Kismet Inc Case Study

Kismet Inc Case Hand In

Professor Tannys Laughren

COMM1007EL-02        

Written By: Daniel Power

Executive Summary

        The President of Kismet Inc, Stuart Trier, and his Treasurer Aaron Anticic are partners in a new company who is a distributor of tools and hobby products. The company has been going through rapid expansion since their entry into the market. As a result of this fast growth, Kismet has been facing a problem of stock outs which are costing them in potential sales. In order to combat this problem, the partners are meeting with a bank next week in which they are hoping to receive a loan of approximately $143,000. Being a young company, Stuart and Aaron need to show the bank strong future projections in order to be granted the loan. During the ratio analysis, it was concluded that the company is relatively stable and is of little risk of not returning on a loan based on their strong current ratio of 3.01:1 and the large increase in working capital in just three months. The stability of the company was made clear in the net worth: total assets ratio being strong at 68.6%. The much accelerated growth in sales, net income, and assets is anticipated to be very positive features in which are to be highlighted during their meeting with the bank. The future projected statements show the bank how with a loan they would be able to increase sales and profit to such an extent that the bank should  feel confident on being able to get a return on their investment. The recommendation made to Kismet is that to accept the loan if it is presented to them since it is essential in their progression as a company to be able to meet sales as they are presented without having to turn them down due to stockouts. The contingency to the situation in which they are declined in the full amount of the loan is to negotiate a partial loan of which is still large enough to improve their operations since a money injection into the company, even if it is not in the full amount, is still more beneficial than no loan at all.

Problem Statement

        Stuart Trier, President of Kismet Inc., and Treasurer Aaron Anticic, are faced with presenting a case to a financial institution in which to acquire a loan in able to continue their rapid expansion of Kismet Inc. The company’s biggest problem at hand is their inability to hold inventory within the company. Kismet needs to try to eliminate recurring stockouts by increasing the age of inventory to avoid losing sales. The up and coming company needs to extend the working capital loan in order to maintain its accelerated expansion. The extension on the working capital loan would enable the company to hold more inventories in stock and increase the age of inventory. An increase in capital would allow Kismet to pay investors and increase their competitiveness in the industry by increasing their inventory.