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Clarkson Lumber

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Clarkson Lumber
Clarkson needs additional financing because of its short term debts and shortage of cash. It is anticipated that there will be an increase in sales, which means it will be in need of cash for its purchases. With the additional financing, company will be able to benefit from trade discounts. In order to examine operational performance of Clarkson Lumber Company, we calculated financial ratios for years 1993 to 1996 first quarter. In addition, to make a meaningful comparison, we calculated financial ratio for industry. Industry averages were calculated by taking arithmetic average of high-profit and low-profit outlets, then we calculated ratios. Financial ratios of Clarkson Lumber and industry averages can be seen in Exhibit 1. First of all, regarding current ratio, it has sharply declining trend, especially after year 1993, current ratios are below industry average. Even in 1995, current ratio is far below than the low-profit outlet’s current ratio. The quick ratio measures a company’s ability to meet its short-term obligations with its most liquid assets. When we focus on quick ratios of Clarkson, we also see declining trend in quick ratio, which shows that Clarkson is having harder and harder times to meet its current liabilities by using current assets. Overall, liquidity position of company seems to be weak. As for asset management ratios, first ratio to be discussed is inventory turnover ratio. Inventory turnover ratio measures how many times average inventory is "turned" or sold during a period. We noticed that after year 1993, inventory turnover ratio is below industry and is has also declining trend. DSO shows average number of day after making a sale before receiving cash. When we compare it to industry average (48 days), one may notice that Clarkson is doing (49 days) near to industry. As for FA Turnover and TA Turnover ratios, Clarkson have ratios above industry. Yet, these ratios are decreasing through years which may be a threat for future of the
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