Analysis and interpretation: We see the Past track record and along with it the three

possible forecasts.
Past Track Record -

2010.00 2011.00 2010.00 2011.00

cogs/inv cogs/payb
14.96 15.61 73.79 65.52
inv days 24.40 23.38 4.95 5.57
sales/recv
26.98 28.41
recv days 13.53 12.85
op cycl 37.92 36.23
ccc 32.98 30.70
purchase2011
543.36

2010 2011
NC NWC 48.23 53.88
WCR/REV% 7.48% 7.10%

GPM 16.00% 14.01%

OPM 9.38% 6.44%
NPM 5.57% 3.37%
DEBT/EQ 0.00 0.06
ROE 26.78% 18.33% 2011
LIQUIDITY purchase/payable 66.10
RATIO 1.65 0.50 days payable 5.52
Now Case 1: Normal Forecast Baseline 2012 as given to us.

Nov-11 Dec-11 Jan-12 Feb-12 Mar-12 Apr-12 May-12 Jun-12 Jul-12 Aug-12 Sep-12 Oct-12 Nov-12 Dec-12 Dec-12
Gross Sales 27.2 22.1 26.2 28.9 44.5 88.0 138.9 175.9 163.2 85.8 50.3 44.5 35.3 27.7 909.0
Excise Taxes (1) 3.9 4.3 6.7 13.2 20.8 26.4 24.5 12.9 7.5 6.7 5.3 4.2 136.3
Net Sales 22.2 24.6 37.8 74.8 118.0 149.5 138.7 72.9 42.8 37.8 30.0 23.5 772.6
Cost of Goods Sold (2) 19.3 21.3 32.8 64.9 102.3 129.6 120.2 63.2 37.1 32.8 26.0 20.4 669.9
Gross Profit 3.0 3.3 5.0 9.9 15.7 19.9 18.4 9.7 5.7 5.0 4.0 3.1 102.7
Operating Expenses (3) 4.5 4.5 4.5 4.5 4.5 4.5 4.5 4.5 4.5 4.5 4.5 4.5 54.5
Depreciation (4) 0.8 0.8 0.9 0.9 0.9 0.9 0.9 0.9 0.9 0.9 0.9 1.0 10.7
Interest Expense (5) 0.1 0.2 0.6 1.4 2.6 3.7 4.2 3.4 2.0 1.0 0.6 0.4 20.3
Profit Before Taxes -2.5 -2.3 -1.0 3.1 7.7 10.7 8.8 0.9 -1.8 -1.5 -2.1 -2.8 17.2
Income Taxes -0.8 -0.7 -0.3 0.9 2.3 3.2 2.6 0.3 -0.5 -0.4 -0.6 -0.8 5.2
Net Profit -1.8 -1.6 -0.7 2.2 5.4 7.5 6.2 0.6 -1.2 -1.0 -1.5 -2.0 12.0
Dividend 5.0 5.0 5.0 5.0

Dec-11 Jan-12 Feb-12 Mar-12 Apr-12 May-12 Jun-12 Jul-12 Aug-12 Sep-12 Oct-12 Nov-12 Dec-12
Cash 7.6 7.5 7.5 7.5 7.5 7.5 7.5 7.5 7.5 7.5 7.5 7.5 7.5
Accounts Receivable (6) 26.7 27.7 32.9 50.1 103.0 179.9 247.5 256.9 171.9 90.0 62.9 50.3 37.1
Inventory 34.5 45.1 80.5 140.6 198.4 218.7 166.7 90.2 60.9 51.5 40.6 38.4 44.3
Total Current Assets 68.8 80.3 120.9 198.2 308.9 406.1 421.7 354.6 240.3 149.0 111.0 96.2 88.9
Gross PPE (7) 100.9 100.9 100.9 104.4 104.4 104.4 107.9 107.9 107.9 111.4 111.4 111.4 114.9
Accumulated Depreciation 14.8 15.6 16.5 17.4 18.2 19.1 20.0 20.9 21.8 22.7 23.6 24.6 25.5
Net PPE 86.1 85.3 84.4 87.0 86.2 85.3 87.9 87.0 86.1 88.7 87.8 86.8 89.4
Total Assets 154.9 165.6 205.3 285.2 395.0 491.4 509.6 441.6 326.4 237.7 198.7 183.0 178.3

