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 2013-14 2014-15

Sales 10% 10% 10%

Cash Credit 90% 90% 90%
Total sales 100% 100% 100%
Cost of goods sold 62% 26% 16%
Gross profit 38.0% 41.0% 40.0%
Operating expenses: General, 4.0% 9.4% 12.5%
administration, and selling expenses
Depreciation 5.0% 8.3% 8.3%
Interest expenses (on borrowings) 3.0% 3.3% 4.3%
Profit before tax (PBT) 26.0% 20.0% 15.0%
Tax @ 30% 7.8% 6.0% 4.5%
Profit after tax (PAT) 18.2% 14.0% 10.5%

ANAMDAM MANUFACTURING COMPANY

COMMON SIZE BALANCE SHEET

2012-13 2013-14 2014-15

Assets
Fixed assets (net of depreciation) 74.2% 44.6% 51.3%
Current assets
Cash and cash equivalents 1.6% 1.8% 1.2%
Accounts receivable 11.7% 26.8% 22.9%
Inventories 12.5% 26.8% 24.6%
Total 100% 100% 100%
Equity & Liabilities
Equity share capital (shares of $INR10 46.9% 28.6% 21.8%
each)
Reserve & surplus 14.2% 18.5% 20.5%
Long-term borrowings 28.7% 22.1% 27.3%
Current liabilities 10.2% 30.8% 30.4%
Total 100% 100% 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

Increase/ (Decrease)
2012-13 2013-14 Amount
Change Percent
($INR'000) ($INR'000) ($INR'000)
Sales 4 2
200 80 80 140%
Cash Credit 4,3 2,5
1,800 20 20 140%
Total sales 4,8 2,8
2,000 00 00 140%
Cost of goods sold 2,8 1,5
1,240 32 92 128%
Gross profit 1,9 1,2
760 68 08 159%
Operating expenses: General, 4 3
administration, and selling expenses 80 50 70 463%

Depreciation 100 400 300 300%

Interest expenses (on borrowings) 60 158 98 163%

Profit before tax (PBT) 520 9 4 85%

60 40
Tax @ 30% 156 2 1 85%
88 32
Profit after tax (PAT) 364 672 308 85%
 ANAMDAN MANUFACTURING COMPANY

ANANDAM MANUFACTUTING COMPANY

INCOME STATEMENT TREND ANALYSIS FOR APRIL 1 TO MARCH 31

Increase/ (Decrease)
2013-14 2014-15 Amount
Change Percent
($INR'000) ($INR'000) ($INR'000)
8 3
Sales 480 00 20 67%
7,2 2,8
Cash Credit 4,320 00 80 67%

Total sales 4,800 8,000 3,200 67%

4,8 1,9
Cost of goods sold 2,832 00 68 69%
3,2 1,2
Gross profit 1,968 00 32 63%

Operating expenses: General, 1,0 5

administration, and selling expenses 450 00 50 122%
400 6 2
Depreciation 60 60 65%
158 3 1
Interest expenses (on borrowings) 40 82 115%
960 1,2 2
Profit before tax (PBT) 00 40 25%
288 3
Tax @ 30% 60 72 25%

Profit after tax (PAT) 672 840 168 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
1,90 2,50 60
Fixed assets (net of depreciation) 0 0 0 24%

Current assets

Cash and cash equivalents 40 100 60 60%

30 1,50 1,20
Accounts receivable 0 0 0 80%
32 1,50 1,18
Inventories 0 0 0 79%
2,56 5,6 3,04
Total 0 00 0 54%

Equity & Liabilities

1,20 1,60 40
Equity share capital (shares of 0 0 0 25%
$INR10 each)
36 1,03 67
Reserve & surplus 4 6 2 65%
73 1,23 50
Long-term borrowings 6 6 0 40%
26 1,72 1,46
Current liabilities 0 8 8 85%
2,56 5,6 3,04
Total 0 00 0 54%
 ANAMDAN MANUFACTURING COMPANY

ANANDAM MANUFACTURING COMPANY

BALANCE SHEET TREND ANALYSIS FOR APRIL 1 TO MARCH 31

Increase/ (Decrease)
2012-14 2013-15 Amount
Change %
($INR'000) ($INR'000) ($INR'000)
Assets

Fixed assets (net of depreciation) 2,500 4,700 2,200 47%

Current assets
10 10
Cash and cash equivalents 0 6 6 6%
1,50 2,10 6
Accounts receivable 0 0 00 29%
1,50 2,25 7
Inventories 0 0 50 33%
5,60 9,15 3,5
Total 0 6 56 39%

