Kota Fibres
OUTLOOK 2001
Andy Wibisono
Marchell Wu
Steven Hu
Andre Cipta
Christianto
Overview
Polyester Pellets
and other Raw
Materials
Suppliers
KOTA
FIBRES
LTD.
Textiles
Mills
Spools of
Yarn
Merchants
Sari’s
and
Textiles
End
User
KOTA FIBRES Ltd
Growing Yarn Industry with expected annual
demand increase of 15%
Established Yarn manufacturer since 1962
Annual sales growth rate 18%
Inventory policy 60 days
Credit trem to Distributor 45 days
90.9 million Rupees in projected sales
The Major Concern
KOTA faces ONE major concern
Cash flow
$$$
Cash Flow Timeline
Inventory Purchased
Inventory sold
Inventory turnover =
41.39
Cash Received
A/R period = 44
Time
A/P turnover = 18.55
Cash paid for Inventory
Operating cycle = 85
Cash cycle = 67
Cashflow is out of sync!
Sales
35,000,000
A/R
30,000,000
Inv
25,000,000
A/P
20,000,000
N/P
15,000,000
10,000,000
5,000,000
0
Jan Feb Mar April May June July Aug Sept Oct Nov Dec
The following issues surfaced in
2001 with Kota Fibres, Ltd.:
1. Payment of excise tax to move their
product
2. Line of credit not being repaid according
to the term.
3. Request for new loans from All-India
Bank & Trust Company.
4. Due to inflation, interest rate may be
higher in upcoming year on the loans
Forecast Assumption 2001
Exhibit 11
KOTA FIBRES, LTD.
Assumptions
Debt Balance Summary
Jan '01
1,146,268
June '01 32,950,665
Dec '01
3,463,701
Ratio of:
Income Tax/Profit Before Tax
Excise Tax/Sales
This Month Collections of Last Month's Sales
This Month Collections of Month-before-Last Sales
Purchases/ Sales two months later
Wages/Purchases
Annual Operating Expenses/Annual Sales
Capital Expenditures (every third month)
Interest Rate on Borrowings (and deposits)
Minimum Cash Balance
Depreciation/Gross PP&E (per year)
(per month)
Dividends Paid (every third month)
30%
15%
40%
60%
55%
34%
6.00%
350,000
14.5%
750,000
10%
0.83%
500,000
Exhibit 3
KOTA FIBRES, LTD.
Historical Balance
Sheets (in Rupees)
2000
(Actual)
Cash
Accounts Receivable
Inventories
Total Current Assets
Gross PP&E
Accumulated
Depreciation
Net PP&E
Total Assets
Accounts Payable
Notes to Bank (Deposits
at Bank)
Accrued Taxes
Total Current
Liabilities
Owners' Equity
Total Liabilities and
Equity
2001
(Forecast)
762,323
2,672,729
1,249,185
4,684,237
10,095,646
750,000
3,715,152
2,225,373
6,690,525
11,495,646
1,484,278
8,611,368
13,295,604
2,558,009
8,937,637
15,628,161
759,535
1,157,298
684,102
0
3,463,701
(180,654)
1,443,637
11,851,967
4,440,345
11,187,816
13,295,604
15,628,161
Memos From Management
Field Sales Manager, the extended credit term of
80 days net requested by Ponticherry Textiles
Transportation Manager, proposed raw inventory
requirement from 60 days to 30 days.
Purchasing Agent, new supplier willing to provide
“just in time” inventory for 35% of material
purchase
Operation Manager, estimate production efficiency
will gain several advantages:
– GPM would rise 2 – 3 %, refelcting labor saving and
production efficiencies
Financial Analysis – Liquidity
Pada Th 2000, Current ratio sebesar 3.2,
berarti kemampuan perushaan utk
membayar kewajiban jangka pendek
sudah mencukupi. Akan tetapi forecast
current ratio Th 2001 turun menjadi 1.5,
yang mana dibawah dari batas ideal (2.0)
Ini menandakan mereka akan menghadapi
kesulitah membayar kewajiban dan
tagihan jangka pendek tepat waktu.
Quick Ratio
Quick ratio mengambarkan seberapa cepat
perusahaan dapat mengkonversi aset
menjadi kas. Inventory tidak termasuk dalam
perhitungan quick ratio.Kota Fibres pd th
2000 memiliki ratio sebesar 2.38; dimana
diatas batas ideal (1.0). Akan tetapi Forecast
menunjukkan penurunan pd th 2001 menjadi
1.37. Sekali lagi ini menunjukkan perushaan
akan mengalami masalah dalam melunasi
kewajiban jangka pendek.
Debt Ratio
Jika dilihat dari Debt ratio sebenarnya tidak
ada masalah dengan kondisi financial
leverage perusahaan. Dimana pd th 2000,
Kota Fibres memiliki Debt ratio sebesar 11%.
Dan berdasarkan forecast pd th 2001 akan
menjadi sebesar 28%. Yang berati,
perusahaan ini akan lebih banyak membiayai
financing nya dengan hutang. Bagi Kota
Fibres, jika mereka menggunakan hutang
untuk membiayai proyek mereka perusahaan
ini akan mungkin dapat mengenerate earning
daripada pembiayaan dari luar.
Conclusions
Dengan kesuksesan yang diraih perusahaan ini
selama 40th, Ms. Pundir lebih menitikberatkan
kepentingan Shareholders daripada Liquiditas dan
Forecast ke depan perusahaan ini.
Secara keseluruhan, Kota Fibres sudah cukup
bagus dalam menangani liquiditas saat ini,
walaupun kedepannya menunjukan akan ada
penurunan yang cukup signifikan. Ini bisa berarti
mereka akan menghadapi permasalahan dalam
membayar tagihan mereka tepat waktu dan juga
mereka akan menghadapi kesulitan dalam Cash
Convertion Cycle.
Our Recomendation For The
Solution
+ Reject the offer for credit
extention 80 days
+ 30 day Inventory Policy
+ Partial JIT
+ Level Production Efficiency
+ 0 Dividends for the year!
Further Recommendations...
Propose 2%-5% discount-NET30, to the
customers (Pondicherry Textile)
Offer 3-5 term year (seasonal) contracts to
employees