ADMN 3056 - Ellington Industrial Supply Inc PDF

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Summary

Prof: Glenn Brophey...

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ADMN 3056 – Ellington Industrial Supply Inc. Keely Goldberg Nipissing University

SWOT Analysis Strengths

Weaknesses

Reputation for dependability and integrity  Personalized service and engineering advice Opportunities 

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Wanted to add a warehouse extension

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Felt as though sales may fall for fiscal years 1996-1997 Cramped space in the warehouse

Threats: 

Another distributor opened up an operation in Lakeside in 1994.

Situation         

Jake Ellington Couple months to make decision New competitor (6-9 Months) Space constrained (needs room for more stock) – wants new warehouse ($100k) Reduce payables to 60 days to hang onto exclusive distribution agreements Been losing money until last year Just purchased the building and is no longer renting Identified a market cap – needs to expand his geographical area Growing fast Objective

Jake Ellington is the owner of Ellington Industrial Supply Inc, a distributor of machine tools, maintenance parts, and related equipment in Lakeside. In June of 1995, he was looking to build an extension onto the company warehouse. One of his main concerns were where to find funding as he needed to raise $100,000 to finance the warehouse construction. Jake also had a goal to reduce the companies accounts payable to 60 days before the end of the fiscal year. If he couldn’t make this happen, he had a fear that he would be putting some of EISI’s exclusive distribution agreements in jeopardy. ***Figure out what his “wins” are – what would be a good outcome for him  

Bring in more inventory and reduce payables to 60 days to hold onto exclusive distribution agreements (accounts) Build a warehouse

Information to be Gathered  

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Interpret financials on the performance of the company to determine which option to choose for funding What percentage of the market share the company actually holds (Ellington thought he had about 35%) How much cash will Ellington Industrial Supply Inc (EISI) generate/require in the next two years based on the high/low estimates? Assume EISI corporate income tax rate averages 25 percent. Which source of funds should be used for the warehouse and other requirements? o I think the source of funds used for the warehouse and other requirements should be a private lender or private lender. Although Ellington Industrial Supply Inc has paid off some of the money, they owe by the year end they still owe over 100,000 and it might be hard for a bank to give them money. Private lenders do not set as strict criteria for borrowers and the interest % may be lower, but they are also more interested in where they are putting their money than getting a loan from the bank. They may also be able to get more money so they can reduce the age of accounts payable well also may being able to pay for or pay for the warehouse extension What would be the effects of shortfall or overshooting on the sales forecasts have on the operation? o The effects of overshooting on the sales forecast would be that they do not have the space available for any increase in inventory which would put them into a situation where they have too many products and not enough space to store them. They have also put the money and labour into the products that they may not sell and may not get the revenue back. Effects if shortfall on the sales forecasting could be that they do not make enough products and may end up running out. Having a shortfall on the sales forecast could mean less workers or hours for the workers, as well they may not get the revenue needed and may start going into debt or may have to take money from a different spot.

Alternatives

Cash was not generated from operations, ended up

having a negative balance for 2012. This is not good as income from operations is the engine of the business. If it does not make money from operations and this trend continues, the company will eventually go bankrupt - Accounts payable is the biggest account in operations with $156,100 which is not good

as they have a lot of money to pay off and since they didn’t make any money from operations, it doesn’t look like it can be paid off Cash was not generated from operations, ended up having a negative balance for 2012. This is not good as income from operations is the engine of the business. If it does not make money from operations and this trend

continues, the company will eventually go bankrupt - Accounts payable is the biggest account in operations with $156,100 which is not good as they have a lot of money to pay off and since they didn’t make any money from operations, it doesn’t look like it can be paid off   

Borrow from the bank or from a private lender Selling shares in EISI to a local investor Equity financing (Jake Ellington was hesitant on this option) Recommendations

Borrow from a bank or a private lender. The previous bank loan is on track to be paid off by January 31, 1998. The interest coverage is 2.7X which means EISI has the capability to pay back their debts.

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How much cash will Ellington Industrial Supply Inc (EISI) generate/require in the next two years based on the high/low estimates? Assume EISI corporate income tax rate averages 25 percent. Which source of funds should be used for the warehouse and other requirements? o I think the source of funds used for the warehouse and other requirements should be a private lender or private lender. Although Ellington Industrial Supply Inc has paid off some of the money, they owe by the year end they still owe over 100,000 and it might be hard for a bank to give them money. Private lenders do not set as strict criteria for borrowers and the interest % may be lower, but they are also more interested in where they are putting their money than getting a loan from the bank. They may also be able to get more money so they can reduce the age of accounts payable well also may being able to pay for or pay for the warehouse extension What would be the effects of shortfall or overshooting on the sales forecasts have on the operation? o The effects of overshooting on the sales forecast would be that they do not have the space available for any increase in inventory which would put them into a situation where they have too many products and not enough space to store them. They have also put the money and labour into the products that they may not sell and may not get the revenue back. Effects if shortfall on the sales forecasting could be that they do not make enough products and may end up running out. Having a shortfall on the sales forecast could mean less workers or hours for the workers, as well they may not get the revenue needed and may start going into debt or may have to take money from a different spot....