Butler Lumber Co Case Solution

Case Solution

The Butler Lumber Co. is suffered with any excuses for elevated bank financing due to its rapid sales growth and periodic profitability. Students must determine exactly why for your rising bank borrowing, estimate the amount of borrowing needed, and appraise the benefit of the lent funds for the bank. A rewritten type of a young case. Allows students to train ratio analysis, financial predicting, and evaluating financing options.

Excel Calculations

Projected income statement for 1991 (thousands of dollars)

Projected balance sheet for December 31, 1991 (thousands of dollars)

Operating Ratios

Questions Covered

How well is Butler Lumber doing? Why?

What has been the company’s financial strategy? Why does Mr. Butler have to borrow so much money to support this profitable business? Has he been managing his company’s cash flow wisely?

Do you agree with his estimate of the company’s loan requirements? How much will he need to borrow to finance his expected expansion in sales in 1991 (assume sales volume of $3.6 million)? How much will he need over the next several years?

Would you urge Mr. Butler to proceed with, or to reconsider, his anticipated expansion plans?