Managing Interest Cost - a Case Study

Abstract

In today's cost competitive environment, the basic motto for a company to run a business is to cut down the cost of production, so that it can generate higher revenues. In such a scenario the company's management starts looking into various avenues by which it can resolve the cost issue. Some of the common measures which are generally taken are cutting down the employee's strength, putting increments and fresh recruitments on hold, check cost on raw material purchases and so on. In addition to these, a very significant cost incurred by the companies is the interest due. The case introduces the problems confronting Grasim Industries Ltd. situated at Madhya Pradesh, India, in the interest cost reduction and how it achieved one of the best cost competitive strategies. The case examines how with the help of a bank, the company introduced Cash Management System, negotiated with different banks, used alternative mode of finance and finally succeeded in reducing a substantial interest cost.