The Jewelry Industry of Jaipur

The Jewelry Industry of
Jaipur
ResearchQuestion: Which promotional and business
strategies should retail jewelry showrooms adopt to
prevent a liquiditycrunchduringthe unstablemarket
conditions?
A Detailed Report by
- Pranay Kothari

The Jewelry Industry of Jaipur – By Pranay Kothari
2
Contents Page:
Acknowledgements: ............................................................................................................3
Executive Summary:............................................................................................................4
Research Proposal:...............................................................................................................5
Introduction: ........................................................................................................................8
Research Methodology:.......................................................................................................9
Research and Findings:......................................................................................................10
(A) Primary Research Findings:.................................................................................... 10
(B) Secondary Research Findings:................................................................................ 10
Company XYZ (Pvt. Ltd): Financial Position...................................................................11
I. Analysis of Market Share and Profit Margins:......................................................... 11
II. Analysis of Financial Ratios: ................................................................................... 12
Discussion & Evaluation: ..................................................................................................13
(A) Position Mapping: .................................................................................................. 13
(B) Promotional Mix:.................................................................................................... 14
Conclusion:........................................................................................................................16
Recommendations:........................................................................................................ 16
Limitations:................................................................................................................... 16
Unresolved Questions:.................................................................................................. 16
Bibliography and References.............................................................................................17
Appendices: .......................................................................................................................18
Appendix 1: Interview with the Director of XYZ ....................................................... 18
Appendix 2: Interview with the Finance Head of XYZ................................................ 20
Appendix 3:................................................................................................................... 22
(i) Detailed Cash Flow Forecast.................................................................................... 22
(ii) Summary of Cash Flow Forecast:........................................................................... 23
Appendix 4: S.W.O.T Analysis .................................................................................... 24
Appendix 5: Balance Sheet of XYZ (Pvt.) ................................................................... 25
Appendix 6: Profit and Loss Account for XYZ (Pvt.).................................................. 26

3
Acknowledgements:
I wish to acknowledge and thank:
 The Director of XYZ (Pvt. Ltd), for his time and key opinion regarding the
business and its long-term objectives. His input in terms of explaining the market
and industry was essential to reach relevant solutions to reduce the problem faced
by the business.
 The Head of Finance Department of XYZ (Pvt. Ltd), who devoted an ample
amount of time and gave very precious insight into the firm’s financial position.
Through him I learnt about the challenges faced by the business. He facilitated me
to examine the financial accounts that were necessary to create a realistic and
pragmatic report.

4
Executive Summary:
Research Question: Which promotional and business strategies should retail jewelry
showrooms adopt to prevent a liquidity crunch during the unstable market conditions?
To simply the report and maintain the promised confidentiality, my research and its
evidence is based on true data collected from real experts and a real firm that will be
referred to as company XYZ in the research and analysis. XYZ is a firm producing high-
end exclusive jewelry. It faces cash flow difficulties just like most other firms in the
industry face. To overcome this difficulty the firm previously took loans from banks and
other financial institutions. Over the years this liability has proved to be a rising cost in
terms of the interest paid on the loans. Thus, the research question focuses on the
promotional strategies that can be used to increase the sales and reduce this cash flow
difficulty and help XYZ and other companies such as it to avoid a state of a liquidity
crunch.
The research is supported by the primary and the secondary data. The primary data is
gathered by interviewing both the Director and the Finance head of XYZ. Whereas, to
gather secondary data several credible business journals and articles have been referred
to. Apart from this the annual reports of XYZ have been studied to understand the
business and its financial position.
The data collected through these methods has been analyzed using tools such as a few
financial ratios, SWOT analysis, Position mapping and Porter’s generic strategies. These
tools helped conclude the below-the-line strategies such as sponsorships; private viewing;
and cash discounts, could be used to improve sales, without compromising on quality and
brand image.

