You are on page 1of 1

SureCut Shears

1. Describe SureCut Shears in terms of its market, competitive and operating characteristics. How risky is SureCut Shears in operating and competitive terms? SureCut Shears manufactured a line of household scissors and industrial shears. It provides cheaper price to customers and makes profits and grow steadily despite severe competition, which mainly comes from abroad. As to its operation, we can see in the spreadsheets attached, its actual sales changes seasonally. Its current ratio and acid test indicate that a considerable amount of cash is tied up with inventory. The profit margin doesnt look optimistic. The risk lies in the seasonal change in sales, which will lead to excess inventory. 2. What assumptions did Mr. Fischer make when he prepared the forecast shown in case Exhibit 1 and 2? Were these assumptions reasonable? He assumed that the sales wound increase steadily in the last half years in 2005 so he can repay the loans. He also assumed that the cost and expense wound not change dramatically. However, his assumption was not reasonable to a large degree. He failed to estimate the sales recession because the sales change with season and it cannot be predicted so well. And he also didnt assume that the inventory wound tie up so much money. 3. Why was SureCut Shears unable to repay its bank loan by March 31, 1996 as originally forecast? Because, first, the sales didnt go up as expected, leading the revenue down and inventory up. Second, the current ratio (5.34) and the acid test (1.74) showed that its money was to a large extent tied up with inventory. And last, the expenditure was higher than expected. 4. Has SureCuts financial condition worsened sufficiently to cause Mr. Stewart any great concern? Not really. Its problem is not so severe. When the sales go up again with season, it will decrease its inventory to a reasonable level. And then it will benefit from new plant. So the future is good as long as the market recovers. 5. Compare the nature of the financial problems faced by SureCut Shears and Butler Lumber Company. The SureCut Shears faced with cyclic financing problem, while Butler Lumbers problem derived from its rapid growth. The SureCut itself didnt grow so rapidly, it needed extra fund to support its unstable sales and inventory. Butler Lumber needed external fund to support its rapid growth.

You might also like