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Managing Liquidity

In: Business and Management

Submitted By calhoosier
Words 1680
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Lawrence Sports Simulation: Managing Liquidity

Lawrence Sports Simulation: Managing Liquidity
This paper will discuss the three alternative working capital policies that manage working capital. Team D will identify the policy in which the team believes that Lawrence uses and will then make a recommendation on what policy Lawrence Sports should continue to use. This paper will then go on to include an evaluation of the risks that are associated with each of the policies as well as discuss the contingencies for the policy in which is recommended. This paper will also discuss the performance measures that could be used to evaluate the team’s recommendation. Finally, this paper will discuss an implementation plan for the team’s recommendation.
Alternate Capital Policies
Current Policy (Conservative Approach)
The current policy in place at Lawrence is one that can be considered a conservative approach. The Conservative Approach uses long-term financing for the company’s long term assets, a few of the company’s temporary current assets, and all of the company’s permanent current assets (Emery et al., 2008). This has resulted in high costs of financing for Lawrence Sports with little risk; causing the company’s profitability to be low. Simply put; Lawrence has predominantly financed all of its current assets using long-term sources of financing where only a small portion of its assets sing short-term financing. This presents the risk of Lawrence developing a liquidity issue as a result of withdrawal of the company’s source of finance; meaning that Lawrence may come close to exhausting its available sources of financing options.
Maturity Matching Approach
Another alternative approach is the Maturity-Matching Approach. According to chapter 22, the Maturity-Matching Approach “finances long-term assets by issuing long-term debt and equity securities. In addition,...

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