A

Summer Internship Project Report

WORKING CAPITAL STATEMENT AND RATIO ANALYSIS

ON

DUDHSAGAR DAIRY

Submitted to:

Gujarat Technological University, Ahmedabad

&

Golden Jubilee Institute of Management & Technology,

Sidhpur

By

NAME: - MANISH.C.PRAJAPATI

ROLL NO: 45

In partial fulfillment of the degree of

Master of Business Administration

On

31-07-2010

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CERTIFICATE

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PREFACE

As per the curriculum of Gujarat Technology University, it is essential for every student to

carry out Summer Project. It provides real opportunity for students to apply their theoretical

knowledge in practical field. In the area of competition & globalization, the marketing

researches gain performance. It also gives the experience of the practical field. Today there is

a lot of competition because of rapid changes in the taste & preferences of the consumers.

During preparation of this project report I came to know about various aspect of the

company. It is indeed a golden opportunity for me in the study management and a matter of

esteem by itself.

As per the task of M.B.A. programmed, I got the opportunity to carry out my training at

‘Dudhsagar Dairy’ at Mehsana. It was a great & a golden chance to enrich my knowledge by

comparing my theoretical knowledge with the ongoing managerial project of the company.

I got an opportunity to undergo training from an esteemed organization

“MEHSANA DISTRICT CO-OPERAQTIVE MILK PRODUCERS’ UNION LTD”.

MEHSANA, Wherein I received practical insights & relevant information & could avail of

the much needed vital exposure of the company environment which would be great help in

enhancing my skills & professional capabilities in the near future,. During my association

with the Company. I found that the staffs were quite cooperative & helpful in solving the

queries & concerns relating to the project.

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ACKNOWLEDGEMENT

The Successful completion of a project requires active involvement of many people. From

the time of inception of an idea to its implementation, many brains work together & that only

provides fruitful results.

I wish to acknowledge the help of all these people who have provided us with information,

guidance & other help during our training period, without their help, it would have been

difficult for me to have reached stage of completion of my training.

I am thankful to MR.HITESH.A.PATEL (H.O.D of golden jubilee) who give me

permission to take summer training in dudhsagar dairy and also thankful to our faculty, Prof.

Arun Godyal, Prof. Priya Panchal Prof. Urvi Bhatt they give me information support about

my project.

In writing this project report, I have drawn on thoughts from a variety of disciplines that

have bearing on the different facts of the topic. I own a profound intellectual debt to

numerous authors whose ideas & contribution have shaped my thinking on this subject.

First of all I am thankful to management authorities for providing me with the opportunity

to carry out my training in the organization.

I am thank full to Mr. George Samuel, Deputy General Manager (F & A) giving us this

opportunity to under go training at “ Finance, MIS & Audit Department “and guidance for

working on the project in various aspects and in which I have taken vital experience.

In addition, I am heartily thankful to Mr. Burhanuddin Vohra (F & A) providing me

necessary information’s and guidance for completing the project in Mehsana District Co-

operative Milk Producers’ union Limited.

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EXECUTIVE SUMMARY

Introduction:

“Dudhsagar Dairy” is Asia’s largest Dairy Co-operative and its product’s are marketed in the

brand of Amul & Dudhsagar by Gujarat Co-operative milk marketing federation.

This Grand Project provides a golden opportunity to me for getting a perfect knowledge

and experience.

As a part of my learning in management field and requirement of MBA programme, I

have been given an opportunity to grab practical knowledge in the area of Finance and I had

selected the esteem organization “MEHSANA DISTRICT CO-OPERATIVE MILK

PRODUCERS UNION LTD.” Mehsana for my project work.

I have made my best efforts to get knowledge and experience. During this training, I had

collected necessary information, and I present all the necessary information to understand the

workings of the organization.

Here, we have presented the comprehensive project report named, “WORKING CAPITAL

MANAGEMENT & RATIO ANALYSIS” of Dudhsagar Dairy contains different chapters

for different kinds of analysis such as: - Ratio Analysis, working capital management,

Under Ratio Analysis I have covered all four of ratio such as:-

1. Liquidity Ratio,

2. Leverage Ratio,

3. Profitability Ratio

4. Capital Gearing Ratio.

5. Turn over Ratio.

Each ratio is calculated for last 3 years from 2007-08 to 2009-10. Ratio Analysis is helpful

in establishing relation between two items of financial statements. All ratios also contain

detailed interpretation. In this report I have also calculated ratio & compared with standard

ratio.

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Under working capital management I have covered points like:

2008 to 2010 working capital statement and analysis.

Reason for increase decrease in working capital statement.

Analysis and suggestion of working capital statement.

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INDEX

CONTENT PAGE

Preface I

Acknowledgement II

Executive Summary III

Part-1 Company profile 8

Progres Journey of Dudhsagar Dairy 8

History of dudhsagar dairy 9

Board of Directors 11

Historical background inauguration 12

Name of the products 13

Part-2

Literature review 18

Part-3

Objectives of project 17

Part-4

Introduction of research & methodology 19

Types of research& methodology 19

Part-5

Basic information of financial department 22

Account department 22

Internal audit department 22

Structure of finance management 23

Process of finance & account 24

Financial planning 25

Budgeting & costing 25

Statutory budget 26

Costing activity 27

Capital structure 27

PART-6

Introduction of working capital 29

Need of working capital management 29

Gross and net working capital 30

Types of working capital 31

Determinants 31

PART-7

Finding of Ratio & Analysis 54

PART-8Findings 77

7

Recommendation 78Conclusion 79Bibliography 80

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PART 1

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COMPANY PROFILE

The “MEHSANA DISTRICT CO-OPERATIVE MILK PRODUCERS UNION LTD”.

Mehsana dairy is a Co-operative organization registered under Co-operative Societies

Act.1925 on 08-11-1960 by Registration No. c/-1960.

It has about 1238 member villages’ milk co-operative societies in Mehsana District from

whom it procures milk. The Societies have over 4, 81,878 producer members.

The “MEHSANA DISTRICT CO-OPERATIVE MILK PRODUCERS’ UNION LTD” has

its head Quarters & Dairy plant in Mehsana –town. The union has five milk chilling centers

at Vihar, Kheralu, Kadi, Hansapur, & Harij, these chilling centers helps to store milk for

longer period and easier milk collection from all the societies. All these centers are located in

the rural area. It has two cattle feed plants at Boriavi & Ubkhal (capacity 450 M.T each) & an

animal breeding station at Jagudan, this breeding station helps to improve milk product’s

animal.

The Union provides various technical inputs to its members through village milk co-

operative societies. The milk collected is processed in to various products such as market

Milk, Butter, Ghee, Milk Powder & Sweetened Condensed Milk.

The market milk is sold in Mehsana District directly by the Union, whereas other milk

products are marketed by the Gujarat Co-operative milk marketing federation into which the

union is totally committed to provide quality products & services to its customers with the

ultimate satisfaction.

PROGRESSIVE JOURNEY OF DUDHSAGAR DAIRY

Mehsana largest milk producing district of Gujarat is famous since long for cattle breeding

& animal husbandry practices. Large, small & marginal farmers & landless labourers are

engaged in the practices of animal keeping & milk production. The high yielding well known

“Mehsani” buffalo breed is native of the district & is known for its potential of economical

milk production.

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The union makes use of most advanced technologies for manufacture of various milk

products, for providing better animal health care services & for building socio-economic

strength.

HISTORY OF DUDHSAGAR DAIRY

In 1985 UNICEF had expected that they will garnered plenty of milk from the mehsana

region. The members of UNICEF were discussed with late shree MANSIGH BHAI

PRITHVIRAJ PATEL about this matter .Mansighbhai always kindly towards the farmers. He

got the fact that the duties of the intermediaries will be eliminate, the producers will have the

enormous benefits from the milk and eventually the customers will get superior quality of

milk. Producers could receive their actual price.

With the aid of his idea there was an establishment of “MEHSANA DISTRICT CO-

OPERATIVE DAIRY” in 8-11-1960.In the beginning period 3000 litres milk procured from

the vijapur region which comprised of 11 villages and delivered to the AHMEDABAD

MUNICIPLE CORPORATION DAIRY. On 2-4-1963 shri Morarji desai had inaugurated of

dudhsagar dairy.

MILK CENTRES:

Due to large activities of dairy there are 5 centers (milk collection) established which are50

km away from mehsana. (Vijapur,Kheralu,Hansalpur,Harij,and Kadi.)With the help of larger

numbers of trucks, it collects milk from several dairy centres then put the stock of milk into

the cold storage for pasteurized and then supply to main plant such as “MEHSANA

DUDHSAGAR DAIRY MANESAR(HARIANA) as well as other various centres.

BULK MILK CHILLING UNIT:

Since 1999 the union had decided to set up a bulk milk chilling unit on milk centres for the

purpose of maintaining the quality of milk. Milk is making cool for 4 se.grade.So the bacteria

can hinder to increase and the quality of milk remain good.

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At present, there are 150 or near by bulkcooler have been set up.However in coming next 5

years expecting to set up bulkcoolers over all the milk centres.

ANIMALS HEALTH SERVICES:

Currently total 25 service centres have been running by the union.When any animal get the

disease or fall down into the fever then directly informed to the animal analysts and he or she

reach to it and provide the appropriate treatment to the particular animal then taking the

charges of rs.80 for giving treatment.

