Jones Electrical Distribution Case

Topics: Balance sheet, Accounts receivable, Debt Pages: 3 (920 words) Published: November 1, 2010
Jones Electrical Distribution Case
Case II

Jones Electrical Distribution is a small company involved in wholesales of electrical devices and appliances. Even though Jones Electrical has been able to turn a profit over the past few years, they have noticed a shortage of cash when attempting to take advantage of trade discounts. Their current bank is unable to extend financing over $250,000, and Jones believes they will need considerably more to finance their operations. Therefore, Nelson Jones has decided to search for additional debt financing by discussing his options with a larger regional bank. Jones Electrical Distribution is the middleman between many different wholesalers and general contractors. Due to Nelson Jones’s dedication to his work, the business has been able to show profits even in an extremely competitive market environment. Jones Electrical Distribution has been able to compete on the basis of competitive pricing, effective inventory management, and aggressive sales force. But even though the company seems to be operating successfully, its ineffective collections policy has drained the company’s cash leaving it in dire need of additional financing. In order to afford to continue taking advantage of trade discounts Jones Electrical Distribution needs to tighten its cash collection procedures. Another course of action is to take out a bank loan for $350,000 to finance his operations, which is the main conflict Nelson Jones is facing. Analysis of the financial statements of Jones Electrical Distribution for the past three years indicates a number of significant trends. First, according to the Jones’s Income Statement (see Appendix 1) the company has been growing steadily over the past three years. Total Sales have increased by roughly 18% every year. At the same time Operating Expenses as a percentage of Sales have been going down. This indicates improvement in the company’s operations management. Even though Jones profit margin is seemingly...
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