Free Essay

Clarkson Lumber Co.

In: Business and Management

Submitted By crmoreirao
Words 2286
Pages 10
|Universidad Rafael Landívar |Carlos Moreira 1147901 |
|Facultad de Ingeniería |Rodrigo Castellanos 1162800 |
|Departamento de Postgrados |Alejandra Ríos 1041404 |
|Administración Financiera I | |

CLARKSON LUMBER COMPANY

1. SITUACION DE LA EMPRESA

En la primavera de 1996, Clarkson Lumber Company esperaba un incremento en sus ventas, pero a pesar de contar con un buen nivel de rentabilidad, la empresa había sufrido una escasez de caja y se había visto obligada a aumentar su crédito a principios de 1996 en el Suburban National Bank a $399,000, el limite o tope para líneas de crédito en el banco era de $400,000, y ahora le pedían al Sr. Clarkson garantizar su préstamo de forma personal, por lo que estaba decidido a establecer una nueva relación bancaria en la que pudiera tener un crédito mayor sin tener que garantizarlo de manera personal.

La empresa ofrecía descuentos por volumen y pago a 30 dias para sus clientes de cuenta corriente. Clarkson Lumber Company era una sociedad entre Keith Clarkson y su cuñado Henry Holtz. Alrededor del 55% del total de sus ventas anuales tenían lugar a los meses entre abril y septiembre. Las ventas anuales eran de $2,291,000 en 1993, $3,477,000 en 1994 y $4,519,000 en 1995, y habían generado utilidades después de impuestos de $60,000 en 1993, $68,000 en 1994 y $77,000 en 1995.

2. CONTEXTO DEL PROBLEMA

Tiempo atrás el Sr. Clarkson había conocido al Sr. George Dodge, ejecutivo de un banco mas grande, el Northrup National Bank y habían conversado sobre la posibilidad de que el banco le otorgara a la Clarkson Lumber Company una línea de crédito de un máximo de $750,000, el cual el Sr. Clarkson creía, le ayudaría a la empresa a mejorar su rentabilidad, al poder aprovechar de los descuentos comerciales disponibles en el mercado, por lo que el Sr. Dodge pidió al departamento de créditos del Northrup Bank que investigaran al Sr. Clarkson y a su compañía.

De la investigación realizada por el personal del Northrup Bank con los socios comerciales del Sr. Clarkson y su compañía surgieron buenos comentarios respecto a su forma de llevar la empresa y sus créditos. Así como el saber que posee pocos activos como su residencia, un seguro de vida y su esposa posee la mitad de otra residencia, aparte de eso no posee más activos de valor significativo. También se concluyo que es posible que aumenten las ventas para el siguiente año.

Antecedentes

En 1994 Clarkson había adquirido la parte de Holtz por $200,000. Holtz había aceptado un titulo de deuda por $200,000 con vencimiento en 1995 y 1996 para darle tiempo a Clarkson de obtener el financiamiento necesario. el titulo tenia un interés del 11% y era cancelable en cuotas semestrales de $50,000, con un primer vencimiento el 30 de junio de 1995.

1. Actores: Keith Clarkson (propietario Clarkson Lumber Company), Henry Holtz (ex – propietario y cunado del Sr. Clarkson), George Dodge (ejecutivo del Northrup National Bank)

2. Sector Industrial: Fabricantes y distribuidores de madera y derivados.

2.3.1 Proveedores: Fabricantes de madera y derivados.

2.3.2 Clientes actuales: Tiendas de artículos de madera para remodelación, decoración, etc.

2.3.3 Clientes Potenciales: Empresas encargadas de remodelación, construcción, tiendas de artículos de madera, etc.

2.3.4 Competencia Actual: Otros distribuidores de artículos de madera.

2.3.5 Competencia Potencial: Fabricantes de madera, aserraderos, carpinterías que incursionen en el sector industrial de puertas, marcos y aglomerado.

