PASQUALE’S PIZZERIA: TURNING PIZZAS INTO PROFITS
CASE STUDY SOLUTION
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SYNOPSIS
In March of 2022, Stewart McGregor, account manager at the Commercial Bank of Canada (Commercial
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Bank) in London, Ontario, was reviewing a loan request from Robert Meazza, owner of Pasquale’s Pizzeria
(Pasquale’s) in Sarnia, Ontario. Meazza was looking to expand Pasquale’s to London, and had requested a
$300,0001 loan and a $20,000 line of credit to help renovate the new leased space in London, and help finance
the day-to-day operations of the new location. This was the first time Pasquale’s was looking to make an
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investment of this scale, and McGregor wondered if the business was capable of taking on such a large loan.
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OBJECTIVES
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• analyze and understand the statement of cash flows (SCF),
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• assess past financial performance using selected financial ratios,
• project two years of financial statements based on information given in the case,
• understand the business’s working capital needs, and how changes in one working capital account can
impact working capital requirements,
• evaluate the risk of granting the loan through the lens of the external conditions, business owner
character, capacity to repay, and
• communicate a comprehensive decision to approve or deny the loan, providing specific reasons based
on case analysis.
The Case Solution Starts From page 6
,ASSIGNMENT QUESTIONS
1. Analyze Pasquale’s past financial performance including the SCF and selected ratios. How is the
business’s cash position?
2. Prepare the financial statements for Pasquale’s for the two years following the expansion (fiscal 2023
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and 2024). Use the working capital loan as a plug figure for the projected balance sheets.
3. Interpret the plug figure in Question 2. Does seasonality affect the figure in either year? What impact
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does a sensitivity analysis have?
4. Perform a risk analysis, based on the company’s business conditions, character and capacity to repay,
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of granting the loan. How do these affect your decision?
5. As Stewart McGregor, would you grant the loan? Support your decision using specific analysis from
Sa
the case.
OR
As Stewart McGregor, complete whatever analysis you deem necessary and make whatever
n
recommendations you deem appropriate. Fully support and justify your decision.
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lu
So
The Case Solution Starts From page 6
,ANALYSIS
1. Analyze Pasquale’s past financial performance including the SCF and selected ratios. How is
the business’s cash position?
SCF Analysis (see Exhibit 4)
The following questions may be used to help guide student discussion:
• Was cash generated from operations?
• Is net income a source or use of cash? What does it tell us?
• What are sources and uses of cash from operations?
• What are the remaining major sources and uses of cash?
• What recommendations would you make for Pasquale’s future operations?
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The last two years of Pasquale’s financials show that the business did generate cash from their operating
pl
activities; however, there was a large drop in the amount of cash being generated from 2021 to 2022.
Students may be concerned with this trend, especially when considering an expansion will likely increase
the use of case necessary to fund the operations of the new location. Nonetheless, it is a good sign to see
m
multiple years of cash generated from operations and this provides some evidence that Pasquale’s should
be able to generate cash for the loan’s repayment.
Sa
Net income was also a source of cash for both fiscal years. However, net income has decreased from 2021 to
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lu
So
The Case Solution Starts From page 6
, EXHIBIT -1: PROJECTED STATEMENT OF EARNINGS (FOR THE YEAR ENDING MARCH 31)
Assumptions 2023 2024
Revenue
Original location’s sales Increase by 3% each year $ 2,236,074 $ 2,303,157
New location’s sales Given 800,000 1,100,000
Total sales $ 3,036,074 $ 3,403,157
Cost of goods sold
Beginning Inventory Last year’s EI 15,023 41,673
Plus: Purchases COGS + EI – BI 1,547,724 1,700,678
Less: Ending inventory 10 days in 2023, 8 days in 2024 41,673 37,369
Cost of goods sold Remain at 50.1% of sales $ 1,521,073 1,704,981
Gross Profit Sales – COGS $ 1,515,001 1,698,175
Operating Expenses
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Same $ + $20,000 in 2023, + $5,000 in
Advertising and promotion 2024 40,064 45,064
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29,294 34,294
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So
The Case Solution Starts From page 6
, EXHIBIT -3: PROJECTED BALANCE SHEETS (AS AT MARCH 31)
Assumptions 2023 2024
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ASSETS
Current assets
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Cash Same $ $ 21,112 $ 21,112
Marketable securities Same $ 85,075 85,075
Prepaid expenses Same $ 14,205 14.205
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Inventory From projected income statement 41,673 37,369
Accounts receivable Same days [0.55days/(Sales/365)] 4,575 5,128
Total current assets $ 166,640 $ 162,890
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Fixed assets
Kitchen equipment Same $ $ 264,809 $ 264,809
Leasehold improvements Same $ 94,497 94,497
Furniture and fixtures Same $ 12,948 12,948
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The Case Solution Starts From page 6
CASE STUDY SOLUTION
e
pl
m
SYNOPSIS
In March of 2022, Stewart McGregor, account manager at the Commercial Bank of Canada (Commercial
Sa
Bank) in London, Ontario, was reviewing a loan request from Robert Meazza, owner of Pasquale’s Pizzeria
(Pasquale’s) in Sarnia, Ontario. Meazza was looking to expand Pasquale’s to London, and had requested a
$300,0001 loan and a $20,000 line of credit to help renovate the new leased space in London, and help finance
the day-to-day operations of the new location. This was the first time Pasquale’s was looking to make an
n
investment of this scale, and McGregor wondered if the business was capable of taking on such a large loan.
