Clarkson lumber solution

Clarkson was offered a discount if it pays off its payables to its suppliers within ten days.

clarkson lumber company problem

Due to these increases, and despite rising the liability accounts of notes payable from trade and accrued expenses, the company had negative cash flow from operations and needed external financing to purchase its fixed assets and pay down the debt they already had again see Exhibit 4.

Firms who have worked with Clarkson speak very highly of him, saying that he is conservative and his operating expenses are low. Fisher assumed that growth of sales in the year July 95 till June 96 would be ROE for Clarkson Lumber remains relatively steady; it increased from to but decreased to Undoubtedly, a sizable increase in a projected bank loan will be accompanied by a number of restrictive covenants.

As an outside equity investor, we will compare the advantage and disadvantage of the company and point out the opportunities and threats we my met to see whether we are willing to buy the stocks of the firm.

Clarkson lumber company case solution chegg

Clarkson's advisor, would you urge him to go ahead with, or to re-consider, his anticipated expansion and his plans for additional debt financing? Even with the growing trade debt, CLC still was comparable to the overall percentages of other lumber outlets see Exhibit 3. The trade-off comes from the company having significantly lower accounts payable. In the third case, if Mr. Clarkson could delay payment on his purchases for more than 50 days without incurring punitive action, the cost is over stated. The company needs to seriously think about increasing its internal funding through greater profits at the same time it reduces its growth rate to a more sustainable level. Undoubtedly, a sizable increase in a projected bank loan will be accompanied by a number of restrictive covenants.

However, over the three full years analyzed, the company has an average growth margin of Slow Down his projected rate of expansion, or 3.

Thus, the limited amount of cash inflow is largely tied in inventory, and payments on loans Question 3: How attractive is to take the trade discounts? I will have to decide how valuable is Clarkson as a customer to me, considering the positive feedback from their clients and market players, I could bet on Mr.

Clarkson Lumber Company needs to have stricter policies on the customers they allow to purchase from them on credit.

Clarkson will comply with the loan?? Clarkson met the financing needs of the company during the period through ?

Part I deals with assessing the financial performance of the firm.

Clarkson lumber case analysis essays

The overall impression is one of a conservative, efficient operation. The company needs to seriously think about increasing its internal funding through greater profits at the same time it reduces its growth rate to a more sustainable level. Until the expansion rate is curbed, there is little hope of the bank loan being repaid, and a greater prob. How is the company 's financial performance? The plan of action proposed by Mr. Clarkson lumber would be to slow down growth and seek equity financing. Taking the features of bank into account, in the present circumstances, the short-term bank loan may not be suitable. Looking at the individual ratios seen in Appendix III and comparing it to the industry average gives a sense of where this company stands. The investigation pointed out a few important financial aspects of the company that are worth mentioning. First, the company is clearly growing at an unsustainable rate. In Exhibit 3, we can see that on average the company takes 39 days to collect from accounts receivable and the company has a cash cycle of 55 days, meaning there is a 55 day delay between paying for inventory and collecting the sale. Keith Clarkson, has been in business for 15 years and currently has 15 employees. Applied Corporate Finance 1. Increases in working capital requirements have outgrown the capacity of the firm to generate funds from internal sources.
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Clarkson Lumber Case Analysis Essay