Help with Business Finance

Your job is to evaluate Mr. Butler’s loan application for the Northrop Bank, and ultimately, to decide whether or not to grant a loan. In preparation for Session 2, think about Butler’s business, the likely reason(s) for his funding need, and the possible ways in which it can be financed. First, focus on Butler’s business, leaving finance issues aside. 1) What do you think are the key factors to be successful in this business? 2) How well is the Butler Lumber Company doing from an operational (as opposed to financial) standpoint? Now turn to some finance issues. 3) What has been Butler’s financial policy over the past few years? 4) Why does Mr. Butler have to borrow money to support his business? a) A useful beginning to the analysis is the preparation of a Sources and Uses (or Fund Flow) Statement for the period 1988 though 1991’s first quarter. The “Sources and Uses Statement” helps you get a quick (but rough) picture of where cash is coming from (Sources) and where it is going (Uses). To construct the statement: - Compare Butler Lumber’s Balance Sheet in 1988 and 1991 (Q1) - Classify each Asset that has increased (decreased) as a Use (Source) - Classify each Liability that has increased (decreased) as a Source (Use) What are the Butler Lumber Company’s main Sources and Uses of funds? b) You should also study those financial ratios that can help explain Butler’s need for funds. 5) What sources of outside finance could Mr. Butler potentially tap into? Which, if any, are likely to constitute realistic alternatives to a bank loan? Which, if any, are likely to be preferable to a bank loan?