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Merrill Electronics Corp.

Case Study
GROUP 14

Asri Zefanya - 2567340


Vira Cania Arman - 2591630
Aldi Nandi Wardhana - 2595492

Advance Corporate Financial Management


2016

Introduction
In 1950, Merrill Electronics Corp has become a major supplier for Global Electrical Company, and
continues growing until 1980 the company expand their business by distributing various products from
manufacturing companies such as Goldstone Corporation Taiwan and Fuji Electronics.
After the death of the founder, Thomas Merrill in January 1989, the company was managed by his daughter,
Patricia Merrill. During the reign, a new objectives and decision was made. Regarding to her new ambitious
growth target, she realized that she needs help to achieve them due to her lack of experiences. Therefore,
she began to recruited a new operating manager, Charles Brown.
During the first semester 1991, Merrill Electronics Corp had a significant improved in sales, but it was
beyond their capacity and anticipation. The company started to have an incapability to pay the suppliers as
well as the $3,000,000 credit to the bank. Besides, the suppliers have sent a reminder to Merrill Electronics
Corp about the credit terms which is net 30 days. In this particular situation, several options need to be
considered to overcome this financial condition.

Key Core Problems


Charles Brown, the new hired manager implemented a new strategy to increase sales by turning Merrill into
volume business. However, Merrills unreadiness for the strategy, leads to overtrade, when the increase of
its sales is greater than their working capital.

Analysis (Current Condition)


Charles Brown started to implement the strategy in the first semester 1991 which resulted in volume increase
as it was predicted. Even though, the improve number of sales leads to difficulty for Merrill Electronics
when meeting payments to supplier in addition to maintaining the credit lines with its banks.
Consequently, in March and June 1991, Merrill and Brown approached the bank to negotiate their credit
limit. The request was turned down. However, the bank would give an extra time until the end of December
1991, provided that the company have a rational working plan which the company cash flow would stable
within the $3,000,000 credit limit throughout the second semester and cut down the total credit lines used
to less than $500,000 by 31 December 1991. Companys current condition, without additional financing can
be seen in Exhibit 1.

Recommendations
There are several actions that can be taken by Merrill Electronics in order to be survived in the business;
seeing Merrill Electronics has difficulties to meet the suppliers payment, they can consider to use invoice
discounting method (Exhibit 2).
Furthermore, a gentle approach needs to be done, such as negotiate the terms of payments with the suppliers
to suit with the current companys financial condition. Another prominent action could be addressed by
divesting the line of business which is less profitable, and had slow movements, such as TV, VCRs, Small
Appliances, and white goods. Instead, they should focus on the more profitable business such as PC, Hi Fi
and Electronics in order to operate the business efficiently in terms of operating cost. It is advisable for the
company to make an adjustment towards their stocking policy, so the opportunity of stock outs while dealing
with unexpected demands could be minimized. In the end, if all strategies that have been implemented are
Group 14 - Page 1

unsuccessful to keep the business in the long-run, Patricia Merrill should consider selling the company for
cut loss.

Assumptions
In order to meet a realistic working plan, a number of assumptions were made for this case:
Gross Margin percentage same as June 1991 actual.

All operating expenses are fixed expense except after sales service which is percentage of the last
month sales. For July 1991, the average of total sales from last period to be used.

All AP is paid timely, no interest rate come from Account Payable.

Interest rate is only for LTD and STD.

Cost of invoice discounting is 5% of total invoice discounted.

Terms of Payment 30 days and 93% is paid timely.

No addition in Assets throughout the year (CAPEX=0).

Loan Paid Timely and Short Term Loan is 1 Year maturity.

LTD installment is 40,000/semester.

All account receivables are received even though they are aging, no bad debt expense.

For balance sheet forecasting, Account Payable is treated equally (no difference between foreign &
domestic).

Goods ordered from supplier 2 months before the forecasted sales.

There is no additional cost of goods (distribution, etc) except from the suppliers.

Goods ordered from supplier 2 months before the forecasted sales, the number of goods ordered 50%
of sales forecasted
Numbers of goods ordered for May & June 1992 is same as previous year.

