Kota Fibres, Ltd Essays

Kota Fibres, Ltd Essays Kota Fibres, Ltd Essay Kota Fibres, Ltd Essay Case Report for Kota Fibres, Ltd. Group 7 BA 141 (WFY) 8/11/2010 Table of Contents Point of View . 1 Case Context .. 1 Problem Definition .. Framework of Analysis . 1 Analysis . 2 Decision 6 Justification of Decision .. Implementation of Decision.. 7 Appendix .. 8 Bibliography 33 EXECUTIVE SUMMARY The group took the point of view of management for the case of Kota Fibres, Ltd. The goal of maximizing shareholder wealth was the backdrop against evaluations of the company’s health and proposals to improve the same were made. Kota Fibres’ main problem was fairly straightforward: the management of the company’s cash holdings was inefficient. This was reflected in the smaller problems that the company faced in 2001. An evaluation of the company’s profitability showed increasing price competition; liquidity, a dispiriting debt position; efficiency; a long cash conversion cycle; and leverage, increasing dependence on borrowed capital. Coupled with unfavorable market conditions, the events responsible for Kota Fibres’ financial health confirmed the company’s weak cash position. Cash flows were not only weak, but they were also drained by large dividend distributions. Management paid high dividends to shareholders for many years under the misapprehension that reinvesting in it in the business was necessarily riskier. Ironically, it was keeping cash out of the business that increased credit risk, devalued Kota Fibres as a manufacturing firm and reduced shareholder wealth. In addition to cutting back on dividend distributions (at least until the company stabilized), the group also recommended implementing the Transportation manager’s proposal of reducing the rawmaterial-inventory requirement to 30 days to improve the company’s cash position and meet the demands of the heavy production and selling season ahead. I. Point of View: Management II. Case Context Kota Fibres, Ltd. was founded in 1962 to produce nylon fiber at its only plant in Kota, India. The company supplies synthetic fiber yarns to a steady ranchise of small local textile weavers that produce colorful cloths for making saris. The synthetic-textile market in India within the time frame of the case was driven by competitions in price, service and credit. For Kota Fibres, a large end-customer base of nearly 500 million Indian women and a relatively inelastic demand for its synthetic fiber yarns made the company a profitable enterprise. In fact, unit growth in the industry was exp ected to be 15 percent per year. However, Kota Fibres’ profit margins began to thin due to increasing price competition in the market. Management, in turn, adopted a seasonal production cycle that regrettably generated seasonal training and set-up costs and labor unrest. Moreover, operating expenses were estimated to be 6 percent of sales in 2001, a figure higher compared to last year’s. Interestingly, this was due to the addition of a quality-control department, for which there had been no indications of a need for one, and the three young nephews of Mrs. Pundir, in whom she hoped to build an allegiance to the family business. She also proposed to pay dividends of Rs500,000 per quarter to only 11 individuals who held the entire equity of Kota Fibres, Ltd. Incidentally, these 11 individuals were members of her extended family. III. Problem Definition: Mrs. Pundir’s management of Kota Fibres’ cash is inefficient. Because the company is already anticipating the heavy selling season, the problem thus requires a solution that will generate cash inflows in the immediate future. IV. Framework for Analysis A. Gaining Familiarity B. Identifying the Problem C. Recognizing Sub-problems D. Identifying Goal/s E. Analyzing the Case F. Recommendation V. Analysis A. Gaining Familiarity Please refer to the Case Context above. B. Identifying the Problem Please refer to the Problem Definition in the previous page. C. Recognizing Sub-problems In 2001, Kota Fibres faced several sub-problems that reflected, if not confirmed, the inefficient management of the company’s cash holdings. Frequently overdrawn bank account Unpaid excise tax Delayed customer deliveries suspended collections of sales Impaired credit profile Large dividend distributions D. Identifying Goal/s 1. To determine how the proposals of Mrs. Pundir’s middle-managers may improve Kota Fibres’ cash position 2. To provide Kota Fibres with an improved financial plan to present to the bank that will qualify the company for an extension of credit, in order to meet the demands of the heavy selling season ahead E. Analyzing the Case Part 1: An evaluation of Kota Fibres’ profitability, efficiency, liquidity and leverage The following were attributed to the company’s position in the market and additions to operations: CGS and OPEX increased by nearly 50 percent in 2001 from the base year. Net profit was reduced by 60 percent in 2001. (Refer to Table 2, Figures 5, 7 to 10). Net and operating profit margins decreased from 1999 to 2000 by 3 percent and from 2000 to 2001 by 2 percent. (Refer to Table 1, Figure 6). Decreases in EBIT and net profit ? decrease of 10 percent in ROA and ROE in 2001 (Refer to Figures 4 to 6, 13) Notably, interest expenses grew about a 100 percent in the same year, which implied that the company planned to borrow more money in 2001. (Refer to Figures 11 and 12). The company’s liquidity position fell about 200 percent in 2001 because of a 400 percent increase in notes payable to the bank in the same year. (Refer to Figure 14). Kota Fibres’ cash holdings were only 5. 