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AProject Report
On
“FINANCIAL ANALYSIS OF MADHUR DAIRY”
(Gandhinagar District Co-operative milk producers union limited)
A Project Submitted To
The Bhavnagar University of Bhavnagar in practical fulfillment for the degree
OfBachelor of Business Administration
By, Guided By,Vaghani vishal .m. NETRAMEM (T.Y B.B.A) Roll no: 128
Swami Sahajanand College of commerce & management
Bhavnagar UniversityBhavnagar
Batch2007-10
1
DECLARATIONDECLARATION
I Am Vaghani Vishal Manojkumar.T.Y.B.B.A. Roll no. 128 Here By Me And
It Is My Own Work. It Has Been Carried Out Under The Supervision Of Netramam,
Swami Sahajanand College Of Commerce And Management.
This Work Has Been Previously Submitted To Any University For My
Examination.
Signature
Vaghani Vishal M.
T.Y.B.B.A.
2
PrefacePreface
The Industrial Training From The Practical Study Point Of View Is Very
Important a B.B.A.Student As It Bridge Gap Between The Theoretical Knowledge. The
Word Has Become Practical So, It Is Knowledge, But A Person Also Should Familiar
with Its Practical Aspect.
The Main Object of Particular Training at T.Y.B.B.A. A Level Is To Gain The
Practical Attitude And Ability To Perform Specific Job In And Industrial Every
Management Student Should Have Some Practical Knowledge By Which They Can
Understand The Reality Of Corporate World More Closely.
As A Student Of S.Y.B.B.A.,I Got The Opportunity To Take Industrial
Training For 21 Days With The Help Of My College “Swami Sahajanand College Of
Commerce And Management” On “Gandhinagar District Co-Operative Milk Producers
Union Ltd.Known As ‘MADUR DAIRY’, Situated At K Road ,G.I.D.C.,Sector
25,Gandhinagar .
I Have Tried My Level Best To Collect The Information With In The Training
For Three Week.MADUR DAIRY Situated On Its Own Place In Market For The Quality
Maintain .It Uses The Latest Technology Of Various Plant And Machineries. There
The Departments Like Marketing Department, Human Resource Department, Finance
Department And Other Various Department Are Visited By Me At ‘MADUR DAIRY’.
3
AcknowledgementAcknowledgement
It Is My Pleasure To Present This Industrial Training Report Of ‘MADUR
DAIRY’. It Gives Me Great Sense Of Satisfaction That I Am Presenting The Practical
Experience Of My Training At ‘MADUR DAIRY’.
I Have Prepared This Project Report On ‘MADUR DAIRY’ So; I Would Like
To Thank The ‘Madhur Family’ Very Much For Granting Such A Nice Opportunity To
Expand Of Management Ability In My Real Life. I Also Thanks To Everybody For
Getting Me Visit And Provide All Necessary Information For Preparing This Project
Report.
I Am Heartily Thankful To Our Principal Dr. SHILPA Who Has Been Source
Of Inspiration For Me And To Our NETRA MAM.For Her Constant Guidance In
Preparing The Project Work.
I Hope That This Project Report At ‘MADUR DAIRY’ Will Satisfy To You.
Thanking You.
Vaghani Vishal M.
Roll No.128
T.Y.B.B.A.
4
TABLE OF CONTENTS
DECLARATION
Preface
Acknowledgments
Executive summary
CHAPTERISATION
1. GENERAL IONFORMATION
1.1 introduction of Madhur Dairy....................................................... …08 1.2companies profile.......................................................................... ….091.3 history& development of unit............................................................10 1.4 form of organisation...........................................................................121.5 size of the unit ………………………………………………………131.6 organization structure…………………………………………..141.7 manufacturing process…………………………………………171.8 products of unit………………………………………………….18
2. RESERCH METHODOLOGY
2.1 Meaning of research method............................................................21 2.2 Research objective............................................................................22 2.3 Sources of Data..................................................................................23
2.4 The types of research ………………………………………...........242.5 process of research method ………………………………………262.6 research design…………………………………………………….27
3. FINANCIAL Analysis AND INTERPRETATION
3.1 Introduction.......................................……………………………303.2 types of financial analysis………………………………………...31 3.3 Methods of analysis of financial statement................................333.4 procedure of financial analysis…………………………………...353.5 balance-sheets...........................................................................36 3.6 common-sized statement of balance sheet………………..…. 37 3.7 profit and loss account...............................................................393.8 common-sized statement of profit and loss account.................41
5
4. Working capital analysis
4.1 introductions........................................................………………..44 4.2 current assets................................................................................46 4.3 current liability................................................................................47
4.4 net working capital………………………………………….........48
5. ratio analysis
5.1 introduction ……………………………. ……………………... 50 5.2 classification of ratios…………………………………………....515.3 advantages of ratio analysis……………………………………535.4 limitation of ratio analysis……………………………………..…545.5 calculation of revenue statement ratios…………………...……565.6 calculation of balance sheet ratios…………………………...…595.7 calculation of balance sheet ratios…………………………..….655.8 calculatio of working capital ratios…………………………........67
6. findings and suggestion ………………………………………………..……..71
7. bibliography……………………………………………………………………..73
8. conclusion………………………………………………………………….……74
6
7
1.1 IntroductionIntroduction
Without Practical Training My Management Study Would Have Remained
Incomplete For The Purpose Of The Practical Training. I Have Visited “Gandhinagar
District Co-Operative Milk Producers Union Ltd”, Known As’MADUR DAIRY’. It Is Very
Well Known Company In Gandhinagar And Gujarat Also .In Addition To This Is An Iso:
9001-2000 Certified Company.
“Gandhinagar District Co-Operative Milk Producer’s Union Ltd.Known As
‘MADUR DAIRY’ Is a Co-Operative Society Situated at Capital City of Gujarat.
At Present Company Has A Wide Range Of Product In Different Segments.
Recently ‘MADUR DAIRY’ Entered In To Manufacturing New Products Like Paneer,
Chocolates, Nankeens, Etc. MADUR DAIRY Related With Procurement Of Milk And
Production Of Milk And Milk Products. Milk is collected from 108 Milk Producer’s Co-
Operative Societies of Gandhinagar Taluka, Which Consist 35,750 Milk Producer
Members. They Are Rearing Buffalos And Cows. From 108 Milk Co-Operative
Societies Milk Is Transported To MADUR DAIRY By 20 Trucks Both Morning &
Evening. 23 Milk Producers Co-Op. Societies Are Management By Female Members
Out Of 108. Milk Producers And There Family Members Are Getting Facilities From
MADUR DAIRY By Life Insurance Policy By Payment Of 70 Vaccination % Premium.
This Organization Is Also Become Helpful To Members Of Milk Societies By Covering
Their Cattle Under L.I.C. Also. Members Are Also Getting Cattle-Feed With
Reasonable Rates And All The Cattle Of Members Are Covered By Also.
The Madhur Milk Has Been Sold Through The Selling Centers Of The
Gandhinagar City Milk Consumers’ Co-Operative Society, Kamdhenu Centers Of The
Milk Union, Madhur Parlors, Kamdhenu Agencies And The Milk Selling Centers
Situated In The Rural Areas. And, Including The Sales Of The Milk Products, Daily,
On An Average, 69,111 Liters Of Milk Has Been Consumed. On An Average, Daily
48,047 Liters Of Milk Has Been Packed Under The Amul Brand, As Desired By The
8
Gujarat Co-Operative Milk Marketing Federation. More Than 350 Employees Get
Employment At ‘MADUR DAIRY’. ‘MADUR DAIRY’ Now On Better Progress.
1.2 Profile of the Firm
Name ►Gandhinagar District Co-operative Milk producer’s
Union Ltd. (Madhur dairy).
Address ►Madhur Dairy,
K. Road,
G.I.D.C.,Sector-25,
Gandhinagar-382023
Establishment ►1971 (6/2/1971)
Form of organization ►co-operative Society
Registration ►S. 10807
Brand Name ►Taste of Capital
Phone No ► (091-79) 23287135 to 23287141
Fax No ►0 23287140
E-Mail ►amul – gan – guj @ nic.in
Area ► 5 Acre
Supply ►All over the Gandhi agar district
Year of Incorporation ►1st April to 31st March
Bankers ►(1)Ahmedabad Co-operator Bank Ltd,
(2)Bank of Baroda,
(3)Punjab National bank,
(4)State bank of India,
(5)Dena bank,
(6)Credit bank
Main product ►Milk
Other Product ►Sweet, Butter – milk, Ice- cream, Ghee, Panner, Curd,
Namkeen and “sasti dahin”.