3. DESCRIPCION DE LA EMPRESA

Fundada en 1981, la Clarkson Lumber Company era una empresa dedicada a la distribución minorista de productos madereros del área local. Sus productos típicos incluían molduras de aglomerado, puertas y marcos. La empresa estaba ubicada en un suburbio en crecimiento de una gran ciudad de la costa oeste de Estados Unidos. El volumen de ventas había crecido sustancialmente debido a una política exitosa de precios muy competitiva, producto del cuidado de sus gastos operativos, así como del aprovechamiento de descuentos por volumen otorgados en sus compras.

1. Descripción Técnica: Los términos de venta son de crédito de 30 días.

2. Sistema del Negocio: Pasa por diferentes etapas de la cadena de valor: Compras ( Ventas ( Distribución

3.3 Tipo de Producto: Productos de madera como marcos, puertas y aglomerados.

4. Análisis del problema

4.1 FODA:

Fortalezas:

• Crecimiento en el mercado • Precios bajos y competitivos • Empresa rentable • Bastante inventario para satisfacer demanda • Utilidades en aumento

Oportunidades:

• Aumentar su capital de trabajo por medio de una ampliación de línea de crédito. • Oportunidad de ampliar su cartera de clientes. • Oportunidad de mejorar su manejo de cuentas y estrategias de cobro • Ubicada en sector en crecimiento

Debilidades:

• Nivel de caja bajo • Línea de crédito relativamente baja • Mercado competitivo, existen varios distribuidores de productos madereros. • No posee la capacidad de respaldar sus créditos de forma personal. • Costos de materiales y operativos han ido en aumento.

Amenazas:

• Competidores con mayor capital de trabajo que ofrezcan a los clientes ventajas de crédito. • Fabricantes que decidan cambiar de integración vertical a horizontal. • Bajo nivel de caja puede afectar sus pagos a proveedores sin dejarle gozar de descuentos comerciales.

4.2 Diagnóstico Preliminar

La empresa está trabajando bien, pero está la cuestión de si existe o no un riesgo demasiado alto en la concesión de la solicitud de los $750,000 dólares en líneas de crédito. Hay muchos puntos de apoyo fuerte, pero también tiene algunos problemas para operar.

La forma de liderar la empresa tiene muchas buenas características y el mercado se ve prometedor, pero definitivamente necesita capital extra para poder hacer frente a los préstamos, inventarios y suministros necesarios para operar.

4.3 Herramientas de Análisis

• Análisis FODA, análisis vertical de razones financieras, análisis horizontal de razones financieras.

