Answer the following questions on the [[Clarkson Lumber Company|/static/files/MBI/Module%2012/Clarkspm%20Lumber%20Company.pdf]] case:
1) How did clarcon finance his business in the past?
1) Retained earnings
* Loan from Holtz (not paying duties)
2) Trade credit
* Increased supplier credit
3) Bank credit
** Yearly loans from the bank from 1994 to 1996

2) Is this a profitable business?
3) Compute the average [[Cash conversion cycle]] for the company?
4) Prepare a loan estimate for the end of 1996 using a projected income statement and balance sheet
5) Calculate the debt ratio (total debt / assets, current and quick ratio as the banker is concerned about the firms liquidity
6) As a banker would you approve te loan?
Only under the condition that:
* You bring  down the Average collection period to ~40 days
* You increase the # days suppliers credit to ~45 days
* Bring down the cash conversion cycle
7) What would be your advice?

Inventory / Cost of Good sold
# days inventories: $\Large \frac{(Inventory\ begin\ -\ Inventory\ end)/2}{Cost\ of\ Goods\ Sold}$
# days accounts payable (average collection period (ACP):  $\Large \frac {accounts\ receivable}{sales} * 360$
# days suppliers credit: $\Large \frac {accounts\ payable}{purchases} * 360$

Very important question cash conversion cycle: how many days do you need to finance the difference between the accounts receivable and accounts payable?

See [[this|/static/files/MBI/Module%2012/Clarkson%20Lumber%20Company.xlsx]] spreadsheet for some of the calculations in the case.
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Sat, 08 Oct 2011 07:17:57 GMT
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dirkjan
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Sat, 08 Oct 2011 07:17:57 GMT
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dirkjan
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dirkjan