Butler Lumber Case

Topics: Balance sheet, Debt, Inventory Pages: 1 (359 words) Published: May 12, 2009
Nicholas Cappucci
Cost Management Systems
Professor Wall

Butler Lumber

1.Mark Butler has to borrow so much money to support his business because of his plans to expand his business and to consolidate his debt. Receiving the loan will allow Butler to make sure his inventory is ready for the projected sales increase in the coming year. Cash flexibility is also an issue with this company because they have so many outstanding debts, getting the loan will improve the cash flexibility.

2.I do agree with Butler’s estimate of the loan amount in order to expand his business and eliminate his trade debt. He might not need to borrow $465,000 just for this quarter. When considering the majority of his revenue is from the second and third quarters the extra money would be used in the first and last quarters of the year.

3.As the financial advisor I would urge Butler to go ahead with the loan from Northrop National Bank. Attaining this debt would help boost the company’s expansion process before the summer when the do most of the sales. The loan would make it so that Butler could consolidate his debt and have a lower interest rate as well. As the Banker I would not approve of the loan for $465,000 to Butler Lumber. I feel that the company is still too small for that size of a loan and doesn’t have enough current assets to put up as collateral. Given the company’s good reputation and successful history it wouldn’t be hard to get this loan approved. One thing that I would like to see is better inventory control, the inventory turnover is decreasing and Butler needs to come up with a way to fix it or else it will be hard to improve the working capital. Also the accounts receivable increase greatly from year to year which reflects poor collection time for the company. If Butler could improve these areas then there would be little reason why his loan request would be turned down aside form the fact that his company is still new and growing.
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