Thomas R. Piper
TN available |United States
small: $3 million revenues
1991 |The owner of a rapidly growing retail lumber company isconsidering the financial implications of continued rapid growth. The magnitude of the company's future financing requirements must be assessed in the context of the company's access to bank finance and/orequity finance. Teaching Purpose: Development of skills in financial analysis, financial forecasting, and financial planning. A rewritten version of an earlier case.
Subjects: Financial analysis;Financial planning; Forecasting; Loan evaluation | |
Clarkson Lumber Company is owned and operated by the hardworking, 49-year-old Mr. Clarkson. It has low operating expenses, a small staff, andstrong management. The overall impression is one of a conservative, efficient operation. Clarkson himself leads a frugal lifestyle with little personal debt.
Clarkson Lumber is a companyexperiencing rapid growth but with a constant cash flow crisis. This is not an unusual confluence, but it does require some financial decision-making. Their current state of under financing makes a number oftheir ratios look poor.
There are several reasons for the cash flow problems at Clarkson Lumber. One is Mr. Clarkson's decision in 1994 to buy out his partner Mr. Holtz. The note had 4semi-annual installments of $50,000 beginning June 30,
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1995 with an 11% interest rate. Clarkson Lumber is not generating enough profit to pay off this debt in such a short space of time. Basically the debt repayment terms do not match the financial strength of the business. As oftoday there are 2 remaining payments to be made on this note, June 1996 and December 1996.
The ceiling of $399,000 in borrowing ability placed on the company by the Suburban National Bank is...