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CHAPTER -I
INTRODUCTION
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INTRODUCTION
The project work is conducted to study the organisation and financial aspect of
Trivandrum Regional Co-operative Milk Producers Union Ltd, Thrivananthapuram. This
study helps us to know about the overall performance of the company. We can know about
the performance of different departments through this study. Analysis of financial statement
is an attempt to measure the enterprise liquidity, profitability, solvency and other indicators to
assess its agencies concerned. Some of the agencies in financial concerns of enterprise
include investors, bankers, lenders, suppliers, customers, employers, management and
regulatory authorities like tax authorities and company law board. The agencies have diverse
and conflicting interests.
Finance is regarded as the lifeblood of business enterprise. This is because in
modern economy finance is one of the basic foundations of all kind of economic activity.
Financial statements are final product of accounting work done during the accounting period.
Financial statements are prepared with view to depict financial position of concern. A proper
analysis and interpretation of statement enables a person to judge the profitability and
financial strength of a business. Financial statement normally includes Balance sheet and
profit and loss account. The contents of financial statement are board report , director’s
responsibility statement, management discussion and analysis, auditor’s report, report on
corporate governance, balance sheet, profit and loss account, cash flow statement, segment
report.
The systematic process of critical examination of the financial information
contained in financial statement is called financial statement analysis. Financial analysis deals
with the use of financial data in the evaluation of current and past performance of an
enterprise and to assess its sustainability in future. This implies that the person attempting to
make financial analysis should not only be in command of appropriate financial analysis tools
and techniques, but must be a craftsman to make a creative and imaginative use if such tools
and techniques.
Financial analysis can be used for variety if decision context such as security
analysis, analysis of credit worthiness, credit analysis, debt analysis, dividend decision,
mergers etc.
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Financial statement analysis seeks to measure enterprise liquidity, profitability, solvency and
other indicators to access the efficiency and performance of business enterprise. Some of the
agencies interested in the enterprise include investors, bankers, lenders, suppliers, customers,
management and stock exchange etc. Sound financial statement is essential for both profit &
non profit organisation.
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INDUSTRY PROFILE
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PROFILE OF DIARY INDUSTRY
Milk and milk based industries play a very important role in the world.
Internationalization reminds a key focus for almost of the world’s leading dairy farms. All the
world’s largest dairy farms operating more than one country and some of them are truly
international with activities in every part of the world. The availability and distribution of
milk and milk products, in the modern world is blend of the centuries old knowledge of
traditional milk products with the application of modern science and technology. Diary is a
place where handling of milk and milk products done.
In developed dairying countries, the year 1850 is seen as the dividing line between
farm and factory scale production. The rural areas were identified for milk production where
as the urban centers were selected for the location of milk processing plants and product
manufacturing factories. These plants and factories were rapidly expanded and modernized
with improved machinery and equipment to secure the various advantages of large scale
production. Before 1900, nearly all the milk was delivered as raw milk. Milk was first
delivered in bottles on January 11, 1878.Once pasteurization was introduced, it developed
rapidly. Mechanical refrigeration helped in the rapid development of the factory system of
market milk distribution.
A doubling in the price of wholesale milk over the past year is creating havoc among
food manufactures, prompting warning about the food price inflation in U.K .Aid
organizations have also raised concerns about the depletion of government stockpiles of
milk power.
In the western world today, cow milk is produced on an industrial scale. It is by far
the most commonly consumed form of milk in the world. Commercial dairy farming using
automated milking equipments produce the vast majority of milk in the developed countries.
The following are the major global players in this field,
Nestle (Switzerland)
Dean Foods(USA)
Kraft (USA)
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Dairy Farmers of America(USA)
Fonterra (New Zealand)
Danone (France)
Parmalat (Italy)
Arla (Denmark)
Nevertheless, in spite of these players, India is the largest producer of dairy products and
milk followed by USA and China.
A dairy is a business enterprise established for the harvesting of animal milk –
mostly from cows or goats, but also from buffalo, sheep, horses or camels – for human
consumption. A dairy is typically located on a dedicated dairy farm or section of a multi-
purpose farm that is concerned with the harvesting of milk.
Terminology differs between countries. For example, in the United States, a farm
building where milk is harvested is often called a "milking parlor". In New Zealand such a
building is historically known as a "milking shed" or "milking parlour" (note the different
spelling). Sometimes milking sheds are referred to by their type, such as "herring bone shed"
or "pit parlour". In some countries, especially those with small numbers of animals being
milked, as well as harvesting the milk from an animal, the dairy may also process the milk
into butter, cheese and yogurt, for example. This is a traditional method of producing
specialist milk products, especially in Europe. In the United States a dairy can also be a place
that processes, distributes and sells dairy products, or a room, building or establishment
where milk is stored and processed into milk products, such as butter or cheese. In New
Zealand English the singular use of the word dairy almost exclusively refers to the
corner convenience store, or superette. This usage is historical as such stores were a common
place for the public to buy milk products.
As an attributive, the word dairy refers to milk-based products, veil, derivatives and
processes, and the animals and workers involved in their production: for example dairy
cattle, dairy goat. A dairy farm produces milk and a dairy factory processes it into a variety of
dairy products. These establishments constitute the dairy industry, a component of the food
industry.
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Milk producing animals have been domesticated for thousands of years. Initially,
they were part of the subsistence farming that nomads engaged in. As the community moved
about the country, their animals accompanied them. Protecting and feeding the animals were
a big part of the symbiotic relationship between the animals and the herders.
In the more recent past, people in agricultural societies owned dairy animals that
they milked for domestic and local (village) consumption, a typical example of a cottage
industry. The animals might serve multiple purposes (for example, as a draught animal for
pulling a plough as a youngster, and at the end of its useful life as meat). In this case the
animals were normally milked by hand and the herd size was quite small, so that all of the
animals could be milked in less than an hour—about 10 per milker. These tasks were
performed by a dairymaid (dairywoman) or dairyman.
With industrialisation and urbanisation, the supply of milk became a commercial
industry, with specialised breeds of cattle being developed for dairy, as distinct
from beef or draught animals. Initially, more people were employed as milkers, but it soon
turned to mechanisation with machines designed to do the milking.
Historically, the milking and the processing took place close together in space and
time: on a dairy farm. People milked the animals by hand; on farms where only small
numbers are kept, hand-milking may still be practiced. Hand-milking is accomplished by
grasping the teats (often pronounced tit or tits) in the hand and expressing milk either by
squeezing the fingers progressively, from the udder end to the tip, or by squeezing the teat
between thumb and index finger, then moving the hand downward from udder towards the
end of the teat. The action of the hand or fingers is designed to close off the milk duct at the
udder (upper) end and, by the movement of the fingers, close the duct progressively to the tip
to express the trapped milk. Each half or quarter of the udder is emptied one milk-duct
capacity at a time.
The stripping action is repeated, using both hands for speed. Both methods result
in the milk that was trapped in the milk duct being squirted out the end into a bucket that is
supported between the knees (or rests on the ground) of the milker, who usually sits on a low
stool.
Traditionally the cow, or cows, would stand in the field or paddock while being
milked. Young stock, heifers, would have to be trained to remain still to be milked. In many
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countries, the cows were tethered to a post and milked. The problem with this method is that
it relies on quiet, tractable beasts, because the hind end of the cow is not restrained.
In 1937, it was found that bovine somatotropin (BST or bovine growth hormone)
would increase the yield of milk. Monsanto Company developed a synthetic (recombinant)
version of this hormone (rBST). In February 1994, rBST was approved by the Food and Drug
Administration (FDA) for use in the U.S. It has become common in the U.S., but not
elsewhere, to inject it into milch kine dairy cows to increase their production by up to 15%.
However, there are claims that this practice can have negative consequences for the
animals themselves. A European Union scientific commission was asked to report on the
incidence of mastitis and other disorders in dairy cows, and on other aspects of the welfare of
dairy cows. The commission's statement, subsequently adopted by the European Union,
stated that the use of rBST substantially increased health problems with cows, including foot
problems, mastitis and injection site reactions, impinged on the welfare of the animals and
caused reproductive disorders. The report concluded that on the basis of the health and
welfare of the animals, rBST should not be used. Health Canada prohibited the sale of rBST
in 1999; the recommendations of external committees were that, despite not finding a
significant health risk to humans, the drug presented a threat to animal health and, for this
reason, could not be sold in Canada
DAIRY DEVELOPMENT IN INDIA
The dairy sector in India has shown remarkable development in the past decay and
India has now become one of the largest producers of milk and value added milk products in
the world. The dairy sector has developed through co-operatives in many parts of the state.
During 1997 – 1998 the state has 60 milk processing plants with an aggregate
processing capacity of 5.8 million litres per day in addition to these processing plants, 123
government and 33 co-operative milk chilling centers operate in the state.
More than 2445 million people economically active in agriculture in the
world.probably2/3 or even more ¾ of them are wholly or partially depended on livestock
farming. India is endeavored with rich flora and fauna and continuous to be vital avenue for
employment and income generation, especially in rural areas. India, which has 66% of
economically active population engaged in agriculture. In India the market milk technology
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may be considered to have commenced in 1950, with functioning of the Central Dairy of
Aarey Milk Colony and milk product technology in 1956 with the establishment of Amul
Dairy, Anand. The industry is still in its infancy and barely 10% of the total milk production
undergoes organized handling.
India achieved the distinction of becoming the world’s largest milk producer in the
year. The milk production in India is over 110million tones with Utter Pradesh leading the
highest among Indian states. Started in 1970, the three phases of Operation Flood have
pushed India’s milk from 21 million tons to 110 million tons in 2008.The growth in the milk
definitely surpassed the growth in grains and cereals and today milk is India’s number one
farm produce worth Rs 1,00,000 crores annually.
In spite of being the World’s milk producer, India’s milk processing industry is not
very large. Only 12% of milk is delivered to dairies against the world average of 70%. Bulk
of Indian milk is utilized for drinking or in the unorganized sector processing industry can be
divided in to three segments
Government/ Semi government
Co-operatives
Private sector.
With expectation of a few units, the processing industry is largely involved either in
a liquid pasteurized milk of conversion of milk to milk powder and ghee. Most domestic
processor does not have the quality or the marketing knowledge to access the international
market.
In India, majority of the milk market remains with the co-operatives which were
formed under Operational Flood all over India. The Milk Marketing Federations and its
affiliated Districts Milk Unions control majority of the milk market in the organized sector.
The major brands in India are
Amul (Gujarat)
Verka (Punjab)
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Milma (Kerala)
Nandini (Karnataka)
Vijay (Andhra Pradesh)
Aavin (Tamilnadu)
Parag (Maharashtra)
Mother Diary (Delhi)
There are few other major private companies which are in the forefront of the diary
product marketing such as Britannia, Nestle and Cadbury etc. New international players such
as Anchor Fonterra, Compina, Landolakes etc are expected to enter the Indian market within
a short period of time.
