...Overview When Cartwright Lumber Company was originally founded, it was owned by both Mark Cartwright and Henry Stark. However, Cartwright bought out Stark’s interest for $105,000 and became sole owner of the company. To finance this payment, Henry took out a $70,000 loan with an interest rate of 11% secured by land and buildings payable over 10 years at a rate of $7,000 each year. was located in a suburb of a large city in the Pacific Northwest; its operations were limited to the retail distribution of lumber products in the local area. In 1994, Cartwright Lumber Company was established as a partnership by Mark Cartwright and his brother-in-law Henry Stark. However, in 2001, Cartwright brought out Henry’s interest for $105,000 and incorporated the company. About 55% of the total sales of Cartwright Lumber Company were made in the six months from April through September. There were no sales representative; orders were taken exclusively over telephone. Sales volume had been largely on the basis of successful price competition, made possible by careful control of operating expenses and by quantity purchases of material at substantial discounts. Besides, good relationship with suppliers and high loyalty of employees contributed to its success. Cartwright Lumber Company’s financial status was promising; from 2001 to 2004, they experienced an average sales increase rate of about 29.7% yearly. However, debt existed. In order to buy off Stark’s interest, Cartwright got a loan of...
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...Cartwright Lumber Company Local Distributor of Wood Based Products Marketing Analysis Mark Cartwright and Henry Stark opened up Cartwright Lumber Company in 1994. The company is based in a large city in the Pacific Northwest. Most of the company’s distribution was in the local area. Recently in 2004 Cartwright had to borrow money to be able to meet higher sales for the company. However, more money is needed to be able to meet the anticipated sales growth for the future. Cartwright is considering a larger loan that would allow Cartwright Lumber Company to meet any cash needs of the future. I recommend going ahead with the expansion, but for Cartwright to pay for it in house. Operating Activities Cartwright Lumber Company had been borrowing money to allow it to realize greater net income. Part of this is due to the fact that Cartwright Lumber Company has been taking longer to collect their account receivables than pay their accounts payable, 58 days compared to 47 days in 2004. If Cartwright were to begin collecting sooner and deferring payment later Cartwright would be able to make the amount needed for borrowing begin to decline. Cartwright should also look into trying to improve their inventory conversion period. In 2001, it was about 70 days since then it has gone up to a projected 81 days in 2004. If Cartwright was able to cut this back down to 70 days and improve on their cash conversion cycle they may not need a larger note instead funding the $87,000 needed in...
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...Cartwright Lumber Company was founded in 1994 as a partnership by Mark Cartwright and Stark. In 2001, Cartwright incorporated the business. The business was located in a large city in the Pacific Northwest and operated in retail distribution of lumber products such as plywood, moldings, sash and door products. We think that there are four key factors involved in their success. First is competitive customer policy, they offered their customers by quantity discounts and credit terms. Second is their good relationship with suppliers, which can be seen from Bark and other suppliers' opinion in Banks customary investigation. Third is their conservative operation with low operation cost and proportionate plant investment. What's more, Cartwright was a energetic person, hard working with sound judgment, and his good credit help his business successfully. From operational standpoint, company is doing well on basis of successful price competition, careful control of operating expenses and by quantity material purchases at substantial discounts. Telemarketing is also an essential part for its well operation. Mr. Cartwright must borrow great amounts of money from the bank. The most influential reason is that sales are increasing significantly with short available funds, which leads to higher cost of goods sold so that firm needs more external financing to pay various fees. According to balance sheet, the Current Ratio is approximately 1,40 (932/690) and the Quick Ratio is around 0,50...
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...1. Why has Cartwright Lumber borrowed increasing amounts despite its consistent profitability? Cartwright lumber has had to borrow substantial amounts of money due to the fact that the firm is a growing company with sales rising quickly. In order for the company to sustain this growth rate, they will have to get additional external funding. Growth in sales nearly doubled from 2001 to 2003, with a percentage growth of 18% and 34% in 2002 & 2003 respectively. While sales are growing steadily, the company’s cash is steadily decreasing year to year by 20% and 17% in 2002 and 2003. Taken together with the fact that accounts receivable has grown at a higher rate than sales, 30% & 42%, this firm can not support the growing sales relying on its assets. The DSO ratio for accounts receivable is 36.28, 39.70 & 42.36 in 2001, 2002, and 2003 respectively. With credit terms of 30 days, the DSO is showing that on average customers are not paying on time and year to year they are paying increasingly later. All these factors combined demonstrate poor management of the firm’s assets. This is the reason why the firm is primarily relying on its debts to sustain the increase in sales growth. 2. How has management met the financing needs of the company? Has the financial strength of the company improved or worsened? In an effort to sustain the increase in sales, management has continually raised funding through borrowing from both the bank & its suppliers. The firm has...
