Clarkson Lumber Company Case

Finance 5390

Financial and Fundamental Analysis

Assignment for Thursday, February 9, 2012

Clarkson Lumber Company

Complete the following homework to be graded. Bring printed copy for me to class.

* What can you conclude about the qualitative characteristics of the company? Use bullet points and provide the 3 most important positive and 3 most important negative factors.

* You are George Dodge, the banker. On a scale of 1 to 10, with 10 being the most risky, how risky is a $750,000 revolving loan to the company? Why? Use bullet points.

* Bonus: What is the net value of taking the 2% trade discount for the full year in 1996? Show your work using Excel.

For class discussion –

From the point of view of George Dodge:

* What is the value of obtaining Mr. Clarkson’s personal guarantee on the loan?

* What conclusions can you draw about the company’s income statement?

* What do you think about the company’s balance sheet?

* What would you suggest as the appropriate covenants for (1) net working capital and (2) withdrawals of funds from the business by Mr. Clarkson. A “covenant” is a promise in a legal agreement that certain activities will or will not be carried out. For example, Clarkson Lumber Company will have at all times a current ratio greater than “X”. Or, Clarkson Lumber Company will not pay salary and dividends of more than $”Y” per year to Mr. Clarkson.

From the point of view of Keith Clarkson:

* Would you be willing to provide a personal guarantee of the loan? Why or why not?

* What do you like about the proposed terms of the loan?

* What do you dislike about the terms?

* What would you do with the money from the $750,000 loan?