Management of Working Capital Case Study: "George's Trains"

Management of Working Capital Case Study: "George's Trains"

Introduction

The research paper aims at evaluating capital budgeting practices of George's trains. In the light of video synopsis, the paper evaluates methods of capital budgeting analysis techniques adopted by George's Trains. The paper identifies potential pitfalls, which might affect the business performance of the firm. Additionally, the paper provides a statement of cash flow based on certain assumptions and performance trend of the firm. In the light of analysis, the paper suggests areas of improvement in order to sustain the level of profitability. Finally, the paper provides conclusion on the overall capital budgeting analysis of George's Trains.

Working Capital Practices of George's Trains

Analysis shows day-by-day improvement in the working capital practices of George's trains. Today, working capital of George's business is five times more than what the old family business had in 1962 (INTELECOM Intelligent Telecommunications, n.d.). George initiated the model train business from his small basement and his passion and smart sense of business transformed this entrepreneurial activity into today's largest and well established business. The business built specialization in trading, sales and repair of model trains including model accessories. The firm has well managed the ratio between current assets and liabilities.

Figure 1: Working Capital Cycle (Agyei, 2011, p. 31)

Analysis shows firm's reliance on quality sales and services through all business outlets. The firm has well managed its sales collection and inventory management over, which has acted as a motor wheel in improving liquidity position of the firm (Buchmann & Jung, 2012). Analysis shows that the firm has adopted appropriate techniques of analyzing and appraising working capital practices. Moreover, the company has been using techniques such as net present value, internal rate of return and accounting rate of return to appraise working capital decisions and practices (George's ...