Case 31 Elite Manufacturing Company Working Capital Management Directed Debby Brennen and Denisa Cawley had just sepped offthe racquetball court after their weekly game. Normally they are closely matched, but that day Cawley beat Brennen badly. Brennen, who had recently been promoted to vice-president of the Elite Manufacturing Company, admitted that she had been preoccupied with a business problem. Her primary responsibility is in the area of finance, and her predecessor had been forced to resign from the firm because the president of the company, Henry Zunker, was dissatisfied with the way the finance department was being run. That morning, Zunker had called Brennen in to tell her that the firm's total asset turnover has been going down. yet he had received no report from the unit. Consequently, he was concerned that she was not on top of the situation Elite manufactures and distributes uniforms and professional equipment for such fields as law enforcement, health care, and other public service professions. Henry Zunker founded the firm in 1960, and under his direction it has grown into the largest uniform company in the state. The oper- ation has always been very profitable, reflecting Zunker's general business acumen and careful atten tion to detail. The problem that he brought up with Debby Brennen related to a slight deterioration in the total assets tu ratio. from 2.77x in 1991 to 2.70x in 1992. Zunker actually has a great mover deal of confidence in Brennen's abilities, but it is his style to "keep the pressure on." Also, when he does lose confidence in someone, Zunker is quick to call in an outside consultant, often from one of the major national consulting companies, and to come down hard on his employees if they are not following the best business practices. Denisa Cawley, Brennen's racquetball opponent, is a senior commercial lending officer with the bank that handles the Elite account. Cawley knows Brennen well and realizes that her friend is unsure of her ability to handle the new position, which she has held for less than two weeks. Bren- nen's primary training, and most of her job experience, has been in marketing. Although she has worked for Elite for over six years. understands the operations, and has the ability to learn quickly the details of the financial end of the business, Brennen is a bit uncertain of where to start in tack ling the current problem. To help her overcome this temporary lack of confidence, Cawley offered to help her analyze the financial statements and to show her what needs to be done. Brennen gladly accepted Cawley's offer of assistance. The next day, Brennen gathered up some documents, including the financial statements shown in Tables 1 and 2, and went to see Cawley. Upon careful examination of the data, the two execu tives discovered several things about the asset tu First, the company's days sales outstand- ing is approximately 20 days. Elite sells on terms of io, net 30, o this number is reasonable. Cawley checked the figures from previous years and discovered that there has actually been a slight