...4179 APRIL 6, 2010 THOMAS R. PIPER JEFFREY DEVOLDER Jones Electrical Distribution After several years of rapid growth, in the spring of 2007 Jones Electrical Distribution anticipated a further substantial increase in sales. Despite good profits, the company had experienced a shortage of cash and had found it necessary to increase its borrowing from Metropolitan Bank—a local onebranch bank—to $250,000 in 2006. The maximum loan that Metropolitan would make to any one borrower was $250,000, and Jones had been able to stay within the limit only by relying very heavily on trade credit from the manufacturers from whom Jones purchased the electrical products it sold to its customers. Nelson Jones, sole owner and president of the company, was therefore looking elsewhere for a new banking relationship that would allow him to negotiate a larger loan. Jim Lyons, a homebuilder who was a friend of Jones, introduced Jones to Rachel Montrose, Lyons’s relationship officer at the local branch of Southern Bank & Trust—a large, regional bank. Southern had a 7-year relationship with Lyons, including a current loan balance of over $3 million. Jones and Montrose tentatively discussed the possibility that Southern might extend a line of credit to Jones up to a maximum amount of $350,000. Jones thought that a loan of this size would more than meet his needs for at least the next year, and he was eager for the flexibility that a line of credit of this size would provide. After discussion, Montrose...
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...------------------------------------------------- Jones Electrical Distribution In the past several years, Jones Electrical Distribution is profitable, but it is in the condition of cash shortage. With its 2007’s sales go up, Jones need borrow more money to help its rapid development. Then he got a maximum line of credit $350,000. With our analysis report, we help Jones to choose whether to take advantage of 2% trade discount, we can observe that Jones’credit line will be $318,000 without discount, not $387,000 with this 2% discount. Problems Statement Jones Electrical Distribution’s current condition is not only cash shortage but also under rapid sales grows’ effect. Why this profitable firm needs to increase its borrowing, what kinds of strategies Jones Electrical Distribution will choose, and what his estimate of the loan needs is. These are the problems we will talk about bellows. Data Analysis 1. According to the balance sheet and sources and uses statements (appendix 1), we can see that the line of credit payable increases every year, because Jones needs more and more funds to support the needs of working capital and invest to long-lived assets such as plant, property and equipment to support higher sales levels. We can see that Jones used its profits (changed in Net Worth), cash and short-term debt to support the needs of working capital and the increase of inventory (probably to support higher sales levels). The reduction in long-term debt is a use of funds because Jones is repaying a loan...
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...Jones Electrical Distribution ------------------------------------------------- Jones Electrical Distribution In the past several years, Jones Electrical Distribution is profitable, but it is in the condition of cash shortage. With its 2007’s sales go up, Jones need borrow more money to help its rapid development. Then he got a maximum line of credit $350,000. With our analysis report, we help Jones to choose whether to take advantage of 2% trade discount, we can observe that Jones’credit line will be $318,000 without discount, not $387,000 with this 2% discount. Problems Statement Jones Electrical Distribution’s current condition is not only cash shortage but also under rapid sales grows’ effect. Why this profitable firm needs to increase its borrowing, what kinds of strategies Jones Electrical Distribution will choose, and what his estimate of the loan needs is. These are the problems we will talk about bellows. Data Analysis 1. According to the balance sheet and sources and uses statements (appendix 1), we can see that the line of credit payable increases every year, because Jones needs more and more funds to support the needs of working capital and invest to long-lived assets such as plant, property and equipment to support higher sales levels. We can see that Jones used its profits (changed in Net Worth), cash and short-term debt to support the needs of working capital and the increase of inventory (probably to support higher sales levels). The...
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...Jones Electrical Distribution Electric Suppliers Finance Essay Introduction Jones Electrical Distribution is an Electrical company which has predicted that sales for the company will increase. However, over the years the company has experienced some difficulties in its cash flow and decided that in order to keep the company in operation, it was evident that additional financing would be needed in the form of a loan. However, the loan limit for borrowing could not have exceeded $250,000.00. This amount was the maximum limit their local bank, Metropolitan would offer to any company. It must be pointed out that from the inception of Jones Electrical, Metropolitan Bank was the only financial provider used by the company. In light of the foregoing, Jones had to seek alternative financial assistance from another bank - Southern Bank and Trust. The credit line offered Jones Electrical a loan would be in the amount of $350,000.00, $100,000.00 more than what Metropolitan would have offered. Jones Electrical needed to decide which loan will be more beneficial, less risky and the least expensive for the company. They needed to consider the proposition of receiving the loan from Southern Bank Trust as opposed to remaining with Metropolitan Bank. Another issue arising from the case is the way in which Jones Electrical did its operations. He had over 100 suppliers from which he credited inventory, and he paid his accounts within the 10-day period in order to benefit from a 2% trade discount...
