OUTLOOK 2001 Andy Wibisono Marchell Wu Steven Hu Andre Cipta Christianto O v e r v i e w Suppliers KOTA FIBRES LTD Merchants End User Mills Polyester Pellets and other Raw Materials ID: 614451
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Slide1
Kota Fibres
OUTLOOK 2001
Andy
Wibisono
Marchell
Wu
Steven
Hu
Andre
Cipta
ChristiantoSlide2
O v e r v i e w
Suppliers
KOTA FIBRES LTD.
Merchants
End User
Mills
Polyester Pellets and other Raw Materials
Spools of Yarn
Textiles
Sari’s and TextilesSlide3
KOTA FIBRES Ltd
Growing Yarn Industry with expected annual demand increase of 15%Established Yarn manufacturer since 1962Annual sales growth rate 18%
Inventory policy 60 daysCredit trem to Distributor 45 days
90.9 million Rupees in projected sales Slide4
The Major Concern
KOTA faces ONE major concern
Cash flow$$$Slide5
Cash Flow Timeline
A/P turnover = 18.55
Inventory turnover = 41.39
A/R period = 44
Time
Inventory sold
Inventory Purchased
Cash Received
Cash paid for
Inventory
Operating cycle = 85
Cash cycle = 67Slide6
Cashflow is out of sync!Slide7
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 loansSlide8
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
30%
Excise Tax/Sales
15%
This Month Collections of Last Month's Sales
40%
This Month Collections of Month-before-Last Sales
60%
Purchases/ Sales two months later
55%
Wages/Purchases
34%
Annual Operating Expenses/Annual Sales
6.00%
Capital Expenditures (every third month)
350,000
Interest Rate on Borrowings (and deposits)
14.5%
Minimum Cash Balance
750,000
Depreciation/Gross PP&E (per year)
10%
(per month)
0.83%
Dividends Paid (every third month)
500,000 Slide9
Exhibit 3
KOTA FIBRES, LTD.
Historical Balance Sheets (in Rupees)
2000
2001
(Actual)
(Forecast)
Cash
762,323
750,000
Accounts Receivable
2,672,729
3,715,152
Inventories
1,249,185
2,225,373
Total Current Assets
4,684,237
6,690,525
Gross PP&E
10,095,646
11,495,646
Accumulated Depreciation
1,484,278
2,558,009
Net PP&E
8,611,368
8,937,637
Total Assets
13,295,604
15,628,161
Accounts Payable
759,535
1,157,298
Notes to Bank (Deposits at Bank)
684,102
3,463,701
Accrued Taxes
0
(180,654)
Total Current Liabilities
1,443,637
4,440,345
Owners' Equity
11,851,967
11,187,816
Total Liabilities and Equity
13,295,604
15,628,161 Slide10
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 purchaseOperation Manager, estimate production efficiency will gain several advantages:
GPM would rise 2 – 3 %, refelcting labor saving and production efficienciesSlide11
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. Slide12
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. Slide13
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.Slide14
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.Slide15
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! Slide16
Further Recommendations...
Propose 2%-5% discount-NET30, to the customers
(Pondicherry Textile)Offer 3-5 term
year (seasonal) contracts to
employees