Case Summary: GEM
GEM manufactured household scissors and industrial shears. The company was doing well in the market and had the record of steady growth. As the company was growing and they required more funds for growth in the market they associated with large New York Bank rather than the local banks as that can provide them with good schemes and offers. It was seen in the case that the company made projections about the sale, but the real scenario turned out to be opposite to the projected situation. The company faced a problem in decline of the sales and is not able to pay off the seasonal loan. After studying thoroughly, we found the following issues with the company:
The total current assets are more than the current liabilities but most of the money is blocked in the form of inventory due to decline of the sale.
The firm has not been able to run the modernization techniques thus the manufacturing cost could not be reduced.
But with the present economic condition i.e. from (July-December,2016 & January-June,2017) the company would manage to reduce the manufacturing cost and liquidity of the blocked cash would help company to meet their current liabilities. The company would require even more money to deal with the increasing competition in the market and adopt automation in all their plants. The source of the money probably would be more from the public than bank and they would have to spend a huge amount of money on the more refined and developed products and their designs. The company may face problems in maintaining positive current ratio.