Mr. Butler is considering the offer that Northrop Bank has extended to him for the credit line of $465k. Currently Butler Lumber Company has credit agreements with Sub Urban National Bank with a cap of $250k. While Butler has managed to keep his funds requirement below $250k, the recent growth in sales has led to an increased requirement of funds. Although the business is running profitably, the management of cash is posing problems for the business. Butler utilizes the trade discounts which come with purchasing larger quantities. It is advised that Butler reforms his financial strategy, make his treasury management efficient and reconsider his expansion plans.

Following questions are answered in this case study solution:
How well is Butler Lumber doing? Why?

What has been the company’s financial strategy? Why does Mr. Butler have to borrow so much money to support this profitable business? Has he been managing his company’s cash flow wisely?

 Do you agree with his estimate of the company’s loan requirements? How much will he need to borrow to finance his expected expansion in sales in 1991 (assume sales volume of $3.6 million)? How much will he need over the next several years?

Would you urge Mr. Butler to proceed with, or to reconsider, his anticipated expansion plans?