Lawrence Sports (Lawrence) “is a $20 million revenue company that manufactures and distributes equipment and protective gear for baseball, football, basketball and volleyball” (University of Phoenix, 2008). The newly-appointed financial manager must maintain an adequate net working capital and a minimal loan burden by “negotiating short-term payment and collection arrangements with business partners” (University of Phoenix, 2008). Lawrence can benchmark organizations to analyze issues such as working capital strategies for long-term opportunities, cash budgeting, cash flow analysis, best practices in working capital management, risks and opportunities in working capital strategies and ethical implications of working capital alternatives.
Working capital strategies to prepare for long-term opportunities
Analyzing a company’s cash inflows and outflows accurately is challenging. Lawrence must determine how to deal with its primary customer’s inability to uphold the terms of payment. Stretching payables and borrowing from the $1.2 million line of credit with Central Bank is not proving to be an optimal solution since the interest rate on the line of credit increases as the borrowing amount increases. Chief Financial Officer Stephanie Sanders’ objective is to keep the amount of borrowing and accompanying interest rate burden as low as possible (University of Phoenix, 2008).
Cisco and McDonald’s have diversified operations and investments that attribute to their long-term working capital succession. In addition, Cisco’s automated collections system has subtracted days out of its operating and cash cycles. The company’s decision to move idle cash funds into income-generating accounts illustrates its efficient cash management prac ...