ANANDAM MANUFACTURING COMPANY - CASE STUDY

Problem :
The owner of Anandam Manufacturing Company had approached the bank in July 2015 for additional financing
garment manufacturing firm so as to achieve its objectives.
Main objective of the owner is expansion of business & owner was confident about the future prospects of the
& sales revenue had increased by 4 times in the past 3 years.
He discusses with the bank manager & shared the long development history of the busienss & future growth op
Now, the loan officer is asked to process the loan and make a final decision
Common size, trend analysis & ratio analysis would be performed in this case study to make a final decision for

What is the Objective of this Case Study :

To conduct a detailed financial statement analysis for Anandam manufacturing company inorder to ensure tha
a borrowing capacity & capability to repay thr loans.
The operational performance would also be analyzed to determine strengths of the firm and its weaknesses.

Income Statement ( In Thousands) :

Particulars 2012-13 2013-14

Sales
Cash 200 480
Credit 1800 4320
Total Sales 2000 4800
COGS 1240 2832
Gross Profit 760 1968
Operating Expenses :
General, admin, selling 80 450
Depreciation 100 400
Interest expenses 60 158
PBT 520 960
Tax @30% 156 288
PAT 364 672

Balance Sheet ( In Thousands ) :

Particulars 2012-13 2013-14

Assets :
Fixed Assets 1900 2500
Cash & Cash Eq 40 100
A/c Receivables 300 1500
Inventories 320 1500
Current Assets 660 3100
Total Assets 2560 5600
Equity & Liabilities
Eq share Capital (Rs, 10 each) 1200 1600
Reserves & Surplus 364 1036
Long term borrowings 736 1236
Current Liabilities 260 1728
Ttotal 2560 5600
015 for additional financing of Rs. 50million so that he could grow his

the future prospects of the company as profitability

busienss & future growth opportunities.

to make a final decision for Anandam Manufacturing Company.

pany inorder to ensure that the company is financially siund and it has

firm and its weaknesses.

2014-15

800
7200
8000
4800
3200

1000
660
340
1200
360
840

2014-15

4700
106
2100
2250
4456
9156
2000
1876
2500
2780
9156
Common Size Statement

Income Statement :

Particulars 2012-13 2013-14 2014-15

Sales
Cash 200 480 800
Credit 1800 4320 7200
Total Sales 2000 4800 8000
COGS 1240 2832 4800
Gross Profit 760 1968 3200
Operating Expenses :
General, admin, selling 80 450 1000
Depreciation 100 400 660
Interest expenses 60 158 340
PBT 520 960 1200
Tax @30% 156 288 360
PAT 364 672 840

Balance Sheet :

Particulars 2012-13 2013-14 2014-15

Assets :
Fixed Assets 1900 2500 4700
Cash & Cash Eq 40 100 106
A/c Receivables 300 1500 2100
Inventories 320 1500 2250
Current Assets 660 3100 4456
Total Assets 2560 5600 9156
Equity & Liabilities
Eq share Capital (Rs, 10 each) 1200 1600 2000
Reserves & Surplus 364 1036 1876
Long term borrowings 736 1236 2500
Current Liabilities 260 1728 2780
Ttotal 2560 5600 9156

Comments :

FOR INCOME STATEMENT :

1) Majority of sales (90%) is derived through credit sales for the company.
2) The COGS has declined for the company over the years, however, all operating expenses (interest exp, selling, ge
have increased for the firm.
3) The Operating & Net profit % of sales is also declining and is quite alarming for the management.
4) This is not a positivity about the profitability of the company.

FOR BALANCE SHEET :

1) Cash and accounts receivables as a % of total assets have decreased.
2) This is a positive trend for the company.
3) The inventory is decreasing as well.
4) The long term debt has increased as a % of total assets for the company & current liabilities have slightly decreas
 % of 2012-13 % of 2013-14 % of 2014-15

10 10 10
90 90 90
100 100 100
62 59 60
38 41 40

4 9.38 12.5
5 8.33 8.25
3 3.29 4.25
26 20 15
7.8 6 4.5
18.2 14 10.5

% of 2012-13 % of 2013-14 % of 2014-15

74.22 44.64 51.33

1.56 1.79 1.16
11.72 26.79 22.94
12.50 26.79 24.57 910 1580
25.78 55.36 48.67
100 100 100

46.88 28.57 21.84

14.22 18.50 20.49
28.75 22.07 27.30
10.16 30.86 30.36
100 100 100

expenses (interest exp, selling, general, admin)

the management.

ent liabilities have slightly decreased.

