Xuke2010

Case Study Questions Answers: Clarkson Lumber Company

1.

Exhibit A. Operating Ratios | 　 | 　 | 　 | 　 | 　 |

　 | 1993 | 1994 | 1995 | 1st Quarter 1996 | Low -Profit Outlets | High-Profit Outlets |

COGS Ratio | 75.4% | 75.8% | 75.8% | 75.2% | 76.9% | 75.1% |

OpEx Ratio | 21.3% | 20.6% | 20.8% | 23.0% | 22.0% | 20.6% |

Gross Margin | 24.6% | 24.2% | 24.2% | 24.8% | 　 | 　 |

EBIT Margin | 3.3% | 3.6% | 3.4% | 1.8% | 　 | 　 |

Net Profit Margin | 2.1% | 2.0% | 1.7% | 0.5% | 　 | 　 |

From the operating ratios, we can see that in the 1st quarter of 1996, the OPEX Ratio rises to reach 23%, which is higher than that of 1995 in 2.2%. However, during the past three years, the ratio is quite stable, and even dropped during 1994. This illustrates that the expense increased with the expansion of business of Clarkson Lumber Company, and this is the main reason that EBIT margin is lower in 1st quarter 1996 when compared with last three years.

What’s more, comparing EBIT margin and Net Profit Margin, we found that the increasing interest pressure is the main reason of the decreasing Net Profit Margin from 1993 to 1st quarter of 1996.

Now let’s compare the COGS Ratio and OPEX Ratio of Clarkson Lumber Company with other firms in industry. We can see that during 1993 to 1995, the COGS Ratio of Clarkson Lumber Company is above the average performance of the whole industry, and in 1st quarter of 1996 it reach the performance of high profit outlets. However, the OPEX Ratio increased and changed a lot during the past 3 years. In 1994 and 1995, the OPEX Ratio of Clarkson Lumber Company reached the ratio of High Profit outlets, and in 1st quarter of 1996, it is in the rank of low profit outlets. So the costs of goods sold of Clarkson Lumber Company is controlled well, and the operation expense needs to be decreased recently.

2.

Exhibit B. Investment return | 　 | 　 | 　 |

　 | 　 | 1993 | 1994 | 1995 |

DuPont Identity | | | |

| Net profit margin | 2.1% |...