Hampton

Part II: State the problem

Nelson Jones, sole owner of Jones Electrical Distribution, has recently been faced with the situation where an increase in his loan amount is imperative. Jones currently has a relationship with Metropolitan Bank where he received a loan of $250,000, the maximum amount the bank will make. Between the end of year statements of 2005 to 2006, there was a sizeable decrease in cash, hasty increase in Accounts Payable and Line of Credit, all considerable grounds for an increase in loan amount. The issue at hand arises due to the fact that Metropolitan Bank is either unwilling or unable to extend a larger amount.

A friend of Jones referred him to Southern Bank & Trust where Jones was introduced to relationship officer Rachel Montrose. A combination of favorable comments made by manufacturers from whom Jones buys his equipment and his promising history of paying invoices in a timely manor, among other wise financial decisions, proved Jones was a contender for a loan and subsequently agreed upon $350,000.

Even with the sizable loan of $350,000, Jones must reevaluate the way in which he handles financial decisions in order to ensure continual growth of his company. Specifically, he needs to focus on whether or not to take the 2% trade discounts by paying the invoices within ten days of the purchase and where the financing will come from.

Part 3

Income Statement as a Percentage of Sales

| 2004 | 2005 | 2006 |

Net Sales | 100.00% | 100.00% | 100.00% |

COGS | 80.30% | 80.11% | 81.09% |

Gross Profit on Sales | 19.70% | 19.89% | 18.91% |

Operating Expense | 16.75% | 16.02% | 15.48% |

Interest Expense | 1.66% | 1.57% | 1.38% |

Net Income Before Taxes | 1.29% | 2.30% | 2.05% |

Provision for Income Taxes | 0.43% | 0.78% | 0.71% |

Net Income | 0.86% | 1.51% | 1.34% |

Balance Sheet as a Percentage of Total Assets

| 2004 | 2005 | 2006 |

Cash | 7.65% | 7.97% | 2.93% |

Accounts Receivable | 31.80%...