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PROJECT REPORT

Submitted To

MANGALORE UNIVERSITY

In Partial Fulfillment of the Requirements

For The Award Of The

MASTER OF BUSINESS ADMINSTRATON (M.B.A)

By

AJAYKUMAR

Reg No:

Under the guidance of

MS.MEENAKSHI RAO

Lecturer, AJIM

A.J. Institute of Management (AJIM)

MANGALORE -575 006

2009-2011

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Chapter – 1
INTRODUCTION

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INTRODUCTION

The world of business today has undergone a complete metamorphosis. This process was further

augmented by various rounds of GATT agreements that culminated into WTO- a new world

order to Trade and Business. The command economy has yielded place to market economy with

wide ranging implications for Indian business and industry which have to be globally

competitive in terms of technology, costs and quality. To cope up with these challenges, a new

breed of professional managers is needed. Some of the traditional theories of management are

being challenged today in terms of their relevance in the fast changing environment, and new

management practices and concepts are evolving. Unfortunately, however, not many text books

are available in India, which thoroughly deals with these changes and which can be gainfully

used by the students of management and practicing managers alike

The present text on Financial Management may be seen and appreciated in the above context. In

my long association with a number of companies, as a consultant or a Director on their Boards

and audit committees, I have been a witness to the changes that have taken place in finance

function having far reaching implications for corporate management. In recent years, therefore,

financial management has attracted a lot of attention by the corporate sector. Goods

professionally managed companies are greatly concerned about their capital structure, cost of

capital, working capital management, project appraisal, corporate governance and so on. They

are trying to bring down their cost of debt to international level not only by using new financial

instruments but also by borrowing abroad. LIBOR linked short term borrowing has become very

common in such companies with all the implications of exchange rate risks and their

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management. With the world really becoming a global village, international financial

management has assumed added significance. Unprecedented changes have been taking place in

various financial sectors like banking, insurance and capital market. Information technology has

not only added new dimensions to the delivery of financial services, but has also provided a

more rigorous analytical framework for decision making. Hence managers have deal with a

many more contemporary issues in fiancé, economy, technology, trade and commerce etc., in the

modern global village.

FINANCE:

Finance has been described as a lubricant of economic activity, without which the entire

business will grind to a halt, and money has been aptly described by monetary economist called

Geoffrey Crow there, “Finance as the essential invention on which all the rest is based. With

unlimited wants and limited financial resources, the financier is concerned with what is

produced, requirements of funds (liquid and illiquid), allocation of funds selection of

developmental priorities, determination of gestation periods, proper monitoring of accounts to

avoid cash flow problems and to ensure the profitability of the enterprises be it in any sector of

economy i.e., public sector, private sector, industrial, agricultural, co-operative, banking and

allied enterprises etc.,”

The finance manger has to ensure the rational decision making efforts at the each any every

successive stages of pre investment and post investment. In the absence of proper appraisal

system and evaluation of managerial abilities, there will be misallocation mortality and lopsided

growth in undesired way leading to holocaust of economic wealth.

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Business Finance as a Finance Function

According to Guttmann and Douglas, “Business finance can be broadly defined as the activity

concerned with planning, raising, controlling and administering of funds used in the business In

the words of R.C.Osborn, “ Finance function is the process of acquiring and utilizing funds by a

business”. In short it is the acquisition of funds and their effective utilization.

Meaning of Financial Management

Financial Management is that managerial activity which is concerned with the planning and

controlling of the company’s financial resources.

According to Solomon, “Financial Management is concerned with efficient use of an important

economic resource namely, Capital funds. This can be possible only when funds are procured in

a manner that the risk, cost, and control considerations are properly balanced in a given situation

and there is optimum utilization of funds”.

In other words the Financial Management is basically concerned with two important aspects:

1) Raising of the required funds at the lower cost

2) Making optimum use of the funds so raised

So, it is clear that Financial Management refers to all those managerial activities or efforts which

are concerned with the ascertainment of the finance, short term as well as long term needed by

the company, determination of the sources suitable under the given circumstances and collection

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of the funds in time, and control over the utilization of fun Every organization, irrespective of

size of and mission, may be viewed as a financial entity. Management of an organization,

particularly a business firm is confronted with issues and decisions like the following, which

have important financial implications:

 What kind of plant and machinery should the firm buy?

