El-Con construction company is a subsidiary of Orville Hydro is an electricity supply company. Being a medium-sized company, El-Con is proved to be quite consistent at getting work from different segments of the market and exhibited continuous growth, particularly in sales over the years. The company is targeting different types of organizations that include telecommunication companies gas utilities, electricity companies, and the private property owners that need electricity infrastructure and electricity. It is a highly successful company and is providing positive profits. Now the company approached its parent with a request for a loan of $500,000. $450,000 for a capital project and $50000 for working capital.
Decision: Being Rob Lister, I would award the requested loan of $500,000 to the El-Con construction Incorporated. As evident from Appendix 3, the company is expected to earn 841,117 as a result of the new project which will cost only 4450,000 in capital investment. Thus, it will greatly benefit the company and its shareholders. Being the chief executive office of Orville Hydro, the parent company of the El-Con, I would understand that Orville hydro is a large parent company of the El-Con, and supporting it will bring great profitability to the company. Moreover, it would also increase the confidence of the management of both Orville Hydro and the El-Con. Growing El-Con would thus greatly benefit the company.
El-Con has been efficient at receiving work:
Being a medium-sized company, El-Con is proved to be quite consistent at getting work from different segments of the market and exhibited continuous growth, particularly in sales over the years. The company is targeting different types of organizations that include telecommunication companies gas utilities, electricity companies, and the private property owners that need electricity infrastructure and electricity. Thus the company has a large range of possible contracts, that demonstrate the reason behind the increased earnings of the company from the years 2008 to 2009.
Then the company has unionized employees and the contract with them allows the company to ask them to do any kind of work if they are free in accordance with the business need and the employees are not restricted strictly to their job descriptions. This allows the company to increase employee efficiency while keeping the costs low. This is also because of the company’s contract with the employees have salaries at the lower side of the market range.
Then, the company is among only a few companies in the market that have the capability of providing both construction and engineering services, that enable it to help clients at the planning stage of the projects. All these factors show that El-Con is reliable concerning consistently improving sales. Then, even if the company does not have any external contract, the company can serve the parent company, Orville Hydro and can continue its work.
A loan could prove to be quite helpful for El-Con:
Maudie, Oakville Hydro is vice chairman and general manager, think the lack of a hydro vac truck in the construction machinery of the El-Con’s has restricted the company. They required the capability to take on specific projects, therefore impairing its achievement. Permitting El-Con the loan would lower its tools rental expenditure, from its expected annual expenditure of $150,000, and thus, help to protect new agreements, supplying them with additional sales. from 2010, the company may save $100,000 now, through all savings being attained by only 2011.
El-Con is not requesting a large loan:
The demanded loans of $450,000 and $50,000 are not actual large amounts of money. Through sales El-Con is previously getting much higher amounts of money, representing that they are fruitful at escorting work. In projected statement of earnings when interest expenses added that would show with the loan they show an option of paying it debits easily while holding a positive net profit.It is also verified that Oakville Hydro is in a stable cash situation and could smoothly grant El-Con’s demand. In 2009 Oakville Hydro’s assets worth was $220 million, through exceeding income sup to $4 million annually, making El-Con’s loan appeal an unimportant little amount of money.
Risk of decision:
Here are, though, risks with providing a loan in any situation, including this one. Now Oakville Hydro is considering to start other business on top of El-Con. Any initiative should need extra financing, loaning El-Con the money could compromise the capabilities of Oakville Hydro to deliver complete financial funding to its further projects. Maudie was also worried that El-Con’s business progress would ripe and profits would highland, creating the loan meaningless in the sale of the company for upcoming growth. He also understood it geographically expansion is not the outcome of sustainable growth but from minimizing costs and increasing its services, which recently the company is facing trouble in accomplishing.El-Con has hired best managers and they should get more projects with the hydro vac trucks to increased sales.
El-Con company is dedicated to quality and security. Mean by that, as compared to others construction companies, they face a smaller amount of problems like suing and injuries during work, as both of them could cause huge damage to the company in finance.This is an important thing to remember when having a construction company. However, El-Con is static at gaining contracts and getting work. Because of their business structure, they can target various companies, request workers for several tasks, and even they can support other customers. undoubtedly If that isn’t enough, after two years they can rise their net income by over $300,000, rotating it from a loss to profit. El-Con has support of Oakville Hydro in many ways, giving them the needed knowledge for demanding a loan. It is the reason, El-Consave its loan amount within accurate procedures and never asked for very big amount of money.Thud, if there was ever a time got accepting a loan to a construction company, this would be that time. Most importantly, it is going to be a project that is going to provide a great return on investment.
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