BigZag Facing ZigZag Chandrima was thinking of a way out desperately. At least she needs a...

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BigZag Facing ZigZag Chandrima was thinking of a way out desperately. At least she needs a break! For the last two weeks, she has been working hard to settle some office issues and worked up to ten-eleven hours a day in the office. It seems that she can't carry anymore! She is all alone and no one understands her! Chandrima works as a Deputy Manager of Finance in BigZag Corporation that produces ceramic products and mainly exports to South East Asia with 20% of the products released into the domestic market of Bangladesh. The company, having an asset size of BDT 175 crore located in Old Dhaka, is a pretty old family business that has very recently been taken over to manage by three brothers - Akram, Salman, and Mobarak of the same family from their father. All three brothers have little experience, Akram has a graduate degree in History and the two others had been working as an assistant to their father after their intermediate education. However, after taking over the charge, they formed it into a private limited company from its previous sole trader status. Although the age of the company is almost 20 years, Chandrima joined there only. three years back while the company was facing a substantial drop in the bottom line. Recently Chandrima has made a detailed assessment report on company SWOT analysis. She found that, for the last seven years, annual profitability is highly fluctuating and it would look like a zigzag if charted. Despite a desperate effort by the three brothers, they could not bring it into peace and operational earnings and cash flow have been sloping downwards. The company has been generating good sales over time but somehow the sales were not being translated into cash as expected. The 7-year average growth rate of sales has been estimated at around 9.17% while that of cash is around 3%. Of course, Profit grew by 8% on average. Oder production technology and inflation effect on raw material pricing have also been seen as other reasons that have damaged efficiency and increased production cost per unit. Yesterday, Akram Hossain the managing director of the company consulted with a Financial Adviser who suggested that as the value of the company to the owners depends on how much cash they receive from the business, the company must be able to generate more cash rather than profit in order to achieve the ultimate goal and make the business more sustainable. As the adviser stated, sustainability needs continuous expansion of the business and at the same time, it must pay well off to its owners. Both can be done if enough cash is generated. Moreover, the adviser also warned that this would damage the value of BigZag Crop. if cash generation does not improve substantially. BigZag hired Chandrima, a fresh MBA graduate Specialized in Finance to deal with money matters more efficiently and effectively so that the company can recover as quickly as possible but today's situation is almost the same. BigZag had no separate finance department before and Chandrima has been hired to create a new division. But as she is a fresher, somehow she still is not able to connect why money management, cash generation, and the ultimate goal of the firm are interrelated. Answering this is one big challenge for Chandrima. Moreover, a few months back, a thorough investigation by Chandrima has revealed that the company is lacking adequate cash and needs more than BDT 50 crore as an additional POF/MID/1/BBA investment. But the credit lines are well utilized already and therefore, now, the owner brothers are planning to sell a portion of their holdings to one of their cousins for more fund injection into the business. Because the owners believe that more fund injection would improve the investment, production, and marketing capacity of the company that would recover the company from going down. A few questions were in Akram's mind that he needs to answer to understand how much the family business has grown up too. In more than the last 20 years, this business started by their father, is going on pretty well and now Akram Hossain and his brothers need to know how big their father's investment has been. Moreover, as said by the consultant, why is cash more important than profit? Akram has seen his father making an excellent profit before he left the management of the business and they have been pretty rich in lifestyle and business operation. What's wrong if they continue the same trend by looking at how much profit the business has generated? As a very usual family business, Akram and his brothers actually used to make money in the form of loans in addition to their regular salaries from the business account for their personal expenses and investment purpose whenever it is needed. Total loan and withdrawal in the last 5 years is around 37% of the shareholders' equity of BigZag right now. Akram believes it very fair that they are receiving cash from their business regularly since it is their very own business and they have that right. Of course, all the three brothers are committed that they would return the money in time however the repayment is quite slow but who will dare to ask them to repay? Chandrima, while assessing the company's weaknesses, faced a grey question is there really any relation of continuous borrowing by Akram and his brothers with the value of the business at all? If it is, how? She feels that a continuous and uncontrolled withdrawal of money is a concern but she cannot put it down in a structured form due to her lack of experience. No matter what the answers are, Akram and his brothers are already decided that they would sell some ownership to their cousin. But he needs to clearly understand the process of calculating the amount he would charge on his cousin for the stake he is going to sell. Two weeks back, Akram called her and threw all these questions to Chandrima and asked her to prepare a mini-report that would answer all of the questions and remove all confusions of Akram and his brothers. And the most terrible thing is that tomorrow is the deadline to present the mini-report. Chandrima is actually burdened with many questions. No one else has knowledge on finance here! All owners understand that they must have made more and more money from the business but none of them understands why the situation is worsening. In fact, no one else tries to understand and that's why she has been hired! She is a lone warrior in the battled field full of so many challenges although she is young, fresher, and only has book-based knowledge yet! If you were in Chandrima's position, how would you make the report answering all the critical questions raised in BigZag company? BigZag Facing ZigZag Chandrima was thinking of a way