Year of Incorporation ►1st April to 31st March.
9
1.3 History & Development3 History & Development
‘MADUR DAIRY’ Is Known As “Gandhinagar District Co-Operative Milk Producers’ Union Ltd.Related with Procurement of Milk and Products of Milk.
Milk Is Collected From 108 Milk Producers’ Co-Operative Societies Of
Gandhinagar Taluka, Which Consist 35,750 Milk Producer Members. They Are
Rearing Buffalos And Cows. From 108 Milk Co-Operative Societies Milk Is
Transported To MADUR DAIRY By 20 Trucks Both Morning & Evening. 23 Milk
Producers Co-Op. Societies Are Management By Female Members Out Of 108. Milk
Producers And There Family Members Are Getting Facilities From MADUR DAIRY By
Life Insurance Policy By Payment Of 70 % Premium. This Organization Is Also
Become Helpful To Members Of Milk Societies By Covering Their Cattle Under L.I.C.
Also. Members Are Also Getting Cattle-Feed With Reasonable Rates And All The
Cattle Of Members Are Covered By Vaccination Also. MADUR DAIRY Has A Special
Department For Veterinary Aids For Cattle Of Milk Producer Members And Veterinary
Doctors Remains Ready For 24 Hours For The Treatment Of Animals.
After Reaching The Milk At Plant, Milk Is Processed Under Totally Hygienic
Condition. As You Know Milk Is Very Much Essential Food Which Is Required For
Babies To Oldest Persons Including Patient Also. Our Teams Of Expert Dairy
Technologist Are Taking Keen-Care To Make The Milk And Milk Products Hygienically
Safe For The Health Of Human Being By Destroying And Keeping Away All Most All
Pathogenic Bacteria. Production Has Been Done In Such A Way That All The
Constituent Of Milk Remains In Nature Forms. At Dairy Plant Production Of Various
Types Of Pasteurized Milk, Ice-Cream, Paneer, Shrikhand, Curd, Various Types Of
Sweets And Butter-Milk Are Done.
Now We Should Take A Visit Of Marketing Department Of This
Organization. During The Year (Under Report) Daily, On An Average, 61,983 Liters Of
The Madhur Milk Has Been Sold Through The Selling Centers Of The Gandhinagar
City Milk Consumers’ Co-Operative Society, Kamdhenu Centers Of The Milk Union,
Madhur
10
In 1996 The Plant Capacity Is Expanded Up To 60000ltr. And Than In 2003
Plant Capacity Is Again Expanded Up To 200000ltr.
HIGHLIGHTS:
Established In 1971 (Dt. 6.2.1971)
105 Village Milk Producers Co-Operative Societies Are Member Of This
Union.
35000 Milk Producers Are Member Through Village Milk Societies.
This Organization Have An Iso 9001-2000 Certificate & Iso22000
Certificate.
This Organization Is Famous As "MADUR DAIRY" In Gandhinagar
District.
90 % Consumers Are Covered By This Union in Gandhinagar City.
Highest Rate of Milk Is Giving To His Members (Milk Producers) (Rs.300
per Kilo. Fat)
Many Facilities Are Providing To His Members, Like: Medi-Claim, Loan For
Animal, Welfare Fund, Calcium, Animal's Food, Chap-Cutter, And Insurance
For Animals & Members Etc.
Organization Has Latest Un-Touch System Machinery For Milk Products.
Nearly 1, 50,000 Liters Milk Is Collecting Every Day From Milk Producers
Through Milk Co-Op. Societies.
Products Of This Organization Are Pasteurized Cow-Milk, Buffalo-Milk,
Curd, Butter-Milk, Cow-Ghee, Buffalo-Ghee, Milk-Sweets, Ice-Creams, and Flavor
Rose Milk Etc.
11
1.4 Form of Organization1.4 Form of Organization
Form Of The Organization Indicates Type Of An Industry. It
Indicates Responsibility, Risk And Control Of Entrepreneur As Well As The Division Of
Profits.Befope Starting Any Types Of Business The Form Of An Organization Must Be
Clear .Form Of Organization Is One Of The Clear Identity Of Any Firm.
Here All Types Of Forms Are Given Which The Choice Can Be Made:
1).Sole Proprietorship,
2).Partnership Firm,
3).Joint Stock Company,
4).Co-Operative Organization,
5).Government Department,
6).Public Organization,
7).Government Company.
From The Above Types Of From We Come To Know That “MADUR DAIRY”
Is Co-Operating Enterprise, Which Is An Integrated And Very Strong Union.
12
1.5 Size Of the Unit
The Size of the Organization is determined by invest Capital in it. There are
Some Standard of government regarding the Size of the Organization. How much
capital is invested in enterprise, according to it, Size will be decided.
Basically there are 3 types of business units according to their Size. They
are,
(1) Small Scale Enterprise.
(2) Medium Scale Enterprise.
(3) Large Scale Enterprise.
The types of the enterprise according to the Capital invested in them are
shown in the table as under.
Total Capital Invested Type of the Organization
Up to 5 crore Small Scale enterprise
Between 5 crore to 7 crore Medium Scale enterprise
More than 7 crore Large Scale enterprise
The Madhur dairy is large scale enterprise, because Capital invested is very
much more than criteria, Madhur dairy invested Rs.20,98,63,751/-.
13
1.6 Organization Structure
Plans are made for implementation of managerial policy and to put these in
to practice an administrative structure is created. This is called Organization when
large number of people are working for all compiles the objective of the firm, Specific
Understanding and clarity are necessary as to what function are to be performed, who
will perform which function, who will issue orders, who will implement them etc. are
done by the organization.
“Organization Structure refers to determination of entire organization
System of an enterprise determine the limits within which the enterprise has to work
and progress”. Organizations establish authority responsibility relationship. It is the
unit, different parts of which are linked to each other. The human body is the best
example of an organization.
Assignment of authority is the basic of Organization planning is the brain of
a business while organization is its physical Structure. To Clarity the importance of
organization a Successful industrialist notes,
“Take away our plants; take away our business, oh1! Take away our wealth
(Finance) but permit us to retain our organization within no time we shall be on our
feet once again.
There are mainly four forms of any organization,
(1) Line organization
(2) Staff or functional organization
(3) Line and staff organization
(4) Committee organization
Madhur dairy has line organization. The entire business is deluded in to
department are appointed for every department, Officers are appointed according to
the function respective department, under the officer. These senior and Join or officer
working under him. Workers function under these supervision and officers.
The organization, authority flow downward from the top to bottom and
responsibility goes upwards from bottom to top. Every person is responsible to his
immediate superior.
14
Organization structure
Chairmandr s.r.rana
Board of director
Managing director
Engineeringm.v.parikh
Productionr.j.mehta
Marketingp.k.desai
A.Hdr.r.j.lalakia
SeniorEngineer
TechnicalOfficer
AssistantManager
AssistantManager
JuniorEngineer
MarketingOrganizerR.R.tanna
VeterinaryOfficer
15
General managerg.h.vaghasiya
store and purchasen.m.bhavsar
Co-operativeService
AdministrativeOfficers
AssistantManager
Accountj.a.patel
Officer
The Chart Given In Previous Page Is Indicates The All Organizational
Position Of Different Person Of MADUR DAIRY.
Top Of The Organization Includes Board Of Director. The Board Of Director
Is Top Management All The Authority And Responsibility Are Goes To Top
Management. Top Management Also Considers The Chairman. The Chairman, The
Chairman Of “MADUR DAIRY ” Is Dr.Shankarsinh R.Rana .Top Level Also Consider
The Managing Director Of The Company . The Managing Director Of ‘MADUR DAIRY’
Is Govindbhai .B .Oza . Then Under The Managing Director The Various Type Of
Organizational Persons Are Situated. The General Manager Is Mr.G.H.Vaghasiya .
Accountant Is Mr.J.A.Patel. The Head Of Engineering Department Is Mr.M.V.Parikh.
