Scribd Logo
Upload

Welcome to Scribd!

  • 485 views

    Group 20 - Guna Fibres LTD

    Uploaded by

    Priyanka Azad
    Guna Fibres produces nylon fiber for textiles in India. It faces seasonal demand fluctuations and cash flow issues. Analyzing new inventory and purchasing policies shows adopting seasonal production and level purchases improves profits but increases inventory costs. The best option to improve cash flow is adopting the new inventory policy while changing the dividend policy to not pay dividends in 2012, allowing for 96% loan repayment that year.

    Copyright:

    © All Rights Reserved
    Download as PPTX, PDF, TXT or read online from Scribd

    Group 20 - Guna Fibres LTD

    Uploaded by

    Priyanka Azad
    485 views13 pages
    Guna Fibres produces nylon fiber for textiles in India. It faces seasonal demand fluctuations and cash flow issues. Analyzing new inventory and purchasing policies shows adopting seasonal production and level purchases improves profits but increases inventory costs. The best option to improve cash flow is adopting the new inventory policy while changing the dividend policy to not pay dividends in 2012, allowing for 96% loan repayment that year.

    Original Title

    Group 20_Guna Fibres Ltd

    Copyright

    © © All Rights Reserved

    Available Formats

    PPTX, PDF, TXT or read online from Scribd

    Did you find this document useful?

    Is this content inappropriate?

    Guna Fibres produces nylon fiber for textiles in India. It faces seasonal demand fluctuations and cash flow issues. Analyzing new inventory and purchasing policies shows adopting seasonal production and level purchases improves profits but increases inventory costs. The best option to improve cash flow is adopting the new inventory policy while changing the dividend policy to not pay dividends in 2012, allowing for 96% loan repayment that year.

    Copyright:

    © All Rights Reserved
    Download as PPTX, PDF, TXT or read online from Scribd
    Download as pptx, pdf, or txt
    485 views13 pages

    Group 20 - Guna Fibres LTD

    Uploaded by

    Priyanka Azad
    Guna Fibres produces nylon fiber for textiles in India. It faces seasonal demand fluctuations and cash flow issues. Analyzing new inventory and purchasing policies shows adopting seasonal production and level purchases improves profits but increases inventory costs. The best option to improve cash flow is adopting the new inventory policy while changing the dividend policy to not pay dividends in 2012, allowing for 96% loan repayment that year.

    Copyright:

    © All Rights Reserved
    Download as PPTX, PDF, TXT or read online from Scribd
    Download as pptx, pdf, or txt
    You are on page 1of 13

    GUNA FIBRES, Group 20:

    Madhu Jethani MS19A072

    LTD Priyanka Azad MS19A070


    COMPANY BACKGROUND
    • Guna Fibres, Ltd. Was founded in 1972 to produce nylon fiber.

    • 1 plant in Guna, India 500 kilometers south of New Delhi.

    • They used new technology and domestic raw materials.

    • Has steady franchise among dozens of small and local textile weavers.

    • Supplied synthetic fiber yarns used to weave colorful cloths for making saris, the
    traditional women’s dress of India

    • Ms. Surabhi Kumar-managing director and principal owner.

    • Mr. Malik-bookkeeper.
    SYNTHETIC-TEXTILE MARKET

    Demand for Unit demand was India’s many Seasonal Unit growth was
    synthetic textiles affected by festivals had demand for nylon expected to be
    was stable with population and significant affect peaked in mid- 15% per year.
    predictable national income. on demand. summer.
    seasonal
    fluctuations.
    COMPETITION

    • Competition
    among
    suppliers
    • Mills • Yarn
    which
    produced to manufacturer • Yarn
    included • They kept • Suppliers to
    order and s competed manufacturer
    many small only the yarn
    built for the s essentially
    textile- maintenance business of manufacturer banked the
    inventories
    weaving stocks at s provided
    shortly in mills through downstream
    mills, was other times of little to no
    advance of responsive activities of
    affected by the year. trade credit.
    peak selling service and the industry.
    price, service
    season. credit.
    and credit
    mills could
    grant.
    PRODUCTION &
    DISTRIBUTION SYSTEM
    • Kumar had a policy of against overproduction and
    overstocking due to thin profit margins.

    • This required them to carry inventories through slack


    selling season.

    • She adopted seasonal production plan-plant would


    operate at full capacity for two months and modest levels
    for rest of year.

    • Policy caused annual hirings and layoffs.


    REASONS FOR CASH
    CRUNCH IN THE COMPANY

    Huge gap
    between
    Huge High current
    accounts High dividend Seasonal
    inventory (60 asset to total
    receivables payouts Revenue
    days) asset ratio
    and payables
    cycle
    ISSUES CONCERNING
    KUMAR KUMAR
    Unhappy and angry customers and trick drivers

    Excise tax to be paid to inspector

    Bank account overdrawn, third time in weeks

    All-India Bank and Trust Company’s loan manager refusing to


    provide further credit

    High dependence on bank for line of monthly cash


    requirements
    OPERATING CASH FLOW POSITION
    OF THE COMPANY
    • Cash deficit for 6 months
    • Line of credit availed for 7 months in the year
    • Not in a position to maintain zero notes payable balance in any month
    ANALYSIS OF NEW INVENTORY POLICY ON FINANCIAL
    STATEMENTS AND OPERATING CASH FLOW

    Significant decrease in note


    payables every month
    Current Ratio and Quick ratio
    improve both monthly as
    well as yearly
    Decrease in Direct
    manufacturing and labor cost
    Profits increase by Rs.5
    million approx. to
    Rs.17.81million

    Decrease in conversion cycle


    ANALYSIS OF LEVEL PURCHASES POLICY ON
    FINANCIAL STATEMENTS AND OPERATING CASH
    FLOW
    High increase in notes
    payable

    Current ratio and quick


    ratio both declining

    Seasonal hiring's
    eliminated

    Reduced forecasted cost of


    direct labor

    Higher increase in net profits


    but at huge inventory cost
    COMPARISON OF CASH
    CONVERSION CYCLE UNDER
    THREE GIVEN SCENARIOS

    Significant reduction
    cash conversion cycle
    ratio when new
    inventory policy is
    adopted
    OTHER POSSIBLE RECOMMENDATIONS
    AND THEIR IMPACT ON CASH FLOW

    Payment of Rs 2.5 million


    as Dividend quarterly
    Loan repayment ratio-
    93.05%

    No dividend paid
    Loan repayment ratio-
    96%

    20 million paid at the end


    of the year Loan repayment
    ratio- 90.56%
    CONCLUSION & RECOMMENDATION
    New Inventory policy
    No alternative can can be adopted as it
    clear the loan down to provides maximum
    0 in Des 2012 number of
    advantages
    Change in Dividend
    Change credit collection Policy:
    period to reduce gap Of all the possible
    between days payable scenario, Providing no
    outstanding and dividends in 2012
    receivables outstanding 96%

    You might also like