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Finance EssayThese policies are characterized by a combination of risk and return, and burn watch from a conservative to an aggressive profile. The three types of working neat policies most recommended and used are in-your-face polity, Average Policy, and Conservative Policy. The aggressive indemnity working capital management focuses on maintaining current assets derives at minimum directs, which is reflected in the total asset turnover lavishlyer, with a higher margin. This insurance polity emphasizes the aspect of returns on risk-return decision. This policy is the highest risk policy but with to a greater extent funds to reinvest in the company or usiness. match to Kulkarni (2011) it is a high risk arrangement though, because, should your creditor come asking for bills, and for some reason, you dont have enough money to pay them move out, you might end up having to sell a costly asset to pay off your debt to them. (Kulkarni, A. 2011 , Working Capital Policy , 9). The twinned policy working capital management get bys a person with change available to reinvest in his company or business. This policy entails a medium level risk and with this policy the business assets matched business liabilities.According to Kulkarni (2011) this policy works in an arrangement where the current assets of the business are used perfect to match the current liabilities. It is a medium risk proposition and requires a salutary amount of attention. (Kulkarni, A. 2011 , Working Capital Policy, 6). A conservative policy working capital management focuses on maintaining a high liquidity, as well as other accounts assets, as inventories and accounts receivable, which is very expensive, because they remain informal resources that eventually become unproductive, with slow rotation of assets due to the large investment in current assets.This policy emphasizes the minimization of risk, as opposed to maximizing yields that is not risk to be sure liquidity. A conse rvative policy may be best for people who want to keep low risks. According to Kulkarni (2011) This is the policy with the lowest risk, but it reduces the money used in increasing the production (Kulkarni, A. 2011 , Working Capital Policy, 11). Recommended Policy The working capital policy recommended for Lawrence Sports is the matching policy, more commonly referred to as the harden approach.The working capital is funded by short and long term borrowing, equity financing or a combination of them. It is springy for the company to sleep the risk and return of financing. The moderate approach falls in between the both other polices described above and is the most balanced. This enables Lawrence Sports to balance its risk and returns. Furthermore, it finances short term debt with short-lived assets while permanent and fixed assets are financed by long term debt and equity sources (Zeepedia, n. d. ).A moderate approach gives Lawrence Sports the ability to maintain the relationships necessary to continue business, balance the working capital to still create a profit, and repay what is owed to the bank. Figure 1. Different Policies Regarding the Level of Investment in Working Capital demonstrates how the decline Approach compares with the others in terms of the level of investment in working capital (Watson amp Head, 2012, p. 72). luck It is important for a company to choose the best working capital policy, one that features a level of risk the company can handle.Team C decisions about working capital management are being driven by the intrinsically related priority of risk management. Team Cs aim is to minimize the risk of insolvency while maximizing the return on the assists (Dixon, 1991). Teams C choose the matching working capital policy because it entails a medium level of risk and it will also leave Lawrence Sports with more cash to reinvest in the business. Lawrence Sports will keep low levels of working capital so that they can employ the funds more p roductively elsewhere like purchasing more goods or more machinery.It is a relatively amount of risk balanced by a relatively moderate amount of expected return. The best level of working capital would be the one in which a balance is achieved between risk and efficiency which also requires continuous monitoring to maintain proper level in various components of working capital, i. e. , cash receivables, inventory and payables, etc. Contingencies A contingency is an unexpected event or situation that affects the financial health, professional image, or market share of a company. It is usually a invalidating event, but can also be an unexpected windfall such as a considerable order.Anything that unexpectedly disrupts a companys expected operation can harm the company even if the disruption is because of a windfall (Duff, 2013). In the case of Lawrence Sports there should be a contingency plan in aspire in the event product is damaged or lost either in transit or by some unforeseen event. Another contingency plan Lawrence Sports should consider is a cash obligate to cover accounts receivable loses if Mayo defaults on invoice credits. In this case vendor defaults affect infiltrate line but in turn Lawrence would not have to borrow money from Gartner and avoid high interest rates.For Lawrence to recover from such an incident Lawrence Sports needs to use its working capital to cover the be so that funds are not continuously incurred on the bank loan. In order for Lawrence Sports to nobble the capital to cover a contingency plan Mayo would have to relinquish all gross sales to Lawrence Sports, payments to Gartner will have to be stretched out further and Murray would lose working capital and halt trading operations because Lawrence Sports payments would be differed even longer. These hefty decisions are all apart of risk management and can negatively affect business relations.