Group 14 - Page 2

Exhibit
Exhibit 1
Beginning Cash Balance
Cash from Sales
Total Cash Available

Jul-91
35,220
3,874,547
3,909,767

Aug-91
672,192
2,527,248
3,199,440

Sep-91
(1,203,036)
2,771,533
1,568,497

Oct-91
(6,843,200)
3,942,351
(2,900,849)

Nov-91
(7,283,300)
5,489,312
(1,793,988)

Dec-91
(4,648,700)
6,727,935
2,079,235

Jan-92
(1,268,396)
5,214,318
3,945,921

Feb-92
658,087
3,110,413
3,768,500

Mar-92
228,218
3,659,600
3,887,818

Apr-92
266,268
4,076,900
4,343,168

May-92
1,439,191
4,341,661
5,780,852

Jun-92
2,383,347
4,375,912
6,759,259

Cash Disbursement
Direct Selling
Advertising
After Sales Service
Warehouse and Shipping
General Administration
Tax
Account Payable
Total Cash Disbursement

110,900
34,200
94,467
39,400
101,353
27,138
2,830,118
3,237,575

110,900
34,200
88,484
39,400
101,353
42,531
3,985,608
4,402,476

110,900
34,200
138,898
39,400
101,353
91,331
4,910,616
5,426,698

110,900
34,200
193,658
39,400
101,353
155,772
3,747,169
4,382,451

110,900
34,200
237,813
39,400
101,353
210,901
2,120,145
2,854,712

110,900
34,200
182,184
39,400
101,353
140,543
2,525,802
3,134,381

110,900
34,200
105,173
39,400
101,353
50,860
2,845,949
3,287,834

110,900
34,200
124,991
39,400
101,353
80,083
3,049,355
3,540,281

110,900
34,200
141,332
39,400
101,353
110,939
3,083,427
3,621,550

110,900
34,200
151,588
39,400
101,353
129,146
2,337,390
2,903,977

110,900
34,200
152,979
39,400
101,353
128,555
2,830,118
3,397,504

110,900
34,200
118,211
39,400
101,353
93,481
2,830,118
3,327,663

0
0

0
0

(2,985,000)
0
(2,985,000)

0
0

0
0

(173,250)
(213,250)

0
0

0
0

0
0

0
0

0
0

(20,000)
(60,000)

672,192

(1,203,036)

(6,843,200)

(7,283,300)

(4,648,700)

(1,268,396)

658,087

228,218

266,268

1,439,191

2,383,347

3,371,597

FInancing
New Loan
Long Term Loan Repayment
Short Term Loan Repayment
Interest
Total Financing

Cash Surplus (Deficit)

(40,000)

(40,000)

Exhibit 2
Beginning Cash Balance
Cash from Sales
Cash from Invoice Discounting
Total Cash Available
Cash Disbursement
Direct Selling
Advertising
After Sales Service
Warehouse and Shipping
General Administration
Tax
Account Payable
Cash Dividend
Invoice Discounting Cost
Total Cash Disbursement
FInancing
New Loan
Long Term Loan Repayment
Short Term Loan Repayment
Interest
Equity
Total Financing

Cash Surplus (Deficit)

Jul-91
35,220
3,874,547
2,000,000
5,909,767

Aug-91
2,901,580
527,248
2,400,000
5,828,828

Sep-91
2,461,842
371,533
2,700,000
5,533,375

Oct-91
896,686
1,242,351
3,800,000
5,939,037

Nov-91
203,139
1,689,312
5,400,000
7,292,451

Dec-91
555,715
1,327,935
4,500,000
6,383,650

Jan-92
2,166,676
714,318

Feb-92
1,413,306
3,110,413

Mar-92
186,843
3,659,600

Apr-92
258,964
4,076,900

May-92
685,851
4,341,661

Jun-92
1,622,735
4,375,912

2,880,993

4,523,718

3,846,443

4,335,864

5,027,512

5,998,647

110,900
34,200
94,467
39,400
101,353
27,138
2,600,730

110,900
34,200
88,484
39,400
101,353
42,531
2,830,118

110,900
34,200
138,898
39,400
101,353
91,331
3,985,608

110,900
34,200
193,658
39,400
101,353
155,772
4,910,616

110,900
34,200
237,813
39,400
101,353
210,901
3,747,169

110,900
34,200
105,173
39,400
101,353
50,860
2,525,802

110,900
34,200
124,991
39,400
101,353
80,083
2,845,949

110,900
34,200
141,332
39,400
101,353
110,939
3,049,355

110,900
34,200
151,588
39,400
101,353
129,146
3,083,427

110,900
34,200
152,979
39,400
101,353
128,555
2,337,390

110,900
34,200
118,211
39,400
101,353
93,481
2,830,118

3,008,187

120,000
3,366,986

135,000
4,636,689

190,000
5,735,898

270,000
4,751,736

110,900
34,200
182,184
39,400
101,353
140,543
2,120,145
50,000
225,000
3,003,725

0
2,967,687

3,336,875

3,587,479

3,650,013

2,904,776

3,327,663

(40,000)
(1,000,000)
(173,250)

