Business Administration 1220E Lawsons

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Business Administration
Business Administration 1220E

LAWSONS Vertical Analysis: Summary: -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 reduce -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 Questions 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 expenses 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 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 drawings Liquidity: 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 Efficiency: 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 equity LAWSON’S PROJECTED STATEMENT OF EARNINGS FOR THE YEARS ENDING DEC 3OTH 2004 2005 Sales Projection: (Growth of 10%) 715231 786754 BI: 199700 205700 P: 520262 586246 EI: 205700 226270 Cost of Goods Sold
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