Wilson Lumber Company
1. Introduction 4
3. Analysis of the Forecasted Situation 9
4. Suggestions and Their Analysis 13
5. Conclusions and Recommendations 16
Table of Figures
Table 1: Estimation of Selected Company’s Ratios 5
Table 2: Cash Flow Statements for 2004 and 2005 6
Table 3: Major Ratios 7
Table 4: Sustainable Rate of Growth 8
Table 5: Attractiveness of Discounts 9
Table 6: Proforma Income Statement 9
Table 7: Proforma Balance Sheet 10
Table 8: Cash Flow Statement 11
Table 9: EVA Analysis 12
Table 10: Income Statement under new Terms 13
Table 11: Balance Sheet under New Terms 14
Table 12: Cash Flow Statement under New Terms 14
Table 13: EVA under New Terms 15
1. Introduction
Wilson Lumber Company is a small company engaged in timber business. The company has one owner Mr Wilson, an entrepreneur, who is considered to be reliable partner and talented business man by his suppliers and customers. Mr Wilson originally established the firm with his brother in law, Henry Holtz, in 1991 but in 2004, bought out a part of Mr Holtz for USD200,000 payable in two equal parts over the next two years. Mr Wilson is willing to try a discount 2/10 net 30 provided by his supplies but the firm persistently faced cash shortage. At the same time, current credit line offered by the bank is not sufficient to take advantage of a discount. So Mr Wilson decided to negotiate new credit line with much high limit with another bank.
Aim
The report aims to analyze the feasibility and viability of Wilson Lumber Company’s decision to increase the credit line in order to take advantage of discount and maintain high pace of sales growth.
Objectives:
* Analyze the current situation * Identify problem areas * Analyze forecasted situation if the firm takes a loan * Compare state of the company in both cases * Propose some ways to improve the situation if necessary * Analyze how suggestions will reflect on the financial statements * Make final suggestion
3. Analysis of the Forecasted Situation 9
4. Suggestions and Their Analysis 13
5. Conclusions and Recommendations 16
Table of Figures
Table 1: Estimation of Selected Company’s Ratios 5
Table 2: Cash Flow Statements for 2004 and 2005 6
Table 3: Major Ratios 7
Table 4: Sustainable Rate of Growth 8
Table 5: Attractiveness of Discounts 9
Table 6: Proforma Income Statement 9
Table 7: Proforma Balance Sheet 10
Table 8: Cash Flow Statement 11
Table 9: EVA Analysis 12
Table 10: Income Statement under new Terms 13
Table 11: Balance Sheet under New Terms 14
Table 12: Cash Flow Statement under New Terms 14
Table 13: EVA under New Terms 15
1. Introduction
Wilson Lumber Company is a small company engaged in timber business. The company has one owner Mr Wilson, an entrepreneur, who is considered to be reliable partner and talented business man by his suppliers and customers. Mr Wilson originally established the firm with his brother in law, Henry Holtz, in 1991 but in 2004, bought out a part of Mr Holtz for USD200,000 payable in two equal parts over the next two years. Mr Wilson is willing to try a discount 2/10 net 30 provided by his supplies but the firm persistently faced cash shortage. At the same time, current credit line offered by the bank is not sufficient to take advantage of a discount. So Mr Wilson decided to negotiate new credit line with much high limit with another bank.
Aim
The report aims to analyze the feasibility and viability of Wilson Lumber Company’s decision to increase the credit line in order to take advantage of discount and maintain high pace of sales growth.
Objectives:
* Analyze the current situation * Identify problem areas * Analyze forecasted situation if the firm takes a loan * Compare state of the company in both cases * Propose some ways to improve the situation if necessary * Analyze how suggestions will reflect on the financial statements * Make final suggestion