Why has Clarkson Lumber Company borrowed increasing amounts despite its consistent profitability?

What factors contribute to Clarkson Lumber Company borrowing increasing amounts despite its profitability?

1. What is the reason behind the company's need to invest in new equipment, inventory, and facilities?

2. How does the fluctuation in sales revenue affect the company's cash flow?

3. What is the relationship between Mr. Clarkson's personal investments and the company's debt?

Factors Contributing to Borrowing Despite Profitability

Clarkson Lumber Company has borrowed increasing amounts despite its consistent profitability due to several factors:

1. The need to invest in new equipment, inventory, and facilities to support the company's rapid growth and expansion.

2. Fluctuations in sales revenue that impact the company's cash flow, leading to the necessity of external financing during slower sales periods.

3. Mr. Clarkson's history of using debt to finance personal investments, influencing the company's debt levels.

Clarkson Lumber Company's decision to borrow increasing amounts despite its profitability is driven by the company's growth and expansion requirements. As the company grows, it needs to invest in new equipment, inventory, and facilities to support its operations efficiently. These investments come with significant upfront costs that cannot always be covered by the company's cash flow alone.

Moreover, the company's profitability is linked to its sales revenue, which can fluctuate due to changes in the economy or shifts in consumer demand. During periods of slower sales, the company's cash flow may not be sufficient to cover expenses, prompting the need for external financing to bridge the gap.

Additionally, Mr. Clarkson's inclination towards using debt for personal investments plays a role in the company's borrowing decisions. His history of leveraging debt to maintain control of the company and fund personal ventures has influenced the company's debt levels, leading to a reliance on borrowing despite consistent profitability.