Q 1, How well is definitely “Jones Electrical Distribution” doing? What must Jones excel to succeed?

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2005

june 2006

06\

2007

Sales increase

18%

17%

ROE

7. 6%

13. 6%

12. 3%

2 . 0%

Sustainable development rate

7. 6%

13. 6%

12. 3%

installment payments on your 0%

Profit Margin

zero. 9%

1 . five per cent

1 ) 34%

0. 8%

Possessions turnover

2 . 76

installment payments on your 88

2 . 86

0. 70

financial power

three or more. 20

3. 12

a few. 23

3. forty-nine

Shareholder’s equity

31%

32%

31%

29%

Coming from coverage proportion analysis we can see Jones electric distribution’s organization is stable business as a retailer. Sales increase 18% and 17% in 2006 and 2007 correspondingly, with evaluation in 3 years ago will be twenty. 4%. Shareholder’s equity is about 30%. Smith sustainable development rate: g*=RT*ROA, so match up against actual revenue growth, we could make the conclusion Jones very well managed its growth through year of 2004 to 2007.

Because Jones undertaking low perimeter business, thus should prevent high economical leverage percentage as curiosity burden will probably be heavy. Q2, why does a company that has income of $30, 000 each year need a bank loan?

2004

2005

2006

First One fourth

2007

collection period

40. 0 days and nights

44. 0 days

43. 0 days and nights

43. 9 days and nights

payables period

10. you days

10. zero days

24. you days

37. 4 days

Previously mentioned table we can find out Williams collection period increased step by step and this will be needing more cash support that, payables period surpass 10 days coming from 2006, this will lost 2% discount by suppliers.

As Jones sales expansion rate can be high than sustainable price, so their net generating could not support increased account receivable and inventory. Then a company need bank loan to finance the rise business.

Q3, What forced the increase in Jones’s accounts receivable and inventory bills in june 2006 and 06\?

Sales expansion drove the increase of accounts receivable and inventory bills in 2005 and 06\.

Q4, Can be Nelson Jones’s estimate that the $350, 500 line of credit is sufficient for 2007 accurate?

Because Jones approximated growth rate in 2007 is twenty percent for revenue, so account receivable and inventory increases as a consequence. Total $129, 000 is needed if collection period and inventory will not increase. As Smith accounts payable in first quarter go beyond 37 times already, this will makes Williams loss 2% discount coming from suppliers, accumulated 24% against 7. five per cent interest rate. So this makes sense for Jones get loans build inventory inside 10days payment. Total products on hand change $129, 000+$120. 000=$249. 000. Thus $350, 1000 line of credit is enough for 3 years ago even the traditional bank set several limitations using the credit rating.

Q5, When ever will Williams be able to pay back the line of credit?

As long term personal debt already $378, 000 in first one fourth of 2007, plus further bank loan $350, 000. So total credit rating will be $720, 000 Net income for Roberts is $30, 000 and with stable growth charge, so Jones need around 25 years repay all the credit.

Q6, What could Jones perform to reduce how big the line of credit he needs?

Jones should control closely decrease collection period and boost inventory turn over to reduce operate capital.

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