Saffron Retail Is Profitable and Nearly Out of Cash
Finance
medium30 min0 submissionsFlipkart
Scenario
Saffron Retail is a apparel retail business in India. Last year it reported ₹393 Cr of revenue, a gross margin of 27%, and a net profit margin of 10% — its third consecutive profitable year.
The CEO is baffled. The company has ₹3 Cr in the bank, has drawn ₹57 Cr of its overdraft facility, and has twice delayed supplier payments this quarter.
Balance sheet metrics:
- Days sales outstanding: 67 days
- Days inventory outstanding: 59 days
- Days payables outstanding: 30 days
Revenue grew 24% last year, and the sales team is targeting similar growth again.
Supporting data
liquidity
- cash cr
- 3
- overdraft drawn cr
- 57
working capital
- days sales outstanding
- 67
- days payables outstanding
- 30
- cash conversion cycle days
- 96
- days inventory outstanding
- 59
income statement
- revenue cr
- 393
- net margin pct
- 10
- gross margin pct
- 27
- revenue growth pct
- 24
Your task
Explain to the CEO what is happening and what to do about it. Provide:
- Analysis — why a profitable company is short of cash.
- Risks — what happens if nothing changes.
- Recommendation — the specific actions you would take, in priority order.
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How you'll be graded
100 points, 60% to pass.
- diagnosis30
- recommendation25
- risk assessment15
- financial analysis30
Hint
Reveal suggested structure
- Cash conversion cycle = DSO + DIO − DPO = 67 + 59 − 30 = 96 days.
- Cash tied up ≈ (CCC ÷ 365) × revenue.
- Growth makes it worse — every extra unit of revenue funds more receivables and inventory before it produces cash.
- Levers, in order of speed: collections, inventory, payment terms.
- Quantify the cash released by improving each lever.