ANANDAM MANUFACTURING

COMPANY
- AN ALYS IS O F F I N AN CIAL S TAT E M E N T S

NIVETHITHA. S
PGDM I-B
1913066
 INDIAN TEXTILE INDUSTRY

• 2ND Largest Producer of garments in the world

• Lucrative industry with ample opportunities for employment(Presently, 45 million employed)
• 24% - Spindle Capacity
• 8% - Global Rotor Capacity
• 4% - Contribution to GDP
• 14% - India’s Industrial Production
• 27% - Foreign Exchange Inflows
• Increase of 6% - Cloth Production (2014)
• Increase of 4% - Man made fibre (2014)
• 14.58% - Overall growth of Textile Market
• $11 billion – FDI
• $60 billion - Anticipated Export Target
• USA – Primary Importer of Indian Garments
 CHALLENGES FACED BY INDIAN TEXTILE INDUSTRY

• Lack of skilled Employees

• Scarcity of energy and ultimate increase in cost

• High Transportation Costs

• Ambiguous and obsolete labor laws

• Outdated technology and reluctance by industries to implement new

technologies

• Lack of economies of scale

 ANANDAM MANUFACTURING COMPANY

• Manufacturer of formal party dresses for girls upto 12 years of age.

• Established in 2012 by Agarwal, an experienced textile engineer.

• Started with a capital of $1.2 million in his residence, later converted into a small factory.

• Recruited Ragini Iyer, a young fashion designer to design new and modern dress styles for
children.

• Demand increased due to the quality of fabrics, innovative designs and fine finishing details.
 ISSUES FACED BY ANANDAM COMPANY

• Increase in Financial Liquidity and Inadequate Funding

• Excessive credit period to customers

• Insufficient factory space

• Low working capital for purchase of raw materials

 PROJECT PROPOSAL
Purpose:
Immediate need of loan from bank to meet the cash and investment requirements of
the company.
Reasons:
• Rapidly growing business and clientele.
• Good credibility of Agarwal making it easy to acquire raw materials
• Old machinery in need of replacement
• Expanding business needs more space
• New human resources to support expansion
• Excessive credit period for customers resulted in delay of operational activities
Conclusion:
Urgent need of $50 million to ensure smooth operations and expansion of business.
 INCOME STATEMENT

2012-2013 2013-2014 2014-2015

Sales:
Credit Sales > Cash Sales =>
Cash Increase in A/C Receivables 200 480 800
Credit 1800 4320 7200

Total Sales 2000 4800 8000

Cost of Goods sold 1240 2832 4800
Accrual concept of sales revenue
Gross Profit 760 1968 3200
results in Profit.
Operating Expenses:
General, Administrative and Selling Expenses 80 450 1000
Depreciation Increase in Interest Exp means increase in borrowings! 100 400 660
Interest Expenses(On Borrowings) 60 158 340
Profit Before Tax(PBT) 520 960 1200
Tax@30% PAT increases yearly, showing the high performance of 156
company 288 360
Profit After Tax(PAT) 364 672 840
 BALANCE SHEET

Assets 2012-2013 2013-2014 2014-2015

Fixed Assets(Net Depreciation) 1900 2500 4700
Current Assets Decreasing CCE due to asset purchases
Yearly Increase in Accounts
Cash and Cash Equivalents Receivable shows the company 40 100 106
has improper Credit Period
Accounts Receivable 300 1500 2100
Inventories Increasing inventory - a sign of expanding business 320 1500 2250
Total Assets 2560 5600 9156
Equity and Liabilities
Equity Share Capital (Rs.10/share) 1200 1600 2000
Reserves and surplus Increasing LTB is not an issue since, the Fixed Assets
364are high to settle the liabilities
1036 1876
Long Term Borrowings 736 1236 2500
Current Liabilities 260 1728 2780
Total Equity and Liabilities 2560 5600 9156
Increasing CL is not an issue since, the CA are high to settle the liabilities
 C ASH FLOW-INDIRECT METHOD
Particulars 2012-2013 2013-2014 2014-2015
Operating activity
Net income 364 672 840
Adjustments:
1.Non-cash expenses
Depreciation 100 400 660
II. Non-operating expenses
Interest expense 60 158 360
III. Increase/decrease in current asset and liability
Accounts receivable -300 -1200 -600
Inventories -320 -1180 -750
Current liabilities 260 1468 1052
Net cash flow from operating activity 164 318 1562
Investing activity
Purchase of fixed asset -2000 -1000 -2860
Financing activity
Issue of shares 1200 400 400
Long term borrowings 736 500 1264
Interest paid -60 -158 -360
Total net cash flow 40 60 6
 C ASH FLOW – DIRECT METHOD
Particulars 2012-13 2013-14 2014-15
I. Operating Activity
Cash received from Sales 1700 3600 7400
Less: Cash paid to supplier (1300) (2544) (4498)
Operating expenses (80) (450) (1000)
Income tax paid (156) (288) (360)
Cash flow from operating activity 164 318 1542
II. Investing Activity
Purchase of fixed asset (2000) (1000) (2860)
Cash flow from Investing activity (2000) (1000) (2860)
III. Financing Activity
Issue of Shares 1200 400 400
Long term borrowings 736 500 1264
Interest paid (60) (158) (340)
Cash flow from Financing activity 40 742 1324
Net Cash Flow 40 60 6
 INFERENCE – MY DECISION

THE ADDITIONAL FUNDING OF $50 MILLION CAN BE GIVEN.

• Good growth of textile manufacturing industry

• Overall High Performance of company (Net Income and Sales are increasing)

• Though there is an increase in borrowings (thereby, increase in interest expenses), it

is not an issue due to the positive cash flow from operations.