c



 

UVA-F-1359


  Bruner; Robert F.; Pham; Thien T.

In January 2001, the chief executive of this small yarn-production company in India must resolve a surprising cash
shortage. The task for the student is to evaluate the causes of this shortage (using a completed "base-case" forecast
given in the case) and assess the usefulness of various possible remedies suggested by managers in the company. In
essence, the company is unable to liquidate a seasonal working-capital loan for the requisite 30 days each year. This
difficulty arises from two classic causes: (1) secular growth of the company and (2) declining profitability. Possible
remedies include reducing inventory through more efficient transportation and warehousing, reducing credit terms to
customers, being supplied raw materials on a just-in-time raw materials, switching from seasonal to level production,
improving profitability, decreasing dividends, and reducing sales growth. The objectives of the case are threefold: (1) To
explore a range of issues in working capital management with a primary focus on accounts receivable and inventory. (2)
To extend students'' skills in financial-statement modeling and analysis. This case demonstrates the technique of
forecasting with T-accounts, which may be contrasted with percent-of-sales forecasting illustrated in other cases. (3) To
illustrate some of the challenges in financial (and general) management of firms in developing countries. These
challenges include transportation and logistical problems, the availability of credit to merchants and consumers, high real
rates of growth, tax practices of governments, and dramatic swings in demand induced by local customs and holidays.

c  cash flow; forecasting; inventory management


Industrial

18 page(s)

Teaching note available


 2001