Working Capital Simulation: Sunflower Nutraceutacils?

Working Capital Simulation
Sunflower Nutraceutacils

Working capital is an important part of any business. By definition, working capital is the amount of money a company has to meet their liabilities. It is calculated by subtracting liabilities from assets. In order to keep a business running the amount of working capital should remain positive. However, this is not always the case. Many factors determine the amount of working capital for a business. One of these factors is the decisions made to either accept or decline certain opportunities that will affect sales, inventories, accounts receivable, and the bottom line. Sunflower Nutraceutacils is currently running neck and neck.
The first was to pursue Big-Box Distribution. Mega-Mart is a distribution chain with a large clientele base. Mega-Mart pays invoices promptly and it offered a large sales growth for the company. In order to increase sales and margin it is often necessary to partner with a marketing chain. This allows the product to circulate more globally and it increases sales with little effort on the parts of Sunflower Nutraceutacils because the customer is Mega-Mart who in turn sells the product to their clients. The decision increased sales significantly and in turned increased the top line. The EBIT margin decreased some. The next decision accepted was to increase on-line presence. In today’s market being online is more important than ever. Customers want the ability to purchase view and purchase items with ease. Increasing online presence allows the company to increase sales and also allows the company to become more involved in the market. They have more of a competitive advantage because the market base increases dramatically. The decision to increase online presence increased sales but had no affect on working capital balances. The third opportunity was to develop a private label for a Spa chain. This opportunity was declined. The reason for this rejection was due to the amount of funds that would be tied up in research, development, and implementation of this product. Sales would be minimal and
The first was to renegotiate supplier credit terms. Accepting this opportunity allowed the company to improve their margin because it decreased the balance of accounts payable. The decision to look at credit terms is always beneficial if the amount can be decreased. This frees up cash that would normally be set aside to pay debts. This cash can then be included in the working capital. The next decision was to adopt a global expansion effort. Sunflower Nutraceutacils decided to take on Viva Familia as a new customer. Global expansion is a difficult decision to make and it is risky. However, when a company expands globally it increases their market stability and client base. A company that is successful should seek out the opportunity to go global. Making this decision increased the top line but did not tie up much money in inventory. The third decision to make was to acquire a high risk customer. This decision was declined. The reason for decline was because the customer was high risk. Recent decisions to tighten accounts receivable would be forfeited by taking on a customer that the company was unsure about. The company does not want to do business with a customer who can not pay and will not bring in a large amount of revenue. The company should take care to only take on customers who are beneficial to their business. Another customer would tie up more inventory and cash that might never be regained