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Butler Lumber Co. – Case Solution

The Butler Lumber Co. is looking into taking out a bank loan for business expansion. This case study provides students the opportunity to look into the financial statements of a company and prepare financial forecasting and analyze the same.

​Thomas R. Piper Harvard Business Review ( 292013-PDF-ENG ) October 31, 1991

Case questions answered:

• Why does Mr. Butler have to borrow so much money to support this profitable business?
• 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 (assume a 1991 sales volume of $3.6 million)?
• As Mr. Butler’s financial adviser, would you urge him to go ahead with or reconsider his anticipated expansion and his plans for additional debt financing?

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Butler Lumber Co. Case Answers

This case solution includes an Excel file with calculations.

Financial Statements for Butler Lumber Co.

The following FINANCIAL STATEMENTS include our 1991 forecast for Butler Lumber Co.

Funds Flow Statement

Income Statement

Balance Sheet

1. Why does Mr. Butler have to borrow so much money to support this profitable business?

Mr. Buttler wants to expand his business. For the expansion of the company, he needs extra funding to support his business operation.

Current sources of funding are coming from Bank Borrowing (49%) and Note Payables (28%), but his cash is tied up in Inventories (38%) and Accounts Receivables (31%).

Furthermore, he bought out his partner, Mr. Stark. By doing this, he incurred an additional cash outflow of 105k (22%).

Besides the fact that he is expanding the business, we have to see whether he is running the business efficiently.

Regarding his inventory management, we see a decreasing inventory turnover since 1988, which means that his inventory for Butler Lumber Co. is piling up.

We know, however, that this might be partially due to the fact that he is taking advantage of discounts on bulk purchases. This implies that there is a…

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Butler lumber co. description.

The Butler Lumber Co. is faced with a need for increased bank financing due to its rapid sales growth and low profitability. Students must determine the reasons for the rising bank borrowing, estimate the amount of borrowing needed, and assess the attractiveness of the loan to the bank. A rewritten version of an earlier case. Allows students to practice ratio analysis, financial forecasting, and evaluating financing alternatives.

Case Description Butler Lumber Co.

Strategic managment tools used in case study analysis of butler lumber co., step 1. problem identification in butler lumber co. case study, step 2. external environment analysis - pestel / pest / step analysis of butler lumber co. case study, step 3. industry specific / porter five forces analysis of butler lumber co. case study, step 4. evaluating alternatives / swot analysis of butler lumber co. case study, step 5. porter value chain analysis / vrio / vrin analysis butler lumber co. case study, step 6. recommendations butler lumber co. case study, step 7. basis of recommendations for butler lumber co. case study, quality & on time delivery.

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Case Analysis of Butler Lumber Co.

Butler Lumber Co. is a Harvard Business (HBR) Case Study on Finance & Accounting , Texas Business School provides HBR case study assignment help for just $9. Texas Business School(TBS) case study solution is based on HBR Case Study Method framework, TBS expertise & global insights. Butler Lumber Co. is designed and drafted in a manner to allow the HBR case study reader to analyze a real-world problem by putting reader into the position of the decision maker. Butler Lumber Co. case study will help professionals, MBA, EMBA, and leaders to develop a broad and clear understanding of casecategory challenges. Butler Lumber Co. will also provide insight into areas such as – wordlist , strategy, leadership, sales and marketing, and negotiations.

Case Study Solutions Background Work

Butler Lumber Co. case study solution is focused on solving the strategic and operational challenges the protagonist of the case is facing. The challenges involve – evaluation of strategic options, key role of Finance & Accounting, leadership qualities of the protagonist, and dynamics of the external environment. The challenge in front of the protagonist, of Butler Lumber Co., is to not only build a competitive position of the organization but also to sustain it over a period of time.

Strategic Management Tools Used in Case Study Solution

The Butler Lumber Co. case study solution requires the MBA, EMBA, executive, professional to have a deep understanding of various strategic management tools such as SWOT Analysis, PESTEL Analysis / PEST Analysis / STEP Analysis, Porter Five Forces Analysis, Go To Market Strategy, BCG Matrix Analysis, Porter Value Chain Analysis, Ansoff Matrix Analysis, VRIO / VRIN and Marketing Mix Analysis.

Texas Business School Approach to Finance & Accounting Solutions

In the Texas Business School, Butler Lumber Co. case study solution – following strategic tools are used - SWOT Analysis, PESTEL Analysis / PEST Analysis / STEP Analysis, Porter Five Forces Analysis, Go To Market Strategy, BCG Matrix Analysis, Porter Value Chain Analysis, Ansoff Matrix Analysis, VRIO / VRIN and Marketing Mix Analysis. We have additionally used the concept of supply chain management and leadership framework to build a comprehensive case study solution for the case – Butler Lumber Co.

Step 1 – Problem Identification of Butler Lumber Co. - Harvard Business School Case Study

The first step to solve HBR Butler Lumber Co. case study solution is to identify the problem present in the case. The problem statement of the case is provided in the beginning of the case where the protagonist is contemplating various options in the face of numerous challenges that Butler Lumber is facing right now. Even though the problem statement is essentially – “Finance & Accounting” challenge but it has impacted by others factors such as communication in the organization, uncertainty in the external environment, leadership in Butler Lumber, style of leadership and organization structure, marketing and sales, organizational behavior, strategy, internal politics, stakeholders priorities and more.

