Resources: Harvard Business Publishing Working Capital Simul

Resourcesharvard Business Publishing Working Capital Simulation Man

Resources: Harvard Business Publishing: Working Capital Simulation: Managing Growth Assignment Ch. 1 - 21 of Fundamentals of Corporate Finance WileyPLUS Assignments All additional resources from each week Review the following scenario: Acting as the CEO of a small company, you will apply the principles of capital budgeting to invest in growth and cash flow improvement opportunities in three phases over 10 simulated years. Each opportunity has a unique financial profile and you must analyze the effects on working capital. Examples of opportunities include taking on new customers, capitalizing on supplier discounts, and reducing inventory. You must understand how the income statement, balance sheet, and statement of cash flows are interconnected and be able to analyze forecasted financial information to consider 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. You must optimize use of internal and external credit as you balance the desire for growth with the need for maintaining liquidity. Sign-in to the simulation and review each of the following: Welcome Statement How to Play Terminology Primer More Details (this includes information to help you understand how to play the simulation) Write a paper of no more than 1,400 words that analyzes your decisions during each phase (1-3) and how they influenced each of the following final outcomes (metrics) of SNC: Sales EBIT Net Income Free Cash Flow Total Firm Value Address the following in your paper: A summary of your decisions and why you made them How they affected SNC's working capital What general effects are associated with limited access to financing Include scholarly references (in addition to your course textbook and simulation materials) to support your positions. Format your paper consistent with APA

Paper For Above instruction

Introduction

The role of a CEO in managing corporate growth involves strategic decision-making that balances expanding operations with maintaining financial stability. In the context of a small company operating on thin margins and limited liquidity, making informed investment decisions across multiple phases is crucial. The Harvard Business Publishing Working Capital Simulation provides an immersive environment to apply principles of capital budgeting, working capital management, and financial analysis over a simulated ten-year period. This paper reflects on my strategic choices during three phases of growth, examining their impact on key financial metrics such as sales, EBIT, net income, free cash flow, and the total firm value of SNC. Additionally, I analyze how these decisions affected working capital and explore the implications of limited access to external financing.

Decisions and Rationale Across Phases

During the simulation, I made several pivotal decisions aimed at balancing growth opportunities with liquidity constraints. In Phase 1, my focus was on nurturing existing customer relationships and improving operational efficiencies. I opted to implement discounts for early payments to suppliers, aiming to capitalize on supplier discounts and reduce inventory holding costs. This decision was driven by the need to enhance cash flow and working capital efficiency without excessively increasing liabilities. I also increased credit terms selectively to attract new customers, which initially strained working capital but promised future revenue growth.

In Phase 2, as sales began to accelerate, I prioritized investment in expanding customer base and inventory management. Recognizing the need for increased working capital, I negotiated short-term credit lines and optimized inventory levels. I also reinvested some cash flows into marketing initiatives to sustain growth momentum. These decisions resulted in an initial increase in sales and revenue, although they placed additional pressure on working capital and cash reserves.

Phase 3 involved consolidating gains and ensuring sustainable cash flow. Here, I focused on reducing excess inventory and tightening credit policies to improve liquidity. I also explored short-term external financing options to fund expansion without jeopardizing the company’s cash position. Throughout this phase, maintaining a balance between aggressive growth and liquidity preservation was paramount, especially given SNC’s limited access to long-term debt or equity financing.

Impact on Financial Metrics and Working Capital

My decisions significantly influenced SNC’s financial performance. Enhancing accounts receivable collections and managing inventory levels contributed to improved free cash flow, despite initial challenges in liquidity. Increased sales elevated EBIT and net income, although expansion costs temporarily suppressed margins. The strategic use of short-term credit lines enabled sustained growth while preventing cash shortages.

Working capital management was central to my strategy. By selectively extending credit and negotiating discounts with suppliers, I optimized current assets and liabilities. Early payment discounts reduced inventory costs, while credit extension attracted new customers, improving receivables turnover. However, increased sales and inventory required careful monitoring to prevent working capital from becoming overstretched, which could threaten liquidity.

Effects of Limited Access to Financing

Limited access to long-term financing shaped my strategic decisions. Without the ability to secure substantial external funding, I relied heavily on short-term credit facilities and internal cash flows. This constrained my capacity to fund large scale investments or buffer against unforeseen cash flow disruptions. The simulation underscored the importance of disciplined working capital management when external financing options are limited. It also highlighted the risks associated with over-leverage and the necessity of maintaining sufficient liquidity buffers to sustain operations during downturns or unexpected expenses.

Conclusion

The simulation demonstrated that strategic decision-making, rooted in sound financial principles, is vital in guiding small companies through growth phases within constrained financial environments. Balancing growth initiatives with liquidity preservation requires careful planning, effective working capital management, and judicious use of available credit. My choices reflected these principles, leading to improvements in key financial metrics and a sustainable path for SNC’s growth. The experience reinforced the notion that limited access to external financing emphasizes the importance of internal cash flow management and operational efficiencies, lessons that are highly applicable to real-world small business management.

References

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