4.4 Análisis del Problema:

El actual cociente y coeficiente de liquidez son muy bajos y han ido disminuyendo. Para 1995, la proporción actual es de 1.15, que es menor que el promedio de la industria de 1.60, sin embargo para dar una mejor idea de donde este se encuentra en la industria, como se ve en las estadísticas sector madera, en realidad es inferior a la media de la parte inferior del 25% de la industria.
El coeficiente de liquidez es de 0,61 es menor que la industria es de 0,90. Tantas estas relaciones sirven para señalar la falta de dinero en esta empresa. El flujo de caja ha ido disminuyendo, ya que, se tarda más en conseguir el dinero de los clientes, pero la compañía todavía tiene que pagar por sus compras. Además, la compañía no pudo aumentar el límite de préstamo de $ 400.000, por lo que se vio obligada a estirar su dinero en efectivo.
El rendimiento de las ventas está disminuyendo y está por debajo de la media del sector, pero la noticia es que las ventas de mercancías y las ganancias han ido en aumento cada año.
Sin embargo, los costos de las mercancías van en aumento y más inventario que queda cada año causa el rendimiento de las ventas disminuya. Para 1995 fue de 1,7%, que es menos que el promedio de 2,44%, pero es mucho más alta que la parte inferior 25% de las empresas como se ve en tabla estadísticas, que en realidad tienen retorno de compra negativo del 0,7%.
El retorno sobre capital está aumentando cada año a un ritmo superior al promedio de la industria. En 1995, fue de 20,7%, mayor que el promedio de 18,25% y cerca de la más alta en la tabla estadísticas, del 22,1% muestra que el retorno de la inversión en la empresa va en aumento, lo cual es bueno para el propietario.
El rendimiento del activo también está disminuyendo y menos de la media del sector. Por ejemplo, en 1995 fue del 4,7%, inferior al promedio del 6,3%. Sin embargo, esto también tiene un lado positivo. Esto significa que la compañía tiene una gran cantidad de inventario, lo cual es bueno en un punto de vista de venta, porque significa que hay una base mayor selección disponible para los clientes. Esto podría traer más clientes ya que pueden estar más seguros de que la empresa tiene a la mano lo que necesitan.
El ratio deuda / capital podría ser un problema. El ratio deuda / patrimonio es cada vez mayor y es más del doble de la media del sector. En 1995, fue de 265% comparado con el promedio de 170%.
La compañía tiene una gran cantidad de deuda para hacer frente incluyendo el pago de lo adeudado al socio. Sin embargo, nunca ha habido un problema con el pago de las facturas. Todas las referencias muestran que es un buen hombre de negocios y es fiable. Para el banco, siempre y cuando el préstamo se paga el banco está contento y parece que esta empresa puede manejar el pago del préstamo.
Rotación del inventario también está disminuyendo y menor que el promedio, pero como decíamos antes, es porque la compañía tiene más inventario a mano para dar a sus clientes un montón de selección. Por ejemplo, en 1995, fue de 5,83 veces frente a la media del sector de 8,1 veces, pero esto les da una ventaja y da a los clientes una razón para venir a ellos en vez de a otras empresas. Dado que, la madera es un bien la empresa tiene que encontrar una nueva forma de competir. Una manera es tener una selección más grande para los clientes.
En cuanto a la rotación de las cuentas por cobrar, también es menor y en menos de la media, sino también representa otra área en la que la compañía está tratando de competir en la industria. Por ejemplo, en 1995, fue 7,46 y la media del sector fue de 10,7 veces. Por lo tanto, Clarkson no le pagan de inmediato, pero sus clientes están contentos de no tener que pagar inmediatamente. Además, dado que la mayoría de clientes son probablemente los contratistas, probablemente prefieren primero usar la madera, cobrar y después pagar a Clarkson.
El periodo medio de cobro de cuentas por cobrar va en aumento. Los clientes, como se dijo antes, se les da la oportunidad de pagar después. En lugar de pagar cada 34,1 días como promedio, los clientes Clarkson han sido capaces de pagar en unos 49 días. En cuanto al plazo de pago promedio, Clarkson ha estado probando sus límites y poder de negociación para ver cómo muchos días que podía tener para pagar sus compras. Por ejemplo, tomó 35 días en 1993, 45 días en 1994, y 38 días en 1995. Parece que él trató de tomar más tiempo, pero luego los proveedores pueden haber hablado con él porque él mejoró a 38 días, sin embargo, sigue siendo una cantidad adicional de 8 días a partir del 30 día factura típica. El problema con esto es que no se está aprovechando del descuento del 2% que es evidente que muchas empresas hacen ya que la media del sector es de sólo 16,3 días. Sin embargo, en este punto no parece muy posible ya que el límite de préstamos y la falta de dinero hacen que sea difícil sacar provecho de esta situación.
Basado en estados financieros hay otro pro de un adicional de $251.000 necesarios para alcanzar la meta de $ 5,5 millones en ventas. Además, como parte del acuerdo es la ruptura comercial con la Suburban National Bank, la línea de crédito tiene que cubrir los 399.000 cubiertos por el préstamo. Por lo tanto, la cantidad necesaria es $ 650.000.
5. PROPUESTAS DE SolUción

5.1 Descripción del problema principal:

El problema principal es si el Northrup National Bank está dispuesto a aceptar aumentar el límite de crédito de la Clarkson Lumber Company, a pesar de la escasez de caja con la que se encuentra actualmente, para esto el Northrup National Bank deberá realizar un análisis profundo de los estados financieros de los periodos anteriores de la Clarckson Lumber Company.

