Finance
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Running Head: Lawrence Sports Simulation
Lawrence Sports Simulation
University of Phoenix
G. Gunderman, D. Lockwood, A. McKeller, E.Green
FIN/GM 571
June 7, 2010
Professor Arnold Harvey
Lawrence Sports Simulation
Lawrence Sports is a company that manufactures sporting equipment for a major retailer and is a $20 million revenue company (University of Phoenix, 2010). Three alternative working capital policies have been created as recommendations in an effort to reduce potential future difficulties. The recommendations suggested by Team A include evaluation of risk, contingencies and a cash conversion cycle as it relates to working capital management (University of Phoenix, 2010).
Maturity matching is one way in which Lawrence Sports can minimize risk of rising interest rates and defaults. By matching the maturities of its assets and liabilities in the form of bank loans, risk is minimized (Emery, Finnerty, & Stowe, 2007). The company must negotiate repayment of the loan and eliminate the cash deficit. An option for controlling the outflow of cash is to offer finance seasonal variations in current assets with current liabilities of the same maturity (Emery, Finnerty, & Stowe, 2007). Further, Lawrence Sports could finance long-term assets by issuing long-term debt and equity securities by alternating investments to offset interest rate risk (Emery, Finnerty, & Stowe, 2007). In many cases there is a permanent component of current assets which can be financed with long-term capital, also minimizing risk (Emery, Finnerty, & Stowe, 2007).
A financing contingency is common in business, making sales contingent upon a condition for the transaction to take place. Lawrence Sports' working capital management policy is to borrow automatically from the bank to maintain a cash balance of $50,000. The maximum credit limits from the back is $1.2 million with interest rates ranging from 10% to 16%. Lawrence Sports is creating additional working...
Lawrence Sports Simulation
University of Phoenix
G. Gunderman, D. Lockwood, A. McKeller, E.Green
FIN/GM 571
June 7, 2010
Professor Arnold Harvey
Lawrence Sports Simulation
Lawrence Sports is a company that manufactures sporting equipment for a major retailer and is a $20 million revenue company (University of Phoenix, 2010). Three alternative working capital policies have been created as recommendations in an effort to reduce potential future difficulties. The recommendations suggested by Team A include evaluation of risk, contingencies and a cash conversion cycle as it relates to working capital management (University of Phoenix, 2010).
Maturity matching is one way in which Lawrence Sports can minimize risk of rising interest rates and defaults. By matching the maturities of its assets and liabilities in the form of bank loans, risk is minimized (Emery, Finnerty, & Stowe, 2007). The company must negotiate repayment of the loan and eliminate the cash deficit. An option for controlling the outflow of cash is to offer finance seasonal variations in current assets with current liabilities of the same maturity (Emery, Finnerty, & Stowe, 2007). Further, Lawrence Sports could finance long-term assets by issuing long-term debt and equity securities by alternating investments to offset interest rate risk (Emery, Finnerty, & Stowe, 2007). In many cases there is a permanent component of current assets which can be financed with long-term capital, also minimizing risk (Emery, Finnerty, & Stowe, 2007).
A financing contingency is common in business, making sales contingent upon a condition for the transaction to take place. Lawrence Sports' working capital management policy is to borrow automatically from the bank to maintain a cash balance of $50,000. The maximum credit limits from the back is $1.2 million with interest rates ranging from 10% to 16%. Lawrence Sports is creating additional working...