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Presented By:
Faux Sure Inc.
KOTA FIBERS
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O V E R V I E W
Suppliers
Kota Fibers
LTD.
Mills
Merchants
Consumers
Polyester Pellets
& Raw Materials
Spools of Yarn
Textiles
Seris & Textiles
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Founded in 1962Produced nylon fibers in Kota
Growing Yarn Industry with expected annualdemand increase of 15%
Annual sales growth rate 18% (2000) Inventory policy 60 days
Credit trem to Distributor 45 days
Gross Sales projected to reach 90.9 million Rupees in2001
KOTA FIBRES LTD
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KOTA faces ONE major concern
$$$Cash flow
$$$
THE MAJOR CONCERN
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1. Payment of excise tax to move their product
2. Line of credit not being repaid according to the term.
3. Request for new loans from All-India Bank & Trust Company.
4. Due to inflation, interest rate may be higher in upcoming year on the loans
THE FOLLOWING ISSUES SURFACED
IN 2001 WITH KOTA FIBERS, LTD.:
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CASH FLOW TIMELINE
PTD = 6 Days
ITD = 9 Days RTD = 16 DaysTime
Inventory sold
Inventory Purchased Cash Received
Cash paid for Inventory
Operating cycle = 25 days
Cash cycle = 19 days
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CASH FLOW IS OUT OF SYNC!
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FORECAST ASSUMPTION 2001
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Field Sales Manager: Increase credit term from 45 to 80 days requested by
Ponticherry Textiles
Transportation Manager : Proposed raw inventory requirement from 60 days to
30 days.Purchasing Agent: New supplier willing to provide just in time inventory for
35% of raw material purchase
Operation Manager: Estimate production efficiency will gain several
advantages:
GPM would rise 23 %, refelcting labor saving and production efficiencies
MEMOS FROM MANAGEMENT
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In FY 2000, the current ratio of 3.2 : 1, Integration means the ability to pay
the short-term liabilities is sufficient.
However, in 2001, the forecast went down to 1.5 : 1, which is below the ideal
limit (2.0)
This is an indication that they will not be able to pay liabilities and short-term
bills on time.
FINANCIAL ANALYSIS
LIQUIDITY
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Quick ratio is a portrait of how quickly a company can convert assets into real
cash.
-Inventory is not included in the calculation of quick ratio.
In 2000, Kota Fibers has a ratio of 2:38; wherein above the ideal limit (1.0).
However Forecast shows a decrease in 2001 to 1:37.
-This shows the Integration will have problems in paying off short-
term liabilities.
QUICK RATIO
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The Debt ratio is actually no problem with the company's financial leverage
conditions. In 2000, Kota Fibers has a Debt ratio of 11% and based on
forecasts the debt ratio would be 28% in 2001.
Which means, the company will be more financed with debt.
For Kota Fibers, if they use debt to finance their projects, the company will
probably be able to generate earnings rather than external financing.
DEBT RATIO
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Overall, Kota Fibers can handle the current liquidity, although the future will
show no significant decline. This could mean they will face problems in paying
their bills on time and also they will face difficulties in the Cash Conversion
Cycle.
CONCLUSIONS
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OUR RECOMENDATION FOR THE
SOLUTION
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FURTHER RECOMMENDATIONS...