2. Alternativas:

1. Otorgar el préstamo a la Clarkson Lumber Company. 2. No otorgar el préstamo a la Clarkson Lumber Company.

3. Toma de Decisión

Otorgar el préstamo a la Clarkson Lumber Company

4. Justificación de la decisión
La compañía no proporciona un alto riesgo para el banco. La compañía tiene sus problemas pero todos ellos parecen provenir del hecho de que la empresa tiene un límite de préstamos y la falta de dinero ya que los clientes tardan más en pagar. La empresa no tiene un riesgo muy grande porque este problema se resolvería con el aumento de la línea de crédito. Se podría llenar en el lapso de tiempo del pago de inventario y de ser pagados por los clientes. La empresa cuenta con una buena estrategia para competir por tener más inventario a mano, y permite a los clientes más tiempo para pagar por la madera.
Clarkson tiene buenas referencias que muestran que en el pasado ha sido un buen hombre de negocios que tratar. Con una crisis económica pero la empresa está protegida en la construcción de nuevas viviendas debido a la elevada proporción de su negocio.
Las ventas, las utilidades netas y rentabilidad sobre recursos propios van en aumento y muestran que la empresa tiene gran potencial. Otra ventaja es que el asistente sabe hacer todo lo que Clarkson hace, así que si algo llegara a sucederle a él, la actividad de la empresa se mantendría. Además, si Clarkson no fuera capaz de pagar el préstamo y el banco toma la empresa, podría ser capaz de hacer dinero vendiendo ya que tiene un gran potencial.…...

Similar Documents

Premium Essay

Clarkson Lumber

...Clarkson Lumber Company Case : Assignment, Due October 4 1. In your group, assign a Team Administrator, a Notekeeper, and a Number Cruncher(s). These do not need to be independent roles (the Team Spokesperson may be the Number Cruncher, etc.). The other members of the group will contribute their thoughts and ensure that their spokesperson has all the relevant facts to speak for their group. a. The Team Administrator keeps the group on track to ensure that the discussion is on topic without venturing out of scope for this case. The key here is to develop an attractive solution in a relatively short period of time. b. The Notekeeper is capturing the group’s thoughts on paper to be used to develop a cohesive solution. This is very important so that no essential components of dialogue are lost during brainstorming. c. The Number Cruncher(s) will work through financials based on the proposed short-term financing. The financial results produced by this individual(s) will play a predominant role in determining the group’s proposal. You should use your best judgment for projections. 2. The case should be approached in a stand-alone fashion. There is no need to go looking for supporting data. You may make assumptions as appropriate. 3. You will need to: Be prepared to present any portion of the case orally (no need for slides) For the written report, follow this guideline but be sure to organize the report in......

Words: 390 - Pages: 2

Premium Essay

Clarkson Lumber Company

...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. The owner, Keith Clarkson, bought out his partner’s interest in the company in 1994 for $200,000. His partner, Henry Holtz, took a note for the $200,000 with an interest rate of 11% and was repayable in the semi-annual installments of $50,000 beginning June 30, 1995. The note was taken to give Mr. Clarkson time to arrange for the necessary financing. Mr. Clarkson seems to be running the company well, evident by the constant growth in sales year after year. However, the company is running low on cash on hand, and needs some form of financing to reach the expected sales of 5.5 Million in 1996.Moreover, the borrowing limit set by the Suburban Bank has been reached, prompting the bank to ask Mr. Clarkson to guarantee the loan personally. Mr. Clarkson has been in communication with another bank, Northrup Bank, which might be willing to extend a line of credit of up to $750,000. Analysis There are several reasons for Mr. Clarkson’s need to rely on borrowing despite good profits. Although the profits are good, they are not good enough in our view. The Net Profit Margin has been close to 2% since 1993 (Exhibit D).The cost of goods relative to the sales is high and is keeping the profit margin low. In other words, the costs......

