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!