CONTINUOUSLY ENCOURAGE TO PRODUCERS:

The milk producers and their animals have to take an insurance.Requisite equipments which

are milking machine chafter, cooling system and so many medicines have been given for

animal care.In milk centres,sagardan,maize bhardo,mineral mixture,primary treatment

medicines for animals and milk ingredients products provided by the union.

FODDER:

The union has been producing different fodder such as purakdan, sagardan,new sagar

highprodan with 900 metric tons daily from boriyavi and ubkhal factories.While 1000 metric

tons plant is going to established at jagudan.

AWARENESS PROGRAMMES:

The union continuously conducted the awareness programme for adopting newly or latest

technology.

MILK CENTRES:

Milk producers of villages have to fill up their milk in morning and evening duration in the

milk centres.Where they have to receive the payment on the basis of weight of milk and the

fat. The measurement of weight of milk done by the electronic weight equipments and for fat

it can be measure by electronic milcho machine. Then after sent one fully information slip to

the customers which is calculated through computers.

COLOUR PAINTS:

All the milk centers has same colour buildings and for that giving 50% sustain for creating

the same image. Till now 250 centers have got the benefit of it.

I.S.O:

Mehsana which is the imperative plant of the milk union get the I.S.O. as well as

H.A.C.C.P.Even cattle field factories, jagudan, animal care centers and dudhmansagar dairy

manesar (hariana) receive the I.S.O.

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HISTORICAL BACKGROUND INAUGURATION

1960 - Establishment of the MDCMPU Ltd.

1961 - Started milk supply to Ahmadabad Municipal dairy.

1963 - The MDCMPU ltd Inaugurated

1964 - Inauguration of the Vihar chilling center.

1965 - Main Dairy At Mehsana

1966 - Establishment for the animal husbandry by the Union.

1967 - Innogration of the Kheralu chilling center.

1968 - Milk supply to the Delhi started.

1969 - Inauguration of the cattle feed in Boriavi.

1970 - Establishment of new powder section-N1.

1971 - Vihar chilling center established unit with capacity 60,000L

1972 - Loan for purchasing cows & buffaloes.

1973 - Inauguration of the Hansapur chilling center.

1974 - N2 powder plant has inaugurated..

1975 - Inauguration of the Harij chilling center

1976 - Harij chilling center has started collecting milk.

1977 - Animal insurance policy has started.

1978 - Kadi chilling center has started.

1979 - Wireless radio telephone facility for animal Husbandry has provided.

1980 - Liquid nitrogen plant & artificial insemination at Jagudan has started.

1981 - Cattle feed plant at Ubkhal has started.

1982 - Government thanks Dudhsagar dairy for collecting large quantity of milk.

1983 – N3 powder plant has inaugurated.

1991 - N4 powder plant has inaugurated.

1995 - Scm Plant – Mehsana

2000 - Scm Plant – Mehsana

2001 - Automation – N4 Plant

2004 - ERP – Oracle 11i Business Suite Implementation

2006 - Established Dudhmansagar Dairy at Manesar, Haryana

2009- Celebration of Golden jubilee.

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BOARD OF DIRECTORS

1 Shri. Vipulbhai M Chaudhary Chairman  2 Shri. Patel Harjivanbhai Devabhai Vice Chairman Rajpur3 Shri. Patel Rambhai Baldevbhai Member Meda Aadraj4 Shri. Desai Khengarbhai Bijalbhai Member Palodar5 Shri. Chaudhary Ramjibhai Savjibhai Member Khandosan6 Shri. Desai Ramjibhai Karamshibhai Member Khakhdi7 Shri. Vihol Chandanji Ravaji Member Pilvai8 Shri. Patel Mafatlal Manganlal Member Umiyanagar9 Shri. Patel Prahladbhai Prabhudas Member Umta10 Shri. Chaudhary Becharbhai

JeshingbhaiMember Indrapura

11 Shri. Nardolia Ahemadbhai Alji Member Karan (Ishmailpura)

12 Shri. Thakor Divanji Javanji Member Vadhar (Vad)13 Shri. Patel Kalabhai Dwarkadas Member Anandpura (Ku.)14 Smt. Shah Rajeshriben Naileshbhai Member Santej15 Smt. Chaudhary Vakhatben Haribhai Member Gangapura16 Smt. Chaudhary Daliben Hirabhai Member Orda17 Shri. Dist. Registrar Member Mehsana18 Shri. Bharat M. Vyas Member GCMMF - Anand19 Shri. K.C. Verma Managing

DirectorMehsana

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Name of the Products:-

Sager gold, (Pasteurized full cream milk 6.0% Fat & 9.0% SNF.)

Sager standard,

Amul Shakti Pasteurized standard milk,

Amul ghee,

Sager ghee,

Sager sfurti flavored milk,

Amul cool flavored milk,

Amul Spray infant milk food,

Sager skimmed milk powder,

Amulya dairy whitener,

Amul whole milk powder

Amul Pasteurized butter,

Amul mithai mate.

Sagardan (Cattle Feed)

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PART 2

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LITERATURE REVIEW

By: Nancy Beneda, Ph.D., C.P.A. & Yilei Zhang Ph.D .comment

There are two types of working capital.

1. Gross working capital (GWC)

GWC refers to the firm’s total investment in current assets.

Current assets (CA) are the assets which can be converted into cash within an accounting

year (or operating cycle) and include cash, short-term securities, debtors, (accounts receivable

or book debts) bills receivable and stock (inventory).

2. Net working capital (NWC).

NWC refers to the difference between current assets and current liabilities.

Current liabilities (CL) are those claims of outsiders which are expected to mature for

payment within an accounting year and include creditors (accounts payable), bills payable,

and outstanding expenses.

Working capital policy refers to the firm's policies regarding 1) target levels for each

category of current operating assets and liabilities, and 2) how current assets will be financed.

Generally good working capital policy (i.e. under conditions of certainty) is considered to be

one in which holdings of cash, securities, inventories, fixed assets, and accounts payables are

minimized. The level of accounts receivables should be used as a means of stimulating sales

and other income. Previous literature on working capital management has found a negative

association, overall, between level of working capital and operating performance as measured

by operating returns and operating margins. Under conditions of certainty (i.e. sales, costs,

lead times, payment periods, and so on, are known), firms have little reason to hold more

working capital than a minimum level. Larger amounts would increase the level of operating

assets, increase the need for external funding, resulting in lower return on assets and a lower

return on equity, without any increase in profit.

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PART 3

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OBJECTIVES OF PROJECT

To study about the cash management structure of the Dudhsagar dairy and inflow -outflow of cash in the dairy.

To study about accurate financial position of dairy. To garner the perfect financial data. To measure the credit of dairy in market through financial information. To know about dairy`s liquidity.

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PART 4

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RESEARCH & METHODOLOGY

INTRODUCTION

The term research refers to the systematic method consisting of enunciating the problem ,

formulating a hypothesis collecting the data , analyzing the facts and reaching the certain

conclusions either in the form of solution towards the concern problem or in certain

generalization for some theoretical formulation .

Research Methodology is a way to systematically solve the research problem .It may be

understood as a science of studying how research is done scientifically.

TYPES OF RESEARCH & METHEDOLOGY

There are two types of research.

1. PRIMARY RESEARCH

DEFINATION:

Data that you or your colleagues collect specifically for the purpose of answering

your research question.

METHODS OF PRIMARY RESEARCH

Personal survey.

Telephone survey.

Mail survey.

Internet survey.

Fax survey.

Collected data through discussion with the Finance manager in dudhsagar dairy.

Collected data during working in dudhsagar dairy.

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2. SECONDARY RESEARCH

DEFINATION

Existing data collected for another purpose that you employ to answer your research question.

METHOD OF SECONDARY RESEARCH

There are two types of method use in secondary research.

Internal data

Internal data like accounting information, sales information and customer complaints

etc. This data are store in data mining.

External data

External data are like different magazines, journals, News papers and Internet.

Collected data from personnel manual of dudhsagar dairy.

For this project I’ve used the secondary data in the form of Annual report 2007-2008,

and Annual report 2008-2009 Annual report 2009-2010.

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PART 5

23

Finance Department

Basic information of financial department

Finance Management is the part of the Managerial activity, which is concerned with

planning, and controlling of the firms financial resources. It is an applied branch of general

management it has to plan to organize and control the finance of the enterprise. Chief duties

of financial management are planning and control of corporate finance. Financial

Management is called upon to take three major decisions viz. Investment decision, financial

decision, and dividend decision. Financial Management involves the implementation of these

three major decisions it is an integral part of overall management rather than merely a staff

activity concerned with fund raising operations without sound management of financial

resources, business cannot achieve its objective and may occur heavy losses. Thus financing

management is charge of efficient planning and control of the cycle of flow of funds inflow

and outflow of funds.

Accounts dept:-

Shri Anil Kumar Gang is the in-charge of accounts dept. And Shri George Samuel, is the

head of Internal Audit dept, MIS & Finance dept. Commercial section is being governed by

set defined rules and regulations as per the Co-operative society. Accounts dept. is broadly

dividing into billing section, Cash/Bank section keeping, various scheme plans for

employees. Day to day activity is being worked out by and all policy matter is being handling

by Shri George Samuel and Shri Anil Kumar Gang jointly.