Words: 825 - Pages: 4

Premium Essay

Clarkson Lumber

...MEMO RE CLARKSON LUMBER TO: President, Northrup National Bank FROM: George Dodge Loans Officer, Northrup National Bank Clarkson Lumber Company is owned and operated by the hardworking, 49-year-old Mr. Clarkson.With relatively low operating expenses, operated by a small number of staff and a strong management. Clarkson Lumber is a company experiencing rapid growth with an anticipation of a further increase in sales. However the company has constant cash flow problems. The financial ratios in appendix III look poor due to their current state of under financing. Why is the Clarkson Company so short of funds despite its record of profitable operations? See Appendix I, II&III. We find that increasing amount of borrowing despite of its onsistent profitability came from following reasons. First is the firm’s financial position. As sales have increased by 55% from 1993-1995, the assets that support increase of sales increased by 78%. The increase amount of assets is over the amount of net income (addition to net worth). To meet financial needs, the company received short-term loans from bank, $60 in 1994 and $390 in 1995. The net profit margin and operating expenses ratio have been stable over three years, however, interest expenses has increased almost 1.5 times. The firm’s current ratio deteriorated again and as a result, the firm has experienced the shortage of fund......

Words: 877 - Pages: 4

Premium Essay

Clarkson

...Executive Summary Clarkson Lumber is a small but rapidly growing lumber company in the Pacific Northwest. Keith Clarkson--sole owner and president--anticipates further sales growth but his business may not be able to keep up with future demand because of a shortage of cash, despite good profits. Currently the company has a line of credit with Suburban National Bank, but the bank would not offer any one customer any more than a $400,000 loan, a limit which Clarkson is bumping up against at $399,000 outstanding in the spring of 1996. Staying within the limits requires Clarkson to rely very heavily on trade credits and now Suburban is asking Keith Clarkson to personally guarantee the loan, which puts more risk on him, should the lumber company become insolvent. Therefore, Mr. Clarkson is looking to find another bank with higher lending limits and no personal guarantees to do business with. The task for George Dodge, officer of the larger Northrup National Bank, who is interested in having Clarkson as a client is to investigate Keith Clarkson and his company and determine whether to extend a $750,000 line of credit. Secondary to that is whether $750,000 will be enough to finance the expected expansions, along with the question of what conditions the loan should come with. Our response to whether Clarkson should get the loan is yes, Northrup should approve of Mr. Clarkson’s request for a higher credit line. We also think that $750,000 is a good estimate of the company’s loan...

Words: 1870 - Pages: 8

Premium Essay

Clarkson

...There are a couple of reasons for Mr. Clarkson wanting to increase the amount of borrowing that would be needed to continue with his operations. One of the reason is that he wants to pay off Mr. Holtz in order for himself to become the primary owner of the company. Another reason for the need to borrow funds is that the net income was growing at a slower rate than the operating expenses. Between the years of 1993-1995 the net income only rose from 60k, 68k, 77k thousand respectively. The operating costs for the 3 years rose from 622k, 717k, 940k thousand respectively. Mr. Clarkson needs to take out a loan so he could increase the purchasing power for goods. This would be accomplished by Mr. Clarkson having liquid cash to use for prompt payment, which will lead to aquiring trade discount and then Mr. Clarkson will have a competitive advantage in terms of buying power. The financing needs of the past have been met by taking a term loan of $399,000 that was fixed by the assets the company had. Mr. Clarkson had control liabilities that were offset by the increase in Based on the pro forma balance sheet and the pro forma income statement, Mr. Clarkson would need $750,000 loan. This would be justified in terms of using the following formulas, which is derived from the 1996 Pro Forma Balance Sheet (figures are in thousands): Total Assets - Total Liabilities - Net Worth 2179 - 533 - 1395 = 251. Following the 251 that would be needed to aide in reaching the goal of $5.5 million is......

Words: 565 - Pages: 3

Premium Essay

Clarkson Lumber Company

...Clarkson Lumber Hardwoods, Hard Times BBUS 505a Cavelero, Engstrom, Tobey & Zadah Overview • Case Summary • Problem Identification • Findings • Methodology • Metrics • Insights Case Summary • Clarkson Lumber Company [‘CLC’], is a small PNW lumber concern experiencing rapid, questionably financed growth. • Keith Clarkson [‘Clarkson’], sole owner of CLC, has maxed out ($399K of $400K) his line of credit [‘LOC’] at Suburban National. • CLC relies heavily on trade credit and short term debt. • Clarkson wants to move to Northrup National Bank – a larger bank – with a a $750K short-term LOC. • George Dodge, Northrup officer, is cautiously receptive. He’s asked a team of intelligent, attractive analysts to investigate the current state of CLC. Problem Identification “Clarkson wants to move to Northrup National Bank – a larger bank offering a $750K LOC.” • CLC overuses expensive short-term debt to finance growth and buyout his former partner. • It is our opinion that receiving a larger LOC from our bank will result in negative future growth and exacerbate current cash flow problems. • There are other problems with cash-flow, including inventory purchasing, A/R and a 2% A/P discount (opportunity). • PPE depreciation is an unkown; for our analysis, we factored it out. Findings • CLC can be a profitable investment for Northrup, but not with the stated credit terms. Debt restructuring is needed to maximize CLC’s profitability. • According to our research, CLC is......

