In the current world, providing and receiving credit to manufacturing firms plays a significant role in fostering relationships between buyers and sellers. Both buyers and sellers need it since they can have extra money to spend to make the necessary purchases that have an impact on a company's operations. Therefore, whenever a firm is established, credit is essential for its sustainability. It goes without saying that any place of business that wants to continue operating must both offer and extend credit, but it is even more necessary to make sure that it has the greatest credit management procedures. As a result, the management of the credit that Murata Manufacturing Company (muRata) issues and acquires is examined in this study. Additionally, the paper will also look into how muRata's credit compares to other companies in the manufacturing industry.
Financial Reports
According to financial reports, it is evident that the company gets short-term as well as long-term credit from its suppliers. As seen from the reports, for the financial year ending 2016, the company's short-term loans were $57,044,000 $498,938,000 being trade payables and $29,212,000 as long-term debts (Murata, 2017). Besides, the company also points out that its payroll and bonuses and accrued expenses were at $322,619,000 and $509,797,000 respectively (Murata, 2017). The company has acquired both secured and unsecured loans from banks using property and equipment as collateral. Management of long-term credit risks is a major concern, and muRata tries to minimize these risks through interest rate swaps.
muRata's Offered Credit
As at the end of 2016, regarding credit, muRata offered credit in the form of trade accounts ($1,721,673,000), allowances for debts owed ($7,478,000), trade notes ($3,531,000), and prepayments towards expenses ($198,195,000). The company has come up with very stringent policies to manage risks associated with offered credit. The company, therefore, has gone into forwarding exchange contracts and currency option contracts aiding in the management of its prepaid expenses. Moreover, the risks associated with the company's receivables are connected to the electronics industry, but due to its efficient management, it was able to collect all debts without making significant losses. The report at this end shows that the company's allowance for doubtful notes and accounts stand at $7,478,000 against trade notes and accounts that total to $1,725,204,000, portraying 23% of all trade notes and receivables (Murata, 2017).
Comparison with Competitors
Murata's main aim is to develop, manufacture, and sell electronic components. Therefore, the company needs to consider all its debt and credit needs compared to the competitors in the manufacturing industry. A good example of a rival company is Mitsubishi Electric Corporation. As (Morningstar, 2017) indicates, muRata's current ratio stands at 4.5, quick ratio 3.04, financial leverage 1.23, and zero debt equity. Mitsubishi Electric Corporation posted a current ratio, quick ratio, financial leverage, and debt equity ratio at 1.69, 1.07, 2.21, and 0.16 respectively for the same period (Morningstar, 2017). Therefore showing enough evidence that muRata had a higher current ratio and quick ratio compared to Mitsubishi Electric Corporation. On comparing the financial leverage and debt equity ratios, muRata posted lower ratios compared to the Mitsubishi Electric Corp. Following this information, it shows that muRata offers more credit facilities as compared to its competitors. It is also evident that muRata's management regarding leverage is better than its peers in the market.
Credit Policies and Conclusion
Clearly, when a company extends credit to its customers, it improves its customer relations, hence improving and increasing sales. The risks associated with this require the company to implement credit policies (US Small Business Administration, 2017). Following the discussion in the paper, it is evident that muRata does not show the systems that it has set internally regarding credit, but it has strategies put in place that help minimize such risks as evidenced by the end of year reports. Therefore, the company finds it necessary and essential to ensure that any leverage picked is paid back without interfering with its operations. In addition, the company needs to consider the financial capability, credit rating, and the buyers' cash cycle before offering credit. This strategy is crucial in ensuring that the firm minimizes losses that could be incurred through extending credit. Without a doubt, it is observably evident that the company is not able to manage the credit offered to its customers well but does significantly better with borrowing as compared to its competitors. It, therefore, needs to come up with a formal credit policy concerning the customers as a target towards better performance.
References
Morningstar. (2017). Mitsubishi Electronic Corp. Retrieved from morningstar.com: http://financials.morningstar.com/ratios/r.html?t=MIELF®ion=usa&culture=en-US
Morningstar. (2017). Murata Manufacturing Co Ltd ADR. Retrieved from morningstar.com: http://financials.morningstar.com/ratios/r.html?t=MRAAY®ion=usa&culture=en-US
Murata. (2017). Annual Report 2016. Retrieved from murata.com: http://www.murata.com/~/media/webrenewal/about/ir/library/annualreport/annual_report2016.ashx?la=en-us
U.S Small Business Administration. (2017). Extending Credit to Your Customers. Retrieved from sba.gov: https://www.sba.gov/managing-business/running-business/managing-business-finances-accounting/extending-credit-your-customers