Step 2 – External Environment Analysis

Texas Business School approach of case study analysis – Conclusion, Reasons, Evidences - provides a framework to analyze every HBR case study. It requires conducting robust external environmental analysis to decipher evidences for the reasons presented in the Butler Lumber Co.. The external environment analysis of Butler Lumber Co. will ensure that we are keeping a tab on the macro-environment factors that are directly and indirectly impacting the business of the firm.

What is PESTEL Analysis? Briefly Explained

PESTEL stands for political, economic, social, technological, environmental and legal factors that impact the external environment of firm in Butler Lumber Co. case study. PESTEL analysis of " Butler Lumber Co." can help us understand why the organization is performing badly, what are the factors in the external environment that are impacting the performance of the organization, and how the organization can either manage or mitigate the impact of these external factors.

How to do PESTEL / PEST / STEP Analysis? What are the components of PESTEL Analysis?

As mentioned above PESTEL Analysis has six elements – political, economic, social, technological, environmental, and legal. All the six elements are explained in context with Butler Lumber Co. macro-environment and how it impacts the businesses of the firm.

How to do PESTEL Analysis for Butler Lumber Co.

To do comprehensive PESTEL analysis of case study – Butler Lumber Co. , we have researched numerous components under the six factors of PESTEL analysis.

Political Factors that Impact Butler Lumber Co.

Political factors impact seven key decision making areas – economic environment, socio-cultural environment, rate of innovation & investment in research & development, environmental laws, legal requirements, and acceptance of new technologies.

Government policies have significant impact on the business environment of any country. The firm in “ Butler Lumber Co. ” needs to navigate these policy decisions to create either an edge for itself or reduce the negative impact of the policy as far as possible.

Data safety laws – The countries in which Butler Lumber is operating, firms are required to store customer data within the premises of the country. Butler Lumber needs to restructure its IT policies to accommodate these changes. In the EU countries, firms are required to make special provision for privacy issues and other laws.

Competition Regulations – Numerous countries have strong competition laws both regarding the monopoly conditions and day to day fair business practices. Butler Lumber Co. has numerous instances where the competition regulations aspects can be scrutinized.

Import restrictions on products – Before entering the new market, Butler Lumber in case study Butler Lumber Co." should look into the import restrictions that may be present in the prospective market.

Export restrictions on products – Apart from direct product export restrictions in field of technology and agriculture, a number of countries also have capital controls. Butler Lumber in case study “ Butler Lumber Co. ” should look into these export restrictions policies.

Foreign Direct Investment Policies – Government policies favors local companies over international policies, Butler Lumber in case study “ Butler Lumber Co. ” should understand in minute details regarding the Foreign Direct Investment policies of the prospective market.

Corporate Taxes – The rate of taxes is often used by governments to lure foreign direct investments or increase domestic investment in a certain sector. Corporate taxation can be divided into two categories – taxes on profits and taxes on operations. Taxes on profits number is important for companies that already have a sustainable business model, while taxes on operations is far more significant for companies that are looking to set up new plants or operations.

Tariffs – Chekout how much tariffs the firm needs to pay in the “ Butler Lumber Co. ” case study. The level of tariffs will determine the viability of the business model that the firm is contemplating. If the tariffs are high then it will be extremely difficult to compete with the local competitors. But if the tariffs are between 5-10% then Butler Lumber can compete against other competitors.

Research and Development Subsidies and Policies – Governments often provide tax breaks and other incentives for companies to innovate in various sectors of priority. Managers at Butler Lumber Co. case study have to assess whether their business can benefit from such government assistance and subsidies.

Consumer protection – Different countries have different consumer protection laws. Managers need to clarify not only the consumer protection laws in advance but also legal implications if the firm fails to meet any of them.

Political System and Its Implications – Different political systems have different approach to free market and entrepreneurship. Managers need to assess these factors even before entering the market.

Freedom of Press is critical for fair trade and transparency. Countries where freedom of press is not prevalent there are high chances of both political and commercial corruption.

Corruption level – Butler Lumber needs to assess the level of corruptions both at the official level and at the market level, even before entering a new market. To tackle the menace of corruption – a firm should have a clear SOP that provides managers at each level what to do when they encounter instances of either systematic corruption or bureaucrats looking to take bribes from the firm.

Independence of judiciary – It is critical for fair business practices. If a country doesn’t have independent judiciary then there is no point entry into such a country for business.

Government attitude towards trade unions – Different political systems and government have different attitude towards trade unions and collective bargaining. The firm needs to assess – its comfort dealing with the unions and regulations regarding unions in a given market or industry. If both are on the same page then it makes sense to enter, otherwise it doesn’t.

Economic Factors that Impact Butler Lumber Co.

Social factors that impact butler lumber co., technological factors that impact butler lumber co., environmental factors that impact butler lumber co., legal factors that impact butler lumber co., step 3 – industry specific analysis, what is porter five forces analysis, step 4 – swot analysis / internal environment analysis, step 5 – porter value chain / vrio / vrin analysis, step 6 – evaluating alternatives & recommendations, step 7 – basis for recommendations, references :: butler lumber co. case study solution.

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Butler Lumber Company, Case Study Example

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Butler Lumber Company has been enjoying impressive sales growth over the years and its net income has also continuously increased in absolute terms. The company’s owner Mark Butler is an ambitious individual who is well liked for his work ethics and people skills by those who know him. However, in his major focus on sales expansion, Butler has failed to notice the deteriorating liquidity and operating performance of the company. The recommended course of action to Butler is to scale back expansion plans, improve operating performance and leverage position of the company, and possibly seek a different capital structure.

