Business Management

Cases
Case 0
Shah Hussain
244948

Central problem in financial terms

In my opinion central problem in financial

term of company is that in peak seasons
company runs out of cash and need to
borrow loan from bank with higher interest
rate, thus affecting its short term financing
risk and liquidity. Because you cannot predict
the sales and profit of the company due to
very tough competition and ever changing
demand in the market. Therefore, there
might be a risk that company becomes
unable to pay the loan on time.

Marketing View Point

Current Status

Solution criteria

Fierce competition is
resulting in short life of
design and pricing of
products.

Marketing channel can be

increased
and
more
exhibitions to know about
the
style
and
color
customers like, so that
better
forecast
about
demands in the market.

High rate of product

failure.

Operational View Point

Current Status
Maintenance cost is high.

More wages to pay.

Training needed
employees.

for

Solution Criteria
Level
production
greatly
reduces the maintenance cost
as it uses the machine only in
high demand season.

Skilled worker are

available.
new No training required.

readily

Actual Net Savings

Sales
COGS

COGS assumed to be 60%

In thousand of dollars
Februar
Septemb
Novembe
January
y
March April
May
June
July
August er
October r
December Total
702
486
414
378
162
180
378
540
2970
2520
5724
3546 18000
421.2
291.6
248.4
226.8
97.2
108
226.8
324
1782
1512
3434.4 2127.6 10800

Interest income is 2% on monthly cash balances.

Interest expense includes the coupon rate 8% on the long term date,
interest rate of 6% and 11% (if exceeding 2 million dollars on the line of
credit.
Wage and maintenance savings
Hiring and training cost savings
Net Income before any charge
Interest expense
Reduction in interest expense
Increase in storage cost
Net Pretax Income
Corporal Tax
Net Income

480,000
600,000
1,080,000
No idea
16,140
300,000
1,080,000 - 16,140 - 300,000 - Interest
expense
34%
Net pretax income - 34% of pretax
income

Satisfying Level
Production

Yes, the new savings indeed justify the

potential risk company is taking by
increasing the inventory value up to
$6,483,000Justifies the Potential risk at
the start of peak season, but there is still
some bank finance risk. Bank loan can
also be replaced by asking suppliers to
wait for 90 days instead of 30 days.

Sensitivity Analysis

We can conduct sensitivity analysis by

changing variables like inventory cost with
respect to cash. This way company can
predict how much loan they require and
how to adjust accordingly.