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    Clarkson Lumber Case Analysis

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    Sharon Rasheed
    Clarkson Lumber Company saw steady growth in net sales and profits from 1993 to 1995. Operating expenses remained around 20-21% of net sales on average. Inventory levels and accounts receivable increased due to higher sales volumes and longer collection periods. Current liabilities also increased due to higher purchases and slower payment terms. Projections for 1996 estimate further sales growth to $5.5 million with net income increasing to around $125,000. Current assets and liabilities are also projected to rise to support the increased operating activity.

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    Clarkson Lumber Case Analysis

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    Sharon Rasheed
    4K views7 pages
    Clarkson Lumber Company saw steady growth in net sales and profits from 1993 to 1995. Operating expenses remained around 20-21% of net sales on average. Inventory levels and accounts receivable increased due to higher sales volumes and longer collection periods. Current liabilities also increased due to higher purchases and slower payment terms. Projections for 1996 estimate further sales growth to $5.5 million with net income increasing to around $125,000. Current assets and liabilities are also projected to rise to support the increased operating activity.

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    Clarkson Lumber Case analysis

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    Clarkson Lumber Company saw steady growth in net sales and profits from 1993 to 1995. Operating expenses remained around 20-21% of net sales on average. Inventory levels and accounts receivable increased due to higher sales volumes and longer collection periods. Current liabilities also increased due to higher purchases and slower payment terms. Projections for 1996 estimate further sales growth to $5.5 million with net income increasing to around $125,000. Current assets and liabilities are also projected to rise to support the increased operating activity.

    Copyright:

    Attribution Non-Commercial (BY-NC)
    Download as XLS, PDF, TXT or read online from Scribd
    Download as xls, pdf, or txt
    4K views7 pages

    Clarkson Lumber Case Analysis

    Uploaded by

    Sharon Rasheed
    Clarkson Lumber Company saw steady growth in net sales and profits from 1993 to 1995. Operating expenses remained around 20-21% of net sales on average. Inventory levels and accounts receivable increased due to higher sales volumes and longer collection periods. Current liabilities also increased due to higher purchases and slower payment terms. Projections for 1996 estimate further sales growth to $5.5 million with net income increasing to around $125,000. Current assets and liabilities are also projected to rise to support the increased operating activity.

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    Download as xls, pdf, or txt
    of 7

    Butler Lumber Company

    CLARKSON LUMBER COMPANY


    Exhibit 1: Operating Expenses for Years Ending December 31, 1993-1995, and
    for First Quarter 1996 (thousands of dollars)

    1993
    Net sales
    Cost of goods sold:
    Beginning inventory
    Purchases
    Ending inventory
    Total cost of goods sold
    Gross Profit
    Operating expenses
    Interest expense
    Net income before income taxes
    Provision for income taxes
    Net income
    See notes to case exhibit 1.

    1994

    1995

    1st Qtr
    1996

    $2,921

    $3,477

    $4,519

    $1,062

    $330
    $2,209
    $2,539
    $337
    $2,202
    $719
    $622
    $23
    $74
    $14
    $60

    $337
    $2,729
    $3,066
    $432
    $2,634
    $843
    $717
    $42
    $84
    $16
    $68

    $432
    $3,579
    $4,011
    $587
    $3,424
    $1,095
    $940
    $56
    $99
    $22
    $77

    $587
    $819
    $1,406
    $607
    $799
    $263
    $244
    $13
    $6
    $1
    $5

    Butler Lumber Company

    CLARKSON LUMBER COMPANY


    Ex. 2: Balance Sheets at December 31, 1993-95, and March 31, 1996 (thousands of dollars)

    1993

    1994

    1995

    1st Qrtr
    1996

    Cash
    Accounts receivable, net
    Inventory
    Current assets
    Property, net
    Total assets

    $43
    $306
    $337
    $686
    $233
    $919

    $52
    $411
    $432
    $895
    $262
    $1,157

    $56
    $606
    $587
    $1,249
    $388
    $1,637

    $53
    $583
    $607
    $1,243
    $384
    $1,627

    Notes payable, bank


    Notes payable, Holtz (current)
    Notes payable, trade
    Accounts payable
    Accrued expenses
    Term loan, current portion
    Current liabilities
    Term loan
    Note payable, Mr. Holtz
    Total liabilities
    Net worth
    Total liabilities & net worth

    $0
    $0
    $0
    $213
    $42
    $20
    $275
    $140
    $0
    $415
    $504
    $919

    $60
    $100
    $0
    $340
    $45
    $20
    $565
    $120
    $100
    $785
    $372
    $1,157

    $390
    $100
    $127
    $376
    $75
    $20
    $1,088
    $100
    $0
    $1,188
    $449
    $1,637

    $399
    $100
    $123
    $364
    $67
    $20
    $1,073
    $100
    $0
    $1,173
    $454
    $1,627

    See notes to case exhibit 2.