This profitable company has been forced to borrow so much from the bank because it’s sales are expanding at a higher rate than what could be supported through internal funds. At first glance, it seems the company is quite profitable but a closer look at the profitability ratios reveal that the profit margins have actually been decreasing over the years. This is because the company’s expenses to support the rising sales have been growing at a faster pace and one example is Butler’s own salary which increased from $75,000 in 1988 to $95,000 in 1990.

The profit margin was 1.83%, 1.69%, and 1.63% in 1988, 1989, and 1990 respectively which means the company’s operating performance is on a downward spiral. This makes the sales growth less appealing because marginal expenses to support the growing sales keep rising each year. The picture is mixed though when it comes to asset utilization rate such as inventory turnover rate which decreased to 6.17 in 1989 from 7.1 in 1988 but increased to 6.44 in 1990 though still below the 1988 level.

One of the reasons why the company might have been able to improve the inventory turnover rate in 1990 is by offering more generous credit facilities to the customers in order to grow sales and this assumption is indeed supported by the balance sheet that shows a huge jump in accounts receivables in 1990 at $317,000 from $222,000 in 1989. Thus, the company has been sacrificing operating liquidity in exchange for higher sales and the actual expenses may turn out to be higher due to higher risk of bad debts.

The company estimates that it needs a revolving loan facility of $465,000 which is quite an overestimation. Assuming that the company’s sales will be $3.6 million in 1991 and the company retained $9 million out of $44 million of net income in 1990, the company’s external financing in 1991 need should be approximately $215,000 as shown below.

By this estimation, the company is asking for more than twice its external financing need and going for unnecessary debt when its current debt position is already a cause of concern.

Debt has continued to become a greater portion of the company’s overall capital structure during the period from 1988 to 1990. This means the company’s interest expense has also continued to increase, negatively affecting its net profit margin. This is also one reason why the company’s profit margins continue to decline. In addition to direct costs, this is also costing the company indirectly because one of the reasons the company has not been able to take advantage of trade discounts by promptly paying for its purchases is because it has always been low on funds. And the opportunity cost has been quite huge.

The company made inventory purchases of $2,042,000 in 1990. If the company had paid the invoice within ten days, it would have been eligible for 2% discount which translates to $40, 840. This figure is almost the same as the company’s net income in 1990 which was $44,000. The company could have earned almost twice the net income had it taken advantage of trade discounts. Yet, instead of realizing the seriousness of the problem, the company is keen on taking more loan that is needed to fund its planned expansion in 1991.

As we looked over the figures during the period 1988-1989, the annual purchases have been about 75-76% of the net sales figure. If the expected sales in 1991 is $3.6 million, this translates to $2.7 million of purchases at 75% of the net sales figure. By taking advantage of the trade discounts, the company can save about $54,000 which is a significant number and higher than the net income in all of the previous three years. The company should take advantage of this opportunity but it seems unlikely if the past is any indication unless the company takes drastic steps to manage its deteriorating short term liquidity.

As Mr. Butler’s financial advisor, I would advise him to reconsider his anticipated expansion and plans for additional debt financing. I would advise Mr. Butler to focus on improving operating efficiency, lowering short term liabilities, and adopt controlled growth policy instead of aggressive growth policy. If we look at the short term, liquidity ratios, it is apparent that the company’s growth is coming on the shoulders of short term liabilities.

The current ratio decreased from 1.80 in 1988 to 1.45 in 1990. Part of the reason may be higher accounts payable levels every year. So far the company is managing its relationship with the suppliers well but if the trend continues, the suppliers may demand prompt payment and become less generous with credit. Similarly, quick ratio also shows the same trend and is a better indicator of short term liquidity than current ratio because it excludes inventory.

The company’s quick ratio declined by approximately 24 percent from 1988 to 1990. Another sign of deteriorating short term liquidity is declining days payables outstanding ratio. While it took the company about 37 days to pay its suppliers in 1998, the figure has jumped to nearly 48 days. This may also be happening because of the company’s generous credit facility to customers and, thus, a significant portion of sales is now non-cash.

As a banker, I would not approve Mr. Butler’s request of $465,000. This is because I have looked at different financial ratios and they show quite a disturbing trend. I would be concerned that Mr. Butler has already difficulties meeting his current obligations and new loan would only further worsen his ability to meet his debt obligations. First of all, the company’s ability to meet its short term interest payments is deteriorating.

While the 2.61 ratio in 1990 is still not a bad figure but the three-year trend indicates signs of troubles ahead. The ratio was 3.85 just two years ago in 1988 and now stands at about 68% of the 1988 level in just two years. This is because the company has been accumulating debt too quickly and its income has not been keeping up pace. Similarly, as mentioned before, the company has been taking longer and longer to pay back its suppliers and has difficulty taking advantage of trade discounts that could make a huge difference in its financial performance. The company’s external financing need is about $215,000 and I would be willing to consider this figure but only if the company agrees to certain covenants.

One requirement is that the company will not open credit facility of any kind with any other institution except when permitted by the bank. Second covenant is that the whole amount of the remaining principle as well as applicable interest will be immediately due if the company misses any payment unless the bank agrees to change the term. In addition, the company will not pay any dividend during the term of the loan. The company will also be required to inform the bank of any capital investment plans and the bank will have the right to inspect company’s financial documents anytime. Moreover, the company will maintain a profit margin of at least 1.5% during the term of the loan.

If Mr. Dodge turns down his request for increased credit line, Mr. Butler could raise funds by offering common stock to the investors. The company could also sell its account receivables to a third party at a discounted value. Mr. Butler could also sell some of the company’s assets to raise funds. Mr. Butler could also consider obtaining loans that are secured against the assets of the company. Mr. Butler doesn’t want to follow this course of action but doing so will allow him to obtain more attractive terms from the lenders.

