Automotive Essay

Q 1, How well is Jones Electrical Distribution execute? What must Jones do well to succeed?First Quarter2004200520062007 sales increase18%17%ROE7.6%13.6%12.3%2.0%Sustainable growth deem7.6%13.6%12.3%2.0%Profit Margin0.9%1.5%1.34%0.8%Assets turnover2.762.882.860.70financial leverage3.203.123.233.49 shareowners equity31%32%31%29%From coverage dimension analysis we can see Jones electrical distributions line of products is stable business as a retailer. Sales increase 18% and 17% in 2006 and 2007 respectively, with estimation in 2007 will be 20.4%. Shareholders equity is around 30%. Jones sustainable growth assess g*=RT*ROA, so compare with actual sales growth, we can take aim the conclusion Jones well managed its growth through year of 2004 to 2007. As Jones doing broken in margin business, so should avoid postgraduate financial leverage dimension as interest burden will be heavy. Q2, why does a business that has profit of $30,000 per year need a confide bring?200420052006Fi rst Quarter2007collection finale42.0 geezerhood44.0 days43.0 days43.9 dayspayables period10.1 days10.0 days24.1 days37.4 daysFrom to a higher place table we can find out Jones collection period increase step by step and this will need more hard cash support that, payables period exceed 10 days from 2006, this will at sea 2% discount from suppliers. As Jones sales growth rate is high than sustainable rate, so its net earning could non support increased invoice receivable and origin. Then the company need bank loan to finance the increase business.Q3, What drove the increase in Joness accounts receivable and schedule balances in 2005 and 2006?Sales growth drove the increase of accounts receivable and inventory balances in 2005 and 2006.Q4, Is Nelson Joness estimate that a $350,000 line of accredit is ample for 2007 accurate?As Jones estimated growth rate in 2007 is 20% for sales, so account receivable and inventory will increase as a consequence. Total $129,000 is needed if collection period and inventory will not improve. As Jones accounts payable in first quarter exceed 37 days already, this will makes Jones loss 2% discount from suppliers, accumulated 24% against 7.5% interest rate. So this makes sense for Jones get loans build inventory indoors 10days payment. Total inventory change $129,000+$120.000=$249.000. So $350,000 line of credit is competent for 2007 even the bank set some limitations how to use the credit.Q5, When will Jones be able to repay the line of credit?As long call debt already $378,000 in first quarter of 2007, plus additional bank loan $350,000. So total credit will be $720,000 bring in income for Jones is $30,000 and with stable growth rate, so Jones need around 25 days repay all the credit.Q6, What could Jones do to reduce the size of the line of credit he needs?Jones should manage closely reduce collection period and increase inventory turn over to reduce work capital.