Can someone please assist me with the first section of this?The case study provides very general information and I want to make sure that I get the foundation for the rest of the paper correct!!Thank you!!!

ACC 691 Milestone One Guidelines and Rubric Overview: The final project for this course is the creation of a financial statement fraud case study. You will use a fraud case from a real-world situation. You are encouraged to put yourself in the place of the auditor as well as the stakeholders. You will consider the theoretical models of fraudulent behavior, evaluate internal controls, assess fraud risk factors, and apply prevention and detection techniques. You will also analyze the overall responsibilities of the auditors to organizational stakeholders while considering applicable auditing standards. Prompt: In this milestone, you will draft two sections (Sections I and II) of the final project in one coherent paper regarding the fraud case Crisis at the Mill: Weaving an Indian Turnaround. You will introduce the subject of your case and describe the fraud scheme type. You will also analyze the type of fraud scheme by explaining the process behind which this fraud was carried out and the breakdown of the internal controls that took place. You will also discuss the risk factors in assessing this type of fraud, the potential procedures and methods that could be used to assess the risk of this fraud type, the professional responsibilities of the auditors, and the evidence needed to prove the fraud. Specifically the following critical elements must be addressed: I. Introduction: What company is the subject of the case? Describe the type of fraud that occurred. II. Analysis of Fraud Scheme Type A. Explain the process behind how frauds of this type are carried out. Provide a specific example illustrating fraud of this type. B. In this type of fraud scheme, how and where do internal controls break down? Provide examples of specific internal controls needed to reduce this type of fraud. C. What are the risk factors when assessing this type of fraud? Consider classifying the risk factors using the theoretical model such as the Fraud Triangle. D. How can analytical procedures and other detection methods be applied to assess the risk of this type of fraud? Provide specific examples of the analytical procedures and what they indicate. E. Discuss the professional responsibilities of auditors in detecting fraud. What sort of impact can an audit have on an organization? F. What evidence is needed to prove the fraud? Why? To guide your review of evidence, please review the article The Basics of Evidence for Fraud and Corruption Investigators. Rubric Guidelines for Submission: This portion of the case study analysis should be 4-5 pages, double spaced, with one-inch margins, 12-point Times New Roman font, and APA 6th edition formatting. Instructor Feedback: This activity uses an integrated rubric in Blackboard. Students can view instructor feedback in the Grade Center. For more information, review these instructions. Critical Elements Introduction Proficient (100%) Describes the subject of the case and the type of fraud that occurred Analysis of Fraud Scheme Type: Process Comprehensively explains the process behind how frauds of this type are carried out and provides an example illustrating fraud of this type Analysis of Fraud Scheme Type: Internal Controls Evaluates how and where internal controls break down in terms of the type of fraud scheme within the case study and provides examples of specific internal controls needed to reduce this type of fraud Analysis of Fraud Scheme Type: Risk Factors Describes the risk factors when assessing the type of fraud within the case study Analysis of Fraud Scheme Type: Procedures and Methods Explains how analytical procedures and other detection methods could be applied to assess the risk of the type of fraud within the case study and provides specific examples of the analytical procedures and what they indicate Needs Improvement (75%) Describes the subject of the case and the type of fraud that occurred but description is cursory or contains inaccuracies Explains the process behind how frauds of this type are carried out but does not provide an example illustrating fraud of this type or explanation is cursory or contains inaccuracies Evaluates how and where internal controls break down in terms of the type of fraud scheme within the case study but does not provide examples of specific internal controls needed to reduce this type of fraud or evaluation is cursory or contains inaccuracies Describes the risk factors when assessing the type of fraud within the case study but description is cursory or contains