Essay about Garden State

2459 Words Nov 17th, 2011 10 Pages
/11CASE 1
Financial Analysis and Forecasting

Garden State Container Corporation

Garden State Container corporation manufactures boxes and other containers primarily for farm products. More than 85 percent of the company’s sales come from the northeastern part of the United States, especially Pennsylvania, New Jersey, New York, and Maryland, although the company’s patented egg cartons are distributed throughout the United States. Jim Jackson, the founder and president, recently received a call from Martha Menendez, vice president of Atlantic First National Bank. Menendez told him that a negative report had been generated by the bank’s computerized analysis system; the report showed that Garden State’s financial position was bad
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Consequently, production continued unabated, and inventories increased sharply. In a further effort to reduce inventory, Garden State relaxed its credit standards in early 2002 and improved its already favorable credit terms. As a result, sales growth did remain high by industry standards through the third quarter of 2003, but not high enough to keep inventories from continuing to rise. Further, the credit policy changes had caused accounts receivable to increase dramatically by late 2003.
To finance its rising inventories and receivables, Garden State turned to the bank for a long-term loan in 2002 and also increased its short-term credit lines in both 2002 and 2003. However, this expanded credit was insufficient to cover the asset expansion, so the company began to delay payments of its accounts payable until the second late notice had been received. Management realized that this was not a particularly wise decision for the long run, but they did not think it would be necessary to follow the policy for very long - the 2003 summer vegetable crop looked like a record breaker, and it was unlikely that a severe drought would pull out of the weak growth scenario in late 2003. Thus, the company was optimistic that its stable and profitable markets of the past would soon

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