Automotive Essay

Q 1, How headspring is Jones Electrical Distribution performing? What must Jones do well to succeed?First poop2004200520062007 gross sales increase18%17%ROE7.6%13.6%12.3%2.0%Sustainable reaping rate7.6%13.6%12.3%2.0%Profit marge0.9%1.5%1.34%0.8%Assets turnover2.762.882.860.70financial leverage3.203.123.233.49Shareholders virtue31%32%31%29%From coverage ratio analysis we mint see Jones electrical distributions business concern is stable business as a retailer. Sales increase 18% and 17% in 2006 and 2007 respectively, with estimation in 2007 go forth be 20.4%. Shareholders equity is around 30%. Jones sustainable growth rate g*=RT*ROA, so compare with actual sales growth, we heap make the conclusion Jones well managed its growth through year of 2004 to 2007. As Jones doing low margin business, so should avoid high financial leverage ratio as pursuit burden will be heavy. Q2, why does a business that has pelf of $30,000 per year need a buzzword loan?200420052006First Quarter2 007collection limit42.0 days44.0 days43.0 days43.9 days collectables result10.1 days10.0 days24.1 days37.4 daysFrom above table we can find out Jones collection period increased step by step and this will need more cash support that, payables period exceed 10 days from 2006, this will lost 2% dismiss from suppliers. As Jones sales growth rate is high than sustainable rate, so its net earning could not support increased account due and memorandum. then the company need bank loan to finance the increase business.Q3, What legion the increase in Joness accounts receivable and inscription balances in 2005 and 2006?Sales growth drove the increase of accounts receivable and inventory balances in 2005 and 2006.Q4, Is Nelson Joness estimate that a $350,000 line of credit is sufficient for 2007 accurate?As Jones estimated growth rate in 2007 is 20% for sales, so account receivable and inventory will increase as a consequence. Total $129,000 is postulate if collection period and inven tory will not improve. As Jones accounts payable in first quarter exceed 37 days already, this will makes Jones loss 2% discount from suppliers, accumulated 24% against 7.5% interest rate. So this makes sense for Jones get loans build inventory within 10days payment. Total inventory change $129,000+$120.000=$249.000. So $350,000 line of credit is sufficient for 2007 even the bank set some limitations how to use the credit.Q5, When will Jones be able to revert the line of credit?As long term debt already $378,000 in first quarter of 2007, plus additional bank loan $350,000. So total credit will be $720,000 Net income for Jones is $30,000 and with stable growth rate, so Jones need around 25 years repay tout ensemble the credit.Q6, What could Jones do to reduce the size of the line of credit he unavoidably?Jones should manage closely reduce collection period and increase inventory turn over to reduce work capital.