cartwright lumber

8/19/2019 Cartwright Lumber

http://slidepdf.com/reader/full/cartwright-lumber 1/5

Loan Approval Form

!

Company Name: Cartwright Lumber Company

!

Loan Type: Revolving Secured Note

! Amount: $454,000

!

Tenor: 90-day



“Cartwright Lumber Company is a Pacific Northwest basedlumber retail distributor focusing on plywood, moldings, and sash

and door products sold in the local area. Founded in 1994 as a

partnership, the company features Mark Cartwright as its sole

owner and president, one assistant serves under Cartwright, andten other employees are evenly split between working in the yard,driving trucks, and assisting in the office and in sales.”

Business Description



Why Company Needs Loan:

• Cartwright Lumber’s current loan provider has placed a strict $250,000 ceiling on thecompany’s borrowings. This constraint has caused the company to rely heavily on tradecredit from its suppliers in order to fulfill working capital requirements.

• Moreover, Mark Cartwright’s buy-out of Henry Stark’s share in Cartwright Lumber hasfurthered limited the company’s liquidity.

• Since most of the company’s cash is tied up in working capital, they have been unable to

take advantage of the 2% discount offered by suppliers for payables serviced within tendays.

• Cartwright Lumber’s liquidity has been further hindered by its decision to financesignificant portions of its operations with cash, depleting cash reserves on a year-over-year basis and contributing to significant increases in accounts payable highlighting thecompany’s problems in servicing current debts.

•

The decrease in inventory turnover year-over-year has contributed to increases in networking capital for Cartwright Lumber.

• Receiving a loan would give the company more cash and allow it to finance its workingcapital and support greater inventory levels to accommodate anticipated increases insales.



Why Loan Recommended:

•

The $454,000 loan would allow Cartwright Lumber to reduce its A/P days below 10,allowing the company to take advantage of a 2% discount from its suppliers. Thisdiscount improves the company’s gross margin by 153 basis points, translating to a$42,000 increase in net income. This significantly outpaces the $15,000 increase ininterest expense.

• Using this short term loan, the company can finance its increase in working capital partlyfrom the loan and partly from the increase in cash flows that will result from the discount

in COGS.• Subsequently, with cash flows expected to rise due to the significant increase in net

income from the impact of discounts offered by suppliers, we feel confident in thecompany’s ability to fully repay the amount it withdraws from the revolver.

• Moreover, per our agreement the company will sever ties with its previous lender andreduce its trade credit to suppliers, making our bank the only short term lender toCartwright Lumber. In the event that the company cannot meet its interest payments, we

would be the only company with claim on the company’s assets. In this instance, thecompany’s inventory could be easily liquidated due to it being a durable commodity.

• Lastly, as the company’s only short term lender we can foster our relationship with thecompany and finance future business activities as the company continues to expandoperations.



Risks

• The A/R Days ratio is trending upwards indicating the company is having problemscollecting from its customers and highlighting the need for a more concerted effort

towards collecting receivables in a timely manner.

• The inventory turnover is decreasing, tying up too much cash, and exacerbating the

shortage of working capital. More effort needs to be spent on inventory management,

to curb the growing amount of stagnant inventory.• The seasonality element of the business is worrisome as the majority of sales are

derived from April through September. If sales fail to perform up to expectations

within this period, year-round net income will be affected significantly.

• Interest is set on a floating-rate basis, leading to greater unpredictability and instabilityof interest expense and therefore cash flows.

cartwright lumber

Documents