8/10/2019 Clarkson Case Follow Up

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Fin 401Ryan Pratt

Follow-up Question for Clarkson Lumber

We saw in the Clarkson case that the trade discounts would be very valuable if Clarkson were able to takeadvantage of them. owever! given the way he is running his business and his current access to financing! it

would be im"ossible for him to do that. #sing the s"readsheet that you have created! analy$e Clarkson%sbusiness to determine if there is any way he could change things so as to get the trade discounts. Considerboth o"erational and financial changes that he could make. &et%s rule out the o"tion of issuing more e'uity!since the fact that Clarkson bought out olt$ indicates that he%s "robably not interested in taking onadditional "artners.

(ubmit a write)u" that is no longer than one "age. *n the write)u" you should make s"ecificrecommendations for changes Clarkson should "ursue and you should +ustify why you think he can makethose changes ,usually this will be either because it%s something that he has done before or somethingindustry com"etitors are doing-. uantify how significant each recommendation you make is toward thegoal of getting the trade discounts. /ou should submit this individually! though you may work with yourgrou" to come u" with your recommendations.

t this "oint we know that it is in Clarkson%s best interest to take advantage of the trade discounts.

Clarkson has been testing his limits and bargaining "ower to see how many days he could take to "ay

su""liers for his "urchases. ormally this would leave cash in his "ocket for longer and would be good for

the business! but in reality! if he were to decrease his average days "ayable to ten days then he would be able

to free u" even more cash. We know that other businesses within the industry have been following this tactic!

as the average days "ayable is near 12! whereas Clarkson took 3 days in 1553! 46 days in 1554! and 40 days

in 155. *n order to bring his average days "ayable down to ten he%ll need to free u" at least 731.3 ,in

1552- cash from other areas. is customers have been given the o""ortunity to "ay for their "urchases later.

*nstead of "aying every 34.1 days like the industry average! Clarkson customers have been able to "ay back

in about 45 days. *f Clarkson were to u" his collections efforts to bring his average collection "eriod down to

30 , +ust 4 days less than the industry average- then this would free u" 7803 of the 731.3 needed. *f we

then decrease the amount of inventory sitting on our lot to what it was in 1553 then we%ll free u" another 744

dollars! "utting us at 7846 of 731 needed. *f he then increases his notes "ayable by the missing amount

,7104- and maintains his ratios thereafter! then he%ll be able to take advantage of the trade discount which

will make u" for any losses incurred in the "rocess.