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...BFIN 4253 – ADVANCED CORPORATE FINANCE “Cartwright Lumber” Case Assignment Case: “Cartwright Lumber Co.” HBS Case #9-204-126, Rev 3/04. Main Question: As Mr. Cartwright’s financial advisor, would you urge him to go ahead with, or to reconsider, his anticipated expansion and his plans for additional debt financing? • He should take the LOC and use trade discounts o Satisfies fund requirement o No collateral o More flexible trade credit limit Additional Questions: 1. Why does Mr. Cartwright have to borrow so much money to support his profitable business? • needs to sustain business and grow in the coming year • increase in inventory and accounts receivable, has not been able to generate cash and A/R ratio and inventory ratio shows taking longer to collect money and holding inventory for longer period • Internal growth rate – 4.72% (44/933) end of 2003 o highest level of growth can achieve without outside financing • Firms sales total growth of 33% o sales are growing almost 10 times faster than internal growth would allow • Sustainable growth rate is highest growth a firm can sustain without the need to increase its financial leverage o Takes into account existing external financing it already has o 12.6% (44/348) much lower than its increasing sales 2. Do you agree with Mr. Cartwright’s estimate of the company’s loan requirements? How much will he need to finance the expected expansion of sales to $3.6 million in 2004? • Yes ...
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...For Cartwright Lumber case: a. Why does Mr. Cartwright have to borrow so much money to support this profitable business? The company does not have enough funds, it has a cash flow problem, and cash from operating activities are negative in the past few years. He purchased the business with debt and is relying heavily on debt financing ever since. AR and Inventory turnover days are too long and that is not effective on an operational stand point. b. Do you agree with his estimates of the company's loan requirements? How much will he need to borrow to finance his expected expansion in sales (assuming 2004 sales volume of $3.6 million). We have concluded that Butler Lumber will need additional funding of $419,000 under the current payables policy. c. Would you advise Mr. Cartwright to go ahead with his anticipated expansion and his plans for additional debt financing? Yes, I recommend Mr. Cartwright to get a loan from Northrop Bank for $419, but also keep a good relationship with Suburban bank to get more loans in the future. d. As Mr. Cartwright's banker, would you approve his loan request, and if so, what conditions would you put on the loan? Northrop Bank should grant Mr. Cartwright’s loan, because he meets 5C’s criteria. Character: Per the inquiries from Northrop National Bank, Cartwright is a smart hard working business man with a good judgment, Capital: net capital increased from 2001 $270 to 2002 $304 to 2003 $348, which is a good sign. Collateral:...
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...Caso Cartwright Lumber Company 1. ¿Cómo se podría caracterizar la situación económico-financiera de Cartwright Lumber Co.? Antes de expresar una primera opinión general acerca de la situación económico financiera de Cartwright, realicemos un análisis visual de la misma. Este análisis previo nos dará un marco de referencia de la actividad de la empresa y de aquellas magnitudes que más llamativas son. • Ventas y Clientes A primera vista y analizando las magnitudes más representativas de la sociedad, podemos observar un crecimiento sostenido de las ventas de la compañía desde que tenemos datos económicos. Este crecimiento se desacelera en el ejercicio económico 2004 con respecto a los precedentes, y ello puede ser debido, posiblemente, a que cada vez es más difícil mantener ritmos de crecimientos constantes, ya que ello supone incrementos en unidades económicas muy mayores cada ejercicio. El principal motivo del crecimiento de las ventas es debido a lo competitivo del mix calidad precio de Cartwright. Esto es así por dos razones principales: los descuentos obtenidos por rappels en las compras de materias primas (muy cuantiosas para aprovecharse de estos descuentos) y una política de control rígido de los gastos que ha permitido contener los costes fijos de la sociedad estables en el tiempo. En cuanto a los clientes a los que vende poco podemos decir del número y de su tamaño, aunque por la información que nos ofrece el caso, dado que buena parte de las ventas son para reparaciones...
