Clarkson Lumber Company is in retail dissemination of lumber products. It was founded by Mr. Clarkson and his brother-in-law, Henry Holtz in 1981. In 1994, Mr. Clarkson bought appear Mr. Holtzs stake for $200,000, payable in 4 semi-annual instalments from June 30, 1995 with interest @11% p.a. incorruptible has achieved good growth in gross revenue and profits during recent years, but is facing shortage of cash. It expects sales of $5.5 million during CY 1996 and would accept special loan over and to a higher place existing loan of $399,000 as on March 31, 1995. animated bank does not extend loan beyond $400,000 to any borrower. Another bank is considering to replace existing bank and allow for total loan of $750,000. We have analyzed financial side of meat of Firm in this background and also made projections for 1996. (See attachments).
Firm is currently facing cash flow problems due to several(prenominal) factors. Working slap-up subjoind substantially due to increase in sales and inefficient operational management resulting in high collection period and low inventory turnover. immediate payment outgo for payment to Mr. Holtz compounded the problem. Capital expenditure of $155,000 was incurred during blend in 2 years. Increase in invested capital reduced two IGR and SGR.
As sales growth rate was higher than IGR and SGR, profligate had to rely on trade credits and trade notes, likewise internal accruals and bank notes to finance its cash outflows.
Projections for 1996 are establish on information provided and other assumptions described in leap out sheets viz. all trade notes will be in full paid and trade credit of 10 days is for additional purchases made from April 1, 1996. Firm is projected to earn net income of $106,000 on targeted sales of $5.5 million with operating cash flow of $172,000 during 1996. It would need total invested capital of $1.621 million (cash - $77,000, net working capital - $1.104 million and fixed assets - $440,000) to achieve these sales. Considering net worth of $555,000 and existing...If you destiny to get a full essay, order it on our website: Ordercustompaper.com
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