Working Captial Managment Worksheet
Working Capital Management Concepts Worksheet
Concept Application of Concept in the Simulation Reference to Concept in Reading
Terms of Sale, Cash Discount
In order for Lawrence Sports to continue business without having to borrow from a line of credit, the company must establish a payment plan for Mayo. When Mayo does not pay in a timely basis then LS is forced to hold payment to suppliers. Therefore, it is imperative that LS have a firm TOS plan in place. By offering a cash discount as an incentive, Mayo may begin to pay on a timelier basis. “Not all sales involve credit…When we look at transactions that do involved credit; we find that each industry seems to have its own particular practices. To encourage customers to pay before the final date, it is common to offer a cash discount for prompt settlement” (Brealey, Myers, & Allen, 2005, 814).
Credit Analysis
Ann Wu, head of vendor relationships, advises against stretching payment beyond a certain amount of time. Ann is not a specialist in credit assessment however; her relationship with the company does provide insight that should be followed up on by a credit assessment specialist. “There are a number of ways to find out whether customers are likely to cover their debts…However, the simplest way to assess a customer’s credit standing is to seek the views of a specialist in credit assessment” (Brealey, Myers, & Allen, 2005, p. 816).
Short Term Financial Plan
The entire crux of this simulation is the lack of an adequate a short term financial plan. The only directives are to keep $50,000 in the bank and borrow as little as possible. If money gets tied up due to slow movement of inventory or Mayo being short on payment, then the company has no real clear plan on how to pay suppliers. The company has established a line of credit but there is a cap on it that is must be paid by the end of the month. “Short term financing plans...
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