out desperately. At least she needs a break! For the last two weeks, she has been working hard to settle some office issues and worked up to ten-eleven hours a day in the office. It seems that she can't carry anymore! She is all alone and no one understands her! Chandrima works as a Deputy Manager of Finance in BigZag Corporation that produces ceramic products and mainly exports to South East Asia with 20% of the products released into the domestic market of Bangladesh. The company, having an asset size of BDT 175 crore located in Old Dhaka, is a pretty old family business that has very recently been taken over to manage by three brothers - Akram, Salman, and Mobarak of the same family from their father. All three brothers have little experience, Akram has a graduate degree in History and the two others had been working as an assistant to their father after their intermediate education. However, after taking over the charge, they formed it into a private limited company from its previous sole trader status. Although the age of the company is almost 20 years, Chandrima joined there only. three years back while the company was facing a substantial drop in the bottom line. Recently Chandrima has made a detailed assessment report on company SWOT analysis. She found that, for the last seven years, annual profitability is highly fluctuating and it would look like a zigzag if charted. Despite a desperate effort by the three brothers, they could not bring it into peace and operational earnings and cash flow have been sloping downwards. The company has been generating good sales over time but somehow the sales were not being translated into cash as expected. The 7-year average growth rate of sales has been estimated at around 9.17% while that of cash is around 3%. Of course, Profit grew by 8% on average. Oder production technology and inflation effect on raw material pricing have also been seen as other reasons that have damaged efficiency and increased production cost per unit. Yesterday, Akram Hossain the managing director of the company consulted with a Financial Adviser who suggested that as the value of the company to the owners depends on how much cash they receive from the business, the company must be able to generate more cash rather than profit in order to achieve the ultimate goal and make the business more sustainable. As the adviser stated, sustainability needs continuous expansion of the business and at the same time, it must pay well off to its owners. Both can be done if enough cash is generated. Moreover, the adviser also warned that this would damage the value of BigZag Crop. if cash generation does not improve substantially. BigZag hired Chandrima, a fresh MBA graduate Specialized in Finance to deal with money matters more efficiently and effectively so that the company can recover as quickly as possible but today's situation is almost the same. BigZag had no separate finance department before and Chandrima has been hired to create a new division. But as she is a fresher, somehow she still is not able to connect why money management, cash generation, and the ultimate goal of the firm are interrelated. Answering this is one big challenge for Chandrima. Moreover, a few months back, a thorough investigation by Chandrima has revealed that the company is lacking adequate cash and needs more than BDT 50 crore as an additional POF/MID/1/BBA investment. But the credit lines are well utilized already and therefore, now, the owner brothers are planning to sell a portion of their holdings to one of their cousins for more fund injection into the business. Because the owners believe that more fund injection would improve the investment, production, and marketing capacity of the company that would recover the company from going down. A few questions were in Akram's mind that he needs to answer to understand how much the family business has grown up too. In more than the last 20 years, this business started by their father, is going on pretty well and now Akram Hossain and his brothers need to know how big their father's investment has been. Moreover, as said by the consultant, why is cash more important than profit? Akram has seen his father making an excellent profit before he left the management of the business and they have been pretty rich in lifestyle and business operation. What's wrong if they continue the same trend by looking at how much profit the business has generated? As a very usual family business, Akram and his brothers actually used to make money in the form of loans in addition to their regular salaries from the business account for their personal expenses and investment purpose whenever it is needed. Total loan and withdrawal in the last 5 years is around 37% of the shareholders' equity of BigZag right now. Akram believes it very fair that they are receiving cash from their business regularly since it is their very own business and they have that right. Of course, all the three brothers are committed that they would return the money in time however the repayment is quite slow but who will dare to ask them to repay? Chandrima, while assessing the company's weaknesses, faced a grey question is there really any relation of continuous borrowing by Akram and his brothers with the value of the business at all? If it is, how? She feels that a continuous and uncontrolled withdrawal of money is a concern but she cannot put it down in a structured form due to her lack of experience. No matter what the answers are, Akram and his brothers are already decided that they would sell some ownership to their cousin. But he needs to clearly understand the process of calculating the amount he would charge on his cousin for the stake he is going to sell. Two weeks back, Akram called her and threw all these questions to Chandrima and asked her to prepare a mini-report that would answer all of the questions and remove all confusions of Akram and his brothers. And the most terrible thing is that tomorrow is the deadline to present the mini-report. Chandrima is actually burdened with many questions. No one else has knowledge on finance here! All owners understand that they must have made more and more money from the business but none of them understands why the situation is worsening. In fact, no one else tries to understand and that's why she has been hired! She is a lone warrior in the battled field full of so many challenges although she is young, fresher, and only has book-based knowledge yet! If you were in Chandrima's position, how would you make the report answering all the critical questions raised in BigZag company?

Answer rating: 100% (QA)

Bigzag Corporation produces ceramics for export and for sale domestically It is a business which was set up 20 years ago SWOT analysis report will guide Bigzag company to eliminate the zigzag graph an... View the full answer