ANAMDAN MANUFACTURING COMPANY
QUESTION 1:
Prepare and analyses the cash flow statement of the company?
Solution :
ANAMDAN MANUFACTURING COMPANY
QUESTION 2:
Prepare and analyze the common size statement of the company?
Solution:
ANAMDAM MANUFACTURING COMPANY
COMMON INCOME STATEMENT, APRIL 1 TO MARCH 31
2012-13
Sales
Cash Credit
Total sales
Cost of goods sold
Gross profit
Operating expenses: General,
administration, and selling expenses
Depreciation
Interest expenses (on borrowings)
Profit before tax (PBT)
Tax @ 30%
Profit after tax (PAT)
2013-14
2014-15
10%
90%
100%
62%
38.0%
4.0%
10%
90%
100%
26%
41.0%
9.4%
10%
90%
100%
16%
40.0%
12.5%
5.0%
3.0%
26.0%
7.8%
18.2%
8.3%
3.3%
20.0%
6.0%
14.0%
8.3%
4.3%
15.0%
4.5%
10.5%
ANAMDAM MANUFACTURING COMPANY
COMMON SIZE BALANCE SHEET
2012-13
Assets
Fixed assets (net of depreciation)
Current assets
Cash and cash equivalents
Accounts receivable
Inventories
Total
Equity & Liabilities
Equity share capital (shares of $INR10
each)
Reserve & surplus
Long-term borrowings
Current liabilities
Total
2013-14
2014-15
74.2%
44.6%
51.3%
1.6%
11.7%
12.5%
100%
1.8%
26.8%
26.8%
100%
1.2%
22.9%
24.6%
100%
46.9%
28.6%
21.8%
14.2%
28.7%
10.2%
100%
18.5%
22.1%
30.8%
100%
20.5%
27.3%
30.4%
100%
ANAMDAN MANUFACTURING COMPANY
QUESTION 3 :
Compute and analyze the trend analysis of the company?
Solution :
ANANDAM MANUFACTURING COMPANY
INCOME STATEMENT TREND ANALYSIS FOR APRIL 1 TO MARCH 31
Sales
Cash Credit
Total sales
Cost of goods sold
Gross profit
Operating expenses: General,
administration, and selling expenses
Depreciation
Interest expenses (on borrowings)
Increase/ (Decrease)
Amount
Change
Percent
($INR'000)
2
80
140%
2,5
20
140%
2,8
00
140%
1,5
92
128%
1,2
08
159%
3
70
463%
2012-13
2013-14
($INR'000)
80
($INR'000)
4
80
4,3
20
4,8
00
2,8
32
1,9
68
4
50
100
400
300
300%
60
158
98
163%
9
4
40
1
32
85%
200
1,800
2,000
1,240
760
Profit before tax (PBT)
520
Tax @ 30%
156
Profit after tax (PAT)
364
60
2
88
672
308
85%
85%
ANAMDAN MANUFACTURING COMPANY
ANANDAM MANUFACTUTING COMPANY
INCOME STATEMENT TREND ANALYSIS FOR APRIL 1 TO MARCH 31
Sales
2013-14
2014-15
($INR'000)
($INR'000)
8
00
7,2
00
480
Cash Credit
4,320
Total sales
4,800
Cost of goods sold
2,832
Gross profit
1,968
Operating expenses: General,
administration, and selling expenses
450
400
Depreciation
158
Interest expenses (on borrowings)
960
Profit before tax (PBT)
288
Tax @ 30%
Profit after tax (PAT)
672
Increase/ (Decrease)
Amount
Change
Percent
($INR'000)
3
20
67%
2,8
80
67%
8,000
4,8
00
3,2
00
3,200
1,9
68
1,2
32
67%
1,0
00
6
60
3
40
1,2
00
3
60
5
50
2
60
1
82
2
40
72
25%
840
168
25%
69%
63%
122%
65%
115%
25%
ANAMDAN MANUFACTURING COMPANY
ANANDAM MANUFACTURING COMPANY
BALANCE SHEET TREND ANALYSIS FOR APRIL 1 TO MARCH 31
Increase/
(Decrease)
2012-13
2013-14
Amount
Change
%
($INR'000)
($INR'000)
($INR'000)
Assets
Fixed assets (net of depreciation)
1,90
0
2,50
0
60
0
40
30
0
32
0
2,56
0
100
1,50
0
1,50
0
5,6
00
60
1,20
0
1,18
0
3,04
0
1,20