The Head Of Production Is Mr.R.J.Mehta . The Head Of Marketing Department Is
Mr.P.K.Desai . Under Heading The Marketing Department There Marketing
Organization Mr.R.R.Tanna . The Head Of The Animal Husbandry Department Is
Dr.R.J.Lalakiya . The Head Of Store And Purchase Department Is Mr.N.M.Bhavsar.
The Head Of Co-Operative Services Is Mr.R.G.Patel.
16
1.7 Manufacturing Process1.7 Manufacturing Process
Manufacturing Process Is Very Long And Through Chain Process Of
Different Department Such As Milk Collection Pasteurization Process Packaging
Dispatch To Distribution.
The Diagram of Manufacturing Process
Receive Milk from Co-Operative Society of Milk Milk Tank (Storage)
Taking General Fat and S.N.F
Standardization (Maintain Fat and S.N.F)
Pasteurization
Packaging Dispatch to Distribution
Milk Collection Process Includes During The Year 2007-08.The Union Has
Collected Total 4,93,83,822 Kilos Milk From 35,750 Member Of 108 Milk Producers
Co-Operative Societies Of The Union . Daily Average Of Milk Collection Is 1,34,928
Kilos And Daily Average Of Collection Per Society Comes To 1,261 Kilos.
After Collecting Milk From All Societies The Next Step Of Manufacturing
Process Is Storage, It Means That Kept All Milk In Milk Tank. Then After The Process
Of Taking General F.A.T And S.N.F Comes By Testing With F.A.T And S.N.F. Then
The Process before Pasteurization Is the Step of Standardization .In Standardization
The Maintaining Of Milk Till The Pasteurization Process .Then The Pasteurization
Process Is Made. After The Process of Pasteurization the Packaging Process Is made
.And Then the Milk Pouch Are Dispatch to Distribution.
So This Is The Manufacturing Process Of Milk At MADUR DAIRY.
17
1.8 Products of the companyAt present Company has wide range of product in different Segments like,
Milk, sweet, Butter – Milk, Ice – Cream, Ghee, Panel, Curd & Namkin.
Madhur dairy are launching new products & expand capacity in current
product are as follow.
(1) Madhur Skimed Milk Powder.
(2) Madhur Mineral water.
(3) Madhur tea (pati tea).
(4) Madhur Chocolate
(5) Madhur Curd. ( expansion)
(6) Madhur Cattle feed.
(7) Madhur Ready to eat food and Numkins.
Madhur is Manufacturing around 4 type of milk, 7 type of ice – cream, 15
types of sweet, 2 type ghee and other product like. Madhur chhash, Madhur curd,
Madhur shrikhand, Namkin and Madhur has been packed the milk under the amul
brand.
In the current year dairy average of sales of Milk liter is 119207, daily
average of sales of Butter milk liter 14471 daily average of sale of sweet in kg is
159458 daily sale of ice – cream in liter is 86912.
Company’s object is to provide less number of prices of the product and
fully meet the internal and external customer’s requirement. Company has multi stage
quality control from the row – material to the finished products to provide best quality
product to the ultimate consumer.
The wide range of all the products can be differentiated through its
representation. The categories of each and every product will be cleared by it.
18
19
20
RESEARCH METHODOLOGY
2.1 MEANING
Research is a logical and systematic search for new and particular topic. It
is an Investigation of finding solutions to scientific and social problems through
objective and systematic analysis. It is a search for knowledge, that is, a discovery of
hidden Truths. Here knowledge means information about matters. The information
might be collected from different Sources like experience, human beings, books,
journals, nature, etc. A research can lead to new contributions to the existing
knowledge. Only through research is it possible to make progress in a field. Research
is done with the help of study, experiment, observation, analysis, comparison and
reasoning. Research is in fact ubiquitous. For example, we know that cigarette
smoking is injurious to health; heroine is addictive; cow dung is a useful source of
biogas; malaria is due to the virus protozoan plasmodium.
Research Methodology is a systematically solve the research problem. It has many
dimensions and research methods constitute a part of the research
methodology.
Thus when we talk about research methodology, we do not only talk of the
research methods but also consider the logic behind the methods. We use in
context of our research study, so that research results are capable of being
evaluated either by researcher himself or by others.
To effectively carry out in research, I would use the
following research process, which consists of series of actions or steps.
Research method include following points are as follow,
1) research objective
2) process of research method
3) types of research method
4) source of data
21
2.2 THE OBJECTIVES OF FINANCIAL
ANALYSIS:
To judge the financial stability of Madhur dairy.
.To measure the enterprise's short-term and
long-term solvency.
To measure the enterprise's operating efficiency
and profitability.
.Financial statements analysis is an attempt to
determine the significance and meaning of the financial statement data
so that forecast may be made of the future earnings, ability to pay
interest and debt maturities (both current and the long term) and
profitability of a sound dividend policy.
To analyzes an event or process or phenomenon
to identify the cause and effect relationship in MADUR DAIRY.
The main objective of the study concluded is that
to make comparative analysis or the financial position.
The factors affecting the financial health of the
company.
To get in depth knowledge about the financial
position of Madhur dairy.
To know how to maintain finance in business.
The purpose of objective of financial analysis is to diagnose the information
contained in financial statements so as to judge the profitability and financial
soundness of the firm.
22
2.3 Sources of Data
The way of classifying the sources of information’s:
(1) PRIMARY DATA:
Information obtains from original sources by researcher. Primary data can
be gathered slowly at the high cost. But it Offers accuracy reliability it is personally
developed, it gives Latest information and it is not published sourced of data. It has to
be created.
Primary data are collected by the following ways:-
Observation
Interview
Schedule
Questionnaire
(2) SECONDARY DATA.
It is complicated by some not other the research for purpose not directly
related to the research currently under consideration. It already exits. It must be
relevant to research understudy. It is readily available for processing. It saves time. It
is chipper sources of dada.
Secondary data are the data that are already collected and are only analyzed by different sources these sources are as follows:-
Corporate magazine.
Manuals of various companies.
Books, journals, newspaper. Employment exchange.
23
2.4 types of researchThere are different types of research.
(1)EXPLORATORY RESEARCH
This type of research is carried out at the very beginning when the problem
is not clear or is vague. In exploratory research, all possible reasons which are
very obvious are eliminated, thereby directing the research to proceed further with
limited options.
Sales decline in a company may be due to:
(1) Inefficient service
(2) Improper price
(3) Inefficient sales force
(4) Ineffective promotion
(5) Improper quality
The research executives must examine such questions to identify the most
useful avenues for further research. Preliminary investigation of this type is called
exploratory research.
Expert surveys, focus groups, case studies and observation methods are
used to conduct the exploratory survey.
(2) DESCRIPTIVE RESEARCH
The main purpose of descriptive research is to describe the state of view as
it exists at present. Simply stated, it is a fact finding investigation. In descriptive
research, definite conclusions can be arrived at, but it does not establish a cause
and effect relationship.
This type of research tries to describe the characteristics of the respondent
in relation to a particular product.
Descriptive research deals with demographic characteristics of the
consumer.
(3) APPLIED RESEARCH
Applied research aims at finding a solution for an immediate problem faced
by any business organization. This research deals with real life situations.
Example: “Why have sales decreased during the last quarter”? Market research is
an example of applied research.
(4) PURE/FUNDAMENTAL RESEARCHES OR BASIC RESEARCH
24
Gathering knowledge for knowledge’s sake is known as basic research. It is
not directly involved with practical problems. It does not have any commercial
potential. There is no intention to apply this research in practice. Tata Institute of
Fundamental Research conducts such studies.
(5) CONCEPTUAL RESEARCH
This is generally used by philosophers. It is related to some abstract idea or
theory. In his type of research, the researcher should collect the data to prove or
disapprove his hypothesis. The various ideologies or ‘isms’ are examples of
conceptual research.
(6) CAUSAL RESEARCH
Causal research is conducted to determine the cause and effect relationship
between the two variables.
(7) HISTORICAL RESEARCH
The name itself indicates the meaning of the research. Historical study is a
study of past records and data in order to understand the future trends and
development of the organization or market.
(8) EX-POST FACTO RESEARCH
In this type of research, an examination of relationship that exists between
independent and dependent variable is studied. We may call this empirical
research. In this method, the researcher
(9) ACTION RESEARCH
This type of research is undertaken by direct action. Action research is
conducted to solve a problem. Example: Test marketing a product is an example of
action research. Initially, the geographical location is identified. A target sample is
selected from among the population.
