Jones Electrical Distribution Jones Electrical Distribution is an electrical goods provider to contractors and construction firms.

They are a startup company that was founded in 1999 between two roommates. The company has been growing since their start but has reached a point where they need to acquire more funding in order to keep expanding. The current bank that they are at loans a max of $250,000 to one investor. This has been adequate for the companys needs until 2007 when business has picked up and more capital is needed to expand into other markets. The current problem the company is facing is trying to acquire more funding to be able to fulfill more orders and pay off suppliers on time. Jones Electrical has been performing well according to their Operating Statements for 2004-2006. Net Sales has increased at a constant rate for these years by approximately 17.4% per year which suggests that they are constantly growing. Jones Electrical Distribution has also had their gross profit sales increase year over year by about 15%. This has potential to be higher considering that Jones Electricals comparative advantage over its highly competitive market is low prices. In order for Jones Electrical Distribution to keep performing well year over year by increasing net sales, they need to saturate more of the market for electrical goods while keeping their prices competitively low. If they can acquire the higher bank loan from Southern Bank & Trust of $350,000, Jones Electrical will be able to grow its business into other markets. As historical data has shown, Jones Electrical has a profitable business platform and is able to payoff their supplies on a timely manner. In order to saturate more of the market for electrical goods, Jones Electrical needs to be able fulfill all the incoming orders in a timely manner. If Jones Electrical can fulfill their orders to their customers in a timely manner, this will help build reliability and reputation among electricians and contractors. Also, being able to take advantage of the 2% discount offered by suppliers if payments are made within 10 days of the invoice date, will greatly help Jones Electricals gross profit increase and secure future business. Ultimately, with more capital, Jones Electrical Distribution can aggressively seek the growth of its company. The increase in the 2005 and 2006 accounts receivable and inventory balances was due to increase in sales volume. This was one of main purposes for the need of a loan increase. Jones Electrical was selling product at a faster rate than they could pay off. Therefore, they were not able to pay off their payments to the suppliers within the 10 day limit to take advantage of the 2% discount. This is why Jones Electrical is searching for a bigger loan. In the first quarter of 2007 Jones Electrical Distribution saw their accounts payable increase by $83,000. If this continues, the company will owe $452,000 in accounts payables at the end of the year plus $250,000 from the previous line of credit. Account receivable only increased by $26,000 after the first quarter of 2007. If this continues, the company will have received $368,000 by the end of the year. So, assuming that the companys inventory continues to increase (not generating cash or accounts receivables) as it has for the past 3 years $350,000 is close to the exact amount the company needs. If Jones continues to carry an increasingly large amount of inventory on his balance sheet he will not be able repay the line of credit. Jones account receivables and cash are not enough alone to repay the debt. If Jones can find a way to liquidate the inventory that he has been carrying and building up he can repay the line of credit in a little as a year; however from his history of being unable to reduce inventory

it appears that he will not be able to repay this debt. Jones currently has a $250,000 line of credit with Metropolitan Bank. Jones now has the ability to receive a line of credit from Southern Bank & Trust with maximum amount of $350,000, which he assumes will more than meet his needs, with more flexibility than he currently has. Jones needs the money to increase sales, which he forecasts as increasing in the future as well. Jones competes on price and operational margins in the wholesale segment. In order to increase sales margins, and decrease amount of production and input Jones could raise prices. This would lower COGS and other expenses, thereby lowering the need of an increased line of credit. Jones is viewed as someone who does not spend a dime unless he absolutely has to. Jones has no sizeable personal investments apart from the electrical distribution business he owns, his home, and a life insurance policy. There is also an unfulfilled debt with his past business partner, whom he founded the business with and later bought out for $250,000. The debt with his past partner is being repaid in installments of $2,000 per month with an interest of 8% annually. The implication of Jones lifestyle of accepting a new line of credit is that his business is growing, and he cannot sustain it without an increased loan. Jones has historically been capable of fulfilling his obligations with a growing line of credit and steady debt, but he requires more as sales increase. But, the companys current ratio has steadily decreased, suggesting current assets and current liabilities have not maintained proportion. This suggests that although Jones strives to be efficient, he has not been able to manage the increase.