Lawrence Sports Working Capital Policy Essay

2589 words - 11 pages

Lawrence Sports, a $20 million corporation, manufactures and distributes equipment and protective gear for various sports. Lawrence Sports' leading distributor, Mayo Stores, sales 95% of Lawrence Sports equipment and currently is struggling with internal problems, which is causing a cash flow problem for Lawrence Sports. Lawrence Sports has two principal suppliers of raw materials, Gartner Products and Murray Leatherworks. Lawrence Sports has a $1.2 million line of credit with Central Bank, which has a variable interest rate of 10% to 16% depending on the current balance.Lawrence Sports needs to begin a monitoring system for accuracy in the finances and inventory control will show how ...view middle of the document...

Mayo Stores have shown an interest in continuing the current relationship with Lawrence Sports, but because of the company's own financial distress, is not providing the revenues as promised the companies have a strained relationship. Lawrence Sports and Mayo Stores need to renegotiate the terms to relieve the financial distress of both organizations, which is 20% on sales and the remaining 80% due the following week. Another aspect for consideration is a possible merger or acquisition; this would give Mayo Stores exclusive sales privileges for Lawrence Sports equipment.Another area Lawrence needs to reevaluate is the credit and payment terms with Gartner Products and Murray Leather Works. At present, Lawrence is expected to pay 40% and 15%, respectively, on purchase and 60% and 85%, respectively the following week. Because of the credit terms with Mayo, the expectations from Gartner Products and Murray Leather Works are beyond the means of Lawrence Sports to continue to pay in this manner and lower the line of credit debt. Lawrence Sports could also consider a possible acquisition of Murray Leather Works, thereby granting Lawrence Sports exclusivity to all Murray Leather Works products.Central Bank provides another dilemma to Lawrence Sports' working capital policy. The line of credit, with a maximum of $1.2 million, continues to be at the maximum level because of the minimum balance of $50,000. Lawrence Sports needs to renegotiate the interest rates and the minimum balance requirement with the bank for short-term financing.Other than the comments from Stephanie Sanders, Lawrence measurement of success of meeting or exceeding the performance does not exist. Lawrence Sports needs to evaluate the company and determine the best metrics to monitor the strengths, weaknesses, opportunities, and threats of Lawrence Sports, along with monitor the financial and inventory aspects.Suggestions for New Working Capital PolicyTo restart Lawrence Sports afresh, Lawrence Sports needs to reevaluate the strengths, weaknesses, opportunities, and threats (SWOT) of the company. Through SWOT analysis, Lawrence could find the way to establish the cash flow budgeting less rigid, more flexible, and more accepting to changes during lean times without having to borrow from the established line of credit. Lawrence Sports has options to seek with money market accounts, which pay interest on the money left on account and allow easy access in the lean times. Unlike traditional savings accounts, money market accounts (MMAs) pay at a higher interest rate.One prevalent weakness is how Lawrence Sports treats the customer, Mayo Stores. Through handling the accounts receivable, with "kid gloves," Lawrence has reduced the opportunity to maximize the revenues. Lawrence could draw up new payment terms that will provide the necessary revenues and expedite the payments to Gartner Products and Murray Leather Works. Payment terms such as 50% down with the balance payable in 14 days (net...

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