Premium Essay

Jones Electrical

In: Business and Management

Submitted By clune77
Words 2036
Pages 9
Current Position
Jones Electrical Distribution (hereinafter Jones Electric) is currently facing an issue with cash flows, which will ultimately affect the overall profitability and growth potential for the company. The owner, Nelson Jones, is diligent in paying his suppliers within ten days in order to capitalize on a two percent early pay discount, but in doing so, has over-extended cash flows. Though the company has been profitable and growing over the past three years, its current lender, Metropolitan Bank, will not increase a line of credit (LOC) beyond $250,000, a LOC upon which Jones has recently fully drawn.
In order to ease the tensions of depleting cash reserves, Jones is seeking a higher LOC from another lender, Southern Bank & Trust (SB&T). A higher LOC will not only cover overhead expenses and take advantage of early pay discounts, but could also be invested in the continued growth of sales, as well as, potentially opening new locations. After weighing his options, Jones is convinced that he has to take on more debt in order to keep the business moving forward.
Thus far, Jones is only contemplating one financing option, a higher LOC from SB&T. The terms of LOC are not favorable when weighed against Jones’s objective to grow the business. SB&T will limit the drawable amount, control investments in fixed assets, and control Jones’s withdrawal of funds from the business. As such, Jones needs to reconsider SB&T’s offer and consider other financing options or reduce the need to borrow by changing operating procedures.
Jones is seeking a $350,000 LOC from SB&T, which is $100,000 more than the current LOC. Therefore, we assume that the difference of $100,000 is the target dollar amount needed for Jones Electrical. Coupled with alternative financing options, business operations will have to be adjusted if Jones Electrical is going to stay in...

Similar Documents

Premium Essay

Jones Electrical

...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......

Words: 906 - Pages: 4

Premium Essay

Jones Electrical

...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......

Words: 1209 - Pages: 5

Premium Essay

Jones Electrical

...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......

Words: 1540 - Pages: 7

Premium Essay

Jones Electrical

...1. Overall, Jones Electrical Distribution had an increase in ROE from 2004 to 2005 and right after it started slowly decreasing in 2006 until its steep drop in 2007. The primary reasons for this sluggish performance is primarily due to a drop in operating efficiency and asset use efficiency. In order to measure operating efficiency, profit margin was used. Starting in 2004, profit margin was at 0.85%, peaked at 1.50% and fell to a trough at 0.78%. In order to measure asset use efficiency, total asset turnover was used. As can be seen, asset usage saw an improvement from 2004 to 2005. This, however, deteriorated slowly through 2006 and greatly in 2007. Jones’ financial leverage did not vary much throughout the span of the analysis. It ranged between 3.19 and 3.49. What this tells us is that their debt levels remained relatively stable. For Jones to succeed, he must keep up the good work offering a competitive price, fostering his aggressive direct sales force who visits customers at their job sites to fully understand their needs. In addition to this, he also needs to maintain tight control over operating expenses, stop discounts and keep using his model to forecast customer demand, which enabled him to better manage his inventory. The need to stop taking discounts is because it leaves Jones cash strapped. 2. A reason why a profitable business like Jones Electrical Distribution might need a bank loan is because it might find itself short of cash at a time when it anticipates...

Words: 410 - Pages: 2

Premium Essay

Jones Electrical Distribution

...Jones Electrical Distribution 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. The industry being large,......

Words: 433 - Pages: 2

Premium Essay

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 reduction in long-term debt is a use of......

Words: 1166 - Pages: 5

Premium Essay

Jones Electrical Distribution

...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,......

Words: 2097 - Pages: 9

Premium Essay

Jones Electrical Distribution

...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......

Words: 773 - Pages: 4

Premium Essay

Jones Electrical Case

...Devin Carr Cases in Finance 9/13/11 Jones Electrical Distribution In the case of Jones Electrical, after running pro-forma financial statements for the year 2007, Mr. Jones should forgo taking the trade discounts. Although it would seem advantageous to pay suppliers within the discount period (2/10/net 30), the amount of capital required is beyond the capability of the business and the extent that Southern Bank & Trust was willing to provide. As it can be seen from Exhibit 1, the amount of external finance needed to take the discounts equates to $389,000; Southern Bank & Trust was only will to extend of line of credit to the amount of $350,000. After forecasting the remaining three periods of 2007 it seems that Jones Electrical will be more profitable than the prior year. However, after further analysis of the company it becomes apparent there are several issues facing Mr. Jones. First, is the issue of incredible narrow margins. By the nature of the business, Jones Electrical is in the position of the middleman – providing a general store for contractors and electricians. Due to the circumstances, in the competitive market that exists Mr. Jones must utilize low prices to gain market share. Therefore, even though sales grow by 20.4% in 2007 his net margin is 1.35%, up only 0.01% from 2006 (as seen in Exhibit 2). The concern becomes, where is the money going if it is not trickling through the Income Statement from sales to net income? The answer......

Words: 804 - Pages: 4

Premium Essay

Jones Electrical Distribution

...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......

Words: 1551 - Pages: 7

Premium Essay

Jones Electrical Distribution Case Study

...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......

