Lawson’s Case Assignment #1
Total Number of Pages: 8
Issues and Objectives Lawson’s is facing challenges regarding trade debts in which they are responsible for re-paying. This debt is ultimately affecting the company’s success, and may become a serious issue in the future if net earnings do not rise to an appropriate level. The increased profits will allow Mr. Mackay to focus on the repayments to ensure that loans are taken care of before the interest rates rise, or they become further in debt than they already are. This causes constraints on the company’s ability to invest in other attributes, and make appropriate purchases for the company, due to the decrease in available cash. …show more content…
The ratios range from 0.07:1 to 0.11:1, which is significantly lower than the industries average of 1.1:1. This indicates that Lawson’s is performing poorly related to its liquidity. Thirdly, the efficiency ratios indicate issues on two of the three categories. The age of Lawson’s receivables is at 7 days, which is lower than the industry’s average of 19.1 days. The company’s age of payables is rather long, indicating that he does not have sufficient cash now, and will concern vendors about his ability to pay. As well, the average age of inventory is also way above the average, which is another negative for the company. Lawson’s will not make a profit if it is not turning over stock regularly.
In regards to Lawson’s stability ratios, the company’s net worth/total assets and interest coverage will be analyzed. The company’s net worth has dropped considerably during the years, indicating that the company is generating little equity. This shows poor management of assets for the company, which often becomes a conflict for the bank in regards to collateral. Also, the interest coverage ratio is exceptionally low, due to low profits and the inability to cover interest’s costs. This is the result of the high interest rate (13.5%) on overdue debts that are accumulating and making it more difficult for the company to overcome.
However, the growth ratios focus on sales revenue, which increased from 2002-2003. This shows that there is a growth potential for the