Ajax Electronics Case Study: Ajax Electronics

Introduction

Ajax electronics ' problem is that they have too much accounts receivable, inventory and liabilities, and I recommend them to stop selling defibrillators and focus on industrial sensors, which they will have lower competition and a gross margin up to 40%, and get some with financial and administrative skills on the board or as an manager.

Analysis

Ajax electronics got into the defibrillator business because Mr.Robert thought he could achieve a gross margin over than 40%, but the numbers show that Ajax electronics is struggling and always seemed lack of cash.

Sales growth after 2000 were only 9%, which the average annual sale growth rates range from 10% to 30% in their industry. The lack of cash is explained by the current liquidity ratio

When we take a close look at the accounts receivable on Ajax 's books, we will find that if we rule out the $6,000 from General Service Administration, over 80% of the accounts receivable over 30 days are from hospitals or medical product distributors, which are all defibrillator clients. On the other hand, only three clients that buy sensors turn in their money in more than 30 days. The industry average has a low of 40 days to a high of 80 days, showing that the sensors market has a great advantage on accounts receivable, and focusing on sensor clients and getting rid of defibrillator clients will be the best way to tune down accounts receivable for $75,000 as suggested.

Also, while the sensors have little competition and has proven to achieve gross margins of 40%, the low-end defibrillator market is full of competitors and has a limit of 25%. Even though switching to manufacturing high-end defibrillators could bring a gross margins of 40%, the market is limited by saturation and it will be too late to switch from low-end to high-end right