0
1,60
0
40
0
36
4
73
6
26
0
2,56
0
1,03
6
1,23
6
1,72
8
5,6
00
67
2
50
0
1,46
8
3,04
0
24%
Current assets
Cash and cash equivalents
Accounts receivable
Inventories
Total
60%
80%
79%
54%
Equity & Liabilities
Equity share capital (shares of
$INR10 each)
Reserve & surplus
Long-term borrowings
Current liabilities
Total
25%
65%
40%
85%
54%
ANAMDAN MANUFACTURING COMPANY
ANANDAM MANUFACTURING COMPANY
BALANCE SHEET TREND ANALYSIS FOR APRIL 1 TO MARCH 31
Increase/ (Decrease)
2012-14
2013-15
%
($INR'000)
Amount
Change
($INR'000)
($INR'000)
2,500
4,700
2,200
47%
10
0
1,50
0
1,50
0
5,60
0
10
6
2,10
0
2,25
0
9,15
6
6
6
00
7
50
3,5
56
6%
1,60
0
2,00
0
4
00
1,03
6
1,23
6
1,72
8
5,60
0
1,87
6
2,50
0
2,78
0
9,15
6
8
40
1,2
64
1,0
52
3,5
56
Assets
Fixed assets (net of depreciation)
Current assets
Cash and cash equivalents
Accounts receivable
Inventories
Total
Equity & Liabilities
Equity share capital (shares of
$INR10 each)
Reserve & surplus
Long-term borrowings
Current liabilities
Total
29%
33%
39%
20%
45%
51%
38%
39%
ANAMDAN MANUFACTURING COMPANY
QUESTION 4:
What are the various ratios computed to analyze financial statement? (in a table list down the ratios, formula and
interpretation)
ANSWER :
CATEGORY
TYPE OF RATIO
gross profit margin=
INTERPRETATION
gross profit
net sales
It measures the profit in relation to sales.
A firm should neither have a high ratio nor a low ratio.
It measures the net profit of a firm with respect to sale.
net profit margin⋰ return on set=
1
Profitability ratios
Retun on assets ROA=
Net Income
Total Assets
Return on Equity ROE=
2
Net Income
sales
A firm should neither have a high ratio nor a low ratio.
Liquidity ratio
Net Income
Total Equity
Net Working Capital
¿ Current Assets−Current Liabilities
It measures the measure of the return on investment firm.
ROA used in evaluating management's efficency in using
assets to generate income.
Measure the percentage of income derived for every
dollar
of owners' equity.
Determines if a company can meet its current obligations
using currents assets.
It measures the short term liquidity of a firm. A firm with
a higher ratio has better liquidity.
ANAMDAN MANUFACTURING COMPANY
Current Ratio=
Quick ratio=
Current Assets
Current Liability
A ratio of 2:1 is considered safe.
It measures the liquidity position of a firm.
Current Assets−inventory
Currentes Liabilit ies
inventory turnover=
A ratio of 1:1 is considered safe.
This ratio indicates how fast inventory is sold.
cost of good sold
average inventory
A firm with a higher ratio has better liquidity.
This ratio measures how fast debts are collected.
3
Assets management /
turnover ratio
Net credit sales
receivanle turnover=
A high ratio indicates shorter time lag between credit
Average Accounts Receivable
sales and cash collection.
Accounts PayableTurnover=
4
Leverage ratios/long
term solvency
measures
Debt ratio/ Debt ¿ Assets=
Net credit purchases
A high
ratio shows that accounts are to be settled rapidly.
