Clarkson Lumber Company

The company's inability to receive payments from customers in a timely manner created a severe impact in the company's cash flows. The age of account receivables increased each year. In 1995 it took 49 days on average to receive payments from customers. Because of the delay in accounts receivable, Clarkson Lumber's ability to pay suppliers on time is also impacted. In 1995 it took Clarkson 38 days on

One assumption that should be clearly analyzed is that the collection period is of 30 days net. Not always customers have the ability and willingness to pay off their debts in 30 days, some may take more time, and some could incur in bad debt.

Butler Lumber Company, a lumber retailer with a rapid growth rate, is faced with the problem of cash flow shortage. In order to support this profitable business, BLC needs a great amount of cash. The loan of $250,000 from Suburban National and a line of credit of up to $465,000 from Northrop National Bank are the two choices provided. After a brief review of the operation and financial conditions of BLC, we first make analysis of the credit level of BLC from the perspective of banker. Although the feedback from all the firms that had business dealings with Butler are quite positive , both solvency and liquidity condition and the mortgage indicates that it is not a wise

As financial advisor I would urge Mr Wilson to take the loan, despite the fact of low liquidity and increase in debt throughout the last years. The loan from Suburban National bank is not sufficient for meeting the needs of Mr Wilsons company, furthermore, the debt continues to rise due to the buy-out of Mr Holtz; this also has increased the low liquidity of the company. However, the reasons why I would recommend taking the loan are:

received claims totaling $0.75 million for medical care costs incurred before December 31, 2010. Line of Credit Modification As of December 31, 2010, Shakespeare had a line of credit with a bank of $8 million (with a $10 million maximum amount available) due in approximately three years from the balance sheet date. Interest accrues on amounts drawn under the line at the London Interbank Offered Rate (LIBOR) (subject to a 3.5 percent floor) plus 7.5 percent per year. Shakespeare is also required to pay a commitment fee equal to 2 percent per year on the portion of the line of credit that was not drawn upon. On March 1, 2011, the Company completed its modification of the terms of the line of credit with the bank to finance the acquisition of a competitor printing and publishing company (see further facts of acquisition below). The key modified terms are as follows: • • • • The maximum amount available under the line of credit was increased from $10 million to $20 million. The term was

No, Mr. Clarkson’s estimation for loan requirements ($ 750K) is not enough. He needs to borrow more than $ 750K. As you can see from our 1996 pro-forma Balance Sheet (with discount, without discount, respectively), in the both of cases, the company still needs more than $750K from bank to meet their financial needs. In case of not taking all trade discount, (1996 pro-forma without discount) the company needs to borrow $ $905K, on the other hand, in no trade discount case, the company even needs more money ($1,112K) to finance their expected expansion. (Please refer to attached excel file for 1996 pro forma B/S and I/S.)

First of which, is the current ratio. It has been rapidly declining since 2000. To me this indicates that there is a liquidity issue. Each year their trade debt increase exceeds the increase of net income for the company. As a result, the working capital has taken a nosedive from $58,650 in 2002 to only $5,466 in 2003.

A more tell tale sign is the quick ratio, or acid test, which has increased year after year. Debt to total assets has decreased over 5% since 2001, indicating less financing of current and long term debt and more company assets. Their cash debt coverage far surpasses the ideal 20%, indicating a high level of solvency with sufficient funds and assets to satisfy all debtors. Asset turnover has more or less maintained at right around 1.6, signifying a turnover rate of just less than 180 times per year.

The technology portion of their company has grown tremendously which has caused so much of their growth. In addition, they found the perfect formula to appeal to and retain customers. Most of their customers are loyal to their company and insist on sticking to their products. Their market capitalization, $639,922 million, is extremely high compared to other companies in their industry They returned about $8 billion to shareholders during their quarter. Also, their gross margins, currently at 38.01%, are high at passed by

Increase in current liabilities Substantial increase in current liabilities weakened the company’s liquidity position. Its current liabilities were US$2,063.94 million at the end of FY2010, a 48.09% increase compared to the previous year. However, its current assets recorded a marginal increase of 25.07% - from US$1,770.02 million at the end of FY2009 to US$2,213.72 million at the end of FY2010. Following this, the company’s current ratio declined from 1.27 at the end of the FY2009 to 1.07 at the end of FY2010. A lower current ratio indicates that the company is in a weak financial position, and it may find it difficult to meet its day-to-day obligations.

Return on Total Assets was 4.43% which is below five percent. That indicates that the company is not accurately converting its assets into profit. The total for Return on Stockholders’ Equity was 8.89%, however financial analysts prefer ROE to range between 15-20 %. The company’s low ROE indicates that the company is not generating profit with new investments. Lastly, Debt-to-Equity ratio for the company was 1.01 which indicates that investors and creditors are equally sharing assets. In the view of creditors, they see a high ratio as a risk factor because it can indicate that investors are not investing due to the company’s overall performance. The totals of these three ratios demonstrate that the company’s financial state is not as healthy as it should be.

The reason why Butler Lumber Co. is considering finding a different line of credit is because they’ve nearly exhausted all their usable credit with Suburban National Bank, using up $247,000 of the $250,000 of the credit limit. To compile this issue, the bank is wishing to secure the loan with some of Butler’s property. Considering the company’s large debt ratios, they have decided to check with Northrop National Bank’s offer to extend their line of credit by $215,000.

WWAV current and quick ratios trended downward and remained lower than the industry’s average of 2.33 and 0.75. In 2011, the company’s current ratio was 1.58 but dropped to 1.19 in 2012 indicating an increase of current liabilities year over year. While WWAV current liabilities are increasing, their current assets rising only slightly. The company’s quick ratio in 2011 was 1.04 and trended down to its current 0.73 standing, which is slightly lower than the median quartile.

These numbers come out to be lower than what is considered average for a normal manufacturing company in which a satisfactory current ratio is 2.0 while a good quick ratio is considered 1.5. However according to my research on the industry those numbers seem to be the norm.

The long-term liquidity risk ratio such as LT debt/Equity, D/E, and Total Liabilities to Total Assets all show a decline from year 2005 due to the repayment of debts. The interest coverage ratio also shows a healthy number of 29.45 in comparison to the industrial average of 15.04 indicating a high ability to pay out its interest expense. Such a low relative risk is not surprising due to the nature of its business depending heavily in R&D development and large intangible assets.