ANANDAM MANUFACTURING COMPANY Case Solution And Analysis, HBR Case Study Solution & Analysis of Harvard Case Studies

Anandam Manufacturing Company Case Study Solution

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Date: 15^thNovember 2017

Subject: Analyzing the Anandam Manufacturing Company

Introduction

Anandam Manufacturing Company was established in the year 2012 and was founded by Agarwal. The company had been started by Agarwal who used his own finances of around 1.2 million Indian rupees to establish a small firm. The only shareholders of the company were Agarwal’s wife and himself and they had gained most of the finances by mortgaging their property for starting the business in which they were able to obtain 25 million Indian rupees.

Due to Agarwal’s past experience, he was able to turn this company successful as he had gained a number of customers and was able to gain better revenues by specializing on the dresses for girls who are of the age up to 12. Although Agarwal ran into a problem as he needed finance to further invest in the business by replacing the old machinery, hiring more skilled labours and relocating the business to a larger area.

Background

Anandam Manufacturing Company was one Indian garment factory which was established in the year 2012. India is considered as the second largest garment manufacturer in the world. The company had specialized in making adress for girls who were up to the age of 12 and those dresses were of formal for parties. The company was founded by Agarwal who worked in textile engineering department who had gained the experience needed for running the textile. He had the references for recruiting the desired skilled labours which would be used for making both small and large scale manufacturing units.

As he hadvast knowledge about the textiles, he knew that there was a huge opportunity for making high-quality dresses for girls. He started his business with the capital of 1.2 million Indian rupees. He was able to set up a small factory consisting of the machinery and procuring raw materials. He was also able to hire skilled labours, however, faced problems in recruiting a stylish design.

Issues

Agarwal had the experience in manufacturing the garments, running the machinery and information on the market. However, he lacked the experience for dealing with the financial dynamics of the company which has led the company to financial troubles. The company no longer had the capital for further investments in the usiness, purchasing raw materials and hiring more skilled labours. The main reason was that most of the customers bought the products on credit which led to the low generation of revenues and also the stocks were piling on the inventory as they were not being dispatched or the customer was postponing the delivery.

Analysis:

Analyzing the financial statements of the company, it was found out that the revenues had increased by 165% in just two years as it had revenue of 40,000 Indian rupees and was increased to 106,000 Indian rupees. While looking on the cash flows, the company was able to generate 1,202,000 rupees in the year 2015 from the operations. Meaning that the company focused on improving its profits through the operations as the revenues keep on changing each year.

Anandam had invested a huge amount of its capital in purchasing the plant and equipment in the two years as it had been considering to further expanding the business as the values of the fixed assets increased to 150%. Analyzing the ratios, it was found that the company had unfavourable ratio of the fixed assets return, turnover and also the total asset turnover through comparing the results with the industry sector.

The company also had high long-term liability as it had taken ahugeamount of capital from the bank. The company’s revenue was 140% in the year 2014 which is considered as a high growth although, during the year 2015, its revenue started to decline due to the customers delaying their payment which resulted in the loss of revenues. The gross profit margin and the cost of sales are much more attractive compared to the previous year 2014 with the current year.

Analyzing the ratios of the company with the industry sector, most of the ratios were unfavourable such as its current ratio, receivable ratio and inventory days as the ratio was lesser than the average sector. Although, some of the ratios were better with the average industry such as gross profit margin and the long-term debt.

Based on the company ratios and their comparison with the average industry, most of the ratios were unfavourable in which as a loan officer I would not grant the loan as requested.

Conclusion:Anandam Manufacturing Company was founded in the year 2012 and was specialized in making dresses for girls for aformal party. The company had been founded by Agarwal who used all his finance and loan from the bank for establishing and running the company. The company ran into financial troubles as most of the machinery needed replacement, thestock was piling up and lack of the materials for further completing the orders.

Recommendation: The best course of action for the company would be to first getting rid of the stock which had been piling up through dispatching it and making the necessary agreements with its customer for freeing up space in the factory. Agarwal should also gain more knowledge about the market such as the demand for customers and latest fashion and use that information for capturing the market which would help the company in generating better revenues. Lastly, Agarwal should sell the product on cash rather than on credit as most of its customers are delaying their payments which is generally creating more financial troubles..............

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