 How should it raise finance?

 How much should it invest in inventories?

 What should be its credit policy?

 How should it gauge and monitor its financial performance?

Important decisions in the Financial Management

Financial Management is broadly concerned with the acquisition and use of funds by a business

firm. Its scope may be defined in terms of the following questions:

○ How large should the firm be and how fast would it assets?

○ What should be the composition of the firm’s assets?

○ What should be the mix of the firm’s financing?

○ How should the firm analysis, plan and control its financial affairs?

The important decisions in the financial management are as follows.

Funds Requirement Decision: A careful estimate has to be made about the total funds

required by the enterprise taking into account both the fixed and working capital

requirements.

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1. Financing Decision: Provision of funds requirement at the proper time is one of the

primary tasks of the Finance Manager for the organization.

2. Investment Decision: The Finance Manger has to evaluate different proposals and select

the best keeping in view the overall objective of the enterprise

3. Dividend Decision: The establishment of dividend policy is another important function

of Finance Manager in the organization to keep happy the equity stakeholders or owners

of the organization.

Apart from the above main function, following subsidiary function are also performed by the

finance manager:

i) Evaluation of the Financial performance

ii) To ensure supply of funds to all parts of the organization

iii) To negotiate with bankers

iv) To keep track of capital market, stock exchange quotation and behavior of

stock market prices

Importance of Financial Management:

The importance of Financial Management cannot be overemphasized. In every organization,

where funds are involved sound financial management is necessary.

As Collins books has remarked “Bad production management and bad sales management have

slain in hundreds, but faulty financial management has slain in thousands”.

Sound financial management is essential in both profit and non profit making organization. The

financial management helps in monitoring the effective deployment of funds in fixed assets and

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in working capital assets. The financial management assesses the finance position of the

company through the working out of the return on capital, debt equity ration, and cost of capital

from each source etc., and comparison of the capital structure with that of similar companies.

Also it helps in Profit planning, capital expenditure, measuring cost, given input of funds.

Meaning of Financial Statements:

A financial statement is an organized collection of data according to logical and consistent

accounting procedures. It contains summarized information of the firm’s financial situation to

users. Financial statements are prepared for the purpose of presenting a periodical review or

report on the progress by the management and deal with the,

1. Status of investment in the business

2. Results achieved during the period under review

According to Smith and Ashbin, Financial Statements is, “ The end product of financial

accounting in a set of financial statements prepared by the accountant of a business enterprises,

that purports to reveal the financial position of the enterprise, the result of its recent activities

and an analysis of what has been done with the earning”.

The term financial statements generally refer to two basic statements

1. Balance Sheet or Statement of Financial Position

1. Profit & Loss Account or Income & Expenditure Account

Balance sheet is of the most significant financial statement in the organization. It indicates the

financial condition or the state of affairs of a business at a particular point of time. More

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specification about resources and obligations of a business entity and about its owner’s interest

in the business at a particular point of time.

Profit and Loss account is the “Score-Board” of the firm’s performance during a particular

period. It explains that what has happened to a business because of operations between two

Balance Sheet dates. In short, it is the accounting report, which summarized the revenues,

expenses, and the difference between them for an accounting period. The Profit and Loss

account reflects the performance of the firm over a period of time.

MEANING OF FINANCIAL ANALYSIS AND INTERPRETATION

The financial statements summarize the end-result of business activities of an enterprise during

an accounting period in monetary terms which are indicators of the two significant factors viz.

a) Profitability and

b) Financial soundness

Analysis and interpretation of financial statements, therefore refers to such a treatment of the

information contained in the Profit and Loss account and Balance Sheet so as to afford full

diagnosis of the profitability and financial soundness of the business.

