Lawernce Capitol Management Worksheet

MBA/550 Working Capital Management Worksheet Assignment

Week 1

The first week’s assignment focuses on creating a worksheet you can use in planning to gain knowledge about key course concepts and to recognize application of those concepts in the real world. The assignment has three purposes: (A) identify at least five key theoretical concepts from this week’s readings, (B) relate each key concept to its application in an organizational setting, and (C) communicate well-researched information clearly, concisely, and in an organized manner.

Run the “Working Capital Management” simulation to identify examples of five or more key course concepts. Remember that the mind map is a source of these concepts. Then, read the assigned text materials to develop knowledge about the concepts. You may also wish to research these concepts through database searches in the University Library. This additional research will help expand your understanding of the text materials.

By completing the worksheet following the title page, you can begin to develop your research and written communication skills. The example below is from the MBA/500 course using the USAuto scenario. This example can be useful to understanding the assignment’s requirements. Please note that in describing the application of the concept, the worksheet should not contain simple one-word or even one-sentence answers; it should adequately demonstrate, in short paragraphs, careful study of the situations presented in the scenario, the simulation, and the reading materials.

Example Table for Assignment

Concept Application of Concept in the Simulation Reference to Concept in Reading

Distributive negotiations USAuto’s negotiating team did not carefully identify AutoMex’s goals. USAuto’s goal was to reduce costs through utilizing AutoMex labor. AutoMex, by contrast, viewed USAuto as a source for developing its employees’ skill levels. USAuto’s negotiating team also approached entering the Mexican market similarly, unwilling to allow AutoMex access to the hybrid engine for AutoMex’s own production.

Both of these distributive approaches create win-lose situations and can lead to conflict, as compared to the win-win situations created by integrative negotiations (Kinicki & Kreitner, 2003, p. 504).

“A distributive negotiation usually involves a single issueвЂ"a вЂ?fixed-pieвЂ™Ð²Ð‚"in which one person gains at the expense of the other. For example, haggling over the price of a rug in a bazaar is a distributive negotiation,” (Kreitner & Kinicki, 2003, p. 71).

Working Capital Management Concepts Worksheet

Roy Emery

University of Phoenix

Working Capital Management Concepts Worksheet

Concept Application of Concept in the Simulation Reference to Concept in Reading

Cash Conversion Cycle

Lawrence Sports has acquired inventory on credit, which resulted in an account payable. They than sold this on credit, which resulted in accounts receivable. The cash that Lawrence needs is not involved until they need to pay that accounts payable, and collect the accounts receivable. The problem lies in the fact that for two weeks, they have not received the accounts due from Mayo and will not until further in the quarter. Mayo still wants to purchase inventory for sale causing Lawrence to have to receive back loans for the purchase of the inventory. Yet the conversion time of the two inventory suppliers in less than what they were informed by Mayo that payment is due. Lawrence needs to address the amount of time it will allow payment from Mayo. The shorter the cycle, the less time capitol is tied up in the business process, and thus the better for the company’s bottom line. A metric that expresses the length of time, in days, that it takes for a company to convert resource inputs into cash flows. The cash conversion cycle attempts to measure the amount of time each net input dollar is tied up in the production and sales process before it is converted into cash through sales to customers. This metric looks at the amount of time needed to sell inventory, the amount of time needed to collect receivables and the length of time the company is afforded to pay its bills with out incurring penalties.

(Investopedia, 2008)

Demand Deposits

Lawrence has currently established a bank reserve that is payable back at the month end. The problem is that Lawrence has established a line of credit that will cost them interest an increasing scale of interest depending on the amount borrowed along with penalties if that is not paid. The company has the opportunity to eliminate this fee by establishing a demand deposit in the bank. This way, Lawrence has the opportunity to borrow the money without a fee. The interest earned on this account would offset the fees that the company is paying, due to the fact that the bank will be able to lend the money to earn interest themselves “Banks are prepared to do this, because setting aside a portion of the money in a reserve account with the Fed; they can re-lend the money to earn interest. Demand deposits earmarked to pay for bank services are termed compensating balances” (Brealey, Myers & Allen, 2005, p. 825)

Cash Discounts

Lawrence has currently monies due from Mayo. The problem is that they are not receiving the money in the time needed to convert that money into accounts payables. The opportunity for Lawrence to help establish a better collection time is to renegotiate the terms of the receivable account. Lawrence needs to offer to Mayo the opportunity to receive a cash discount on the merchandise if the balance is paid within a certain amount of time. This would help to receive the accounts in a shorter amount of time relieving some necessity of borrowing money from the bank. From Mayo’s perspective, this may lead to some