KOTA FIBERS

Presented By: Faux Sure Inc.

OVERVIEW

Suppliers

Spools of Yarn

Consumers

Kota Fibers LTD. Mills

Merchants

Polyester Pellets & Raw Materials

Seris & Textiles

Textiles

KOTA FIBRES LTD

Founded in 1962 Produced nylon fibers in Kota Growing Yarn Industry with expected annual demand 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 in 2001

THE MAJOR CONCERN

KOTA faces ONE major concern

$$$ Cash flow $$$

THE FOLLOWING ISSUES SURFACED IN 2001 WITH KOTA FIBERS, LTD.:

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

CASH FLOW TIMELINE Inventory Purchased Inventory sold ITD = 9 Days PTD = 6 Days RTD = 16 Days Cash Received

Time

Cash paid for Inventory

Operating cycle = 25 days Cash cycle = 19 days

CASH FLOW IS OUT OF SYNC!

FORECAST ASSUMPTION 2001

MEMOS FROM MANAGEMENT

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 2 3 %, refelcting labor saving and production efficiencies

FINANCIAL ANALYSIS LIQUIDITY

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.

QUICK RATIO

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 shortterm liabilities.

DEBT RATIO

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.

CONCLUSIONS

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.

OUR RECOMENDATION FOR THE SOLUTION

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