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Group A FRA.pptx
- 1. GROUP A Presented by SectionD Ayesha Anjum Khan-2021PGP198 Himanshu Parashar-2021PGP206 Himanshu Bulchandani-2021PGP205 Ruchika Suthar-2021PGP230 Tarun Kant-2021PGP245 Naval Mittal-2021PGP219 R Rajsekar-2021PGP226 Indian Institute of Management, Shillong Financial Reporting and Analysis Group Project PGP21 Term I
- 2. India is thesecond-largest producer of garments in the world. INDIAN TEXTILE SECTOR US$223 billion Expected Market Growth 24% World’s spindle capacity 45 Million People Directly/ Indirectly employed in the sector 4% Contribution to GDP of India Key Growth Drivers: • Increase in per capita income & demographic distribution • Superior quality products • Increased production and exports Textile market has shown growth of ~14.58% in past 3 years. The industry has attracted FDI worth $11 million and anticipates $60 million growth. Key Challenges: • Dearth of trained employees • Increasing energy & transportation costs • Industries reluctant to adopt new technologies Exports anticipated to reach $60 billion in next 3 years, US being the primary market. INDIAN TEXTILE SECTOR CASE OVERVIEW FINANCIAL SITUATION: ANANDAM RATIO ANALYSIS PRESENTATION INDEX : CONCLUSION
- 3. Agarwal could easilyprocure raw material & other resources required for manufacturing, the only problem he faced was getting a stylish designer for new & modern designs to cater market needs. He hired Ragini, Iyer, a young fashion designer, under whom the business flourished exponentially. Anandam Manufacturing Company: Established in April 2012 Business Growth Financial Problems: 2015 In July 2015, Agarwal approached a local bank for additional funding of ₹50 million to continue with the smooth operations and to expand his business. CASE OVERVIEW Anand Agarwal, a qualified textile engineer realized the dearth of good-quality dresses in the market. He opened garment manufacturing company specializing in formal dresses for girls upto 12 years of age, investing ₹1.2 million. Anandam Manufacturing Company INDIAN TEXTILE SECTOR CASE OVERVIEW FINANCIAL SITUATION: ANANDAM RATIO ANALYSIS PRESENTATION INDEX : CONCLUSION
- 4. Key Funding Problems: FINANCIALSITUATION: ANANDAM Working capital required for regular purchases of raw material Excessive credit periods granted to customers Shortage of funds for new manufacturing machines Insufficient factory space In 2012, Anand Agarwal and his wife were the only shareholders and had shares of ₹ 1.2 million. He borrowed ₹0.736 million as mortgage of his assets, which had a value of ₹1.9 million. As the business expanded, he continued to borrow money from the bank and the loan was ₹ 1.236 million in the second year and ₹ 2.5 million in the third year. A part-time accountant maintained the financial records including vouching, cash maintenance, receipts and payments of Anandam. These statements were audited by a professional accountant. The business was generating profits for all the expenses and interest payments. The revenue increased from ₹2 million to ₹8 million in 3 years and PAT increased from ₹0.364 million to ₹0.84 million. In July 2015, Anand Agarwal approached a local bank for additional funding of ₹50 million to meet the growing requirements of the company. INDIAN TEXTILE SECTOR CASE OVERVIEW FINANCIAL SITUATION: ANANDAM RATIO ANALYSIS PRESENTATION INDEX : CONCLUSION
