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Anandam Manufacturing Company - Analysis of
Financial Statement
Essay by Shaira Nami • August 28, 2017 • Case Study • 2,693 Words (11 Pages) • 10,183 Views
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Anandam Manufacturing Company:
Analysis of Financial Statement
Submitted by:
Bito-on, Jessa Marie O.
Jalon, Erna Kaye
Puy, Lauderdale
Sadioa, Leonette Ann G.
Sampang, Hazlin Zuzanna
Finance 211-A
Submitted to:
Mr. John Carlos P. Wee
I. Case Summary
Businesses, once expanded, is invulnerable of arising financial problems that eventually
heightens in the going concern of the company. Agarwal, the owner of the Anandam
Manufacturing Company, a garment business, approached his loan officer and confidently raised
and discussed his company’s financial needs. He submitted a detailed proposal and a project
report to the bank, alongside with their financial statements of previous years to be further
analyzed and processed for loan sanctioning. He seeks to be funded for the amount of 50 million
in sustenance for his developing company since he also believed that their performance was
excellent in a highly competitive market. The money is required to carry out smooth operations
and expand the business. He is in dire need of the loan to meet with his company’s cash and
investment requirements.
II. Objective of the Analysis
To conduct a financial analysis of the company with the assistance of prior knowledge about
financial statement analysis and go over their financial statements: income statement and the
statement of financial position/balance sheet to be supplied with adequate information regarding
the financial health of the firm with the aid of calculating financial statement ratios through
horizontal or trend analysis. Through this analysis, this will serve as the gateway in finding out
whether the said company is worthy of sanctioning the loan or the other side of the coin.
III. Outline and Assessment of the Internal and External Environment of the Company
Strengths
Weaknesses
Modern stylish dresses for children.
Skilled labor
Expertise in Garments for children
below 12 years.
Anand Agarwal kept using both short-term and long-term
borrowings for business expansion.
So he was not aware of the risks involved in simultaneous use of
short-term and long term borrowings.
Opportunities
Growth of Textile Industry in India
Increase in per capita income and
consumerism.
Exports to USA/ High demand in USA
Increase in labor cost in China
Favorable trade policies.
Threats
More and more entrepreneurs would potentially enter to other
sectors
Large players in the market could probably receive huge boost in the
form of FDI.
IV. Analysis and Comparison of the Financial Position and Results of Operation of the
Company
1. Liquidity
1. Current Ratio
The current ratio of Anandam Manufacturing Company shows a decreasing trend. In the year
2012-2013, the liquidity of the company is at 2.54%, a little bit higher compared to the average
ratio of the over-all industry. However, in the succeeding years, it drop to 1.79 (2013-2014) and
eventually at 1.6% in the year 2014-2015. Anandam Company is not as liquid as the other
corporations of the same industry, thus these ratios show unfavorable results to the company.
1. Quick Ratio
The quick ratio for Anandam Corporation shows a decreasing trend. In the year 2012-2013,
the company's ability to service short-term obligations is at 1.31%, at least 11% higher compared to
the average ratio of the industry. However, in the next succeeding years, the ratio dropped by 38%
(2013-2014) which resulted to 0.98 and eventually 0.79 in the year 2014-2015. This is an
unfavorable implication to Anandam Corporation; the corporation’s ability to meet its short term
obligations is not satisfactory. This also implies that Anandam company cannot immediately
convert its current liabilities to finance short term debts.
1. Efficiency
1. The Accounts Receivable Turnover ratio for Anandam Corporation is used to quantify the company’s effectiveness in
extending credit and in collecting debts on that credit. The company’s ratio compared to the industry is lower. In 20122013, it shows that the company can still manage to collect its receivables for 6 times, however, this number gets lower
and lower as years pass. In 2013, the ratio drop to 2.88 times and increases at 3.42 times in the year 2014-2015. In the first
years of operations, the company still needs to improve its policy on the collection of receivables. Unfortunately, in the
year 2013, there was a huge drop which may be due to the company’s inefficiency in collecting and extending credits to
the customer. Over all, the ratio reported is not a good sign for the company. Their performance in terms of extending
credit is not good and should be improved.
2. The Days Sales Outstanding for the receivables of Anandam Corporation shows a large difference compared to the
industry. This is unfavorable for the company because it takes so long for them to collect the receivables. In the next two
years, the gap is even getting larger. This may be attributed to the poor policy implementation of the company.
3. Anandam Corporation’s inventory turnover, measures how effective the company is in the management of its inventory.
The ratios formulated from the company’s financial statements are still lower when compared to the industries average
ratio. For year 2013-2015, a drop of the values is reflected. This is unfavorable for the operation of the company. It may
imply weak sales for Anandam’s garments and, therefore, an excess inventory.
