Butler Lumber Case

952 Words4 Pages
BUTLER LUMBER CASE REPORT The Butler Lumber company is facing cash difficulties due to the buyout of Henry Stark’s share and because it is operating a high growth rate. Thus, it is imperative to analyze the various options available to Mark Butler in order to meet the cash needs of the Butler Lumber Company. In order to support the reasoning for our recommendation, we constructed a ratio analysis (Appendix I; Exhibit 1). Even though the firm has realized increasing sales and decreased its operating and cash cycle, other factors were found to have contributed to the shortage of funds. From the analysis, we were able to conclude that the main reasons for the firm’s insufficient funds were due to its slower collection of accounts…show more content…
In addition to the requirements stated above, Butler will have to put up collateral to obtain the loan. We are not worried of his capability to do so because he can put up his house (assuming he convince his wife) at a market value of $110. As well, he can put up his life insurance which is worth $70. In order to maintain the sustainable growth rate Butler must adopt more conservative policies. For example, more conservative marketing, restrict credit terms to clients, and reduce the amount of employees. Lastly there are few restrictions to the recommendation provided. To begin, it would hinder the potential growth of the firm and it would not be sustainable in the future years because the firm will lack the ability to factor accounts receivables once they are completely depleted. On the contrary, the benefits largely outweigh the cons. Firstly Butler will foster greater relationships with his suppliers as he pays them within the discount period. Furthermore, the new loan comes with a number of covenants that would considerably affect the growth of the company such as limits on investments in fixed assets and net working capital. Finally, Butler would not need to sever its loan agreement with Suburban national Bank and break this long term relationship. Thus, for the reasons mentioned in this report, the decision to factor accounts receivables and keep the Suburban loan is

More about Butler Lumber Case

Open Document