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Brown Marine Supply Corporation

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A Brief Overview of the Issues Faced by Brown Marine Supply Company

Brown Marine Supply Company (“Brown Marine”), over the previous five months, from March to July 1967, experienced significant changes in their company’s financial situation. Specifically, the company has seen diminishing cash levels in addition to having difficulty paying early for their purchases and collecting from sales made to other businesses on credit. Brown Marine’s owner, Mr. Brown, is considering expanding the company’s operations through the purchase of land and subsequent construction of a facility to support an expanded yacht service center, refueling facilities, and a new showroom to replace their currently leased building. Understanding the various scenarios related to a forecast of sales, purchases, and receivable collections are important in order to determine the viability of both the company’s ability to remain cash positive and the feasibility of using cash to support the expansion project.

Forecasting Brown Marine’s Future

A forecast of both the remainder of 1967 and the next calendar year was completed and can be seen in Exhibit 1. This primary forecast of sales was developed to follow a cyclical nature, where the greatest sales were during the summer months and the lowest sales occurred off-season. From this initial forecast, a second, worst-case scenario forecast, Exhibit 2, was generated with 10% less sales, collections, and purchases. The funds provided by operations of Brown Marine, based on the primary seasonal forecast, are positive and decreasing throughout the remainder of the year. Exhibits 3 and 4 show funds provided by operations for 1967 and 1968 respectively. The net decrease in inventory, based on the forecast, projects the month end inventory assets to be $24,660 less in December 1967 compared to July. This is favorable for the company as their

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