Guna Fibres Essay

7716 Words Nov 25th, 2015 31 Pages
Table of Contents

Executive Summary
Introduction
Recommendations
Analysis
1. Analysis of Guna’s Current Situation
2. Evaluation of the transportation manager’s proposal
3. Accept the transportation manager’s proposal and halt dividend payouts until bank loan is repaid
4. Results of our recommendation
5. Evaluation of the operations manager’s proposal
6. Cautions to be taken in inventory management
Implementation
Conclusion
Exhibits

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Executive Summary
1. Guna Fibres, Ltd.’s Current Financial Situation
Guna Fibres, Ltd. (Guna) is heavily dependent on its bank loan to fund its short-term operations.
The terms of All-India Bank & Trust Company’s (All-India) bank loan specify that Guna must reduce its
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Because the extension of the bank loan is crucial to Guna’s survival, Guna must make changes to its financial plan immediately to improve its debt position such that the bank will continue to extend its credit to fund Guna’s operations. The purpose of this report is to advise Ms. Surabhi Kumar, Guna’s managing director and principal owner, on a number of steps she could take to improve Guna’s debt position and repay its bank loan by the end of 2012 accordingly.
The report is divided into 4 main parts:





Part I – Recommendations
Part II – Analysis
Part III - Implementation
Part IV - Conclusion

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Part I - Recommendations
1) Accept the Transportation Manager’s proposal to reduce raw-material inventory requirement from 60 days to 30 days.
2) Reject the Operations Manager’s proposal that purchases under level production be altered to
INR50 million per month.
3) Halt dividend payouts until the bank loan is repaid.
Part II – Analysis
1. Analysis of Guna’s Current Situation. Guna suffered a significant decrease in net profits in
2011, with a decrease by 10.3 million or 28.8% compared to 2010. (Exhibit 1) The decrease in net profits can be attributed to two main reasons: 1) increase in operating expenses and 2) increase in interest expenses.
Operating expenses increased by 13.3 million to 48.3 million in 2011 (Exhibit 1), and its ratio to gross sales increased from 5.4% to 6.4%. (Exhibit 2) There are two main reasons for the increase
in

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