WORKING
CAPITAL
POLICY AND
MANAGEMENT
CASE ANALYSIS:
GROUP 3
Rushel E. Berdeguel OLYMPIAN
John V. Dalton BACKPACKS, INC.
Jonathan S. Viterbo
Background of the Company
The company started in February 1995 by spouses
Merlin and Carl Gatdula, and the business is into
manufacturing of nylon bags used in schools, camping,
and sports. To focus on their other businesses, Merlin
hired Leon Caballo to be Olympian's new manager. Leon
was previously a production manager at a garments
company prior to employment at Olympian Backpacks,
Inc on May 1 of 1996. The Gatdulas designed and
produced backpacks that are of better quality than those
similar products available in the market.
Background of the Company
Olympian Backpacks sold on credit terms of 60 days.
The company-maintained accounts for about 20 retailers,
ranging from large department stores to medium-sixed
specialty stores and retail outlets. Sales of the
backpacks and camping gear were highly seasonal. Most
of the company's sales were in the school break up to
school opening, from April to July. There were another
two months of good sales in November and December,
but sales on other months were quite lean. There
appeared to be very little management could do to
influence its sales pattern.
Background of the Company
The product become a “hit” to the market because of
its high-quality features
Problems exists about obtaining imported materials
from suppliers
Suppliers imposed 30-day credit period
Olympian Backpacks sold products on credit terms of
60 days
High Sales during the months of April to July,
November and December.
TIME CONTEXT
February 1995
VIEW POINT
Leon Caballos
STATEMENT OF PROBLEMS
Olympian Backpacks might not have
sufficient cash to pay off current obligations
to suppliers and operating needs.
STATEMENT OF OBJECTIVES
Must Objectives
To meet current obligations to their banks and
suppliers
To collect their receivables
To construct a strict policy in terms of credit and
collection
STATEMENT OF OBJECTIVES
Want Objectives
To maintain good relations with their banks and
suppliers
To have a good and sound financial position
To have a stable and synchronized set of cash flows
To improve the firm’s operations
AREAS OF CONSIDERATION /
ANALYSIS
Strengths Weaknesses
• Produces high-quality products • Expensive products
• High Sales • Poor Financial Position
• Profitable products • Has a large amount of uncollected payments
• Consumers are after its quality • Poor credit policy
• Quantity and Quality of materials at a right price • Inability to purchase goods when lean/off
• High demand for the products during seasonal season
day (e.g. June and December)
SWOT
Analysis
Opportunities Threats
• More loyal customers • Competitors who sell same products at a lower
• Price of materials might decrease price
• Good Economic condition • Price of raw materials might increase (inflation)
• Demand for bags may increase annually • Lack of suppliers
• Growth of business on the following year • Threats of New Entrants to the industry
• Price of raw materials from suppliers may • Price fluctuation
reduce • Demand for bags may decrease annually
• Investment Opportunities • Credit rating might decrease
ALTERNATIVE COURSES OF ACTION
1. Increase collections of a receivable by setting trade
discount to customers and up to date AR / AP.
2. Request for a longer credit terms from suppliers.
3. Lengthen or stretch disbursements.
4. Request for a new loan to other banks.
5. Increase the credit line in Oriental Bank.
RECOMMENDATION
Increase collections of a receivable by setting trade
discount to customers and up to date AR / AP.
CONCLUSION / DETAILED
ACTION OF IMPLEMENTATION
PLAN
Group/Person
Activity Time Framed
Responsible
Marketing Department and
Offering an early payment Finance Department 10 Days early payment
discount together with the owner and discount
manager
Maximize cash flow and
make it easier to accept Finance /Accounting ASAP
payments
Marketing Department and
Finance Department
Offering a Payment Plan Whole Year Round
together with the owner and
manager
Increasing and revising
Marketing Department and
some strategic market Within 2 weeks
Finance Department
efforts due to off session
Group/Person
Activity Time Framed
Responsible
Hold monthly meetings to
maximize positive, timely
and constructive All Department Every month
communication with
employees
Hold financial committee for
Finance and Accounting
investment opportunities and ASAP
Department, Managers
loans that had been acquired
Performance evaluation of Top management, Managers,
Every month
the firm Accounting and Finance
All departments together
Continuous improvement Start within 2 weeks
with the owner and managers
Finance and Accounting
Setting up credit policy to its
Department as well as ASAP
clients/customer
managers and owners
Marketing Department and
Setting up discount rate for its
Finance Department together Within 1 week
customer
with the owner and manager
Thank you very much!
