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Cartwright Lumber Company Case Solution
A review of Cartwright Lumber Co. has been put together and is broken down into two main parts. The operational analysis of Cartwright Lumber company has been performed to find key points, and KPIs, followed by a detailed financial analysis to measure the financial health and future financing needs of the firm. Positive results were found in Cartwright Lumber's business study. It has discovered a site that offers a lot of revenue with some downside protection from their strategy for targeting particular consumer categories. It can be seen that the business trends as generally good and favor a successful organization. The company's expansion will soon be increasingly constrained by a number of concerns that the financial analysis suggests are starting to surface. Despite this, the business continues to be successful, and customer satisfaction levels are high. It is recommended paying close attention to the company's debt structure as a result. For this, the firm had to borrow money from a third party, like a bank, in order to meet their financing needs for sales growth and expansion.
Following questions are answered in this case study solution:
Describe briefly the segment of the lumber business Cartwright operates in and the key success factors for operating in this segment. Do not comment on Cartwright specifically, but on key components of a successful strategy for any lumber business.
How well is Cartwright Lumber Co. doing from an operational (as opposed to financial) standpoint? Report Key Performance Indicators (KPIs) where appropriate. KPIs are data points. Financial analysis Now, turn to some financial issues.
Describe Cartwright’s financial policy over the past few years. In particular, how have leverage and liquidity been evolving? Where possible, back your statements with numbers.
Why does Mr. Cartwright have to borrow money to support his business?
a. Prepare a Sources and Uses Statement comparing 2001 to the first quarter of 2004. This helps you get a rough picture of where funds are coming from (Sources) and where they are going (Uses). This is not a Cash Flow Statement. To construct the Sources and Uses Statement: - Compare Cartwright Lumber’s Balance Sheets in 2001 and 2004Q1 (not referencing the Balance Sheets in 2002 or 2003) - Classify each Asset that has increased/decreased as a Use/Source - Classify each Liability (and Net Worth) that has increased/decreased as a Source/Use. What are Cartwright’s main Sources and Uses of funds?
b. You should also compute and study those ratios that, in your view, can help explain Cartwright’s current situation of seeking more funding. In particular, where you can, try to assess roughly how much (both in dollars and as a fraction) stem from Mr. Cartwright’s past growth strategy vs. his having been running his business less efficiently over time.
Case Study Questions Answers
1. Describe briefly the segment of the lumber business Cartwright operates in and the key success factors for operating in this segment. Do not comment on Cartwright specifically, but on key components of a successful strategy for any lumber business.
The term "low-margin industry" is frequently used to describe the timber products sector. This is due to the fact that raw materials utilized in production are very susceptible to changes in the price of global commodities, particularly due to demand coming from China and South Korea. Operational excellence, novel/new product design, value chain optimization, and price optimization are frequently mastered by businesses that thrive in their field. Businesses must pay special attention to both their local economies and client base on a local level.
As a result, it's critical that they manage their inventory and production to keep it below demand. Additionally, this sector is known for being quite cyclical, with the majority of yearly sales coming from the six-month period from April to September. And last, there has been a significant amount of industrial consolidation. Tree farms, lumber mills, and manufacturers of wood products often make up the industry under question. Although few have complete integration, some of the market giants do.
Global corporations and small firms like Cartwright Lumber both consider political factors carefully when making investment decisions. The political environment and other factors have an impact on both long-term sustainability and company costs. Governmental structure, democratic institutions, the possibility of a military coup, the chance of armed conflict, the rule of law in the marketplace, etc. are some political factors. Similar to this, a country's and region's economic considerations directly affect how appealing a certain market may be. The rate of inflation, the GDP growth rate, the amount of disposable income, and other economic variables should all be considered by Cartwright Lumber as it assesses the market it is now in and the one it intends to join.
2. How well is Cartwright Lumber Co. doing from an operational (as opposed to financial) standpoint? Report Key Performance Indicators (KPIs) where appropriate. KPIs are data points. Financial analysis Now, turn to some financial issues.
For the past four years, Cartwright Lumber Company has been expanding. Regarding operations, the Cartwright Lumber Company had a rise in sales of 18.62% between 2001 and 2002 and 33.83% between 2002 and 2003. Because the firm is in the timber industry, significant gains in sales do not translate to a rise in revenue. In 2001, the profit margin was 1.83%; in 2002 and 2003, it fell by 1.69% and 1.63 percent, respectively. Declines in the Net Profit Margin indicate that the firm is unable to control costs successfully.
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