Anandam Manufacturing Company Case Solution And Analysis, HBR Case Study Solution & Analysis of Harvard Case Studies

Anandam Manufacturing Company Case Study Analysis

The growth revenue will have a direct impact on increasing the cost factor,which is proved from the above trend analysis statement.

Ratio Analysis

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	5.00	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	1.05	1.92	1.70
Current Asset Turnover Ratio	3.00	3.03	1.55	1.80
Receivables days	52.00	60.83	126.74	106.46
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

Analysis

Current ratios show that company is not performing well in comparison to the industry.
Quick ratio is also indicating that firm won’t be able to finance its current activities.
Working Capital is below the industry rate, which isbecause of the firm’s deficiencies.
ROE of Anandam is performing well as the industry and Anandam have equal ROE.
To earn more or equal to industrial revenue, company needs to improveits Return on Assets.
The company has succeeded in achieving more Return on Fixed Assets than the industry
The Net Profit ratio of Anandam is higher than the industry, which is favorable for the company.
The Gross profit margin is favorable as the company has earned revenues equivalent to the industry.
Anandam’s Receivable Turnover is unfavorable because of it being scoreless.
Total asset turnover is also unfavorable.
Fixed asset turnover ratio is below the industry.
Current asset turnover is same as of above.
Receivable days is higher, which will badly affect the company’s growth.
Inventory Turnover Ratio is also higher, which will increase the storage cost.
Inventory in days is higher, which will increase COGS.
Debt to equity ratio is unfavorable.
Long term debt to total debt has increasing trend, which indicates that the company’s investment in fixed asset has increased.
The company has low coverage ratios, which is unfavorable.

Considering Loan to be approved or not?

Agarwal has already pledge25 million INR of the company’s assets and is now looking for a bank loan of INR 50 million, due to which he is required topledge the company’s asset. Bank pledges the asset as security to mitigate the risk of default by the client.

The company’s low coverage ratio will show negative image of the company,as low coverage ratio means that the company might not be able to pay the interest expense to the bank. As a loan officer will have a first look on the company’s interest ratio in order to make a final decision regarding whether to approve the loan or not.

The debt to equity of Anandam is 3 times lower than the industry, which indicates that the company is at high risk and may default in near future.

Decision to be taken as a loan Officer

For the loan officer, it is crystal clear that Anandam is at high risk and might not be able to pay the debt to bank and will default. The loan officer would disapprove of the loan provision to Anandam, despitethe fact that the company hasbright future planning. But the current analysis has unsatisfactory and unfavorable working capital structure.

Recommendation

The Indian textile industry has increasing trend. The market share of Anandam is increasing and the product line could be improved by investing more in order to achieve its desired goal. Agarwal hasgoodwill in the market, which he can use as his company’s strength to mitigate his funding problem.

The growing trend in the textile industry will attract the new entrantstowards the market in an attempt to grab the market share. Agarwal needs to focus on increasing Anandam’s market share and retain its customer to avoid adverse situation....................................

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