Allen Distribution Company

Powerful Essays
| Case 1: Allen Distribution Company | Would we extend the $1,000 credit line to the Morse Photo Company? | | | 11/27/2010 |

Introduction to Case problem and important points to be covered

The core problem for Allen Distribution Company is how to distinguish from the marginal accounts the difference between good creditors and bad creditors. Especially we show how the difference between creditors can be utilized in practice by the credit representatives. For this we provide clear guidelines. The option of extending the Morse Photo Company’s $ 1000 credit line is used as test case for these purposes.
To distinguish customers we divide the accounts to different categories. There are two important points of views which in our opinion should be used to asses different accounts and prospective credit lines. Research process tracks following steps:
The accounts are examined simultaneously from both perspectives: 1. Significance and potentiality of a customer I. Size II. Growth III. Loyalty * Possible profits

2. Financial situation and expected return of a customer IV. Examination of key figures V. Analyzing possibility of default VI. Scenario analysis and future outlook * Probabilities of profit

Each account is considered as an individual project. Especially selecting the marginal credit applications is under review since the marginal accounts make the difference between profit and loss, as it is stated in the case material. Determining standardized evaluative procedures is essential since this way the credit department’s effectiveness will be improved. However, we will show how the profits are maximized rather than how the credit losses are minimized. Furthermore, the main requirement, which each project should meet, is the parent company’s expectation of 20% return before taxes.
Case Morse Photo Company: Importance as a customer

From our point of view Morse is not

You May Also Find These Documents Helpful

  • Satisfactory Essays

    Gm533 Aj Davis Part a

    • 654 Words
    • 3 Pages

    The following report presents the detailed statistical analysis of the data collected from a sample of credit customers in the department chain store AJ DAVIS.…

    • 654 Words
    • 3 Pages
    Satisfactory Essays
  • Good Essays

    There are 50 credit customers who were selected for the data collection on five variables such as location, income, size, years, and credit balance. In order to understand more about their customer, AJ DAVIS must use graphical, numerical summary to be able to interpret and better expand their business in the future.…

    • 1166 Words
    • 5 Pages
    Good Essays
  • Better Essays

    It is a very good method to understand the requirements and expectations of the customers. This is a challenge for the McBride financial services to understand the culture of the market but this helps the firm to develop a customer portfolio and database of the clients (Hague, 2002). McBride Financial Service should use a descriptive, marketing research. This market research also decreases the operating expenses and time of the company to reach at the target market. The main reason of using descriptive research is to evaluate the potential of the selected market for the mortgage services of the company and analyze the attitude of the customers (Kotler,…

    • 1266 Words
    • 6 Pages
    Better Essays
  • Good Essays

    Abc Company - 1

    • 1244 Words
    • 5 Pages

    The ABC Company is a manufacturing firm that specializes in making cedar roofing and siding shingles, introducing the new project to build cedar dollhouses by shingle scrap materials for reaching $3 million annual sales within the next 3 years. Explain the overall risk profile of the ABC Company based on current economic and industry issues. In order to help out the CEO I prepare reports that will contain the information regarding the project. These statements refer to the accompanying Excel spreadsheet as well as word documents. The statements are; Cash Flow statements, Product Cost, Net present value, Depreciation, Contribution Margins and Break-even Point of sales. In the last conclude the major risk factors in this project, management accountant responsibilities of the project and recommendations.…

    • 1244 Words
    • 5 Pages
    Good Essays
  • Good Essays

    The final project is designed so you can apply the concepts and skills learned in this course to a real-life financial accounting analysis. It incorporates your foundational knowledge—resulting from completion of Discussion questions, CheckPoints, Exercises, and Assignments—into a paper that describes your financial analyses and conclusion.…

    • 652 Words
    • 3 Pages
    Good Essays
  • Good Essays

    Upbeat Inc.

    • 518 Words
    • 3 Pages

    UpBeat, Inc. is a successful company located in Greenville South Carolina. Sales have substantially exceeded budgeted amounts and look to get even better. Upon reviewing of the monthly reporting package and cash flow projections it can be noted that the debt to equity ratio has deteriorated, liquidity is tight, and the company is having difficulty keeping current on taxes and on payments to suppliers and employees. In order to meet UpBeat’s debt covenants the local bank has agreed to purchase $50 million of accounts receivables following provisions included in the sale agreement:…

    • 518 Words
    • 3 Pages
    Good Essays
  • Powerful Essays

    Jones Electrical Case

    • 1029 Words
    • 5 Pages

    Jones Electrical Distribution (“JED”), which sells electrical components and tools to general contractors and electricians, is experiencing rapid growth in a highly-fragmented, highly competitive industry and despite profits, experiencing a cash shortfall, resulting in increased borrowing from Metropolitan Bank (the “Bank”) to $250K, the max loan amount the Bank will make to any one client. JED has been able to remain within this amount through 2006, relying heavily on trade credit from suppliers. As a result, Nelson Jones, owner and president, is seeking a new banking relationship. Nelson’s friend introduced him to a new bank where he felt he might qualify for a loan up to $350K. The new loan would provide him with the much need credit availability now, but carry customary covenants causing JED to be more deliberate about future growth: (i) continue on aggressive growth path; or (ii) moderate/slow.…

