Cartwright Lumber Company

Mr. Cartwright has to borrow so much money in order to expand

his business. Several debts expenses and need to be covered
before he can move forward to expand, even the business is
profitable it doesn’t provide enough money to liquidate those
amounts. However the amount that is being discussed by
Northrop National bank exceed the amount need for his expenses
making available cash for future needs, Mr. cartwright doesn’t
need that much of a loan to put into his business.

As a Mr. Cartwright advisor I would recommend to take the loan.

Borrowing cash is necessary to expand the business and although
making some changes to the operating system would be
beneficiary to help with the expansion there is not enough access
to cash to do it. Taking such a loan would be necessary to expand
and maintain the operations running as they are now; in not
doing it so a slower pace growth is predicted.

As a banker the starting analysis will be the current ratio as 2001

was 1.8 in 2002 1.58 in 203 1.45 and the first quarter of 2014 1.35
it is still below the average index.
And the quick ratio as 2001 .88 in 2002 .72 in 2003 .66 and the
first quarter of 2004 .54 where the average index is 1.00 the
liquidity position of the company is very week.
The inventory turnover for the company started in 2001 as 7.10
2002 6.17 in 2003 6.33 with an average of 6.57 in the three years
passing the index of 6.1
The company’s DSO are increasing since the past years in 2001
36.77 days 2002 40.25 years in 2003 42.9 years and in the first
quarter of 2004 43.7 the average index is 32 days meaning that
the collection on sales is too slow. The asset turnover ratio in
2001 was 2.8, 2.7 in 2002 and 2.8 in 2003, which pass the index of
2.6 a good point to exceed
Cartwright’s debt to asset ratio was .55 in 2001, .58 in 2002, .62 in
2003 and if Cartwright increases this debt more with a larger loan
it is projected to get to .75 in 2004. Very risky move when there is
not enough cash flow available.

In conclusion I would not authorize the loan to Mr. Cartwright

company the rations presented reflect that having a negative cash
flows puts them at risk to not meet the obligatory requirements
of the loan even having sustainable assets to support the loan the
bank will take a big risk in doing it. Unless there is a strategy
where the operations let more cash flow into the company is very
unlikely that they would meet the requirements for this loan.