Clarkson Lumber Co Case Solution

Case Solution

Who is the owner of a rapidly growing retail lumber clients are planning on the financial implications of ongoing rapid growth. The magnitude in the company's future financing needs ought to be examined poor their utilization of bank finance and/or equity finance. A rewritten type of a young case.

Excel Calculations

Cash to cash cycle (dollars)

Annualized Interest rate 

Projected income statement for 1996 (thousands of dollars)

Projected balance sheet for December 31, 1996 (thousands of dollars)

Questions Covered

1. Why has Clarkson Lumber borrowed increasing amounts despite its consistent profitability?

2. How has Mr. Clarkson met the financing needs of the company during the period 1993 through 1995? Has the financial strength of Clarkson Lumber improved or deteriorated? (Prepare a projected income statement for 1996 and a pro forma balance sheet as of December 31, 1996.)

3. How attractive is it to take the trade discounts?

4. Do you agree with Mr. Clarkson’s estimate of the company’s loan requirements? How much will he need to finance the expected expansion in sales to $5.5 million in 1996 and to take all trade discounts?

5. As Mr. Clarkson’s financial adviser, would you urge him to go ahead with, or to reconsider his anticipated expansion and his plans for additional debt financing? As the banker, would you approve Mr. Clarkson’s loan request, and, if so, what conditions would you put on the loan?