Jackson Automobile Case Solution
1. Describe the nature of the firm and their financial performance in the prior fiscal year (2012) and financial condition as at year-end 2012. Also use the monthly information provided to assess how the financial condition of Jackson Automotive has evolved up to the time of the case.
Background:
The Automotive industry of United States of America has more than 5000 companies that supply automotive parts. Approximately 200 countries have more than 100 million dollars annual sales and remaining are the small producers of the automotive parts. The nature of the industry reflects that the share of the market is widely dispersed. The survival and the growth of the small companies like the Jackson Automotive Systems is depends hugely on their specialized auto part lines. The sales of these companies are extremely reliant on the local customers.
There are a number of original equipment manufacturer based in the state of Michigan. The OEMS faced the unembellished collapse in the financial crisis of 2008, which reduced their sales by 30 percent. The financial crisis has enforced the companies to cut down their production and the companies were running at their 55 percent of the total production capacity to survive the crisis.
After the financial crisis, the industry had to face huge competition from the overseas companies. The Overseas companies are mostly from the India and China. The low labor cost and wage rates give overseas companies competitive advantage over them. The financial crisis and the competition from the overseas companies have forced many US OEMs to close their business because of bankruptcy. The US OEMs has again acquire the profitability levels in the year 2011. However, they are still accompanied by the same competition from the overseas companies.
Company Profile
Jackson Automotive Systems is one of the small automotive parts supplier companies that survived the financial crisis and aggressive overseas competition. The company was founded in the year 1961. Larry Edwards joined the business in the mid-1990 and proved himself as an enthusiastic and a successful businessman.
The company has evolved with fast paced growth and record production under the leadership of Larry Edwards. Edwards’s openness to innovations and new ideas on design help the company to acquire new customers. The Edwards is solely responsible for the company’s survival in the financial crisis. The company has selling and purchasing payment policy of 30 days.
Financial Performance
The company had total assets of 36.67 million dollars at the end of the month in August 2012 that declined to 32.224 million dollars at the end of December 2012. The huge decline in just 4 months is record decline percentage of 12 percent. The decline is majorly due to decline in available cash to the company. In the month of Aug 2012, the current ratio of the Jackson was 2.5 and at the end of September 2015, it declined to almost its half, at 1.24. The current ratio defines the value of company’s current assets to current liabilities. The decline in the ratio is reflects that the financial strength of the company is not too strong.
2. Describe the original terms of the bank loan that is under consideration, including the reasons it was initially arranged. Then explain the major developments between August 2012 and May 2013 that have contributed to the inability of the firm to repay the loan on line, and the proposal to extend the repayment.
The company has issued the loan of $5 million to buy back their stock from the market in order to reduce the number of shares outstanding. The company has to pay 6 percent annual rate of the loan, as on terms to pay loan each month that will be 0.5 percent each month. The other condition involves that the company would pay the whole loan principal with the interest payments at the end of June 2013.
1. Describe the nature of the firm and their financial performance in the prior fiscal year (2012) and financial condition as at year-end 2012. Also use the monthly information provided to assess how the financial condition of Jackson Automotive has evolved up to the time of the case.
Background:
The Automotive industry of United States of America has more than 5000 companies that supply automotive parts. Approximately 200 countries have more than 100 million dollars annual sales and remaining are the small producers of the automotive parts. The nature of the industry reflects that the share of the market is widely dispersed. The survival and the growth of the small companies like the Jackson Automotive Systems is depends hugely on their specialized auto part lines. The sales of these companies are extremely reliant on the local customers.
There are a number of original equipment manufacturer based in the state of Michigan. The OEMS faced the embellished collapse in the financial crisis of 2008, which reduced their sales by 30 percent. The financial crisis has enforced the companies to cut down their production and the companies were running at their 55 percent of the total production capacity to survive the crisis.
After the financial crisis, the industry had to face huge competition from the overseas companies. The Overseas companies are mostly from the India and China. The low labor cost and wage rates give overseas companies competitive advantage over them. The financial crisis and the competition from the overseas companies have forced many US OEMs to close their business because of bankruptcy. The US OEMs has again acquire the profitability levels in the year 2011. However, they are still accompanied by the same competition from the overseas companies.
Company Profile
Jackson Automotive Systems is one of the small automotive parts supplier companies that survived the financial crisis and aggressive overseas competition. The company was founded in the year 1961. Larry Edwards joined the business in the mid-1990 and proved himself as an enthusiastic and a successful businessman.
The company has evolved with fast paced growth and record production under the leadership of Larry Edwards. Edwards’s openness to innovations and new ideas on design help the company to acquire new customers. The Edwards is solely responsible for the company’s survival in the financial crisis. The company has selling and purchasing payment policy of 30 days.
Financial Performance
The company had total assets of 36.67 million dollars at the end of the month in August 2012 that declined to 32.224 million dollars at the end of December 2012. The huge decline in just 4 months is record decline percentage of 12 percent. The decline is majorly due to decline in available cash to the company. In the month of Aug 2012, the current ratio of the Jackson was 2.5 and at the end of September 2015, it declined to almost its half, at 1.24. The current ratio defines the value of company’s current assets to current liabilities. The decline in the ratio is reflects that the financial strength of the company is not too strong.
2. Describe the original terms of the bank loan that is under consideration, including the reasons it was initially arranged. Then explain the major developments between August 2012 and May 2013 that have contributed to the inability of the firm to repay the loan on line, and the proposal to extend the repayment.
The company has issued the loan of $5 million to buy back their stock from the market in order to reduce the number of shares outstanding. The company has to pay 6 percent annual rate of the loan, as on terms to pay loan each month that will be 0.5 percent each month. The other condition involves that the company would pay the whole loan principal with the interest payments at the end of June 2013........................
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