Words: 1421 - Pages: 6

Premium Essay

Clarkson Lumber Company

...Clarkson Lumber Company Problem Analysis: According to Exhibit 1, after computing the net profit margin, we can see that since 1993, the return on sales are 2%, 1.96%, 1.7%, which indicate the first problem. The cost of goods relative to the sales was high which caused the return on sales are too low comparing to the industry level, which also means the costs grew faster than the sales. Secondly, according to Exhibit 2, after computing the days sales outstanding, since 1993, they were 38, 43, 49 which were too high. This may cause bad debt. If DSO can be lower, it can help the company deal with its fund shortage problem. The third problem is that the debt to asset ratio was too high in 1995. After computing according to Exhibit 2, the debt to asset in 1995 was 73%, which raise a red flag, and this will make it relatively costly for the company to borrow additional funds without first raising more equity. The fourth problem is that the return on assets was 4.7% in 1995. This ratio was low comparing to the industry level due to high total assets. Total assets are also inflated due to the liabilities taken in the form of trade credits by Mr. Clarkson. The company was holding too much inventory, which was unproductive and cost lots of storage expense. The fifth problem is that the current ratios from 1993 were too low comparing to the industry level, which indicates the company’s liquidity position is weak.  ...

Words: 256 - Pages: 2

Premium Essay

Clarkson Lumber Company Case Report

...To: Loan Committee, Northrup National Bank Date: September 17, 2014 Re: Clarkson Lumber Company Loan Application Overview  Borrower: Keith Clarkson, sole owner and president of the Clarkson Lumber Company  Purpose: To support rapid growth in business during recent years and anticipated further substantial increase in sales, allowing Mr. Clarkson to fully utilize trade discounts to improve profitability.  Request / Amount: Not to exceed $750,000  Rate: Set on a floating rate basis at two percent above the prime rate; initially approximately 11.0%  Term: Revolving, secured, 90-day note Estimated Loan Requirements The loan amount required by Clarkson Lumber to finance the expected expansion in sales to $5.5 million in 1996 and to take all trade discounts can be calculated using the pro forma income statement and balance sheet (see pro forma). By balancing the values of bank notes with the total assets and liabilities, we have concluded that Mr. Clarkson’s estimate is under-stated.  Expansion Rate Risk: If Clarkson Lumber continues to expand at such a rapid rate that cannot be financed proportionally from retained earnings, the company will be left in a very vulnerable high risk position. The company needs larger amounts of bank financing for longer terms than Mr. Clarkston realizes.  Actual Loan Amount Required: $XXX,000 Loan Request Decision Based on Clarkson Lumber's past financial performance, it’s increasing debt and decreasing financial health, and...

Words: 396 - Pages: 2

Premium Essay

Clarkson and Lumber

...Clarkson Lumber Case Analysis Why has Clarkson Lumber borrowed increasing amounts despite its consistent profitability? 1. Cost of Goods Sold: Even though profits have been consistent, they have not increased sufficiently. The NPM has remained close to 2%, and COGS has remained around 75%, keeping profit margins low (See Appendix Exhibit 3). Therefore, operating expenses and COGS have increased at a quicker rate than net income. Additional funds are required to not only maintain the company’s current growth rate with expected sales of 5.5 million, but also to increase purchasing power for goods. 2. Use of Cash: In addition, Mr. Clarkson bought out his partner, Mr. Holtz, for $200,000 in 1994. Mr. Holtz took a note for $200,000 to be paid off in 1995 and 1996 with interest rate of 11%, repaid in two semi-annual installments of $50,000 beginning June 30, 1995. The terms of this note are not conducive to the current cash cycle of Clarkson Lumber. He is required to pay the note in too short of time in comparison to his revenue. Mr. Clarkson also used his cash to invest in working capital (see #3) associated with the company’s increasing sales volume. This prohibited him from taking advantage of the trade discounts, which would have decreased cost of sales. 3. Asset Purchases: Clarkson Lumber had made a significant asset purchase in 1995, totaling $126,000. This could have been for the purchase of additional property to support the continued sales growth, however due to the......

