Clarkson Lumber Company Analysis

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Clarkson Lumber Company Analysis

Naiheng Chen, Willy Siewe, Zongyuan Sui

Loan purpose and request

Clarkson Lumber Company, privately held company, in spite of the fact that it experienced a rapid growth in sales in the previous years, has difficulty, maintaining sufficient cash to sustain its expected growth in sales in the following years. This situation has forced Mr. Clackson, owner and management of the firm, to resort to Suburban National Bank in the hope of increasing his previous borrowing to $ 399 000. we suggest to prove the asset based lending, 60-days revolving loan with a maximum amount of $800,000, or 80% of total account receivable value plus 55% of total inventory value whichever is lower. Interest rate should be a floating rate plus to 2 percentage points.

Customer Relationship

     Clarkson Lumber Company through its owner has maintained a dependable and reliable relationship with the Suburban National Bank. Mr. Clackson, the owner, is a dedicated manager and has allowed its company to keep its obligations over the bank, thus managing to keep the company’s loan within the limit. Nonetheless, the old harmonious relationship between the two institutions is getting distant since Mr. Clarkson is reluctant about guaranteeing the new loan personally.

Business and Strategy

     Character: Mr. Clackson, owner and management of Clackson Lumber Company, surrounded himself with 16-men a group of loyal, competent and goal-driving professions divided between the office and the yard. Including a well-trained and dedicated assistant able to assume the management role whenever needed. Mr. Clarkson himself is known for incredible hard ethic. Although conservative when it comes to operations of his business, his great personality, sounds judgment and strive are praised by his peers. These qualities are also reflected on the Mrs. Clarkson’s personal life. Being the sole owner of the company, his reputation could have been tainted if his personal financial history was slack or delinquent. Which is the case.  

     Capacity: Clarkson Lumber Company runs a lean operation that allowed them to be successful because of the competitive prices. They met their financing needs by increasing their debt (notes payable) to cope with demand. Nonetheless, borrowing has also led the company to an increase in sales. Net sales increased about 63% from 1993 to 1996. By using the leverage, they have been able to maintain their cash flow and preserve a reasonable ratio of more than 1.0. The company has made significant investments that have proven capable of giving a higher yield, which will have a significant impact on the long term. By doing this, they will continue to have the ability to pay interest to debtholders, repay debtholders, and buy short-term investments. Based on this analysis, we believe the estimate for loan needs is light and it would be in the best interest to continue rolling the $ 390 000 due to Suburban National Bank on the credit line. With the increased sales projection, you are also seeing an increase in cost of goods sold. However, this number could be significantly reduced if the company takes advantage of the 2% discount for payments made within 10 days of the invoice date. If the total cost of goods is for example $ 1 million in 1996, this cost could be reduced by o $ 20,000 just by taking advantage of the 2% reduction. Have quick access to capital will allow the company to manage their business more effectively.