Aurora Textile Company

Aurora Textile Company

Introduction

Background of the company; Aurora textile company is American based yarn manufacturer that was established in the early 1990's to service both domestic and internationally., by manufacturing two main products, which are cotton, and synthetic/cotton yarns. However, most of the revenues of the company are mainly come from domestic textile market, which accounted for 90% of the whole revenues. The company has a long enjoy supplying yarns to the hosiery market that accounted for 43% of the revenue, 35% of sales from knitted-outerwear market, 13% from woven market and the rest of 9% comes from industrial and specialty products.

Strength Weakness

* Able to bargain for attractive margin in major revenue sources

* Hosiery was difficult to compete by outsider due to the costly logistic price. * Main sources of revenue come from selling domestically.

Threats Opportunities

* 35% of revenue (knitted-outerwear) is highly competitive by other market participants * High potential growth on Woven market

* High potential growth on industrial and specialty products, which produce the highest profit margin

Situation;

Decision; In January 2003, Michael Pogonowski, the chief financial officer of Aurora Textile Company was questioning whether the company should purchase the new ring-spinning machine called the Zinser 351 to be installed in the Hunt production facility, which cost the total capitalizes cost of 8.25 million. This machine will contribute better product with finer quality, resulted in higher margin product by reducing the operating cost, with lower power consumption and lower maintenance cost. However, this Zinser 351 also have some negatives effects to the company, such as it will lower the sales volume by 5%, and will increase the cost of the customers returns would rise due to the finer quality of products. However, if the chief financial officer decides not to replace the old machine with the Zinzer, the company expects that the existing machine can still be used for next 10 years, and fully depreciated by the fourth year of usage.

Financial climate; as mentions that the cost of the new machine, Zinser 351 is 8.25 million in total, it is a very though decision for Michael Pogonowski to decide whether to purchase or not. This is due to the facts that currently the company has suffered with the losses for the past four year, and has limited cash available plus the insufficient of working capital as well.

Opportunities and threats; government regulartion and textile-mill industry