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Bulter Lumber Case
Bulter Lumber Case
LIQUIDITY RATIO
The quick ratio of the company in the year 1988 is 1.5 as compared to the year 1989
having 1.2 quick ratios and the ratio of in 1989 and 1990 is equal to 1.2.
EFFICIENCY
PROFITABILITY
The net profit is too low at 3% which is concerning. The solution lies in increasing
revenue.
2. Cite reasons why the company had to borrow more and more.
The revenue generated was not enough to pay off the debts in hand as a result of
which the company had to borrow year on year.
3. Identify the accounts head where cash has been consumed during the 1988-1990
period. Mention the amounts involved for each of these accounts head.
4. Identify the accounts head where cash has been generated from during the
1988-1990 period. Mention the amounts involved for each of these accounts head.
1988 1989 1990
Sales - 1697 2013 2694
Borrowings - 324 432 585
5. Taking cash discounts better than delaying payments to creditors?
True. Delaying cash payments to creditors would lead to payment of more interest.
1989-222/5.52=40.21 days
1990-317/7.38=42.95 days
1988-1222/365=3.34
1989-1437/365=3.93
1990- 1950/365=5.34
1988-239/3.35=71.34
1989-326/3.94= 82.74
4- Accounts payable
1988-3.34/124=37.04
1989-3.93/192=48.77
1990- 5.34/256=47.92
Butler should not go for further loan as the interest rate is going to be huge. He should limit
his expenses and make changes in his model to also increase the revenue.