Working Capital Concepts

Working Capital Management Concepts Worksheet

|Concept |Application of Concept in the Simulation |Reference to Concept in Reading |

|Cash Conversion Cycle |Lawrence Sports' cash conversion cycle is made up of the $20 million in |"Sales become accounts receivable |

| |revenue it receives for manufacturing and distributing equipment and |before they become cash. Cash flow |

| |protective sporting gear. Lawrence Sports generates its revenue by |comes from collections on accounts |

| |purchasing material from their vendors and selling the materials to their |receivable. Most firms keep track of|

| |customer. Cash inflows and outflows are generated through the collection of |the average time it takes customers |

| |accounts receivables from the customer, and making payments to the suppliers.|to pay their bills. From this they |

| |Describe the firm's cash conversion cycle. |can forecast what proportion of a |

| | |quarter's sales is likely to be |

| | |converted into cash in that quarter |

| | |and what proportion is likely to be |

| | |carried over to the next quarter as |

| | |accounts receivable" (Brealey, Myers,|

| |...