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Butler Lumber Finance Case

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Length: 1332 words (3.8 double-spaced pages)
Rating: Purple      
Price: $19.95
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Statement of firm’s position
Butler Lumber Company is looking for more cash due to a fast-paced lumber market and a shortage of funding. Their regular bank, Suburban National Bank, is not willing to expand their exiting loan to an amount greater than $250,000 without securing the loan with real property. Another loan is being offered by a second bank, Northrup National Bank, for $465,000, with the understanding that the previous loan would be rolled into the second. The interest on the new loan would be prime + 2%.
The co-founder, Mark Butler, owes a major note to the other original partner, who Mark bought out. He has a mortgage on his 12-year-old house and no other significant investments. Mark’s personal references indicate that he is hard-working and watches his business very closely.
Mark’s current outstanding debts are as follows:

Bank note for $247,000
Outstanding debt from trade partners $157,000
Accounts payable $343,000
Accrued expenses $51,000
Current portion of long-term debt $7,000
Long-term debt $43,000

Total liabilities $848,000

Net income is p...

... middle of paper ...

... two actions should actually help reverse the downward trend in profit margin.
Profitability Ratios. Again, all of these ratios are trending in a negative direction, as a result of the analysis presented above. Going forward with the proposed financing strategy would have two fundamental advantages. First, the debt would be carried at a lower interest rate which would reduce interest expense and improve earnings. Second, based on financial projections it is believed that 1991 will result in $33,000 available to reduce this short term debt.

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