1 Prepare and analize the common statement for Anandam Manuf

1.
Prepare and analize the common statement for Anandam Manufacturing Company. Show all calculations.
2.
Prepare and analize the cash flow statement for Anandam Manufacturing Company. Show all calculations.
3.
Calculate the ratios based on case Exhibit 3. Show all calculations. Based on financial analysis of financial statements, would a loan officer grant a loan to Anandam financial company?

EXHIBIT 3: INDUSTRY AVERAGE OF KEY RATIos Sector Average Ratio 2:301 Current ratio Acid test ratio (quick ratio) 120 Receivable tunover ratioimes turnover 52 days Receivable days Inventory turmover ratio Inventory days Long-term detttototal debt Debt-to-equity ratio Gross profit rato Net profit ratio Retun on equity Retum on total assets 4.85 times 75 days 24% 35% 40% 18% 22% 10% Total asset turnover ratio Ti Fixed asset turnover ratio Current asset tunover ratio3 interest coverage ratio (tmes 10 nterest earned Warking captal smover ratio Retu on ed sset

Solution

1….Common -size Income statement 2012-13 % to Total sales 2013-14 % to Total sales 2014-15 % to Total sales Analysis of % to Total sales proportion Sales Cash 200 10.00% 480 10.00% 800 10.00% Credit 1800 90.00% 4320 90.00% 7200 90.00% Total Sales 2000 100.00% 4800 100.00% 8000 100.00% COGS 1240 62.00% 2832 59.00% 4800 60.00% COGS has reduced in the last 2 yrs. Gross profit 760 38.00% 1968 41.00% 3200 40.00% so, G/P has increased Operating Expenses: Gen.adm.& sell.exp. 80 4.00% 450 9.38% 1000 12.50% % to sales has doubled in 2013-14 & increased by more than 25% in 2014-15 Depreciation 100 5.00% 400 8.33% 660 8.25% Has increased by 3% in the last 2 yrs. Int.exp.(on borrowings) 60 3.00% 158 3.29% 340 4.25% Has slightly increased in 2014-15 Profit before tax(PBT) 520 26.00% 960 20.00% 1200 15.00% PBT% has reduced gradually in both the yrs.due to increase in all operating expenses esp.gen admn.& sell exp. Tax at 30% 156 7.80% 288 6.00% 360 4.50% Decrease % due to decrease in profit % Profit after tax(PAT) 364 18.20% 672 14.00% 840 10.50% PAT% has reduced gradually in both the yrs.due to increase in all operating expenses esp.gen admn.& sell exp. Common-size Balance Sheet Assets % to Total % to Total % to Total Fixed assets(net of dep) 1900 74.22% 2500 44.64% 4700 51.33% Assets have decreased to the total Current assets Cash & Cash equivalents 40 1.56% 100 1.79% 106 1.16% Slight variation in ratio to total Accounts Receivables 300 11.72% 1500 26.79% 2100 22.94% Has increased in 2013-14 & again decreased in 2014-15 Inventories 320 12.50% 1500 26.79% 2250 24.57% Has increased in 2013-14 & again decreased in 2014-15 Total 2560 100.00% 5600 100.00% 9156 100.00% Equity & Liabilities Equity share capital($ 10) 1200 46.88% 1600 28.57% 2000 21.84% Decreased steadily in all the 2 yrs. Reserves & surplus 364 14.22% 1036 18.50% 1876 20.49% Increased steadily in both 2 yrs.due to increase in $ net income in those yrs. Long-term borrowings 736 28.75% 1236 22.07% 2500 27.30% Decreased in 2013-14 & again increased in 2014-15 Current Liabilities 260 10.16% 1728 30.86% 2780 30.36% Increased in 2013-14 & maintained at the same level in 2014-15 Total 2560 100.00% 5600 100.00% 9156 100.00% 2...Cash flow statement 2012-13 2013-14 2014-15 Operating Activities: Net Income 364 672 840 Add: depn. 100 400 660 Adj. net income 464 1072 1500 Changes to working capital A/cs.rec.