Essay on Clarkson Lumber questions - 1317 Words

Clarkson Lumber Company 1. Identify the key problem in the case and explaining why it is the key problem. Clarkson Lumber Company’s biggest problem by far is the fact that Mr. Clarkson had agreed to buy out Mr. Holtz for $200,000 with semi-annual installments of $50,000. It wasn’t necessarily a bad idea for Mr. Clarkson to buy out Mr. Holtz altogether, but the $100,000/year of payments is an unrealistic amount for Clarkson Lumber at this point in time. Between 1993 and 1995, there hasn’t been a year where they have realized more than $77,000 in net income, so the payment of $100,000/year is clearly unrealistic and a sure problem for the company. Another problem, which isn’t nearly as important as the former, is that net income is growing†¦show more content†¦This bank loan helped finance the increase in property and other related assets. The sponaneous assets that were increased as a result of an increase in sales were financed by an increase in sponaneous liabilities. Spontaneous liabilities have grown by 35%, which supports the claim that they finan ce the increase in accounts receivable and inventories. In the period between 1993-1995, the financial strength of Clarkson Lumber has deteriorated significantly. As seen from the financial ratios excel spreadsheet attached, the current and quick ratios have been gone down substantially. This means that the company’s ability to meet its short term obligations has deteriorated. Furthermore, the return on sales and return on assets have also gone down, which means that their increase in net income has not stayed consistent with the increase in sales and increase in assets to finance these sales. Their falling inventory turnover ratio means that even though their sales are increasing, they are not moving inventory at the same pace they had before. Their low accounts receivable turnover ratio and high dales sales outstanding indicates that there’s a large amount of money tied in this account. 4. How attractive is it to take the trade discounts? Trade discounts are very beneficial to a company, especially when these trades are of significant amounts. In the case of Clarkson Lumber, they can save 2% on a payment that is made within 10 days, which would saveShow MoreRelatedClarkson Lumber1188 Words   |  5 Pageshult international business school | Clarkson Lumber Company | | | Adeeb Valiulla | 1/3/2011 | | Summary Experiencing rapid growth in business and generating fairly good profits, Mr. Keith Clarkson the sole owner and president of The Clarkson Lumber Company still faced a shortage of cash and found it necessary to increase his borrowings, he was therefore on a look-out to start off a new banking relationship where he could not only borrow a larger loan amount but also one thatRead MoreClarkson Lumber1278 Words   |  6 PagesI. Introduction Clarkson Lumber Company has been in growth during recent years and anticipated a further increase in sales. 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