inaccuracies Explains how analytical procedures and other detection methods could be applied to assess the risk of the type of fraud within the case study but does not provide specific examples of the analytical procedures and what they indicate or explanation is cursory or contains inaccuracies Not Evident (0%) Does not describe the subject of the case and the type of fraud that occurred Value 11 Does not explain the process behind how frauds of this type are carried out 13 Does not evaluate how and where internal controls break down in terms of the type of fraud scheme within the case study 13 Does not describe the risk factors when assessing the type of fraud within the case study 13 Does not explain how analytical procedures and other detection methods could be applied to assess the risk of the type of fraud within the case study 13 Analysis of Fraud Scheme Type: Professional Responsibilities Comprehensively discusses the professional responsibilities of auditors in detecting fraud and the sort of impact an audit can have on an organization Analysis of Fraud Scheme Type: Evidence Describes what evidence is needed to prove the fraud and supports response Articulation of Response Submission has no major errors related to citations, grammar, spelling, syntax, or organization Discusses the professional responsibilities of auditors in detecting fraud but does not discuss the sort of impact an audit can have on an organization, or discussion is not comprehensive or contains inaccuracies Describes what evidence is needed to prove the fraud but description is cursory or contains inaccuracies or does not support response Submission has major errors related to citations, grammar, spelling, syntax, or organization that negatively impact readability and articulation of main ideas Does not discuss the professional responsibilities of auditors in detecting fraud 13 Does not describe what evidence is needed to prove the fraud 13 Submission has critical errors related to citations, grammar, spelling, syntax, or organization that prevent understanding of ideas 11 Total 100% For the exclusive use of R. Hershberger, 2017. IN1030 Crisis at the Mill: Weaving an Indian Turnaround Alvarez & Marsal Winner \"Indian Management Issues and Opportunities\" category EFMD Case Writing Competition 2015 06/2016-6069 This case was written by Sankar Krishnan and Nikhil Shah from Alvarez & Marsal under the guidance of Anne-Marie Carrick, Research Associate, and Claudia Zeisberger, Affiliate Professor of Decision Sciences and Entrepreneurship & Family business, both at INSEAD. It is intended to be used as a basis for class discussion rather than to illustrate either effective or ineffective handling of an administrative situation. Additional material about INSEAD case studies (e.g., videos, spreadsheets, links) can be accessed at cases.insead.edu. Copyright 2015 INSEAD COPIES MAY NOT BE MADE WITHOUT PERMISSION. NO PART OF THIS PUBLICATION MAY BE COPIED, STORED, TRANSMITTED, REPRODUCED OR DISTRIBUTED IN ANY FORM OR MEDIUM WHATSOEVER WITHOUT THE PERMISSION OF THE COPYRIGHT OWNER. This document is authorized for use only by Rebecca Hershberger in ACC-691 Detection/Prevention 17TW4 taught by Lindsay Conole, Southern New Hampshire University from February 2017 to June 2017. For the exclusive use of R. Hershberger, 2017. Phone call, November 2010: To: Sankar Krishnan, Managing Director at the global professional services firm Alvarez & Marsal (A&M) From: Steve Cohen, Managing Director of Alvarez & Marsal's North American Commercial Restructuring practice Steve Cohen: Sankar, I've just received some worrying news from Sapphire Capital (SC). You know the firm? It's one of our large US-based distress private equity fund clients. We have advised them on several engagements. One of their Indian portfolio companies has some serious issues. It seems the top management may have been involved in some irregular activities and the company is in a crisis. That's all the information I have at the moment, but they seem very nervous. Sankar Krishnan: Yes, I know SC. This sounds serious. We need to organize a call with the fund and with Nikhil to discuss what steps we should take next. Nikhil is on vacation with his family, but from the sound of it we can't wait. Let's speak tomorrow at 8.30am. I'll call Nikhil if you can organize getting the SC people together? Allegations... When Sankar Krishnan and Nikhil Shah, Senior Director at A&M, called Steve Cohen the next day, they found that the fund's entire leadership team, including the chairman, investment committee members, general counsel and CFO were part of the discussion. They explained that the situation was indeed grave. A&M's