Words: 1502 - Pages: 7

Premium Essay

Pride and Prejudice

...The story revolves around Elizabeth Bennet, one of five sisters in Jane Austen’s novel, Pride and Prejudice. The novel has many different plots, one of relationships between Elizabeth’s older sister Jane and Mr. Bingley and Mr. Darcy, Mr. Wickham and Elizabeth herself. The Netherfield ball is one that the Bingleys host and Elizabeth and her whole family attend. In this chapter, Austen exposes the Bennet’s behaviors, including Elizabeth, presenting the theme of social class and expectations. Elizabeth enters the Bingley’s house hoping to spend the evening with Wickham, but she learns that he isn’t there. Her disappointment affects her own attitude for the evening as she had “a degree of ill humour, which she could not wholly surmount even in speaking to Mr. Bingley, whose blind partiality provoked her” (Austen 89). This behavior isn’t very mannerly as she is probably expected to act gaily even if she is grieved. Even after, “the two first dances…brought a return of distress; they were dances of mortification” (Austen 89). Elizabeth is forced to dance with her cousin, Mr. Collins, who is not a very graceful dancer and “gave her all the shame and misery…a disagreeable partner…can give” (Austen 89). This greatly affects her spirits and manner as she accepts a dance with Mr. Darcy. Her friend, Charlotte, even whispers “not to be a simpleton and allow her fancy for Wickham to make her appear unpleasant in the eyes of a man ten times his consequence” (Austen 89). This shows......

Words: 875 - Pages: 4

Free Essay

Brain

...used to manipulate their followers. The word brainwashing originated in 1950 when Edward Hunter, a journalist, wanted to describe the techniques used by Chinese Communists. Cults use more precise techniques which do not depend on physical coercion Meaning; forcing the followers to behave in an involuntary manner. The effects of cult involvement can last for sometime after a person leaves a cult. The term Mind control is being used on the public by religious organizations is the new form of persuasion. This technique helps cult leaders get what they want, without necessarily having to put a spell under the followers. Mind control allows you to enter a person unconscious and create influences. Getting people to agree with Jim Jones was easier since he was seen as a powerful leader of the group. They trusted his opinions and judgments. Back then it was not common for people to find someone to guide them toward a decision. Mind control techniques are not always negative it helps you manage your own ability to communicate within. You can use them to be more influential at work and improve your lifestyle. The term thought reform keeps the person unaware of what is going on and how he/she is being changed step at a time. New members are led step-by-step, through a behavioural program without being aware of the full content about the group. The goal maybe to get them to stay long hours to commit a deeper commitment, all depends on the cult...

Words: 622 - Pages: 3

Free Essay

My Paper

...Executive Summary: Jones Soda Company is a rapidly growing company that markets its unique products to today’s youth, which is the market they feel, is poorly represented. Jones Soda Co. feels that they can gain significant market share because they feel that their competitors do not adequately reach today’s youth. Jones Soda Co. understands that reaching this target market is always difficult because today’s youth seem to avoid what they are not used. Keeping this in mind, Jones Soda Co. positions itself as not just a beverage distributor but also a company that can provide a unique experience and message to each individual. They want their consumers to feel unique and independent who can build their own opinions and individuality. Jones Soda Co. does this by involving their consumers in every way possible in regards to their brand. For example, consumers directly contribute to the design of each of products’ packaging. This humanizes the company and allows consumers to relate to the product as well as encourage customer loyalty. Jones Soda Co. continuously promotes creativity to reach their target markets. They deliver this image of creativity through their website and their promotional recreational vehicles that travel to different school events, promoting their products. Jones Soda Co. will reach a variety of youth with a variety of lifestyles whether they are interested in sports or music. This heightens the curiosity of their consumers giving Jones Soda Co. an......

Words: 316 - Pages: 2

Free Essay

Police Report

...found dead on arrival on her couch. There were three pill bottles on her coffee table, one which was open and pills were spilled all out on the table. Fink’s laptop was also on the coffee table. The laptop had a word document open with a letter stating, “My dearest friends I can’t handle this anymore! I’m so depressed. Zack is too good for me and I know it. What ever you think, this was my decision and he had nothing to do with this. Don’t blame him for my failure as a person. I haven’t been taking my medicine like I should have, and that’s probably why”. STATEMENTS (Jones) I first interviewed with Fink’s long time friend Nora Jones. Nora Jones has been a friend with the victim, Courtney Fink, for 15 years. Jones states she just saw Fink last night and she was happy, but just got out of a long, emotionally abusive and draining relationship. Jones then continues on about it possibly being Zack, the ex-boyfriend. Jones begins to sob and we decide to end the questioning and continue it at a later time. STATEMENTS (Smith) I then went and interviewed Mr. Smith, the neighbor who originally called in the incident. He states that he typically sees Fink everyday but has not seen her in a couple days. When Fink did not show up for a jewelry show at The Smith’s home, which she confirmed she would be attending, Mrs. Smith went over to Fink’s home Fink’s car was in the driveway. Fink did not answer the door. When I asked Mr. Smith if he knew anything about Fink’s boyfriend he says......

Words: 548 - Pages: 3