Lawrence Sports Simulation
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- Date Submitted: 07/02/2012 01:15 PM
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Lawrence Sports Simulation
Lawrence Sports manufactures and distributes equipment and protective gear for a variety of sports. They currently have $20 million in revenue but are facing working capital and cash flow issues. The firm is seeking to create an alternative policy that will reduce future difficulties with working capital and cash flow issues. The Simulation gives an insight into what it is like to handle the day- to-day cash inflow and outflow through good and hard times to develop a suitable recommendation that will optimize their working capital and create a sustainable growth. Review of the Cash Conversion Cycle
The cash conversion cycle is used to manage the effectiveness of management’s ability to use short-term assets and liabilities to generate cash. It is calculated using several activity ratios that measure the length of time between the payment of accounts payable and the receipt of cash from accounts receivable (Emery, Finnerty, & Stowe, Chapter 22, Liquidity Management, 2007). In the Lawrence Sports stimulation receivables and payables have a direct impact on the bottom line of the company. Each scenario consisted of negotiation with Mayo, Gartner, and Murray for better collection and payment schedules. Each decision had an impact on both Lawrence and their vendor’s cash flow.
The current collection and payment arrangements for Lawrence Sports are as followed:
• Mayo: 20% collection on sales, the remaining 80% in the following week.
• Gartner: 40% payment on purchase, the remaining 60% in the next week.
• Murray: 15% payment on purchase, the remaining 85% in the next week.
The account receivables and account payables are unorganized causing financial stress on the company. Mayo is the principle customer of Lawrence and has placed them in a difficult situation by defaulting on payments, which causes them to have to use their line of credit or negotiate with Gartner and Murray their suppliers to defer payments. The success of the...
Lawrence Sports manufactures and distributes equipment and protective gear for a variety of sports. They currently have $20 million in revenue but are facing working capital and cash flow issues. The firm is seeking to create an alternative policy that will reduce future difficulties with working capital and cash flow issues. The Simulation gives an insight into what it is like to handle the day- to-day cash inflow and outflow through good and hard times to develop a suitable recommendation that will optimize their working capital and create a sustainable growth. Review of the Cash Conversion Cycle
The cash conversion cycle is used to manage the effectiveness of management’s ability to use short-term assets and liabilities to generate cash. It is calculated using several activity ratios that measure the length of time between the payment of accounts payable and the receipt of cash from accounts receivable (Emery, Finnerty, & Stowe, Chapter 22, Liquidity Management, 2007). In the Lawrence Sports stimulation receivables and payables have a direct impact on the bottom line of the company. Each scenario consisted of negotiation with Mayo, Gartner, and Murray for better collection and payment schedules. Each decision had an impact on both Lawrence and their vendor’s cash flow.
The current collection and payment arrangements for Lawrence Sports are as followed:
• Mayo: 20% collection on sales, the remaining 80% in the following week.
• Gartner: 40% payment on purchase, the remaining 60% in the next week.
• Murray: 15% payment on purchase, the remaining 85% in the next week.
The account receivables and account payables are unorganized causing financial stress on the company. Mayo is the principle customer of Lawrence and has placed them in a difficult situation by defaulting on payments, which causes them to have to use their line of credit or negotiate with Gartner and Murray their suppliers to defer payments. The success of the...