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...Mr. Jones, A recent evaluation of Jones Electrical Distribution has occurred in request of a loan. An assessment of the company’s financial health shows that it is profitable. The shortage in cash flows regards managerial attention. Since Jones opened in 1999 the company has seen rapid growth in a highly competitive field. General contractors and electricians have preferred Jones for their business. The request for this loan also has occurred at the end of March; past patterns show that your company is seasonal, with most sales occurring in spring and summer months. Previously stated facts estimate that sales will gradually increase. If managed properly Jones has potential to develop, grow, and add additional sites in the future. Internal and external references about Jones engineering have been beneficial in consideration for a loan. II. Problem Statement Recently the continued growth in sales has raised accounts receivable and inventories considerably. This decrease in inventory turnover has caused accounts payable to rise due to heavy reliance on credit from suppliers. There are many ways in which you can lower the size of the line of credit needed. Good management can lower the credit line needed by lowering the inventories and accounts receivables, which grew in 2005 and 2006 because Jones is trying to increase production and growth by pushing the products to the customers. In 2003 Nelson Jones was involved in an argument with his partner Dave Verden and...
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...BRIEF CASES THOMAS R. PIPER JEFFREY DEVOLDER Jones Electrical Distribution -HARVARD ~BUSINESS \g7 PUBLISHING 4179 APRIL 6, 2010 After several years of rapid growth, in the spring of 2007 Jones Electrical Distribution anticipated a further substantial increase in sales. Despite good profits, the company had experienced a shortage of cash and had found it necessary to increase its borrowing from Metropolitan Bank-a local onebranch bank-to $250,000 in 2006. The maximum loan that Metropolitan would make to anyone borrower was $250,000, and Jones had been able to stay within the limit only by relying very heavily on trade credit from the manufacturers from whom Jones purchased the electrical products it sold to its customers. Nelson Jones, sole owner and president of the company, was therefore looking elsewhere for a new banking relationship that would allow him to negotiate a larger loan. Jim Lyons, a homebuilder who was a friend of Jones, introduced Jones to Rachel Montrose, Lyons's relationship officer at the local branch of Southern Bank & Trust-a large, regional bank. Southern had a 7-year relationship with Lyons, including a current loan balance of over $3 million. Jones and Montrose tentatively discussed the possibility that Southern might extend a line of credit to Jones up to a maximum amount of $350,000. Jones thought that a loan of this size would more than meet his needs for at least the next year, and he was eager for the flexibility that a line of...
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...Jones Electrical Distribution Electric Suppliers Finance Essay Introduction Jones Electrical Distribution is an Electrical company which has predicted that sales for the company will increase. However, over the years the company has experienced some difficulties in its cash flow and decided that in order to keep the company in operation, it was evident that additional financing would be needed in the form of a loan. However, the loan limit for borrowing could not have exceeded $250,000.00. This amount was the maximum limit their local bank, Metropolitan would offer to any company. It must be pointed out that from the inception of Jones Electrical, Metropolitan Bank was the only financial provider used by the company. In light of the foregoing, Jones had to seek alternative financial assistance from another bank - Southern Bank and Trust. The credit line offered Jones Electrical a loan would be in the amount of $350,000.00, $100,000.00 more than what Metropolitan would have offered. Jones Electrical needed to decide which loan will be more beneficial, less risky and the least expensive for the company. They needed to consider the proposition of receiving the loan from Southern Bank Trust as opposed to remaining with Metropolitan Bank. Another issue arising from the case is the way in which Jones Electrical did its operations. He had over 100 suppliers from which he credited inventory, and he paid his accounts within the 10-day period in order to benefit from a 2% trade discount...