Accounts Payable (8) 8.2 12.2 24.2 38.2 48.4 44.9 23.6 13.8 12.2 9.7 7.6 9.4 9.9
Note Payable (9) 8.0 17.1 47.2 119.1 215.7 307.9 345.4 278.4 163.9 86.9 51.5 36.1 38.6
Accrued Taxes (10) -0.9 -1.7 -2.4 -2.6 -1.7 0.6 0.0 2.6 2.9 0.0 -0.4 -1.1 -1.9
Total Current Liabilities 15.3 27.7 69.1 154.6 262.3 353.3 369.0 294.9 179.0 96.6 58.6 44.4 46.6
Shareholders’ Equity (11) 139.6 137.9 136.2 130.6 132.7 138.1 140.6 146.8 147.4 141.1 140.1 138.6 131.6
Total Liabilities and Equity 154.9 165.6 205.3 285.2 395.0 491.4 509.6 441.6 326.4 237.7 198.7 183.0 178.3

Inventory Detail Nov-11 Dec-11 Jan-12 Feb-12 Mar-12 Apr-12 May-12 Jun-12 Jul-12 Aug-12 Sep-12 Oct-12 Nov-12 Dec-12 Jul-05
Purchases (12) 14.4 15.9 24.5 48.4 76.4 96.7 89.7 47.2 27.7 24.5 19.4 15.2 18.7 19.9 508.2
Direct Labor and Other Mftg Costs (13) 4.9 5.4 8.3 16.5 26.0 32.9 30.5 16.0 9.4 8.3 6.6 5.2 6.4 171.4
Cost of Goods Sold 19.3 21.3 32.8 64.9 102.3 129.6 120.2 63.2 37.1 32.8 26.0 20.4
Inventory (14) 34.5 45.1 80.5 140.6 198.4 218.7 166.7 90.2 60.9 51.5 40.6 38.4 44.3

2012.00

cogs/inv 6.84 purchase/pauable 24.00

inv days 53.38 days payable 15.21
sales/recv
8.33 CGS/ACC EXP -101.54
recv days 43.84 DAYS ACC EXP -3.59
op cycl 97.22
CCC 85.61

retention ratio -0.66 NPM 1.32%

debt to equity 1.03 wcr/rev %21.19%
liquidity ratio 0.05 OPM 4.12%
NC NWC 192.58
GPM 11.30%
ROE 8.68%
The Cash conversion Cycle and NC NWC is very high. Banks may not approve the proposal.
Case -2: Direct Labour / Purchases Last Month - 34% --29% Intervention Operations
Manager