5
Research Proposal:
Research Question:
Which promotional and business strategies should retail jewelry showrooms adopt to
prevent a liquidity crunch during the unstable market conditions?
Rationale:
XYZ sells precious ornaments in the city of Jaipur. The gemstones industry often deals
with uncertain market conditions throughout the year, as sales are seasonal and highly
volatile1. This often results in liquidity problems. In recent years, due to fluctuating
Indian Rupee and increasing competitiveness in the industry, XYZ and other firms in the
industry have faced a situation of low sales and increasing cash flow problems.
Therefore, it is important to address this issue by researching on the promotional and
business strategies that may help increase sales without compromising on profitability.
The firms need to execute credit control policies alongside to ease its financial position.
Key areas of Study:
 Sources of Finance
 Cash Flow and Forecasting
 Final Accounts
 Ratio Analysis
 Promotion
Theoretical Framework:
 Ratio Analysis (Gearing ratio. Acid test ratio, Liquidity ratio) – will help
understand the financial position of the business.
 Cash Flow Forecast – will help understand the flow of money essential to execute
the right promotional strategies at the appropriate time of the year.
1
Appendix 4: SWOT Analysis (Threats)

6
 Position Mapping – shows the nature of the business and its position in the
market.
 Porter’s Generic Strategies – helps figure out the potential of the business in terms
of its product and market development.
 Promotional Strategies – to identify the appropriate above the line/below the line
strategies for improving sales.
Methodology:
A. Primary Research:
 Interview with the Director of Company to achieve detailed knowledge
about the industry, business, and its activities.
 Interview with Head of Finance Department to gather information
regarding the financial position of the business and its cash flow.
B. Secondary Research:
 Study the annual reports of XYZ (Pvt.) to understand its financial position
and liquidity. This is important, as it will allow us to use Ratio Analysis to
derive a concrete conclusion based on financial data.
 Referring to credible business journals to get an insight of the jewelry
industry.
Anticipated Difficulties:
Problems likely to arise Possible solution
The company may be reluctant to share
financial data.
Sign a confidentiality agreement and
explain the need for data to reach relevant
solutions.
Scheduled interviews with company heads
may get delayed.
Be prepared with other substances that can
be worked upon in the mean time.

7
Action Plan:
Date Stage Action Modification
16-February-2014
Planning
Decide the company
for the project.
22-February-2014
Meet the company
director for approval.
Completed on 1st
March because the
director was out of
town.
27-February-2014
Decide the research
question
Decided on 3rd
March.
1-11 March-2014
Make research
proposal
15-22 March-2014
Collection of
information
Conduct primary
research.
24-31 March-2014
Conduct secondary
research.
1-14 April-2014
Formulating the
report
Write first draft. First draft completed
on 23-August-2014
18-30 April-2014
Write second draft
including business
tools.
3-May-2014 Produce final report.

8
Introduction:
XYZ is a retail and manufacturing business with its operations set in the city of Jaipur,
India2. The firm produces precious ornaments and sells it directly to the customers
through its retail showroom - situated in a commercially central location of the city.
XYZ’s products are highly specialized hand crafted jewelry found only in a few cities in
India 3 . XYZ is a well-established company and continues to expand its operations.
Therefore, the firm is gaining reputation as a highly innovative company in the
competitive market.
Attracted by the high potential for growth in the industry, several new firms have started
to emerge. Consequently, to remain competitive and increase customer loyalty, XYZ
allows its regular customers to purchase on credit. This has allowed XYZ to maintain
sales. However, as several of the competitors are also offering similar credit facilities, the
Company has started facing stagnation in sales, as XYZ fails to attract new customers.
Further due to this, the firm has started to suffer from cash flow problems since the sales
have become more unpredictable and the cash inflow is delayed by several weeks4.
These cash flow problems add to operational inefficiency, dissatisfied suppliers due to
late payments, and extra expenses in the form of interests on loans5. Apart from the poor
credit control other factors such as the nature of the industry also add on to the cash flow
difficulties; the sale of jewelry is highly seasonal and volatile due to which a firm has to
constantly manage the flow of money in and out of the business6. Failing to do so leads to
a situation of a liquidity crunch hampering the business and its operations. Consequently
it is important to adopt strategies, which will enhance its sales without adversely affecting
profitability or the exclusivity of the product range. The research question is therefore
framed as: “Which promotional and business strategies should retail jewelry showrooms
adopt to prevent a liquidity crunch during the unstable market conditions?”
2
“Jaipur Jewlery”. N.p.,N.d. Web. 25 Mar. 2014. <http://www.pinkcity.com/shopping/jaipur-
jewelry/>.
3
“Jewelry.” Shopping in Jaipur. N.p.,n.d. Web. 26 Mar. 2014.
<http://www.jaipur.org.uk/shopping/jewellry-gems.html>.
4
Appendix 4: SWOT Analysis (Weaknesses)
5
Appendix 2: Interview of the Finance Director (Question 4)
6
Appendix 1: Interview of the Director (Question 3)

