Jones Electrical Case

Prepare using 2006 financial data

• Sources & Uses of Funds
• Financial Cash Flow
• Accounting Cash Flow
• Sustainable Growth Rate
• Relevant Ratios (liquidity)
• Proforma Income Statement & Balance Sheet
• Using the sustainable growth rate
• Assume higher loan amount
• Assume Jones takes the 2% discount

Exhibit 1 Operating Statements for Years Ending December 31, 2004-2006, and for First Quarter 2007 (thousands of dollars) 2004 2005 2006 First Quarter Net sales Cost of goods sold Gross profit on sales $ 1,624 $1304 $ 1,916 $1,535 S 381 $2,242 $1,818 2007 $ 608 $ 499 $ 424 $ 109 $ 272 $94 Operating expensel Interest expertise Net income before taxes Provision for income taxes $ 27 $ 21 S 307 S 30 $ 44 $ 347 $31 $ 46 $ $ JELI S15 29 Net income 16 30 In the first quarter of 2006, sales were $S14,000 and net income was $4,000. B Operating expenses include a normal level of cash salary for Mr. Jones in all periods Exhibit 2 Balance Sheet at December 31, 2004-2006, and March 31, 2007 (thousands of dollars) 2004 2005 $ 53 $ 231 $ 228 2006 $ 23 $ 264 $ 45 $ 187 $ 243 $ 475 First Quarter 2007 $ 32 $ 290 $ 432 $ 755 $666 Cash Accounts receivable Inventory Total current assets Property & equipment Accumulated depreciation Total PP&E, net Total assets $ 187 $ 202 $ 99) $ 103 (S 134) $ 118 $ 252 $ 1421 $ 110 $ 74) $ 113 S588 $ 36 $ 149 $ 13 $24 $ 222 Accounts payable Line of credit payable Accrued expenses Long-term debt, current portion Current liabilities Long-term debt Total liabilities Net worth $ 120 $ 42 $ 214 $ 14 $ 24 $ 294 $ 249 $ 14 $ 24 $ 407 $ 203 $ 250 $ 12 $ 24 $ 489 $ 182 $ 404 $ 158 $ 452 $ 134 $ 541 $ 128 $ 612 $ 246 $ 213 $184 $588 $ 243 $784 Total liabilities and net worth Exhibit 3 Diagram of options available to Nelson Jones and related financing requirements Bank Debt Finance Long-Term Debt Take Trade Discounts Very Large Need for Financing Raise New Equity Rapid Sales Growth Bank Debt Finance Long-Term Debt Forgo Trade Discounts Large Need for Financing Raise New Equity Bank Debt Finance Long-Term Debt Take Trade Discounts Moderate Need for Financing Raise New Equity slow or No Sales Growth Forgo Trade Discounts No Need for Additional Financing Exhibit 1 Operating Statements for Years Ending December 31, 2004-2006, and for First Quarter 2007 (thousands of dollars) 2004 2005 2006 First Quarter Net sales Cost of goods sold Gross profit on sales $ 1,624 $1304 $ 1,916 $1,535 S 381 $2,242 $1,818 2007 $ 608 $ 499 $ 424 $ 109 $ 272 $94 Operating expensel Interest expertise Net income before taxes Provision for income taxes $ 27 $ 21 S 307 S 30 $ 44 $ 347 $31 $ 46 $ $ JELI S15 29 Net income 16 30 In the first quarter of 2006, sales were $S14,000 and net income was $4,000. B Operating expenses include a normal level of cash salary for Mr. Jones in all periods Exhibit 2 Balance Sheet at December 31, 2004-2006, and March 31, 2007 (thousands of dollars) 2004 2005 $ 53 $ 231 $ 228 2006 $ 23 $ 264 $ 45 $ 187 $ 243 $ 475 First Quarter 2007 $ 32 $ 290 $ 432 $ 755 $666 Cash Accounts receivable Inventory Total current assets Property & equipment Accumulated depreciation Total PP&E, net Total assets $ 187 $ 202 $ 99) $ 103 (S 134) $ 118 $ 252 $ 1421 $ 110 $ 74) $ 113 S588 $ 36 $ 149 $ 13 $24 $ 222 Accounts payable Line of credit payable Accrued expenses Long-term debt, current portion Current liabilities Long-term debt Total liabilities Net worth $ 120 $ 42 $ 214 $ 14 $ 24 $ 294 $ 249 $ 14 $ 24 $ 407 $ 203 $ 250 $ 12 $ 24 $ 489 $ 182 $ 404 $ 158 $ 452 $ 134 $ 541 $ 128 $ 612 $ 246 $ 213 $184 $588 $ 243 $784 Total liabilities and net worth Exhibit 3 Diagram of options available to Nelson Jones and related financing requirements Bank Debt Finance Long-Term Debt Take Trade Discounts Very Large Need for Financing Raise New Equity Rapid Sales Growth Bank Debt Finance Long-Term Debt Forgo Trade Discounts Large Need for Financing Raise New Equity Bank Debt Finance Long-Term Debt Take Trade Discounts Moderate Need for Financing Raise New Equity slow or No Sales Growth Forgo Trade Discounts No Need for Additional Financing