Trend Analysis
Income Statement :
Particulars 2012-13 % of 2012-13 2013-14
Sales
Cash 200 100% 480
Credit 1800 100% 4320
Total Sales 2000 100% 4800
COGS 1240 100% 2832
Gross Profit 760 100% 1968
Operating Expenses :
General, admin, selling 80 100% 450
Depreciation 100 100% 400
Interest expenses 60 100% 158
PBT 520 100% 960
Tax @30% 156 100% 288
PAT 364 100% 672

Balance Sheet :

Particulars 2012-13 % of 2012-13 2013-14

Assets :
Fixed Assets 1900 100% 2500
Cash & Cash Eq 40 100% 100
A/c Receivables 300 100% 1500
Inventories 320 100% 1500
Current Assets 660 100% 3100
Total Assets 2560 5600
Equity & Liabilities 100%
Eq share Capital (Rs, 10 each) 1200 100% 1600
Reserves & Surplus 364 100% 1036
Long term borrowings 736 100% 1236
Current Liabilities 260 100% 1728
Ttotal 2560 100% 5600
% of 2013-14 2014-15 % of 2014-15

240 800 400

240 7200 400
240 8000 400
228.39 4800 387.10
258.95 3200 421.05

562.50 1000 1250.00

400.00 660 660.00
263.33 340 566.67
184.62 1200 230.77
184.62 360 230.77
184.62 840 230.77

% of 2013-14 2014-15 % of 2014-15

131.58 4700 247.37

250.00 106 265.00
500.00 2100 700.00
468.75 2250 703.13
469.70 4456 675.15
218.75 9156 357.66

133.33 2000 166.67

284.62 1876 515.38
167.93 2500 339.67
664.62 2780 1069.23
218.75 9156 357.66
 Ratio Analysis

Liquidity Ratios : 1) Current Ratio = Current Assets / Current Liabilities

2) Acid Test Ratio / Quick Ratio = (Current Assets - Stock - Prepaid expenses) / Current
OR
2) Acid Test Ratio / Quick Ratio = (Cash + Marketable Securities + Debtors) / Current Lia

1) Current Ratio Particulars 2012-13

Current Assets 660
Current Liabilities 260
Current Ratio 2.54

2) Quick Ratio Particulars 2012-13

Quick Current Assets 660
Current Liabilities 260
Acid Test Ratio/ Quick Ratio 1.31

Turnover Ratios 1) Receivables Turnover Ratio = Credit Sales / Average Receivables ( Debit + Bills Recei
2) Receivable Days = 12 or 52 or 365 / Receivables Turnover Ratio
3) Inventory Turnover Ratio = COGS / Average Inventory (Opening Inventory + Closing
4) Inventory Days = 12 or 52 or 365 / Inventory Turnover Ratio

1) Receivables Turnover Ratio Particulars 2012-13

Credit Sales 1800
Average Receivables 300
Receivables Turnover Ratio 6.00

2) Receivable Days Particulars 2012-13

Number of Days 365
Receivables Turnover Ratio 6.00
Receivables Days 60.83

3) Inventory Turnover Ratio Particulars 2012-13

COGS 1240
Average Inventory 1580
Inventory Turnover Ratio 0.78481013

4) Inventory Days Particulars 2012-13

Number of Days 365
Inventory Turnover Ratio 3.88
Inventory Days 94.07
Capital Structure Ratios 1) Long term debt to total debt = Long term debt / Ttotal Debt
2) Debt to equity Ratio = Long term debt / Shareholders fund

