Kota Fibers in India - Case Study

Kota Fibers was found in 1962 in India, the company produces nylon Fiber to local textile weavers to make the traditional women's dress in India. The company uses local raw material to fulfill the demand for India women's clothes. Because the demand is affected by the festivals and celebrations in India, so company makes their forecast based on this fact. So, Metah developed a monthly forecast of financial statement using the current operating assumptions

In 2011, the problems occurred in the firm's liquidity that affected Kota overdraws on their bank account. The firm does not have enough cash in their bank accounts to pay off the tax to move their product. So, the company may have to bear higher interest rate in upcoming year on the loans because of the inflation. The cash cycle represents how quickly the firm is able to pay back its suppliers. The cash cycle of company for 2000 and 2001 are 17 days and 21 days. In Exhibit 4, the firm's firm goal is to keep the credit terms to 45 days, but Pondicherry textiles want to extend the credit term to 80 days. It helps the company to meet it quotas but it may affect to the cash cycle for the firm. The firm uses debt to finance its growth, the firm could generate more profit than using it own money. The operations manager recommend to raising gross profit margins by 2%-3%, cutting seasonal hiring and layoffs, and reducing manufacturing risk.

People who placed portfolios in the First Investment, Inc, started worried about the decline in the return on owners' equity in the 1994 basic industries annual report. An analysis has to look at the company's return on equity over last 10 years. His task focuses on the 1993-1994 period and compares the quality of the return on equity of 1985 and 1994

Analysis:

a) We can exam the changes in ROE over the years by compare the different ratios with the return on equity. We start with