DARLARNA FURNITURE LTD regarding analysis

Presentation

1. DARLARNA FURNITURE LTD.

2. BY;

3. Founded in 2005 by Fredrik Blix, Darlarna Furniture Ltd. specializes in high-end Swedish-style furniture. Initially funded through the Crocus Fund and private investments, the company aimed to penetrate the Canadian market with innovative designs. Led by Blix's vision and experience from Arlanda, Darlarna rapidly expanded, facing challenges such as production scalability and market entry into the U.S. Despite initial success, economic pressures and strategic decisions pose significant challenges to its growth trajectory.

4. Return on Equity (ROE) Analysis Analysis: Trend: ROE has declined significantly from 2006 to 2008. Factors: Decreasing profitability and increasing equity base contributed to the decline. Implications: Lower ROE indicates reduced profitability relative to shareholders' equity, reflecting challenges in generating returns on investment. Darlarna Furniture Ltd.'s ROE: 2006: $107,574 / $232,787 = 46.2% 2007: $101,654 / $239,614 = 42.4% 2008: $7,487 / $188,972 = 4.0%

5. Return on Capital Employed (ROCE) Analysis Darlarna Furniture Ltd.'s ROCE: 2006: $200,905 / ($1,045,074 - $272,500) = 24.7% 2007: $204,325 / ($1,267,689 - $360,460) = 19.0% 2008: $80,850 / ($1,564,287 - $569,072) = 6.8% Analysis : Trend: ROCE has declined significantly from 2006 to 2008. Factors: Decreasing profitability and increasing capital employed contributed to the decline. Implications: Lower ROCE indicates reduced efficiency in generating profits from invested capital, reflecting challenges in profitability and capital management.

6. Operating Profit Margin Analysis 2006: ($200,905 / $1,304,000) * 100 = 15.4% 2007: ($204,325 / $1,507,000) * 100 = 13.6% 2008: ($80,850 / $1,791,000) * 100 = 4.5% Analysis: Trend: Operating Profit Margin has declined consistently from 2006 to 2008. Factors: Rising costs of goods sold and operational expenses impacted profitability. Implications: Decreasing margin indicates challenges in maintaining operational efficiency and controlling costs amidst economic pressures.

7. Gross Profit Margin Analysis 2006: ($523,000 / $1,304,000) * 100 = 40.1% 2007: ($555,000 / $1,507,000) * 100 = 36.8% 2008: ($581,000 / $1,791,000) * 100 = 32.4% Analysis: Trend: Gross Profit Margin has declined steadily from 2006 to 2008. Factors: Increasing costs of goods sold and competitive pressures affected profitability. Implications: Decreasing margin indicates challenges in maintaining profitability from sales revenue.

8. Average Inventory Turnover Period Analysis Darlarna Furniture Ltd.'s Average Inventory Turnover Period: 2006: 365 days / 2.42 = 151 days 2007: 365 days / 2.19 = 167 days 2008: 365 days / 2.22 = 164 days Analysis: Trend: Average Inventory Turnover Period has remained relatively stable around 151 to 167 days. Factors: Efficient management of inventory despite increasing production and market challenges. Implications: Stable turnover period suggests effective inventory management practices

9. Average Collection Period for Receivables Analysis Darlarna Furniture Ltd.'s Average Collection Period: 2006: 365 days / 5.95 = 61.3 days 2007: 365 days / 4.83 = 75.6 days 2008: 365 days / 4.75 = 76.8 days Analysis: Trend: Average Collection Period has increased slightly from 61.3 days in 2006 to 76.8 days in 2008. Factors: Slower collection of receivables may indicate changing customer payment behavior or credit policies. Implications: Longer collection period impacts cash flow and liquidity management.

