Fin 571 Week 6

FIN 571 WEEK 6

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FIN 571 Week 6, FIN 571 Week 6 complete

Working Capital Simulation

Introduction

Strategic planning in the capital budget of a business is critical for new and mature businesses. Finance professionals, internal, and external users have to be able to dissect the information provided from a company’s financial statements in order to make investment decisions. The Harvard Simulation on working capital allowed the team to manipulate different financial profiles in order to forecast operational efficiency. Working capital is calculated by subtracting current assets from current liabilities. The team’s recommendations are based in three phases for the development of the company for the next 10 years.

Phase 1 Decision

During phase one the company decided to use a controlled approach in an attempt to gain working capital. The focus is to increase growth rate and current cash flow. First, the CEO’s decided to Leverage Supplier Discount. The company leveraged the supplier discount in order to allow the company to grow and build relationships within the market matrix; however, this caused a negative impact on accounts receivable and inventory balances causing a drain on the cash flow. Secondly, we declined Acquire a New Customer. Theoretically, acquiring Atlantic Wellness as a new customer would have increased sales significantly for the first three years; however, it would result in a higher accounts receivable and inventory balances, causing the company to exceed the available credit. To offset the loss in cash flow, we Drop Poorly Selling Products and Tighten Accounts Receivables. Dropping the poorly selling products from the company simulated both a negative and a positive effect within the first three years. For example, removing the products caused the sales volumes to decrease, but it...