Fin 571 Week 6 Ind Working Capital Simulation
Working Capital Simulation
Ismael Hernandez
University of Phoenix
ERIC RAMOS
FIN/571
1/4/ 2015
Sunflower Nutraceuticals is a privately owned company that is a wide distributor providing numerous dietary supplements for customers, distributors, and retailers (University of Phoenix, 2013). After starting the business in 2006 as an internet based company, SNC expanded operations into retail outlets as well as introducing some new private labeled products. Although SNC has the potential to grow into one of the major nutraceutical distributors in the industry, the company still struggles to break even. On more than one occasion SNC has been forced to exceed the company’s credit line of $1,000,000 to finance payroll and other operational needs. SNC has a somewhat restrictive financing option therefore, it is only possible for them to utilize a small percentage, equaling approximately 10%, to invest in new business expansions.
Phase 1 of Sunflower Nutraceutical’s Simulation (Years 2013-2015)
During the initial phase of the simulation four major opportunities are presented that can potentially be helpful for the company in maximizing growth. Those opportunities include:
I. Acquiring a New Client – SNC acquires Atlantic Wellness, a large, successful health food chain as a new corporate customer for its herbal nutraceutical product line. This decision increased SNC’s EBIT by approximately 200,000. Although SNC’s sales and EBIT figures increased, their net working capital and profit margins will remain at current figures.
Additionally, acquiring Atlantic Wellness as a client will help increase SNC’s sales significantly but will sacrifice portions of inventory and accounts receivable. Because of their current cash position SNC must keep a minimum of $3 on hand to meet their company’s operational needs therefore sacrificing portions of inventory and accounts receivable may not be a good idea. However, there is a positive for SNC. The risk of inventory and
Ismael Hernandez
University of Phoenix
ERIC RAMOS
FIN/571
1/4/ 2015
Sunflower Nutraceuticals is a privately owned company that is a wide distributor providing numerous dietary supplements for customers, distributors, and retailers (University of Phoenix, 2013). After starting the business in 2006 as an internet based company, SNC expanded operations into retail outlets as well as introducing some new private labeled products. Although SNC has the potential to grow into one of the major nutraceutical distributors in the industry, the company still struggles to break even. On more than one occasion SNC has been forced to exceed the company’s credit line of $1,000,000 to finance payroll and other operational needs. SNC has a somewhat restrictive financing option therefore, it is only possible for them to utilize a small percentage, equaling approximately 10%, to invest in new business expansions.
Phase 1 of Sunflower Nutraceutical’s Simulation (Years 2013-2015)
During the initial phase of the simulation four major opportunities are presented that can potentially be helpful for the company in maximizing growth. Those opportunities include:
I. Acquiring a New Client – SNC acquires Atlantic Wellness, a large, successful health food chain as a new corporate customer for its herbal nutraceutical product line. This decision increased SNC’s EBIT by approximately 200,000. Although SNC’s sales and EBIT figures increased, their net working capital and profit margins will remain at current figures.
Additionally, acquiring Atlantic Wellness as a client will help increase SNC’s sales significantly but will sacrifice portions of inventory and accounts receivable. Because of their current cash position SNC must keep a minimum of $3 on hand to meet their company’s operational needs therefore sacrificing portions of inventory and accounts receivable may not be a good idea. However, there is a positive for SNC. The risk of inventory and
References: Parrino, R., Kidwell, D. S., & Bates, T. W. (2012). Fundamentals of Corporate Finance (2nd ed.). John Wiley & Sons, Inc. Retrieved from the University of Phoenix eBook database. University of Phoenix. (2013). Harvard business publishing: Working capital simulation: Managing growth assignment [Multimedia]. Retrieved from University of Phoenix, FIN571 website.