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...ones Electrical Distribution Case Analysis Financial Management-Huaihai Cohort- Team 9 This analysis is based on the 5 questions to the case. We believe that answering them builds a rather exhaustive and clear picture of the state of Jones’ business and its strengths and issues and offers a good analysis of its current state. Question A) How well is “Jones Electrical Distribution” performing? What must Jones do well to succeed? Jones Electrical Distribution is electrical supplying company. Since it was established in 2004, the sales have been growing steadily on a year to year basis from $1624000 in 2004 to $2224000 in 2006, and furthermore a projected $2.7 million in sales for the current financial year of 2007.In the same time profit has been inadequate for the quantity of sales. This data is backed by the very low Profit Margins experienced by the company, most recently only 1,3% (and only 0.8% for the first quarter of 2007).As of late, the company has faced a cash shortage and the results of that are becoming evident on its financial statements. Accounts payable have increased dramatically comparing 2006 and 2007. The same situation is with accounts receivables, showing that less of Jones’ clients are willing to pay cash for goods delivered. As a result the use of a discount thanks to fast payment to suppliers has become improbable. Further study of the increase in important components such as accounts receivables and inventory will be discussed in the 3rd section of this...
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...The Jones Electric Case utilizes the major learnings to date, analysis of financial statements and the use of ratios to project future performance. You are the financial analyst or banker who has to decide if Mr. Jones can increase his loan level. Note use the annual data for the following questions, the single quarter for 2007 presented should not be used. * Question 1. * How does Jones Electric compare to other electrical distributors? * Prepare ratio, common size and cash flow analysis. * See the file attached with industry ratio data. Use just the Data from the highlighted column. * You can assume I know how to calculate the ratios and their definition. Your answer should be more than the ratio is more or less than the past or industry, please go beyond the numbers and tell me what the numbers are telling us. * Question 2. * Project 2007 using ratios and identities. Assume the new sales will be the $2,700 he told the bank. Use the annual data not Quarter 1 to do the projections. * Determine if the line of credit offered is adequate. (This is what we are solving for!) * Determine if Jones should or should not take the cash discount from suppliers. * Question 3 * Based on questions 1 & 2, do you recommend any changes in the way Mr. Jones is running his business? Assignment deliverables * Case analysis write-up no more than 5 typed pages with imbedded tables and charts. (Tables and charts...
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...CASEJED Jones Electrical Distribution After several years of rapid growth, in the spring of 2007 Jonl's Electrical Distribution tlnticipatl'd a furthl'l' substantial increilse in sales. Despite good profits, the company had experk'ncl'd il shortagl' of cash and had found il neccssnry to incre,lse its borrowing from Metropolitan Bnnk-a local onc branch b,mk-to $250,000 in 2006. The maximum loan that Metropolitan would makl' to any onc borrower was $250,000, and Jones had been able to stay within thc Iimit only by relying very heavily on trade credit from the manufacturers from whom Jones purchased the ek'Ctrìcal products it sold to its customers. Nelson Jones, sole owncr and president of the company, was thcrcfore looking clsewhere for a new banking relationship that would allow him to negotiate a larger loan. Jim lyons, a homebuilder who was a friend of Jones, introduced Jones to Rachel MontroSl', lyons's relationship offìccr at thc Inca I branch of Southern Bank & Trust-,l largc, rcginnal bank. Southern had a 7-year relatinnship with lyons, including a currcnt Imll1 ba/ance of over $3 million. Jones and Montrosc tentativcly discusscd thc possibility that SOllthl'rn might extend aline of credit to Jones up to a maximum amount of $350,000. Jones thought that a loan of this size would more than mect his needs for at least the next year, and hl' was eager for thc f1exibility that a fine of credit of this size would provide. After discussion, Montrasc had arranged for the credit...
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...Jones Electrical Distribution Part I: Describe the Situation Jones Electrical Distribution is a rapidly growing company expecting further rise in sales in the future. However, a low cash flow was causing the company to increase its borrowing from the local Metropolitan Bank. The past year, Jones Electrical Distribution had to borrow $250,000 from the bank, which is the maximum loan that Metropolitan will allow to any one borrower. Therefore, Nelson Jones, owner and president of JED, was looking for a bank to grant larger loans. A friend of Jones did business with Southern Bank & Trust, which offered up to a maximum loan amount of $350,000. Jones felt this amount was more than enough and was hopeful SB&T would agree to a business relationship. The credit department of Southern Bank & Trust is currently investigating JED to determine if they should conduct business with one another. Part II: State the problem Nelson Jones, sole owner of Jones Electrical Distribution, has recently been faced with the situation where an increase in his loan amount is imperative. Jones currently has a relationship with Metropolitan Bank where he received a loan of $250,000, the maximum amount the bank will make. The end of year statements between 2005 and 2006 showed a sizeable decrease in cash, as well as a hasty increase in Accounts Payable and Line of Credit, both considerable grounds for an increase in loan amount. The issue at hand arises due to the fact that Metropolitan...
