ASSIGNMENT

FINANCIAL
MANAGEMENT

JACTION
AUTOMATIVE
SYSTEM

Submitted to :
Dr. Archana Singh

Submitted by:
VIVEK JAISWAL
2K19/DMBA/122
Section- A
 Cash Budget for last four months, i.e. October 2012-
September 2013

201
Particulars 3
June July August September
Beginning Cash Balance 4,994 1,627 6,536 7,034

Collection of Accounts Receivable 3,744 10,881 6,474 7,201

Interest Income 8 3 11 12
Bank Loan 0 2400 0 0
Total Cash Inflow 3,752 13,284 6,485 7,213

Payments of Accounts Payable 5,969 5200 5200 5200

Operating Expenses 750 750 750 750
Capital Expenditure 0 2400 0 0
Tax Payments 375 0 0 375
Interest Expense 25 25 37 37
Principal Payments 0 0 0 7400
Dividend Payments 0 0 0 1200

Total Cash Outflow 7,119 8,375 5,987 14,962

Net Cash Inflow -3,367 4,909 498 -7,749

Ending Cash Balance 1,627 6,536 7,034 -715

 Balance sheet for the last four months, i.e. (October
2012- September 2013)

201
Particulars 3
June July August September
Cash 1627 6536 7034 -715
Accounts receivable 10881 6474 7201 7394
Inventory 6513 5903 5293 4683
Current assets 19021 18913 19528 11362

Gross PP&E 45500 45500 47900 47900

Accumulated depreciation 31568 31688 31818 31948
Net PP&E 13932 13812 16082 15952
Prepaid expenses 54 54 54 54
Total assets 33007 32779 35664 27368

Accounts payable 5200 5200 5200 5200

Notes payable, bank 5000 5000 7400 0
Accrued taxes 219 448 612 468
Other accrued expenses 1142 1142 1142 1142
Customer advance payments 900 0 0 0
Current liabilities 12461 11790 14354 6810

Shareholders' equity 20546 20990 21310 20558

Total liabilities and equity 33007 32779 35664 27368
 Income Statement for the last four months, i.e. October
2012- September 2013

201
Particulars 3
4
June July August September mont
h
Total
Net sales 12,681 7,374 7,201 7,394 34,650
COGS 10,850 5,810 5,810 5,810 28,280
Gross profit 1,831 1,564 1,391 1,584 6,370

Operating expenses 750 750 750 750 3,000

Depreciation
and 120 120 130 130 500
amortization
Interest expense 25 25 37 37 124
Interest income 8 3 11 12 34
Profit (loss) before tax 944 672 485 679 2,780
Income taxes 321 228 165 231 945
Net income 623 443 320 448 1,835
Dividends 0 0 0 1200 1,200
Important Ratios and Working Capital Compared
for August 2012 and May 2013

Ratios Aug- May-13

12
Debt Ratio 22.80 43.08%
%
Debt to Equity 0.29 0.75
Ratio
Current Ratio 2.54 1.38
Acid Test Ratio 1.68 0.57

Working Capital 20917 5817

CONCLUSION

Should the bank give loan to Jackson

Automotive Systems?

Thus, in order to decide whether to approve new loan or not, the

Michigan State Bank should take into consideration its long
history and client relationship with Jackson in addition to
Jackson’s current financial situation.
To reduce its risks, bank can impose the following conditions on
the loan:

• Bank can ask for a risk premium, i.e. a higher interest

rate to compensate for the risk.

• Bank can give a secured loan, i.e. ask Jackson to pledge some
of its assets as collateral.

• The bank may force Jackson to sell its treasury stocks if they
fail to achieve their expected sales targets in the month of
June.

So, to conclude, with the above conditions imposed, the

extension of the previous loan and approval of the new loan will
be beneficial for both the bank and Jackson.

But, if the bank is not imposing the above conditions, it should not
approve the new loan as the risk is very high. However, it can
extend the maturity of the existing loan.