I'm working on a model for a case study in an intermediate finance class. Looking for some help, let me know if I'm not clear about something.
Its a model for Kota Fibres, I think it's a case used in a lot of classrooms, published by Darden.
So this company is essentially trying to eliminate their debt, and one of the options is to have their supplier supply them on a "just-in-time" basis. That supply product accounts for 35% of their raw-material purchases. If they went along with this, the inventory of pellets would go from 60 days outstanding to only 2-3 days.
I'm having a hard time putting this into the model. If anyone who is pretty good with this stuff could let me email them the model, and help me out, I would really appreciate it. It would probably be really easy for someone who is good with modelling.
Thanks a ton,
b
what do you mean hard time "putting this into the model"? Calculating the inventory balance?
i don't think someone is just going to do your work for you -- ask a more specific question and you can figure out how to do it on your own.
there's always that guy. Thanks for the help... why even post?
I'm not asking someone to do the work, I'm just asking them to explain how I would work something into the model. The only reason I asked if they could do email is bc the model is pretty big, and any questions I ask would be kinda a pain without the model.
Someone has offered help though, so thanks anywyay.
How do you project your inventory balances? Most likely you have a turnover assumption (in days) and you should change it from the historical 60 days to the projected 2-3 days. Does that help?
EDIT: I haven't read your first post attentively. So it's only 35% of inventories that will be affected. Separate your inventories into two categories (maybe you have a historical breakdown in the case, maybe you'll just apply that 35% ratio) and model them separately. Apply a 2-3 days turnover assumption to one category and use historical (or what would be reasonable) for the rest.
Hey 1gin:
I'm trying to predict the cash that becomes available by switching to the "just in time method", in which the pellets would be for 2-3 days at a time, versus buying 60 days worth.
The ultimate goal was for this company to pay off its debt by year end, and switching to this proposal was an option. The pellets are 35% of the entire raw-material supply purchases, and one of the problems I was having was understanding how this proposal (moving from 60 days to 2-3 days of inventory) affected the purchases.
I'm not 100% but I think what you wrote in your edit was for projecting inventory balances, no?
Inventory is a part of working capital. Less inventory, less working capital needed, more cash flow.
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