Internal Audit dept:-

Shri George Samuel is the head of Internal Audit. Department handles the internal audit

functions in various parameters as Financial, Operational, Special Assignments & Propriety

areas. All the activities Internal audit dept. is out sourced to Parikh Saha & Associates ( CA

Firm ) and activities broadly divided into pre-audit of payments; post audit of books, post

audit stock, continuous physical verification, 100% purchase procedure, P&L & B/S audit.

The internal audit procedure is defined in depth in Internal Audit Manual. The whole audit

programme is well defined in advance and respective personnel are being responsible for the

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distributed work area.Internal auditors give their monthly report covering all departments &

activities Dudhsagar Mansagar with suggestion for improvements in the standard format. The

summerised report sent to corresponding departments for necessary improvemts and

commitments.

Any queries are being seriously vouched and highlighted to the management to take rigorous

steps for the same. After finalizing the internal audit workings, same set of books are being

given to Government auditors for their audit purpose. Government auditors vouch the books

and puts query (if any) for the clarification with the Union’s management and ask for the

explanation of the query. Once the Government auditors are satisfied with the explanation of

the query, the same is being freeze and cleared.

Structure of Finance Management:-

Chairman

Managing Director

General Manager (Commercial)

Deputy General Manager

Assistant General Manager

Senior Manager

Managers

Deputy Manager

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Assistant Manager

Sr. Executive

Executive

Asst. Executive

Jr. Executive

Sr. Assistant

Assistant

Sr. Clerk

Jr. Clerk

Process of Finance & Account

The accounting function covering the Mehsana office and plant, the five Chilling centers at

Vihar, Kadi, Harij, Hansapur, and Kheralu, DURDA, Manesar and two cattle feed plants at

Boriavi and Ubkhal are performed by the Accounts Department at Mehsana head office of

Dudhsagar dairy. All the purchase and sales for Dudhsagar dairy are executed from the

Mehsana head office centrally. The purpose and scope of Account process are Management

of Financial resource of the union accurate and timely payment to societies and supplies,

maintain proper books of the union and advice. Dudhsagar Dairy’s management performance

is based on accounting records, finance process includes the accounting functions of

payables, Receivable, Cash Management, Asset Management, and General Accounting &

Reporting functions including revenue and capital Budgeting. It also covers Costing

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activities performed at Dudhsagar dairy. The Audit budgeting and costing process is

performed by the internal Audit department in closeness with Accounts Department.

Financial Planning

A firm needs to manage its resource effectively and efficiently to achieve its objective. The

managing ofresources in an a effective manner is possible only when the management work

out the future course of action in advance and take decision in professional manner and

rational manner that’s why financial planning is very Important financial planning is a

statement estimating the amount of capital and determining its composition. It includes;

Determination the amount needed for implementing the business plans.

The determination form and proportionate amount of securities.

Laying down the policies as to administration of financial plan.

Steps for Financial Planning:-

Analysis of past performance

Establishing objective

Determine investment need

Forecasting cash flow

Financing

Budgeting & Costing

Currently the budgeting activities are restricted to annual preparation of budget and

monitoring of budget versus actual cost quietly. Budget is made annually by manually

obtaining the amount from each department against the several budget head description in a

form. Dudhsagar wants to track and implement budgetary controls while making expenditure.

Dudhsagar has limited exercise towards allotment and structuring of cost code, sub code and

purpose code according operation classification. As sales are more or less regulated, a more

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system orientation is adhered to in drafting cost budgets. The code allocation practice is on to

allot the codes based on direct cost and than to the sub division or activity the codes are both

all allotted to process and product.

In case of stores stock transfer is booked to stock ledger code and subsequent issues and

consumption are booked. In case of finance and accounts, situation is different in case where

the tally accounts and budget codes are same and in circumstance where they are different. In

case where they are different the budget accounting.system codes are input against each

account automatic conversation to Bureau of Accounting Standard Codes occur where they

same.

Budget is tracked against the cost centers and sub centers are defined with the responsibility

center but currently the responsibility centers are not in use the stores consumption tracked

till the cost center and sub center level at the time of consumption itself for other expenses

like repairs and maintenance travel expense and other office expenses the cost center and sub

centers are entered to categories the expenses after exporting them into an oracle based

system from the tally system for the purpose of tracking. A quartly budget review report is

prepared depicting the quartly budget amount actual expense and variance figures along with

the cumulative figures.

Statutory Budget:-

It is required to be prepared by Dudhsagar under the co-operative act this budget is prepared

annually and approved in the annual general matting as according to the law and including in

the annual report this budget in is prepared by the internal audit department. The budget is

internal to Dudhsagar and not presented in the board AGM.

The budget is prepared by seeking the budget amount from all the departments by giving the

respective budget heads pertaining to the specific department for aiding the departments to

prepare the budget. The relevant previous wears expenditure is given to them from the trial

balance if required the detail expenditure is also given by the accounts departments. The

departments provide the budget after approval from the departmental head. The consolidated

Capital budget for the year is prepared by MIS & AUDIT dept. Which is then presented to

the Managing Director. The MD can revise the budget before approving it, to be presented to

the board. The board recommends the budget in the AGM seeking its approval.

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Costing Activities:-

Dudhsagar Dairy product costing is done on a yearly basis for the financial year. ERP is

updated yearly with the costing standards. This is too limited to the product group costing. As

the value of asset is not finally known production wise process, depreciation is avoided for

allocation to the product groups. The yearly cost sheets forms an important basis in the

estimation of costs, pack wise prepared, yearly for all products packs. The costing system is

reviewed monthly for improvements.

Of late concept of conversation costing where by the milk purchase price is excluded from

the estimated contribution analyses. The client opinions that as milk purchase price of the last

year does not reflect the current and by comparing the gross contribution and gross profit

visa-a-versa the milk Purchase price existing as on the date, one could as certain the

profitability of the products and packs.

The incremental cost of milk for FAT, SNF and moisture are based on standard costing. The

unit price is the actual transportation and chilling post based on the previous years financial

data.

The wastage is calculated based on actual content of the milk FAT and SNF content in the

milk purchased of the previous year less the standard content of FAT and SNF for actual

production for which milk had been consumed. This wastage is applied to the FAT and SNF

inputs in proportion. Based on the standard inputs the actual quantity product wise is derived

applying the wastage rate on the standard consumption.

Capital Structure

Capital is one of the most important factors of production without capital organization cannot

produce any products or other type of the activity. Capital includes share capital reserve and

surplus and long term liabilities. The authorized share capital of the dairy is 1,00,00, 000

shares of Rs. 100 each and the capital is 1,00,00,00,000.

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PART 6

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INTRODUCTION

1. Introduction of Working capital management

Workining capital management is concerned with the problems arise in attempting to

manage the current assets, the current liabilities and the inter relationship that exist

between them. The term current assets refers to those assets which in ordinary course of

business can be, or, will be, turned in to cash within one year without undergoing a

diminution in value and without disrupting the operation of the firm. The major

current assets are cash, marketable securities, account receivable and inventory. Current

liabilities ware those liabilities which intended at there inception to be paid in ordinary course

of business, within a year, out of the current assets or earnings of the concern. The basic

current liabilities are account payable, bill payable, bank over-draft, and outstanding expenses.

The goal of working capital management is to manage the firm’s current assets and current

liabilities in such way that the satisfactory level of working capital is mentioned. The current

should be large enough to cover its current liabilities in order to ensure a reasonable margin of

the safety.

Definition:-

According to Guttmann & Dougall-

“Excess of current assets over current liabilities”.

According to Park & Gladson-

“The excess of current assets of a business (i.e. cash, accounts

receivables, inventories) over current items owned to employees and others (such as

salaries & wages payable, accounts payable, taxes owned to government)”.

2. Need of working capital management

The need for working capital gross or current assets cannot be over emphasized. As already

observed, the objective of financial decision making is to maximize the shareholders wealth.

To achieve this, it is necessary to generate sufficient profits can be earned will naturally

depend upon the magnitude of the sales among other things but sales cannot convert into

cash. There is a need for working capital in the form of current assets to deal with the

problem arising out of lack of immediate realization of cash against goods sold. Therefore

sufficient working capital is necessary to sustain sales activity. Technically this is refers to

operating or cash cycle. If the company has certain amount of cash, it will be required for

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purchasing the raw material may be available on credit basis. Then the company has to

Spend some Amount for labour and factory overhead to convert the raw material in work

in progress, and ultimately finished goods. These finished goods convert in to sales on

credit basis in the form of sundry debtors. Sundry debtors are converting into cash after expiry

of credit period. Thus some amount of cash is blocked in raw materials, WIP, finished

goods, and sundry debtors and day to day cash requirements. However some part of current

assets may be financed by the current liabilities also. The amount required to be invested in

this current assets is always higher than the funds available from current liabilities. This is the

precise reason why the needs for working capital arise

3. Gross working capital and Net working capital’

There are two concepts of working capital management

1) Gross working capital (GWC)

Gross working capital refers to the firm’s investment In current assets. Current assets are the

assets which can be convert in to cash within year includes cash, short term securities, debtors,

bills receivable and inventory.

2) Net working capital (NWC)

Net working capital refers to the difference between current assets and current liabilities.

Current liabilities are those claims of outsiders which are expected to mature for payment

within an accounting year and include creditors, bills payable and outstanding

expenses. Net working capital can be positive or negative efficient working capital

management requires that firms should operate with some amount of net working capital,

the exact amount varying from firm to firm and depending, among other things; on the nature

of industries.net working capital is necessary because the cash outflows and inflows do not

coincide. The cash outflows resulting from payment of current liabilities are relatively

predictable. The cash inflow are however difficult to predict. The more predictable the

cash inflows are, the less net working capital will be required.

