Kota Fibres OUTLOOK 2001 Andy Wibisono Marchell Wu Steven Hu Andre Cipta Christianto

O v e r v i e w Suppliers KOTA FIBRES LTD. Merchants End User Mills Polyester Pellets and other Raw Materials Spools of Yarn Textiles Sari’s and Textiles

KOTA FIBRES Ltd KOTA FIBRES Ltd Growing Yarn Industry with expected annual demand increase of 15% Established Yarn manufacturer since 1962 Annual sales growth rate 18% Inventory policy 60 days Credit trem to Distributor 45 days 90.9 million Rupees in projected sales

The Major Concern KOTA faces ONE major concern Cash flow $$$

Cash Flow Timeline A/P turnover = Inventory turnover = A/R period = 44 Time Inventory sold Inventory Purchased Cash Received Cash paid for Inventory Operating cycle = 85 Cash cycle = 67

Cashflow is out of sync!

The following issues surfaced in 2001 with Kota Fibres, Ltd.: 1. Payment of excise tax to move their product 2. Line of credit not being repaid according to the term. 3. Request for new loans from All-India Bank & Trust Company. 4. Due to inflation, interest rate may be higher in upcoming year on the loans

Forecast Assumption 2001 Exhibit 11 KOTA FIBRES, LTD. Assumptions Debt Balance Summary Jan '011,146,268 June '0132,950,665 Dec '013,463,701 Ratio of: Income Tax/Profit Before Tax30% Excise Tax/Sales15% This Month Collections of Last Month's Sales40% This Month Collections of Month-before-Last Sales60% Purchases/ Sales two months later55% Wages/Purchases34% Annual Operating Expenses/Annual Sales6.00% Capital Expenditures (every third month)350,000 Interest Rate on Borrowings (and deposits)14.5% Minimum Cash Balance750,000 Depreciation/Gross PP&E (per year)10% (per month)0.83% Dividends Paid (every third month)500,000

Exhibit 3 KOTA FIBRES, LTD. Historical Balance Sheets (in Rupees) (Actual)(Forecast) Cash762,323750,000 Accounts Receivable2,672,7293,715,152 Inventories1,249,1852,225,373 Total Current Assets4,684,2376,690,525 Gross PP&E10,095,64611,495,646 Accumulated Depreciation1,484,2782,558,009 Net PP&E8,611,3688,937,637 Total Assets13,295,60415,628,161 Accounts Payable759,5351,157,298 Notes to Bank (Deposits at Bank)684,1023,463,701 Accrued Taxes0(180,654) Total Current Liabilities1,443,6374,440,345 Owners' Equity11,851,96711,187,816 Total Liabilities and Equity13,295,60415,628,161

Memos From Management Field Sales Manager, the extended credit term of 80 days net requested by Ponticherry Textiles Transportation Manager, proposed raw inventory requirement from 60 days to 30 days. Purchasing Agent, new supplier willing to provide “just in time” inventory for 35% of material purchase Operation Manager, estimate production efficiency will gain several advantages: –GPM would rise 2 – 3 %, refelcting labor saving and production efficiencies

Financial Analysis – Liquidity Pada Th 2000, Current ratio sebesar 3.2, berarti kemampuan perushaan utk membayar kewajiban jangka pendek sudah mencukupi. Akan tetapi forecast current ratio Th 2001 turun menjadi 1.5, yang mana dibawah dari batas ideal (2.0) Ini menandakan mereka akan menghadapi kesulitah membayar kewajiban dan tagihan jangka pendek tepat waktu.

Quick Ratio Quick ratio mengambarkan seberapa cepat perusahaan dapat mengkonversi aset menjadi kas. Inventory tidak termasuk dalam perhitungan quick ratio.Kota Fibres pd th 2000 memiliki ratio sebesar 2.38; dimana diatas batas ideal (1.0). Akan tetapi Forecast menunjukkan penurunan pd th 2001 menjadi Sekali lagi ini menunjukkan perushaan akan mengalami masalah dalam melunasi kewajiban jangka pendek.

Debt Ratio Jika dilihat dari Debt ratio sebenarnya tidak ada masalah dengan kondisi financial leverage perusahaan. Dimana pd th 2000, Kota Fibres memiliki Debt ratio sebesar 11%. Dan berdasarkan forecast pd th 2001 akan menjadi sebesar 28%. Yang berati, perusahaan ini akan lebih banyak membiayai financing nya dengan hutang. Bagi Kota Fibres, jika mereka menggunakan hutang untuk membiayai proyek mereka perusahaan ini akan mungkin dapat mengenerate earning daripada pembiayaan dari luar.

Conclusions Dengan kesuksesan yang diraih perusahaan ini selama 40th, Ms. Pundir lebih menitikberatkan kepentingan Shareholders daripada Liquiditas dan Forecast ke depan perusahaan ini. Secara keseluruhan, Kota Fibres sudah cukup bagus dalam menangani liquiditas saat ini, walaupun kedepannya menunjukan akan ada penurunan yang cukup signifikan. Ini bisa berarti mereka akan menghadapi permasalahan dalam membayar tagihan mereka tepat waktu dan juga mereka akan menghadapi kesulitan dalam Cash Convertion Cycle.

Our Recomendation For The Solution + Reject the offer for credit extention 80 days + 30 day Inventory Policy + Partial JIT + Level Production Efficiency + 0 Dividends for the year!

Further Recommendations... Propose 2%-5% discount-NET30, to the customers (Pondicherry Textile) Offer 3-5 term year (seasonal) contracts to employees