The Valuation and Financing of Lady M Confections

Corporate finance

Case 1st.

Elgün İbrahimli-115664011

İstanbul Bilgi University

 Jones Electrical Distibution

Nelson Jones is a founder and the only owner of Jones Electrical Distribution. He has to decide about the future of the company – to grow   fast or slow? He has to take a loan to expand the company and can take advantage of a discount up to 2% (Is there any need for that?). If decided, he should build relationships with Southern Bank & Trust from which he can get more loans.

In recent years, the company's sales growth (net sales) is sufficient. Now they should increase the inventory level up to the level of sales growth. The company has a cash problem. To solve this, it should make agreement with a new bank even against severing relations with the old bank.

The company has good performance; there is an obvious increase in net income. The cash problem should be solved. The solution of this problem will solve the inventory problem, will help to initiate new projects and return the debts.

Jones should better manage inventory. Compared to previous years in 2006 and 2007 (forecast) it had too much inventories. Moreover, they must NOT use 2% discounts because for this they need more financing. Despite growth in company's gross profit there is also a growth in inventory and Accounts Receivable. With 11% increase in gross profit, there is also an increase of 36% in inventories and 14% in Accounts Receivable (2005-2006).  

During the period of 2004-2006 the demand on company’s products has been increased .This requires an increase in supply in order to keep up  with the competitive market .The increase of supply\inventory was right decision , but it affected the time that it takes the company to receive payment. Jones needs to increase cash. In 2006 there was a decrease in cash by 56 % (2015-2016). In order not to increase the need for cash it should avoid to take 2% discount. A new larger loan will let Jones expand its company. It also has problems with suppliers. Yet they did not protest the continued delays but it could not continue like that and there is also a need for funding. Nelson thinks that for the year 2007 the amount of $ 350,000 is sufficient. The details of preliminary loan agreement with Rachel Montrose have not been worked out yet. To take advantage of the loans, Nelson will try to pay these loans as soon as possible. But, in general, this loan will not bring big changes into Jones’ simple and modest life.