Jones Electrical Distribution is a rapidly growing business that sells electrical tools and components to contractors and electricians from all over. The market that Jones competes is highly competitive and nationally competitive. In order to compete, there has to be a few different things that happen. One being, an aggressive direct sales force and maintain tight control over operating expenses. Since a low cost flow was causing the company to increase borrowing from Metropolitan Banks the past year, the company had to borrow $250,000 from the bank, which is the absolute maximum loan they will allow from one company. Meanwhile, Nelson Jones, the owner and CEO of JED, needs a bank that allows larger amounts of loans at a specific time. He found …show more content…
Although a net income of $30,000 does not show the need of a business loan. In 2006, Jones Electrical Distribution increased the gross profit by 17% but also contributed to increasing their inventory by 36%. Also, their A/R increased by 12% and with this increase, the cash flow is just not sustainable. Financing their daily business will be the only way to grow this company in the future. 3) Is Nelson Jones’ estimate of a $350,000 line of credit sufficient? Explain your answer. In 2007, JED estimated that in order to maintain an increase in sales they will need $350,000. Looking at the first quarter, Jones has $32,000 in cash and $290,000 in Accounts receivables. Assuming the customers will pay on time that would be about $322,000. Accounts payable will need $203,000 plus long-term debt of $24,000 that is due in 2007. Also, Jones owes Verden $2,000 plus interest that totals $25,920. 4) When will Jones be able to pay his line of credit? If Jones takes advantage of the discount given within 10 days to pay with an extra 10%. So, for the credit of $20,833.33= ($250,000/12 months), the company will continue paying this amount for 16 years. 5) What can Jones do to reduce line of