King Fahd University of Petroleum and Minerals

Executive Master of Business Administration Program

Electronic Business Strategy (MIS 562)

Case Summary

Clarkson Lumber Company

Case

Prepared for Dr.

Dr. Abraham Abraham

Prepared By: Yousef Al-Nassar

ID: 198067010
 Mar, 2011

Case Summary
The Clarkson Lumber Company had been founded in 1981 as a partnership by Mr.
Clarkson and Henry Holtz. Mr. Clarkson then bought out Mr. Henry Holtz in 1994. The
business was located in a growing suburb and owned its own land with four large storage
buildings. The company’s operations were limited to the retailed distribution of lumber
products in local area including plywood moldings and door products.
Sales volume had been built up largely on the basis of successful price competition made
through control of operating expenses and quantity purchase of materials at substantial
discounts. Most of the moldings and door products, which constitutes significant items of
sales, were used for repair works. Quantity discounts and credit terms of net 30 days on
open account were usually offered to customers. Clarkson Lumber sales growth are
expected to continue over the foreseeable future and future sales are protected to some
degree from fluctuations in new housing construction industry because of the fact that
high proportion of the company market is directed to repair business.
Mr. Clarkson was an energetic and hard working man, has personal control over every
feature of his business and he possesses sound judgment about his business issues. Mr.
Clarkson was actively looking for a new banking relationship where he can negotiate a
larger loan than his recent limited loan ceiling ($400,000) offered by Suburban National
Bank. He approached Northrup National Bank for a larger loan and the bank had to
investigate his financial position, business historical sales and expenses, future forcastes
and the owner credibility.
Clarkson Lumber is planning to borrow an increasing amounts despite its profitability
because he wants to pay off Mr. Holtz in order for himself to become the primary owner
of the company. Mr. Clarkson also needs to take a loan so he could increase the
purchasing power for goods and increase the net income through acquiring supply trade
discounts which was growing at a slower rate than the operating expenses.

Recommendation
Mr. Clarkson should plan a forecasted strategy for the business in the next 5 years and
create a future pro forma balance, income and expense sheets and thus depict the best
approach of reaching those goals. The owner of the rapidly growing retail lumber
company should consider the financial implications of continued rapid growth. The
magnitude of the company's future financing requirements must be assessed in the
context of the company's access to bank finance and/or equity finance.