    • 1029 Words
    • 5 Pages
    Powerful Essays
  • Good Essays

    Eastwind Trading Company

    • 763 Words
    • 4 Pages

    The potential opportunity and long term sustainability of Eastwind Trading Company lies in the uniqueness of their product. The Swanson pearls are the only remaining collection of handmade freshwater pearl buttons in the world. The amount is limited and cannot be easily duplicated due to current environmental condition. Therefore, the fact that no one else carries these types of buttons is the main competitive advantage the Eastwinds Trading Company posses. This exclusiveness, however, can also result in the company’s weakness: very perishable, expensive, and difficult to handle small items that require careful organization and specialization to control costs. The company is still in the existence stage. Gail and Martha are now focusing in getting enough cash to cover all the expenses the acquisition of the business will bring. However, they may also need to center their attention in how to generate enough tools to make their business expand and become a viable company.…

    • 763 Words
    • 4 Pages
    Good Essays
  • Satisfactory Essays

    Rio Grande Supply Company

    • 297 Words
    • 2 Pages

    1. Environmental factor that Jasper Hennings’s facing is internal environment factor related to elements within the organization boundaries. The factors that Jasper needs to consider when deciding in his course of action are cultures (values, beliefs, understandings and norms), management and employee factor.…

    • 297 Words
    • 2 Pages
    Satisfactory Essays
  • Powerful Essays

    As given in exhibit2, segmentation done based on customers life stages and complexity of their financial needs –…

    • 1564 Words
    • 7 Pages
    Powerful Essays
  • Good Essays

    The company couldn’t appreciate discounts on accounts payable and started borrowing larger funds from the bank in order to keep up its development. The issue Mr. Clarkson is facing is how can he raise capital necessary to support the expansion. In order to achieve that he needs a higher line of credit, which he is trying to get from a different bank. The Northrup National Bank has to evaluate the risks associated with lending money to the lumber company, as well as what amount is needed and what repayment schedule is appropriate.…

    • 980 Words
    • 4 Pages
    Good Essays
  • Good Essays

    Cartwright lumber has had to borrow substantial amounts of money due to the fact that the firm is a growing company with sales rising quickly. In order for the company to sustain this growth rate, they will have to get additional external funding. Growth in sales nearly doubled from 2001 to 2003, with a percentage growth of 18% and 34% in 2002 & 2003 respectively. While sales are growing steadily, the company’s cash is steadily decreasing year to year by 20% and 17% in 2002 and 2003. Taken together with the fact that accounts receivable has grown at a higher rate than sales, 30% & 42%, this firm can not support the growing sales relying on its assets. The DSO ratio for accounts receivable is 36.28, 39.70 & 42.36 in 2001, 2002, and 2003 respectively. With credit terms of 30 days, the DSO is showing that on average customers are not paying on time and year to year they are paying increasingly later. All these factors combined demonstrate poor management of the firm’s assets. This is the reason why the firm is primarily relying on its debts to sustain the increase in sales growth.…

    • 735 Words
    • 2 Pages
    Good Essays
  • Better Essays

    Caledonia Products

    • 1372 Words
    • 6 Pages

    Caledonia Products Company is introducing a new product. With previous fallouts from the company and ranging a 34% marginal tax bracket with a 15% required rate of return or cost of capital the change of direction is to initiate the new plan. Mr. V. Morrison, CEO, Caledonia products is asking for professional guidance to analyze his current cash flow statement to determine if the project of adding two mutually exclusive projects is profitable. Therefore, as an Assistant Financial Analyst, is take into account the interest to calculate Project A and Project B’s payback period, net present value, and internal rate of return to provide a recommendation on which project is tangible than the other.…

    • 1372 Words
    • 6 Pages
    Better Essays
  • Good Essays

    Incentive Consideration

    • 461 Words
    • 2 Pages

    The proposed procedure would have many advantages. It would establish an investment base whose measure is acceptable to both the operating manager and the top level of management (the former sets the value, the latter must accept it). The accountant serves the very important and proper function of supplying relevant information that is used by the managers in making their respective judgments and bids. The return on investment (ROI) and economic income measures are improved because the investment…

    • 461 Words
    • 2 Pages
    Good Essays
  • Good Essays

    Rio Grande Supply Company

    • 602 Words
    • 3 Pages

    In the critical analysis case, “Rio Grande Supply Company”, found on page 72 of the text, the president of the Rio Grande Supply Company is faced with an ethical dilemma. One of the rules that the company employees have to follow is the strict use of the company computers for nothing more than business purposes. Any employee who chooses to violate that rule could be faced with termination of his or her job.…

    • 602 Words
    • 3 Pages
    Good Essays