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Office Mates Case Study

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Submitted By jcook
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Brian King and Office Mates’ Board of Directors

Executive Summary

Due to the slowing demand for our paper storage products, the firm has decided to move towards manufacturing and distribution of computer CD’s and diskette storage systems which is believed to be the future of our business. These changes have sparked an interest in our management to overhaul the current financial policies.
Therefore, this financial team was created and asked to help Bob Knight analyze three working capital policies: aggressive, conservative, and moderate. A decision must be made to determine which policy will be the most beneficial for the future of Office Mates. Each policy has its own unique pros and cons, and changes that come with estimating different economic outlooks. * Aggressive policy * Minimizing the amount of cash and inventories * Use only short-term debt * Would result in the smallest investment in net working capital * Minimize accounts receivables * Moderate policy * Falls between the aggressive and conservative policies * Conservative policy * Holding large amounts of cash and inventories * Use only long-term debt * Maximize accounts receivables

After analyzing each policy and comparing them with the needs of Office Mates, it has been concluded that Office Mates should use the conservative policy. This will put Office Mates in the working capital structure with the highest ROE at the lowest risk. We also have come to the conclusion that with the potential change in short term interest rates, the conservative working capital structure will not be affected.

Summary of Facts

Office Mates is a medium-sized manufacturer of metal file cabinets for home and office use. Due to the slowing of paper storage, Office Mates has moved into the production of CDs and diskette

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