Jones Electrical Distribution

Butler Lumber Company, a lumber retailer with a rapid growth rate, is faced with the problem of cash flow shortage. In order to support this profitable business, BLC needs a great amount of cash. The loan of $250,000 from Suburban National and a line of credit of up to $465,000 from Northrop National Bank are the two choices provided. After a brief review of the operation and financial conditions of BLC, we first make analysis of the credit level of BLC from the perspective of banker. Although the feedback from all the firms that had business dealings with Butler are quite positive , both solvency and liquidity condition and the mortgage indicates that it is not a wise

The company’s cash has been decreasing over the 2 years however its current and quick ratio has gone up, from 2.26 to 2.53 and 1.06 to 1.26 respectively, due to its increase in accounts receivable and inventory, the company may need to minimize amount of sales based on credit or require however down payment on its installment sales. Haefren must also be offering more lenient credit terms to its customers since its average collection period has also gone up significantly, this could be correlated to the lax credit terms Wiegandt currently offers Haefren. Haefren’s return on equity is also declining, using the DuPont method, as a result of our low net profit margin and our decreasing asset turnover (as a result of lower sales and higher assets). The company currently finances itself with bank loans which have decreased while cash is decreasing, the increase in debt may be growing to an unsustainable rate as our debt to equity ratio has almost doubled from 5.84 to 9.37 between 1993 and 1994. This poses a major a problem for the corporation as cash and sales are decreasing and loans are increasing, the company may need to liquidate the warehouses. The warehouses could be a major factor in another problem: low profitability. Low operating profit margins of 1.6% suggests high operating expenses. The company may need to cut operating expenses by reducing by

Increasing amount of borrowing despite of its consistent profitability came from following reasons. First is the firm’s financial position. As sales have increased by 60% from 1993-1995, the assets that support increase of sales increased by 78% (Exhibit 1 & 2). The increase amount of assets is over the amount of net income (addition to net worth). To meet financial needs, the company received short-term loans from bank, $60 in 1994 and $390 in 1995 (Exhibit 2). The gross profit

If sales did not increase as management predicts and only increases by 5% annually, TCI would still be fairly sound financially. This level of sales only slightly decreases Net Income over 1996 and 1997 from the managerial case and most ratios react the same as seen in the managerial case proformas.4 However, because sales does not grow as much and inventory does not need to be increased as much from 1996 to 1997, less external financing is needed to build the warehouse. A Bank Loan of $313,000 is required in 1996 and $483,000 in 1997.5 This amount of financing increases the Current and Quick Ratios as well as decreasing Total Liability to Total Assets and Total Liability to Equity from the managerial case because less financing is required.4 This decrease in sales growth prediction shows us the stability in TCI financials.

a. Current ratio is known as the company’s ability to pay back their debits and obligations. The current ratio of .98 which is under 1 means the company would not be able to pay of the obligations that it owes. This shows the company is not in good standing and will cause more risk, if invested into.

According to this case, Singh wants to preserve an investment-grade on Deluxe’s rating. On Exhibit 6 we were provided with financial ratios and their association with the different investment-grade rating categories. These financial ratios can be used to compare the company debt flexibility. In the case it is specified that the manager in Deluxe pays close attention to the earnings before interest and taxes (EBIT) ratio to interest expenses, which is considered the EBIT-coverage ratio. From exhibit 6, we obtain the EBIT-coverage ratio for each rating categories, EBIT divided by the rating ratios will give us the individual interest expenses. We are going to assume that our EBIT is $359.42 million dollars (average.) We were not provided with an EBIT for the 2001-year but we have the forecasted EBIT for the next five years.

In 1996, the company had secured a $100,000 revolving line of credit at the prime rate plus 1.5%, and a $390,000 five-year loan at a fixed rate of 9.25%. By the end of 1997, the loan outstanding balance was reduced to $315,000 and the monthly

Butler Lumber Company is a lumber distributor that sells plywood, moldings, and sash and door products. Butler Lumber has enjoyed rapid growth in recent years. Their growth has been built up largely on the basis of successful price competition, made possible by careful management on of operating expenses, and by purchasing materials at a substantial discount. Due to the rapid growth and a shortage of cash in 1990, the company has determined they need to raise additional funds and are looking to do this by increasing their bank borrowings. Butler Lumber’s current bank, Suburban National Bank, will not loan Butler more than $250,000, and so the company has had to rely on trade credit to stay under this limit. A larger bank, Northrop National Bank, is considering extending a loan of $465,000 to Butler Lumber. George Dodge, an officer at Northrop National Bank, must determine if the bank should improve the loan, and then work out the specific details of the loan. Mr. Dodge has a number of options; he can agree extend the loan with the standard conditions for a loan like this, he can agree to extend the loan but modify the conditions of the loan, or he can choose to refuse the loan.

