Aurora Textile Company - Essay Example

due: Aurora Textile Company Aurora Textile has performed poorly over the last for years. This is evident from the fact that in the year 2000, the company was forced to close four manufacturing facilities. It was performed as a measure to minimize the manufacturing expenses and fit the textile company in the textile market that was becoming small (Bruner, Eades & Schill 313). Reviewing the consolidated income statement for the year ended December 30, 1999-2002, it is clear that the company net sales reduced from $245,908 in 1999 to $147,503 in 2002 (Bruner et al. 318). The same is true for raw material cost, the cost of conversion and gross margin.

The operating profit in 2002 was $445 which is relatively low compared to $6,234 in 2001 and $4,109 in 2000. The company’s sales are affected by stiff competition from cheap imported yarns from Asia industries that flooded the U.S market. In addition, the profit margins are affected by the liability related to customer returns. The customer returns saw the textile company loose between 5 to 7.5 times more on revenue in reimbursements (Bruner et al. 314).In order for Aurora Textile Company to survive in the competitive market, there is a need to modernize their operations and cut costs (Bruner et al. 313). The proposal by to invest in a new machine Zinser 351 will improve the company’s performance and help to reduce the production expenses.

The machine would reduce maintenance and power costs amounting to $0.03/lb, and customer returns equal to $0.077/lb based on conversion costs for 2002 (Bruner et al. 316). The purchase of Zinser 351 reduces the rate of customer returns that is critical during the period the WTO lifted the ban on quotas in January 2005. When the company makes more money, then it will attract more investments by the shareholders that will help Aurora Textile industry to operate and survive in the competitive market.

Work citedBruner, Robert F, Ken M. Eades, and Michael J. Schill. Case Studies in Finance: Managing forCorporate Value Creation. , 2014. Print.