team was quickly brought up to date with events. The portfolio company in question was a leading woollen textile manufacturer and exporter, WoolEx Mills, with operations based in Northern India. The company had been growing, with a turnover of INR 8,000 million but a bottom line in the red. However, it had been profitable at the operating level. Its products were sold not only in India but worldwide through distribution channel partners and retail stores. The situation had been brought to Sapphire Capital's attention a few weeks earlier when a former employee had contacted them. He informed the fund that he had witnessed irregular activities during his time at the company, allegedly involving the senior management. However, the employee had since been fired for underperforming. This meant the fund would have to tread carefully and investigate discretely - particularly if the accusations proved to be unfounded. The fund was in a tricky position as they owned almost the entire portfolio company, if the allegations were upheld it would call into question Sapphire Capital's credibility and ability to manage its investments. There was no time to waste. The fund's first step was to hire a corporate investigations firm to run a preliminary check into the claims. The detectives met covertly with ex-employees, clients and suppliers before Copyright INSEAD 1 This document is authorized for use only by Rebecca Hershberger in ACC-691 Detection/Prevention 17TW4 taught by Lindsay Conole, Southern New Hampshire University from February 2017 to June 2017. For the exclusive use of R. Hershberger, 2017. they presented Sapphire Capital with their final report. They concluded that there was indeed substance to the accusations, but to gain definitive proof inside access to the company's operations was required. For this, the fund called upon the help of A&M. The Groundwork Sankar and his team quickly evaluated the alternatives for handling the situation. The top five members of WoolEx Mills' senior management team were reportedly involved in irregular activities that had led to shareholder losses. The A&M team would need to proceed with caution as it was unclear who was trustworthy at WoolEx Mills. Even a minor leak to the press of the investigation would be catastrophic - evidence could be destroyed that was crucial for the forensic investigation they had to carry out. The A&M team was almost working in the dark as they were not even given access to the investigator's report - all they knew was there had been some irregularities that needed further examination. Over the following week, the team, led by Sankar, spoke daily with Sapphire Capital's investment committee and general counsel for three hours. They drew up a plan of action for the intervention and eventual takeover of the company's operations by the A&M team. Each step of the plan's execution was discussed in minute detail to ensure that it was carried out as smoothly as possible. Sankar assembled two teams: an interim management team to take over management; and a forensic team to conduct investigations made up of members from A&M's New York and Chicago offices. Action... Just seven days later, WoolEx Mills' CEO and CFO were invited to Sapphire Capital's Mumbai offices for what they believed was a regular board meeting. It was of utmost importance that they not find anything suspicious about the fund's request for a meeting. The heads of manufacturing, sourcing and sales departments were also asked to participate via video conference - the two latter executives were suspected of being in collusion with the CEO and CFO. They were due to attend the meeting at a Reliance Web World office, a facility that provided video conference services in the city of Amritsar, where the company's headquarters and manufacturing plant were located. Unknown to these executives, Sankar and Nikhil, along with the other A&M team members, were sitting in the room adjacent, observing the video conference. The video conference began as planned. The chairman rose from his chair in the meeting room and announced the suspension of the CEO and CFO forthwith. The two senior executives were visibly stunned - they had not been expecting this coup. Back in Amritsar, the A&M team burst into the conference room from the office next door and informed the senior executives of the allegations against them. They were served with a suspension order from the board, with a final decision to be taken pending further investigation. All suspended parties were asked to hand over their mobile phones and laptops. The three executives in the conference room were separated and interviewed individually by an assigned A&M team member - Sankar, Nikhil and Al Lakhani, who led the forensics team. They were informed of the board's decision to bar them from the company's offices until Copyright INSEAD 2 This document is authorized for use only by Rebecca Hershberger in ACC-691 Detection/Prevention 17TW4 taught by Lindsay Conole, Southern New Hampshire University from February 2017 to June 2017. For the exclusive use of R. Hershberger, 2017. further notice. Next they were given an opportunity to provide their own version of events. One of them almost broke down in tears. They all denied the charges levelled against them. The Takeover Following these dramatic events, the A&M team headed to the WoolEx Mills' campus where both its headquarters and manufacturing plant were located. The chairman of the board had informed the company's HR & administrative heads of the imminent replacement of the top management team, asking them to ensure that the security guards co-operate fully with the incoming A&M team. Despite these precautions, the experienced A&M team brought their own security guards in case of any trouble. Upon arrival, the A&M team took full possession of all personal computers, servers and other electronic devices that would be key for their forensic investigation into the alleged irregularities. All these items were locked up, with three guards in place to ensure their safekeeping. The chairman of the board then sent a company-wide communication explaining the change of management; describing the new management team; and requesting the cooperation of all employees during the investigation. The new management team consisted of Sankar as the CEO, Nikhil as CFO, Nikhil Khanna, another A&M Senior Director, as Head of Manufacturing & Sourcing, and Neil Agarwal, a person affiliated with the fund, as Head of Sales. New Day, New Team The following day, the new team called a meeting with WoolEx Mills' top 25 employees, with the chairman of the board participating by phone. Sankar informed them of the change of regime and expressed his intention to work alongside them to ensure that the business ran smoothly. He also made it clear that there was now an 'open door' policy - all employees could come forward and disclose information that might be of help for the new management to \"clean up\" the company. Such information, he assured them, would be treated confidentially. Meanwhile the forensics team set to work. They began with the electronic data analysis, interviewed key people, and carried out a forensic accounting review of the books. The interim management team also began looking at how to restructure operations. They considered what the different roles and responsibilities would be for each department's key personnel - what issues they faced in their respective functions - with the express goal of turning the situation and the company around as fast as possible. The Challenges Ahead The challenges the interim management team faced were daunting. They included a workforce of more than 2,200 employees, mounting costs of raw materials, old plant equipment that was responsible for manufacturing efficiencies declining to 50% of optimal Copyright INSEAD 3 This document is authorized for use only by Rebecca Hershberger in ACC-691 Detection/Prevention 17TW4 taught by Lindsay Conole, Southern New Hampshire University from February 2017 to June 2017. For the exclusive use of R. Hershberger, 2017. levels, rising accounts receivable and inventory levels, a tired brand, and unclear procurement processes - plus not really knowing what the real impact had been of the previous management's irregularities. It was paramount for the team to maintain customer confidence while resolving these issues. The new CEO had to ensure that all stakeholders (\"good\" employees, customers, vendors, lenders and the owners) were aligned with the turnaround, while any unethical employees were replaced - all to be undertaken without disrupting the business. The Textile Company Production Process WoolEx Mills imported raw materials (called \"tops\") typically from Australia or South Africa. Tops came from fine quality wool, combed and weeded to free it from any defects, and then sent to the dye-house where it was treated to obtain the required colour and shade, and dried. Dyed tops were sent to the spinning unit for conversion to yarns. The desired fineness of the finished fabric depended on the fineness and quality achieved in the spinning unit. Spinning was a critical part of the process as it established the flexibility and elasticity of the fabric. These yarns then moved on to the weaving unit, where a number of power looms wove them into a fabric based on designs that were pre-fed into the looms. The