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Working Capital Manangement Concepts Worksheet

Working Capital Management Concepts Worksheet
Concept
Application of Concept in the Simulation
Reference to Concept in Reading
Accounts Receivables

Lawrence Sports is a $20 million revenue company that manufactures [Misspelling: manufacturers] and distributes sporting goods (University of Phoenix, 2008). Lawrence’s principal customer is Mayo, which is the world’s leading retailer. Mayo is experiencing difficulties in repaying Lawrence, which is caused pressure from Lawrence (University of Phoenix, 2008). This will allow the reduction any future burdens from finances and forecasting options. Lawrence needs to negotiate a short-term payment and collection arrangement plan with Mayo.

“Company frequently sells goods on credit, so that it may be weeks or even months before the company is paid.” (Brealey-Myers-Allen, 2005). The cash flow from Lawrence comes from collections on accounts receivable. “The Company’s Credit Manager sets the terms for payment, decides which customers should be offered credit, and ensures that they pay promptly,” (Brealey, Myers and Allen, 2005).

Short-term financing

Lawrence Sports currently finances all cash flow shortages with a $1.2 million line of credit from central bank (University of Phoenix, 2008). The credit line allows Lawrence Sports to maintain a positive cash balance of $50,000 (University of Phoenix, 2008). Lawrence sources its materials from Gartner Products and Murray Leather Works (University of Phoenix, 2008). The terms and credit with Gartner is 405 payment upon purchase and 60% in the following week (University of Phoenix, 2008). The terms with Murray are 15% payment upon purchase and 85% in the following week (University of Phoenix, 2008). The financial manager specifies the forecaster cash requirements, interest rates, bank loans, accounts payables and credit limits.

“The cumulative capital requirement can be met either from long-term or short-term financing. When long-term financing does not cover...