Kota Fibers, Ltd engages in yarn production in Kota Town, India. Textile millers use the yarn to make traditional dresses (saris) for women in India. Kota Fibers has been in operation since 1962 and has over the years faced an annual growth rate of 15 percent. This due to the rapid growth of the female population in India. In January 2001, the Managing director of the company Ms. Pundir realized that the company has been surprisingly hit by a cash shortage.
The company’s liquidity problems had a number of negative implications on its operations. Delivery of customer orders had to be postponed as it had to pay excise duty on a cash basis, before the loaded trucks can leave the company gates. In addition, its Banker, the All-India Bank had become wary of the company’s financial health owing to the high frequency of overdraft requests. Given this situation the bank’s lending officer demanded a financial forecast before he could advance further loans to the company.
From an analysis of the company’s financial statements it will look into main causes of the weak liquidity position that Kota Fibers is holding. It will also include current credit standing while comparing it to the projected results. It will look inventory turn around, sales and production and production increasing as a means of salvaging the situation. It is imperative for one to calculate the company financial ratio in order to determine the problems that this company is facing.
The recommendation offered will help Mr. Pundir to increase cash flow and be able to be a profitable company. This will include rejecting the 80 days net that has been proposed by Pondicherry Textiles as this will increase inventory and accept proposal by the Purchasing Agent and Transportation Manager that will help in reducing inventor thus increasing liquidity.
Overview of the company
Kota Fiber, Ltd was founded in 1962