I am reviewing a financial case study for guna fiber, and I want to come with at least FIVE critiquing points. They could range from questioning their assumptions, their analysis, their excel calculations, their answers to each question and so forth. the case study is the following: Q$1.$ What is the current situation? Is Guna Fibres, Ltd$.$ a financially healthy business? Why did

the companyy run out of cash?

As previously mentioned, financial position of Guna Fibers must be assessed by calculating specific

ratios derived from the financial statements provided in order to fully assess the company's position.

This shortfall is undoubtedly due to a variety of factors:

$$ The company's $60-$day inventory and stockholding policy takes up significant real estate space in

the warehouse, tying up working capital for $60$ days, as clearly illustrated by the discrepancy

between DPO and DSO, where calculations of DSO $($Days Sales Outstanding$)$ and DPO $($Days

Payment Outstanding$)$ revealed that Guna Fiber needs an average of $13$ days to collect cash, while

suppliers need an average of $5$ days to be paid. In addition, the DSI $($Days Sales inventory$)$ figure

shows that products remain in stock for an average of $23$ days before being converted into sales.

$$ The inadequacy of Guna's ability to meet its debt obligations is clearly reflected in the debt$-$toequity

ratio of $170\%($which measures the extent of leverage used by the company and reflects the

ability of shareholders' equity to cover all outstanding debts in the event of a slowdown in activity$)$

between $2010$ and $2011.$

$$ The debt$-$to$-$equity ratio increased by $155\%.$ This ratio indicates the solvency ratio, which shows

the company's ability to repay its debts with its assets, indicating a huge percentage of the

company's assets financed by debt.

$$ Regarding liquidity ratios, Guna Fibers' results show a significant decline in both the immediate

and short$-$term liquidity ratios. Specifically, the current ratio fell by $61\%$ between $2010$ and $2011,$

while the quick ratio fell by $63\%$ over the same period. This downward trend raises concerns about

the company's liquidity position.

$$ Expensive operating expenses using the hire$-$and$-$fire strategy that causes the company's operating

costs to exceed its revenues, labor costs and direct manufacturing costs, while the EOR$=11\%$ is

relatively low compared to the amount of COGS, but this may be one of the indirect factors for

this situation.

$$ Lack of working capital: Guna Fibers may not have sufficient liquidity to meet its immediate

financial obligations, also analyzed the cash ratio to see if the company can pay all its short$-$term

debts with its cash. Guna Fibers cannot pay its debts in cash because the ratio dropped $70\%$ in

$2011.$

$$ Ultimately, if we look at the profits made by Guna Fibers, we see that the company did not

perform as well in $2011$ as it did in $2010.$ The net profit margin fell by $39\mathrm{.}38\%,$ the gross profit

margin by $12\mathrm{.}32\%$ and the return on sales by $31\mathrm{.}19\%$ over this period.

$$

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$$ Seasonal variations in demand: Fluctuations in demand in the textile sector could lead to irregular

cash flows over time.

$$ Payable of dividends: Paying dividends of $20$ million Indian rupees a year is another problem

facing the company, as it places a heavy pressure on its cash reserves and forces it to borrow

more and that each reduction in the dividend payout per quarter considerably improves their notes

payable account.

Q$2.$ What are the consequences for the company? As part of your assessment, consider the

return on assets of the business.

To evaluate the outcomes Guna Fiber ltd$.\text{'}$s performance, we first need to examine the company's

ROA $($Net Income $/$ Average Total Assets$)$ which measures how efficiently a company uses its assets, so

it is necessary to study the company's financial statements, such as the balance sheet and income

statement. These documents provide crucial information about a company's assets, liabilities, income, and

expenditure.

This decline in ROA is expected, as we saw in the previous chart, to the increase in the company's

debt$-$to$-$equity ratio in $2011,$ indicating an increase in debt and interest charges, as well as in the company's

$60-$day inventories, supplier payments and cash collections, which resulted in the DSO, DPO and DPI

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factors. Given that return on equity continues to fall, the company's financial position is not optimal.

ROA's weak performance is reflected in the following points:

$$ Potentially affecting shareholder returns and future investment.

$$ Increased costs and reduced competitiveness in the market

$$ Signs of financial instability, impacting investor confidence, credit ratings and the security of

funding or investment capital.

$$ This leads to business failure, which may result in bankruptcy or insolvency.

$$ Putting pressure on management to implement strategies to improve profitability and efficiency.