reasearch metods
Elex Speights
February 12, 2014
ACG 5175
W.T. Grant Company
Your mission is to apply tools of financial analysis to determine the major causes of Grant’s financial problems. If you had been performing this analysis contemporaneously with the release of publicly reported information, when would you have become skeptical of the ability of Grant to continue as a viable going concern?
One of the major causes of Grant’s financial problem, is regarding the credit extension and credit terms. These credit terms let consumers only pay $1 for their minimum monthly payments, regardless of the total amount of purchases. This caused Grant to obtain a short-term loan of $600 million to cover the credit of consumer purchases. Another major cause of Grant’s financial problem, would be the new product line that he wanted to implement and it being eliminated from the stores. In addition, numerous stores were also closing which diminished their revenues and chances in reaping the benefit of opening new stores to accommodate the middle-income consumers.
From the publicly reported information, I would have become skeptical of the ability of Grant to continue as a viable concern when he implemented the new strategy of credit extension. The new strategy put W.T. Grant in a position to procure finances from several different banks to absorb the credit from purchases. With the short-term loan not being significant enough to overcome those events, the company had to close a number of stores that were not profitable. The short-term debt increased almost $20,000 from 1966 to 1967 because of the credit extension to customers and not collecting accounts receivable. Even with the customer installment receivable increasing from 1967 to 1968 by almost $30,000, the credit limit for customer purchases were not being paid fully so the company had to take out more short-term loans. They also had to pull the strategy of introducing a new product line, which included furniture and
February 12, 2014
ACG 5175
W.T. Grant Company
Your mission is to apply tools of financial analysis to determine the major causes of Grant’s financial problems. If you had been performing this analysis contemporaneously with the release of publicly reported information, when would you have become skeptical of the ability of Grant to continue as a viable going concern?
One of the major causes of Grant’s financial problem, is regarding the credit extension and credit terms. These credit terms let consumers only pay $1 for their minimum monthly payments, regardless of the total amount of purchases. This caused Grant to obtain a short-term loan of $600 million to cover the credit of consumer purchases. Another major cause of Grant’s financial problem, would be the new product line that he wanted to implement and it being eliminated from the stores. In addition, numerous stores were also closing which diminished their revenues and chances in reaping the benefit of opening new stores to accommodate the middle-income consumers.
From the publicly reported information, I would have become skeptical of the ability of Grant to continue as a viable concern when he implemented the new strategy of credit extension. The new strategy put W.T. Grant in a position to procure finances from several different banks to absorb the credit from purchases. With the short-term loan not being significant enough to overcome those events, the company had to close a number of stores that were not profitable. The short-term debt increased almost $20,000 from 1966 to 1967 because of the credit extension to customers and not collecting accounts receivable. Even with the customer installment receivable increasing from 1967 to 1968 by almost $30,000, the credit limit for customer purchases were not being paid fully so the company had to take out more short-term loans. They also had to pull the strategy of introducing a new product line, which included furniture and