2) Swice Good Doggies, Inc. develops and manufactures really neat meat products.

Question

2) Swice Good Doggies, Inc. develops and manufactures really neat meat products. The company has been growing rapidly during the past 10 years, due primarily to having discovered, patented, and successfully marketed dozens of new products. Profits have increased annually by 30% or more. The company pays no dividends but has a very high price-earnings ratio. Due to its rapid growth and large expenditures for research and development, the company has experienced occasional cash shortages. To solve this problem, the president of the company (Myer Winter) has decided to improve its cash position by (1) requiring customers to pay for products purchased on account from the company in 30 days instead of 60 days and (2) reducing expenditures for research and development by 25%. Evaluate this situation from the perspective of a) Short-term creditors and b) Common stockholders.

Explanation / Answer

from the perspective of

a) Short-term creditors:

A creditor is a party (e.g. person, organization, company, or government) that has a claim on the services of a second party. It is a person or institution to whom money is owed.[1] The first party, in general, has provided some property or service to the second party under the assumption (usually enforced by contract) that the second party will return an equivalent property and service. The second party is frequently called a debtor or borrower. The first party is the creditor, which is the lender of property, service or money.

The term creditor is frequently used in the financial world, especially in reference to short-term loans, long-term bonds, and mortgage loans. In law, a person who has a money judgment entered in their favor by a court is called a judgment creditor.

The term creditor derives from the notion of credit. Also, in modern America, credit refers to a rating which indicates the likelihood a borrower will pay back his or her loan. In earlier times, credit also referred to reputation or trustworthiness.

b) Common stockholders: As from the view of stockholders,the debtors shall reduce in the balance sheet to a gud extent.Also there may be chances of debtors proving bad so the amount of provision should increase too.

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