Words: 2831 - Pages: 12

Premium Essay

Clarkson Lumber

...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 $750,000 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 characteristics and looks promising but needs the extra money to pay off loans, inventory, and supplies. I recommend this company to receive the line of credit. Looking at the individual ratios seen in exhibit 1 and comparing it to the industry average shown in exhibit 2 gives a sense of where this company stands. Current ratio and quick ratio are really low and have been decreasing. For 1995, the current ratio is 1.15:1, which is less than the industry average of 1.60:1, however to give a better sense of where this stands in the industry, as seen in exhibit 3, it is actually less than the average of the bottom 25% of the industry. The quick ratio is 0.61 is less than the industry is 0.90. Both these ratios serve to point out the lack of cash in this company. The cash flow has been decreasing because, it takes longer to get the money from customers, but the company still needs to pay for its purchases. Also, the company couldn’t go over the $400,000 loan limit, so they were forced to stretch their cash. Return on sales is decreasing and is below the industry average, but the goods news is that sales and profits have been increasing each year. However, costs of goods are......

Words: 2269 - Pages: 10

Premium Essay

Clarkson Lumber Case

... 1) Why has Clarkson Lumber borrowed increasing amounts despite its consistent profitability? a) Clarkson Lumber has experienced a rapid growth in sales (see net sales below) and the company is finding it hard to find cash to sustain their level of growth (see notes payable below). The amount of working capital needed is outpacing the ability of the company to produce the funds themselves. To keep up with the increase of sales they need to borrow funds to increase their purchases (see Purchases below). • Net Sales = 1993-94 +19.0%, 1994-95 +30.0% • Notes Payable = 1993 $0, 1994 $160, 1995 $490 • Purchases = 1993-94 +23.5%, 1994-95 +31.1% Compounding the problem is an increase in accounts payable over time which is contributing to the shortage of cash (see accounts payable below) and again at the same time purchases are increasing (see purchases below), again leaving the company with less cash. • Accounts Payable = 1993 $213, 1994 $340, 1995 $376 • Purchases = 1993-94 +23.5%, 1994-95 +31.1% An additional contributor to the cash shortage is the fact that the accounts receivable per sales is also increasing over time (see AR/Sales below). Clarkson Lumber is taking a longer time to collect from their customers, leaving the company longer without that cash. By 1995 the AR/Sales ratio is in line with other low profit lumber outlets in the industry (which is 13.7%). • AR/Sales = 1993 10.5%, 1994 11.8%, 1995 13.4% 2) How has Mr. Clarkson met the......

Words: 823 - Pages: 4

Premium Essay

Clarkson Lumber Company

...Clarkson Lumber company Financial Analysis and forcasting 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 $750,000 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 characteristics and looks promising but needs the extra money to pay off loans, inventory, and supplies. I recommend this company to receive the line of credit. Looking at the individual ratios seen in exhibit 1 and comparing it to the industry average shown in exhibit 2 gives a sense of where this company stands. Current ratio and quick ratio are really low and have been decreasing. For 1995, the current ratio is 1.15:1, which is less than the industry average of 1.60:1, however to give a better sense of where this stands in the industry, as seen in exhibit 3, it is actually less than the average of the bottom 25% of the industry. The quick ratio is 0.61 is less than the industry is 0.90. Both these ratios serve to point out the lack of cash in this company. The cash flow has been decreasing because, it takes longer to get the money from customers, but the company still needs to pay for its purchases. Also, the company couldn’t go over the $400,000 loan limit, so they were forced to stretch their cash. Return on sales is decreasing and is below the industry average, but the goods news is that sales and profits have......

