Case 13-6 Butler Lumber Company

695 Words Dec 9th, 2011 3 Pages
CASE 13-6 BUTLER LUMBER COMPANY*

Question 1
How well is Butler Lumber doing?

Despite recording a tremendous growth in revenue as follows:
2009: 18.62%
2010: 33.83%
2011: 6.61% (on annualised basis)

The profitability of Butler Lumber is on declining trend.
| |2008 |2009 |2010 |1Q 2011 |
|Gross Profit Margin |27.99% |28.61% |27.62% |27.30% |
|Net Income Before Taxes Margin |2.18% |2.04% |1.97% |1.53% |
|Net Income Margin |1.83% |1.69% |1.63% |1.25%
…show more content…
By hedging the inventories level, Butler Lumber will be able to enjoy a protection of its profit margin.

Furthermore, the longer net working capital cycle is due to Butler Lumber paying off its account payables which only give credit terms of 30 days (in 2008 to 2010, the days of payables is above 40 days which may hinder its relationship with its suppliers though the suppliers did not object if the payments lagged somewhat behind the due date). In order to pay off the accounts payables, Mr Butler had to rely heavily on bank borrowings as he could not substantially cut the credit terms given to its customers or shorten the days of repairs work.

| |2008 |2009 |2010 |Q1 2011 |
|Revenue |1697 |2013 |2694 |718 |
|Purchases |1278 |1524 |2042 |660 |
|COGS |1222 |1437 |1950 |522 |
|Gross Profit |475 |576 |744

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