Cartwright lumber company case

Comparative Balance Sheet Analysis of comparative balance sheet reveals that cash item was 9. Due to the rapid growth and a shortage of cash in , Butler Lumber Company is seeking to take out an additional loan in order for the business to sustain itself and grow in the coming years. The Current Ratio is on an adequate level but the Quick Ratio seems to be alarming. As a result, this will increase its returns on capital employed. With credit terms of 30 days, the DSO is showing that on average customers are not paying on time and year to year they are paying increasingly later. The big disadvantages are: the termination of the banking relationship between Butler Lumber and Suburban National Bank, and the increased interest expense on the loan. Moreover, the trade receivables are continuously increasing from Telemarketing is also an essential part tort its well operation. Also there would be limitations on withdrawals of funds from the business by Mr. This makes sense because the more customers Mr. The business is located in the Pacific Northwest region and does the retail distribution of lumber products in the local area.

First is competitive customer policy, they offered their customers by quantity discounts and credit terms. Additionally, an increase in interest expense as proportionate to sales revenue means that Cartwright Lumber Company is not utilizing its additional borrowing in generation of sales revenues.

Another disadvantage of establishing a LOC with Northrop National Bank is the possibility of restrictions on the company stating that the net working capital be maintained at a level agreed upon by both parties and any increase in fixed assets with approval by Northrop.

If relying on external financing is not plausible, Mr. This can be very beneficial for companies experiencing problems with cash flows.

Additionally, the analysis of current and long-term liabilities as proportionate of total assets reveals that current liabilities are continuously increasing, meanwhile, long-term liabilities are decreasing, which means that Cartridge Lumber Company is heavily relying on current liabilities to insane its fixed and current assets rather than financing its fixed assets through long-term liabilities. Moreover, operating margin has also increased to 3. In turn, they are giving up discounts n their purchases made. How has management met the financing needs of the company? Additionally, the analysis of current and long-term liabilities as proportionate of total assets reveals that current liabilities are continuously increasing, meanwhile, long-term liabilities are decreasing, which means that Cartwright Lumber Company is heavily relying on current liabilities to finance its fixed and current assets rather than financing its fixed assets through long-term liabilities. Butler Lumber Company is a Pacific Northwest based lumber distributor that sells plywood, moldings, and sash and door products. The big disadvantages are: the termination of the banking relationship between Butler Lumber and Suburban National Bank, and the increased interest expense on the loan. Construct common size statements for the years to based upon sales. With credit terms of 30 days, the DSO is showing that on average customers are not paying on time and year to year they are paying increasingly later.

Average collection period, inventory turnover, accounts payable, accounts receivable as well as cash conversion cycle all went up and down over the last four years but mainly stayed in the same range. Additionally, the analysis of current and long-term liabilities as proportionate of total assets reveals that current liabilities are continuously increasing, meanwhile, long-term liabilities are decreasing, which means that Cartwright Lumber Company is heavily relying on current liabilities to finance its fixed and current assets rather than financing its fixed assets through long-term liabilities.

cartwright lumber case questions

Though Butler may be capable of repaying the amount, it is inevitable that the company will need more financing. This makes sense because the more customers Mr.

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This represents an increase of 2. Butlers Receivable turnover has decreased from 9. The recommendation that we give to Mr.

Moreover, the asset turnover ratio reveals that assets of Cartwright Lumber Company are generating 2. This is the reason why the firm is primarily relying on its debts to sustain the increase in sales growth. From operational standpoint, company is doing well on basis of successful price competition, careful control of operating expenses and by quantity material purchases at substantial discounts. Butler has displayed regarding his payables and receivables. Additionally, an increase in interest expense as proportionate to sales revenue means that Cartridge Lumber Company is not utilizing its additional borrowing in generation of sales revenues. Third is their conservative operation with low operation cost and proportionate plant investment. However, the taxable income as proportionate to sales revenue is continuously decreasing because the heavy commitments of interest payments and interest expenses have increased from 0. The only apparent advantage of this option lies solely in the fact that the relationship with the bank already exists. The firm has extended its trade credit a significant amount in an effort to remain below the , ceiling imposed by their current bank.

Moreover, equity portion of Cartwright Lumber Company is not growing with the growth in its total assets; this shows that Cartwright Lumber Company is using more debt to finance investment in assets rather than equity. Related Interests.

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Essay on Cartwright Lumber Company case