If I am Mr. Butler, I would follow a more controlled growth rather than aggressive growth. I will obtain only $215,000 but not to support sales expansion but to attempt to improve liquidity and operating performance. Even then, I will attempt to obtain loans against the company’s assets to get better terms and reduce interest expense. Since my focus is on improving operating efficiency and liquidity, I will also agree to covenants to further reduce my debt costs. I will sell some of the company’s assets such as warehouses and improve relationships with the suppliers by more prompt payments and working with them to implement more efficient supply chain to reduce storage costs and improve inventory turnover.

I will also implement more conservative credit facility to the customers and take steps to increase cash-based sales. Customers will be offered discounts for prompt payments. I will also try to quickly pay down debt and change the company’s capital structure to equity-intensive one. This will help improve both profit margins and liquidity and will especially be helpful in difficult economic conditions. Most of the company’s future capital investments will be funded internally instead of through debt financing.

I will replace many assets with operating leases. Operating leases would prevent the need for high capital investments as well as providing flexibility. Moreover, lower asset base would also mean lower depreciation expense and higher profits.

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Marketing Process Analysis

Segmentation, targeting, positioning, marketing strategic planning, marketing 5 concepts analysis, swot analysis & matrix, porter five forces analysis, pestel / pest / step analysis, cage distance analysis international marketing analysis leadership, organizational resilience analysis, bcg matrix / growth share matrix analysis, block chain supply chain management, paei management roles, leadership with empathy & compassion, triple bottom line analysis, mckinsey 7s analysis, smart analysis, vuca analysis ai ethics analysis analytics, butler lumber co. porter five (5) forces analysis & solution/ mba resources.

• Butler Lumber Co.
• Finance & Accounting / MBA Resources

Introduction to Porter Five Forces

Emba pro porter five forces solution for butler lumber co. case study.

The Butler Lumber Co. is faced with a need for increased bank financing due to its rapid sales growth and low profitability. Students must determine the reasons for the rising bank borrowing, estimate the amount of borrowing needed, and assess the attractiveness of the loan to the bank. A rewritten version of an earlier case. Allows students to practice ratio analysis, financial forecasting, and evaluating financing alternatives.

Case Authors : Thomas R. Piper

Topic : finance & accounting, related areas : forecasting, recession, emba pro porter five forces analysis approach for butler lumber co..

At EMBA PRO , we provide corporate level professional Marketing Mix and Marketing Strategy solutions. Butler Lumber Co. case study is a Harvard Business School (HBR) case study written by Thomas R. Piper. The Butler Lumber Co. (referred as “Butler Lumber” from here on) case study provides evaluation & decision scenario in field of Finance & Accounting. It also touches upon business topics such as - Marketing Mix, Product, Price, Place, Promotion, 4P, Forecasting, Recession. Our immersive learning methodology from – case study discussions to simulations tools help MBA and EMBA professionals to - gain new insight, deepen their knowledge of the Finance & Accounting field, company, context, collaborators, competitors, customers, Marketing Mix factors, Products related decisions, pricing strategies and more.

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First published in 1979, “How Competitive Forces Shape Strategy” by Michael E. Porter, revolutionized the field of strategy. Popularly known as “Porter’s Five Forces” - not only influenced a generation of academic research but also provided a map to rigorously analyze the competitive forces.

Porter Five Forces that Determine Industry Structure

Porter Five Forces model is heavily borrowed from the traditional field of micro economics. The five forces that determine the industry structure of organization in casename case study are -

1. Threat of substitute products and services - If the threat of substitute is high then Butler Lumber has to either continuously invest into R&D or it risks losing out to disruptors in the industry.

2. Rivalry among existing players – If competition is intense then it becomes difficult for existing players such as Butler Lumber to earn sustainable profits.

3. Bargaining power of buyers of Butler Lumber – If the buyers have strong bargaining power then they usually tend to drive price down thus limiting the potential of the Butler Lumber to earn sustainable profits.

4. Threat of new entrants - if there is strong threat of new entrants then current players will be willing to earn less profits to reduce the threats.

5. Bargaining power of suppliers of Butler Lumber - If suppliers have strong bargaining power then they will extract higher price from the Butler Lumber.

Why Porter's five forces analysis is important for casestudyname?

You can use Porter Five Forces model to analyze the competitiveness faced by protagonist in casestudy. Porter five forces analysis of casename case study will help you in understanding and providing solution to – nature & level of competition, and how Butler Lumber can cope with competition. Even though from outside various industries seem extremely different but analyzed closely these five forces determines the drivers of profitability in each industry. You can use Porter Five Forces to understand key drivers of profitability of Butler Lumber in casename case study.

Porter’s 5 Forces, Competitive Forces & Industry Analysis

The core objective of strategists and leaders in an organization is to help the organization to build a sustainable competitive advantage and thwart competitive challenges. Step 1 – Defining relevant industry for Butler Lumber in casestudy Step 2 – Identify the competitors and group them based on the segments within the industry Step 3- Assess the Porter Five Forces in relation to the industry and assess which forces are strong and which forces are weak. Step 4 - Determine overall industry structure and test analysis of consistency Step 5 – Analyze recent and future changes in each forces Step 6 – Identify aspects of industry structure based on Porter 5 Forces that might be influenced by competitors and new entrants.

How is Porter's five forces framework used in developing strategies?

