Submitted by: B.

Sriram PGP I, Section: D, Group: B Brief Case Analysis

Submitted to: Dr. Yogesh Maheshwari Course Instructor: Finance-I (Sep-Dec08) October 23, 2008 Butler Lumber Company

Background The case deals with the issuing of a loan by the Northrop National Bank to the Butler Lumber Company. The focus is on trying to understand the ways of determining the financial stability of the company and trying to identify whether it is in a sound position, and is capable of returning the loan that it wants to take. Analysis There are various aspects that need to be scrutinized before deciding to give a loan to the company The company in general is doing well, and Mr Butler seems to be ensuring that the company is run efficiently and is utilizing its resources to the maximum. The business model of the company ensures that it is greatly insulated to any fluctuations in the demand for timber for new construction purposes. Since the company has a large segment of its timber being used for repair, this ensures that the sales does not dip significantly during any period of time. The Quick Ratio and the Current ratio for the company, both seem to be reducing. This indicates that the company has been facing a cash crunch and is facing problems in servicing its current debts.This reiterates the statements made in the report. The company was also giving high interest expenses. In the first quarter of 1991, the interest coverage ratio was less than two. The inventory has also increased by a good margin. However, that might because of the business model and the seasonal production nature of the organization. The bank loan taken up at the previous bank is fully leveraged. This is in line with the facts of the case. In the first quarter of 1991, sales have gone up by only 2.8% but the net income has grown by more than 20%. This indicates that costs have been curtailed and the profit margin has also increased.

The following were some of the reasons which have to be taken into consideration for deciding if the company is performing well and is growing properly. Based on the analysis, the recommendation would be to sanction the loan to the company.