A distinction here can be made between the two terms – “Analysis” and “Interpretation”. The

terms analysis means, methodical classification of the data given in the financial statements. The

figures given in the financial statements will not help one, unless they are put in a simplified

form. The term interpretation means explaining the meaning and significance of the data so

simplified

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However both “Analysis” and “Interpretation” are complementary to each other. Interpretation

requires analysis, while analysis is useless without interpretation. According to Myres,

“Financial Statement analysis is largely a study of the relationship among the various financial

factors in a business disclosed by a single set of statement and a study of the trend of these

factors as shown in a series of statement”.

Importance of Financial Analysis and Interpretation Financial statements contain a wealth

of information, which if properly read, analyzed or interpreted can provide valuable insights into

a firm’s performance and position. Also it is the starting point for making plan, before using any

sophisticated forecasting and planning procedure. By analyzing these statements, firm can

evaluate its past, present, projected performance etc.

Usually management would be particularly interested in knowing the financial strength of firm

to make their best use and to be able to spot out the financial weakness of the firm to take

suitable corrective action. The future plan of the firm should be laid down in view of the firm’s

financial strength and weakness. In short, through financial analysis and interpretation it helps

effectively the user for decision making process.

Objectives of Financial analysis and Interpretation:

1. To judge the financial health of the undertaking

2. To judge the earning performance of the company

3. To gauge/appraise for investment/opportunity or potentiality

4. To judge the ability of the company to serve the debt

5. To judge the solvency of the undertaking

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Parties demanding Financial Analysis

The traditional view is that the financial statements are prepared for the proprietors and

accounting for which just aids the stewardship function. In recent years, this concept of

stewardship accounting has been dramatically changed. A user oriented approach has instead

changed to fit the purposes of the recipient of financial information. Whenever ownership is

separated from administration, is natural for the owner to understand how money contributed by

him is utilized by the administrators. Hence it leads to enquiry by the owner can be called as the

disclosure which is an important part of good corporate governance. Financial statement analysis

may be done for a variety of purpose, which may range from a simple analysis of short term

liquidity position of the undertaking to comprehensive assessment of the strength and

weaknesses of the undertaking in various areas. Also the nature of analysis will differ depending

on the purpose of the analyst.

Important prominent users who go through the report of financial statements for analysis are:

a) Shareholders and prospective investors

b) Employees

c) Trade creditors

d) Banks, Financial institutions and lenders

e) Managers

f) Customers

g) Government & Regulatory Agencies

h) Others

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Types of Financial Statement Analysis

Financial analysis can be classified into different categories depending upon (1) The material

used and, (2) The modus operandi of analysis.

1. On the basis of material used

According to this basis, financial analysis can be of two types:-

a) External analysis:- This analysis is done by those who are outsiders for the business.

The term outsiders include investors, credit agencies, government agencies and other

creditors who have no access to the internal records of the company. mainly depend

upon, the published financial statements. Their analysis serves only a limited purpose.

b) Internal Analysis:- This analysis is done by persons who have access to the books of

account and other information related to the business. Such an analysis can, therefore, be

done by executive and employees or by officers appointed for this purpose by the

government or the court under power vested in them. The analysis is done depending

upon the objective to be achieved through this analysis.

2. On the basis of “Modus Operandi”

According to this, financial analysis can also be of two types:

a) Horizontal Analysis:- In case of this type of analysis, financial statements for a number

of years are reviewed and analyzed. The current year’s figures are compared with the

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standard or base year. The analysis statement usually contains figures for two or more

years and the changes arte shown regarding each item from the base year usually in the

form of percentage.. Such an analysis given the considerable insight into levels and areas

of strength and weakness. Since this type of analysis is based on the data from year to

year rather than on one date, it is also termed as “Dynamic Analysis”.

a) Vertical Analysis:- In case of this of analysis, a study is made of the quantitative

relationship of the various items in the financial statements on a particular date, e.g. : the

ratios of different items of costs for a particular period may be calculated with the sales

for that period. Such an analysis is useful in comparing the performance of several

companies in the same group or divisions or departments in the same company. Since

this analysis depends on the data for one period, this is not very conducive to a proper

analysis of the company’s financial position.