(10) EVALUATION RESEARCH
This is an example of applied research. This research is conducted to find
out how well a planned programme is implemented. Therefore, evaluation research
deals with evaluating the performance or assessment of a project. Example: “Rural
Employment
(11) LIBRARY RESEARCH
This is done to gather secondary data. This includes notes from the past
data or review of the reports already conducted. This is a convenient method
whereby both manpower and time are saved.
25
2.5 Research PROCESS
1).Formulating the research Problem.
2).Research design & Sample Design.
3).Analysis of data gathered
4).Data analysis comparison
5).Graphics and interpret
A plan of what data to gather, from whom, how and when to collect the data,
and how to analyze the data obtained
A systematic plan to guide archaeological research according to the
scientific method and take full advantage of the information potential.
26
2.6 Research Design
Research design is the plan structure and strategy of investigation
conceived as to obtain answers to research questions and to control variance.
“Research design is the blueprint for the collection measurement and
analysis of data.” It aids the scientist in the allocation of his limited to include
experiments interviews. Observation, the analyses of records, stimulation or some
combination research situation or some combination of it.
PROBLEM IDENTIFICATION:
Find out Ratios of MADHUR DAIRY and compare
financial statements for judging the financial performance.
Find deviation of calculated ratios from standard or
Norms
Calculating the working capital analysis of Madhur
dairy.
INFORMATION NEEDED:
Information about firm’s assets, liabilities, revenue,
expenditure, bankers, investment etc.
Information about firm’s loan, security, stock level &
other financial information.
DATA COLLECTION:
My data collection source was secondary i.e.
Annual reports of companies
Balance sheet
Profit & Loss Accounts
27
ANALYSIS & INTERPRETATION:
The data collected and analysed subjectively as well as graphically where it
is possible. The analysis is based upon available information & interpreted
accordingly.
CONCLUSION:
On the basis of analysis conclusion has been drawn.
SUGGESTION:
Suggestion has been given in order to improve performance of the firm.
LIMITATION:
My scope of study is limited to the annual reports, Balance sheet of units &
within the Madhur dairy’s last 3 years data for analysis.
28
29
financial ANALYSIS AND
INTERPRETATIOn
3.1INTRODUCTIONInformation contained in Financial Statements that is Balance sheet, profit
and loss account or income and expenditure etc is usually used by management,
creditors, investors, and others to form judgment about the company’s operating
performance and financial position.’ the end of the financial accounting processing in a
set of reports which are called financial statements’. Users of the financial statements
can get better insight about the financial strength and weaknesses of the firm if they
properly analyze the information reported in these statements.
Meaning:
According to Metcalf and Titard, “Analyzing financial statements is the
process of evaluating the relationship between the component parts of the financial
statements to obtain a better understanding of a firm’s position and performance.”
In the words of 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 the trend of these factors as shown in a series of
statements
Definition:
Financial analysis is the process of identifying a firm’s strength and
weaknesses by establishing relationships between the items of the Balance sheet and
profit and loss account.
30
3.2 TYPES OF FINANCIAL ANALYSIS
However, we can classify various types of financial analysis into different
categories depending upon (i) the material used, and (ii) the method of operation
followed in the analysis or the modus operandi of analysis.
(i) On the basis of Material used:
a. External analysis
b. Internal analysis
a. External analysis
This analysis is done by outsiders who do not have access detailed internal
accounting records of the business firm. These outsiders include investors, potential
investors, creditors, potential creditors, government agencies, credit agencies, and the
general public. For financial analysis, these external parties to the firm depend almost
entirely on the published financial statements.
b. Internal analysis
The analysis conducted by persons who have access to the internal
accounting records of a business firm is known as internal analysis. Such an analysis
can therefore, be performed by executives and employees of the organization as well
as government agencies which have statutory powers vested in them. Financial
31
Types of Financial Analysis
On the basis of material used
On the basis of modus operandi
External analysis
Internal analysis
Horizontal analysis
Vertical analysis
analysis for managerial purposes is the internal type of analysis that can be affected
depending upon the purpose to be achieved.
(ii) On the basis of modus operandi
a. Horizontal analysis
b. Vertical analysis
a. Horizontal analysis
Horizontal analysis refers to the comparison of financial data of a company
for several years. The figure for this type of analysis are presented horizontally over a
number of columns. The figures of the various years are compared with standard or
base year. A base year is a year of analysis is also called ‘Dynamic analysis’ as it is
based on the data from year to year rather than on data of any one year.
b. Vertical analysis
Vertical analysis refers to relationship of the various items in the financial
statements of one accounting period. In this type of analysis the figures from financial
statements of the year are compared with a base selected from the same years
statement. It is also known as ‘static analysis’. Common size financial statements and
financial ratios are the two tools employed in vertical analysis. Since vertical analysis
considers data for one time period only. It is not very conducive to a proper analysis of
financial statements.
32
3.3 METHODS OF ANALYSIS OF FINANCIAL STATEMENTS
The analysis and interpretation of financial statements is used to determine
the financial position and results of operations as well. A number of methods or
devices are used to study the relationship between different statements. The following
methods of analysis are generally used:
1. Comparative statements
2. Trend analysis
3. Common size statements
4. Funds flow analysis
5. Cash flow analysis
6. Ratio analysis
These are explained as follows:
1. Comparative statements
The comparative financial statements are statements of the financial
position at different periods of time. The elements of financial position are shown in a
comparative form so as to give an idea of financial position at two or more periods.
Any statement prepared in a comparative form will be covered in comparative
statements. From practical point of view. Generally, two financial statements (Balance
Sheet and the Income Statement) are prepared in comparative form for financial
analysis purposes.
2. Trend analysis
The financial statements may be analyzed by computing trends of series of
information. This method determines the direction upwards or downwards and
involves the computation of the percentage relationship that each statement items
bears to the same in the base year. The information for a number of years is taken up
and one year, generally taken for the base year. In figures for the base year are taken
as 100 and trend ratios for other years are calculated on the basis of the base year.
The analyst is able to see the trend of the figures, whether upward or downward.
33
3. Common size statements
The common size statements, balance sheet and the income statements
are shown in analytical percentages. The figures are shown as percentages of total
assets, total liabilities and the total sales. The total sales are taken as 100 and
different assets are expressed as a percentage of the total. Similarly various liabilities
are taken as a part of the total liabilities. These statements are also known as
component percentage as 100 percent statements because every individual item is
stated as a percentage of the total 100.
4. Funds flow analysis
The fund flow statement is a statement, which shows the movement of the
funds and is the report of the financial operations of the business undertaking. It
indicates various means by which funds were obtained during a particular period and
the ways in which these funds were employed. In simple words, it is a statement of
sources and application of funds.
5. Cash flow analysis
Cash flow statement is a statement, which describes the inflow (sources)
and outflow (uses) of the cash and cash equivalents in an enterprise during the
specified period of time. Such a statement enumerates net effects of the various
business transactions on cash and its equivalents and takes into account receipts and
disbursements of cash. A cash flow statement summarizes the causes of changes in
cash position of a business enterprise between the dates of the two balance sheets.
6. Ratio analysis
Ratio analysis is a technique of analysis and interpretation of financial
statements. It is the process of establishing and interpreting various ratios for helping
in making certain decisions. However ratio is not end itself. It is only a means of better
understanding of financial strengths and weaknesses of a firm. A ratio is a simple
arithmetical expression of the relationship of one number to another. It may be defined
as the indicated quotient of the two mathematical expressions.
34
3.4 Procedure of financial analysisThere are three steps involved in the analysis of financial statements. These
are (i) selection (ii) classification (iii) interpretation.
The first step involves selection of information (data) relevant to the purpose
of analysis of financial statements. The second step involved is the methodical
classification of the data and the third step includes drawing of inferences and
conclusion.
The following procedure is adopted for the analysis and interpretation of
financial statements: -
(1)The analyst should acquaint himself with the principles and postulants of
accounting. He should know the plans and policies of the management so
that he may be able to find out whether these plans are properly executed or
not.
(2)The extent of analysis should be determined so that the sphere of work may
be decided. If the aim is to find out the earning capacity of the enterprise then
analysis of income statement will be undertaken. On the other hand, if
financial position is to be studied then Balance sheet analysis will be
necessary.
