Jones Electrical Essay

As we raft percolate from the figures and the tuition given in the present case, the club is very profitable due to the inspi ration and well management done by its owner Mr. Jones. In this regard, we solelyt joint see in put back 2 in the spreadsheet, that the connection is taking advantage of the 2% discount offered by suppliers saving virtually $75,000. 00 per stratum. We have to pay especial aid to the symmetricalness reached with the occasion Co-owner of the social club, Mr. Verden.This agreement is bear on the cash flow of the community since the fill expenses raises by around $12,000. 0 much per year, this together the pecuniary interest of the metropolitans Bank loan makes that the guild leads a larger fall to finance its debts, that by the way regarding the agreement with Verden should non being salaried by the caller-up but by Jones in-person income since this agreement was not reached between the lodge and Verden but between Verden and Jones. Fur ther more, we are assuming that the caller-up is give this agreement since the metropolitans interest rate if not forget be of 12,45% per year which it seems to be very high for a commit of this kind.See tabularise 3 On the some other hand, we have see that other and perhaps the almost important constituent making the company running away of cash is the fact that Jones uses to pay the invoices deep down 10 days so he stand take advantage of the 2% discount instead of waiting the plunder payment due in 30 days while his historys receivables are paid in average every 42 days. It is not necessary to explain what paying around hundred suppliers every 10 days represent to cash flows if the company is receiving payments every 42 days, this delegacy that the company pays 4 times at 1 time receiving.This is, for sure, the main reason wherefore the company is losing liquidity and need to usurp money to entrusts. See set back 5. Furthermore, we can see that the average rot ary motion on accounts payables is 22 days as we can see from Table 10, this breaks the balance between the account receivables and accounts payables, this means that the company need to finance the dissimilarity (in this case 20 days approx. ) of working capital and the plainly way to finance it is by means of the companys operations, by shareholders or with remote resources which in the present case is through a bank loan.It would be similarly interesting to see what it the companys financial support policy on accounts receivables, this means what discount the company gives to its buyers and compare it with the discounts it receives from suppliers. lastly in order to overcome this touch the company need to review its support policy and reduce the finance it gives to its clients so the whirling in accounts receivables period approaches to the rotation on accounts payables and thus correct the rest of approximately 20 days that is making the company look for further suppo rt in external sources. . Is Joness estimated that a $350,000. 00 line of credit is sufficient for 2007 true? From my point of view it seems to be true for the year of 2007.This answer is based of the calculation on working capital (see Table 8) and even stressing the methods apply to calculate it, much(prenominal) as through the net direct working capital, which takes only into account the ship canal that the company has to generate cash and it most liquid debts, it means inventory, account receivables and account payables, we establish that the figures were much better. See Table 11) On the other hand, if we take a look to the liquidity ratio (see Table 9) we found that the companys ratio is above minimum relation necessary which is 11, this means that the company is producing sufficiency cash to pay its debts. Nevertheless, as we state in the first place, at that place a disparity in the finance policy of the company regarding the retrieval period (account receivables ) and the rotation on payables accounts that makes that the company requires external financing despite of having smooth numbers on the paper.Finally, I project that the new credit line allow for be enough to pay the former credit with Metropolitan bank and there go forth still be $ nose candy thousands dollars available that can be used by the company along the year since the restriction imposed by the bank are meet as we can see in Table 4 besides the company will be receiving payments during the year that will allow it to pass its debts and take advantage of the supplier discounts. Nevertheless, I insist in the fact that the company should revise its financing policy and the rotation of account receivables. . What will happen to Joness financing needs beyond 2007? The financial needs of Jones Electrical will subjoin unless they change their policy on financing buyers while paying faster to their suppliers. This in deed is what is making that the company requires special f ounds. On the other hand, the company has been festering constantly. In deed, according to the net income bringing close together for 2007 (see Table 7) the company increases its profits $25 thousand dollars more than the previous year.This is an distinguish of how the company is been management and of its willing to work year after year. Nevertheless, the first get out of 2007 the working capital only has increase by $7 thousand dollars, which is the difference between the current assets and current liabilities but the importance of this is that according to the rotation on receivables and payable accounts, shown in Table 5 and 10, leads us to the outcome that the company will have to pay its suppliers twice before it enters a single dime from its buyers.This intelligibly is the only reason and explanation to the research arose at the beginning of this analysis wherefore this profitable company needs a bank loan? and the answer is found in tables 5 and 10, which is traduc ed into an inadequate financing policy regarding receivables and payables accounts. Finally, as a conclusion we can say that the company will still be needing more and more external resources to finance its buyers purchases due a inadequate financing policy that shake up unbalance in the requirements of working capital.