GUNA FIBRES, Group 20:

Madhu Jethani MS19A072

LTD Priyanka Azad MS19A070

COMPANY BACKGROUND
• Guna Fibres, Ltd. Was founded in 1972 to produce nylon fiber.

• 1 plant in Guna, India 500 kilometers south of New Delhi.

• They used new technology and domestic raw materials.

• Has steady franchise among dozens of small and local textile weavers.

• Supplied synthetic fiber yarns used to weave colorful cloths for making saris, the
traditional women’s dress of India

• Ms. Surabhi Kumar-managing director and principal owner.

• Mr. Malik-bookkeeper.
SYNTHETIC-TEXTILE MARKET

Demand for Unit demand was India’s many Seasonal Unit growth was
synthetic textiles affected by festivals had demand for nylon expected to be
was stable with population and significant affect peaked in mid- 15% per year.
predictable national income. on demand. summer.
seasonal
fluctuations.
COMPETITION

• Competition
among
suppliers
• Mills • Yarn
which
produced to manufacturer • Yarn
included • They kept • Suppliers to
order and s competed manufacturer
many small only the yarn
built for the s essentially
textile- maintenance business of manufacturer banked the
inventories
weaving stocks at s provided
shortly in mills through downstream
mills, was other times of little to no
advance of responsive activities of
affected by the year. trade credit.
peak selling service and the industry.
price, service
season. credit.
and credit
mills could
grant.
PRODUCTION &
DISTRIBUTION SYSTEM
• Kumar had a policy of against overproduction and
overstocking due to thin profit margins.

• This required them to carry inventories through slack

selling season.

• She adopted seasonal production plan-plant would

operate at full capacity for two months and modest levels
for rest of year.

• Policy caused annual hirings and layoffs.

REASONS FOR CASH
CRUNCH IN THE COMPANY

Huge gap
between
Huge High current
accounts High dividend Seasonal
inventory (60 asset to total
receivables payouts Revenue
days) asset ratio
and payables
cycle
ISSUES CONCERNING
KUMAR KUMAR
Unhappy and angry customers and trick drivers

Excise tax to be paid to inspector

Bank account overdrawn, third time in weeks

All-India Bank and Trust Company’s loan manager refusing to

provide further credit

High dependence on bank for line of monthly cash

requirements
OPERATING CASH FLOW POSITION
OF THE COMPANY
• Cash deficit for 6 months
• Line of credit availed for 7 months in the year
• Not in a position to maintain zero notes payable balance in any month
ANALYSIS OF NEW INVENTORY POLICY ON FINANCIAL
STATEMENTS AND OPERATING CASH FLOW

Significant decrease in note

payables every month
Current Ratio and Quick ratio
improve both monthly as
well as yearly
Decrease in Direct
manufacturing and labor cost
Profits increase by Rs.5
million approx. to
Rs.17.81million

Decrease in conversion cycle

ANALYSIS OF LEVEL PURCHASES POLICY ON
FINANCIAL STATEMENTS AND OPERATING CASH
FLOW
High increase in notes
payable

Current ratio and quick

ratio both declining

Seasonal hiring's
eliminated

Reduced forecasted cost of

direct labor

Higher increase in net profits

but at huge inventory cost
COMPARISON OF CASH
CONVERSION CYCLE UNDER
THREE GIVEN SCENARIOS

Significant reduction
cash conversion cycle
ratio when new
inventory policy is
adopted
OTHER POSSIBLE RECOMMENDATIONS
AND THEIR IMPACT ON CASH FLOW

Payment of Rs 2.5 million

as Dividend quarterly
Loan repayment ratio-
93.05%

No dividend paid
Loan repayment ratio-
96%

20 million paid at the end

of the year Loan repayment
ratio- 90.56%
CONCLUSION & RECOMMENDATION
New Inventory policy
No alternative can can be adopted as it
clear the loan down to provides maximum
0 in Des 2012 number of
advantages
Change in Dividend
Change credit collection Policy:
period to reduce gap Of all the possible
between days payable scenario, Providing no
outstanding and dividends in 2012
receivables outstanding 96%