(3)The financial data given in the statements should be re-organized and re-
arranged. It will involve the grouping of similar data under same heads,
breaking down of individual components or statements according to the
nature. The data is reduced to a standard form.
(4)A relationship is established among financial statements with the help of tools
and techniques of analysis such as ratios, trends, common size, funds flow
etc.
(5)The information is interpreted in a simple and understandable way. The
significance and utility of financial data is explained for helping decision
taking.
The conclusions drawn from interpretation are presented to the management in the form of reports.
35
3.5 BALANCESHEET
FUNDS AND DEBTS 31- 3-07 31-3-08 31-3-09 PROPERTIES&DUES 31-3-07 31-3-08 31-3-09
PAID UP SHARE CAPITAL
MEMBERS FEES
RESERVE AND OTHER FUND
LOANS
14892400 16909300 19169300 PROPERTIES 51897663 58378872 68489943
11800 12500 13900 INVESTMENT 9609260 10059260 10059260
14004400 15181669 16242864 STOCK 15556566 36756647 26929159
56449875 49856125 42637375 ADVANCES&OTHERDUES:
ADVANCE TAX
STAFF ADVANCE
DEPOSIT
DUES FROM DEALERS
T.D.S.
CURRENT DEBTS&PROVISIONS:
DEPOSITS
DEBTS OF MILK CO-OP. SOC
DEBTSAGAINST EXPENDITURE
DEBTS AGAINST PURCHASE
PROVISIONS FOR INCOMETAX
765000 1502904 1843731
3400500 8507288 6954946 ---------- 112760 31962
114434917 102936422 104268853 867117 1845917 2774546
4986172 5391149 6212879 54623781 54222306 40932472
6800064 6088324 7613463 10675 72408 59334
2641507 2146462 2765967 CASH AND BANK 87294563 47678574 58743344
NET PROFIT 3002990 3600409 3984204
TOTAL 220624625 210629648 209863751 220624625 210629648 209863751
36
3.6 COMMON SIZED STATEMENT OF BALANCESHEET:
FUNDS AND DEBTS 31-3-07 31-3-08 31-3-09 PROPERTIES&DUES 31-3-07 31-3-08 31-3-09
PAID UP SHARE CAPITAL 6.750 8.03 9.134 PROPERTIES 23.523 27.716 32.64
MEMBERS FEES 0.005 0.006 0.007 INVESTMENT 4.355 4.775 4.793
RESERVE AND OTHER FUND 6.35 7.21 7.74 STOCK 7.052 17.45 12.831
LOANS 25.59 23.67 20.32 ADVANCES&OTHER DUES
CURRENT DEBTS&PROVISIONS: ADVANCE TAX 0.346 0.713 0.878
DEPOSITS 1.541 4.038 3.32 STAFF ADVANCE --------- 0.053 0.015
DEBTS OF MILK CO-OP. SOC 51.868 48.87 49.68 DEPOSIT 0.394 0.876 1.322
DEBTSAGAINST EXPENDITURE 2.26 2.56 2.96 DUES FROM DEALERS 24.758 25.743 19.504
DEBTS AGAINST PURCHASE 3.082 2.89 3.63 T.D.S. 0.005 0.034 0.030
PROVISIONS FOR INCOMETAX 1.197 1.02 1.32 CASH AND BANK 39.567 22.636 27.99
NET PROFIT 1.361 1.709 1.9
TOTAL 100 100 100 TOTAL 100 100 100
37
We can see that share capital in the year 2006-07 is only 6.75%which increases in the next year and becomes 8.03% of the total assets. In the current year it becomes 9.134%
The reserve funds are only6.35% of the total assets. It increases next year and becomes 7.21% and again increases 7.74%. This can be said a slight increase.
Current liabilities are 59% of the total liability which decrease in the next year and becomes 57%% and in the current year it becomes 58%. There is a minor increases and decrease in the current liabilities.
Long term loan of the dairy is 25.59%% of the total assets in the year 2006-07 which decreases in the year 2007-08 and becomes 23.67 % in the next year it again decreases and becomes20.32% of the total assets. This can be said good for dairy as it has enough inner funds for expansion. As its share capital and other funds are increases continuously, it has less need of outside funds.
38
3.7 PROFIT AND LOSS ACCOUNT:
EXPENDITURE 06-07 07-08 08-09 INCOME 06-07 07-08 08-09
OP. STOCK(1-4-08) 11257114 15556566 36756647 SALES 905510046 1140552306 1279339009
PURCHASE 809471680 1043171966 111411167 MISC. INCOME 314147 1037826 657318
EXPENDITURES: DIVIDEND 1151250 1151250 1155000
PACKAGING 19754878 22946537 25258106 INTEREST ON
DEPOSITES
1548348 3936116 1754473
POWER&FUEL 17921034 21832679 27975221 CLOSING
STOCKS
15556566 36756647 26929159
PROCESSING 3554828 6745355 133383369
MARKETING 3445551 4901445 6698552
RENT&TAXES 363216 620962 644739
P.F&FACILITY TO
STAFF
3772814 5100627 7332688
SALARY 22536440 24266687 27927167
MAINTAINANCE 2872165 6018873 12516293
TELEPHONE&STAT
IONARY
910806 1718262 2615466
PREM.OF
INSURANCE
290070 221277 200943
MISC.EXPANCES 1924117 2806713 3262630
BANK 3268556 2907387 2608009
39
INTEREST&COMMI
SSION
AUDIT
FEES&RESEARCH
881428 1039090 921498
DEPRECIATION 12572708 11522765 13105685
DEVELOP.OF CO-
OPRATION
5079962 6456545 8382063
PRO.FOR INCOME
TAX
1200000 2000000 2150000
NET PROFIT 3002990 3600409 3984204
TOTAL 924080357 1183434145 1309834959 TOTAL 924080357 1183434145 1309834959
40
3.8 COMMOMSIZED STATEMENT OF PROFIT AND LOSS ACCOUNT:
EXPENDITURE 06-07 07-08 08-09 INCOME 06-07 07-08 08-09
OP. STOCK(1-4-08) 1.22 1.31 2.81 SALES 98.00 96.38 97.67
PURCHASE 87.6 88.15 85.1 MISC. INCOME 0.03 0.08 0.05
EXPENDITURES DIVIDEND 0.12 0.09 0.08
PACKAGING 2.14 1.94 1.93 INTEREST ON DEPOSITES 0.17 0.35 0.13
POWER&FUEL 1.94 1.84 2.14 CLOSING STOCKS 1.69 3.1 2.82
PROCESSING 0.38 .57 1.02
MARKETING 0.37 0.41 0.51
RENT&TAXES 0.04 0.05 0.05
P.F&FACILITY TO STAFF 0.14 0.43 0.56
SALARY 2.44 2.05 2.13
MAINTAINANCE 0.31 0.51 0.96
TELEPHONE&STATIONAR 0.10 0.15 0.20
PREM.OF INSURANCE 0.03 0.02 0.02
MISC.EXPANCES 0.21 024 0.25
BANK INTEREST&COMMISSION 0.35 0.25 0.20
AUDIT FEES&RESEARCH 0.10 0.09 0.07
41
DEPRECIATION 1.36 0.93 1.00
DEVELOP.OF CO-OPRATION 0.55 0.55 0.64
PRO.FOR INCOME TAX 0.13 0.17 0.16
NET PROFIT 0.32 0.30 0.30
TOTAL 100 100 100 TOTAL 100 100 100
We can see that sales of the madhur dairy have a minor increases or decrease in it. In the first year it is 98% , in the next year it
decreases and reaches at 96% , in the current year it becomes 97%.
Net profit of the dairy almost remains constant. I the year 2006-07, it is 0.32%. in the next year it becomes 0.30%, and in the
year 2008-09 it remains as it is.
packing expanses of the dairy shows decreasing trend while the power expanses are increasing. The large part of the the
expanses goes to salary and it is decreasing now. Most of the expanses of the dairy are increasing at a slight rate. This is due to
increases in the sales . With the increases in sales, the cost of sales increases. As the result, it balances the profit on the constant rate.
In short, we can see a slight increase in the operating expanses and on the other hand there is a in increases in the sales . so the profit
of the dairy remains constant during this three years.
