Capital Management
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Intro
Capital management refers to the management of an organizations current or short-term assets and short-term liabilities. Whether an organization is large or small capital management is important to financial managers. Working capital management ultimate objective is to ensure that the organization successfully performs its functions, and it receives the cash flows for obtaining the short-term obligations and future functional costs. This paper highlights Team As responsibility to assist Lawrence Sports in successfully managing current issues that affect the companys working capital management by taking part in the companys simulation.
Lawrence Sports is a $20 million revenue company that manufactures protective gear for baseball, football, basketball, and volleyball. The company relies on Mayo to distribute over 90% of its gear to customers around the world, and together their success is dependent on each other. The other two business partners of Lawrence Sports are their suppliers Gartner Products and Murray Leather Works. It is the companys account managers job to ensure a good business relationship is kept between all three of the business partners, but the relationships are becoming strained because of the companys working capital management.
The main focus of the simulation is to give the students the opportunity to apply business solutions to trade off various issues while finding stability to the companys working capital management. The simulation exposes the companys cash positioning problem, which is a direct result of the companys credit policy. To assist in managing the financial issues affecting Lawrence Sports it is important for Team A to analyze different working capital policies.
Matching working capital policy works in an arrangement which the current assets of the business are used perfectly to match the current liabilities (Kulkarni, 2011). This type of working capital policy require a financial managers full attention because it is medium risk, and if Lawrence Sports creditor is due to be paid on a certain date from today the company have to ensure that there is enough cash to pay the creditor on that particular date. Matching working capital is risky because Lawrence Sports have to ensure that as little cash as possible is unemployed in the bank so that the company can reinvest it in purchasing more from Gartner Products and Murray Leather Works, which will increase profits and sales to Mayo. If Lawrence Sports would keep low levels of working capital they can apply capital more productively elsewhere.
Aggressive working capital policy employs long term and short term financing. If Lawrence Sports use this approach they can expect high risk, and gain high returns. Employing the aggressive working capital policy, the company can maintain a low amount