Working Capital Simulation 2
Working Capital Simulation
Richard Hughes
FIN/571
January Nineteenth, 2015
William Stokes
Working Capital Simulation
Sunflower Nutraceuticals (SNC) is barely breaking even and is strategizing on methods improve its growth and cash flow through capital budgeting. This paper will discuss the decisions the CEO made in each area of the 3-phase process, and evaluate how the decisions affected SNC. The numbers in this analysis are in thousands. Background SNC provides dietary supplements to individual customers and distributors. The company currently is only able to keep the minimum required cash on hand to run the business’ operations, and have had problems making payroll recently. The company and the nutraceuticals industry are relatively new. The company makes very little profit, and the business is working capital intensive. The client has limited working capital, which is defined as stock, debtors, and cash. These are the firm’s current assets. Phase 1
In 2012, the company had current assets of $5,619 and a net worth of $1,765. EBIT was $650 and net income was $236. Sales were $10,000 at a cost of $9350. Our strategy was to acquire a new customer and tighten accounts receivable. We chose these options because we felt that it was important to find ways to make more revenue and try to prevent us from running out of cash.
Businesses do not make money until their cash from the initial investment is converted back to cash. Tightening accounts receivable improves liquidity, and allows the company a smoother operational process. We decided to make it more challenging for customers to obtain credit and reduced our terms from 60 days to 30 days. This allows us to receive more of the money from our customers sooner.
We took on a new customer, Atlantic Wellness, to help us increase our revenues and take advantage of economies of scale, which would lower our cost of goods. It is less expensive to retain the customers that we have, and adding new customers
Richard Hughes
FIN/571
January Nineteenth, 2015
William Stokes
Working Capital Simulation
Sunflower Nutraceuticals (SNC) is barely breaking even and is strategizing on methods improve its growth and cash flow through capital budgeting. This paper will discuss the decisions the CEO made in each area of the 3-phase process, and evaluate how the decisions affected SNC. The numbers in this analysis are in thousands. Background SNC provides dietary supplements to individual customers and distributors. The company currently is only able to keep the minimum required cash on hand to run the business’ operations, and have had problems making payroll recently. The company and the nutraceuticals industry are relatively new. The company makes very little profit, and the business is working capital intensive. The client has limited working capital, which is defined as stock, debtors, and cash. These are the firm’s current assets. Phase 1
In 2012, the company had current assets of $5,619 and a net worth of $1,765. EBIT was $650 and net income was $236. Sales were $10,000 at a cost of $9350. Our strategy was to acquire a new customer and tighten accounts receivable. We chose these options because we felt that it was important to find ways to make more revenue and try to prevent us from running out of cash.
Businesses do not make money until their cash from the initial investment is converted back to cash. Tightening accounts receivable improves liquidity, and allows the company a smoother operational process. We decided to make it more challenging for customers to obtain credit and reduced our terms from 60 days to 30 days. This allows us to receive more of the money from our customers sooner.
We took on a new customer, Atlantic Wellness, to help us increase our revenues and take advantage of economies of scale, which would lower our cost of goods. It is less expensive to retain the customers that we have, and adding new customers
References: Grace, A. (2012). Strategies for tightening up accounts receivable. Retrieved from http://info.adssolutions.com/blog/bid/229935/Strategies-for-Tightening-Up-Accounts-Receivable University of Phoenix. (2015). Working capital simulation [Multimedia]. Retrieved from University of Phoenix, FIN571 website Working capital. (1993). Management Decision, 31(2), 32. Retrieved from http://search.proquest.com/docview/212079826?accountid=458