Butler Lumber Case

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Butler Lumber Company Case

Butler Lumber Company Case
Summary of facts: In 1981 by Mark Butler and his brother-in-law Henry Stark founded the Butler Lumber Company. In 1988 Mr. Butler bought Mr. Stark’s share for $105,000 to be paid of in 1989 out of which $70,000 was raised by a loan carrying an interest rate of 11% and repayable at the rate of $7,000 over the next 10 years. 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
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Statement Current assets $ 963
Property, net 186 Last year’s % Of Sales Total Assets $ 1,149 Notes payable, Northrop $ 315 Plug Value
Note payable to Holtz -
Notes payable, trade -
Accounts payable 303
Accrued expenses 46 Last year’s % Of Sales
Current portion of Long Term Loan 7 Constant Current liabilities $ 671
Long-Term loan 43 $50 - $7 Total Liabilities $ 714
Net worth $435 1990 Net Worth + 1991 Net Income Total Liab. & Net Worth $ 1,149

The Balance sheet was generated with the assumption that Butler Lumber would utilize the additional loan from Northrop National. Cash, Accrued Expenses, and Net Property are all based on the most recent year’s percentage of sales. Accounts receivable is derived from average of previous years percentage of sales. In order for Total Assets and Total Liabilities & Net Worth to be in balance Butler Lumber needs additional debt financing of $315,000 as can be seen in Notes Payable. This in turn has an effect on Net Income for 1991, which is added to beginning Net Worth in order to arrive at $435,000.

Liquidity Ratios 1988 1989 1990 1991 Note
Current Ratio 1.8 1.59 1.45
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