tio
OBJECTIVES
lu
• analyze and understand the statement of cash flows (SCF),
So
• assess past financial performance using selected financial ratios,
• project two years of financial statements based on information given in the case,
• understand the business’s working capital needs, and how changes in one working capital account can
impact working capital requirements,
• evaluate the risk of granting the loan through the lens of the external conditions, business owner
character, capacity to repay, and
• communicate a comprehensive decision to approve or deny the loan, providing specific reasons based
on case analysis.
The Case Solution Starts From page 6
,ASSIGNMENT QUESTIONS
1. Analyze Pasquale’s past financial performance including the SCF and selected ratios. How is the
business’s cash position?
2. Prepare the financial statements for Pasquale’s for the two years following the expansion (fiscal 2023
e
and 2024). Use the working capital loan as a plug figure for the projected balance sheets.
3. Interpret the plug figure in Question 2. Does seasonality affect the figure in either year? What impact
pl
does a sensitivity analysis have?
4. Perform a risk analysis, based on the company’s business conditions, character and capacity to repay,
m
of granting the loan. How do these affect your decision?
5. As Stewart McGregor, would you grant the loan? Support your decision using specific analysis from
Sa
the case.
OR
As Stewart McGregor, complete whatever analysis you deem necessary and make whatever
n
recommendations you deem appropriate. Fully support and justify your decision.
tio
lu
So
The Case Solution Starts From page 6
,ANALYSIS
1. Analyze Pasquale’s past financial performance including the SCF and selected ratios. How is
the business’s cash position?
SCF Analysis (see Exhibit 4)
The following questions may be used to help guide student discussion:
• Was cash generated from operations?
• Is net income a source or use of cash? What does it tell us?
• What are sources and uses of cash from operations?
• What are the remaining major sources and uses of cash?
• What recommendations would you make for Pasquale’s future operations?
e
The last two years of Pasquale’s financials show that the business did generate cash from their operating
pl
activities; however, there was a large drop in the amount of cash being generated from 2021 to 2022.
Students may be concerned with this trend, especially when considering an expansion will likely increase
the use of case necessary to fund the operations of the new location. Nonetheless, it is a good sign to see
m
multiple years of cash generated from operations and this provides some evidence that Pasquale’s should
be able to generate cash for the loan’s repayment.
Sa
Net income was also a source of cash for both fiscal years. However, net income has decreased from 2021 to
n
tio
lu
So
The Case Solution Starts From page 6
, EXHIBIT -1: PROJECTED STATEMENT OF EARNINGS (FOR THE YEAR ENDING MARCH 31)
Assumptions 2023 2024
Revenue
Original location’s sales Increase by 3% each year $ 2,236,074 $ 2,303,157
New location’s sales Given 800,000 1,100,000
Total sales $ 3,036,074 $ 3,403,157
Cost of goods sold
Beginning Inventory Last year’s EI 15,023 41,673
Plus: Purchases COGS + EI – BI 1,547,724 1,700,678
Less: Ending inventory 10 days in 2023, 8 days in 2024 41,673 37,369
Cost of goods sold Remain at 50.1% of sales $ 1,521,073 1,704,981
Gross Profit Sales – COGS $ 1,515,001 1,698,175
Operating Expenses
e
Same $ + $20,000 in 2023, + $5,000 in
Advertising and promotion 2024 40,064 45,064
pl
29,294 34,294
m
Sa
n
tio
lu
So
The Case Solution Starts From page 6
, EXHIBIT -3: PROJECTED BALANCE SHEETS (AS AT MARCH 31)
Assumptions 2023 2024
e
ASSETS
Current assets
pl
Cash Same $ $ 21,112 $ 21,112
Marketable securities Same $ 85,075 85,075
Prepaid expenses Same $ 14,205 14.205
m
Inventory From projected income statement 41,673 37,369
Accounts receivable Same days [0.55days/(Sales/365)] 4,575 5,128
Total current assets $ 166,640 $ 162,890
Sa
Fixed assets
Kitchen equipment Same $ $ 264,809 $ 264,809
Leasehold improvements Same $ 94,497 94,497
Furniture and fixtures Same $ 12,948 12,948
n
tio
lu
So
The Case Solution Starts From page 6
