Week 3 Lawrence Sports Simulation

Lawrence Sports Simulation

Priscella Gutierrez Soler, Kedeka Haynes, Kristy Nguyen, Carmelle Pierre

FIN / 571

December 17, 2012

Paul Stevens

Introduction

Lawrence Sports is a company that manufactures and distributes sports equipment. One of the major clients of Lawrence Sports is Mayo Stores, the worlds leading retailer. The company has revenue of $20 million.

This purpose of this paper is to provide to Lawrence Sports alternatives of working capital policies that will help reducing the possibilities of future difficulties. Working capital is the measurement of the availability of liquid assets a company has to build its business. Regularly, companies with high working capital will have a greater chance of success because they are able to expand and improve their operations.

Working Capital Policies

Companies should monitor the levels of its working capital because the effect of not doing so can lead them to serious issue in the long term. Although different companies adopt different policies, there are many that can be considered. One policy to consider for Lawrence Sports is the cash policy, it is a better way of having the funds on hand when different opportunities are being considered for investments. Cash is a better solution to most investments because no matter the duration of the period of investment the funds are always available. When investing cash, it is necessary to keep investments at the least amount of time so that it can be accessed as needed by the company. Cash should be invested when there is an excess and enough should be kept to cover expenses. When Management makes these cash decisions he or she must consider how much they are going to invest and the period of the investment due to having to make a large upfront payments and it could leave the funds short to offset other payments when needed. Lawrence Sports should also consider the expected return, the investment opportunities of the business and the transaction cost...