Sample Business Studies Case Study on Butler lumber

Sample Business Studies Case Study on Butler lumber

The growth of sales needs to be supported by increasing the PP&E.  The retained earnings are not enough to meet the assets demands imposed by the sales growth given that no substantial decline in cash conversion cycle and improvement in the operation efficiency. In this case borrowing money from the bank is an external financing source, which is more preferred since equity financing from private organizations needs a cash injection from owners and at this point, Mr. Butler is short of money. Another reason is that the cash ratio keep reducing and borrowing from the external financiers other than using three retained earnings is imperative. This way he will be able to maintain sufficient cash position. Lastly, extra cash from new loans can be used in trade payables repayment thus taking advantage of purchase discount given by the vendors, and the money can be used to consolidate long-term loans with a lower rate (“Case 91 – United States – Measures Affecting Imports of Softwood Lumber from Canada).

No, the money won’t be sufficient cover his financial requirement for the next one year, for the following reasons. If Mr. Butler enters into a new loan with the bank, he will have to pay off his local bank loan of $247,000. After paying local, national bank, he will be required to pay off the notes payable trade of $ 157,000. After the two transactions, Mr. Butler will be left with just $61,000 of the external financing. Considering the growth of Mr. Butler’s firm $61000 will not be sufficient to fund his increase on sales (“Case 91 – United States – Measures Affecting Imports of Softwood Lumber from Canada”).

The firm can solve cash shortages problem by taking 2% trade discount. When receiving the non-trade cut, the net income is $87k while taking trade discount the net income is $131k. Therefore the discount is very winning for the company (“Case 91 – United States – Measures Affecting Imports of Softwood Lumber from Canada).

 

 

Works Cited

“Case 91 – United States – Measures Affecting Imports of Softwood Lumber from Canada.” CASE SUMMARIES – CASE 001–020, pp. 1-5.