Butler Lumber Company Case Study

Name of the business: Butler Lumber Company

Nature of business: Retail distribution of lumber products

Introduction

Butler Lumber Company is a thriving lumber distribution company that has experienced tremendous growth in the past several years. At the current time, I would advise Mr. Butler to hold off on expansion of the business and not accept the additional funds offered. While the numbers may not show that Butler Lumber is doing poorly, I am afraid that if additional funds are attained at this time, it could cause the liquidity problems facing Butler to compound over time. I believe that the level of assets needs to decrease as well as the debt ratio. In a couple of years, Mr. Butler can look into growth at that time.

My concern at this time is the loan terms that have been offered by Northrop National Bank. A 90-day line of credit for $465,000 seems to be just the fix that Mr. Butler is looking for. However, if you look at the financial ratios for Butler Lumber, you can see a disturbing trend. Butler Lumber needs to decrease the level of assets on hand and increase liquidity.

Marketing Analysis

Butler Lumber has seen an enormous growth in the volume of sales in the past several years. This sales growth is from a competitively low price, which Butler is able to attain because of the company's policy of buying in large quantities. Price and volume of sales do not seem to be a current concern for Butler.

Operations Analysis

Recently the company has experienced an increase in accounts receivable, inventory and fixed assets. Accounts receivable has increased from 171,000 in 1988 to 394,000 in 1991. Inventory increased from 239,000 in 1988 to 550,000 in 1991. Fixed assets increased from 126,000 in 1988 to 242 in 1991. All of