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Copyright

Butler Lumber Company


Harvard Business School Case 9-292-013
Case Software 2-292-741
Copyright 1991 by the President and Fellows of Harvard College. .
Developed in conjunction with MicroMentor, Inc., Cambridge, MA
This case was prepared as the basis for class discussion rather than to
illustrate either effective or ineffective handling of an administrative situation.

Page 1

Exh 1

EXHIBIT 1

Operating Statements for Years Ending


December 31, 1988-1990, and for First
Quarter 1991 (thousands of dollars)
1.2776699 1.36401674

Net sales
Cost of goods sold
Beginning inventory
Purchases
Ending inventory
Total cost of goods sold
GROSS PROFIT

1988
$1,697

1989
$2,013

1990
$2,694

183
1,278
$1,461
239
$1,222

239
1,524
$1,763
326
$1,437

326
2,042
$2,368
418
$1,950

475

Operating expense (b)


Interest expense
Net income before taxes
Provision for income taxes
Net income

576

425
13
$37
6
$31

744

515
20
$41
7
$34

658
33
$53
9
$44

$1.34
1991
3600
$435.63
$2,695.44
$3,131.07
520
$2,611.07
$988.93
$879.29
49.5
$60.14
12
$48.14

(a) In the first quarter of 1990 sales were $698,000 and net income
was $7,000.
(b) Operating expenses include a cash salary for Mr. Butler of
$75,000 in 1988, $85,000 in 1989, $95,000 in 1990, and $22,000 in
the 1st quarter of 1991. Mr. Butler also received some of the
perquisites commonly taken by owners of privately held businesses.

Ratios
Profit Margin
ROA
ROE
Current Ratio
Quick Ratio
Debt to Assets
Times Interest Earned
Payable Period
Asset Turnover
Collection Period
Inv Turnover
Fixed Asset Turnover
Gross Margin
Operating Margin
Pretax margin
Net Margin

1988

1989

1990

0.018
$0.052
$0.115
1.8
0.881
0.545
3.846
2.214
$2.86
$36.78

0.017
$0.046
$0.112
1.589
0.723
0.587
3.05
2.207
$2.74
$40.25

0.016
$0.047
$0.126
1.450
0.669
0.627
2.606
2.783
$2.89
$42.95

N/A
$13.47
$0.28
$0.03
0.022
0.018

N/A
$14.38
$0.29
$0.03
0.020
0.017

1991
0.013
$0.037
$0.122
1.957
0.899
0.463
2.215
4.113
$2.75
$45.89
N/A

$17.16
$0.28
$0.03
0.020
0.016

$2.63
$43.85
N/A

$17.39
$0.27
$0.03
0.017
0.013

0.013 1.33830104

Page 2

0.015
$0.03
$0.10
1.35
0.550
0.670
2.100

$0.00
$0.27
#DIV/0!
#DIV/0!
#DIV/0!

Exh 1

EXHIBIT 2

Balance Sheets at December 31, 1988-1990,


and March 31, 1991 (thousands of dollars)
1.42792793 0.87719298

$0.24
$0.87
$0.73 Cash
Accounts receivable, net
Inventory
Current assets
Property, net
Total assets

Notes payable, bank


Notes payable, Mr. Stark

1988
58
171
239
468
126
594

1989
49
222
325
596
140
736

105
0
0
124
24
7
260
64
324
270
594

146
0
0
0
192
30
7
375
57
432
304
736

Notes Payable, trade


Accounts payable
Accrued expenses
Long-term debt, current portion
Current liabilities
Long-term debt
Total liabilities
Net worth
Total liabilities and

1990
41
317
418
776
157
933

1991
54
452.653153
596.873874
1103.52703
207
1310.52703

233
0
0
0
157
256
347
39
52.8125
7
7
535
563.8125
50
43
585
606.8125
348
$396.14
933 1002.95045
307.576576

Asset Turnover
Total Asset Turnover
Days Inventory
Collection Period
Fixed Asset Turn
Profitability
Net Margin
X Turnover
ROA
X Levarage
ROE

2.86
5.11
71.43
36.78
13.47

2.74
4.42
82.58
40.25
14.38

2.89
4.67
78.16
42.95
17.16

Page 3

2.63
3.76
97.07
43.85
17.73

Exh 1

1.35416667

0.12573699
0.1657983
0.30653529
0.0575
0.36403529
0
0
0
0
0.04361111
0.09638889
0.01467014
0.00194444
0.15661458
0.01194444
0.16855903
0.11003832
0.27859735

