Textile Industries • India textile industry Second largest in the world 24% of world’s spindle capacity 8% of global rotor capacity 4% to the GDP of india 27% of forex from Indian textile sector Indian textile mill segment 6% increases Production of Man-made fibre increases 4% Challenges • Challenges faced by the industry A dearth of trained employees A shortage of energy and simultaneously increasing costs of energy High transportation costs Ambiguous and obsolete labour laws A lack of economies of scale Outdated technology and reluctance by industries to implement new technologies ANANDAM MANUFACTURING Co. • Established in 2012 • Agarwal,a qualified textile engineer • Specialization in formal party dresses for girls upto 12 yrs of age. • With limited capital of Rs. 1.2 million • Ragini Iyer appointed as fashion designer • Business started to grow Issues faced by company • The issues faced by the company are Delayed delivery Not dispatched Stock piling Up Smaller space Financial status Financial Situation • Company faced funding problems The working capital required regular purchases of raw materials. Excessive credit periods granted to customers. A shortage of funds for purchasing new machines required for manufacturing and Insufficient factory space. Project proposal • Larger location • Buying new machines • Expanding the business and smooth operations • Skilled labours and additional staffs INCOME STATEMENT(IN RS. THOUSAND) PARTICULARS 2012-13 2013-14 2014-15 SALES CASH 200 480 800 CREDIT 1800 4320 7200 TOTAL SALES 2000 4800 8000 COST OF GOODS SOLD 1240 2832 4800 GROSS PROFIT 760 1968 3200 OPERATING EXPENSES GENERAL,ADMINISTRATION, SELLING EXPENSES 80 450 1000 DEPRECIATION 100 400 660 INTEREST EXPENSES 60 158 340 PROFIT BEFORE TAX(PBT) 520 960 1200 TAX@30% 156 288 360 PROFIT AFTER TAX(PAT) 364 672 840 INCOME STATEMENT ANALYSIS(IN %) PARTICULARS 2013-14 2014-15 SALES CASH 140.00 66.67 CREDIT 140.00 66.67 TOTAL SALES 140.00 66.67 COST OF GOODS SOLD 128.39 69.49 GROSS PROFIT 158.95 62.60 OPERATING EXPENSES GENERAL,ADMINISTRATION, SELLING EXPENSES 462.50 122.22 DEPRECIATION 300.00 65.00 INTEREST EXPENSES 163.33 115.19 PROFIT BEFORE TAX(PBT) 84.62 25.00 TAX@30% 84.62 25.00 PROFIT AFTER TAX(PAT) 84.62 25.00 INCOME STATEMENT ANALYSIS • There has been profit in the company during the year 2013-14 • The profit in the year 2014-15 is less when compared to 2013-14 • Gross profit for 13-14 is 158.95% • Gross profit for 14-15 is 62.60% BALANCE SHEET(IN RS. THOUSANDS) PARTICULARS 2012-13 2013-14 2014-15 ASSETS FIXED ASSETS 1900 2500 4700 CURRENT ASSETS CASH AND CASH EQUIVALENTS 40 100 106 ACCOUNTS RECEIVABLE 300 1500 2100 INVENTORIES 320 1500 2250 TOTAL 2560 5600 9156 EQUITY AND LIABILITIES EQUITY SHARE CAPITAL 1200 1600 2000 RESERVE AND SURPLUS 364 1036 1876 LONG TERM BORROWINGS 736 1236 2500 ACCOUNT RECEIVABLES 260 1728 2780 TOTAL 2560 5600 9156 BALANCE SHEET ANALYSIS(IN %) PARTICULARS 2013-14 2014-15 ASSETS FIXED ASSETS 31.58 88.00 CURRENT ASSETS CASH AND CASH EQUIVALENTS 150.00 6.00 ACCOUNTS RECEIVABLE 400.00 40.00 INVENTORIES 368.75 50.00 TOTAL 118.75 63.50 EQUITY AND LIABILITIES EQUITY SHARE CAPITAL 33.33 25.00 RESERVE AND SURPLUS 184.62 81.08 LONG TERM BORROWINGS 67.93 102.27 ACCOUNT RECEIVABLES 564.62 60.88 TOTAL 118.75 63.50 BALANCE SHEET ANALYSIS • The cash and cash equivalents decreases abruptly in the year 2014-15. • There is 6% increase in cash • There is an huge increase of long term borrowings of about 102.27% during the year 2014-15 CASH FLOW USING DIRECT METHOD PARTICULARS 2012-13 2013-14 2014-15 OPERATING ACTIVITY CASH RECEIVED FROM CUSTOMERS 1700 3600 7400 LESS:CASH PAID -1300 -2544 -4498 OPERATING EXPENSES -80 -450 -1000 INCOME TAX PAID -156 -288 -360 CASH FLOW FROM OPERATING ACTIVITIES 164 318 1542 INVESTING ACTIVITY PURCHASE OF FIXED ASSETS -2000 -1000 -2860 CASH FLOW FROM INVESTING ACTIVITIES -2000 -1000 -2860 FINANCING ACTIVITY ISSUE OF SHARES 1200 400 400 LONGTERM BORROWINGS 736 500 1264 INTEREST PAID -60 -158 -340 CASH FLOW FROM FINANCING ACTIVITIES 1876 742 1324 NET CASH FLOW 40 60 6 OPENING CASH AND CASH EQUIVALENTS 0 40 100 NET CASH AT THE END OF THE YEAR 40 100 106 CASH FLOW USING INDIRECT METHOD PARTICULARS 2012-13 2013-14 2014-15 OPERATING ACTIVITY NET INCOME 364 672 840 ADJUSTMENTS DEPRECIATION 100 400 660 INTREST EXPENSE 60 158 340 INCREASE IN ACCOUNTS RECEIVABLE -300 -1200 -600 INCREASE IN INVENTORIES -320 -1180 -750 INCREASE IN CURRENT LIABILITIES 264 1468 1052 CASH FLOW FROM OPERATING ACTIVITIES 164 318 1542 INVESTING ACTIVITY PURCHASE OF FIXED ASSETS -2000 -1000 -2860 CASH FLOW FROM INVESTING ACTIVITIES -2000 -1000 -2860 FINANCING ACTIVITY ISSUE OF SHARES 1200 400 400 LONGTERM BORROWINGS 736 500 1264 INTEREST PAID -60 -158 -340 CASH FLOW FROM FINANCING ACTIVITIES 1876 742 1324 NET CASH FLOW 40 60 6 OPENING CASH AND CASH EQUIVALENTS 0 40 100 NET CASH AT THE END OF THE YEAR 40 100 106 DECISION • The loan amout is 50m. • The total value of the company is less than 50m. • Already there is an huge amount of long term borrowings and his assets are in mortage. • There is an slight profit. • The final decision is that the loan for the project proposal has to be rejected.