Corporate Finance Case Study
Autor: sunyulingogo • September 13, 2015 • Coursework • 1,225 Words (5 Pages) • 1,540 Views
Introduction
The Clarkson Lumber Company had faced shortage of cash despite of its good profit and fast growth in the recent year. The owner of the company, Mr. Clarkson is hard-working and keep little credit. The company was operated in a conservative way and had low operating cost. In this report, we would like to analyze the financial situation of the company and give some suggestions
- Analysis of financial situation of Clarkson Lumber Company
- The balance sheet of Clarkson Lumber Company from 1993 to 1996(first quarter)
[pic 1]
From the balance sheet, 1994 to 1995, the current asset and total asset experienced 39.55% and 41.49% increase, respectively. The growth of assets usually associates with the outflow of money. From liability part, the credit received from the bank increased dramatically, which correspondingly caused the growth of current liabilities. The growth in liability would bring money in the company, but also would bring more risk to the company.
- The income statement of Clarkson Lumber Company from 1993 to 1996(first quarter)
[pic 2]
From the income statement, the EBIT increased by 30% due the company’s growth in sales. However, because of the interest expense, the company’s net income only increased by 13.4%.
- The cash flow of Clarkson Lumber Company from 1994 to 1995
[pic 3]
From the cash flow, in 1994, the company had an outflow of $2,000 cash from operating, $29,000 outflow of cash from investing and $40,000 cash inflow from financing. In 1995, the company had an outflow of $80,000 cash from operating, $126,000 outflow of cash from investing and $210,000 cash inflow from financing.
- Specific Analysis of Inventory, A/R & Sales and PP&E
- Inventory
| 1993 | 1994 | 1995 | 1996 (1st Quarter) |
Inventory | 337 | 432 | 587 | 607 |
Inventory turnover | 6.5341 | 6.0972 | 5.8330 | 1.3163 |
Growth Rate of Inventory |
| 28.19% | 35.88% |
|
Inventory/Current Asset | 49.13% | 48.27% | 47.00% | 48.83% |
Inventory/Asset | 36.67% | 37.34% | 35.86% | 37.31% |
From the chart above, we can tell that from 1993 to 1995, the inventory increased at the rate of 28% and 36% respectively. The growth of inventory is associated with the rapid growth of Clarkson Company. But, the company’s expansion strategy may not fit in well with the market demand, which can be reflected in the decrease of inventory turnover. The drop of inventory turnover implies the company was having more inventory and sales was not good enough.
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