Kota Fibres Ltd. Essay Sample

fabric industry and is the indispensable fiscal beginning to publish credits to maintain downstream concerns running. Kota Fibres has to maintain a norm of 45 years recognition for its clients in order to win their concerns. Kota Fibres besides has to transport out two months natural material stock list in front of production due to hapless transit status. The net income border of company is besides slouching in late twelvemonth due to fierce monetary value competition and mounting operation cost which is partly due to Pundir added more household members to the employee list. Following is a list of issues we observed in the operation of the company. and how we think we may decide the issues to cut down disbursement and salvage more hard currency for the company Must purchase two months inventory in front of production. Large stock list.

Our history collectible day of the month is 30 years. Can be Fixed. If choose more nearby provider and repair logistic clip issue.Customer CreditIssue an norm of 45 years recognition. Collect receivable 40 % in 30 years and 60 % in 60 years. Difficult to be fixed in short term due to nature of concern.

COGS ( Material & A ; Wagess )Cost of good sold is a small high. depending on stuff and rewards. Can be fixed in close term. Cut stuff cost by production efficiency and efficaciously use labour. Family Dividend500K INR quarterlyCovert portion of hard currency dividend to stock dividend. Account collectibleprovider provide small trade recognition – 30 years.

Try to widen to 60 years by dialogue with providers. Bank Interest14. 5 % involvement rate on adoption and loan-cleanup monthNegotiate for short-run with low

involvement rate and long-run with high involvement rate. In kernel. the Company cash-out is excessively speedy while its cash-in is so slow that they are easy to fall into quandary in deficiency of cash-flow.

We may seek to concentrate on the two facets to analyzie and happen out the declaration finally. Analysis: In order to convert the Banker to widen more seasonal recognition to Kota Fibres. Pundir asked her bookkeeper. Mehta to fix a predicted fiscal program. However. the program is on a business-as-usual footing. The consequence of the prognosis shows that the company’s fiscal place will acquire even worse by the terminal of 2001. If the operations of Kota Fibres have no alterations. it will be hopeless for the company to clean up the loan.

The consequence of the bank notes forecast is as following: Calendar monthJanJuneDecBank Notes1. 146. 26832. 950. 6653. 463. 701Fortunately. there are some possible ways to better the state of affairs:Get new order from Pondicherry Textiles: INR 6M one-year gross revenues ;Transportation system betterment: cut down natural stuff stock list demand from 60 yearss to 30 yearss ;“Just-In-Time” polyester pellets supplies: cut down stock list of pellets from 60 yearss to 2 or 3 yearss ;Improve production efficiency by acceptance of flat one-year production: better gross net income by 2 or 3 per centum.

Negociate with providers to inquire for recognition footings of 60 yearss. alternatively of current 30 yearss.We did a thorough survey on each of the attacks.APPROACH1: Get New ORDER FROM PONDICHERRY TEXTILESAlthough it may go one of the company’s largest histories. the biggest issue is that Pondicherry wanted to widen the recognition term from 45 yearss to 80 yearss.

If Pondicherry

will buy our narration across the twelvemonth in about the same form as other clients. we estimate the bank note will be evenworse:Calendar monthJanJuneDecBank Notes1. 202. 51036. 054. 4883.

844. 456It is really obvious that we would hold at lease 3 months account receivables that could non be collected by the terminal of the twelvemonth. Thus this is non a good pick unless Pondicherry agrees to shorten the payment term.APPRAOCH2: IMPROVE PRODUCTION EFFICIENCY BY ADOPTION OF LEVEL ANNUAL PRODUCTIONIt sounds really good to better the gross border by 2 or 3 per centum.

But if the company adopts the flat production strategy. we have to confront the state of affairs of under stock someplace in June. We can non digest this state of affairs. particularly during peak seasons. The undermentioned chart shows the tendency of stock list under degree production strategy.APPROACH3: TRANSPORTATION IMPROVEMENTSince transit is improved.

natural stuff stock list demand could be reduced from 60 yearss to 30 yearss. In November and December 2000. Kota Fibres has purchased adequate natural stuffs for January and February 2001. Thus in January 2001. the company does non necessitate to buy the sum of natural stuffs harmonizing to the sale sum of February.

Just addendum adequate natural stuff stock lists to do certain there is no happening of down stock state of affairs in following months. We would propose supplementing INR 600K of natural stuff. The natural stuff purchases of other months should still follow the regulation of 55 per centum of gross revenues of following month. As the consequence.

the prognosis of the bank note collectible will be:Calendar monthJanJuneDecBank Notes1. 146. 26821. 425. 3011.

237. 139By bettering the transit. the stock list turnover

ratio gets improved. and the outstanding bank notes collectible is reduced by about two tierces.

The profitableness is besides acquiring better – net net income from INR 1. 335. 848 to 1. 836. 044. No uncertainty this is an effectual attack.

APPROACH4: “JUST-IN-TIME” POLYESTER PELLETS SUPPLIESThis attack besides improves the stock list turnover ratio. By following this attack. Kota Fibres could purchase 35 % of the natural stuffs merely in clip it needs them. With other premises consistent. this attack reduces outstanding bank notes by more than 50 per centum.

See detail bank notes forecast below:Calendar monthJanJuneDecBank Notes1. 146. 26825. 179.

2561. 687. 068The net net income additions from INR 1. 335. 848 to 1. 681.

079. This is besides good pick the company should be sing.APPROACH5: ASK FOR LONGER CREDIT TERMS OF 60 DAYS FROM SUPPLIERSThis attack can cut down the history collectible turnover rate to acquire hard currency out slower. The company could seek to widen recognition footings of 60 yearss from original 30 yearss by negociating with providers. If successful. this attack reduces outstanding bank notes by more than 60 per centum.

See detail bank notes forecast below:Calendar monthJanJuneDecBank Notes1. 146. 26818. 584. 6931. 193.

826However. this attack largely depends on the other side – providers. alternatively of ourselves. So it could non be the first redress we choose.Recommendations:Of class attacks 2 and 3 can be utilized together. If Kota Fibres adopts both one month stock list and “Just-In-Time” poly ester supplies.

the forecast net net income is INR 1. 925. 580 and bank notes forecast isCalendar monthJanJuneDecBank Notes1. 146.

26818. 584. 6931. 193. 826This consequence of this combined attack is better than any attack being adopted entirely.

However. the outstanding bank

notes is still bing by the terminal of 2001. Other ways to better the hard currency place could be:Convince the household member to covert portion of hard currency dividend to stock dividend. If hard currency dividends are reduced to 200. 000 per one-fourth.

the outstanding bank notes will be eliminated.Accelerate depreciation if possible. Accelerated depreciation will cut down revenue enhancement disbursals.Improve runing efficiency. 1 percentile of decrease on operation disbursals will salvage 750.

000 hard currency.Unite the short-run loan with lower involvement rate and the long-run loan with higher involvement rate to acquire the optimum cost of loan and flexible refund timing so that the Company can avoid hard currency out peak period.Better the aggregation of history receivable. The company’s mean history collectible term is 30 yearss and the mean history receivable term is 45 yearss. There is 15 yearss difference between aggregation and payment.

The more gross revenues Kota Fibres makes. the more recognition the company need to publish.MentionRobert F. Bruner.

_Case Studies in Finance ; Pull offing for Corporate Value Creation_ . 5th edition. McGraw-Hill. 2007.