Case: Surviving Rapid Growth
- Normally, rapidly increasing sales are good things. What seems to be the problem here?
It is important for organizations to identify their long and short term goals. This importance is due to the fact that it would enable them to choose among short and long term financial assistance. What Glasspray is doing is addressing their increasing sales which is a long term phenomenon in this case with short term financial assistance which comes with a higher interest rate and increases liabilities more rapidly compared to their assets. Glasspray should look for long term financial assistance and focus on the sales increase in a long term perspective instead of finding quick fixes to meet the increasing demands of the market.
- List the important components of a firm’s working capital. Include both current assets and current liabilities.
Working capital of a firm is active all the times in the business processes of a firm. It consists of both current assets and the current liabilities of the firm. Working capital that is identified as the current assets consists of the amount of cash a firm has. The investments that are made by the firm is also included in the current assets. Account receivables, i.e. the money that is yet to be received for different sales and the present inventory are also part of the current assets.
The part or working capital that is associated with current liabilities consists of the money that the firm has to pay to others or the account payables. Salaries of the employees and the taxes that have to be paid are also current liabilities.
- What are some management techniques applied to current liabilities that Glasspray might use to improve its working capital position?
As stated in the case, Glasspray has existing short term loans which requires a high rate of interest to be paid hence damaging the current liabilities in the form of cash. By getting long term loans, these short term loans can be effectively managed. Glasspray can also assess its suppliers and look for trade credits from them.