Butler Lumber Company

Butler Lumber Company
Estimating Funds Requirements (AFN)
Prepare a short report (2-3 pages) explaining Butler Lumber’s financial situation. You should consider
your audience to be Mr. Butler. Be sure to at least answer the following questions in your report and
support your argument with detailed financial models which you will provide to Mr. Butler (via e-mail to
Professor Tice) on the project due date along with the report that references your supporting data,
addresses the key questions in the case, and outlines a defensible recommendation that Mr. Butler can
use in discussions with his bankers. A hard copy of the report and financial analysis should be turned
in at the start of class on the due date.
Assignment:
1. Compute the relevant ratios for Butler Lumber Company for the years 1988-1990.
2. Prepare a Statement of Cash Flows for the aggregate period 1988-1990 (i.e., use the 1988 and 1990
balance sheets to compute the changes in balance sheet accounts).
3. Based on the work in questions #1 & #2, summarize your major findings. Address the firm’s
liquidity, debt management, profitability, asset management, and working capital position.
a. Identify any problem areas that you may see.
b. Use this analysis to determine why Butler Company is so short of cash despite its record of
profitable operations.
3. Do you agree with Mr. Butler’s estimate of the company’s loan requirements, including term and
total amount required? How much will he need to borrow to finance his expected expansion in
sales? (Assume sales will grow 18% each year in 1991 and 1992 and that Butler Lumber is at full
capacity).
a. Using 1990 ending balances as starting points, prepare the 1991 and 1992 year-end pro-forma
income statements and balance sheets under two scenarios:
i. They continue to rely heavily on trade credit (Accounts Payable) as a source of funds.
ii. They pay accounts payable promptly (in 10 days) in order to take advantage of the 2% trade
discount.
b. In choosing between the use of trade credit and bank loans as a source of funds, what should
this decision be based on? Be sure to explain this in your report.
4. As Mr. Butler’s Financial Advisor, recommend to Mr. Butler whether he go ahead with OR reconsider
his anticipated expansion and his plans for additional debt financing.
a. If you recommend going forward with the expansion, indicate if you anticipate that the bank will
approve his loan and explain any conditions (covenants) you think the bankers would put on this
loan.
b. Discuss relevant issues, recommendations, and any necessary changes in Mr. Butler’s business
practices your team identified through the analysis (including parts 1 through 4).
c. Identify the primary reason why Mr. Butler must borrow money to support this profitable
business. Provide specific solutions to help him solve this issue, including the appropriate loan
term and any additional sources of funding that he should consider.

FOR YOUR ASSIGNMENTS TO BE DONE AT A CHEAPER PRICE PLACE THIS ORDER OR A SIMILAR ORDER WITH US NOW