Working Capital Management Concepts Worksheet University of Phoenix MBA550 week1

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�PAGE �1� Working Capital Concepts

Working Capital Management Concepts Worksheet

University of Phoenix

MBA550 week1


Working Capital Management Concepts Worksheet


Application of Concept in the Simulation

Reference to Concept in Reading

Short-term financing

"Lawrence Sports (LS) currently finances all cash flow shortages with a $1.2 million line of credit from central bank. The credit line allows LS to maintain a positive cash balance of $50,000. LS source its materials from Gartner Products and Murray Leather Works. The terms and credit with Gartner is 405 payment upon purchase and 60% in the following week. The terms with Murray are 15% payment upon purchase and 85% in the following week" (University of Phoenix, 2009). The financial manager specifies the forecaster cash requirements, interest rates, bank loans, accounts payables and credit limits.

"The cumulative capital requirement can be met either from long-term or short-term financing. When long-term financing does not cover the cumulative capital requirement, the firm must raise short-term capital to make up the difference." (Brealey, Myers, Allen, 2005)

Examine effects of accounts payable terms on cash conversion cycle and costs of goods.

collection policy

terms of sale

"Lawrence set the terms of sale as 20% collection and sales and balance of 80% due the following week." (University of Phoenix, 2009).

Not all sales involve credit, you can demand cash on delivery (COD) and it may be sensible for you to demand cash on delivery. Most companies offer a cash discount for prompt payments on accounts, if payment is received within 30 days a 2% discount is applied. These terms are referred to as 2/10 net 30. (Brealey, Myers & Allen, 2005, pg 814)

Accounts Receivables

"Lawrence Sports is a $20 million revenue company that manufactures and distributes sporting goods. Lawrence's principal customer is Mayo, which is the world's leading...