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    Clarkson Lumber has taken on increasing amounts of bank loans despite consistent profitability because its earnings cannot fully fund the large inventory purchases needed to support its growth. The company's financial strength has deteriorated over 1993-1995 as its owner, Mr. Clarkson, relied on external debt from bank loans rather than internal funds to finance expansion. A SWOT analysis identified low costs as a strength but lack of internal funding and high reliance on expensive short-term debt as weaknesses potentially threatening the company.

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    Clarkson Lumber has taken on increasing amounts of bank loans despite consistent profitability because its earnings cannot fully fund the large inventory purchases needed to support its growth. The company's financial strength has deteriorated over 1993-1995 as its owner, Mr. Clarkson, relied on external debt from bank loans rather than internal funds to finance expansion. A SWOT analysis identified low costs as a strength but lack of internal funding and high reliance on expensive short-term debt as weaknesses potentially threatening the company.

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    5 views4 pages

    Title Lorem Ipsum

    Uploaded by

    Tony Philip Joykutty
    Clarkson Lumber has taken on increasing amounts of bank loans despite consistent profitability because its earnings cannot fully fund the large inventory purchases needed to support its growth. The company's financial strength has deteriorated over 1993-1995 as its owner, Mr. Clarkson, relied on external debt from bank loans rather than internal funds to finance expansion. A SWOT analysis identified low costs as a strength but lack of internal funding and high reliance on expensive short-term debt as weaknesses potentially threatening the company.

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    © All Rights Reserved
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    of 4

    Title Lorem

    Ipsum
    Sit Dolor Amet
    Q1: Why has Clarkson Lumber borrowed increased
    amounts despite its consistent profitability?
    Ans: Even through CLC shows a consistent profitability over a
    present g time, income earned from project g the company falls
    sort in paying off the funds required for absorption of new assets
    to the company (ie inventory). Clarkson Lumber is making up the
    difference from bank loans.
     𝑓𝑢𝑛𝑑𝑠 𝑒𝑎𝑟𝑛𝑑 𝑓𝑟𝑜𝑚 𝑝𝑟𝑜𝑓𝑖𝑡 < 𝑓𝑢𝑛𝑑𝑠 𝑎𝑏𝑠𝑜𝑟𝑏𝑒𝑑 𝑓𝑜𝑟 𝑠𝑢𝑐h 𝑙𝑎𝑟𝑔𝑒 𝑖𝑛𝑣𝑒𝑛𝑡𝑜𝑟𝑦
    𝑑𝑖𝑓𝑓𝑒𝑟𝑒𝑛𝑐𝑒 𝑚𝑎𝑑𝑒 𝑢𝑝 𝑡h𝑟𝑜𝑢𝑔h 𝑏𝑎𝑛𝑘 𝑙𝑜𝑎𝑛𝑠

    External debt
    Q2: How has Mr. Clarkson met the financing needs of the
    company during the period 1993-1995? Has the financial strength
    of the company improved or deteriorated?

    Ans: Process from bank loan | financial strength of company is


    deteriorating
    Q5: There are many supporting strong points but it also
    has some problems to work out analyzing this company.
    SWOT table

    Ans: SWOT Table

    Strength Weakness
    • Low cost provider • Lack of internal funding

    Opportunity Throat
    • High inventory • Over case of expensive short
    term debt is external debt

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