1) Long term debt to total debt Particulars 2012-13

Long term debt
Ttotal Debt
Long term debt to total debt 73.90

2) Debt to equity Ratio Particulars 2012-13

Long term debt 736
Shareholders fund 1564
Debt to equity Ratio 47.06%

Profitability Ratios 1) Gross Profit Ratio = Gross Profit / Net Sales * 100
2) Net Profit Ratio = EAT / Net Sales * 100
3) Return on Equity = Net Income/ Shareholders equity
4) Return on Total Assets = (EAT+Interest)/Ttotal Assets*100

1) Gross Profit Ratio Particulars 2012-13

Gross Profit 760
Net Sales 2000
Gross Profit Ratio 38.00%

2) Net Profit Ratio Particulars 2012-13

EAT 364
Net Sales 2000
Net Profit Ratio 18.20

3) Return on Equity Particulars 2012-13

Net income 364
Shareholders equity 1200
ROE 30.33%

4) Return on Total Assets Particulars 2012-13

EAT + Interest 424
Total Assets 2560
ROTA 16.56

Capital Structure Ratios
3) Total Assets turnover Ratio = Sales / Total Assets
4) Fixed Assets turnover Ratio = Sales / Avg fixed assets
5) Current Assets Turnover Ratio = Liquid assets / Liquid Liabilities
6) Interest Coverage Ratio = EBIT / Interest
7) Working Capital turnover ratio = Sales /WC (CA-CL)
 8) Return on fixed assets = Net income / fixed assets

3) Total Assets turnover Ratio Particulars 2012-13

Sales 2000
Total Assets 2560
Total Assets turnover 0.78

4) Fixed Assets turnover Ratio Particulars 2012-13

Sales 2000
Avg Fixed Assets 1900
FA turnover Ratio 1.05

5) Current Assets Turnover Ratio Particulars 2012-13

LA 660
LL 260
CATR 2.54

6) Interest Coverage Ratio Particulars 2012-13

EBIT 520
Interest 60
ICR 8.67

7) WC turnover Ratio Particulars 2012-13

Sales 2000
WC (CA-CL) 400
WC turnover Ratio 5.00

8) Return on fixed assets Particulars 2012-13

Net Income
Fixed Assets
ROFA 9.16%
ock - Prepaid expenses) / Current Liabilities

Securities + Debtors) / Current Liabilities

2013-14 2014-15 The current ratio measures a company’s ability to pay off short-term liabilities with
3100 4456 current assets. ….............................The company's abiltiy to pay off short tems
liabilities has decreased due to more increase in C.liabilities than C.assets
1728 2780
1.79 1.60

2013-14 2014-15
The acid-test ratio measures a company’s ability to pay off
3100 4456 short-term liabilities with quick
1728 2780 assets…..............................................................the company's
0.93 0.79 ability to return the short term liabilities was weak even when
inventories were considered. Hence, the ratio is not at par
with market standards
e Receivables ( Debit + Bills Receivables )
urnover Ratio
ory (Opening Inventory + Closing Inventory / 2)

2013-14 2014-15 The accounts receivable turnover ratio measures

4320 7200 300 1500 2100 how many times a company can turn receivables
1500 2100 6 2.88 3.428571 into cash over a given period:…..............................
The ability to convert receivables into cash was
2.88 3.43 lower than the market standards from the
beginning and next year it declined drastically, with
only a minimal increase in the succeeding year.
2013-14 2014-15
365 365
2.88 3.43
126.74 106.41
320 1500 2250 1300
2013-14 2014-15
2832 4800
1580 1580 3.88 1.89 2.13
1.79240506 3.037974684

2013-14 2014-15
365 365
1.89 2.13
193.12 171.36
 2013-14 2014-15

41.70 47.35

2013-14 2014-15
1236 2500
2636 3876
46.89% 64.50%

2013-14 2014-15
1968 3200
4800 8000
41.00% 40.00%

2013-14 2014-15
672 840
4800 8000
14.00 10.50

2013-14 2014-15
672 840
1600 2000
42.00% 42.00%

2013-14 2014-15
830 1180
5600 9156
14.82 12.89

uid Liabilities
2013-14 2014-15
4800 8000
5600 9156
0.86 0.87

2013-14 2014-15
4800 8000
2500 4700
1.92 1.70

2013-14 2014-15
3100 4456
1728 2780
1.79 1.60

2013-14 2014-15
960 1200
158 340
6.08 3.53

2013-14 2014-15
4800 8000
1372 1676
3.50 4.77

2013-14 2014-15

26.88% 17.87
 y’s ability to pay off
quick
..........the company's
was weak even when
he ratio is not at par
ds

over ratio measures

can turn receivables
…..............................
ables into cash was
andards from the
lined drastically, with
he succeeding year.
Comments for Liquidity Ratios :

