Butler Lumber Analysis Essay Example

equal a yearly interest rate of about 36%.

Therefore, in general, trade discounts should always be taken by businesses, but due to fund restrictions Mr. Butler was never able to use these advantages. Instead Accounts Payable were paid only after 46 days in both 1989 and 1990. Assuming an amount of purchases of $ 2. 73 million as above, the most beneficial level of outstandings of AP (just 10 days in order to make use of all trade discounts) would be only $76T.

Considering this change in payment mentality, the funds requirement from a loan would calculate as follows (last column) and is to the amount of a total loan of $614T: [pic] 4) As the company’s expansion exceeded sustainable growth rates already in the past years, a financial advisor should inform Mr. Butler of measures he needs to take in line with the expansion. As Butler Lumber would need to increase profit margin, asset turnover and equity multiplier, he could possibly increase prices or increase financial leverage by taking in another partner.

Also he should use better AR management. Bankers might not be compelled to lend to companies with very low current and quick ratios (like Butler Lumber), as these low ratios do not indicate a good ability to repay loans.

Apart from the conditions already mentioned in the case, Northrop National Bank will also have an interest in limited growth of Butler Lumber, so they might also suggest some of the measure above in order to raise the sustainable growth rate.