Scott & Sons Company

In: Business and Management

Submitted By jkwok12345
Words 2274
Pages 10
Estimating Funds Requirements

Short-Term Sources of Funds

Subject:O.M. Scott & Sons Company

Problem:Should the O.M.Scott company keep with its Trust Receipt Plan in order to maintain 25% growth rate.

Options: 1. Sell receivables to a third party at a discount rate to receive cash.

2. Issue preferred equity to help finance retailers in holding higher Inventory levels
3. Reduce growth rate to a sustainable

Recommendation: In order to maintain the 25% growth, we need to first of all, abandon the trust receipt plan which causes sales growth rate to drop ever since implementation. we need to adopt alternative 1 (selling receivables) in order to reduce the cash cycle and free up some cash to meet our short term liabilities. Our external fund needed exceeds the maximum allowed line of credit of 12.5 million according to the performa for March 1962, which means that we have to also incorporate alternative 2 which is to issue equity to cover for extra fund outside of the limit.

Analysis:
O.M. Scott & Sons (Scott) is a lawn-care company that has its operations centered in Ohio. The company has successful established a customer base and has a positive outlook for future operations. Their goal for future years is to maintain a growth of 25% for sales and income, however, we believe that this is not plausible because receivables are not being collected at a rate that supports the growth in sales. This is the main source of the problem for the company is not getting paid for its inventory until they have been sold by the dealers. This places significant financial strain on the company, as it is responsible for obtaining the finances necessary in order to maintain the inventory levels at each of its 10,000 dealers.

Starting with an analysis of the inventory period, we see a poor trend. Logically, the inventory period has also gone from bad to…...

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