Butler Lumber Case Study Analysis Essay

In this report, we study the case of Butler Lumber Company and analyze the financing problem it was facing. First, we give a brief review of the background information of the company. Then we diagnose the business by examining its financial statistics and discover that company was seriously lacking of cash due to the poor operation of working capital and cost control. Free Cash flow is the key concern in our estimation. “Break-Even Analysis” stressing on the balance of free cash flow is applied in the estimation of the loan amount needed for

Moreover, what about Hampton’s character. Is it Hampton recognized for its honest behavior? Finally, what are the conditions that surround the loan request. The company is not trying to increase the market share or use the money to implement strategies for long-survival.

This signals that although company is profitable but the retained earnings are not enough to fuel the exponential growth of the company. Payable period increased from 35 days in 1989 to 45 days in 1990(Exhibit 2), which shows that the company is lagging behind the standard due date of 30 days. This sole dependency on accounts payable for the uses of cash will make the situation worse. Therefore for additional inventory and accounts receivable to sustain the growth company needs external financing from the bank.

That's a great question. Please allow me a moment to review your loan file. Thank you for your patience.

Gene Denning, an employee of Welco Lumber Company, decided to run a study by videotaping a sample size of 365 logs being processed. However, actual data provided proved that it was a true sample size of only 362 logs, as data for logs # 30, 123, and 127 are missing from his report. He videotaped 3 operators, April, Sid, and Jim, marking the logs, how each log was broken down and the degree to which the cants were properly centered. Gene then did a comparison of what the cost was of the log in its current condition (actual value), to what would have been the correct value of the log if the cut had been

Thank you for writing. I apologize that we were unable to complete your loan application and close on this loan. It is our ultimate goal to help you with this new purchase and I'm sorry we could not help you. The deposit agreement states that if the loan does not close for any reason, your deposit is used to pay for the third party costs of the appraisal and credit reporting fees.

Finally, based on the entire scenario analysis, and what you know about the need for some surplus cash reserves, what would you recommend as the ‘ideal’ line of credit to pursue from First Bank?

Tire City Inc, a retail distributor of automotive tires, has had a significant increase in sales for the past three years. Sales had grown at a compound annual rate in excess of 20% as a reflection of excellent service and customer satisfaction. In order to keep up with this growth in sales, Tire City has decided to expand its warehouse facilities to accommodate future growth, maintain great service, keep competitive pricing, and to continue yielding high levels of customer satisfaction. Through previous business with MidBank, TCI has established a good line of credit with them. In 1991, TCI took out a loan from MidBank to build a warehouse. This loan was being repaid in equal annual payments of $125,000, leaving a

As result of inflation and the acquisition of its competitor, Tri-State Tablet Company in 1996, Padgett's financial needs have been risen to a permanent level rather than being merely seasonal in nature. The Company exceeded its bank credit line of USD 5 million to USD 7.2 million. So Padgett Paper requested their bank, the Calson Trust Company for a higher credit limit of USD 8 million. The request was granted under internal guidance line of USD 8 million at prime. The objective is for the Management at the company's bank must revise Padgett's debt structure in a mutually satisfactory manner that will minimize lender risk while increasing company value. The current situation is the bank is now in bad

Butler Lumber Company is a lumber distributor that sells plywood, moldings, and sash and door products. Butler Lumber has enjoyed rapid growth in recent years. Their growth has been built up largely on the basis of successful price competition, made possible by careful management on of operating expenses, and by purchasing materials at a substantial discount. Due to the rapid growth and a shortage of cash in 1990, the company has determined they need to raise additional funds and are looking to do this by increasing their bank borrowings. Butler Lumber’s current bank, Suburban National Bank, will not loan Butler more than $250,000, and so the company has had to rely on trade credit to stay under this limit. A larger bank, Northrop National Bank, is considering extending a loan of $465,000 to Butler Lumber. George Dodge, an officer at Northrop National Bank, must determine if the bank should improve the loan, and then work out the specific details of the loan. Mr. Dodge has a number of options; he can agree extend the loan with the standard conditions for a loan like this, he can agree to extend the loan but modify the conditions of the loan, or he can choose to refuse the loan.

Butler Lumber Company is looking for more cash due to a fast-paced lumber market and a shortage of funding. Their regular bank, Suburban National Bank, is not willing to expand their exiting loan to an amount greater than $250,000 without securing the loan with real property. Another loan is being offered by a second bank, Northrup National Bank, for $465,000, with the understanding that the previous loan would be rolled into the second. The interest on the new loan would be prime + 2%.

1. Bank loans outstanding at any time could not exceed 85% of Friendly’s accounts receivable; and 2. Friendly’s total

Sam, one of the bank’s employees in the loan department, travels to New Jersey to meet one of his potential clients. The client had contacted Sam to enquire about the bank’s loan procedures and wanted to apply for a loan of 1 million dollars. This was a great business opportunity for Sam. During the meeting, the customer wants to know some more details since the loan amount is large. He wants specific information regarding the late payment penalties and the past records of the bank involving high value loans. The customer intends to take loans from

Problem StatementInadequate Working Capital • Stagnant growth: It becomes difficult for the company to take advantage of new opportunities or develop new products or adapt to alteration of production techniques needed when new opportunities arise. • Loss of credit opportunity: The inadequacy of working capital funds make firms unable to secure attractive credit opportunities. A company with working capital need not seek for credit opportunities because the firm will be able to finance large stock and can therefore place large orders. • Loss of cash discount: Companies try to persuade their debtors to pay early by offering them a cash discount off the actual price. A company with inadequate working capital funds will not be able to enjoy this benefit. • Loss of goodwill: A company with good reputation can expect cooperation from the trade creditors at the time of financial difficulties. A firm will lose its reputation when it is not in position to honor its short-term obligations. As a result, the firm faces tight credit

The financial analysis of the balance sheet shows that the percentage of equity in the sources of funds is decreasing while the debt is escalating. Short term liability has compounded from 14% to 39% while long term liability had increased from 16% to 24%. The Debit/equity ratio shows an almost double increase in dependence on borrowed funds between 2007-2008, leading to a greater obligation of fixed interest payment, and a lessor safety margin for long term creditors. An increasing Debit-equity ratio can also create difficulties in raising additional loans. This triggered a potential lack of future financing, considering that Gerhard Schroder property developer had indicated that he was unwilling to continue to provide financial support to the organization. Additionally, they