Plumb Parts Supply

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Monday, March 1, 2010 MBA 614 Plumb Parts Supply Key Problem The key problem in this case is whether or not the bank should loan Plumb Part Supply (PPS) - and its relatively new owner 160,000$ to purchase a new vehicle and new machinery. • The company would require an additional $25,000 in funding to meet its short-term cash requirements in the winter season. • The business would have to generate enough money to cover the $26,200 principal and interest cost each year. • The business must also generate enough money to allow for its owner to draw a salary of at least $35,000. Situation Analysis Strengths • Proven family business with an innovative and entrepreneurial former owner (James Taggart) and a well-schooled, well experienced current owner (Sean Taggart). • National exposure through select marketing activities (semi-annual trade shows & 52-page catalogue). • Demonstrated ability to grow under unfavorable external conditions (sales growth in the early 1990’s). • Large sales growth and increased profitability in 2003. • PPS has a track record of being customer-focused and as a result possesses a loyal customer base. • PPS has solid financial ratios above the industry average in many cases. Weaknesses • The construction industry in Canada is seasonal; this poses a potential cash crunch in the winter months. • Although PPS’s liquidity is good, the company does not carry any cash. All current assets are tied up in accounts receivable and inventory. Due to the high receivable period (71.6 days in 2003), they can potentially be exposed if for some reason they run into difficulty collecting their accounts receivables. Opportunities • In 2004, the economic forecast is positive for the construction industry because of low interest rates and high consumer confidence. •

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