Question: BUILDING TEAM SKILLS
This has been a bad year for Miami-based Park Avenue Furniture. The firm increased sales revenues to $1,400,000, but total expenses ballooned to $1,750,000. Although management realized that some of the firm's expenses were out of control, including cost of goods sold ($700,000), salaries ($450,000), and advertising costs ($140,000), it could not contain expenses. As a result, the furniture retailer lost $350,000. To make matters worse, the retailer applied for a $350,000 loan at Fidelity National Bank and was turned down. The bank officer, Mike Nettles, said that the firm already had too much debt. At that time, liabilities totaled $420,000; owners' equity was $600,000.
Assignment: 1. In groups of three or four, analyze the financial condition of Park Avenue Furniture.
2. Discuss why you think the bank officer turned down Park Avenue's loan request.
3. Prepare a detailed plan of action to improve the financial health of Park Avenue Furniture over the next twelve months.