Dynashears manufacturers a complete line of household scissors and industrial shears, and distributes their goods through jobbers to specialty, hardware and department stores. A cyclical business, Dynashears deals with a period of high sales during the months of July to December. By nature, cyclical businesses like Dynashears engage in short-term borring from banks to finance the additional working capital needed to support high sales periods. Dynashears is usually able to pay back its short-term loans by the end of the year. However, due to the economic recession, Dynashears sales began to not reach the projected level in July 1990. The company was slow to reach to the changing economic conditions, and so did not reduce its production levels,
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Winthrop’s options is to extend and increase Dynashears’ loan. Dynashears has a record of consistent profit generation. Despite the fact the company has faced tough foreign competition, they have achieved profits every year since 1958. It is because of this, in addition to the fact that Dynashears historically holds large deposits with its principle banks that Mr. Winthrop pressed for their business. The company has proven itself to be a sustainable business, and a low risk borrower for lenders. Additionally, the company’s current ratio, a ratio that divided current assets by current liabilities to show a businesses ability to meet its current obligations, is currently a strong 5.99 (Appendix 1). Also, the current ratio has increased every month for the past seven months (Oct. 1990-March 1991, excel sheet). The current ratio suggests that Dynashears is currently in good financial standing, and that there ability to meet their current obligations is improving. However, there are also detriments to this option. The current ratio does not show that Dynashears is significantly low on cash. The excess inventories they have been unable to sell make up a significant proportion of Dynashears assets. Their current quick ratio, which is a measure of a businesses ability to meet current obligation through the use of its liquid assets, is at decent, but less strong 1.95 (appendix 5). Also, their quick ratio is not exhibiting the same consistent positive trend the current ratio is (excel sheet). This suggests that the current ratio is overestimating the company’s ability to meet their obligations, because it counts inventories as assets. If the firm is not able to sell the inventories, then the existence of those inventories does not illustrate their ability to pay their debts. Furthermore, Dynashears currently not meeting its forecasted cash mark. The amount of cash they currently have is $1507 below their predicted mark (Appendix 8). Overly optimistic forecasts
Winthrop’s options is to extend and increase Dynashears’ loan. Dynashears has a record of consistent profit generation. Despite the fact the company has faced tough foreign competition, they have achieved profits every year since 1958. It is because of this, in addition to the fact that Dynashears historically holds large deposits with its principle banks that Mr. Winthrop pressed for their business. The company has proven itself to be a sustainable business, and a low risk borrower for lenders. Additionally, the company’s current ratio, a ratio that divided current assets by current liabilities to show a businesses ability to meet its current obligations, is currently a strong 5.99 (Appendix 1). Also, the current ratio has increased every month for the past seven months (Oct. 1990-March 1991, excel sheet). The current ratio suggests that Dynashears is currently in good financial standing, and that there ability to meet their current obligations is improving. However, there are also detriments to this option. The current ratio does not show that Dynashears is significantly low on cash. The excess inventories they have been unable to sell make up a significant proportion of Dynashears assets. Their current quick ratio, which is a measure of a businesses ability to meet current obligation through the use of its liquid assets, is at decent, but less strong 1.95 (appendix 5). Also, their quick ratio is not exhibiting the same consistent positive trend the current ratio is (excel sheet). This suggests that the current ratio is overestimating the company’s ability to meet their obligations, because it counts inventories as assets. If the firm is not able to sell the inventories, then the existence of those inventories does not illustrate their ability to pay their debts. Furthermore, Dynashears currently not meeting its forecasted cash mark. The amount of cash they currently have is $1507 below their predicted mark (Appendix 8). Overly optimistic forecasts