Anandam Manufacturing Company: Analysis of Financial Statements
(4 pages of text)
In July 2015, the owner of the Anandam Company approached a bank for additional funding to meet the growing requirements of his garment manufacturing firm. The owner was confident about the financial prospects of his firm, with its fourfold increase in revenue and phenomenal increase in profit after taxes over the last three years. In a lengthy discussion with the bank manager, the owner shared the development of his company and the dynamics and growth opportunities of the garment and textile market in India. He believed his firm was performing strongly in a highly competitive industry environment. The bank manager instructed the loan officer to process the loan application as soon as possible and make a decision. Determining the health of the company would involve preparing a trend analysis and a common size statement, interpreting selected ratios, and preparing a basic statement of cash flows. Was the Anandam Company a good candidate for receiving a loan?
This case is suitable for use in the early stage of an MBA or undergraduate core course in accounting where students are required to study the financial analysis of an organization. It is also relevant in bank management courses where the approval/rejection of loans is taught.
- The case requires students to conduct a financial analysis of the Anandam Company for the purpose of obtaining a loan from the bank. It entails the use of financial statement analysis, balance sheets, and income statements to provide a complete picture of a firm’s financial health.
- The case allows students to calculate a series of financial ratios and perform basic financial statement analysis, which requires the preparation of a cash flow statement, trend analysis, and common size statements.
- The case will help demonstrate shortcomings in ratio analysis and will serve as a caution to students against misreading and misinterpreting financial statements.
India, Small, 2014
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