(20,000)

1,500,000
(40,000)

(1,985,000)
0

(1,000,000)
0

(500,000)
0

(1,985,000)

(1,213,250)

1,500,000

(1,000,000)

(500,000)

(60,000)

2,901,580

2,461,842

896,686

203,139

555,715

2,166,676

1,413,306

186,843

258,964

685,851

1,622,735

2,610,985

Exhibit 3
30-Jun-91

31-Jul-91

31-Aug-91

30-Sep-91

31-Oct-91

30-Nov-91

31-Dec-91

31-Jan-92

29-Feb-92

31-Mar-92

30-Apr-92

31-May-92

30-Jun-92

Assets
Current Assets
Cash & Banks
Account Receivable (net)
Inventories
Other Curent Assets
Total Current Assets

35,220
4,166,180
5,591,470
65,980
9,858,850

2,901,580
291,633
8,774,529
65,980
12,033,721

2,461,842
559,385
10,587,687
65,980
13,674,894

896,686
1,782,851
13,169,868
65,980
15,915,385

203,139
3,410,500
12,182,802
65,980
15,862,422

555,715
3,410,500
9,918,304
65,980
13,950,500

2,166,676
4,761,189
5,297,852
65,980
12,291,696

1,413,306
3,273,254
9,525,389
65,980
14,277,928

186,843
1,083,936
5,969,276
65,980
7,306,035

258,964
1,568,524
8,101,537
65,980
9,995,005

685,851
1,973,924
6,524,033
65,980
9,249,788

1,622,735
2,257,024
5,165,870
65,980
9,111,610

2,610,985
2,315,363
3,947,518
65,980
8,939,845

Fixed Assets
Buildings & Equipment (nett)
789,750
Goodwill
100,000
Total Fixed Assets
889,750
Total Assets
10,748,600
Capital & Liabilities

777,008
100,000
877,008
12,910,730

764,267
100,000
864,267
14,539,160

751,525
100,000
851,525
16,766,910

738,783
100,000
838,783
16,701,205

726,042
100,000
826,042
14,776,541

713,300
100,000
813,300
13,104,996

700,558
100,000
800,558
15,078,487

687,817
100,000
787,817
8,093,852

675,075
100,000
775,075
10,770,080

662,333
100,000
762,333
10,012,121

649,592
100,000
749,592
9,861,201

636,850
100,000
736,850
9,676,695

1,500,000

500,000

500,000

500,000

2,845,949

3,049,355

3,083,427

2,337,390

2,830,118

0
80000
2,830,118

Current Liabilities
Short-term bank loans
LT debt due in one year
Accounts Payable (domestic)
Accounts Payable (foreign)
Accrued Expenses
Total Current Liabilities

2,985,000
80,000
1,705,110
895,620
251,720
5,917,450

2,985,000

2,985,000

2,985,000

2,985,000

1,000,000

2,830,118

3,985,608

4,910,616

3,747,169

2,120,145

0
80,000
2,525,802

264,462
6,079,580

277,203
7,247,811

289,945
8,185,561

302,687
7,034,856

315,428
3,435,574

328,170
2,933,972

340,912
4,686,860

353,653
3,903,008

366,395
3,949,822

379,137
3,216,527

391,878
3,221,996

404,620
3,314,738

Long-term debt
Capital Stock
Retained Earnings
Owner's equity

480,000
1,000,000
3,351,150
4,831,150

480,000
1,000,000
3,351,150
4,831,150

480,000
1,000,000
3,351,150
4,831,150

480,000
1,000,000
3,351,150
4,831,150

480,000
1,000,000
3,351,150
4,831,150

480,000
1,000,000
3,351,150
4,831,150

440,000
1,000,000
3,351,150
4,791,150

440000
1,000,000
3,351,150
4,791,150

440000
1,000,000
3,351,150
4,791,150

440000
1,000,000
3,351,150
4,791,150

440000
1,000,000
3,351,150
4,791,150

440000
1,000,000
3,351,150
4,791,150

400000
1,000,000
3,351,150
4,751,150

10,748,600

10,910,730

12,078,961

13,016,711

11,866,006

8,266,724

7,725,122

9,478,010

8,694,158

8,740,972

8,007,677

8,013,146

8,065,888

Total capital & liabilities

References
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