“Financial Structure” is simply the Liabilities and Owner’s Equity side of the balance sheet expressed in percentages. Given your performance measures, what should your financial structure be? Why?

Accounts Payable

What should your accounts payable policy be? Accounts payable (AP) is debt. You are leveraging your vendor’s money. However, at 30 days they withhold deliveries and production falls by 1%. Your production costs go up as workers stand idle during parts shortages. At a 60 day policy production falls by 8%. At a zero day policy there are no shortages. Given your measures, what should your AP policy be?

Current Debt

Current debt is typically used to fund inventory and accounts receivable (AR) . However, those accounts could also be backed by retained earnings. Given your measures, what should be your policy towards current debt?

Long Term Debt

Long term debt is used to fund plant and equipment. However, you could use equity (common stock plus retained earnings) . If you eliminate long term debt, its interest payment will disappear, and earnings will go up. However, the profits used to pay off the debt could have been invested in new plant and equipment, or you could have paid dividends to shareholders.