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Clarkson Lumber Company Essay

651 words - 3 pages

Please read the case “Clarkson Lumber Company”, and finish the following questions:

1. Please finish the following common-size financial statements and financial ratios

Common-size income statement (10%)
2009 2010 2011
Net sales 100% 100% 100%
cost of goods sold 75.4% 75.8% 75.8%
Gross profit 24.6% 24.2% 24.2%
Operating expenses 21.3% 20.6% 20.6%
Earnings before interest and taxes 3.3% 3.6% 3.4%
Interest expense 0.8% 1.2% 1.2%
Net income before income taxes 2.5% 2.4% 2.2%
Provision for income taxes 0.5% 0.5% 0.5%
Net income 2.1% 2.0% 1.7%

Common-size balance sheet (10%)
2009 2010 2011
Cash 4.7% 4.5% 3.4%
Accounts receivable, net 33.3% 35.5% 37.0%
Inventory 36.7% 37.3% 35.9%
Current assets 74.6% 77.4% 76.3%
Property, net 25.4% 22.6% 23.7%
Total assets 100% 100% 100%

Notes payable, bank - ...view middle of the document...

24 43.14 48.95
Days’ sales in inventory 55.90 59.87 62.58
Days to pay payables 35.19 45.47 40.09
Fixed asset turnover 12.54 13.27 11.65
Total asset turnover 3.18 3.01 2.76

Current ratio 2.24 1.47 1.50
Quick ratio 1.27 0.82 0.61

Profit margin 2.05% 1.96% 1.70%
ROA 6.53% 5.88% 4.70%
ROE 11.90% 18.28% 17.15%

Financial leverage
Total debt ratio 0.45 0.68 0.73
Interest coverage 4.22 3.00 2.77

2. Why has Clarkson Lumber borrowed increasing amounts despite its consistent profitability? (12%)
Because Clarkson’s company have met cash shortage trouble.
① Although Clarkson’s annual sales had been increased, meanwhile Clarkson Lumber’s accounts and note payable in the recent past, especially in 2011, has also increased rapidly.
② Mr. Clarkson bought Mr. Holtz’s interest for 200,000 dollars, the interest rate is 11%, and it had to be paid off in 2011 and 2012.
③ During the last two years, Mr. Clarkson had taken very few purchase discounts because of the shortage of funds arising from his purchase of Mr. Holtz’s interest in the business and the additional investment in working capital associated with the company’s increasing sales volume.
3. How has Mr. Clarkson met the financing needs of the company during the period 2009 through 2011? Has the financial strength of Clarkson Lumber improved or deteriorated, and what make you to reach such a conclusion? (12%)
We can find the reason by the balance sheet that Clarkson borrowed 399,000 dollars from bank between 2010 to 2012.
① Current ratio decreased from 2.24 to 1.50
② ROA decreased 6.53% to 4.70%

4. What is the amount outstanding of the following loans by the end of March, June, September, and December 2012, respectively? (6%)
a. Note payable to Holtz (to buy out his interest)
b. Term loan

Note payable to Holtz Term loan
March 2012 150,000 100,000
June 100,000 90,000
September 100,000 90,000
December 50,000 80,000

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