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were never taken care of. Now it has been heard that Sweetco Inc is being sold off by its holding company to its senior management and a leading firm. Apart from this, another fact was also revealed that Sweetco received money from its holding company for its operational functions on the basis of loans. This is the reason why the CFO has asked for an extension in the credit terms to 60 days. The objective is now to analyze the financial credibility of Sweetco at present and make a future projection so that we can decide whether to maintain the business relationship or not. Actions to Take The best option in such a case is to ascertain credit scores of the company Sweetco Inc. Assigning credit scores means defining certain factors for making decisions and allotting weight age on each factor. For example, 30 percent weight age for the payment history of the customer, 30 percent weight age to the amount of money outstanding, 15 percent weight on the length of the credit history, 10 percent weight on the newly generated credits, and 10 percent on the different types of loans being offered to the customer, i.e. Sweetco Inc. For this purpose the marketing contacts would be utilized; the investigation of credit shall be done through reliable sources; the customer of Sweetco Inc. can be contacted for information on the company’s status; the documents and financial statements can be filled based on the information acquired from different sources; the credit file for Sweetco. Inc. should be prepared; and finally a wholesome financial analysis is untaken (Bass 88–89). Options The options as to what decision needs to be taken are mentioned here in this section. All the three dimensions have been judged and, accordingly, the options are stated below: Hardline Position: The hardline position involves an extreme decision. In this case the decision would be that the company should not continue the business with Sweetco Inc and increasing the credit terms does not comes into play in this case. If the credit scores and the financial analysis show that Sweetco Inc. neither has the ability to pay back the money nor would be able to attain sustainability without the help of its holding company or any other financial support, then it is better to discontinue further business relationships. Moderate Position: In this case the credit term can be extended to 60 days but only after developing appropriate credit standards, analyzing the credit standards applied on the customers, gathering the necessary information and analyzing the overall risk associated with it. So Sweetco would be allowed a credit extension, but credit terms would be based on the operating cycle, type of the goods being supplied, pricing, cost, profit margin of the products, etc. Passive Position: In this case the company would agree to what the CFO of Sweetco. Inc suggests, and would extend the credit term to 60 days. There would be no added obligation on Sweetco. And the company would be continuing business with Sweetco. Inc in the similar manner as it used to do business on the basis of past goodwill of the company and a long term relationship. Decision In my opinion, the company should be taking a hardline position because firstly, Sweetco Inc.’s financial position was never stable. This is because the company ran on the loans from its holding compan ...Show more


Case Study 1, Case Study 2 Table of Contents Case 1 3 Objectives to Consider 3 Actions to Take 3 Options 4 Decision 5 Case 2 5 Objectives to Consider 5 Actions to Take 6 Options 6 Decision 7 Works Cited 8 Case 1 Objectives to Consider Sweetco Inc. was a subsidiary of 5A1, but the parent company decided to sell off its subsidiaries as the company was not fitting into their strategic framework…
Author : zharris
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