4. The Days Supply in Inventory ratio for Anandam Corporation measures the number of days before the inventories are
sold or distributed. The ratios for the company’s two-year operating period show a really large difference between the
average ratio of the industry. From 116 days in year 2 up to 141 days in year 3. The number of days for the company to
sold the inventories is much more higher compare to the 75 days in the industry. This result is not favorable to the
company’s operation.
1. Leverage
1. The Debt to Equity Ratio of the company indicates how much debt a company is using to finance its assets relative to the
amount of value represented in shareholders’ equity. The debt to equity ratio Anandam Company shows an increasing
trend, from 0.64 in the first year which increased to 1.12 and eventually rises to 1.36. A high debt/equity ratio generally
means that a company has been aggressive in financing its growth with debt. The higher the debt incurred by the
company, the riskier it becomes.
2. The Times Interest Earned ratio measures the firm’s ability to make contractual payments. The ratio of the company for
three consecutive years is lower compared to the average ratio of the industry. This imply an unfavorable result to the
company, and the fact that there is a decresing pattern makes it more unsatisfactory. Lower values of TIE ratio highlight
that the company may not be in a position to meet its debt obligations.
3. The total asset turnover ratio is an efficiency ratio that measures a company's ability to generate sales from its assets by
comparing net sales with average total assets.When compared to the industry’s ratio of 1.1, the company’s ratio for its
three-year operation is lower although in an increasing trend. This implies that the company isn't using its assets
efficiently and most likely have management or production problems.
4. The company’s fixed asset turn over ratio is lower when compared to the industry’s average ratio. From 1.05 in 2012, 1.92
in 2013 and 1.7 in 2014, although the increase-decrease trend is manisfested this may still be considerable because the
operation of the firm may differ from one period to another,still low ratio means inefficient or under-utilization of fixed
assets.Thus, this is an unfavorable implication for the company.
1. Profitability
1. The Gross Profit Ratio of the the company shows a stable flow. Although there is a slight decrease on the third year, the
decrease is still manageable. Compared to the over all average ratio of 40%, the company’s profitability is favorable to the
part of both the company and its shareholders. Higher ratios mean the company is selling their inventory at a higher
profit percentage.
2. Net profit (NP) ratio is a useful tool to measure the overall profitability of the business. Anandam Company’s Net Profit
Ratio shows a decreasing trend. During 2012, there is 0.182 ratio, 0.14 in the second year until it reached to approximately
0.11 in the third year. When compared to the industry’s ratio of 0.18, this is not favorable to the profitability of the
company.
3. Anandam’s Return on Equity ratio shows a positive sign to the company. The average ratio of the industry is at 22%, and
the company generated a 30%, 40%, 40%, respectively for its three-year operation. Since ROE measures the ability of a firm
to generate profits from its shareholders investments in the company. This implies that the company is using its
investors' funds effectively and is favorable on the part of its investors.
4. The ratio on the return of total asset of Anandam Company shows a decreasing flow, from 0.14 in 2012, 0.12 in 2013 and
0.09 in 2014. When compared to the over all ratio of the industry, this value is approxiamtely close to the .10 ratio. Since
ROA shows how efficiently a company can convert the money used to purchase assets into net income or profits, this
implies a favorable result on the part of the investors and the company as well. A positive ROA ratio usually indicates an
upward profit trend as well.
5. The Working Capital Turnover Ratio of Anandam Company is at 5% in 2012, 3.50 in 2013 and 4.77 in 2014. These ratios are
still lower when compared to the industry’s over-all ratio. It shows company’s efficiency in generating sales revenue using
total working capital available in the business during a particular period of time.A low ratio indicates inefficient
utilization of working capital during the period and thus, unfavorable to the company.
201213
2013-14
2014-15
INDUSTRY
Current Ratio
2.54
1.79
1.6
2.30:1
Quick Ratio
1.31
0.93
0.79
1.20:1
Receivable Turnover
Ratio
6 times
2.88
times
3.42
times
7 times
Recievable Days
60 days
125 days
105 days
52 days
Inventory Turnover
Ratio
̵̵
3.11
2.56
4.85 times
Inventory Days
-
116 days
141 days
75 days
Long-term debt to
total debt
0.74
0.42
0.48
24%
Debt-to-equity ratio
47.06%
46.89%
64.50%
35%
Gross profit ratio
0.38
0.41
0.4
40%
Net profit ratio
0.182
0.14
0.105
18%
Return on Equity
30.33%
42
42
22%
Return on total
assets
0.14
0.12
0.09
10%
Total asset turnover
ratio
0.78
0.86
0.87
1.1
Fixed asset turnover
ratio
1.05
1.92
1.7
2
30.03
1.55
1.8
3
Times interest
earned ratio
9.67
7.08
4.53
10
Working capital
turnover ratio
-
5.42
2.21
8
Current asset
turnover ratio
Return on fixed
assets
0.19
0.27
0.18
24%
...
...
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