Financial Management and Credit Risk Essay Example | Topics and Well Written Essays - 2750 words

Financial Management and Credit Risk - Essay Example This can significantly both increase the interest rate that is charged to the company as well the additional strain to the company’s earnings. While the company proves to be profitable, other financial measures show its many weaknesses, especially on the part of its working capital and cash conversion cycle. By probing at the current financial standing of the company, the company’s financial position is seen. With this, the implications of the subsequent financing activities can be determined as regards the overall health of the firm. The company is then faced with a decision of whether to pursue the additional debt financing. If Butler Lumber Company is not going to avail of the financing, it has to at least address and avail of some options of financing to meet its financing need. These alternatives are explored in the subsequent portions of this case study, which include strengthening cash generation from the profitable operation of the company through better working capital management, as well as other equity financing means. Butler Lumber Company’s main line of business is in retailing lumber products within the local area of a large city in the Pacific Northwest. Mark Butler, the company’s sole owner and the president is contemplating an increase in debt financing for its expansion. Butler Lumber Company currently has an existing relationship with Suburban National Bank, where it gets its additional funding in the form of loans. However, as Mr. Butler reaches the loan limit of 250,000, he is pondering on availing additional financing for his company’s expansion with a revolving credit line of 465,000 from Northrop National Bank through George Dodge. This is in order for him to secure financing that will address his company’s shortage of funds. As the loan has not yet been approved, Butler Lumber Company’s financial position is yet to be determined by Northrop National Bank before Mr. Dodge can decide on giving the additional financing to Mr. Butler.