Pejenca Industrial Supply Ltd - Finance Case Analysis

Pejenca Industrial Supply Ltd.

Finance Case Analysis

Management of Organizations COMM1007EL-01

Kody Krystia (0309557)

January 27th/ 2016 

Executive Summary

Pejenca Industrial Supply Limited of London, Ontario, is a company that has been in operation since 1989. Pejenca is a “one-stop-shopping” company that focuses on distributing cutting tools, office supplies, machine accessories, and other items that are needed by business operators. The company is known for its in-house expertise, it commitment to its customers, its staff, and the ongoing financial stability of the company. Peter Charles, co-owner of Pejenca, has determined that the company is desperately short of warehouse space and must decide how much financing will be required for an expansion to his building. He has one week to be prepared to discuss his options with the bank about financing $150,000.

        Even though the company has experienced a negative sales growth of 1.7% in 2002, a detailed ratio analysis has shown that the company is in a very strong financial position. Pejenca is showing very strong efficiency, liquidity, stability and profitability ratios. Even though the growth was not positive, which could be a result of more investment in cash, the company still exceeds industry averages by a large margin.

        In reviewing the projected financial statements we see that the company has a very strong cash balance. With Mr. Charles’ commitment to maintain a cash balance of $130,000 to sustain the company throughout the year, the projected cash balance proves that he has more than enough cash and reserves, even with a bank loan. Therefore, I am recommending that Pejenca not request a loan, and finance the building extension themselves.

Problem Statement

In early June 2003, Peter Charles, president and major shareholder, must decide how much financing is required to add a $150,000 expansion to the company’s building. The company finds itself short of warehouse space.  The extension is required in order to avoid potential customer service delays resulting from inadequate inventory storage space.

Problems/Sub-Problems/Issues

        Many sub problems arise when taking a closer look into the company’s situation. One of these problems is whether the company actually needs the $150,000 loan or not.  Another problem is that he has reached this conclusion without analyzing the financial ratios or preparing projected financial statements. Another issue is that it is a highly competitive market, therefore the company has to be fiscally prudent in all areas of the business.