fabric from the weaving unit then went to the finishing section, where the fabric achieved its desired finish and texture. After this last process, the fabric underwent several quality checks before it was sent to the finished goods warehouse. Creating a fine woollen fabric involved tight controls on quality at all stages. Mandatory to the production of a high-quality fabric was state-of-the-art machinery maintained at the highest standards, and a close control of the manufacturing process with inspections at all stages. Unlike many price-conscious consumers in India, the company's direct customers were major distributors and large retailers who carried out rigorous quality checks on incoming shipments. Its export customers imposed even more stringent quality standards. The textile and apparel industry operated on a two-season basis, with the design departments beginning work well in advance on new designs for the forthcoming season. Prototypes were developed and sent to all the major distributors for their input in the hope of obtaining orders. Once orders were confirmed, they were integrated into production plans that were generated in a pre-determined production cycle. Raw Material Wool was one of the company's key raw materials. India boasted the third largest sheep population in the world. However, the average yield per sheep was approximately 0.9kg compared to the global average of over 2.4kg. From this yield, 85% of Indian wool was of a Copyright INSEAD 4 This document is authorized for use only by Rebecca Hershberger in ACC-691 Detection/Prevention 17TW4 taught by Lindsay Conole, Southern New Hampshire University from February 2017 to June 2017. For the exclusive use of R. Hershberger, 2017. coarser grade and thus unsuitable for the organized fabric manufacturing industry (Exhibit 1 gives an overview of the industry). Fine quality wool production in India was insufficient to meet the organized woollen industry's needs and thus depended largely on raw material imports. Most of the fabric grade wool in India was imported from Australia, New Zealand and South Africa. Dyes were the other key raw material. The production team from A&M believed that savings of 5-10% could be achieved if they changed vendors. One of the allegations against the management was that they took kick-backs from vendors, so replacing them would get rid of \"bad\" vendors. A number of trials were carried out in the dye-house, with a goal to institutionalize new dyes. The introduction of new systems or suppliers was made more complicated by the background of irregularities in the existing sourcing practices. Sales Even though the company's brand was well known throughout India, WoolEx Mills did not command premium prices. It was widely believed that its products were of inferior quality to its competitors. Its major customers in India were the large multi-brand distributors who sold its products to multi-brand retailers. As a result, the company required few showrooms. Exports accounted for approximately 20% of its revenues, with leading names in the fashion industry from the USA, Europe and Japan among its customers. Operations Sankar and Nikhil discovered there were some serious quality issues that needed to be addressed urgently. This came to light one morning in March 2011 when the head of sales received an email from the company's main export customer in Japan complaining about the quality of the latest shipment. The Japanese customer was threatening to ask for a credit note of approximately 40% of the value of the invoice. On questioning the head of quality, Sankar and Nikhil realized that this case was not unusual. In the past, the company had received credit notes for quality issues from other export customers, but a credit note for 40% of the invoice value was unheard of. The issue of quality thus became another priority for the A&M team. The company's quality issues could be attributed to two main things. 1) WoolEx Mills was not up-to speed with the technological advances in the industry and was using outdated, old equipment. 