Jackson Automotive Systems Harvard Case Solution & Analysis

Jackson Automotive Systems Case Solution


The underlying company for this analysis is Jackson Automotive System. The company produces various automotive products that are mainly supplied in Michigan, USA.The company founded in the year 1961 and the current president of the company is Larry Edwards, who is a successful entrepreneur. The significant efforts of Larry Edwards, primarily on the innovation of the products to better satisfy the needs of customers,the company in a very short period of time, achieved a leading position in the overall industry. The result Edwards’ successful leadership was that the company was able to successfully cope up with the issues that were generated during the financial crisis in the year 2008. From the 5000 suppliers of the automotive products, less than 200 of them had the annual sales of $100 million because of the aftereffects of financial crisis, which resulted in bankruptcy of various small suppliers.

The company however strives very hard to maintain its profitability and uses every possible way. In order to repurchase stocks to reduce the amount of outstanding shares in the market, the company asked for a bank loan of $5 million from Michigan State Bank. With the help of buyback of shares, the outstanding shares in the market would be reduced by approximately 40%. The overall activity could result in increased earnings per share for the remaining outstanding shares. With the adoption of conservative policy in the capital structure of the company, the company issued an annual forecast of its overall cash position in order to satisfy the bank with regards to repayment of overall debt.

However, due to the usage of older equipment, the company was unable to generate required amount of revenues, which created significant issues for the company to repay its principal amount to the bank. The company therefore asked for the renewal of the terms of loan as it required extension in the repayment of the loan from June 2013 to September 2013. In addition to this, the company also acquired a loan of $2.4 million to do some expenditure on the replacement of the capital asset in order to faster its revenue growth.

Key Facts

Jackson Automotive System has acquired a loan from Michigan State Bank, whose maturity was due on June 2013.The loan was acquired to repurchase the outstanding stocks from the market in order to increase the earnings per share to satisfy the remaining shareholders. However,due to various internal as well as external issues, the company was unable to repay its loan due to which in this case, the company requested an extension in the existing loan for the repayment from June 2013 to September 2013. In addition to this, in order to faster its revenues growth., Larry Edward was focusing on the replacement of existing old capital asset for which an additional $2.4 million would be required, which brought the total request of the loan to $7.4 million whose maturity date under the new terms was September 2013. The company adopted a significant conservative approach and excluded the debt in the capital structure because of the strong confidence in the strong financial position of the company. The company also in corporated 30 days selling term for the accounts receivables of the last month sales and a conservative dividend policy for its shareholders due to which, the management was confident about repayment of loan on time.

Statement of the Problem

The key issue in this case is that the company is focusing on a repurchase of its outstanding shares from the group of dissident share holders with the help of two different loans that were acquired from Michigan State Bank and due to the significant delays in the overall production because of the usage of older equipment, the situation to repay the loan is typical on September 2013................

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