Nov-11 Dec-11 Jan-12 Feb-12 Mar-12 Apr-12 May-12 Jun-12 Jul-12 Aug-12 Sep-12 Oct-12 Nov-12 Dec-12 Dec-12
Gross Sales 27.2 22.1 26.2 28.9 44.5 88.0 138.9 175.9 163.2 85.8 50.3 44.5 35.3 27.7 909.0
Excise Taxes (1) 3.9 4.3 6.7 13.2 20.8 26.4 24.5 12.9 7.5 6.7 5.3 4.2 136.3
Net Sales 22.2 24.6 37.8 74.8 118.0 149.5 138.7 72.9 42.8 37.8 30.0 23.5 772.6
Cost of Goods Sold (2) 18.6 20.5 31.6 62.5 98.5 124.8 115.8 60.8 35.7 31.6 25.1 19.6 644.9
Gross Profit 3.7 4.1 6.2 12.4 19.5 24.7 22.9 12.0 7.1 6.2 5.0 3.9 127.7
Operating Expenses (3) 4.5 4.5 4.5 4.5 4.5 4.5 4.5 4.5 4.5 4.5 4.5 4.5 54.5
Depreciation (4) 0.8 0.8 0.9 0.9 0.9 0.9 0.9 0.9 0.9 0.9 0.9 1.0 10.7
Interest Expense (5) 0.1 0.2 0.5 1.4 2.5 3.6 4.0 3.2 1.8 0.8 0.4 0.2 18.7
Profit Before Taxes -1.8 -1.5 0.3 5.6 11.6 15.7 13.5 3.4 -0.2 -0.1 -0.9 -1.8 43.7
Income Taxes -0.5 -0.5 0.1 1.7 3.5 4.7 4.0 1.0 -0.1 0.0 -0.3 -0.5 13.1
Net Profit -1.3 -1.1 0.2 3.9 8.1 11.0 9.4 2.4 -0.1 -0.1 -0.6 -1.3 30.6
Dividend 5.0 5.0 5.0 5.0

Dec-11 Jan-12 Feb-12 Mar-12 Apr-12 May-12 Jun-12 Jul-12 Aug-12 Sep-12 Oct-12 Nov-12 Dec-12
Cash 7.6 7.5 7.5 7.5 7.5 7.5 7.5 7.5 7.5 7.5 7.5 7.5 7.5
Accounts Receivable (6) 26.7 27.7 32.9 50.1 103.0 179.9 247.5 256.9 171.9 90.0 62.9 50.3 37.1
Inventory 34.5 45.0 80.0 138.9 195.3 214.6 163.0 88.6 60.2 51.0 40.3 38.4 44.1
Total Current Assets 68.8 80.2 120.4 196.5 305.8 402.0 417.9 353.0 239.6 148.5 110.7 96.1 88.7
Gross PPE (7) 100.9 100.9 100.9 104.4 104.4 104.4 107.9 107.9 107.9 111.4 111.4 111.4 114.9
Accumulated Depreciation 14.8 15.6 16.5 17.4 18.2 19.1 20.0 20.9 21.8 22.7 23.6 24.6 25.5
Net PPE 86.1 85.3 84.4 87.0 86.2 85.3 87.9 87.0 86.1 88.7 87.8 86.8 89.4
Total Assets 154.9 165.5 204.8 283.5 391.9 487.3 505.8 440.0 325.7 237.2 198.5 183.0 178.0

Accounts Payable (8) 8.2 12.2 24.2 38.2 48.4 44.9 23.6 13.8 12.2 9.7 7.6 9.4 9.9
Note Payable (9) 8.0 16.3 45.2 114.6 207.3 294.6 331.7 262.2 146.1 70.3 33.7 17.4 18.7
Accrued Taxes (10) -0.9 -1.4 -1.9 -1.8 -0.1 3.3 0.0 4.0 5.1 0.0 0.0 -0.3 -0.8
Total Current Liabilities 15.3 27.1 67.5 151.0 255.6 342.8 355.3 280.1 163.4 80.0 41.3 26.4 27.8
Shareholders’ Equity (11) 139.6 138.4 137.3 132.5 136.4 144.5 150.5 159.9 162.3 157.2 157.2 156.5 150.2
Total Liabilities and Equity 154.9 165.5 204.8 283.5 391.9 487.3 505.8 440.0 325.7 237.2 198.5 183.0 178.0

Inventory Detail Nov-11 Dec-11 Jan-12 Feb-12 Mar-12 Apr-12 May-12 Jun-12 Jul-12 Aug-12 Sep-12 Oct-12 Nov-12 Dec-12 Jul-05
Purchases (12) 14.4 15.9 24.5 48.4 76.4 96.7 89.7 47.2 27.7 24.5 19.4 15.2 18.7 19.9 508.2
Direct Labor and Other Mftg Costs (13) 4.2 4.6 7.1 14.0 22.1 28.1 26.0 13.7 8.0 7.1 5.6 4.4 5.4 146.2
Cost of Goods Sold 18.6 20.5 31.6 62.5 98.5 124.8 115.8 60.8 35.7 31.6 25.1 19.6
Inventory (14) 34.5 45.0 80.0 138.9 195.3 214.6 163.0 88.6 60.2 51.0 40.3 38.4 44.1