9
Research Methodology:
Primary Research - To understand about the company and its operations, I propose to use
the method of interviews. Firstly, the director of XYZ will be interviewed to gain an
insight about the company and its short and long-term motives. To gain a more
financially based insight, another interview of the Finance Head of the firm will be
conducted. This interview will help to summarize the basic financial performance and
difficulties faced by the business, and help make the solution more concrete and
pragmatic.
Secondary Research - As a method of secondary research I would study the annual
reports of XYZ. This will help me understand the liquidity position and profitability of
the firm. Using this data I could execute a few ratio analysis to get a more realistic picture
of the liquidity of XYZ. Apart from this, by referring to credible business journals I plan
to gather data about the jewelry industry and its audience. This would help me in
checking the promotional strategies prevalent in the industry and assess their cost
implications.

10
Research and Findings:
(A) Primary Research Findings:
 XYZ has been able to increase profitability. However, due to excessive loans
taken from banks, it has started to face a cash flow difficulty.7
 The market for jewelry is very volatile and faces a huge off-season period of
about six months, from April to September.8
 Most of the money earned through sales has to be reinvested in the business to
maintain the product line and range. Therefore, the cash in hand for the business
remains low mostly throughout the year.9
 To promote sales, XYZ gives an 8-week credit period to customers.10
 XYZ gross profit margin and net profit margin after tax is 29% and 9%
respectively.11
(B) Secondary Research Findings:
 The jewelry market has great potential and has been able to grow at a rapid rate in
the past few years.12
 India is amongst the fastest growing markets for diamonds in the world. It is
already amongst the largest 3 markets for diamond trade in the world along with
China and USA.13
 The city of Jaipur, alone, exports jewelry worth Rs 2000 crores (330 million US
dollars) annually.14
7
Appendix 2
8
Appendix 1
9
Appendix 1
10
Appendix 2
11
Appendix 2
12
“Jewelry.” Shopping in Jaipur. N.p.,n.d. Web. 26 Mar. 2014.
13
N.p.,n.d. Web. 27 Mar. 2014. <http://www.bain.com/publications/articles/global-diamond-
report-2014.aspx>.
14
“Jaipur Turns into ‘gem’ of a City.” Times Of India. N.p., n.d. Web. 29 Mar. 2014.
<http://timesofindia.indiatimes.com/city/jaipur/Jaipur-turns-into-gem-of-a-
city/articleshow/8933375.cms>.

11
XYZ (Pvt. Ltd): Financial Position
I. Analysis of Market Share and Profit Margins:
According to the annual reports of XYZ, the company had total sales of around Rs.
180,000,000 (3 million USD) for the year 2013. The firm was able to maintain a high
GPM of around 29% and a NPM of 9%.15 These margins are considered to be very
healthy according to the industry norms and imply that the business is profitable and
should seek to expand its operations. However, XYZ despite earning healthy profits has
been troubled by the cash management. The firm tries to increase the variety of its
product range and so very often they rely of external finance for the funding.
15
Figures Derived from Appendix 6
Company XYZ,
180,000,000, (1%)
Other Jewelry
Businesses,
20,000,000,000,
(99%)
Jewlery Sales in Jaipur (in Indian Rupees)

