Business Administration 1220E Lecture Notes - Accounts Payable, Making Money, 0 (Year)

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Vertical Analysis:
-we are Jackie – new loans officer – conservative
-propreitership – taxed at personal level
-Mackay is asking for 26 increase in line of credit and 194 bank loan
-has great trade debt – huge accounts payable debt which he wants to
-seasonal: high months are feb and may
-FWL financed Lawson’s debt – odd since he owes money to them from debt and
theyre investments in his expansions
1. Yes in all three years there is a significant increase – fantastic he can
generate cash from day to day business
2. Yes in all three years – making money after buying goods and paying off
3. a/p: huge – so much larger then anything else – should be as happy about the
large operations number since they’re accumulated through short term
liabilities – sales have increase but not as proportionate as accounts payable
– have to take on more debt to pay off they’re accounts payable – if I’ts not
translating into money, it’s not good
*huge penalty debt – 13.5% for trade debt – maybe FWL is okay with expanding
Lawson’s tade debt because they are making huge money on the interest debt
Inv: increasing with expansions and accounts payable, Mackay may be a little
to inventory crazed
4. furniture and Fixtures: increasing since expansion – using short term sources
to fund long term uses – what is he doing expanding when in debt – should
hold off on expansion until this trade debt is gone – he seems he’s getting
way too excited with all this money to expand and is splurging on all this
excess inventory
LT Bank Loan: he is paying off LT Bank Loan gradually which is good because
we are reviewing statements in the role of Jackie who is decudign whether or
not to lend Lawson’s a LT Loan
Drawings: in the case, Mackay said he’d keep the same amount of drawings
for the next few years but they are still substancially high – business is in
trouble and could use the high amount he is taking out in the drawings – the
amounts of drawings he is taking doubles he net income – though his salary
isn’t included in the net income, he is still taking a lot out of drawings,
effecting equity – he is sacrificing business for drawings, should be waiting
until business is stable
**be careful with expansion, cur down drawings, work on your purchases, pay off
trade loan quiclk so your interest does not eat up your net income
**he pays for inventory throughthe trade debt – getting excited with what hes
buying through attending tarde shows twice a year 0- he sees things he wants and
buys them before thinking about whether or not he needs them – FWL makes more
money since they are making money off of what he purchases (even though he is
not paying upfront). If Lawsons cant manage purchases, FWL can go and take all
their assets back from Lawson’s, after getting a huge amount of interest from them,
taking back all of the inventory they sold to Lawson’s. – huge safety net FWL has
when giving all this inventory to Lawson’s
Ratio Analysis:
COGS: stable
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Op Expenses: getting more efficient at handling expenses, showing Mackay knows a
bit about what he is doing – depreciation increased since expansion in business –
trade debt interest increased because more inventory results in more accounts
payable, higher penalty – If Jackie loans the money, Lawson’s will be able to pay off
trade debt, reducing their expenses, being able to pay off the LT Bank Loan that he
has been stable in paying off over the last few years
Return of Equity: out of control because there is no equity – misleading from huge
Current Ratio: decreased because of increase in liability
Acid Test: more reliant on inventory which is very risky because if it cant sell you
are stuck with inventory
Age of Receivables: small, low cost items of this bargain store is because money is
received mainly in cash during purchase
Age of Inventory: he believes the more you have in the shelves the more you’ll be
able to sell – well concerning habit and trend
Age of Payables: out of control – link with FWL needs to end because of reliance on
trade debt which is decreasing net income
Stability: N/A means there isn’t any equity – means FWL owns Lawson’s since
they’ve funded all of the equity a/l & e
Interest Coverage: decrease as trade debt increases
Growth: increase in assets, increase in sales, increase in net income, no increase in
2004 2005
Sales Projection: (Growth of 10%) 715231
BI: 199700
P: 520262
EI: 205700
Cost of Goods Sold 514251
Gross Profit: (% saly) 200980
Operating Expenses:
Store Salaries: ($ saly) 44578 44578
Heat & Utilities (% 1.4%) 10013 11015
Building & Maintenance Repairs: (0.1% saly) 715 787
Rent & Property Tax ($ saly) 23992 23992
Insurance & Taxes ($ saly – owners taxed at private level) 6922 6922
Furniture & Fixtures: ($ saly) 7828 7828
Leaseholds: ($ saly) 3176 3176
Total Operating Expenses: 127979
Operating Income: 73001 88950
Interest Expense: 27500 26920
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