Question

Young Brands OUNG BRANDS (YB) is a manufacturer of sports clothing and team uniforms. Its industry is quite competitive, so the management team has attempted to operate a modern operation with state-of-the-art production facilities. Careful cost management has been an important factor in attaining profits. YB is considered a leader for its fashion sense, pricing, market- ing, and product quality. Professional and university-team uniforms and affiliated products are sold by company salesmen to teams and to retail stores throughout North America. YB currently uses a network of manufacturers' representatives to reach retailers in Europe, Latin America, and Asia. (A manufacturer's rep resentative (MR) is an independent individual, sales agency or company that sells a manufacturer's products to wholesale and retail customers in foreign countries.) There is a large demand for licensed (approved) clothing with team logos and colors, and premium prices can be charged to retail customers who buy for themselves as fans, for friends and relatives as gifts, or simply to affiliate with a local (hopefully winning) team. The licensed clothingline includes sweatshirts 245

Answer 1

I would provide an answer to the third topical area:

The company purchases the majority of its stock (approx. 70% according to the historical records) under credit terms of 10 days to enjoy the discount and only half of the customers will pay within 30 days. This means that, even if in the near future the company pays within 30 days due to the elimination of the discount offer from the suppliers, it will experience maturity mismatch because they will have to pay for certain percentage of the purchases before receiving the money required for that purpose from the customers. Therefore, the probability of liquidity problems and, thus, pressure on the working capital is significant.

In other different words, how can the company cover the 70% of its receivables´payment obligation within 30 days when half of their customers will pay within 50 days? So, they need to negotiate better terms with the suppliers, e.g. ask for credit extension to at least 60 days and, in the meantime, establish some incentives for the customers in a way that more than 50% pay within 30 days. That will eventually impact the margin, however, the company will diminish the liquidity risk.