Name:Xiangwen Li
Course:Financial Policy
Tutor:Dr.John Thornton
Date:2012/10/8
Kota Fibres LTD Case Analysis

Executive summary Kota is experiencing a number of problems. The manage director to prevent over production and over stocking has resulted to a sequence of hiring and layoffs each year.
And the company is suffering from liquidity challenges because it is not in a position to finance its day-to-day activities, so its bank account stands over drawn. This situation has impacted negatively on the company's ability to repay its earlier loans and customers are upset because of delayed delivery. Mr. Mehta and Ms. Pundir introduced a new quality control unit and hired two sales representatives and three nephews with …show more content…
By increasing the amount of total assets, the company can be in a position to increase this ratio. In preparing the forecasts for Kota Fibres, Mr. Mehta, the bookkeeper, and Ms. Pundir agreed on various assumptions to arrive at the projections. This is not desirable because the prediction may be misleading. The forecast should be premised on actual figures. Ms Pundir as the owner should hire an accountant or at least assign the book keeper the task of preparing the forecast. The final report on the projections should thereafter be reviewed to check any inconsistencies. Mr. Mehta and Ms. Pundir introduced a new quality control unit and hired two sales representatives and three nephews with the objective of creating commitment to the Pundir family. From the case, no audit or analysis was undertaken to ascertain whether the company needed a quality control unit. This is an example of how the company is increasing its operating costs which has contributed to its current liquidity challenges. Ms. Pundir is biased toward addressing shareholders’ needs rather than pursue what is good for business survival. It is reported that the company had previously declared high dividend payments to its shareholders because Pundir believed that it was risky to leave excess funds to the company. Therefore, she preferred the funds to be distributed in the form of dividends. This raises some questions. As the