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Case Study Presentation

on
KOTA FIBRES LTD.

Presented by :- Chandresh

Introduction to the case


study
About

About Kota Fibres Ltd.


Founded in

What KFL does?

Company Performance

Major problems of KFL


line of credit at the All-India bank

Early Reassessment
Costnew
Operating
Addition
Two
Dividends
of goods
of
sales
of
expenses
a INR500,000
quality-control
sold
agents
would
would
per
run
be
department
quarter
at
about
73.7%
6%
toof
the
ofgross
sales
11 members
sales

Result

FAILURE..

Financial Ratios
Current ratio of 2000= 4684237/1443637
= 3.244
Quick ratio = 1
Forecasted current ratio for 2001
= 6690525/4440345

= 1.506 (< 2.0,not acceptable)


Forecasted quick ratio = 1

Inventory turnover ratio


=53,865,911 / 1,249,185
= 43.12
Inventory conversion period ( in days)
= 365/43.12
= 9 days (approx)

Receivables Turnover Ratio


= 64,487,385 / 2,672,729
= 24.12
Receivables collection period (in days)
= 365/24.12
= 16 days (approx)

Payable turnover ratio


= 41727114/759535
=55
Payable turnover (in days)
= 365/55
= 6 days approx

Financial Analysis of the


company

Dividends to be paid quarterly = Rs 5,00,000


Total annual dividend paid = Rs 20,00,000
Net profit in 2000 = Rs 25,50,837
Cash left for next year =Rs (2550837-2000000)
= Rs 5,50,837
Desired Cash Balance = Rs 750000

New loan required = Rs


1,99,163

WHAT ACTUALLY WE HAVE


TO DO?
To reduce the outstanding debt
To increase the cash availability
To enhance the cash flow

Some more aspects


Huge inventory
Account receivables on liberal credit
terms
High dividend payouts
Inability to pay taxes

Conclusions
The proposal from Mr. A. Bajpai is good in
long term but it cannot satisfy the current
need of the company. Since the credit term is
of 80 days, it can put an unfavorable effect
on the business. They will have less cash on
hand, huge amount in bills receivables which
will not allow Kota Fibres to be able to pay off
the All-India bank before December
It may set up precedence for other customer
to demand for an increase in the credit period

Proposals from the Transportation


Manager and the Purchasing
manager should be considered
seriously. It can result in less
inventory expenditures and can
increase the amount of overall
liquidity.

RECOMMENDATION

Credit Term
Since the company has a huge
accounts receivable , it must check
out its credit term.
It may reduce its credit term from 45
to 30 days

Just-in-time concept
Hibachi Chemicals of Yokohama can
account for 35% of our raw - material
purchases
It would reduce the inventory of
pellets from 60 days outstanding to
only 7 to 10 days

Reduced Dividends
Since the company is providing a
huge dividend of Rs 500000
quarterly to Ms. Pundirs extended
family, it must reduce its dividend by
50% or go for half-yearly dividend in
place of quarterly payment
It will provide more cash in hand to
overcome the requirements in the
peak season
csf.xlsx

Level Production
Gross profit margin would rise by 2%
or 3%
Level production entails lower
manufacturing risk
Seasonal hirings and layoffs would no
longer be necessary

So, the ultimate proposal.


30 day Inventory Policy

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