Bright paint limited, situated in Punjab, is a large wholeseller of industrial paints. The company sells paints mostly to small retailer in cities and towns of northern states. About 10 % of sales are made directly to the public on case basis. For meeting its working capital requirement, the company has a cash credit limit from state bank of India. However, it has been recently facing a liquidity problem. In its cash credit amount, the company has an overdraft balance of Rs.24 lakh at the end of march 2009. The managing director of the company is quite concerned about its adverse cash position. He discussed the matter with his finance manager, and asked him to make an assessment of the company’s cash situation for the next 6 months. The finance manager’s staff made the following estimates of revenues and expenditures for the next 6 months: (Rs. Lakh)
| April| May | June | July| Aug.| Sep.|
Expected sales| 1000| 1400| 1750| 2180| 2400| 2700|
Purchases| 1250| 1700| 2000| 1800| 1700| 1700|
Advertising| 170| 190| 220| 250| 350| 380|
Rent| 50| 50| 50| 50| 50| 50|
Depreciation| 12| 12| 12| 12| 12| 12|
Wages| 180| 180| 180| 180| 190| 190|
Sundry expenses| 260| 260| 260| 270| 280| 280|
The company has a plan to bye two delivery vans in june for Rs. 8 lakh. It will pay taxes in june and September. The corporate tax rate is 35%. The company sells to retailers on 2 months credit terms. Debtors at end of march are Rs. 500 lakh. The company will make more purchases in the months of april, may and june for high demands in the next 3 months. Suppliers extend 1 month’s credit to the company. At the binning of march, creditors were Rs. 630 lakh.
1. Prepare a case flow forecast for bright paints limited for the six months. What are the benefits of preparing a case flow forecast to the company? 2. What do you think are the problems for the company...