...Working Capital Simulation: Managing Growth FIN/571 October 13, 2014 William Stokes Working Capital Simulation: Managing Growth The Corporate Finance course has helped me, as a student, gain intelligence to make informed decisions upon analyzing the details for Sunflower Nutraceuticals (SNC). These decisions will influence the company’s overall growth annually. In addition to various details of the SNC Company I have also made various decisions in each of the phases of SNC’s simulation which has an estimated values to figure out the results. This paper also explains how SNC’s decisions are influenced with regards to the working capital followed with the final step of evaluating the general affects associated with the limited access of financial mix. Sunflower Nutraceuticals (SNC) Background Sunflower Nutraceuticals is a privately owned company that is a wide distributor providing numerous dietary supplements for customers, distributors, and retailers (University of Phoenix, 2013). After starting the business in 2006 as an internet based company, SNC expanded operations into retail outlets as well as introducing some new private labeled products. Although SNC has the potential to grow into one of the major nutraceutical distributors in the industry, the company still struggles to break even. On more than one occasion SNC has been forced to exceed the company’s credit line of $1,000,000 to finance payroll and other operational needs. SNC has a somewhat restrictive...
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...As eager entrepreneurs, we all think that when making sound business decisions we would make the “right” one. In the working capital simulation, we were able to analyze what investments should be made regarding growth and cash-flow improvement opportunities. In addition to financial details of Sunflower Nutraceuticals Company (SNC), we examined the outcome of each decision during three phases within a nine year period. This paper will describe what decisions had the best outcome in regards to the SNC’s working capital. Sunflower Nutraceuticals Background Jane Cheng CEO founded sunflower Nutraceuticals in 2006 in Miami, Florida. SNC is a privately held company that provides dietary supplements such as vitamins, minerals, and herbs for women and other products for all age groups. Over the years, Cheng expanded into new retail outlets and private brands such as women’s sports drinks, teenage vitamins and metabolism boosting medication. Over the past few years, more than one Cheng was unsure how she was going to pay all the overhead and the line of credit was overdrawn several times. Currently, the business is breaking even with sales growth of total revenue being $10 million. The facility’s credit limit, $3.2 million, is based on the percentage of accounts receivable and inventory. The credit line is set at 8%, and SNC uses 12% cost of capital to evaluate possible investment opportunities. In 2010, the nutraceutical market was estimated to be worth $126.6 billion, and it is...
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...Working Capital Simulation Any Name Introduction The purpose of this paper is to analyze the Sunflower Nutraceutics (SNC) opportunities for investment, which will result in growth and increase/better cash flow for a forecast years of 10 years from the present year. Each stimulation should provide information/data that allows for opportunity and effects of the company’s working capital (future). The paper will analyze each phase of SNC’s simulation regarding working capital and its ability to have adequate cash flow for meeting debt (long and short) and operating expenses. Sunflower Nutraceutics (SNC) efforts to manage its working capital are a continuous process. SNC needs new business ventures to found from other capital invests in the business. SNC has to continue to generate working capital to pay its bills, take advantage of profit generating opportunities, expand on present and future growth of its business and compete in its market. Company Background Sunflower Nutraceuticals (SNC) is a privately owned nutraceuticals distributor, Miami, Florida. SNC distribute dietary supplements, vitamins, minerals and herbs for women of all ages. SNC has expanded its business into several new retail outlets and launched several private-label brands, which include an electrolyte sports drinks, metabolism-boosting powders for women and a vitamin line for teenage girls. SNC is breaking even, with relatively flat annual sales growth on total revenues of $10 million...
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...Working Capital Simulation Student’s Name Institutional Affiliation Management of working capital is a tough task, though essential for the growth and sustainability of any business. For simplicity in working capital management, managers are required to effectively allocate and fund the required working capital. Effective capital management will enable the management take care of the needs of the business and in appropriate time (Sagner, 2011). It would therefore be very important that the CEO of a company keenly examines and make use of the best and most appropriate working capital for the business. In this paper, I will evaluate the case of the case of working capital simulation as SNC brings in new customers. Phase 1- Decisions a. Selection of an option that will lower working capital requirement thereby reducing the short term debt well. b. Adoption of an option that lowers the cycle of cash conversion. c. Strategizing on an option that would set free the capital locked in inventories and receivables. d. Adoption of an option that would eventually lead to the minimal working capital policy in the long term. The above laid decisions will affect SNC from the below explained perspectives. Sales: A keen evaluation of SNC reveals that their sales have been increasing by $4 million each year and this sale is quite admirable sale given that the company only started...
