Essay on Clarkson Lumber

1187 Words Dec 28th, 2010 5 Pages
hult international business school | Clarkson Lumber Company | | | Adeeb Valiulla | 1/3/2011 |

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Summary
Experiencing rapid growth in business and generating fairly good profits, Mr. Keith Clarkson the sole owner and president of The Clarkson Lumber Company still faced a shortage of cash and found it necessary to increase his borrowings, he was therefore on a look-out to start off a new banking relationship where he could not only borrow a larger loan amount but also one that did not require a personal guarantee attached.
Suburban National Bank, Mr. Clarkson’s current bank was willing to offer him a loan amount to an extent of $ 400,000 which also called for a personal guarantee. Northrup National Bank, on the other
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term debt | $ 464 | Income tax Payable | $ - | Total Liabilities | $ 1,173 | Net Worth | $ 454 | Total Liability & Net Worth | $ 1,627 | Income Statement | FY - 1996 | Sales (Net) | $ 5,500 | COGS | $ 4,160 | Gross Profit | $ 1,340 | Operating Expense | $ 1,149.80 | EBIT | $ 190.20 | Interest Expense | $ 53.04 | EBT | $ 137.16 | Provision for Income Taxes | $ 22.25 | Net Income before tax | $ 114.91 | Net income | $ 114.91 |

* Accounts Payable = 364 – 364 = 0 * Long Term debt = 100 + 364 = 464 * Predicted Sales = $ 5.5 million * COGS = 5,500 * 75.64% (75.64% is the average % calculated on the basis of last 3 years) * Interest Expense = 13 + (364 * 11%) = 53.04 * Income Tax calculated based on “c” given in Exhibit 2 (= 22.25)

Statistics of Lumber Outlets Percent of Sales | High Profit Outlets | Calculated Ratios | COGS | 75.1% | 75.64% | Operating expense | 20.6% | 20.91% | Cash | 1.1 | 0.96 | AR | 12.4 | 10.60 | Inventory | 11.6 | 11.04 | Fixed assets, net | 9.2 | 6.98 | Total Assets | 34.3 | 30.0 | | | | Percent of Total Assets | | | Current Liabilities | 29.2% | 43.58% | Long Term Liabilities | 16.0 | 28.52% | Equity | 54.8 | 27.90% | | | | Current Ratio | 2.52 | 1.16 | Return on Sales | 4.3% | 3.46% | Return on Assets | 12.2% | 10.21% | Return on Equity | 22.1% | 25.31% |

| Loan Amount - $ 364, 000

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