Essay about Business Analysis

2283 Words Apr 1st, 2010 10 Pages
Financial Analysis and forcasting
Monica fernandes som 101
November 9, 2004
Prof. Pierre du jardin

Mr. George Dodge, Clarkson Lumber Company is doing well but there is the issue of whether or not there is too high a risk in granting the request for the $750,000 line of credit. There are many supporting strong points but it also has some problems to work out. This is a company that has many good characteristics and looks promising but needs the extra money to pay off loans, inventory, and supplies. I recommend this company to receive the line of credit.
Looking at the individual ratios seen in exhibit 1 and comparing it to the industry average shown in exhibit 2 gives a sense of where this company stands. Current ratio and
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Return on assets is also decreasing and less than industry average. For example, in 1995 it was 4.7%, less than the average of 6.3%. However, this also has a positive side. This means that the company has a lot of inventory, which is good on a selling standpoint, because it means there is a larger selection base available for the customers. This could bring in more customers because they can be more confident that the company has on hand what they need. The debt to equity ratio could be a problem. The debt to equity ratio is increasing and is more than double the industry average. In 1995, it was 265% compared to the average of 170%. The company has a lot of debt to deal with including paying the partner what is owed to him. However, there has never been a problem with paying the bills. All the references show that he is a good business man and is reliable. For the bank, as long as the loan is being paid the bank is happy and it appears that this company can handle paying the loan.
Inventory turnover is also decreasing and less than the average, but as stated previously, it is because the company has more inventory on hand to give their customers plenty of selection. For instance, in 1995, it was 5.83 times vs. the industry average of 8.1 times, but this gives them an advantage and gives

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