Comments on Electrohogar S.A
...st rate Situation at Electrohogar High financial cost: 10% of its sales were for cash and 90% on credit. Credit from suppliers was 30days while credit to its own customers was 12 whole months such that payments to its creditors fall due before receiving payments from its own debtors. Bankers have indicated that rates for 1982 will be between 43% and 50% (was 40% and 23% in 1981 and 1980 respectively) There was rumour that their principal suppliers would soon demand advance payments to process orders(The suppliers have been cutting back the credit terms in recent times) The opening of new store had put considerable pressure on the company’s finances High nominal growth in sales revenue because of inflation Recommendation Electrohogar should review their credit policy to make more cash sales rather than credit sales probably have a mix somewhat like 90% cash and 10 credit Be aggressive with their revenue collections Reduce the credit period extended to its customer to a maximum of 30 days Avoid borrowing from the bank and when it is inevitable seek long term financing (since it was stated that they were not able to increase the capital of the firm) Avoid short term borrowing at all cost! see the projected income statement for 1982 below. Negotiate favourable(extended) credit terms with suppliers Prevail on the shareholders not to withdraw any dividends during 1982 to alleviate the financial pressure Projected Income Statement for 1982 (Without Financial...