Contents
Executive summary- Introduction – Methodology, Case situation
- Root cause – Key issues facing the company
- SWOT analysis
- Ratio analysis – Liquidity, Leverage, Utilization & Profitability ratios
- Evaluating different scenarios
- Analysis of example of swot analysis of funding companies
- Recommendations on ratio analysis of finance companies
Exhibits on the company cases
Bibliography
Description
Butler Lumber Company, a growing profitable business has exhausted its credit limit and the key issues facing it are: a) Need for additional funds to expand b) Improve cash flexibility c) Need to consolidate debt. The Methodology adopted for case analysis is qualitative and quantitative in nature. SWOT analysis and Ratio analysis has been done to determine the financial position of BLC. It was found that though there are liquidity issues but BLC still has bright prospects considering the growing industry and target market i.e. the repairs market. Two scenarios have been evaluated. Scenario A: BLC does not opt for additional debt financing: Assuming BLC achieves sales of $ 3.6 Million, the projected income statement for December 31, 1991 shows Net Income of $58,000 and the projected Balance Sheet shows $ 69,000 available after meeting short term requirements for the year. Therefore it is a profitable business even without additional funding. Scenario B: BLC opts for additional debt financing: BLC will have more liquidity and can prepare for anticipated expansion. Debt consolidation is possible. Higher level of ownership can be maintained and BLC will get a lower interest rate. The risk is that the company will become highly leveraged and may fall into a debt trap. After evaluating the pros and cons, Scenario B is recommended as Mr. Butler needs a larger credit line of $378000 to expand and consolidate. From Mr. Dodge’s point of view, the loan should be approved based on anticipated sales, profitability and financial projections but must be backed by collateral and a check on Inventory turnover and Days Sales Outstanding must be applicable
