Submitted by: Submitted by myersj
Views: 54
Words: 386
Pages: 2
Category: Business and Industry
Date Submitted: 03/22/2015 11:17 AM
1. Guna’s financial requirements vary throughout the year due to both the seasonal nature of their industry and the appropriate inventories that are needed to meet these sales. The financial requirements will then reflect the various cash levels available throughout the year. Guna does in fact have high COGS compared to their sales, resulting in a smaller profit margin. Since they have a small gross profit, they need additional financing to satisfy their working capital needs.
2. Based on Malik’s forecast for 2012, Guna will need to arrange $5,359 worth of debt for the upcoming year. This is based upon their 15% sales growth rate as well as their expected total current assets and total current liabilities. Guna will not be able to zero out their line of credit this year because there is so single solution to achieve so. Their ongoing need for debt is caused by their unnecessary levels of inventory in the “slack” months. This puts a strain on their overall margins since it’s jacking up their COGS in these down months when sales are low.
3. Given these two proposals, I think they would relieve Guna’s ability to clean up its bank loan. By lowering the sales growth a tad, It would give them a bit more capital to work with since they are currently experience a shortage and a squeeze to meet their current rate of 15%. Shortening the inventory length to 30 days would help as well but I think they should also reduce their inventory production slightly, especially in those slack months. This would help them cover their current liabilities easier as well as direct more attention to their loan obligations. Malik may consider combining both of these proposals.
4. This would relieve Guna’s reliance on debt funding since it increases their quick ratio and decreases their debt to asset ratio, giving them the ability to finance their own assets. This would allow them to run their day to day operations more efficiently.
5. This wouldn’t really relieve Guna’s...