Cartwright Lumber Company Case

Cartwright

Cartwright Lumber Company

Local Distributor of Wood Based Products

Marketing Analysis

Mark Cartwright and Henry Stark opened up Cartwright Lumber Company in 1994. The company is based in a large city in the Pacific Northwest. Most of the company’s distribution was in the local area. Recently in 2004 Cartwright had to borrow money to be able to meet higher sales for the company. However, more money is needed to be able to meet the anticipated sales growth for the future. Cartwright is considering a larger loan that would allow Cartwright Lumber Company to meet any cash needs of the future. I recommend going ahead with the expansion, but for Cartwright to pay for it in house.

Operating Activities

Cartwright Lumber Company had been borrowing money to allow it to realize greater net income. Part of this is due to the fact that Cartwright Lumber Company has been taking longer to collect their account receivables than pay their accounts payable, 58 days compared to 47 days in 2004. If Cartwright were to begin collecting sooner and deferring payment later Cartwright would be able to make the amount needed for borrowing begin to decline.

Cartwright should also look into trying to improve their inventory conversion period. In 2001, it was about 70 days since then it has gone up to a projected 81 days in 2004. If Cartwright was able to cut this back down to 70 days and improve on their cash conversion cycle they may not need a larger note instead funding the $87,000 needed in 2004 by themselves.

Financial Activities

Cartwright has used leverage to his advantage allowing his company to realize greater net income than they would have otherwise. The real problem of concern is that while Cartwright is