The furniture industry has been pessimistically affected financially by fewer individuals purchasing homes, individuals having less income to be thrown away on wants and desires of home furnishings and in regards to competition, there has been a greater amount of competitors enter the marketplace within the furniture industry. Even so, the industry is predicted to make a comeback within the present year and through the year 2016. This is because it is predicted that more individuals will consider the purchase of homes and the demand for furniture products to decorate these homes will rise. However, even with the expected demand for furniture products to rise, Superior Living will continue to experience growing competition from retail stores, such as Wal-Mart and Target, which will counteract the financial outlook for the company’s manufacturing of furniture products (IBISWorld, 2011). Now let’s take a look at the primary financial statements that the company should reflect on to determine our economic status among the industry.
Primary Financial Statements
Financial statements are communication mediums that provide valuable information in relation to the company’s economic history. With that being said, financial statements should be utilized as a tool to establish the financial performance of the company both presently and in the future so that proper business decisions can be made. The four primary financial statements that must be utilized by the company are the balance sheet which will report the possessions the company has, the liabilities the company has, and the stockholders’ equity the company has presently, the income statement which will present the profits and operating cost of the company for a given time period, the statement of cash flow will summarize the inflows and outflows of money for the company for a given time period, and the statement of shareholders’ equity which will show any changes in the retained earnings over time as it relates to the investors of the company. In order for the company to be financially successful it must be thoroughly understood how data is developed to form these primary financial statements (U.S. Securities and Exchange Commission, 2007).
Measurement and Development of Financial Statements
The balance sheet will be used to measure what the company actually owns and owes to creditors and will be developed by determining what the company owns in assets, such as equipment, inventory, etc., and the amount of liabilities, such as borrowed money, payroll, etc., the company owes, and the shareholders equity will be calculated in this statement so that it can be determined what the net worth of the company would be if all assets were sold and all liabilities were paid off. The income statement will be used to measure the failure of success of the company’s operations and will be developed by calculating the company’s revenue and expenses related to earning that revenue in order to show the net earnings or losses for a given time period. The statement of cash flow will be used to measure how effective the company is in operating the activities of the business and will be developed by determining the inflows of cash the company has retained and the outflows of cash the company has paid out. This statement will use information from the company’s balance sheet and income statements. And finally, the statement of shareholders’ equity will measure the retained earnings of the company and will be developed by calculating the company’s net income and dividends so that investors will know changes in interest over time (U.S. Securities and Exchange Commission, 2007).
Linkages among Financial Statements
The linkages among the financial statements are that they are all developed from the process of bookkeeping within the company. As the financial deals of the operational aspects of the business are recorded the economic performance of the company will appear, and sound business decisions can be made in regards to these figures. With that being said, each of the financial statements discussed will come together to form an equation so that the company will recognize if they are economically stable or economically unstable in regards to their financial transactions within the furniture industry. Also, the company will record the financial transactions regarding the operations of the business by keeping a financial journal and general ledger so that all financially viable aspects of the organization can be thoroughly documented (Peavler, n.d.).
There are numerous competitors that Superior Living will be battling with in regards to the furniture industry economic environment. For instance, Ethan Allen is a manufacturer and retailer of home furnishings and accessories. This company’s products are sold by means of a network of around 281 retail design centers, and the company manufactures about 70% of their products in six national manufacturing facilities. This company, as of the end of March 2011, recorded over $5 million in revenue from their independent retailer within China who holds sold merchandise for this company (Yahoo Finance, 2011). Another furniture industry competitor for the company will be IKEA which is one of the world’s top furniture retailers. This company reported over $3 million in revenue at the end of August in the fiscal year 2009 (Yahoo Finance, 2009). With that being said, Superior Living will be up against some competitors who have already made a name for themselves among consumers, as can be shown by their profits.
Conclusion
The four main financial statements that are vital for the success of the company include the balance sheet, the income statement, the cash flow statement, and the statement of shareholders’ equity. With that being said, not one financial statement will tell the complete financial story of the company, but when they are combined the company will be permitted to make sound financial decisions regarding the operations of the business. In addition, the financial statements mentioned here can be a powerful tool for investors when it comes to making wise investment decisions regarding the company (U.S. Securities and Exchange Commission, 2007).
IBISWorld. (2011). Furniture stores in the U.S. U.S. Industry Report. Retrieved from http://www.ibisworld.com/industry/default.aspx?indid=1016
Peavler, R. (n.d.). The relationship between the financial statements. Retrieved from http://bizfinance.about.com/od/yourfinancialposition/qt/Relation_FinSt.htm
U.S. Securities and Exchange Commission. (2007). Beginners guide to financial statements. Retrieved from http://www.sec.gov/investor/pubs/begfinstmtguide.htm
Yahoo Finance. (2009). Industry center: Home furnishing stores. InterIKEA systems B.V. company profile. Retrieved from http://biz.yahoo.com/ic/42/42925.html
Yahoo Finance. (2011). Form 10-K for Ethan Allen Interiors Inc. Retrieved from http://biz.yahoo.com/e/110818/eth10-k.html