Indian diary sector is said to witness a number of new alliances and partnerships.
Consolidation is already taking place in the market with Mother Dairy entering into the joint
ventures with the various state co-operatives and Britannia in tie-up with Fonterra etc.
Overall the Indian industry is experiencing an upheaval with the new products launches,
repositioning of brands and entry of newer players.
Operation Flood
During 1960’s milk production in India was concentrated only in rural areas. In
Gujarat the farmers owned Co-operative Societies formed namely Anand Milk Union Ltd
(AMUL). It was mainly integrated in production, procurement and processing and marketing
on Co-operative lines.
Operation Flood was launched in 1970 and the main objective of the program was to
increase the milk production in rural areas and to supply the excess milk to the nearest
dairies. Operation Flood was introduced under National Dairy Development Board (NDDB)
which functions as the technical consultant. This NDDB was stated under the Societies Act
and these societies are known as Anand Pattern Co-operative Societies (APCOS). These
societies get financial aid from Indian Dairy Corporate.
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Operation Flood is intended to reduce regional imbalances in dairy development in
underdeveloped regions. It was a remuneration linking of rural milk procuring centers with
urban demand centers.
The various phase of Operation Flood include;
First phase aims at the procurement of milk from rural surplus areas to the
urban deficit areas.
Second phase was started during 1980’s its outlay was 29 crores and was
utilized for the construction of dairies. Kerala was included in the second phase of Operation
Flood.
Anand Pattern
A success story on the dairy scheme in India during the sixties was the farmer owned
Amul co-operative in Anand (Khaira district, Gujarat) with its integrated approach to
production, procurement, processing and making on co-operative lines. Over the years this
evolved in to a model based on self-rule by farmers ensuring maximum returns to them.
This model came to be known as Anand pattern. The efficiency of this model was worth
replication. There for a dairy programme called “OPERATION FLOOD” was launched in
1970 under the aegis of National Dairy Development Board (NDDB)
ANAND Pattern is a 3-tier structure consisting of
Village level primary co-operative society called “APCOS”
Regional co-operative milk producers union
State level milk marketing federation
(http://www.trcmpu.in/)
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COMPANY PROFILE
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PROFILE OF TRCMPU LTD
ABOUT KCMMF
Kerala co-operative milk marketing federation (KCMMF) popularly known as "M1LMA"
was established in 1980, with its head office at Thiruvananthapuram for the successful
implementation of the second programme "OPERATION FLOOD" in Kerala. During the
last 3 decades the sector witnessed uninterrupted growth in terms of animal population and
milk production.
Milk co-operative is a form of economic organization in which farmers willfully and
voluntarily pool their resources on the basis of equality for the advancement of their
economic interest. The guiding principle of a cooperative is basically "self-help through
mutual help". This basic idea has been defined in various forms such as "each for all and all
for each", of the people, by the people, and for the people", "common welfare through
common action" etc. Co-operative dairying is the most outstanding form of agricultural co-
operation. The co-operative dairy is an agency, which carries out the functions of
promotions procurement, processing and marketing of milk and milk products.
The main aim of dairy co-operative is to ensure continuous hygienic liquid milk to
consumers and remunerative return to producers. In India one organized efforts were made
for the development of dairy co-operatives before the launching of five year plans.
The Anand Milk Union Limited (AMUL) was the pioneer venture in cooperative Dairy
sector. It provided a model for the milk producer's cooperative in Gujarat and other states,
which played an important role not only in increasing milk production but improving the
status of the members too. In Kerala, a major breakthrough in this direction was made with
the establishment of the Kerala Co-operative Milk Marketing Federation (KCMMF)
popularly known as MILMA in 1980. The launching of MILMA was part of the
"OPERATION FLOOD" second programme, the central objectives of which was to
channelize milk from surplus rural areas to deficit urban areas in such a way as to maximize
the return of both producers and consumers. Eventually, in April 1983 MILMA took over the
revenue earning activities of all the dairies and chilling plants from Kerala Live Stock
Development and milk Marketing Board (KLD&MMB).
(http://www.milma.in/)
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MISSION OF KCMMF
“Farmers prosperity through customer satisfaction”.
OBJECTIVES OF KCMMF
To channelize marketable surplus milk from the rural areas to urban deficit areas to
maximize the returns to the producer and provide quality milk and milk products to the
consumers.
To carry out activities for promoting production, procurement, processing and
marketing of milk products for the farming community.
To built up a viable industry in the state.
To provide constant market and stable price farmers for their produce.
ASSOCIATES OF KCMMF
Milma is in constant touch with other organizations in this sector. It is only through this
active exchange that rnilma grew from a small dairy cooperative to the position it holds in
Kerala today.
National Dairy Development Board
NDDB, under Dr. V Kurian's guidance set up KCMMF in 1980. Ever since then, there
has been a very close co-operation between NDDB and the federation. NDDB are the
originators of the Operation Flood Programme and have been our funding agent for the
Operation Flood Projects in Kerala
Amul
The dairy co-operatives of Gujarat have been the inspiration for the development of
such a vast network of dairy co-operatives in Kerala. Among the co-operatives in Gujarat,
the Kerala District co-operative Milk Producers Unions (Amul) is the first in this sector. Our
co-operatives are called "Anand Pattern Co-operative Societies" following the illustrious
lineage of "Amul".
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Government of Kerala
The phenomenal success of the dairy co-operatives in Kerala could not have been
achieved, without the foundation of animal husbandry activities, led by the Animal Husbandry
Department, Dairy development and Kerala Livestock Development Board, of the
Government of Kerala.
ORGANISATIONAL STRUCTURE OF MILMA
The organizational structure is built on the stabilized successful model of Anand
pattern and is decentralized democratized. The motto of co-operation of ‘of the people, by the
people’ is the foundation three tier system followed by the organization.
Milma having a three tier structure with primary milk co operative societies
known as APCOS. Regional Co-operative Producers Union is (TRCMPU, ERCMPU, and
MRCMPU) at Thiruvananthapuram, Ernakulum. Calicut these unions federate at state
level to from state federation namely Kerala co-operative Milk Marketing Federation.
Structure of Milma
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KCMMF
KCMMF
APCO APCO
ERCMPU
APCO APCO
TRCMPU
APCO APCO
1. KCMMF
KCMMF provides staff management function to support its units and the regional milk
unions. It decides upon matters related to pricing, long term HR policies and other policy
matters.
2. REGIONAL MILK CO0OPERATIVE UNIONS
KCMMF has three regional co-operative milk producers union in Kerala. They are
TRCMPU at Thiruvananthapuram, ERCMPU at Ernakulam and MRCMPU at Calicut.
TRCMPU
The regional union covers Trivandrum regional Co-operative milk producers union
was established in the year 1985 as a part of implementation of the flood programme in
the state of Kerala. The union covers the southern regions of Kerala. This covers the districts
of Tvm, Kollam, Pathanamthitta and Alappuzha.
ERCMPU
The Ernakulam Regional Co-operative Milk Producers Union was established in the
year 1986, is the central society of primary milk co-operative organized by Anand pattern.
This union covers the central regions of Kerala. The areas of operation of this union are
four central Kerala districts are Thrissur, Ernakulam, Kottayam and Idukki.
MRCMPU
The Malabar Regional Co-operative Milk Producers Union Limited which stated
functioning from 1990, is the youngest one among the three regions of Kerala, viz
Kasargode, Kanoor, Vayanadu, Kozhikode, malappuram and Palakkad.
(http://www.trcmpu.in/)
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PROFILE OF THIRUVANATHAPURAM REGIONAL CO-PERATIVE
MILK PRODUCERS UNION LTD (TRCMPU)
TRCMPU is a commercial organization is co-operative sector on May 31, 1983,
under the co-operative societies act. But it started its activities only on July 20 th 1985. The
operational areas of TRCMPU includes Thiruvananthapuram, kollam, Pathnamthitta and
Allepy. The regional union covers Trivandrum regional Co-operative milk producers union
was established in the year 1985 as a part of implementation of the flood programme in
the state of Kerala. The union covers the southern regions of Kerala.
Thiruvananthapuram milk dairy is the biggest milk dairy in Kerala. It is also
the first dairy with ISO 9001-2000 certified company. Its head office is at Ksheera Bhavan
Pattom, Thiruvananthapuram. The dairy has a processing capacity of two lakhs liters of
milk per day and also with an annual turn of 10 crores. There are 250 employees in this
dairy which is headed by the General Manager.
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MANAGING DIRECTORGENERAL MANAGER
PROCUREMENT AND INPUT
ASSITANT MANAGER
PRODUCTION MANAGER
ASSITANT MANAGER
PRODUCT MANAGERASSITANT MANAGER
QUALITY CONTROL MANAGER
ASSITANT MANAGER
MAINTENENCE AND ENGINEERING MANAGER
ASSITANT MANAGER
MARKETING MANAGERASSITANT MANAGER
FINANCE ACCOUNTS MANAGER
ASSITANT MANAGER
PURCHASE AND STORES MANAGERASSITANT MANAGER
PERSONNEL ADMINISTRATION MANAGERASSITANT MANAGER
PRODUCT PROFILE
PRODUCTS:-
Milrna has a range of products. A marketing chain consisting of nearly 4000 retail
outlets, across the state ensures availability of milma's products to consumers. Milma with its
motto your health is our concern has become synonymous with assured quality of milk and
milk products. Milrna's spectrum of products adheres to the PFA rules and is released for
distribution only after stringent quality checks.
PASTEURIZED MILK
Milma pasteurized vitamin A enriched milk comes in three varieties.
Jersey milk which contains 3.5% fat and 8.5% SNF.
Toned milk which contains 3.0%fat and 8.5% SNF.
Smart milk which contains 1.5% fat and 9.0% SNF.
Conveniently packed in 500 ml and 1 liter sachets, the fat content range of MILMA's milk
has made it the popular health drink of young and old alike.
ICECREAM
Milma ice-cream is available in a range of lip smacking flavours: vanilla, chocolate,
mango, strawberry and fruit & nut. The only ice-cream in Kerala market which is
manufactured in a dairy and hence most fresh ice cream.
SAMBHARAM
Sambharam (butter milk) a favourite beverage of Kerala. Milma sambharam, the only
product of its kind in the market, is very popular throughout the state. It comes in convenient
200ml throw away sachets.
CURD
It is a fermented product prepared from pasteurized skim milk using curd culture from
National Dairy Research Institute (NDRI). It is delicious, tasty, free from cholesterol and
available in 500ml and bulk.
