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Saffron Retail Is Profitable and Nearly Out of Cash

Finance
medium30 min0 submissions
Flipkart
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:

  1. Analysis — why a profitable company is short of cash.
  2. Risks — what happens if nothing changes.
  3. Recommendation — the specific actions you would take, in priority order.
Ready to move forward? Up next: Nimbus Health Is Profitable and Nearly Out of CashNext question
How you'll be graded

100 points, 60% to pass.

  • diagnosis30
  • recommendation25
  • risk assessment15
  • financial analysis30
Hint
Reveal suggested structure
  1. Cash conversion cycle = DSO + DIO − DPO = 67 + 59 − 30 = 96 days.
  2. Cash tied up ≈ (CCC ÷ 365) × revenue.
  3. Growth makes it worse — every extra unit of revenue funds more receivables and inventory before it produces cash.
  4. Levers, in order of speed: collections, inventory, payment terms.
  5. Quantify the cash released by improving each lever.