Marketing
Lawrence Sports Simulation
FIN/571: Corporate Finance
Lawrence Sports Simulation On a routine daily basis, businesses make financial decisions that affect operations. The majority of these decisions are related to managing working capital. A firm’s current assets minus its current liabilities determine working capital. According to Emery, Finnerty, & Stowe, (2007), “Working capital management involves all aspects of the administration of current assets and current liabilities.” (p. 639). How well a company manages working capital determines the available assets that can be applied to its operation. Lawrence Sports, a $20 million revenue company manufactures and distributes sports equipment for baseball, football, basketball, and volleyball (Lawrence Sports Simulation, University of Phoenix, 2013). They source materials to produce the products that they provide to retailers. In the following paper we examine and determine the effectiveness of their working capital management policies.
Associated Risks for Working Capital Policies
Types of Working Capital Policies There are three types of Working Capital policies which essentially is the capital the company should maintain. There are advantages and disadvantages to each, but ultimately the approach they prefer will depend on whether they want a zero-risk arrangement or something a little uncertain. The three policies detailed below are the aggressive, conservative, and maturity- matching.
There are varying risks associated with each of the three major working capital philosophies or policies. Lawrence Sports will need to review the benefits and risks of each policy and understand risk-return trade-offs before determining what is right for their company. This will include the risks for the three philosophies of financing working capital and evaluating the impact on Lawrence Sports.
Aggressive Approach The goal of the aggressive approach is to raise profitability and relies heavily on
FIN/571: Corporate Finance
Lawrence Sports Simulation On a routine daily basis, businesses make financial decisions that affect operations. The majority of these decisions are related to managing working capital. A firm’s current assets minus its current liabilities determine working capital. According to Emery, Finnerty, & Stowe, (2007), “Working capital management involves all aspects of the administration of current assets and current liabilities.” (p. 639). How well a company manages working capital determines the available assets that can be applied to its operation. Lawrence Sports, a $20 million revenue company manufactures and distributes sports equipment for baseball, football, basketball, and volleyball (Lawrence Sports Simulation, University of Phoenix, 2013). They source materials to produce the products that they provide to retailers. In the following paper we examine and determine the effectiveness of their working capital management policies.
Associated Risks for Working Capital Policies
Types of Working Capital Policies There are three types of Working Capital policies which essentially is the capital the company should maintain. There are advantages and disadvantages to each, but ultimately the approach they prefer will depend on whether they want a zero-risk arrangement or something a little uncertain. The three policies detailed below are the aggressive, conservative, and maturity- matching.
There are varying risks associated with each of the three major working capital philosophies or policies. Lawrence Sports will need to review the benefits and risks of each policy and understand risk-return trade-offs before determining what is right for their company. This will include the risks for the three philosophies of financing working capital and evaluating the impact on Lawrence Sports.
Aggressive Approach The goal of the aggressive approach is to raise profitability and relies heavily on
References: Corporate Finance. (n.d.). Retrieved March 9, 2013, from http://www.zeepedia.com/read.php?working_capital_management_risk_profitability_and_liquidity_working_capital_policies_conservative_aggressive_moderate_corporate_finance&b=22&c=26 Emery, D. R., Finnerty, J. D., & Stowe, J. D. (2007). Corporate financial management (3rd ed.). Upper Saddle River, NJ: Pearson Prentice Hall. Lawrence Sports Simulation. (2013). Retrieved from https://ecampus.phoenix.edu/secure/resource/vendors/tata/sims/finance/finance_simulation1.html Venanzi, D., Financial Performance Measures and Value Creation: The State of the Art, SpringerBriefs in Business, DOI: 10.1007/978-88-470-2451-9_2, _ The Author(s) 2012