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GHEE
Ghee is a key ingredient in most Indian delicious. Milma produces good quality, pure
ghee from butter or cream at all dairies. The ghee is available in convenient packs of 50g to
15kg.
BUTTER
Milma butter prepared from the cream of milk contains 81% fat and less than 15.6%
water. This is available in convenient l00gm, 200gm, and 500gm family packs. Available in
salted and unsalted varieties.
SIP-UP
Made from pasteurized skim milk, sweetened and flavoured. Available in 25ml
polyethylene tube in flavours like vanilla, pineapple, strawberry, mango, and rose etc., and
served in chilled condition. It is a safe and nutritious substitute to all other sip-ups.
SRIKHAND
Srikhand is a semi-soft sweetish sour, whole milk product prepared from lactic
fermented curd. The basic ingredient of srikhand is jack fruit.
PEDA
An indigenous milk product manufactured by evaporating water content from
wholesome cow's milk and sweetened with cane sugar. It is a nutritious and delicious
sweet bite for children. It is available in 20gm.
FLAVORED MILK
Milma offers a range of flavored health drinks in hygienic 200ml bottle. Cardamom milk
has already captured the market and are available at all milma outlets and strawberry,
chocolate, pineapple, and mango flavors are also available in the market.
(http://www.milma.com/)
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LITERATURE REVIEW
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THEORETICAL ASSESMENT
Financial statements are the summarized statements of accounting data produced at
the end of the accounting process by an enterprise through which it communicates accounting
information to internal and external users. They are prepared for the purpose of presenting a
periodical review or report of the progress made by the concern. Financial statement includes
mainly 2 statements which the account prepares at the end of given period. They are income
statement (P&L A/c) and position statement (Balance Sheet). The purpose of preparing profit
and loss account is to ascertain the net results of the trading activity and that of balance sheet
is to show the financial position of the business.
ACCORDING TO JOHN N MYER
“The financial statement provides the summary of accounts of a business enterprise, the
balance sheet reflecting the assets and liabilities and income statement showing the results of
operation during certain period”.
NATURE OF FINANCIAL STATEMENT
The nature and accuracy of the data shown in the financial depends on the following facts:
1. Recorded facts
The term recorded facts refer to the data taken out from the accounting records. Records are
maintained on the basis of actual cost data. The assets purchased at different times and
different prices are put together and shown at cost price. If any depreciation is provided at the
end of the accounting year, it is deducted from the original cost.
2. Accounting conventions
While preparing financial statement, certain accounting conventions and principles are
followed. Accounting is a dynamic science and accounts have developed from time to time a
number of conventions from experience.
3. Postulates
The accountants make certain assumptions while making accounting records. One of the
assumptions is that enterprise is an ongoing concern. Similarly he has to use other postulates
like business entity, money measurement, stable value of rupee, profit accrual etc. These
postulates are reflected in the financial statements.
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4. Personal judgment.
The application of the concept and conventions of accounting depends on the personnel
judgment of the accountant. That is why the financial statement prepared by 2 different
accountants of the same concern give different results. Personnel judgment effects provision
for deddebts, depreciations, value of stock etc. which ultimately effect financial statement.
Thus the personnel judgment of the accountant plays an important role in preparing the
financial statement.
IMPORTANCE OF FINANCIAL STATEMENT
Financial statements are highly useful to the management, creditors, investors,
bankers, govt. public at large. The utility of financial statement to different parties are:
1. Management
The management is able to exercise cost control through financial statement. The efficient
and inefficient spots are brought to the notice of the management. The mgt is able to decide
the course of action to be taken in future.
2. Creditors
The creditors are interested in the short-term solvency of the concern. The current ratio and
acid test ratio will enable the creditors to assess the short term solvency position of the
concern.
3. Bankers
The bankers are interested to see that the loan amount is secure and that the interest is paid
regularly. Bankers will analyze Balance sheet & P& L A/c to determine financial strength
and profitability of concern. The debt equity ratio and interest coverage ratio will enable the
banker to analyse the solvency position of the firm.
4. Investors
The investors are interested in the security of the principle amount invested by them and
regular interest payment by the concern. The investor will analyze the present financial
position and study the future prospects of the concern.
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5. Government
The financial statements are used to access tax liability of business enterprise. This helps the
govt. to find out whether business is following various tax regulations or not.
6. Others
Trade associations, stock exchanges and public at large may also analyze the financial
statement to judge the financial position of the concern.
LIMITATIONS OF FINANCIAL STATEMENT
1. A balance sheet is described as a statement of all assets and liabilities. But this is not
true. There are certain assets and liabilities which a B/S fail to disclose. E.g.: value of human
resource.
2. The figures given in the balance sheet are on historical basis. While preparing it, the
replacement cost of the assets is totally ignored.
3. An investor who wishes to analyse the balance sheet is more concerned with present
and future, where as the Balance sheet pertains to a point of time relating to past and
therefore may not be helpful.
4. Personal judgments play a great role in determining the figures for the balance sheet.
Provision for depreciation, stock valuation, provision for bad debts etc are based on personnel
judgments and not free from bias.
5. Financial statements do not give a final picture of the concern. The data given in this
statement is only approximate. The actual position can only be determined when the business
is sold or liquidated.
6. Balance sheet does not disclose information relating to changes is mgt, loss of
markets etc which can give a vital bearing on the earnings of the Company.
7. The precision of the financial statement data is not possible because the statements
deal with matters which cannot be precisely stated
8. Because of the flexibility of accounting principles, certain liabilities are not provided
for and to that extent, Balance sheet will give a misleading picture.
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ANALYSIS OF FINANCIAL STATEMENT
The analysis of financial statement is the study of relationship among
various financial facts and figures as set out in the financial statement is B/S & P&L account.
Financial analysis is the process of determining the significant operating and financial
characteristics of a firm from accounting data. A proper analysis and interpretation of
financial statement enables a person to judge the profitability and financial strength of the
business.
According to Myers “financial statement analysis is largely a study of
relationship among the various financial factors in a business as disclosed by a single set of
statements and a study of these factors as shown in the series of statements.
OBJECTIVES OF FIANANCIAL ANALYSIS
1. To estimate the earning capacity of the firm.
2. To judge the financial position and financial performance of the firm.
3. To judge the solvency of the firm.
4. To determine the long-term liquidity of the funds.
5. To determine the debt capacity of the firm.
6. To decide about the future prospects off the company.
7. To know the progress of the firm.
8. To measure the efficiency of operations.
(Ref: Financial accounting written by ‘KGC NAIR’)
24
TYPE OF FINANCIAL ANALYSIS
1. ACCORDING TO MATERIAL USED.
a. External analysis
External analysis of financial statement is made by those who do not have
access to the detailed accounting records of the company i.e. banks, creditors, and general
public. These people almost entirely depend on published financial statement.
b. Internal Analysis
Such analysis is made by the finance and accounting debt to help the top
management. These peoples have direct approach to the relevant financial records. Such
25
Types of Financial Analysis
According to
Material used
According to
Modus operandi
According to the objective of Analysis
External Analysis
Internal Analysis
Horizontal Analysis
Vertical Analysis
Long term Analysis
Short term Analysis
analysis emphasizes on the performance appraisal and assessing the profitability of diffe3rent
activities.
2. ACCORDING TO THE MODUS OPERANDI
a. Horizontal analysis
When the financial statements for a number of years are reviewed and analyzed,
the analysis is called ‘horizontal analysis’. Preparation of comparative statements is an e.g. of
horizontal analysis. As it is based from year to year, rather than on one date it is also known
as ‘dynamic analysis’.
b. Vertical analysis
Vertical analysis is also known as “static Analysis”. When ratios are calculated
from the balance sheet of one year, it is called vertical analysis. It is not very useful for long
term planning as is does not include the trend study for future.
3. ACCORDING TO THE OBJECTIVES OF ANALYSIS
a. Long term analysis
In the long term the company must earn a minimum amount sufficient to
maintain a suitable rate of return on the investment to provide for the necessary growth and
development of the company and to meet the cost of capital. Thus, in the long term analysis,
the stress is on the stability and earning potentiality of the concern.
b. Short term analysis
The short term analysis of financial statement is mainly concerned with the
working capital analysis. In a short run a company must have ample funds available to meet
its current needs and sufficient borrowing capacity to meet the contingencies. Hence, in short
term analysis, the current assets & current liabilities are analyzed and cash position of the
concern is determined.
TOOLS OF FINANCIAL ANALYSIS
In the process of analysis various tools or methods are used by financial analyst.
The different tools are:
a. Comparative Statement
The preparation of comparative financial and operating statements is an
important device of horizontal financial analysis., comparative financial statement are the
26
statement in which figures of two or more periods are placed side by side along with changes
in future in absolute and percentage terms to facilitate comparison. Both income statement
(P&L account) and position statement (balance sheet) are prepared in the form of
comparative financial statement.
b. Common size financial statement
These are statements prepared to show the relationship of different
individual items with some common items. Common size financial statements express all
figures of a financial statement as percentage of some common base in the P&L account. The
sales figure is assumed to be 100 and all figures are expressed as % of scales. Similarly in the
Balance Sheet the total of assets and liabilities is taken as 100 and all figures are expressed in
the percentage of 100.
c. Trend Percentage
Trend percentages are helpful in making comparative study of the financial
statement for several years. The method of calculating trend percentage involves the
calculation of percentage relationship that each item bears to the same item in the base year.
Base year is usually the earliest year.
d. Average Analysis
It is an improvement over trend analysis method. When trend ratio has been
determined for the concern, these figures are compared with average trend of the industry.
Both these trend are presented in the graph as shape of a curves.
e. Statement of changes in working capital
To know the increase or decrease in the working capital over a period of
time, The preparation of a statement of changed in working capital is also very useful. The
main objectives of the statement preparation are to derive a fairly accurate summary of the
event that affected the amount of working capital. The amount of networking capital is
determined by deducting the total of current liabilities form the total of current assets.
f. Fund flow and cash flow statement.
Fund flow analysis is a valuable aid to the financial executives and creditors
for evaluating the use of the fund by the firm and in determining how those uses were
financed. A fund flow statement indicates where funds came from and where they are used
during period.
27
Cash flow statements reveal the sources of cash and its application. Both are
important tools of communication and very helpful for financial executives in planning the
intermediate and long term financial of the firm.
g. Ratio Analysis
Ratio analysis expresses the relationship between 2 according variables taken
from financial statement of accounting period in the form of ratio. It is the most important
tool available to financial analysis for their work.
LIMITATIONS OF FINANCIAL STATEMENT ANALYSIS
1. The analysis of financial statement is only a means to reach conclusions and not
conclusions in itself So, it cannot work as a substitute for sound judgment.
2. The figures drawn from the statement of just one year have limited use and value. So
it will be dangerous to depend upon them only.
