In other words, the costs have increased at a faster rate than sales. Thus, the limited amount of cash inflow is largely tied in inventory, and payments on loans.
The best thing that could happen to Clarkson lumber would be to slow down growth and seek equity financing. Lowering the costs should be a high priority and it might be worth while to consider holding less inventory if it does not affect the service and quality clients expect.
As seen in Exhibit 2. Although the profits are good, they are not good enough in our view. He must reduce liabilities and debt before accruing more and being consumed with payments and interest payments. Holtz interest and some immediate financing for inventory purchases. As far as Northrup Bank is concerned, we recommend that the bank extend the line of credit but makes sure that the company does not reach the ceiling again.
Clarkson time to arrange for the Clarkson lumber company case study analysis financing. The line of credit will enable the company to take advantage of the trade discounts and pay off previous debt. Clarkson should consider when analyzing the future of his business are: Clarkson to seriously consider taking the new line of credit.
The company would also do well to try to reduce the Average Collection Period to with in 30 days. Holtz and enable Mr.
In retrospect we think that perhaps Clarkson should reduce its expenses and debt first before leveraging itself further. The cost of goods relative to the sales is high and is keeping the profit margin low.
Decision The business cannot support the current rate of growth much longer. Therefore, the company is not a risk and the line of credit should be approved.
The issues that Mr. The note was taken to give Mr. Recommendations We recommend Mr. Clarkson to guarantee the loan personally.
And even though Mr. Clarkson has no choice but to infuse the business with outside cash right away, however he needs to seriously consider other forms of financing after that.
Exhibits not included here Written April 19, Finance Overview Clarkson Lumber Company is a classic example of a privately held company that has experienced a rapid growth in sales and has reached a point where it is facing a shortage of cash to sustain the expected growth in sales in the following years.
Moreover, the borrowing limit set by the Suburban Bank has been reached, prompting the bank to ask Mr. Total assets are also inflated due to the liabilities taken in the form of trade credits by Mr. In the foreseeable future though, once the company sheds the loans it carried and get more streamlined, it will start increasing its cash gradually.
Such possibilities could include recommending to his brother in law to keep his money in the business and receive dividends. This ratio is kept low due to a high total assets figure. However, the company is running low on cash on hand, and needs some form of financing to reach the expected sales of 5.
Analysis The bank is projecting 5. Also, since part of the agreement is to break off from Suburban National Bank, the line of credit has to cover thecovered by the loan. Clarkson seems to be running the company well, evident by the constant growth in sales year after year.
He should explore the possibilities of equity financing, in order to bring cash into the business. Another equity financing option would be to re-mortgage his home and invest his personal cash in the business.Financial Analysis Clarkson Lumber Company.
Pro Forma Analysis • Basic approach is to pick points in time (year end, quarter end, month end), determine where cash is expected to be tied up at these points in time, and determine what the sources of cash are expected to.
Jun 30, · The Clarkson Lumber Company Case Analysis June 30, beardsrus Leave a comment Go to comments (Note: In retrospect we think that perhaps Clarkson should reduce its expenses and debt first before leveraging itself further. Clarkson Lumber Co. Case Solution,Clarkson Lumber Co. Case Analysis, Clarkson Lumber Co.
Case Study Solution, The owner of a rapidly growing retail lumber into account the financial implications of continued rapid growth. The value of the future funding needs of th. Clarkson Lumber Company Financial Analysis 1. Background Clarkson Lumber Company is owned and operated by the hardworking, year-old Mr.
killarney10mile.com has low operating expenses, a small staff, and strong management. The overall impression is one of a conservative, efficient operation. Mr. George Dodge, Clarkson Lumber Company is doing well but there is the issue of whether or not there is too high a risk in granting the request for the $, line of credit.
There are many supporting strong points but it also has some problems to work out. This is a company that has many good. Access to case studies expires six months after purchase date.
Publication Date: September 19, The owner of a rapidly growing retail lumber company is considering the financial implications.Download