The following is my beginning analysis on Butler Lumber Company and reviewing its Risk, Opportunity, and financial condition on what is wrong and good about this company. I back up my hypothesis based on the following attainable data;
Current Ratio = The current ratio is an excellent diagnostic tool as it measures whether or not BLC (Butler Lumber Company) has enough resources to pay its bills over the next 12 months. The current ratio is computed using the following data, Current Assets/Current Liabilities. The definition of current assets is primarily derived from the Balance Sheet of BLC. It is anything that is easily convertible into cash over or within 1 year. Current Liabilities are a category of liabilities on the balance sheet that represent financial obligation that are expected to be settled within one year.
Therefore thus far BLC receives a clean bill of health. For every $1 in CL (Current Liabilities), there is $1.35 in current assets in the first quarter of 1991, $1.45 in 1990, $1.59 in 1989, and $1.80 in 1988 respectively. So how could this be a risky? On the flip side, when comparing the ratio from year to year and in BLC’s case it continues to grow, this could outline potential risk in A) collecting Accounts Receivable or you may be carrying too much inventory. By looking at BLC’s statement both facts appear to be true in nature, you AR continue to increase steadily from $171K in 1988 to $345K just in the first quarter of 1991. Inventory further complicates the matter by having $239K in 1988 to an unconventional $556K of Inventory just in the first quarter of 1991. Therefore we need to dig deeper.
At this stage of the analysis, we should now review BLC’s Total Debt Ratio. This will define how much BLC is in debt? This makes it an excellent way to check BLC’s long term solvency (The ability of BLC to meet its long term fixed expenses and to