Report

CORPORATE FINANCE |

An Analysis of Kota Fibers |

Group C |

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Ajay Ghimire

Akshaya Agrawal

Bijay Gautam

Nabin Chapagain

Rima Shrestha

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[Pick the date] |

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An overall analysis of Kota Fibers

Kota Fibers is a small yarn production company in India which is trying to resolve a cash shortage problem. The company did not have enough cash to pay the excise duty and a tax inspector needed that to be paid immediately. So they tried looking into their accounts to see if they could pay the excise duty only to find out that their bank accounts had been overdrawn. Because of this problem the company was not being able to deliver the goods to their customers on time impacting the company’s reputation with the customers. As a result of this the firm’s managers wanted to analyze the financials of the firm and find out how they could solve this problem. They figured that the firm was facing a considerable financial problem. The income was not enough to pay off their debts, they were facing problems to pay the excise tax to move their goods and that there was delay in the repayment of their line of credit- the company was unable to liquidate a seasonal working capital loan for the requisite 30 days each year. This difficulty arises from two causes: (1) secular growth of the company, and (2) declining profitability. Thus possible remedies could include reducing inventory through more efficient transportation and warehousing, reducing credit terms to customers, having raw materials supplied on a just-in-time basis, switching from seasonal to level production, improving profitability, decreasing dividends, and reducing sales growth.

Current situation

At present the firm is producing Nylon fiber using new technology and domestic raw material. Its yarn is used by the local textile weavers who use this for manufacturing clothes like Sari. It has a stable market with seasonal fluctuation and unit growth in the industry is expected to be 15% per year. In its...