Butler Lumber

Butler Lumber - ButlerLumber CaseAnalysis CompanyBackground

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Butler Lumber Case Analysis
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Company Background Butler used debt financing to buyout Stark’s share in 1989 Located in a growing suburb of a large city in the Pacific Northwest, Operations are limited to retail distribution of lumber products Products include plywood, moldings, and sash and door products Butler has strong personal references and limited personal assets Small staff and very low operating costs Margins are very small from very competitive pricing, resulting in the  growth rate realized in the past years
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Major Challenges 55% of sales come from April-September Seasonal cash needs Offer quantity discounts and credit terms of net 30 days on open accounts Not currently taking advantage of 2/10 discounts Effective interest rate of not taking advantage of these discounts is significantly  more than than the 10-12% of available debt Trade financing is needed as of 1991 in order to finance purchases for  continued sales growth This financing is needed because of $250K ceiling  Need to improve working capital situation, and Butler believes additional debt  is required New $465K loan with 10.5% rate is being negotiated Bottom line: Not enough cash to continue sustaining the tremendous  growth rate!
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Historical Financial Performance 1988 1989 1990 Q1 1991 Sales $1,697 $2,013 $2,694 $718 Growth Rate 18.62% 33.83% Cost of Goods Sold (as % of Sales) 72.01% 71.39% 72.38% 72.70% Gross Profit $475 $576 $744 $196 Net Income $31 $34 $44 $9
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Historic Balance Sheet 1988 1989 1990 Q1 1991 Cash $58 $49 $41 $31 Accounts receivable, net $171 $222 $317 $345 Inventory $239 $325 $418 $556 Total Current assets $468 $596 $776 $932 Property, net $126 $140 $157 $162 Total assets $594 $736 $933 $1,094 Notes payable, bank $0 $146 $233 $247 Notes payable, Mr. Stark $105 $0 $0 $0 Notes payable, trade $0 $0 $0 $157 Accounts payable $124 $192 $256 $243 Accrued expenses $24 $30 $39 $36 Long-term debt, current portion $7 $7 $7 $7 Total Current liabilities $260 $375 $535 $690 Long-term debt $64 $57 $50 $47 Total liabilities $324 $432 $585 $737 Net worth $270 $304 $348 $357 Total liabilities and Net Worth $594 $736 $933 $1,094
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Current Debt Long term loan taken on to purchase Mr. Stark’s share 
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This note was uploaded on 10/20/2010 for the course FINA 124 taught by Professor Ismaildalla during the Spring '10 term at GWU.

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Butler Lumber - ButlerLumber CaseAnalysis CompanyBackground

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