Jones Electrical Distribution

Be Our Guest’s balance sheet shows good signs of liquidity. Current Ratios for the past four years have remained above 1 proving that the company can handle its current liabilities. The current ratios are not extremely high (19941.27, 1995- 2.17, 1996- 1.15 and 1997- 1.16), but they can cover the current liabilities. It is important to note that the company is operating on a thin line because the current assets are barely covering the current liabilities. This is particularly unpleasant because we are dealing with a company operating in a seasonal business. It is a concern that the current ratio slightly eroded after 1995, and this is primarily due to Be Our Guest converting the bank line into long term debt in

The company maintains a minimum cash balance of at least $50,000 at the end of each month. All borrowing is done at the beginning of a month; any repayments are made at the end of a month.

Two-year decrease of liquidity measures including current ratio and quick ratio reveals the problems concerning company’s short-term solvency and liquidity. Butler Lumber Company’s current ratio decreased to 145.05% in 1990 from the level of 180.00% in 1988. The same decrease happened to quick ratio (decreased from 88.08% in 1988 to 66.92% in 1990). As the short-term lender, Northrop National Bank should have noticed that Butler Lumber Company’s ability to pay its bills over the short run without undue press needs to be carefully examined. The decrease of current ratio also implies the decreasing level of company’s net working capital, which is another sign of lower level of liquidity.

Upon returning from his annual two-week vacation in early July of 2002, the treasurer of the Spring Valley Forest Products Corporation, a Mr. Fred Firr, found the firm's audited balance sheet as of June 30 on his desk. Close scrutiny of the company's financial condition as reported in this document suggested to Mr. Firr that the cash flow picture for the enterprise was deteriorating. In times gone by, the firm had been able to maintain sizeable cash balances in its bank of account, Tippecanoe Trust Company, during the major portion of the fiscal year, and had found only modest seasonal borrowings necessary. Recently, however, a lengthening of credit terms to customers necessitated by intense

Although the company seems to be profitable, it has faced shortage of cash. It happened due to increase in Accounts Receivable as well as Inventories. On the other hand, Accounts Payable does not increase that rapidly and difficulties regarding cash collection become evident. Furthermore, the cash collection cycle becomes larger (59 days in year 2003, while more than 70 in year 2006).

Tire City, Inc. has petitioned MidBank for a loan in order to expand their business, and build a new warehouse. Through the financial statement reporting and the numbers that have been presented to me, I believe that this is a sound investment. The growth percentage of 20 percent per year is conceivable, if business stays as it currently is. The amount of debt that would need to be financed for this expansion is palatable, and well within the normal ranges for these sort of projects. Moreover, the company has very solid net working capital and leverage ratios. All of these factors lead me to believe that this will be a profitable investment for the bank. The one issue that I had was in 1996 when Tire City capped their

There are two chief participants in this case study, Paul Mackay and Jackie Patrick. Mackay, a sole proprietor of Lawsons (a general merchandising retail site in Riverdale, Ontario), has approached the Commercial Bank of Ontario in order to acquire an additional $194, 000 bank loan and a $26,000 line of Credit. Patrick, a first time loans officer, has been appointed to Mackay’s request. As such

The Lawsons’ efficiency ratios are another section the bank will find troubling. The company’s age of payables has nearly tripled over the last four years. This can be detrimental to the company’s image and reliability including their reliability toward the bank if granted the loan. Along with increasing age of payables is increasing age of receivables and age of inventory. Indicating that Mr. Mackay is taking longer to collect his receivables and that he has purchased too much inventory. Too much inventory results can result in further issues

2. Forecast the firm’s financial statements for 2002 and 2003. What will be the external financing requirements of the firm in those years? Can the firm repay its loan within a reasonable period? In order to forecast the financial statements of 2002 and 2003, the following assumptions need to be made. The growth of sales is 15%, same as 2001, which is estimated by managers. The rate of production costs and expenses per sales is constant to 50%. Administration and selling expenses is the average of last 4 years. The depreciation is $7.8 million per year, which is calculated by $54.6 million divided by 7 years. Tax rate is 24.5%, which is provided. The dividend is $2 million per year only when the company makes profits. Therefore, we assume that there will be no dividend in 2003. Gross PPE will be $27.3 million (54.6/2) per year. We also assume there is no more long term debt, because any funds need in the case are short term debt, it keeps at $18.2 million. According to the forecast, Star River needs external financing approximately $94 million and $107 million in 2002 and 2003, respectively. In order to analysis if the company can repay the debt, we need to know the interest coverage ratio, current ratio and D/E ratio. The interest coverage ratios through the forecast were 1.23 and 0.87 respectively, which is the danger signal to the managers, because in 2003, the profits even not

The company lost money almost every year since its leveraged buyout by Coniston Partners in 1989. The income generated was not sufficient to service the interest expenses of the company which stood at $2.62B in 1996. From Exhibit 1, we can say that interest coverage ratio computed as EBIT / Interest Expense was 1.31 in 1989 and has been decreasing over years and currently stands at 0.59. This raises a question of how the company can meet its interest payments without raising cash or selling assets.

The reason why Butler Lumber Co. is considering finding a different line of credit is because they’ve nearly exhausted all their usable credit with Suburban National Bank, using up $247,000 of the $250,000 of the credit limit. To compile this issue, the bank is wishing to secure the loan with some of Butler’s property. Considering the company’s large debt ratios, they have decided to check with Northrop National Bank’s offer to extend their line of credit by $215,000.

Liquidity ratio. The firm’s liquidity shows a downward trend through time. The current ratio is decreasing because the growth in current liabilities outpaces the growth of current assets. The quick ratio is also declining but not as fast as the current ratio. From 1991 to 1992, it only decreased 0.35 units while the current ratio decreased 0.93 units. Looking at the common size balance sheet, we also see that the percentage of inventory is growing from 33% to 48% indicating Mark X could not convert its inventory to cash.

There is a downward trend in cash conversion, which is a good indicator that management is doing a better job of balancing enough inventory for customers, while receiving money quickly in order to pay suppliers. We would want to compare Under Armour’s cash conversion cycle across the industry to determine whether 100+ days is good.

Butler Lumber Company, a growing profitable business has exhausted its credit limit and the key issues facing it are: 1. Need for additional funds to continue the growth 2. Need to consolidate debt 3. Need to improve cash flexibility.

The main problem of the company is that it couldn’t liquidate a seasonal working capital loan for the requisite 30 days each year. It reflects the company doesn’t have sufficient cash and they need more loan but the bank is reluctant to give any unless the company can give a reliable financial plan to show they can pay off their loan by the end of 2012. So, Mr Malik came up with a financial forecast for the month to month operation to gain the bank’s trust. Sadly, the forecast portrays it cannot afford to pay off its debt by end of 2012 and would owe a balance of IND 3,858.00. This