Anandam Manufacturing Company - Accounting and Finance Assignment Help

Assignment Task

ANANDAM MANUFACTURING COMPANY: ANALYSIS OF FINANCIAL STATEMENTS  
In July 2015, Anand Agarwal, owner of the Anandam Manufacturing Company (Anandam), approached the local bank for additional funding of 50 million1 to meet the growing requirements of his garment manufacturing company. After a fourfold increase in revenue from 2 million to 8 million in three years and a phenomenal increase in profit after taxes (PAT) from 0.364 million to ?0.84 million during the same period, Agarwal confidently discussed the financial needs of his company.

In a lengthy and healthy discussion with the bank manager, Agarwal explained the development of his company and the dynamics and growth opportunities of the garment and textile market in India. Agarwal proudly presented the performance of his company to the bank manager, which he believed was excellent in a highly competitive industry environment. The bank manager handed over the financial records of Anandam, including an income statement and balance sheet (see Exhibits 1 and 2), to his loan officer and ensured Agarwal that once the documents were processed and analyzed, he would get back to him in the coming week. He instructed the loan officer to process the loan application submitted by Agarwal as soon as possible and inform him about the decision taken by the bank.  

INDIAN GARMENT MANUFACTURING SECTOR  
India was the second-largest producer of garments in the world. The textile sector in India contributed 24 per cent of the world’s spindle capacity and 8 per cent of the global rotor capacity. By 2021, this industry was expected to grow in size to US$223 billion.2 An ample availability of raw materials and a skilled workforce had helped the country become a lucrative centre for the world garment industry.3 
The Indian textile sector contributed 4 per cent to the gross domestic product of the country; 14 per cent  of India’s industrial production came from this industry and 27 per cent of its foreign exchange inflows came from the Indian textile sector. More than 45 million people were directly or indirectly employed in  the garment industry. Demand for garments in the domestic market, as well as in the international market,  had strengthened the growth prospects of the textile sector. In 2014, cloth production in the Indian textile  mill segment grew by 6 per cent, and the production of man-made fibre increased by 4 per cent. It was  anticipated that the textile and garment manufacturing segment was set for strong, robust growth, which  was also supported by data.4 The industry average of key ratios also illustrates that the financial performance of companies in the textile segment are reasonably constant and stable (see Exhibit 3). In the past three years, the textile market in India had registered growth of approximately 14.58 per cent. In FY2013/14, the Indian garment industry attracted foreign direct investment worth $11 billion, and a textile industry expert had anticipated that the exports of garments from India would reach $60 billion in the next three years. This would be supported by increased labour costs in China, improvements in demand from the United States, and improvement in the quality of products manufactured in India. An approximate 12 per cent higher growth over 2012–13 was achieved in 2013–14 in the export of textile products in India, which touched the encouraging figure of $35.4 billion.5 The United States had been the primary market for Indian garment exporters.

CHALLENGES FACED BY THE INDIAN TEXTILE INDUSTRY  

The Indian textile industry faced many challenges, including:

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, and  
a lack of economies of scale.7

ANANDAM MANUFACTURING COMPANY  

Established in 2012, Anandam was in the business of garment manufacturing, specializing in formal party dresses for girls up to 12 years of age. Agarwal, a qualified textile engineer who had worked for almost 12 years in a local garment manufacturing company, had left his job to open this small manufacturing unit, together with some of the skilled labourers he had known for many years. He was aware that competition was stiff in the sector, as both small-scale units and large-scale manufacturing units were present. Agarwal felt that there was a dearth of good-quality dresses in the market. He was confident that if he provided innovative and modern garments to customers at reasonable prices, a sizeable share of the market still not penetrated by large companies could be captured. He was also aware that opportunities were growing in this segment.8 

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