The concept of working capital was, first evolved by Karl Marx. Marx used the term

‘variable capital’ means outlays for payrolls advanced to workers before the completion of

work. He compared this with ‘constant capital’ which according to him is nothing but ‘dead

labour’. This ‘variable capital’ is nothing Wage fund which remains blocked in terms of

financial management, in workin-process along with other operating expenses until it is

32

released through sale of finished goods. Although Marx did not mentioned that workers also

gave credit to the firm by accepting periodical payment of wages which funded a portioned

of W.I.P, the concept of working capital, as we understand today was embedded in his ‘variable

Capital.

4. Type of working capital

The operating cycle creates the need for current assets (working capital).

However the need does not come to an end after the cycle is completed to explain this

continuing need of current assets a destination should be drawn between permanent and

temporary working capital.

1) Permanent working capital

A minimum level of current assets, which is continuously required by a firm to carry on

its business operations, is referred to as permanent or fixed working capital.The need for

current assets arises, as already observed, because of the cash cycle. To carry on business

certain minimum level of working capital is necessary on continues and uninterrupted

basis. For all practical purpose, this requirement will have to be met permanent as with

other fixed assets. This requirement refers to as permanent or fixed working capital

2) fluctuating or variable working capital

The extra working capital needed to support the changing production and sales

activities of the firm is referred to as fluctuating or variable working capital.Any

amount over and above the permanent level of working capital is temporary, fluctuating

or variable, working capital. This portion of the required working capital is needed to meet

fluctuation in demand consequent upon changes in production and sales as result of seasonal

changes that the permanent level is fairly castanet; while temporary working capital is

fluctuating in the case of an expanding firm the permanent working capital line may not be

horizontal.

This may be because of changes in demand for permanent current assets might be increasing

to support a rising level of activity.

5. Determinants of working capital

The amount of working capital is depends upon a following factors

33

1) Nature of business

Some businesses are such, due to their very nature, that their requirement of fixed capital is

more rather than working capital. These businesses sell services and not the commodities and

that too on cash basis. As such, no founds are blocked in piling inventories and also no funds

are blocked in receivables. E.g. public utility services like railways, infrastructure oriented

project etc. there requirement of working capital is less. On the other hand, there are

some businesses like trading activity, where requirement of fixed capital is less but more

money is blocked in inventories and debtors.

2) Length of production cycle

In some business like machine tools industry, the time gap between the acquisition of

raw material till the end of final production of finished products itself is quit high. As such

amount may be blocked Either in raw material or work in progress or finished goods or

even in debtors. Naturally there need of working capital is high.

3) Size and growth of business

In very small company the working capital requirement is quit high due to high overhead,

higher buying and selling cost etc. as such medium size business positively has edge over

the small companies. But if the business start growing after certain limit, the working capital

requirements may adversely affect by the increasing size.

4) Business/ Trade cycle

If the company is the operating in the time of boom, the working capital requirement

may be more as the company may like to buy more raw material, may increase the production

and sales to take the benefit of favorable market, due to increase in the sales, there may more

and more amount of funds blocked in stock and debtors etc. similarly in the case of

depressions also, working capital may be high as the sales terms of value and quantity may

be reducing, there may be unnecessary piling up of stack without getting sold, the receivable

may not be recovered in time etc.

5) Terms of purchase and sales

Some time due to competition or custom, it may be necessary for the company to extend more

34

and more credit to customers, as result which more and more amount is locked up in debtors

or bills receivables which increase the working capital requirement. On the other hand, in the

case of purchase, if the credit is offered by suppliers of goods and services, a part of

working capital requirement may be financed by them, but it is necessary to purchase on

cash basis, the working capital requirement will be higher.

6) Profitability

The profitability of the business may be vary in each and every individual case, which is in turn

its depend on numerous factors, but high profitability will positively reduce the strain on

working capital requirement of the company, because the profits to the extend that they

earned in cash may be used to meet the working capital requirement of the company.

7) Operating efficiency

If the business is carried on more efficiently, it can operate in profits which may reduce the

strain on working capital; it may ensure proper utilization of existing resources by eliminating

the waste and improved coordination etc.

35

ANNUAL REPORT 2007-2008

BALANCE SHEET TABL

E: 1

31-3-2007Rupees

Liabilities Rupees 31-3-2008Rupees

250000000 AUTHORISED SHARE CAPITAL 25,00,000 Shares of Rs. 100 each

250000000 250000000

182943200 SHARE CAPITAL : (FULLY PAID UP)

183107200

105246176

57778675

102691984

265716835

RESERVESReserve Fund (As per schedule A)Other Funds ( As per Schedule A )N D D B Grant / subsidy A )

114578916

66195354

102691984

283466254

411886167356273083465998907

2533580001487516157

136516100

500000000

636516100

LOANSSecured;Bank of Baroda- cash credit accountBank of India- cash credit accountHDFC Bank – cash credit account (Secured by Hypothecation of Stock & Book Debts)Bank of Baroda-FDODBank of india term loanState Bank of india-term loan(secured by hypothecation of fixed assets)

Unsecured:Convertible debentures of rs. 100 eachBank short term loanICICI bankHDFC Bank

501901797

526145153

166680452

7527173212500000178358000

136516100

600000000

1460857134

736516100CURRENT

36

314612337 56341223474127 72032031112972951

7755829110238708

50162554186105663337330960

LIABILITIES& PROVISIONSDepositsUnpaid dividendDue nto societiesOutstanding against expensesOutstanding against purchasesSundry creditorsDebenture redemption premiumProvision for income tax

Profit&loss Accounts

379986885742374041596395881537140793050

6700620214334191

55262554149368780535497815

TABLE: 2

31-3-2007Rupees

FIXED ASSETS Rupees 31-3-2008Rupees

1826592907 Gross Block (As per Schedule B)

2012012911

(994635215) “Less: Depreciation Fund ( As per Schedule B)”

(1113404016)

831957692 Net Block 8986088959695503 Capital Work in Process 10713587 77026920 16000

77042920

INVESTMENTS (At Cost) Investment in SharesNational Saving Certificate

98191020 16000

98207020

76218362611814304049043885115980241846757421130026534

INVENTORIESFinished GoodsStock –in-ProcessMilk StockStores StockRaw Materials Stock

132487044515142916237407274128153875104542169

1746402925

22659871

605826739

TRADE DEBTORS(Unsecured,considered good except stated otherwise)Debt due for more than six monthsOther Debts

4635339

839671444

10419263453583

LOANS & ADVANCESDepositsDue from Societies

16090242224155

37

6152929324547578181347058278296775

AdvancesSundry DebtorsAdvance Income Tax

6127285917012967205793624

300393847

222318

50848891507639177

26274671515573851

CASH & BANK BALANCESCash & Cash Equivalent in HandBalances with Scheduled Banks:In Current AccountIn Fixed Deposit AccountsBalance with Co-operative Bank:In Current Account

179132

1240092293075334

4693294499251

TABLE: 3

2006-2007Rupees

Expenditure Rupees 2007-2008rupees

1051298582161073409333926481245764639

To opening stocks Finished goodsStock- in-processMilk stock

76218362611814304049043885

9293705518930681333

366069948

198296866618118133

14031551

317897797

27975371896112142

61299639

40265698

12026015

To milk purchases expenses To purchase transport& procurement exp.To material consumeTO cooperative development expensesTo processing expensesTo power & fuel expensesTo salaries &wagesTo staff PF gratuity & other amenitiesTO repair & maintenanceTO freight & carriage chargeTo marketing expensesTo postage, telephone, painting, &stationary exp.TO insurance premiumTo rent, rates, &taxes

11388237501

490701293

236521247020839892

16825130374750901

280769559

7724848067239455

50948347

11436918

38

6443369

6410080

80356931074140817890105101258595

113446183122111694465

3733096013668242348

TO audit feesTo miscellaneous exp.TO interest &bank commissionTO depreciationTO donationTO provision for income taxTO net profit

4712322

3749309

5294435

157102593186993169956538

12165511505677035

3549781516394703256

TABLE: 4

2006-07Rupees

Income Rupees 2007-08Rupees

12659228733 By sales 14821827512120214854564134521980234

By dividend incomeBy interestBy misc. income

121317904436470210627294

76218362611814304049043885929370551

By closing stockFinished goodsStock-in-processMilk stock

132487044515142916229452351

1505751958

WORKING CAPITAL STATEMENT

Particular 2007 2008 Increase decreaseCurrent assetsStockFinished goodsStock in processMilk stockStores stock Raw materialTrade debtors:Debt due for more than six monthsOther debtsLoan &

7621836261181430404904388511598024184675742

22659871

605826739

132487044515142916237407274128153875104542169

4635339

839671444

56268681933286122-1217363419866427

-

233844705

--11636611--

18024532

-

39

advancesDepositsDue from societiesAdvancesSundry debtorsAdvance taxCash & bank balanceCash & cash equivalent in hand balances with scheduled banks

10419263453583

6152929324547578181347058

222318

16090242224155

6127285917012967205793624

179132

5670979-

256434753461124446566

-

-229428

---

43186

Total current assent (A)

2037032237 2891282687 899766297 29933757

Current liabilitiesDue to societiesUnpaid dividendOutstanding against expensesOutstanding against purchasesSundry creditorsProvision for income tax

1223474127563472032031

112972951

4755829150162554

740415963742395881537

140793050

6700620255262554

483058164--

-

10552089-

-1788923849506

27820099

-5100000

Total current liabilities (B)

1536205588 1099366729 493610253 56771394

Working capital (A-B) 500826649 1791915958Increase in working capital 1291089309 - - 1291089309

1791915958 1791915958 1393376550 1393376550

ANALYSIS OF THE WORKING CAPITAL STATEMENT

40

Above statement show that in 2007-08 years. Current assent in year 2007 was 2037032237

crores while in year 2008 current assent was 2891282687.