42
43
WORKING CAPITAL ANALYSIS
4.1 INTRODUCTIONBusiness capital is broadly divided in to two groups fixed capital
and working capital.fixed capital refers to the funds invested in to such fixed
or permanent asset as land, building, machinary etc.while working capital
refers to the funds locked up in materials, work-in-progress, finished goods,
receables and cash etc.since this asset are known as current asset, in very
simple terms “it will be shown latter, however, this definition of working capital
has become controversial.
Currents asset are those which get converted in to cash within a
period of one year or less. the examples are the stock of raw materials, work-
in-progress and finished products, receivables, cash etc.in addition, working
capital is also required to meet the day-to-day expenses on
wages,salaries,power etc. all the asset are converted in to cash within a short
period of time and cash received is again invested in to these asset. Thus, it
is constantly revolving or circulating. Hence, working capital is also known as
“circulating capital or floating capital.”
The main pint of difference between fixed capital and working
capital is the like this: fixed asset are of long duration and are not converted in
to cash within a period of one year, where current asset are converted in to
cash within a period of one year or less. Hence, the problems of fixed assets
belong to the field of capital budgeting, while the problems of working capital
belong to the field of cash budgeting. The other points to the divisibility of
investment. The investment in current asset ia divisible in to small units to a
large extent as compared to investement in fixed asset.
DEFINATION: “working capital may be defined as capital invested in
current assets.
44
WORKING CAPITAL OF MADHUR DAIRY::PARTICULARS 2007 2008 2009CURRENT ASSETS:ADVANCES&OTHER DUES 56266573 57756295 45642042CLOSING STOCK 15556566 36756647 26929159BANK&CASH 87294563 47678574 58743344TOTAL CURRENT ASSETS 159117702 142191516 131314548
LESSCURRENT LIABILITY:DEPOSITS 3400500 8507288 6954946DEBTS OF MILK CO-OP. SOC 114434917 102936244 104268853 DEBTS AGAINST EXPENDITURE 4986172 5391149 6212879
DEBTS AGAINST PURCHASE 6800064 6088324 7613463PROVISION FOR INCOME TAX 2641507 2146462 2765967TOTAL CURRENT LIABILITIES: 132263160 125069645 127816108
WORKING CAPITALTOTAL APPLICATION OF FUNDS
26854542220624625
17121871210629648
3498440209863751
45
4.2 CURRENT ASSETS:
A current asset means the assets in the form of cash or
can be readily converted in to the cash within a shorter time. They include cash,
bank balance, stock, debtors, bills receivable, prepaid expenses, accrued
income, and readily marketable securities etc.In other word Currant asset are
those which get converted in to cash within a period of one year or less.
Current assets:
As the current asset is given in the above table. We can
see that in the year 2007 the current asset is of rs. 159117702 .then in next year
in 2008 the current asset is decrease to 142191516.it decreases in compare to
the previous year. And finally in the year 2009 current assets again decrease by
10876968 and reaches to 131314548.
So we can find that the in the Madhur dairy the current assets
decreases year by year that shows poor working capital management
in Madhur dairy. company should improve its working capital .
2007 159117702
2008 142191516
2009 131314548
46
4.3 CURRENT LIABILITY:
Current liability includes the liability which company have to pay within the
period of one year. It includes creditors, deposits, provision for tax, and all other
provisions.
From the above table we find that in the year 2007 the current liability
was 132263160, in the2008 it increase by 7193515 and reaches to
125069645.the next year in 2009 it increases by 2746463 and reaches to
127816108.
From 2007 to 2008 current liability decrease by 7193515.it ensures the
positive effect to the progress of the company.
Madhur dairy should try to reduce its current liabilities so as to have
the effective working capital for the smooth operating of the business.
2007 132263160
2008 125069645
2009 127816108
47
4.4 WORKING CAPITAL
Business capital is broadly divided in to two groups: fixed capital and
working capital. fixed capital refers to the funds invested in to such fixed or
permanent asset as land, building, machinary etc.while working capital refers to
the funds locked up in materials, work-in-progress, finished goods, receables and
cash etc.since this asset are known as current asset, in very simple terms
“working capital may be defined as capital invested in current assets.” it will be
shown latter, however, this definition of working capital has become
controversial.
As shown in the above table we can see that in 2007 the working
capital of Madhur dairy is 26854542, and the next year in 2008 we can see that
the working capital decreases and reaches to 3498440.
Form the above statement of working capital we can understand that
the working capital decrease day by day in Madhur dairy .Madhur dairy should try
to increase its working capital.
2007 26854542
2008 17121871
2009 3498440
48
49
RATIO ANALYSIS5.1 introduction
A firm’s strength and weaknesses is established by viewing the
relationship between items in the Balance sheet and profit and loss using ratio
analysis.
A ratio is defined as the indicated quotient of two mathematical
expressions. It can also be described as the relationship between two or more
things. It is used as a benchmark for evaluating the financial position and
performance of a firm. Absolute accounting figures reported in the firm’s financial
statements do not provide any meaningful understanding of performance and the
firm’s financial position.
The ratio analysis is one of the most powerful tools of the financial
analysis. It is the process of establishing and interpreting various ratios (quantitative
relationship between figures and groups of the figures). It is with the help of ratio that
the financial statements can be analyzed more clearly and decisions made from
such analysis.
STEPS INVOLVED IN THE RATIO ANALYSIS
(1)Selection of relevant data from the financial statements depending
upon the objective of the analysis.
(2)Calculation of appropriate ratios from the above data.
(3)Comparison of the calculated ratios with the ratios of the same firm in
the past, or the ratios developed from projected financial statements or
the ratios of some other firms or the comparison with the ratio of the
industry to which the firm belongs.
(4).Interpretation of the ratios.
50
5.2 CLASSIFICATION OF RATIOS
The ratios have different use for different people. Therefore ratios can be classified
into different categories. Various ratios can be divided into following categories
depending upon their use.
(A)Traditional classification
Traditional classification or classification according to the statement, from which
ratios are calculated is as follows:
Profit and loss account
Balance sheet ratios
Inter statement ratios
(B)Classification according to the nature of ratios
In this type of ratios more emphasis is given to the nature of ratios, whether these
pertain to sales, earning, inventory etc.
Liquidity or solvency ratio
Debtors ratio
Creditors ratio
Sales ratio
Earning ratios
Cost of expenses ratio
(C)According to importance of ratios
Under this type of ratios, ratios can be divided into two categories as following:
Primary ratios:
1. Return on capital employed
Secondary ratios:
1. Production cost ratios
2. Distribution cost ratios
51
3. Selling cost ratios
(D)According to users of the ratios
(1)Ratios for management
Return on capital employed
Gross profit ratios
Current ratios
(2)Ratios for shareholders
Earning per share
Yield ratios
Payout ratios
(E)Ratios for creditors
Current ratios
Liquid ratios
Debt equity ratio
52
5.3 ADVANTAGES OF RATIO
ANALYSIS
Financial ratios are essentially concerned with the identification of
significant accounting data relationships, which give the decision-maker insights
into the financial performance of a company. The advantages of ratio analysis
can be summarized as follows:
Ratios facilitate conducting trend analysis, which is important for decision
making and forecasting.
Ratio analysis helps in the assessment of the liquidity, operating efficiency,
profitability and solvency of a firm.
Ratio analysis provides a basis for both intra-firm as well as inter-firm
comparisons.
The comparison of actual ratios with base year ratios or standard ratios
helps the management analyze the financial performance of the firm.
53
5.4 Limitations in Using Ratio Analysis
I. Standards of comparisons
Ratios of a company have meaning only when they are compared with some
standards. It is recommended that ratios should be compared with industry averages
however the industry averages are not easily available.
II. Company differences
The situations of two companies are never the same and the factors influencing the
performance of a company in one year may change in another year.
III. Price level
The interpretation and comparison of ratios are rendered invalid by the changing
value of money. The accounting figures presented in the financial statements are
expressed in the monetary unit which is assumed to remain constant.
IV. Different definition
Diversity of views exists as what is to be included in net worth or shareholders
equity, current assets and current liabilities. For instance, whether preference share
capital and current liabilities should be included in debt in calculating the debt equity
ratio, should the intangible assets be excluded to calculate the rate of return on
investment, or if included how will they be valued? Similarly the definition of profit is
not uniform to all.
V. Changing situations
The ratios do not have much use if they are not analyzed over years. The ratio at a
moment in time may suffer from temporary changes. This problem can be resolved
by analyzing trends of ratios over years.
