Week 6 : Working Capital Simulation Exercise

For any business stablishing the proper working capital management is critical. Having inappropriate working capital management can lead to bad operational business. Part of a management team in a company is to make business estimations in regards the company’s future expected sales as well as costs. This is done to better understand the requirements of the company’s future working capital. In additional, this provides management some guidelines on how to raise the appropriate funds at the appropriate time without having to interrupt any business operations.

The company is looking to increase profitability and find a long-term solution to the inventory problem.

This case analysis will discuss Crocs, Inc. core competencies and explain how Croc should exploit these competencies in the future. There will be an examination of options and an identified recommended choice (i.e. further vertical integration, growth by acquisition, or growth by product extension). In addition, there will be a review of the alternatives that fit and do not fit within the company’s core competencies. Finally, there will be a recommendation on how Crocs should plan production and inventory in the future; while also addressing how the corporation’s gross margins will affect this decision and what could go wrong in the decision-making process.

Over the last three years, we have worked tirelessly against a small number of critical objectives that underpin Value Creation: expand gross margins, improve overhead leverage, accelerate asset turns and more effectively allocate capital. As part of this work, we have implemented important changes in our decision-making process and, in turn, how we operate the business and measure its success. The positive impact these initiatives have had on our operating and financial results has been dramatic. As a direct result of our efforts to deliver better ROIC, we have driven significant gains in our financial and operating performance including:

The most current industry averages for profit margin (Net Income divided by Total Income) among child care centers is 7.7%. For CMC, based upon their 2015 Profit and Loss statement, their gross operating profit (Net Income divided by Total Income) is -0.5%. The primary (97%) source of income for CMC is tuition payments. Understandably, the biggest expense for CMC are those associated with payroll: Payroll expenses account for 69.46% of total expenses. The remaining expenses are shown below.

Additionally, acquiring Atlantic Wellness as a client will help increase SNC’s sales significantly, but those increase sales does not come without a cost as the increase sales will come at the sacrifice of inventory and accounts receivable. Sacrificing inventory and accounts receivable is not a good deal for SNC because of their current cash position as SNC must keep a minimum of $3 lakh on hand to meet their company’s operational needs. However, there is a positive lining for SNC as the risk of inventory and accounts receivable could be balanced by negotiating a profitable deal with merchant Ayurveda Natural.

This analysis delves into the company’s operation management principles to interpret its successful strategies and offer future recommendations.

Leverage Supplier Discount – SNC accepts the Atlantic Wellness contract allowing them to increase company sales. In addition to the contract with Atlantic Wellness, SNC also considers the acceptance of Ayurveda Naturals with the contract offer which is favorable to SNC because payment terms reflect a net gain.

Healthy Potion has been overall successful as a business, earning significant profits despite its small size. However, the business has now reached a stage where development is essential in order to increase future growth and profit margins. Hence, Healthy Potion must design a strategic plan that aims to diversify the business and subsequently arrange the appropriate finances necessary to materialise this plan. In order to invest in the businesses growth, Healthy Potion must evaluate the suitability of seeking either debt or equity financing.

The traditional product-costing system undercosts the Satin Sheen product line, with respect to quality-control costs by $525

The company’s creams inventory remains constant because it does not follow a trend in innovation and changes so often as the other products. The surplus in inventory is a big disadvantage since; last year’s products may not be in style this year in addition to the cost of storage. For all these reasons their cash flow is less in comparison with previous years causing that Luxor Cosmetics keeps increasing their bank loans, creating more debt, making it harder to pay out as 2011. In this particular situation the company could have either decrease its budgeted sales (productions) or increase its actual sales by improving more effective marketing strategy and research and development of its products in the markets. This way their inventory would decrease and their cash flow would increase. (Hopkins, 2009)

Our choices led to a constant increase in net income over the three years. Short term debt increase by approximately 100% percent but steadily reduced over the next three years. We were happy with the positive growth of the company and the fact that we were able to pay off most of the initial short term funding required by the increase in working capital requirement. Overall the current situation of the company in 2018 is good, although the total value created is less than 20% of that created in phase 1. From this we learned that the value of the firm can be significantly increased more through a reduction in working capital requirement than through increasing the firm’s sales and net income.

Thank you for taking the time to work with us for financial advisement to increase your cash flows. If you are willing, I would like to address that even though your company sales are increasing, there is constant matter of not having enough cash to meet payroll or pay vendors within 30 days. We would like to give an overview of our services while giving you the suggestions on how speed up your operating cycle, along with looking at other accounts increase cash flows. Our proposal will outline how to solve your problems. Our design is based on years of experience, which will be tailored to your specific needs.

A central aspect of the dynamic problem facing a business in an evolving and competitive industry is the decision about additions to productive capacity. The purpose of this report is to provide strategic advice for the CEO of Bonkers Chocolate Factory (BCF), the U.S division of a multi-national candy company operating in the highly competitive chocolate products market.

The life span of current assets depend on the time required in the activities of procurement , production , sales and collection and the degree of synchronisation among them .