Jones Essay

1338 words - 5 pages

Jones Electrical Distribution
Mr. Jones,
A recent evaluation of Jones Electrical Distribution has occurred in request of a
loan. An assessment of the company's financial health shows that it is profitable. The
shortage in cash flows regards managerial attention. Since Jones opened in 1999 the
company has seen rapid growth in a highly competitive field. General contractors and
electricians have preferred Jones for their business. The request for this loan also has
occurred at the end of March; past patterns show that your company is seasonal, with
most sales occurring in spring and summer months. Previously stated facts estimate that
sales will gradually increase. If managed properly Jones has potential to develop, grow,
and add additional sites in the future. Internal and external references about Jones
engineering have been beneficial in consideration for a loan.
II. Problem Statement
Recently the continued growth in sales has raised accounts receivable and
inventories considerably. This decrease in inventory turnover has caused accounts
payable to rise due to heavy reliance on credit from suppliers. There are many ways in
which you can lower the size of the line of credit needed. Good management can lower
the credit line needed by lowering the inventories and accounts receivables, which grew
in 2005 and 2006 because Jones is trying to increase production and growth by pushing
the products to the customers. In 2003 Nelson Jones was involved in an argument with
his partner Dave Verden and Jones agreed to buy out his partner for $250,000, paying
him $2,000 a month with an 8% per year interest rate. It will take Jones 10.83 years to
pay back his old partner. Having that extra expense will decrease his monthly income
requiring him to retain a higher loan amount. Since the market for Jones Electrical
Presented by: Ben Nalty, Nick Weyrens, Chris Mlincsek, Besian Nushi Page 1

Jones Electrical Distribution
Distribution is fragmented, Jones is trying to increase its inventory. Inventory turnover
ratio for 2005 is (1535/278=5.52) and for 2006 is (1818/379=4.79). It shows that Jones
has been overconfident in their predictions. Increasing the inventory is a reason that the
company is facing cash money shortage. All of these have dramatically increased day's
payable out standing. In past history Jones took advantage of a 2% discount if supplies
were fully paid off tens days upon purchase. With the growth of business and the
decrease in Cash Flows, payments for supplies exceed the discount period. The discount
that is disregarded only increases the accounts payable and further decreases cash flow.
In 2006 Metropolitan Branch Bank issued a loan of $250,000 to Jones in order to finance
its growth in sales. Heavy credit dependency on suppliers will continue to draw request
for larger loans and Jones must keep its line of credit at a lower rate to increase cash
flows. The risk in issuing a $350,000 loan with a company of Jones size could be
decreased in hope of...

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