Teleford and Ivey James Are the Second-Generation Essay

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Teleford and Ivey James are the second-generation owners of a family-owned manufacturer of premium chocolates started by Teleford's father in 1964. James Confectioners has grown during its 50 years into a large and modern factory with sophisticated equipment and annual sales of almost $4 million. They are above the industry standard in pricing, but not at the top range for the quality they produce. The James' are quite concerned of late about rising costs of base chocolate because it is grown in South America and Africa. Additionally, there are escalating costs from milk and sugar which, in combination, are squeezing the company's margins.

Ratios for Jame's Confectioners:

Ratio

Current Year

Last Year

Industry Median

Liquidity Ratios

Current Ratio

Quick Ratio

.8

Leverage Ratios

Debt Ratio

.62

.64

.7

Debt-to-Net-Worth

Times Interest Earned Ratio

Operating Ratios

Average Inventory Turnover

4.62

4.75

4.9

Average Collection Period

47.8

34.6

Average Payable Period

33.63

31.1

33.5

Net Sales to Total Assets

1.93

2.17

2.1

Profitability Ratios

Net Profit on Sales

4.4%

7.4%

7.1%

Net Profit to Assets

8.2%

9.2%

5.6%

Net Profit to Equity

21.3%

29.21%

16.5%

Q2 -- The ratios calculated for James most definitely show that the company has had a considerable increase in COG while not passing on costs to consumers at the same level as the company absorbed. The most likely scenario is twofold: supplies and materials are costing more and expenses are rising for operations, payroll, insurance, and other uncontrollable.

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We can observe the following:

Current and Quick Ratios show the company is healthy and able to pay its bills, and above average for the industry.

Payables and collections are up in terms of time, signaling a rougher economic time for suppliers and customers

Profitability ratios are down, but still above industry averages

Q3- The company appears to be considerably more healthy than the industry averages (typical company). The only red flag that appears is the average collection period, which is almost double the national average. This could conceivably hinder the company's ability to meet financial goals if prices continue to rise since there is outstanding money that the company cannot use until collected.

Q4- James is a successful, respected company. However, in a down economy, sometimes perceived luxury goods are some of the things consumers cut back on. Clearly, as painful as it might be, prices need to increase -- perhaps not at the same ratio as expenses, but enough that the ratios improve for the current year. Additionally, the accounts receivable department may need to be a bit more aggressive in collecting money; while stretching accounts payable, perhaps up to 45 days.

Q5- The company is now in a position that it must decide its future direction -- does it want to be a high-quality organization with mid-range pricing, move quality of ingredients down to.....

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