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Guna Fibres Ltd Case Solution

Solution Id Length Case Author Case Publisher
1316 594 Words (5 Pages) Michael J. Schill, Robert F. Bruner, Thien T. Pham Darden School of Business : UV6600
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This paper is the case analysis of Guna Fibres that is facing the lack of cash flow to meet organisation’s everyday financial obligations and to manage the operational activities. The company relies on the credit line from All India Bank and Trust Company but due to increasing expenses, company stands low on liquidity.

Following questions are answered in this case study solution

  1. What is the actual situation of the company, why the company is short on cash and what are the consequences of that? What does mailks financial projections shows, how did you build this projections? What should kumar do?

Case Analysis for Guna Fibres Ltd

1. What is the actual situation of the company, why the company is short on cash and what are the consequences of that? What does mailks financial projections shows, how did you build this projections? What should kumar do?

ii. Current Situation Analysis

The company is short on cash due to heavy reliance on debt and disproportionate operational activities. Historically, Guna Fibre’s credit line always remained zero because it used to pay back the debts before time. However, in 2011, the company realised that they had a pending balance on their credit line and hence denied acceptance of any more credit until they paid the earlier one. This led to short term cash shortage within the organisation. The consequences of cash shortage are unsatisfied customers, less liquidity and less sales revenues for Guna Fibres (Schill, et al., 2013).

iii. Financial Prediction

To examine what techniques could be used to maintain financial stability and pay back the loans, Malik and Kumar projected financial statements for monthly operations of the organisation. These financial statements were made by observing cash inflows and outflows throughout the year and then classifying it according to various operations.

The financial projections show the following things:

  • The organisation will need to arrange more than $5000 debt during 2012. This has been calculated according to 15% sales growth in relation to assets and liabilities of the company (Schill, et al., 2013).

  • Guna Fibres will not be able to zero out its credit lines because there has been unnecessary inventory stacked up in the organisation. Due to this reason, the company runs short on cash and levels of debt is increased.

  • The projections also indicate that Cost of Goods Sold in Guna Fibres is greater than their sales thus resulting in small profit margins (Schill, et al., 2013).

iv. Recommendations

Since the organisation has low profit margin, it needs to attract additional financing to keep the operational activities going at a stable pace.

Moreover, the sales are unevenly distributed throughout the year due to which cash shortage is faced during the three months with the huge pressure of sales.

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