VI. Past data
The basis to calculate ratios is historical financial statements. The financial
analyst is more interested in what happens in future while the ratios indicate what
happened in the past
54
5.5 CALCULATION OF REVENUE
STATEMENT RATIOS
1).GROSS PROFIT RATIO:
Gross profit represents the margin between the ‘Net Sales’ and ‘Cost
of Goods Sold’. The larger this gap, the greater is the scope of absorbing various
expenses on administration, maintenance, arranging finance, selling and distribution
and creating necessary provision for anticipated expenses, and yet leaving net profit
for the proprietors or share holders.
Its formulation is as below:
Gross Profit Ratio=Gross Profit* 100
Sales
Gross Profit = Sales – Cost of Goods
2007 2008 2009
59421227 *100
905510046
68095676 *100
1140552306
85399777 *100
12793339009
6.56 5.97 6.675
From the above calculation of ratio that shows in 2006-07 the ratio is
6.56% , in 2007-08 the ratio is 5.97% we can see that the ratio is decrease in 2007-
08.And in 2008-09 the ratio is 6.675 %.the gross profit ratio is increase in 2008-09.
This ratio of Madhur dairy is low it indicates that the cost of sales is
high or that the purchasing is inefficient. In such case the management of Madhur
dairy must investigate the causes and try to bring up this ratio.
55
2).OPERATING RATIO:
It is a ratio showing relationship between cost of sales goods sold plus
operating expenses and net sales. It shows the efficiency of the management. the
higher ratio, the less will be the margin available to proprietors. this ratio is also
usually expressed as a percentage.
Its formulation is as below:
Cost of goods sold +operating expenses * 100
Operating ratio= Net sales
2007 2008 2009
846088819+13578739*100
905510046
1072456630+16287554*100
1440552306
1241725983*100
1279339009
94.94% 75.578% 97.06%
The ratio displayed in above table we find that in 2006-07 the
operating ratio is 94.94% then it decreases to 75.578% and in the year 2008-
09 it increases to 97.06%.there is no specific trend in above 3 year in madhur
dairy.
In year 2006-07 the operating ratio shows that is 94.94% it means
that the operating expense is 95 rs per 100rs goods .in 2007-08 the ratio is
75.578% that shows very good operating position the less ratio wiil be gives
higher profit. In 2008-09 the ratio increases to 97.06% so it is not good
position Madhur dairy should try to decreases operating ratio.
56
3).NET PROFIT RATIO:
Net profit margin ratio establishes a relationship between the net
profit and sales and indicates management’s efficiency in manufacturing
administering and selling the products. This ratio is the overall measure of the
firm’s ability to turn each rupee sales into net profit.
Net Profit Margin = Profit after Tax * 100
Sales
From the above calculation we find that in 2006-07 the ratio is 0.3316
and in 2007-08 is 0.3156 and in the year 2008-09 the net profit ratio is 0.3110.
We can find that the ratio trend slaps down word from the above figure.
The higher ratio, the batter will be the profitability in order to have batter idea of
profitability
Madhur dairy’s net profit decreases continuously it shows the
negative features towards progress of the Madhur dairy.Madhur dairy should
make effort to improve its net profit either by increases it sales or by decreases
its operating expenses.
2007 2008 2009
3002990 * 100
905510046
3600409 * 100
1140552306
3984204 * 100
1279339009
0.3316 0.3156 0.3110
57
4).STOCK TURN OVER RATIO:
This ratio is very important in judging the ability of management with
which it can move the stock
Stock turnover ratio refers the number of time the average stock is
turned over during the year it is computed by dividing the cost of goods sold by
the average stock in the business.
Stock turnover = cost of goods sold
Average stock
Stock turnover in 2006-07 is 63.11 it means that total turnover of goods
is 63 times in a year in 2007-08 the ratio is 33.68 and in the year 2008-09 the
ratio is 33.41
The higher turnover, the more profitable the business would be. The
farm in such a case , will be able to trade on small margin of gross profit.
We can see that the growing trend in stock turnover is negative.
Madhur dairy should increase it’s selling to improve it’s stock turnover ratio.
2007 2008 2009
846088819
13406840
1072456630
31842903
1193939232
36842903
63.11 33.68 32.41
58
5.6 Calculation of BALANCE SHEET RATIOS
1).CURRENT ASSETS RATIO:
This ratio is an indicator of the firm’s commitment to meet its short-term
liabilities. Current assets means assets that will either be used up or converted into
cash within a years’ time or norms, operating cycle or the business,
Current asset ratio = current assets
Current liability
2007 2008 2009
159117702
56266573
14219191516
57756295
131314548
45642045
2.83 2.46 2.88
in 2006-07 the current assets ratio is 2.83 and it is decreases to 2.46 in
the year 2007-08 the current assets ratio in 2008-09 it increases to 2.88.
The adequacy of this ratio depends upon a number of factors like the
nature of business, the efficiency of collection department etc. if the turnover is quick
and the collection is efficient, the business may be successfully carried on with a low
current ratio.
The current ratio of Madhur dairy is considered as satisfactory level the
ratio of 2.88 shows that for the payment of the one liability the company had 2.88 rs
it’s shows the strong financial position of Madhur dairy.
59
2) QUICK RATIO:
This ratio establishes a relationship between quick or liquid assets and current
liabilities.
Quick ratio is also known as acid-test ratio.
Quick Assets = Current Assets – Inventories (i.e. stock) – prepaid expenses
Quick Ratio =Quick Assets
Quick Liabilities
The above table shows that in 2006-07 the quick ratio is 0.67.in 2007-
08 the ratio decreases and become 0.39 and in the year 2008-09 the ratio is
0.48.
The measure of absolute liquidity may be obtained by comparing only
cash and bank balance as well as readily marketable securities with liquid
liabilities this is very exacting standard of liquidity and it is satisfactory if the ratio
is 0.5:1.
The satisfactory standard of ratio is 0.5:1 so we can see that in 2006-
07 the quick ratio is satisfactory where as in 2008-09 it needs to improve.
2007 2008 2009
88161682
132263160
49524491
125069645
61517890
127816108
0.666 0.3959 0.4813
60
3).EQUITY RATIO / PROPRIETORY RATIO:
It is variant of debt – equity ratio. It is an important test to judge the
long-term solvency of a concern. It establishes relationship between the
proprietor or shareholder’s funds and the total assets. It may be expressed as:
Proprietor’s fund or Net worth = Equity Share Capital + Reserve and
Surplus + Preference Share Capital.
Total Assets = Total Equities or Total Resources of the concern.
Equity ratio =Proprietor’s funds
Total Assets
In the proprietary ratio is13.1%.it increase in 2007-08 and becomes
15.2%.it again increase in 2008-09 and becomes 16.9%.
The ratio shows increasing trend in proprietor’s funds but it is not
enough. the current ratio of 16.9% shows that only 26.74% amount of funds a
provided by proprieties to purchase the fixed assets. There is need to improve this
ratio for increasing owners cap business.
2007 2008 2009
28896800 *
100
220624625
32090969 *
100
210629648
35412164 *
100
209863751
13.1% 15.2% 16.9%
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4).DEBT EQUITY RATIO:
The ratio is also called ‘External Internal Equity Ratio’. It indicates the
comparative claims of outsiders and owner in the concern’s total equities the
claim of depositors, mortgagors, bondholders, suppliers, and other creditors are
matched with those of owner, i.e. shareholders or proprietors. The management
has to keep healthy balance between the two equities: external and internal.
Debt Equity Ratio = out side debt * 100
Share holders fund
This ratio upto 100% may be considered reasonable. A higher ratio shows the out side creditors have a larger claim, then the owner of the business. If this ratio is lower, it is not profitable from the view point of equity share holders.
In the year 2006-07 the ratio is 652.8% which decreases in 2007-08 and reaches to 155.30%.in the current year the ratio become 365.82%.
This means the Madhur dairy needs to reduce this ratio upto 100% for balancing the debt and equity of the firm.
2007 2008 2009
188713035 * 10028908600
49856125 * 10032103469
129313516 * 10035426064
652.8 155.30% 365.82%
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5).LONG TERM FUNDS TO FIX ASSET RATIO:
Long term funds to fix asset ratio is very important for any business or any firm. Normally, the fixed assets of must be purchased out of fixed capital only, which includes share capital, reserves and long term liability. Therefore this ratio shows relationship between fixed capital and fixed asset.
