Kelsey BreathittTravis ZulferGrygorii TykhonovskyiLuoRobert RatliffJones Electrical Distribution1.)Jones Electrical Distribution sells electrical components and tools to general contractors and electricians. The products that we sell include controllers, breakers, signal devices and fuses and they are purchased from nearly 100 different suppliers. Jones customers use the products in the construction and repair of commercial and residential buildings. The companys sales depend in many ways on the seasonality of its customers businesses which have their highest activity during the spring and summer when weather is most suitable for construction work. The market in which Jones competes is large and highly competitive; we have to face significant competition from national distributors. To be able to compete, we have built up sales volume by successfully competing on the price and using an aggressive direct sales force. In turn, to be able to compete on the price, we have to maintain tight control over operating expenses, including paying our sales force primarily on commission and keeping overhead to a minimum. In addition, as part of the companys expense management effort, we have historically paid suppliers within 10 days of the invoice date in order to take full advantage of the 2% discounts the suppliers have offered for quick payments.2.)According to the Balance sheet (see exhibit 1 for details), there is about a 5% decrease in cash balance from the years 2005-2006, which tells us that we would probably have difficulty paying off our suppliers on time. As a result, we would not be able to use the 2% discount provided by our manufacturers. For example, in the first quarter of 2007, we owe $203,000 to our suppliers. If we do not use our discount, we would not be able to save $1,353 =($203,000*2%) per month or $16,240 per year, which is not a good thing. We also can see that there is an increase in inventory from year to year, which tells us that we are spending more on inventory to maintain an increase in sales which, eventually, might lead to an increase in cash balance. From 2005-2007, we can see that there is an increase in accounts payable and a decrease in long-term debt. This is because we got some of our purchases on credit, and since there is an increase in sales, we have to respond rapidly to demand if we want to keep our customers, and that is again why we have to have more sources to buy more inventories. In general, our total liabilities went up and that is why we need more cash to be able to handle demand for our products and to pay off short term debt on time to our suppliers.According to the Income Statement (see exhibit 2 for more details), our sales are expected to be $2.7 million at the end of 2007, which is about 17% increase from sales in 2006 but increase in sales does not necessarily mean that there will be an increase in income. Since, our short-term debt level went up even more in 2007, we will have to pay it off as soon as possible. Looking at our quick ratio (see exhibit 3 for more details on financial ratios), which tells us about our overall liquidity minus inventory, the liquidity is steadily going down from 2004 to 2007. Shortage in cash, might lead to having difficulty with paying off the debt on time obviously not a good thing. Inventory turnover for Jones Electrical in 2004 and 2005 was on the same level at about 6.70 but in 2006 it went down to 5.92. There might be many reasons why this happened; for example, a low turnover rate can indicate poor liquidity or possible overstocking, but it may also reflect a planned inventory buildup in the case of material shortages or in anticipation of rapidly rising prices. A good thing about Jones Electrical is that the company manages to collect its accounts receivables pretty much on time. An average collection period is 40 days. We are also getting better at managing fixed assets. Our fixed assets turnover has been increasing for the past three years. Overall, we have potential in growing. If the sales are going to be growing the way they do right now, we will have a promising future.3.)With the extra cash provided from the bank loan, we will not only become capable of taking advantage of the 2% discount offered for quick payments, but will also be able to buy more inventories, allowing it to grow and further increase sales. In addition, looking at the statement of cash flows for Jones Electrical for 2005 and 2006 (see the last page to see the statement of cash flows), we can see that from 2005 to 2006 there was a huge jump in investment in inventories, due to forecasted increase in sales for 2007.4.) There might be many reasons why we have had an increase in accounts receivables. One of them is that our customers, who are connected to construction field for the most part, depend on the seasonality of the construction business. Some customers take products on credit and are able to pay back only after they receive enough revenue. Increase in inventory balance can be explained by the boost in sales. Increase in demand requires increase in inventory.5.)We definitely should use the trade discounts with our suppliers. For example, in the first quarter of 2007, we owe $203,000 to our suppliers. If we do not use our discount, we would not be able to save $1,353 = (($203,000*2%)/3) per month or $16,240 per year, assuming that sales are going to be constant for the next three quarters. By using discounts from manufacturers, we will be able to save not only a lot of money but also have a good reputation among suppliers, which in the future, could help obtain even higher discounts.6.)We have estimated that we will need $350,000 for 2007, in order to maintain increase in sales. Looking at the first quarter of 2007, Jones has $32,000 in cash and $290,000 in accounts receivables (see exhibit 2 for details). It is about $322,000 of cash total on hand, assuming that our customers will pay on time. We have to pay accounts payable in the amount of $203,000 and long term debt that is due this year in the amount of $24,000, so total debt amount that we owe is $227,000. If subtract debt from cash ($332,000-$227,000) we get $105, 000 cash on hand. These numbers are only for the first quarter. We are planning on buying more inventories. In addition, there are extra expenses such as mortgage payable for the house and life insurance. Also Jones owes $2,000 plus 8% interest per year to Verden, Jones ex-partner. In total, we owe $25,920 =($2,000*12 month*1.08 interest) to Verden in 2007. That is why we need additional $350,000 in order to cover all the expenses. Besides, extra cash on hand will help to resolve many problems if we will have increase in sales in 2008.7.)We assumed that if we get the line of credit in the amount of $350,000, we will pay the same payments as we did with the line of credit payable of $250,000, therefore the amount of payment a month for the line of credit is $20,833.33= ($250,000/12 month). We will continue to pay this monthly amount until the line of credit will be paid off, which will be in 16 years (using financial calculator PV=-350,000, PMT=20,833.33, I/Y=7.5%+1.5%=9/12 month=0.75, FV=0, calculate for N=15.88 or about 16 years).8) and 9).To reduce the size of the line of credit we need probably to learn how to manage our expenses better. As was mentioned before, if possible it is in our best interest to use trade discounts. Maybe, we also should learn how to manage our inventory in more efficient way so there is no overhead when we dont need it or shortage when we need it the most. If there is extra cash on hand, we probably should invest somewhere so it will earn additional income.If we get this new line of credit, we will have more responsibilities. We will have to count every penny and live a much more modest lifestyle. Since we are expanding our business, we will have to work even harder if we want our business to grow successfully.