3. The results of the analysis of financial statements should not be taken as indicator of
good or bad management
4. Any change in the method or procedure of accounting mars the utility of such
analysis. The figures of different financial statement lose the characteristics of comparability.
5. An analyst should also be cautions from window dressing in the accounts.
6. It doesn’t disclose reasons for changes.
7. The basic nature of financial statement is historic. Part can never be 100%
representative of the future. Hence, future course of business events should be forecasted.
8. The rapid changes in the value of money also reduce the validity of such analysis and
no useful conclusions can be drawn from a comparative study of the financial statements of
different years.
(Ref: Pandey IM ‘Financial Management)
* RATIO ANALYSIS
Ratio analysis is one of the powerful tools of financial analysis. It aims at
making use of quantitative information for decision making. A ratio is an expression of
relationship between two figures or two amounts. It is a yard stick which measures
relationship between two variables. It highlights solvency, liquidity etc.
28
According to Robert Antony, Ratio is “Simply one number expressed in terms of another”.
Ratio analysis gives answer to the problem such as
i. Whether the enterprises financial position is basically sound.
ii. Whether the capital structure of the business is in proper order.
iii. Whether the credit policy in relation to sales and purchase is sound.
iv. Whether the company is credit worthy.
v. Whether the profitability of the enterprise is satisfactory
ADVANTAGES OF RATIOS ANALYSIS
1. It makes it easy to grasp the relationship between various items and helps in
understanding the financial statements
2. Ratios indicate trends in important items and thus will help in forecasting.
3. Ratio may be used as a measure of efficiency.
4. Ratios are very useful for measuring the performance and very useful in cost control.
5. Ratios can effectively communicate what has happened between two accounting
dates.
6. Standard ratios may be computed. Comparison of actual ratios with standard will help
in control.
7. It throws lights on the degree of the management and utilization of the assets and that
is why it is called surveyor of efficiency. They help the management in decision making.
8. It helps in the simple assessment of liquidity, solvency, profitability and efficiency of
the firm.
LIMITATIONS OF RATIOS ANALYSIS
1. Ratio can be useful only when they are computed in a sufficient large number. A
single ratio would not be able to convey anything. At the same time if too many ratios are
calculated, they are likely to confuse.
2. Ratio analysis gives only a good basis for quantitative analysis of financial problems.
But it suffers from qualitative aspects.
3. Ratios are computed from historical accounting records. So they also process those
limitations of financial accounting.
29
4. It is not possible to calculate exact and well accepted absolute standard for
comparison.
5. In the ratio Analysis Arithmetical window dressing is possible and firm may be
successful in concealing the real position.
6. Ratios are only means of financial analysis, but not an end in themselves. They can be
affected with personal ability and bias of the analyst.
7. Ratio analysis helps in providing only a part of information needed in the process of
decision making.
CLASSIFICATION OF RATIOS
1. Statement wise classifications
a. Balance sheet Ratios : These ratios deal with relationships between two items or
group of items which are both in balance sheet
E.g. Current Ratio, Quick Ratio etc.
b. Income Statement Ratios: These ratios focus on the relationship between the two
items or group of items, all of which are drawn from revenue statement. They are also called
operating Ratios eg. Gross profit ratio, Stock turnover ratio, net profit ratio.
c. Combined ratios: These ratios depict the relationships between two items, one of
which is drawn from balance sheet and other from revenue statements.Eg, debtor turnover
ratio, assets turnover ratio etc.
2. Classification according to Nature
a. Liquidity ratios: These ratios portray the capacity of the business unit to meet its short
term obligations.Eg, current ratio, quick ratio etc.
b. Leverage Ratios: These ratios are called efficiency ratios. These ratios measure the
owners stake in the business vis-à-vis that of outsiders. The long term solvency of the
business can be determined by this ratio. Eg.Debt equity ratio, proprietary ratio etc.
c. Activity Ratios: These ratios evaluate the use of total resources of the business
concern along with the use of components of total assets. The greater the rate of turnover the
move efficient the management would be. Eg, stock turnover ratio, fixed asset turnover ratio
etc.
d. Profitability ratios: The profitability of a business concern can be measured by
profitability ratios. These ratios highlight the end result of business activities by which alone
30
the overall efficiency of a business unit can be judged. Eg. Net profit ratio, gross profit ratio
etc.
3. Classification according to importance
a. Primary ratios: The ratios which relates the profit to capital employed is termed as
primary ratio. E.g. Return on capital employed, operating ratio etc.
b. Secondary ratios: This classification is effected to facilitate inter firm comparison and
to focus on some factors responsible for the success of the unit they are secondary ratios.
I. Liquidity Ratios
Liquidity is the ability of the firm to meet its current liabilities. Since liquidity is
basic to continuous operations of the firm. It is necessary to determine the degree of liability
of the firm.
1. Current Ratio
Current ratio is the most common ratio for measuring liquidity. It represents the
ratio of current assets to current liabilities. It is also called working capital ratio. The current
ratio measures its short term solvency. The satisfactory ratio is 2:1. A higher ratio indicates
sound solvency and a lower ratio indicates adequate working capital. It determined by
dividing current assets by current liability.
Current assets are those, the amount of which can be realized within a period of
one year e.g.- cash, bills receivables. Current liabilities are those amounts which are payable
within a period of one year e.g. Outstanding expenses, bills payable.
Current Assets
Current Ratio =
Current Liabilities
2. Quick Ratio.
It is the relation between quick assets to current liabilities. They are also called
‘Acid test Ratio’ or ‘Liquidity ratio’. Acid test ratio of 1:1 is considered satisfactory. Higher
ratio shows sound financial position and a low ratio shows unsound financial position.
31
Quick Assets
Quick Ratio =
Current liabilities
Quick assets =cash+bank+B/R+ debtor or current assets-stocks
1. Absolute Liquidity Ratio
It is the ratio of liquid assets to current liabilities. It is also called cash position ratio.
A ratio of 0.75: 1 is an ideal ratio
Cash + Marketable securities
Absolute Liquidity Ratio =
Current Liabilities
II. Leverage ratios
These are also called structure ratios. These ratio measures the long term solvency
position of the firm. This ratio helps to determine the capital structure of a company. E.g.
Debt equity ratio, proprietary ratio, capital gearing ratio etc.
1. Debt-equity ratio
It is the ratio of outsiders fund to owners’ equity. This ratio is computed by
dividing the total debt of the firm by its net worth. Debt refers to total outside liabilities. It
includes all current liability like loan, debenture etc. Ideal ratio is 2:1.A high ratio is
unfavorable for the film. A low ratio represents a satisfactory capital structure of the firm.
Debt
Debt-Equity ratio =
Equity
Shareholders fund = share capital + reserve and surplus- fictitious assets.
2. Proprietary Ratio
Proprietary ratio relates to the shareholders fund to total assets. This ratio
shows the long term solvency of the business.
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The ideal ratio is 1:3 (i.e. 0.33). This ratio shows the financial strength of the
company. Higher ratio indicates a secured position to creditors and a low ratio indicates a
greater risk to creditors.
Shareholders’ funds
Proprietary ratio =
Total assets
Shareholders fund = equity share capital + preferences + share capital +
reserve & surplus – fictions assets
3. Fixed assets to net worth ratio
This ratio shows relationship between fixed assets and shareholders fund. The purpose
of this ratio is to find out the percentage of owners fund invested in fixed assets.
Fixed assets
Fixed assets to net worth =
Net worth or shareholders fund
III. Activity ratios
Activity ratio measures how efficiently the assets are employed by the firm. These ratios are
also called ‘Turnover Ratio’. These ratios indicate the speed with which assets are being
converted into sales. These ratios are also called ‘efficiency ratio’.
1. Inventory Turnover Ratio(stock turnover Ratio)
This ratio indicates whether investment in inventories is efficiently used or not. A
high ratio indicates risk sales. A low Ratio results in blocking of funds in inventory.
Cost of goods sold
Inventory turnover ratio =
Average stock
Cost of goods sold = sales – gross profit OR sales + gross loss OR = (opening stock + closing
stock/2
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2. Fixed assets to turnover ratio
This ratio indicates the extents to which the investments in fixed assets
contribute towards sales if compared with a previous year, it indicates whether the investment
in fixed assets has been judicious or not.
Net sales
Fixed assets turnover ratio =
Fixed assets
3. Working capital turnover ratio.
This ratio reflects the turnover of the firm’s net working capital in the course of the
year. It is a good measure of over trading & under taking.
Net sales
Working capital turnover =
Fixed assets
4. Debtors turnover ratio (Debtors velocity)
It is the ratio of relationship between account receivables and net credit sales of
the period. The higher the ratio, the better it is since it would indicate that debts are being
collected promptly.
Net credit sales
Debtors Turnover Ratio =
Avg account receivables
IV. Profitability Ratios
A business firm is basically a profit earning organizations. The income statement of
the firm shows the profit earned by the firm during the accounting period. Profitability is an
indication of the efficiency with which the operations of business are carried on.
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1. Gross profit ratio
This ratio serves as a valuable indicator of the firm’s ability to utilize effectively outside
sources of fund. Secondly. This ratio serves as aan important tool in shaping the pricing
policy of the firm.
2. Net profit Ratio
This ratio is also called the net profit to sales or net profit margin ratio. It is determined by
dividing the net income after tax to the net sales for the period. Higher the ratio better is the
operational efficiency of the concern.
Net profit
Net profit ratio = X100
Sales
3. Operating ratio
Operating ratio is an indicative of the proportion that the cost of sales bears to sales.
Cost of goods sold + operating expenses
Operating Ratio = X100
Net sales
Cost of sales = direct cost of goods sold + other operating expense
Operating expense = administration, selling and distribution expense but do not
include financing cost and income tax.
Lower the ratio, the more profitable are the operations indicating an efficient control
over cost and selling price. Reverse is the position when the ratio is higher.
(Ref: Davies D ‘The art of Managing Finance)
*Trend Analysis and Average Analysis
Review and appraisal of tendency in connecting in accounting variables is simply
called as trend analysis. An analysis of the trend ratios over a past few years may well
suggest the direction in which the concern in going. Average analysis is an improvement over
trend analysis.
35
Uses of trend analysis
It helps in easily knowing the direction of movement of activity of business.
It makes data brief and easily understandable.
It helps in comparing one period with other period.
Current year amount
Trend Percentage = X100
Base year amount
Here both the Trend analysis and average analysis of sales, stock, profit before tax,
current assets, current liabilities and working capital are done.
*Comparative Financial Statement
Comparative financial statements are statements of functional position at different
periods of time. The comparative statement shows
Absolute Figures( rupee amount )
Changes in absolute figures.
Absolute data in terms of percentage.
Increase or decrease in terms of percentage.
