Clarkson Lumber Case Summary
Clarkson Lumber Case
FIN 4422-002
Spencer Ely
September 22, 2011
Clarkson Lumber appears at first glance to be a healthy, successful company with increasing sales and rapid growth. Clarkson Lumber has relatively low operating cost, allowing them to give competitive prices, which results in their increasing sales. However, even with continual increases in sales, Clarkson Lumber has a constant cash flow problem that can be credited to several factors with the result of looking for additional funding to buyout his old partner and expand his business. Clarkson is currently overusing his short-term debt and has maxed out his current line of credit with Suburban National with a $399,000 loan. Clarkson has been able to stay within Suburban’s …show more content…
Although, Clarkson Lumber gives most of its customers a 30 day credit term, accounts receivables to sales in 1995 was averaging close to 49 days to receive payments. The inability to receive payments on time severely impacts the company’s cash flow as well as delays Clarkson’s payments to suppliers. In 1995 accounts receivables increased to nearly 14% of sales which is higher than the industries low-profit outputs of 13.7%. Another problem Clarkson Lumber has it the increase in inventory to sales ratio. Inventory as a percent of sales in 1995 was 12.99% which put it above the industry standard of 12% for low-profit outlets and 11.6% of high-profit output. This is an increase of nearly 2% from 1993. With the projected sales of $5.5 million in 1996, Clarkson Lumber would be forced to increase its amount of debt to reach its projected sales. Inventory purchases are too high and Clarkson Lumber should move towards keeping lower amounts of inventory on hand, alternatively increasing cash …show more content…
Clarkson was offered a discount on inventory that would have saved him 2% on inventory cost. Not taking advantage of his trade discount in 1995 and the first quarter of 1996, Clarkson missed receiving a discount of nearly $88,000 on the $4.4 million in purchases. In order to forecast a 1996 pro forma (Exhibit B), we must look at all financial ratio that involves assets and liabilities from 1993-1995. Inventory as a percent of sales has increased nearly 2% from 1993, and accounts receivable increased to about 14% of sales. Investments in receivable and inventory are too high. With the ratios continually increasing Clarkson Lumber would need well over the $750,000 loan in order to expand operations successfully, which would still reduce the current ratio of Clarkson
FIN 4422-002
Spencer Ely
September 22, 2011
Clarkson Lumber appears at first glance to be a healthy, successful company with increasing sales and rapid growth. Clarkson Lumber has relatively low operating cost, allowing them to give competitive prices, which results in their increasing sales. However, even with continual increases in sales, Clarkson Lumber has a constant cash flow problem that can be credited to several factors with the result of looking for additional funding to buyout his old partner and expand his business. Clarkson is currently overusing his short-term debt and has maxed out his current line of credit with Suburban National with a $399,000 loan. Clarkson has been able to stay within Suburban’s …show more content…
Although, Clarkson Lumber gives most of its customers a 30 day credit term, accounts receivables to sales in 1995 was averaging close to 49 days to receive payments. The inability to receive payments on time severely impacts the company’s cash flow as well as delays Clarkson’s payments to suppliers. In 1995 accounts receivables increased to nearly 14% of sales which is higher than the industries low-profit outputs of 13.7%. Another problem Clarkson Lumber has it the increase in inventory to sales ratio. Inventory as a percent of sales in 1995 was 12.99% which put it above the industry standard of 12% for low-profit outlets and 11.6% of high-profit output. This is an increase of nearly 2% from 1993. With the projected sales of $5.5 million in 1996, Clarkson Lumber would be forced to increase its amount of debt to reach its projected sales. Inventory purchases are too high and Clarkson Lumber should move towards keeping lower amounts of inventory on hand, alternatively increasing cash …show more content…
Clarkson was offered a discount on inventory that would have saved him 2% on inventory cost. Not taking advantage of his trade discount in 1995 and the first quarter of 1996, Clarkson missed receiving a discount of nearly $88,000 on the $4.4 million in purchases. In order to forecast a 1996 pro forma (Exhibit B), we must look at all financial ratio that involves assets and liabilities from 1993-1995. Inventory as a percent of sales has increased nearly 2% from 1993, and accounts receivable increased to about 14% of sales. Investments in receivable and inventory are too high. With the ratios continually increasing Clarkson Lumber would need well over the $750,000 loan in order to expand operations successfully, which would still reduce the current ratio of Clarkson