From the financial data you provided, I have found that the company is facing the problem of cash shortfall; I would like to discuss it through the following aspects:
1. Bank Loan: As you can see, the company will have a cash shortfall amounting to $225 in the beginning of April and, even more seriously, to $825 in July and August. If the company raise bank loan, it will suffer a higher debt ratio and the cost of interest. Assuming that 31~365 days interest rate is 7.04% (Data collected from FRS), the total cost will be $27.
2. Sale Growth: The growth of sales makes the shortfall worse. Because the company will have to purchase more inventories if it tries to keep a 100% inventory level. The company will also have to raise more bank loans and pay more interest for the growing sales.
3. Inventory Level: A lower inventory level will be the solution. At inventory level of 74%, there will not have any shortfall and, additional cost since the company has stable vendors and a higher inventory than average level.
4. Collection Period: You can also consider negotiating with the customers for early payments. Early payments prevent cash shortfall. Though the additional cost, sales allowance, will be amounted to $1,782, which is much higher than the cost of bank loans.
5. Payment Period: Offering suppliers a 2% premium in return for the short-term credit is also a solution for cash shortfall. But we will have to pay additional $299 purchase premium, which is also higher than the cost of raising loans.
Recommendation:
For the analysis above, I suggest that the company should lower its inventory level to prevent from cash shortfall and, most important of all, to save the additional costs.
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