12
II. Analysis of Financial Ratios:
1. Gearing Ratio = (External finance/Total capital employed)*100
(200,060,210/300,112,411)*100 = 66.7%
The Gearing Ratio of 66.7%16 implies that XYZ is operating at a very high risk. Anything
over a 50% is said to be a potential risk for a business and XYZ’s gearing ratio is
exceeding this margin greatly. The business should take measures to try to decrease this
ratio to ease the cost in terms of interests and achieve higher profits. This may be done
initially by trying to increase sales and use that money to reduce the level of loans taken.
2. Current Ratio = (Current Assets/Current Liabilities)*100
Current Assets (Stock + Debtors + Cash) = Rs. 150,045,805
Current Liabilities17 = Rs 72,511,604
Therefore, Current Ratio = (150,045,805/72,511,604) = 2.07
The Current Ratio of 2.07 is more than satisfactory as this suggests that the business can
quite easily pay off its short-term debts/liabilities. However, this does not ensure that the
firm is operating efficiently in terms of cash flow management since much of its Current
Assets are in the form of unsold stock/inventory. If the firm fails to rotate its stock over
an accounting year the designs may become out of fashion and can cause further stock
blockage.
3. Acid Test Ratio = {(Current Assets – Stock)/Current Liabilities}*100
Therefore, Acid Test Ratio = {(150,045,805-120,469,000)/72,511,604}*100
= (29,576,805/72,511,604)*100
= 0.41
Acid test ratio is a more apt indicator of XYZ’s liquidity position. If we analyze the ratio
of 0.41 we can see that XYZ has a very high level of unsold stocks. This is necessary
because the industry’s competitiveness requires firms such as XYZ to maintain a wide
and exclusive stock range to differentiate itself and maintain brand image.18
16
17
18
Appendix 1 (Question 1)

13
Discussion & Evaluation:
(A) PositionMapping:
High Price
High
Quality
Low Price
Low
Quality
Premium Product
Range
Cowboy Product
Range (Overpriced)
Bargain Product Range
(Under-priced)
Economy Product Range
(Value for money)
XYZ and its
product range

14
The product range offered by XYZ is considered to be of high price and quality19.
However, it can be understood that in a market of over INR20 2000 crores (320 million
USD)21 alone in the city of Jaipur, XYZ’s annual sales of approximately INR 18 crores (3
million USD) is less than 1% of the total market. Since XYZ’s products are considered to
be amongst the premium goods, XYZ cannot hamper the uniqueness of its product range
by creating a more basic line of products to increase sales. It therefore needs to alter the
other elements of the marketing mix that does not affect its image such as promotional
strategies in particular.
(B) Promotional Mix:
Porter’s Generic
Model for XYZ
Competitive Advantage
Cost Uniqueness
Scope
Mass Cost Leadership Differentiation
Narrow Focus (Cost Focus) Focus (Differentiation Focus)
Since XYZ is operating in a specialist industry the firm has a narrow scope of increasing
market share. The firm has a competitive advantage over others as it is amongst the very
few firms that offer exclusive jewelry. Therefore, to maintain the brand image and
exclusivity of its product range, XYZ should emphasize on below the line promotion
techniques. It should organize exclusive private shows by only inviting loyal and
potential customers of the business. This could be a helpful as the new range could be
presented as a private view for the select few, which increases its aspirational value. This
would also help in increasing sales without increasing costs substantially.
19
Appendix 1 (Question 1)
20
USD 1=INR 60 (approximately)
21
“Jaipur Turns into ‘gem’ of a City.” Times Of India. N.p., n.d. Web. 26 Mar. 2014.
<http://timesofindia.indiatimes.com/city/jaipur/Jaipur-turns-into-gem-of-a-

15
Making the option of EMI available to customers - The option of EMI is another method
that could help attract those customers that do not have the ability to pay the complete
money upfront. Hence, paying in monthly installments would end the price burden. This
way the firm will increase its monthly inflow without losing the customers. However by
making the product available to a larger market, the Company may lose its customer
following amongst the elite of Jaipur.
Sponsorship of Exclusive Cultural Events - Jaipur is home to several cultural fests, the
Company can choose to sponsor specific parts in the Jaipur Literature Festival (JLF),
which would increase its visibility in the target market, without compromising on the
kind of customers that get access to the Company’s jewelry. The cost of sponsoring a
pavilion or an evening at JLF is estimated to be around INR 10,00,000 (USD 15,000) for
five days.22 While the cost may appear to be high in the short terms, the visibility it can
create will help XYZ to increase sales substantially. This is primarily because it would
get access to the target market. As most of the people visiting the event are affluent and
JLF attracts people from across the world, it would create an opportunity to showcase its
collection and forge new customer relations. Therefore if the Company purchases the
space, it would require the sale of only a couple of pieces to recover its costs.
Offer Cash Discounts - The organization can introduce cash discounts, or as a means to
improve inflows the business should reduce the 8-week credit period to a 4-week credit
period for the regular customers. This may however create poor relationship with the
loyal customers. Which is why, XYZ should let its loyal customers reap the benefits of a
slight extension in the credit policy as this will make them feel valued and protect the
business-customer relation. However offering cash discounts may help resolve the issue,
even if it affects the profitability marginally.
22
N.p.,n.d. Web. 28 Mar. 2014. <http://www.jaipurliteraturefestival.org>.