Equity & Liabilities

1,60 2,00 4
Equity share capital (shares of 0 0 00 20%
$INR10 each)
1,03 1,87 8
Reserve & surplus 6 6 40 45%
1,23 2,50 1,2
Long-term borrowings 6 0 64 51%
1,72 2,78 1,0
Current liabilities 8 0 52 38%
5,60 9,15 3,5
Total 0 6 56 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 INTERPRETATION

gross profit It measures the profit in relation to sales.

gross profit margin=
net 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 Income
net profit margin⋰ return on set=
sales A firm should neither have a high ratio nor a low ratio.

1 Profitability ratios
Net Income It measures the measure of the return on investment firm.
Retun on assets ROA= ROA used in evaluating management's efficency in using
Total Assets
assets to generate income.

Net Income Measure the percentage of income derived for every

Return on Equity ROE= dollar
Total Equity
of owners' equity.

2 Liquidity ratio
Net Working Capital Determines if a company can meet its current obligations
using currents assets.
¿ Current Assets−Current Liabilities

It measures the short term liquidity of a firm. A firm with

a higher ratio has better liquidity.
 ANAMDAN MANUFACTURING COMPANY

Current Assets
Current Ratio= A ratio of 2:1 is considered safe.
Current Liability
It measures the liquidity position of a firm.
Current Assets−inventory
Quick ratio=
Currentes Liabilit ies A ratio of 1:1 is considered safe.

This ratio indicates how fast inventory is sold.

cost of good sold
inventory turnover=
average inventory A firm with a higher ratio has better liquidity.

This ratio measures how fast debts are collected.

Net credit sales
Assets management / receivanle turnover= A high ratio indicates shorter time lag between credit
Average Accounts Receivable
3 turnover ratio sales and cash collection.

Net credit purchases

Accounts PayableTurnover= A high ratio shows that accounts are to be settled rapidly.
Average Accounts Payables

4 Leverage ratios/long
term solvency Measure the portion of company assets that is financed by
Total Liabilities
measures Debt ratio/ Debt ¿ Assets= debt (Obligations to third parties)
Total Assets
Indicates the percentage of assets funded by creditors.

Total Liabilities
Debt ¿ Equity Ratio= Indicates the amount of debt incurred for each dollar that
Total Equity owners provide.

EBIT
Time Interest earn/i nterest Coverage Ratios= Indicates
Interest the company's ability to cover its interest
Expenses
expense related to long term debt with current period
earning.
 ANAMDAN MANUFACTURING COMPANY

Net Pro∧it of Equityholders

It measures the profit available to the equity holders on a
Earnings per Share ( EPS )= Per share basis.
Number of Ordinary Shares

It reflects the price currently paid by the market for each

P Market value per Share
Price−Earnings ratio ( )
E
=
Earnings per Share
Rupee of EPS.

Higher the ratio better it is for owners.

Market valuation
5 NP after interest
measures Dividend per Share ( DPS ) = It is the net distributed profit belonging to the
Number of ordinary shares outstanding
shareholders divided by the number of ordinary shares.

Total Dividend It shows what percentage share of the net profit after
taxes and preference dividend is paid to the equity
D
Dividend Payout ratio
P( )
=¿ Equityholders ¿
Earnings per Share
holders.

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 2012-13 2013-14 2014-15
1 Current ratio 2.54 1.79 1.60
2 Acid test ratio (quick ratio) 1.31 0.93 0.79
3 Receivable turnover ratio 6.67 3.20 6.67
4 Receivable days 54 113 54
5 Inventory turnover ratio 3.88 1.89 2.13
6 Inventory days 93 191 169
7 Long-term debt to total debt 74% 42% 47%
8 Debt-to-equity ratio 64% 112% 136%
9 Gross profit ratio 38% 41% 40%
1 Net profit ratio 18% 14% 11%
0
1 Return on equity 23% 25% 22%
1
1 Return on total assets 14% 12% 9%
2
1 Total asset turnover ratio 0.8 0.9 0.9
3
1 Fixed asset turnover ratio 1 2 2
4
1 Current asset turnover ratio 3 2 2
5
1 Interest coverage ratio (times interest 9.7 7.1 8.5
6 earned)
1 Working capital turnover ratio 5 5 5
7
1 Return on fixed assets 19% 27% 18%
8
 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.