Team Working Capital Synopsis

Running Head: TEAM WORKING CAPITAL SYNOPSIS

Team Working Capital Synopsis

University of Phoenix

April 15, 2008

Abstract

The content of the research article is to compare and contrast the capital budgeting styles of eight companies from the El Paso region. In an attempt to gather information from different realms of the business world to widen the scope of the research, companies were chosen from healthcare, automotive, food services, retail, and construction. The analysis of the eight companies and their systems to manage capital budgeting has proven an insightful and informative project. Primarily, the information attained showcases the lack of sound judgment and skill in capital budgeting in locally owned businesses.

Introduction

In the world of business today, there is endless variety of methods of entering into the capitalistic market-place and of making a profit. The options range from healthcare to automotive, food and entertainment to sports, and construction to specialty stores. All of these forms of business are not only important to consumers in various stages of life, they all provide needed services and all are capable of making dramatic amounts of profit if run efficiently and innovatively.

Situation Analysis

As a team, eight different companies were researched and their individual methodologies to capital budgeting uncovered. As previously stated, the companies range from automotive to the business of running a soccer league and the diversity of capital budgeting in the companies is just as remarkable.

The first company, Del Sol Medical Center was facing rather severe challenges in its cardiac cath lab where millions upon millions of dollars are both spent and made on a yearly basis. Although the cath lab was continually in the black with its revenues, it was found that the department was squandering away millions of dollars in inventory that was discontinued, rarely used, and most importantly sitting on shelves waiting to be used (V. Cedillo, personal communication, March 29, 2008). With a change in management, a decision was made to go to just in time inventory to eliminate the amount of unused inventory and to use the schedule to anticipate inventory needs (Brealey, 2005, Working). As a result, thousands of dollars were saved and profits immediately increased.

Another company in healthcare, Pasos Home Health Agency was faced with a drastic reduction in reimbursement from the Centers of Medicare and Medicaid. As a result they were faced with an almost immediate need to find a source of short term financing. A meeting of the senior management team found that it would be necessary to find a bank that would be willing to inject over $100,000 into the business to tie the company over until their systems could be changed to accommodate for the new regulations set forth by Medicare and Medicaid (Brealey, 2005, Short). The cash injection saved the company from what seemed a certain doom and now the company is prospering after much of their competition went out of business due to the lack of liquidity and cash flow of their businesses (K. Rodgers, personal communication, April 2, 2008).

Similarly, Casablanca Flowers, a locally owned and operated business has worked diligently to maintain its profits and cash flows in the black however; recently, it has found its rapid growth a puzzling user of cash flow. Since its inception in the early 1990’s, Mary Reyes, owner/operator, has found the business a challenge and a joy. Her work began to pay off when in 1998 she hired a well known designer that brought with her many of her previous accounts. The rapid interest in the flower shop was what Mary thought the business needed but in fact she states, “I nearly lost my business” (M.Reyes, personal communication March 28,2008). As sales increased, inventory increased and so did accounts receivable. The sudden increase in business decreased cash flow so much that the company almost collapsed. As a result, Mary realized that in order to remain afloat she would have to manage her finances more closely and hold clients to their terms

of sale and penalize for being late. By abiding by the terms of sale, and providing incentives for clients to pay for their purchase in a timely manner, Mary was able to reduce the amount of money tied up in accounts receivable (Brealey, 2005, Working). Inventory for Casablanca Flowers still remains a challenge.

Planned Parenthood has its central clinic located in central El Paso and serves the public with sexual education, even abortion services. The central clinic is its flagship and some years ago nearly went under when a directive came from corporate to update its systems to more efficient electronic data collection techniques and increase the services that were offered at the clinic (C. Lewis, personal communication, April 1, 2008). The news was not received favorably from a staff that felt their compensation was already inadequate. As a result, there was a mass exodus of staff members that left the clinic critically short. The unexpected resignation of a large percentage of their staff forced the company to hire outside replacements that demanded higher pay and better benefits. The unexpected cost for hiring and training new employees in the midst of a technological overhaul caused the company to petition their bank for a line of credit to stay them through the training of the new employees on their policies, procedures, and equipment (Brealey, 2005, Short).

Sports international is a sporting goods store that specialized in soccer equipment and is El Paso owned and operated. The company is run in many ways as a mom and pop organization and does not adequately manage the credit lines that it allows to its customers. As an example, a customer who has a soccer league will order 10 dozen uniforms for the various teams in the league and will make the purchase on a store credit

basis without having terms or conditions that have to be met. As a result, when that customer is late making a payment to the store, the owner is then late making