2012.00

cogs/inv 6.68 purchase/pauable 24.00

inv days 54.67 days payable 15.21
sales/recv
8.33 CGS/ACC EXP 127.03
recv days 43.84 DAYS ACC EXP 2.87
op cycl 98.51
CCC 80.43

retention ratio 0.35 NPM 3.37%

debt to equity 0.87 wcr/rev %19.75%
liquidity ratio 0.05 OPM 6.87%
NC NWC 179.53
GPM 14.05%
ROE 20.61%
Case 3: Inventory 60 days-30 days Intervention Transport Manager
55% × GSales (t + 2) --------- 55% × GSales (t + 1)
Full year
Nov-11 Dec-11 Jan-12 Feb-12 Mar-12 Apr-12 May-12 Jun-12 Jul-12 Aug-12 Sep-12 Oct-12 Nov-12 Dec-12 Dec-12
Gross Sales 27.2 22.1 26.2 28.9 44.5 88.0 138.9 175.9 163.2 85.8 50.3 44.5 35.3 27.7 909.0
Excise Taxes (1) 3.9 4.3 6.7 13.2 20.8 26.4 24.5 12.9 7.5 6.7 5.3 4.2 136.3
Net Sales 22.2 24.6 37.8 74.8 118.0 149.5 138.7 72.9 42.8 37.8 30.0 23.5 772.6
Cost of Goods Sold (2) 19.3 21.3 32.8 64.9 102.3 129.6 120.2 63.2 37.1 32.8 26.0 20.4 669.9
Gross Profit 3.0 3.3 5.0 9.9 15.7 19.9 18.4 9.7 5.7 5.0 4.0 3.1 102.7
Operating Expenses (3) 4.5 4.5 4.5 4.5 4.5 4.5 4.5 4.5 4.5 4.5 4.5 4.5 54.5
Depreciation (4) 0.8 0.8 0.9 0.9 0.9 0.9 0.9 0.9 0.9 0.9 0.9 1.0 10.7
Interest Expense (5) 0.1 0.1 0.3 0.7 1.5 2.4 3.2 2.9 1.8 0.9 0.5 0.4 14.9
Profit Before Taxes -2.5 -2.3 -0.7 3.8 8.8 12.0 9.8 1.3 -1.5 -1.3 -2.0 -2.7 22.6
Income Taxes -0.8 -0.7 -0.2 1.1 2.6 3.6 2.9 0.4 -0.5 -0.4 -0.6 -0.8 6.8
Net Profit -1.8 -1.6 -0.5 2.7 6.2 8.4 6.9 0.9 -1.1 -0.9 -1.4 -1.9 15.8
Dividend 5.0 5.0 5.0 5.0

Dec-11 Jan-12 Feb-12 Mar-12 Apr-12 May-12 Jun-12 Jul-12 Aug-12 Sep-12 Oct-12 Nov-12 Dec-12
Cash 7.6 7.5 7.5 7.5 7.5 7.5 7.5 7.5 7.5 7.5 7.5 7.5 7.5
Accounts Receivable (6) 26.7 27.7 32.9 50.1 103.0 179.9 247.5 256.9 171.9 90.0 62.9 50.3 37.1 1,310.2
Inventory 34.5 36.0 44.6 68.5 96.5 116.8 109.8 67.3 47.8 44.6 39.5 35.3 38.8 745.6
Total Current Assets 68.8 71.2 84.9 126.1 207.0 304.3 364.8 331.7 227.2 142.1 110.0 93.1 83.4
Gross PPE (7) 100.9 100.9 100.9 104.4 104.4 104.4 107.9 107.9 107.9 111.4 111.4 111.4 114.9
Accumulated Depreciation 14.8 15.6 16.5 17.4 18.2 19.1 20.0 20.9 21.8 22.7 23.6 24.6 25.5
Net PPE 86.1 85.3 84.4 87.0 86.2 85.3 87.9 87.0 86.1 88.7 87.8 86.8 89.4
Total Assets 154.9 156.5 169.4 213.2 293.1 389.6 452.7 418.7 313.3 230.8 197.7 179.9 172.8

