Lumpkin Plumbing

Topics: Balance sheet, Asset, Inventory Pages: 2 (439 words) Published: April 16, 2012
Fin 411-101
Lumpkin Plumbing

Lumpkin experienced a steady increase in sales since it began 1990 and has recently expanded inventories to accommodate a relatively larger sales increase. Richard Lumpkin borrowed $150,000 to expand the warehouse to hold more inventories and include a model to attract retail sales. The expansion will benefit the company as long as inventories are managed well and the increase in production does not harm profit margins. Lumpkin Plumbing projected figures for the balance sheet, income statement, and cash flows for 2000. Lumpkin anticipated growth for the 2000 year but underestimated the increase in total assets and liabilities by 47.37%. Lumpkin also projected a 20% increase in sales and realized an actual increase of 63.15%. Though the company underestimated the sales increase, it was able to manage costs and increase net income 63.42%. If Lumpkin can maintain its’ profit margin and take advantage of increased demand then the expansion would be beneficial to the health of the company. Lumpkin is managing the expansion and should be able to make its loan repayments of $50,000 per year. Lumpkin also underestimated the growth of its inventories and accounts payable. Inventories at Lumpkin increased 89.39% though the increase was projected at 10.48%. Lumpkin had $628,800 in inventories at the end of 2000 which raises concern for the liquidity of the company. Accounts payable projections were also off, with a projected decrease of $2,000 and an actual increase of $216,400. The increase in accounts payable is partly due to the extension of A/P days from 10.40 to 45.10 from 1999 to 2000. The extreme A/P could be from inventory costs and also account for the large increase in inventory holdings. Lumpkin could be planning for an increase in sales growth and hold inventories to meet the demand. Even if the discrepancies between the projected and actual figures for the inventories and A/P are explained by increases...
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