Part I deals with assessing the financial performance of the firm. For this section you need to able to understand why Clarkson Company is so short of funds despite its record of profitable operations and, in this connection, develop the distinction between profits and cash requirements. An important contribution in this part is to emphasize the dichotomy between accounting income and cash requirements.

Having seen great success with acquisition in the past, Stone Container Corporation hasn 't seen the results it would have hoped for recently. Stone disregarded its policy to only buy when it could pay in cash or pay their debts back quickly. This in turn left them with the uncertainty on how to pay back the large amounts of debt that were taken on. Because the company 's original plan to refinance their loans with high-yielding bonds went south; they now face the problem of which of the five alternatives available to them is the best plan of action to take to arrive at a sound financial plan. This plan will need to relieve the immense debt that is plaguing them, help it get through the paper pricing trough, and also restore the company to its former glory of financial stability.

Based on the details in the case, the bank has asked Pacific Grove to provide an action plan by June 30th. The action plan should provide details on how they will reduce interest-bearing debt to less than 55%, which is currently at 62%. The bank would also like for Pacific to reduce its equity multiplier from 3.47 to 2.7. The case presents that their expected future growth plan is 15%, 13%, 11% and 9% for year 2012, 2013, 2014 and 2015 respectively. Based on the projected income statement and balance sheet provided in the case, displays that Pacific Grove will get closer to meeting bank’s requirements by end of 2015. This information can be seen in Exhibit 1, which shows that Pacific Grove’s interest bearing debt by 2015 will be 55% and equity multiplier will be 2.77.

The retailer Mr Price has at its core a clothing division and which has since diversified into other divisions namely Mr Price Sport, Miladys, Mr Price Home and Sheet Street. The company is currently trading in turbulent economic times which presents a challenge to maintain growth. The report will endeavour to identify these challenges facing Mr Price and propose strategies to promote growth. The report will be focussing on Mr Price clothing which forms 59 percent of the company’s turnover and various methods will be applied namely, SWOT ananlysis, Porters 5 Forces and PESTLE to achieve this.

is a company owned by Harry, who is an entrepreneurial contractor. The company has enjoyed much success in the past, mainly due to Harry’s personal efforts and spirit. However, the company’s profits have declined in the recent year. While the company’s owner is in denial of a crisis, a close examination of the income statement reveals that the company is currently facing a financial crisis. The company is having difficulties with the cash-flow and is finding it hard to pay the subcontractors. There are multiple reasons for this cash flow problem. The cost of subcontracts has increased by thirty percent and “other overhead expenses” have increased by forty percent from the year 4 to the year 5 resulting in a net operating loss of $290,306. Considering the steep increase in operating costs, investment made by the company with expanding offices, purchasing construction equipment and other long-term assets is not a prudent decision. In addition, an increase of more than 2 million dollars in the current liabilities is clear evidence that the company’s finances are in a bad shape. Another significant indicator of financial trouble is the retention payable account which has increased in the year 5 to twice the amount in the year 4 while the accounts payable have increased by almost a million dollars. Additionally, an increase in long term liabilities by a similar amount suggests that the company has procured loans to finance its operations.

In case the green project is undertaken, cash levels will increase from 125,971 to 205,180, therefore, increasing the ability for XYZ to meet current obligations from its most liquid sources. Current assets will increase by 128,119. Current liabilities will increase by 116,018. It is a result of increased level of liabilities the current ratio decreases from 1.65 to 1.55 in case the green project is implemented. Collection period will slightly increase from 1.84 to 1.86 hence a decreased performance in accounts receivable management. Accounts payable to revenue ratio increases from 6.27% to 6.91% signifying the ability of the green project in paying the short-term financial obligation. Although sales of XYZ Construction Co., Inc. will increase with the new project, trade creditors are likely to grow at a higher rate than debtors hence poor liquidity ratios. The green project will bring good profitability levels as indicated by profitability ratios. The net profit margin increases from 7.02% to 9.37%, therefore, an increment of 2.4%. Net profit margin increases from 4.35% to 6.99% which is a positive increment of 2.6%.

It exceeds the Allen Electricity’s required rate of return. Thus it is reasonable to continue assessing this particular credit line. If an account does not exceed the required rate of return in best case scenario the account should be rejected in this phase. In the other hand if a company is a big and loyal customer its examination should be also continued even if it does not exceed completely the required rate of return. Nevertheless, we do not look at these situations more thoroughly since we are concentrating on marginal account evaluation process.