Jones Electrical Distribution Case Analysis

2414 Words Feb 6th, 2013 10 Pages
Jones 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
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For the last few years Jones’ business has been experiencing a growth according to the apparently good performance of the sales team who have captured a growing demand very well. This however has led to a dilemma for the owner who seems overwhelmed by the decisions connected to maintaining this growth, since preserving it would mean resorting to external financing. The problem the company faces is the liquidity (defined as amount of capital available for investment and spending) for the company and it has been declining. Despite retaining its earnings, the firm has seen trouble maintaining cash growth at the same rate as other assets and liabilities. This is supported by numbers such as the cash ratio which for 2007 has been a meager 0, 06547 falling from a previous 0,180349 in 2005. Furthermore the inventory needs of the company form an integral part of the company’s assets. The current ratio is 1,543589 while the Quick Ratio ((Assets- Inventory)/Current Liabilities) only 0,659268. Judging by the increases of Accounts Receivable and Accounts Payable Jones Electrical Distribution is struggling to receive cash immediately at a sale and pay its suppliers fast, losing out on discounts. This further highlights the need of external financing to cover its running costs and avoid problems and tensions between them, suppliers and customers. Upon estimating the External Financing Need, the number showed a need of $99540. However the company took a loan of 250 000

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