Lawson Case Essay

625 Words Oct 30th, 2012 3 Pages

10/6/2012 |

Executive Summary
Lawson is a general merchandising retailer in Riverdale, Ontario, which has had four consecutive years of revenue and profit increases. The owner, Paul Mackay wanted to operate a store that stressed value at competitive prices targeting low to middle income families. With a wide range of products, Paul has been using only one supplier. The supplier, FWL allows Paul to order on credit and pay at scheduled intervals.
Problem Statement
Lawson is a clothing retailer who has recently met with a bank official asking them for a couple of new services from the bank. The first new service that they have requested is a bank loan that would be used to pay down their trade debt.
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If there is any obsolete inventory can it be sent back to the supplier for a refund or sold at a discount.
When looking at the financials of this company, I see that once the inventory and trade debt is eliminated there is not a lot of money in the company. Lawson also has a debt to Commercial Bank of Ontario that is secured by a pledge against all company assets and a guarantee by FWL, Lawson’s main supplier. Even this loan is recorded on the balance sheet as more than the company’s assets.
With an increase in sales of 10% and decrease in the interest paid on the trade debt, Lawsons may not get ahead because Paul Mackay has increased his withdraws as well.
Based on Lawson’s current position, I do not feel that the best option for Lawson is a bank loan. Lawson has to find a way to decrease its inventory and in turn control its trade debt. The trade debt can be controlled by finding other suppliers in order to keep the cost of goods sold down. FWL is considered a distributer, and as such distributers are known to increase product prices when it sells to its customers as this is how they make their money. Lawson should decrease its dependency on its distributer, FWL and this will in turn decrease the interest that is paid, As a business having only one supplier is becoming Lawson’s downfall as they have no leverage on
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