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Financial Health Of The American Furniture Industry
October 28, 2002
New AKTRIN Report on:
THE FINANCIAL HEALTH OF THE AMERICAN FURNITURE INDUSTRY
A new report by the AKTRIN Furniture Information Center on "The Financial Heath of the American Furniture Industry" has been released recently. The report first looks at the industry's revenue and cost structure, followed by an analysis of critical balance sheet ratios, both in regards long-term capital and short-term capital employment. A final chapter is dedicated to various sources of finance available to furniture companies.
Stefan Wille - president of the AKTRIN Furniture Information Center and author of the report - concludes that the American furniture industry is still on sound financial footing, even though profits have declined dramatically during the past few years.
Corporate profitability can be measured in different ways. Three widely used gauges are:
Profits before tax expressed as a rate of return on sales. This measure is insufficient as it does not take into account the size of the investment required to generate that level of return.
Profits before tax expressed as a rate of return on shareholders' equity. This measure is also lacking as it includes the equity, but not the debt portion of the investment producing that rate of return.
Profits plus interest payments on debt expressed as a rate of return on assets. In our view this is the most reliable measure. This rate is computed as follows:
ROI = ((Net Profit Before Tax + Interest Expenses) / Assets) X 100
This measure gauges an industry's capacity to generate both profit and interest payments on borrowed funds. As such, it is not influenced by the method of capital finance chosen by the industry (e.g., equity or debt capital).
Using any of these three ratios, the furniture industry compares favorably to the overall manufacturing industry.
As of 2001, on the basis of profits as a percent of sales, the furniture industry achieved at a rate of 5.6% versus 4.3% for manufacturing overall. When profits are expressed as a return on shareholder's equity, furniture achieved a rate of 17.6% compared to 10.0% for manufacturing overall. Finally, the ROI for furniture stood at 8.8% in 2001 compared to 3.9% for manufacturing as a whole.
BEFORE TAX PROFIT AS A PERCENTAGE OF SHAREHOLDERS' EQUITY FOR THE overall MANUFACTURING SECTOR AND THE FURNITURE INDUSTRY,
1992 TO 2001.
The rate of return for total manufacturing and for furniture producers - measured as profit before taxes as a percent of shareholders' equity - has been rising until 1998 but dropped steeply in the years thereafter. In 2001, before tax profits as a return on shareholder's equity for furniture producers stood at 17.6%, down from 31.9% in 1999. The rate for overall manufacturing fell from 32.0% to 10.0% between 1998 and 2001. During the recent economic downturn, the rate of return for furniture has been above the one for manufacturing overall.
The rates of return prevailing in furniture and throughout the manufacturing sector as a whole also compare favorably with the rates of return prevailing on typical financial instruments (90-days commercial papers, long-term government bonds) over this period. This is a sign that furniture manufacturing, and manufacturing in general, are both on a sound economic footing in the U.S.A.
It is interesting to note that the rate of return in the furniture industry was higher for small furniture companies (less than $ 25 million in assets) than for large companies (over $ 25 million in assets) in 2001. The rate generated by small firms averaged 27.1% compared to 14.4% among larger firms. However, on a long-term historic perspective, there is no significant difference in the degree of profitability by size of company.
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The AKTRIN Furniture Information Center is a report writing and international consulting firm fully dedicated to the furniture industry. The company has been in existence since 1985 and maintains offices in the United States and Canada. Representatives and affiliates are located throughout the world.
For more information click http://furniture-info.com/f_books.htm?121.htm
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AKTRIN Furniture Information Center
Tel.: (905) 845 3474
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