Merrill Electronics was a medium sized distributor of personal computers, related peripheral equipment and software, and various other consumer electronics and domestic appliances. In July 1991, sales turnover and profits had improved over the past 18 months since the arrival of a new general manager, but the company's needs for financing were also growing rapidly. Borrowing had increased to the point of being told by bankers that no additional credit line would be extended. Faced with serious cash flow problems and under pressure from their banks, Merrill's management decided to take action.
This case gives students a hands-on opportunity to develop and refine their skills by analyzing Merrill's financial statements and other data. It raises a number of issues that face rapidly growing, sales oriented companies where working capital investment needs exceed their ability to generate adequate funds internally. The first issue is to discover where the problems lie.