Ashley Furniture

Ashley Furniture

Executive Summary

Ashley Furniture is one of the leading manufacturers of fine home furnishings which distribute their products directly to department stores, independent home furnishing retailers, along with a few regional furniture chains. The company specializes in a broad range of furnishing needs to include bedroom, dining room and living room. The firm has a total of three plants in North Carolina with two plants in Virginia with its home office being based out of High Point, North Carolina. The firm has recently invested $10 million in an effort to develop new and exciting product lines, modernize production facilities, and expand the firm’s distribution capabilities.

There now is concern amongst leading financial analysts from various financial institutions concerning Ashley’s current growth rate in earnings per share. This is made evident when you compare the growth rates of the firm from the previous two years. From 2006 to 2007 earnings per share grew by a respectable 21%, in 2008 the earnings per share increased to 29%. However, in 2009 the earnings per share decreased to only 4% with 2010’s growth rate being less than 1%. As can be expected, the dramatic drop off has caused a level of anxiety with the firm’s stockholders and security analysts because they consider earning performance to be an important factor to the success of the firm. Mr. Thompson wants to put the firm in position where stockholder wealth and the wealth of the firm are being maximized; this sharp decline in earnings per share is contradictory to the success of the firm.

Analysis

When looking at Ashley Furniture’s projected earnings for 2010 we see cost per shares increasing from $1.56 per year for 2009 to $1.63 for 2010. The increases in cost per shares are due to a couple of factors. First, we have to take into account the increase in sales for 2010 which equated to an additional $500,000. We also saw an increase in the variable...