tirumala diary prj modified by working capital

CHAPTER - I

INTRODUCTION

1

INTRODUCTION

A financial statement is a collection of data organized according logical and

consistent accounting procedures. Its purpose is to convey an understanding of some

financial aspects of a business firm. It may show a position at a moment in time, as in the

case of an income statement, thus the term financial statements generally refers to the two

statements, these are:

These statements are used to convey to management and other interested outsiders

the profitability and financial position of the firm Financial statements are the outcome of

summarizing process of accounting. In the words of john N.Her, the financial statements

provide a summary of the accounts of a business enterprise, the balance sheet reflecting

the asset, liabilities and capital as on a certain date and the income statement showing the

results of operations .

Financial Statements, as used incorporate business, refers to a set of reports and

schedules, which an accountant prepares at the period at the period of time for a business

enterprise. These comprise balance sheet and profit and loss account. In India, even,

company has to present its financial statements in the form and contents as prescribed

under section 21 of the companies Act 1956.

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Financial Statements

Income Statements (or) Profit and Loss

Account

Position Statement (or) Balance Sheet

OBJECTIVES OF FINANCIAL STATEMENTS:-

Financial statements are the sources of information on the basis of which

conclusions are drawn about the profitability and financial position of a concern. they are

the major means employed by firms to present their financial situation of owners,

creditors and the general public, the primary objective of financial statements is to assist

in decision making,. The accounting principles board of America (APB) sates the

following objectives of financial statements.

To provide reliable financial information about economic resources and

obligations of a business firm.

To provide other needed information about changes in such economic resources

and obligations.

To provide reliable information about changes in net resources (resources less

obligations) arising out of business activities.

TYPES OF FINANCIAL STATEMENTS:-

Financial statements primarily comprise two basic statements: (1) the position

statement or the balance sheet and (2) the income statement or the profit and loss account.

However, (Generally Accepted Accounting Principles (GAAP) specifies that a complete

set of financial statements must include:-

A Balance Sheet.

An Income Statement (Profit and Loss Account).

Statement of Changes in Owners Equity (Retained Equity).

A Statement of Changes in Financial Position.

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NEED FOR THE STUDY:-

The study is conducted for the needs.

1. The Basic need is to complete3 a project work for the partial fulfillment of my

master degree.

2. To know various procedure and patterns followed for the computation of

Financial Statements in the organization.

3. To have a personal exposure by visiting the organization.

4. To develop the communication skills by preparing the project report.

5. To study the role of Financial Statements in the organization.

6. To know the more information about the Financial Analysis both theoretically and

partially.

4

SCOPE OF THE STUDY

The study of significance help to the following groups

1. The study provides an inside into the various aspects of Financial Statements.

2. Hence the company can make a necessary changes in the policy relating to it.

3.Study of the types are more useful to competitors to make a necessary steps to

Financial position

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OBJECTIVES OF THE STUDY

The main aim of the study is to analyze the financial statement analysis of

TIRUMALA MILK PRODUCTS PRIVATE LTD

. To provide reliable financial information about economic resources and

obligations.

To Know the present and future earning capacity or profitability of the concern.

To study and analysis the financial performance of the company.

To offer findings, suggestions & conclusions of the study.

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METHODOLOGY OF THE STUDY

Methodology is a systematic process of collecting

information in order to analyze and verifies a phenomenon. The collection of data is two

principle sources. They are discussed as

I. Primary data

II. Secondary data

PRIMARY DATA:-

The primary data needed for the study is gathered through

interview with concerned officers and staff, either individually or collectively, sum of the

information has been verified or supplemented with personal observation conducting

personal interviews with concerned officers of finance department of “TIRUMALA

MILK PRODUCTS PRIVATE LTD”.

SECONDARY DATA:-

The secondary data needed for the study was

collected from published sources such as, pamphlets of annual reports, returns and

internal records, reference from text books and journal management.

Further data needed for the study was collected from:-

Collection of required data from annual records of the company.

Reference from text books and journals relating to financial management.

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DIAGRAMATIC REPRESENTATION OF RESEARCH

METHODOLOGY

8

DATA SOURCES

PRIMARY SOURCES

SECONDARYSOURCES

MANAGEMENT RESPONDENTS

PERSONAL OBSERVANCE

INSIDE THE

COMPANY

OUT SIDE THE

COMPANY

ANNUALREPORTS

TEXT BOOKS

JOURNALS

LIMITATIONS OF THE STUDY

Financial statements do not depict the exact position and are essentially interim reports.

The Financial statements contain historical information. This information is useful but an investor should be concerned more about the present and future.

The financial statements are prepared on the basis of certain accounting concepts and conventions. An investor should know them.

The statements contain only information that can be measured in monitory units.

The financial statements are sometimes prepared according to the needs of the situation or the whims of the management.

As an adequate data was not able to pool because of the secrecy maintained by the

firm proper justification for the project was not done.

The study is limited to financial analysis or TIRUMALA MILK PRODUCTS

PRIVATE LTD

The study is confined to the figures available on paper and files and no physical

verification has been done.

As time and money is limited so it is not possible to collect adequate information

for the study.

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CHAPTER – II

INDUSTRY

&

COMPANY

PROFILE

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INDUSTRY PROFILE

Dairying has been of life in India since the ancient times. The modern diary

Industry took roots in 1950 with the sale of bottled milk in Bombay from Array milk

colony. The first large scale milk products factory was started in 1945 at Anand a Co-

operative venture, with the assistance of UNICEF, for the production of milk powder,

table butter and ghee. These products were making from the buffalo milk.

The world’s largest development program over undertaken, the operation flood

undertook and gigantic task of upgrading and modernizing with production, procurement,

processing and marketing with the assistance provided by the World Bank and other

external agencies, designed and implemented by the National Diary Development Board

(NDDB) and the Indian Diary Corporation. The project was launched in July, 1970. Its

basic concept compromises the establishment of co-operative structure on Anand pattern.

India enters an era of economic resources of agriculture, particularly the livestock

sector, is positioned to be a major growth area. The fact that dairying could play a more

constructive role in promoting rural welfare and reducing poverty is increasingly being

recognized. For example, milk production alone involves more than 70 million producers,

each raising one or two cows/buffaloes. Cow dung is an important input as organic

fertilizer for crop production and is also widely used as fuel inn rural areas. Cattle also

serve as an insurance cover for the poor households, being sold during times of distress.

There was an increasing demand for milk from the urban areas. There arose a

need for the farmers to increase the production of milk. Since the demand in the urban

scenario is rapidly increasing so do the farmers generate the supply? Further the new

dairy plant capacity approved under the Milk and Milk products order (MMPO) has

exceeded 100 million l/p/d. The new capacity would surpass the projected rural

marketable surplus of milk by about 40 percent by 2005.

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HISTORY

The origin of dairy farms under public management dates back to 1886 when the

department of Defense established a few dairy farms in that year to supply milk and milk

products to the British troops. The next step was initiated during the First World War. In

1914, the Department of Defense on the advice of the Board of Agriculture advised the

Government in 1916, to appoint imperial dairy expert. The next important step was the

decision to conduct a census of livestock. The Board of Agriculture carried out the

livestock census in 1919 as a preparatory action for planned dairy development. In 1920,

the imperial expert recommended to the Government for the establishment of a training

center to meet the manpower requirements for managing the Defiance Dairy Farms. By

this time there were three dairy farms and until 1923 the British Government’s approach

towards dairying was confined to milk requirements of the military only. After 1923,

diploma course in dairy were started at Bangalore.

Dr. N.C. Wright, Director, Dairy Research institute, Scotland who was invited to

India in 1936 for reviewing the progress of dairying in the country has made two

recommendations: -

1. Industry needs have to be solved by developing own technology and technologists in

the country.

2. India is country of villages, of which most inhabitants are small, marginal farmers and

landless laborers. Development should be promoted only on co-operative lines.

In 1937, the Lucknow Milk producer’s co-operative Union limited was

established paving the way for the organization of such union in districts and state.

In 1945, the Famine enquiry commission in its report emphasized the need for

developing fodder supply for increasing milk production and recommended the adoption

of mixed farming with a place for fodder and crop rotation. As a sequel to this, under the

Greater Bombay Milk Scheme, milk was procured from kaira district, Gujarat by the

private dairy. That gave way to the idea of creating an institutional structure for dairying

on co-operative lines.

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DEVELOPMENTS OF INDUSTRY

National Dairy Development Board (NDDB):-

The Government of India had established the National Dairy Development Board

(NDDB), an autonomous body headquartered at Anand’s Co-operative in India. In order

to develop dairy in India, NDDN drew plans for ‘operation flood’.

OPERATION FLOOD:-

In the late sixties, the board drew up a project called Operation Flood (OF) –

meant to crate a flood of milk in India’s villages with funds mobilized from foreign

donations. Producer’s co-operatives, which sought to link dairy development with milk

marketing, were central plank of this project. The Operation Flood, which started in

1970, concludes its third phase in 1996 and has to its credit these significant results:-

1. The enormous urban market stimulus has led to sustained.

2. Production increases, raising per capita availability of milk to early 200 grams per day.

3. The dependence on commercial imports of milk solids are alone away with.

4. Modernization and expansion of the dairy industry and its infrastructure, activating

milk grid.

5. Marketing expanded to supply hygienic and fair priced milk to some 300 million

consumers in 550 cities and towns.

6. A nationwide network of multi-tier producer’s co-operative, democratic in structure

and professionally managed, has come into existence. Millions of small producers

participate in an economic enterprise and improve the quality of their life and

environment.

7. Dairy equipment manufacture has expanded to meet most of the

industry’s needs.

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THREE PHASES OF DEVELOPMENT

The scheme sought to establish milk produces co-operatives in the villages and

make modern technology available to them. The broad objectives are to increase milk

productions (“a flood of milk”) augment rural incomes and transfer to milk producers the

profits of milk producers the profits of milk, marketing which are hitherto enjoyed by

well-to-do-middlemen.

PHASE1:-

Phase 1 of Operation Flood was financed by the sale within India of skimmed

milk powder and butter oil gifted by the EC countries via the world food program. As

founder-chairman of the National Dairy Development Board (NDDB) of India Dr.Kurien

finalized the plans and negotiated the details of EEC assistance. He looked after the

administration of the scheme as found-chairman of the erstwhile Indian Dairy Co-

operation, the project authority for Operation Flood. During its first phase, the project

aimed at linking India’s 18 best milk sheds with the milk markets of the four

metropolitan cities of Delhi, Mumbai, Calcutta and Madras.

PHASE2:-

Phase 2 of the project, implemented during 1981-85 raised this to some 136 milk

sheds linked to over 290 urban markets. The seed capital rose from the sale of WFP/EEC

gift products and World Bank loan had created, by end 1985, a self-sustaining system of

43,000 village’s co-operatives covering 4.25 million milk producers. Milk powder

production went up from 22,000 tons in the pre project year to 1, 40,000 tons in 1989,

thanks to dairies set up und Operation Flood. The EEV gifts thus helped to promote self-

reliance. Direct marketing of milk by producer’s co-operatives resulting inn the transfer

of profits from milk contracts increased by several million liters per day.

PHASE3:-

Phase 3 of Operation Flood (1985-1996) enabled dairy co-operatives to rapidly

build to the basic up the basic infrastructure required to procure and market more and

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more milk daily. Facilities were created by the co-operatives to provide better veterinary

first-aid health care services to their producer’s members.

ANAND PATTERAN DIARY DEVELOPMENT

The information Anand pattern of milk co-operative was launched with the

organization of Krishna District Co-operative Milk producers Union Limited. In this

pattern the function of diary is milk procurement, processing and marketing are

controlled by the milk producers themselves.

PLANNING INVESTMENT:-

33.43 Crores

247.53 Crores

187.00 Crores

349.00 Crores

116.00 Crores

600.00 Crores

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INDUSTRY PROFILE IN ANDHRA PRADESH:-

The program Dairy Industry was mooted with commendable help of the United

National International Children’s Emergency Fund, Food and Agriculture Organization

and Freedom from Hunger Company campaign organization of the U.K. These

organization insisted a lot of the establishment of the dairy units at Hydria and

Vijayawada in 1967 and 1969 respectively, which lead to pioneer dairy development in

Andhra Pradesh later to set cooling and chilling centers have been setup to feed these two

gigantic units.

The Government of Andhra Pradesh started dairy development corporation to

interest of milk producers and ensuring adequate supply of fresh milk at reasonable price

to the urban consumers as A.P.D.D.C., come in to the existence on 2nd April 1974.

A.P.D.D.C., providing employment to nearly 20 employees and organism easy many as

87 dairy units including seven milk factories, 13 district dairies, 22 chilling centers, 18

cooling centre and 15 mini cooling centers.

In addition to that the private units have been contributing their little mite in the

development of dairy industry M/s. Hindustan milk foods that has started a malted milk

product factory in Rajahmundry. Further to enhance working efficiency and to increase

the turnover, the Government has constituted on autonomous dairy development.

Corporation on the recommendation measure the dairy industry improving towards

massive milk production and milk collections.

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DAIRY DEVELOPMENT:-

In 1960 pilot milk supply scheme was started in the state for the dairy

development. Its initial capacity was 100 liters a day in the time of starting. Now its daily

collection increased to 11 lakhs liters per day. It is also working as alien between milk

producers of the towns by providing reasonable price to the producers to maintain stable

market.

A.P. Diary development co-operative federation (A.P.D.D.C.F):

A.P.D.D.C.F. was formed in October,1981 to implement Operation Flood-2

program through active involvement of producers in organization milk production,

procurements, processing and marketing on “three-tier”. Co-operative structure as per the

National Government of India. The three-tier system consists of primary dairy co-

operatives societies’ 13 village level, co-operative unions at district level and federation

at state level.

OPERATION FLOOD:-

In our state operation flood was divided in three types “Anand Level”.

Village level - D.C.S.

District level - M.P.C.V.

State level - A.P.D.D.C.

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Operation flood programmer:-

Indian diary Development Corporation own the responsibility of implementation

of operation flood programs, which provides money assistance, put 70 % towards loans

and 30 % as subsidy. National Diary Development Corporation selected district of the

State for implementation of operation fold.

Development of dairy in Nineties:-

The momentum gained in the dairy through co-operatives during the last 20 years

will now take India into nineties as major dairying country of the world. The country’s

milk production in the early sixties which was about 20 million tons has touched a record

of 56 million tons. It is likely to reach about 80 million tons by 2000 AD. India which

one time was dependant on other countries for products such as milk powder, table butter

and cheese has now become self sufficient. It has even started exporting some of them in

small quantities simultaneously efforts are made to expand milk procurement, processing

and marketing to meet the growing demand for milk products.

Growth of the Industry:-

Before the independence of India, in the first half of the 20 th century dairying in

the country was largely unorganized. Fluid milk and its products were generally not

easily marketable commodities and there was no transport of these products to far

distances. Organized dairying, as well understood in the west started in a small way when

military dairy farms and creameries were established towards the end of the 20th century

to meet the demands of the armed forces and their hospitals. Some private dairies, such as

Kaveters and poisons' with encouraged making pasteurized butter, primarily for the use

of the British army. As a result the imperial institute of animal Husbandry and dairying

was established in 1923 at Bangalore. There has been another major effort in the early

1940's where milk produced in rural areas of kaira district was collected in bulk

Pasteurized and transported by distributing in Bombay by " the Bombay milk scheme"

operated by the Bombay municipality. When India become independent in 1947, one of

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the major milk schemes to be included the country was "the Greater Bombay milk

scheme (GBMS)".

MILK SHEDS/UNIONS:-

Operation flood programmer has been identified into milk sheds/unions.

NO MILK SHEDS / UNIONS DISTRICTS

1 Visakha Srikakulam, Vizianagaram, Vizag

2 Godavari East and West Godavari

3 Guntur-Prakasam Guntur-Prakasam

4 Chittoor Chittoor

5 Cuddapha Cuddapah

6 Kurnool Kurnool

7 Nalgonda-Ranga Reddy Nalgonda-Ranga Reddy

8 Medak-Nizamabad Medak-Nizamabad

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COMPANY PROFILE

TIRUMALA MILK PRODUCTS Private Limited is a professionally managed

company engaged in the manufacture of a wide range of Dairy Products which include

Milk in Sachets, Sweets, Flavored Milk, Curd in Cups and Sachets, Milk Powder, Butter,

Ghee and Butter Oil both in bulk as well as in consumer packs...

Established in 1998, TIRUMALA MILK PRODUCTS (P) Ltd. is one of the

fastest growing Private Sector Enterprises in India with a team of dedicated professionals.

The company has one of the most modern and versatile plants in the Indian Dairy

Industry with state-of-the-art technology. TIRUMALA MILK PRODUCTS (P) Ltd.

Products meet stringent quality control tests and cater to the premium segment of the

market for Dairy Products. TIRUMALA MILK PRODUCTS (P) Ltd. is presently

implementing an expansion programme and proposes to launch new products in the near

future.

Presently TIRUMALA MILK PRODUCTS market presence in Andhra Pradesh,

Karnataka and Tamil Nadu. It handle 13 Lakh liters of milk per day in packing stations

and dairy plant, which is the single largest plant in the state of Andhra Pradesh. Its

Registered Office is located at NarasaraoPet, Gutur Dist and Corporate Office is located

at Kavurihills, Hyderabad.

TIRUMALA MILK PRODUCTS (P) Ltd. sells a rich, varied offering of

nutritious, tasty and healthy food products under well-known brand. Taste, health,

convenience, reliability and vitality for consumers are key characteristics. Milk comes

from cattle herd that receive the best care along with healthy and nutritious diet in the

form of quality feed to ensure that they produce wholesome, high-quality milk. The

major contributors to the success of TIRUMALA MILK PRODUCTS (P) Ltd. are:-

Milk Procurement Network

Superior sales and marketing prowess

Strategic technological & infrastructural advantage

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Efficient human investments

BRIEF INTRODUCTION ABOUT COMPANY:-We have established a dairy unit named Tirumala Milk products (P) Limited, at

Kadivedu Village, Chillakur Mandal, Nellore District, Andhra Pradesh and

commissionered for commercial production for mareting during sepetember 1999 to

handle 2,25,000 litres of milk per day. The plant is located on Calcutta-Chennai National

High way, 9kms from Gudur town towards Chennai, in an are of 13.00 acres.

Inception

Vision

Mission

Policies

INCEPTION:-

The unit is registered under S.S.I. The milk is bulk is being purchased from other

dairies processed, homogenized, packed and marketed mainly in Chennai, Bangalore and

Mysore cites. The milk is being also sold in Guduru, Tirupathi and Nellore towns basing

on consumers’ demand. By marketing the milk in various towns, assured market. Out let

is provided to large number of village milk producers for their surplus are applied before

machinery is installed in the dairy. Strict quality standards are applied before marketing

the milk for which well equipped laboratory is established. In order to deliver quality

milk to the consumers insulted trucks are used to transport milk from the dairy to various

destinations.

VISION:-

Tirumala Milk Products (P) Limited is a dream come true to the dynamic young

entrepreneurs who have jointly efforted to convert their skills, knowledge and experience

in the field of processing and producing milk and milk products.

Realizing the Milk Product Potentialities of the inversion track of the

Government of Andhra Pradesh and Government of India, with self managed financial

resources and established the Tirumala Dairy in the year 1995 at Narasaraopet, Guntur

District and erected new plant at Kadivedu in the year 1999. Today, the dairy has posd to

21

equate major dairies int eh southern region which has not only captured the market but

also has mode “Thirumala” an accepted Brand and preference of the consumers.

MISSION:-

Tirumala Milk Product (P) Limited is a dream come true to the dynamic young

entrepreneurs who have jointly efforted to convert their skills, knowledge and experience

in the field of processing and producing milk products.

POLICIES:-

Realizing the milk product potentialities of the inversion track of the Government

of Andhra Pradesh and Government of India, with self managed financial resources and

established the Tirumala Dairy in the year 1995, at Narasaraopet District, Guntur and

erected new plant at Kadivedu in the year 1999. today, the dairy has posed to equate

major dairies in the southern region which has not only captured the market but also has

mode “TIRUMALA” an accepted Brand and preference of the consumers.

22

AREAS OF OPERATION:-

Tirumala distributes milk to various parts of Tamil Nadu, Andhra Pradesh, and

Karnataka. Gudur is the main source for delivering milk and milk products to Chennai

and other major parts of Tamil Nadu. The procurement and processing section located at

Pasupattur village of Chitoor district in Andhra Pradesh is the source of milk, curd and

products which are supplied in Bangalore and Mysore Markets. The packing station

located at Vellacheruvu, 20 KM away from Registered Office and plant at Singavaram

West Godavari District, Wadiyaram in Medak District and Gunagal in Rangareddy

District supplie milk curd and other products to major markets of Andhara Pradesh which

includes Hyderabad, Vijayawada, Guntur, Rajamandry, Kakinada, Visakhapatnam,

Mahabubnagar and Karim Nagar. Skim Milk Powder, Butter and Butter oil produced at

Gudur plant are supplied to major Industrial and Institutional customers located across

India.

CERTIFICATES AND AWARDS:-

In recognition of its efforts and achievements in the dairy foods industry, and in

acknowledgment of all the challenges surmounted, TIRUMALA MILK

PRODUCTS (P) Ltd. has won many awards and certificates.

More enduring than any public recognition for our contributions is the satisfaction

we enjoy by creating a superior product and giving back to our communities.

TIRUMALA MILK PRODUCTS (P) Ltd. is an ISO 9001:2000 and an ISO 2000:

2005 Certified company. The dairy is following Quality Management System and

Food Safety Standards.

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Apart from ISO certification, It has Certificate from SGS on SMP Analysis too.

TIRUMALA MILK PRODUCTS (P) Ltd. has ISI Licence, Agmark Licence and

adheres to all other statutory standards as per requirements.

PRODUCTS:-

TIRUMALA MILK PRODUCTS (P) Ltd. covers the entire spectrum of

dairy products sold in markets. The complete range of TIRUMALA MILK PRODUCTS

(P) Ltd. are highly nutritious, healthy and bring you a world of goodness.

TIRUMALA MILK PRODUCTS (P) Ltd. pasteurizes and packages all

fresh dairy products in technologically superior and hygienic conditions to ensure pure

natural freshness.

TIRUMALA MILK PRODUCTS (P) Ltd., Handles 6.5 Lakhs Liters of

Milk per day in all their packing Stations and main dairy plant which is the highest in the

state of Andhra Pradesh.

TIRUMALA MILK PRODUCTS (p) ltd. Handles milk in the following locations:-

Pacing Locations Handling Capacity per day

Gudur4.0 Lakh litres

Vellala Cheruvu2.0 Lakh litres

Bhimadolu1.0 Lakh litres

Palamaner2.0 Lakh litres

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Gungal4.0 Lakh litres

Procurement of Milk:-

TIRUMALA MILK PRODUCTS (P) Ltd. established 25 Chilling centers in

Andhra Pradesh and 8 chilling centers in Tamilnadu to procure both Cow & Buffalo

milk. Best quality milk is procured and chilled at chilling centers, to retain freshness of

milk. The strength of the TIRUMALA MILK PRODUCTS (P) Ltd. is to procure more

than 6.0 lakh liters of milk directly from agents/farmers using state-of-the-art machinery

and professionally trained staff.

PRODUCTION:-

TIRUMALA MILK PRODUCTS (P) Ltd. has its main dairy plant at Kadivedu

with handling capacity of 4.0 lakhs lts of milk per day from various chilling

centers and local units.

Main plant processes 3.0 Lakhs Lts of milk per day in automatic sachet filling

machines for supply and distribution to Chennai, Tirupati, Nellore, etc… in

insulated puffs.

There is continuous growth in sale of milk from 50000 ltrs to 350000 ltr with in a

span of one-decade.

TIRUMALA MILK PRODUCTS (P) Ltd. has its own supply chain management,

which is the key to timely distribution.

At Palamaner unit processes and supplies 1.00 lakh liters of milk and 20000 liters

of curd to Bangolore city.

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Vellalacheruvu & Bhimadolu packing stations processes and supplies 2.0 lakh

liters of milk to Vijayawada., Guntur , Eluru, Visakhapatnam, Kakinada and

Rajahmundry.

Wadiyaram plant has capacity of 50000 Liters milk to cater to the markets of

Medak, Nizambad, Adilabad and Karim Nagar Districts of A.P

Butter: -

Is made from pure cow & Buffalo fat under hygienically processed through

continuous butter making machine.

Ghee:-

Is made from pure cow & Buffalo butter under supervision 30 years granulation,

colour and aroma of ghee with a capacity of 8 tonnes per day. Ghee is packed in a wide

range of 7 ml to 15 Kgs.

Milk Powder:-

Is made from fresh cow & buffalo milk, plant is capable of marketing all

type of milk powders with a capacity of 15 tonnes per day.

By-Products:-

Flavored Milk,

Lassi, Khava,

Milk Cake,

Panner,

Ice Cream,

Curd,

Buttermilk.

26

CHAPTER- III

THEORITICAL FRAMEWORK

27

FINANCIAL STATEMENTS ANALYSIS

Financial statements are prepared primarily for decision making. They play a

dominant role in setting the frame work of managerial decision. But the information

provided in the financial statements is not an end in itself as no meaningful conclusions

can be drawn from these statements alone. However, the information provided in the

financial statements is of immense use in making decisions through analysis and

interpretation of financial statements.

Financial analysis is ‘the process of identifying the financial strengths and

weakness of the firm by properly establishing relationship between the items of the

balance sheet and the profit and loss amount. There are various methods or techniques

used in analyzing financial statements, such as comparative statements, trend analysis,

common-size statements, schedule of changes in working capital, funds flow and

analysis, cost volume profit analysis and ratio analysis.

MEANING OF FINANCIAL STATEMENT ANALYSIS:-

The term financial analysis also known as analysis and

interpretation of financial statements, refers to the process of determine financial strength

and weakness of the firm by establishing strategic relationship between the items of the

balance sheet, profit and loss account and oilier operative data.

28

In the words of ‘Myers’,” financial statements analysis is

largely study of relationship among the various financial factors in a business as disclosed

by a single- set of statements and study of the trend of these factors as shown in a series

of statements”.

The analysis and interpretation of financial statements is

essential to bring out the mystery behind the figures in financial statements.

DEFINITION OF FINANCIAL STATEMENT ANALYSIS:-

According to Myers:-

“Financial Statements Analysis is largely a study of relationship

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

of these factors as shown in a series of statements”.

According to Kennedy and Muller:-

“The analysis and interpretations of financial statements reveal each and every aspect

regarding the well-being financial soundness, operational efficiency and creditworthiness

of the concerned”

CHARACTERISTICS OF IDEAL FINANCIAL STATEMENTS:-

The financial statements are prepared with a view to depict financial position of

the concern. A proper analysis and interpretation of these statements enables a person to

judge the profitability and financial strength of the business. The financial statements

should be prepared in such away that they are able to give a clear and orderly picture of

the concern. The ideal financial statements have the following characteristics.

1. Depict True Financial Position:-

The information contained in the financial statements should be such that a true and

correct idea is taken about the financial position of the concern. No material information

29

should be with held while preparing position of the concern. No material information

should be with held while preparing these statements.

2. Effective Presentation:-

The financial statements should be presented in a simple and lucid way so as to make

them easily understandable. A person who is not well versed with accounting

terminology should also be able to understand the statements without much difficulty.

This characteristic will enhance the utility of these statements.

3. Relevance: -

Financial statements should be relevant to the objectives of the enterprises. This will be

possible when the person preparing these statements is able to properly utilize the

accounting information. The information which is not relevant to the statements should

be avoided; otherwise it will be difficult to make a distinction between relevant and

irrelevant data.

4. Attractive:-

The financial statements should be prepared in such a way that important information is

underlined so that it attracts the eye of the reader.

5. Easiness:-

Financial statements should be easily prepared. The balances of different ledger accounts

should be easily taken to these statements. The calculation work should be minimum

possible while preparing these statements. The size of the statements should not be very

large. The columns to be used for gibing the information should also be less. This will

enable the saving of time in preparing the statements.

6. Comparability:-

The results of financial analysis should be in a way that can be compared to the previous

year’s statements. The statement can also be in compared with the figures of other

30

concerns of the same nature. Sometimes budgeted figures are given along with the

present figures. The comparable figures will make the statements more useful. The Indian

companies Act. 1956 has made it obligatory to give previous year’s figures in the balance

sheet. The comparison of figures will enable a proper assessment for the working of the

concern.

7. Analytical representation:-

The information should be analyzed in such a way that similar date is presented at the

same place. A relationship can be established in similar type of information. This will be

helpful in analysis and interpretation.

8. Brief:-

If possible, the financial statements should be presented in brief. The reader will be able

to form an idea about the figures. On the other hand, it figures are given in details then it

will become difficult to judge the working of the business.

9. Promptness:-

The financial statements should be prepared and presented at the earliest possible.

Immediately at the close of the financial year, statements should be ready.

LIMITATIONS OF FINANCIAL STATEMENTS:-

Though financial statements are relevant and useful for the concern, still they do

not present a final picture of the concern. The utility of these statements is dependent

upon a number of factors. The analysis and interpretation of these statements should be

done very carefully otherwise misleading conclusions may be drawn; the financial

statements suffer from the following limitations:

1. Only interim reports:-

31

These statements don not give a final picture of the concern. “The data given in

these statements is only approximate.” The actual position can only be determined when

the business is sold or liquidated. However, the statements have to be prepared for

different accounting periods, generally one year, during the life time of the concern. The

costs and incomes are apportioned to different periods with a view to determine profits

etc. the allocation of expenses and incomes will depend upon the personal judgment of

the accountant. The existence of cotangent assets and liabilities also makes the statements

imprecise. So financial statements do not give the final picture and they are the most

interim reports.

2. Do not give exact position:-

The financial statements are expressed in momentary values so they appear to

give final and accurate position. The value of fixed assets in the balance sheet neither

represents the value for which fixed assets can be sold nor did the amount, which will lie,

require replacing these assets. The balance sheet is prepared on the presumption of a

going concern. The concern is expected to continue in the figure. So fixed assets are

shown all cost less accumulated depreciation. There are certain assets in the balance sheet

such as preliminary expenses, goodwill, discount on issue of shares which will realize

nothing at the time of liquidation through they are shown in the balance sheet.

3. Historical Costs:-

The financial statements are prepared on the basis of historical costs or original

costs. The value of assets decreases with the passage of time current price changes are not

taken into account. The statements are not prepared keeping in view the present economic

conditions. The balance sheet losses the significance of being an index of current

economic realities. Similarly, the profitability shown by the income statement may not

represent the earning capacity of the concern. The increase I profits may be due to an

increase in prices or due to sonic abnormal causes and not due to increase in efficiency.

The conclusions drawn from financial statements may not give a lair picture of the

concern.

32

4. Impact of Non-Monetary Factors Ignored:-

There are certain f actors which have a bearing on the financial position and

operating results of the business but they do not become a pan of these statement s

because they cannot be measured I monetary terms. Such factors may include the

reputations of the management, credit worthiness of the concern, sources and

commitments for purchases and sales, co-operation of the employees, etc. The financial

statements only show the position of the financial accounting for business and not the

financial position.

5. No Precision:-

The precision of financial statement data is not possible because the statement

deal with matters which cannot be precisely stated. The data are recorded by convention

procedure is followed over the years. Various conventions, postulates personal judgments

etc, are used for developing the data.

METHODS OR DEVICES OF FINANCIAL ANALYSIS:-

The analysis and interpretation of financial statement is used to determine

the financial position and results of operations as well. A number of methods or devices

are used to study the relationship between different statements. An effort is made to use

those devices, which clearly analyze the position of the enterprise. The following

methods of analysis are generally used:

Comparative Statements

Trend Analysis

Common sized statements

Funds flow statements

Cash flow statement

Cost-Volume-Profit Analysis

33

Ratio Analysis.

COMPARATIVE STATEMENTS:-

The comparative financial statements are statements of the financial position at

different periods of time. The elements of financial position are shown in a comparative

form so as to give an idea of financial position at two or more periods. Any statements

prepared in a comparative term will be covered in comparative statements. From practical

point of view, generally two financial statements (balance sheet and income statement)

are prepared in comparative form for financial analysis purposes.

Not only the comparison of the figures of two periods but also be relationship

between balance sheet and income statement enables an in-depth study of financial

position a cooperative results. The comparative statement may show:

Absolute Figures (rupee amounts)

Changes in absolute figures i.e., increase or decrease in absolute figures.

Absolute data in terms of percentages.

The analyst is able to draw useful conclusions when figures are given

in a comparative position. The figures of sales for a quarter, half-year or one year may

tell only the present position of sales efforts. When sales figures of previous periods, are

given along with the figures of current periods then the analyst will be able to study the

trends of sales over different periods of time. Similarly, comparative figures will indicate

the trend and direction of financial and operating results.

The financial data will be comparative only when same accounting

principles are used in preparing these statements. In case of a deviation in the use of

accounting principles this fact must be mentioned at the foot of financial statements and

the analyst should be careful in using these statements. The two comparative statements

are (I) balance sheet and (ii) income statement.

COMPARATIVE INCOME STATEMENT:-

34

The income statement gives the results of the operation of a

business. The comparative income statement gives an idea of the progress of a business

over a period of time. The changes in absolute data in money values and percentages can

be determined to analyze the profitability of the business. Like comparative balance

sheet, income statement also has four columns. First two columns give figures of various

items for two years. Third and fourth columns are used to show increase is decrease in

figures in absolute amounts and percentages respectively.

COMPARATIVE BALANCE SHEET:-

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

the same items, group of items and computed items in two or more balance sheet of the

same business enterprise on different dates. The changes in periodic balance sheet items

reflect the conduct of a business. The changes can be observed by comparison of the

balance sheet at the beginning and at the end of a period and these changes can help in

forming an opinion about the progress of an enterprise. The comparative balance sheet

has two columns for the data of original valance sheets. A third column is used it show

increases in figures. The fourth column may be added for giving percentages of increases

or decreases. The balance sheet shows the financial condition of a business at a given

point of time. It consists of mainly two objects these are as fallows

Assets

Liabilities

The balance sheet is also called statement of financial position. Its shows the

assets, liabilities and capital as a particular date. It indicates what the firm owns and how

these assets are financed in the form of liabilities or owner ship interest.

35

FEATURES OF BALANCE SHEET:-

Balance sheet is prepared as specific date. Hence, it shows financial

position of the enterprise on that date.

Balance sheet is usually in two columns which illustrate relation ship

between the assets and liabilities,

Financial position of the firm is shown in the balance sheet on going

concern value.

TREND ANALYSIS:-

The financial statements may be analyzed by computing trends of

series of information; this method determines the direction upwards of downwards and

involves the computation of the percentage relationship that each statement item bears to

the same item in base year. The information for a number of years is taken rp and one

year, generally the first year, is taken as a bade year. The figures of the base year are

taken as 100 and trend ratios for other years are calculated on the bases of base year. The

analyst is able to see the trend of figures, whether upward or downward.

COMMON- SIZE STATEMENT:-

The common size statements, balance sheet and income statement

are shown in analytical percentages. The figures are shown as percentages of total assets,

total liabilities and total sales. The total assets ate taken as 100 and different assets are

expressed as a percentage of the total. Similarly various liabilities are taken as a part of

total liabilities. These statements are also known as component percentage or 100 percent

statement because every individual item is stand as a percentage of the total 100. The

short-comings in comparative statements and tend percentages where changes in items

36

could not be compared with the totals have been covered up. The analyst is able to assess

the figures in relation lo total values.

FUNDS FLOW STATEMENT:-

The funds flow statement is a statement is a statement which

shows the movement of funds and is a report of the financial operations of the business

under king. It indicates various means by which funds were obtained during a particular

period and the ways, in which these funds were employed, in simple words, it is a

statement of sources and applications of funds.

CASH FLOW STATEMENT:-

Cash flow is of vital importance to the financial management. It is an essential tool of

financial analysis for short-term planning. The chief advantages of cash flow statement

are as follows:

1. Since cash flow statement is based on the cash basis of accounting, it is very useful in

the evaluation of cash position of a firm.

2. A projected cash flow statement can be prepared in order to know the future cash

position of a concern so as to enable a firm to plan and coordinate its financial operations

properly. By preparing this statement, a firm can come to know as to how much cash will

be generated into the firm and how much cash will be needed to make various payments

and hence the firm can well plan to arrange for the future requirements of cash.

3. A comparison of the historical and projected cash flow statements can be made so as

to find the variations and deficiency or otherwise in the performance so as to enable the

firm to take immediate and effective action.

4. A series of intra-firm and inter-firm cash statement reveals whether the firm’s liquidity

(short-term paying capacity) is improving or deteriorating over a period of time and in

comparison to other firms over a given period of time.

37

5. Cash flow statement helps in planning the repayment of loans, replacement of fixed

assets and other similar long-term planning of cash. It is also significant of capital

budgeting decisions.

6. Cash flow analysis is more useful and appropriate than funds flow analysis for short-

term financial analysis as in a very short period it is cash which is more relevant then the

working capital for forecasting the ability of the firm to meet its immediate obligation.

RATIO ANALYSIS:-

One of the techniques of analysis of financial statements is to

calculate ratios. Ratio is the numerical or an arithmetical relationship between two

figures. It is expressed when one figure is divided by another. If 4000 is divided by

10,000 the ration can be expressed as 4 or 2:5 or 40%.

Absolute figures are valuable but they standing alone convey no

meaning unless compared with another. Accounting ration inter-relationships, which

exist among various accounting data? When relationships among various accounting data

supplied by financial statements are worked out, they are known as accounting ratios.

ACCOUNTING RATIOS CAN BE EXPRESSED IN VARIOUS WAYS

SUCH AS:-

i. A pure ratio say ratio of current assets to current liabilities is 2:1 or

ii. A rate say current assets are two times of current liabilities or

38

iii. A percentage say current assets are 200% of current liabilities.

Each method of expression has distinct advantage over the other. The analyst will select

that mode which wills best-suit his convenience and purpose.

CLASSIFICATION OF RATIOS

Ratios may be classified in a number of ways keeping in view the

particular purpose. Ratios indicating profitability are calculated on the basis of the

profit and loss account, those indicating financial position are computed on the basis

of the balance sheet and those which operating efficiency or productivity or effective

use of resources are calculate on the basis of figures in the profit and loss account and

the balance sheet. This classification is rather crude and unsuitable to determine the

profitability and financial position of the business. To achiever this purpose

effectively ratios may be classified as:

Profitability Ratios

Turnover Ratios

Financial Ratios

Leverage Ratios

PROFITABILITY RATIOS:-

Profitability Ratios are of outmost importance for a concern;

these ratios are calculated to enlighten the end results of business activities, which is the

sole criterion of the overall efficiency of a business concern.

TURNOVER (PERFORMANCE OR ACTIVITY) RATIOS:-

These ratios are very important for a concern to judge how well

facilities at the disposal of the concern are being used or to ratios are usually calculated

on the basis of sales or cost of sales and are expressed in integers rather than as

percentage. Such ratios should be calculated separately for each type of asset. Higher the

39

turnover ratio, the profitability and use of capital or resources will be. The following are

the important turnover ratios usually calculated by a concern

FINANCIAL RATIOS:-

These ratios are calculated to judge the financial position of the concern

from long-term as well as short-term solvency point of view. The following are the

ratios, which are calculated in the respect.

LEVERAGE RATIOS:-

Leverage Ratios to an increased means of accomplishing some purpose. In

financial management it refers to employment of funds to accelerate rate of return to

owners. It may be favorable or unfavorable. An unfavorable leverage exists if the rate of

return remains to however. It can be used as a tool of financial planning by the finance

manager

COMPARATIVE INCOME STATEMENT OF TIRUMALA MILK PRODUCTS PRIVATE LIMITED AS ON 2006-07 TO 2007-08

Particulars 2006-2007 2007-2008 Increase/decrease

Increase/decrease

in %

A)sales & other income 1244355560.00 1490617137.00 246261577.00 19.79%

B)Expenditure on :

Raw materials and packing material consumed

1023506571.00 1174717128.03 151210557 14.77%

Processing and operating expenses

938319927.00 119458344.49 (818861582.60) 87.26%

Salaries, wages and other payments to staff

13783556.00 16813493.80 3029937.80 21.98%

Administrative and marketing expenses

66013137.00 83389660.33 17376523.33 26.32%

Interest and financial charges 10242362.00 12858460.00 2616098 25.54%

Depreciation 19701377.00 29759420.00 (16725435) 84.89%

cost of production 2071566930.00 1436996507.00 (634570423.00) 30.63%

Decrease /increase in stock (504947.00) (31851606.00) (31346659.00) (6207.91%)

cost of goods sold 2071061983.00 1405144901.00 (665917082.00) (32.15%)

40

Gross profit 830661202.00 78323306.00 (752337896.00) (90.57%)

Profit before tax 16771683.00 21769024.73 4997341.73 29.79%

Add: Earlier year income 142680.00 0.00 (142680.00) -

Less: provision for taxation (4341000.00) (5088074.00) 747074.00 0.17%

Profit after tax 12573363.00 16680950.73 4107587.73 32.66%

INTERPRETATION:- o The Sales & other income has been increase by 246261577.00 i.e. 19.79%

o The cost of production has been decreased by (634570423.00) i.e. 30.63%

COMPARATIVE INCOME STATEMENT OF TIRUMALA MILK

PRODUCTS PRIVATE LIMITED AS ON 2007-08 TO 2008-09


Increase/decrease

in %


B)Expenditure on :Raw materials and packing

material consumed1174717128.03 2338261619.00 1163544491.00 99.04%


119458344.49 213408096.00 93949751.60 78.64%


16813493.80 29470626.00 12657132.20 75.27%


83389660.33 167759794.00 84370133.67 101.17%

Interest and financial charges

12858460.00 23599654.00 10741194.00 83.53

Depreciation 29759420.00 40369063.00 37393121.00 125.65%

cost of production 1436996507.00 2812868852.00 1375872345.00 95.74%Decrease /increase in stock (31851606.00) 12664933.00 (19186673.00) (60.23%)

cost of goods sold 1405144901.00 2825533785.00 1420388884.00 101.08%

41

Gross profit 78323306.00 27200525.00 (51122781.00) (65.27%)


Profit after tax 16680950.73 46467460.00 29786509.27 178.56%

INTERPRETATION:-

The the Sales & other income has been increase by 1370397138.00 i.e. 91.93%

The cost of production has been increased by 1375872345.00 i.e. 95.74%

The the cost of goods sold has been increased by 1420388884.00 i.e. 101.08

COMPARATIVE INCOME STATEMENT OF TIRUMALA MILK PRODUCTS PRIVATE LIMITED AS ON 2008-09 TO 2009-10Particulars 2008-2009 2009-2010 Increase

/decreaseIncrease/decrease

in %


B)Expenditure on :

Raw materials and packing material

consumed

2338261619.00 3003522365.00 665260746.00 28.45%


213408096.00 299487356.00 86079260.00 40.33%


29470626.00 43541860.00 14071234.00 47.74%


167759794.00 213490288.00 45730494.00 27.25%


23599654.00 37111286.00 13511632.00 57.25%

Depreciation 40369063.00 52675282.00 12306219.00 30.48%

cost of production 2812868852.00 3602420437.00 789551585.00 28.06%Decrease /increase in stock

12664933.00 24192668.00 11527735.00 91.02%

42

cost of goods sold 2825533785.00 3626613105.00 801079320.00 28.35%

Gross profit 27200525.00 111410654.00 84210129.00 309.59%


Profit after tax 46467460.00 98786932.00 52319472.00 112.59%

Interpretation:-

The Sales & other income has been increase by 897022943.00 i.e. 31.35%

The cost of production has been increased by 789551585.00 i.e. 28.06%

Comparative Income statement of Tirumala milk products private Limited as on 2009-10 to 2010-11


Increase/decrease in

%

A)sales & other income 3758037218.00 4729107872 971070654 25.83%


material consumed3003522365.00 3704017569 700495204 23.32%


299487356.00 366521333 67033977 22.38%


43541860.00 66503436 22961576 52.73%


213490288.00 264456756 50966468 23.87%


37111286.00 31881963 (5229323) (14.09%)

Depreciation 52675282.00 75380244 22704962 43.10%

cost of production 3602420437.00 4508761301 906340864 25.15%

43

Decrease /increase in stock 24192668.00 (28874089) (4681421) 19.35%

cost of goods sold 3626613105.00 4479887212 853274107 23.52%

Gross profit 111410654.00 228060527 116649873 104.70%

Profit before tax 132401449.00 191472483 59071034 44.61%

Profit after tax 98786932.00 134736951 35950019 36.39%

INTERPRETATION:-

The Sales & other income has been increase by 971070654 i.e. 25.83%

The cost of production has been increased by 906340864 i.e. 25.15%

The profit after Tax has been increased by 35950019 i.e. 36.39%

COMPARATIVE INCOME STATEMENT OF TIRUMALA MILK PRODUCTS PRIVATE LIMITED AS ON 2010-11 TO 2011-12


Increase/decrease in

%

A)sales & other income 4729107872 5876445462 1147337590 24.26%


material consumed3704017569 4752723438 1048705869 28.31%


366521333 459801451 93280118 25.45%


66503436 106475699 39972263 60.10%


264456756 341971419 77514663 29.31%

Interest and financial charges 31881963 53709353 21827390 68.46%

Depreciation 75380244 107637511 32257267 42.79%

cost of production 4508761301 5822318871 1313557570 29.13%

44

Decrease /increase in stock (28874089) 196863066 167988977 581.79%

cost of goods sold 4479887212 6019181937 1539294725 34.36%

Gross profit 228060527 160085103 (67975424) 29.80%

Profit before tax 191472483 250989658 59517175 31.08%

Profit after tax 134736951 164190338 29453387 21.85%

INTERPRETATION:-

The cost of production has been increased by 1313557570 i.e. 29.13%

The gross profit has been decreased by (67975424) i.e. 29.80%

The profit before interest & tax has been increased by 59517175 i.e. 31.08%

COMPARATIVE BALANCE SHEET OF TIRUMALA MILK PRODUCT -07 TO PRIVATELIMITED AS ON 20062007-08

2006-2007 2007-2008 Absolute Increase/

(Decrease)

% Increase/ (Decrease)

Sources of FundsShareholders’ Funds:Share Capital 23050000 23050000 - -Reserves & Surplus 48579189 64515839.95 15936650.95 32.80 %Loan FundsSecured Loans 183326618 104256408.06 (79070210) (43.13 %)Un Secured Loans 0 80543944.00 80543944.00 80.54 %Current LiabilitiesCurrent Liabilities 43492221 60299284.76 16807063.76 38.64%Provisions 7087149 8349907.96 1262758.96 17.81 %Other LiabilitiesDiffered Tax Liability - - - -Total Funds 305535177 341015384.70 35480207.70 11.61%Application of

45

FundsNet Fixed Assets 131380085 162309893.97 30929808.90 23.54%Investments 2610000 2610000 - -Current Assets, Loans & AdvancesInventories 109075147 100760856 (8314291) 7.62%Sundry Debtors 6358113 6844432.02 486319.02 7.64 %Deposits 4321650 7347643.00 3025993 70%Cash &Bank Balances

26367433 38838401.96 12470968.96 47.29%

Loans, Advances and prepaid expenses

25367449 22284157.78 (3083291.22) (121.54%)

Miss expenses to the extent not written off

55300 20000 (35300) 63.83%

Total Assets 305535177 341015384.70 35480207.70 11.61%

INTERPRETATION:-

The total assets have been increased by 35480207.70/- i.e. 11.61% in the

year 2007-08 when compared to previous year.

Share capital has no changed in comparing to previous years. It has been

constant for in this year 2007-08.

Reserves & surplus has been increased by 15936650.95 i.e. 32.80% in the


The secured loans have been decreased by (79070210). i.e (43.13 %) and The

Unsecured loans have been increased by 80543944.00 i.e. 80.54 % in the


It was observed that the current asset has been decreased by 45856987/- i.e.

2.67% in the year 2007-08 when compared to previous year.

46

COMPARATIVE BALANCE SHEET OF TIRUMALA MILK PRODUCT PRIVATE LIMITED AS ON 2007-08 TO 2008-09


(Decrease)


Sources of FundsShareholders’ Funds:Share Capital 23050000 82032382.00 58982382.00 255.88%Reserves & Surplus 64515839.95 121127284.00 56611444.05 87.74 %Loan FundsSecured Loans 104256408.06 383547595.00 279291187 267.88%Un Secured Loans 80543944.00 - (80543944.00) -Current LiabilitiesCurrent Liabilities 60299284.76 153837804.00 93538519.24 155.12%Provisions 8349907.96 19897427.00 11547519.04 138.29%Other LiabilitiesDiffered Tax Liability - - - -Total Funds 341015384.70 760442492.00 419427107.30 122.99%Application of FundsNet Fixed Assets 162309893.97 275112195.00 112802301.10 69.49%Investments 2610000 3330520.00 1170520.00 44.84%Current Assets, Loans & AdvancesInventories 100760856 258935801.00 158174945.00 156.98%Sundry Debtors 6844432.02 23666599.00 16822166.98 245.77%Deposits 7347643.00 6990208.00 (357435.00) 4.86%

Cash &Bank Balances 38838401.96 144273003.00 105434601 271.46%Loans, Advances and 22284157.78 48086695.00 25802537.22 115.78%

47

prepaid expensesMiss expenses to the extent not written off

20000 47471.00 27471.00 137.35%

Total Assets 341015384.70 760442492.00 419427107.30 122.99%

INTERPRETATION:-

The total assets have been increased by 419427107.30/- i.e. 122.99% in the year 2008-09

when compared to previous year.

The Share capital of the Tirumala milk product private limited has been increased by

58982382.00/- i.e. 255.88% in the year 2008-09 when comparing to previous years.

Reserves & surplus has been increased by 56611444.05/- i.e. 87.74 %in the year 2008-09


From the study it was observed that the investment has increased 1170520.00/- i.e.

44.84% in the year 2008-09 when compared to previous year.

Comparative Balance Sheet of Tirumala milk product private Limited as on 2008-09to 2009-10


(Decrease)


Sources of FundsShareholders’ Funds:Share Capital 82032382.00 82021809 (10573) 0.01%Reserves & Surplus 121127284.00 220125849 98998565 81.73%Loan FundsSecured Loans 383547595.00 336847834 298490239 778.17%Current LiabilitiesCurrent Liabilities 153837804.00 187019585 33181781 21.56%Provisions 19897427.00 18442538 (1454889) 7.31%Total Funds 760442492.00 844457615 84015123 11.04%Application of FundsNet Fixed Assets 275112195.00 341840410 66728215Investments 3330520.00 3330520 - -

Deferred tax assts - 34333 34333 100%Current Assets, Loans & AdvancesInventories 258935801.00 271428799 12492998 4.82%Sundry Debtors 23666599.00 18113070 (5553529) 23.46%Deposits 6990208.00 7787309 797101 11.40%

48

Cash &Bank Balances

144273003.00 129569540 (14703463) 30.57%


48086695.00 72333257 24246562 50.42%


47471.00 20376 (27095) 57.07%

Total Assets 760442492.00 844457615 84015123 11.04%

INTERPRETATION:-

The total assets have been increased by 84015123/- i.e. 11.04% in the year 2009-10


The Share capital of the Tirumala milk product private limited has been decreased

by (10573)/- i.e. 0.01% in the year 2009-10 when comparing to previous years.

The current asset has been increased by 17279669/- i.e. 3.58% in the year 2009-

10 when compared to previous year.

COMPARATIVE BALANCE SHEET OF TIRUMALA MILK PRODUCT PRIVATE LIMITED AS ON 2009-10 TO 2010-11


(Decrease)

% Increase/

(Decrease)Sources of FundsShareholders’ Funds:Share Capital 82021809 82021809 - -Reserves & Surplus 220125849 352852415 132726566 60.29%Loan FundsSecured Loans 336847834 448032058 112184224 33.30%Current LiabilitiesCurrent Liabilities 187019585 194101605 7082020 3.78%Provisions 18442538 25341237 6898699 37.40%Total Funds 844457615 1102349124 25789509 3.05%Application of FundsNet Fixed Assets 341840410 501178925 159338515 46.61%Investments 3330520 3730520 40000 12.01%

Deferred tax assts 34333 107579 73246 213.33%Current Assets, Loans & Advances

49

Inventories 271428799 309192143 37763344 13.91%Sundry Debtors 18113070 16504157 (1608913) 8.88%Deposits 7787309 9927806 2140497 27.48%Cash &Bank Balances

129569540 166447388 3677848 28.46%


72333257 95244304 22911047 0.31%


20376 16301 (4075) 19.99%

Total Assets 844457615 1102349124 25789509 3.05%

INTERPRETATION:-

From the study it was observed that the total assets have been increased

25789509/- i.e. 3.05% in the year 2010-11 when compared to previous year.

The Share capital of the Tirumala milk product private limited has no change in

the year 2010-11 when comparing to previous years.

Reserves & surplus has been increased by 132726566/- i.e. 60.29% in the year

2010-11 when compared to previous year.

The study observed that secured loans have been increased by 112184224/-. i.e

33.30%in the year 2010-11 when compared to previous year.

The the total fixed assets has been increased by 159338515/- i.e. 46.61% in the year 2010-11 when compared to previous year.

The study it was observed that the investment has increase 40000/- i.e. 12.01% in

the year 2010-11 when compared to previous year.

The current asset has been increased by 98083824/- i.e. 19.64% in the year 2010-

11 hen compared to previous year.

50

COMPARATIVE BALANCE SHEET OF TIRUMALA MILK PRODUCT PRIVATE LIMITED AS ON 2010-11TO 2011-12


(Decrease)

% Increase/

(Decrease)Sources of FundsShareholders’ Funds:Share Capital 82021809 221590809 139569000 170.16%Reserves & Surplus 352852415 377469702 24617287 6.97%Loan FundsSecured Loans 448032058 1125855826 677823768 151.285%Current LiabilitiesCurrent Liabilities 194101605 259812204 65710599 33.85%Provisions 25341237 34391806 9050569 35.71%Total Funds 1102349124 2019120347 916771223 83.16%

Application of FundsNet Fixed Assets 501178925 792780605 291601680 58.18%Investments 3730520 3730520 - -

Deferred tax assts 107579 107579 - -Current Assets, Loans & AdvancesInventories 309192143 630516341 321324198 103.92%Sundry Debtors 16504157 19477152 2972995 18.01%Deposits 9927806 11240757 1312951 13.22%Cash &Bank Balances

166447388 236089263 69641875 41.84%

Loans, Advances and prepaid

95244304 325165903 229921599 2.41%

51

expensesMiss expenses to the extent not written off

16301 12226 4075 24.99%

Total Assets 1102349124 2019120347 916771223 83.16%

INTERPRETATION:-

The total assets have been increased 916771223/- i.e. 83.16% in the year 2011-12


The Share capital of the Tirumala milk product private limited has increased

139569000/- i.e. 170.16% in the year 2011-12 when comparing to previous years.

Reserves & surplus has been increased by 24617287/- i.e. 6.97% in the year 2011-

12 when compared to previous year.

The secured loans have been increased by 677823768/-. i.e 151.285% in the year


The total fixed assets has been increased by 291601680/- i.e. 58.18% in the year


The investment has no change in the year 2011-12 when compared to previous

year.

52

COMMON SIZE STATEMENTS:-

The common size statements, balance sheet and income

statement are shown in analytical percentages. The figures are shown as percentages of

total assets, total liabilities and total sales. The total assets ate taken as 100 and different

assets are expressed as a percentage of the total. Similarly various liabilities are taken as a

part of total liabilities. These statements are also known as component percentage or 100

percent statement because every individual item is stand as a percentage of the total 100.

The short-comings in comparative statements and tend percentages where changes in

items could not be compared with the totals have been covered up. The analyst is able to

assess the figures in relation lo total values.

53

COMMON SIZE INCOME STATEMENT OF TIRUMALA MILK PRODUCTS PRIVATE LIMITED AS ON 2007-08

Particulars 2007-2008 %

A)sales & other income 1490617137.00 100% B)Expenditure on :consumption of raw materials 1174717128.03 78.80%purchase of finished goods 119458344.49 8.01%payments & benefits to employees 16813493.80 1.12%manufacturing exp 83389660.33 7.09%taxes % licenses 12858460.00 0.86%

Depreciation 29759420.00 1.99% cost of production 1436996507.00 96.40%Decrease /increase in stock (31851606.00) (2.13%) cost of goods sold 1405144901.00 94.26% Gross profit 78323306.00 5.25% Profit before tax 21769024.73 1.46%Less: Provision for tax (5088074.00) (0.34%)Profit after tax 16680950.73 1.11%Less: Earlier year income tax (409833.00) (0.02%) Fringe benefit tax paid (334467.00) (0.02%) Add: Balance brought forward balance 48579189.22 3.25%

BALANCE AVAILABLE FOR APPROPRIATION

64515839.95 4.32%

54

INTERPRETATION:-

The cost of production of the company constitutes 96.40% i.e. 1436996507.00

The profit after tax of the company constitutes 1.11%i.e. 16680950.73


55

INTERPRETATION:-

The study results reveals that the gross profit of the company constitutes 0.95%

i.e. 27200525.00 and The profit after tax of the company constitutes 1.62% i.e.

46467460.0


56


A)sales & other income 2861014275.00 100% B)Expenditure on :consumption of raw materials

2338261619.0081.72%

purchase of finished goods 213408096.00 7.45%payments & benefits to employees 29470626.00 1.03%

manufacturing exp 167759794.00 4.79%

taxes % licenses 23599654.00 0.82%

Depreciation 40369063.00 1.41% cost of production 2812868852.00 98.31%Decrease /increase in stock 12664933.00 0.44% cost of goods sold 2825533785.00 98.75% Gross profit 27200525.00 0.95% Profit before tax 60810356.00 2.12%

Profit after tax 46467460.00 1.62%

BALANCE AVAILABLE FOR APPROPRIATION

121127284.00 4.23%


A)sales & other income3758037218.00 100%

B)Expenditure on :consumption of raw materials 3003522365.00 79.92%

purchase of finished goods 299487356.00 7.96%

payments & benefits to employees 43541860.00 1.15%

manufacturing exp 213490288.00 5.68%

taxes % licenses 37111286.00 0.98%

Depreciation 52675282.00 1.40%

cost of production 3602420437.00 95.85%

Decrease /increase in stock 24192668.00 0.06%

cost of goods sold 3626613105.00 96.50%

Gross profit 111410654.00 2.96%

Profit before tax 132401449.00 35.23%

Profit after tax 98786932.00 2.62%

BALANCE AVAILABLE FOR APPROPRIATION 220125849.00 5.85%

INTERPRETATION:-

The study results reveals that the cost of production of the company constitutes

95.85% i.e. 3602420437.00 and cost of goods sold of the company constitutes

96.50% i.e. 3626613105.00 and gross profit of the company constitutes 2.96%

i.e. 111410654.00 and profit before tax of the company constitutes 35.23% i.e.

132401449.00.


57


A)sales & other income 4729107872 100%

B)Expenditure on :

consumption of raw materials 3704017569 78.32%

purchase of finished goods 366521333 7.75%

payments & benefits to employees 66503436 1.40%

manufacturing exp 264456756 5.59%

taxes % licenses 31881963 0.67%

Depreciation 75380244 95.34%

cost of production 4508761301 95.34%

Decrease /increase in stock (28874089) (0.61%)

cost of goods sold 4479887212 94.73%

Gross profit 228060527 4.82%

Profit before tax 191472483 4.04%

Profit after tax 134736951 2.84%

BALANCE AVAILABLE FOR APPROPRIATION 352852415 7.46%

INTERPRETATION:-

The cost of production of the company constitutes 95.34% i.e. 4508761301And cost of

goods sold of the company constitutes 94.73%


58

INTERPRETATION:-

The cost of production of the company constitutes 99.00% i.e. 5822318871 and

the profit after tax of the company constitutes 2.79% i.e. 164190338

COMMON SIZE BALANCE SHEET OF TIRUMALA MILK PRODUCT PRIVATE LIMITED AS ON 31-03-2008

2007-08 Percentage in Liabilities/Assets

Sources of Funds

59

Particulars 2011s-2012 %

A)sales & other income 5876445462 100%

B)Expenditure on :

consumption of raw materials 4752723438 80.87%

purchase of finished goods 459801451 7.82%

payments & benefits to employees 106475699 1.81%

manufacturing exp 341971419 5.81%

taxes % licenses 53709353 0.91%

Depreciation 107637511 1.83%

cost of production 5822318871 99.00%

Decrease /increase in stock 196863066 3.35%

cost of goods sold 6019181937 95.80%

Gross profit 160085103 2.72%

Profit before tax 250989658 4.27%

Profit after tax 164190338 2.79%

BALANCE AVAILABLE FOR APPROPRIATION 377469702 6.42%

Shareholders’ Funds:Share Capital 23050000 6.75%Reserves & Surplus 64515839.95 18.91%Loan FundsSecured Loans 104256408.06 30.57%Un Secured Loans 80543944.00 23.61%Current LiabilitiesCurrent Liabilities 60299284.76 17.68%Provisions 8349907.96 2.44%

Total Funds 341015384.70 100%Application of FundsNet Fixed Assets 162309893.97 47.59%Investments 2610000 0.76%Current Assets, Loans & AdvancesInventories 100760856 29.54%Sundry Debtors 6844432.02 2.00%Deposits 7347643.00 2.15%Cash &Bank Balances 38838401.96 11.38%Loans& Advances 22284157.78 6.53%Miss expenses to the extent not written off

20000 5.86%

Total Assets 341015384.70 100%

INTERPRETATION:-

The Reserves &surplus of the constitutes 18.91% i.e.64515839.95/- of the

total liabilities of the company and The Secured loans constitutes

30.57% i.e. 64515839.95/- of the total liabilities of the company.



60

Sources of FundsShareholders’ Funds:Share Capital 82032382.00 10.78%Reserves & Surplus 121127284.00 15.93%Loan FundsSecured Loans 383547595.00 50.44%Current LiabilitiesCurrent Liabilities 153837804.00 20.24%Provisions 19897427.00 2.61%

Total Funds 760442492.00 100%Application of FundsNet Fixed Assets 275112195.00 36.17%Investments 3330520.00 0.43%Current Assets, Loans & AdvancesInventories 258935801.00 34.05%Sundry Debtors 23666599.00 3.11%Deposits 6990208.00 0.91%Cash &Bank Balances 144273003.00 18.97%Loans& Advances 48086695.00 6.32%Miss expenses to the extent not written off

47471.00 6.24%

Total Assets 760442492.00 100%

INTERPRETATION:-

The Reserves &surplus of the Tirumala milk product private limited

constitutes 15.93% i.e. 121127284.00/-of the total liabilities of the company.

And The investments constitutes 0.43% i.e. 3330520.00/- of the total Assets of the

company.



Sources of FundsShareholders’ Funds:

61

Share Capital 82021809 9.71%Reserves & Surplus 220125849 26.07%Loan FundsSecured Loans 336847834 39.89%Current LiabilitiesCurrent Liabilities 187019585 22.15%Provisions 18442538 2.18%

Total Funds 844457615 100%Application of FundsNet Fixed Assets 341840410 40.48%Investments 3330520 0.39%Differed tax assets 34333 4.06%

Current Assets, Loans & AdvancesInventories 271428799 32.14%Sundry Debtors 18113070 2.14%Deposits 7787309 0.92%Cash &Bank Balances 129569540 15.34%Loans& Advances 72333257 8.56%Miss expenses to the extent not written off

20376 2.41%

Total Assets 844457615 100%

INTERPRETATION:-

The study results indicate that the Reserves &surplus of the Tirumala milk

product private limited constitutes 26.07% i.e. 220125849/- of the total

liabilities of the company and The Secured loans of the constitutes 39.89%

i.e. 336847834/- of the total liabilities of the company.

The study results reveals that The Share capital of the Tirumala milk

products pvt limited constitutes 9.71% i.e. 82021809/- of the total liabilities

of the company.



Sources of FundsShareholders’ Funds:Share Capital 82021809 7.44%Reserves & Surplus 352852415 32.01%

62

Loan FundsSecured Loans 448032058 40.65%Current LiabilitiesCurrent Liabilities 194101605 17.61%Provisions 25341237 2.29%



16301 1.47%

Total Assets 1102349124 100%INTERPRETATION:-

The Reserves &surplus of the constitutes 32.01% i.e. 352852415/- of the

total liabilities of the company.

The secured loans he Tirumala milk products pvt limited constitutes

40.65% i.e. 448032058/- of the total liabilities of the company.



Sources of FundsShareholders’ Funds:Share Capital 221590809 10.97%Reserves & Surplus 377469702 18.70%Loan FundsSecured Loans 1125855826 55.76%

63

Current LiabilitiesCurrent Liabilities 259812204 12.87%Provisions 34391806 1.70%



12226 6.05%

Total Assets 2019120347 100%

INTERPRETATION:-

The study results reveals that the fixed assets of the Tirumala milk pvt

limited constitutes 39.26% i.e. 792780605/- of the total Assets of the

company.

From the study it was observed that investments of the Tirumala milk

products pvt limited constitutes 0.18% i.e. 3730520/- of the total Assets of

the company

Trend Percentage (%) 2007-08 to 2011-12 (Base Year 2011-12:100)

2007-2008percentage

2008-2009percentage

2009-2010percentage

2010-2011percentage

2011-2012Percentage

Sources of FundsShareholders’ Funds:Share Capital 10.40 37.01 37.04 37.04 100

64

Reserves & Surplus 17.09 32.08 58.31 93.47 100Secured Loans 9.26 34 29.91 .39.87 100Un Secured LoansCurrent LiabilitiesCurrent Liabilities 23.20 59 71.98 74.70 100Provisions 24.27 57.85 53.62 73.68 100Other LiabilitiesDiffered Tax Liability -Total Funds 16.88 37.66 41.82 54.59 100Application of FundsNet Fixed Assets 55.66 94.34 117.22 171.87 100InvestmentsDiffered tax assetsCurrent Assets, Loans & AdvancesInventories 31.35 80.58 84.47 96.22 100Sundry Debtors 230.22 796.05 609.3 555.13 100Deposits 559.62 532.40 593.11 756.14 100

Cash &Bank Balances 55.76 207.16 186.05 239 100Loans, Advances and prepaid expenses

9.6 20.91 31.45 41.42 100


490.79 1164.93 500 400 100

Total Assets 16.88 37.66 41.82 54.59 100

ANALYSIS OF RATIOS IN TIRUMALA MILK PRODUCTS

PRIVATE LIMITED

Ratio Analysis is a powerful tool of financial analysis. A ratio is

defined as “the indicated quotient of two mathematical expressions” and as “the

relationship between two or more things.” In financial analysis, a ratio is used to as a

benchmark for evaluating the financial position and performance of a firm. The absolute

65

accounting figures reported in the financial statements do not provide a meaningful

understanding of the performance and financial position of a firm. Ratios help to

summarize large quantities of financial data and to make Qualitative Judgment about the

firm’s financial performance.

TYPES OF RATIOS:-

Several ratios Calculated from the accounting data can be grouped into various

classes according to financial activity or function to be evaluated. As stated earlier, the

parties interested in financial analysis are short- and long-term creditors, owners and

managements. Short-term creditors’ main interest is in the liquidity position or the short-

term solvency of the firm.

Liquidity ratios

Leverage ratios

Activity ratios

Profitability ratios

Liquidity ratios measure the firm’s ability to meet current obligations;

Leverage ratios show the proportions of debt and equity in financing the

firm’s assets;

Activity ratios reflect the firm’s efficiency in utilizing its assets, and

Profitability ratios measure overall performance and effectiveness of the

firm.

I.LIQUIDITY RATIOS:-

It is extremely essential for a firm to be able to meet its obligations as

they become due. Liquidity ratios measure the ability of the firm to meet its current

obligations (liabilities). In fact, analysis of liquidity needs the preparation of cash budgets

and cash and fund flow statements.

66

The most common ratios, which indicate the extent of liquidity or

lack of it, are: (i) current ratio and (ii) quick ratio. Other ratios include cash ratio, interval

measure and net working capital ratio.

CURRENT RATIO:-

A liquidity ratio that measures a company's ability to pay short-term

obligations. The ratio is mainly used to give an idea of the company's ability to pay back

its short-term liabilities (debt and payables) with its short-term assets (cash, inventory,

receivables). If the current assets of a company are more than twice the current liabilities,

then that company is generally considered to have good short-term financial strength. If

current liabilities exceed current assets, then the company may have problems meeting its

short-term obligations. The conventional current ratio is 2:1.

Current ratio = Current assets / Current liabilities.

Year Current Assets Current Liabilities Ratio

2007-08 176075490.76/- 68649192.72/- 2.56:1

2008-09 481952306.00/- 173735231.00/- 2.77:1

2009-10 499231975.00/- 205462123.00/- 2.42:1

2010-11 597315799.00/- 219442842.00/- 2.72:1

2011-12 1222489416.00/- 294204010.00/- 4.15:1

INTERPRETATION:-

The current ratio in 2007-08was 2.56; it has been decreased to comparison of in

the year 2008-09.

The current ratio had increased to 2.77 in the year 2007-08. At present the current

ratio of the company was 4.15 i.e. in the year 2011-12.The current ratio had

67

decreased to comparison of last year 2.42 in the year 2009-10. At present the

current ratio of the company was 4.15 i.e. in the year 2011-12.

The current ratio had increased to comparison of last year 2.72 in the year 2010-

11. At present the current ratio of the company was 4.15 i.e. in the year 2011-12.

It is maximum (4.15) in the year 2011-12, the reason for maximum current ratio

(in 2011-12) is due to decrease in current liabilities and increase in current assets

when compared to 2007-08.

BAR GRAPH SHOWING

QUICK RATIO:-

Quick ratio is an indicator of a company's short-term liquidity. The quick

ratio measures a company's ability to meet its short-term obligations with its most liquid

assets. The higher the quick ratio, the better the position of the company. It is also known

as the "acid-test ratio" or the "quick assets ratio". It is obtained by subtracting inventories

68

from current assets and then dividing by current liabilities. The conventional quick ratio

is 1:1.

Quick asset ratio = Quick assets / Current liabilities.

Year Quick Assets Current Liabilities Ratio

2007-08 75314634.70/- 68649192.72/- 1.09:1

2008-09 223016505.00/- 173735231.00/- 1.28:1

2009-10 227803176.00/- 205462123.00/- 1.10:1

2010-11 288123656.00/- 219442842.00/- 1.31:1

2011-12 591973075.00/- 294204010.00/- 2.01:1

BAR GRAPH SHOWING:-

INTERPRETATION:-

The quick ratio of the company in 2007-08 was 1.09; it has been slightly

increased.The quick ratio had increased to 1.28, in the year 2008-09. At present

the current ratio of the company was 2.01 i.e. in the year 2011-12.

69

The quick ratio had decreased to 1.10, in the year 2009-10. Comparison of the last

year. At present the current ratio of the company was 2.01 i.e. in the year 2011-

12.

The quick ratio had increased to 1.31, in the year 2010-11. Comparison of the last


12.

It is maximum (2.01) in the year 2011-12, the reason for maximum quick ratio (in

2010-11) is due to decrease in current liabilities when compared to 2007-08.

II. LEVERAGE RATIOS:-

The short-term creditors, like bankers and suppliers of raw

material, are more concerned with the firm’s current debt-paying ability. On the other

hand, long-term creditors, like debenture holders, financial institutions etc. To judge the

long-term financial position of the firm, financial leverage, or capital structure ratios

are calculated.

These ratios indicate mix of funds provided by owners and lenders. As a

general rule, there should be an appropriate mix of debt and owner’s equity in financing

the firm’s assets.

The firm may be interested in knowing the proportion of the interest-bearing

debt (also called funded debt) in the capital structure. It may, therefore, compute debt

ratio.

DEBT RATIO:-

Total Debt (TD)Debt ratio = ---------------------- Net Assets(NA)

70

Year Total Debt

(Secured +UnsecuredLoans)

(A)

Net Assets

(Net Fixed Assets +Net Current

(B) Assets)

RATIO

(C)=A/B

2007-08{104256408.06 + 80543944}

= 184800352

{162309893.97+107426298.04}

= 269736191.90

0.68

2008-09{383547595 + 0}

= 383547595

{275112195 + 308217075}

= 583329270

0.65

2009-10{336847834 + 0}

= 336847834

{341840410 + 293769853}

= 635610263

0.52

2010-11{448032058 + 0}

=448032058

{501178925+377872957}

=879051882

0.50

2011-12{1125855826+0}

=1125855826

{792780605+928285406}

=1721066011

0.65

BAR GRAPH SHOWING :-

71

INTERPRETATION:-

The debt ratio of the company in 2007-08 was 0.68; it has been slightly

increased.The debt ratio had decreased to 0.65, in the year 2008-09. At present the

debt ratio of the company was i.e. 0.65 in the year 2011-12.

The debt ratio had decreased to 0.52, in the year 2009-10. Comparison of the last


12. and 0.50, in the year 2010-11. Comparison of the last year. At present the

current ratio of the company was 0.65 i.e. in the year 2011-12.

The debt ratio had increased to 0.65 in the year 2011-12 when compared to the

last year.

72

DEBT-EQUITY RATIO:-

The relationship describing the lenders’ contribution for each

rupee of the owners’ contribution is called Debt-Equity ratio. Debt-equity (DE) ratio is

directly computed by dividing total debt by net worth:

Debt-Equity ratio = Total Debt (TD) Net Worth (NW)

Year Total Debt

(Secured Unsecured Loans)

(A)

Net Worth

(Share Capital + Reserves

and Surplus)

(B)

Ratio

(C) = A/B

2007-08 {104256408.06 + 80543944}

= 184800352

{23050000 + 64515839.95}

= 87565839.95

2.11:1

2008-09 {383547595 + 0}

= 383547595

{82032382 + 121127284}

= 203159666

1.88:1

2009-10 {336847834 + 0}

= 336847834

{82021809 + 220125849}

= 302147658

0.89:1

2010-11 {448032058 + 0}

=448032058

{82021809 + 352852415}

= 434874224

1.03:1

2011-12 {1125855826+0}

=1125855826

{221590809+377469702}

=599060511

1.87:1

INTERPRETATION:-

The study results reveal that the Debt Equity Ratio of Tirumala milk

products private limited is fluctuating under the period of study from one

year to another year & the above table shows relationship between Long

Term Liabilities and Share holders fund.

73

It was observed that the debt-equity ratio of the Tirumala milk products

private limited in the year 2007-08. Were 2.11 it has been increased to 1.88

in the year 2008-09 and further year ratio was decreased to 0.89 in the year

2009-10. The debt-equity ratio had increased to 1.03 in the year2010-11. At

present the debt-equity ratio of the company was 1.87 in the year 2011-12.

The maximum (2.11) the reason for decrease in share holders funds and

increase in long term liabilities in the year 2007-08.and minimum(0.89)

the reason for increase in long term liabilities and decrease in share holders

funds in the year 2009-10.

The study results indicate that the over all trend of the debt-equity ratio

shows that it is in decreasing pattern.

BAR GRAPH SHOWING

III. ACTIVITY RATIOS:-

74

Activity ratios are employed to evaluate the efficiency with which the firm

manages and utilizes its assets. These ratios are also called turnover ratios because they

indicate the speed with which assets are being converted or turned over into sales.

Activity ratios, thus, involve a relationship between sales and assets. A proper

balance between sales and assets generally reflects that assets are managed well. Several

activity ratios can be calculated to judge the effectiveness of asset utilization.

INVENTORY TURNOVER RATIO:-

Inventory turnover ratio indicates the efficiency of the firm in producing

and selling its product. It is calculated by dividing cost of goods sold by average

inventory. Average inventory consists of opening stock plus closing stock divided by 2.

A high inventory turnover ratio indicated that the product is selling well. A low turnover

ratio implies poor sales and, therefore, excess inventory.

Inventory turnover ratio= Sales / Average inventory

Year Sales Avg. Inventory Ratio

2007-08 1483468207.19/- 71916066.50/- 20.62:1

2008-09 2852734310.00/- 153420512.50/- 18.59:1

2009-10 3738023759.00/- 169411008.00/- 22.06:1

2010-11 4707947739.00/- 88243120.50/- 53.35:1

2011-12 5859096834.00/- 172237609.00/- 34.01:1

75

Avg. Inventory = Opening Stock + Closing Stock

2

INTERPRETATION:-

During the period 2007-08 the inventory turnover ratio of the company was 20.62.

It is satisfactory one as the company is able to generate sales around 6 times.

The inventory turnover ratio had been decreased to 18.59 in the year 2008-09.

The reason for this is decrease in turnover which is mainly due to prevailing

conditions in the industry.

The inventory turnover ratio in the year 2009-10 was increased hugely to 22.06.

The reason for this due to increase in turnover, which is mainly due to increase in

demand for milk in the industry.

In the year 2010-11, the inventory turnover ratio has been increased to 53.35. The

main reason for this is due to increase in turnover and due to fall in average

inventory. The reason for fall in average inventory is due minor purchases of the

company in the year thus leading to low closing stock.

The inventory turnover ratio in the year 2011-12 was decreased to 34.01 in the

year. His main fall in average inventory is due to management decision to dispose

opening stock of the year and only to make minor purchases.

BAR GRAPH SHOWING

76

INVENTORY HOLDING PERIOD:-

Inventory holding period is the period taken conversion of

Inventories into Sales.

360

Inventory Holding Period = ----------------------------- Inventory Turnover ratio

77

Year 360 / Inventory turn over Ratio

Inventory Holding Period

2007-08 360/20.62 17 days

2008-09 360/18.59 19days

2009-10 360/22.06 16 days

2010-11 360/53.35 6days

2011-12 360/34.01 9days

INTERPRETATION:-

The inventory holding period of the company in 2007-08 was 17 days.

The inventory holding period 19 days in the year 2008-09. At present the

inventory holding period of the company 9 days in the year 2011-12.

The inventory holding period 16 days in the year 2008-09. Comparison of the last

year. At present the inventory holding period ratio of the company was 9 days i.e.

in the year 2011-12.

The inventory holding period 6 days in the year 2010-11. Comparison of the last

year. At present the inventory holding period ratio of the company was 9 days i.e.

in the year 2011-12. The inventory holding period decreased to 9 days in the year

2011-12when compared to the last year.

78


IV. PROFITABILITY RATIOS:-

Profit is the difference between revenues and expenses over a period of time

(usually one year). Profit is the ultimate ‘output’ of a company, and it will have no future

if it fails to make sufficient profits. Therefore, the financial manager should continuously

evaluate the efficiency of the company in term of profits.

The profitability ratios are calculated to measure the operating efficiency of the

company. Besides management of the company creditors and owners are also interested

in the profitability of the firm.

Generally, two major types of profitability ratios are calculated:

Profitability in relation to sales

Profitability in relation to investment.

79

GROSS PROFIT MARGIN RATIO:-

The gross profit margin reflects the efficiency with which management

produces each unit of product. This ratio indicates the average speed between the cost of

goods sold and the sales revenue.

Gross Profit Margin = Gross Profit Sales

Year Gross Profit

(Sales – Cost of Goods Sold)

(A)

Sales

(B)

Ratio

(percentage)

(C) = A/B*100

2007-0878323306.00 1483468207.19 5.27:1

2008-0927200525.00 2852734310.00 0.95:1

2009-10111410654.00 3738023759.00 2.98:1

2010-11228060527.00 4707947739.00 4.84:1

2011-12160085103.00 5859096834.00 2.73:1


80

INTERPRETATION:-

The Gross profit margin ratio of the company 5.27 in the year of 2007-08. Present

gross profit margin ratio 2.73.and 0.95 in the year 2008-09. Ratio was decreased

when compared to last year. At present the gross profit margin ratio of the

company is 2.73 in the year 2011-12.

The Gross profit margin ratio of the company 2.98 in the year 2009-10. Ratio was

increased when Comparison of the last year. At present the gross profit margin

ratio of the company was i.e. 2.73 in the year 2011-12.

The Gross profit margin ratio of the company 4.84 year 2010-11. Ratio was

increased Comparison of the last year. At present the gross profit ratio of the

company was i.e.2.73 in the year 2011-12.

The gross profit margin ratio of the company decreased to 2.73 in the year 2011-

12 when compared to the last year.

NET PROFIT RATIO:-

Net profit is obtained expenses, interest and taxes are subtracted from

the Gross profit. Net profit margin ratio establishes a relationship between net profit

and sales and indicates management’s efficiency in manufacturing, administrating

and selling the products.

This ratio also indicates the firm’s capacity to withstand adverse

economic conditions. A firm with a high net margin ratio would be in an

advantageous position to survive in the face of falling selling prices rising costs of

production or declining demand for the product.

81

Net Profit Margin Ratio = Profit After Tax Sales

Year Profit after tax

(A)

Sales

(B)

Ratio

(percentage)

(C) = A/B*100

2007-08 16680950.73 1483468207.19 1.12:1

2008-09 46467460.00 2852734310.00 1.62:1

2009-10 98786932.00 3738023759.00 2.64:1

2010-11 134736951.00 4707947739.00 2.86:1

2011-12 164190338.00 5859096834.00 2.80:1

BAR GRAPH SHOWING:-

INTERPRETATION:-

82

The Net profit margin ratio of the company 1.12 in the year of 2007-08. Present

net profit margin ratio 2.80.

The Net profit margin ratio of the company 1.62 in the year 2008-09. Ratio was

increased when compared to last year. At present the net profit margin ratio of the

company is 2.80 in the year 2011-12.

The Net profit margin ratio of the company 2.64 in the year 2009-10. Ratio was

increased when Comparison of the last year. At present the net profit margin ratio

of the company was i.e. 2.80 in the year 2011-12.

The net profit margin ratio of the company 2.86 year 2010-11. Ratio was

increased Comparison of the last year. At present the net profit ratio of the

company was i.e.2.80 in the year 2011-12.

The net profit margin ratio of the company increased to 2.80 in the year 2011-12

when compared to the last year.

FINDINGS

83

From the study it has been observed that the Current ratio of Tirumala milk

products pvt., ltd. has been fluctuating in all years. The ratio is satisfactory in the

year 2010-11 when compared to last years.

From the study it has been observed that the Quick ratio has been in a fluctuating

pattern between the periods 2007-08 to 2010-11. The ratio is satisfactory in the

year 2011-12 when compared to last years.

It is found that the debt ratio of Tirumala milk products pvt., ltd. is

fluctuating for the period of 2008 to 2012. The ratio is satisfactory in the year

2007-2008 when compared to next years.

It was observed that the debt equity ratio of Tirumala milk products pvt.,

ltd. is fluctuating for the period of 2008-2012. The ratio is satisfactory in

the year 2007-2008.

The study results indicate that the inventory turnover ratio of Tirumala milk

products pvt., ltd. is fluctuating for the period of 2007 to 2009 and 2011-

2012. The ratio is satisfactory in the year 2010-2011.

The study results indicate that the inventory holding period ratio of

Tirumala milk products pvt., ltd. is very high fluctuating for the period of

2007-2008 and 2010 to 2012. The ratio is satisfactory in the year 2008-

2009.

The study results indicate that the gross profit margin ratio of Tirumala

milk products pvt., ltd. is fluctuating for the period of 2008 to 2012. The

ratio is satisfactory in the year 2007-2008.

The study results indicate that the net profit margin ratio of Tirumala milk

products pvt., ltd. is increasing level for the period of 2008 to 2012.

SUGGESTIONS

84

The performance of the company is up to the mark in each aspect. But, it has a few

more suggestions for its best performance.

Firstly, the company is suggested to the concentrate on sales, as the sales figures

seem to decline over the last three years, the increase in sales lead to increase in

Gross profit as well Net Profit figures.

The company is as well suggested to involve debt in its capital structure as debt

not only reduces the taxable portion of the income but also the cost of using the

debt is low when compared with the cost of equity.

It is realized that the company has been maintaining large amounts of profit as

reserves. It is not advisable to keep that much of reserves in idle form. It is

suggested to invest these reserves for productive purpose so that the return would

be enhanced.

It has also been realized that there is much deviation between Gross Profit and

Net profit of the company. This shows that the operating expenditure is high. So,

it is suggested that the company should concentrate on reducing the operating

expenditure.

The average collection period has been high and is still increasing. It is not at all a

desirable average collection period. It shows the inefficiency on reducing the

average collection period.

It is suggested t maintain the same payout ratio as the company is concentrating

on the expansion programme.

CONCLUSION

85

The economic life of any organization depends on some important financial

aspects like profits, expenses, turnover etc. A careful analysis of these areas is very much

essential for the success and survival of these organizations. For this purpose financial

statement analysis with the help of the technique like ratios, funds flow etc. is to be

carried out. A study of this type is very much useful for nay organization to keep into the

different financial aspects and to take some measures to improve in the above areas.

The company under study Tirumala milk products pvt., ltd., being a unit of the

milk industry as to carefully watch the trends in the milk industry as should come

forward with innovative marketing strategies.

86

BALANCE SHEET OF TIRUMALA MILK PRODUCT PRIVATE LIMITED AS ON 2006-07

LIABILITIES AMOUNT ASSETS AMOUNT

Shareholders’ Funds: Net Fixed Assets 131380085

Share Capital 23050000 Investments 2610000

Reserves & Surplus 48579189 Current Assets, Loans & Advances

Loan Funds Inventories 109075147

Secured Loans 183326618

Sundry Debtors 6358113

Un Secured Loans 0 Deposits 4321650

Current Liabilities Cash &Bank Balances 26367433

Current Liabilities 43492221 Loans, Advances and prepaid expenses

25367449

Provisions 7087149 Miss expenses to the extent not written off

55300

Other Liabilities

Differed Tax Liability -

Total liabilities 305535177 Total assets 305535177

87



Shareholders’ Funds: Net Fixed Assets 162309893.97


Reserves & Surplus 64515839.95 Current Assets, Loans & Advances

Loan Funds Inventories 100760856

Secured Loans 104256408.06 Sundry Debtors 6844432.02

Un Secured Loans 80543944.00 Deposits 7347643.00

Current Liabilities Cash &Bank Balances 38838401.9

Current Liabilities 60299284.76 Loans, Advances and prepaid expenses

22284157.78

Provisions 8349907.96 Miss expenses to the extent not written off

20000

Other Liabilities

Differed Tax Liability -

Total liabilities 341015384.70 Total Assets 341015384.70

88



Shareholders’ Funds: Net Fixed Assets 275112195.00

Share Capital 82032382.00 Investments 3330520.00

Reserves & Surplus 121127284.00 Deferred tax assts -

Loan Funds Current Assets, Loans & Advances

Secured Loans 383547595.00 Inventories 258935801.00

Current Liabilities Sundry Debtors 23666599.00

Current Liabilities 153837804.00 Deposits 6990208.00

Provisions 19897427.00 Cash &Bank Balances 144273003.00


48086695.00

Total liabilities 760442492.00 Total Assets 760442492.00

89





Reserves & Surplus 220125849 Deferred tax assts 34333


Secured Loans 336847834 Inventories 271428799

Current Liabilities Sundry Debtors 18113070

Current Liabilities 187019585 Deposits 7787309

Provisions 18442538 Cash &Bank Balances 129569540


72333257


20376

Total liabilities 844457615 Total Assets 844457615

90












95244304


16301


91












325165903


12226


92

BIBLIOGRAPHY

BOOOKS:

Accounting for Managers (Jai Bharat Publications) by G. Prasad.

Financial Accounting and Analysis (Vikas Publications) by

Prof.v. Subbarayudu.

Financial Management (Vikas Publications) by I. M. Panday.

Financial management theory and Practice (Tata McGraw – Hill) by

Prasanna Chandra

WEBSITES:

www.coromandel agro products & oils ltd chirala.com

www. Financial management. Com

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tirumala diary prj modified by working capital

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