2) The company's manufacturing processes were not designed to produce the high-quality fabrics that were now being demanded in the industry. Financial Position of the Company Nikhil Shah, the new CFO, discovered several issues in the company's finances. The accounts receivable were high and outdated on a month-by-month basis. Customers paid invoices with an average of 130 days delay, leading to cash flow issues. In addition, some of the discounts Copyright INSEAD 5 This document is authorized for use only by Rebecca Hershberger in ACC-691 Detection/Prevention 17TW4 taught by Lindsay Conole, Southern New Hampshire University from February 2017 to June 2017. For the exclusive use of R. Hershberger, 2017. given were not recorded in the firm's books, and no credit notes were issued. The budgeting process was not carried out in a detailed manner. There were several loopholes in the costing process and the Management Information System (MIS) was being maintained manually. The price of the high-quality fine wool imports from Australia and South Africa that the company so heavily relied upon had increased from September 2010 to March 2011 by over 65%. This severely constrained profitability and cash flows. Raw material purchases were generally made through advanced payments and accounted for 50% of the selling price. Other major purchase items included dyes, chemicals and consumables that accounted for 10% of sales. Nikhil soon realized that the company did not follow any scientific inventory management or ordering practices. One example was the coal for firing a steam boiler that was stocked unnecessarily six months in advance, thus blocking working capital. There was a need to define ordering procedures for critical purchases. Large domestic customers were contributing to higher sales outstanding. Irregularities in sales practices with some customers contributed to high outstanding receivables. These, together with irregular payables management, were damaging the company's liquidity. Given all the above issues, reducing the high working capital through cash flow forecasting was the primary focus for the CFO, as well as strengthening the checks and controls within the finance function. Capital Expenditure Plan The company used old and outdated equipment. About two thirds of the looms in operation broke down frequently. Poor maintenance also contributed to losses in manufacturing efficiencies and contributed to the quality issue. There was an urgent need to upgrade these looms with superior technology, but the capital expenditure required had regularly been postponed. Critical testing equipment was also amiss in the quality lab. The design function had antiquated looms for the manufacture of prototype fabrics for new designs. Some immediate requirements in the dye-house and finishing section had been overlooked in the capital expenditure plans. Even though an ERP package was installed in the company, it was not used to its full potential. The plant's structures required immediate repairs - the poor state of infrastructure became clear when the entire plant was flooded after a heavy day of rain during the monsoon. Setting the Stage for Turnaround The situation was critical, the issues were multifaceted, and there was a pressing need to improve performance. Following the team's initial investigations, they cited three main areas that had to be addressed: improvement of the working capital and liquidity position; enhancement of manufacturing efficiency; and cutting rejection rates - all aimed at improving efficiency and quality together with general cost reduction. Copyright INSEAD 6 This document is authorized for use only by Rebecca Hershberger in ACC-691 Detection/Prevention 17TW4 taught by Lindsay Conole, Southern New Hampshire University from February 2017 to June 2017. For the exclusive use of R. Hershberger, 2017. Discussion Points Put yourself in the shoes of Shankar and Nikhil and develop a plan of action for the interim managers in the role of finance & operations. Where do you see the opportunities to improve the performance of the firm? How would you handle the sensitivities around the accusations of malpractice by (former) senior management? Finally, what would be the key ingredients to make this a successful turnaround? Copyright INSEAD 7 This document is authorized for use only by Rebecca Hershberger in ACC-691 Detection/Prevention 17TW4 taught by Lindsay Conole, Southern New Hampshire University from February 2017 to June 2017. For the exclusive use of R. Hershberger, 2017. Exhibit 1 Industry Background The Indian woollen textiles sector is relatively small compared to the country's cotton, man-made fibre textiles and clothing industry. It is estimated to be worth approximately Rs. 100 bn. The industry is dominated by a large number of \"unorganized\" players on a small scale. These are small knitting units, power loom units, carpet manufacturers and dyeing houses. The remainder of the industry is made up of the \"organized\" sector - large integrated textile mills, combing units and spinning units. There are only a handful of large integrated woollen textile mills in India. These mills manufacture mostly finished fabric that is sold to the domestic and export markets. Some of the mills also sell apparel and garments. A few have gained a reputation