Words: 2267 - Pages: 10

Premium Essay

Clarkson Lumber

...Case Write-up #1 Clarkson Lumber Company Background Clarkson Lumber Company (CLC) is a successful finished wood products company with a promising future, yet needs to apply sound managerial financing policies to continue to be competitive in this market. The sole owner, Keith Clarkson, is dedicated to his profession and has a good reputation among his suppliers and customers. CLC's sales have been consistently growing over the past several years, rising 19% from 1993 to 1994, 30% from 1994 to 1995, and are expected to rise 21.7% in the current year, 1996. The company's products are in demand in the growing Pacific Northwest metropolitan area where they are located and are somewhat protected from the effects of economic downturns in construction because the company's core competencies are associated with the repair business. The NAICS code for CLC is 3219110-wood window and door manufacturing. This industry is comprised of over 1000 firms with a combined revenue of over $8 billion. In order to remain profitable in this industry, a successful firm must rely on efficient manufacturing processes and distribution networks. The company's existing strategy relies heavily on trade credit and short term debt to finance organic growth. CLC’s current lender, Suburban National Bank, will not lend more than $400,000 and the company will not be able to meet expected sales demand without additional financing beyond this amount. Additional funds needed (AFN) is......

Words: 2124 - Pages: 9

Premium Essay

Clarkson Lumber Analysis

...The Clarkson Lumber case is about Mr. Clarkson seeking a loan that does not require a personal guarantee. The Northrup National Bank is in the process of investigating the Clarkson Lumber Company to whether or not to extend a line of credit of $750,000. However, Mr. Clarkson was only seeking for fewer amounts; thus, he assumed the line of credit would be an advantage to generate more profits into his company. In addition, The Clarkson Lumber Company is waiting on its approval based on its financial statements. Therefore, I believe Northrup National Bank should not extend the line of credit to Mr. Clarkson and his company due to the company’s highly leveraged. In 1993, a financial ratio of debt/equity of 0.82 shows a good sign of the company that they were not using its debt quite often to produce a larger profit. Although, as the years progressed, the Clarkson Lumber Company’s debt equity ratio began to increase each year until it reached a debt/equity of 2.58 in 1996. Therefore, the company has two dollars of debt for every dollar of equity. If Mr. Clarkson generates more profit through his company, it may result into volatile earnings since the company holds more risk because of too much borrowing. Since the company was short in cash, Mr. Clarkson assumed that by borrowing more and more will resolve the issue. Nevertheless, by having the Clarkson Lumber Company used too much of its debt definitely misled Mr. Clarkson’s vision since he did not realize how much of his......

Words: 1037 - Pages: 5

Premium Essay

Clarkson Lumber

...Clarkson Lumber Company 1. Clarkson Lumber Company was founded in 1981 and is owned by Keith Clarkson. The company is a retail distributor of lumber products in the growing suburb of the Pacific Northwest. Through competitive pricing and limiting operation expenses, the company has experienced consistent growth and anticipates substantial increases in sales in the coming years. Sales fluctuate to some degree with the health of new housing construction but the company’s high percentage of sales in the repair business have protected the company from economic downturns. Despite the health of the company, Mr. Clarkson is seeking to increase the company’s borrowing. Clarkson Lumber Company is experiencing a shortage of cash as a result of an increase in accounts and notes payable over the last two years. In 1994, Mr. Clarkson bought out his partner, Henry Holtz, for a $200,000 note. The note was to be paid off in 1995 and 1996 and it carried an interest of 11% that consisted of semi-annual payments of $50,000 beginning June 30, 1995. Additionally, Mr. Clarkson was unable to capitalize on purchase discounts of 2%, if the payments were made within 10 days, but luckily suppliers did not seem to mind if payments lagged beyond the 30 day agreement. The buyout of Mr. Holtz and the increase in working capital from expanded sales limited his ability to take purchase discounts and increased his accounts and notes payable. As we can observe from the company’s balance sheet, the......

Words: 1944 - Pages: 8