Per your request, my team of financial analysts and I have completed the Growth Simulation you asked us to complete. Given the three scenarios for financing you have provided, we have analyzed the three financing options and have determined that the best option is to maintain our relationship with Miami Dade Merchant’s Bank (MDM). There are multiple reasons for this decision:
• It seems as if most other commercial banks are retrenching, indicating a tightening of the credit market, which means now would be an inopportune time to leave our current bank.
• The company is not willing to give a guarantee of any employee or board member’s personal assets.
• Because we intend on drawing on the line of credit, we aim to keep interest expense as …show more content…
We found that Sunflower must be selective in who we acquire as customers, being careful not to enter into a contract that would lead to Sales growing too quickly, or entering into a contract with significant repayment risk. The reason for this is because our current Cash Conversion Cycle (CCC) of 162 days considerably ties up cash in Inventory and Accounts Receivable. If we increase Sales too quickly, we will need more Cash to fund new inventory. If inventory grows too quickly without cash being replenished, we will run into a situation where we run out of Cash, potentially leaving us insolvent if our Liabilities and Stockholders’ Equity grow larger than our assets. Because of this, Sunflower will be most successful by growing Sales slowly, and mainly focusing on decreasing our CCC to free up cash, and diminish Interest Expense. This will increase our FCF, and ultimately increase Retained Earnings and Stockholders Equity. One of the downsides of the industry we operate in is that our products are working capital intensive. As such, we do expect a high volume of cash to be tied up in Inventory days. Because of this, a priority of ours must be to stretch our Accounts Payable days (or achieve discounts), and reduce our Accounts …show more content…
The result of this was, in fact, a growth in EBIT and Net Income (19’-21’), as well as substantial growth in FCF in 20’-21’. Part of our simulation in these years involved rejecting a high-risk customer. We did this solely because we, as a company, fundamentally should not acquire a customer where there is low probability of payment. Our two decisions of renegotiating credit terms and adopting a Global Expansion Strategy already increased sales for the