Everything Rattan Inc Case Solution And Analysis, HBR Case Study Solution & Analysis of Harvard Case Studies

INTRODUCTION:

Rattan Inc. (ER) was developed by Edward Chan’s great grandfather. The company currently deals in the manufacturing and assembly of Rattan a kind of furniture. They purchased material from the South Asian market in which the competition is very high for these kinds of things. Rattan markets and sells this product in Canada and the United States. It uses independent outlet which is exclusively built for selling its product(Rattan). It has made continuous growth and quality as its vision.

PROBLEM:

Currently, Rattan Inc. is in need of cash in order to overcome its working capital problem for which it has contacted the bank for increasing its short term bank loan to $2 million at the rate of 3%. Now the bank needs full analysis and evaluation of company’s current position, which has been calculated in the Exhibit by following required measures and explained below after which the recommendation will provide the answer whether to give loan to the company or not.

ANALYSIS:

Cash flows Forecast

The above calculation is based on the values, which have been fore casted as none of them provided the actual results and may deviate if the present conditions change. The fore casted values have been calculated in the given Exhibit in which the first calculation is for the sales forecast as the market of the product is good and company is currently focused of manufacturing quality level product the forecast for the sales shows upward trends.If we look at the revenue earned by the company in 2010, then it is $12968.This value increased to $13786 in 2013, which is about 6% increase approximately.In the year 2013, it further increased to $16212, which is about 25% increase from the year 2010. Considering the above increase in sales the forecast shows the rising trend in 2014 the sales move to $19635 from $16212 and so on. The annual sales revenue including actual and fore casted values shows an annualized growth rate of about 9.7%. After the calculation of fore casted sales the short term bank was also taken in the cash receipts as it give rise to the company’s cash flows.

The bank loan also shows an increasing trend calculated in the Exhibit.The amount of bank loan has been is a manner that the current year bank loan is subtracted from the previous bank loans as the positive answer shows that more cash has been induced in to the capital of the company. The fore casted value shows that the company will need to induce $2083 in order to operate the company’s day to day operations however,the increase in bank loan will also have an impact upon the income statement of the company, which will be further elaborated below in detail.

The calculations of bank loan and sales revenue summed up in order to arrive at the net cash receipts.

The next step is to calculate the payments made by the company against its purchases or expenses made. Every year the company’s revenues are also increasing that means that company is successfully implementing its marketing strategies which may also incur increased cost for motivating the sales staff by providing them with other fringe benefits like bonuses on successfully reaching the targets.

The interest expenses are in two categories; one is the short term bank loan and the other one long term loan, which is for a time period of 20 years at 6% interest rate. The interest expense of the bank loan has been increasing due to the increase in the amount of bank loan. The interest expense of the long term loan shows the decreasing trend because of the repayments of the loan expected on a yearly basis in order to lower the long term loan interest amount.

The administrative expenses shown in the cash flow forecast are decreasing year by year.This may be due to the fact that as the company will begin to grow, it will move towards it maturity and standards will developed and will require less administrative supervision than before.

It is assumed that the amount given in the accounts payable represents the amount of material purchased against which the payment will be made in the year end to which it relates.

By adding up all the expenses paid, the result is shown as a net cash payment. The last step after which the cash ending balance is calculated after subtracting net cash payments from the net receipts and adding the cash opening balance........................