Clarkson Lumber

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hult international business school | Clarkson Lumber Company | | | Adeeb Valiulla | 1/3/2011 | | Summary Experiencing rapid growth in business and generating fairly good profits, Mr. Keith Clarkson the sole owner and president of The Clarkson Lumber Company still faced a shortage of cash and found it necessary to increase his borrowings, he was therefore on a look-out to start off a new banking relationship where he could not only borrow a larger loan amount but also one that did not require a personal guarantee attached. Suburban National Bank, Mr. Clarkson’s current bank was willing to offer him a loan amount to an extent of $ 400,000 which also called for a personal guarantee. Northrup National Bank, on the other…show more content…
In addition to that, the company is able to generate Net Worth of $ 454,000 which is better than the first option of considering loan amount of $ 750,000 from Northrup National Bank. | FY - 1993 | FY 1994 | FY 1995 | FY 1996 | ROE | 13.70% | 16.57% | 17.05% | 25.31% | Last but not the least, with this option the forecasted ROE increases to a substantial amount over the last few years, which is a good sign for the Company. DuPont Analysis also tells us that Clarkson Lumber has been generating 40% of its return from its core/sustaining operations and as per the analyst, the Company’s future is bright and will help increase ROE in the coming years. Overall, Clarkson Lumber Company has now a total loan of $ 763,000, i.e. $ 399,000 from Suburban and $ 364,000 from Northrup National Bank. Interest Payment for the previous year would add up to the coming years and the Company has to have enough cash to service the loan. It has to reduce its Accounts receivables by a substantial amount because this is one of the major reasons why the company is facing shortage of cash and has difficulties in paying its short term obligations. I would like to conclude by stating that overcoming the above mentioned i.e. investing the loan amount into Company’s core activities, reducing Accounts receivables, Clarkson Lumber Company can increase the future cash flows and generate high profits which would

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