Lawrence Sports Working Capital Policy Paper

Lawrence Sports Working Capital Policy Paper - Operating a...

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Operating a business with a balance in capital management is essential to every business whether small or large. A constant vigil over how much money comes in and how much money goes out, as well how much money is tucked away must be maintained. A business could find itself at a production standstill or even bankruptcy because of a lack of cash. A vital tool in an effective capital working policy is cash budgeting. A cash budget is a way to monitor a businesses cash inflows and outflows, which in turn assist in predicting a company's ability to pay debt, expenses and can be used in planning short-term credit, needs (Score, 2007). Dicks sporting goods has a credit line with high interest rates. The company is in a constant state of worry in regard to paying off the loan without borrowing any more money. The impact is felt amongst the company's customers and suppliers. Dicks sporting goods relies on on-time payments from the customer, stretched out payments to the suppliers and a credit line with high interest rates. The company appears to act more out of panic versus long termed planning that can help maintain control over the finances. Dicks sporting goods needs to monitor the time between cash inflows and cash outflows. For example: Since Dicks sporting goods main cash source is from Mayo, Dicks sporting goods needs to monitor how long it takes from the time materials are ordered for Mayo and how long it takes for Mayo to make the final payment. A cash budget would assist in showing when cash is needed to pay bills. If the bill is due before payment is received, then that could indicate a need for financing until payment is received. Dicks sporting goods can then try to negotiate payment terms with customers and suppliers to strike a balance between the inflows and outflows and rely less on short-term financing to pay the bills until the final payment arrives. A relationship with the company's suppliers and the company's creditworthiness are put in jeopardy with too many late payments. Viewing a cash budget can help the leaders of Dicks sporting goods view where the issues and opportunities are located and free up working capital. Working capital comprises of current assets that have yet to be liquidated. The average firm has about 40 % of its working capital tied up in current assets (Maysami, 2007). The focal point of any good working capital policy is to free up cash so the cash can be used to further grow the business (Myers, 2006). Dicks sporting goods' working capital policy appears too
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Lawrence Sports Working Capital Policy Paper - Operating a...

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