He is seeking a new bank connection from which he can borrow larger amounts. Continued expansion at a rate that cannot be financed proportionately from retained earnings can leave hin in a vulnerable high risk position. He should explore the possibilities of equity financing, in order to bring cash into the business.
In the foreseeable future though, once the company sheds the loans it carried and Clarkson lumber more streamlined, it will start increasing its cash gradually.
With less aggression, he may be able to charge higher prices or avoid giving quantity discounts on sales, thus increasing profits. Therefore, the company is not a risk and the line of credit should be approved. The plan of action proposed by Mr.
This cost may be overstated. Holtz and enable Mr. Clarkson could delay payment on his purchases for more than 50 days without incurring punitive action, the cost is over stated. In turn, the bank must estimate the amount of funds actually needed by Mr.
Analysis The bank is projecting 5. In other words, the costs have increased at a faster rate than sales. This ratio is kept low due to a high total assets figure. Clarkson will comply with the loan??
The note was taken to give Mr.
Clarkson Lumber Company needs to have stricter policies on the customers they allow to purchase from them on credit. Clarkson lumber as a manager and as a person, and it will look to long-term profits to repay the loan. Were profitability to decline due to adverse circumstances, this situation will worsen.
Total assets are also inflated due to the liabilities taken in the form of trade credits by Mr. Continue to rely heavily on trade credit and pay off bills slowly. What combination creates a voracious appetite for external financing? Although the profits are good, they are not good enough in our view.
Increases in working capital requirements have outgrown the capacity of the firm to generate funds from internal sources. As exhibit 2 shows, Clarkson has waited for about 35 to 54 days to pay his suppliers.
Now, the bank is betting heavily on Mr. The line of credit will enable the company to take advantage of the trade discounts and pay off previous debt.
The Clarkson Lumber Company has been expanding rapidly for several years.
Also, the Collection period has increased from 38 days at year-end to 49 days at year-end BACKGROUND: Mr. Clarkson, an energetic year-old man, founded the Clarkson Lumber Company in as a partnership with his brother-in-law. Inafter rapid growth in its business, the Clarkson Lumber Company.
• 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 ($ K of $K) his line of credit [‘LOC’] at Suburban National.
• CLC relies heavily on trade credit and short term debt. Clarkson Lumber is a company experiencing rapid growth but with a constant cash flow crisis. This is not an unusual confluence, but it does require some financial decision-making.
This is not an unusual confluence, but it. View Notes - Clarkson ANALYSIS spreadsheet from ESM at University of California, Santa Barbara. Clarkson Lumber Company Income Statements (thousands of dollars) Net Sales Cost of Goods Sold%(39).
Clarkson Lumber Company needs to have stricter policies on the customers they allow to purchase from them on credit. Analysis The bank is projecting million dollars, or more, in sales for Clarkson lumber in 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 .Download