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Kota Fibres

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KOTA FIBRES
What does the forecast show? Do you like how it is constructed?

The company has projected gross sales to reach 90.9 million rupees in 2001, an forecasted growth of approximately 15 million rupees over the previous year. In spite of the large increase, there are several additional financial factors which need to be taken into account in evaluating the forecast. For instance, Total asset turnover gives an understanding of the efficiency with which the firm uses its assets to generate sales. Total Asset Turnover in this particular case is suboptimal at best. In 2000, Kota had a total asset turnover ratio of .18, with a ratio value of .17 in projected for 2001. This shows major inefficiencies in the management of assets by the company, as it only turns its assets over .18 times a year. They may want to increase this ratio number by increasing their amount of total assets.

Kota Fibres as a company (as far as its financial statements are concerned) is very capable of satisfying its short-term obligations as they come due. With a current ratio of 3.24 and quick ratio of 2.38, Kota is operating within acceptable levels (acceptable values are 2.0 and 1.0, respectively). However, the forecasted ratio for 2001 shows that this ratio drops to 1.5:1, which is below the acceptable level of 2.0 set for a manufacturing firm. This means they will have some problem paying their bills on time with the projected production and sales levels. Kota Fibres, in 2000, had a quick ratio of 2.38:1; which is well above the acceptable level of 1.0. However, the calculations show a decline from 2000 and 2001 of 1; this drives home the point that Kota will have issues paying on their short-term obligations may be a problem moving forward.

The statements showed an Inventory Turnover of 51.62 for 2000 and 34.72 projected for 2001. This increase is a step in the wrong direction.

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