Formula: share capital+reserves+long term liabilityFixed asset
From the above table we find that in the year 2006-07 the long term funds to fix asset ratio is 1.6445 and in the next year in decreases to 1.4037.in the year 2008-09 the long term funds to fix asset ratio is again decreases to 1.1390.the ratio trend slaps down word in three year.
The ratio 1:1 may be considered a reasonable. The ratio of Madhur dairy is satisfactory but shows continuously decreasing trend during this three year.Madhur dairy should try to maintain the ratio 1:1.
2007 14892400+56449875+1400440051897663
1.6445
2008 16909300+15181669+4985612558378872
1.4037
2009 19169300+16242864+4263737568489943
1.1390
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6).LIQUID RATIO:
A variant of current ratio is the liquid ratio or quick ratio which is designed to show the amount of cash available to meet immediate payments. It is obtained by dividing the liquid asset by liquid liability.
Formula:::: liquid asset Liquid liability
The above table shows that in 2006-07 the quick ratio is 0.67.in 2007-08 the ratio decreases and become 0.39 and in the year 2008-09 the ratio is 0.48.
The measure of absolute liquidity may be obtained by comparing only cash and bank balance as well as readily marketable securities with liquid liabilities this is very exacting standard of liquidity and it is satisfactory if the ratio is 0.5:1.
The satisfactory standard of ratio is 0.5:1 so we can see that in 2006-07 the quick ratio is satisfactory where as in 2008-09 it needs to improve.
2007 2008 2009
88161682132263160
49524491125069645
61517890127816108
0.666 0.3959 0.4813
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5.7 calculation of COMPOSITE RATIO
1).RETURN ON CAPITAL EMPLOYED RATIO:
It is an index of profitability of business and is obtain by comparing net profit with capital employed. This ratio is normally expressed in the percentage .the term capital employed includes share capital, reserves and long term loans such as debenture.
Formula::: net profit * 100 Capital employed
In the year 2006-07, the return on capital employed ratio is 3.52% which increases in 2007-08 and finally in the current year in 2008-09 the return on capital employed ratio becomes 5.10%.
This ratio shows growing trend in progress of company. The ratio increases year by year .
In the year 2008-09 it gives 5.10% return on capital employed .as it is co-operative society the return is enough .but it has still need to improve the rate of return in Madhur dairy.
2007 2008 2009
3002909 * 100 85346675
3600409 * 100 81947094
3984204 * 100 78049539
3.52% 4.4% 5.1047%
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2). FIX ASSET TURN OVER RATIO:
It is also known as sales to fixed assets ratio. This ratio measures the efficiency and profit earning capacity of the firm. Higher the ratio, greater is the intensive utilization of fixed assets. Lower ratio means under-utilization of fixed assets
To ascertain the efficiency and profitability of business, the total fixed assets are compared to sales.the more the sales in relation to the amount invested in fixed assets.it includes higher efficiency.The ratio is expressed as follows:
The ratio should not be more than 1 if it is less than 1, it shows that a part of the working capital has been financed through long-term funds. This is desirable to some extent because a part of working capital is termed, as “Core Working Capital” is more or less of a fixed nature.
Formula:: sales Fixed assets
From the above table we can see that in the year 2006-07 the fixed asset turn over ratio is 17.45. In the year 2007-08 it becomes 19.54. And in the year 2008-09 18.68.
This ratio is higher it means the fixed assets are being used effectively to earn profit in Madhur dairy. The ratio in next year 2007-08 increases in compare to the previous year 2006-07.and in the current year ratio remains 18.68 this ratio is good in good position in Madhur dairy.
2007 2008 2009
90551004651897663
114055230658378872
127933900968489943
17.45 19.54 18.68
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5.8 WORKING CAPITAL RATIO
1).WORKING CAPITAL TO SALES RATIO:
Working capital to sales ratio is very important for any business or firm. Working capital to sales ratio is calculated with dividing working capital with total sales revenue. We can know that how much working capital available in relation to the total sales revenue from this ratio.
Formula:: working capital Sales revenue
2007 2008 2009
26854542905510046
171218711140552306
34984401279339009
0.0296 0.015 0.0027
In the year 2006-07 working capital to sales revenue is 0.0296. in 2007-08 the ratio is becomes 0.015 and the current year 2008-09 the ratio is 0.0027.the working capital to sales ratio slaps down word within this three years.
This ratio continuously decreases year by year .the low ratio shows that there is lack of working capital in Madhur dairy. Madhur dairy should increase its working capital.
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2).SALES TO CASH RATIO:
Sales to cash ratio calculated by dividing sales by cash. Sales to cash ratio in very important because we can found that how much cash available in compare to sales in the business.
Formula::: sales cash
As we can see from the above table that in year 2006-07 the sales to cash ratio is 10.373 an d in the year 2007-08 it incerases rapidly and reaches at 23.9216.in the year 2008-09 the sales to cash ratio decreases to 21.778.
The ratio incerases year by year that means in madhur dairy sales incereases in respct to cash.
2007 2008 2009
90551004687294563
114055230647678574
127933900958743344
10.373 23.9216 21.778
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3).WORKING CAPITAL TURN OVER RATIO:
working capital turn over raito is calculated by dividing working capital with total asset.it shows the circulation of working capital during the given priod.
Formula: working capital Total asset
In the year 2006-07 working capital to total assets is 0.1217. in 2007-08 the ratio is becomes 0.0812 and the current year 2008-09 the ratio is 0.01667.the working capital to sales ratio slaps down word within this three years.
This ratio continuously decreases year by year .the low ratio shows that there is lack of working capital in Madhur dairy. Madhur dairy should increase its working capital.
2007 2008 2009
26859542220624625
17121871210629648
3498440209863751
0.1217 0.0812 0.01667
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Findings:
o The current ratio has shown in a fluctuating trend as 2.83, 2.46, 2.88, during 2007 to 2009 of which indicates a continuous increase in both current assets and current liabilities.
o The quick ratio is also in a fluctuating trend through out the period 2007 – 09 resulting as 0.666, 0.3959 and 0.4813. The company’s present liquidity position is not satisfactory.
o The proprietary ratio has shown a increasing trend. The proprietary ratio is increased compared with the last year. So, the long term solvency of the firm is increased.
o The working capital decreased from 26854542 to 3498440in the year 2007 to 2009.
o The fixed assets turnover ratio is in a fluctuating trend from the year 2007 – 09 (17.45, 19.54, and 18.68). It indicates that the company is efficiently utilizing the fixed assets.
o The net profit ratio is in fluctuation manner. It decreased in the current year compared with the previous year form 0.3156 to 0.3110.
o There is decrease in gross profit of the company due to increase in cost of goods sold but there is decrease in net profits due to increase in non operating expense.
o There is continuously growth in equity share capital.
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Suggestion:MADHUR DAIRY need to improve its current assets or on the other
hand needs to decrease the current liability to maintain the adequate
amount of working capital.
MADHUR DAIRY needs to decrease its operating expanses so that the
net profit can be enhanced.
Dairy should increase the proprietors capital. it reduces the burden of
interest, the Dairy liable to pay and as a result it enhances the net
profit.
There is a training need in the employees of MADHUR DAIRY.
Dairy should try to decrease the cost of selling the goods .so that net
profit can be increased.
Dairy need to improve its advertisement. It should try to cover as much
as possible.
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BIBLIOGRAPHY“Financial Management “Mahajan Publication
House Author “DR.HITESH SHUKLA”.
Elements of Financial management, AUTHOR,”I.M.PANDEY” Second edition.
Advanced financial management publication” B.S.SHAH”
Research Methodology author “C.R.KOTHARI”.
Annual report of “ Madhur dairy “of year 2007-08,2008-09.
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Conclusion
The working capital position of the company is sound and the various sources
through which it is funded.
The company has used its dividend policy, purchasing, financing and
investment decisions to good effect can be seen from the inferences made in
the project.
The returns have been affected by a marked growth in working capital and
though a 2% in2008- 2009 , but it got reduced as compared to 22% return in
2007-2008.
The various ratios calculated are an indicator as to the fact that the
profitability of the firm and sales are on a rise and also the deletion of the
inefficiencies in the working capital management.
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