FIN 370 Week 3 DQ 1

Basic Definition: What is the definition of working capital?
PLUS: Choose one of the following:
1. Wal-Mart is frequently cited as one of the retailers who is most adept at managing its inventories and suppliers. Consider the following from Gosman & Kohlbeck regarding a study of the effect of a large retailer on supplier profitability:
“First, the adverse gross margin and any differential effect based on supplier size is eliminated for suppliers with Wal-Mart as a major customer. These results are consistent with Wal-Mart not extracting all benefits created in the supply chain through improved inter-firm relationships (similar to Kinney and Wempe’s [2002] results for JIT adopters). Second, the cash conversion cycle lengthens as supplier size increases, suggesting that Wal-Mart may provide terms that improve the cash conversion cycle to help support smaller suppliers. The lack of differential return on assets for Wal-Mart suppliers is consistent with these suppliers incurring other costs (e.g., increased expense sharing) in exchange for not reducing the gross margins. In contrast, it appears that non-Wal-Mart major customers focus on reducing their purchase prices, negatively affecting supplier gross margins.”
What are the underlying assumptions? Use the UOP Library to find a corroborating or conflicting perspective. What makes the example different? Do these parameters apply equally to small and large entities? Why or why not?
Gosman, M. L., & Kohlbeck, M. J. (2009). Effects of the Existence and Identity of Major Customers on Supplier Profitability: Is Wal-Mart Different? Journal of Management Accounting Research, 21(10492127), 179-201.
2. Alternatively, find an article in the UOP Library that discusses the challenges of managing working capital. What may happen if an organization neglects to manage its working capital? What techniques do the author(s) suggest for managing working capital? Why?
Powered by