The document is a loan request from Lawsons to the Commercial Bank of Ontario. Lawsons is requesting a $220,000 loan, $194,000 to pay down trade debt and $26,000 line of credit. The bank analyzes Lawsons financial performance, ratios, projected statements, and cash flows. The bank decides to deny the full request but will reconsider with conditions - Lawsons must reduce trade debt by returning inventory, eliminate owner withdrawals for 3 years, and obtain a new partner to increase equity. The bank also recommends Lawsons decrease their long inventory holding period.

1. Lawsons
Tel 416-222-3333
Fax 416-222-4444
955 Queen St E
Toronto, ON M4M 3P3
www.lawsons.com
mackay@lawsons.com
LAWSONS
LOAN REQUEST
Jackie Patrick, Loans Officer, Commercial Bank of Ontario

2. Table of Contents
Table of Contents
Introduction _________________________________________________________________ 1
Lawsons__________________________________________________________________1
Relationships ______________________________________________________________1
Request __________________________________________________________________1
Potential Problems _________________________________________________________2
Objective _________________________________________________________________2
Market Analysis ______________________________________________________________ 3
SWOT Analysis ____________________________________________________________3
PEST Analysis_____________________________________________________________3
The Four “C’s” _______________________________________________________________ 4
Character_________________________________________________________________4
Conditions ________________________________________________________________4
Collateral _________________________________________________________________4
Capacity to Repay __________________________________________________________4
Performance ________________________________________________________________ 5
Past Performance __________________________________________________________5
Management Performance ___________________________________________________5
Sources and Uses of Cash _____________________________________________________ 6
2001_____________________________________________________________________6
2002_____________________________________________________________________6
2003_____________________________________________________________________6
Ratio Review ________________________________________________________________ 7
Forecast Assumptions_________________________________________________________ 8
Final Analysis _______________________________________________________________ 9
Final Decision _____________________________________________________________9
Collateral Requirements _____________________________________________________9
Recommendations__________________________________________________________9
Conclusion_________________________________________________________________ 10

3. Table of Contents
Appendix A – Projected Financial Statements _____________________________________ 11
Income Statement 2004 ____________________________________________________11
Balance Sheet 2004 _______________________________________________________12
Income Statement 2005 ____________________________________________________13
Balance Sheet 2005 _______________________________________________________14

4. Pg. 01 Introduction
Introduction
Lawsons
Lawsons is a general merchandising retailer, located in the Riverdale district of Toronto,
Ontario. The target market audience for Lawsons is lower to middle income families, as the
store offers a wide range of products at very competitive prices, such as:
 Infants’, children’s and youths’ wear
 Ladies’ and men’s wear
 Accessories (footwear, jewelry, etc.)
 Home needs (domestics, housewares, stationery, etc.)
 Toys, health, and beauty needs
 Seasonal items (Christmas, Valentines, etc.)
Relationships
Mr. Mackay has a strong relationship with his major supplier, Forsyth Wholesale Ltd. (FWL);
however, this relationship is not currently healthy. FWL has helped Mr. Mackay open Lawsons
from the start: they offered a guarantee on the Lawsons assets, to allow Mr. Mackay to secure
a bank loan from the Commercial Bank of Ontario (CBO) of $50,000 in 1998.
From then on, FWL has allowed Mr. Mackay to operate and improve Lawsons. In 2003, FWL
covered a $36,000 renovation and expansions project. In addition to this project, FWL also only
required partial payment for each seasons inventory order, with the remainder due in
scheduled repayment at 13.5% interest on all past due charges.
Mr. Mackay currently has a total trade debt of $217,236 to FWL, which is charging interest on
$193,668 of the total trade debt. If Mr. Mackay is to secure the $220,000 loan as requested, he
could pay off his trade debt, and pay into CBO’s more affordable yearly rates.
Request
Mr. Mackay, owner and operator of Lawsons has requested a total loan of $220,000; $194,000
bank loan to reduce his current trade debt, and a $26,000 line of credit. Lawsons has been
operating in Toronto since 1998, and Mr. Mackay has been banking with the Commercial Bank
of Ontario since establishment.

5. Pg. 02 Introduction
Potential Problems
 Lawsons is currently a sole proprietorship; in the case that Mr. Mackay passes away,
the company would terminate, which could result in the bank being unable to recover
the financial compensation.
 If Lawsons wholesaler, FWL, changes inventory costs, interest rates, or payment
requirements, Lawsons would not be able to recover financially.
 If FWL goes bankrupt, Lawsons would face challenges obtaining another wholesaler to
supply their inventory. If that wholesaler has a higher cost, Lawsons would not be able
to afford the inventory costs.
Objective
Lawsons objective is to sell affordable products to lower and middle class families. If this
objective is met, Lawsons would supply the community with affordable clothing and products
while running a stable company while making a livable profit.