Comparative Balance Sheet
The comparative balance sheet analysis is the study of trend of same items
and computed items in two or more balance sheet of the same business enterprise on different
dates. Comparative balance sheet will interept the following aspects:
Current financial position and liquidity position.
Long term financial position of the concern can be analyzed by studying the changes
in fixed assets, long term liabilities and capital.
Profitability of the concern is the study of increase or decrease in retained earnings,
various resources and surpluses.
*Schedule of changes in working capital
Working capital is the difference between current assets and current liabilities. The
schedule of changes in working capital is prepared to find out the increase or decrease in
working capital during a period. This schedule is prepared with the help of only current assets
and current liabilities.
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*Common size balance sheet
This statement establishes the relationship between each asset to total value of
assets & each liability to total of liabilities. The objective is to analyse the change in
individual item of balance sheet and to see the trend of different items of assets & liabilities.
(Ref: Financial management theory and practice by ‘Chandran P’)
STATEMENT OF PROBLEM
The ultimate aim of any organisation is the maximisation of wealth of
shareholders and it can be done through profit maximisation. Effective and efficient financing
and investment decision help to achieve the objectives. Managing of current assets is the
main area in which finance department is to concentrate. Inventory constitutes a major
portion of current asset in manufacturing organization. So the inventory must be managed
effectively & efficiently in order to achieve the financial management objectives.
In this study the main focus is on the efficiency of financial position of the
company.
OBJECTIVES
To study the overall performance and profitability of the concern.
To analyse the financial strength and weakness of the company.
To study about the management concern.
To know about the theoretical aspect with actual practice.
To understand the working of various department.
To analyse the source, applications, a use of funds, periodic change in working capital
and indicate results of current financial management.
To analyse the liquidity position and solvency of the company.
To assess the future prospects of the company.
To make some suggestions based on the analysis.
37
LIMITATION
The major limitation was the time constraints. As time available was much limited.
Due to time constraints, could not interview many executives for collection of more
details.
The study covered a 6 year period from 2008- 2009 and 2012-2013. The changes after
before this period were not taken into consideration.
Financial matters considered confidential by the company were not revealed.
The technique of trend analysis and ratio analysis are used to study the performance
of the firm. The limitation of ratio analysis may affect the effectiveness of study.
As I have taken figures for analysis from the financial statement, all limitation of this
statement will apply to study.
METHODOLOGY OF THE STUDY
Research means search for knowledge. It is a process of systematic and in-depth
study of search of any particular topic, subject or area of investigation backed by collection,
computation, presentation and interpretation of relevant data.
Sources of data
This study is based on primary as well as secondary data. Mainly secondary data has
been used for the study.
1. Primary data
Primary data refer to the actual information collected by researcher for the study. It is
specifically designed to fulfil the data needs of problem in hand. Primary data is collected
from the primary sources that are formal interviews. Information collected is mainly based on
personal discussion with finance executives.
2. Secondary data
Data which are not originally collected but rather obtained from the published or
unpublished sources are known as secondary data.
They are:
38
Journal of the company
Company records
Annual records
METHOD OF DATA ANALYSIS
Ratio analysis
Trend analysis and average analysis
Comparative balance sheet
Schedule of changes in working capital
Common size balance sheet
39
CHAPTER-II
INTEGRATED PERSPECTIVE OF ALL FUNCTIONAL AREAS IN
ORGANISATION
40
DIFFERENT DEPARTMENTS IN MILMA DAIRY
FINANCE AND ACCOUNTS DEPARTMENT
Financial management of KCMMF and its units.
Liaison with financial institutions for availing loan for creation of Infrastructure.
Liaison with government for availing government financial assistance.
Long term repayment and scheduling of loans.
Capital management schemes for primary co-operative societies.
Recommend remuneration of APCOS employees.
HUMAN RESOURCE DEPARTMENT
Family has 2098 skilled, efficient and qualified personnel and has an
excellent labour relationship.
Takes active role in fanning personnel policies and services rules
Finalize long term wage settlement, bonus etc.
Milma Placement and career development activities.
MARKETING DEPARTMENT
Brand management
Bulk trading of surplus products.
Institutional supply contracts
Co-ordinate promotional development
Procurement &consumer pricing.
PURCHASE DEPARTMENT
Centralized purchase of dairy consumables
Purchase of raw materials for cattle feed plants
Purchase functions of KCMMF Head Office.
41
QUALITY CONTROL DEPARTMENT
Render technical and legal assistance to primary dairy co-operatives and
Regional Milk Unions.
Liaison and maintain quality of milk and milk products as per the
standards.
Liaison with statutory authorities for bringing in suitable amendments in
statutes.
Attend to consumer complaints on quality problems.
PROJECTS DEPARTMENT
Planning and execution of projects for creating infrastructure for Regional
Milk Unions and KCMMF.
Providing consultancy for execution of projects.
Liaisoning with statutory authorities like Factories and Boilers, Electrical
Inspectorate Dept.of Explosive etc for obtaining approval and
implementation of projects
Liaisoning with government for land allocation, water, power and other
amenities.
Estate management and assistance in maintenance of Plant and Machinery
of KCMMF Unit.
PLANNING AND SYSTEMS
Maintenance of systems at KCMMF, Units and Regional Milk Unions.
Development of software to support various functions.
Purchase of Hardware and Software.
Support Management Information System.
Networking.
Conducts training programs for development of computer skills.
42
PROCUREMENT AND INPUT DEPARTMENT
Formation and supervision of primary milk societies.
Training and development of dairy farmer and society staff.
Rural milk production enhancement activities.
Providing input services to farmer like vetinary and fodder development etc.
Ensuring regular cattle field supply.
Providing scholarship to children, death benefit, pension, medical facilities etc.
PRODUCTION DEPARTMENT
Processing and packing of milk as per standards.
Production planning and control.
Products manufacturing as per standards.
New product development.
MAINTENANCE DEPARTMENT
Upkeep and maintenance of machines.
Ensuring timely processing, through supply of steam, chilled water, power etc.
43
Finance Manager
Assistant Manager
Assistant Accounts Officer
Junior Superintendents
Senior Assistant
Office Attenders
Junior Assistant
ACCOUNTS AND FINANCE DEPARTMENT
The accounts and finance department consist of a manager, assistant accounts officer, junior
superintendent, and senior assistant and office assistants. The department has to keep records
about the interest paid to NDDB, the insurance provided for building, vehicles plant and
machinery etc. The departments prepare profit and loss account and balance sheet and send it
to the Head Office. The department has to ensure that the salaries due to employees are paid
in time. They are also considered with the preparation the budget and ensuring that the entries
are properly posted in the books of accounts. They also see that the tax is paid in time; the
store consumption account is also kept to prepare the profit and loss.
44
ACCOUNTING SYSTEM:
The accounting system of the unit is the double entry system i.e. for every credit there
is a debit. All the transactions are computerized. Trial balance and profit and loss account are
repaired half yearly. A uniform system is designed according to the NDDB. Separate books
are maintained for each items.
AUDIT:
The section is computerized, hence auditing is an easy task. There are three types of
audits:- internal audit, statuary audit, and co-operative audit Internal audits are done on the
daily basis and for this, the auditors are appointed by the dairy. Government does the
statutory audits and their remuneration is paid by the union. Co-operative audits are done
every year.
BUDGET:
The budget prepared every year considering the procurement sales, increment in
salary and other expenses. Budgets are prepared on the policies set by the KCMMF. All the
payments and allocations of funds to other department are strictly on the basis of budgets.
Each department, if needed to the renewed should check the amount allocated to each
department. The budget prepared is submitted to head office and get approval. Budgets
are prepared considering the annual turnover.
SOURCES OF FUNDS:
A main source of procurement of funds is NDDB. There are several funds that help
to meet the uncertainties. They are price Equalization funds, corpus funds, and farmers
welfare funds etc. The working capital is collected from the head office once in fifteen days.
ADVANCE REGISTER:
It contains cash advance details. Profit and loss account is prepared every month
while balance sheet and budget is prepared yearly. Every year auditing takes place in the
daily. Register of co-operative societies come and audit every year. The Ambalathara Dairy
45
receives funds from the Head Office and remits all receipt to the Head Office. The Head
Office plans and sanctions all the financial budget of the dairy.
The Accounting system of the Dairy is Double Entry System. All the transactions are
computerized. Trail Balance and Profit and Loss Account are prepared monthly and balance
sheets are prepared half yearly .a uniform accounting system is computerized, hence
auditing is an easy take. There are 3 types of Audit, internal audit, statutory audit and
corporate audit. Internal are done on daily basis and for this the auditors are appointed by the
dairy. Government does the statutory audits and there remuneration is paid by the union.
Corporate Audit is done at the end of every year.
The budget is prepared every year considering the procurement, sales, increment in
salary and other expenses. Budgets are prepared based on the policies set by KCMMF. All
the payment and allocations of funds to other departments are strictly on the basis of
budgets. The budget prepared is submitted to the Head Office to get approval. Budgets are
prepared considering the annual turnover.
A main source of procurement of fund is National Diary Development Board in the
form of grant and loan. Every fortnight they send request to the Head Office for giving
or estimation of fund requirement the working capital is collected from the Head office
once in every fortnight. The total revenue 90% is received from the sale of milk and the rest
10% from the milk products. Every year 1.25% (maximum up to 15 lakhs) of the total
turnover has to be paid to KCMMF as loyalty. The total turnover in the year 2008 was Rs.
188 crores.
During the deficit of milk in the state, the Dairy will procure milk from other states.
They will have certain milk contracts with other states. The payment mode varies from state
to state. For Kamataka state, it is on credit weekly payment, where as for Tami! Nadu, the
payment is made in advancement mode. Important books and records maintained in the
Department are:
Cash book: This book is maintained for cash receipts and payments.
Bank book: It contains cash receipts and payments with the Bank.
General Ledger: bank transactions, Cash transactions etc.
46
Journals: Other than cash and bank transactions, every other details come in journals, i.e., all
the credit transactions.
Cash book, Bank book, General Ledger and Journals are computerized, while subsidiary
registers are manual.
Subsidiary registers include:
Direct payment register: Security charges, Building Insurance which includes
Fire insurance, break down insurance etc. details of taxes and license like provision tax,
Building tax, Factory license, Boiler license etc. Purchase details and cash handling of
Wages and Salaries of employees.
Bill Register: it includes details of purchase bills and service bills.
(http://www.milma.in/)
47
CHAPTER III
FINANCIAL ANALYSIS OF DATA
48
DATA ANALYSIS AND INTERPRETATION
4.1 LIQUIDITY RATIO
The term liquidity ratio refers to the firm’s ability to meets its current liabilities when they
become due; Liquidity ratios are used to current the liquidity position or short term financial
position of a firm. For example current ratio, quick ratio, absolute liquid ratio etc.
