02913528
Riley Supply
Plumbing & Heating Supply

Marketing Analysis:
The nature of Riley Supply is relatively self-explanatory from a business perspective. Based on the theory that there will be significant growth within the two suburbs it resides in, Riley will benefit from the revenues. Demand will depend on the rate of growth and how quickly people actually begin moving into the suburbs. Demand will change slightly due to cyclical and seasonal changes. Seasonal will account for whether heating is needed (if it is a cold winter), and cyclical based on when the market is doing well and people are able to invest in homes and real estate. As of 2006 both counties grew over 70% from 1995, which undoubtedly grew their net sales. When looking at Riley’s strengths, weaknesses, opportunities, and threats it helps to understand where they stand.
S.W.O.T.
Strengths are the growth prospects for both Cherokee and Forsyth counties, as well as expected sales growth of over 30% in the next year. With small populations the two counties most likely do not have a strong presence of competitors in the plumbing and heating market.
Weakness is present in the company cash flows; time spend working out these issues could be spent on much more significant factors. Also, there was a historical period of seasonal slowdown, where Riley’s accounts receivables and inventory were not adequate to secure the bank loans, and reducing the loan was a problem due to weak sales. Jim Riley might not have the experience necessesary to run the company successfully.
Opportunities are in the market itself. With the growing population, Riley Supply should be able to take advantage of activity in the real estate market and capitalize on the housing starts. Contracts can be negotiated with new homeowners and property managers (especially with commercial real estate).
Threats will always be present in any industry. Riley Supply will need to watch for new competition entering the market as the two suburbs begin populating. Also, if they continue to get on their suppliers bad side and do not remain in good standing with the bank they will tarnish their reputation. This will most likely affect the rates they are able to borrow at and cost them far more money that could be used in other aspects of the business.

Operations Analysis:
Riley Supply does have manufacturer suppliers, who are an important relationship to maintain. The supply chain must run smoothly in order to cut excess costs. In the past they have not done an optimal job of this, which was noticed when the suppliers begin to demand payment on delivery, rather than the normal 2/10, n/30 terms which is standard in manufacturer and wholesaler markets. Riley Supply has an extremely healthy inventory turnover ratio of 4.51 and asset turnover ratio of 2.53. These numbers tell us that there business cycle is quick and they are able to get inventory in and out of the company at a fast rate. Average collection period was normal at 51.37. Accounts receivables and inventory grew proportionally to sales, which means that Riley should have enough to secure any bank loans that they might need.

Finance Analysis:
To start, Riley Supply is in worse shape when looking at their 2006 statement of cash flows than 2005. In 2006 they end the year with net cash out flow of 24 dollars. In their operating section, their collection on invoices and payments got worse, although it is offset with payable increases. The main red flag goes to accruals, which decrease greatly in from 2005 to 2006. Financing is mostly current debt that is acquired using bank loans, which are increased over time. This would be a positive notion toward company expansion, although it is alarming that they also increase their dividend issuance. There earning could be used for the purpose of expansion rather than to please shareholders. Although the liquidity looks healthy when computing Riley’s current ratio, we see that its quick ratio is below one. This shows that the company is not at a solid state in terms of liquidity, and is weighing heavily on inventory as means of security. Leverage has not had significant changes and they are slowly paying of the mortgage on their balance sheet. Riley has an average collection period but rather high inventory conversion, indicating that it will be harder to stay consistent with paying of their supplier if they are not given special payment period options, which could mean difficulty is in their future given a payment on delivery schedule is set. Low profit margins indicate that Riley could make better use of its revenues and should look into ways to cut down costs.

Summary:
Demand will depend heavily on growth within the two suburbs. Competition is most likely not an immediate concern but will need to be monitored closely looking into the future. Demand will be seasonal due to weather conditions and cyclical based on money that people will have on-hand to invest when the market does well. Inventory being used heavily as a way to secure loans and based on Riley’s unhealthy inventory conversion ratio this must also be monitored closely. Granted Riley can deal with payment on delivery with some of its suppliers and utilize the increasing sales (granted their prediction is correct) to pay of bank loans they will have a healthy future. Cutting costs would benefit the company by raising profit margins and help with credibility.