Clarkson Lumber’s Company Case Analysis
GROUP A: ANA GABRIELA SOTILLO JOHNSON FABIAN FREIHERR ON ROSEN I!RE IGNACIO S"A#AR$ GIL%CASARES RA$AN RA$AN SEIF SE IF STEFAN RA&ISALJEIC ERENA RIE&HART $ANIS $ANIS ALE!
IE business School Section 4 September 2014 Question 1. E!lu!te "l!r#son $umber%s &n!nci!l per'orm!nce. "!n (ou e)pl!in *h( "l!r#son borro*e+ so much o' mone( +urin, 1--/ 1-- +espite its positie pro&t!bilit(
Al'(ou)(* '(e In+ome S'a'emen' o, Clarkson Lumber seems pro-'able ,rom .//0 'o .//1 by )enera'in) posi'i2e ne' in+ome o, 34k an5 66k respe+'i2ely7 Fur'(er i' in+rease5 bo'( sales an5 ne' in+ome by 189 an5 :;9 2s7 .//0* bu' '(e +ompany (as a problem o, a li +omparin) 'o +urren' liabili'ies by 47337 Ano'(er ,a+'or ?(i+( (elps us un5ers'an5 '(e reason ,or s(or'a)e is Cas( Cy+le* ?(i+( +onsis's o, A2era)e Colle+'ion 5ays an5 A2era)e In2en'ory 5ays sub'ra+'e5 by A2era)e #aymen' 5ays7 T(is in5i+a'or is in+reasin) 5rama'i+ally by almos' .. 5ays in '?o years* be+ause o, in+rease o, Colle+'ion an5 In2en'ory 5ays by .3 an5 minor in+rease o, #ayables 5ays by 1 E)hibit 2 !n+ 3 7 T(e +(an)e in @orkin) Capi'al E)hibit 43 2ery +learly presen's '(e )rea'er in+rease o, re+ei2ables '(an payables* ?(i+( means '(a' '(e +ompany pays ,as'er '(an i's +us'omers pays 'o '(e +ompany7 T(ere,ore* a55i'ional sour+e o, -nan+in) s(oul5 be ,oun57 Fur'(er* i' is ?or'( men'ionin) '(a' 5eb'%'o%e
Question 2. Prep!re 'ull set o' &n!nci!l st!tements 5S6 IS6 "7S3 'or 1-- !ssumin, th!t it *ill ,ro* *ith 28 !nnu!l r!te *ithout purch!se +iscount none +iscount is t!#en3. Be,ore s'ar'in) prepara'ion o, -nan+ial assump'ions ?(i+( s(oul5 be +lari-e57
s'a'emen's
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Firs' o, all* '(e In+ome s'a'emen' (as an in+remen' by :19* bu' in'eres' an5 'a +al+ula'ion assump'ion is base5 on '(e +ase 5a'a7 Ta +al+ula'ion 'able is represen'e5 in E)hibit 97 Se+on5* To'al Asse's an5 Ne' ?or'( =E ?ill in+rease by :197 T(ere is no' enou)( in,orma'ion abou' 5epre+ia'ion '(ere,ore '(e +(an)e in ##E ?as assume5 'o be mainly be+ause o, in+rease in Cape7 A55i'ionally* no' all '(e liabili'y i'ems in+rease5 by :197 T(e lines ?i'( '(e in+remen' are '(e ,ollo?in) ones No'es payable* A++oun's payable* A++rue5 epenses7
