Clarkson

In: Business and Management

Submitted By rksethi
Words 3255
Pages 14
Executive Summary
We believe that the reason for the company’s shortage of funds is that most of its cash/funds are “tied” up in inventory and A/R, along with the fact that even though the company is having significant sales growth, it’s not been able to leverage the economies of scale by being able to reduce operating expenses or purchasing expenses (Total COGS). All of this is leading to significant needs for short term loans and the interest expense on these loans is only making the matters worse.
Based on our Proforma calculations, we think that in 1996 Clarkson needs loan amount of approximately $ 1,235,000 (i.e. around $ 1.24 M) which is 65% higher than Mr. Clarkson’s estimate of $ 750,000. Even though this may not cure all the current problems at Clarkson, this will help provide much-needed immediate liquidity.
By comparing sustainable and actual growth, we found that Clarkson has been growing significantly above its sustainable growth rate and also observed that the difference between sustainable and actual growth is in excess of 40-45% range during 1994 and 1995. Based on pro forma calculations, we can infer that the difference between the actual (22%) and sustainable (19%) sales growth will come down in 1996. We think that increasing product prices is the most optimal option for Clarkson right now in order to bring down its actual sales growth rate. Other option which Clarkson should consider is profitable pruning of its business and if none of these two options yield any favorable results, then the final option should be to seek a partner for merger or get itself acquired by another company, which can provide Clarkson the needed cash for growth.

Detailed Financial Analysis
1. Why is Clarkson short on funds despite its record for profitable operations?
The two major reasons that Clarkson is short on funds despite its profitable operations are the…...

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