Butler Lumber Case Discussion Fathuddin Hamid Academia

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4/1/2015

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Butler Lumber Case Discussion

1) Is Butler Lumber Case just a bank lending / finance case?
Butler Lumber Case is not just a bank lending / finance case. Though this case requires the financial analysis of the company, we should also consider other factors such as the establishing the long-term relationship between the bank and Butler Lumber Company.
Through
thiscross long-term relationship, the bank is ableCompany. to capitalize on Butler
Lumber’sfostering
growth and sell the services to Butler
Lumber
Additionally, the bank should consider other qualitative factors such as in this case,
Butler Lumber has just been incorporated and it
…show more content…
In this case, Butler is facing issues due to growth of sales along with increasing average collection period. In 1988, the days in payables turnover had increased from 35.41 to 45.76. Additionally, the increased from payables is due to increase in slower payment and increased purchases. This is followed by increased in inventory due to reduced inventory turnover and increased sales.
6) Is trade credit a good source of financing for Butler Lumber Company?
Trade credit is a good source of financing for Butler Lumber Company, given the high proportion of account receivables on its balance sheet. Additionally, the growth in its account receivables over the years, it is imperative to consider trade financing as a source of financing. However, it should note that while it may seems like a good option, it may not be optimal as Butler Lumber have to give substantial discounts at expense of growing sales. Being in the market as one which been successful through price competition, it may not be wise to consider trade credit as a first option.
Alternatively, Butler Lumber can look at getting trade credit with its suppliers instead. As Butler Lumber is getting bigger, it would enable Butler to have a better bargaining power and at the same time, reduce the expense needed to service the loans.
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7) As a banker, would you lend to Butler Lumber Company? How would you
try

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