Lawrence Sports Working Capital Policy

Essay by LindaLuUniversity, Master'sA-, April 2008

download word file, 10 pages 5.0

Lawrence Sports, a $20 million corporation, manufactures and distributes equipment and protective gear for various sports. Lawrence Sports' leading distributor, Mayo Stores, sales 95% of Lawrence Sports equipment and currently is struggling with internal problems, which is causing a cash flow problem for Lawrence Sports. Lawrence Sports has two principal suppliers of raw materials, Gartner Products and Murray Leatherworks. Lawrence Sports has a $1.2 million line of credit with Central Bank, which has a variable interest rate of 10% to 16% depending on the current balance.

Lawrence Sports needs to begin a monitoring system for accuracy in the finances and inventory control will show how Lawrence has met the criteria set before the organization, by the organization. Lawrence Sports needs to reevaluate the cash reserves for the long-term opportunities, which arise while renegotiating the terms of the interest rates and cash requirements with Central Bank. Working with Gartner and Murray, Lawrence needs to evaluate the terms of the accounts payable to bring maximum inventory with minimal payments.

The credit policy with Mayo Stores also needs reevaluation to maximize revenues and minimize the accounts receivable.

Current Working Capital PolicyCurrently, Lawrence Sports is suffering from a financial crunch caused by poor financial planning. Even though Lawrence Sports has forecasted in past months, based on assumptions, the accounts receivables will remain at a constant level. Forecasting, used as a tool, provides a glimpse of what might happen, but does not take into account seasonal or cyclical changes within an industry. In the case of Lawrence Sports, the CFO, Stephanie Sanders, relies heavily on the forecast consistently disregarding how the forecast affects Mayo Stores. Lawrence Sports does not have a planned budget for possible lean times, which has caused problems with the creditors of Gartner Products and Murray Leather Works and with the Central...