Running head: ANANDAM MANUFACTURING 1

Anandam Manufacturing Company: Analysis of Financial Statements

Tiara Nicholas
Professor Marie Schonholtz
Champlain College
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Abstract

The purpose and the objective of the financial analysis process is to determine the financial

stability and credibility for the company. This process is aimed to review the actual financial

fitness of Anandam Manufacturing Company that will provide the credit bodies with a clear

depiction of the company financial progress and future performance forecast. In this essence, the

credit body regulators will be capacitated to formulate an accurate and reasonable

recommendation for the company towards receiving a credible reason why or why not qualifying

for the loan applied.

Introduction
Mr. Agarwal was the founder of Anandam Manufacturing Company. For almost a decade

now, Anandam Manufacturing has been known to be among the well-established global textile

manufacturing enterprise in having been established in April 2012. Agarwal and his wife were

the company’s only shareholders. At that the inception, the company had $1.2 million as the

share capital[ CITATION Ans16 \l 1033 ]. With these considerations, the company has grown

immensely over the years but also had some critical financial challenges. Some of those

challenges were such as obtaining the modern day designer to help design new and stylish

garments; long credit time which were allowed to the customers; inadequate working capital for

purchasing materials; insufficient funding to procure new machinery, as well as inadequate

factory space for manufacturing process operations. However, Mr. Agarwal felt that he would be

able to acquire funding based on the projected revenue in the past three years. This information

would be needed in order for the loan officer to be able to approve the loan request. The

company’s financial statements will be examined by the bank.

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Ratio analysis

After researching and taking a deeper look into the Anandam Manufacturing Company’s

ratio analysis, there were some major concerns.

In the summer of 2015, Mr. Agarwal submitted a very detailed business proposal, which

included his project numbers report and the company’s financial records, to a bank to receive a

business loan for his company to eliminate the many challenges his company is currently facing.

However, it is very important that the loan officer analyzes all the necessary information that Mr.

Agarwal has provided to the bank for careful consideration to help determine the company’s

financial ratio records. This would help the loan officer to determine the rate of return of the

company’s profits. It would also give the bank a general idea as to how much money is going in

and coming out. I would suggest that the loan officer complete a liquidity ratio numbers, this

involves the current ratio numbers and the sales ratio number[ CITATION Ans16 \l 1033 ].

There are numerous ratios to consider in order to determine whether the bank should

approve the loan. The company’s current ratio numbers are very important to view to give us a

general idea of the company’s ability to pay back its liabilities and assets if the loan is approved.

The company’s current numbers can be used as a rough estimate to determine the company’s

financial situation. The higher the current numbers, the more likely the company will be capable

of paying their financial obligations. It has a higher proportion of assets values of its liabilities.

Anandam Manufacturing Company’s current numbers ratio shows 2.30:1. Looking back at the

company’s first year, it was very good due to the liquidity. However, looking at the year 2014-

2015, the company’s liquidity decreased significantly to around 1.6 percent. This drop was major

compared to the industry.

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It is very important to view the company’s current cash debt coverage ratio. By having a

higher cash debt coverage, numbers indicate that the company will have a better liquidity

position for the company. Looking back at Anandam Manufacturing, there have been some

major issues with liquidity, these ratios would be beneficial for the company and bank to have.

From a loan officer’s standpoint, having a ratio of 1:1 is generally considered very well because

having that ratio means that the company is able to pay all of its past and current debts and

liabilities from the cash that the company has coming in from its very own operations.

After carefully calculating the company’s current monetary debt coverage, its average is

around 2.72 for the next three years. Even though the company’s owner, Agarwal feels as though

his company is doing extremely well when you view the company's ratio numbers for their

receivable and inventory turnovers, it doesn’t reflect this. This further shows that the company is

not as effective as the owner has mentioned. The company’s current debt to ratio is exceedingly

higher compared to others in the industry. This lets me know as a loan officer that lending a

significant amount of money to this company would be a risk. Also, another critical fact that was

discovered is that the interest coverage ratio is steadily declining. Anandam Manufacturing will

likely have issues with meeting their financial obligations. This company is considered too

much of a risk to approve the loan amount that was requested. Agarwal has proven that there is

an inability to increase his company’s profits by making uncarting decisions in regards to his

company. In the past, he has taken out several loans to help keep his business above water.

Ultimately Mr. Agarwal’s company is not profitable enough for the loan to be approved.

Anandam Recommendations

In order to improve Mr. Agarwal’s financial capacities, as the loan officer on this case, I

would recommend that this loan application be denied for his requested amount. This denial was
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grounded on the financial ratio analysis of the Company's debt, which is exceptionally regarded

to have high financial risk. Furthermore, the company will need to increase their cash flow from

the sales in a bid to meet other obligations thereof. Loaning Mr. Agarwal any additional funds

would render the company to higher liquidation risks. I would propose to the owners these debt

eliminating strategies to help them in the future:

 Hire and train professional marketers to help optimize marketing strategies and generate

higher revenue at a higher level, and to professionally maintain stock financial records on

inventory/keep to ensure appropriation of stocks in and out of the company, instead of

ordering new stock in a bid to pay down payment of at least 60% of the current debt.

 Avoid accepting credit extension periods because tracking creditors has been problematic

in the past.

 Try to reduce overhead, eliminate time wasted, and materials which can reduce accounts

payable, this can ultimately increase the bottom line as well as reduce their debt.

 The company will need to liquidate all of its assets if it’s feasible, and only if the assets

have more value then what is owed. Once this is determined, they can lease the assets

back if need be.

 Try to restructure any high-interest rate loans they currently have; this will not change the

amount of principal amount that is owed, however it does decrease the interest expenses.

 Review the profit on products.

 Monitor the amount of money that is being taken out of the business for non-business

use, such as owners’ draws.

 Look into where they can increase their prices to ensure they are making a profit.

Conclusion
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With these noted recommendations, it could increase the company’s bottom line as well

as equity by eliminating or cutting off the debt-to-equity numbers. I would strongly recommend

that Mr. Agarwal liquidate some of the shares or call up for shares subscribers into the company

to aid him to generate money to pay down the company’s debt before it goes into receivership.
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References
Anshuman Pandey, S. B. (2016). Financial Statement Analysis. ANANDAM Manufacturing Company.