As compared to current assets of year 2007, current asset of year 2008 was increase.

While a current liability in year 2007 was 1536205588 crores and in year 2008, a current

liability was 1099366729 crores.

The comparison to current liabilities of year 2007 current liabilities of year 2008 was

increase.

Due to current liabilities subtract from the current asset year 2007-2008 than, the working

capital has been increased 1291089309 so, that company should need to manage more

capital.

Reason for raising working capital

To increase stock in 2008 compared 2007.

To increase in current asset in 2008 compared to 2007.

Dairy might create more debtors, stock/inventories, and cash & bank balance in

2007-08.

ANNUAL REPORT 2008-09

41

BALANCE SHEET

TABLE: 5

31-3-2008Rupees

Liabilities Rupees 31-3-2009Rupees

250000000 AUTHORISED SHARE CAPITAL 25,00,000 Shares of Rs. 100 each

250000000 250000000

183107200SHARE CAPITAL : (FULLY PAID UP) 183197200

114578916

66195354

-102691984

265716835

RESERVESReserve Fund (As per schedule A)Other Funds ( As per Schedule A )Asset revaluation reserveN D D B Grant / subsidy A )

123453370

76725064

3606286836102691984

3909157254

501901797

526145153

166680452

-

136516100

-6000000000

LOANSSecured;Bank of Baroda- cash credit accountBank of India- cash credit accountHDFC Bank – cash credit account (secure by hypothecation of stock & book debts)Bank of Baroda-FDODBank of india term loanState Bank of india-term loan(secured by hypothecation of fixed assets)ICICI Long term loan

Unsecured:Convertible debentures of rs. 100 eachICICI bankHDFC Bank

349046474

309472012

-14259964

-27455000133249793

400000000

136516100

6500000001700000000

1204963315

2486516100

379986885

CURRENT LIABILITIES& PROVISIONSDeposits 480085481

42

742374041596395881537

140793050

6700620214334191

55262554-

149368780535497815

Unpaid dividendDue nto societiesOutstanding against expensesOutstanding against purchasesSundry creditorsDebenture redemption premiumProvision for income taxProvision for contingent liabilities

Profit&loss Accounts

84431367281855140989987

181912808

8478601218429674

730875543471578

235005339237199456

TABLE: 6

31-3-2008Rupees

FIXED ASSETS Rupees 31-3-2009Rupees

2012012911

(1113404016)

89860889510713587

Gross Block (As per Schedule B)“Less:Depreciation Fund ( As per Schedule B)”Net BlockCapital Work in Process

5743402289

1232456526

4510945763212254155

98191020 16000

98207020

INVESTMENTS (At Cost) Investment in SharesNational Saving Certificate

98191020 22000

98213020

132487044515142916237407274128153875

1045421691746402925

INVENTORIESFinished GoodsStock –in-ProcessMilk StockStores,Spares,Packing Materials, etcRaw Materials Stock

1322332263520047926155509293154635367

16734802019002945765

4635339

839671444

TRADE DEBTORS(Unsecured,considered good except stated otherwise)Debt due for more than six monthsOther Debts

13383734

557985283

43

844306783 571369017

160902422241556127285917012967205793624300393847

LOANS & ADVANCESDepositsDue from SocietiesAdvancesSundry DebtorsAdvance Income Tax

165153471091642269260674318400890212739670

531448223

179132

1240092293075334

4693294499251

CASH & BANK BALANCESCash & Cash Equivalent in HandBalances with Scheduled Banks:In Current AccountIn Fixed Deposit AccountsBalance with Co-operative Bank:In Current Account

16907

435445692300846991

21534962346561963

PROFIT & LOSS STATEMENT

TABLE: 7

2007-2008Rupees

Expenditure Rupees 2008-2009rupees

76218362611814304049043885929370551

To opening stocks Finished goodsStock- in-processMilk stock

151429162132487044529452351

150575195811388237501

490701293

236521247020839892

16825130

374750901

280769559

To milk purchases expenses To purchase transport& procurement exp.To material consumeTO cooperative development expensesTo processing expensesTo power & fuel expenses

12448930258

664657071

298835748421808578

18647354

479878006

354520320

44

77248480

67239455

50948347

11436918

4712322

3749309

5294435157102593186993169956538

12165511505677035

3549781516394703256

To salaries &wagesTo staff PF gratuity & other amenitiesTO repair & maintenanceTO freight & carriage chargeTo marketing expensesTo postage, telephone, painting, &stationary exp.TO insurance premiumTo rent, rates, &taxesTO audit feesTo miscellaneous exp.TO interest &bank commissionTO depreciationTO donationTO provision for income taxTO net profit

97499710

83125090

65538769

9964683

6644787

2876917

78019141066937736003267156708131

120425999189287483471578

3719945619139409455

TABLE: 8

2007-08Rupees

Income Rupees 2008-09Rupees

14821827512 By sales 17502649176121317904436470210627294

By dividend incomeBy interestBy misc. income

124302644031560314760123

1324870445151429162294523511505751958

By closing stockFinished goodsStock-in-processMilk stock

132232263520047926146452393

1569254289

WORKING CAPITAL STATEMENT

45

Particular 2008 2009 Increase decreaseCurrent assetsStockFinished goodsStock in processMilk stockStores stock Raw materialTrade debtors:Debt due for more than six monthsOther debtsLoan & advancesDepositsDue from societiesAdvancesSundry debtorsAdvance taxCash & bank balanceCash & cash equivalent in hand balances with scheduled banks

132487044515142916237407274128153875104542169

4635339

839671444

16090242224155

6127285917012967205793624

179132

132232263520047926155509293154635367167348020

13383734

557985283

165153471091642

26926067431840890212739670

16907

-49050099181020192648109262805851

8748395

-

425105867487

207987815148279236946046

-

2547810----

-

281686161

--

---

162225

Total current assent (A)

2891282687 3003128123 396242232 284396196

Current liabilitiesDue to societiesUnpaid dividendOutstanding against expensesOutstanding against purchasesSundry creditorsProvision for income tax

740415963742395881537

140793050

6700620255262554

13672818558443140989987

181912808

8478601273087554

626865892102045108450

41119758

1777981017825000

---

-

--

Total current liabilities (B)

1099366729 1848066650 748699930 287867774

Working capital (A-B) 179115958 1155062064Decrease in working capital - 636853894 636853894 -

46

179115958 179115958 1033096126 1033096126

Year 2008-2009

Current asset;

2008 Rs. 2891282687

2009 Rs. 3003128723

Current liabilities:

2008 Rs. 1099366729

2009 Rs. 1848066659

Due to current liabilities deduct from the current asset from 2008-2009 than working capital

has been decrease Rs 636853894 so, that the company should not required to manage or to

raise more capital.

Reason for decrease working capital

To decrease trade debtors in 2009 compared 2008.

May be dairy did not give goods on a credit basis more to the customers.

To increase current liabilities in 2009 compared 2008, to increase due to societies,

unpaid dividend, outstanding against expenses, outstanding against purchases, sundry

creditors, and provision for income tax.

Because of raise in due to societies,

Unpaid dividend – dairy has not providing dividend to the shareholders and the

employees on a time,

Outstanding expenses-dairy has not paid a huge amount as a expenses which are

pending,

Sundry creditors- Dairy might got the large amount of loan from creditors.

ANNUAL REPORT 2009-2010

BALANCE SHEET

47

TABLE: 9

31-3-2009Rupees

Liabilities Rupees 31-3-2010Rupees

250000000 AUTHORISED SHARE CAPITAL 100,00,000 Shares of Rs. 100 each

1000000000

183107200SHARE CAPITAL : (FULLY PAID UP) 440242900

123453370

76725064

3606286836102691984

3909157254

RESERVESReserve Fund (As per schedule A)Other Funds ( As per Schedule A )Asset revaluation reserveN D D B Grant / subsidy A )

132753234

80212752

3647417746108271902

3968655634

349046474

309472012

-14259964

-27455000133249793

400000000--

136516100

6500000001700000000-3691479415

LOANSSecured;Bank of Baroda- cash credit accountBank of India- cash credit accountHDFC Bank – cash credit account (secure by hypothecation of stock & book debts)Bank of Baroda-FDODBank of india term loanState Bank of india-term loan(secured by hypothecation of fixed assets)ICICI Long term loanBank of india FDODIDBI FDOD

Unsecured:Convertible debentures of rs. 100 eachICICI bankHDFC BankAxis bank

102106760

220522475

-90828700

3805932562099500073704477

393333333799753299824310389

-

10000000002700000000501826222

6926316511

48

48008548184431367281855140989987

181912808

8478601218429674

730875543471578

235005339237199456

CURRENT LIABILITIES& PROVISIONSDepositsUnpaid dividendDue nto societiesOutstanding against expensesOutstanding against purchasesSundry creditorsDebenture redemption premiumProvision for income taxProvision for contingent liabilities