16
Conclusion:
Thus, the research concluded that XYZ is a part of an industry that usually faces cash
flow difficulties due to highly volatile demand, and so it cannot compromise its
reputation by decreasing the variety of products or prices. As ascertained through ratio
analysis it has a good profitability compared to the industry average but it lacks liquidity.
To maintain its image and exclusivity, it has to continue making new product range to
keep maintain a large product display. Therefore, increasing sales throughout the year by
implementing new promotional strategies could solve the problem of cash flow.
Recommendations:
The promotional strategies recommended for XYZ should be largely based on below the
line techniques to ensure they emphasize on the exclusivity of the product.
It is therefore recommended that the Company arrange private viewing of their new
collection to encourage customer loyalty and sales. Further sponsorship of events is
required to create more visibility.
Limitations:
 The interviews conducted may be biased towards the firm. They may not have
been completely honest and wanted only the good of the business and its
operations to come across.
 The financial data including the cash flow forecast and the business accounts may
not be very accurate. The predictions could be different from what actually
happens in the next accounting year due to changes in domestic or national
policies.
Unresolved Questions:
As companies in the industry already have and suffer from liquidity problems, will they
be able to fund the promotion techniques stated?

17
Bibliography and References
PrintSources:
 Hoang, Paul. Business & Management. 2nd ed. [Melton, Vic.]: IBID, 2007.
 Borrington, Karen, and Peter Stimpson. IGCSE Business Studies. 3rd ed. N.p.:
Hodder Arnold, 2006. Print.
Websites:
 “Jewelry.” Shopping in Jaipur. N.p., n.d. Web. 26 Mar. 2014.
 N.p., n.d. Web. 29 Mar. 2014.
<https://www.dnb.co.in/IndianGemsandJewellerySector/issues.asp>.
 N.p., n.d. Web. 29 Mar. 2014. <http://www.jaipurliteraturefestival.org>.
 “Jaipur Turns into ‘gem’ of a City.” Times Of India. N.p., n.d. Web. 26 Mar.
2014. <http://timesofindia.indiatimes.com/city/jaipur/Jaipur-turns-into-gem-of-a-
 N.p., n.d. Web. 28 Mar. 2014. <http://www.bain.com/publications/articles/global-
diamond-report-2014.aspx>.
 “Jaipur Jewlery”. N.p., N.d. Web. 27 Mar. 2014.
<http://www.pinkcity.com/shopping/jaipur-jewelry/>.

18
Appendices:
Appendix 1: Interview withthe Director ofXYZ
Q1 - Sir, please tell me something about the company and its operations?
XYZ is a private limited company situated in Jaipur that sells precious and semi-precious
jewelry. The firm has expanded its production scale by over 700% in the past decade. It
began its operations with a very limited stock range, and in the past few years has been
able to improve the product range and its exclusivity along with its brand image. After
several years of stability, today, XYZ and its products are recognized as a symbol of
quality and trust. This has led XYZ to be able to charge slightly higher prices for its
products compared to other firms with weaker reputations.
Q2 - What is the most challenging problem that arises for firms in the jewelry
industry?
Since jewelry is a very high end product, the general population of the country would
look up to buying the product once their basic needs and wants are fulfilled. Since buying
jewelry means that a person is spending a major proportion of their income they tend to
take a longer period to make the full payment of the product. Hence, firms tend to suffer
from cash flow problems the most.
Q3 - Are cash flow difficulties a constant problem throughout the year?
The market for jewelry is highly volatile and constantly changing with changes in gold
prices and the value of local currency. Around half of the year the sales tend to remain
very low. These months are often referred to as off-season in the industry. During these
months from May to October, the sales tend to be the lowest. Therefore, the money
flowing out of the firm may be greater than the money flowing in, which can be a major
issue in the operations of a firm.

