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Butler Lumber Case

Autor:   •  March 26, 2014  •  Case Study  •  1,007 Words (5 Pages)  •  1,548 Views

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Mr. Butler, CEO/President, does have multiple options on how to sustain the rapid growth of Butler Lumber Company. Although the company is profitable and the Balance Sheet and Income Statement are a reflection of a succeeding company, it has a deficiency of within the trade debt liability which hurts the company's cash flow.

Butler Lumber Company while profitable does need to seek alternative funding sources as it is outgrowing its current funding facility from Suburban National Bank of $250,000 (Two Hundred Fifty Thousand Dollars). With the sales forecasted at $3,600,000 (Three Million Six Hundred Thousand), which is an increase of just about one million dollars from the prior year, Butler Lumber will not be able to sustain a positive cash flow for the success of the business under its current funding facility. One of the main reason that Butler Lumber is in need of funding while profitable is because of the inability to take advantage of key discounts that are offered through paying the vendors in ten to fifteen days. With the extra cash on hand Butler Lumber could save the company around ten percent of its yearly trade debt.

The current Exhibits are the financials projections:

The above forecast shows the net income if we were to assume the $3,600,000 in sales and based all the projections off of a percentage of sales forecast. The 1993 and 1993 are based off of average increase from the years of 1988 through 1991.

The above forecast shows the balance sheet and the additional need for funds in the 1991 and the increase in needs for funds going forward. The company will need additional funds in the next three years of the forecast, but there are multiple ways to obtain the funding other than a bank loan with interest. It also does not show the saving within the trade debt that could be obtain through a positive cash flow.

The balance for Butler Lumber Company while strong, it does not show the discount taken for any trade debts because of the lack of cash, but a very strong equity position within the company.

Company Analysis

The company, while profitable, has a couple issues within the company which are hurting the cash flow of the company. There are parameters that could be improved to help the company's ability to sustain the rapid growth in the upcoming years. Below show some of the results from the sensitivity analysis conducted by changing some key parameters to help increase the company's financial liquidity.

The first parameter that could be changed which will have an impact on Butler's needs for funds would be the trade debt that company currently pays within thirty days. If the company was able to increase the cash to pay their trade debt within the time allotted to take advantage

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