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Clarkson Lumber Company Essay

1441 words - 6 pages

Clarkson Lumber
Hardwoods, Hard Times BBUS 505a Cavelero, Engstrom, Tobey & Zadah

Overview
• Case Summary • Problem Identification • Findings • Methodology • Metrics • Insights

Case Summary
• Clarkson Lumber Company [‘CLC’], is a small PNW lumber concern experiencing rapid, questionably financed growth. • Keith Clarkson [‘Clarkson’], sole owner of CLC, has maxed out ($399K of $400K) his line of credit [‘LOC’] at Suburban National. • CLC relies heavily on trade credit and short term debt. • Clarkson wants to move to Northrup National Bank – a larger bank – with a a $750K short-term LOC. • George Dodge, Northrup officer, is cautiously receptive. He’s asked a team of intelligent, ...view middle of the document...

By maintaining the projected growth rate, Northrup can facilitate CLC’s maximum profitability by offering “balanced” financing of 35% short-term (~$340k) and 65% long-term (~$635 k).

Findings
Operating Income
$180 $160 $140 $120 $100 $80 $60 $40 $20 $0 1996 1997 1998 $8 Balanced Short Term $14 $20

Methodology
1. 2. Financial Statements Analysis • Common-Size Income Statement (% Sales) • Common-Size Balance Sheet (%Assets) Ratio Analysis • Short-Term Solvency (Liquidity) • Long-Term Solvency (Financial Leverage) • Assets Management (Turnover) • Profitability The Du Pont Identity (Current, Forecasted) Financial Planning • Estimated sales growth • Forecasted growth using ‘% of sales’ approach • Estimated amount, type of EFN • Estimated sustainable growth

3. 4.

1996: Q1

Clarkson vs. Industry
Low-Profit Outlets Percent of Total Sales: Cost of goods Operating expense Cash Accounts receivable Inventory Fixed assets, net Total Assets Percent of Total Assets: Current liabilities Long-term liabilities Equity Total Assets High-Profit Outlets CLC 3YR 1995 76.90% 22.00% 1.30% 13.70% 12.00% 12.10% 39.10% 75.10% 20.60% 1.10% 12.40% 11.60% 9.20% 34.30% 75.60% 20.90% 1.40% 11.90% 12.30% 8.00% 33.70% 75.80% 20.80% 1.20% 13.40% 13.00% 8.60% 36.20%

52.70% 34.80% 12.50% 100.00%

29.20% 16.00% 54.80% 100.00%

48.41% 13.45% 38.14 100.00%

66.50% 6.10% 27.40% 100.00%

Metrics: Short Term Solvency
QUICK RATIO
2.49 2.5 2.5

CURRENT RATIO

2.0 1.27 1.5 0.82 1.0 0.61

2.0

1.58 1.15

1.5

1.0

0.5

0.5

0.0 1993 1994 1995

0.0 1993 1994 1995

Metrics: Leverage
4.06 4.50 4.00 3.50 3.00 2.50 2.00 1.50 1.00 0.50 0.00 0.68 0.80 2.59 1993 1994 0.86 1995 0.70 0.60 0.50 0.40 0.30 0.20 0.10 0.00 DEBT-EQUITY RATIO TOTAL DEBT RATIO 0.45

0.73

1993 1994 1995

66.46% 70.00% 60.00% 50.00% 40.00% 30.00% 20.00% 10.00% 0.00% Current liabilities CLC 1993 CLC 1994 CLC 1995 29.92% 48.83% 70.00% 60.00% 50.00% 40.00% 30.00% 20.00% 10.00% 0.00% 29.20% 52.70%

66.46%

Current Liab. - Industry Comparison
Low-Profit High-Profit CLC 1995

Metrics: Asset Utilization
48.95 50.00 45.00 62.00 59.86 40.00 35.00 60.00 1993 1994 58.00 55.86 1995 25.00 20.00 56.00 15.00 10.00 54.00 5.00 52.00 0.00 30.00 1993 1994 1995 38.24 64.00 62.57 43.14

DAYS PER INVENTORY TURNOVER

DAYS ACCOUNTS IN A/R COLLECTION

Metrics: Inventory
% of Sales
12.40% 12.32%

12.20% 12.00% 12.00% Inventory 11.80% 11.60% 11.60%

11.40%

11.20% Low-Profit Outlets High-Profit Outlets Clarkson 3YR

Metrics: Inventory
vs. Current Assets
54.00% 53.00% 52.00% 51.00% 50.00% 49.00% 48.00% 47.00% 46.00% 45.00% 44.00% 43.00% 50.87% 51.73% 53.00%

% of Current

49.13% 48.27%

47.00% Non-inventory

1993 1994 1995 Years

Inventory

...

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