Lawsons Case Essay

1458 Words Jan 28th, 2014 6 Pages
Executive Summary
Problem Statement

Mr. Paul Mackay, a sole proprietor, has approached the Commercial Bank of Ontario in order to obtain an additional $194,000 bank loan and a $26,000 line of credit. Paul owns and operates a general merchandising retailer in Riverdale, Ontario named Lawsons’. The bank loan is needed for Mr. Mackay to reduce his trade debt that has a sheer 13.5 per cent interest penalty. The line of credit is needed for sales seasonal downfalls so that Mr. Mackay could properly manage those tough months. Jackie Patrick, a first time loans officer, has been appointed to Mr. Mackay’s request. Although anxious to finish her first loan, Ms. Patrick knows that this particular case is a difficult one.
Analysis
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This information reveals that with good cost control, Lawsons’ are able to match and continue to match the industry average. Lawsons’ total operating expenses have remained constant with a slight 1.5% increase this year caused by the trade debt. This is a good indication that the trade debt truly is the company’s vast constraint on profitability. Future projections of the Lawsons’ profitability and expense ratios will help in the decision, and since the company’s ratios have remained so constant, the projections will be fairly accurate.
Liquidity
Lawsons’ liquidity ratios may be alarming to the bank. The company’s ability to repay short-term debt has significantly deteriorated over their four year span to the point where the company is almost unable to operate. This is defiantly a fragment of the company that the bank will have to take a deeper analysis on.

Efficiency
The Lawsons’ efficiency ratios are another section the bank will find troubling. The company’s age of payables has nearly tripled over the last four years. This can be detrimental to the company’s image and reliability including their reliability toward the bank if granted the loan. Along with increasing age of payables is increasing age of receivables and age of inventory. Indicating that Mr. Mackay is taking longer to collect his receivables and that he has purchased too much inventory. Too much inventory results can result in further issues