Working Capital Strategies: A Research Proposal

Paper Summary:

This paper is a research proposal that discusses Lawrence Sports, a company that manufactures and distributes sports equipment and protective gear. Lawrence has a cash flow problem because its largest customer, Mayo Stores, is not paying on time. This paper benchmarks other companies to determine an alternative solution which will enable the company to improve its overall cash flows. The paper introduces research that assesses the risks and opportunities of working capital, working capital management, cash conversion cycle, credit management, and short-term financing/debt reduction to prepare for long-term opportunities, cash flow, and identifies the best practices in working capital management. Also, the paper has a large appendix with information from multiple companies.

Outline:
Abstract
Introduction
Conclusion
References
Appendices
Borders
General Electric
Magna Entertainment Corporation
Fleetwood Enterprise
Wal-Mart
Starbucks
Graham Manufacturing
Dell Computers

From the Paper:

"In addition to the other working capital issues identified, Lawrence Sports also is experiencing issues with its cash conversion cycle. Currently, Lawrence is using short-term financing in the form of cash from operations and a bank line of credit to not only finance short term assets such as inventory but also ongoing operations. Doing so places a significant pressure on the company to convert cash quickly. Benchmarking two other companies who have successfully controlled their cash conversion cycle could lend insights to Lawrence on how its CCC may be improved.
"Graham Manufacturing had a CCC of 134 days in 2004. By reducing the amount of time to collect 42% in 2007 and 37% in 2006 as well as increasing the amount of customer deposits prior to delivery of product Graham reduced its CCC down to 46 days by Q1 FY08. Following Graham's example Lawrence Sports could reduce its CCC by requiring Mayo, its largest customer, to pay more than 20% at the time of order. Additionally, Lawrence should focus on faster collections just as Graham did successfully. Such a plan could take the form of discounts for prompt payment or negotiate an interest charge for delayed payment."

Sample of Sources Used:

• Ashby, A. (2005, October). Do's and don'ts for good cash management. Financial Executive, 21(8), 58-60. Retrieved March 26, 2008, from Business Source Complete database.
• Borders's Digital Center. (2008). LJNDawson.com, Retrieved March 30, 2008 from EBSCOhost database. Dinakar, S., (1999, May).
• Dells direct hit. CFOAsia.com, Retrieved March 28, 2008.
• http://www.cfoasia.com/archives/9905-59.htm http://www.graham mfg.com/downloads/2007annual.pdf
• http://www.graham-mfg.com/downloads/fact%20sheet%201q%2008.pdf

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