as quality manufacturers of woollen textiles and their products are exported worldwide. The woollen fabric industry is dominated by one large player that controls more than 65% of the market. Historically the market has grown at a rate of 9% in the last two years, and is expected to sustain these growth rates. Due to the small number of players in the organized segment in India and the specialized nature of equipment required for manufacturing woollen fabrics, the industry is dependent on imported machinery and equipment. Most of the looms and other equipment are imported from European countries, USA and Japan. Appendix 1 Income Statement (in INR millions) FY09 Mar-09 FY10 Mar-10 Month of Nov-10 FY to date Nov-10 Income Sales and job work Other income Total Income 1,597.3 16.4 1,613.6 1,598.8 35.1 1,633.9 99.0 10.9 109.9 1,222.7 26.8 1,249.5 Expenditure Cost of Goods Sold Employee Cost Other Expenses Total Expenditure (596.3) (249.6) (540.9) (1,386.9) (625.2) (236.2) (527.9) (1,389.3) (21.2) (22.2) (52.4) (95.8) (504.1) (173.8) (386.5) (1,064.4) 226.8 14.1% 244.7 15.0% 14.1 12.8% 185.1 14.8% (131.5) (60.4) (135.8) (50.4) (11.3) (3.7) (91.6) (31.6) 34.8 58.4 (0.9) 61.8 (6.6) (10.2) -- (11.1) 28.2 48.2 (0.9) 50.7 1.7% 3.0% (0.9%) 4.1% EBITDA as % of Income Depreciation Finance Charges Profit Before Tax Provision for tax Profit After Tax as % of Income Copyright INSEAD 8 This document is authorized for use only by Rebecca Hershberger in ACC-691 Detection/Prevention 17TW4 taught by Lindsay Conole, Southern New Hampshire University from February 2017 to June 2017. For the exclusive use of R. Hershberger, 2017. Appendix 2 Balance Sheet (in INR millions) FY09 Mar-09 FY10 Mar-10 As on Nov-10 LIABILITIES Shareholder's Funds Share Capital Reserves and Surplus Loan Funds Secured Loans TOTAL LIABILITIES 1,356.7 560.7 1,356.7 609.0 1,356.7 670.8 395.7 272.3 223.6 2,313.2 2,237.9 2,251.1 2,120.0 648.7 1,471.3 8.1 1,479.5 2,168.7 784.5 1,384.2 6.4 1,390.6 2,172.1 875.8 1,296.2 63.7 1,359.9 0.0 0.0 0.0 513.0 579.9 55.4 31.6 0.3 1,180.2 478.6 651.4 52.4 46.3 1.8 1,230.6 666.0 663.8 53.2 77.7 -1,460.7 318.8 27.7 346.6 366.1 17.1 383.2 544.8 24.7 569.5 ASSETS Fixed Assets Gross Block (less) Acc Depreciation Net Block Capital WIP Fixed Assets Investments Current Assets Inventories Sundry debtors Cash and bank balances Loans and advances Other current assets Current Assets Less: Current Liabilities and Provisions Current liabilities Provisions Current Liabilities and Provisions Net Current Assets TOTAL ASSETS Copyright INSEAD 833.7 847.3 891.2 2,313.2 2,237.9 2,251.1 9 This document is authorized for use only by Rebecca Hershberger in ACC-691 Detection/Prevention 17TW4 taught by Lindsay Conole, Southern New Hampshire University from February 2017 to June 2017. For the exclusive use of R. Hershberger, 2017. Appendix 3 Cash Flow Statement (in INR millions) A Cash Flow from Operating Activities Net Income (Loss) Adjustments Depreciation & Amortisation of Fixed Assets Loss / (Gain) on sale of fixed assets Interest expense Interest income Direct Taxes / FBT paid Accounts Receivables-Net Inventories Advance & Deposits Current Liabilities & Provisions Total Adjustments C FY10 Mar-10 Month of Nov-10 FY to date Nov-10 34.8 58.4 (0.9) 61.8 131.5 (0.2) 55.7 (5.5) (6.3) (100.5) (154.7) -16.3 (63.6) 135.8 (0.0) 47.4 (15.2) (19.0) (73.9) 34.5 -34.2 143.8 11.3 ----124.0 (84.4) 4.7 2.4 57.9 91.4 ----(12.4) (187.4) (26.5) 186.3 51.4 (28.8) 202.2 57.0 113.2 Cash Flow from Investing Activities Capital Expenditure Proceeds from Sale of Fixed Assets Interest income received (103.1) 0.3 5.7 (46.9) 0.0 13.7 (2.6) 0.0 -- (64.0) 0.2 -- Net Cash used by Investing Activities (97.1) (33.2) (2.6) (63.8) Cash Flow from Financing Activities Borrowings/(payments) of Term Loan Borrowings/(payments) of Working Capital Loan Borrowings/(payments) of Vehicle Loan Interest paid Net change in unsecured Deposits 133.8 46.4 1.0 (52.8) -- (10.2) (112.4) (0.9) (48.6) -- (9.0) (47.5) ---- (39.7) (9.0) ---- 128.3 (172.0) (56.5) (48.6) Net change in cash & cash equivalents Beginning cash & cash equivalents 2.4 53.0 (3.0) 55.4 (2.0) 55.3 0.8 52.4 Ending cash & cash equivalents 55.4 52.4 53.2 53.2 Cash Flow from Operating Activities B FY09 Mar-09 Net Cash provided by Financing activities Copyright INSEAD 10 This document is authorized for use only by Rebecca Hershberger in ACC-691 Detection/Prevention 17TW4 taught by Lindsay Conole, Southern New Hampshire University from February 2017 to June 2017. For the exclusive use of R. Hershberger, 2017. Appendix 4 Ageing schedule of receivables as on 30-Nov-10 (in INR millions) A. B. C. D. E. Total Outstanding 120 Days Domestic : Area Pb/Ch/Hr/Hp/Jk