Piper The owner of a rapidly growing retail lumber company is considering the financial implications of continued rapid growth. A rewritten version of an earlier case. Therefore, it is essential that you have a professional case study recommendation memo.
Login Butler Lumber Company Case? Butler Lumber Company Case Summary of facts: Over the past five years, Butler Lumber Company has experienced rapid growth in its business.
It derives its business from retail distribution of lumber products in the local area. A large portion of its business is based in repair services, and as a result, it should be somewhat protected from a downturn in the real estate market. Sales volume has built up largely due to successful price competition, made possible by careful control of operating expenses, and quantity purchases at substantial discounts.
Mark Butler, sole owner and president of the Butler Lumber Company is looking to increase the company borrowing. Northrop National is currently analyzing the financial stability of Butler Lumber Company. Butler Lumber Company has a problem with a shortage of cash resulting in an inability to satisfy the expansion of its rapidly growing business as evident by the balance sheet forecast for Exhibit 2.
For this reason, Mr. Why has sales growth been so strong while net income growth has been feeble at best?
Beginning inventory From given Data Purchases2, We have prepared pro forma Balance Sheet and Income Statement for the period ending December 31, in order to determine how much Butler Lumber will need in additional debt financing if it is to expand as planned.
Purchases are projected from an average trend of Accounts receivable is derived from average of previous years percentage of sales. Liquidity RatiosNote Current Ratio1. It helps us examine how it will be able to meet its short-term debt obligations such as accounts payable and short-term notes payable with payments due within the next year.
A current ratio of approximately 1 is desirable. Values lower than 1 indicate that the company might have difficulties meeting its short term obligations, while values higher than indicate an inefficient use of resources. Butler Lumber Company has a current ratio of 1. However, their quick ratio is only 0.
This might signify a wasteful use of funds. The only difference between the current and quick ratios is inventory.
The decreasing trend could be worrisome, especially given the low quick ratios. However, according to the current ratio, the company is still able to cover its short-term debt.
This table Exhibit 4 is based on the scenario in which Butler utilizes the loan from Northrop National. Profit margin and ROA shows a steady decrease up until when the loan comes into effect. This increases both these ratios for the company.
The ROE has somewhat of an increasing trend and with the new loan this slope will get even steeper.
It is therefore clearly evident that the loan from Northrop will have a positive effect on company operations both for the company in and of itself as well as stakeholders. Butler Lumber Company has had a steady increase in growth over the past four years, even with our relatively low estimate compared to that of Northrop National Bank.
We would advise Mr. Butler to take the loan in order to expand his business and increase profitability. By hiring a new sales representative working for a base salary plus commission, we believe that revenues could experience an even higher growth.
Better inventory management might increase cash funds and allow for more freedom in the management of current assets.Clarkson Lumber Co (Calculations) for Students. Clarkson Lumber - tranceformingnlp.com Clarkson Lumber Company () their clients and market players.5 Million sales target and to take full advantage of purchase discounts by creating a pro forma income statement and balance sheet (next spread sheet) and then plugging in the value of bank notes to.
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Descripción: caso financiero de clarkson lumber compañy. As shown in the pro forma income statement (Exhibit 5), Butler Lumber will require external financing of $, in order to achieve their projected sales for the year. The $, is the plug value computed on the assumption of $ Million in.
Comparing the Pro Forma Income Statement with the effectively verified Income Statement for the period of July 95 till June 96, the first of the cause and effect relations that we can establish to explain the incapacity of SureCut Shears to repay its bank loan on March 31 is the Retail downturn, and consequent decrease on sales, which end up to.