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Answer the following questions relating to the HBR

case study on Anandam Manufacturing Co.

Q.1 Prepare Common size statement in following format for Income statement and
Balance sheet and give your comments for all the three years for Income statement and
Balance sheet.
Common Size Income Statement %
2012–13 2013–14 2014–15
Total revenue 100 100 100
Cost of goods sold
Gross profit
Operating expenses:
General, administration, and selling expenses
Depreciation
Interest expenses (on borrowings)
Profit before tax (PBT)
Tax @ 30%
Profit after tax (PAT)

COMMON SIZE BALANCE SHEET (%)

2012–13 2013–14 2014–15


Assets
Fixed assets (net of depreciation)
Cash and cash equivalence
Accounts receivable
Inventories
Total 100 100 100
Liabilities
Equity share capital (shares of ₹10 each)
Reserve and surplus
Long-term borrowings
Current liabilities
Total 100 100 100

Q.2 Prepare Trend Analysis of Income statement and Balance sheet in the following
format taking 2012-13 as base year.
Also write the comment for important items in Income statement and Balance sheet
after doing the analysis in the following format
Trends are an important tool for financial analysis of the company. Trends for year 2 and year 3 are
compared, taking year 1 as the base.
TREND ANALYSIS OF INCOME STATEMENT (%)

2012–13 2013–14 2014–15


Total revenue 100
Cost of goods sold 100
Gross profit 100
Operating expenses:
General, administration, and selling 100
expenses 100
Depreciation 100
Interest expenses (on borrowings)
Profit before tax (PBT) 100
Tax @ 30% 100
Profit after tax (PAT) 100

Trend Analysis of BALANCE SHEET (%)


2012–13 2013–14 2014–15
Assets
Fixed assets (net of depreciation) 100
Cash and cash equivalence 100
Accounts receivable 100
Inventories 100
Total 100
Liabilities
Equity share capital (shares of ₹10 each) 100
Reserve and surplus 100
Long-term borrowings 100
Current liabilities 100
Total 100

Q.3 Compute the following ratios and compare with the industry average in the
following format and give the interpretation of each ratio.
An example is given below:

Ratio and its Year 1 Calculation Year 2 Calculation Year 3 Calculation Industry
formulae Average of Ratio
Given in Exhibit
39iy
Current ratio 660,000 3,100,000 4,456,000 2.30
260,000 = 2.54 1,728,000 = 1.79 2,780,000 = 1.6
Write the interpretation

1 Current ratio 11 Return on equity


2 Acid test ratio 12 Return on fixed assets
Receivable turnover
Return on total assets
3 ratio 13
4 Receivable days 14 Interest coverage ratio
Total assets turnover ratio (Total revenue ÷
Inventory turnover ratio
5 15 Total assets)
Fixed assets turnover ratio (Revenue ÷
Inventory days
6 16 Fixed assets)
Long-term debt to total Current assets turnover ratio (Revenue ÷
7 capital 17 Current assets
Working capital turnover ratio (Revenue ÷
Debt-to-equity ratio
8 18 Working capital
9 Gross margin ratio    
10 Net margin ratio   Total Revenue = Total Sales

Q.4 Based on various ratio computations and their comparison with industry
ratios, would you, as the loan officer, grant the loan request?

Q.5 What areas of improvement can you suggest for the future?