5. As the financial advisor, my recommendations to Mr.

Clarkson are:

1. To take the initiative and go ahead with the expansion, go for slow and steady growth, however;
2. He must reduce his liabilities and debt before accruing more and being consumed with payments
and interest payments.
3. He must improve his profits at the same sales level by taking more purchase discounts or by
increasing his price.

4. He should explore the possibilities of equity financing, in order to bring cash into the business.

Such possibilities could include recommending to his brother in law to keep his money in the
business and receive dividends. Another equity financing option would be to re-mortgage his
home and invest his personal cash in expanding its operation, it may be expanding to other
products and or to geographic areas.

5. Clarkson Lumber Company needs to have stricter policies and credit terms on the customers they
allow to purchase on credit.

Customers such as offer a discount and a free service to those who pay the amount within 7 days,
a discount to those who pay in the first 15 days while anyone who pays in advance gets the
second service free of cost. Strategies as such are likely to reduce the A/R over time and
improve the cash status.

As a banker, looking at Clarkson Lumber's past financial performance and declining financial
health, as well as the financial situation created by Clarkson's planned sales expansion, we would
conclude that there is little hope of the loan being repaid at this expansion rate, and a greater
problem of a future request to increase the loan amount.

Considering the positive feedback from their clients and market players, we will have to decide
how valuable is Clarkson as a customer to the bank. If we want to develop the market and the capital
structure of Clarkson Lumber can be improved, the bank loan is reasonable but at the same time there
must be stricter

restrictions, such as:

1. Re-mortgage his home and invest his personal cash in the business or seek other equity
financing/capitals to increase the proportion of equity investment.
2. Asking Clarkson to make detail plans to reduce A/R and inventory
3. Restrictions on the accounts receivables, net working capital and inventories and also to improve
their average collection period and fixed asset utilization.

Clarkson used to borrow loans from Sub Urban National Bank with the amount of $300,000
in order to overcome his financial needs. This improved his financial position but as the
expenses and delays in payment increased, it started becoming increasingly difficult for
Clarkson to continue his business profitably hence weakening the financial position.
Consequently, the financial position is weakened. Ratio analysis can be used to assess the financial
position's performance. Different ratios are utilized in this table, and all of the results show a
declining value as time passes.
Enter
Robin

As we also observed the Current and Quick Ratios which demonstrates an increasing trend in the
liabilities over time, which supports the point that the company’s financial position is deteriorating as
the company is increasingly becoming reliant on loans. As a result, the Return on Sales or the profits
are decreasing.

The company's inability to receive payments from customers in a timely manner created a severe
impact in the company's cash flows. Because of the delay in accounts receivable, Clarkson Lumber's
ability to pay suppliers on time is also impacted. The age of account receivables increased each year.
You can see the vitality in the payables from 1993- 1996.