Jones Distribution Case Solution

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Jones Distribution Case
Finance Team -13

Executive Summary:

The Company Jones Electrical Distribution was founded in 1997. The company distributes and wholesales electrical components. It is a sole proprietorship owned by Nelson Jones who is looking for a new banking relationship that will allow him to receive a larger loan to sustain his business.

Even though the company has been turning in profits, the ineffective collection practice, not availing trade discounts on time and ineffective inventory management has led the company in need of larger financing needs.

Solutions:

a) How well is “Jones Electrical Distribution” performing? What must Jones do well to succeed?

 | 2004| 2005| 2006| 1st Q 2007|
Net Profit Margin|  | 0.86%| 1.51%| 1.34%| 0.82%|
Return on Assets|  | 2.38%| 4.36%| 3.83%| 0.58%|
Return on Equity|  | 7.61%| 13.62%| 12.35%| 2.02%|

Du Pont Analysis:

 | 2004| 2005| 2006| 1st quarter 2007|
Sales| 1624| 1916| 2242| 608|
Net Income| 14| 29| 30| 5|
Total Assets| 588| 665| 784| 865|
Total Equity| 184| 213| 243| 248|
PM| 0.0086| 0.0151| 0.0134| 0.0082|
TAT| 2.7619| 2.8812| 2.8597| 0.7029|
EM| 3.1957| 3.1221| 3.2263| 3.4879|
ROE| 7.61%| 13.615%| 12.346%| 2.02%|

| 2004| 2005| 2006|
Operating efficiency| 0.86| 1.51| 1.34|
Asset use efficiency| 276,19%| 288.12%| 285.97%|
Financial Leverage| 319.57%| 312.21%| 322.63%|

 | 2004| 2005| 2006| 2007|
Cash| 7.65%| 7.98%| 2.93%| 3.70%|
Accounts receivable| 31.79%| 34.76%| 33.70%| 33.57%|
Inventory| 41.32%| 41.77%| 48.31%| 50.00%|
Total current assets| 80.78%| 84.50%| 84.94%| 87.28%|
 |  |  |  |  |
Property & equipment| 31.81%| 30.40%| 32.15%| 29.15%| Accumulated depreciation| -12.59%| -14.90%| -17.10%| -16.43%| Total PP&E, net| 19.22%| 15.50%| 15.06%| 12.72%|
 |  |  |  |  |
Total assets| 99.98%| 100.00%| 100.00%| 100.00%|
 |  |  |  |  |
Accounts payable| 6.08%| 6.33%| 15.26%| 23.46%|
Line of credit payable| 25.38%| 32.23%| 31.79%| 28.92%| Accrued expenses| 2.21%| 2.05%| 1.83%| 1.39%|
Long term debt, current portion| 4.08%| 3.61%| 3.06%| 2.78%| Current liabilities| 37.75%| 44.22%| 51.94%| 56.53%|
 |  |  |  |  |
Long-term debt| 30.96%| 23.77%| 17.10%| 14.80%|
Total liabilities| 68.70%| 68.00%| 69.04%| 71.34%|
 |  |  |  |  |
Net worth| 31.30%| 32.00%| 30.96%| 28.65%|
Total liabilities and net worth| 100.00%| 100.00%| 100.00%| 99.99%|

 | 2004| 2005| 2006| Q12007|
Net sales| 100.00%| 100.00%| 100.00%| 100.00%|
Cost of goods sold| 80.30%| 80.10%| 81.10%| 82.10%|
Gross profit on sales| 19.70%| 19.90%| 18.90%| 17.90%| Operating expense b| 16.75%| 16.04%| 15.46%| 15.46%|
Interest expense| 1.65%| 1.56%| 1.39%| 1.27%|
Net income before taxes| 1.30%| 1.30%| 1.30%| 1.30%|
Provision for income taxes| 0.46%| 0.81%| 0.71%| 0.40%| Net income| 0.85%| 1.50%| 1.34%| 0.78%|

Jones Electrical Distributions has been growing at steady pace for past three years from 2004 to 2006. The sales have been increasing at an average of 17.76 percent over the past years. Also Jones has been able to reduce the company’s operating expenses from 1.51%(operating efficiency-2005) to 1.34%(operating efficiency-2006), becoming more efficient with experience. There have been fluctuations in the company’s profit margin over the years, but this isn’t due to the company’s bad performance but mainly due to Jones sales strategy. In order compete with the dynamic and vicious market environment jones decided to lower his sales prices.

However, 2007's profitability is still unknown as the company's highest point of activity is in the months of spring and summer. After 2005, return on equity seems to be declining as well. The values are declining...
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