Introduction: of 50 employees in 1970s. The main


Introduction:

This case study is belonged
to the Millan’s Fashion Coat Manufacturing Company which is located in Paterson,
New Jersey. It consist of 50 employees in 1970s. The main business of the
organization is to manufacture the coats for men and some outwear for women and
children. Initially, they sold their product by retailing but when the concept
of online shopping was aroused in the entire world or USA they decided to shift
their approach retailing to online selling. So, they decided to shut off the
catalogue sales and start to sell through internet. Millan Company succeed in
this plan just because of they hire correct persons for this job.

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Now they decided to expand
their business and manufacturing operations. They want to work in New York City
parallel to New Jersey, for this they need to larger production for meeting the
demand.

Objective:

Millan’s Fashion Company
wants to expand their business for this purpose they need funds. So, they applied
for the funds from commercial banks.

Abstract:

This case study emphases
on a firm’s debt condition as it endeavours to grow its manufacturing jobs. The
firm needs financial capital to nurture but its business project and financial
situation are measured dangerous and it must be methodology a commercial bank in
order to obtain funds. A bank lending officer must examine the firm’s financial
statements and evaluate whether a loan is possible. The advancing officer must survey
the vital pieces of the firm’s financial statements, do ratio analysis, and
then extract a decision as to whether to extend the loan or not.

Current Situation:

Milan Fashions is
eventually looking to increase its producing functions and this means retailing
more of its goods through the internet. The company saw it would have to ensure
the following:

Ø  Expand
their occurrence on the internet by augmenting the company’s website. This meant
creating it more collaborating as well as inventive. Here a potential purchaser
would have the capability to design a coat or outerwear online given the fabric,
styles, and designs that the company had accessible. This would allow the purchaser
to be imaginative and add more decorations to the coat and have an idea what
the item would cost. This type of customised coat or outwear would allow the purchaser
to have variation in their styles and design, and stay within their financial
plan.

 

Ø  The
augmentation in the online sales would also mean a potential creation of a purchaser
service division to handle technical problems as well as purchaser objections.
These were guaranteed to happen since there will always be some mistakes in the
manufacturing procedure or with the online selling.

 

Ø  The
manufacturing operations would have to be improved and reorganised in order to handle
exclusive purchaser orders. This meant having the variation of fabrics and materials
accessible for the coats and outwear, the cutting of the fabrics and materials,
and assembling, inspecting, and preparation for shipment of the order. With adequate
orders coming in, then there would be little to no idle time of the personnel
in the manufacturing capacity.

 

Ø  The
logistics could be handled by working with noted delivery companies which could
ship the completed product from the manufacturing facility as soon as the item was
completed. There would be an additional charge for distribution on urgency
orders.

After gatherings with the
CFO, Stefano Pugliese, and appointment of specialists to give advice on how to increase
their jobs, it was decided that they should seek a loan of $3 million. The sum
requested would be broken down as:

a.      
Improvement in company’s website                    $1,000,000

b.     
Improvement in manufacturing operations          $1,500,000

c.      
Improvement in purchaser service Center            $500,000

d.     
Total loan demand                                               $3,000,000

This would be the leading
loan the corporation ever made and there was some consternation on the part of
Joseph and Thomas. But they felt this was the time to take their corporation to
the next step or else face diminishing returns and gains in the upcoming years.
They understood that coat and outwear manufacturing in the United States was
under severe pressure from external challengers and that they needed to do
something innovative and different. There was still sufficiently of empty land
by their manufacturing facility which could create growth fairly relaxed to do.

Also, with assistance
from the city, region, and state governments, such a move was thinkable. The real
trick was receiving the loan from the bank that Milan Fashions had long done
business with.

Financial
Information:

Joseph
and Thomas decided to first method the bank where they had a line of credit and
had received business loans in the past, First United. They had move toward the
bank on several cases for small and large loans and this would be the major
they had ever applied for.

 

After
checking with the association of manager at the bank, Joseph and Thomas would
need to deliver the bank with their income statements and balance sheets from
2012 to 2016. From there the bank’s commercial lending officer and credit forecaster
would accomplish the following ratio analysis:

 

1.      Current
ratio

2.     
Long-term debt-to-Equity ratio

3.     
Debt-to-Equity ratio

4.     
Total Debt ratio

5.     
Financial leverage ratio

6.     
Inventory turnover

7.     
Fixed asset turnover

8.     
Debt-to-Capital ratio

9.     
Interest coverage ratio

10.  Return
on Assets

Working:

 

S .No.

Ratio

Formula

2012

2013

2014

2015

2016

01

Current
ratio

Current Assets
Current
Liability

21.54

13.25

22.66

20.87

20.33

02

Long-term
debt-to-Equity ratio

3.1%

3.3%

3.3%

3.8%

4.0%

03

Debt-to-Equity
ratio

10%

10%

09%

10%

10%

04

Total
Debt ratio

09%

09%

08%

09%

09%

05

Financial
leverage ratio

 

 

 

 

 

 

06

Inventory
turnover

68

64

58

53

48

07

Fixed
asset turnover

Sales
         Fixed Assets

61%

63%

75%

78%

81%

08

Debt-to-Capital
ratio

10%

10%

09%

10%

11%

09

Interest
coverage ratio

19.94

18.43

20.26

20.18

20.39

10

Return
on Assets
 

3%

3%

3%

3%

3%

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Comparison With Industry:

 

S .No.

Ratio

Industry Ratio

2015

Evaluation**

01

Current
ratio

4.5

20.87

A

02

Long-term
debt-to-Equity ratio

12%

3.8%

A

03

Debt-to-Equity
ratio

30%

10%

A

04

Total
Debt ratio

20%

09%

A

05

Financial
leverage ratio

1.10

3.33

B

06

Inventory
turnover

7

53

C

07

Fixed
asset turnover

1.8

78%

A

08

Debt-to-Capital
ratio

43.4%

10%

A

09

Interest
coverage ratio

5

20.18

C

10

Return
on Assets

8.4%

3%

C

 

S .No.

Ratio

Industry Ratio

2016

Evaluation**

01

Current
ratio

4.5

20.33

A

02

Long-term
debt-to-Equity ratio

12%

4.0%

A

03

Debt-to-Equity
ratio

30%

10%

A

04

Total
Debt ratio

20%

09%

A

05

Financial
leverage ratio

1.10

3.33

B

06

Inventory
turnover

7

48

C

07

Fixed
asset turnover

1.8

81%

A

08

Debt-to-Capital
ratio

43.4%

11%

A

09

Interest
coverage ratio

5

20.39

C

10

Return
on Assets

8.4%

3%

C

 

**
A for Good, B for Average, C for Bad

Conclusion:

 

Through
the proper analysis of the financial statements of Millan’s Fashion we recommend
that the performance of the company is good and in comparison with the industry
ratios the Millan’s Fashion performed good and he has the ability to pay the debts
so he can absorb the pressure of the debts and company can start its expansion
of the function and enhance the manufacturing operation for meeting
the requirement of market demand due to increase in the online sales.

 

 

 

 

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