3 percent of total assets in 2000 and even fell in 2001. This percentage barely covered half of the company’s current liabilities and alerted the group to the possibility of bankruptcy. (Refer to Table 6, Figure 22). Kota Fibres’ working capital was only 24 percent and 14 percent of total assets in 2000 and 2001, respectively. (Refer to Figu re 17). The group expected a higher figure, especially for a manufacturing company, but learned that the company’s cash position might have been responsible for the drop in the figure. There was also a sharp fall in Kota Fibres’ equity-debt ratio due to a 200 percent increase in total debt in 2001. Refer to Figure 15). The company’s forecasted debt position was dismal thus far. Kota Fibres’ inventory, accounts receivable and accounts payable turnover ratios decreased in 2001 because inventory, A/R and A/P increased in the same year. Figures for days inventory and average collection and payment periods increased consequently, resulting in an operating cycle of 18 days in 2000 and 21 days in 2001. (Refer to Figure 19). However, when the averages of inventory, A/R and A/P for the year ending 2001 were used in determining the turnover ratios, new figures showed that the company was actually terribly inefficient. Seasonal fluctuations in inventory, A/R and A/P accounted for averages higher than the ending balances of the same in 2001. These, in turn, produced a figure of 72 days for cash conversion cycle. (Refer to Figure 20). In other words, the company doesn’t expect to realize cash from its acquisition of inventory within intervals of nearly three months in 2001. The following were the reasons why the bank didn’t extend any more credit to Kota Fibres: Poor cash holdings Increases in interest obligations and decreases in EBIT decreases in nterest coverage ability from 1999 to 2001 (Refer to Figure 21) Declining cash-debt coverage figures (Refer to Figure 22) Despite having an equity-based financial structure, ratios for leverage revealed that the extent of non-owner claims to Kota Fibres’ assets in 2001 nearly tripled from 2000. Likewise, assets were thrice more funded by creditors in 2001. (Refer to Figures 23 and 24). Unfortunately, the increases in Kota Fibresâ€⠄¢ borrowing activities in 2000 were neither supported by increases in cash inflows nor supportive of possible cash inflows. In fact, the company may need to borrow some money from the bank in order to maintain a cash balance of Rs750,000 in 2001. (Refer to Figures 25 and 26). Part 2: An evaluation of the proposals of Mrs. Pundir’s middle-managers. Assumptions made for each proposal are as follows. Extend current credit terms of 45 days to 80 days for Pondicherry Textiles. Rs6,000,000 Sales: 1. Because Pondicherry Textiles was expected to purchase from Kota Fibres across the year, the group allocated Rs6M throughout 2001 according to the purchase pattern of the latter’s customers. 2. Collections from the sale to Pondicherry Textiles were reflected after 80 days of forecasted sales made for every month in 2001. (Refer to Tables 8 and 9) Reduce raw-material inventory requirement from 60 days to 30 1. Raw materials per month of 2001 = 55 percent of sales expected to be made two months later. 2. Raw materials turnover ratio = CGS/Raw materials 3. Days raw materials = 360/RM turnover 4. Because the same amount of material will be purchased by Kota days. Purchases: (same) Fibres, only the requirement for days raw materials was changed- 60 to 30 days (Refer to Tables 10 and 11) Accept Japanese firm’s proposal to supply expected to be made two months later on a just-in-time basis, which may reduce pellets inventory to 2 (or 3) days outstanding. 1. Pellet-RM per month of 2001 = 35 percent of 55 percent of sales 2. Pellet-RM turnover ratio = CGS/Pellet-RM polyester pellets , 3. Days pellet-RM = 360/Pellet-RM turnover 4. Because the same amount of pellets will be purchased by Kota Fibres, only the requirement for days pellet-RM was changed- 60 to 2 days. (Refer to Tables 12 and 13) Implement a scheme of level production. annual 1. In economics, the cost of producing a good is the cost of its factor input. The group decided to simplify the implementation of this particular proposal by equating the cost of production with the cost of labor. 