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...Lawrence Sports Simulation Working capital management and the capital conversion cycle are keys to success in companies. According to Emery, Finnerty & Stowe (2007), this term is defined as “the management of working capital management of assets and liabilities.” Having an excellent working capital management policy can help the company to be more effective in improving profits and reducing risk most commonly associated with capital investment. Lawrence Sports is a manufacturer and distributor of sports equipment. Following will include an analysis of the issues this corporation is currently facing. A list of recommendations to the company along with an analysis of the cash conversion cycle, the working capital management policies and cash management techniques to reduce the risk associated with capital investment, trade of products in other countries and currency exchange impact will be evaluated. Dependency Reduction Recommendation The Lawrence Sport simulation does emphasize the importance of all the business partners to the cash conversation cycle of the organization. For that reason, keeping a strong business bond between all partners is very much in need. Lawrence Sports has been having issues with cash flow because of late payments from vendors and sometimes a result of no payments. Lawrence Sports should work on improving its cash flow by establishing a system of regularity which can be done by adding competition on both sides of the transaction- the sales as well...
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...Working Capital - Managing Growth FIN/571 07/07/2014 JOHN KUSHNER WORKING CAPITAL- MANAGING GROWTH Introduction Working capital management plays an essential role in keeping a business running and producing wealth for its shareholders. While analyzing the entire data details of Sunflower Nutraceuticals (SNC) Company, we can identify which decisions will increase the company working capital and maximize the company growth. We can also examine how changes take place in each phase of the simulation and finally evaluate in the final step the general affects associated with the limited access of financial mix. SNC background SNC is a privately owned distributor of vital dietary supplements such as herbs for women, vitamins, and minerals for all the consumers (mainly women), distributors and retailers. Created in 2006, SNC was able to extend their business and opened various retail outlets making a name for the company in the industry by introducing their own brands of sport drinks, vitamins for teenagers, metabolism- boosting powders, and other products. The company has a great potential for growth, but it is still struggling to break even and several times had to exceed the company’s credit line to finance the payroll and other operational expenses. Due to restrictive financial options, they are only able to use a small percentage to evaluate and invest in business expansion which could boost great opportunities. We will analyze the changes in sales, EBIT, company value...
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...Managing Growth Simulation FIN/571 Managing Growth Simulation Introduction The complete course has reveled us the great idea to influence our trends and intelligence while analyzing the entire details of Sunflower Nutraceuticals (SNC) company followed with all the decisions of the company which tends to increase their working capital and maximizing the overall organizational growth potentially with respect to time, as we have figured out the data and change in numbers below which reflects the growth annually. Moreover in addition to various details of the SNC firm we have also examined various decisions which took place in each of the phase of SNC’s simulation which has an estimated values to figure out the results, secondly the paper also describes how SNC’s decisions are influenced with respect to their working capital followed with the final step of evaluating the general affects associated with the limited access of financial mix. Sunflower Nutraceuticals (SNC) Background No wonder SNC is a privately owned Nutraceuticals company , more over one can say it is a wide distributor which provides all the vital dietary supplements such as herbs for women’s, vitamins, and minerals for all the consumers (mainly women’s), distributors and retailers. (Harvard Business School Publishing, 2012). Once the business was initiated after 2006, SNC expanded their operations and came up with various retail outlets in the nutraceutical...
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...Lawrence Sports Simulation: Managing Liquidity Lawrence Sports Simulation: Managing Liquidity This paper will discuss the three alternative working capital policies that manage working capital. Team D will identify the policy in which the team believes that Lawrence uses and will then make a recommendation on what policy Lawrence Sports should continue to use. This paper will then go on to include an evaluation of the risks that are associated with each of the policies as well as discuss the contingencies for the policy in which is recommended. This paper will also discuss the performance measures that could be used to evaluate the team’s recommendation. Finally, this paper will discuss an implementation plan for the team’s recommendation. Alternate Capital Policies Current Policy (Conservative Approach) The current policy in place at Lawrence is one that can be considered a conservative approach. The Conservative Approach uses long-term financing for the company’s long term assets, a few of the company’s temporary current assets, and all of the company’s permanent current assets (Emery et al., 2008). This has resulted in high costs of financing for Lawrence Sports with little risk; causing the company’s profitability to be low. Simply put; Lawrence has predominantly financed all of its current assets using long-term sources of financing where only a small portion of its assets sing short-term financing. This presents the risk of Lawrence developing a liquidity issue...