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...1 ) Mr. Cartwright has to borrow substantial amounts of money due to various reasons. The most influential reason is probably the fact that the firm’s sales are rising rather fast compared to available funds. This leads to higher cost of goods sold and means that the firm needs more and more external financing to pay its invoices. Cartwright Lumber Company’s current ratio and quick ratio’s stand by this fact. The Current Ratio is approximately 1,40 (932/690) and the Quick Ratio is around 0,50 ((932-556)/690). The Current Ratio seems to be on an adequate level but the Quick Ratio can be considered to be alarming. This is because the company has such a large inventory. The Quick Ratio is considered to give a more realistic picture of the firm’s short-term financing ability because inventory can’t necessary be realized to liquid funds. The poor status of these ratios leads to the situation where the company can’t use the offered purchase discounts. The Internal growth rate of a company is the highest level of growth it can achieve without outside financing. Cartwright Lumber’s Internal growth rate is 4,72 % (44 / 933) at the end of 2003. The firm’s sales are predicted to increase to 3,6 million from 2,7 million in2004, which is a total growth of 33%. Thus the sales are growing almost 10 times faster than the internal growth rate would allow. The sustainable growth rate is the highest growth rate a firm can sustain without the need to increase its financial leverage. The sustainable...
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...1 ) Mr. Cartwright has to borrow substantial amounts of money due to various reasons. The most influential reason is probably the fact that the firm’s sales are rising rather fast compared to available funds. This leads to higher cost of goods sold and means that the firm needs more and more external financing to pay its invoices. Cartwright Lumber Company’s current ratio and quick ratio’s stand by this fact. The Current Ratio is approximately 1,40 (932/690) and the Quick Ratio is around 0,50 ((932-556)/690). The Current Ratio seems to be on an adequate level but the Quick Ratio can be considered to be alarming. This is because the company has such a large inventory. The Quick Ratio is considered to give a more realistic picture of the firm’s short-term financing ability because inventory can’t necessary be realized to liquid funds. The poor status of these ratios leads to the situation where the company can’t use the offered purchase discounts. The Internal growth rate of a company is the highest level of growth it can achieve without outside financing. Cartwright Lumber’s Internal growth rate is 4,72 % (44 / 933) at the end of 2003. The firm’s sales are predicted to increase to 3,6 million from 2,7 million in2004, which is a total growth of 33%. Thus the sales are growing almost 10 times faster than the internal growth rate would allow. The sustainable growth rate is the highest growth rate a firm can sustain without the need to increase its financial leverage. The sustainable...
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...SEATTLE PACIFIC UNIVERSITY School of Business and Economics BUS 6220 CRN 43797 Office: McKenna Hall 205 Financial Analysis Phone: 281-3523 Dr. Herbert Kierulff Hours: Th. 1-6 and by appt. hkierulf@spu.edu Classroom: McKenna 111 "…value reflects only our opinions and not the true worth of the things themselves." Francisco de Osuna, Third Spiritual Alphabet COURSE OBJECTIVES: By the end of this course you should be able to demonstrate greater competence in: * Doing short and long term financial planning and budgeting, strategic analysis and decision making under conditions of rapid change and uncertainty. * Applying the fundamental and practical principles of valuation to pricing and to real investment opportunities. * Gathering information, separating relevant from irrelevant factors, selecting and evaluating relevant options with regard to their consequences, and selecting and defending a course of action. * Conceptualizing complex issues and reducing them to coherent written and oral statements. * Integrating valuation and investment analysis with the other functional areas of business administration including business processes and information technology. * Working effectively in group...
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...receiving cash? Why? 6. What are the implications of Riley’s cash flow for the financing needs of the firm? Westmoreland Inc. 1. Examine the beginning financial statements (2005) and the pro forma statements (2006 projected) for Westmoreland (Exhibit 1). Do complete ratio, common-size income statement and cash flow statement analyses with these data. The pro forma statements reflect management’s opinion about what will happen in the future. Incorporated into these statements is their business plan. 2. What is Westmoreland’s condition in 2005? 3. What are the key assumptions that are built into Westmoreland’s pro formas? At this point, do not focus on what did happen in the future. Concentrate on the past and what the company thought would happen. What was their business plan? 4. Now do a similar analysis for the beginning statements (2005, Exhibit 1) and the actual later financial...