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...Jones Electrical Distribution Nelson Jones is the sole owner and president of Jones Electrical Distribution. Jones is experiencing a shortage of cash, which is needed to sustain anticipated growth in sales for the coming year. The company is in need of a new bank relationship because its current lender, Metropolitan Bank, is unwilling to provide Jones with the proper loan amount to maintain growth. Jones is introduced to Rachel Montrose, the relationship officer at the local branch of Southern Bank and Trust. Montrose discusses the possibility of extending a line of credit to Jones up to a maximum amount of $350,000. After being inspected by the credit department of Southern Bank and Trust, Montrose sets out the standard covenants applying to the loan. If Jones decides to enter into a deal with Southern Bank and Trust, then he must severe his relationship with his previous lender, Metropolitan Bank. Jones is a sole proprietorship that sells electrical components and tools to general contractors and electricians (ex. Controllers, breakers, signal devices, and fuses). Jones purchases from nearly 100 different suppliers. Jones sales followed the seasonality of its customers’ businesses, which had their busiest time during summer and spring when the weather is ideal for construction work. Its market is large, fragmented, and highly competitive. Jones competes on price and by employing an aggressive direct sales force, often visiting customers on job sites. He relies on tight...
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...Mr. Jones, A recent evaluation of Jones Electrical Distribution has occurred in request of a loan. An assessment of the company’s financial health shows that it is profitable. The shortage in cash flows regards managerial attention. Since Jones opened in 1999 the company has seen rapid growth in a highly competitive field. General contractors and electricians have preferred Jones for their business. The request for this loan also has occurred at the end of March; past patterns show that your company is seasonal, with most sales occurring in spring and summer months. Previously stated facts estimate that sales will gradually increase. If managed properly Jones has potential to develop, grow, and add additional sites in the future. Internal and external references about Jones engineering have been beneficial in consideration for a loan. II. Problem Statement Recently the continued growth in sales has raised accounts receivable and inventories considerably. This decrease in inventory turnover has caused accounts payable to rise due to heavy reliance on credit from suppliers. There are many ways in which you can lower the size of the line of credit needed. Good management can lower the credit line needed by lowering the inventories and accounts receivables, which grew in 2005 and 2006 because Jones is trying to increase production and growth by pushing the products to the customers. In 2003 Nelson Jones was involved in an argument with his partner Dave Verden and...
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...1. How well is Jones Electrical Distribution performing? What must Jones do well to succeed? Jones Electrical is performing well. The company is not a smaller company that had a net income of around $30,000 with net sales of around $2.4 million. Although the company is not to large they have continued to have growth year after year. Recent forecasts show sales might begin to slow down. The success of the company will depend on doing what the company is doing currently since they have continued to grow. Selling electrical devices is an extremely competitive market. The company has been able to build up high sales volume through cheaper pricing than its competitors and through a strong sales force. The company has also been able to keep prices down by maintaining a strict budget with tight control over operating expenses, including paying its sales team on commission and keeping overhead low. Financing is another key in a business and is a large factor that will determine the success of Jones Electrical is their financing. Jones Electrical needs to take out larger loans in order to build up inventory and increase sales. Also by taking loans the company is able to take advantage of the 2% purchase discounts that its manufacturers provide. The company’s financials show that with an increase in its line of credit the more sales it has, resulting in growth and a higher net income. 2. Why does a business that has a profit of $30,000 per year need a bank loan...
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...Mr. Jones, A recent evaluation of Jones Electrical Distribution has occurred in request of a loan. An assessment of your financial health shows that your company is profitable. The shortage in cash flows regards managerial attention. Since Jones opened in 1999 the company has seen rapid growth in a highly competitive field. General contractors and electricians have preferred Jones for their business. The request for this loan also falls at the end of March, past patterns show that your company is seasonal, with most sales occurring in Spring and Summer months. Previously stated facts estimate that Sales will gradually increase. If managed properly Jones has potential to develop, grow, and add additional sites in the future. Internal and external references about Jones engineering have been beneficial in consideration for a loan. II. Problem Statement Recently the continued growth in sales has raised accounts receivable and inventories considerably. This decrease in inventory turnover has caused accounts payable to rise due to heavy reliance on credit from your suppliers. All of these have dramatically increased day’s payable out standing. In past history Jones took advantage of a 2% discount if supplies were fully paid off tens days upon purchase. With the growth of business and the decrease in Cash Flows payments for supplies have increased in time apart. The discount that is disregarded only increases the accounts payable and further decreases Cash Flow. In...
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