Anandam manufacturing company analysis of financial statements solution

Anandam Manufacturing Company: Analysis Of Financial Statements

Wade’s Office Furniture Company

A credit analysis case study by Catherine Joslin

Naqeeb Ali

Elhaym Mehdi

Muhammad Shamsi

What is Wade’s Furniture Company?

Our client is Marcus Wade,the president and majority owner of Wade’s Office Furniture

Wade’s has been in business for 25+ years and a good customer of the bank for the last 10 years

Wade has requested a term loan of $400,000 to purchase new equipment

Wade has also requested an increase in the company’s credit line from $900,000 to $1.2 million

You’re Approved! But why?

Character: Mr. Wade has been a good customer of the bank for the past 10 years, not to mention that he also provided 3 years of historical income statement and balance sheet data(2011-2013), and also provided 2 years of pro forma data (2014-2015).

Capacity : Mr.Wade has been in business for more than 25 years and has backlogged orders totaling $250,000 as well as a 52% increase in sales for 2013

Capital: Mr. Wade has backorders worth $250,000 and sales projected to increase another 50%

Collateral: Mr.Wade's inventory, store, accounts receivable, and equipment.

Condition: Conditions in regards to economy are looking good for office furniture

You’re Approved! But why? cont...

We approve Mr. Wade’s loan for a number of reasons. The first reason the loan was approved is the fact that sales have been going up. In 2013 Mr. Wade’s reported a 52% increase in sales, with sales projected to increase another 50% by 2014. Not only that but Mr. Wade also has backlogged orders which are valued at $250,000. Not only that but Mr.Wade also has good collateral in the form of not only his inventory but also his building from which he conducts his business. Another reason why the loan was approved is because Mr.Wade is a man of great character. Being a good customer of the bank for the last 10 years, and running his business for the last 25 years. Due to all these reasons we have elected to approve Mr. Wade’s request for a term loan, and to increase his credit line from $900,000 to $1.2 million dollars.

Let’s look at the income statement

Cash Flow Statement

But does it balance?

Ratio Shmashio

Wade’s Liquidity Ratio shows us that he is fully capable of paying off his liabilities, this gives us assurance that he will pay off his debt to us

Wade’s Activity Ratio shows us that he is able to convert his inventory to sales fairly easily and can turn over his sellable assets for revenue quickly

Wade’s Leverage Ratio is slightly high but he is a growing business and we can tell that even with a large amount of debt he is able to pay off current portions on time and easily

Wade’s Profitability Ratio is good, not great but we can see that he’s a steadily growing business and we like to see profitability and growth together

You can’t compare where you don’t compete

Wade’s office furniture competes with local and global office furniture brands, and even so he is seeing steady growth of sales and business over the years.

If we compare Wade to the market, his overall sales and inventory don’t quite reach his competitors, but his growth in those areas do.

We can see Wade’s Office Furniture is steadily growing as a business and will continue to bring in revenue

Wade better have my MONEY

Primary repayment source

Cash flow from ongoing operations

Secondary repayment source

Inventory

Tertiary repayment source

Building

PP slides:

1. cover page

2. description on wade and his business (FICO score, business model, history, loan request, reason)

3. 5 Cs, and why we would approve/disapprove

4. Income statement (picture)

5. cash flow statement (picture)

6. Balance sheet (picture)- ratios for days receivable, inventory turnover, if liabilities are heavily financed by debt

7. Whys of Liquidity, Activity, Leverage, and profitability ratios

8. RMA comparisons to market

9. primary, secondary, tertiary sources of repayment