Guillermo Simulation

Lawrence Sports Simulation

Justina Barone, Yvette McBride, Rochelle Santiago, Rajai Sims

University of Phoenix Online

FIN/571

Ken Baker

November 8, 2010

Abstract

Lawrence Sports manufactures and distributes athletic equipment and protective gear for basketball, baseball, football, and volleyball. As a sports equipment company, Lawrence Sports must choose to operate with one of three working capital management philosophies. Certain Principles of Finance, such as The Principle of Comparative Advantage and The Principle of Risk-Return Trade Off, guide the working capital recommendation based on performance measures, like the cash conversion cycle while minimizing risk and therefore allowing Lawrence Sports to operate at maximum efficiency. The complete recommendation for Lawrence Sports analyzes contingencies and includes an implementation plan that yield the greatest potential for success.

Lawrence Sports is an athletic equipment and protective gear manufacturing and distribution company specializing in baseball, basketball, football, and volleyball. The standard operating procedures for Lawrence Sports must include a working capital management policy. Choosing between a conservative, maturity-matching, or aggressive approach to financing working capital is an arduous task. The Principles of Finance and performance measures, such as the cash conversion cycle, are vital ingredients that aid in the analysis of each alternative. A complete working capital policy recommendation for Lawrence Sports includes evaluating potential economic events as well providing a clear implementation plan that maximizes Lawrence Sports’ liquidity and efficiency while reducing company risk.

Alternative Working Capital Policies

To reduce future difficulties for Lawrence Sports, the team brainstormed three alternative working capital policies. The alternative working capital policies are

1. Conservative Approach to Financing Working Capital

2....