6. Pg. 03 Market Analysis
Market Analysis
SWOT Analysis
STRENGTHS
Good wholesaler relationship
Active in the community
Good accounts receivable (<7days)
Sole proprietorship – smaller costs
High net sales
Owner education
WEAKNESSES
Large debt to wholesaler
Single wholesaler
Sole proprietorship – irreplaceable and
fully liable
More debt than assets
No owner equity in company
High age of inventory
OPPOURTUNITIES
Open a second location
Partner with additional wholesalers
Partner with another owner
Hire more experienced staff
Increase advertising
THREATS
Competitors stealing business
Increase in operating expenses
Wholesaler pulling out/ no longer
supporting Lawsons
Bankruptcy due to interest payments
PEST Analysis
POLITICAL-LEGAL
Trade agreements
Business license/insurance
Import/export taxes/fees
ECONOMICAL
Consumer spending increase or decrease
Increases in taxes or other fees
Change in wholesaler agreement
SOCIAL
Brand identity
Changes buying trends/access
Demographic changes
TECHNOLOGICAL
Online shopping increasing in popularity
Online/Social Media advertising
Changes to POS systems (i.e. tap)

7. Pg. 04 The Four “C’s”
The Four “C’s”
Character
• Immigrated to Canada from England in 1987
• Previously employed as an accountant
• Obtained a Business Economics degree
• Very active in the community
• Very active in the business from managerial to clerical duties
Conditions
• Sales (domestic demand) increasing by an average of 15% each year of business
• Age of receivables increased by 14% from 2002 to 2003
• Gross Domestic Product (GDP) growth decreased from 3.3% to 1.7% from 2002 to 2003
• Low prime interest rate
• Strong but weakening Canadian dollar
• Stable geo-political landscape
Collateral
• No personal assets/collateral
• Business assets:
ASSET VALUE FACTOR VALUE (%) REALIZABLE VALUE
Accounts Receivable 12,028.00$ 90.00% 10,825.20$
Inventory 199,700.00$ 25.00% 49,925.00$
Furniture and Fixtures 32,538.00$ 30.00% 9,761.40$
Leaseholds 12,354.00$ 25.00% 3,088.50$
Total 73,600.10$
• The current business assets realizable value can cover 33% of the requested loan value
Capacity to Repay
• Liquidity of Lawsons is 0.10:1 – currently, Lawsons cannot pay their current debt
• Working capital is decreasing severely over business operations
• Sales grew 23.5% for the 2002-03, and 10% growth is expected for 2004 and 2005
• If CBO grants the $220,000 loan, the capacity to repay would be 0.33:1 (using the
realizable value of assets)

8. Pg. 05 Performance
Performance
Past Performance
Over the past four years (2000-2003) there has been a large amount of financial activity for the
Lawsons store:
 The yearly sales have grown on an average of 15% and increased a total of 23.5%
from 2002-2003
 The yearly net earnings have grown on an average of 27% and increased a total of
55.9% for 2002-2003
 For 2002-2003, the total liabilities increased by 57%, previously the yearly increase
averaged 17%
 Previously, their age of receivables was only 2 days, increasing to 7 days; this is still
better than the industry average of 19.1 days
 The average age of inventory is 147 days; this is far above the industry average of
25.7 days
 Working capital has been decreasing on an average of -41%, and decreased a total of
-91% for 2002-2003
Lawsons is a profitable company, and is experiencing a significant growth in yearly sales;
unfortunately, the growth in sales is also being met with a growth in debt and a depletion of
owners’ equity.
Management Performance
Mr. Mackay is the owner operator of Lawsons, taking care of all tasks including managerial,
clerical, and inventory related. Mr. Mackay has a degree in Business Economics and has past
experience as an accountant at a corporate level.
Lawsons has been in business for the past five years, established in 1998, and has been
profitable each year of business (apart from their startup year). On average, the gross profit
increases by 16% each year.
Recently, Mr. Mackay completed an extensive renovation for 2003 to allow for better display of
the stores merchandise, this decision increased sales for the year by 23.5%, and the net profit
by 55.9%. This shows Mr. Mackay is active within the business, and capable of making return
on investment decisions and assumptions.
However, Mr. Mackay is taking large draws from the company each year, which is decreasing
his equity within the company. For 2003 he took a draw of $42,380 which created a negative
equity of $18, 514.

