Jackson Automotive Case Study

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Case Study Jackson Automotive Systems Executive Summary Jackson Automotive Systems is an Original Equipment Manufacturer (OEM) that supplies parts for the automobile industry. Jackson Automotive Systems is currently operated by the president, Larry Edwards, and was founded in 1961 by Larry Edward’s father. Jackson Automotive Systems has been operated largely as a cash only business with very little if any debt outstanding typically. The 2008 financial crisis was a difficult time for all participants of the automobile industry. Jackson Automotive System’s reluctance to carry debt coupled with a strong working capital position and a conservative financial policy helped bring the company through the financial crisis. After the…show more content…
Coupled with these needs is Mr. Edward’s desire to pay a $1.2 million dividend at the end of the fiscal year. Key Facts The key facts in this case are fairly straightforward. The owner, Mr. Edwards, made the decision to repurchase company stock from an unhappy group of shareholders. To do so he liquidated his strong cash position and took out a short-term loan. The loan is now coming due and because of lower than expected sales the past few months due to a parts delivery issue Jackson does not have the money to repay the short-term loan. In addition to the shortfall of incoming cash from sales Jackson had received a large $4.2 million dollar order. To ensure that they could satisfy this order Jackson over bought raw materials by $2.44 million. Not only did the delivery interruption cause Jackson to delay sales and therefore income but the excess purchase of raw materials has cash tied up in inventory and not liquid to pay off the $5 million loan. Statement of the Problem Jackson Automotive has a cash balance as of May 31, 2013 of $4,994,000 with a loan due at the end of June 2013 for $5 million (See Appendix D for Balance Sheets). The cash short fall came about for several reasons. First, Mr. Edwards liquidated the company’s cash position of $5 million and took out a short-term loan for $5 million to repurchase stock. Second,
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