Capital Management

Executive Summary
The methods of Capital Management carry with it a certain level of risk regardless of what course of action is decided. This paper will describe and analyze the various options that lay before the management team in the case of Lawrence Sports. The first option to be considered is the Maturity-Matching approach which can be used for both long and short-term situations. Second is the conservative approach, which takes an exclusively long-term view and plans accordingly. Third is the aggressive approach that emphasizes the short-term planning cycle. After examining both the benefits and costs of each approach, the approach chosen will be indicated through the process of selecting performance parameters as well as the plan of implementation. The approach agreed upon should result in maximum profitability for Lawrence Sports.

Maturity-Matching Approach
The first working capital option for Lawrence is the maturity-matching approach. The maturity-matching approach matches short-term financing to short-term requirements, and long-term financing requirements to long-term debt.   The risk associated with this approach is the ability of Lawrence Sports to match the appropriate financing needs to the requirement.   If the sporting goods store is not able to sell the seasonal equipment, the short-term loans will need to be shifted to longer term loans to cover the debt.
The Conservative Approach
The contingency plan set in place if the maturity-matching approach is not sufficient is the conservative approach. The conservative approach uses long-term funds to finance a significant portion of the loans used by the organization. This approach protects the company against the volatility of the short-term markets, and guarantees the organization has sufficient capital in place for longer durations of the business cycle. The long-term capital will also protect the store against freezes in the credit markets, as the country experienced in late 2008. Lawrence...