- 5. Current ratio Acid testratio (quick ratio) 01 02 Sector Average 2.30:1 Sector Average 1.20:1 The current ratio, otherwise known as the working capital ratio, measures the ability of a business to meet its short-term obligations that are due within a year. The ratio compares total current assets to total current liabilities. The current ratio looks at how a company can maximize the liquidity of its current assets to settle its debt obligations. The quick ratio, also known as the acid-test ratio, measures the ability of a business to pay its short-term liabilities by having assets that are readily convertible into cash. These assets are cash, marketable securities, and accounts receivable. These assets are considered “quick” assets because they can be quickly and easily converted into cash. 𝐶𝑢𝑟𝑟𝑒𝑛𝑡 𝐴𝑠𝑠𝑒𝑡𝑠 𝐶𝑢𝑟𝑟𝑒𝑛𝑡 𝐿𝑖𝑎𝑏𝑖𝑙𝑖𝑡𝑖𝑒𝑠 𝐶𝑎𝑠ℎ + 𝑚𝑎𝑟𝑘𝑒𝑡𝑎𝑏𝑙𝑒 𝑠𝑒𝑐𝑢𝑟𝑖𝑡𝑖𝑒𝑠 + 𝑎𝑐𝑐𝑜𝑢𝑛𝑡𝑠 𝑟𝑒𝑐𝑖𝑒𝑣𝑎𝑏𝑙𝑒 𝐶𝑢𝑟𝑟𝑒𝑛𝑡 𝐿𝑖𝑎𝑏𝑖𝑙𝑖𝑡𝑖𝑒𝑠 INDIAN TEXTILE SECTOR CASE OVERVIEW FINANCIAL SITUATION: ANANDAM RATIO ANALYSIS PRESENTATION INDEX : Company Ratio 2012-13 2013-14 2014-15 2.54 1.79 1.60 Company Ratio 2012-13 2013-14 2014-15 1.31 0.93 0.79 The current ratio, otherwise known as the working capital ratio, measures the ability of a business to meet its short-term obligations that are due within a year. The ratio compares total current assets to total current liabilities. The current ratio looks at how a company can maximize the liquidity of its current assets to settle its debt obligations. ANALYSIS: Our current ratio for the year 2013-14 and 2014-15 is less than the sector average which indicate a possibility of high risk of distress or default ANALYSIS: Company Acid test ratio is less than the industry ration which suggest that company is taking high amount of risk by not maintaining a proper shield of liquid resources CONCLUSION
- 6. Receivable turnover ratio Receivabledays 03 04 Sector Average 52 days Sector Average 7 times The accounts receivable turnover ratio, sometimes known as the debtor’s turnover ratio, measures the number of times over a specific period that a company collects its average accounts receivable. The accounts receivable turnover ratio can also be manipulated to obtain the average number of days it takes to collect credit sales from customers, known as accounts receivable days. 𝑁𝑒𝑡 𝐶𝑟𝑒𝑑𝑖𝑡 𝑆𝑎𝑙𝑒𝑠 𝐴𝑣𝑒𝑟𝑎𝑔𝑒 𝑎𝑐𝑐𝑜𝑢𝑛𝑡𝑠 𝑟𝑒𝑐𝑖𝑒𝑣𝑎𝑏𝑙𝑒 365 𝑅𝑒𝑐𝑒𝑖𝑣𝑎𝑏𝑙𝑒 𝑇𝑢𝑟𝑛𝑜𝑣𝑒𝑟 𝑅𝑎𝑡𝑖𝑜 INDIAN TEXTILE SECTOR CASE OVERVIEW FINANCIAL SITUATION: ANANDAM RATIO ANALYSIS PRESENTATION INDEX : Company Ratio 2012-13 2013-14 2014-15 54.75 114.0625 95.8125 Company Ratio 2012-13 2013-14 2014-15 6.666667 3.2 3.809524 ANALYSIS: Since the company receivable turnover ratio is less than the industry average, suggests that company collection process is poor ANALYSIS: Company receivable days is more than the sector average implies that time taken by company to recover the amount is more when company to other companies which may lead to cash flow problems in long run CONCLUSION
