Professional Documents
Culture Documents
Case Study
GROUP 14
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.
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 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).
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
(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
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
References
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