2. Figures for net sales were used in the computation of GPM, which was adjusted to reflect labor savings in OPEX. (Refer to Tables 14 and 15) The effects of each proposal were made to reflect in the Schedule of Cash Receipts and Disbursements, supported by adjustments made to the Forecast T-Accounts. Each proposal was implemented, that is, â€Å"plugged into† the existing schedule and t-accounts, independently. Tables 8 to 15 show that the second proposal produced the least amount of debt outstanding, Rs2,704,866, at the end of 2001. By reducing the length of time that inventory was held in the warehouses, decreases in storage and holding costs significantly reduced operating expenses. Mrs. Pundir’s original forecast for Debt Outstanding was Rs3,463,701. [Note: Though the third proposal reduced the original forecast for debt outstanding to Rs3,017,128, the effects of implementing the same show a slightly higher figure for Purchases because such raw materials were purchased more often. Refer to Tables 5 and 12). ] The same proposal also produced the greatest percentage for cash as a percentage of total assets- nearly 5 percent. Though the first proposal increased A/R the most, cash collections were far in between due to the extension of credit terms. Consequently, this proposal produced the largest amount of debt outstanding at the end of 2001. (Refer to Table 5). Net cash inflows of Rs46,814 under the first proposal and Rs287,850 under the second proposal were used to pay the bank in December. Refer to Tables 8 and 10). The last two proposals produced not only the second and third largest amounts of debt outstanding, respectively, but also the only net cash outflows, the amounts of which were subsequently borrowed from the bank. (Refer to Tables 5, 12 and 14). Table 1 shows a ratio analysis of the effects of the implementation of each proposal. F. Recommendation The group recommends the implementation of the Transportation manager’s proposal to reduce the raw-material-inventory requirement from 60 days to 30 days. VI. Decision Tables 10 and 11 show the effects of the implementation of the second proposal on the Schedule of Cash Receipts and Disbursements and on the Forecast T-Accounts. The same figures show that Kota Fibres is still indebted to the bank in the amount of Rs2,704,866. In addition to the implementation of the second proposal, the group recommends the proposed yearly dividend distributions (Rs2,000,000) to be reinvested in the company and be used to pay the bank. The group also recommends the issuance of equity securities to raise funds to pay the balance. Furthermore, the group advises management to consider equity financing in raising funds for heavy selling seasons in the future. For now though the group believes that the recommendations given thus far will be sufficient to satisfy the immediate production and selling needs of Kota Fibres. VII. Basic Justifications of Decision The large dividend distributions that Mrs. Pundir made to the company’s 11 shareholders (also members of her extended family) were primarily accountable for the company’s poor cash position. The Pundir family believed that excess funds retained in the business were at greater risk than the

NCAA ACT Scores What You Need to Qualify

NCAA ACT Scores What You Need to Qualify SAT / ACT Prep Online Guides and Tips If you’re a student athlete who wants to play in NCAA Division I or Division II sports in college, then this article is for you! We’ll review NCAA’s eligibility criteria for your GPA and ACT score,which NCAA compares using a sliding scale. More importantly, we’ll give you the tips and strategies you need to achieve the NCAA ACT scores required for passing the clearinghouse. First, let’s quickly review how your grade point average, or GPA, is determined. How NCAA Calculates and Considers Your GPA NCAA considers the GPA of your high schoolcore courses. These include the following: Four years of English Three years of math at the Algebra I level or higher Two years of natural or physical science (one lab if offered at any high school attended) One year of additional English, math, or natural/physical science One year of social science Four years of foreign language, philosophy, or comparative religion Check out your own high school to see which of its courses qualify as NCAA core courses. This means thatyour core course GPA might be a little different than the one reported on your transcript, which is an average of all the courses you've taken in high school. GPAs are calculated on a 4.0 scale. The chart below shows how letter and percentage grades translate to this 4.0 scale: Letter Grade Grade Point Percentage A 4.0 94-100% A- 3.7 90-93% B+ 3.3 87-89% B 3.0 83-86% B- 2.7 80-82% C+ 2.3 77-79% C 2.0 73-76% C- 1.7 70-72% D+ 1.3 67-69% D 1.0 60-66% F 0.0 0-59% Since NCAA compares your GPA and ACT score, let’s review how the ACT is scored. With this understanding, you’ll be able to determine exactly what ACT scores you need and how to achieve them. Review: How Your ACT Score Is Calculated For a detailed explanation of how the ACT is scored, check out our article here. The gist is