Jones Electrical Distribution Electric Suppliers Finance Essay

Jones electric Distri unlession Electric Suppliers Finance EssayIntroductionJones galvanising Distribution is an galvanizing association which has predicted that gross revenue for the confederation go out(a) increase. However, over the years the company has experienced some difficulties in its cash race and decided that in order to keep the company in operation, it was unambiguous that additional financing would be necessitate in the form of a feed. However, the loan limit for espousal could not have exceeded $250,000.00. This amount was the maximum limit their local bank, metropolitan would ply to any company. It must be pointed out that from the inception of Jones electrical, metropolitan depone was the moreover pecuniary supplier occasiond by the company. In light of the foregoing, Jones had to seek alternative monetary assistance from another bank southern coin bank and Trust. The doctrine striving offered Jones Electrical a loan would be in the amount o f $350,000.00, $100,000.00 often than what Metropolitan would have offered. Jones Electrical admit to decide which loan result be more beneficial, less risky and the least expensive for the company. They needed to consider the proposition of receiving the loan from Southern stick Trust as opposed to re master(prenominal)ing with Metropolitan Bank. Another issue arising from the case is the bearing in which Jones Electrical did its trading operations. He had over 100 suppliers from which he assign inventory, and he paid his accounts within the 10-day period in order to win from a 2% trade discount. The industry being large, fragmented and exceedingly competitive, Jones Electrical had to decide whether they needed to restructure their companys operation and expand uniform and alike what financial decision that had to be made for the continued operations of the Company. Jones Electrical would have much limitations with respect to borrowing from Southern Bank and Trust such as additional investments in fixed assets could only be made with prior approval of the bank, function of the credit striving would have a limit of $350,000 of Accounts Receiv adequate and 50% of Inventory and also, in that location get out be limitations on withdrawals of funds from the line of work by Jones. Should Jones suffer the loan from Southern Bank and Trust, his relationship with Metropolitan Bank volition have to be ordain no longer. (Piper and DeVolder, n.d). A number of factors would be discussed later on in this case which include the financial projections of Jones Electrical. In addition, Jones financial statements give be analyzed and we will also take care at the sustainability growth for this minute company. The cash flow of Jones Electrical will also be addressed in this case.Problems face by Jones Electrical DistributionJones Electrical needs to decide whether or not it will accept the offer of the loan from Southern Bank and Trust or from the Metrop olitan Bank. The company needs to maintain its sales, needs to expand, satisfy its liabilities but would need funding in order to do so.Some main problems identified in the caseJones bought Dave Verdent, his former business partner out for $250,000. 00. His quittance plan was a $2000.00 per month with 8% hobby per annum. The pursuit rate he is compensable is relatively high and this implicates it will take Jones over ten years to re stomach this loan with an interest payment in excess of $200,000.00 in interest only. Therefore Jones will have to pay approximately $458,400.42 in interest and principal. This occurred because of a radioactive dust Jones had with his partner Dave Verdent over the aggressive growth of the business, which has coiffe the company in financial debt because Jones has to repay Verdent in full for buying out the company.From the financial information provided in the Balance Sheet of Jones Electrical Distribution it shows that in that respect was an inc rease in accounts receivables, inventory, property and equipment. This increase would permit an increase also in liabilities and equity to be able to finance the aforementioned assets. On the other hand, the balance sheet also shows in increase in accounts payable, line of credit payable and accrued expenses. The above increases would therefore pattern financial assistance from the Bank for the expansion of the business.Another issue is that Jones Electrical had to resort to approaching the bank to see a loan for his company in order that his business would grow profitably, to develop with respect to opening other locations and to survive on a highly competitive market.Jones needed to make a decision whether he should receive a loan from Metropolitan Bank or from Southern Bank and Trust. If Jones decide to go with Southern Bank and Trust, there will be implications which were mentioned earlier (additional investments in fixed assets could only be made with prior approval of the b ank, consumption of the credit line would have a limit of $350,000 of Accounts Receivable and 50% of Inventory and also, there will be limitations on withdrawals of funds from the business by Jones. Should Jones accept the loan from Southern Bank and Trust, his relationship with Metropolitan Bank will no longer be. He needed to conjure his options between the two banks.Competition in the market Jones Electrical was faced with a lot of competition from national distributors, home centers and other small supply house. The industry was a real large and fragmented one, and in spite of the competition, Jones Electrical was able to increase its sales however, Jones was still in a position where he needed to inject some cash into the business.Solutions or RecommendationsJones should accept the loan from Southern Bank and Trust, since he will be receiving more funding. The funding from Southern Bank and Trust was more that what the company would have received from Metropolitan Bank. Alth ough, the requirements of Southern Bank and Trust Bank seem to be rigid, the more monies that he receives can however be used in the firms expansion as well as paying off some of the companys liabilities. As a result, Jones will be accommodateed more flexibility in the operations of the business. He will then be able to increase his assets in the form of inventory and capital, which in spring up will result in his business being in a better position to finance its operations. In addition, Jones Electrical will be able to benefit from the trade discounts which are offered by his suppliers because this arrangement would allow him to pay his creditors.With respect to the early payment discount of only 2%, it is advisable that the Company, continue to credit its supplies and make alternative arrangements with respect of repayment to its suppliers. The company needs cash and the discount of the 2% does not put the company in a better financial position. It is always alpha to inject eq uity so that your company will be able to increase its assets, which will eventually lead to an increase in sales and revenue.Another issue is that with respect to the proposed growth of the company, Jones had predicted forecasting in sales to increase significantly therefore the urgent need for a very large cash flow into the company would help significantly.Evaluate solutionsProsConsShould Jones Electrical decide to accept the loan from Southern Bank and Trust, it will receive funds to be able manage and expand its operations and pay off his debt.A loan is a liability and this will mean the firm will have another expense to pay at the end of every month.Benefits from trade discounts offered by his suppliers. He can use this opportunity to get discounts from his suppliers.Trade discounts can have a prejudicious impact in that if Jones does not stay within the time fig in paying for his goods.With the increase in bank borrowing, this can contribute to a number of aspects. One main aspect is the increase in sales, which in turn will result in increase revenue. amplification in bank borrowing can result in a decrease in cash flow. As stated earlier, Southern Bank and Trust has limitations in borrowing money from them.ConclusionWith respect to the mixed financial data presented in this case, Jones Electrical forecasts predicted that its sales would increase with plausive prospects and at the same time the company was in dire need of a significant cash inflow. It is however advisable that Jones Electrical accepts the offer made by Southern Bank and Trust despite the specific restrictions that would be placed on the Company. This offer would provide for long call financing of the company and as a result the limitations with respect to borrowing would eventually be removed, thus enabling the Company to utilize the credit line specifically if it foresees forecast would be favorable.The credit line offered by Southern Bank and Trust would be significantly more th an what Metropolitan would ever offer. Eventually, this budding financial relationship between Jones Electrical and Southern Bank and Trust would enable Jones Electrical to even borrow much more than what they would have been offered initially. Jones now will be able to be more flexible with its business decisions with respect to expansion.