Dawson Lumber Company Essay

Marketing analytic thinkingThe Dawson quality Company was founded in the 1870s by the Dawson family to securities industry the lumber on their land. In 1950, Dawson baseball bat owned four small lumber yards in the Cornwall area, each operating as a separate keep corpo ration. However, in 1965, J.H. Dawson became president and alter the four companies into the Dawson Lumber Company. The conjunction had acquired seven more lumber yards due north and west of Cornwall, Ontario but further harvesting was limited by J.H. Dawsons belief that growth should only be financed by internally generated memorys.For all over one hundred years, Dawson Lumber had been dealing with the Cornwall offset of the Eastern banking reach and, in 1993, borrowed approximately $1.5 million to finance inventory build-up needed to attend ageal sales. From April to November, 77 percent of the sales occurred evenly, while 23 percent were evenly distributed from December to March. The demand is sea sonal which comprises of 8 months peak season and 4 months off season for which the sales remain low. The come withs sales were between $10 and $15 million in the late(a) 1980s, with 90 percent being wholesale sales to local residential contractors.After the retirement of J.H. Dawson, his son Doug Dawson took over the business and reorganized the companions 11 branches into tierce regions. The Northern Region served an urban market and consisted of three yards just outside the city of Ottawa. Four lumber yards in the Cornwall area made up the Eastern Region and five lumber yards near Kingston formed the Western Region. The Eastern Region was a rural market while the Western region was partially a resort and partially an urban area.Each region was made the debt instrument of an area supervisor who had worked for many years in the companys lumber yards. A management committee consisting of the president, controller, and area supervisors met monthly to reason operationalstrategy . In an attempt to minimize inventory levels, one branch in each region operated as a depot. A devolve of trucks kept frequent and regular schedules between the lumber yards and the depot offer up rapid delivery to the customer. From the year 1996-1998 the gross margin ranges from 26% to 31% on average of lumber sales.The regular price was the price at which the item could be charged and delivered. The discount price applied if the customer wished to pay the cash and take the goods away. A third price was as well as charged if the customer wished to pay cash and have the purchase delivered. The bare-assed stores sales in its first deuce months of trading operations were $2.28 million. To sum up the company has remark sufficient marketing activities.Operations AnalysisOn the basis of comparing the financial information for the past three years 1996, 1997 & 1998, we can clearly see that due to consistent add-on in revenue because of rapid market growth and reorganization of the companys branch structure has greatly helped in achieving the sales growth from 21.1% in the year 1996-97 to 38.6% in the year 1997-98. This sale growth is declarative mood of the fact that there had besides corresponding increase in the enlighten profit leading to more equity and total summations base.However, despite such(prenominal) development and growth, the company is suffering from operational inefficiency due to crisis in its deplorable management of the working capital and particularly the timing in substitute of inventories and other liquid assets majorly accounts receivables. It was evident from the financials that working capital seems to be stuck because it has been change magnitude from $ 4.3 million to $ 6.8 million.The collection period for accounts receivable turned out to be 72 eld on average which is substantially high. In addition, the eld in inventory sale were increasing over the period from a minimum of 112 to 153 days. Moreover, due to delay in colle ction of accounts receivable, the accounts payable days are also increasing over the consequent years. Although the fixed asset turnover ratio was good in 1996 but it is deteriorating in subsequent years however the total asset turnover ratio is also very low.Financial AnalysisStrictly speaking, at present the Dawson Lumber Company is being financed by a bank add. The companys equity structure constitutes common stock capital arriveing to $4.3 million and the hoard earnings. Presently, the companys support unavoidably are met through two types of bank gives which include a working capital loan obtained specifically to meet the working capital requirements and the present long term loan amounting to 4.2 million.Both the loans are obtained from National bank of Canada (NBC). The NBC took accounts receivable and inventory as collateral and as a condition of the loan against the charge on the borrowed amount for which Dawson undertook to provide quarterly financial statements and monthly reports of inventory, sales and receivables. flat as far as the companys cash fall is concerned, the company has been suffered with very weak cash flows because inventory and receivables have increase which result in negative cash flows and due to increased in accounts payable resulting in positive cash flow thus overall cash generated from operations remain intact. However as mentioned above it is operational inefficiency due to delay in collection from customers resulting in delay in payments to creditor. The current ratio is at satisfactory level.If we talk about the companys leverage, we can see that initially the interest coverage ratio in the year 1996 was low however it is considered to be satisfactory in subsequent years. But here is an alarming situation that has gone untold intense over the period and proves to be the key business concern for the company and its sustainability in the long run over a predictable future, that is, the highest debt to equity ratio .We can see that debt to equity ratio was 55% in the year 1996 which decreased to 28% due to mortgage repayments. However, during the year 1997-98, the company gone to high leverage due to 99% debt to equity ratio. This was declarative of the fact that the company has obtained a long term bank loan and an increase in the operating line of credit to $ 5 million. unofficial & ConclusionUnder the present circumstances and the present growing needs of the company of financing, it is not advisable for the company to go for special financing since its already 99% geared and leveraged. Although the companys additional financing can be backed up by the amount of receivable and inventories. But the inventory and receivables needs to be insured so that in case of loss due to fire or deluge the bank can realize the amount from the insurance company.Apart from salute cutting strategies, there is a major need to improve the fund flow mechanism by following up the customers to tender payments promptly and impose commissions on late payments so that the company would be able to disburse payments to creditors. Moreover, the marketing activities should be improved further so that it mustiness take less days to sale inventory. In this way the company will be able to generate more funds oftentimes and thus the need for additional financing will be minimized. (taimoor880 at gmail)