Why Has Butler Lumber Company Been Profitable In The Increasing Volume Of Sales?

In order to expand and remain financially stable, Clarkson Lumber must take advantage of all trade discounts. Exhibits A-1 & A-2 compares the impact to net income with and without the trade discounts.

This bank loan helped finance the increase in property and other related assets. The sponaneous assets that were increased as a result of an increase in sales were financed by an increase in sponaneous liabilities. Spontaneous liabilities have grown by 35%, which supports the claim that they finance the increase in accounts receivable and inventories. In the period between 1993-1995, the financial strength of Clarkson Lumber has deteriorated significantly. As seen from the financial ratios excel spreadsheet attached, the current and quick ratios have been gone down substantially. This means that the company’s ability to meet its short term obligations has deteriorated. Furthermore, the return on sales and return on assets have also gone down, which means that their increase in net income has not stayed consistent with the increase in sales and increase in assets to finance these sales. Their falling inventory turnover ratio means that even though their sales are increasing, they are not moving inventory at the same pace they had before. Their low accounts receivable turnover ratio and high dales sales outstanding indicates that there’s a large amount of money tied in this account.

In accounting there is much to be learned, about the financial aspects of a business. In the past five weeks I have learned the importance of financial reports and how they relate to the success of an establishment. These reports may include balance sheets and income statements, which help accountants and the public grasp the overall financial condition of a company. The information in these reports is really significant to, managers, owners, employees, and investors. Managers of a business can take and deduce financial

The second issue is to identify the key variables in this analysis. With every company, there are certain variables which affect cash flow significantly more than others. How would changes in these key variables which are identified for this particular business affect the cash flow for Kellers' Freehouse? Is there anything that can be done to fix these variables or

The company lost money almost every year since its leveraged buyout by Coniston Partners in 1989. The income generated was not sufficient to service the interest expenses of the company which stood at $2.62B in 1996. From Exhibit 1, we can say that interest coverage ratio computed as EBIT / Interest Expense was 1.31 in 1989 and has been decreasing over years and currently stands at 0.59. This raises a question of how the company can meet its interest payments without raising cash or selling assets.

To begin, the times interest earned ratio is a challenge for Butler Lumber. When Mr.

Butler Lumber Company is looking for more cash due to a fast-paced lumber market and a shortage of funding. Their regular bank, Suburban National Bank, is not willing to expand their exiting loan to an amount greater than $250,000 without securing the loan with real property. Another loan is being offered by a second bank, Northrup National Bank, for $465,000, with the understanding that the previous loan would be rolled into the second. The interest on the new loan would be prime + 2%.

The Balance sheet was generated with the assumption that Butler Lumber would utilize the additional loan from Northrop National. Cash, Accrued Expenses, and Net Property are all based on the most recent year’s percentage of sales. Accounts receivable is derived from average of previous years percentage of sales. In order for Total Assets and Total Liabilities & Net Worth to be in balance Butler Lumber needs additional debt financing of $315,000 as can be seen in Notes Payable. This in turn has an effect on Net Income for 1991, which is added to beginning Net Worth in order to arrive at $435,000.

Operational working capital and financial working capital should be separated and this on of Most important thing. The operational working capital, that is, the part that can be optimized and affected by the company’s operations, are the inventories, accounts receivable and accounts payable. The rest, i.e. cash, marketable securities, prepaid and all other current liabilities are a financial decision of the company, and has very little to do with the company’s operations in itself. (Filbeck & Krueger,

Net Working Capital Ratio is determined by the current assets minus the current liabilities. (MBA in a Nutshell)

The most serious accounting problem for WHCL is the warranty potential liability. The increasing liability concern is because WHCL sold a new model of gas furnace with 10-year warranties in 1994. So we need to consider how much repair costs should be reported in the 2000 financial statements. As we know, cost of repairing each furnace was $150, and there are 30 claims were made. So we need to record 30 x $150=$4500 in warranty expenses in 2000 financial statement. Another problem for us is the information we currently collect cannot let us make an accurate estimate. Apparently, WHCL don 't want to record too much costs in current period, but the fact is they require a large amount of accrual. If the estimate is low, then the costs we

Assets, liabilities, and stockholders’ equity which are reported by companies at a specific date in the balance sheet. They also are related in the equation of basic accounting which is: Assets = Liabilities + Stockholders’ Equity. Assets which are the resources that will provide future economic benefits for the companies, are divided into four categories such as current assets, long-term assets, property, plant and equipment, and intangible assets. Current assets are the first one is listed in assets, which are assets that a company expects to convert to cash or use up within one year, include cash, receivables such as accounts receivable (less allowance for doubtful accounts), interest receivable, inventories (inventory and supplies), prepaid expenses (insurance or rent) (Kimmel, 49). The second one is long-term assets which are generally investments in stocks and bonds of other corporations that are held for more than one year, land or buildings that a company is not currently using in its operating activities, and long-term notes receivable (Kimmel, 50). Next, property, plant and equipment which are assets with relatively long useful

The working capital cycle (WCC) is the amount of time it takes to turn the net current assets and current liabilities into cash. The working capital cycle monitors the movement of the cycle can help a company improve its working capital position. Working capital is a highly effective barometer of a company’s operational and financial efficiency and effectiveness. The better its condition, the better positioned a company is to

From 2009-2010 their liquidity decreased while from 2010-2011 it increased. The negative amount of liability shows that they have paid more than they were required to pay. The company's accounts payable staff can use to offset future payments to suppliers. So they could have done this to ensure that they get the resources required by them from the supplier in the future and there will be no need to pay for it and they won’t have any liability at that time. Positive working capital means that the company is able to pay off its short-term liabilities.

o If your customers are established and reputable, the lender may be willing to help ease your cash flow problems.