19
Q4 - What actions have previously been taken to reduce this problem?
The very first thing any business should do is asking the debtors to make the previous
clearances as soon as they can. This is what our firm does at first to begin the flow of
money into the firm. Simultaneously, several times the need for bank overdraft or short-
term loans also comes up, as the production cannot be jeopardized due to lack of
operational funds. But to avoid the scenario of the extra cost in terms of interests, XYZ
tries to keep a surplus of funds and reserves from previous sales.
Q5 - What proportion of money that flows into the firm through sales is put back
into business in the form of more production?
Since the business needs to maintain its stock range to maintain brand image, around
90% of the money flowing in through sales is put back in the production cycle. The other
10% is used to cover the direct and indirect costs of the firm. If any of the money remains
after all the costs that is then added to the company’s reserves and could be used at the
times of poor liquidity in off season.

20
Appendix 2: Interview withthe Head of Finance of XYZ
Q1 - Sir, please give me some brief about the company’s financial position?
Over the past few years the cash flow difficulties have risen to a greater extent since most
of the money earned by the business was put in the expansion of its production scale;
tying up the financial resources into the inventory of the firm. Over the past three years
XYZ has been able to successfully rotate its inventory over 2 times, (more than the
industrial average of approximately 1.5 times).
Therefore, the firm successfully has been able to sell of its inventory at a very fast rate.
But with this the firm also developed greater cash flow difficulties, as the money earned
from sales had to be tied in the form of larger new inventory. However by doing so, XYZ
has opened several expansion opportunities for itself maintaining the brand image and
reputation in the market.
Q2 - To overcome short-term cash flow problems what policies and methods has the
business adapted?
To promote the sale of the products, the firm has a credit policy that allows a customer to
make the full payment within an 8-week period. During off season we tend also tend to
give discount offers and if a product doesn’t seem to be moving around the market the
firm melts the product to create new designs with the gold and gem stones released from
the piece. Despite these internal methods to increase inflow, several times the situations
demands a bank overdraft to fund the operational expenses.
Q3 - Apart from taking bank loans, does the firm use any different policy to attract
customers that its competitors do not?
No, at the most the firm has the provision of credit and allows its customers to make half
payment during the month of purchase and the remaining has to be paid in the following
month.

21
Q4 - What should the firm do to reduce the amount of bank loans?
Firstly, the firm should be focused on increasing sales throughout the year. The
performance should always be improving and never deteriorating when compared to the
previous year. The GPM may decrease but the net profit after tax should always be
increasing. Also, at the time of on season, the money earned by the business should be
used to pay off the debts to avoid costs in the form of interests.
Q5 - Can you please tell me what was the company’s performance in the previous
year in terms of profitability?
Generally the retailers in the industry tend to have a net profit markup of around 8-12%.
Last year XYZ had a GP Margin of around 29% and the NP margin after tax was around
9%. The NPM is relatively lower due to the high interests paid by the firm on bank loans.