10. Average Payment Period for Payables Analysis 2006: 365Days / (781,000 / ((127,500 + 196,500) / 2)) = 47. 2007 Darlarna Furniture Ltd.'s Average Payment Period:

11. Sales Revenue to Capital Employed Analysis Darlarna Furniture Ltd.'s Sales Revenue to Capital Employed Ratio: 2006: $1,304,000 / ($1,045,074 - $272,500) = 1.38 2007: $1,507,000 / ($1,267,689 - $360,460) = 1.40 2008: $1,791,000 / ($1,564,287 - $569,072) = 1.52 Analysis: Trend: Sales Revenue to Capital Employed ratio has shown a slight increase from 2006 to 2008. Factors: Improved sales performance relative to invested capital despite economic challenges. Implications: Higher ratio indicates efficient utilization of capital in generating sales revenue.

12. Sales Revenue per Employee Analysis Darlarna Furniture Ltd.'s Sales Revenue per Employee: 2006: $1,304,000 / 20 = $65,200 per employee 2007: $1,507,000 / 25 = $60,280 per employee 2008: $1,791,000 / 30 = $59,700 per employee Analysis Trend: Sales Revenue per Employee has fluctuated slightly over the years. Factors: Changes in workforce size and productivity affected sales revenue per employee. Implications: Variations highlight efficiency in workforce utilization and productivity.

13. Current Ratio Analysis Darlarna Furniture Ltd.'s Current Ratio: 2006: $688,124 / $272,500 = 2.52 2007: $769,639 / $360,460 = 2.13 2008: $960,837 / $569,072 = 1.69 Analysis Trend: Current Ratio has decreased from 2.52 in 2006 to 1.69 in 2008. Factors: Increasing current liabilities compared to current assets impacted the ratio. Implications: Declining ratio indicates potential liquidity challenges and reduced ability to cover short-term obligations.

14. Acid Test (Quick) Ratio Analysis Darlarna Furniture Ltd.'s Acid Test (Quick) Ratio: 2006: ($55,000 + $220,000) / $272,500 = 1.37 2007: ($43,500 + $261,000) / $360,460 = 1.01 2008: ($11,000 + $376,337) / $569,072 = 0.68 Analysis: Trend: Acid Test (Quick) Ratio has decreased significantly from 1.37 in 2006 to 0.68 in 2008. Factors: Decline in cash reserves and slower collection of accounts receivable impacted liquidity. Implications: Decreasing ratio indicates potential challenges in meeting short-term obligations with liquid assets.

15. Leverage Ratio Analysis Darlarna Furniture Ltd.'s Leverage Ratio: 2006: $357,500 / $1,045,074 = 34.2% 2007: $499,800 / $1,267,689 = 39.4% 2008: $636,350 / $1,564,287 = 40.7% Analysis Trend: Leverage Ratio has increased gradually from 34.2% in 2006 to 40.7% in 2008. Factors: Growth in total debt outpaced growth in total assets, indicating increased reliance on debt financing. Implications: Higher leverage ratio suggests higher financial risk and potential vulnerability to economic downturns or interest rate changes.

16. Times Interest Earned (TIE) Ratio Analysis Darlarna Furniture Ltd.'s TIE Ratio: 2006: $200,905 / $45,000 = 4.46 2007: $204,325 / $57,000 = 3.58 2008: $80,850 / $70,000 = 1.16 Analysis: Trend: TIE Ratio has decreased significantly from 4.46 in 2006 to 1.16 in 2008. Factors: Declining EBIT relative to interest expense indicates reduced ability to cover interest payments. Implications: Lower TIE Ratio suggests increased financial risk and potential challenges in meeting debt obligations.

17. SWOT Analysis Strengths: Established brand known for high-end Swedish-style furniture. Innovative product designs and strong reputation in the local market. Successful entry into the Canadian market and initial steps towards U.S. market expansion. Opportunities: Growing demand for high-quality, unique furniture products. Expansion opportunities in the U.S. market despite economic uncertainties. Potential for strategic partnerships with retailers or suppliers. Weaknesses: Dependency on external financing and high leverage ratio. Declining profitability and operational margins. Limited production capacity and challenges in scaling operations. Threats: Economic downturns impacting consumer spending on luxury items. Intense competition from larger furniture manufacturers and retailers. Fluctuating raw material prices and currency exchange rates.