The butler lumber Co. is pressured to raise its bank’s funding owning to the expansion in demand and sales accompanied by low turnover. Students are required to decide on the reasons for the increased bank debt, compute the amount that needs to be borrowed, and evaluate the lucrativeness of the loan for the bank. A redrafted account of a previous case.Gives the students a chance to perform ratio analysis, financial forecasting, and evaluating financing alternatives.
Projected income statement for 1991 (thousands of dollars)
Projected balance sheet for December 31, 1991 (thousands of dollars)
How well is Butler Lumber doing? Why?
What has been the company’s financial strategy? Why does Mr. Butler have to borrow so much money to support this profitable business? Has he been managing his company’s cash flow wisely?
Do you agree with his estimate of the company’s loan requirements? How much will he need to borrow to finance his expected expansion in sales in 1991 (assume sales volume of $3.6 million)? How much will he need over the next several years?
Would you urge Mr. Butler to proceed with, or to reconsider, his anticipated expansion plans?