CASH FLOW ANALYSIS

ANANDAM MANUFACTURING
COMPANY
 ABOUT TEXTILE INDUSTRY
 It is primarily concerned with the design, production and distribution of yarn, cloth and clothing
 By 2021;it is expected to grow - US$ 223 billion in size
 Contributions:
S. No Statistics Value(in %)
1. GDP 4
2. India’s Industrial Production 14
3. Foreign Exchange Inflows 27
4. World’s Spindle Capacity 24
5. Global Rotor Capacity 8

 Growth(in 2014):

S.No. Segment Value(in %)

1. Textile Mill 6
2. Man-Made Fiber 4
3. Textile Market 14.58

 FY 2013-14:
1. Indian garment industry invested in Foreign Direct Investment - $11 billion
2. Exports of textile products in India - $35.4 billion
CHALLENGES FACED BY TEXTILE INDUSTRY
 A dearth of trained employees
 A shortage of energy and simultaneously increasing
costs of energy
 High transportation costs
 Ambiguous and obsolete labour laws
 Outdated technology and reluctance by industries to
implement new technologies
 A lack of economies of scale
ANANDAM MANUFACTURING COMPANY
 About Company:
1. Started in April 2012 as Private Limited Company
2. 2 Shareholders of $1.2 million
3. Formal party dresses for girls upto 12 years of age

 Financial Situation:
1. the working capital was insufficient
2. excessive credit periods to customers
3. shortage of funds
4. insufficient factory space
5. employees required-more skilled employees were required
6. stock piling
7. old machinery-No advance or modern machines.

 PROPOSAL TO THE BANK : Additional Funding of 50 million at a

minimum to continue with smooth operations and to expand his business
 INCOME STATEMENT
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 and 80 450 1000
selling expense
Depreciation 100 400 660
Interest expense(on 60 158 340
borrowings)
Profit Before Tax(PBT) 520 960 1200
Tax(at 30%) 156 288 360
Profit After Tax(PAT) 364 672 840
 BALANCE SHEET
2012-13 2013-14 2014-15
ASSETS
Fixed assets(net of depreciation) 1900 2500 4700
Current assets
Cash and Cash equivalents 40 100 106
Accounts Receivable 300 1500 2100
Inventories 320 1500 2250
Total Assets 2560 5600 9156
EQUITY AND LIABILITIES
Equity Share Capital 1200 1600 2000
Reserve and Surplus 364 1036 1876
Long-Term Borrowings 736 1236 2500

Accounts Payable 260 1728 2780

Total Liabilities 2560 5600 9156
INFERENCE IN FINANCIAL
STATEMENTS
Income Statement:
◦ Credit balance is proportionally higher than the Cash balance.
◦ Throughout the year, the cost of goods and operating expense has been
increased.
◦ Profit has been increased from Rs. 364000 to Rs. 840000.
Balance Sheet:
◦ There is an increase in the receivables collection period.
◦ Borrowing has been increased at phenomenal rate.
◦ The company has too much inventories.
◦ Depreciation cost increases as the equipments becomes old and shortage of
equipments
◦ Even though the business was generating profits, the company’s ability to
make interest payments to its creditors showed a declining trend. Company
is depending on the borrowing.
 CALCULATIONS:
Amount collected from customers = Total sales – Increase/Decrease in Accounts Receivable
Year Sales Accounts Receivable Amount Collected

2012-13 2000 300 1700

2013-14 4800 1200 3600

2014-15 8000 600 7400

Amount paid to the Suppliers:

COGS= Purchases + Opening Inventory – Closing Inventory
Purchases = COGS – Opening Inventory + Closing Inventory
2012-13 2013-14 2014-15
COGS 1240 2832 47800
Opening Inventory 0 320 1500
Closing Inventory 320 1500 2250
Purchases 1560 4012 5550
Accounts payable 260 1468 1052
Amount paid to the supplier 1300 2544 4498
 DIRECT METHOD
PARTICULARS 2012-13 2013-14 2014-15
(Rs. In thousands) (Rs. In thousands) (Rs. In thousands)

I.CASH FLOW FROM OPERATING ACTIVITIES

Add: Cash received from Sales 1700 3600 7400
Less: Cash paid to supplier (1300) (2544) (4498)
Less: Operating expenses
General , administration and selling (80) (450) (1000)
Tax Paid (156) (288) (360)
NET CASH FLOW FROM OPERATING ACTIVITY 164 318 1542
II. CASH FLOW FROM INVESTING ACTIVITIES
Less: Purchase of fixed asset (2000) (1000) (2860)
NET CASH FLOW FROM INVESTING ACTIVITY (2000) (1000) (2860)
III.CASH FLOW FROM FINANCIAL ACTIVITIES
Add: Issue of Shares 1200 400 400
Add: Long term borrowings 736 500 1264
Less: Interest Expense (60) (158) (340)
NET CASH FLOW FROM FINANCING ACTIVITY 1876 742 1324
Net increase in cash 40 60 6
Beginning Cash 0 40 100
NET CASH FLOW AT THE END OF THE YEAR 40 100 106
INDIRECT METHOD
 PARTICULARS 2012-13 2013-2014 2014-2015

I.CASH FLOW FROM OPERATING ACTIVITIES

Net Income 364 672 840
Adjustments
Non-Cash Expenses
Add: Depreciation 100 400 660
Non Operating Expense: Add: Interest Expense 60 158 340
Increase or Decrease in CA or CL
Add: Increase in Accounts Payable 260 1468 1052
Less: Increase in Accounts Receivable (300) (1200) (600)
Less: Increase in Inventory (320) (1180) (750)
NET CASH FLOW IN OPERATING ACTIVITIES 104 160 1202
II. CASH FLOW FROM INVESTING ACTIVITIES
Less: Purchase of Fixed Assets (2000) (1000) (2860)
NET CASH FLOW IN INVESTING ACTIVITIES (2000) (1000) (2860)
III.CASH FLOW FROM FINANCIAL ACTIVITIES
Add: Equity Share Capital 1200 400 400
Add: Increase in long term borrowings 736 500 1264
Less: Interest Paid (60) (158) (340)
NET CASH FLOW IN FINANCIAL ACTIVITIES 1936 900 1664
Net increase in cash 40 60 6
Beginning Cash 0 40 100
NET CASH FLOW AT THE END OF THE YEAR 40 100 106
 FINAL DECISION MAKING

 Decision: I would suggest rejection of the Loan proposal for

50 millions by the Bank Loan Officers.
 Impacts:
◦ Moreover, Anand Agarwal had almost mortgaged his entire
property, The situation in which banks are currently operating is
very risky, with the number of non-performing assets increasing at a
very high rate.
 Anand Agarwal kept using both short-term and long-term
borrowings for business expansion.
 So he was not aware of the risks involved in simultaneous
use of short-term and long-term borrowings.
THANK YOU