To achieve above average profits compare to other industry players in the long run, Butler Lumber needs to develop a sustainable competitive advantage. Industry analysis using Porter Five Forces can help Butler Lumber in casename case study to map the various forces and identify spaces where Butler Lumber can position itself. By doing Industry analysis using Porter Five Forces, Butler Lumber Co. can develop four generic competitive strategies.

The four generic competitive strategies that can be pursued in casename case study are -

Cost leadership.

In cost leadership, Butler Lumber Co. can set out to become the low cost producer in its industry. How it can become cost leader varies based on the industry forces and structure. In pursuing cost leadership strategy, Butler Lumber can assess – (pursuit of economies of scale, proprietary technology, supply chain management options, diversification of suppliers, preferential access to raw materials) and other factors.  

Differentiation

Butler Lumber can also pursue differentiation strategy based on the industry forces description in casename case study. In a differentiation strategy Butler Lumber can seek to be unique in its industry by providing a value proposition that is cherished by buyers. Butler Lumber can select one or more attributes that  can uniquely position it in the eyes of the customers for a specific needs. The goal is to seek premium price because of differentiation and uniqueness of the offering. Industry analysis using Porter Five Forces can help Butler Lumber to avoid spaces that are already over populated by the competitors.

Focus - Cost Focus & Differentiation Focus

The generic strategy of Focus rests on the choice of competitive scope within an industry. Butler Lumber can select a segment or group of segment and tailor its strategy to only serve it.  Most organization follows one variant of focus strategy in real world.

The Focus Strategy has two variants.

(a) In cost focus a Butler Lumber Co. can seek a cost advantage in its choses segment in casecategory. (b) In Differentiation strategy Butler Lumber Co. can differentiate itself in a target segment in its industry. Both variants of the focus strategy rest on differences between a Butler Lumber Co. ’s target segment and other segments in the industry.

5C Marketing Analysis of Butler Lumber Co.

4p marketing analysis of butler lumber co., porter five forces analysis and solution of butler lumber co., porter value chain analysis and solution of butler lumber co., case memo & recommendation memo of butler lumber co., blue ocean analysis and solution of butler lumber co., marketing strategy and analysis butler lumber co., vrio /vrin analysis & solution of butler lumber co., pestel / step / pest analysis of butler lumber co., case study solution of butler lumber co., swot analysis and solution of butler lumber co., references & further readings.

M. E. Porter , Competitive Strategy(New York: Free Press, 1980) Thomas R. Piper (2018) , "Butler Lumber Co. Harvard Business Review Case Study. Published by HBR Publications. O. E. Williamson , Markets and Hierarchies(New York: Free Press, 1975)

Kotler & Armstrong (2017) "Principles of Marketing Management Management", Published by Pearson Publications.

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Butler Lumber Co. is a Harvard Business (HBR) Case Study on Finance & Accounting , Fern Fort University provides HBR case study assignment help for just $11. Our case solution is based on Case Study Method expertise & our global insights.

Finance & Accounting Case Study | Authors :: Thomas R. Piper

Case study description.

The Butler Lumber Co. is faced with a need for increased bank financing due to its rapid sales growth and low profitability. Students must determine the reasons for the rising bank borrowing, estimate the amount of borrowing needed, and assess the attractiveness of the loan to the bank. A rewritten version of an earlier case. Allows students to practice ratio analysis, financial forecasting, and evaluating financing alternatives.

Forecasting, Recession

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[10 Steps] Case Study Analysis & Solution

Step 1 - reading up harvard business review fundamentals on the finance & accounting.

Even before you start reading a business case study just make sure that you have brushed up the Harvard Business Review (HBR) fundamentals on the Finance & Accounting. Brushing up HBR fundamentals will provide a strong base for investigative reading. Often readers scan through the business case study without having a clear map in mind. This leads to unstructured learning process resulting in missed details and at worse wrong conclusions. Reading up the HBR fundamentals helps in sketching out business case study analysis and solution roadmap even before you start reading the case study. It also provides starting ideas as fundamentals often provide insight into some of the aspects that may not be covered in the business case study itself.

Step 2 - Reading the Butler Lumber Co. HBR Case Study

To write an emphatic case study analysis and provide pragmatic and actionable solutions, you must have a strong grasps of the facts and the central problem of the HBR case study. Begin slowly - underline the details and sketch out the business case study description map. In some cases you will able to find the central problem in the beginning itself while in others it may be in the end in form of questions. Business case study paragraph by paragraph mapping will help you in organizing the information correctly and provide a clear guide to go back to the case study if you need further information. My case study strategy involves -

• Marking out the protagonist and key players in the case study from the very start.
• Drawing a motivation chart of the key players and their priorities from the case study description.
• Refine the central problem the protagonist is facing in the case and how it relates to the HBR fundamentals on the topic.
• Evaluate each detail in the case study in light of the HBR case study analysis core ideas.

Step 3 - Butler Lumber Co. Case Study Analysis

Once you are comfortable with the details and objective of the business case study proceed forward to put some details into the analysis template. You can do business case study analysis by following Fern Fort University step by step instructions -

• Company history is provided in the first half of the case. You can use this history to draw a growth path and illustrate vision, mission and strategic objectives of the organization. Often history is provided in the case not only to provide a background to the problem but also provide the scope of the solution that you can write for the case study.
• HBR case studies provide anecdotal instances from managers and employees in the organization to give a feel of real situation on the ground. Use these instances and opinions to mark out the organization's culture, its people priorities & inhibitions.
• Make a time line of the events and issues in the case study. Time line can provide the clue for the next step in organization's journey. Time line also provides an insight into the progressive challenges the company is facing in the case study.