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...Lawrence Sports Simulation University of Phoenix FIN/571 Professor Helen Horton-Brown June 25, 2012 Lawrence Sports Simulation Lawrence Sports is both a distributor and manufacturer of sports equipment and protective gear. Because of the company’s size and industry, it is critical for Lawrence Sports (LS) to integrate an effective cash budget to become less reliant on short-term financing. Cash budgeting is an integral component for effective capital working policy (Emery, Finnerty, & Stowe, 2007). Establishing a cash budget is a means to observe a company’s inflow and outflow of cash, which in turn, will assist in adequate forecasting and planning, especially concerning when it comes to short-term credit (Emery et al, 2007). A high-quality working capital policy would also free up cash, which may be allocated to strategic areas for the company’s growth. LS must cease from financing shortages through credit lines with heavy reliance on selling inventory and receiving prompt payments. To understand the changes needed, a review of LS current policy will be analyzed and alternative working capital policies will be compared. Recommendations will be represented regarding which policy LS should implement. Alternative working capital policies The first alternative working capital policy is for LS to negotiate better collection on sales terms with Mayo Stores. The initial arrangement is to receive 20% collection...
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...Lawrence Sports Simulation Lawrence Sports experienced difficult times in March and April when their biggest consumer could not pay for its products. Because of this, the cash conversion cycle was examined as well as the working capital management presently used. Additional views were studied to determine the best course of action for the company. Although multiple factors play a role in determining the best working capital management policy, Team D will offer recommendations and how each philosophy would be beneficial for Lawrence Sports. Cash Conversion Cycle Emery, Finnerty, and Stowe (2007) summarized that “the cash conversion cycle is the length of time between when a firm pays its accounts payable and when it collects on its accounts receivable and is equal to the inventory conversion period plus the receivables collection period minus the payables deferral period” (p. 659). The initial start for the cash implementation plan would be to create and demonstrate a vendor program, such as a payable deferral period program and create longer cash conversion cycles for floating payment programs for payments going to the banks. Next pre-arrange the short term borrowing program by using short term marketable securities. The Lawrence Sports Company financial departments need to begin following strict money formulas before any transactions pertaining to the market are made. Then it would be smart to hold cash balances for pertinent needs. This will allow and open doors for...
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...SELECTION CRITERIA: In selecting what option to select the team came up with the following criteria: 1.) Selected option should lead to a reduction in working capital requirement and reduce short term debt in the process. 2.) Selected option should reduce the Cash Conversion Cycle. 3.) Selected option should free up locked capital in receivables and inventories. 4.) Selected option should lead to a zero working capital policy in the long run. SELECTED OPTIONS: We decided to tighten accounts receivable and drop poorly selling products because they yielded a percentage decrease in working capital requirement larger than their percentage drop in sales. Also these 2 options fit all the selection criteria we stated above. The initial selection criteria for the first phase was to manage the thin margins of SNC that seemed like the biggest limitation towards growth. The selected option, therefore, should lead to an overall reduction in the working capital requirement while reducing the short term debt in the process. Additionally, the cash conversion cycle had to be reduced in order to better manage cash that gets tied up in inventories. Freeing up locked capital in receivables and inventories became a big priority for my strategy moving ahead. Given the four options, the best ones suited to my initial goals for the company were options 2, 3, & 4. Tightening accounts receivable would lead to a decrease in sales but improve the DSO (days sales outstanding) significantly. This was...