4.1.1CURRENT RATIO
Current ratio is the most common ratio for measuring liquidity. It is high the ratio for
current assets to current liability. It is also called working capital ratio. A high ratio indicates
the greater liquidity. The satisfactory ratio is considered as 2:1 or 2 and more.
Current assets are those, the amount of which can be realized within a period of one year
and current liabilities are those amounts which are payable with in a period of the one year.
Current Ratio = Current AssetCurrent Liability
TABLE SHOWING CURRENT RATIO
Year Current Asset(in
lakhs)
Current Liability(in
lakhs)
Ratio
2007-2008 1300.55 2040.50 0.63
2008-2009 3169.48 2534.29 1.25
2009-2010 4633.80 2484.55 1.86
2010-2011 2116.66 2606.10 1.04
2011-2012 3564.66 3128.16 1.13
CHART SHOWING CURRENT RATIO
49
Inference
The current ratio of firm measures its shorts term solvency, i.e., its ability to meet shorter
obligations. In a sound business a current ratio of 2:1 is considered an ideal one. A high ratio
indicates sound liquidity position and a low ratio indicate inadequate working capital.
Table clearly shows current assets, current liability and current ratio. Three variables
in the table show a fluctuating trend in the five year study. The ratio reveals that the firms’
financial position is not satisfactory. This is due to the low value of current asset when
compared to the current liabilities.
4.1.2 QUICK RATIO / LIQUID RATIO / ACID TEST RATIO
It is the ratio of quick assets or liquid asset to current liability. It is determined by dividing
quick assets by quick liability. Quick assets include cash in hand, cash at bank, bills
receivables and debtors. The satisfactory ratio is considered as 1:1 or 1 and more
Quick ratio = Quick asset: Current liability
OR
Quick asset
Current liability
Quick asset = Cash + bank + Bills receivable + debtors
OR
= Current asset – Stock
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TABLE SHOWING QUICK RATIO
Year Quick Asset (in
lakhs)
Current liability (in
lakhs)
Ratio
2007-2008 478.94 2040.50 0.23
2008-2009 2554.31 2534.29 1.00
2009-2010 4044.96 2484.55 1.62
2010-2011 1520.68 2606.10 0.58
2011-2012 2099.99 3128.16 0.67
CHART SHOWING QUICK RATIO
2007-2008 2008-2009 2009-2010 2010-2011 2011-20120
0.2
0.4
0.6
0.8
1
1.2
1.4
1.6
1.8
0.670.58
1.62
1
0.23
Inference
51
An acid test or quick ratio of 1:1 considered satisfactory as firm can easily meet all its
current liabilities. If the ratio is less than 1:1 then the financial position of the concern shall
be deemed to be unsound. On other hand if the ratio is more than 1:1 then the financial
position of the concern is sound and good. Liquid ratio is true test of business solvency.
The above table shows that the relationship between the quick assets and current
liability. It shows the not good sound position of the firm’s quick asset to meet all its current
liabilities.
4.1.3 ABSOLUTE LIQUID RATIO
It is the ratio of absolute liquid asset to current liabilities. The satisfactory ratio is
considered as 0.75:1
Absolute liquid ratio = Absolute liquid asset
Current liability
Absolute liquid asset = Cash + bank + Bills receivable
OR
= Quick Asset – Debtors
TABLE SHOWING ABSOLUTE LIQUID RATIO
YEAR CASH (in lakhs) Current liability
(in lakhs )
Ratio
2007-2008 17.74 2040.50 0.008
52
2008-2009 394.33 2534.29 0.15
2009-2010 774.15 2484.55 0.31
2010-2011 698.32 2606.10 0.26
2011-2012 954.04 3128.16 0.30
CHART SHOWING ABSOLUTE LIQUID RATIO
2007-2008 2008-2009 2009-2010 2010-2011 2011-20120
0.05
0.1
0.15
0.2
0.25
0.3
0.35
0.3
0.26
0.31
0.15
0.008
53
Inference
This table shows that the relationship between the immediate source of fund and
current liability. A ratio of 0.75:1 is recommended to ensure liquidity. The absolute liquidity
ratio is very low hence it indicates that the firm’s liquidity position is not good
4.2 LEVERAGE RATIOS
Many financial analyses are interested in the relative use of debt and equity of the
firm. These ratios measure the long term solvency position of the firm. The following are
important leverage ratios
4.2.1 DEBT-EQUITY RATIO
It is the ratio of outsiders fund to owners’ equity. Outsiders’ equity includes current
liability as well as long debts such as a debenture, Bond, Loans etc. Owners’ equity refers the
net worth of shares holders’ fund. It includes equity share capital + preference share + capital
+ reserve and surplus-fictious share.
Debt Equity Ratio = DebtEquity
OR
=Outsiders fund
owners∨shareholders fund
TABLE SHOWING DEBT-EQUITY RATIO
YEAR DEBT (in lakhs) Shareholders
fund (in lakhs)
Ratio
2007-2008 691.40 1535.19 0.45
54
2008-2009 927.45 1760.82 0.52
2009-2010 2157.65 2075.80 1.03
2010-2011 1685.26 2756.53 0.61
2011-2012 1466.66 2965.96 0.49
CHART SHOWING DEBT EQUITY RATIO
2007-2008 2008-2009 2009-2010 2010-2011 2011-20120
0.2
0.4
0.6
0.8
1
1.2
0.49
0.61
1.03
0.520.45
Inference
55
Debt equity ratio measured ultimate solvency of the concern. It provides a marginof
safety to the creditors. Thus smaller ratio of this will give more comfort to creditors. The debt
equity ratio was maximum at the year 2010 then it showing a decreasing trend. Higher debt
equity ratio increases the risk and inflexibility of the firm.
4.2.2 PROPRIETARY RATIO
Proprietary Ratio relates to share holders fund to total asset. This ratio shows the long
term solvency of the business. It is calculated by dividing share capitals, preference share
capital, reserve and surplus. Total assets include all assets including goodwill. The accepted
norm of the ratio is 1:3.
Proprietary ratio =ShareholdersTotal assets
TABLE SHOWING PROPRIETARY RATIO
Year Shareholders fund (in
lakhs)
Total Asset (in lakhs) Ratio
2007-2008 1535.19 2226.59 0.68
2008-2009 1760.82 2688.27 0.65
2009-2010 2075.80 4233.45 0.49
2010-2011 2756.53 4441.79 0.62
2011-2012 2965.96 4432.62 0.66
CHART SHOWING PROPRIETARY RATIO
56
2007-2008 2008-2009 2009-2010 2010-2011 2011-20120
0.1
0.2
0.3
0.4
0.5
0.6
0.7
0.8
0.660.62
0.49
0.650.68
Inference
This ratio shows financial strength of the company. It helps the creditors to find out
the position of the share holders fund in the total assets. If the ratio is high, this indicates that
a company has a sufficient amount of equity to support the functions of the business, and
probably has room in its financial structure to take on additional debt, if necessary.
Conversely a low ratio indicates that the business may be making use of too much debt, or
trade payables, rather than equity, to support operations ( which may place the company at
risk of bankruptcy).
4.2.3 FIXED ASSET TO NETWORTH RATIO
The ratio shows the relationship between fixed assets and shareholders fund. The
purpose of this ratio is to find out the percentage of the fund invested in fixed asset.
Fixed asset to net worth = Fixed asset
Share holders fund
57
TABLE SHOWING FIXED ASSET TO NETWORTH RATIO
YEAR Fixed Asset
(in lakhs )
NeT Worth
( in lakhs)
Ratio
2007-2008 1805.25 1535.19 1.17
2008-2009 2023.57 1760.82 1.14
2009-2010 2113.50 2075.80 1.01
2010-2011 4266.28 2756.53 1.54
2011-2012 3923.94 2965.96 1.32
CHART SHOWING FIXED ASSET TO NET WORTH RATIO
2007-2008 2008-2009 2009-2010 2010-2011 2011-20120
0.2
0.4
0.6
0.8
1
1.2
1.4
1.6
1.8
1.32
1.54
1.01
1.141.17
Inference
58
Fixed asset to net worth ratio finds wide spread application to measure the solvency of
a firm. A ratio higher than 0.75 usually reveals the firm is investing high amount in capital
excessively as well as non liquid assets leaving too little cash to fund operations. This could
make the film more vulnerable to unexpected events and changes in business climate. Here
the ratio is more than one, it means that creditors fund have been used to acquire a part of
fixed assets.
4.3 ACTIVITY RATIO
These ratios are called turnover ratios. This ratio highlights upon the activity and
operational efficiency of the business concern. This ratio indicates the speed with which the
assets are being converted in to sales.
This ratio also called efficiency ratio. Under this ratio inventory turnover ratio, fixed
assets turnover ratio, working capital turnovers ratio and debtors’ turnover ratio are explained
below. The ratio measure the efficient use of assets which will generate greater sale per rupee
invested in all assets of a concern. the efficient use of assets will result in low sales volume
coupled with higher overhead charges and under utilization of the available capacity.
4.3.1 FIXED ASSETS TURNOVER RATIO
This ratio indicates the extent to which the investment in fixed assets contributors
towards sales. It when compared with a previous year indicates whether the investment in
fixed assets have been judicious or not. This ratio is calculated as follows
Fixed Asset Turnover Ratio = Net sales
Fixed Assets
TABLE SHOWING FIXED ASSETS TURN OVER RATIO
Year Net sales (in lakhs) Fixed assets (in
lakhs)
Ratio
2007-2008 28346.83 1805.25 15.70
59
2008-2009 33239.05 2023.57 16.42
2009-2010 36265.06 2113.50 17.15
2010-2011 38952.60 4266.28 9.13
2011-2012 49473.84 3929.44 12.50
CHART SHOWING FIXED ASSETS TO TURNOVER RATIOS
2007-2008 2008-2009 2009-2010 2010-2011 2011-20120
2
4
6
8
10
12
14
16
18
20
12.5
9.13
17.1516.4215.7
Inference
60
If the fixed asset turnover ratio is low as compared to the industry or past years of the
firm, it means that sales are low or the investment in plant and equipment is too high. If the
ratio is high, then the business firm is likely operating over capacity and need to either
increase its asset base to support its sales or reduce its capacity.
4.3.2. INVENTORY TURNOVER RATIO
Inventory turnover ratio is the ratio of the cost of goods sold to average inventory. It
is an activity / efficiency ratio and it measures how many times per period a business sells
and replaces its inventory origin. This ratio is calculated as follows;
Inventory Turnover Ratio = Cost of goods sold
Average inventory
Average inventory is calculated as the sum of the inventory at the beginning and at the end of
the period divided by two.
