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Working capital analysis

Sensitivity analysis, Working capital policy review

PET bottle recycling factory in was having trouble meeting increased client order volumes due to problems with availability of supply. This uncertainty bred hesitance to commit to even higher volumes with key customers, for fear of breaking contract and losing the relationship. Inability to finance short-term losses and unfavorable terms led to a series of cash calls, straining relationships with owners.

  • Built company model based on observations, management interviews

  • Estimated inventory buffer needed to ensure uninterrupted supply at viable raw material purchase prices

  • Stressed tested different collection cycles / sale prices at the required inventory level

  • Reviewed options with management on what concessions could realistically be offered to client in exchange for improved collection terms

Key Results

Just-in-time purchasing policy identified as root problem on the supply side; sizeable buffer inventory was introduced. Factory prioritized and developed DAP shipping capabilities to EU countries, which were a prerequisite to getting key customers to prepay

New collection terms were able to finance the buffer inventory, breaking the working capital bottleneck and allowing the company to greatly increase volume shipped

As a result, sales tripled and the company returned to profitability

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