Steps in Financial Statement Analysis:

Steps to be taken for financial statement analysis are:

1. Identification of user’s purpose

2. Identification of data source (which part of the annual report or other information is

required to be analyzed to suit the purpose)

3. Selecting the techniques to be used for such analysis

The Financial statement analysis is purposive and not necessarily comprehensive to cover all

possible uses. Since it is purposive, analysis may be restricted to any particular portion of the

available financial statement taking care to ensure objectivity and unbiased ness. Also depending

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upon his purpose, user can choose any of the techniques or tools for analyzing the financial

statement.

HISTORY OF KMF

An overview of the Organization

The Karnataka Co-operative milk producer’s federation was organized in 1972 initially with the

objective of creating white revolution in Karnataka and India so as to support the farmers in their

subsidiary activities as dairying for their lively hood in collaboration with co-operative milk

societies in the Name of Karnataka Dairy Development Corporation (KDDC) later on it was

handed over to milk unions and Cattle Feed Plants.

Background of Cattle Feed Plant

The Cattle Feed Plants are units of KMF which aims in serving the Milk producers, farmers

through production and distribution of Cattle Feed. The Cattle Feed Plants are serving the milk

unions and farmers in providing hygiene, qualitative, quantitative cattle feed in time which in

turn achieves the demands in providing milk to all over Karnataka.

The farmers thus can produce a hygiene, sufficient milk in all seasons, the idea of Cattle Feed

Plants was developed before 30 to 40 years only through un informal methods of feeding cattle

to give more yield.

The KMF was initially depends on some commercial Cattle Feed Plants like Mandy a Feeds,

Mysore Feeds, Raychur Cattle Feeds and O.K. feeds for satisfying the demands of milk

producers before home production in KMF’s feed plants.

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The first cattle feed plant of KMF was started at Rajanukunte Bangalore in 1983, 21 st of March.

Later on KMF established another three Cattle Feed Plants in Karnataka including Cattle Feed

Plant, Hassan.

The Cattle Feed Plants in KMF are:-

1. Cattle Feed Mixing Plant, Rajanukunte

2. Cattle Feed Plant, Gobi

3. Cattle Feed Plant, Dharwad

4. Cattle Feed Plant, Hassan

Role of Cattle Feed In Dairy Development

Now a day’s animal husbandry (dairy activities) is one of the important and foremost filed of

farmers to have economic stability. Due to frequent fluctuations in the prices of the agricultural

products produced by the farmers and interference of middlemen in the market and others,

farmers are facing a number of problems to fulfill their economic needs and to have economic

stability. Because of the above reasons to satisfy their day to day economic needs farmers are

mainly depended on dairy activities. Animal husbandry becomes the part and partial of the life

of the farmers of India today. Especially in the state of Karnataka dairy activities are growing

rapidly. It is in the next place (Second) after Gujarat in India. It may be come to first place in

India recently. KMF was established in the name of KDDC with the intention of “White

Revolution”.

To reach its prime objective of “White Revolution” KMF has taken many steps . They are:-

a) Establishment of more and more milk procurement societies at village level

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b) Providing financial support to develop societies

c) Providing of Cattle at reasonable rate

d) Providing medical facilities to cattle at free of cost

e) Production and supply of hygienic cattle feed at reasonable rate

f) Collection of milk from the farmers at their doors

g) Providing training facilities to the farmers about dairy activities

Among the above steps taken by the KMF to develop its activities Production of Cattle Feed is

one of the most important step. To procure more and more milk, cattle need hygienic

(qualitative) feed. In this regard KMF has established four cattle feed plants to produce balanced

and qualitative cattle feed which contains a numbers of qualitative ingredients like DORB, Rice

polish, Soya Cake, Cotton Seed Cake, Sunflower Cake, Broken Rice, Maize, Mineral Mixture,

Molasses, Urea, Calcite Powder etc. Among these four Cattle Feed plants Cattle Feed Plant-

