Corporate Finance

Corporate Finance Institute® Advance your career SPREAD THE JOY ORGANICS INC. – Client Brief Background Spread the Joy Organics Inc. (SJO ) is a producer of organic spreads . Their products include jars of jams, jellies, and other fruit -based purees . The company was founded by owner Sally Singh, who still runs the business at its original facility in Anytown, USA. Sally worked as a manager at a much larger competitor for 10 years before leaving to create SJO . They have been a client of your commercial bank since inception approximately 7 years ago, although Sally does not bank personally at your institution. While she knows the food processing industry very well, Sally does not have particularly strong financial acumen. Sally’s net worth is approximate ly $1,200,000 – with much of it in home equity and registered retirement accounts. In the last three years her daughter Helen has joined the family business , although she does not presently hold an ownership stake . Helen has some commercial banking experience, and recently achieved her CPA. Her strong financ e skills are considered an asset to the business as they continue to grow. While Sally is still at least 10 years from retirement, she and Helen have begun discussions around the succession planni ng process . The jam and jelly market in North America is dominated by several large players, with Smuckers chief among them. Smaller operators like SJO generally achieve success by carving out a niche (like local and organic). Sally has been very success ful in this and has leveraged her industry relationships to achieve strong growth year over year. While they have never had an issue with payment in the 6 years they’ve had them as a customer , Walmart does make up approximately 60% of SJO ’s sales. The pre sent transaction is an annual review with increase. SJO looking to borrow an additional $500,000 that will support the acquisition of new packaging equipment. There is no other term debt at this time, however, SJO has a $500,000 operating lin e. Industry The food processing industry is in the mature stage of its lifecycle, with the trend towards greater regulation increasing each year. Relatively high levels of CAPEX are required. Industry revenues are grow ing at an annualized rate of 1.6% ; this is expected to continue over the next 5 years. Technological change is low. Some key i ndustry ratios are as follows: • Net margin: 3.8% • Gross margin: 33.1% • Debt service coverage: 1. 5x • Total liabilities to equity: 1. 9x • Cu rrent ratio: 1.5x • Funded debt to EBITDA: 3.7x

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