Accounts Payable (8) 8.2 8.0 12.2 24.2 38.2 48.4 44.9 23.6 13.8 12.2 9.7 7.6 9.4 252.1
Note Payable (9) 8.0 12.3 23.2 60.7 122.9 200.4 264.8 242.3 145.3 73.8 44.6 31.0 29.9
Accrued Taxes (10) -0.9 -1.7 -2.3 -2.5 -1.4 1.2 0.0 2.9 3.3 0.0 -0.4 -1.0 -1.8
Total Current Liabilities 15.3 18.6 33.1 82.4 159.7 250.0 309.7 268.9 162.5 86.1 53.9 37.6 37.4
Shareholders’ Equity (11) 139.6 137.9 136.3 130.8 133.5 139.6 143.0 149.9 150.8 144.7 143.8 142.4 135.4
Total Liabilities and Equity 154.9 156.5 169.4 213.2 293.1 389.6 452.7 418.7 313.3 230.8 197.7 179.9 172.8

Inventory Detail Nov-11 Dec-11 Jan-12 Feb-12 Mar-12 Apr-12 May-12 Jun-12 Jul-12 Aug-12 Sep-12 Oct-12 Nov-12 Dec-12 Jul-05
Purchases (12) 12.2 14.4 15.9 24.5 48.4 76.4 96.7 89.7 47.2 27.7 24.5 19.4 15.2 18.7 504.3
Direct Labor and Other Mftg Costs (13) 4.1 4.9 5.4 8.3 16.5 26.0 32.9 30.5 16.0 9.4 8.3 6.6 5.2 170.0
Cost of Goods Sold 19.3 21.3 32.8 64.9 102.3 129.6 120.2 63.2 37.1 32.8 26.0 20.4
Inventory (14) 34.5 36.0 44.6 68.5 96.5 116.8 109.8 67.3 47.8 44.6 39.5 35.3 38.8

2012.00

cogs/inv 10.78 purchase/pauable 24.00

inv days 33.85 days payable 15.21
sales/recv
8.33 CGS/ACC EXP -146.21
recv days 43.84 DAYS ACC EXP -2.50
op cycl 77.70
CCC 64.98
 retention
ratio -0.26 NPM 1.74%
debt to wcr/rev 17.04
equity 0.74 % %
liquidity
ratio 0.06 OPM 4.12%
NC NWC 154.89    
11.30
GPM %    
11.24
ROE %    

As we see that in the Case ii, the cash conversion Cycle is reducing to around 80 days and in
Case iii, the cash conversion Cycle is reducing further to around 65 days. But this is coming
at the expense of growth, so a trade-off has to be arranged. Also, the notes payable being the
balancing figure have also deceased which is a positive sign. To compute the ratios, Average
inventory, receivables and payables are taken.
Solution and Recommendation

Based on the above identification and analysis of the problem, we conclude that Guna Fibres should

1.Change its credit policy in order to improve on its working capital management by negotiation.

2.Mange its dividends policy and have abetter retention ratio so that it has funds to handle short
term operations problem.

3.Have a level production in order to decrease purchases cost, and other expenses and also manage
human resources conflicts.

4.Manage inventory resourcefully by purchasing for lessor days as compared to the number of days
it’s already procuring. This will help to manage tax problem better as it’s a regulation issue and
should be dealt with resourcefully.

5.The company should hold Cash balance and improve on Free cash flow yield that can be used for
the company to survive bottlenecks.