'Clarkson Lumber Company Essay\r'

'(1) Background:\r\nCLC was founded in 1981 by Mr. Clarkson and brother-in-law Henry Holtz in the Pacific Northwest. The friendship has experienced rapid growth everyplace the recent years and it is anticipated to continue. Mr. Clarkson bought verboten Mr. Holtz for $200,000 to become the sole owner. This resulted in the contend of more cash inflow from the bank. blush with consistent profits, the lodge has suffered a dearth of cash and has borrowed pecuniary resource needed for military throw growth.\r\n(2) Major Problem(s):\r\nCLC’s current symmetry (formula 1) has deteriorated which led to a shortage of funds while still being profitable. The company’s come collection plosive speech sound (formula 2) and debt proportionality (formula 3) sire appendd which as well signals problems. CLC buys its stock-taking in large quantities from the suppliers in order to take emolument of a 2% carry on discount but has been unable to receive the discount out-o f-pocket to the increasing average collection current and inventory turnover.\r\n(3) Alternative Courses of Action:\r\ni. subscribe more bank commendation\r\nii. hack rate of growth to more sustainable level\r\niii. Reevaluate customers who can barter for on reliance\r\n(4) Brief abbreviation of Alternatives:\r\ni. CLC must improve their current ratio to ensure the bank it will have the ability to repay a big loan. ii. CLC has seen operating expense increase dramatically between 1993 and 1995. CLC needs to regard the come up of inventory to be held on strive and scale back operations if inventory turnover continues to increase. iii. Due to the increasing average collection flow, CLC needs to seriously reconsider allowing some customers to purchase on credit and do more thorough credit analysis. An increasing average collection period does not allow CLC to take advantage of the 10 day 2% trade discount.\r\n(5) Suggested Course of Action:\r\nCLC should seek to increase the $750,000 loan from the bank but with disgusting restrictions. The company should be required to focus accounts receivable and inventory and strict control of future investments to reduce cash outflow. decree 1: Current Ratio\r\n1993: $686/275 = 2.49\r\n1994: $895/565 = 1.58\r\n1995: $1249/1188 = 1.05\r\n code 2: Average Collection stream\r\n1993: $306/(2921/365) = 38.24\r\n1994: $411/(3477/365) = 43.15\r\n1995: $606/(4519/365) = 48.95\r\nFormula 3: Debt Ratio\r\n1993: $415/919 = .45\r\n1994: $785/1157 = .68\r\n1995: $1188/1637 = .73\r\n'