streamlined and uncluttered look.  While this furniture style is primarily associated with Denmark, both Norway and Sweden 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, and the home furnishings produced by the other Scandinavian countries—Sweden, Norway, and Finland, are made using wood (primarily oak, maple, and ash), aluminum, steel, and high-grade plastics.

            Kaj grew up in Copenhagen, Denmark and received a college degree from a technical university in Sweden.  As is typically 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 do was to start and operate his own Scandinavian home furnishings business.  At the same time, after traveling throughout the world including the U.S., he was sure that he wanted to be an entrepreneur in the United States.  Thus, while it was hard to give up the Tivoli Gardens with its many entertainment and dining activities, as well as the other attractions in Copenhagen, Kaj moved to the U.S. in early 2002.  With $140,000 of his personal assets, and $210,000 from venture investors, he began operations in mid-2002.  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 the Scandi Home Furnishings Corporation.  Kaj has felt that in order to maintain a competitive advantage that he would need to continue to expand sales.  After first concentrating on selling Scandinavian home furnishings in the northeast in 2003 and 2004, he decided to enter the west coast market.  An increase in expenses associated with identifying, contacting, and selling to home furnishings retailers in California, Oregon, and Washington.  Kaj Rasmussen was hoping that you could help him better understand what has been happening to Scandi Home Furnishings both from operating and financial standpoints.









Income Statements

          2003                  2004                     2005


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 & 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

Net Income                                $93,000             $114,000                   $6,000




Balance Sheets

   2003                  2004                            2005


Cash                                        $50,000            $40,000                      $10,000

Accounts Receivables            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                      500,000

Total Assets                     $1,000,000       $1,200,000                $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 ($10 par)*     300,000            300,000                      300,000

Capital Surplus                          50,000              50,000                        50,000

Retained Earnings                     80,000            120,000                      126,000

Total Liab. & Equity        $1,000,000       $1,200,000                 $1,470,000


Note: 30,000 shares of common stock were issued to Kaj Rasmussen and the venture investors when Scandi Home Furnishings was incorporated in mid-2002.