Topics: Accounts receivable, Accounting software, Cost Pages: 4 (850 words) Published: March 31, 2014

Subject: Recommendation of financing for Crystal Clear Window Company


We recommend that the bank extend the line of credit loan of $75,000 at 8.5% to CCWC and institute the other aspects of Mr. Robb’s suggestions. A mandatory guarantee by the principals, annual account cleanup and using CCWC’s account receivable as collateral would all reduce the risk to the bank. Even if CCWC goes bankrupt, it does not have any other loans on its books and a current ratio at about 1.2. (Exhibit 1) Since only a small percentage of its inventory is work-in-progress, its assets can be liquidated at a price that assures the bank the ability to recoup its investment.

Although CCWC has major liquidity issues, after a detailed examination of CCWC’s financials, we determined that CCWC is a strong business that is going through a tough growth period. Assuming that CCWC will continue growing its sales by 20% as it has done in the previous 3 years and a similar cost structure, total sales for 1970 will be approximately $750,000. Projecting similar costs for 1970 as were in 1968, CCWC will be cash flow negative of $154,975.44 at the end of 1970. This cash flow will not alleviate some of their liquidity issues.

We are alarmed that the receivables turnover for the first 5 months of the current year is low. As we assume that 1970 year-end accounts receivables equals 30-days worth of 1970 annual sales. (Exhibit 2) However, through the 3 years history of the business, the day’s receivables period has consistently been approximately 32.5 days. We concur with Mr. Edward’s recommendation that CCWC must begin offering the payment option of 1%/10 net 30 to reduce the cost of carrying large receivables. It would be in the best interest of CCWC’s customer base to take advantage of the discount.

These trends in CCWC will change the amount of new funding CCWC will need. We believe that CCWC does not need to stop importing its glass from abroad. It will...
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