Joyner Lumber Company Inc
Paper details:
Please refer to case requirements attached. Most important parts are point numbers: 1,3,4,5,,6 and 7 (can be 4 to 5 pages)
Point # 8 about the article can be done in ta separate page and include references/ article
The financial data can be found in the excel spreadsheet and case. If you have any questions please contact me
Topic: Joyner Lumber Company Inc
JOYNER LUMBER CASE REQUIREMENTS
1. Background Information. Based on the information provided to you in the
case, write a couple of paragraphs about the company, its management and
the industry identifying the main business activities, major competitors and
any significant developments during this period. In another paragraph briefly
describe the primary factors that affect the industry in which JLC’s sales are
concentrated. For this last part, you can use some of the industry publications
that are listed in chapter 5 of your textbook.
2. Spread the four full years of financial statements and the interim report. This
means that you need to transfer the financial data given to you in the case to
the Excel “Spreadsheet Joyner Lumber Case” that is been provided to you.
The spreads include the common-size income statement, the common-size
balance sheet and the ratio worksheet. As the interim report covers only four
months, any ratio calculations that utilize income statement information will
need to be adjusted. For example, to calculate return on assets you need to
“annualize” net income i.e. multiply the four-month net income by three to
have an annual figure. The balance sheet data do not need any adjustments.
A couple of things that you need to take into account when transferring the
data:
a. Notes payable to banks and others represent mortgage notes payable
which call for $10,000 of principal payments annually. Therefore, this
amount should be shown as current maturities and the remaining balance
as long term debt.
b. Included in general and administrative expenses are depreciation &
amortization expenses of:
1987 – 72,131 1988 – 64,220
1989 – 64,867 1990 – 82,811 YTD 91 – 29,058
Take these amounts out of general and administrative expenses and show
them in the depreciation & amortization line.
c. Other income, net is composed of:
1987 1988 1989 1990 4/30/1991
Gain on Sale of
Assets – 101,238 – 238,645 –
Interest Expense
4,055
4,039
3,127
5,644 2,413
Other Income 35,895
28,649 57,293
94,070 57,705
Total Other Income,
Net 31,840 125,848 54,166 327,071 55,292
Input these amounts separately in the “IS” tab in the three associated lines,
Specifically:
Interest Expense
Other Income
Gain on Sale of Assets
3. Review the historical financial performance of the firm. In one page, discuss
the company’s profitability, liquidity and leverage positions. Using the ratios
that you calculated and the associated RMA industry statistics, identify the
areas that show improvement and the areas of potential concern.
4. Develop pro forma statements for 1991 based on the “JLC Assumptions”
document which has been provided.
5. Identify the company’s strengths and weaknesses.
6. Summary/Recommendations. Based on the above analysis, summarize your
findings and describe your recommendations for improvement.
7. Is this Company creditworthy to justify extending a bank loan? For this
purpose, assume that you have a request for a $200,000 line of credit. To
answer this question, consider the various critical factors which are known as
the Cs of Credit, specifically:
a. Character – this factor refers to the borrower’s honesty and trustworthiness.
What is the assessment of the borrower’s integrity and intent to repay? Are
there any serious doubts?
b. Capacity – it involves both the borrower’s legal standing and management’s
expertise in maintaining operations so the firm or individual can repay its debt
obligations. Does the company have identifiable cash flow or alternative
sources of cash to repay debt?
c. Capital – it refers to the borrower’s wealth position measured by financial
soundness and market standing. Can the firm or individual withstand any
deterioration in its financial position?
d. Collateral – This is the lender’s secondary source of repayment or security
in the case of default. Does the borrower possess assets of sufficient quality
and value to provide adequate support for a loan?
e. Conditions – This term refers to the economic environment or industry –
specific supply, production, and distribution factors influencing a firm’s
operations. Does the outlook for the economy and industry where a borrower
is situated add strength to a loan?
8. Search some financial resources such as American Banker, The RMA
Journal, The Wall Street Journal, etc, and try to locate a recent article (past
six months) that can provide useful information about lending activities in
today’s environment that perhaps might have affected your previous loan
analysis. As the article will be assessed for relevance, try to find articles that
discuss loans to specific industries, loans that have gone bad or articles that
you can use as lessons learned.
Provide a brief summary of the article and a full copy. An example of an
article summary follows below:
CREDIT RISK MANAGEMENT: Lessons for Success
Wesley, David H . The RMA Journal 95. 3 (Nov 2012): 48-53,11.
SUMMARY: Benjamin Franklin once observed, “An ounce of prevention is
worth a pound of cure.” And so it is with credit risk management. Both
borrowers and bankers have been affected by the changing regulatory
environment, the economy, and credit difficulties, and the pace of change
seems to be accelerating. Given the credit cycles over the past 30 years and
the resulting aftermath in the financial and credit markets, the author is
confident that the days of booms and busts in the financial industry have not
been repealed and will continue. He is equally confident that credit cycles will
continue to turn on you at the most inopportune times, especially for those
financial institutions lacking a well-developed and balanced risk taking culture.
Let me know if you have any questions.
