Butler Lumber Company Analysis

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Butler Lumber Company Analysis I. Conclusion Based on the information and corresponding financial statements provided, we concluded that: * Bulter Lumber Company has to collect money from outside resources to compensate its funding gap of 383,000 USD. * From the perspective of banker, we won’t approve Mr.Butler ‘s loan request * From the perspective of firm’s financial advisor, it is better to finance from new shareholders than to borrow from bank. II. Analysis i. Funding gap There are three main reasons why Butler Lumber Company has to finance itself through outside resources. Firstly, It was mentioned in the document that Butler is offered a trade discount by suppliers, which is 2/10 with 30 days span of due. However, Mr. Bulter had never been able to use such a discount because of the shortage of funds. Purchase of Stark’s shares and expansion of current business both contribute to the lack of cash. The inability to take advantage of trade discount directly lead to the increase in COGS and further lower down the company’s profitability despite the fact that sales is increasing (statistics shown in table 10). therefore, it would be a wise choice for Mr. Butler to fully utilize the discount to ease his pressure on liquidity and further lower costs to increase profitability. Secondly, the situation of operating efficiency in Butler Lumber Company is worrisome. As showed in table 6, past three years have seen a rise up in days of accounts receivable, from 36.7 to 40.2 days, indicating that for every one receivable dollar , the company needs 40.2 days to collect from customers. Consequentially, the same increase applies to days of accounts payable which is rising sharply from 37 to 47.9 days. It means that for every payable dollar, the company needs 47.9 days to pay back. This combine contributes to the inefficiency of operating

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