One alarming fact about his business is the lack of a sales staff, yet the revenue has been able to grow at a fast pace; 18% in 1989, 34% in 1990, 19% in 1991 projected. This decision should be based upon Mr. This combine contributes to the inefficiency of operating turnover which is of vital importance for a trade company. If he is able to use this new source of financing to take care of the current long term debt weighing his cash flow and growth down, as well as gaining the 2% discount on accounts payable, he will be able to stimulate. Butler Lumber Company Case Butler Lumber Company Case Summary of facts: In 1981 by Mark Butler and his brother-in-law Henry Stark founded the Butler Lumber Company. Butler, to extend the loan but impose weighty conditions and to refuse the loan. Accounts payable stayed at 46 days, as in the prior 2 years.
It is therefore clearly evident that the loan from Northrop will have a positive effect on company operations both for the company in and of itself as well as stakeholders. Butler Lumber Case Analysis Question 1 Butler Lumber, a retailer of lumber products in the Pacific Northwest area, experienced a time of growth in the spring of 1991 Harvard College, 2002, p. Balance sheets at December 31, 2008—2010 and March 31, 2011, are presented in Exhibit 2. Key accounts for sources of funds for. The co-founder, Mark Butler, owes a major note to the other original partner, who Mark bought out.
These two ratios indicate that the company has earned on its past investments and it is able to find investment opportunities that are very profitable. We feel that Butler should go ahead with the anticipated expansion because the business is profitable and growing. Butler have to borrow so much money to support this seemingly profitable business? A large portion of its business is based in repair services, and as a result, it should be somewhat protected from a downturn in the real estate market. Thus, it is imperative to analyze the various options available to Mark Butler in order to meet the cash needs of the Butler Lumber Company. This increases both these ratios for the company.
I recommend this company to receive the line of credit. In this case study I will be discussing following problem: Why has Butler Lumber been profitable in the increasing volume of sales but at the same time it is experiencing cash difficulties in 1988 — 1990? The trend that cash followed from the previous years was used to project the cash asset. Firms who have worked with Clarkson speak very highly of him, saying that he is conservative and his operating expenses are low. The note payable was expected to be maxed out immediately. Butler have to borrow so much money to support this profitable business? Butler Lumber needs a larger unsecured loan that would allow them to expand the business.
Another point is the now possible use of discounts provided by suppliers see Increase in Profitability section. 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. Butler proceeds with his expansion plans? These profitability ratios indicate a better result by taking up the new loan than staying with the old bank. Mark Butler, sole owner and president of the Butler Lumber Company is looking to increase the company borrowing. We are going to look into purchases and calculate the amount, which represents his ten-day spending on purchases.
He was not given the proper tools to help guarantee a smooth and successful first recruitment effort. Analysis Projected income statement for 1991: Beginning inventory was pulled from the previous year's ending inventory. Butler has to increase cash to buffer itself. This is one of the reasons for Mr. I discuss the importance of keeping track and updating financial reports as well as simple bank statements. The industry average for the receivable turnover is net 30 days and 45 days for payable turnover. Butler need additional funding to fuel his growth? A393939 L-t debt, current portion77N.
After this discussion, Dodge had arranged for the credit department of the Northrop National Bank to investigate Mark Butler and his company. The only concern they should have is to increase the net profit percentage which is quite too low 3% and this means their growth in sales as compare to the operational cost is lower. At the mean time, we need to know if Mr. The company is anticipating substantial increase in sales over 1990-1991. Butler Lumber Company Estimated Income Statement Dec.
Projected Balance Sheet for 1991: The balance sheet was created by disregarding the fact that butler lumber company needs additional loan. This, with a good personality, gives him a good turnover; and from my personal experience in watching him work, I know that he keeps close check on his own credits. Case Study: Capital Budgeting Butler Lumber Company Abstract Butler Lumber Company, a lumber retailer with a rapid growth rate, is faced with the problem of cash flow shortage. There is also a slow and steady growth in net income. Their typical products included plywood, moldings, and sash and door products. In the third part, we offer the comments from financial advisor and the banker. Mr Butler is borrowing so much money in order to meet the higher working capital requirement arising from the increased revenue in each year.
It would be bounded by the negative covenants imposed by the new bank. The sole owner of Butler Lumber is Mark Butler, accompanied by one administrative assistant and ten employees who focus on repairs and labor intensive work. Changes in Flexibility with the new loan Decreasing Flexibility in Managerial Decisions: The company becomes less flexible in its managerial decisions by taking up the new loan. Need to improve cash flexibility. The return on asset and both are inclining. Below is a detailed description explaining how to prepare a case study analysis paper.
Butler to fully utilize the discount to ease his pressure on liquidity and further lower costs to increase profitability. The issues presented in the Butler Lumber case deal with the financing of growth. What does it depend on? Why do they need external financing? Butler Lumber Company is a Pacific Northwest based lumber distributor that sells plywood, moldings, and sash and door products. The current ratio is also in a downward trend, declining from 1. Based on this ratio, we estimate that Butler Lumber Company will generate approximately. However, Northrop Bank would offer a loan… 1644 Words 7 Pages Butler Lumber Company Case Study Hoffmeister M-W 4:30 — 5:45 Group 3 Sam Rosenbaum Joel Valenti Meg Lee Stephanie Grob Butler Lumber Company Summary of Facts.