The Sunglass Hut

The Sunglass Hut (SH) “Looking Cool in the Hot Florida Sun”

You are 100% owner of The Sunglass Hut (SH), a retail sunglasses company located along the beach in Fort Lauderdale, FL. The Sunglass Hut sells nothing but high end sunglasses and related products (e.g., sunglass cases). Your accountant just number crunched a variety of information. Based on the review of the financials, your financial advisor has several questions to get you thinking about how you are running the business:

1. What is the average rate of sales growth and income (net income) from 2002- 2004? Assume inflation is 3%. Are you satisfied with this growth? 2. Are you happy with your markup (marketing terminology)? Why or Why not? 3. The Sunglass Hut has the opportunity to buy surf boards—wholesale cost $100, suggested retail price $300. If the Sunglass Hut starts to sell surf boards, what would happen to SH’s gross margin? 4. All employees are sales people. Are you happy with the sales staff? 5. Are you pleased with your rent expense? 6. Are you getting good short term results from your marketing expenditures? 7. Is there a possibility that the marketing expenditures in 2004 are well-spent funds? 8. Should you pay an advertising firm $5,000 to come up with a different slogan? 9. Did you change your policy regarding giving credit to your customers? Is your credit policy wise? 10. Are you ordering the right type of inventory/sunglasses? Are you pleased with the ordering and supply of sunglasses? 11. Your suppliers give you 30 day terms? Do you think your suppliers are getting concerned? If so, what might happen? What would be the consequences? 12. Are you concerned about the company’s cash position? The company is profitable but cash plummeted? Why? 13. If similar companies sell for 12 times earnings (that is, a P/E of 12), what would the price per share be for SH? What would the market capitalization be for SH? 14. How does the guesstimated market capitalization or market value compare with the book value? Does book value measure the true value of the company? 15. Do you think the company could have been sold for more in 2002 vs. 2004? 16. How liquid is SH? 17. If you worked 40 hours a week at SH but did not pay yourself a salary (you get the profits), are you happy with the results? 18. Would you be satisfied with the results if you did not spend any time working at SH, but rather “put up” the equity investor capital and let someone else manage the business? 19. Should you think about buying the building you currently lease? How would the financials change if you bought the building? 20. Should you expand to Daytona or some other location? How would the financials change if you expanded/opened a new store? 21. What does it imply that retained earnings is negative? 22. What are the limitations of financial statement analysis?