Clarkson Lumber Company

846 Words4 Pages
Clarkson Lumber Company 1. The main contributing factor would have to be that their sales have increased dramatically. There is a rapid growth increase in Clarkson Lumber’s account and notes payable in recent past. Also there is a shortage of funds arising from the purchase of Mr. Holt’z interest in the business and the additional investments in working capital associated with company’s increase in sales volume. The increases in receivables and inventories are major causes of the need for financing. Another factor is longer collection period on average from 94 it was 37 and 95 it was 42 a jump of 5 days. 2. In order to keep up with sales increase, Mr. Clarkson has to either issue more stock or borrow more money. Mr. Clarkson on the contrary to selling more stock has bought out his brother in laws share in the company. Mr Clarkson with careful control of operating expenses and by quantity purchases of materials at a larger discount has managed to meet the financial needs of the company. In addition, Clarkson had maintained this level of production by relying very heavily on trade credit. 2 B. 1993 94 95 96 Total liabilities 45% 68% 73% 72% / total assets Days payables 35 47 54 56 Current ratio 2.5 1.6 1.1 1.2 Clarkson Lumber Company position has weakened. Total liabilities as a % of assets increased considerably from 45% to 72%. Trade credit has been stretched from 35 days in 1993 to 56 days in 1996. Current ratio (CA/CL) has declined tremendously from 2.5 to 1.2. In addition, in the absence of improved profitability, continued sales growth will lead to a further weakening of Clarkson’s financial condition. 3. Mr. Clarkson’s idea is to increase profitability by taking advantage of suppliers’ discounts for early payment and in order to see if Mr. Clarkson’s theory is correct we have to test and see what would be the benefit of taking

More about Clarkson Lumber Company

Open Document