Surecut Shears Inc.

Company: Fischer is both treasurer and president †¢Stewart did approve the 2,5mill loan extension †¢House hold scissors and industrial shears †¢Severe competition from foreign companies †¢Made profits every year since 1958 †¢Short term borrowing were normally between july and December, additional capital neeede to support sales peak †¢Produce at an even rate throughout the year – contributed to the need of seasonal funds †¢June 1995 †¢3,5 mill loan- anticipated to pay it of in decemebr 95 need for another 1. 2mill in june 1996 because of a plant modernization program †¢Program need 6mil, half completed- finised by august 1995 †¢Expected to save 900 per year in manufacturing costs. †¢Sept 95 †¢Neede 500K more to cover peak season †¢January 1996 †¢Sales came down- retailing downturn- †¢Need for more short term borrowing- higher expenditures for modernization project. †¢Funds needed unitl adjuntsing t o economic conditions †¢Estimated it would not occur until april 96 †¢April 1996 Not able to pay 1. 25mill before seasonal upturn in june †¢Further slaes decline, retail recesiion Why was SureCut Shears unable to repay its bank loan by December 1995 as originally forecast Major sources: †¢Net income †¢Bnak loans †¢Decrease in inventories †¢Decrease in cash Major use †¢Increase in account receivalbes †¢Increase in fixed assets Sources and uses July December Sources Uses Net income2221 AR 3,489 depreciation Bank Loans2,279 AP 177 Long term debt 299 Dividends 600Fixed assets 3,321 Inventories1,604 Tax pre payable303 miseclanoues 1 Decrease in cash1,480 78877887 †¢Decrease in liquidity due to increase in AR †¢CCC is shortened because of higher payment period and lower payable period †¢Decrease in sales growth, therefore less revenues are generated to potencially be converted into cash †¢Build up in inventory from august du e to increased sales. †¢Lower real sales than expected in forecast ii) Why SureCut required $500K more than initially requested? Payment period increased by 10 days from august to September †¢reduction in payable period= negative cash conversion cycle, Sure cut in need of cash †¢COnitnous expenditure on modernization project, was suppose to be only 2990 in proforma, but turned out to be 294k more up to September †¢Operating and investing activites are the major USES OF CASH, although the analisis shows that the cumulative cash is in excess of the proforma, it is because of the short term borrowing that has taken place.