COOL AID PVT. LTD.

SUBMITTED TO:

PROF. LALIT KHURANA

Presented By:GROUP 6Neeraj Joshi (20131028)Parth Shukla (20131031)Raman Shahi (20131040)Satish Tolani (20131048)Vatsal Parmar (20131057)Yogesh Fataniya (20131061)

INTRODUCTION

WHY CAPL HAS A HIGH INVESTMENT IN ACCOUNTS RECEIVABLES? SHOULD COMPANY REDUCE ITS SALES TO THE MARGINAL ACCOUNTS TO IMPROVE ITS PROFITABILITY?

2009 (INR) 2010 (INR) 2011 (INR)

Accounts Receivable 4047000 7249000 10710000

Company gives official credit of

60 days

Average actual credit period of

120 days

Total collection expenses = Rs.

2Lakhs

90% of company's sales are Credit sales

Marginal customers =

customers taking goods from company on

credit

WHAT ARE THE PECULIAR FEATURES OF CAPL’S CREDIT POLICY CHANGES? DISCUSS THE IMPLICATION OF THESE CHANGES. WHAT CREDIT POLICY WOULD YOU RECOMMEND? WHAT ARE THE IMPLICATIONS OF SUGGESTED POLICY ON COMPANY’S PROFITABILITY AND FINANCING REQUIREMENTS?

Sales of current year, COGS remains

same.

Gross Profit changes due to

revenue loss from wave off

Collection charges and bad debt

remains same.

Company’s net profit increase by

Rs. 922273.98

After change in policy

WHAT WOULD YOU RECOMMEND?

(A) 75 DAYS OF CREDIT RELAXATION AND THUS INCREASE SALES BY 10%

OR(B) INTRODUCTION OF CASH DISCOUNT OF ”2/15 NET 60”

1• Current sales increases by

10% only in 75 days policy.

2

• Time value of money is added in the second recommendation.

3• Further Calculation is shown in

excel sheet.

DOES THE AVERAGE COLLECTION PERIOD IS RELEVANT CRITERION FOR CAPL’S ACCOUNT RECEIVABLES?

Yes, It is relevant criterion as per calculation shown. In past, the average time period for collection was of 120 days, due to which we need to add time value of money for the remaining time.

THANK YOU