9. Pg. 06 Sources and Uses of Cash
Sources and Uses of Cash
Throughout the past three years (2001-2003) Lawsons’ has strongly invested into their
company by improving their furniture and fixtures, as well as completing leasehold
improvements. Unfortunately, to complete these improvements Lawsons is leveraging both
their short term (accounts payable) and long term liabilities to complete these improvements.
2001
ASSETS LIABILITIES & OWNER’S EQUITY
Source  Depreciation
of furniture
and fixtures
 Deprecation
of leasehold
improvements
Source  Unpaid
accounts
payable
(trade debt)
Use  Intangibles
purchases
 Leasehold
improvements
Use  Paid portion
of long term
bank loan
2002
ASSETS LIABILITIES & OWNER’S EQUITY
Source  Depreciation
of furniture
and fixtures
 Deprecation
of leasehold
improvements
Source  Unpaid
accounts
payable
(trade debt)
Use  Furniture and
fixture
purchases
 Leasehold
improvements
Use  Paid portion
of long term
bank loan
2003
ASSETS LIABILITIES & OWNER’S EQUITY
Source  Depreciation
of furniture
and fixtures
 Deprecation
of leasehold
improvements
Source  Unpaid
accounts
payable
(trade debt)
Use  Furniture and
fixture
purchases
 Leasehold
improvements
Use  Paid portion
of long term
bank loan

10. Pg. 07 Ratio Review
Ratio Review
Profitability: Operating expenses are typically
25% of the gross profit, creating
an average net earnings of 2.9%
The industry average for net
earnings is 2.1%, showing
Lawsons is more profitable than
industry average.
Liquidity:
The acid test ratio shows that
Lawsons is currently 0.10:1,
meaning Lawsons cannot pay off
their current debts.
There has also been a significant
decrease in working capital,
especially between 2002-2003.
The industry average ratio is
1.1:1, showing Lawsons is in
more debt than others in the
industry.
Efficiency:
Lawsons has an average age of
receivables of 3.5 days.
The age of inventory averages
147 days.
The age of payables is growing
rapidly; growing a total of 63%
from 2002-2003.
The industry average for age of
receivables is 19.1 days,
showing Lawsons is great at
receiving payment for goods.
The industry average for age of
inventory is 25.7 days, meaning
Lawsons may be purchasing too
much inventory at one time.
Stability:
Lawsons is able to cover their
interest payments currently 1.6x,
this has decreased almost 94%
from 2002 to 2003, meaning
Lawsons is becoming closer to
not being able to cover their
interest payments on their
current debts.
Lawsons net worth/total assets
has slowly decreased over the
years and was negative 8.9%
from 2002 to 2003.
The industry average for the net
worth/total assets ratio is 61.5%,
a percentage Lawsons is
currently very far from.
Growth:
For sales, profit, and assets,
Lawsons is growing at a very
healthy rate. Sales grew by
23.5%, net profit increased by
55.9% and total assets increased
by 45.6% from 2002 to 2003.
Net worth dramatically
decreased to negative 814%
from 2002 to 2003.

11. Pg. 08 Forecast Assumptions
Forecast Assumptions
For Lawsons Projected Financial Statements (see Appendix A) for years 2004 and 2005, we
assume that the full $220,000 loan request has been granted.
For the 2004 Projected Income Statement, we assume there is a 10% growth in sales from the
2003 to 2004; however, the projected sales growth is given to us by management of Lawsons
and may be optimistic. We based our additional projections off the 2003 percentages for
operating expenses. For the consolidated debt, we are once again using the supplied interest
expense payments from management. With these conditions, Lawsons would receive a Net
Profit earnings of $61,176.37 in 2004.
The Net Profit earnings of $61,176.37 allow the owner’s equity to increase to $282.32 for 2004,
while still completing equity drawings at the 2003 level, as quoted by management. Accounts
Payable debt was decreased by the bank loan amount and $44, 643.18 of cash was plugged
accordingly to balance the 2004 balance sheet. In addition, the assets in 2004 were assumed
to remain the same as 2003 levels and inventory is kept at the 2003 level, as per management.
For the year 2005, Lawson’s sales are assumed to continue to grow 10%, leaving their
expenses and costs at the 2003 percentages. From these assumptions, Lawsons would have a
Net Profit of $74,312.89 for 2005. This allows the owner’s equity to increase to $18,526.32,
while still drawing at the 2003 levels.
With the granted loan, we expect that the profitability of Lawsons will increase allowing them to
operate at a more comfortable level. By 2005, the liquidity of Lawsons would become 0.50:1
improving significantly from 0.10:1, though still below the industry average of 1.1:1. With the
growth in equity, the debt to equity ratio would become 0.08:1, up from 2003 levels of -0.06:1.
Though the requested loan would help decrease some of the financial strain on Lawsons, it still
does not put the company into a comfortable position in regards to their assets and liabilities
ratio, or equity and liabilities ratio. These numbers also assume that the bank loan is not being
paid down and only the interest expense is being paid.