that the ACT has four sections: English, Math, Reading, and Science.Each of these sections is scored on a scale from 1 to 36, and these four section scores are averaged together to give you a composite score, also out of 36. That said, your composite score doesn’t really matter for NCAA.Instead, NCAA adds your section scores together to get a sum score.So your sum score willbe at least 4 and at most 144 (36x4). Before you get a scaled score from 1 to 36, each section receives a raw score.Your raw score is simply the number of questions you answered correctly on each section. The chart below gives an example of how raw scores can convert into scaled scores. Why is this important? Once you know your target score,you can determine how many correct answers you'll need to get that score- and how many questions you can essentially ignore. Note that the ACT does not deduct any points for wrong answers, so you should still fill in answers to any questions you’ve skipped. You might get lucky and add a point or more to your raw score! An example of an official ACT score conversion chart (from raw to scaled). (Source: ACT.org) How NCAA Considers Your ACT Scores As you read above,NCAA adds your section scores from English, Math, Reading, and Science into a sum score.For example, if you got a scaled score of 20 on all four sections, your sum score would be 80 (20 + 20 + 20 + 20 = 80). If you take the ACT more than once, NCAA will take your best section scores from any dates.In other words, NCAA will mix and match your highest section scores to get your highest possible ACT sum score. Now, let’s move on to the really important part: how NCAA compares your GPA with your ACT score. NCAA Eligibility: The Sliding Scale For Division I players, NCAA uses a sliding scale that compares your core GPA and ACT scores. If you have a higher GPA, you can meet the eligibility requirements with lower scores. Conversely, if you have a lower GPA, you'll have to make up the difference with higher ACT scores. With a 2.8 GPA, for example, you'd need an ACT sum score of 57 in order to meet the NCAA ACT requirements. You could either aim to score the same on each section- say, around 15 out of 36- or a little higher on some sections and lower on others (depending on what your strengths are). By contrast, for Division II, up until 2018 you'll need a minimum core GPA of 2.0 and a minimum ACT sum score of 68. To reach this score, you could score around 17 (out of 36) on each section, or a little higher or lower in some. From August 2018 onward, however, Division II players will be on a sliding scale like Division I playersand will need at least a 2.2 core GPA. These charts show the sliding scale to qualify for Division I and Division II teams. You will need at least a 2.3 GPA to qualify fully for Division I and at least a 2.2 GPA to qualify fully for Division II. Students with GPAs between 2.0 and 2.3 may qualify for Academic Redshirt for Division I, meaning they'll get athletic aid and practice but will be unable to compete.Similarly, students with GPAs between 2.0 and 2.2 may qualify as Partial Qualifiers for Division II. Partial qualifying scores are in parentheses for Division I only. Division I Division II (beginning Aug. 1, 2018) Core Course GPA ACT Sum Core Course GPA ACT Sum 3.550 above 37 3.300 above 37 3.525 38 3.275 38 3.500 39 3.250 39 3.475 40 3.225 40 3.450 41 3.200 41 3.425 41 3.175 41 3.400 42 3.150 42 3.375 42 3.125 42 3.350 43 3.100 43 3.325 44 3.075 44 3.300 44 3.050 44 3.275 45 3.025 45 3.250 46 3.000 46 3.225 46 2.975 46 3.200 47 2.950 47 3.175 47 2.925 47 3.150 48 2.900 48 3.125 49 2.875 49 3.100 49 2.850 49 3.075 50 2.825 50 3.050 50 2.800 50 3.025 51 2.775 51 3.000 52 2.750 52 2.975 52 2.725 52 2.950 53 2.700 53 2.925 53 2.675 53 2.900 54 2.650 54 2.875 55 2.625 55 2.850 56 2.600 56 2.825 56 2.575 56 2.800 57 2.550 57 2.775 58 2.525 58 2.750 59 2.500 59 2.725 59 2.475 60 2.700 60 2.450 61 2.675 61 2.425 61 2.650 62 2.400 62 2.625 63 2.375 63 2.600 64 2.350 64 2.575 65 2.325 65 2.550 66 2.300 66 2.525 67 2.275 67 2.500 68 2.250 68 2.475 69 2.225 69 2.450 70 2.200 70 above 2.425 70 2.400 71 2.375 72 2.350 73 2.325 74 2.300 75 (2.275) 76 (2.250) 77 (2.225) 78 (2.200) 79 (2.175) 80 (2.150) 80 (2.125) 81 (2.100) 82 (2.075) 83 (2.050) 84 (2.025) 85 (2.000) 86 Once you know your GPA and what ACT score you need to qualify, how can you get these scores? Read on for our top tips and strategies. How to Hit Your Target ACT Scores for NCAA: 5 Tips Once you've figured out your target ACT scores(based on your GPA using the sliding scales above), what steps can you take to achieve them? Read on for our top five tips for ensuring you do well on the ACT and qualify for NCAA. #1: Play to Your Strengths Since NCAA adds together all your section scores, all sections of the ACT are equally important and require test prep. However, since there is no minimum score needed per section, you can achieve your target sum score with any combination of section scores. In short, you can