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...Lawrence Sports Working capital management is very important in running a business because it involves managing all current assets and liabilities. Working capital management involves making appropriate investments in cash, marketable securities, receivables, and inventories, as well as the level and mix of short-term financing (Emery, Finnerty, Stowe, 2007, p. 639, para. 3). Currently Lawrence sports, a multi-million dollar company that manufactures and distributes sports equipment is seeking a way to better manage its’ capital, lower loan burdens, and undertake better business deals with its’ three business partners. Management can solve this issue with working capital policies that reduce future difficulties. Alternative Working Capital Policies As the newly appointed finance manager, one must be fully aware of the companies operating expenses, principal source of finance, suppliers and current financial stance and process with the lending bank. Understanding how all of these relationships can cohesively work together is key to being a success in this new role. By being properly prepared and developing successful working capital policy, the company will always have balanced receivables and payables due to working and negotiating with Lawrence Sport’s customers and suppliers. This type of communication and action plan will result in optimizing revenue, decreasing cash borrowed turn-around time, positive business relations and maintaining positive cash balance thus...
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...Alternate Working Capital Policy In the health care field it is extremely important to have available cash for contingencies because anything can happen in the health care field. For example, the changes in laws and procedures such as the Affordable Health Care Act, has caused some major changes for health care facilities, physicians, and insurance companies and the changes have put some hospitals at a standstill but they still must operate and cash on hand would help in this situation. “Good cash management should focus not only on the acceleration of receivables, but also on the complete cash conversion cycle” (Cleverly & Cameron, 2007). Elijah Heart Center (EHC) is a New York hospital that specializes in cardiac care with 140 beds. To provide full support for cardiovascular patients, EHC includes the following services: cardiac catheterization laboratories, ancillary equipment for radiology, nephrology, laboratory, surgical suites for open-heart surgery, pulmonology, and other cardiovascular services. EHC’s patient volumes and revenues are growing but profit is dropping (University of Phoenix, 2012). Elijah Heart Center is facing a potential working capital shortfall. This paper will discuss alternate sources of short-term financing, how accounts receivable and inventory affect EHC, discuss the importance of the cash conversion cycle to EHC’s working capital. As well as discuss EHC’s risks associated with the recommendations and how to adjust for risks, and explain how...
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...Lawrence Sports Simulation FIN/571 Corporate Finance Prof. Ricardo Rivera Matos May 29, 2012 University of Phoenix * Lawrence Sports Simulation * The process of taking risks will define if a company will emerge from a financial situation. The business relationships will suffer, but if the high risk is in a short term basis, probably this will help both parts to comprehend why is important to keep good finance health when an emergency situation occurs. * Lawrence Sports is a 20 million revenue company that manufactures and distributes equipment and preventive gear for baseball, football, basketball, and volleyball. Mayo Stores is the principal customer of Lawrence Sport. Mayo also is the world leading retailer, with 3,000 stores with operations in United States, Canada, South America, and Europe. Lawrence sources all its materials from Gartner Products and Murray Leather Works. * Robert Dent is the Key Account Manager of Mayo Stores. He has shown an impressive track record in building and excellent and profitable relationship with Mayo. Ann-Wu Head is the head of vendor relationship. She feels that Lawrence Sports’ bargaining power with Gartner is restricted since Lawrence Sports is not a major customer for Gartner. She finds Murray the more flexible of the two vendors and she is looking for more vendors like them. She feels that Murray is likely to run deep financial troubles if Lawrence Sports stretches payment beyond a limit. * As managers we...
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...Running head: PROBLEM SOLUTION: LAWRENCE SPORTS INC. Problem Solution: Lawrence Sports Inc. Veronica S. George University of Phoenix/MBA550 Problem Solution: Lawrence Sports Inc. Lawrence Sports generates $20 million in yearly revenue by manufacturing and distributing sporting goods protective gear for team sports. The main issue with Lawrence is that they depend solely on world leading retailer Mayo for the bulk of their revenue and only have two sources for their materials. The problem begins when Mayo Stores decides not to pay on time leading to major cash flow problems downstream. This paper will look at Lawrence’s financial problem and create a working capital policy that will address their cash management needs for the long-term. Situation Analysis Issue and Opportunity Identification Lawrence Sports’ principle customer, Mayo Stores, is having a difficult time paying for the products on time. The current payment arrangement is that Mayo will pay 20% on purchases and 80% the following week. Mayo depends principally on this revenue from Mayo and it finds itself not being able to live up to the agreements made to their agreements to both creditors and suppliers. The only viable option detailed in the scenario is borrowing from Central Bank. Their plan is to borrow a daily loan for any amount to keep the account minimum of $50,000. Lawrence has reached...
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