Butler Lumber
After thorough review and analysis of Butler Lumber’s financial reports, I believe that it is in the best interest of Northrup National Bank to not only approve the requested $465,000 loan, but look to increase the loan amount. A review of the 5 C’s will show in more detail the decision to approve this loan:
1. Capacity/Cash Flow: Butler runs a lean operation that has allowed them to have success due to competitive pricing. They have met their financing needs by increasing their debt (notes payable) in order to keep up with the demand. However, their borrowing had led conjunctly to an increase in sales. Net sales have increased 59% over the 1988-1990 timeline and have been projected to increase by another 34% in
…show more content…
Because it would be such a large line that could help Butler Lumber, it needs to be understood that when working with that level of volume, some sort of collateral needs to be put up. We will be able to show how taking advantage of the 2 net 30 option, you can decrease cost of goods sold and increase net income with no strategic changes to business. Using this collateral would be a good way to recover some of the funds to reduce the loss if the company were to go bankrupt. However, when evaluating the performance of the company, it is believed that this company should be able to continue to produce strong results regardless of the economy and that the securitizing of the loan is an added safety precaution due to the increase size of this line of credit.
4. Conditions: The first thing that needs to be determined is the limit on the credit line. It was originally requested to obtain a limit of $465,000. However, it is recommended that we, as part of the approval process, refinance the current $247,000 loan to Suburban National Bank. If there were to be an issue, we do not want there to be a conflict on who needs to be paid first. Mr. Butler has had a working relationship with Suburban National Bank, but we do not see this to be an issue due to the fact they are capping him at $250,000. It is recommended that the limit exceed $750,000.00 but be no greater than $1,000,000.00. There needs to be enough capital infusion that they can
The company has been functioning well in terms of generating profit and demand so far. However, there will be a 20% increase in demand for the next month of operations as predicted by management, and the production and supply management's problems may come as a problem they can no longer afford.
As Mr. Clarkson's financial advisor, we would caution him on expanding his business given the current financial trends and ratios of the company. The investment in inventory and receivables is too high. As a result, Clarkson Lumber's return on assets, return on equity and invested capital are lower when compared to other high profit outlets as shown in exhibit C. Additionally, a significant increase in debt, such as a $750,000 loan, will further reduce the current ratio of the company. Clarkson Lumber could benefit from some changes in its collection policies for
The U.S. Bank loan approval board recommends that U.S. bank allocate the $6.5 million dollar loan to Redhook. Redhook has been a valued customer of the bank for a couple years now never faulting on any payments. Due to the fact that they have missed past payments and by looking at the past financial performance of the company shows that they have capability to
Options:-Portion of debt through insurance company-Continue at 90 day terms-Factor receivables-Collateralize assets-Mortgage general purpose building-Independent Canadian Financing-Flat dividends-Payment Terms - accelerate receipt-LIFO / FIFOEvery available option has a positive and a negative aspect to it. Here we will decipher what option gives Padgett Paper Products the best financial structure, provides the most flexibility for continued growth, and reduces the risk for all parties involved.
27.1)Financing Statement C&H Trucking, Inc. (C&H), borrowed $19,747.56 from S&D Petroleum Company, Inc. (S&D). S&D hired Clifton M. Tamsett to prepare a security agreement naming C&H as the debtor and giving S&D a security interest in a new Mack truck. The security agreement prepared by Tamsett declared that the collateral also secured:
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.
David C. Shaw prepared this case solely to provide material for class discussion. The author does not intend to illustrate either effective or ineffective handling of a managerial situation. The author may have disguised certain names and other identifying information to protect confidentiality. Ivey Management Services prohibits any form of reproduction, storage or transmittal without its written permission. Reproduction of this material is not covered under authorization by any reproduction rights organization. To order copies or request permission to reproduce materials, contact Ivey Publishing, Ivey Management Services, c/o Richard Ivey School of Business, The
Mr. Paul Mackay, a sole proprietor, has approached the Commercial Bank of Ontario in order to obtain an additional $194,000 bank loan and a $26,000 line of credit. Paul owns and operates a general merchandising retailer in Riverdale, Ontario named Lawsons’. The bank loan is needed for Mr. Mackay to reduce his trade debt that has a sheer 13.5 per cent interest penalty. The line of credit is needed for sales seasonal downfalls so that Mr. Mackay could properly manage those tough months. Jackie Patrick, a first time loans officer, has been appointed to Mr. Mackay’s request. Although anxious to finish her first loan, Ms. Patrick knows that this particular case is a difficult one.
1. Based on the 10 percent compensating balance requirement, how much would Pierce Control Systems have to borrow to acquire $10 million in needed funds?
1. Assess the current financial health and recent financial performance of the company. What strengths and/or weaknesses would you highlight to Adeline Koh? From the ratio of profitability, the company had about 18% on operating margin, 16% on ROE, 8% on ROS and 5% on ROA in both 1998 and 1999. However, there was a downturn trend in profitability ratio in 2000. This could be the result of price competition because of the introduction of DVD manufacturing in the market. The profitability ratios rose again in 2001. It shows that the company had ability to recover its ROE and operating margin. If ROA is sound and debt levels are reasonable, a strong ROE is a solid signal that managers are
A. Stability: the firm should focus on incremental improvement of functional performance. The firm can also increase efficiency and reduce costs in order to counter the current economic slump they are in.
The company’s debt ratios are 54.5% in 1988, 58.69% in 1989, 62.7% in 1990, and 67.37% in 1991. What this means is that the company is increasing its financial risk by taking on more leverage. The company has been taking an extensive amount of purchasing over the past couple of years, which could be the reason as to why net income has not grown much beyond several thousands of dollars. One could argue that the company is trying to expand its inventory to help accumulate future sales. But another problem is that the company’s
In this case study I will be discussing following problem: Why has Butler Lumber been profitable in the increasing volume of sales but at the same time it is experiencing cash difficulties in 1988 – 1990? This is a historical problem and my calculations and assumptions are based on income statement and balance sheet for 1988 – 1990.
employees numbered 15 in early 1996, 8 of whom worked in the yard and drove trucks, and 7 of
The margins are not great for this industry, and BLC is no exception. Even with the excellent year over year growth in revenues for this company, BLC is on pace for another dismal year of net income in the high $40k. The net income for this company has been constant; $31k in 1988, $34k in 1989, $44k in 1990, and an estimated $49k in 1991. Net income of this size should not warrant extending a line of credit to this company. As the banker, I would not grant a LOC or any other type of loan this size. I would consider granting this company a smaller LOC with the similar stipulations of maintaining an appropriate working capital amount, fixed asset purchases would need bank approval and that Butler would put up personal property and his insurance policy as collateral for the loans that the business