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Anandam Manufacturing Company: Analysis Of Financial Statements Case Solution & Answer

 Anandam Manufacturing Company: Analysis Of Financial Statements Case Solution

Summary

In July 2015, the CEO of Anandam firm went to the bank to get more money to satisfy the increased wants of his fabric firm. The owner was encouraged by the financial probability of his firm, with a well-defined increase in profits and a four times increase in after-tax sales over the last 3 years. He believed his business was very successful in a highly challenging working environment. The bank manager directed the loan manager to make a decision and think about the loan request if possible. Finding a business life may require preparing a normal size statement and using that analysis, explaining the selected ratios and writing a basic cash flow statement. (Vinay Goyal)

Objectives of the Analysis of the Case

The purpose of the examination is to analyze the financial balance and the accuracy of the Anandam building firm. In line with financial examining; Anandam building firm’sfinancial life’s evaluation is a process that suggests to make a number of advice’s for a well-developed and well-controlled attribute strategy to keep the method of credit growth and delivery slowdown, in addition to the build of credit policy.

I wish to prepare adetailed financial study of the firm, to ensure that it has the ability to borrow and pay its liabilities. Additionally, I would also look at their financial statements with the help of previous data regarding the financial studyin order to provide sufficient information on how the company performs, by calculating its financial statements’guess for its direction analysis. This will be the key factor for determining whether the firm is eligible to be granted a loan request or not.

Problem Statement

Anandam building firm has requested the local bank for an extra P50, 000,000 in order to have the needs of the clothing firm fulfilled. Extra credit from advance loan is needed to well organize the businessas well as to increase it. The biggest problem identified was whether or not the loan should be permitted to Anandam Manufacturing after keeping its financial statements under consideration.

Relevant Facts

Ratios Industry 2012-13 2013-14 2014-15
Liquidity Ratios        
Current Ratio 2.30 2.54 1.79 1.60
Quick Ratio 1.20 1.31 0.93 0.79
Working Capital Turnover 8.00 3.50 3.50 4.77
         
Profitability Ratio        
ROE 22% 23% 25% 22%
Return on total Assets 10% 14% 12% 9%
Return on Fixed Assets 24% 31% 45% 33%
Net Profit Ratio 18% 29% 23% 19%
Gross Profit Ratio 40% 38% 41% 40%
         
Management Efficiency Ratios        
Receivables Turnover Ratio 7.00 6.00 2.88 3.43
Total Asset Turnover Ratio 1.10 0.78 0.86 0.87
Fixed Asset Turnover Ratio 2.00 3.03 1.55 1.80
Current Asset Turnover Ratio 3.00 3.03 1.55 1.80
Receivables days 52.00 60.00 125.00 105.00
Inventory Turnover Ratio 4.85 6.25 3.20 3.56
Inventory Days 75.00 94.19 193.33 171.09
         
Leverage Ratios        
Debt To equity Ratio 35% 83% 185% 264%
Long Term Debt to Total Debt 24% 74% 42% 47%
Interest Coverage Ratio 10.00 9.67 7.08 4.53

 

Using the ratios from 2012 to 2015; we can compare the average rates of the Industry and the company, and we can see what problems are existing in the company.

Ratio Analysis

The company’s asset rating indicates an adverse impact. From the company’s current rate, the first year 2012-2013 seems good because 2.54% shows a higher liquidity as compared to the average industry, but as time went by, in 2014-2015, the amount has reduced to only 1.6 % which weakened the company as compared to its peers. After that, its fast rate, from 1.31% in 2012-2013 decreased to 0.79 in 2014-2015. The company’s-liquid balance indicates that it is not able to meet its charges on time. The efficiency of the industry is disappointing; they need to apply the suitable policies for their company.

Their non-profit revenue, magnificent sales time, supply time in inventory and inventory profits show that the company is not doing well as the CEO thought, due to a significant decline in revenue collection, credit increase and sales days for their products is higher than 75 days’increase on customers. I see that the sale-to-equity ratio increases, which means that the company’s-dues go higher than its risks………………………

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