Step 4 - SWOT Analysis of Butler Lumber Co.

Once you finished the case analysis, time line of the events and other critical details. Focus on the following -

• Zero down on the central problem and two to five related problems in the case study.
• Do the SWOT analysis of the Butler Lumber Co. . SWOT analysis is a strategic tool to map out the strengths, weakness, opportunities and threats that a firm is facing.
• SWOT analysis and SWOT Matrix will help you to clearly mark out - Strengths Weakness Opportunities & Threats that the organization or manager is facing in the Butler Lumber Co.
• SWOT analysis will also provide a priority list of problem to be solved.
• You can also do a weighted SWOT analysis of Butler Lumber Co. HBR case study.

Step 5 - Porter 5 Forces / Strategic Analysis of Industry Analysis Butler Lumber Co.

In our live classes we often come across business managers who pinpoint one problem in the case and build a case study analysis and solution around that singular point. Business environments are often complex and require holistic solutions. You should try to understand not only the organization but also the industry which the business operates in. Porter Five Forces is a strategic analysis tool that will help you in understanding the relative powers of the key players in the business case study and what sort of pragmatic and actionable case study solution is viable in the light of given facts.

Step 6 - PESTEL, PEST / STEP Analysis of Butler Lumber Co.

Another way of understanding the external environment of the firm in Butler Lumber Co. is to do a PESTEL - Political, Economic, Social, Technological, Environmental & Legal analysis of the environment the firm operates in. You should make a list of factors that have significant impact on the organization and factors that drive growth in the industry. You can even identify the source of firm's competitive advantage based on PESTEL analysis and Organization's Core Competencies.

Step 7 - Organizing & Prioritizing the Analysis into Butler Lumber Co. Case Study Solution

Once you have developed multipronged approach and work out various suggestions based on the strategic tools. The next step is organizing the solution based on the requirement of the case. You can use the following strategy to organize the findings and suggestions.

• Build a corporate level strategy - organizing your findings and recommendations in a way to answer the larger strategic objective of the firm. It include using the analysis to answer the company's vision, mission and key objectives , and how your suggestions will take the company to next level in achieving those goals.
• Business Unit Level Solution - The case study may put you in a position of a marketing manager of a small brand. So instead of providing recommendations for overall company you need to specify the marketing objectives of that particular brand. You have to recommend business unit level recommendations. The scope of the recommendations will be limited to the particular unit but you have to take care of the fact that your recommendations are don't directly contradict the company's overall strategy. For example you can recommend a low cost strategy but the company core competency is design differentiation.
• Case study solutions can also provide recommendation for the business manager or leader described in the business case study.

Step 8 -Implementation Framework

The goal of the business case study is not only to identify problems and recommend solutions but also to provide a framework to implement those case study solutions. Implementation framework differentiates good case study solutions from great case study solutions. If you able to provide a detailed implementation framework then you have successfully achieved the following objectives -

• Detailed understanding of the case,
• Clarity of HBR case study fundamentals,
• Analyzed case details based on those fundamentals and
• Developed an ability to prioritize recommendations based on probability of their successful implementation.

Implementation framework helps in weeding out non actionable recommendations, resulting in awesome Butler Lumber Co. case study solution.

Step 9 - Take a Break

Once you finished the case study implementation framework. Take a small break, grab a cup of coffee or whatever you like, go for a walk or just shoot some hoops.

Step 10 - Critically Examine Butler Lumber Co. case study solution

After refreshing your mind, read your case study solution critically. When we are writing case study solution we often have details on our screen as well as in our head. This leads to either missing details or poor sentence structures. Once refreshed go through the case solution again - improve sentence structures and grammar, double check the numbers provided in your analysis and question your recommendations. Be very slow with this process as rushing through it leads to missing key details. Once done it is time to hit the attach button.

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• October 1991 (Revised January 2002)
• HBS Case Collection

Butler Lumber Company

• Format: Print

About The Author

Thomas R. Piper

Related work.

• September 1996 (Revised October 1996)
• Faculty Research

Clarkson Lumber Company

• February 2004 (Revised March 2004)

Cartwright Lumber Company

• Clarkson Lumber Company  By: Thomas R. Piper
• Cartwright Lumber Company  By: Thomas R. Piper
• Butler Lumber Company  By: Thomas R. Piper

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Butler Lumber Company Case Solution

This will eventually deteriorate the relationship and goodwill of the firm with regards to their main suppliers. Although these costs cannot be estimated with the information provided, they could have serious consequences on the operations and profitability of the Butler company. They must therefore be kept in mind when making the financial decision with regards to the short term fund requirements of the firm. In order to determine those requirements, we calculated the external financing needs based on the 1991 Q1 assets and liabilities, coming out to a total of $166,474 on top of current borrowing situation. This implies that if the Butler Lumber Company Casesol were to go with Northrop National Bank, it would need to borrow the EFN previously calculated, plus the outstanding balance of the Suburban loan at the end of 1991 Q1, amounting to a total of $413,474. In our proforma analysis we will predict both balance sheets and income statements for two potential scenarios: stay with Suburban National Bank and continue to rely on the trade payables extended by suppliers as well as putting up extra collateral, or switch to a new loan with the Northrop National Bank. The two scenarios outlined above were then estimated by projecting the income and balance statements using a historical percentage of sales and growth rates. In both scenarios, Butler Lumber Company Case Solution Casesol sales grow at a historical average growth rate of 25.3%. The financing from the new bank option was to be used to pay suppliers within 10 days and pay off the balance of the company's trade payables. Also, paying within 10 days grants Butler a 2% purchase discount and the accounts payable account in the balance sheet will decrease since the payable period is shorter (10 days). The banknote payable will change every 90 days, depending on the amount borrowed during the period. The second quarter will exhibit a decrease of $247 (Butler must pay off debt issued by the other bank) and an increase of up to $465,000. In turn, this changes the interest payment every 90 days. The interest expense on balance sheet at the end of 1991 becomes $54. These factors will increase net income to $68 over the next year, in comparison to $57 under the smaller loan amount available.

