Kota Fibers
December 12, 2010
To: Ms. Pundir – Managing Director and owner, Kota Fibers Ltd.
Dear Ms. Pundir,
As you know, Kota Fibers has been growing its sales consistently in the 15-20% range annually for the last 3 years and the 2001 forecasts are showing 20% growth. Despite these robust sales figures, net income is forecasted to be only $1.3 Million, almost half of 2000 Net Income despite the forecasted incremental increase in sales of $15 million. In addition, the Company is facing a cash crunch and the Company’s banker, the All-India bank and Trust Company are very nervous because they see their loan position with your Company being extended and Kota has failed to repay the loan as per the contract. This is a serious issue and needs to be addressed immediately.
I have reviewed the Company’s projections and cash flows for the fiscal year ended December 31, 2001 in an attempt to identify: a) the operational issues and opportunities presented by various departments and b) the integrity of the data within the forecasts and cash flows. I have done so with the intent of providing your Company with a more accurate fiscal picture for 2001 and to determine if the Company can meet its fiscal obligations to the bank and other key creditors. The following report is a summary of my findings. Please also refer to Appendix 1 which is a numerical summary of my findings. The excel spreadsheet from which it was derived has been attached to this report for your review. Please note that the Summary has been color coded and referenced in order to assist you in understanding the data and that notes to my file are included on Appendix 2. Note that the summary is a build-up of assumptions/decisions made and should be viewed as a progressive iteration. For example, we start with the assumptions changed to the base model, then we factor in the inventory adjustments, then we factor in Pondicherry sales decisions including any other adjustments made.
Overextended credit and interest
To: Ms. Pundir – Managing Director and owner, Kota Fibers Ltd.
Dear Ms. Pundir,
As you know, Kota Fibers has been growing its sales consistently in the 15-20% range annually for the last 3 years and the 2001 forecasts are showing 20% growth. Despite these robust sales figures, net income is forecasted to be only $1.3 Million, almost half of 2000 Net Income despite the forecasted incremental increase in sales of $15 million. In addition, the Company is facing a cash crunch and the Company’s banker, the All-India bank and Trust Company are very nervous because they see their loan position with your Company being extended and Kota has failed to repay the loan as per the contract. This is a serious issue and needs to be addressed immediately.
I have reviewed the Company’s projections and cash flows for the fiscal year ended December 31, 2001 in an attempt to identify: a) the operational issues and opportunities presented by various departments and b) the integrity of the data within the forecasts and cash flows. I have done so with the intent of providing your Company with a more accurate fiscal picture for 2001 and to determine if the Company can meet its fiscal obligations to the bank and other key creditors. The following report is a summary of my findings. Please also refer to Appendix 1 which is a numerical summary of my findings. The excel spreadsheet from which it was derived has been attached to this report for your review. Please note that the Summary has been color coded and referenced in order to assist you in understanding the data and that notes to my file are included on Appendix 2. Note that the summary is a build-up of assumptions/decisions made and should be viewed as a progressive iteration. For example, we start with the assumptions changed to the base model, then we factor in the inventory adjustments, then we factor in Pondicherry sales decisions including any other adjustments made.
Overextended credit and interest