Profit&loss Accounts

55045439887531760611812160510820

136437006

34305373-

730875543471578

275888729462191803

TABLE: 10

31-3-2008Rupees

FIXED ASSETS Rupees 31-3-2009Rupees

5743402289

1232456526

4510945763212254155

-

Gross Block (As per Schedule B) “Less:Depreciation Fund ( As per Schedule B)”Net BlockCapital Work in ProcessPre-operative expens

6783864859

1488795834

529506902595210086

12676992

98191020 22000

98213020

INVESTMENTS (At Cost) Investment in SharesNational Saving Certificate

98312020 300000

98342020

1322332263520047926155509293154635367

16734802019002945765

INVENTORIESFinished GoodsStock –in-ProcessMilk StockStores,Spares,Packing Materials, etcRaw Materials Stock

13186641389271012360361534203400780

3108326701991969245

TRADE DEBTORS(Unsecured, considered good except stated

49

13383734

557985283571369017

otherwise)Debt due for more than six monthsOther Debts

8873944

599359016608232960

165153471091642269260674318400890212739670531448223

LOANS & ADVANCESDepositsDue from SocietiesAdvancesSundry DebtorsAdvance Income Tax

2755131547019352494861360056061238244538

851270720

16907

435445692300846991

21534962346561963

CASH & BANK BALANCESCash & Cash Equivalent in HandBalances with Scheduled Banks:In Current AccountIn Fixed Deposit AccountsBalance with Co-operative Bank:In Current Account

101657

3458665654854984167

2570705

5203523094

TABLE: 11

2008-2009Rupees

Expenditure Rupees 2009-2010rupees

1324870445151429162294523511505751958

To opening stocks Finished goodsStock- in-processMilk stock

464523932004792611312322635

1569254289

50

12448930258

664657071

298835748421808578

18647354

479878006

35452032097499710

83125090

65538769

9964683

6644787

2876917

78019141066937736003267156708131

120425999-18928748

3471578

3719945619139409455

To milk purchases expenses To purchase transport& procurement exp.To material consumeTO cooperative development expensesTo processing expensesTo power & fuel expensesTo salaries &wagesTo staff PF gratuity & other amenitiesTO repair & maintenanceTO freight & carriage chargeTo marketing expensesTo postage, telephone, painting, &stationary exp.TO insurance premiumTo rent, rates, &taxesTO audit feesTo miscellaneous exp.TO interest &bank commissionTO depreciationExcise expenseTO provision for income taxTo provision for contigent liabilitiesTO net profit

13715418604

837766749

409789679139109029

19747829

400660952

36060095896440910

97694330

66964134

12030875

8603470

3314360

87555701874765966255038223177746

18654355941360124135746

-

6219180321932673525

TABLE: 12

2008-09Rupees

Income Rupees 2009-10Rupees

17502649176 By sales 2027852648012430264 By dividend income 18374140

51

4031560314760123

By interestBy misc. income

16263522721120730

1322322635200479261464523931569254289

By closing stockFinished goodsStock-in-processMilk stock

13186641389271012340642687

WORKING CAPITAL STATEMENT

Particular 2009 2010 Increase decreaseCurrent assetsStockFinished goodsStock in processMilk stockStores stock Raw materialTrade debtors:Debt due for more than six monthsOther debtsLoan & advancesDepositsDue from societiesAdvancesSundry debtorsAdvance taxCash & bank balanceCash & cash equivalent in hand balances with scheduled banks

132232263520047926155509293154635367167348020

13383734

557985283

165153471091642

26926067431840890212739670

16907

13186641389271012360361534209400780310832670

8873944

599359016

27551315470193

52494861360056061238244538

101657

--485224154765413143484650

-

41373733

11035968-

2556879392821517125504868

84750

3658497107769138---

4509790

-

-621449

---

-

Total current assent (A)

3003128123 3451574582 565004733 116558874

Current liabilitiesDue to societiesUnpaid dividendOutstanding against expensesOutstanding

13672818558443140989987

181912808

17606118128753160510820

136437006

---

45475802

39332995731019520833

-

52

against purchasesSundry creditorsProvision for income tax

8478601273087554

7430537373087554

10480639-

--

Total current liabilities (B)

1848066650 2204961318 55856441 412851100

Working capital (A-B) 1155062064 1246613264 - -Increase in working capital 91551200 - - 91551200

1246613264 1246613264 620961174 620961174

Year 2009-2010

Current asset

2009: 3003128723

2010: 3451574582

Current liabilities

2009: 1848066659

2010: 2204961318

Due to current asset deduct from the current liabilities from 2009-2010 than working capital

has been increased Rs, 91551200 so, that the company should need to manage more capital.

Reason for increase working capital

To increase in stock-Due to invest high in stocks.

To increase in trade debtors-Due to extend the collection period.

To increase in loans & advances-Garner more loans from outside.

To increase in cash & bank balance-May be due to cash sales dairy maintain gigantic

cash and bank balance.

53

SUGGESTIONS OF WORKING CAPITAL

Company should try to avoid excess stock so that it can reduced blocking of money in the

stock company can reduced its working capital by maintaining level of stock.

Company should reduced it account receivable period so that it can minimize working capital

requirement.

The level of loan and advance should be reduced to minimize working capital need.

Increase in outstanding expenses will help the company in reducing cash on hand.

Company should not give more credit period to their debtors.

Company should invest more in marketable securities instead of fixed deposits to meet it

obligation.

Operating cycle should reduce to increase cash on hand.

Company should try increase cash sales instead of credit sales.

54

PART 7

55

FINDINGS, ANALYSIS AND INTERPRETATIONOBJECTIVES

The Main objective of Ratio analysis:-

The Balance Sheet and the Statement of Income are essential, but they are only the starting

point for successful financial management. Apply Ratio Analysis to Financial Statements to

analyze the success, failure, and progress of your business.

Ratio Analysis enables the business owner/manager to spot trends in a business and to

compare its performance and condition with the average performance of similar businesses in

the same industry. To do this compare your ratios with the average of businesses similar to

yours and compare your own ratios for several successive years, watching especially for any

unfavorable trends that may be starting. Ratio analysis may provide the all-important early

warning indications that allow you to solve your business problems before your business is

destroyed by them.

FUNCTIONAL CLASSIFICATION OF RATIO ANALYSIS:-

LIQUIDITY RATIO: -

Liquidity is the ability of a company to meet its short-term obligation when they fall due. A

company should have enough cash & other current assets, which can be converted into cash

so that it can pay its suppliers & lenders on time.

Current ratio: -

The Current Ratio expresses the relationship between the firm’s current assets and its current

liabilities. Current assets normally include cash, marketable securities, accounts receivable

and inventories. Current liabilities consist of accounts payable, short term notes payable,

short-term loans, current maturities of long term debt, accrued income taxes and other

accrued expenses

Current Assets

Current ratio =

Current liability

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Working note:-

Particular 2007-08 2008-09 2009-2010

Current Assets 318560280

6 5349673

779 8654996019Current

Liabilities 1493687805 235005339

2 2758887294

Current Ratio 2.1

3 2.28 3.14

Graph:

INTERPRETATION:-

From the above graph it is emptive that dairy get higher current assets which is a good sign

for any company. Per year ratio has been growing up due to rise in followings;

Raw material stock, deposits, advance income tax, trade debtors, etc.

Due to augment in current assets dairy can easily meets its current obligation.

The main question this ratio addresses is: "Does your business have enough current assets to

meet the payment schedule of its current debts with a margin of safety for possible losses in

current assets, such as inventory shrinkage or collectable accounts?" A generally acceptable

current ratio is 2 to 1. But whether or not a specific ratio is satisfactory depends on the nature

of the business and the characteristics of its current assets and liabilities. The minimum

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acceptable current ratio is obviously 1:1, but that relationship is usually playing it too close

for comfort.

If you decide your business's current ratio is too low, you may be able to raise it by:

Paying some debts.

Increasing your current assets from loans or other borrowings with a maturity of more

than one year.

Converting non-current assets into current assets.

Increasing your current assets from new equity contributions.

Putting profits back into the business.

Quick ratio: -

Quick ratio establishes a relationship between quick, Or liquid assets & current liabilities.

Measures assets that are quickly converted into cash and they are compared with current

liabilities.

This ratio realizes that some of current assets are not easily convertible.

The quick ratio, also referred to as acid test ratio, examines the ability of the business to

cover its short-term obligations from its “quick” assets only (i.e. it ignores stock). The quick

ratio is calculated as follows

Quick ratio = Liquidity assets

Current liability

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Working note:-

Graph

INTERPRETATION:-

The quick ratio shows the liquidity of the organization. In the Dudhsagar Dairy we can see

that the ratio of the 2007-08 was 0.96, 2008-09 it was 1.47 & current year it is 2.42. We can

see that in 2007-08, 08-09 and 09-10 the ratio goes up. It shows that dairy maintains its

liquidity. It is almost constant.

May be dairy has a strong power of collection of cash from debtors.

May be current assets higher than current liabilities which help the dairy to convert into the

cash.

LEVERAGE RATIO: -

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Particular2007-08 2008-09 2009-2010

Current assets3185602806 5349673779 8654996019

Stock1746402925 1900294576 1991969245

Liquidity Assets1439199881 3449379203 6663026774

Current Liabilities1493687805 2350053392 2758887294

Quick Ratio0.96 1.47 2.42

The composition of capital of business & the proportion of owners’ capital & capital

provided by outsiders are reflected by leverage ratios. To judge the long term financial

position of the firm, financial leverage or capital structure ratios are calculated.