12. Pg. 09 Final Analysis
Final Analysis
Final Decision
Based on Lawsons current financial situation, and their projected 2004 and 2005 financial
statements (Appendix A) the Commercial bank of Ontario unfortunately will deny the requested
$220,000 loan unless the below conditions are met. If Lawsons can meet the requested
conditions below, the Commercial Bank of Ontario will reconsider this decision.
Collateral Requirements
 Negotiate current trade debt with FWL – the current inventory and trade debt levels are
too high. Return 50% of unsold inventory to FWL for market value. This would reduce
the required loan to $120,000 and increase capacity to repay to 40% from 33%.
 Eliminate future withdrawals from company equity to zero for the next 3 years. This will
allow the total bank loan to be repaid within 3 years.
 Obtain a partnership with another owner to bring in more equity into the company, as
well as allow more stability.
Recommendations
 Decrease the age of inventory:
Currently Lawsons inventory is sitting for 154 days, whereas the industry average is
25.7 days. This is due to Lawsons ordering their inventory twice a year. By ordering
their Winter inventory in the Summer, and their Summer in the Winter, they’re
accumulating a large amount of inventory at one time. We would recommend that they
breakup their inventory orders to be ordered quarterly, rather than semiannually to
allow their inventory to turn over at a more frequent rate.
 Decrease age of payables:
Due to current trade debt and larger interest payments, Lawsons age of payables is
currently 154 days. If the CBO loan is granted, we recommend focusing on keeping the
age of payables less than 30 days to ensure they’re no longer being charged a late
interest fee.
 Secure lower interest fees:
As Lawsons has a strong relationship with their wholesale supplier FWL, we would
recommend negotiating with FWL to secure a lower interest fee than 13.5%, as this
percentage is too high for Lawsons to afford. A lower interest fee would be more
manageable for Lawsons.

13. Pg. 10 Conclusion
Conclusion
At this time, the requested $220,000 bank loan for Lawsons has been denied. If Lawsons can
meet the Commercial Bank of Ontario conditions, the loan request may be reviewed at that
time.
Lawsons potential to have a stable and profitable company is high. Lawsons is currently
profitable; if they’re able to gain control of their debt and correct their equity issues, Lawsons
will become more liquid and stable.

14. Pg. 11 Appendix A – Projected Financial Statements
Appendix A – Projected Financial Statements
Income Statement 2004
Sales Projected growth of 10% 1
715,132.00$
Less: Cost of Goods Sold Averaged at 72.3% of sales 517,040.44$
Gross Profit 198,091.56$
Operating Expenses:
Salaries Averaged at 7.3% of sales 52,204.64$
Heat and utilities 1.4% of sales 2
10,011.85$
Building maintenance 0.1% of sales 2
715.13$
Rent and property tax 3.7% of sales 2
26,459.88$
Insurance and taxes 1.1% of sales 2
7,866.45$
Depreciation
Furniture and fixtures 1.2% of sales 2
8,581.58$
Leaseholds 0.5% of sales 2
3,575.66$
Other operating expesnes
Interest:
Bank Loan Debt Consolodated debt 3
27,500.00$
Total Expenses 136,915.20$
Net Eearnings 61,176.37$
PROJECTED STATEMET OF EARNINGS
for the Years Ending 2004
1
Based on managers estimates
2
Last years best estimate
3
Based on CBO loan coverage