play to your strengths. What subjects are you stronger in? Which subjects aren't your forte? If you love English but feel as though math messes with your head, you could, for example, aim for a higher score on the English and Reading sections than you do on the Math section. While you definitely need to prep for all sections, it's OK to define different target scores for English, Math, Reading, and Sciencedepending on your strengths and what you can realistically achieve with the time you have to prep. #2: Devise a Strategy Once you have your target scores defined, take a look at the sample raw score chart above. How many questions do you need to get right in order to hit your goal score? If you need an 18 in English, for example, this means you'll need to get 17-19 questions right (aim for at least 19). That's less than ⅓ of all the English questions! As you’re taking the ACT, don’t waste time on the really hard questions; seek out questions you can confidently answer. At the same time, don’t leave any questions blank. As I mentioned above, there's no penalty for wrong answers, so you might as well guess. If you skip any questions, leave a little time at the end of the section to fill in the rest on your bubble sheet. You might also be able to improve your scores by retaking the ACT. Start early to make sure you have enough test dates. #3: Get Training As with the rigorous hours you put in for your sport, you need to step up to some serious training for the ACT. Doing well on the ACT isn't just about showing up and being smart- it’s about how prepared you are. Studying will help you get better, just as practices allow you to improve as an athlete. This isn’t a metaphor- it’s how any skill is developed. Believing that you can grow and get better is a big part of clearing the way for growth to actually happen. As you've probably felt during exhausting practices and games, a huge part of performing is winning this mental battle. These values of dedication, effort, discipline, and internal motivation will help you on the ACT and carry you through your career as a student-athlete in college. Figure out your strengths, drill your weaknesses, and keep up your drive and hunger to achieve your goals. #4: Find Time Finding time for test prep is easier said than done, especially with your packed schedule of school, homework, practices, games, and a social life. Create a schedule and set aside specific time for ACT studying to ensure you prep enough. As you take official ACT practice tests, time yourself the way the real test will be timed. This will let you get used to the pacing of the questions in a short amount of time, and help you understand your own stamina and what you need to do to keep up your focus and energy levels. #5: Use the Right Materials You wouldn’t train for baseball with a Wiffle ball just as you shouldn’t train for the ACT with subpar materials. High-quality test-prep questions are a must for preparing you for the ACT and breaking down the skills and content you need to master within each section. These include official practice tests, prep books, and websites. For more tips on prepping for the ACT,check out our free ebook. In addition,ACT Questions of the Dayare an easy and convenient way to add some extra test prep. These can be accessed online or on your phone. By starting months ahead of the test, ACT QOTD will familiarize you with a variety of problems and help you figure out what types of questions, if any, need extra attention. Conclusion: GPA and ACT Score Requirements for NCAA By being aware of NCAA ACT and GPA requirements well ahead of your application deadlines, you will have enough time to train for the ACT, retake the test if needed, and ensure that you meet the NCAA eligibility criteria. As an athlete, you likely know that training and practice make all the difference. By applying those same skills of self-discipline and internal motivation to your ACT prep, you will be able to take your career as a student-athlete to the next level at the college of your choice! What’s Next? Ready to start prepping for the ACT? Check out these free ACT practice test PDFsand learn key strategies to make the most of your test prep. In addition, get tips on how to make your own ACT study schedule. Need help setting a target ACT score?Go through our step-by-step guide to figure out what ACT score you should aim foras well as how you can achieve it. Be strategic on the ACT, but make sure you’re going about it the right way. Check out the top mistakes students make when guessing on the ACT. Want to improve your ACT sum score by 16 points? Check out our best-in-class online ACT prep program. We guarantee your money back if you don't improve your ACT sum score by 16 points or more. Our program is entirely online, and it customizes your prep program to your strengths and weaknesses. We also have expert instructors who can grade every one of your practice ACT essays, giving feedback on how to improve your score. Check out our 5-day free trial: