CHAPTER -I

INTRODUCTION

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INTRODUCTION

The project work is conducted to study the organisation and financial aspect of

Trivandrum Regional Co-operative Milk Producers Union Ltd, Thrivananthapuram. This

study helps us to know about the overall performance of the company. We can know about

the performance of different departments through this study. Analysis of financial statement

is an attempt to measure the enterprise liquidity, profitability, solvency and other indicators to

assess its agencies concerned. Some of the agencies in financial concerns of enterprise

include investors, bankers, lenders, suppliers, customers, employers, management and

regulatory authorities like tax authorities and company law board. The agencies have diverse

and conflicting interests.

Finance is regarded as the lifeblood of business enterprise. This is because in

modern economy finance is one of the basic foundations of all kind of economic activity.

Financial statements are final product of accounting work done during the accounting period.

Financial statements are prepared with view to depict financial position of concern. A proper

analysis and interpretation of statement enables a person to judge the profitability and

financial strength of a business. Financial statement normally includes Balance sheet and

profit and loss account. The contents of financial statement are board report , director’s

responsibility statement, management discussion and analysis, auditor’s report, report on

corporate governance, balance sheet, profit and loss account, cash flow statement, segment

report.

The systematic process of critical examination of the financial information

contained in financial statement is called financial statement analysis. Financial analysis deals

with the use of financial data in the evaluation of current and past performance of an

enterprise and to assess its sustainability in future. This implies that the person attempting to

make financial analysis should not only be in command of appropriate financial analysis tools

and techniques, but must be a craftsman to make a creative and imaginative use if such tools

and techniques.

Financial analysis can be used for variety if decision context such as security

analysis, analysis of credit worthiness, credit analysis, debt analysis, dividend decision,

mergers etc.

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Financial statement analysis seeks to measure enterprise liquidity, profitability, solvency and

other indicators to access the efficiency and performance of business enterprise. Some of the

agencies interested in the enterprise include investors, bankers, lenders, suppliers, customers,

management and stock exchange etc. Sound financial statement is essential for both profit &

non profit organisation.

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INDUSTRY PROFILE

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PROFILE OF DIARY INDUSTRY

Milk and milk based industries play a very important role in the world.

Internationalization reminds a key focus for almost of the world’s leading dairy farms. All the

world’s largest dairy farms operating more than one country and some of them are truly

international with activities in every part of the world. The availability and distribution of

milk and milk products, in the modern world is blend of the centuries old knowledge of

traditional milk products with the application of modern science and technology. Diary is a

place where handling of milk and milk products done.

In developed dairying countries, the year 1850 is seen as the dividing line between

farm and factory scale production. The rural areas were identified for milk production where

as the urban centers were selected for the location of milk processing plants and product

manufacturing factories. These plants and factories were rapidly expanded and modernized

with improved machinery and equipment to secure the various advantages of large scale

production. Before 1900, nearly all the milk was delivered as raw milk. Milk was first

delivered in bottles on January 11, 1878.Once pasteurization was introduced, it developed

rapidly. Mechanical refrigeration helped in the rapid development of the factory system of

market milk distribution.

A doubling in the price of wholesale milk over the past year is creating havoc among

food manufactures, prompting warning about the food price inflation in U.K .Aid

organizations have also raised concerns about the depletion of government stockpiles of

milk power.

In the western world today, cow milk is produced on an industrial scale. It is by far

the most commonly consumed form of milk in the world. Commercial dairy farming using

automated milking equipments produce the vast majority of milk in the developed countries.

The following are the major global players in this field,

Nestle (Switzerland)

Dean Foods(USA)

Kraft (USA)

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Dairy Farmers of America(USA)

Fonterra (New Zealand)

Danone (France)

Parmalat (Italy)

Arla (Denmark)

Nevertheless, in spite of these players, India is the largest producer of dairy products and

milk followed by USA and China.

A dairy is a business enterprise established for the harvesting of animal milk –

mostly from cows or goats, but also from buffalo, sheep, horses or camels – for human

consumption. A dairy is typically located on a dedicated dairy farm or section of a multi-

purpose farm that is concerned with the harvesting of milk.

Terminology differs between countries. For example, in the United States, a farm

building where milk is harvested is often called a "milking parlor". In New Zealand such a

building is historically known as a "milking shed" or "milking parlour" (note the different

spelling). Sometimes milking sheds are referred to by their type, such as "herring bone shed"

or "pit parlour". In some countries, especially those with small numbers of animals being

milked, as well as harvesting the milk from an animal, the dairy may also process the milk

into butter, cheese and yogurt, for example. This is a traditional method of producing

specialist milk products, especially in Europe. In the United States a dairy can also be a place

that processes, distributes and sells dairy products, or a room, building or establishment

where milk is stored and processed into milk products, such as butter or cheese. In New

Zealand English the singular use of the word dairy almost exclusively refers to the

corner convenience store, or superette. This usage is historical as such stores were a common

place for the public to buy milk products.

As an attributive, the word dairy refers to milk-based products, veil, derivatives and

processes, and the animals and workers involved in their production: for example dairy

cattle, dairy goat. A dairy farm produces milk and a dairy factory processes it into a variety of

dairy products. These establishments constitute the dairy industry, a component of the food

industry.

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Milk producing animals have been domesticated for thousands of years. Initially,

they were part of the subsistence farming that nomads engaged in. As the community moved

about the country, their animals accompanied them. Protecting and feeding the animals were

a big part of the symbiotic relationship between the animals and the herders.

In the more recent past, people in agricultural societies owned dairy animals that

they milked for domestic and local (village) consumption, a typical example of a cottage

industry. The animals might serve multiple purposes (for example, as a draught animal for

pulling a plough as a youngster, and at the end of its useful life as meat). In this case the

animals were normally milked by hand and the herd size was quite small, so that all of the

animals could be milked in less than an hour—about 10 per milker. These tasks were

performed by a dairymaid (dairywoman) or dairyman.

With industrialisation and urbanisation, the supply of milk became a commercial

industry, with specialised breeds of cattle being developed for dairy, as distinct

from beef or draught animals. Initially, more people were employed as milkers, but it soon

turned to mechanisation with machines designed to do the milking.

Historically, the milking and the processing took place close together in space and

time: on a dairy farm. People milked the animals by hand; on farms where only small

numbers are kept, hand-milking may still be practiced. Hand-milking is accomplished by

grasping the teats  (often pronounced tit or tits) in the hand and expressing milk either by

squeezing the fingers progressively, from the udder end to the tip, or by squeezing the teat

between thumb and index finger, then moving the hand downward from udder towards the

end of the teat. The action of the hand or fingers is designed to close off the milk duct at the

udder (upper) end and, by the movement of the fingers, close the duct progressively to the tip

to express the trapped milk. Each half or quarter of the udder is emptied one milk-duct

capacity at a time.

The stripping action is repeated, using both hands for speed. Both methods result

in the milk that was trapped in the milk duct being squirted out the end into a bucket that is

supported between the knees (or rests on the ground) of the milker, who usually sits on a low

stool.

Traditionally the cow, or cows, would stand in the  field or paddock while being

milked. Young stock, heifers, would have to be trained to remain still to be milked. In many

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countries, the cows were tethered to a post and milked. The problem with this method is that

it relies on quiet, tractable beasts, because the hind end of the cow is not restrained.

In 1937, it was found that bovine somatotropin (BST or bovine growth hormone)

would increase the yield of milk. Monsanto Company developed a synthetic (recombinant)

version of this hormone (rBST). In February 1994, rBST was approved by the Food and Drug

Administration (FDA) for use in the U.S. It has become common in the U.S., but not

elsewhere, to inject it into milch kine dairy cows to increase their production by up to 15%.

However, there are claims that this practice can have negative consequences for the

animals themselves. A European Union scientific commission was asked to report on the

incidence of mastitis and other disorders in dairy cows, and on other aspects of the welfare of

dairy cows. The commission's statement, subsequently adopted by the European Union,

stated that the use of rBST substantially increased health problems with cows, including foot

problems, mastitis and injection site reactions, impinged on the welfare of the animals and

caused reproductive disorders. The report concluded that on the basis of the health and

welfare of the animals, rBST should not be used. Health Canada prohibited the sale of rBST

in 1999; the recommendations of external committees were that, despite not finding a

significant health risk to humans, the drug presented a threat to animal health and, for this

reason, could not be sold in Canada

DAIRY DEVELOPMENT IN INDIA

The dairy sector in India has shown remarkable development in the past decay and

India has now become one of the largest producers of milk and value added milk products in

the world. The dairy sector has developed through co-operatives in many parts of the state.

During 1997 – 1998 the state has 60 milk processing plants with an aggregate

processing capacity of 5.8 million litres per day in addition to these processing plants, 123

government and 33 co-operative milk chilling centers operate in the state.

More than 2445 million people economically active in agriculture in the

world.probably2/3 or even more ¾ of them are wholly or partially depended on livestock

farming. India is endeavored with rich flora and fauna and continuous to be vital avenue for

employment and income generation, especially in rural areas. India, which has 66% of

economically active population engaged in agriculture. In India the market milk technology

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may be considered to have commenced in 1950, with functioning of the Central Dairy of

Aarey Milk Colony and milk product technology in 1956 with the establishment of Amul

Dairy, Anand. The industry is still in its infancy and barely 10% of the total milk production

undergoes organized handling.

India achieved the distinction of becoming the world’s largest milk producer in the

year. The milk production in India is over 110million tones with Utter Pradesh leading the

highest among Indian states. Started in 1970, the three phases of Operation Flood have

pushed India’s milk from 21 million tons to 110 million tons in 2008.The growth in the milk

definitely surpassed the growth in grains and cereals and today milk is India’s number one

farm produce worth Rs 1,00,000 crores annually.

In spite of being the World’s milk producer, India’s milk processing industry is not

very large. Only 12% of milk is delivered to dairies against the world average of 70%. Bulk

of Indian milk is utilized for drinking or in the unorganized sector processing industry can be

divided in to three segments

Government/ Semi government

Co-operatives

Private sector.

With expectation of a few units, the processing industry is largely involved either in

a liquid pasteurized milk of conversion of milk to milk powder and ghee. Most domestic

processor does not have the quality or the marketing knowledge to access the international

market.

In India, majority of the milk market remains with the co-operatives which were

formed under Operational Flood all over India. The Milk Marketing Federations and its

affiliated Districts Milk Unions control majority of the milk market in the organized sector.

The major brands in India are

Amul (Gujarat)

Verka (Punjab)

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Milma (Kerala)

Nandini (Karnataka)

Vijay (Andhra Pradesh)

Aavin (Tamilnadu)

Parag (Maharashtra)

Mother Diary (Delhi)

There are few other major private companies which are in the forefront of the diary

product marketing such as Britannia, Nestle and Cadbury etc. New international players such

as Anchor Fonterra, Compina, Landolakes etc are expected to enter the Indian market within

a short period of time.

Indian diary sector is said to witness a number of new alliances and partnerships.

Consolidation is already taking place in the market with Mother Dairy entering into the joint

ventures with the various state co-operatives and Britannia in tie-up with Fonterra etc.

Overall the Indian industry is experiencing an upheaval with the new products launches,

repositioning of brands and entry of newer players.

Operation Flood

During 1960’s milk production in India was concentrated only in rural areas. In

Gujarat the farmers owned Co-operative Societies formed namely Anand Milk Union Ltd

(AMUL). It was mainly integrated in production, procurement and processing and marketing

on Co-operative lines.

Operation Flood was launched in 1970 and the main objective of the program was to

increase the milk production in rural areas and to supply the excess milk to the nearest

dairies. Operation Flood was introduced under National Dairy Development Board (NDDB)

which functions as the technical consultant. This NDDB was stated under the Societies Act

and these societies are known as Anand Pattern Co-operative Societies (APCOS). These

societies get financial aid from Indian Dairy Corporate.

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Operation Flood is intended to reduce regional imbalances in dairy development in

underdeveloped regions. It was a remuneration linking of rural milk procuring centers with

urban demand centers.

The various phase of Operation Flood include;

First phase aims at the procurement of milk from rural surplus areas to the

urban deficit areas.

Second phase was started during 1980’s its outlay was 29 crores and was

utilized for the construction of dairies. Kerala was included in the second phase of Operation

Flood.

Anand Pattern

A success story on the dairy scheme in India during the sixties was the farmer owned

Amul co-operative in Anand (Khaira district, Gujarat) with its integrated approach to

production, procurement, processing and making on co-operative lines. Over the years this

evolved in to a model based on self-rule by farmers ensuring maximum returns to them.

This model came to be known as Anand pattern. The efficiency of this model was worth

replication. There for a dairy programme called “OPERATION FLOOD” was launched in

1970 under the aegis of National Dairy Development Board (NDDB)

ANAND Pattern is a 3-tier structure consisting of

Village level primary co-operative society called “APCOS”

Regional co-operative milk producers union

State level milk marketing federation

(http://www.trcmpu.in/)

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COMPANY PROFILE

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PROFILE OF TRCMPU LTD

ABOUT KCMMF

Kerala co-operative milk marketing federation (KCMMF) popularly known as "M1LMA"

was established in 1980, with its head office at Thiruvananthapuram for the successful

implementation of the second programme "OPERATION FLOOD" in Kerala. During the

last 3 decades the sector witnessed uninterrupted growth in terms of animal population and

milk production.

Milk co-operative is a form of economic organization in which farmers willfully and

voluntarily pool their resources on the basis of equality for the advancement of their

economic interest. The guiding principle of a cooperative is basically "self-help through

mutual help". This basic idea has been defined in various forms such as "each for all and all

for each", of the people, by the people, and for the people", "common welfare through

common action" etc. Co-operative dairying is the most outstanding form of agricultural co-

operation. The co-operative dairy is an agency, which carries out the functions of

promotions procurement, processing and marketing of milk and milk products.

The main aim of dairy co-operative is to ensure continuous hygienic liquid milk to

consumers and remunerative return to producers. In India one organized efforts were made

for the development of dairy co-operatives before the launching of five year plans.

The Anand Milk Union Limited (AMUL) was the pioneer venture in cooperative Dairy

sector. It provided a model for the milk producer's cooperative in Gujarat and other states,

which played an important role not only in increasing milk production but improving the

status of the members too. In Kerala, a major breakthrough in this direction was made with

the establishment of the Kerala Co-operative Milk Marketing Federation (KCMMF)

popularly known as MILMA in 1980. The launching of MILMA was part of the

"OPERATION FLOOD" second programme, the central objectives of which was to

channelize milk from surplus rural areas to deficit urban areas in such a way as to maximize

the return of both producers and consumers. Eventually, in April 1983 MILMA took over the

revenue earning activities of all the dairies and chilling plants from Kerala Live Stock

Development and milk Marketing Board (KLD&MMB).

(http://www.milma.in/)

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MISSION OF KCMMF

“Farmers prosperity through customer satisfaction”.

OBJECTIVES OF KCMMF

To channelize marketable surplus milk from the rural areas to urban deficit areas to

maximize the returns to the producer and provide quality milk and milk products to the

consumers.

To carry out activities for promoting production, procurement, processing and

marketing of milk products for the farming community.

To built up a viable industry in the state.

To provide constant market and stable price farmers for their produce.

ASSOCIATES OF KCMMF

Milma is in constant touch with other organizations in this sector. It is only through this

active exchange that rnilma grew from a small dairy cooperative to the position it holds in

Kerala today.

National Dairy Development Board

NDDB, under Dr. V Kurian's guidance set up KCMMF in 1980. Ever since then, there

has been a very close co-operation between NDDB and the federation. NDDB are the

originators of the Operation Flood Programme and have been our funding agent for the

Operation Flood Projects in Kerala

Amul

The dairy co-operatives of Gujarat have been the inspiration for the development of

such a vast network of dairy co-operatives in Kerala. Among the co-operatives in Gujarat,

the Kerala District co-operative Milk Producers Unions (Amul) is the first in this sector. Our

co-operatives are called "Anand Pattern Co-operative Societies" following the illustrious

lineage of "Amul".

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Government of Kerala

The phenomenal success of the dairy co-operatives in Kerala could not have been

achieved, without the foundation of animal husbandry activities, led by the Animal Husbandry

Department, Dairy development and Kerala Livestock Development Board, of the

Government of Kerala.

ORGANISATIONAL STRUCTURE OF MILMA

The organizational structure is built on the stabilized successful model of Anand

pattern and is decentralized democratized. The motto of co-operation of ‘of the people, by the

people’ is the foundation three tier system followed by the organization.

Milma having a three tier structure with primary milk co operative societies

known as APCOS. Regional Co-operative Producers Union is (TRCMPU, ERCMPU, and

MRCMPU) at Thiruvananthapuram, Ernakulum. Calicut these unions federate at state

level to from state federation namely Kerala co-operative Milk Marketing Federation.

Structure of Milma

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KCMMF

KCMMF

APCO APCO

ERCMPU

APCO APCO

TRCMPU

APCO APCO

1. KCMMF

KCMMF provides staff management function to support its units and the regional milk

unions. It decides upon matters related to pricing, long term HR policies and other policy

matters.

2. REGIONAL MILK CO0OPERATIVE UNIONS

KCMMF has three regional co-operative milk producers union in Kerala. They are

TRCMPU at Thiruvananthapuram, ERCMPU at Ernakulam and MRCMPU at Calicut.

TRCMPU

The regional union covers Trivandrum regional Co-operative milk producers union

was established in the year 1985 as a part of implementation of the flood programme in

the state of Kerala. The union covers the southern regions of Kerala. This covers the districts

of Tvm, Kollam, Pathanamthitta and Alappuzha.

ERCMPU

The Ernakulam Regional Co-operative Milk Producers Union was established in the

year 1986, is the central society of primary milk co-operative organized by Anand pattern.

This union covers the central regions of Kerala. The areas of operation of this union are

four central Kerala districts are Thrissur, Ernakulam, Kottayam and Idukki.

MRCMPU

The Malabar Regional Co-operative Milk Producers Union Limited which stated

functioning from 1990, is the youngest one among the three regions of Kerala, viz

Kasargode, Kanoor, Vayanadu, Kozhikode, malappuram and Palakkad.

(http://www.trcmpu.in/)

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PROFILE OF THIRUVANATHAPURAM REGIONAL CO-PERATIVE

MILK PRODUCERS UNION LTD (TRCMPU)

TRCMPU is a commercial organization is co-operative sector on May 31, 1983,

under the co-operative societies act. But it started its activities only on July 20 th 1985. The

operational areas of TRCMPU includes Thiruvananthapuram, kollam, Pathnamthitta and

Allepy. The regional union covers Trivandrum regional Co-operative milk producers union

was established in the year 1985 as a part of implementation of the flood programme in

the state of Kerala. The union covers the southern regions of Kerala.

Thiruvananthapuram milk dairy is the biggest milk dairy in Kerala. It is also

the first dairy with ISO 9001-2000 certified company. Its head office is at Ksheera Bhavan

Pattom, Thiruvananthapuram. The dairy has a processing capacity of two lakhs liters of

milk per day and also with an annual turn of 10 crores. There are 250 employees in this

dairy which is headed by the General Manager.

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MANAGING DIRECTORGENERAL MANAGER

PROCUREMENT AND INPUT

ASSITANT MANAGER

PRODUCTION MANAGER

ASSITANT MANAGER

PRODUCT MANAGERASSITANT MANAGER

QUALITY CONTROL MANAGER

ASSITANT MANAGER

MAINTENENCE AND ENGINEERING MANAGER

ASSITANT MANAGER

MARKETING MANAGERASSITANT MANAGER

FINANCE ACCOUNTS MANAGER

ASSITANT MANAGER

PURCHASE AND STORES MANAGERASSITANT MANAGER

PERSONNEL ADMINISTRATION MANAGERASSITANT MANAGER

PRODUCT PROFILE

PRODUCTS:-

Milrna has a range of products. A marketing chain consisting of nearly 4000 retail

outlets, across the state ensures availability of milma's products to consumers. Milma with its

motto your health is our concern has become synonymous with assured quality of milk and

milk products. Milrna's spectrum of products adheres to the PFA rules and is released for

distribution only after stringent quality checks.

PASTEURIZED MILK

Milma pasteurized vitamin A enriched milk comes in three varieties.

Jersey milk which contains 3.5% fat and 8.5% SNF.

Toned milk which contains 3.0%fat and 8.5% SNF.

Smart milk which contains 1.5% fat and 9.0% SNF.

Conveniently packed in 500 ml and 1 liter sachets, the fat content range of MILMA's milk

has made it the popular health drink of young and old alike.

ICECREAM

Milma ice-cream is available in a range of lip smacking flavours: vanilla, chocolate,

mango, strawberry and fruit & nut. The only ice-cream in Kerala market which is

manufactured in a dairy and hence most fresh ice cream.

SAMBHARAM

Sambharam (butter milk) a favourite beverage of Kerala. Milma sambharam, the only

product of its kind in the market, is very popular throughout the state. It comes in convenient

200ml throw away sachets.

CURD

It is a fermented product prepared from pasteurized skim milk using curd culture from

National Dairy Research Institute (NDRI). It is delicious, tasty, free from cholesterol and

available in 500ml and bulk.

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GHEE

Ghee is a key ingredient in most Indian delicious. Milma produces good quality, pure

ghee from butter or cream at all dairies. The ghee is available in convenient packs of 50g to

15kg.

BUTTER

Milma butter prepared from the cream of milk contains 81% fat and less than 15.6%

water. This is available in convenient l00gm, 200gm, and 500gm family packs. Available in

salted and unsalted varieties.

SIP-UP

Made from pasteurized skim milk, sweetened and flavoured. Available in 25ml

polyethylene tube in flavours like vanilla, pineapple, strawberry, mango, and rose etc., and

served in chilled condition. It is a safe and nutritious substitute to all other sip-ups.

SRIKHAND

Srikhand is a semi-soft sweetish sour, whole milk product prepared from lactic

fermented curd. The basic ingredient of srikhand is jack fruit.

PEDA

An indigenous milk product manufactured by evaporating water content from

wholesome cow's milk and sweetened with cane sugar. It is a nutritious and delicious

sweet bite for children. It is available in 20gm.

FLAVORED MILK

Milma offers a range of flavored health drinks in hygienic 200ml bottle. Cardamom milk

has already captured the market and are available at all milma outlets and strawberry,

chocolate, pineapple, and mango flavors are also available in the market.

(http://www.milma.com/)

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LITERATURE REVIEW

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THEORETICAL ASSESMENT

Financial statements are the summarized statements of accounting data produced at

the end of the accounting process by an enterprise through which it communicates accounting

information to internal and external users. They are prepared for the purpose of presenting a

periodical review or report of the progress made by the concern. Financial statement includes

mainly 2 statements which the account prepares at the end of given period. They are income

statement (P&L A/c) and position statement (Balance Sheet). The purpose of preparing profit

and loss account is to ascertain the net results of the trading activity and that of balance sheet

is to show the financial position of the business.

ACCORDING TO JOHN N MYER

“The financial statement provides the summary of accounts of a business enterprise, the

balance sheet reflecting the assets and liabilities and income statement showing the results of

operation during certain period”.

NATURE OF FINANCIAL STATEMENT

The nature and accuracy of the data shown in the financial depends on the following facts:

1. Recorded facts

The term recorded facts refer to the data taken out from the accounting records. Records are

maintained on the basis of actual cost data. The assets purchased at different times and

different prices are put together and shown at cost price. If any depreciation is provided at the

end of the accounting year, it is deducted from the original cost.

2. Accounting conventions

While preparing financial statement, certain accounting conventions and principles are

followed. Accounting is a dynamic science and accounts have developed from time to time a

number of conventions from experience.

3. Postulates

The accountants make certain assumptions while making accounting records. One of the

assumptions is that enterprise is an ongoing concern. Similarly he has to use other postulates

like business entity, money measurement, stable value of rupee, profit accrual etc. These

postulates are reflected in the financial statements.

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4. Personal judgment.

The application of the concept and conventions of accounting depends on the personnel

judgment of the accountant. That is why the financial statement prepared by 2 different

accountants of the same concern give different results. Personnel judgment effects provision

for deddebts, depreciations, value of stock etc. which ultimately effect financial statement.

Thus the personnel judgment of the accountant plays an important role in preparing the

financial statement.

IMPORTANCE OF FINANCIAL STATEMENT

Financial statements are highly useful to the management, creditors, investors,

bankers, govt. public at large. The utility of financial statement to different parties are:

1. Management

The management is able to exercise cost control through financial statement. The efficient

and inefficient spots are brought to the notice of the management. The mgt is able to decide

the course of action to be taken in future.

2. Creditors

The creditors are interested in the short-term solvency of the concern. The current ratio and

acid test ratio will enable the creditors to assess the short term solvency position of the

concern.

3. Bankers

The bankers are interested to see that the loan amount is secure and that the interest is paid

regularly. Bankers will analyze Balance sheet & P& L A/c to determine financial strength

and profitability of concern. The debt equity ratio and interest coverage ratio will enable the

banker to analyse the solvency position of the firm.

4. Investors

The investors are interested in the security of the principle amount invested by them and

regular interest payment by the concern. The investor will analyze the present financial

position and study the future prospects of the concern.

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5. Government

The financial statements are used to access tax liability of business enterprise. This helps the

govt. to find out whether business is following various tax regulations or not.

6. Others

Trade associations, stock exchanges and public at large may also analyze the financial

statement to judge the financial position of the concern.

LIMITATIONS OF FINANCIAL STATEMENT

1. A balance sheet is described as a statement of all assets and liabilities. But this is not

true. There are certain assets and liabilities which a B/S fail to disclose. E.g.: value of human

resource.

2. The figures given in the balance sheet are on historical basis. While preparing it, the

replacement cost of the assets is totally ignored.

3. An investor who wishes to analyse the balance sheet is more concerned with present

and future, where as the Balance sheet pertains to a point of time relating to past and

therefore may not be helpful.

4. Personal judgments play a great role in determining the figures for the balance sheet.

Provision for depreciation, stock valuation, provision for bad debts etc are based on personnel

judgments and not free from bias.

5. Financial statements do not give a final picture of the concern. The data given in this

statement is only approximate. The actual position can only be determined when the business

is sold or liquidated.

6. Balance sheet does not disclose information relating to changes is mgt, loss of

markets etc which can give a vital bearing on the earnings of the Company.

7. The precision of the financial statement data is not possible because the statements

deal with matters which cannot be precisely stated

8. Because of the flexibility of accounting principles, certain liabilities are not provided

for and to that extent, Balance sheet will give a misleading picture.

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ANALYSIS OF FINANCIAL STATEMENT

The analysis of financial statement is the study of relationship among

various financial facts and figures as set out in the financial statement is B/S & P&L account.

Financial analysis is the process of determining the significant operating and financial

characteristics of a firm from accounting data. A proper analysis and interpretation of

financial statement enables a person to judge the profitability and financial strength of the

business.

According to Myers “financial statement analysis is largely a study of

relationship among the various financial factors in a business as disclosed by a single set of

statements and a study of these factors as shown in the series of statements.

OBJECTIVES OF FIANANCIAL ANALYSIS

1. To estimate the earning capacity of the firm.

2. To judge the financial position and financial performance of the firm.

3. To judge the solvency of the firm.

4. To determine the long-term liquidity of the funds.

5. To determine the debt capacity of the firm.

6. To decide about the future prospects off the company.

7. To know the progress of the firm.

8. To measure the efficiency of operations.

(Ref: Financial accounting written by ‘KGC NAIR’)

24

TYPE OF FINANCIAL ANALYSIS

1. ACCORDING TO MATERIAL USED.

a. External analysis

External analysis of financial statement is made by those who do not have

access to the detailed accounting records of the company i.e. banks, creditors, and general

public. These people almost entirely depend on published financial statement.

b. Internal Analysis

Such analysis is made by the finance and accounting debt to help the top

management. These peoples have direct approach to the relevant financial records. Such

25

Types of Financial Analysis

According to

Material used

According to

Modus operandi

According to the objective of Analysis

External Analysis

Internal Analysis

Horizontal Analysis

Vertical Analysis

Long term Analysis

Short term Analysis

analysis emphasizes on the performance appraisal and assessing the profitability of diffe3rent

activities.

2. ACCORDING TO THE MODUS OPERANDI

a. Horizontal analysis

When the financial statements for a number of years are reviewed and analyzed,

the analysis is called ‘horizontal analysis’. Preparation of comparative statements is an e.g. of

horizontal analysis. As it is based from year to year, rather than on one date it is also known

as ‘dynamic analysis’.

b. Vertical analysis

Vertical analysis is also known as “static Analysis”. When ratios are calculated

from the balance sheet of one year, it is called vertical analysis. It is not very useful for long

term planning as is does not include the trend study for future.

3. ACCORDING TO THE OBJECTIVES OF ANALYSIS

a. Long term analysis

In the long term the company must earn a minimum amount sufficient to

maintain a suitable rate of return on the investment to provide for the necessary growth and

development of the company and to meet the cost of capital. Thus, in the long term analysis,

the stress is on the stability and earning potentiality of the concern.

b. Short term analysis

The short term analysis of financial statement is mainly concerned with the

working capital analysis. In a short run a company must have ample funds available to meet

its current needs and sufficient borrowing capacity to meet the contingencies. Hence, in short

term analysis, the current assets & current liabilities are analyzed and cash position of the

concern is determined.

TOOLS OF FINANCIAL ANALYSIS

In the process of analysis various tools or methods are used by financial analyst.

The different tools are:

a. Comparative Statement

The preparation of comparative financial and operating statements is an

important device of horizontal financial analysis., comparative financial statement are the

26

statement in which figures of two or more periods are placed side by side along with changes

in future in absolute and percentage terms to facilitate comparison. Both income statement

(P&L account) and position statement (balance sheet) are prepared in the form of

comparative financial statement.

b. Common size financial statement

These are statements prepared to show the relationship of different

individual items with some common items. Common size financial statements express all

figures of a financial statement as percentage of some common base in the P&L account. The

sales figure is assumed to be 100 and all figures are expressed as % of scales. Similarly in the

Balance Sheet the total of assets and liabilities is taken as 100 and all figures are expressed in

the percentage of 100.

c. Trend Percentage

Trend percentages are helpful in making comparative study of the financial

statement for several years. The method of calculating trend percentage involves the

calculation of percentage relationship that each item bears to the same item in the base year.

Base year is usually the earliest year.

d. Average Analysis

It is an improvement over trend analysis method. When trend ratio has been

determined for the concern, these figures are compared with average trend of the industry.

Both these trend are presented in the graph as shape of a curves.

e. Statement of changes in working capital

To know the increase or decrease in the working capital over a period of

time, The preparation of a statement of changed in working capital is also very useful. The

main objectives of the statement preparation are to derive a fairly accurate summary of the

event that affected the amount of working capital. The amount of networking capital is

determined by deducting the total of current liabilities form the total of current assets.

f. Fund flow and cash flow statement.

Fund flow analysis is a valuable aid to the financial executives and creditors

for evaluating the use of the fund by the firm and in determining how those uses were

financed. A fund flow statement indicates where funds came from and where they are used

during period.

27

Cash flow statements reveal the sources of cash and its application. Both are

important tools of communication and very helpful for financial executives in planning the

intermediate and long term financial of the firm.

g. Ratio Analysis

Ratio analysis expresses the relationship between 2 according variables taken

from financial statement of accounting period in the form of ratio. It is the most important

tool available to financial analysis for their work.

LIMITATIONS OF FINANCIAL STATEMENT ANALYSIS

1. The analysis of financial statement is only a means to reach conclusions and not

conclusions in itself So, it cannot work as a substitute for sound judgment.

2. The figures drawn from the statement of just one year have limited use and value. So

it will be dangerous to depend upon them only.

3. The results of the analysis of financial statements should not be taken as indicator of

good or bad management

4. Any change in the method or procedure of accounting mars the utility of such

analysis. The figures of different financial statement lose the characteristics of comparability.

5. An analyst should also be cautions from window dressing in the accounts.

6. It doesn’t disclose reasons for changes.

7. The basic nature of financial statement is historic. Part can never be 100%

representative of the future. Hence, future course of business events should be forecasted.

8. The rapid changes in the value of money also reduce the validity of such analysis and

no useful conclusions can be drawn from a comparative study of the financial statements of

different years.

(Ref: Pandey IM ‘Financial Management)

* RATIO ANALYSIS

Ratio analysis is one of the powerful tools of financial analysis. It aims at

making use of quantitative information for decision making. A ratio is an expression of

relationship between two figures or two amounts. It is a yard stick which measures

relationship between two variables. It highlights solvency, liquidity etc.

28

According to Robert Antony, Ratio is “Simply one number expressed in terms of another”.

Ratio analysis gives answer to the problem such as

i. Whether the enterprises financial position is basically sound.

ii. Whether the capital structure of the business is in proper order.

iii. Whether the credit policy in relation to sales and purchase is sound.

iv. Whether the company is credit worthy.

v. Whether the profitability of the enterprise is satisfactory

ADVANTAGES OF RATIOS ANALYSIS

1. It makes it easy to grasp the relationship between various items and helps in

understanding the financial statements

2. Ratios indicate trends in important items and thus will help in forecasting.

3. Ratio may be used as a measure of efficiency.

4. Ratios are very useful for measuring the performance and very useful in cost control.

5. Ratios can effectively communicate what has happened between two accounting

dates.

6. Standard ratios may be computed. Comparison of actual ratios with standard will help

in control.

7. It throws lights on the degree of the management and utilization of the assets and that

is why it is called surveyor of efficiency. They help the management in decision making.

8. It helps in the simple assessment of liquidity, solvency, profitability and efficiency of

the firm.

LIMITATIONS OF RATIOS ANALYSIS

1. Ratio can be useful only when they are computed in a sufficient large number. A

single ratio would not be able to convey anything. At the same time if too many ratios are

calculated, they are likely to confuse.

2. Ratio analysis gives only a good basis for quantitative analysis of financial problems.

But it suffers from qualitative aspects.

3. Ratios are computed from historical accounting records. So they also process those

limitations of financial accounting.

29

4. It is not possible to calculate exact and well accepted absolute standard for

comparison.

5. In the ratio Analysis Arithmetical window dressing is possible and firm may be

successful in concealing the real position.

6. Ratios are only means of financial analysis, but not an end in themselves. They can be

affected with personal ability and bias of the analyst.

7. Ratio analysis helps in providing only a part of information needed in the process of

decision making.

CLASSIFICATION OF RATIOS

1. Statement wise classifications

a. Balance sheet Ratios : These ratios deal with relationships between two items or

group of items which are both in balance sheet

E.g. Current Ratio, Quick Ratio etc.

b. Income Statement Ratios: These ratios focus on the relationship between the two

items or group of items, all of which are drawn from revenue statement. They are also called

operating Ratios eg. Gross profit ratio, Stock turnover ratio, net profit ratio.

c. Combined ratios: These ratios depict the relationships between two items, one of

which is drawn from balance sheet and other from revenue statements.Eg, debtor turnover

ratio, assets turnover ratio etc.

2. Classification according to Nature

a. Liquidity ratios: These ratios portray the capacity of the business unit to meet its short

term obligations.Eg, current ratio, quick ratio etc.

b. Leverage Ratios: These ratios are called efficiency ratios. These ratios measure the

owners stake in the business vis-à-vis that of outsiders. The long term solvency of the

business can be determined by this ratio. Eg.Debt equity ratio, proprietary ratio etc.

c. Activity Ratios: These ratios evaluate the use of total resources of the business

concern along with the use of components of total assets. The greater the rate of turnover the

move efficient the management would be. Eg, stock turnover ratio, fixed asset turnover ratio

etc.

d. Profitability ratios: The profitability of a business concern can be measured by

profitability ratios. These ratios highlight the end result of business activities by which alone

30

the overall efficiency of a business unit can be judged. Eg. Net profit ratio, gross profit ratio

etc.

3. Classification according to importance

a. Primary ratios: The ratios which relates the profit to capital employed is termed as

primary ratio. E.g. Return on capital employed, operating ratio etc.

b. Secondary ratios: This classification is effected to facilitate inter firm comparison and

to focus on some factors responsible for the success of the unit they are secondary ratios.

I. Liquidity Ratios

Liquidity is the ability of the firm to meet its current liabilities. Since liquidity is

basic to continuous operations of the firm. It is necessary to determine the degree of liability

of the firm.

1. Current Ratio

Current ratio is the most common ratio for measuring liquidity. It represents the

ratio of current assets to current liabilities. It is also called working capital ratio. The current

ratio measures its short term solvency. The satisfactory ratio is 2:1. A higher ratio indicates

sound solvency and a lower ratio indicates adequate working capital. It determined by

dividing current assets by current liability.

Current assets are those, the amount of which can be realized within a period of

one year e.g.- cash, bills receivables. Current liabilities are those amounts which are payable

within a period of one year e.g. Outstanding expenses, bills payable.

Current Assets

Current Ratio =

Current Liabilities

2. Quick Ratio.

It is the relation between quick assets to current liabilities. They are also called

‘Acid test Ratio’ or ‘Liquidity ratio’. Acid test ratio of 1:1 is considered satisfactory. Higher

ratio shows sound financial position and a low ratio shows unsound financial position.

31

Quick Assets

Quick Ratio =

Current liabilities

Quick assets =cash+bank+B/R+ debtor or current assets-stocks

1. Absolute Liquidity Ratio

It is the ratio of liquid assets to current liabilities. It is also called cash position ratio.

A ratio of 0.75: 1 is an ideal ratio

Cash + Marketable securities

Absolute Liquidity Ratio =

Current Liabilities

II. Leverage ratios

These are also called structure ratios. These ratio measures the long term solvency

position of the firm. This ratio helps to determine the capital structure of a company. E.g.

Debt equity ratio, proprietary ratio, capital gearing ratio etc.

1. Debt-equity ratio

It is the ratio of outsiders fund to owners’ equity. This ratio is computed by

dividing the total debt of the firm by its net worth. Debt refers to total outside liabilities. It

includes all current liability like loan, debenture etc. Ideal ratio is 2:1.A high ratio is

unfavorable for the film. A low ratio represents a satisfactory capital structure of the firm.

Debt

Debt-Equity ratio =

Equity

Shareholders fund = share capital + reserve and surplus- fictitious assets.

2. Proprietary Ratio

Proprietary ratio relates to the shareholders fund to total assets. This ratio

shows the long term solvency of the business.

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The ideal ratio is 1:3 (i.e. 0.33). This ratio shows the financial strength of the

company. Higher ratio indicates a secured position to creditors and a low ratio indicates a

greater risk to creditors.

Shareholders’ funds

Proprietary ratio =

Total assets

Shareholders fund = equity share capital + preferences + share capital +

reserve & surplus – fictions assets

3. Fixed assets to net worth ratio

This ratio shows relationship between fixed assets and shareholders fund. The purpose

of this ratio is to find out the percentage of owners fund invested in fixed assets.

Fixed assets

Fixed assets to net worth =

Net worth or shareholders fund

III. Activity ratios

Activity ratio measures how efficiently the assets are employed by the firm. These ratios are

also called ‘Turnover Ratio’. These ratios indicate the speed with which assets are being

converted into sales. These ratios are also called ‘efficiency ratio’.

1. Inventory Turnover Ratio(stock turnover Ratio)

This ratio indicates whether investment in inventories is efficiently used or not. A

high ratio indicates risk sales. A low Ratio results in blocking of funds in inventory.

Cost of goods sold

Inventory turnover ratio =

Average stock

Cost of goods sold = sales – gross profit OR sales + gross loss OR = (opening stock + closing

stock/2

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2. Fixed assets to turnover ratio

This ratio indicates the extents to which the investments in fixed assets

contribute towards sales if compared with a previous year, it indicates whether the investment

in fixed assets has been judicious or not.

Net sales

Fixed assets turnover ratio =

Fixed assets

3. Working capital turnover ratio.

This ratio reflects the turnover of the firm’s net working capital in the course of the

year. It is a good measure of over trading & under taking.

Net sales

Working capital turnover =

Fixed assets

4. Debtors turnover ratio (Debtors velocity)

It is the ratio of relationship between account receivables and net credit sales of

the period. The higher the ratio, the better it is since it would indicate that debts are being

collected promptly.

Net credit sales

Debtors Turnover Ratio =

Avg account receivables

IV. Profitability Ratios

A business firm is basically a profit earning organizations. The income statement of

the firm shows the profit earned by the firm during the accounting period. Profitability is an

indication of the efficiency with which the operations of business are carried on.

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1. Gross profit ratio

This ratio serves as a valuable indicator of the firm’s ability to utilize effectively outside

sources of fund. Secondly. This ratio serves as aan important tool in shaping the pricing

policy of the firm.

2. Net profit Ratio

This ratio is also called the net profit to sales or net profit margin ratio. It is determined by

dividing the net income after tax to the net sales for the period. Higher the ratio better is the

operational efficiency of the concern.

Net profit

Net profit ratio = X100

Sales

3. Operating ratio

Operating ratio is an indicative of the proportion that the cost of sales bears to sales.

Cost of goods sold + operating expenses

Operating Ratio = X100

Net sales

Cost of sales = direct cost of goods sold + other operating expense

Operating expense = administration, selling and distribution expense but do not

include financing cost and income tax.

Lower the ratio, the more profitable are the operations indicating an efficient control

over cost and selling price. Reverse is the position when the ratio is higher.

(Ref: Davies D ‘The art of Managing Finance)

*Trend Analysis and Average Analysis

Review and appraisal of tendency in connecting in accounting variables is simply

called as trend analysis. An analysis of the trend ratios over a past few years may well

suggest the direction in which the concern in going. Average analysis is an improvement over

trend analysis.

35

Uses of trend analysis

It helps in easily knowing the direction of movement of activity of business.

It makes data brief and easily understandable.

It helps in comparing one period with other period.

Current year amount

Trend Percentage = X100

Base year amount

Here both the Trend analysis and average analysis of sales, stock, profit before tax,

current assets, current liabilities and working capital are done.

*Comparative Financial Statement

Comparative financial statements are statements of functional position at different

periods of time. The comparative statement shows

Absolute Figures( rupee amount )

Changes in absolute figures.

Absolute data in terms of percentage.

Increase or decrease in terms of percentage.

Comparative Balance Sheet

The comparative balance sheet analysis is the study of trend of same items

and computed items in two or more balance sheet of the same business enterprise on different

dates. Comparative balance sheet will interept the following aspects:

Current financial position and liquidity position.

Long term financial position of the concern can be analyzed by studying the changes

in fixed assets, long term liabilities and capital.

Profitability of the concern is the study of increase or decrease in retained earnings,

various resources and surpluses.

*Schedule of changes in working capital

Working capital is the difference between current assets and current liabilities. The

schedule of changes in working capital is prepared to find out the increase or decrease in

working capital during a period. This schedule is prepared with the help of only current assets

and current liabilities.

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*Common size balance sheet

This statement establishes the relationship between each asset to total value of

assets & each liability to total of liabilities. The objective is to analyse the change in

individual item of balance sheet and to see the trend of different items of assets & liabilities.

(Ref: Financial management theory and practice by ‘Chandran P’)

STATEMENT OF PROBLEM

The ultimate aim of any organisation is the maximisation of wealth of

shareholders and it can be done through profit maximisation. Effective and efficient financing

and investment decision help to achieve the objectives. Managing of current assets is the

main area in which finance department is to concentrate. Inventory constitutes a major

portion of current asset in manufacturing organization. So the inventory must be managed

effectively & efficiently in order to achieve the financial management objectives.

In this study the main focus is on the efficiency of financial position of the

company.

OBJECTIVES

To study the overall performance and profitability of the concern.

To analyse the financial strength and weakness of the company.

To study about the management concern.

To know about the theoretical aspect with actual practice.

To understand the working of various department.

To analyse the source, applications, a use of funds, periodic change in working capital

and indicate results of current financial management.

To analyse the liquidity position and solvency of the company.

To assess the future prospects of the company.

To make some suggestions based on the analysis.

37

LIMITATION

The major limitation was the time constraints. As time available was much limited.

Due to time constraints, could not interview many executives for collection of more

details.

The study covered a 6 year period from 2008- 2009 and 2012-2013. The changes after

before this period were not taken into consideration.

Financial matters considered confidential by the company were not revealed.

The technique of trend analysis and ratio analysis are used to study the performance

of the firm. The limitation of ratio analysis may affect the effectiveness of study.

As I have taken figures for analysis from the financial statement, all limitation of this

statement will apply to study.

METHODOLOGY OF THE STUDY

Research means search for knowledge. It is a process of systematic and in-depth

study of search of any particular topic, subject or area of investigation backed by collection,

computation, presentation and interpretation of relevant data.

Sources of data

This study is based on primary as well as secondary data. Mainly secondary data has

been used for the study.

1. Primary data

Primary data refer to the actual information collected by researcher for the study. It is

specifically designed to fulfil the data needs of problem in hand. Primary data is collected

from the primary sources that are formal interviews. Information collected is mainly based on

personal discussion with finance executives.

2. Secondary data

Data which are not originally collected but rather obtained from the published or

unpublished sources are known as secondary data.

They are:

38

Journal of the company

Company records

Annual records

METHOD OF DATA ANALYSIS

Ratio analysis

Trend analysis and average analysis

Comparative balance sheet

Schedule of changes in working capital

Common size balance sheet

39

CHAPTER-II

INTEGRATED PERSPECTIVE OF ALL FUNCTIONAL AREAS IN

ORGANISATION

40

DIFFERENT DEPARTMENTS IN MILMA DAIRY

FINANCE AND ACCOUNTS DEPARTMENT

Financial management of KCMMF and its units.

Liaison with financial institutions for availing loan for creation of Infrastructure.

Liaison with government for availing government financial assistance.

Long term repayment and scheduling of loans.

Capital management schemes for primary co-operative societies.

Recommend remuneration of APCOS employees.

HUMAN RESOURCE DEPARTMENT

Family has 2098 skilled, efficient and qualified personnel and has an

excellent labour relationship.

Takes active role in fanning personnel policies and services rules

Finalize long term wage settlement, bonus etc.

Milma Placement and career development activities.

MARKETING DEPARTMENT

Brand management

Bulk trading of surplus products.

Institutional supply contracts

Co-ordinate promotional development

Procurement &consumer pricing.

PURCHASE DEPARTMENT

Centralized purchase of dairy consumables

Purchase of raw materials for cattle feed plants

Purchase functions of KCMMF Head Office.

41

QUALITY CONTROL DEPARTMENT

Render technical and legal assistance to primary dairy co-operatives and

Regional Milk Unions.

Liaison and maintain quality of milk and milk products as per the

standards.

Liaison with statutory authorities for bringing in suitable amendments in

statutes.

Attend to consumer complaints on quality problems.

PROJECTS DEPARTMENT

Planning and execution of projects for creating infrastructure for Regional

Milk Unions and KCMMF.

Providing consultancy for execution of projects.

Liaisoning with statutory authorities like Factories and Boilers, Electrical

Inspectorate Dept.of Explosive etc for obtaining approval and

implementation of projects

Liaisoning with government for land allocation, water, power and other

amenities.

Estate management and assistance in maintenance of Plant and Machinery

of KCMMF Unit.

PLANNING AND SYSTEMS

Maintenance of systems at KCMMF, Units and Regional Milk Unions.

Development of software to support various functions.

Purchase of Hardware and Software.

Support Management Information System.

Networking.

Conducts training programs for development of computer skills.

42

PROCUREMENT AND INPUT DEPARTMENT

Formation and supervision of primary milk societies.

Training and development of dairy farmer and society staff.

Rural milk production enhancement activities.

Providing input services to farmer like vetinary and fodder development etc.

Ensuring regular cattle field supply.

Providing scholarship to children, death benefit, pension, medical facilities etc.

PRODUCTION DEPARTMENT

Processing and packing of milk as per standards.

Production planning and control.

Products manufacturing as per standards.

New product development.

MAINTENANCE DEPARTMENT

Upkeep and maintenance of machines.

Ensuring timely processing, through supply of steam, chilled water, power etc.

43

Finance Manager

Assistant Manager

Assistant Accounts Officer

Junior Superintendents

Senior Assistant

Office Attenders

Junior Assistant

ACCOUNTS AND FINANCE DEPARTMENT

The accounts and finance department consist of a manager, assistant accounts officer, junior

superintendent, and senior assistant and office assistants. The department has to keep records

about the interest paid to NDDB, the insurance provided for building, vehicles plant and

machinery etc. The departments prepare profit and loss account and balance sheet and send it

to the Head Office. The department has to ensure that the salaries due to employees are paid

in time. They are also considered with the preparation the budget and ensuring that the entries

are properly posted in the books of accounts. They also see that the tax is paid in time; the

store consumption account is also kept to prepare the profit and loss.

44

ACCOUNTING SYSTEM:

The accounting system of the unit is the double entry system i.e. for every credit there

is a debit. All the transactions are computerized. Trial balance and profit and loss account are

repaired half yearly. A uniform system is designed according to the NDDB. Separate books

are maintained for each items.

AUDIT:

The section is computerized, hence auditing is an easy task. There are three types of

audits:- internal audit, statuary audit, and co-operative audit Internal audits are done on the

daily basis and for this, the auditors are appointed by the dairy. Government does the

statutory audits and their remuneration is paid by the union. Co-operative audits are done

every year.

BUDGET:

The budget prepared every year considering the procurement sales, increment in

salary and other expenses. Budgets are prepared on the policies set by the KCMMF. All the

payments and allocations of funds to other department are strictly on the basis of budgets.

Each department, if needed to the renewed should check the amount allocated to each

department. The budget prepared is submitted to head office and get approval. Budgets

are prepared considering the annual turnover.

SOURCES OF FUNDS:

A main source of procurement of funds is NDDB. There are several funds that help

to meet the uncertainties. They are price Equalization funds, corpus funds, and farmers

welfare funds etc. The working capital is collected from the head office once in fifteen days.

ADVANCE REGISTER:

It contains cash advance details. Profit and loss account is prepared every month

while balance sheet and budget is prepared yearly. Every year auditing takes place in the

daily. Register of co-operative societies come and audit every year. The Ambalathara Dairy

45

receives funds from the Head Office and remits all receipt to the Head Office. The Head

Office plans and sanctions all the financial budget of the dairy.

The Accounting system of the Dairy is Double Entry System. All the transactions are

computerized. Trail Balance and Profit and Loss Account are prepared monthly and balance

sheets are prepared half yearly .a uniform accounting system is computerized, hence

auditing is an easy take. There are 3 types of Audit, internal audit, statutory audit and

corporate audit. Internal are done on daily basis and for this the auditors are appointed by the

dairy. Government does the statutory audits and there remuneration is paid by the union.

Corporate Audit is done at the end of every year.

The budget is prepared every year considering the procurement, sales, increment in

salary and other expenses. Budgets are prepared based on the policies set by KCMMF. All

the payment and allocations of funds to other departments are strictly on the basis of

budgets. The budget prepared is submitted to the Head Office to get approval. Budgets are

prepared considering the annual turnover.

A main source of procurement of fund is National Diary Development Board in the

form of grant and loan. Every fortnight they send request to the Head Office for giving

or estimation of fund requirement the working capital is collected from the Head office

once in every fortnight. The total revenue 90% is received from the sale of milk and the rest

10% from the milk products. Every year 1.25% (maximum up to 15 lakhs) of the total

turnover has to be paid to KCMMF as loyalty. The total turnover in the year 2008 was Rs.

188 crores.

During the deficit of milk in the state, the Dairy will procure milk from other states.

They will have certain milk contracts with other states. The payment mode varies from state

to state. For Kamataka state, it is on credit weekly payment, where as for Tami! Nadu, the

payment is made in advancement mode. Important books and records maintained in the

Department are:

Cash book: This book is maintained for cash receipts and payments.

Bank book: It contains cash receipts and payments with the Bank.

General Ledger: bank transactions, Cash transactions etc.

46

Journals: Other than cash and bank transactions, every other details come in journals, i.e., all

the credit transactions.

Cash book, Bank book, General Ledger and Journals are computerized, while subsidiary

registers are manual.

Subsidiary registers include:

Direct payment register: Security charges, Building Insurance which includes

Fire insurance, break down insurance etc. details of taxes and license like provision tax,

Building tax, Factory license, Boiler license etc. Purchase details and cash handling of

Wages and Salaries of employees.

Bill Register: it includes details of purchase bills and service bills.

(http://www.milma.in/)

47

CHAPTER III

FINANCIAL ANALYSIS OF DATA

48

DATA ANALYSIS AND INTERPRETATION

4.1 LIQUIDITY RATIO

The term liquidity ratio refers to the firm’s ability to meets its current liabilities when they

become due; Liquidity ratios are used to current the liquidity position or short term financial

position of a firm. For example current ratio, quick ratio, absolute liquid ratio etc.

4.1.1CURRENT RATIO

Current ratio is the most common ratio for measuring liquidity. It is high the ratio for

current assets to current liability. It is also called working capital ratio. A high ratio indicates

the greater liquidity. The satisfactory ratio is considered as 2:1 or 2 and more.

Current assets are those, the amount of which can be realized within a period of one year

and current liabilities are those amounts which are payable with in a period of the one year.

Current Ratio = Current AssetCurrent Liability

TABLE SHOWING CURRENT RATIO

Year Current Asset(in

lakhs)

Current Liability(in

lakhs)

Ratio

2007-2008 1300.55 2040.50 0.63

2008-2009 3169.48 2534.29 1.25

2009-2010 4633.80 2484.55 1.86

2010-2011 2116.66 2606.10 1.04

2011-2012 3564.66 3128.16 1.13

CHART SHOWING CURRENT RATIO

49

Inference

The current ratio of firm measures its shorts term solvency, i.e., its ability to meet shorter

obligations. In a sound business a current ratio of 2:1 is considered an ideal one. A high ratio

indicates sound liquidity position and a low ratio indicate inadequate working capital.

Table clearly shows current assets, current liability and current ratio. Three variables

in the table show a fluctuating trend in the five year study. The ratio reveals that the firms’

financial position is not satisfactory. This is due to the low value of current asset when

compared to the current liabilities.

4.1.2 QUICK RATIO / LIQUID RATIO / ACID TEST RATIO

It is the ratio of quick assets or liquid asset to current liability. It is determined by dividing

quick assets by quick liability. Quick assets include cash in hand, cash at bank, bills

receivables and debtors. The satisfactory ratio is considered as 1:1 or 1 and more

Quick ratio = Quick asset: Current liability

OR

Quick asset

Current liability

Quick asset = Cash + bank + Bills receivable + debtors

OR

= Current asset – Stock

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TABLE SHOWING QUICK RATIO

Year Quick Asset (in

lakhs)

Current liability (in

lakhs)

Ratio

2007-2008 478.94 2040.50 0.23

2008-2009 2554.31 2534.29 1.00

2009-2010 4044.96 2484.55 1.62

2010-2011 1520.68 2606.10 0.58

2011-2012 2099.99 3128.16 0.67

CHART SHOWING QUICK RATIO

2007-2008 2008-2009 2009-2010 2010-2011 2011-20120

0.2

0.4

0.6

0.8

1

1.2

1.4

1.6

1.8

0.670.58

1.62

1

0.23

Inference

51

An acid test or quick ratio of 1:1 considered satisfactory as firm can easily meet all its

current liabilities. If the ratio is less than 1:1 then the financial position of the concern shall

be deemed to be unsound. On other hand if the ratio is more than 1:1 then the financial

position of the concern is sound and good. Liquid ratio is true test of business solvency.

The above table shows that the relationship between the quick assets and current

liability. It shows the not good sound position of the firm’s quick asset to meet all its current

liabilities.

4.1.3 ABSOLUTE LIQUID RATIO

It is the ratio of absolute liquid asset to current liabilities. The satisfactory ratio is

considered as 0.75:1

Absolute liquid ratio = Absolute liquid asset

Current liability

Absolute liquid asset = Cash + bank + Bills receivable

OR

= Quick Asset – Debtors

TABLE SHOWING ABSOLUTE LIQUID RATIO

YEAR CASH (in lakhs) Current liability

(in lakhs )

Ratio

2007-2008 17.74 2040.50 0.008

52

2008-2009 394.33 2534.29 0.15

2009-2010 774.15 2484.55 0.31

2010-2011 698.32 2606.10 0.26

2011-2012 954.04 3128.16 0.30

CHART SHOWING ABSOLUTE LIQUID RATIO

2007-2008 2008-2009 2009-2010 2010-2011 2011-20120

0.05

0.1

0.15

0.2

0.25

0.3

0.35

0.3

0.26

0.31

0.15

0.008

53

Inference

This table shows that the relationship between the immediate source of fund and

current liability. A ratio of 0.75:1 is recommended to ensure liquidity. The absolute liquidity

ratio is very low hence it indicates that the firm’s liquidity position is not good

4.2 LEVERAGE RATIOS

Many financial analyses are interested in the relative use of debt and equity of the

firm. These ratios measure the long term solvency position of the firm. The following are

important leverage ratios

4.2.1 DEBT-EQUITY RATIO

It is the ratio of outsiders fund to owners’ equity. Outsiders’ equity includes current

liability as well as long debts such as a debenture, Bond, Loans etc. Owners’ equity refers the

net worth of shares holders’ fund. It includes equity share capital + preference share + capital

+ reserve and surplus-fictious share.

Debt Equity Ratio = DebtEquity

OR

=Outsiders fund

owners∨shareholders fund

TABLE SHOWING DEBT-EQUITY RATIO

YEAR DEBT (in lakhs) Shareholders

fund (in lakhs)

Ratio

2007-2008 691.40 1535.19 0.45

54

2008-2009 927.45 1760.82 0.52

2009-2010 2157.65 2075.80 1.03

2010-2011 1685.26 2756.53 0.61

2011-2012 1466.66 2965.96 0.49

CHART SHOWING DEBT EQUITY RATIO

2007-2008 2008-2009 2009-2010 2010-2011 2011-20120

0.2

0.4

0.6

0.8

1

1.2

0.49

0.61

1.03

0.520.45

Inference

55

Debt equity ratio measured ultimate solvency of the concern. It provides a marginof

safety to the creditors. Thus smaller ratio of this will give more comfort to creditors. The debt

equity ratio was maximum at the year 2010 then it showing a decreasing trend. Higher debt

equity ratio increases the risk and inflexibility of the firm.

4.2.2 PROPRIETARY RATIO

Proprietary Ratio relates to share holders fund to total asset. This ratio shows the long

term solvency of the business. It is calculated by dividing share capitals, preference share

capital, reserve and surplus. Total assets include all assets including goodwill. The accepted

norm of the ratio is 1:3.

Proprietary ratio =ShareholdersTotal assets

TABLE SHOWING PROPRIETARY RATIO

Year Shareholders fund (in

lakhs)

Total Asset (in lakhs) Ratio

2007-2008 1535.19 2226.59 0.68

2008-2009 1760.82 2688.27 0.65

2009-2010 2075.80 4233.45 0.49

2010-2011 2756.53 4441.79 0.62

2011-2012 2965.96 4432.62 0.66

CHART SHOWING PROPRIETARY RATIO

56

2007-2008 2008-2009 2009-2010 2010-2011 2011-20120

0.1

0.2

0.3

0.4

0.5

0.6

0.7

0.8

0.660.62

0.49

0.650.68

Inference

This ratio shows financial strength of the company. It helps the creditors to find out

the position of the share holders fund in the total assets. If the ratio is high, this indicates that

a company has a sufficient amount of equity to support the functions of the business, and

probably has room in its financial structure to take on additional debt, if necessary.

Conversely a low ratio indicates that the business may be making use of too much debt, or

trade payables, rather than equity, to support operations ( which may place the company at

risk of bankruptcy).

4.2.3 FIXED ASSET TO NETWORTH RATIO

The ratio shows the relationship between fixed assets and shareholders fund. The

purpose of this ratio is to find out the percentage of the fund invested in fixed asset.

Fixed asset to net worth = Fixed asset

Share holders fund

57

TABLE SHOWING FIXED ASSET TO NETWORTH RATIO

YEAR Fixed Asset

(in lakhs )

NeT Worth

( in lakhs)

Ratio

2007-2008 1805.25 1535.19 1.17

2008-2009 2023.57 1760.82 1.14

2009-2010 2113.50 2075.80 1.01

2010-2011 4266.28 2756.53 1.54

2011-2012 3923.94 2965.96 1.32

CHART SHOWING FIXED ASSET TO NET WORTH RATIO

2007-2008 2008-2009 2009-2010 2010-2011 2011-20120

0.2

0.4

0.6

0.8

1

1.2

1.4

1.6

1.8

1.32

1.54

1.01

1.141.17

Inference

58

Fixed asset to net worth ratio finds wide spread application to measure the solvency of

a firm. A ratio higher than 0.75 usually reveals the firm is investing high amount in capital

excessively as well as non liquid assets leaving too little cash to fund operations. This could

make the film more vulnerable to unexpected events and changes in business climate. Here

the ratio is more than one, it means that creditors fund have been used to acquire a part of

fixed assets.

4.3 ACTIVITY RATIO

These ratios are called turnover ratios. This ratio highlights upon the activity and

operational efficiency of the business concern. This ratio indicates the speed with which the

assets are being converted in to sales.

This ratio also called efficiency ratio. Under this ratio inventory turnover ratio, fixed

assets turnover ratio, working capital turnovers ratio and debtors’ turnover ratio are explained

below. The ratio measure the efficient use of assets which will generate greater sale per rupee

invested in all assets of a concern. the efficient use of assets will result in low sales volume

coupled with higher overhead charges and under utilization of the available capacity.

4.3.1 FIXED ASSETS TURNOVER RATIO

This ratio indicates the extent to which the investment in fixed assets contributors

towards sales. It when compared with a previous year indicates whether the investment in

fixed assets have been judicious or not. This ratio is calculated as follows

Fixed Asset Turnover Ratio = Net sales

Fixed Assets

TABLE SHOWING FIXED ASSETS TURN OVER RATIO

Year Net sales (in lakhs) Fixed assets (in

lakhs)

Ratio

2007-2008 28346.83 1805.25 15.70

59

2008-2009 33239.05 2023.57 16.42

2009-2010 36265.06 2113.50 17.15

2010-2011 38952.60 4266.28 9.13

2011-2012 49473.84 3929.44 12.50

CHART SHOWING FIXED ASSETS TO TURNOVER RATIOS

2007-2008 2008-2009 2009-2010 2010-2011 2011-20120

2

4

6

8

10

12

14

16

18

20

12.5

9.13

17.1516.4215.7

Inference

60

If the fixed asset turnover ratio is low as compared to the industry or past years of the

firm, it means that sales are low or the investment in plant and equipment is too high. If the

ratio is high, then the business firm is likely operating over capacity and need to either

increase its asset base to support its sales or reduce its capacity.

4.3.2. INVENTORY TURNOVER RATIO

Inventory turnover ratio is the ratio of the cost of goods sold to average inventory. It

is an activity / efficiency ratio and it measures how many times per period a business sells

and replaces its inventory origin. This ratio is calculated as follows;

Inventory Turnover Ratio = Cost of goods sold

Average inventory

Average inventory is calculated as the sum of the inventory at the beginning and at the end of

the period divided by two.

TABLE SHOWING INVENTORY TURN OVER RATIO

Year Cost of goods sold

(in lakhs)

Average stocks (in

lakhs)

Ratio

2007-2008 26526.8 215.80 122.92

2007-2008 30191.14 207.54 145.47

2009-2010 33418.57 197.50 169.20

2010-2011 35577.52 201.14 176.88

2011-2012 45875.49 228.28 200.96

CHART SHOWING INVENTORY TURNOVER RATIO

61

2007-2008 2008-2009 2009-2010 2010-2011 2011-20120

50

100

150

200

250

200.96

176.88169.2

145.47

122.92

Inference

A higher inventory ratio indicates brisk sales. The ratio is a measure to discover

possible trouble in the form of over stocking. The inventory turnover ratio shows an

increasing trend.

4.3.3 WORKING CAPITAL TURNOVER RATIO

The working capital turnover ratio indicates the number of times the working capital

is turned over in the course of year.

Working capital turnover ratio = Net Sales

Networking capital

TABLE SHOWING WORKING CAPITAL TURNOVER RATIO

62

Year Sales (in lakhs) Net working

capital (in lakhs)

Ratio

2007-2008 28346.83 (739.95) -38.30

2008-2009 33239.05 635.19 52.32

2009-2010 36265.05 2149.25 16.87

2010-2011 38952.60 110.56 352.32

2011-2012 49473.84 436.50 113.34

CHART SHOWING WORKING CAPITAL TURNOVER RATIO

63

2007-2008 2008-2009 2009-2010 2010-2011 2011-2012

-100

-50

0

50

100

150

200

250

300

350

400

113.34

352.34

16.8752.32

-38.3

Inference

The above table shows that the relationship between net sales and net working capital.

A high turnover ratio indicates that management is being extremely efficient in using a firms

short term assets and liabilities to support sales.

4.3.4 DEBTORS TURNOVER RATIO

The purpose of this ratio is to discuss the credit collection power and policy of the

firm. For this ratio a relationship is establishedis established between account receivable and

net credit sales of period. The debtors turnover ratio is calculated as net credit sales by

averages account receivable.

Debtors turnover ratio =Net credit sales

Average accounts recievables

Average accounts receivables =opening debtors∧biilsrecievablesClosing debtors∧billsrecievables

64

TABLE SHOWING DEBTORS TURNOVER RATIO

Year Sales (in lakhs) Debt ( in lakhs) Ratio

2007-2008 28346.83 306.53 92.47

2008-2009 33239.05 365.85 90.85

2009-2010 36265.05 339.81 106.72

2010-2011 38952.60 423.55 85.88

2011-2012 49473.84 603.21 82.01

CHART SHOWING DEBTORS TURNOVER RATIO

2007-2008 2008-2009 2009-2010 2010-2011 2011-20120

20

40

60

80

100

120

82.0185.88

106.72

90.8592.47

Inference

There is no norm interpreting this ratio. However the higher values of debtors

turnover more efficient will be the management of debtors and sales. Even though the

companies’ debtors’ turnover ratio shows a fluctuating trend it is considered satisfactory.

4.4 PROFITABILITY RATIO

65

A business firm is basically a profit earning organization. The income statement of the

firm shows the profit earned by the firm during the accounting period. Profitability is an

indications of the efficiency with which the operations of the business are carried on. Poor

operational performances may indicate poor sales and hence profits.

4.4.1 NET PROFIT RATIO

This ratio is also called the net profit to sale or net profit margin ratio. It is determined by

dividing the net income after tax to the net sales for the period and measure the profit per

value of sales

Net Profit Ratio =Net profitsales

X 100

TABLE SHOWING NET PROFIT RATIO

Year Net Profile (in lakhs) Sales (in lakhs) Net Profit Ratio

2007-2008 (464.66) 28346.83 -1.6

2008-2009 104.29 33239.05 0.31

2009-2010 38.68 36265.06 0.10

2010-2011 (22.06) 38952.60 -0.05

2011-2012 (1.23) 49473.84 -0.002

CHART SHOWING NET PROFIT RATIO

66

2007-2008 2008-2009 2009-2010 2010-2011 2011-2012

-2

-1.5

-1

-0.5

0

0.5

-0.002-0.05

0.1

0.31

-1.6

Inference

It can be observed that the networking capital ratio is negative figure in last two years.

Current asset is less than the current liabilities. Thus the net working capital is negative. Thus

we can say that net profit ratio looks unsatisfactory and insufficient. It can be observed that

the company not well poised to meet any short obligation. Hence the liquidity position is not

safe and sound.

4.4.2 GROSS PROFIT RATIO

Gross profit ratio evaluates the effectiveness of business. It indicates the efficiency of

firm in terms of its production and how much it has gained profit. Gross profit reflects the

profit firm has made on cost of goods sold. If the firm has higher gross profit margin then it is

a sign of success because all operating expenses, interest selling price of goods sold and

decrease cost of goods sold then the ratio increases.

Gross Profit Ratio =gross profit

salesX100

TABLE SHOWING GROSS PROFIT RATIO

67

Year Gross Profit(in

lakhs)

Sales ( in lakhs) Gross profit Ratio

2007-2008 1774.74 28346.83 6.3

2008-2009 2897.83 33239.05 8.8

2009-2010 2812.36 36265.06 7.8

2010-2011 3015.08 38952.60 7.8

2011-2012 3598.35 49473.84 7.3

CHART SHOWING GROSS PROFIT RATIO

2007-2008 2008-2009 2009-2010 2010-2011 2011-20120

1

2

3

4

5

6

7

8

9

10

7.37.87.8

8.8

6.3

Inference

The gross profit ratio helps in ascertaining whether the average percentage of mark up

on the goods is maintained or not. If firm has higher gross profit margin then it is a sign of

success because all operating expenses, interest charges and dividends would have to be

taken off from GP. If company increase selling price of goods sold and decreases cost of

68

goods sold then this ratio increases. However if company decrease selling price of goods sold

then this ratio decreases.

4.4.3 RETURN ON TOTAL ASSETS

Return on total assets ratio is a profitability ratio. The return on assets ratio is also called the

return on investment ratio. Return on assets allows the business owner to calculate how

efficiently the company is using the total assets base to generate sales. Total assets include all

current assets such as cash, inventory and accounts receivable in addition to fixed assets such

as plant and equipment

Net profit

Return On Total Assets = X100

Total assets

TABLE SHOWING RETURN ON TOTAL ASSETS

Year Net profit(in

lakhs)

Total assets(in

lakhs)

Ratio

2007-2008 (372.68) 2226.59 -16.73

2008-2009 192.56 2688.27 7.16

2009-2010 110.30 4233.45 2.60

2010-2011 144.51 4441.79 3.25

2011-2012 199.25 4432.62 4.49

CHART SHOWING RETURN OF THE TOTAL ASSETS

69

2007-2008 2008-2009 2009-2010 2010-2011 2011-2012

-20

-15

-10

-5

0

5

10

-16.73

7.16

2.60 3.254.49

Inference

The above table shows the relationship between the net profit and total assets. In

2007-2008 firms had very poor performance to utilize their total asset base to generate sales.

Then the next four years the ratio shows fluctuations in return.

4.4.4 RETURN ON SHARE HOLDERS FUND

70

This ratio is the rate of profit of the shareholders fund. It relates the profit

available for the share holders to their total investment.

Net profit after interest & tax

Return on shareholders’ fund =

Share holders fund

TABLE SHOWING RETURN ON SHAREHOLDERS FUND

Year Net profit(in lakhs) Total assets(in lakhs Ratio

2007-2008 (464.66) 1431.10 -32.46

2008-2009 104.29 1773.31 5.88

2009-2010 38.68 2194.88 1.76

2010-2011 (22.06) 2756.53 -0.80

2011-2012 (1.23) 2965.96 -0.04

71

TABLE SHOWING RETURN ON SHAREHOLDERS FUND

2007-2008 2008-2009 2009-2010 2010-2011 2011-2012

-35

-30

-25

-20

-15

-10

-5

0

5

10

-32.46

5.88

1.76

-0.8 -0.04

Inference

The firm doesn’t give good return to its shareholders. The last two years return was loss.

It’s not giving profit. So improvements in this area need to be carried out.

TREND ANALYSIS

72

Trend percentages are immensely helpful in making a comparative study of the financial

statements for several years. The method of calculating trend percentage involves the

calculation of percentage relationship that each item bears to the same item in the earliest

year. An interviewing year may also be taken as the base year. Each item of the base year is

taken as 100 and on that basis the percentage for each of the items of each of the year is

calculated. These percentages can also be taken as index numbers shows relative changes in

the financial data resulting with the passage of time.

The method of trend percentage is a useful analytical device for the management since by

substitution of percentage of large amount; the brevity and readability are achieved.

However, trend percentage are not calculated for all of the items in the financial statements.

They are usually calculated only for major items since the purpose is to highlight important

changes.

While calculating trend percentage are should be taken regarding the following matters:

1. Accounting principles and practices followed should be constraint throught the period

for which analysis is made. In the absence of such consistency, the comparability will be

adversely affected.

2. The base year should be carefully selected. It should be a normal year amd be

representative of the item shown in the statement.

3. The base year should be calculated only for items hqaving logical relationship with

one another.

This method determines the direction upwards or downwards and involves The financial

statements may be analyzed by computing trends of series of the computation of the

percentage relationship that each statement item bears to the same item in base year. The

figures are base years are taken as 100 and trend ratio for other year is calculated on the basis

of base year. The information for a number of years is taken up and one year, generally the

first year, is taken as a base year.

Current year amount

Trend percentage = X100

Base year amount

(Base period 2007-2008=100)

Trend Analysis of Net Profit/loss

73

Year Net loss Trend%

2007-2008 (464.66) 100

2008-2009 104.29 -22.44

2009-2010 38.68 -8.32

2010-2011 (22.06) 4.74

2011-2012 (1.23) 0.26

74

TREND ANALYSIS OF NET PROFIT/LOSS

2007-2008 2008-2009 2009-2010 2010-2011 2011-2012

-120

-100

-80

-60

-40

-20

0

20

40

-100

22.44

8.32

-4.74

-0.26

Interpretation

It can be observed that the trend of net profit is negative figure or became the decreasing

trend in 2009, and 2010. Current asst is less than the current liabilities. Thus the net working

capital is negative. Thus we can say that these years trend of net profit looks unsatisfactory

and insufficient. It can be observed that the company not well poised to meet any short

obligation. Hence the liquidity position is not safe and sound.

75

Trend Analysis of Sales

Year Net sales Trend (%)

2007-2008 28346.83 100

2008-2009 33239.05 117.25

2009-2010 36265.06 127.93

2010-2011 38952.60 137.41

2011-2012 49473.84 174.53

Trend Analysis of Sales

2007-2008 2008-2009 2009-2010 2010-2011 2011-20120

20

40

60

80

100

120

140

160

180

200

117.25

100127.93 137.41

174.53

Interpretation

The table shows an increasing trend in the sales. Here 2007-2008 is taken as the base year.

The trend in sales is high due to good increase in the sales and increasing the number of

76

customers. The percentage in 2012 is 174 as compared to 100 in 2007. The increase in the

sales is quite satisfactory.

Trend Analysis of Net Working Capital

Year Net working capital Trend (%)

2007-2008 (739.95) 100

2008-2009 635.19 -85.84

2009-2010 2149.25 -290.45

2010-2011 110.56 -14.94

2011-2012 436.50 -58.99

Trend Analysis of Net Working Capital

2007-2008 2008-2009 2009-2010 2010-2011 2011-2012

-350

-300

-250

-200

-150

-100

-50

0

50

100

150

100

-85.84

-290.84

-14.94

-58.99

Interpretation

Working capital trend analysis stood at its minimum in the year 2009-10 with a percentage of

-290.45. The above given table shows the negative trend of TRCMPU Ltd due to flexibility

in the ratio.

Trend Analysis of Current Assets

77

Year Current Assets Trend (%)

2007-2008 1300.55 100

2008-2009 3169.48 243.70

2009-2010 4633.80 356.29

2010-2011 2716.66 208.88

2011-2012 3564.66 274.08

Trend Analysis of Current Assets

2007-2008 2008-2009 2009-2010 2010-2011 2011-20120

50

100

150

200

250

300

350

400

100

243.7

356.29

208.88

274.08

Interpretation

The table shows an variation trend in the current assets. Here 2007-2008 is taken as the base

year. The trend in current is high due to good increase in the percentage in 2010 is 356.29 as

compared to 100 in 2007. The increase in the current assets is quite satisfactory.

Trend Analysis of Current Liabilities

78

Year Current liabilities Trend (%)

2007-2008 2040.50 100

2008-2009 2534.29 124.19

2009-2010 2484.55 121.76

2010-2011 2606.10 127.71

2011-2012 3128.16 153.30

Trend Analysis of Current Liabilities

2007-2008 2008-2009 2009-2010 2010-2011 2011-20120

20

40

60

80

100

120

140

160

180

100

124.19

121.76 127.71

153.30

Interpretation

The table shows an increasing trend in the current liabilities. Here 2007-2008 is taken as the

base year. The trend in current liabilities is high increase in the percentage in 2012 is 153.30

as compared to 100 in 2007.

Trend Analysis of Fixed Asset

79

Year Current Fixed Asset Trend (%)

2007-2008 1805.25 100

2008-2009 2023.57 112.09

2009-2010 2113.50 117.09

2010-2011 4266.28 236.32

2011-2012 3929.94 217.69

Trend Analysis of Fixed Asset

2007-2008 2008-2009 2009-2010 2010-2011 2011-20120

50

100

150

200

250

100112.09 117.0

7

236.32

217.69

Interpretation

The table shows a variations trend in the fixed assets. Here 2007-2008 is taken as the base

year. The trend in fixed assets is high increase in the year at percentage in 2011 is 236.32 as

compared to 100 in 2007. Then the fixed assets is decrease in the year of 2012

COMMON SIZE STATEMENTS

80

Common size statements is a statement where in monetary data are expressed

in terms of percentages of total. In common size profit and loss account, all elements in it are

expresse4d as percentage of total revenue. In common size balance sheet all elements are

expressed as percentage of total assets of total liabilities. This statement facilitates for easy

comparison of various elements of the statements between two or more years.

COMMON SIZE BALANCE SHEET OF TRCMPU LTD

(FROM 2008 TO 2012) In percentage

Liabilities 31/03/08 31/03/09 31/03/10 31/03/11 31/03/12

Owners fund 34.65 39.79 28.99 39.11 39.23

Borrowed fund 14.72 20.95 28.58 23.91 19.39

Current liabilities 50.63 39.24 42.43 36.98 41.80

Total 100 100 100 100 100

Assets

Fixed assets 52.81 51.34 54.73 59.69 51.32

Investment 3.66 3.45 2.26 2.29 2.13

Current assets 43.53 45.21 43.01 38.01 46.55

Total 100 100 100 100 100

Interpretation

81

In common size balance sheet, the owners fund shows a changing trend throughout the study.

During 2007-2008 the owners fund was 34.65% further decreased and then increased to

39.23% in 2012. Common size balance sheet shows that the owners fund is increasing while

borrowed funds and liabilities are decreasing. It is not favourable for the union. But the

current asset shows an increase in 2012.

COMMON SIZE PROFIT AND LOSS ACCOUNT OF TRCMPU

LTD (FROM 2008 TO 2012) in percentage

EXPENDITURE 31/03/2007 31/03/2008 31/03/2009 31/03/2011 31/03/2012

Raw material cost 87.42 85.24 86.34 84.07 85.74

Employee cost 5.26 6.25 5.55 5.86 5.20

Manufacturing

expenses

2.48 2.24 2.01 2.1 1.9

Selling expense 4.85 4.66 4.29 4.34 3.76

General overhead 0.81 0.92 1.13 1.40 2.40

Taxes and duties 0.08 0.01 0.05 0.07 0.07

Interest 0.17 0.22 0.25 0.23 0.39

Depreciation 0.55 0.4 0.37 0.77 0.55

Net profit/loss (1.62) 0.31 0.05 (0.06) (0.02)

Total 100 100 100 100 100

INCOME

Sales 99.63 99.68 99.55 99.25 98.83

Other sales 0.14 0.11 0.08 0.10 0.09

Interest 0.01 0.01 0.03 0.03 0.65

Other income 0.22 0.2 0.34 0.2 0.39

Closing stock - - - 0.03 0.65

Total 100 100 100 100 100

82

CHAPTER IV

FINDINGS

&

RECOMMENDATION

FINDINGS

83

In this order to study the efficiency, the present financial position in

Trivandrum regional cooperative milk producers union ltd, Thiruvananthapuram, is analyzed

for a period of five year commencing 1-4-2007 the following are the important findings

derived from the study.

The financial position of the firm is not satisfactory.

The low value of cash ratio indicates that the liquidity position of the firm is not good.

The decreasing value of net profit ratio shows the poor result from operations.

The decreasing trend in fixed asset ratio indicates that its extent of utilization is poor.

The working capital position is not good and the low value of working capital;

turnover ratio shows that there is no optimum use of working capital in improving the

efficiency of operation.

The major source of revenue of the firm is from sale of the products followed by other

income.

The low value of quick ratio indicates that the liquidity position of firm is not good.

The sale during the period under study shows a increasing trend

Comparative balance sheet shows financial position of the TRCMPU is not

satisfactory.

The common size profit and loss account shows that the net result from operations is

decreasing and hence not satisfactory.

Less proprietary ratio indicates higher dependence on outsider’s fund.

84

RECOMMENDATION

85

RECOMMENDATION

Enhance Liquidity Position

The liquidity position of the union is poor so that it is suggested that the level of current

assets and cash position should be increased for enhancing the liquidity position.

Improve the profitability Position

By increasing the sales volume, production capacity, implementing effective cost control and

cost production measures will be helpful

Capital Structure

Union can seek more grant from government under various schemes by which the capital

structure of the firm can be improved. This will helps to reflect a good capital structure,

stable financial position, reduce the risk and uncertainty and helps to increase owners fund.

Good capital structure will also help to get more loans from banks.

Reduce the cost of Raw Materials

The costs of raw materials constitute more than 86% of sales revenue which is on the higher

side accounting to industry standards. Hence more control is required to be exercised in this

area in terms of price, quality, wastage, spoilage to bring down the cost of raw materials.

Improve the production Capacity

The production overhead expenses increasing year after year affecting the profit margin.

Hence, it is suggested to improve capacity.

Improve the sales volume

Effective steps to be taken to improve sales volume.

Strengthen the Internal System

Functioning of existing internal audit system should be relooked into considering the poor

operating results of the union for the past 10 years. It is suggested that all areas of functions

need to be recovered under the internal audit review.

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Enhance the working capital

There is no effective assessment and optimum use of working capital. An effective

assessment and optimum use of working capital results in maximizing productivity and

profit.

Conduct Financial statement Analysis

Proper evaluation of financial statements should be done and compared with the previous

years.

Evaluate and Analyse financial Ratios

The study shows that some of the major accounting ratios are not worked out and analysed

properly. It is suggested that financial ratios need to be worked out and analysed properly in

order to get true picture of the financial situation.

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CHAPTER V

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CONCLUSION

Financial statement represents the snapshot of a concern’s activities at the end of the

particular period. Financial statement revels how a business has prospered under the

leadership of its management personnel. Financial appraisal is a technique to evaluate the

past, current and projected performance of a concern.

The present study was undertaken with the objective of evaluating the financial stability and

operational health of Trivandrum regional cooperative milk producers union ltd. The data for

the present study was obtained from the financial statements and accounting records of

Trivandrum regional co-operative milk producers union ltd. This information was

supplemented by interviews with top officials and by handout and journals. The study covers

5 years from 2007-2008 to 2011-2012. A suitable analysis, Proper conclusions have been

drawn regarding the financial health and operational efficiency of Trivandrum regional co-

operative milk producers union ltd.

The project Trivandrum regional co-operative milk producer’s union ltd enables me to

acquire practical knowledge on the management theories also. Despite of the limitation the

project was successfully completed with the immense support of the guide and co-operative

of the firm.

89

BIBLIOGRAPHY

90

BIBLIOGRAPHY

Chandra. P, “Financial Management Theory and Practice”, Tata Mc-Graw Hill

Publishing Co. Ltd, New Delhi.

.Anthony,N.R; Hawkins,F.D;Merchant,A.K (2010), “ Management Accounting” ,

12th edition Tata McGraw Hill.

. Banerjee.A (1990), “Financial Accounting” ,2nd edition, Sultan Chand & Sons, New

Delhi

.Lawson (1992), “ Accounting & Financial Management” , Tata McGraw Hill,

New Delhi.

Davies. D, “The Art Of Managing Finance”, Mc Graw Hill Book Company, New

Delhi

Khan M.Y,”Theory and Problems in Financial Management”, Tata Mc-Graw Hill

Publishing Co Ltd, New Delhi.

Pandey I M,”Financial Management”, Vikas Publishing House Pvt Ltd, New Delhi.

Van Horne J C,”Financial Management and Policy”, Prentice-hall, New Delhi.

Journals and websites

Annual Report of TRCMPU LTD From 2007-2008 to 2011-2012

WWW.trcmpu.org WWW.themanager.org/knowledgebase/diary industry Survey of Indian Industry-Published by The Hindu

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APPENDIX

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