TABLE SHOWING INVENTORY TURN OVER RATIO
Year Cost of goods sold
(in lakhs)
Average stocks (in
lakhs)
Ratio
2007-2008 26526.8 215.80 122.92
2007-2008 30191.14 207.54 145.47
2009-2010 33418.57 197.50 169.20
2010-2011 35577.52 201.14 176.88
2011-2012 45875.49 228.28 200.96
CHART SHOWING INVENTORY TURNOVER RATIO
61
2007-2008 2008-2009 2009-2010 2010-2011 2011-20120
50
100
150
200
250
200.96
176.88169.2
145.47
122.92
Inference
A higher inventory ratio indicates brisk sales. The ratio is a measure to discover
possible trouble in the form of over stocking. The inventory turnover ratio shows an
increasing trend.
4.3.3 WORKING CAPITAL TURNOVER RATIO
The working capital turnover ratio indicates the number of times the working capital
is turned over in the course of year.
Working capital turnover ratio = Net Sales
Networking capital
TABLE SHOWING WORKING CAPITAL TURNOVER RATIO
62
Year Sales (in lakhs) Net working
capital (in lakhs)
Ratio
2007-2008 28346.83 (739.95) -38.30
2008-2009 33239.05 635.19 52.32
2009-2010 36265.05 2149.25 16.87
2010-2011 38952.60 110.56 352.32
2011-2012 49473.84 436.50 113.34
CHART SHOWING WORKING CAPITAL TURNOVER RATIO
63
2007-2008 2008-2009 2009-2010 2010-2011 2011-2012
-100
-50
0
50
100
150
200
250
300
350
400
113.34
352.34
16.8752.32
-38.3
Inference
The above table shows that the relationship between net sales and net working capital.
A high turnover ratio indicates that management is being extremely efficient in using a firms
short term assets and liabilities to support sales.
4.3.4 DEBTORS TURNOVER RATIO
The purpose of this ratio is to discuss the credit collection power and policy of the
firm. For this ratio a relationship is establishedis established between account receivable and
net credit sales of period. The debtors turnover ratio is calculated as net credit sales by
averages account receivable.
Debtors turnover ratio =Net credit sales
Average accounts recievables
Average accounts receivables =opening debtors∧biilsrecievablesClosing debtors∧billsrecievables
64
TABLE SHOWING DEBTORS TURNOVER RATIO
Year Sales (in lakhs) Debt ( in lakhs) Ratio
2007-2008 28346.83 306.53 92.47
2008-2009 33239.05 365.85 90.85
2009-2010 36265.05 339.81 106.72
2010-2011 38952.60 423.55 85.88
2011-2012 49473.84 603.21 82.01
CHART SHOWING DEBTORS TURNOVER RATIO
2007-2008 2008-2009 2009-2010 2010-2011 2011-20120
20
40
60
80
100
120
82.0185.88
106.72
90.8592.47
Inference
There is no norm interpreting this ratio. However the higher values of debtors
turnover more efficient will be the management of debtors and sales. Even though the
companies’ debtors’ turnover ratio shows a fluctuating trend it is considered satisfactory.
4.4 PROFITABILITY RATIO
65
A business firm is basically a profit earning organization. The income statement of the
firm shows the profit earned by the firm during the accounting period. Profitability is an
indications of the efficiency with which the operations of the business are carried on. Poor
operational performances may indicate poor sales and hence profits.
4.4.1 NET PROFIT RATIO
This ratio is also called the net profit to sale or net profit margin ratio. It is determined by
dividing the net income after tax to the net sales for the period and measure the profit per
value of sales
Net Profit Ratio =Net profitsales
X 100
TABLE SHOWING NET PROFIT RATIO
Year Net Profile (in lakhs) Sales (in lakhs) Net Profit Ratio
2007-2008 (464.66) 28346.83 -1.6
2008-2009 104.29 33239.05 0.31
2009-2010 38.68 36265.06 0.10
2010-2011 (22.06) 38952.60 -0.05
2011-2012 (1.23) 49473.84 -0.002
CHART SHOWING NET PROFIT RATIO
66
2007-2008 2008-2009 2009-2010 2010-2011 2011-2012
-2
-1.5
-1
-0.5
0
0.5
-0.002-0.05
0.1
0.31
-1.6
Inference
It can be observed that the networking capital ratio is negative figure in last two years.
Current asset is less than the current liabilities. Thus the net working capital is negative. Thus
we can say that net profit ratio looks unsatisfactory and insufficient. It can be observed that
the company not well poised to meet any short obligation. Hence the liquidity position is not
safe and sound.
4.4.2 GROSS PROFIT RATIO
Gross profit ratio evaluates the effectiveness of business. It indicates the efficiency of
firm in terms of its production and how much it has gained profit. Gross profit reflects the
profit firm has made on cost of goods sold. If the firm has higher gross profit margin then it is
a sign of success because all operating expenses, interest selling price of goods sold and
decrease cost of goods sold then the ratio increases.
Gross Profit Ratio =gross profit
salesX100
TABLE SHOWING GROSS PROFIT RATIO
67
Year Gross Profit(in
lakhs)
Sales ( in lakhs) Gross profit Ratio
2007-2008 1774.74 28346.83 6.3
2008-2009 2897.83 33239.05 8.8
2009-2010 2812.36 36265.06 7.8
2010-2011 3015.08 38952.60 7.8
2011-2012 3598.35 49473.84 7.3
CHART SHOWING GROSS PROFIT RATIO
2007-2008 2008-2009 2009-2010 2010-2011 2011-20120
1
2
3
4
5
6
7
8
9
10
7.37.87.8
8.8
6.3
Inference
The gross profit ratio helps in ascertaining whether the average percentage of mark up
on the goods is maintained or not. If firm has higher gross profit margin then it is a sign of
success because all operating expenses, interest charges and dividends would have to be
taken off from GP. If company increase selling price of goods sold and decreases cost of
68
goods sold then this ratio increases. However if company decrease selling price of goods sold
then this ratio decreases.
4.4.3 RETURN ON TOTAL ASSETS
Return on total assets ratio is a profitability ratio. The return on assets ratio is also called the
return on investment ratio. Return on assets allows the business owner to calculate how
efficiently the company is using the total assets base to generate sales. Total assets include all
current assets such as cash, inventory and accounts receivable in addition to fixed assets such
as plant and equipment
Net profit
Return On Total Assets = X100
Total assets
TABLE SHOWING RETURN ON TOTAL ASSETS
Year Net profit(in
lakhs)
Total assets(in
lakhs)
Ratio
2007-2008 (372.68) 2226.59 -16.73
2008-2009 192.56 2688.27 7.16
2009-2010 110.30 4233.45 2.60
2010-2011 144.51 4441.79 3.25
2011-2012 199.25 4432.62 4.49
CHART SHOWING RETURN OF THE TOTAL ASSETS
69
2007-2008 2008-2009 2009-2010 2010-2011 2011-2012
-20
-15
-10
-5
0
5
10
-16.73
7.16
2.60 3.254.49
Inference
The above table shows the relationship between the net profit and total assets. In
2007-2008 firms had very poor performance to utilize their total asset base to generate sales.
Then the next four years the ratio shows fluctuations in return.
4.4.4 RETURN ON SHARE HOLDERS FUND
70
This ratio is the rate of profit of the shareholders fund. It relates the profit
available for the share holders to their total investment.
Net profit after interest & tax
Return on shareholders’ fund =
Share holders fund
TABLE SHOWING RETURN ON SHAREHOLDERS FUND
Year Net profit(in lakhs) Total assets(in lakhs Ratio
2007-2008 (464.66) 1431.10 -32.46
2008-2009 104.29 1773.31 5.88
2009-2010 38.68 2194.88 1.76
2010-2011 (22.06) 2756.53 -0.80
2011-2012 (1.23) 2965.96 -0.04
71
TABLE SHOWING RETURN ON SHAREHOLDERS FUND
2007-2008 2008-2009 2009-2010 2010-2011 2011-2012
-35
-30
-25
-20
-15
-10
-5
0
5
10
-32.46
5.88
1.76
-0.8 -0.04
Inference
The firm doesn’t give good return to its shareholders. The last two years return was loss.
It’s not giving profit. So improvements in this area need to be carried out.
TREND ANALYSIS
72
Trend percentages are immensely helpful in making a comparative study of the financial
statements for several years. The method of calculating trend percentage involves the
calculation of percentage relationship that each item bears to the same item in the earliest
year. An interviewing year may also be taken as the base year. Each item of the base year is
taken as 100 and on that basis the percentage for each of the items of each of the year is
calculated. These percentages can also be taken as index numbers shows relative changes in
the financial data resulting with the passage of time.
The method of trend percentage is a useful analytical device for the management since by
substitution of percentage of large amount; the brevity and readability are achieved.
However, trend percentage are not calculated for all of the items in the financial statements.
They are usually calculated only for major items since the purpose is to highlight important
changes.
While calculating trend percentage are should be taken regarding the following matters:
1. Accounting principles and practices followed should be constraint throught the period
for which analysis is made. In the absence of such consistency, the comparability will be
adversely affected.
2. The base year should be carefully selected. It should be a normal year amd be
representative of the item shown in the statement.
3. The base year should be calculated only for items hqaving logical relationship with
one another.
This method determines the direction upwards or downwards and involves The financial
statements may be analyzed by computing trends of series of the computation of the
percentage relationship that each statement item bears to the same item in base year. The
figures are base years are taken as 100 and trend ratio for other year is calculated on the basis
of base year. The information for a number of years is taken up and one year, generally the
first year, is taken as a base year.
Current year amount
Trend percentage = X100
Base year amount
(Base period 2007-2008=100)
Trend Analysis of Net Profit/loss
73
Year Net loss Trend%
2007-2008 (464.66) 100
2008-2009 104.29 -22.44
2009-2010 38.68 -8.32
2010-2011 (22.06) 4.74
2011-2012 (1.23) 0.26
74
TREND ANALYSIS OF NET PROFIT/LOSS
2007-2008 2008-2009 2009-2010 2010-2011 2011-2012
-120
-100
-80
-60
-40
-20
0
20
40
-100
22.44
8.32
-4.74
-0.26
Interpretation
It can be observed that the trend of net profit is negative figure or became the decreasing
trend in 2009, and 2010. Current asst is less than the current liabilities. Thus the net working
capital is negative. Thus we can say that these years trend of net profit looks unsatisfactory
and insufficient. It can be observed that the company not well poised to meet any short
obligation. Hence the liquidity position is not safe and sound.
75
Trend Analysis of Sales
Year Net sales Trend (%)
2007-2008 28346.83 100
2008-2009 33239.05 117.25
2009-2010 36265.06 127.93
2010-2011 38952.60 137.41
2011-2012 49473.84 174.53
Trend Analysis of Sales
2007-2008 2008-2009 2009-2010 2010-2011 2011-20120
20
40
60
80
100
120
140
160
180
200
117.25
100127.93 137.41
174.53
Interpretation
The table shows an increasing trend in the sales. Here 2007-2008 is taken as the base year.