1st Qtr.
1991
31
345
556
932
162
1,094
247
0
0
157
243
36
7
690
47
737
357
1,094

Answers

378

54
1.50%
424
11.80%
558
21.40%
1036
177 Assuemed 20$ increase
1213

To Get Purchases
Est Ending Inv
0

347 46 Days' Purchases (12.6% x 2750)


54 1.5% of Sales
7
408
43 Reduce by 7 each year
451
452
903
so then the required financing is 310 since Total L and SE need to balance with Total A

Page 4

Exh 1

To Get Purchases
Est Ending Inv

SE need to balance with Total Assets

Page 5

Exh 1

$0.044
$0.135
1.351
0.545
0.674
2.215
2.880
$3.29
$34.98

1st Qtr.
1991
$718
418
660
$1,078
556
$522

N/A
$22.22
$0.27
$0.03
0.017
0.013

Liqudity
Current Ratio
Acid Test
Financial Leverage

196
175
10
$11
2
$9

Sales 3600
COGS 72%
OP Exp 24%
Int EX LTD 11%
Int Exp STD 10.5
Taxes 15% 1st 50,000
25% Next 25000
34% >75000
Cash 2% of Sales
Accts Rec
12%
Inventory 22%
Property, Net
^50$ or T/O=17%
Made up Number
Accrued Expenses
1.50%
Accounts payable Payables T/O (COGS)
% of Purchases of COGS or Sales then use Payables Period
CMLTD
7
LTD
-7
NW
Beg Balance +Net Income - Dividends

Sales
COGS
G Profit
Salary
Other Op Exp
T. Op Exp
Op Inc

Income Statement
3600
2610 72.5% of Sales
990
88 Annualized off 1st quarter salary
756 21% of Sales
844
146

Page 6

Exh 1

Cash Flow 1988-1990


Sources
Net I
Dec in Cash
Inc in ST
Inc in AP
Inc in Accrued Exp
Uses
Inc in AR
Inc in inv
Inc in fixed Assets
Dec in Notes Pay
Dec in LT

Net Income
Inc in AR
Inc in Inv
Inc in AP
Inc in Accrued Exp
Net CFO

78
17
233
132
15
475

CFI
Net CFI

146
179
31
105
14
475

-31

CFF
Inc in ST Debt
Dec in Notes Pay
Dec in LT
Net CFF
Net Cash Flow

Cash Flows
1988

1989

1990

CFO
Net Profit
Change in AR
Change in Inv
Change in AP
Change in Tax Expenses
Change in Op Exp
Changes in Interest Expenses

$31
-51
-86
68
1
90
7

$34
-95
-93
64
2
143
13

Net CFO

$60

$68

CFI
Change in FA

-14

-17

Net CFI

-14

-17

CFF
Change in ST Debt
Change in LT Debt

41
-7

87
-7

Net CFF

34

80

Page 7

78
-146
-179
132
15
-100

233
-105
-14
114
-17

Exh 1

48.14

Page 8

Exh 1

Page 9

Exh 1

Int LTD
Int STD
Inc B4 Taxes

6
11%
0 To be Determined
140

Income Taxes
Net Inc
Div
Change in Net Worth

36 .15(50)+.25(25)+.34(140-75)
104
0
104

Page 10

Exh 1

Net Change in Cash

$80

Page 11

$131

Exh 2

EXHIBIT 2

Balance Sheets at December 31, 1988-1990,


and March 31, 1991 (thousands of dollars)

Cash
Accounts receivable, net
Inventory
Current assets
Property, net
Total assets

1988
58
171
239
468
126
594

Notes payable, bank


Notes payable, Mr. Stark

105

Notes Payable, trade


Accounts payable
Accrued expenses
Long-term debt, current portion
Current liabilities
Long-term debt
Total liabilities
Net worth
Total liabilities and
net worth

124
24
7
260
64
324
270
594

1989
49
222
325
596
140
736

1990
41
317
418
776
157
933

1st Qtr.
1991
31
345
556
932
162
1,094

146

233

247

192
30
7
375
57
432
304
736

256
39
7
535
50
585
348
933

157
243
36
7
690
47
737
357
1,094

Page 12