Case Study Presentation on

KOTA FIBRES LTD.

Presented by :- Chandresh
 Introduction to the case study
Kota Fibres Ltd
About Financial problems in KFL

Ms. Pundir , managing director

Owner and principle owner of the firm.

cash forecasting and

What to do? recommending solutions to
overcome the liquidity crunch
 About Kota Fibres Ltd.

1962
Founded in At Kota (only plant)

Industry Textile

using new technology and domestic raw

materials, the firm had developed a steady
Services franchise among dozens of small, local
textile weavers
 What KFL does?

KOTA FIBRES
Merchants
LTD. Spools of Yarn Saris and
Polyester Textiles Textiles
Pellets and
other Raw
Materials
Suppliers Mills End User
Company Performance
Consistently profitable

sales had grown at an annual rate of

18% in the year 2000

Net profits reached INR2.6 million in

2000

Gross sales were projected to reach

INR90.9 million in the fiscal year that
ended December 31, 2001
 Major problems of KFL
line of credit at the All-India bank

loan repayments to be done to All-India Bank

Payment of excise tax to move their product

Request for new loans from All-India Bank

Interest rate may rise in upcoming year on the

loans

Declining profitability
 Early Reassessment

Cost of goods sold

Operating Addition of a
would run at
expenses would be quality-control
73.7% of gross
about 6% of sales department
sales

Dividends of
Two new sales INR500,000 per
agents quarter to the 11
members
Result
 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
Revise Credit
term

Pay Excise tax Just-in-time

on the move concept

Reduce Decrease the

inventory dividends

level
production
 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
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 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.
Minimum
Cash
Balance

Partial 30 day More

JIT Inventory Reduced Profit
Policy Dividends

Level
Production