Case Study
Jackson Automotive Systems
Executive Summary Jackson Automotive Systems is an Original Equipment Manufacturer (OEM) that supplies parts for the automobile industry. Jackson Automotive Systems is currently operated by the president, Larry Edwards, and was founded in 1961 by Larry Edward’s father. Jackson Automotive Systems has been operated largely as a cash only business with very little if any debt outstanding typically. The 2008 financial crisis was a difficult time for all participants of the automobile industry. Jackson Automotive System’s reluctance to carry debt coupled with a strong working capital position and a conservative financial policy helped bring the company through the financial crisis. After the
This, in turn, tied up and extra $2.44 million in inventory that the company did not need. Now it is the beginning of June 2013 and due to an uptick in forecasted sales for the rest of 2013 the company needs to purchase new equipment worth $2.4 million to keep up with the forecasted demand. Not having the money to repay the short-term loan or to buy the new equipment Mr. Edwards is looking for an extension on the current loan until September 30, 2013 as well as adding to that loan an additional $2.4 million also payable on September 30, 2013 for a total payable of $7.4 million. Adding to the cash issue is the company’s desire to pay a dividend to its shareholders totaling $1.2 million at the end of September as well.
Analysis
Mr. Edwards has put Jackson Automotive into a difficult spot. In 2012 he went away from the company’s cash rich and conservative financial policy by liquidating his cash reserves to buy back company stock from unhappy investors. To make matters worse he also took out a short-term loan of $5 million to help finance the repurchase. In one transaction he spent the company’s cash and put them in debt with a short-term note. Debt was something this company had not seen since 2004. Jackson Automotive is unable to repay their short-term loan on time for a couple of reasons. First, they took out a loan with too short of a term which did not allow for any hiccups within their