The ratios indicate the degree to which the activities of a firm are supported by

creditors’ funds as opposed to owners.

The relationship of owner’s equity to borrowed funds is an important indicator of

financial strength.

The debt requires fixed interest payments and repayment of the loan and legal action

can be taken if any amounts due are not paid at the appointed time. A relatively high

proportion of funds contributed by the owners indicate a cushion (surplus) which shields

creditors against possible losses from default in payment.

Note:

The greater the proportion of equity funds, the greater the degree of financial strength.

Financial leverage will be to the advantage of the ordinary shareholders as long as the rate of

earnings on capital employed is greater than the rate payable on borrowed funds.

The following ratios can be used to identify the financial strength and risk of the business

Proprietary ratio: -

To ascertain the proportion of owners fund in the total funds employees. The ratio shows

proportions of proprietor’s funds to the total assets employed in the business. This ratio

cannot exceed 100%.

Proprietary Funds *100

PR =

Total Real Assets

Working note:-

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Particular 2007-08 2008-09 2009-2010Share Capital (Paid

Up) 183107200 183197200 440242900

Reserves 283466254 3909157254 3968655634

Proprietary funds 466573454 4092354454 4408898534

Total Assets 4193132308 10171086717 14156294142

Proprietary Ratio 11.13% 40.24% 31.15%

Graph

INTERPRETATION:-

The proprietary ratio shows the portion of capital & capital provide by outsider. The higher

the, the stronger the financial position of the enterprise, as it signifies that the proprietors

have provided larger funds to purchases the assets. In the year 2006-07 it was 10.03%, the

year 2007-08it was 11.13%, and the year 2008-09 it become 40.24%.The reason behind the

increasing in ratio is though the investment in increases there is a steep increase in

proprietary fund.

The reason behind reduce the ratio in year 2007-08 is due to less capital provided by the

outsiders as well as owners, so dairy get the low ratio compare to next 2 years.

May be lack of adequate capital proprietary ratio go down.

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Long Term Fund to Fixed Assets:-

The ratio shows the relationship between fixed assets & fixed capital. The fixed capital must

be more then fixed assets or must be equal to fixed assets.

Long term fund to fixed assets = Long term fund

Fixed assets

Working note

Particular 2007-08 2008-09 2009-2010

Share capital 183107200 183197200 440242900

Reserves 283466254 3909157254 3968655634

loan 1460857134 1204963315 2724490289

long term fund 1927430588 5297317769 7133388823

fixed assets 909322482 4723199918 53902791111Long term fund to fixed

Assets 2.12 1.12 1.32

Graph

INTERPRETATION:-

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From the above calculation in the year 2007-08 it was 2.12, 2007-08 it become 1.12 and

2008-09 it become 1.32.Per year dairy has been increasing investment in fix assets which

create low ratio.

Dairy may be procure small loan in 2008-09 this can be the reason behind fall down the ratio.

Due to loan term fund higher than fix assets ratio decrease in 2008-09.

Undue investment in fix assets create low ratio in 2009-10 too.]

ACTIVITY RATIO: -

The ratios which show the efficiency with which assets are used in business are known as

Activity ratio or Turnover ratio or Efficiency ratio. Activity ratios are employed to evaluate

the efficiency with which the firm manages & utilizes its assets.

Total Assets Turnover ratio:-

Total Assets = Net Fixed Assets and Current Assets

The total assets turnover ratio can be calculated by dividing the sales by total assets of the

firm. It shows that how many times you utilize your assets to make sales.

Sales

Total Assets Turnover ratio =

Total Assets

Working note:-

Particular 2007-08 2008-09 2009-2010

Sales 14821827512 17502649176 20278526480

Total assets 4193132308 6564799881 10508876396Total assets

Turnover Ratio 3.53 2.67 1.92

Graph

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INTERPRETATION:-

Generally, the higher the firm’s total asset turnover, the more efficiently its assets have been

utilized.

The firm should manage its assets efficiently to maximize sales.

Dairy invest very enormous amount than past 2 years, so dairy get low ratio.

May be due to having more capital dairy decided to invest in the assets.

In the Dudhsagar Dairy ‘the ratio for the year 2007-08 it was 3.53% in 2008-09 it was

2.67% & in 2009-10 it is 1.92%.Though there is increase in sales compared to last year, there

is heavy investment in assets.

Inventory turnover ratio:-

This ratio indicates the efficiency of firm in producing and selling its product.

Cogs

Inventory turnover ratio =

Avg. inventory

Working note:-

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Particular 2007-08 2008-09 2009-2010

Cogs 1130255738

7 130500849

98 14670422694

Avg. inventory 121756125

5 1537503124 1510635619Inventory turnover ratio 9.28 8.48 9.71

Graph:

INTERPRETATION:-

It is clear that in 2008-09 year ratio has fall down.

Due to rise in cost of goods sold compare to previous year.

With increase in Sales Dairy`s selling expenses are also increase which create low ratio.

PROFITABILITY RATIO:

Profit is the difference between Revenue & Expenses over period. Profit is the ultimate

output of a company, and it will have no future if it fails to make sufficient profit. There for

the financial manager should continually evaluate the efficiency of the company in term of

profit.

The profitability ratio is calculating to measure the operating efficiency of the company.

Besides management of the company, creditor & owners are also interested in the

profitability of the company. Creditors want to get repayment of principal amount & interest

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regularly. Owners want to get a required rate of return on their investment. This is possible

only when the company earns enough profits.

Gross Profit Margin Ratio: -

The first profitability ratio in relation to sales in the gross profit margin ratio. It is calculated

by dividing the gross by sales.

Normally the gross profit has to rise proportionately with sales.

It can also be useful to compare the gross profit margin across similar businesses

although there will often be good reasons for any disparity.

GPMR = Gross Profit X 100

Sales

Working note:-

PARTICULAR 2007-08 2008-09 2009-10Sales 14821827512 17502649176 20278526480Closing stock 1505751958 1569254289 1452016948Total ( A ) 16327579470 19071903465 21730543428Opening Stock 929370551 1505751958 1569254289Milk Purchase 11388237501 12448930258 13715418604Purchase exp 490701293 664657071 837766749Material Consumption. 2365212470 2988357484 4097896791Total (B) 15173521815 17607696771 20220336433Gross profit ( A- B) 1154057655 1464206694 1510206995           Sales 14821827512 17502649176 20278526480GPMR ratio 7.79 8.37 7.44

Graph

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INTERPRETATION:-

A high gross profit margin is good for the management. Here the gross profit ratio of the year

2007-08 is 7.79%, 2008-09 is 8.37% year of 2009-10 it become 7.44%. So all over the gross

profit ratio is good as it maintains a constant trend.

In 2009-10 ratio has go down because sales increase compare to past 2 years with increasing

gross profit.

May be fall in selling price

Due to rising the cost of good sold

Dairy`s purchasing expenses has been go up.

Net Profit Ratio: -

Net profit is obtained when operating expenses & taxes are substrate from the gross profit.

The net profit margin ratio in measured by dividing profit after tax

This is a widely used measure of performance and is comparable across companies in similar

industries. The fact that a business works on a very low margin need not cause alarm because

there are some sectors in the industry that work on a basis of high turnover and low margins,

for examples supermarket and motorcar dealers.

What is more important in any trend is the margin and whether it compares well with similar

businesses.

Net profit ratio = Net profit X 100

Sales

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Working note:-

Particular 2007-2008 2008-2009 2009-2010

Net profit 35497815 37199456 62191803

Sales 14821827512 17502649176 20278526480

Net Profit Ratio % 0.24 0.21 0.31

Graph

INTERPRETATION:-

Net margin ratio indicates what portion of sales revenue is left to the proprietors after the all-

operating expenses are met. It is indicating management efficiency in manufacturing,

administrating, and selling in the products.

We can see that the net profit ratio is in the year 2007-08 is 0.24%, 2008-09 is 0.21%, 2009-

10 is 0.31%. So all over this ratio’s performances is average because 2007-08 net profit ratio

is 0.24%% but in the year 2008-09 it’s decries and become 0.21%and current year it’s also

increase and become 0.31%. So its shows decline in the profit of the company in comparison

with last two years. However, differences are minor so all over performance is stable.

Dairy should have to raise the net profit

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Because of increase in several expenses dairy did not get the remarkable profit

Earnings per Share: -

The profitability of the common shareholders’ investment can also be measured in many

other ways. One such measure is to calculate the earnings per share. Whatever income

remains in the business after all prior claims, other than owners claims (i.e. ordinary

dividends) have been paid, will belong to the ordinary shareholders who can then make a

decision as to how much of this income they wish to remove from the business in the form of

a dividend, and how much they wish to retain in the business.

The shareholders are particularly interested in knowing how much have been earned during

the financial year on each of the shares held by them. For this reason, an earnings per share

figure is calculated. Clearly then, the earning per share calculation will be:

EPS = PAT

NO. Of equity share

Working note:-

particular 2007-08 2008-09 2009-2010

After tax profit 35497815 37199456 62191803No. of equity share (paid up) 1829432 1831972 4402429

Earning per share 19.43 20.31 14.13

Graph

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INTERPRETATION:-

From the above graph it is emptive that in year 2008-09 ratio suddenly fall .So this year

dairy is not earn expected amount per share.