- 7. Inventory turnover ratio Inventorydays 05 06 Sector Average 4.85 times Sector Average 75 days The days sales of inventory (DSI) is a financial ratio that indicates the average time in days that a company takes to turn its inventory, including goods that are a work in progress, into sales. The inventory turnover ratio measures how many times a business sells and replaces its stock of goods in a given period of time. This ratio looks at cost of goods sold relative to average inventory in the period. This ratio indicates how efficient a business is at clearing its inventories. 𝐶𝑂𝐺𝑆 𝐴𝑣𝑒𝑟𝑎𝑔𝑒 𝐼𝑛𝑣𝑒𝑛𝑡𝑜𝑟𝑦 𝑎𝑡 𝑠𝑒𝑙𝑙𝑖𝑛𝑔 𝑝𝑟𝑖𝑐𝑒 365 𝐼𝑛𝑣𝑒𝑛𝑡𝑟𝑜𝑦 𝑡𝑢𝑟𝑛 𝑜𝑣𝑒𝑟 𝑟𝑎𝑡𝑖𝑜 INDIAN TEXTILE SECTOR CASE OVERVIEW FINANCIAL SITUATION: ANANDAM RATIO ANALYSIS PRESENTATION INDEX : Company Ratio 2012-13 2013-14 2014-15 94.19355 193.3263 171.0938 Company Ratio 2012-13 2013-14 2014-15 3.875 1.888 2.133333 ANALYSIS: Low inventory ratio indicate that company is carrying too much inventory, which could suggest poor inventory management or low sales ANALYSIS: A high days inventory outstanding indicates that a company is not able to quickly turn its inventory into sales. CONCLUSION
- 8. Long-term debt tototal debt Debt-to-equity ratio 07 08 Sector Average 24% Sector Average 35% Ratio between Long-Term Debt and Total Debt. This ratio indicates how much money the company owes in long-term debt for each unit of money it owes in overall debt. The debt-to-equity ratio is a leverage ratio that calculates the proportion of total debt and liabilities versus total shareholders’ equity. The ratio compares whether a company’s capital structure utilizes more debt or equity financing. The ratio looks at total debt which consists of short-term debt, long-term debt, and other fixed payment obligations (such as capital leases). 𝑆ℎ𝑜𝑟𝑡 𝑡𝑒𝑟𝑚 𝑑𝑒𝑏𝑡 + 𝑙𝑜𝑛𝑔 𝑡𝑒𝑟𝑚 𝑑𝑒𝑏𝑡 + 𝑜𝑡ℎ𝑒𝑟 𝑓𝑖𝑥𝑒𝑑 𝑝𝑎𝑦𝑚𝑒𝑛𝑡𝑠 𝑆ℎ𝑎𝑟𝑒 ℎ𝑜𝑙𝑑𝑒𝑟′𝑠 𝑒𝑞𝑢𝑖𝑡𝑦 INDIAN TEXTILE SECTOR CASE OVERVIEW FINANCIAL SITUATION: ANANDAM RATIO ANALYSIS PRESENTATION INDEX : Company Ratio 2012-13 2013-14 2014-15 63.68% 112.44% 136.22% Company Ratio 2012-13 2013-14 2014-15 73.90% 41.70% 47.35% ANALYSIS: A high long term debt ratio indicate that company will have huge interest obligation in future which will affect the cash flow and profit of the company ANALYSIS: A higher than sector average implies that there is high risk of loan default and company may also have difficulty in securing additional fund CONCLUSION 𝐿𝑜𝑛𝑔 𝑡𝑒𝑟𝑚 𝑑𝑒𝑏𝑡 𝑇𝑜𝑡𝑎𝑙 𝐷𝑒𝑏𝑡
- 9. Gross profit ratio Netprofit ratio 09 10 Sector Average 40% Sector Average 18% The net profit percentage is the ratio of after-tax profits to net sales. It reveals the remaining profit after all costs of production, administration, and financing have been deducted from sales, and income taxes recognized. The gross margin ratio, also known as the gross profit margin ratio, is a profitability ratio that compares the gross margin of a company to its revenue. It shows how much profit a company makes after paying off its cost of goods sold (COGS). The ratio indicates the percentage of each dollar of revenue that the company retains as gross profit, so naturally a high gross margin ratio is desired. 