The liquidity of the company is very low and decreases from time to time. The current ratio of the company for 2012-13 is 2
has dropped to 1.79% and decreases by .19% for 2014-15 showing 1.60% current ratio. The company is behind as compared
with 1.60% in 2014-15 as compared to 2.30 to the one current ratio of an average.
The ability to utilize quick assets to satisfy their short term obligation is decreasing throughout the period. It has quick ratio
0.11% higher than average and unfortunately it decreases by 0.38% for 2013-14 and for 2014-15 it has a quick ratio of 0.74%
has insufficient quick assets to be converted to satisfy current liabilities.

Comments for Turnover Ratio :

The company is stable in terms of their Accounts receivable turnover with capability to collect its receivables 6 times. Howe
The ratio drops to 2.88 times and rises by 0.54% as operations continue for third year with Acc Rec turnover of 3.42. Overall
showing good result especially when compared to industry average of 7 times.
The companies receivables days for 3 years is higher than the industries and it shows that the company has a poor policy im
collecting receivables. It can be seen that company has 60 days for 2012-13, which increases to 125 in 2013-14 and again de
with 105 days. The industry days is 52 which shows that company is not into strict implementation of their credit policy.
Inventory turnover measures how effective the company is in management of its inventory ITR for 3 years is less as compare
The drop of inventory turnover ratio is weak in selling their garments in the market, and it may result to excess inventory.
Days supply in inventory measures the days from the moment the inventory was purchased to the day it was sold. Inventor

Comments for Turnover Ratio :

The company has a longer portion of long term debt to total debt. 74% of total liabilties are long term debts for first year. It
from 74% to 42%. However, it increases to 48% for 3rd year. Industry average is 25% which is way lower than the company'
Debt to equity ratio shows how the company uses its debt to finance the equity. The debt to equity ratioshows an increasin
Perhaps the company is a risk taker because the higher the debt to equity ratio the riskier it becomes.
Total assets turnover is an efficiency ratio that measures the company's ability to generate sales from its assets. Total asset
at a trend, however, it is lower compare to the 1.1 of the industry average ratio. This shows that the company is not using it
The fixed asset turnover of Anandam company for 1 year is 1.05 lower by 0.95 as compared to average. For 2 years, it increa

Comments for Profitability Ratio :

The company is stable with Gross Porfit ratio from 38% of 1styear to 41% of 2nd year to 405 of 3rd year degree is insignifica
sells their inventory with a higher gross profit rate , more or less 40% of the cost. It benefits both company and shareholder
Company’s net profit is decreasing from year 1 to year 3. Company's net profit for 2012-13 is 18.3% of its net sales. It decre
to 10.5% net profit of 3rd year. As compared to the 18% industry average, the net profit ratio of Anandam company is way l
The ROE os company shows good result. ROE measures the ability of the company to generate profit from the investments o
ROE for 3 years is 30%,40%, and 40% respectively. These are higher than the 22% of an average industry return on equity. Th
effectively to generate profit and gives a good impression to the investors and to potential shareholders.
ROTA is used to measure the ability of the firm to convert the money used to pucrchase assets into profit. The company ha
Compared to the 0.10 of an average industry, we can say that firm uses the assets effectively to generate profit despite of it
WCTR measures efficiency of company in using their WC tto generate profit. The wctr of Anandam company is 5% in 1st yea
These ratios are lower than average WCTR of 8. This shows inefficiency of the company in utilizing their WC to generate pro
mpany as compared to industry average ratio.

s increasing

of the average. Unfortunately, it srops to 1.7 for year 3.

rs net profit to net sales.

nd year and further decrease

ir shareholders investments

7% in 3rd year.