Hassan is producing 200 mts of cattle feed daily in the name of Nadine (Product- Bypass pellet

and Product Type I pellet). To produce the cattle feed, unit purchases the above mentioned raw

materials from the registered and authorized suppliers at competitive rates subject to some

standards formulated by National Dairy Development Board, An and, Gujarat. Process these

materials through modernized machineries with the intention of reduction of cost of production

and finally supplies the cattle feed to the milk producers through milk unions at very cheaper

rates. Quality of the feed and selling price motivate farmers to purchase and use of the Nadine

Cattle Feed, indirectly it helps to procurement of more and more milk

In addition to the above, the major raw materials used by the cattle feed plant for production are

mainly agricultural products, KMF purchases raw materials from farmers and authorized dealers

at reasonable rates. Indirectly it gives supporting rates for agricultural products and it encourages

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farmers to produce agricultural products. and it helps to have economic stability of the farmers.

Cattle feed plant, Hassan purchases some of the raw-materials like maize, broken rice and others

from local farmers of Hassan, Mysore and Dakshina kannada District and cake items from other

districts and from other states also and supply cattle feed to the milk producers of Hassan,

Mysore and Dakshina Kannada milk unions. Indirectly it is helpful to procurement of more and

more milk. Cattle Feed Units of Karnataka Milk Federation are working for the interest of milk

producers. At present this organization is one of the rapidly growing organization in co-

operative sector

CATTLE FEED PLANT, HASSAN

The Cattle Feed Plant, Hassan is an unit of KMF established on 23rd Oct,1998 at Gandhi agar,

M. Hosakoppalu Post, Hassan. And this plant occupying the 6.07 hits under survey no.3 and 4 of

Hassan Municipal.

KMF made a deed with NDDB on 07.09.96 on Turnkey basis to establish this plant. And with

the technical, financial and professional assistance of NDDB and state government this plant

was came into existence with the capacity of 100 mt per day to satisfy the feed demand of the

farmers belongs to Hassan Milk Union Ltd., Mysore Milk Union Ltd., and Dakshina Kannada

Milk Union Ltd.,

This plant was established with the capital of Rs.8.43 crore. The details of sources of fund is as

below:-

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Rs. In Cr

1. Loan from NDDB 3.80

2. Loan from MADB 1.00

3. Grants from Govt. of Karnataka 2.66

4. Grants from Zillapanchayath 0.97

The plant started its commercial production from October, 1998 by producing Type II pellet. At

present the present the plant producing three types of cattle feeds. They are as under

1. Type II Pellet

2. Bypass Pellet

3. Type I Pellet

The plant is working with 6 departments. They are

1. Purchase Department

2. Inventory/Distribution Department

3. Human Resource Department

4. Quality control Department

5. Production Department

6. Finance Department

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Each sections are administering by separate by separate section heads and controlling by General

Manager

OBJECTIVES OF ORGANISATION

KMF Cattle Feed Plants came into force with the object of White Revolution through production

and supply of cattle feed to the farmers. To fulfill the primary objective the organization follows

below subsidiary objectives:-

1. Purchase of raw materials at competitive rate

2. Production of qualitative cattle feed at minimum cost

3. Supply of cattle feed to the farmer (society members) in time

Cattle Feed Plants also helps to the farmers by purchasing crops as ingredients in producing the

cattle feed. Also it helps to balance in financial position of the farmers through high procurement

of milk.

All of the above objectives helps to reach the primary goal i.e., WHITE REVOLUTION through

production and supply of hygiene and qualitative cattle feed to the farmers at a reasonable rate.

TECHNIQUES OF FINANCIAL STATEMENT ANALYSIS

A financial analysis can adopt the following tools for analysis of the financial statement. There

are also termed as methods of financial analysis. This chapter describes how this information is

analyzed, both by parties outside the firm and by the company’s own management.

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All analysis of accounting data involves comparisons. An absolute statement, such as “Company

X earned $ 1 million profit, “is by itself not useful. It becomes useful only when the $ 1 million

is compared with something else. The comparison may be quite imprecise and intuitive. For

example, if we know that company X is an industrial giant with tens of thousands of employees.

We know intuitively that $ 1 million profit is a poor showing, because we have built up in our

minds the impression that many companies should earn much more than that. Or, the

comparison may be much more formal, explicit and precise as is the case when the $ 1 million

profit this year is compared with last year’s profit. In either case, it is the process of comparison

that makes the number meaningful.

