Clarkson Lumber Company Essay

(1) backclothCLC was founded in 1981 by Mr. Clarkson and brother-in-law Henry Holtz in the Pacific Northwest. The friendship has experient rapid growth over the recent years and it is anticipated to continue. Mr. Clarkson bought show up Mr. Holtz for $200,000 to become the sole owner. This resulted in the need of more cash inflow from the bank. Even with consistent profits, the company has suffered a shortage of cash and has borrowed finances needed for business growth.(2) Major Problem(s)CLCs current ratio (formula 1) has deteriorated which light-emitting diode to a shortage of funds while still being profitable. The companys average collection outcome (formula 2) and debt ratio (formula 3) know growing which also signals problems. CLC buys its inventory in large quantities from the suppliers in order to coming back advantage of a 2% trade discount but has been unable to receive the discount due to the increasing average collection period and inventory turnover rate.(3) A lternative operates of Actioni. Acquire more bank identificationii. Reduce rate of growth to more sustainable leveliii. value customers who can purchase on credit(4) Brief Analysis of Alternativesi. CLC mustiness improve their current ratio to ensure the bank it will have the ability to repay a larger loan. ii. CLC has seen operating expense increase dramatically between 1993 and 1995. CLC needs to reckon the amount of inventory to be held on hand and scale back operations if inventory turnover continues to increase. iii. Due to the increasing average collection period, CLC needs to seriously reconsider captureing some customers to purchase on credit and do more everlasting(a) credit analysis. An increasing average collection period does not allow CLC to take advantage of the 10 day 2% trade discount.(5) Suggested Course of ActionCLC should seek to increase the $750,000 loan from the bank but with puckish re stringentions. The company should be required to reduce accounts re ceivable and inventory and strict control of future investments to reduce cash outflow. manifestation 1 veritable Ratio1993 $686/275 = 2.491994 $895/565 = 1.581995 $1249/1188 = 1.05Formula 2 Average Collection Period1993 $306/(2921/365) = 38.241994 $411/(3477/365) = 43.151995 $606/(4519/365) = 48.95Formula 3 Debt Ratio1993 $415/919 = .451994 $785/1157 = .681995 $1188/1637 = .73