𝑅𝑒𝑣𝑒𝑛𝑢𝑒 − 𝐶𝑂𝐺𝑆 𝑅𝑒𝑣𝑒𝑛𝑢𝑒 𝑁𝑒𝑡 𝑖𝑛𝑐𝑜𝑚𝑒 𝑇𝑜𝑡𝑎𝑙 𝑟𝑒𝑣𝑒𝑛𝑢𝑒 INDIAN TEXTILE SECTOR CASE OVERVIEW FINANCIAL SITUATION: ANANDAM RATIO ANALYSIS PRESENTATION INDEX : Company Ratio 2012-13 2013-14 2014-15 18.20% 14.00% 10.50% Company Ratio 2012-13 2013-14 2014-15 38.00% 41.00% 40.00% ANALYSIS: Company GP ratio is at par with sector which indicate that company is doing well on the part of maintaining revenue and expenses ANALYSIS: A lower net profit ratio indicates that company is not doing well on part of converting sales into actual profit and expenses other than operation expenses are on the higher side CONCLUSION
- 10. Return on equity Returnon total assets 11 12 Sector Average 22% Sector Average 10% Return on equity is a measure of a company’s annual return (net income) divided by the value of its total shareholders’ equity, expressed as a percentage (e.g. 10%). Alternatively, ROE can also be derived by dividing the firm’s dividend growth rate by its earnings retention rate (1-dividend payout ratio). There are several ROE drivers, and we will further breakdown the ratio. The return on total assets ratio indicates how well a company’s investments generate value, making it an important measure of productivity for a business. 𝑁𝑒𝑡 𝑖𝑛𝑐𝑜𝑚𝑒 𝑆ℎ𝑎𝑟𝑒ℎ𝑜𝑙𝑑𝑒𝑟′𝑠 𝑒𝑞𝑢𝑖𝑡𝑦 𝑁𝑒𝑡 𝑖𝑛𝑐𝑜𝑚𝑒 𝑇𝑜𝑡𝑎𝑙 𝑎𝑠𝑠𝑒𝑠𝑡𝑠 INDIAN TEXTILE SECTOR CASE OVERVIEW FINANCIAL SITUATION: ANANDAM RATIO ANALYSIS PRESENTATION INDEX : Company Ratio 2012-13 2013-14 2014-15 14.22% 12.00% 9.17% Company Ratio 2012-13 2013-14 2014-15 23.27% 25.49% 21.67% ANALYSIS: A good rule of thumb is to target an ROE that is equal to or just above the average for the company's sector—those in the same business and it is the good sign of anandam that its ROE is equal to sector average ANALYSIS: ROA of company is at par with industry average which indicate that company is efficiently using it assets CONCLUSION
- 11. Total asset turnoverratio Fixed asset turnover ratio 13 14 Sector Average 1.1 Sector Average 2 The fixed asset turnover ratio reveals how efficient a company is at generating sales from its existing fixed assets. A higher ratio implies that management is using its fixed assets more effectively. The total asset turnover ratio compares the sales of a company to its asset base. The ratio measures the ability of an organization to efficiently produce sales, and is typically used by third parties to evaluate the operations of a business. Ideally, a company with a high total asset turnover ratio can operate with fewer assets than a less efficient competitor, and so requires less debt and equity to operate. The result should be a comparatively greater return to its shareholders. 𝑁𝑒𝑡 𝑆𝑎𝑙𝑒𝑠 𝐴𝑣𝑒𝑟𝑎𝑔𝑒 𝑡𝑜𝑡𝑎𝑙 𝑎𝑠𝑠𝑒𝑡𝑠 𝑁𝑒𝑡 𝑆𝑎𝑙𝑒𝑠 𝐴𝑣𝑒𝑟𝑎𝑔𝑒 𝑓𝑖𝑥𝑒𝑑 𝑎𝑠𝑠𝑒𝑡𝑠 INDIAN TEXTILE SECTOR CASE OVERVIEW FINANCIAL SITUATION: ANANDAM RATIO ANALYSIS PRESENTATION INDEX : Company Ratio 2012-13 2013-14 2014-15 1.1 1.9 1.7 Company Ratio 2012-13 2013-14 2014-15 0.8 0.9 0.9 ANALYSIS: Lower ratio indicate that company isn’t using its assets efficiently and most likely have management or production problems ANALYSIS: Company lower fixed turnover ration than sector average indicate that company is most likely not using its fixed assets efficiently CONCLUSION
