Clarkson Lumber
1. Introduction
CLC is a fast growing business with small number of employees, providing plywood moldings, sash and door products. It built on its sales volume largely on the basis of successful price competition, careful control of operating expenses and batch purchasing of materials at substantial discounts during past years. The sound market condition and operation contributes to CLC’s growing trend in a foreseeable future. Besides, in case of an economic downturn, the business is protected to some degree from fluctuations in new housing construction because of the relatively high proportion of its repair work.
The business’s sole owner, Mr. Clarkson is an energetic and hardworking business man with good sound personal financial condition and credit. From business partners’ perspective, CLC is conservative but well controlled.
Mr. Clarkson faces a dilemma that the business is short of cash while experiencing remarkable growing. He is sourcing for new financing channels since current bank loan no longer meets the growing demand.
2. Financial Performance Assessment
The analysis used in this report is based on the calculations shown in the Appendix 1 attached.
It is apparent that there was a dramatic increase in sales during 1993-1995, and the trend seems to continue from 1996 1st quarter sales data. Sales rose by 19% in 1994, and 30% in 1995, and then back to 18% in 1996 1st quarter. In contrast, the gross profit margin and return on sales have remained relatively static over the three year period, while we can see a drop by approximately 1% of return on sales from the projected numbers of 1996. ROE, while improving greatly in 1994 to 18.3% has decrease slightly in 1995 to 17.1%.
Despite of its consistent profitability and expansion, the cash position worries. The level of total debt of CLC increased when a further $390,000 was raised in bank loans from Suburban National Bank (providing loan maximum to $400,000) to add to the $60,000 as of 1994. A
CLC is a fast growing business with small number of employees, providing plywood moldings, sash and door products. It built on its sales volume largely on the basis of successful price competition, careful control of operating expenses and batch purchasing of materials at substantial discounts during past years. The sound market condition and operation contributes to CLC’s growing trend in a foreseeable future. Besides, in case of an economic downturn, the business is protected to some degree from fluctuations in new housing construction because of the relatively high proportion of its repair work.
The business’s sole owner, Mr. Clarkson is an energetic and hardworking business man with good sound personal financial condition and credit. From business partners’ perspective, CLC is conservative but well controlled.
Mr. Clarkson faces a dilemma that the business is short of cash while experiencing remarkable growing. He is sourcing for new financing channels since current bank loan no longer meets the growing demand.
2. Financial Performance Assessment
The analysis used in this report is based on the calculations shown in the Appendix 1 attached.
It is apparent that there was a dramatic increase in sales during 1993-1995, and the trend seems to continue from 1996 1st quarter sales data. Sales rose by 19% in 1994, and 30% in 1995, and then back to 18% in 1996 1st quarter. In contrast, the gross profit margin and return on sales have remained relatively static over the three year period, while we can see a drop by approximately 1% of return on sales from the projected numbers of 1996. ROE, while improving greatly in 1994 to 18.3% has decrease slightly in 1995 to 17.1%.
Despite of its consistent profitability and expansion, the cash position worries. The level of total debt of CLC increased when a further $390,000 was raised in bank loans from Suburban National Bank (providing loan maximum to $400,000) to add to the $60,000 as of 1994. A