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BMP Lumber Co BMP Lumber Company has been in operation for ten years During the past several years BMP has experienced significant growth which its owner Mr Paul Grant believes is likely to continue into the future This belief has lead Mr Grant to conclude that BMP requires a bank loan of 80000 to sustain the business As financial advisor to Mr Grant it is our position that a a loan is required to cover the short-term operating capital needs of the company b Mr Grant needs to gain control of his current asset accounts in particular inventory and accounts receivable c BMP Lumber does not have sufficient fixed assets to secure a loan of the magnitude requested As a result we recommend that Mr Grant either use his accounts receivable and inventory or provide a personal guarantee to secure a loan from the Victoria National Bank VNB The analysis that leads us to these conclusions is as follows Examination of the pro-forma balance sheet for BMP Lumber for the year 1994 Exhibit 1 hereto reveals that regardless of the sales volume projection 128MM or 16MM BMP will be left with a surplus in their cash account at year-end However in the near term with a trade note of 66000 coming due BMP Lumber does not have sufficient liquid assets available to cover this immediate obligation An examination of BMP Lumbers quick ratio Exhibit 6 indicates that the ratio has deteriorated in Q1 1994 compared to 1993 50 from 63 respectively This deterioration can be attributed to an increase in the liability account in Q1 1994 BMP has requested a loan of 80000 however we do not believe that BMP requires that much money and if the requested loan of 80000 were to be approved BMPs quick ratio would be reduced to an unacceptably low 38 This would leave serious doubt from the perspective of the lender as to whether or not
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