15. Pg. 12 Appendix A – Projected Financial Statements
Balance Sheet 2004
ASSETS
Current Assets
Cash Plug + 2003 Cash + Line of credit 7
80,307.18$
Accounts Receivable 1.8% of sales 2
12,872.38$
Inventory Based on managers estimate 3
199,700.00$
Prepaids Based on last years numbers 1 3,760.00$
Total Current Assets 296,639.56$
Fixed Assets
Furniture and fixture Cost Based on last years numbers 1
61,200.00$
Less: accumulated depreciation Managers estimate from ratios 4
37,243.58$
Net furniture and fixtures 23,956.42$
Leaseholds Based on last years numbers
1
16,174.00$
Less: accumulated depreciation Managers estimate from ratios
4
15,929.66$
Net leaseholds 244.34$
Total Fixed Assets 24,200.76$
Total Assets 320,840.32$
LIABILITIES
Current
Accounts Payable 0.8% of cogs + long term loan 5
23,236.00$
Other Based on last years numbers
1
2,450.00$
Total Current 25,686.00$
Long-term
Long-term Bank Loan Based on loan being granted
6
268,872.00$
Line of credit Based on loan being granted 6
26,000.00$
Total Longer-term 294,872.00$
Total Liabilities 320,558.00$
EQUITY
Balance, beginning of year Based on last years numbers
1
(18,514.00)$
Add: net earnings 61,176.32$
Less: drawings Based on managers estimate
3
(42,380.00)$
Balance, end of year 282.32$
Total Equity 282.32$
Total Liabilities + Equity 320,840.32$
as at Dec 31, 2004
PROJECTED BALANCE SHEET
1
Based on 2003 balance sheet numbers
2
Based on 2003 percentage accounts recievable/sales
3
Based on manager hoping to use 2003 levels of inventory going forward and 2003 levels of withdrawal
4
Based on ratio analysis completed by manager
5
Based on 2003 cost of accounts payable and use of the long-term loan (if granted by CBO)
6
Based on CBO granting the requested loan
7 Based on 2003 cash + the $26,000 line of credit + a plug

16. Pg. 13 Appendix A – Projected Financial Statements
Income Statement 2005
Sales Projected growth of 10% 1
786,645.20$
Less: Cost of Goods Sold Averaged at 72.3% of sales 568,744.48$
Gross Profit 217,900.72$
Operating Expenses:
Salaries Averaged at 7.3% of sales 57,425.10$
Heat and utilities 1.4% of sales
2
11,013.03$
Building maintenance 0.1% of sales
2
786.65$
Rent and property tax 3.7% of sales 2
29,105.87$
Insurance and taxes 1.1% of sales 2
8,653.10$
Depreciation
Furniture and fixtures 1.2% of sales 2
9,439.74$
Leaseholds Remainder of leaseholds
3
244.34$
Other operating expesnes
Interest:
Bank Loan Debt Consolodated debt 4
26,920.00$
Total Expenses 143,587.83$
Net Eearnings 74,312.89$
PROJECTED STATEMET OF EARNINGS
for the Years Ending 2005
1
Based on managers estimates
2
Last years best estimate
3
Based on 2004 balance sheet, this is the remaining cost on the leasehold asset
4
Based on CBO loan coverage

17. Pg. 14 Appendix A – Projected Financial Statements
Balance Sheet 2005
ASSETS
Current Assets
Cash Plug 133,430.85$
Accounts Receivable 1.8% of sales 2
14,159.61$
Inventory Based on managers estimate 3
199,700.00$
Prepaids Based on last years numbers 1 3,760.00$
Total Current Assets 351,050.46$
Fixed Assets
Furniture and fixture Cost Based on last years numbers 1
61,200.00$
Less: accumulated depreciation Managers estimate from ratios 4
46,583.32$
Net furniture and fixtures 14,616.68$
Leaseholds Based on last years numbers
1
16,174.00$
Less: accumulated depreciation Last installment for asset 16,174.00$
Net leaseholds Asset paid off -$
Total Fixed Assets 14,616.68$
Total Assets 365,667.14$
LIABILITIES
Current
Accounts Payable 0.3% of cogs + long term loan
5
39,818.82$
Other Based on last years numbers
1
2,450.00$
Total Current 42,268.82$
Long-term
Long-term Bank Loan Based on loan being granted
6
268,872.00$
Line of credit Based on loan being granted
6
26,000.00$
Total Longer-term 294,872.00$
Total Liabilities 337,140.82$
EQUITY
Balance, beginning of year Based on last years numbers 1
282.32$
Add: net earnings 70,624.00$
Less: drawings Based on managers estimate 3
(42,380.00)$
Balance, end of year 28,526.32$
Total Equity 28,526.32$
Total Liabilities + Equity 365,667.14$
as at Dec 31, 2005
PROJECTED BALANCE SHEET
1
Based on 2003 balance sheet numbers
2
Based on 2003 percentage accounts recievable/sales
3
Based on manager hoping to use 2003 levels of inventory going forward and 2003 levels of withdrawal
4
Based on ratio analysis completed by manager
5
Based on 2003 percentage of accounts payable/cogs and use of the long-term loan (if granted by CBO)
6
Based on CBO granting the requested loan