Mr. Jones, A recent evaluation of Jones Electrical Distribution has occurred in request of a loan. An assessment of your financial health shows that your company is profitable. The shortage in cash flows regards managerial attention. Since Jones opened in 1999 the company has seen rapid growth in a highly competitive field. General contractors and electricians have preferred Jones for their business. The request for this loan also falls at the end of March, past patterns show that your company is seasonal, with most sales occurring in Spring and Summer months. Previously stated facts estimate that Sales will gradually increase. If managed properly Jones has potential to develop, grow, and add additional sites in the future. Internal and external references about Jones engineering have been beneficial in consideration for a loan.
II. Problem Statement Recently the continued growth in sales has raised accounts receivable and inventories considerably. This decrease in inventory turnover has caused accounts payable to rise due to heavy reliance on credit from your suppliers. All of these have dramatically increased day’s payable out standing. In past history Jones took advantage of a 2% discount if supplies were fully paid off tens days upon purchase. With the growth of business and the decrease in Cash Flows payments for supplies have increased in time apart. The discount that is disregarded only increases the accounts payable and further decreases Cash Flow. In 2006 Metropolitan Branch Bank issued a loan of $250,000 to Jones in order to finance its growth in sales. Heavy credit dependency on suppliers will continue to draw request for larger loans and must decrease. The risk in issuing a $350,000 loan with a company of Jones size could be decreased in hope of creating a long term relationship. In 2005, days payable outstanding was around ten days