- 12. Current Asset TurnOver Ratio Interest Coverage Ratio (Times Interest Earned) 15 16 Sector Average 3 Sector Average 10 Current Assets Turnover Ratio indicates that the current assets are turned over in the form of sales more number of times. A high current assets turnover ratio indicates the capability of the organization to achieve maximum sales with the minimum investment in current assets. Higher the current ratio better will be the situation. The times interest earned (TIE) ratio is a measure of a company's ability to meet its debt obligations based on its current income. The formula for a company's TIE number is earnings before interest and taxes (EBIT) divided by the total interest payable on bonds and other debt. 𝑁𝑒𝑡 𝑆𝑎𝑙𝑒𝑠 𝐴𝑣𝑒𝑟𝑎𝑔𝑒 𝐶𝑢𝑟𝑟𝑒𝑛𝑡 𝐴𝑠𝑠𝑒𝑡𝑠 𝐸𝐵𝐼𝐷𝑇𝐴 𝐼𝑛𝑡𝑒𝑟𝑒𝑠𝑡 𝑒𝑥𝑝𝑒𝑛𝑠𝑒 INDIAN TEXTILE SECTOR CASE OVERVIEW FINANCIAL SITUATION: ANANDAM RATIO ANALYSIS PRESENTATION INDEX : Company Ratio 2012-13 2013-14 2014-15 9.666667 7.075949 4.529412 Company Ratio 2012-13 2013-14 2014-15 3.0 1.5 1.8 ANALYSIS: Low current asset turnover ratio indicate that company is not efficiently using its current ratio to generate sales ANALYSIS: Low Interest coverage ratio indicate that company doesn’t have enough funds to service its debts and it can be a problem for a company in near future. In worst case it can even land in liquidation of company CONCLUSION
- 13. Working capital turnoverratio Return on fixed assets 17 18 Sector Average 8 Sector Average 24% Working capital turnover is a ratio that measures how efficiently a company is using its working capital to support sales and growth. Working capital turnover measures how effective a business is at generating sales for every dollar of working capital put to use. A higher working capital turnover ratio is better, and indicates that a company is able to generate a larger amount of sales. how much money the company makes in return for its assets. To calculate RoFA, divide current operational income by investment cost. 𝑁𝑒𝑡 𝑆𝑎𝑙𝑒𝑠 𝑊𝑜𝑟𝑘𝑖𝑛𝑔 𝑐𝑎𝑝𝑖𝑡𝑎𝑙 𝐶𝑢𝑟𝑟𝑒𝑛𝑡 𝑜𝑝𝑒𝑟𝑎𝑡𝑖𝑜𝑛𝑎𝑙 𝑖𝑛𝑐𝑜𝑚𝑒 𝐼𝑛𝑣𝑒𝑡𝑠𝑚𝑒𝑛𝑡 𝑐𝑜𝑠𝑡 INDIAN TEXTILE SECTOR CASE OVERVIEW FINANCIAL SITUATION: ANANDAM RATIO ANALYSIS PRESENTATION INDEX : Company Ratio 2012-13 2013-14 2014-15 19.16% 26.88% 17.87% Company Ratio 2012-13 2013-14 2014-15 5.0 3.5 4.8 ANALYSIS: Company lower working capital turnover ratio indicates that business is investing in too many account receivable and inventory to support its sales which could lead to to an excessive amount of bad debt or obsolete inventory ANALYSIS: CONCLUSION
- 14. CONCLUSION As a loanofficer, I cannot grant the loan. As per the given data, the ratio of the company fall down in financial 2015. The key ratio of the company is also below the industry average ratio which implies that the company may not be able to pay its interest in due time and finally may lead to insolvency due to high collection period and low current ratio than industry average INDIAN TEXTILE SECTOR CASE OVERVIEW FINANCIAL SITUATION: ANANDAM RATIO ANALYSIS PRESENTATION INDEX : CONCLUSION
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