Marketing analysis: Located in downtown Cologne Haefren Baum is a high end retailer, which recently expanded its operations by opening three retail outlet stores in nearby Rhineland suburban areas. The company carries Wiegandt’s high-end furniture whose furniture is heavily advertised and carries a much recognized name. Due to the economic conditions and new competitors entering the market Haefren Baum had to decrease its prices in order to maintain sales volume. The new competition and economic conditions caused sales to decline by -19% and -5% between 1993 and 1995 which portrays cyclical demand, rather than seasonal since different seasons have insignificant sales on furniture sales. The German recession has recently been
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If the company continues to with its poor performance its ability to take more loans for cash to continue operations may not be possible. The company’s ability to service its debt as the times interest earned continues to decrease from 2.5 to 1.5. As previously mentioned the two of the four shareholders were bought out using the company’s equity. The problem with this transaction is the lack of control for the loan terms, in other words, the money may never be paid back yet it still affects the financial statements the company provides. The company has taken measures decreasing cash outflow such as suspending dividend payment, however with such poor economic conditions the company currently faces it may be necessary for the company to sell a part of these shares that were bought back.
As Wiegandt keeps close tabs on its customers in order to oversee Haefren Baum’s ability to pay its debt, the line of credit and its terms should be reevaluated by Wiegandt due to Haefren Baum’s extremely poor and continuously deteriorating economic condition. Wiegandt may have to take a hit by providing tighter and stricter credit terms even if it results in lower sales. As of now Wiegandt has relaxed its credit terms to maintain its own sales volume but this could eventually mean disaster for Wiegandt if Haefren Baum’s condition doesn’t improve and the company fails. Regardless of its critical condition it is also important to acknowledge Haefren Baum’s long