Lawrence Sport Scenerio
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Learning Team Assignment: The Lawrence Sports Simulation
Lawrence Sports is a manufacturer of sports equipment bringing in $20 million in revenue per year. They have two sources of materials, Gartner Products and Murray Leather Works and supply mainly to Mayo Stores, the largest retailer in the world for sports equipment.
In the simulation, the team becomes the finance manager at Lawrence, responsible for planning the working capital starting in April, reporting to Chief Financial Officer, Stephanie Sanders.
Lawrence has an open line of credit with their bank to retain a minimum cash balance of $50,000 with a limit of $1.2 million. The interest rate increases as the loan amount increases and the amount must be paid at end of each month, retaining $50,000. Interest is 10% on the low end, up to 16% at the high end of borrowing. The CFO wants to keep bank borrowing as low as possible by negotiating terms with suppliers and buyers.
Three Alternative working Capital & the Risk Associated
The first alternative for Lawrence Sports would be to negotiate more favorable credit terms with its suppliers, Murray Leather Works and Gartner Products. Gartner Products provides approximately 70% of raw materials to Lawrence. They are a $200 million revenue company that owns 37% total market share in sports material supply. Lawrence accounts for a small percent of Gartner’s sales. On the other hand, Murray Leather Works is a small supplier with only $10 million in sales with Lawrence accounting for 75% of that revenue. Lawrence has a large amount of pull with the supplier but Murray is too reliant on Lawrence and may run into financial difficulty if terms are pushed too far out. Currently Garner is paid 40% at the time of the sale with 60% due the following week and Murray Leather is paid 15% on purchase with the remaining 85% due the next week. Lawrence should negotiate a credit term of 100% payment, four weeks after the receipt of the goods it receives from each...
Lawrence Sports is a manufacturer of sports equipment bringing in $20 million in revenue per year. They have two sources of materials, Gartner Products and Murray Leather Works and supply mainly to Mayo Stores, the largest retailer in the world for sports equipment.
In the simulation, the team becomes the finance manager at Lawrence, responsible for planning the working capital starting in April, reporting to Chief Financial Officer, Stephanie Sanders.
Lawrence has an open line of credit with their bank to retain a minimum cash balance of $50,000 with a limit of $1.2 million. The interest rate increases as the loan amount increases and the amount must be paid at end of each month, retaining $50,000. Interest is 10% on the low end, up to 16% at the high end of borrowing. The CFO wants to keep bank borrowing as low as possible by negotiating terms with suppliers and buyers.
Three Alternative working Capital & the Risk Associated
The first alternative for Lawrence Sports would be to negotiate more favorable credit terms with its suppliers, Murray Leather Works and Gartner Products. Gartner Products provides approximately 70% of raw materials to Lawrence. They are a $200 million revenue company that owns 37% total market share in sports material supply. Lawrence accounts for a small percent of Gartner’s sales. On the other hand, Murray Leather Works is a small supplier with only $10 million in sales with Lawrence accounting for 75% of that revenue. Lawrence has a large amount of pull with the supplier but Murray is too reliant on Lawrence and may run into financial difficulty if terms are pushed too far out. Currently Garner is paid 40% at the time of the sale with 60% due the following week and Murray Leather is paid 15% on purchase with the remaining 85% due the next week. Lawrence should negotiate a credit term of 100% payment, four weeks after the receipt of the goods it receives from each...