Working Capital Simulation

Working Capital Simulation

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Management of working capital is a tough task, though essential for the growth and sustainability of any business. For simplicity in working capital management, managers are required to effectively allocate and fund the required working capital. Effective capital management will enable the management take care of the needs of the business and in appropriate time (Sagner, 2011). It would therefore be very important that the CEO of a company keenly examines and make use of the best and most appropriate working capital for the business. In this paper, I will evaluate the case of the case of working capital simulation as SNC brings in new customers.

Phase 1- Decisions

a. Selection of an option that will lower working capital requirement thereby reducing the short term debt well.

b. Adoption of an option that lowers the cycle of cash conversion.

c. Strategizing on an option that would set free the capital locked in inventories and receivables.

d. Adoption of an option that would eventually lead to the minimal working capital policy in the long term.

The above laid decisions will affect SNC from the below explained perspectives.

Sales: A keen evaluation of SNC reveals that their sales have been increasing by $4 million each year and this sale is quite admirable sale given that the company only started business in 2006. (Cantot & Luzeaux, 2011). However an effort should be made to raise this sale with time. The additional sale targeted over the next three years will help in the boosting of the sales trend analysis meaning better results on the part of the management and the whole company in large.

Earnings before Interest and Tax (EBIT): in the next three years, it is expected that EBIT would remain more or less flat given that sales may stagnate within the three year period. It is important that the company adopts strategies to attract more customers to boost their sales and hence their earnings. The company has recorded an EBIT of approximately $0.27 million annually, which will take care of the company’s financial situation for now. Improved EBIT implies a better financial performance of the company in the first three years.

Net Income: Though the company’s net income has changed drastically, phase 1 does not reflect a substantial improvement. The company’s current trend reveals minimal improvements meaning stagnation as far as production of net income is

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