Working Capital Simulation Harvard Case Study Solution, SunFlower Nutraceuticals, Managing Growth

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Sunflower Nutraceuticals  Working Capital Simulation: Managing Growth Acting as the CEO of Sunflower Nutraceuticals you will apply the principles of capital budgeting to invest in 10 different growth and cash flow improvement opportunities during three phases over a nine year period which you must decide to either accept or reject. Each opportunity will include a set of limited financial projections. Each opportunity has a unique financial profile that must be assessed and you must analyze the effects on working capital. Your decisions will have a direct impact on various financial metrics of the firm. Each decision made will drive six key income statement and balance sheet accounts. 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. After running the simulation you will write a brief analysis in report format that explains for each opportunity presented: 1. The financial impact (general direction increase or decrease only no detailed computations) of accepting the opportunity on key metrics such as revenue, EBIT, working capital, cash flow, etc. 2. Your accept reject decision. 3. Your justification for your accept/reject decision. Solution: The solution contains the entire write up as well as screen snapshot of the output Working Capital simulation exercise on Sunflower Nutraceuticals (SNC) financial of next nine years has resulted in favorable benefits and resulted in increase in revenue, profits, profit margins, lower line of credit and hence interest cost and finally boosted equity and overall firm’s value. The following 10 opportunities have been evaluated and six of them have been selected as they resulted in favorable impact: 1. Tighten accounts receivable in Phase 1 2. Drop poorly selling products in Phase 1 3. Acquire a new customer in Phase 1 4. Leverage supplier discount in Phase 1 5. Expand online presence in Phase 2 6. Develop a private-label product in Phase 2 7. Pursue big-box distribution in Phase 2 8. Renegotiate supplier credit terms in Phase 3 9. Adopt a global expansion strategy in Phase 3 10. Acquire a high-risk customer in Phase 3 1