Finance
Working Capital Policies FIN/571 April 1, 2013 Jim Ciaramella | | | |
Introduction
Lawrence Sports is a 20 million dollar company that manufactures sports equipment. Mayo is a major customer of Lawrence Sport 's and has defaulted on 80% of the payments for goods and services for the weeks of March 17-23, and March 24-30 and Lawrence can’t expect any money from mayo until weeks April 14-20. Lawrence has borrowed money from the bank and has deferred payment to Gartner to manage the week of March 24-30 but the outstanding loan and the interest burden have gone up consequently (University of Phoenix, 2010).
Team C is responsible for working capital management for the company and has come up with an alternate working capital solution and a plan to manage Lawrence 's cash position in the forthcoming weeks. This paper will discuss the risk and contingencies associated with the alternate working capital solution. Performance measures will be discussed to show it will be used to evaluate and implement Team C recommendations for Lawrence Sports.
Working Capital Policies
Team C will look at the following policies for working capital to see which one could be considered appropriate for Lawrence Sports. These policies are characterized by a combination of risk and return, and can have from a conservative to an aggressive profile. The three types of working capital policies most recommended and used are: Aggressive Policy, Average Policy, and Conservative Policy.
The aggressive policy working capital management focuses on maintaining current assets amounts at minimum levels, which is reflected in the total asset turnover higher, with a higher margin. This policy emphasizes the aspect of returns on risk-return decision. This policy is the highest risk policy but with more funds to reinvest in the company or business. According to Kulkarni (2011) “ it is a high risk arrangement though, because,
Introduction
Lawrence Sports is a 20 million dollar company that manufactures sports equipment. Mayo is a major customer of Lawrence Sport 's and has defaulted on 80% of the payments for goods and services for the weeks of March 17-23, and March 24-30 and Lawrence can’t expect any money from mayo until weeks April 14-20. Lawrence has borrowed money from the bank and has deferred payment to Gartner to manage the week of March 24-30 but the outstanding loan and the interest burden have gone up consequently (University of Phoenix, 2010).
Team C is responsible for working capital management for the company and has come up with an alternate working capital solution and a plan to manage Lawrence 's cash position in the forthcoming weeks. This paper will discuss the risk and contingencies associated with the alternate working capital solution. Performance measures will be discussed to show it will be used to evaluate and implement Team C recommendations for Lawrence Sports.
Working Capital Policies
Team C will look at the following policies for working capital to see which one could be considered appropriate for Lawrence Sports. These policies are characterized by a combination of risk and return, and can have from a conservative to an aggressive profile. The three types of working capital policies most recommended and used are: Aggressive Policy, Average Policy, and Conservative Policy.
The aggressive policy working capital management focuses on maintaining current assets amounts at minimum levels, which is reflected in the total asset turnover higher, with a higher margin. This policy emphasizes the aspect of returns on risk-return decision. This policy is the highest risk policy but with more funds to reinvest in the company or business. According to Kulkarni (2011) “ it is a high risk arrangement though, because,
References: Arjun, K. (2011). Managing a multicultural workforce. Working Capital Policy. Retrieved from http://www.buzzle.com/articles/working-capital-policy.html Broxton, A., & Bowbray, P.L. (2011). Improving working capital and cash flow intelligence. APQC Duff, V. (2013). What is a business contingency plan. Retrieved from http://smallbusiness.chron.com/business-contingency-plan-1081.html Emery, D. R., Finnerty, J. D., & Stowe, J. D. (2007). 2007 (3rd ed.). Upper Saddle River, New Jersey: Prentice Hall. Luhring SurvivalWare. (2012). Days of working capital. Retrieved from http://www.survivalware.com/articles/days_of_working_capital.php Satish, M. (2022). Working capital management and control: Principles and practice, New Age International Publishers Reprint 2003 Watson, D University of Phoenix (2010) . Lawrence Sports Simulation retrieved 3/29/2013 from University of Phoenix, FIN/571: Economics website.