Retainer Lumber Example Solution

Butler Wood Case Study Solution

Options: The Butler Timber Company (BLC) could attain from Suv National Lender maximum loan of $250, 000 by which his property would be accustomed to secure the money. В Northrop National Bank is definitely considering BLC a line of credit (LOC) of up to $465, 000. В BLC will have to sever ties with Suv National in the event they were to obtain this LOC extended to them. В

| 1988| 1989| 1990| 1991Q1

EBITDA coverage (times)| 2 . 5| 2 . 26| 2 . 15| 2 . you

Debt Collateral Ratio| 0. 55| 0. 59| zero. 63| 0. 67

Current ratio| 1 . 80| 1 ) 59| 1 . 45| 1 . 61

Quick ratio| 1 . 37| 1 . 09| zero. 67| 0. 54

Come back on sales (margin)| 1 ) 8%| 1 ) 7%| 1 . 6%| 1 ) 7%

Go back on assets| 5. 2%| 4. 6%| 4. 7%| 4. 9%

Return upon equity| 14. 5%| 14. 2%| doze. 6%| eleven. 8%

If I were Mister. Butler's financial advisor, We would advise him to take the money in an attempt to grow the business. В One alarming fact about his business is definitely the lack of a sales staff, yet the earnings has been capable to grow for a fast tempo; 18% in 1989, 34% in 1990, 19% 20 years ago (projected). В By adding another experienced salesman that is employed by a base earnings plus commission payment, they can grow the income even more. В By having your husband work on commission payment, this will consume into the profit margin intended for the materials he is providing. В But the web impact to the BLC will probably be positive. В I would recommend Mr. Butler to select the LOC for about $465, 500 because he may take out as little as he requirements. В He doesn't have all $465, 000 this quarter, nevertheless he may will need some inside the first and last sectors of the yr because he obtains 55% of his revenues in the second and third quarters. В So it is intentionally important for him to have access to this capital because of the characteristics of his cyclical business. В

Like a banker, I might not offer BLC a LOC intended for $465, 000. В This is actually much for a company this size, and with these kinds of little collateral. В The financial institution officer was aggressive while using forecast that BLC could have revenues of $3. six...

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