caso Jones

Inventory turnover ratio for 2005 is (1535/278=5.89) and for 2006 is (1818/379=4.8). It showsthat Jones has been overconfident in their predictions. Increasing the inventory is a reason thatthecompany is facing cash money shortage. All of these have dramatically increased
day’s
payable outstanding.
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In past history Jones took advantage of a 2% discount if supplies were fully paid off tendaysupon purchase. With the growth of business and the decrease in Cash Flows, payments forsupplies exceed the discount period. The discount that is disregarded only increases theaccounts payable andfurther decreases cash flow. In 2006 Metropolitan Branch Bank issued aloan of $250,000 to Jones in order to finance its growth in sales. Heavy credit dependency onsuppliers will continue to drawrequest for larger loans and Jones must keep its line of credit at alower rate to increase cash flows. The risk in issuing a $350,000 loan with a company of Jones size could be decreased in hope ofcreating a long term relationship.
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Also, the company has lowered the Cash Conversion Cycle from 100.12 days (during 2005) to 95days(during 2006) thus by increasing the days payable the company canreduce the c2c cycle.
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We observe that with trade discount the company’s line of credit has to increased its line of 
credit to $395 assuming it has year ending cash balance of$ 32 and withoutcash discount thecompany needs to maintain a line of credit of $ 310. We know that the company can get amaximum line of credit of $350, thus the option of trade discount is not feasible.
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One areathat we feel that the company could improve in is in its purchasing of inventory. Thereseems to be a huge influx of additions to its inventory, and based on the decrease in itsinventory turnoverratio, the increase of inventory seems to be a bit unnecessary. Looking at thefinancial statements we feel that the company could improve your cash flows by buying theappropriate amount of inventory....