kota fibers Essay

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Kota Fibres, Ltd. Case Brad Medford March 12, 2009 Executive Summary Kota Fibres is a producer of nylon fiber with one plant in India. The company supplies many small local textile weavers. Ms. Pundir, The managing director and principal owner of the company has come to a shocking realization recently; despite increasing sales growth Kota Fibres has major financial Issues. Problem For most people walking up a steady incline is simple, However if there is obstacle like a mountain in your path careful planning will be necessary to ascend and return back down safely. Kota Fibres Has a steep seasonal spike in their sale during May, June, and July. Currently a large outflow of cash far in advance of this spike is necessary to prepare for the increase in sales. Kota dose not receive payment from these seasonal sales for an average of 47 days. The time between seasonal cash outflows and Inflows is Kota’s problem. Analysis Kota Fibers uses a short term line of credit from All-India Bank & Trust Company with a 14.5% interest rate to finance its seasonal spending needs. The bank demands that the line of credit be cleaned up for at least 30 days each year. Kota Fibres needs to repay this loan by the end of the year. Kota Fibers most pay a 15% excise tax to the government. A tax inspector is stationed at the warehouse and will not clear the trucks for deliveries before Ms. Pundir comes up with the money for the payment. Because of the seasonality of sales Kota makes no profit in the beginning of the year. (See exhibit 1) Exhibit 1 Kota begins purchasing its extra raw materials for the summer two months in advance. The suppler that Kota Fibres uses does not extend any credit and demands on the spot payment. Ms. Pundir extends all of her customers’ very lenient credit term. Kota receives 40% of the sales from the month before after one month and the

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