Lawrence Sports Simulation
Introduction to follow.
The Cash Asset Inventory Policy takes into account all available cash assets, including investments and payments from vendors. A company keeps track, or an inventory, of all cash assets that are currently on hand as well as future pay-outs. There are several risks involved with this policy. Some of these risks include timely payments from vendors and other sources, inaccurate record-keeping, and liquidity of the assets.
The risk with this policy is how accurate a company is in its record-keeping. Besides the obvious reason for accurate bookkeeping, the company’s stakeholders and investors look at current cash assets as a way to determine if enough capital is on hand for the company to grow and pay its current debts. If assets are incorrectly recorded the company could “lose” its capital needed for growth, meaning assets are incorrectly reported under a different category making it seem as if there are fewer assets than there really are.
Another risk is the issue of receiving timely payments from vendors and other sources. If an organization is including these payments as part of their cash assets, than that can be a problem. If that capital is needed in order to fund a specific project and that money is not readily available, it is the same as if an individual were to overdraw on their bank account. It puts the organization in a compromising position. Creditors, investors, and other stakeholders then look at the organization’s cash management in a negative manner.
Contingencies for the Recommendation
For Lawrence Sports our group chose to go with maturity matching for which the company should follow. I will first give a little background on the recommendation then the contingencies that are placed for the recommendation. The Maturity matching philosophy is short-term assets that are financed with short-term financing and long-term assets with long-term financing. The short-term financing includes accounts payable and short-term loans and long-term assets are for buildings and equipment. Long-term financing includes long-term debt, common stock and preferred stock.(ehow.com) Now I am going to discuss contingencies for the recommendation that we have placed aside for Lawrence Sports.
As we know having positive cash balances always make you more prepared for unforeseen mishaps that arise in business especially if you have several business relations with various companies. To make sure that we keep all mishaps to a minimum at Lawrence Sports we will first make sure that all deals made are fair and within the companies’ best interest. This entails Lawrence Sports making deals with there business partners that are comfortable for the company in regards to repayment of services and or goods that they are getting from the different vendors that they have business relations with. Lawrence Sports will also prioritize there repayments to vendors by first paying whoever is scheduled to be paid first and so on. Another contingency is that we will make sure that managers are doing there best to negotiate with vendors the best time periods of repayment and prices for payments. By doing this it will lessen the chance of the company defaulting on there payments and having to take out extra loans just to pay vendors. Also these contingencies will lessen the chance of Lawrence Sports vendors/business partners going into debt because they aren’t able to receive there payments upon the agreed payment schedule. Overall these contingencies just helps Lawrence Sports keep good business relationships and keep them in good standing with there finances.
Create at Least three alternative working capital policies that reduce future difficulties.
Lawrence Sports need create alternative working capital policies that will help reduce future issues within the business. By creating solid alternative working capital policies,