Case Study Undergraduate 1,160 words

Lawrence Sports Working Capital Management Case Study

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Abstract

This paper examines the working capital challenges facing Lawrence Sports, a sporting goods manufacturer whose cash flow is strained by a major retail customer's practice of paying only twenty percent of invoices at the time of delivery. Three alternatives are evaluated: opening a line of credit, realigning cash management controls, and charging a premium for post-delivery payments. The paper recommends the third option, outlining an implementation plan, associated risks, contingency strategies, and performance measures. It also discusses how the recommended changes will accelerate Lawrence Sports' cash conversion cycle, ultimately improving operational stability and long-term profitability.

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What makes this paper effective

The paper clearly frames the business problem before evaluating solutions, giving readers context to assess the recommendations.
It presents multiple alternatives before justifying the chosen recommendation, demonstrating analytical rigor rather than simply asserting a conclusion.
The inclusion of contingency planning and performance measurement shows a complete, practical approach to implementation rather than stopping at the policy recommendation.

Key academic technique demonstrated

The paper demonstrates applied financial analysis through comparative evaluation of alternatives. Rather than advocating a single solution immediately, the writer systematically considers each option's trade-offs — cost, operational feasibility, and strategic risk — before selecting and justifying the recommendation. This structured decision-making approach is a core technique in business case analysis.

Structure breakdown

The paper opens with a problem statement establishing the cash flow issue, then evaluates three working capital alternatives. A dedicated implementation section covers the recommended plan in detail, including risk assessment, contingency planning, and performance metrics. A brief section on the cash conversion cycle connects the recommendation to broader financial theory. The paper closes with a short conclusion reinforcing the key takeaway. The overall structure mirrors a standard business case report.

Introduction

Lawrence Sports is a sporting goods manufacturer and distributor that focuses on producing equipment for baseball, football, basketball, and volleyball. Though the company has remained highly profitable and is a major success story in its industry, it also faces certain cash flow issues that must be managed proactively to ensure the company continues to have adequate working capital for its day-to-day operations. Sales of Lawrence Sports' equipment through Mayo Stores account for ninety-five percent of the company's sales and profits, yet this retail chain consistently pays only twenty percent of its bills at the time of delivery, with eighty percent left outstanding. This can create serious cash flow problems for Lawrence Sports, and a method for adequately adjusting to these facts must be found.

Working Capital Alternatives

There are several different options available to Lawrence Sports for addressing this cash flow problem. The first option — at once the simplest and the least attractive for the company's bottom line — would be for Lawrence Sports to open a line of credit to allow continued operations without placing any strain on its relationship with its primary customer. This would cost the company a potentially considerable amount in interest, however, and while it would solve the working capital problem in the short term, it would decrease long-term profitability.

A second alternative would be to simply realign its cash management controls and procedures, ensuring that debts and expenditures do not exceed the actual intake of cash. While this approach is often ideal for businesses, it is not always practical and would create major operational difficulties for Lawrence Sports, limiting its ability to purchase supplies and thus produce the necessary volume of goods to remain profitable.

This is why the third option is the recommended method: Lawrence Sports should charge a premium for post-delivery payments, representing payment-on-delivery as a discounted price to its retailers, including Mayo Stores. This would both encourage payment-on-delivery and generate greater cash availability from delayed payments that can be carried over to cover future operating expenses.

2 Locked Sections · 510 words remaining

Recommendation Implementation · 380 words

"Plan, risks, contingencies, and performance measures"

Cash Conversion Cycle · 130 words

"How the plan accelerates Lawrence Sports' cash cycle"

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Conclusion

The fact that Lawrence Sports receives only twenty percent of its payments up front has caused serious cash flow problems for the company. Implementing a plan of charging increased fees for payment-after-delivery will significantly address these issues. With this plan in place, Lawrence Sports can continue to be an industry leader and grow to greater levels of profitability and success.

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Key Concepts in This Paper

Working Capital Cash Flow Payment Terms Cash Conversion Cycle Accounts Receivable Contingency Planning Operating Capital Retail Dependency Price Incentives Performance Measurement