Surecut Shears Inc.
Company:
Fischer is both treasurer and president
• Stewart did approve the 2,5mill loan extension
• House hold scissors and industrial shears
• Severe competition from foreign companies
• Made profits every year since 1958
• Short term borrowing were normally between july and December, additional capital neeede to support sales peak
• Produce at an even rate throughout the year – contributed to the need of seasonal funds
• June 1995
• 3,5 mill loan- anticipated to pay it of in decemebr 95
• need for another 1.2mill in june 1996 because of a plant modernization program
• Program need 6mil, half completed- finised by august 1995
• Expected to save 900 per year in manufacturing costs.
• Sept 95
• Neede 500K more to cover peak season
• January 1996
• Sales came down- retailing downturn-
• Need for more short term borrowing- higher expenditures for modernization project.
• Funds needed unitl adjuntsing to economic conditions
• Estimated it would not occur until april 96
• April 1996
• Not able to pay 1.25mill before seasonal upturn in june
• Further slaes decline, retail recesiion
Why was SureCut Shears unable to repay its bank loan by December 1995 as originally forecast
Major sources:
• Net income
• Bnak loans
• Decrease in inventories
• Decrease in cash
Major use
• Increase in account receivalbes
• Increase in fixed assets
Sources and uses July December Sources Uses
Net income 2221
AR 3,489 depreciation Bank Loans 2,279
AP 177
Long term debt 299
Dividends 600
Fixed assets 3,321
Inventories 1,604
Tax pre payable 303 miseclanoues 1
Decrease in cash 1,480 7887 7887
• Decrease in liquidity due to increase in AR
• CCC is shortened because of higher payment period and lower payable period
• Decrease in sales growth, therefore less revenues are generated to potencially be converted into cash
• Build up in inventory from august
Fischer is both treasurer and president
• Stewart did approve the 2,5mill loan extension
• House hold scissors and industrial shears
• Severe competition from foreign companies
• Made profits every year since 1958
• Short term borrowing were normally between july and December, additional capital neeede to support sales peak
• Produce at an even rate throughout the year – contributed to the need of seasonal funds
• June 1995
• 3,5 mill loan- anticipated to pay it of in decemebr 95
• need for another 1.2mill in june 1996 because of a plant modernization program
• Program need 6mil, half completed- finised by august 1995
• Expected to save 900 per year in manufacturing costs.
• Sept 95
• Neede 500K more to cover peak season
• January 1996
• Sales came down- retailing downturn-
• Need for more short term borrowing- higher expenditures for modernization project.
• Funds needed unitl adjuntsing to economic conditions
• Estimated it would not occur until april 96
• April 1996
• Not able to pay 1.25mill before seasonal upturn in june
• Further slaes decline, retail recesiion
Why was SureCut Shears unable to repay its bank loan by December 1995 as originally forecast
Major sources:
• Net income
• Bnak loans
• Decrease in inventories
• Decrease in cash
Major use
• Increase in account receivalbes
• Increase in fixed assets
Sources and uses July December Sources Uses
Net income 2221
AR 3,489 depreciation Bank Loans 2,279
AP 177
Long term debt 299
Dividends 600
Fixed assets 3,321
Inventories 1,604
Tax pre payable 303 miseclanoues 1
Decrease in cash 1,480 7887 7887
• Decrease in liquidity due to increase in AR
• CCC is shortened because of higher payment period and lower payable period
• Decrease in sales growth, therefore less revenues are generated to potencially be converted into cash
• Build up in inventory from august