Kota Fibers, Ltd engages in yarn production in Kota Town, India. Textile millers use the yarn to make traditional dresses (saris) for women in India. Kota Fibers has been in operation since 1962 and has over the years faced an annual growth rate of 15 percent. This due to the rapid growth of the female population in India. In January 2001, the Managing director of the company Ms. Pundir realized that the company has been surprisingly hit by a cash shortage.
The company’s liquidity problems had a number of negative implications on its operations. Delivery of customer orders had to be postponed as it had to pay excise duty on a cash basis, before the loaded …show more content…
This means that they wish to have an increase of about INR 15 million over the current year. This increase is substantial but there are several financial factors that have to be put into consideration. These include current credit standing, inventory turn around, sales and production and production scheduling. It is imperative for one to calculate the company financial ratio in order to determine the problems that this company is facing.
This is use to evaluate the profits the firm is gaining with respect to the level of sales, owners investment and level of assets. For a company to be successful it ought to have a higher gross profit margin. From the financial data, Kota Fibers projected a 16% profitability ration but they are currently at 13%. This is an indication that they have a poor profit to sales ratio. For them to increase this ration, they have to improve in handling their operating costs.
With reference to debt to asset ratio, it is quite evident that Kota Fibers has leveraged a minimal amount of money they borrowed from the bank to general for them profits. This ratio is used to measure the amount of total assets that is paid by the company’s creditors. From the financial reports, in 2000 the firm had a ratio of 11 % and their 2001 projection was 28%. However, this has not been achieved. This means that they are more