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Question
1-Why has Clarkson Lumber borrowed increasing amounts despite its consistent profitability?
2-How has Mr. Clarkson met the financing needs of the company during the period 1993-1995? Has the financial strength of the company improved or deteriorated? 3-How attractive is it to take the trade discounts?
4-Do you agree with Mr. Clarkson’s estimate of the company’s loan requirements? How much will he need to finance the expected expansion in sales to $ 5.5 Million in 1996 and to take all trade discounts? 5-As Mr. Clarkson’s financial advisor, would you urge him to go ahead with, or to reconsider, his anticipated expansion and his plans for additional debt financing? As the banker, would you approve Mr. Clarkson’s loan, and if so, what conditions would you put on the loan?
Why has clarkson lumber borrowed increasing amounts despite its consistent profitability?
In: Business & Finance, Sales and Customer Service [Edit categories]
[pic][pic]Answer:
The company is growing faster than its sustainabble growth rate will allow.
Q1-1. Why has Clarkson Lumber borrowed increasing amounts despite its consistent profitability?
Because they have faced cash shortage trouble. Their profitability has grown for 1993 ~ 1995 period, as we can see from their I/S (e.g. Sales and Net Income, etc.). However, as its business size grows, their A/R increased, which means that it is getting difficult to collect cash. On the other hand, A/P decreased for the same period, which means that the company paid cash for A/P, resulting in critical cash shortage. Furthermore, the A/P payment period is shorter than A/R collection periods, the company’s cash problem happens to be accelerated.
(Exhibit 1) | 1993 | 1994 |
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[pic]
[pic]
3
[pic]
4
[pic]
Question
1-Why has Clarkson Lumber borrowed increasing amounts despite its consistent profitability?
2-How has Mr. Clarkson met the financing needs of the company during the period 1993-1995? Has the financial strength of the company improved or deteriorated? 3-How attractive is it to take the trade discounts?
4-Do you agree with Mr. Clarkson’s estimate of the company’s loan requirements? How much will he need to finance the expected expansion in sales to $ 5.5 Million in 1996 and to take all trade discounts? 5-As Mr. Clarkson’s financial advisor, would you urge him to go ahead with, or to reconsider, his anticipated expansion and his plans for additional debt financing? As the banker, would you approve Mr. Clarkson’s loan, and if so, what conditions would you put on the loan?
Why has clarkson lumber borrowed increasing amounts despite its consistent profitability?
In: Business & Finance, Sales and Customer Service [Edit categories]
[pic][pic]Answer:
The company is growing faster than its sustainabble growth rate will allow.
Q1-1. Why has Clarkson Lumber borrowed increasing amounts despite its consistent profitability?
Because they have faced cash shortage trouble. Their profitability has grown for 1993 ~ 1995 period, as we can see from their I/S (e.g. Sales and Net Income, etc.). However, as its business size grows, their A/R increased, which means that it is getting difficult to collect cash. On the other hand, A/P decreased for the same period, which means that the company paid cash for A/P, resulting in critical cash shortage. Furthermore, the A/P payment period is shorter than A/R collection periods, the company’s cash problem happens to be accelerated.
(Exhibit 1) | 1993 | 1994 |