Lawsons Case Study Analysis
Forsyth Wholesaler Limited
Forsyth Wholesale Ltd. (FWL) was a major supplier of Lawsons from its very start. FWL (Forsyth Wholesale Ltd.) provided a loan guarantee for Lawsons for the purpose of loan request, in 2008. The loan had been acquired to satisfy the needs of business startups. The profitability of the company had been increased due to the capital investment made by the FWL for the purpose of expansion, in 2013. The investment cost approximately $36,000 in total including additional furniture, leasehold improvements, fixtures, and inventory stock.
Forsyth Wholesale Ltd. (FWL) owned a trade debt from Lawsons because of the loans approved over the inventory purchase. The trade debt had been increased up to $217,236 and the penalty of $193,667 will be paid to FWL. Paul Mackay believed that if he would transfer this trade debt to a bank loan, it will yield a low interest rate.
FWL’s financial officer believed that investment in Lawsons will yield higher returns, and will be helpful in receiving trade debt amount. When Lawson’s owner needed an investment for store expansion, FWL was the one which had invested in
Recommendations
After evaluating all the information provided in the case along with the statements and ratios, it is recommended to Jackie Patrickthat the loan request should be approved because of the previously increased earnings of Lawsons. The company had a good previous record of interest payments along with increased profits. The declined equity approach will not impact the loan interest payments. Thus, it is concluded that the company had been earning profits from start of the business and had a good record, the loan should be approved. Moreover, horizontal analysis has been performed in order to examine the projected expected values for the year 2014 and 2105.
After evaluating all the information provided in the case along with the statements and ratios, it is recommended to Mackay that the loan request should be approved and requested from a commercial bank.The projected financial statements are made with the help of provided data along with representing the requested loan aspect (See appendix 4 and 5). Because of the low interest rate of approximately $27,500 and $26,920 for the year 2014 and 2015, respectively, the projections represent a significant impact over financial statements. Thus, the low interest rate is good for the company because of the continuously increasing trade debt of the company, owed to FWL.The sales will be increased by 10% for both the year. Thus, the earnings will be increased by a significant margin but with a lower margin as compared to 2013’s results.
Conclusion
Lawsons, a retail merchandizing store was found in 2008 by Paul Mackay in Riverdale, Ontario. It is concluded that Lawsons’ Sole proprietor had applied for a bank loan of $194,000 for reducing his trade debt along with a credit line of $26,000 due to cash shortage. The trade debt was continuously increasing because of owner’s withdrawal and low earnings. Thus, it is concluded that the company hold the cash for a longer period of time and unable to recover its cash from debtors. It is recommended to Mackay that the loan request should be approved and requested from a commercial bank. Because of the low interest rate of approximately $27,500 and $26,920 for the year 2014 and 2015, respectively, the projections represent a significant impact over financial statements. Thus, the low interest rate is good for the company because of the continuously increasing trade debt of the company, owed to FWL............................
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