Lawsons Case Essays

1131 Words Jan 28th, 2014 5 Pages
Executive Summary The two primary participants in this case study are Jackie Patrick and Paul Mackay. Patrick is the newly appointed loans officer for the Commercial Bank of Ontario. Mackay is the sole proprietor of Lawsons. Lawsons is a general merchandising retailer located in Riverdale, Ontario. Lawsons offered competitive prices and targeted the low to middle income families. Their product selection varied from men, women’s and children’s clothing to household items, toys or health and beauty items. To help start up his business; in 1998 Mackay took out a loan of $50,000 from the Commercial Bank of Ontario. Due to his substantial trade debt he accumulated over the next 5 years Mackay went to take out another two loans. The first …show more content…
First of which, is the current ratio. It has been rapidly declining since 2000. To me this indicates that there is a liquidity issue. Each year their trade debt increase exceeds the increase of net income for the company. As a result, the working capital has taken a nosedive from $58,650 in 2002 to only $5,466 in 2003. For my first course of action I must determine the cause of this liquidity problem. The current ratio is the ratio of current assets to current liabilities; therefore a decrease in the current ratio is due to either a decrease of current assets or an increase of current liabilities. As shown on the balance sheets both current assets and liabilities are increasing, but the liabilities are increasing at a quicker rate. From 2002 to 2003 current liabilities have increased by over 100%, whereas current assets have only increased by about 35%. Mackay has accumulated more accounts payable. Taking a look at the efficiency ratios I can see why these accounts payable have increased so dramatically. The two ratios I saw a big change in were the age of receivables and age of payables. In the last year age of receivables has increased from 3 to 7 days and age of payables has increased from 98 to 154 days. This means that Mackay isn’t able to pay off his trade debt as quickly and in turn it accumulates faster. The more trade debt Mackay has the

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