Clarkson

DE LEON, Jason Charles FINACMA

ROMERO, Nikki Case Study

CASE STUDY: Clarkson Lumber Company

The Clarkson Lumber Company is currently applying for a loan request from the Northrup National Bank. The bank had arranged for its credit department to investigate Mr. Keith Clarkson, owner and president of the company, and to study the company as well. The following information is required and necessary for the group to analysis the case study and to be able to come up with the decision of approving of denying the loan request.

I. Company Information

a. Company Profile

Clarkson Lumber Company was founded in 1981 as a partnership by Keith Clarkson and Henry Holtz. The company has fifteen employees; eight of whom are working in the yard and driving trucks, while seven of the employees assist in the office and in sales. The business is located in a growing suburb of a large city in the Pacific Northwest. The land that is owned by the company is accessible to a railroad siding, and four large storage buildings have been erected on the land. In terms of its distribution, it is limited to the retail distribution of lumber products in the local area. The company distributes products such as plywood moldings and sash and door products. And as regards to the quantity discounts and credit terms, a 30 day net on open account is usually offered to customers.

b. Company History

During the past three years, in terms of net income, the financial strength of the company has improved as shown in the increase in sales volume during the period of 1993 through 1995. The basis for this built up on sales volume is on the successful price competition. Moreover, the consistent profitability of the company is attributed to its ability to control expenses and by taking advantage of the trade discounts. This discount is given to the company whenever it purchases the materials for the business and the percentage of the price is reduced, provided that the payment is made within agreed terms. Obtaining such discounts is attractive for the company since it allows the company to strategize its operations towards the outlook of profitability by having longer time to pay.

c. Company Credit Background

During the period 1993 through 1995, the company took full advantage of trade discounts from purchases of the materials for the business and is able to carefully control its operating expenses. This had led to consistent profitability of the company. However, after the owner purchase Mr. Holtz's interest in the business and had additional investments in working capital, the company found the need to increase its borrowings because of a shortage of cash. In addition, there was a rapid increase in the accounts and notes payable. That is why the company increased its borrowings to $399,000 and negotiated the loan from Suburban National Bank. The company had been able to stay within the limit of the maximum loan that the bank lends out to any borrower. However, this time, the bank asked the company to personally guarantee the loan which changed the mind of the owner. The owner would not want to personally guarantee a loan that's why he looked for another bank that he could negotiate with without having to require him a personal guarantee. Mr. Clarkson, then, found a larger bank that would extend credit to the company up to a maximum amount of $750,000. This bank is the Northrup National Bank.

II. Personal Information

a. Owner Background

Keith Clarkson is a 49-year old man who worked long hours on the job. He was helped by an assistant who knows everything that Mr. Clarkson do in the company. He is the sole owner and president of a lumber business after buying the interest in the company of his brother-in-law, Henry Holtz. Aside from owning a lumber business, he also held jointly with his wife, an equity in their home, which is presently mortgage for $38,000. He also has a life insurance policy of $70,000 that is payable to his wife.

b. Relationship with Customers and