Anandam Manufacturing Company is seeking additional financing of 50 million from a bank. Their current and quick ratios are below industry averages, indicating potential liquidity issues. Their debt to equity ratio has been increasing year-over-year and is higher than industry averages, showing their increasing reliance on creditors over investors. Their accounts receivable collection period has also been increasing, meaning it is taking longer to collect payments from customers. Based on these financial ratios being outside of industry standards, the loan proposal from the bank was rejected.
Anandam Manufacturing Company is seeking additional financing of 50 million from a bank. Their current and quick ratios are below industry averages, indicating potential liquidity issues. Their debt to equity ratio has been increasing year-over-year and is higher than industry averages, showing their increasing reliance on creditors over investors. Their accounts receivable collection period has also been increasing, meaning it is taking longer to collect payments from customers. Based on these financial ratios being outside of industry standards, the loan proposal from the bank was rejected.
Anandam Manufacturing Company is seeking additional financing of 50 million from a bank. Their current and quick ratios are below industry averages, indicating potential liquidity issues. Their debt to equity ratio has been increasing year-over-year and is higher than industry averages, showing their increasing reliance on creditors over investors. Their accounts receivable collection period has also been increasing, meaning it is taking longer to collect payments from customers. Based on these financial ratios being outside of industry standards, the loan proposal from the bank was rejected.
Anandam Manufacturing Company is seeking additional financing of 50 million from a bank. Their current and quick ratios are below industry averages, indicating potential liquidity issues. Their debt to equity ratio has been increasing year-over-year and is higher than industry averages, showing their increasing reliance on creditors over investors. Their accounts receivable collection period has also been increasing, meaning it is taking longer to collect payments from customers. Based on these financial ratios being outside of industry standards, the loan proposal from the bank was rejected.
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Anandam Manufacturing Company
Problem Statement:
1. The core issue identified in the case is regarding the additional financing of 50 million from bank. 2. This money is required to carry out smooth operations and expand the business.
Important ratios to be considered:
Anandam's financial Ratios Industry Average ratios
2012- 2013- 2013 2014 2014-2015 2014-2015
Current Ratio 2.53:1 1.79:1 1.60:1 2.30:1
Quick Ratio 1.30:1 0.92:1 0.79:1 1.20:1 2.88 Accounts Receivables 6 Times times 3.42 times 7 times Debt to Equity ratio 47.06% 46.89% 64.50% 35% Net Profit ratio 18.20% 14.00% 10.50% 18% 3.11 Inventory Turnover ratio - times 2.56 times 4.85 times Return on Equity ratio 30.3% 42% 42% 22% 60.83 126.73 Collection period days days 106.45 days 52 days 9.66 7.07 Industry coverage ratio times times 4.52 times 10 times Working Capital turnover ratio - 5.42 2.21 8
Debt to Equity Ratio
Increasing trend in the Debt to Equity Ratio, it means that the company is financing more from its creditors, rather than investors. Receivable Collection Period In the case study, it is mentioned that one major challenge faced by Anandam is proper structuring of the credit periods. The less is the receivables collection period, the better it is. It can be seen that there is an increase in the receivables collection period, which shows that it takes a lot of time by the customer to pay the company. Industry average is 52 days, whereas for Anandam in FY 2014-15 it is around 106 days Interest Coverage Ratio Even though the business was generating profits, the companys ability to make interest payments to its creditors showed a declining trend. Also, it is very less when compared to the industry average ratio. Decision Rejection of loan proposal.
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