Delhi U.P. West Rajasthan Maharashtra Gujrat A.P. M.P. Tamilnadu Karnatka U.P. - Allahabad U.P. - East North East Bihar Orissa West Bengal Nepal U.P. Central Convertors etc. Sub Total Govt. / Institutional Export Job Spinning Garments 79.0 28.9 30.6 10.7 33.2 25.0 79.6 11.5 5.4 15.5 2.4 19.3 13.1 27.4 5.6 7.0 58.4 48.5 8.1 509.4 96.2 46.0 6.5 5.8 34.7 14.2 6.5 6.1 14.8 3.7 8.4 6.8 1.1 7.3 1.9 9.1 2.8 12.8 2.1 3.9 36.0 26.0 1.2 199.4 48.5 30.9 6.4 3.5 21.3 3.4 6.5 2.5 8.9 2.2 16.3 1.3 1.5 4.4 0.1 7.4 2.5 8.4 1.1 1.7 11.4 9.9 2.2 113.0 22.0 14.1 0.1 -- 7.4 4.9 3.3 0.9 6.7 2.6 33.4 2.3 0.5 2.1 0.1 1.5 2.4 2.8 0.8 0.4 0.4 7.4 0.2 80.3 14.2 0.4 0.0 -- 15.6 6.4 14.4 1.2 2.6 16.5 21.5 1.1 2.3 1.8 0.3 1.3 5.4 3.4 1.5 1.0 10.7 5.2 4.5 116.6 11.5 0.5 0.0 2.2 TOTAL 663.8 288.8 149.1 95.0 130.9 Copyright INSEAD 11 This document is authorized for use only by Rebecca Hershberger in ACC-691 Detection/Prevention 17TW4 taught by Lindsay Conole, Southern New Hampshire University from February 2017 to June 2017. For the exclusive use of R. Hershberger, 2017. Appendix 5 Inventory schedule as on 30-Nov-10 (in INR '000s) S.No. 1 2 3 4 Particulars Unit Qty. Value Raw Materials Wool Polyester Purchased Yarn Waste Dyes & Chemicals Kgs. Kgs. Kgs. Kgs. 2,48,382 2,16,433 36,043 31,701 1,35,689 32,482 11,012 918 6,573 1,86,673 Work-in-process Dyeing Deptt. Spinning Deptt. Yarn stores Weaving Deptt. Fnshng Deptt. Kgs. Kgs. Kgs. Kgs. Mtrs. 19,525 1,02,314 1,04,861 65,159 1,26,585 9,595 41,007 43,200 41,585 30,568 1,65,955 Finished Goods Cloth Blankets Garments Mtrs. Nos Nos 9,33,511 7,010 8,476 2,43,844 3,850 10,999 2,58,692 Stores & Spares 54,661 Total 6,65,982 Appendix 6 Capital Expenditure Plan Planned Capex (Budget) (in INR '000s) Spares New Machines Others Building & Roads Repair Misc. Contingency Total Copyright INSEAD Advance to suppliers as on Nov10 Upto Oct'10 28,162.1 67,224.4 1,766.3 4,808.1 7,024.4 3,337.7 15.0 25.0 23,025.6 3,075.0 6,432.9 2,098.4 1,633.4 688.8 10,454.5 -3,252.5 1,27,920.0 10,995.0 24,069.1 Nov'10 Expenditure Total Against Capex Plan 2009-10 Grand Total 8,805.7 8,170.8 121.0 36,621.5 8,926.7 44,792.3 1,483.5 -907.6 14,036.4 1,633.4 4,848.9 617.1 --- 14,653.5 1,633.4 4,848.9 2,431.1 37,495.2 37,359.7 74,854.8 12 This document is authorized for use only by Rebecca Hershberger in ACC-691 Detection/Prevention 17TW4 taught by Lindsay Conole, Southern New Hampshire University from February 2017 to June 2017. For the exclusive use of R. Hershberger, 2017. Appendix 7 Credit and Payment terms Credit terms for all sales: Category Credit terms Fabric Sales Domestic customers Government Institutions Exports Others Job w ork Other Liquidation Other Income - 3 Months from the date of sale - 3 Months from the date of sale - 3 Months from the date of sale - All cash sale - All cash sale - No other major source of income Payment terms for all purchases: Category Payment terms Additional information Raw m aterials Imported Wool tops Importer Polyester Other domestic purchases Finance charges for LC - - All RM purchases can be considered to be imported Stores and Dyes Local purchases - 2 Months from date of purchase - All Stores and dye purchases are local purchases - Daily settlement of pow er bought from exchange - End of month settlement of pow er sourced from government grids - Coal - 1 w eek from the date of purchase - Furnace Oil - 1 w eek from the date of purchase - Pow er constitutes 62% of the total pow er and fuel expense Coal and fuel contribute to 24% and 14% respectively Orders placed in the 1st of the month and deliveries made in the 2nd w eek of the month Orders placed in the 1st of the month and deliveries made in the 2nd w eek of the month Pow er and Fuel Pow er Letter of Credit; Payment to the bank generally 2 months from date of purchase Letter of Credit; Payment to the bank generally 2 months from date of purchase Letter of Credit; Payment to the bank generally 2 months from date of purchase INR 6.25 Mn / month for supporting the facility Marketing Agencies for marketing campaigns - 1 month from the date of consumption Logistics / Freight - 1 month from date of incurring the expenditure All other overheads Development expenditure and other overheads Others All other daily miscellaneous expenses Copyright INSEAD - Media expenses form 40% of total marketing expense Selling commision is ~ 50% of total marketing expenditure Freight is ~ 10% of total marketing expenditure - 1 month from the date of incurring the expenditure - Daily settlement 13 This document is authorized for use only by Rebecca Hershberger in ACC-691 Detection/Prevention 17TW4 taught by Lindsay Conole, Southern New Hampshire University from February 2017 to June 2017