Working Capital Assignment
This assignment is an individual assignment. Each student is required to complete two runs of the Working Capital Simulation. The simulation site is https://cb.hbsp.harvard.edu/cbmp/access/20227364 (Cost: $12.50). Use the attached instructions to get started.
Run 1: Complete the simulation on your own and with a credit limit of 3.2 M. Completion due date: Nov 17.
Run 2: Complete the simulation with the help of my cash management tool and with a credit limit of 3 M. Completion due date: 11/24. Ten new opportunities will be presented in three phases for students to select. Students are required to select at least one opportunity in each phase.
FIN500 - Working Capital Simulation
Working Capital Simulation: Managing Growth –
Authored By Sandeep Dahiya
Distributed by Harvard Business Publishing
Acting as the CEO of a small company called Sunflower Nutraceuticals (SNC), students choose to invest in growth and cash-flow improvement opportunities in three phases over 10 simulated years. Each opportunity has a unique financial profile and students must analyze effects on working capital. Examples of opportunities include taking on new customers, capitalizing on supplier discounts, and reducing inventory. Students must understand how the income statement, balance sheet, and statement of cash flows are interconnected and consider the possible effects of each opportunity on the firm's financial position. The company operates on thin margins with a constrained cash position and limited available credit. Students must optimize use of "internal" and external credit as they balance the desire for growth with the need for maintaining liquidity. Learning Objectives:
Walk the tightrope between growth and illiquidity. Appreciate how attention to cash management techniques is critical to managing a firm effectively. Learn to maximize a firm’s growth opportunities in a limited-credit environment. Subjects Covered:
Accounting; Cash flow; Cash flow statements; Credit management; Entrepreneurial finance; Entrepreneurial management; Finance; Growth strategy; Small Business Administration; Working capital Setting:
Background of the Simulated Firm - SNC is a privately held distributor based in Miami, Florida, and founded in 2006. SNC started as an internet-based, direct-to-consumer distributor and retailer of dietary supplements, including vitamins, minerals, and herbs for women, with product offerings for all age groups. Through its web site and catalog, SNC offers customers a large selection of stock keeping units (SKUs) from more than 50 third-party brands. The company ambitiously expanded into new retail outlets and launched several private-label brands. SNC is breaking even, with relatively flat annual sales growth on total revenues of $10 million. The business is working-capital intensive, and margins are generally thin.
Accept or Decline a new business opportunity. There are multiple business opportunities presented over 9 years. KEY CONSIDERATION
Consider the effects on working capital that each opportunity presents and whether those effects can be funded. SNC has a revolving-credit facility constraint that cannot be relaxed: the firm can draw up to $3.2 million from this credit facility. Violation of the credit constraint ends the simulation game by forcing SNC into bankruptcy. Several times during the past few years, the company was not sure how it would finance the payroll, given the firm’s constrained cash position. The company’s line of credit was overdrawn more than once in the past, so that another violation cannot be accepted. Current Balance Sheet
Current Income Statement
Current Cash Flows Statement
Opportunity 1: Acquire a new customer
SNC is considering adding Atlantic Wellness, a large, successful health food chains as a new...
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