Leon’s furniture is ranked number two hundred and ten on the globe and mail’s report on business top 1000, earning a profit of $56,666. The focus of this report will be on the financial position of Leon’s furniture. For any business, the financial position of the company will be viewed by both internal and external users and stakeholders because it shows how well the business is doing financially. The net income of the company will affect the financial position of the business because based on the profit or loss incurred, it will define if the business is successful or not. Moreover, shareholders will be interested in the financial statements since it determines the earnings per share. The first article is “Leon’s EPS falls 18.8% in Q2” which reports about the financial situation of Leon’s and briefly explained the causes of the fall. Judging from the title of the article, it is obvious that it will impact Leon’s furniture in a negative fashion.
Sales are decreased from $11.2 million to $9 million between 2011 and 2012 (Knell). This suggests that net income and earnings per share has dropped significantly. It is reported that the decrease in sales is due to the continuation of waning customer confidence, decrease in housing starts, and continued high customer debt (Knell). Customer confidence plays a great part when customers are debating on whether they should purchase the furniture or not. Since the world is still recovering from the economic crisis years ago, the higher unemployment rates and lower GDPs will create less customer confidence when a decision needs to be made. Hence, they are less likely to purchase the products. The start of a decrease in housing means that less houses are being built compared to before.
Moreover, less new home owners will shop at furniture stores like Leon’s furniture. In addition, high consumer debt nowadays is another reason why there’s a reduction in customer spending. “Also, affecting probability in the second quarter were marketing expenses.” (Knell) Since Leon’s have been opening new stores, the occupancy costs are increased by $1.2 million. These increases and decreases in numbers will ultimately reduce the sales volume and result in a decrease in net income. “Leon’s earning decline 15% in third quarter” is another article that reports a negative impact relating to their financial position. Similar to the earnings declined in the second quarter, the third quarter of the year is still a tough period for Leon’s. They claim that this is due to the increase in operating costs in a time of flat sales growth (Knell). The newly renovated stores in Sault. Ste. Marie and Sudbury, Ontario are opened in the third quarter of 2012 and will further increase the operating cost.
Financially, this means that Leon’s is continuing to expand and opening new store and increasing its operating expenses, but the market is only providing them will a flat growth rate of sales. If the sales volume remains unchanged and operating costs continues to grow, the amount of the money earned will logically start to decrease. “The company said its growth margin fell 1.5 points to 40.9% mainly because a weakening Canadian dollar hiked the cost of imported product” (Knell). This means that more Canadian dollars are needed to buy the foreign products that used less Canadian dollars to buy years ago. This effects the financial position because more assets are used to import foreign products. Lastly, the third article is called “Leon’s to acquire The Brick”. As the title suggests Leon’s will buyout The Brick and will merge the two companies in one. This can have both positive and negative impacts for Leon’s financially.
“The transaction, valued at about C$700 million, is expected to close in the first quarter.” (Knell) This can be considered a negative impact for the company financially since an enormous amount of money is needed for the buyout. Using large amount of money to buy out The Brick can affect several things. The asset will decrease (if they borough money from banks, it will increase their liabilities and they must pay for the interest) and also effect the asset-liability ratio, making the company owe more than they own. In addition, the executive chairman of The Brick is anticipated to join Leon’s board of directors (Knell). Like any other new coworkers that come to the company, they might encounter arguments or disagreements. However, if both companies work together in a positive manner, they may earn more net income combined.
Hence, this will turn the negative into a positive impact for both companies. “Leon’s corporate and franchise stores had combined sales of C$879.6 million and The Brick had corporate and franchise sales of C1.54 billion” (Knell). This shows that the sales volume of The Brick is actually greater than its new owner, Leon’s. This can impact Leon’s in a positive way because the revenue from The Brick will be added onto their own revenue since they are now a combined company.
The most important thing to take into consideration is that buying out The Brick, Leon’s will have one less competitor in the furniture industry. All of the above will lead to increase in total revenue and net income for Leon’s furniture. Since I am currently studying Accounting and Finance at Seneca College, I believe that my future profession in accounting can help Leon’s keep track of their transactions and create accurate and reliable financial statements. These statements will show all the inflow and outflow of capitals going in and out of the company. By looking at the financial statements, I can then analyze on how to make the company more profitable using the accounting skills that I am learning at school.
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