BUSINESS OBJECTIVES

Comparisons are essentially intended to shed light on how well a company is achieving its

objectives. In order to decide the types of comparisons that are useful, we need first to consider

what a business is all about what its objectives are. Let us say, as a generalization and insofar as

it can be measured quantitatively, that the overall objective of a business is to earn a satisfactory

return on the funds invested in it, consistent with maintaining a sound financial position.” (Note

that this statement is limited to facts that can be expressed numerically. However, employee

satisfaction, social responsibility, ethical considerations, and other non-measurable objectives

are also important and must be taken into account whenever possible in appraising the overall

success of an enterprise. This generalized statement of objectives has two aspects: (1) earning a

satisfactory return on investment and (2) maintaining a sound financial position. Each is

discussed briefly below:

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Return on Investment: Return on investment (ROI) is broadly defined as net income divided by

investment. The term investment is used in three different senses in financial analysis, thus

giving three different ROI rations: return on assets, return on owners’ equity and return on

invested capital.

Return on Assets (ROA) reflects how much the firm has earned on the investment of all the

financial resources committed to the firm. Thus, the ROA measure is appropriate if one

considers the investment in the firm to include current liabilities, long term liabilities, and

owners’ equity, which are the total sources of funds invested in the assets. It is a useful measure

if one wants to evaluate how well an enterprise has used its funds, without regard to the relative

magnitudes the sources of those funds (short-term creditors, long term creditors, bondholders,

and shareholders).

The ROA ratio often is used by top management to evaluate individual business units within a

multidivisional firm (e.g., the laundry equipment division of a household appliance firm). The

division manager has significant influence over the assets used in the division but has little

control over how those assets are financed, because the division does not arrange its own loans,

issue its own bonds or capital stock, or in many cases pay its own bill (current liabilities).

Return on owners, equity (ROE) reflects how much the firm has earned on the funds invested

by the shareholders (either directly or through retained earnings). This ROE ratio is obviously of

interest to present or prospective shareholders, and is also of concern to management, which is

responsible for operating the business in the owners’ best interest. The ratio is not generally of

interest to division managers, however, because they are primarily concerned with the efficient

use of assets rather than with the relative roles of creditors and shareholders in financing those

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assets. The third ratio is return on invested capital (ROIC): Invested capital (also called

permanent capital) is equal to non current liabilities plus shareholders’ equity and hence

represents the funds entrusted to the firm for relatively long periods of time. ROIC focuses on

the use of this permanent capital. It is presumed that the current liabilities will fluctuate more on

less automatically with changes in current assets and that both vary with the level of current

operations.

Invested capital is also equal to working capital plus non current assets. This equivalency points

out that the owners and long term creditors of the firm must in effect finance the plant and

equipment. Other long term assets of the firm and the portion of current assets that is not

financed by current liabilities. Some firms use ROIC to measure divisional performance, often

labeling the ratio return on capital employed (ROCE) or return on net assets (RONA). This

measure is appropriate for those divisions whose managers have a significant influence on

decisions regarding assets acquisitions, purchasing and production schedules (which determine

inventory levels). Credit policy (account receivables) cash management and on level of their

current liabilities.

Sound Financial Position: In addition to desiring a satisfactory return, investors expect


their capital to be protected from more than a normal amount of risk. The return on the

shareholders’ investment could be increased if incremental investments in the assets for new

projects were financed solely by liabilities, provided the return on these incremental investments

exceeds the interest cost of the added debt. This “financial leverage” policy, however, would

increase the shareholders’ risk of losing their investment, because interest charges and principal

repayments on the liabilities are fixed obligations and failure to make these payments could

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throw the company into bankruptcy. The degree of risk in a situation can be measured in part by

the relative amounts of liabilities and owners’ equity and by the funds available to discharge the

liabilities. This analysis also involves the use of ratios.

