BUTLER LUMBAR COMPANY

COMPANY HISTORY
 The butler company began in 1981 as a partnership by Butler and
stark.
 Location in pacific northwest
 In 1988 business incorporated by Butler by buying out Starke’s
share for $105000.
 Business operating condition:-
i. Company owned land and building near rail road.
ii. Quality discount and credit terms of net 30 days offered to customer.
iii. Current operation retain distribution of lumbar in local area.
iv. Experiencing rapid growth and anticipates substantial increase in
sales
BUTLER PROPERTY FIGURE
Personal House $72000
Personal House is mortgaged for $38000

Insurance Policy $70000

House on Wife’s name $55000

Case background
 Butler lumbar in spring 1991.
 Butler buys out stark for $105000 by taking $70000 taken as bank
loan at interest rate of 11% repayable in quarterly installment at
$7000 over a period of 10 years.

Suburban national bank approach

 Maximum loan is of $247000
 Wants real collateral for its loans.
 So, he decide to switch the bank and also he wants larger loan that
would give him flexibility.
NORTHROP BANK AS AN ALTERNATIVE
 High cap on loans $4650000.
 The credit line would provide to him larger flexibility.

Terms of Northrop national Bank

 Secured 90 days note with limit of $465000.
 Maintaining the net worth working capital to an agreed level.
 Constraints on capital expenditure and withdrawing.
 Interest rate on floating basic at 10.5%
 Sales figure

1988 1989 1990 Expected 1991

Net Sales $1697 $2013 $2694 $3600

% Increase NA 18.62% 33.83% 29.92%

ASSUMPTION
based on the conservative forecast
 PROFITABILITY RATIO
Profitability Ratio Formula 1988 1989 1990

Profit Margin NI/Sales 1.83% 1.69% 1.63%

ROE NI/Total Equity 11.48% 11.18% 12.64%

ROA NI/Total Assets 5.22% 4.62% 4.72%

Decreasing trend is concern In profit margin.

SUGGESTION AS A BANKER

 Relying on trade credit, 2% 10 days , heavy need of cash

 Although sales are increasing: no plans of hiring manpower…. Can
lead to inefficiency
 Day sales A/R ratio decreasing
 Efforts on inventory management to check on stagnant inventory
SUGGESTION AS A BLC FINANCIAL
ADVISOR
 Increase in sales.
 Company relying heavily on borrowed funds.
 Use the money to pay the accounts payable.
CONCLUSION

 Butler Lumber Company was a profitable business

 Net income growing at slower rate than operating expenses
 Better inventory management will increase the cash fund and free
up the warehouses