Lawrence Sports Simulation
Annetee White, Elizabeth Garcia, Joseph Coleman, Loucks Kendra
University of Phoenix
This paper will discuss several alternative working capital policies that will recue future difficulties and make recommendations that Lawrence sports will use. We will evaluate the risks that are associated with our recommendations and plan for contingencies. Performance measures that will be sued to evaluate our recommendations will be discussed along with the cash conversion cycle and how it affects our recommendations.
Lawrence Sports Simulation
An organizations working capital is their assets less their liabilities. At the heart of working capital exists ...view middle of the document...
These aforementioned topics of discussion, will be explained in the following pages and is the purpose of this paper.
According to the Farm Credit Administration (2011), risks are inherent in all operational areas, including cash management. Due to its liquidity, cash is considered a high risk. Lawrence Sports has experienced liquidity risks related to payment systems. For example, when Mayo defers payment of it accounts payable, Lawrence Sport has to defer payment to Gartner and Murray (University of Phoenix, 2011). Deferring payment can have detrimental results as it can increase expenses if Lawrence Sports is continuously charged late fees or other types of penalties. Thus, Lawerence Sports needs to find a balance and restructure payment plans or find other terms that are mutually beneficial to the firms it deals with so that it is able to meet financial obligations without facing penalties. Not meeting such obligations can have a negative affect on Lawrence Sports’ public image.
Another risk with cash management is perhaps overestimating the amount of liquidity that is necessary to Lawrence Sports’ operations. Such estimation can cause Lawrence Sports to lose money as cash will not be invested properly. Thus, Lawrence Sports will need to conduct research of its operations and determine its transaction demand, precautionary demand, and speculative demand (Emery, Finnerty, & Stowe, 2007) so that it can hold the appropriate amount of cash and invest other assets to gain a greater return.
Performance measures are a way that an organization like Lawrence Sports can maintain its relationships with their customers and vendors. The key is to consistently have performance measures in place, so that there is no question that the organization is moving in a positive direction. Receivables and payables have direct impact on the bottom line on the company. Improvement on the bottom line is an incremental process, which amounts to individual managers negotiating with customers and suppliers to optimize the price terms and financing relationships (Lawrence Sports Simulation).
The importance of efficient working capital management (WCM) is indisputable. Working capital is the difference between resources in cash or readily convertible into cash (Current Assets) and organizational commitments for which cash will soon be required (Current Liabilities). The objective of working capital management is to maintain the optimum balance of each of the working capital components. Business viability relies on the ability to effectively manage receivables, inventory, and payables. Firms are able to reduce financing costs and/or increase the funds available for expansion by minimizing the amount of funds tied up in current assets. Much managerial effort is expended in bringing non-optimal levels of current assets and liabilities back toward optimal levels. An optimal level would be one in which a balance is achieved between risk and efficiency...