Structure of the analysis: Many ratios have been described in previous chapters. In this
section, these ratios and others are discussed in a sequence intended to facilitate an

understanding of the total business. Thus, we shall assume here that one first looks at the firm’s

performance in the broadest terms and then works down through various levels of detail in order

to identify the significant factors that accounted for the overall results, If the values of the rations

used in this analysis are compared with their values for other time periods, this comparison is

called a longitudinal, or trend analysis. Dozens of ratios can be computed from a single set of

financial statements. Each analyst tends to have a set of favorite ratios, selected from those

described below and perhaps from some we do not describe.

CONCEPTUAL FRAMEWORL OF THE PROJECT

RATIO ANALYSIS

Meaning of Financial Ratio:-

Ratio analysis measures the relationship between two data. For ex: Male – Female ratio of the

population of a country. Absolute comparison between two figures does not carry much sense.

When spoken in terms of ratio it becomes much more penetrating and meaningful. So a ratio it

defined as the indicated quotient of two mathematical “expression” and as “ the relationship

between two or more things”.

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Standards of Comparison:-The ratio analysis involves comparison for a useful interpretation

of the financial statements. A single ratio in itself does not indicate favorable or unfavorable

conditions. It should be compared with some standard. Standard of comparison may consists of:

1. Ratio calculated from the past financial statements of the same firm

2. Ratios developed using the projected or pro-forma, financial statements of the same firm

3. Ratio of some selected firm, especially the most progressive and successful, at the same

point in time and,

4. Ratios of the industry to which the firms belongs

From the above four, the easiest way to evaluate the performance of a firm is to the first one i.e.,

to compare its current ratio with the past ratio.

Classification of ratios:-

Ratios can be classified into different categories depending on the basis of classification. The

traditional statement to which are determinants of a ratio belong. On the basis the ratio could be

classified as:

Traditional Classification

1. Profit and Loss A/c Ratios:- G/P ratio, N/P ratio, Stock turn over ratio, Operating

ration etc

2. Balance Sheet Ratios:- Current ratio, Debt – equity ratio etc

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3. Composite Ratios:- Fixed assets turnover ratio, Debtors turnover ratio etc.,

Functional Classifications:

1. Profitability Ratios:- Profitability of the organization reflects the final result of business

operation, and it will have no future if it fails to make sufficient profits. Therefore, the financial

manager should continuously evaluate the efficiency of its company’s in term of profits. Hence

the profitability ratios are calculated to measure the operating efficiency of the company.

Besides management of the company, creditor wants to get interest and repayment of principal

regularly. Owners want to get a reasonable rate of return in their investments. This is possible

only when the company earns enough profits. Generally, two major types of profitability ratios

are calculated.

Profitability in relation to sales

1. . G/P Ratio = Gross Profit x 100

Sales

1. N/P Ratio = Net Profit x 100

Sales

3.O/R Ratio = Operating Profit X 100

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Sales

4. O/E Ratio=Operating Expenses X 100

Sales

Profitability in relation to investment

ROI = Earnings before interest & taxes x 100

Total Assets

Return on Equity = Profit after taxes x 100

Net worth

Earning per share = Profit after tax

No. of paid up equity shares

2. Activity Ratios:- This ratio is also called as turnover ratio, Asset management ratio. It

measures how efficiently the assets are employed by the firm. These ratios are based on the

relationship between the level of activity, represented by sales or cost of goods sold, and levels

of various 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. The important turnover ratios are:

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I. Inventory Turnover Ration= Cost of Goods

Average Inventory

II. Debtors turnover Ratio= Credit sales

Average Debtors

III. Total Assets turnover ration= Net sales

Total Assets

IV. Working Capital turnover rat Net Sales

V. Working capital

This ratio indicates whether or not working capital has been effectively utilized in making sales.

3. Financial Ratios: Financial ratios indicate about the financial position of the company. The

company is deemed to be financially sound if it is in a position to carry on its business smoothly

and meet all its obligations both long term as well as shortly term without strain. Thus, its

financial position has to be judged from two angles i.e., short term as well as long term.

