Jones Electrical Distribution
Jones Electrical Distribution case
Jones Electrical Distribution is a wholesaler of electrical components and devices to general contractors and electricians. Although Jones Electrical Distribution has been profitable in the past few years, the company experiences a drain on its cash when it attempts to maintain a rapid growth while taking advantage of trade discounts at the rate of 2%.
Problems faced by Jones Electrical Distribution are as follows:
Should the company maintain a rapid sales growth or should it slow down?
Which is its favorable means of financing? Equity or Debt?
For a long term borrowing, should the company turn to Southern Bank & Trust for an extended line of credit or maintain its relationship with Metropolitan Bank?
Should the company take advantage of the trade discount or pay its suppliers after due date?
To evaluate the case and provide possible solutions to Jones Electrical Distribution, the operating statement with and without trade discount is forecasted and financial ratios are calculated as below.
Operating Statement
2004
2005
2006
Q1
2007
Expectation
2007
Expectation
2007 with trade discount
Net sales
1624
1916
2242
608
2700
2700
COGS
1304
1535
1818
499
2189
2146
Gross profit
320 381 424 109 511 554
Operating expense
272
307
347
94
418
418
interest expense
27
30
31
8
37
37
Net income before tax
21 44 46 7 55 99
Provision for income taxes 7
15
16
2
19
34
Net income
14 29 30 5 36 65
Calculation formula:
COGS in Expectation 2007=2700/Net sales in 2006* COGS in 2006
COGS in Expectation 2007 with trade discount=COGS in expectation 2007*(1-2%)
Provision for income taxes in expectation 2007 with trade discount=provision for income taxes in
Jones Electrical Distribution is a wholesaler of electrical components and devices to general contractors and electricians. Although Jones Electrical Distribution has been profitable in the past few years, the company experiences a drain on its cash when it attempts to maintain a rapid growth while taking advantage of trade discounts at the rate of 2%.
Problems faced by Jones Electrical Distribution are as follows:
Should the company maintain a rapid sales growth or should it slow down?
Which is its favorable means of financing? Equity or Debt?
For a long term borrowing, should the company turn to Southern Bank & Trust for an extended line of credit or maintain its relationship with Metropolitan Bank?
Should the company take advantage of the trade discount or pay its suppliers after due date?
To evaluate the case and provide possible solutions to Jones Electrical Distribution, the operating statement with and without trade discount is forecasted and financial ratios are calculated as below.
Operating Statement
2004
2005
2006
Q1
2007
Expectation
2007
Expectation
2007 with trade discount
Net sales
1624
1916
2242
608
2700
2700
COGS
1304
1535
1818
499
2189
2146
Gross profit
320 381 424 109 511 554
Operating expense
272
307
347
94
418
418
interest expense
27
30
31
8
37
37
Net income before tax
21 44 46 7 55 99
Provision for income taxes 7
15
16
2
19
34
Net income
14 29 30 5 36 65
Calculation formula:
COGS in Expectation 2007=2700/Net sales in 2006* COGS in 2006
COGS in Expectation 2007 with trade discount=COGS in expectation 2007*(1-2%)
Provision for income taxes in expectation 2007 with trade discount=provision for income taxes in