The trend in sales is high due to good increase in the sales and increasing the number of
76
customers. The percentage in 2012 is 174 as compared to 100 in 2007. The increase in the
sales is quite satisfactory.
Trend Analysis of Net Working Capital
Year Net working capital Trend (%)
2007-2008 (739.95) 100
2008-2009 635.19 -85.84
2009-2010 2149.25 -290.45
2010-2011 110.56 -14.94
2011-2012 436.50 -58.99
Trend Analysis of Net Working Capital
2007-2008 2008-2009 2009-2010 2010-2011 2011-2012
-350
-300
-250
-200
-150
-100
-50
0
50
100
150
100
-85.84
-290.84
-14.94
-58.99
Interpretation
Working capital trend analysis stood at its minimum in the year 2009-10 with a percentage of
-290.45. The above given table shows the negative trend of TRCMPU Ltd due to flexibility
in the ratio.
Trend Analysis of Current Assets
77
Year Current Assets Trend (%)
2007-2008 1300.55 100
2008-2009 3169.48 243.70
2009-2010 4633.80 356.29
2010-2011 2716.66 208.88
2011-2012 3564.66 274.08
Trend Analysis of Current Assets
2007-2008 2008-2009 2009-2010 2010-2011 2011-20120
50
100
150
200
250
300
350
400
100
243.7
356.29
208.88
274.08
Interpretation
The table shows an variation trend in the current assets. Here 2007-2008 is taken as the base
year. The trend in current is high due to good increase in the percentage in 2010 is 356.29 as
compared to 100 in 2007. The increase in the current assets is quite satisfactory.
Trend Analysis of Current Liabilities
78
Year Current liabilities Trend (%)
2007-2008 2040.50 100
2008-2009 2534.29 124.19
2009-2010 2484.55 121.76
2010-2011 2606.10 127.71
2011-2012 3128.16 153.30
Trend Analysis of Current Liabilities
2007-2008 2008-2009 2009-2010 2010-2011 2011-20120
20
40
60
80
100
120
140
160
180
100
124.19
121.76 127.71
153.30
Interpretation
The table shows an increasing trend in the current liabilities. Here 2007-2008 is taken as the
base year. The trend in current liabilities is high increase in the percentage in 2012 is 153.30
as compared to 100 in 2007.
Trend Analysis of Fixed Asset
79
Year Current Fixed Asset Trend (%)
2007-2008 1805.25 100
2008-2009 2023.57 112.09
2009-2010 2113.50 117.09
2010-2011 4266.28 236.32
2011-2012 3929.94 217.69
Trend Analysis of Fixed Asset
2007-2008 2008-2009 2009-2010 2010-2011 2011-20120
50
100
150
200
250
100112.09 117.0
7
236.32
217.69
Interpretation
The table shows a variations trend in the fixed assets. Here 2007-2008 is taken as the base
year. The trend in fixed assets is high increase in the year at percentage in 2011 is 236.32 as
compared to 100 in 2007. Then the fixed assets is decrease in the year of 2012
COMMON SIZE STATEMENTS
80
Common size statements is a statement where in monetary data are expressed
in terms of percentages of total. In common size profit and loss account, all elements in it are
expresse4d as percentage of total revenue. In common size balance sheet all elements are
expressed as percentage of total assets of total liabilities. This statement facilitates for easy
comparison of various elements of the statements between two or more years.
COMMON SIZE BALANCE SHEET OF TRCMPU LTD
(FROM 2008 TO 2012) In percentage
Liabilities 31/03/08 31/03/09 31/03/10 31/03/11 31/03/12
Owners fund 34.65 39.79 28.99 39.11 39.23
Borrowed fund 14.72 20.95 28.58 23.91 19.39
Current liabilities 50.63 39.24 42.43 36.98 41.80
Total 100 100 100 100 100
Assets
Fixed assets 52.81 51.34 54.73 59.69 51.32
Investment 3.66 3.45 2.26 2.29 2.13
Current assets 43.53 45.21 43.01 38.01 46.55
Total 100 100 100 100 100
Interpretation
81
In common size balance sheet, the owners fund shows a changing trend throughout the study.
During 2007-2008 the owners fund was 34.65% further decreased and then increased to
39.23% in 2012. Common size balance sheet shows that the owners fund is increasing while
borrowed funds and liabilities are decreasing. It is not favourable for the union. But the
current asset shows an increase in 2012.
COMMON SIZE PROFIT AND LOSS ACCOUNT OF TRCMPU
LTD (FROM 2008 TO 2012) in percentage
EXPENDITURE 31/03/2007 31/03/2008 31/03/2009 31/03/2011 31/03/2012
Raw material cost 87.42 85.24 86.34 84.07 85.74
Employee cost 5.26 6.25 5.55 5.86 5.20
Manufacturing
expenses
2.48 2.24 2.01 2.1 1.9
Selling expense 4.85 4.66 4.29 4.34 3.76
General overhead 0.81 0.92 1.13 1.40 2.40
Taxes and duties 0.08 0.01 0.05 0.07 0.07
Interest 0.17 0.22 0.25 0.23 0.39
Depreciation 0.55 0.4 0.37 0.77 0.55
Net profit/loss (1.62) 0.31 0.05 (0.06) (0.02)
Total 100 100 100 100 100
INCOME
Sales 99.63 99.68 99.55 99.25 98.83
Other sales 0.14 0.11 0.08 0.10 0.09
Interest 0.01 0.01 0.03 0.03 0.65
Other income 0.22 0.2 0.34 0.2 0.39
Closing stock - - - 0.03 0.65
Total 100 100 100 100 100
82
CHAPTER IV
FINDINGS
&
RECOMMENDATION
FINDINGS
83
In this order to study the efficiency, the present financial position in
Trivandrum regional cooperative milk producers union ltd, Thiruvananthapuram, is analyzed
for a period of five year commencing 1-4-2007 the following are the important findings
derived from the study.
The financial position of the firm is not satisfactory.
The low value of cash ratio indicates that the liquidity position of the firm is not good.
The decreasing value of net profit ratio shows the poor result from operations.
The decreasing trend in fixed asset ratio indicates that its extent of utilization is poor.
The working capital position is not good and the low value of working capital;
turnover ratio shows that there is no optimum use of working capital in improving the
efficiency of operation.
The major source of revenue of the firm is from sale of the products followed by other
income.
The low value of quick ratio indicates that the liquidity position of firm is not good.
The sale during the period under study shows a increasing trend
Comparative balance sheet shows financial position of the TRCMPU is not
satisfactory.
The common size profit and loss account shows that the net result from operations is
decreasing and hence not satisfactory.
Less proprietary ratio indicates higher dependence on outsider’s fund.
84
RECOMMENDATION
85
RECOMMENDATION
Enhance Liquidity Position
The liquidity position of the union is poor so that it is suggested that the level of current
assets and cash position should be increased for enhancing the liquidity position.
Improve the profitability Position
By increasing the sales volume, production capacity, implementing effective cost control and
cost production measures will be helpful
Capital Structure
Union can seek more grant from government under various schemes by which the capital
structure of the firm can be improved. This will helps to reflect a good capital structure,
stable financial position, reduce the risk and uncertainty and helps to increase owners fund.
Good capital structure will also help to get more loans from banks.
Reduce the cost of Raw Materials
The costs of raw materials constitute more than 86% of sales revenue which is on the higher
side accounting to industry standards. Hence more control is required to be exercised in this
area in terms of price, quality, wastage, spoilage to bring down the cost of raw materials.
Improve the production Capacity
The production overhead expenses increasing year after year affecting the profit margin.
Hence, it is suggested to improve capacity.
Improve the sales volume
Effective steps to be taken to improve sales volume.
Strengthen the Internal System
Functioning of existing internal audit system should be relooked into considering the poor
operating results of the union for the past 10 years. It is suggested that all areas of functions
need to be recovered under the internal audit review.
86
Enhance the working capital
There is no effective assessment and optimum use of working capital. An effective
assessment and optimum use of working capital results in maximizing productivity and
profit.
Conduct Financial statement Analysis
Proper evaluation of financial statements should be done and compared with the previous
years.
Evaluate and Analyse financial Ratios
The study shows that some of the major accounting ratios are not worked out and analysed
properly. It is suggested that financial ratios need to be worked out and analysed properly in
order to get true picture of the financial situation.
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CHAPTER V
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CONCLUSION
Financial statement represents the snapshot of a concern’s activities at the end of the
particular period. Financial statement revels how a business has prospered under the
leadership of its management personnel. Financial appraisal is a technique to evaluate the
past, current and projected performance of a concern.
The present study was undertaken with the objective of evaluating the financial stability and
operational health of Trivandrum regional cooperative milk producers union ltd. The data for
the present study was obtained from the financial statements and accounting records of
Trivandrum regional co-operative milk producers union ltd. This information was
supplemented by interviews with top officials and by handout and journals. The study covers
5 years from 2007-2008 to 2011-2012. A suitable analysis, Proper conclusions have been
drawn regarding the financial health and operational efficiency of Trivandrum regional co-
operative milk producers union ltd.
The project Trivandrum regional co-operative milk producer’s union ltd enables me to
acquire practical knowledge on the management theories also. Despite of the limitation the
project was successfully completed with the immense support of the guide and co-operative
of the firm.
89
BIBLIOGRAPHY
90
BIBLIOGRAPHY
Chandra. P, “Financial Management Theory and Practice”, Tata Mc-Graw Hill
Publishing Co. Ltd, New Delhi.
.Anthony,N.R; Hawkins,F.D;Merchant,A.K (2010), “ Management Accounting” ,
12th edition Tata McGraw Hill.
. Banerjee.A (1990), “Financial Accounting” ,2nd edition, Sultan Chand & Sons, New
Delhi
.Lawson (1992), “ Accounting & Financial Management” , Tata McGraw Hill,
New Delhi.
Davies. D, “The Art Of Managing Finance”, Mc Graw Hill Book Company, New
Delhi
Khan M.Y,”Theory and Problems in Financial Management”, Tata Mc-Graw Hill
Publishing Co Ltd, New Delhi.
Pandey I M,”Financial Management”, Vikas Publishing House Pvt Ltd, New Delhi.
Van Horne J C,”Financial Management and Policy”, Prentice-hall, New Delhi.
Journals and websites
Annual Report of TRCMPU LTD From 2007-2008 to 2011-2012
WWW.trcmpu.org WWW.themanager.org/knowledgebase/diary industry Survey of Indian Industry-Published by The Hindu
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APPENDIX
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