Clarkson Lumber Essay Example

within a major city in the Pacific Northwest, held exclusive rights to land with railway siding where it had built four sizeable storage facilities. The business primarily focused on selling local lumber products such as plywood moldings and sash and door items from their standard product range. They often offered volume discounts and credit terms which extended net 30 days on an open account to their customers. Furthermore, they had issued a promissory note which bore an interest rate of 11%, with repayments scheduled bi-annually at $50,000, starting from June 30, 1995.

The company experienced substantial sales mainly due to successful cost competition, made possible by prudent management of operational costs and significant savings from purchasing materials in large quantities. A notable portion of the sales came from moldings, sash, and door products which are primarily used for repair services. Roughly 55% of the annual total sales were achieved within a six-month period from April to September. The company reported after-tax profits of $60,000 in 1993 with a yearly revenue reaching $2,921,000; In 1994, earnings amounted to $68,000 on a total revenue of $3,477,000 while profits hit $77,000 against a total income amounting to $4,519,000 in 1995.

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At 49 years old, Mr. Clarkson was a highly driven individual known for his long working hours. He had an assistant whose capabilities matched his own, as noted by the investigator from Northrup National Bank. This assistant could handle virtually all the tasks that Mr. Clarkson undertook within the organization. In early 1996, Mr. Clarkson's team included 15 members, with 8 working in the yard and driving trucks while the remaining seven assisted with office work and sales operations. As part of their normal vetting process for potential borrowers, Northrup National Bank sought more information about Mr. Clarkson by reaching out to various businesses that he had interacted with.

In a response penned by the manager of one of his major suppliers, the Barker Company, an appreciation for his prudent business operations was acknowledged. The manager admired the absence of unwarranted capital expenditures in the business, as demonstrated through his optimal operating costs. Having direct oversight of every aspect of his operations, his sound decision making and unmatched work ethic were also recognized. Alongside a commendable personality, this contributed to impressive sales. Drawing from personal observations of his workings, the manager confirmed that he also maintains a vigilant record of all his own credits.

The bank's position was backed up by all other commercial communications they received. The primary source of income for Mr. Clarkson came from his lumber business. He, along with his wife, had a shared equity in their house which was constructed for $72,000 in 1979 and presently has a mortgage

value of $38,000. Additionally, Mr. Clarkson had a life insurance policy promising Mrs. Clarkson a payout of $70,000. Independently, Mrs.Clarkson owned half the stake in a property estimated at approximately $85,000. They did not possess any other significant personal assets or investments. The bank paid particular attention to the state of business debt and current ratio.

The company's products consistently had a solid market presence, and the sales forecast looked positive. The bank examiner stated: "Sales are predicted to reach $5.5 million in 1996 and could exceed this figure if there is a substantial increase in lumber prices soon." On the other hand, it was recognized that a general economic downturn could slow down the growth rate of sales. However, Clarkson Lumber's sales were somewhat insulated from variations in the new housing construction sector due to its significant proportion of repair business.

Forecasting past 1996 was difficult, yet the expansion prospects for Clarkson Lumber's business were encouraging. The bank witnessed a rapid increase in the firm's accounts and notes payable, especially evident in 1995 and early 1996. Generally, trade purchases provided a discount of 2% if payments were settled within the first ten days after an invoice was issued. Account payments were expected at the invoiced price within thirty days; nonetheless, suppliers usually didn't mind minor payment delays. Over the previous two years, Mr.

In relation to his business transactions, Clarkson had availed only a minimal amount of purchase discounts. This was mainly due to the money shortage he experienced from procuring Mr. Holtz's share in the company and increasing the working capital in response to the company's growing sales volume. During

the spring season of 1996, he notably stretched out the trade credit as an attempt to limit his bank borrowing within the $400,000 cap set by Suburban National Bank. The financial status of the company during December 31, 1993, to 1995, as well as March 31, 1996, are displayed in Exhibit 2. Additionally, numeric facts related to a variety of lumber stores can be seen in Exhibit 3.