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Butler Lumberjack

In: Business and Management

Submitted By waka123flaka
Words 494
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Suggestion as Butler’s financial advisor
Butler Lumber Company is on a growing path. It is evident from the case that the volume has been built due to successful price competition, careful control of operating expenses and purchases at substantial discounts. Even in case of an economic downturn its business is protected to a large extent as 55% of its sales are from the repair market. The company is growing at a good pace of 19%,
34% and 34% for the year 1989, 1990 and 1991 respectively. The data is tabulated below.

% increase in sales of Butler Lumber Company
Net Sales

1988
1697000
Increase
NA
% Increase NA
All amounts in $

1989
2013000
316000
18.621096

1990
2694000
681000
33.830104

Expected 1991
3600000
906000
33.63028953

1991 first quarter
718000

The company has a considerable amount of debt also which is tabulated below

Current outstanding debts of Butler Lumber Company
Particulars
Notes Payable, bank
Notes Payable, trade
Accounts payable
Accrued expenses

Year 1991
247000
157000
157000
36000

Total Debt
All amounts in $

597000

As his financial advisor I would suggest Mr. Butler to go for this loan amount. This would help in meeting the expansion and sustaining the growth of his company. Even though the operating expense for 1990 is 658000 and a purchase of 2042000 which is an increase of 34 % and 27.7 % over the previous year, respectively the growth is promising. The amount of $465000 might be needed in chunks and would help him repay a substantial amount of his debt.

Suggestion as a banker
As a banker I won’t sanction him this loan due to following reasons.
As mentioned in the case, “The maximum loan that Suburban National Bank would make to any one borrower was $250000,and Butler Lumber had been able to stay within this limit only by relying heavily on trade credit”. The company...

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