22
Appendix 3:
(i) DetailedCash Flow Forecast
Apr May June July Aug Sept
Inflows
Total Sales 60,00,000 45,00,000 45,00,000 40,00,000 60,00,000 90,00,000
Sales in cash (50%) 30,00,000 22,50,000 22,50,000 20,00,000 30,00,000 45,00,000
Debtor' Realization
(50% of sales of
previous month)
75,00,000 30,00,000 22,50,000 22,50,000 20,00,000 30,00,000
Bank Loans 2,50,00,000 25,00,000
Unsecured loans 2,50,00,000
Total Cash Inflows 6,05,00,000 52,50,000 45,00,000 42,50,000 50,00,000 1,00,00,000
Outflows
Indirect Expenses 20,00,000 20,00,000 20,00,000 20,00,000 20,00,000 20,00,000
Purchases 3,50,00,000 40,00,000 30,00,000 40,00,000 70,00,000 1,50,00,000
Fixed assets 50,00,000
Interests on loans 5,00,000 4,75,000 4,75,000 4,75,000 4,75,000 5,00,000
Loan repayment 25,00,000
Tax
Total Cash outflow 4,50,00,000 64,75,000 54,75,000 64,75,000 94,75,000 1,75,00,000
Net cash flow 1,55,00,000 (12,25,000) (9,75,000) (22,25,000) (44,75,000) (75,00,000)
Opening balance 0 1,55,00,000 1,42,75,000 1,33,00,000 1,10,75,000 66,00,000
Closing balance 1,55,00,000 1,42,75,000 1,33,00,000 1,10,75,000 66,00,000 (9,00,000)
Oct Nov Dec Jan Feb Mar
Inflows
Total Sales 1,50,00,000 2,50,00,000 3,50,00,000 4,00,00,000 2,50,00,000 1,50,00,000
Sales in cash (50%) 75,00,000 1,25,00,000 1,75,00,000 2,00,00,000 1,25,00,000 75,00,000
Debtor' Realization
(50% of sales of
previous month)
45,00,000 75,00,000 1,25,00,000 1,75,00,000 2,00,00,000 1,25,00,000
Bank Loan 50,00,000
Unsecured loan 1,00,00,000 50,00,000
Total Cash Inflows 1,70,00,000 3,00,00,000 3,50,00,000 3,75,00,000 3,25,00,000 2,00,00,000
Outflows
Indirect Expenses 25,00,000 25,00,000 25,00,000 25,00,000 25,00,000 25,00,000
Purchases 2,00,00,000 2,50,00,000 3,00,00,000 2,00,00,000 1,00,00,000 40,00,000
Fixed assets 10,00,000
Interests on loans 5,50,000 6,50,000 7,00,000 7,00,000 6,00,000 5,50,000
Loan repayment 1,00,00,000 2,00,00,000 1,50,00,000
Tax 1,00,00,000
Total outflow 2,40,50,000 2,81,50,000 3,32,00,000 3,32,00,000 3,31,00,000 3,20,50,000
Net cash flow (70,50,000) 18,50,000 18,00,000 43,00,000 (6,00,000)
(1,20,50,000)
Opening balance (9,00,000) (79,50,000) (61,00,000) (43,00,000) 0 (6,00,000)
Closing balance (79,50,000) (61,00,000) (43,00,000) 0 (6,00,000)
(1,26,50,000)

23
(ii) Summary of Cash Flow Forecast:
Year 2015-16 Apr May June July Aug Sept
Total Cash Inflows 6,05,00,000 52,50,000 45,00,000 42,50,000 50,00,000 1,00,00,000
Total Cash outflow 4,50,00,000 64,75,000 54,75,000 64,75,000 94,75,000 1,75,00,000
Net cash flow 1,55,00,000 (12,25,000) (9,75,000) (22,25,000) (44,75,000) (75,00,000)
Opening balance 0 1,55,00,000 1,42,75,000 1,33,00,000 1,10,75,000 66,00,000
Closing balance 1,55,00,000 1,42,75,000 1,33,00,000 1,10,75,000 66,00,000 (9,00,000)
Year 2015-16 Oct Nov Dec Jan Feb Mar
Total Cash Inflows 1,70,00,000 3,00,00,000 3,50,00,000 3,75,00,000 3,25,00,000 2,00,00,000
Total Cash outflow 2,40,50,000 2,81,50,000 3,32,00,000 3,32,00,000 3,31,00,000 3,20,50,000
Net cash flow (70,50,000) 18,50,000 18,00,000 43,00,000 (6,00,000) (1,20,50,000)
Opening balance (9,00,000) (79,50,000) (61,00,000) (43,00,000) 0 (6,00,000)
Closing balance (79,50,000) (61,00,000) (43,00,000) 0 (6,00,000) (1,26,50,000)
According to the forecast above we can see that the business begins the accounting year
with a healthy amount of disposable cash achieved through bank loans and loans from
other unsecured financial sources. For the first 6 months, from April to September, the
market does not show great sales and demand for the product. As a result the sales tend to
be low and the outflow of money in the form of purchases also remains restricted.
Therefore, the off-season is actually the time when the business is relatively stable in
terms of net cash flow.
In an attempt to make huger profits the firm actually appears to begin with overtrading. It
produces more product line then what is needed just so that it is able to capture as much
sales as it can from the customers. By looking at the cash flow forecast above we can see
that most of the money flowing into the business through sales is flowing out in the
following month in the form of purchases of raw material. This is something that cannot
be changed, as the business needs the product line to show to the customers to make any
sales.

