Lawrence Simulation
Lawrence Sports Simulation
FIN/571
April 2, 2013
Lawrence Sports Simulation
Liquidity must become a primary focus for any business hoping to create sustainable growth. Lawrence Sports, a fictional company, is presently in need of capital management analysis and methodology overhaul. Learning Team A will discuss three alternative working capital policies that reduce future difficulties and the recommendation on which policy Lawrence Sports should follow.
The Three Alternatives
“In its day-to-day operations, a firm must maintain adequate liquidity. At the same time, it wants to operate as efficiently and profitably as possible. In this regard, there is a risk-return trade-off in the alternative managerial philosophies about how working capital should be financed. We can describe a firm’s philosophy about how it finances working capital as a maturity-matching approach, a conservative approach, or an aggressive approach (Stowe, Finnerty, & Emery, 2007).
Conservative Approach
Shortage of working capital as emergency situations arise is the most important problem in the Lawrence sports simulation. Business partners are involved in this problem. For example Mayo stores only pays 20% of their total payments in the first week but they pay biggest portion which is 80% percent a week later. The other business partner, Gartner products, has same payment type. These two partners drive Lawrence sport to shortness the liquidity. In other word, there is no balance between inflow and out flow of cash in Lawrence sports. Though Mayo is responsible for the majority of sales for the firm, without a more conservative policy, payables will continue to be restrained.
“The conservative approach is shown in below panel. Long-term financing is used to finance firm’s long-term assets, all of its permanent current assets, and some of its temporary current assets. As the below panel below explains only when asset needs are high will the firm use short-term financing. At
FIN/571
April 2, 2013
Lawrence Sports Simulation
Liquidity must become a primary focus for any business hoping to create sustainable growth. Lawrence Sports, a fictional company, is presently in need of capital management analysis and methodology overhaul. Learning Team A will discuss three alternative working capital policies that reduce future difficulties and the recommendation on which policy Lawrence Sports should follow.
The Three Alternatives
“In its day-to-day operations, a firm must maintain adequate liquidity. At the same time, it wants to operate as efficiently and profitably as possible. In this regard, there is a risk-return trade-off in the alternative managerial philosophies about how working capital should be financed. We can describe a firm’s philosophy about how it finances working capital as a maturity-matching approach, a conservative approach, or an aggressive approach (Stowe, Finnerty, & Emery, 2007).
Conservative Approach
Shortage of working capital as emergency situations arise is the most important problem in the Lawrence sports simulation. Business partners are involved in this problem. For example Mayo stores only pays 20% of their total payments in the first week but they pay biggest portion which is 80% percent a week later. The other business partner, Gartner products, has same payment type. These two partners drive Lawrence sport to shortness the liquidity. In other word, there is no balance between inflow and out flow of cash in Lawrence sports. Though Mayo is responsible for the majority of sales for the firm, without a more conservative policy, payables will continue to be restrained.
“The conservative approach is shown in below panel. Long-term financing is used to finance firm’s long-term assets, all of its permanent current assets, and some of its temporary current assets. As the below panel below explains only when asset needs are high will the firm use short-term financing. At
References: Emery, D. R., Finnerty, J. D., & Stowe, J. D. (2007). Corporate financial management [University of Phoenix Custom Edition eBook]. Morristown, NJ: Wohl University of Phoenix. (2013). Working capital management simulation: Lawrence sports [Multimedia]. Retrieved from University of Phoenix, FIN571- Corporate Finance website