kota fibers presentation

8/12/2019 Kota Fibers Presentation

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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...

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