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We propose a new model for the valuation of loan commitments and some of their main features including the MAC (Material Adverse Change) clause. We employ a two-period contingent claim approach. The advantage of this approach is that it is based on rational economic considerations that are utility-free and allow taking into account the option to borrow at market rates if the credit risk of the borrower improves with time. On another side the proposed model allows the lender not to give the loan if the company is bankrupt or even when there is a significant deterioration of its credit risk. As a result the standard loan commitment is broken into three different parts that comprise the loan commitment. Each part can be valued separately by using the standard methods of contingent claims valuation. The results explain the low cost of loan commitments and the economic factors that affect the pricing.

Danny Klinefelter

Osafo K O F I Asante

Redfame Publishing

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Geert Reuten

Srabon Anis

Journal ijmr.net.in(UGC Approved)

The customer choice and awareness have been increasing tremendously during this decade due to more open economy, the advent of information technology and media revolution, besides hectic competition for resources by banks. As markets have become increasingly competitive, customers can now immediately go elsewhere if they do not get what they want. Continuous improvement, gaining the competitive edge, increased market share, higher profits-none of these things is possible unless businesses can find new ways of maintaining the loyalty of existing customers. It takes only a few incidents and direct experiences for the knowledgeable customers to form an opinion about the quality of the services and the quality of the product offered. Hence, " customer service is not being viewed as just a business strategy but should become a corporate mission. "

Size: 6.92 M (including 10 original articles) Journal's Website: http://afa.redfame.com ISSN 2374-2410(Print) ISSN 2374-2429(Online) Publisher's Website: http://redfame.com Publisher: Redfame Publishing Publication Date: Feb. 2016

JOSAR (Journal of Students Academic Research)

Anisa fadhilah

This study aims to determine how much influence savings and loans have on the performance of service income in the group of mothers. This study uses a quantitative descriptive method by conducting questionnaires on 56 respondents. The data analysis method used is a simple linear regression analysis that is assisted by SPSS version 24.0 for Windows.The results of the analysis show the effect of savings and loans on the performance of service income in the group of women, namely Y = 16.417 + 0.307X obtained by a constant of 16.4% with a regression coefficient of 30.7%. The results of the determination coefficient show 27.4%, which means that the savings and loans variable has a very low effect on the service income performance variable. Whereas through the test obtained tcount 2.093 greater than t table 2.003.

Butler Lumber Case

Butler Lumber Company Case ? Butler Lumber Company Case Summary of facts: In 1981 by Mark Butler and his brother-in-law Henry Stark founded the Butler Lumber Company. In 1988 Mr. Butler bought Mr. Stark’s share for $105,000 to be paid of in 1989 out of which $70,000 was raised by a loan carrying an interest rate of 11% and repayable at the rate of $7,000 over the next 10 years.

Over the past five years, Butler Lumber Company has experienced rapid growth in its business. It derives its business from retail distribution of lumber products in the local area.A large portion of its business is based in repair services, and as a result, it should be somewhat protected from a downturn in the real estate market. Sales volume has built up largely due to successful price competition, made possible by careful control of operating expenses, and quantity purchases at substantial discounts. Mark Butler, sole owner and president of the Butler Lumber Company is looking to increase the company borrowing.

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Suburban National Bank currently holds $247,000 of its debt. In order to increase its borrowing, Butler Lumber Company will have to switch debt holders from Suburban National to Northrop National Bank.Northrop National is currently analyzing the financial stability of Butler Lumber Company. Problems: Butler Lumber Company has a problem with a shortage of cash resulting in an inability to satisfy the expansion of its rapidly growing business as evident by the balance sheet forecast for 1991(Exhibit 2). For this reason, Mr.

Butler is seeking a larger unsecured loan in order to satisfy the company’s immediate need for cash. Northrop National Bank is prepared to offer Butler Lumber Company a loan of up to $465,000. Will $465,000 be enough to satisfy Butler Lumber’s expanding business? We are assume a 1991 sales volume of $3. 191 million). Why has sales growth been so strong while net income growth has been feeble at best? Butler Lumber Company Estimated Income Statement Dec.

31, 1991 (Thousands of Dollars) 1991ValueExplanation Net sales$ 3,191 22. 5% of yearly revenue Cost of Goods Sold: Beginning inventory418 From given Data Purchases2,4123,191. 11*0. 756% Of sales based on three previous years $ 2,830 Ending inventory(565)(COGS-beg inv – purchase) Total Cost of Goods Sold$ 2,2663,191. 11*0. 71% Of sales based on three previous years Gross profit925Operating expenses(798)3,191.

11*0. 25% Of sales based on three previous years Operating Profit127 Purchase Discounts35 2% of Purchases after April 1st Earnings before interest and taxes$ 162 Interest expense (48)10+(315*12. 5%)From given Data Net income before income taxes$ 114 Provision for income taxes(27) Net income$ 87 Analysis: We have prepared pro forma Balance Sheet and Income Statement for the period ending December 31, 1991 in order to determine how much Butler Lumber will need in additional debt financing if it is to expand as planned.We believe that Northrop National’s Net Sales estimate of 3. 6 million for 1991 is overly confident. Historically, 55% of total yearly net sales are made during the second and third quarter.

