Application of Concept in Scenario - Reference to Concept in Reading

Working Capital Management Concepts Worksheet

Concept

Application of Concept in Scenario Reference to Concept in Reading

Net working capital Stephanie Sanders, Chief Financial Officer, has hired a Financial Manager to address the working capital management for Lawrence Sports. The organization relies in one main customer (Mayo), two suppliers (Gartner and Murray) and a bank (Central Bank). The challenge will be to balance the net working capital (current assets minus the current liabilities) as Lawrence Sports may reach its line of credit with Central Bank while the challenges to collect from Mayo and make payments to Gartner and Murray continue.

(Allen, 2005, Chapter 31,p846-847)

Credit management

• Terms of sale

• Promise to pay

• Credit analysis

• Credit decision

• Collection policy Credit Management refers to the management of receivables and it involves the establishment of proper policies which are listed under the concept column. Lawrence Sports has not properly established such policies and procedures. It continues to face challenges with the collection of full payment from its main customer, Mayo, as well as the proper payment to its suppliers. The organization must act carefully when making collection arrangements and payments as Mayo contributes to about 95% of its sales and Gartner and Murray are the only suppliers. This can place the organization in a dangerous position. Lawrence Sports must address this situation in order to properly operate and to be able to communicate and treat customers as well as suppliers consistently across the board.

(Allen, 2005, Chapter 30,p832)

Concept

Application of Concept in Scenario Reference to Concept in Reading

Credit management (bank loan) Lawrence Sports has a line of credit with Central Bank. Lawrence Sports can continue to borrow and repay whenever it wants as long as it does not exceed its credit limit.