Melissa Hampton was reviewing the recent performance of the EASY Chair Company, a company with a reputation for producing high-quality home furniture.
Over the years, the name EASY had become synonymous with a kind of chair called a recliner. By 2000, the company was producing a variety of home furnishings, including reclining sofas, sleep sofas, living room cabinets, upholstered furniture, and solid-wood dining room furniture.
In the past decade, the company had also entered the office furniture business by producing office systems and patient seating for clinics and hospitals. To determine the impact that diversification and expansion had on EASY, Ms. Hampton collected the following data for the company:
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EASY CHAIR COMPANY FINANCIAL DATA(dollars in millions)
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2000
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1999
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1998
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1997
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1996
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Sales
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$592.3
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$553.2
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$486.8
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$420.0
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$341.7
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Net Income
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$28.3
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$27.5
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$26.5
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$24.7
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$23.0
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Dividends per share
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$0.5
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$0.5
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$0.4
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$0.4
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$0.4
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Number of shares
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17.9
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17.9
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18.3
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18.4
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18.3
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Total Assets
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$361.9
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$349.0
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$336.6
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$269.9
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$233.0
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Total equity
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$214.6
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&194.3
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$178.8
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$165.3
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$147.0
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a. How had EASY's sustainable growth rate changed over time? What caused any changes you found?
b. The home furniture industry had the following ratios over the same time. How did EASY compare with the industry?
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HOME FURNITURE INDUSTRY RATIOS
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2000
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1999
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1998
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1997
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Return on equity
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15.12%
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15.54%
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15.31%
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15.74%
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Retention rate
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71.00%
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71.00%
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71.00%
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72.00%
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Sustainable growth rate
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10.73%
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11.03%
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10.87%
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11.33%
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