Surecut Shears Inc.

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Company:

Fischer is both treasurer and president
Stewart did approve the 2,5mill loan extension
House hold scissors and industrial shears
Severe competition from foreign companies
Made profits every year since 1958
Short term borrowing were normally between july and December, additional capital neeede to support sales peak •Produce at an even rate throughout the year – contributed to the need of seasonal funds

June 1995
3,5 mill loan- anticipated to pay it of in decemebr 95
need for another 1.2mill in june 1996 because of a plant modernization program •Program need 6mil, half completed- finised by august 1995 •Expected to save 900 per year in manufacturing costs.

Sept 95
Neede 500K more to cover peak season
January 1996
Sales came down- retailing downturn-
Need for more short term borrowing- higher expenditures for modernization project. •Funds needed unitl adjuntsing to economic conditions
Estimated it would not occur until april 96

April 1996
Not able to pay 1.25mill before seasonal upturn in june
Further slaes decline, retail recesiion

Why was SureCut Shears unable to repay its bank loan by December 1995 as originally forecast

Major sources:
Net income
Bnak loans
Decrease in inventories
Decrease in cash
Major use
Increase in account receivalbes
Increase in fixed assets

Sources and uses July December
Sources Uses
Net income2221
AR 3,489
depreciation
Bank Loans2,279
AP 177
Long term debt 299
Dividends 600
Fixed assets 3,321
Inventories1,604
Tax pre payable303
miseclanoues 1
Decrease in cash1,480
78877887

Decrease in liquidity due to increase in AR
CCC is shortened because of higher payment period and lower payable period •Decrease in sales growth, therefore less revenues are generated to potencially be converted into cash •Build up in inventory from august due...
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