Lumpkin Plumbing Essay Example for Free

Lumpkin Plumbing EssayLumpkin experienced a steady join on in gross sales since it began 1990 and has recently expanded inventories to accommodate a relatively larger sales add-on. Richard Lumpkin borrowed $150,000 to expand the warehouse to switch more inventories and include a model to attract retail sales. The expansion will benefit the lodge as long as inventories are practiced well and the increase in production does not deterioration profit margins. Lumpkin Plumbing project figures for the balance sheet, income statement, and cash flows for 2000.Lumpkin anticipated growth for the 2000 year but underestimated the increase in total assets and liabilities by 47. 37%. Lumpkin also projected a 20% increase in sales and realized an actual increase of 63. 15%. Though the company underestimated the sales increase, it was open to manage costs and increase net income 63. 42%. If Lumpkin can maintain its profit margin and take vantage of increased demand then the expansion wou ld be beneficial to the wellness of the company.Lumpkin is managing the expansion and should be able to make its loan repayments of $50,000 per year. Lumpkin also underestimated the growth of its inventories and accounts payable. Inventories at Lumpkin increased 89. 39% though the increase was projected at 10. 48%. Lumpkin had $628,800 in inventories at the end of 2000 which raises concern for the liquidity of the company. Accounts payable projections were also off, with a projected decrease of $2,000 and an actual increase of $216,400.The increase in accounts payable is partly due to the multiplication of A/P days from 10. 40 to 45. 10 from 1999 to 2000. The extreme A/P could be from livestock costs and also account for the large increase in inventory holdings. Lumpkin could be planning for an increase in sales growth and hold inventories to meet the demand. Even if the discrepancies between the projected and actual figures for the inventories and A/P are explained by increases in sales, these should have been accounted for in the projections and should not have been so dramatically different.Lumpkin Plumbing effectively used the loan to grow the company and is in fair financial health to repay the loans. Though the company has met the increased demand and managed operating costs, the difference in some projections raises reasons for concern. If Lumpkin is not able to forecast financial conditions accurately, the financial future of the company is uncertain, increasing its default risk. I advise Lumpkin Plumbing be considered for future loans after financial statements are analyzed repayment of the current loan is complete.