We can thereby assume that the first quarter revenue of $718,000 is 22. 5% of the total yearly revenue. As a result, our analysis has resulted in a forecast of $3. 191 million for 1991. Beginning inventory is derived from last year’s ending inventory.

Purchases are projected from an average trend of 75. 6% of sales over the past three years. Total Cost of Goods Sold is based on average of 25% of sales over past three years.Interest expense is calculated by adding $10,000 to interest expense of loan amount calculated in balance sheet with the rate of 12. 5% percent given in the case. Butler Lumber Company is taxed at the rate of 15% on its first $50,000 of income, 25% on the next $25,000, and 34% on all income over $75,000.

Butler Lumber Company Estimated Balance Sheet Dec. 31, 1991 (Thousands of Dollars) 1991 2nd passExplanation Cash$ 49Last year’s % Of Sales Accounts receivable, net350 Average % Of Sales Inventory565Calculated from Inc. Statement Current assets $ 963Property, net186Last year’s % Of Sales Total Assets $ 1,149 Notes payable, Northrop$ 315 Plug Value Note payable to Holtz – Notes payable, trade – Accounts payable303 Accrued expenses 46 Last year’s % Of Sales Current portion of Long Term Loan7Constant Current liabilities $ 671 Long-Term loan43$50 – $7 Total Liabilities $ 714 Net worth$4351990 Net Worth + 1991 Net Income Total Liab. & Net Worth$ 1,149 The Balance sheet was generated with the assumption that Butler Lumber would utilize the additional loan from Northrop National.Cash, Accrued Expenses, and Net Property are all based on the most recent year’s percentage of sales.

Accounts receivable is derived from average of previous years percentage of sales. In order for Total Assets and Total Liabilities & Net Worth to be in balance Butler Lumber needs additional debt financing of $315,000 as can be seen in Notes Payable. This in turn has an effect on Net Income for 1991, which is added to beginning Net Worth in order to arrive at $435,000. Liquidity Ratios1988198919901991Note Current Ratio1. 81.

591. 451. 44Downward trendQuick Ratio0. 880. 720. 670.

59Downward trend Cash Ratio0. 220. 130. 080. 07Downward trend The current and quick ratios can help us assess Butler Lumber Company’s liquidity. It helps us examine how it will be able to meet its short-term debt obligations such as accounts payable and short-term notes payable with payments due within the next year.

A current ratio of approximately 1 is desirable. Values lower than 1 indicate that the company might have difficulties meeting its short term obligations, while values higher than indicate an inefficient use of resources.Butler Lumber Company has a current ratio of 1. 45 (1990) with a downward trend, indicating a more efficient use of its resources. However, their quick ratio is only 0. 67 (1990).

This might signify a wasteful use of funds. The only difference between the current and quick ratios is inventory. Mr. Butler chooses to load up on inventory even though he is rarely able to take advantage of the 2% 10 days discount offered with quantity purchases, resulting in the large difference in liquidity measurements.The decreasing trend could be worrisome, especially given the low quick ratios. However, according to the current ratio, the company is still able to cover its short-term debt.

This table (Exhibit 4) is based on the scenario in which Butler utilizes the loan from Northrop National. Profit margin and ROA shows a steady decrease up until 1991 when the loan comes into effect. This increases both these ratios for the company. The ROE has somewhat of an increasing trend and with the new loan this slope will get even steeper.It is therefore clearly evident that the loan from Northrop will have a positive effect on company operations both for the company in and of itself as well as stakeholders.

Recommendations: Butler Lumber Company has had a steady increase in growth over the past four years, even with our relatively low estimate compared to that of Northrop National Bank. We would advise Mr. Butler to take the loan in order to expand his business and increase profitability. One worrying fact about the company is the lack of sales staff, yet the revenue has been able to grow at a pace of 19% in 1989, 34% in 1990, and 18% in 1991.By hiring a new sales representative working for a base salary plus commission, we believe that revenues could experience an even higher growth. The large amount of inventory growth along with a smaller annual growth in net income suggests poor management of funds, as evident by the current and quick ratios (see Exhibit 3), but also by the fact that in 1990, inventory was almost 45% of total assets.

Better inventory management might increase cash funds and allow for more freedom in the management of current assets.

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Butler Lumber Co. Harvard Case Solution & Analysis

Home >> Harvard Case Study Analysis Solutions >> Butler Lumber Co.

Butler Lumber Company is faced with the need to increase funding for the bank in connection with its rapid sales growth and low profitability. Students need to identify the causes of the growth of bank loans, to estimate the amount of borrowing necessary, and to assess the attractiveness of credit at the bank. Rewritten version of the previous case. Allows students to practice the ratio analysis, financial forecasting and evaluation of alternative financing options. Buttler Lumber Company Case Solution

"Hide by Thomas R. Piper Source: HBS Premier Case Collection 4 pages. Publication Date: October 31, 1991. Prod. #: 292013-PDF-ENG

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Butler Lumber Co.

Subjects Covered Financial analysis Financial planning Forecasting Loan evaluation

by Thomas R. Piper

Source: HBS Premier Case Collection

4 pages. Publication Date: Oct 31, 1991. Prod. #: 292013-PDF-ENG

Butler Lumber Co.Harvard Case Study Solution and HBR and HBS Case Analysis

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