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Problem Solution: Lawrence Sports Inc.
Presently Lawrence Sports has had to make some short-term decisions concerning its working capital management. In order to learn from this experience they will develop a working capital policy which will increase the predictability and efficiency of their cash.
Situation Analysis
Issue and Opportunity Identification
There are three main issues that must be addressed. First Lawrence must determine the target cash balance to meet the daily needs of the business. Second, if there is cash beyond the target balance, it must be invested to maximize the return on this idle cash. Lastly, the company should develop a method of cash collection and disbursement to create predictability in the flow of cash.
If the company is able to develop a policy that incorporates these three elements, it will be able to maximize the return on its cash. Further it will not have to abuse its relationship with Mayo, Gartner Partners, or Murray Corporation.
Stakeholder Perspectives/Ethical Dilemmas
There are several perspectives that Lawrence must consider when designing a working capital and a cash budget policy. Lawrence Sports primary focus is the shareholders of the company. Aside from this Lawrence does not have an ethical obligation beyond legal limits. They should perform business practices in a manner which preserves relationships whenever possible.
First, Lawrence has little clout with Mayo Stores. Specifically, Mayo accounts for 95% of Lawrence's sales. As a result, a poor working relationship will only affect Lawrence in the long run.
Second, Gartner Products, which accounts for 70 ...