    CLARKSON LUMBER COMPANY


    Selected statistics: 1993 through 1995
    1993

    1994

    1995

    Average

    Percent of sales
    Purchases
    Cost of goods sold
    Operating expenses
    Cash
    Accounts receivable
    Inventory
    Fixed assets (net)
    Total assets

    75.6%
    75.4%
    21.3%
    1.5%
    10.5%
    11.5%
    8.0%
    31.5%

    78.5%
    75.8%
    20.6%
    1.5%
    11.8%
    12.4%
    7.5%
    33.3%

    79.2%
    75.8%
    20.8%
    1.2%
    13.4%
    13.0%
    8.6%
    36.2%

    77.8%
    75.6%
    20.9%
    1.4%
    11.9%
    12.3%
    8.0%
    33.7%

    Percent of total assets


    Current liabilities
    Long-term liabilities
    Equity

    29.9%
    15.2%
    54.8%

    48.8%
    19.0%
    32.2%

    66.5%
    6.1%
    27.4%

    48.4%
    13.5%
    38.1%

    Current ratio
    Return on sales
    Return on assets
    Return on equity

    2.49
    2.1%
    6.5%
    11.9%

    1.58
    2.0%
    5.9%
    18.3%

    1.15
    1.7%
    4.7%
    17.1%

    1.74
    1.9%
    5.7%
    15.8%

    CLARKSON LUMBER COMPANY


    Sources and Uses of Funds, 1993 - 1995, (thousands of dollars)
    1993 to 1994

    1994 to 1995

    Sources of Funds:
    Retained Earnings
    Increase in Trade Payables
    Increase in Accrued Expenses
    Increase in Bank notes payable
    Total Sources

    1993 to 1995

    $68
    $127
    $3
    $60
    $258

    $77
    $163
    $30
    $330
    $600

    $145
    $290
    $33
    $390
    $858

    16.9%
    33.8%
    3.8%
    45.5%
    100.0%

    Uses of Funds:
    Increase in Cash Account
    Increase in Accounts Receivable
    Increase in Inventory
    Increase in Fixed Asset Account
    Buyout of Mr. Holtz
    Decrease in Long Term Debt
    Total Uses

    $9
    $105
    $95
    $29
    $0
    $20
    $258

    $4
    $195
    $155
    $126
    $100
    $20
    $600

    $13
    $300
    $250
    $155
    $100
    $40
    $858

    1.5%
    35.0%
    29.1%
    18.1%
    11.7%
    4.7%
    100.0%

    CLARKSON LUMBER COMPANY


    Cash from Operations, 1993 - 1995, (thousands of dollars)

    Cash From Operations:


    Retained Earnings (=WC from Operations)
    Less:
    Change in Accounts Receivable
    Change in Inventory
    Plus:
    Change in Trade Payables
    Change in Accrued Expenses
    Equals:
    Cash from Operations
    Sources of Cash:
    From Operations
    From Bank Loans
    Total Sources of Cash
    Uses of Cash:
    For Fixed Assets
    For LTD Paydown
    For Paydown of buyout debt
    Total Uses of Cash
    Change in Cash Holding:

    1993 to 1994

    1994 to 1995

    1993 to 1995

    $68

    $77

    $145

    $105
    $95

    $195
    $155

    $300
    $250

    $127
    $3

    $163
    $30

    $290
    $33

    ($2)

    ($80)

    ($82)

    ($2)
    $60
    $58

    ($80)
    $330
    $250

    ($82)
    $390
    $308

    $29
    $20
    $49

    $126
    $20
    $100
    $246

    $155
    $40
    $100
    $295

    $9

    $4

    $13

    CLARKSON LUMBER COMPANY


    Cash to cash cycle (dollars)
    Change from
    1993 to 1995
    $4,378
    10.7
    (0.7)
    $3,753
    4.2
    16.1
    (1.2)

    1993
    $8,003
    38.2
    6.5
    $6,052
    55.7
    35.2
    58.7

    1995
    $12,381
    48.9
    5.8
    $9,805
    59.9
    51.3
    57.5

    Increase in AR due to
    Increased Average Collection Period:
    Increased Sales:

    $306,000

    $606,000

    $300,000
    $85,707
    $214,293

    Increase in Inventory due to


    Reduced Inventory Turnover:
    Increased Sales:

    $337,000

    $587,000

    $250,000
    $25,303
    $224,697

    Increase in Payables due to


    Slower Payment:
    Increased Purchases:

    $213,000

    $503,000

    $290,000
    $97,457
    $192,543

    Increase in Net Working Assets due to


    Reduced Activity Ratios:
    Increased Operating Activity:

    $430,000

    $690,000

    $260,000
    $13,553
    $246,447

    Average Daily Sales


    Average Collection Period: (AR Days)
    Inventory Turnover
    Average Daily Purchases
    Days of Inventory
    Days of Payables (Trade Notes and Accounts)
    Days Cash to Cash:

    CLARKSON LUMBER COMPANY


    Projected income statement for 1996 (thousands of dollars)
    1996
    Net sales
    Cost of goods sold:
    Beginning inventory
    Purchases (77.8% of sales)

    $5,500
    $587
    $4,279
    $4,866
    $708
    $4,158
    $1,342
    $1,150
    $193
    $69
    $91
    $171
    $46
    $125

    Ending inventory
    Total cost of goods sold (75.6% of sales)
    Gross Profit
    Operating expenses (20.9% of sales)
    Operating Profit
    Purchase Discounts*
    Interest expense**
    Net income before income taxes
    Provision for income taxes
    Net income
    *Assume purchase discounts of 2% taken on all purchases after April 1, 1991.
    **11% on the average outstanding balance.

    Projected balance sheet for December 31, 1996 (thousands of dollars)


    1996
    Assets:
    Cash (1.4% of sales)
    Accounts recievable, net (11.9% of sales)
    Inventory
    Current Assets
    Property, net (dollar amount)
    Total Assets

    $77
    $655
    $708
    $1,440
    $410
    $1,850

    Liabilities:
    Accounts payable (10 days of purchases)
    Accrued expenses (1.5% of sales)
    Long-term debt, current portion
    Bank note payable (plug)
    Current Liabilities
    Long-term debt
    Total Liabilities
    Net worth
    Total Liabilities plus net worth

    $117
    $83
    $20
    $976
    $1,196
    $80
    $1,276
    $574
    $1,850

    Balance (Assets - Liabilities plus net worth)

    $0

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