Average Accounts
Payables
Total Liabilities
Total Assets
Measure the portion of company assets that is financed by
debt (Obligations to third parties)
Indicates the percentage of assets funded by creditors.
Debt ¿ Equity Ratio=
Total Liabilities
Total Equity
Time Interest earn/i nterest Coverage Ratios=
Indicates the amount of debt incurred for each dollar that
owners provide.
EBIT
Indicates
the company's ability to cover its interest
Interest
Expenses
expense related to long term debt with current period
earning.
ANAMDAN MANUFACTURING COMPANY
Earnings per Share ( EPS )=
Price−Earnings ratio
It measures the profit available to the equity holders on a
Net Pro∧it of Equityholders
Per share basis.
Number of Ordinary Shares
It reflects the price currently paid by the market for each
Rupee of EPS.
P Market value per Share
=
E
Earnings per Share
( )
Higher the ratio better it is for owners.
5
Market valuation
measures
Dividend per Share ( DPS ) =
NP after interest
It is the net distributed profit belonging to the
Number of ordinary
shares outstanding
shareholders
divided by the number of ordinary shares.
It shows what percentage share of the net profit after
Total Dividend
taxes and preference dividend is paid to the equity
D
¿
holders.
Dividend Payout ratio
=¿ Equityholders
P
Earnings per Share
( )
A high D/P ratio is preferred from investor’s point of view.
ANAMDAN MANUFACTURING COMPANY
QUESTION 5 :
Compute the ratios based on case Exhibit 3?
SOLUTION :
ANAMDAN MANUFACTURING COMPANY
ANANDAM MANUFACTURING COMPANY
SUMMARY OF FINANCIAL RATIO
Ratio
1
2
3
4
5
6
7
8
9
1
0
1
1
1
2
1
3
1
4
1
5
1
6
1
7
1
8
2012-13
2.54
1.31
6.67
54
3.88
93
74%
64%
38%
18%
2013-14
1.79
0.93
3.20
113
1.89
191
42%
112%
41%
14%
2014-15
1.60
0.79
6.67
54
2.13
169
47%
136%
40%
11%
Return on equity
23%
25%
22%
Return on total assets
14%
12%
9%
Total asset turnover ratio
0.8
0.9
0.9
Fixed asset turnover ratio
1
2
2
Current asset turnover ratio
3
2
2
9.7
7.1
8.5
5
5
5
19%
27%
18%
Current ratio
Acid test ratio (quick ratio)
Receivable turnover ratio
Receivable days
Inventory turnover ratio
Inventory days
Long-term debt to total debt
Debt-to-equity ratio
Gross profit ratio
Net profit ratio
Interest coverage ratio (times
earned)
Working capital turnover ratio
Return on fixed assets
interest
ANAMDAN MANUFACTURING COMPANY
QUESTION 6 :
Based on these ratios and their comparison with industry ratios, would you, as the loan officer,
grant the loan request?
SOLUTION :
ANANDAM MANUFACTURING COMPANY
INDUSTRY AVERAGE OF KEY RATIOS
2014-15
Ratio
ANANDAM
Sector Average
1.60
2.30:1
Acid test ratio (quick ratio)
0.79
1.20:1
Receivable turnover ratio
7
7 times
Receivable days
54
52 days
Inventory turnover ratio
2.13
4.85 times
Inventory days
169
75 days
Long-term debt to total debt
47%
24%
Debt-to-equity ratio
136%
35%
Gross profit ratio
40%
40%
Net profit ratio
11%
18%
Return on equity
22%
22%
Return on total assets
9%
10%
Total asset turnover ratio
0.9
1.1
Fixed asset turnover ratio
2
2
Current asset turnover ratio
2
3
Interest coverage ratio (times
8
10
interest earned)
Working capital turnover ratio
5
8
Return on fixed assets
18%
24%
As a loan officer, I cannot grant the loan. As per given data, ratio of the company fall down
in financial 2015. Key ratio of the company also below the industry average ratio, for
example current ratio of the company is 1.60 while the average sector is 2.3.