Butler Lumber Case Study Analysis Essay

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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.

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

2. Forecast the firm’s financial statements for 2002 and 2003. What will be the external financing requirements of the firm in those years? Can the firm repay its loan within a reasonable period? In order to forecast the financial statements of 2002 and 2003, the following assumptions need to be made. The growth of sales is 15%, same as 2001, which is estimated by managers. The rate of production costs and expenses per sales is constant to 50%. Administration and selling expenses is the average of last 4 years. The depreciation is $7.8 million per year, which is calculated by $54.6 million divided by 7 years. Tax rate is 24.5%, which is provided. The dividend is $2 million per year only when the company makes profits. Therefore, we assume that there will be no dividend in 2003. Gross PPE will be $27.3 million (54.6/2) per year. We also assume there is no more long term debt, because any funds need in the case are short term debt, it keeps at $18.2 million. According to the forecast, Star River needs external financing approximately $94 million and $107 million in 2002 and 2003, respectively. In order to analysis if the company can repay the debt, we need to know the interest coverage ratio, current ratio and D/E ratio. The interest coverage ratios through the forecast were 1.23 and 0.87 respectively, which is the danger signal to the managers, because in 2003, the profits even not

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

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.

Because they have faced cash shortage trouble. Their profitability has grown for 1993 ~ 1995 period, as we can see from their I/S (e.g. Sales and Net Income, etc.). However, as its business size grows, their A/R increased, which means that it is getting difficult to collect cash. On the other hand, A/P decreased for the same period, which means that the company paid cash for A/P, resulting in critical cash shortage. Furthermore, the A/P payment period is shorter than A/R collection periods, the company’s cash problem happens to be accelerated.

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%.

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.

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.

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

At first glance, Clarkson Lumber appears to be a healthy company. However, despite rapid growth and increasing sales Clarkson Lumber finds itself searching for additional funding to compensate for a shortage in cash to fund its expanding business. Clarkson Lumber is in this situation for a number of reasons.

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