Finance Essay

These policies are characterized by a combining of hazard and relapse, and can lay down from a conservative to an aggressive profile. The tercet types of work(a) detonating device policies most recommended and used are Aggressive Policy, fair(a) Policy, and Conservative Policy. The aggressive constitution working with child(p) management focuses on maintaining current pluss amounts at minimum levels, which is reflected in the total asset derangement higher, with a higher margin. This policy emphasizes the aspect of returns on venture-return decision. This policy is the highest risk policy but with much funds to reinvest in the corporation or usiness. consort to Kulkarni (2011) it is a high risk arrangement though, because, should your creditor come inquire for money, and for some reason, you dont have enough money to stand them off, you might end up having to sell a costly asset to pay off your debt to them. (Kulkarni, A. 2011 , Working Capital Policy, 9). The s tand foring policy working ceiling management leaves a person with cash available to reinvest in his company or business. This policy entails a medium level risk and with this policy the business assets matched business liabilities.According to Kulkarni (2011) this policy works in an arrangement where the current assets of the business are used perfect to match the current liabilities. It is a medium risk proposition and requires a intimately amount of attention. (Kulkarni, A. 2011 , Working Capital Policy, 6). A conservative policy working capital management focuses on maintaining a high liquidity, as nearly as opposite accounts assets, as inventories and accounts receivable, which is very expensive, because they remain idle resources that last become unproductive, with s confused rotation of assets due to the large investment in current assets.This policy emphasizes the minimization of risk, as opposed to maximising yields that is not risk to be sure liquidity. A conservati ve policy whitethorn be best for people who want to keep low risks. According to Kulkarni (2011) This is the policy with the lowest risk, but it reduces the money used in increase the production (Kulkarni, A. 2011 , Working Capital Policy, 11). Recommended Policy The working capital policy recommended for Lawrence Sports is the matching policy, much commonly referred to as the moderate approach.The working capital is funded by neat and long term take ining, equity financing or a combination of them. It is vital for the company to balance the risk and return of financing. The moderate approach falls in between the two other polices described above and is the most balanced. This enables Lawrence Sports to balance its risk and returns. Furthermore, it finances short term debt with temporary assets while permanent and fixed assets are financed by long term debt and equity sources (Zeepedia, n. d. ).A moderate approach gives Lawrence Sports the skill to maintain the relationships nec essary to continue business, balance the working capital to lock in create a profit, and repay what is owed to the bank. Figure 1. Different Policies Regarding the Level of enthronisation in Working Capital demonstrates how the Moderate Approach compares with the others in toll of the level of investment in working capital (Watson amp Head, 2012, p. 72). take a chance It is important for a company to choose the best working capital policy, one that features a level of risk the company can handle. team up C decisions about working capital management are beingness driven by the intrinsically related priority of risk management. aggroup Cs aim is to minimize the risk of insolvency while maximizing the return on the assists (Dixon, 1991). Teams C choose the matching working capital policy because it entails a medium level of risk and it will overly leave Lawrence Sports with more cash to reinvest in the business. Lawrence Sports will keep low levels of working capital so that the y can employ the funds more productively elsewhere like purchasing more goods or more machinery.It is a relatively amount of risk balanced by a relatively moderate amount of expected return. The best level of working capital would be the one in which a balance is achieved between risk and efficiency which also requires continuous monitoring to maintain congruous level in various components of working capital, i. e. , cash receivables, inventory and payables, and so on Contingencies A contingency is an unexpected blusht or situation that affects the financial health, professional image, or market share of a company. It is usually a negative issuing, but can also be an unexpected gold rush such as a huge order.Anything that unexpectedly disrupts a companys expected operation can harm the company even if the disruption is because of a windfall (Duff, 2013). In the case of Lawrence Sports there should be a contingency envision in place in the event product is damaged or lost eithe r in transit or by some unforeseen event. Another contingency intent Lawrence Sports should consider is a cash reserve to cover accounts receivable loses if mayo defaults on invoice credits. In this case vendor defaults affect dirty dog line but in turn Lawrence would not have to borrow money from Gartner and avoid high interest rates.For Lawrence to recover from such an contingency Lawrence Sports needs to use its working capital to cover the costs so that funds are not continuously incurred on the bank loan. In order for Lawrence Sports to raise the capital to cover a contingency plan Mayo would have to relinquish all sales to Lawrence Sports, payments to Gartner will have to be stretched out further and Murray would lose working capital and hold operations because Lawrence Sports payments would be differed even longer. These hefty decisions are all unconnected of risk management and can negatively affect business relations.