Royal Manufacturing Industry Analysis the Case Study

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The receivables totalled 2.54 million with the largest percentage

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However, 3 million dollars is a tremendous amount for a company that is showing profits of only a few thousand dollars.

The question of whether to extend additional funding to the Royal Manufacturing Corporation is inherently a function of whether the new CEO is capable of further enhancing the returns on capital the company has recently experienced. Although the gains are not sufficient to extend loans in the low millions, the speculation that the company is able to generate additional sales, reduce operational costs, and increase profit is likely to be true and over the long-term Royal is expected to remain in business and expected to pay back its debt obligations.

Recommendation

The Confederation Bank of Canada is a facilitator of loans to the business community in need of funds to increase growth. In this case, the recipient organization will use the funds to pay operational expenses and will not be used to grow the company. Additionally, the funds will be used to extend operations for the company to receive its owed accounts receivables outstanding. The company is expected to receive about 90% of its 2.54 million in outstanding receivables in 90 days.

Given the relative nature of the industry, the growing and strengthening of the Canadian economy, the prospect of calling the credit is unlikely. The request for extending temporary credit to Royal Manufacturing in the amount of 3 million will be granted given its increasing cash flow, sales of over 10.5 million annually, and declining costs with increasing revenue sources.

The debt ratio is increasing each year and is heading toward parity at one. This is a negative sign that indicates the company is having difficulty in eliminating debt and in addition is accumulating more debt relative to current assets. The accounts receivable turnover (in days) is decreasing, which is a.....

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