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Financial ManagementSubmitted To-: Mrs Nalini Prava Tripathi Professor IIM ShillongSubmitted By-: Meghna Thapliyal(2015PGP136) Mohit Kanjwani(2015PGP137) Neha Mehta(2015PGP138) Niharika Srivastava(2015PGP139) Nikhil Dalvi(2015PGP140) Nilay Sharma (2015PGP141) Clarkson Lumber CaseAnita Mills Limited, a medium-size mill manufacturing coarse cloth was engaged in assessing the cash requirements for the operating year 2012 Case Background The physical facilities presently at the command of the company were considered adequate to sustain twice the 2011 level of production.

The sales during the quarters ending September and December were twice as much as those in the first two quarters of the year leading to cash deficit and surplus throughout year.Key takings from the slideSales are made on 30 days credit, and the companys experience in seasonal demand leads to deficit in cash availability for 6 months and heavy surplus for next 6 months

Sales are made on 30 days credit

The company purchased cotton, dyes and chemicals and general maintenance stores on 60 days creditThe Company experiences seasonal fluctuations as part of its sales, as a result of which the first two quarters sell half of what the last two quarters doGenerally, the collections from January and from July- December are most astounding which is an after effect of 1. 30-day deals credit policy2. Huge upsurge in demand from June onwardsAs a result of the high credit sales in the end of December, its collection in January increase the cash flowFrom again February onwards because of low demand the cash is blocked indicating seasonality.

Analysis & Credit PolicyDue to an increase in payments and a relatively less cash collection in first 6 months of the year, the deficit aggregating itself rises to its maximum amount for the entire year for July.The net cash flow for the month of December is negative as a result of the operational tax payment and also payments like unclaimed dividends and dividends for the year are to be paid in December which again adds pressure to the cash flow.From the graph its visible that the company needs some extra source of cash for first 6 months to meet its deficit which if met by borrowing adds interest cost and pressure on the cash surplus in the next 6 months.The company needs to meet its cash requirements via some alternate source and at this stage diversifying might be a viable option

Analysis

ConclusionClearly there is a seasonality factor in the business of Anita Mills ltd and such can be reduced by diversification. The company can look up to cotton clothes manufacturing so as to achieve the following-:1. Utilise the capacity of the plant in first 6 months of the year, when demand is low by producing for manufacturing purpose. 2. Meet its cash requirements by freeing its cash blocked in inventory by way of using it in manufacturing purpose3. Diversify in a new market and explore new opportunities and tap the potential for more earnings.

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