Can you help me understand this Accounting question?
Jones Electrical Distribution
Case Questions
What is Jones Electrical Distribution’s business? How well has it been performing? What must Jones do succeed in the business?
Why has this profitable company had to borrow more and more money from the bank?
What drove the increase in Inventory and Accounts Receivable balances in 2005 and 2006?
What drove the increase in accounts payable? Calculate the cost of trade credit. Should Jones take the trade discounts?
Will a line of credit of $350,000 be sufficient for Jones to meet the company’s need if the company takes trade discounts? Will it be enough if the company does not take the trade discounts?
What will happen to Jones’ financial needs beyond 2007? What would have to occur for borrowing to decline?
Do you think the banker, Ms. Montrose, should agree to lend Mr. Jones the money that he needs? What are the alternatives open to Mr. Jones if Ms. Montrose refuses his request for an increased credit line?
Given your analysis on Jones Electrical Distribution, what are your recommendations to Mr. Jones about financing of his business?
Note: To answer the questions above, you should complete the analysis posted on Blackboard. Specifically, you should complete: (1) Sources and Uses of Funds, (2) Pro Forma Income Statement, and (3) Pro Forma Balance Sheet. You should also calculate the ratios listed on the spreadsheet to help with your analysis. You can calculate cost of trade credit using Excel or simply type your calculation in the word document you submit.