EPS ratio indicates the ratio of per share earnings of the company. This ratio is high is good

for the management as well as company also. Here in the year of 2007-08 it is 19.43%, 2008-

09 it become 20.31%, and 2008-09 it is 14.13%, so this ratio maintains their previous

standard.

Whatever income remains in the business after all prior claims, other than owners claims (i.e.

ordinary dividends) have been paid, will belong to the ordinary shareholders who can then

make a decision as to how much of this income they wish to remove from the business in the

form of a dividend, and how much they wish to retain in the business. The shareholders are

particularly interested in knowing how much has been earned during the financial year on

each of the shares held by them. For this reason, an earning per share figure must be

calculated.

Material cost ratio: -

This ratio reveals how well Material is been managed. It is important because the more times

Material can turned in a given operating cycle, the greater the profit.

Material cost ratio = Material consumed X 100

Sales

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Working note:-

Particular 2007-2008 2008-2009 2009-2010

Material consumed 2365212470 2988357484 4097896971

Sales 12659228733 14821827512 17502649176

Material cost ratio 18.69 20.16 23.41

Graph

INTERPRETATION:-

Per year material consume has been increasing, due to this it is create adverse impact on the

ratio

The expenses are very important part of any organization. The material cost of the Dudhsagar

Dairy is increasing year by year. In the 2007-08, it was 18.69%, 2008-09 it was 20.16% and

currently it is 23.41%. So all over material cost ratio is stable and changes are depending to

current situation.

Dairy has increased the sales so with that need of material has also augment, then expenses

raise too.

Administrative Expenses Ratio:-

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Administrative Exp ratio = Admin exp X100

Sales

Working note:-

Particular 2007-08 2008-09 2009-2010Salary 280769559 354520320 360600958Stationary 4712322 6644787 8603470Insurance 3749309 2876917 3314360Rent 5294435 7801914 8758570Audit fee 15710259 10669377 18747659Miscellaneous exp 31869931 36003267 66255038Interest 96956538 156708131 223177746Admin exp ( A ) 439062353 575224713 689457801Sales ( B ) 14821827512 17502649176 20278526480Admin Exp Ratio ( A * 100 / B ) 2.96 3.29 3.40

Graph

INTERPRETATION:-

The admin department is a very import part of any organization, so mange it and gets the

better out come. Here our Admin exp ratio is for the year 2007-08 is become 2.96, 2008-09

its become 3.29 and 2009-10 its become 3.40.

The main reason behind increase the ratio is augment the expenses.

Various expenses of dairy are rise which are below,

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Stationary,

Rent,

Interest,

Salary-with higher the no.of.employees dairy has to pay enormous salary which raise dairy`s

expenses level.

Selling & Distributive Expenses Ratio:-

Selling & Distribution exp. Ratio = Selling & Distribution Exp. X 100

Sales

Working note:-

Particular 2007-08 2008-09 2009-2010Selling exp 11436918 9964683 12030875Fright & carriage exp 50948347 65538769 66964134Selling Exp. Total ( A ) 62385265 75503452 78995009Sales ( B ) 14821827512 17502649176 20278526480Selling Exp Ratio ( A *100 / B ) 0.42 0.43 0.39

Graph

INTERPRETATION:-

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We know very well expenses are their behind seles, but beyond the limit is not a good sign

for dairy. In Dudhsagar dairy the selling exp for the 2007-08 was 0.42% in 2008-09 it was

0.43% & in current year it is 0.39%.We can see that in 2009-10 the ratio goes down and

again it increases to standard . It shows that dairy maintains its liquidity. Dairy should control

over the expense, so it can easily enhance the desired profit. Folowing exp.has rised,

Freight & carriage, transportation exp, etc.

Return on Net Assets: -

Net Assets = Net Fixed Assets and Net Current Assets

This ratio is (RONA) is too divided by PAT by Net Assets. This measures how efficiently

profits are being generated from the assets employed in the business when compared with the

ratios of firms in a similar business. A low ratio in comparison with industry averages

indicates an inefficient use of business assets. The Return on Assets Ratio is calculated as

follows.

PAT * 100

RONA =

Net assets

Working note:-

Particular 2007-08 2008-09 2009-2010

Net profit 35497815 37199456 62191803

Net assets 898608895 904658927 1647651279

Return on Net assets 3.95 3.92 3.77

Graph

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INTERPRETATION:-

From the above diagram it is clear that in year 2009-10 ratio get down which does not show

a robust sign of dairy .Return on net assets is measures how efficiently profits are being

generated from the assets employed in the business when compared with the ratios of firms

in a similar business. Here our return on net assets is for the year 2007-08 was 3.95%, 2008-

09 was 0.82% and current year it become 1.18% (reason is high investment in net assets and

no major change in profit).

Dairy might invest more in the assets.

Dairy should diminute investment in assets to raise the ratio level or making good condition.

Show the relationship between income and total assets. High return is equal to good use of

assets.

Return on Equity Share capital:-

To know the profitability from the viewpoint of equity share holder.

RESP = Net Profit X 100

Equity Share Capital

Working note:-

75

Graph

INTERPRETATION:-

In current year dairy receive low return compare to past 2 years.

This ratio compares reserves to equity capital. It may reveal the company’s policy with

regards to growth & distribution of dividend.

From the above calculation we can see that in the year 2007-08 it was 19.40% in the year

2008-09 it was 20.31% & in the current year it is 14.13%. in this ratio the minor changes

happened because of profit.

Dairy has to improve the profit level so ratio will reach to the desired peak.

Reduce the pointless expenses which can help the dairy to raise profit.

The stockholders’ equity includes share capital, share premium, distributable and non-

distributable reserves.

Remark/comment

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Particular 2007-08 2008-09 2009-2010

Net Profit 35497815 37199456 62191803

Equity share capital (paid up) 182943200 183197200 440242900

Return on equity Share Capital 19.40 20.31 14.13

GCMMF (Gujarat Cooperative Milk Marketing Federation) is the marketing agent of

Dudhsagar dairy and they are collecting and selling milk in the market on their behalf.

The whole advertising and selling is done by GCMMF and they are collecting revenue on

behalf of the dairy and transferring in to dairy’s account. Every transaction of Dudhsagar

dairy is handled by banks like Mehsana district bank, state bank of India, bank of India, bank

of Baroda, HDFC bank etc.

As per the requirement of Dudhsagar dairy banks are transferring funds from their account.

Now a day the employee’s of Dudhsagar dairy are using ERP software so that they come to

know about the surplus and shortage of cash in every department.

IF they found any surplus they are returning to bank and in case of shortage, immediately

they are calling from the bank.

The whole cash of Dudhsagar is managed by Mr.B.A.Vohra (M.Com & A.I.C.W.A).

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PART 8

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FINDINGS

Dairy has to stimulate the value of its shareholders which will be create a beneficial

result for dairy.

Dairy should have to diminute its expenses reach to obtain large profit.

Dairy has good credit on market as per the loan credit of bank of Baroda, bank of

India, HDFC bank, ICICI bank, IDBI bank and axis bank.

As per current ratio and quick ratio dairy has maintain good liquidity position.

Administrative ratio is gone up which shows increase in dairy expense.

Current assets are more than current liabilities indicate that dairy used long term funds

for short term requirement, where long term funds are most costly then short term

funds.

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Recommendations

Recommendation can be use by the firm for the betterment increased of the firm after study and analysis of project report on study and analysis of working capital and ratio. I would like to recommend.

Dairy should raise funds through short term sources for short term requirement of funds, which comparatively economical as compare to long term funds.

Dairy should take control on debtor’s collection period which is major part of current assets.

Dairy has to take control on cash balance because cash is non earning assets and increasing cost of funds.

Dairy should reduce the inventory holding period with use of zero inventory concepts. Over all dairy has good liquidity position and sufficient funds to repayment of

liabilities. Dairy has accepted conservative financial policy and thus maintaining more current

assets balance. Dairy is increasing sales volume per year which supported to dairy for sustain 2nd position in Asia.

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Conclusion

Working capital management is important aspect of financial management. The study of working capital management of “MEHSANA DISTRICT CO-OPERAQTIVE MILK PRODUCERS’ UNION LTD” has revealed that the current ratio was as per the standard industrial practice but the liquidity position of the dairy showed an increasing trend.

Working capital of the dairy was increasing and showing positive working capital per year. It shows good liquidity position.

Positive working capital indicates that dairy has the ability of payments of short terms liabilities.

Working capital increased because of increment in the current assets is more than increase in the current liabilities.

Dairy’s current assets were always more than requirement it affect on profitability of the dairy.

Current assets components shows sundry debtors were the major part in current assets it shows that the inefficient receivables collection management.

In the year 2008-09 working capital decreased because of increased the expenses as manufacturing expenses and increase the price of raw material as increased in the inflation rate.

BIBLIOGRAPHY

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BOOKS:

1. I.M. Pandey –“Reconciliation of Cost & Financial Accounting”

Page from (518-532)

2. Annual report of dudhsagar dairy 2007-2008

3. Annual report of dudhsagar dairy 2008-2009

4. Annual report of dudhsagar dairy 2009-2010

WEBSITES:

1. www.dudhsagar.com

2. www.gcmmf.com

3. www.nddb.com

4. yilei.zhang@und.nodak.edu

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