Spencer Sporting Goods
1. Sources of distress for Mr William Spencer:
- Low cash balance because of the difficulties in collecting debts from clients
- Pressure for prompt payments set by the suppliers
- Fear that some of the suppliers can cancel Spencer’s exclusive regional rights
- Losing discounts granted for prompt-payments
- Keen competition from other distributors
- Low performance of the partnerships Mr William Spencer invested in
2. Key elements that give competitive advantage:
- The image of Mr William Spencer (personality, prestige, charity, activating in community affairs). He was described as an „ideal combination of businessman and bon vivant”, „near genius at selling who is determined to build a $50 milion business”
- Secured customers
- Exclusive regional distribution rights for proeminent manufacturers;
- Diversified lines of products (sporting goods, camping equipment, leisure-time products);
- Sales were not markedly seasonal (continuity)
3. Market strategy and financial policy
Clients: department stores, discount houses, sporting-goods shops (slow in payments)
– Diversification – total sales were not affected by seasons – Exclusive distribution rights from some important Producers – Promotional ideas – from the award-trips with the rest of distributors
The financial policy of the company:
Trade credit, working capital and short-term loan.
Working capital needs (current assets less cash - current liabilities less notes payables bank) =(1805-15) – (1407-40) = 423
Working capital (equity – non current assets) = 563-165 (75+31+59)=398 + bank 25 = 423
Working capital needs is covered with the additional contribution of bank finance. However, the growth posibility is limited in case the credit facility is not increased.
Average collection period (net...