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...assist you what you need, Click Here to submit your Order. ======================================================================================= Acquisition of Consolidated Rail Corp. by Benjamin C. Esty Airbus A3XX: Developing the World’s Largest Commercial Jet by Benjamin C. Esty American Chemical Corp.by William E. Fruhan, John P. Goldsberry American Home Products Corp.by David W. Mullins AQR’s Momentum Funds by Daniel B. Bergstresser, Lauren H. Cohen, Randolph B. Cohen, Christopher Malloy Arundel Partners: The Sequel Project by Timothy A. Luehrman AXA MONY by Andre F. Perold, Lucy White Beta Management Co. by Michael E. Edleson Butler Lumber Co. by Thomas R. Piper Cartwright Lumber Co.by Thomas R. Piper Citigroup 2007: Financial Reporting and Regulatory Capital by Edward J. Riedl, Suraj Srinivasan Clarkson Lumber Co. by Thomas R. Piper Cooper Industries, Inc. by Thomas R. Piper Cost of Capital at Ameritrade by Erik Stafford, Mark L. Mitchell Debt Policy at UST, Inc. by Mark L. Mitchell Dell’s Working Capital by Richard S. Ruback DermaCare: Zapping Zits Directly by Richard G. Hamermesh, Lauren Barley Diageo plc by George Chacko, Peter Tufano Dimensional Fund Advisers–2002 by Lauren H. Cohen Dividend Policy at FPL Group, Inc.by Benjamin C. Esty Dividend Policy at Linear Technology by Malcolm P. Baker, Alison Berkley Wagonfeld Equity International: The Second Act by Nicolas P. Retsinas, Ben...
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...MACRO FACTORS AFFECTING BUSINESS ENVIRONMENT SUBMITTED BY: AAYUSH VERMA INTRODUCTION A business firm is an open system. It gets resources from the environment and supplies its goods and services to the environment. There are different levels of environmental forces. Some are close and internal forces whereas others are external forces. External forces may be related to national level, regional level or international level. These environmental forces provide opportunities or threats to the business community. Every business organization tries to grasp the available opportunities and face the threats that emerge from the business environment. The term business ‘typically’ refers to the development and processing of economic values in society. Normally, the term is applied to portion of economic activities whose primary purpose is to provide goods and services for society in an effective manner. It is also applied to economics and commercial activities of institutions which having other purposes. Business may be defined as “the organised effort by individuals to produce goods and services to sell these goods and services in a market place and to reap some reward for this effort.” Functionally, we may define business as “those human activities which involves production or purchase of goods with the object of selling them at a profit margin”. Business organizations cannot change the external environment but they just react. They change their internal business components...
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...MACRO FACTORS AFFECTING BUSINESS ENVIRONMENT SUBMITTED BY: AAYUSH VERMA INTRODUCTION A business firm is an open system. It gets resources from the environment and supplies its goods and services to the environment. There are different levels of environmental forces. Some are close and internal forces whereas others are external forces. External forces may be related to national level, regional level or international level. These environmental forces provide opportunities or threats to the business community. Every business organization tries to grasp the available opportunities and face the threats that emerge from the business environment. The term business ‘typically’ refers to the development and processing of economic values in society. Normally, the term is applied to portion of economic activities whose primary purpose is to provide goods and services for society in an effective manner. It is also applied to economics and commercial activities of institutions which having other purposes. Business may be defined as “the organised effort by individuals to produce goods and services to sell these goods and services in a market place and to reap some reward for this effort.” Functionally, we may define business as “those human activities which involves production or purchase of goods with the object of selling them at a profit margin”. Business organizations cannot change the external environment but they just react. They change their internal business components...
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...scrap material can have either a high or low sales value relative to the product with which it is associated. Answer: False Difficulty: 2 Scrap material by definition has a low sales value. Objective: 1 4. Normal spoilage adds to the cost of the job to which it is attributed in a job order costing system. Answer: True Difficulty: 2 Objective: 2 5. When calculating normal spoilage rates, the base should be actual units started in production. Answer: False Difficulty: 2 The base should be good units started into production. Objective: 2 6. Abnormal spoilage is spoilage that should arise under efficient operating conditions. Answer: False Difficulty: 2 Objective: Abnormal spoilage should not arise under efficient operating conditions. 2 7. A company whose goal is zero defects would usually treat all spoilage as abnormal. Answer: True Difficulty: 2 Objective: 2 8. Counting spoiled units as part of output units in a process-costing system usually results in a higher cost per unit. Answer: False Difficulty: 3 Objective: Counting spoiled units usually results in a lower cost per unit. Chapter 18 Page 1 3 9. Costs in...
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