A++or5in)ly* '(e +al+ula'ion o, ne' ?orkin) +api'al in+lu5es a++oun's payables an5 a++rue5 epenses as opera'ion liabili'ies sin+e ?e 5on’' ?an' 'o in+lu5e '(e loans ,a+'or ?i'(ou' -n5in) ou' '(e -nal amoun' o, s(or'%'erm loan7 Balan+e s(ee' an5 In+ome s'a'emen' are presen'e5 in E)hibit !n+ ?i'( '(e eplana'ion abou' '(e assump'ions an5 +al+ula'ions ne' 'o '(e i'ems7 Finally* be+ause o, la+k o, in,orma'ion abou' '(e 5epre+ia'ion Firm Free Cas( Flo? +al+ula'ion in+lu5es '(e +(an)e o, ne' ##E in Capi'al epen5i'ures7 Apar' ,rom '(is* 'akin) in'o +onsi5era'ion '(e ,a+' '(a' our 'ask is 'o -n5 ou' '(e loan nee5e5 ,or -nan+in) '(e +ompany’s opera'ion ?e 5i5n’' in+lu5e i' in +(an)e o, ne' ?orkin) +api'al7 &eb' +(an)e o, .//3 also 5oesn’' in+lu5e s(or'%'erm loan payable o, '(e bank7 Cas( Flo? Cal+ula'ions an5 Cas( o? S'a'emen' are presen'e5 in E)hibit 10 !n+ E)hibit 11 respe+'i2ely7 A++or5in) 'o our ,ore+as' '(e in+ome s'a'emen'’s ne' sales in+rease5 'o 173 million an5 Ne' In+ome 'o .4.7444 5ollars7 Fur'(er* a++or5in) 'o our +al+ula'ions o, 'a ra'e in Ta 'able '(e a2era)e 'a ra'e ,or .//3 is :37/;9* ?(ere -nal 'a is 067834 5ollars7 In'eres' ra'e is 187/44 5ollars ?(i+( is +al+ula'e5 base5 on '(e a2era)e ra'e o, pre2ious years 'imes +urren' loan an5 no'e 'o '(e ,ormer +o,oun5er !r7 Hol'D7 As a resul'* our To'al Asse's e
Question . ;o* much +oes "l!r#son nee+ to borro* in 1-- to coer his &n!nci!l nee+s @(ile preparin) Balan+e S(ee' an5 In+ome S'a'emen' i' be+omes +lear '(a' ea+( a++oun' +an be es'ima'e5 e+ep' No'es payable* bank7 T(is is '(e a++oun' '(ere '(e ne? loan s(oul5 be in'ro5u+e5* ?(i+( is nee5e5 -rs' o, all ,or business opera'ions an5 'o rea+( a 'ar)e' o, 173 million sales an5 se+on5 'o +o2er pre2ious loan o, 0//7444 an5 !r7Hol'D’s No'e o, .4474447 As men'ione5 abo2e '(e liabili'ies o, '(e +ompany ,or .//3 are .78;1 million 5ollars ?(i+( in+lu5e 2.00 +oll!rs o, bank +re5i' nee5e5 'o +o2er '(e pre2ious loan* !r7 Hol'D’s no'e an5 business opera'ion epenses 'o rea+( a ,ore+as'e5 sales 'ar)e' o, .//37
Recommen+!tion Takin) '(e loan ,rom '(e ne? bank +an mean a (u)e amoun' o, +on'rol by '(e '(ir5 par'y on '(e business ,or '(e amoun' '(a' e+ee5s our nee5s7 T(us* '(e amoun' o, 6147444 5ollars no'e is no' re
A55i'ionally* Cos' o, Goo5s Sol5 is 619 o, Sales* ?(i+( is rela'i2ely (i)( an5 our re+ommen5a'ion is minimiDe a +os' o, '(e pro5u+'s ?i'(ou' 5e+reasin) '(e
Quic# r!tio ch!rt: E)hibit 1
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"h!rt: E)hibit
=ebt/to/E>uit( r!tio ch!rt: E)hibit
A++ition!l r!tios t!ble: E)hibit
?!) c!lcul!tion t!ble: E)hibit 9 Income St!tement: E)hibit 5!l!nce Sheet: E)hibit -
7ree "!sh 7lo* ?!ble: E)hibit 10
"!sh 7lo* St!tement: E)hibit 11
