Clarkson Lumber Case

Clarkson Lumber Comp some(prenominal) Clarkson Lumber Company is in retail distribution of lumber products. It was founded by Mr. Clarkson and his brother-in-law, Henry Holtz in 1981. In 1994, Mr. Clarkson bought come forward Mr. Holtzs stake for $200,000, payable in 4 semi-annual instalments from June 30, 1995 with pastime @11% p.a. incorruptible has achieved good growth in bring in revenue and profits during recent years, but is approach shortfall of cash. It expects gross sales of $5.5 million during CY 1996 and would accept special loan over and to a higher place existing loan of $399,000 as on March 31, 1995. animated chamfer does not deport loan beyond $400,000 to any borrower. Another bank is considering to knock back existing bank and al first base for total loan of $750,000. We down analyzed financial side of meat of Firm in this background and also made projections for 1996. (See attachments). Firm is currently facing cash flow problems due to severa l(prenominal) factors. Working slap-up subjoind good due to increase in sales and inefficient usable management resulting in high collection period and low inventory turnover. immediate payment outgo for payment to Mr. Holtz deepen the problem. Capital expenditure of $155,000 was incurred during blend in 2 years. augment in invested detonating device reduced two IGR and SGR.

As sales growth rate was higher than IGR and SGR, profligate had to rely on trade credits and trade notes, likewise internal accruals and bank notes to finance its cash outflows. Projections for 1996 are establish on cultivation pr ovided and other assumptions described in l! eap out sheets that is to say all trade notes will be in bounteous paid and trade credit of 10 days is for extra purchases made from April 1, 1996. Firm is projected to earn net income of $106,000 on targeted sales of $5.5 million with operating cash flow of $172,000 during 1996. It would contend total invested capital of $1.621 million (cash - $77,000, net working capital - $1.104 million and fixed assets - $440,000) to achieve these sales. Considering net worth of $555,000 and existing...If you helping to get a full essay, order it on our website: OrderCustomPaper.com

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