24
Appendix 4: S.W.O.T Analysis
S.W.O.T Analysis for XYZ (Pvt.)
Strengths:
 It is a well-established business with a
reputed name.
 It has a diverse range of products and
designs for customers to choose from.
 The firm produces specialized jewelry and
has specialized workers that meet the skills
required. Hence, the productivity is very
high.
Weaknesses:
 The relationship with suppliers is not ideal due
to late payments.
 The bank loans taken by the company add on the
costs in the form of interests.
 The company has a very high gearing ratio and
not a very healthy and ideal liquidity ratio.
Opportunities:
 To increase sales by executing new
policies that can help attract new
customers.
 To decrease bank loans and avoid the cost
of interests on them.
 To expand the operations into different
locations of the city by opening more retail
showrooms.
Threats:
 Increasing competition due to higher demands of
diamond jewelry.
 The political condition of India is highly
unstable since the ruling party changes in almost
every 5 years.
 The Indian economy may face a fluctuating
currency in the times ahead due to external
reasons. Due to this the prices of gold fluctuate
and the customers become reluctant to purchase
jewelry in this time period.
According to the S.W.O.T analysis above, we can see that there are high expansion
opportunities for the business and that its profitability is not being hampered by the cash
flow difficulties. However, for a business to run easily and efficiently this problem must
be curbed. This liquidity problem is occurring due to the high outflows in the form of
interests and purchases of raw material that needs to be improvised on by the firm.

25
Appendix 5: Balance Sheet of XYZ (Pvt.)
XYZ (Pvt.)
Balance Sheet as at 31st March 2013
(In Indian Rupees)
Fixed Assets [A]
Premises 200,155,098
Machinery and Equipment 22,423,112
222,578,210
Current Assets [B]
Stocks 120,469,000
Debtors 17,211,500
Cash in hand 12,365,305
150,045,805
Current Liabilities [C]
Trade Creditors 21,988,600
Short-Term Borrowings 41,089,455
Taxation 8,933,549
Dividends 500,000
72,511,604
Net Current Assets (Working Capital) [B-C] 77,534,201
Net Assets [Working Capital + Fixed Assets] 300,112,411
Financed by:
Long-Term Liabilities [L]
Mortgages 32,530,100
Debentures 27,510,005
Bank Loans 140,020,105
200,060,210
Capital and Reserves [R]
Ordinary Share Capital (10,000 shares at Rs 5,000) 50,000,000
Retained Profits 50,052,201
100,052,201
Capital Employed [L+R] 300,112,411

26
Appendix 6: Profit and Loss Account for XYZ (Pvt.)
XYZ (Pvt.)
Profit and Loss Account for year ended 31st March 2013
(In Indian Rupees)
Sales Revenue 180,202,342
Cost of Sales 127,911,267
Gross Profit 52,291,075
Less Expenses 27,098,033
Plus Non-operating income 17,023,230
Net Profit before interest and tax 42,216,272
Less Interest 16,455,677
Less Tax 9,745,662
Net Profit after interest and tax 16,014,933
Dividends (10%) 1,601,493
Retained Profit 14,413,440
The P&L Account above helps us see how the business has a high Gross Profit Margin of
roughly around 29% whereas only a Net Profit Margin of around 9%. This gap is mainly
due to the high amounts of interests paid by XYZ due to having a high amount of loans
taken. To increase the NPM and increase profitability, XYZ should focus on reducing the
amount of bank loans so that the money going away in the form of interests can be
retained and yield the owners with a greater profit level.

The Jewelry Industry of Jaipur

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