(300-1500)&(1500-2100) -1200 -600 Inventories(320-1500)&(1500-2250) -1180 -750 Current Liabilities(1728-260)&(2780-1728) 1468 1052 Cash generated from operating activities----------1 160 1202 Investing Activities: Purchase of assets(2000-3000)&(3000-5860) -1000 -2860 Cash used in investing activities-------------------2 -1000 -2860 Financing activities Borrowings(1236-736)&(2500-1236) 500 1264 Issue of shares((1600-1200)&((2000-1600) 400 400 Cash generated from Financinging activities------3 900 1664 Net Cash generated(1+2+3) 60 6 Add:Beginning cash balance 40 100 Ending cash balance 100 106 Workings : 2012-13 2013-14 2014-15 Assets net of depn. 1900 2500 4700 Less:Cumulative depn. 100 500 1160 Gross assets for the year 2000 3000 5860 Analysis: There is increased activity in the year 2014-15 Increase in cash generated from operating activities Increased purchase of fixed assets Increase in long-term borrowings There is same amount of shares issued in both the yrs. 3…..Ratio Analysis 2012-13 2013-14 2014-15 Industry average Current ratio Current assets/Current liabilities 660/260= 3100/1728= 4456/2780= 2.54 1.79 1.60 2.3 :1 Quick Ratio (Current asset-Inventory)/Current Liabilities 340/260= 1600/1728= 2206/2780= 1.31 0.93 0.79 1.20 :1 Receivables T.O.Ratio Net Credit sales/Av.a/cs.Receivables 1800/300= 4320/((300+1500)/2)= 7200/((1500+2100)/2) (Times) 6 4.8 4 7 times Receivable days 365/Receivables Turnover 365/6= 365/4.8= 365/4= 61 76 91 52 Days Inventory T.O.ratio COGS/Av.Inventory 1240/320= 2832/((320+1500)/2)= 4800/((1500+2250)/2)= (times) 3.88 3.11 2.56 4.85 times Inventory days 365/I.T.O. 365/3.88= 365/3.11= 365/2.56= 94 117 143 75 days Long-term debt to total debt LTDebt/Total debt 736/(736+260)= 1236/(1236+1728)= 2500/(2500+2780)= 74% 42% 47% 24% Debt to Equity Ratio Debt/equity 736/1200= 1236/1600= 2500/2000= 61.33% 77.25% 125% 35% Gross profit Ratio Gross Profit/sales 760/2000= 1968/4800= 3200/8000= 38% 41% 40% 40% Net Profit Ratio Net Profit/Sales 364/2000= 672/4800= 840/8000= 18.20% 14% 10.50% 18% Return on equity Net Profit/Total equity 364/1200= 672/1600= 840/2000= 30.33% 42% 42% 22% Return on Total assets Net Profit/Total Assets 364/2560= 672/5600= 840/9156= 14.22% 12% 9.17% 10% Total Asset Turnover ratio Sales/Total assets 2000/2560= 4800/5600= 8000/9156= 0.78 0.86 0.87 1.1 Fixed assets turnover ratio Sales/GrossFixed assets 2000/2000 4800/3000= 8000/5860= 1 1.6 1.4 2 Current assets T.O.Ratio Sales/Current assets 2000/660= 4800/3100= 8000/4456= 3 2 2 3 Int. Coverage ratio PBIT/Int.expenses (760-180)/60= (1968-850)/158= (3200-1660)/340= 10 7 5 10 Working capital turnover ratio Sales/Working capital 2000/(660-260)= 4800/(3100-1728) 8000/(4456-2780) 5 3 5 8 Return on fixed assets Net Income/Gross Fixed assets 364/2000= 672/3000= 840/5860= 18.20% 22.40% 14.33% 24% Long-term solvency ratios --The long-term debt to total debt & the debt-equity ratio exceed the industry average ,indicating excess debt-funding. Also, the short-term liquidity ratios of current & quick ratios are much below the industry average,indicating inadequacy of easily-convertible-to-cash assets in meeting short-term obligations. In addition, interest coverage ratio (5) is very much below the industry norm of 10 ,meaning that interest expenses are not adequately covered by the-before-interest&taxes - income generated . Concluding with reference to the above,as a loan officer, granting loan to Anandam financial company is not recommendable.