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2.4 Liquidity Ratios: Liquidity refers to the ability of a firm to meet its obligations in the short

run, usually one year. The important liquidity ratios are:

1.4.1 Current ratio = Current Assets

Current Liabilities

1.4.2 Acid test ratio = Quick Assets

Current liabilities

This quick ratio is a fairly stringent measure of liquidity. It is based on those current assets

which arte highly liquid. Inventories are excluded from the numerator of this ratio because, those

are deemed to be the least liquid component of current assets.

1.5 Leverage Ratios:- Leverage ratios help in assessing the risk arising from the use of

debt capital. The important leverage ratios are.

1.5.1 Debt Equity Ratio = Long term debt

Equity capital

2.5.2 Proprietary Ratio = Shareholder funds

Total tangible assets

Advantages of Ratio Analysis are

1. Simplifies the financial statements

2. Facilitates inter firm comparison

28
3. Makes intra firm comparison possible

4. Helps in planning

5. Useful tool to test the health of the company quickly

USE OF THE ABOVE FINANCIAL RATIOS TO

1. SHARE HOLDERS:- Some shareholders are interested in short run performance of the

company. So they can embark upon dividend per share ratio. Some others may be

interested in holding the shares in the long-term. So they have to go in for more details.

They should judge long term solvency position. ROE and EPS.

2. ANALYST ADVISORS:- They advise the present and potential investors about their

buy/sell and lending decision. They generally review all the financial characteristics.

They also make inter firm comparisons.

3. TAX AUTHORITIES:- They judge the reliability of the financial information presented

by a enterprise. By using various ratios and applying the logic of inter relationship, they

try to assess the comparability of information.

4. CREDIT RATING AGENCIES:- Presently in India the credit rating agencies rank the

companies in terms of a specific loan or deposit. They also use financial ratio along with

the criteria for ranking.

5. EMPLOYEES AND TRADE UNIONS:- They use mainly profitability ratios and

agencies rations, in the process of wage negotiation.

6. AUDITORS:- Like tax authorities, auditors use ratio as part of comparability test on the

financial data provided for audit.

29
.7. DISTRESS ANALYSTS:- Ratios are useful tools for industrial units.

FUND FLOW ANALYSIS

The fund flow statement is drawn based on the information contained in the basic financial

statements, shows the scores of funds and application of funds during the period. Funds flow

analysis provided insight into the movements of funds and helps in understanding the changes in

the structure of assets, liabilities and owner’s equity.

In business, several transactions take place. Some of these transactions increase the funds while

other decreases the funds. Some may not make any change in the funds position. In case of

transactions results in inverse of funds it will be termed as a source of funds. For eg., if the funds

are Rs.10000/- and on account of business transaction, say issue of shares, they become

Rs.15000/-. Issue of shares will be taken as source of funds. In case transaction results decrease

of funds, it will be taken as an application or use of funds. For eg., if the funds are Rs.10000/-

and on account of a transaction, say purchase of furniture of Rs.5000/- they stand reduced to

Rs.5000/- the purchase of furniture will be taken as an application of funds.

TREND ANALYSIS

In financial analysis, the direction of changes over a period of years is a crucial importance.

Trend analysis or time series are immensely helpful in making a comparative study of the

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

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

Any intervention year may also be taken as the base year. Each item of a base year is taken as

30
100 and on that basis the percentage for each of the items of each of the years are calculated.

These percentages can also be taken as index numbers showing relating changes in the financial

data resulting with the passage of time.

Computation:

1. A statement is taken as a base with reference to which are other statements are studied.

2. Every items in the base statement is taken as 100

3. Trend percentage are calculated in comparison to the base year and interpretations are

made

The method of trend percentages is useful, analytical device for the management. Since by

substitution of percentages for large amounts, the brevity and readability are achieved. Also

trend analysis leads you to question the causes for the tendency; in turn the identification of

causes leads to identifying the remedial measures to be taken if any.

COMPARATIVE FINANCIAL STATEMENT ANALYSIS

Comparative financial statements are those statements which have been designed in way so as to

provide time perspective to the consideration of various elements of various elements of

financial position embodied in such statements. In these statements, figures for two or more

period are placed side by side to facilitate comparison.

31
Both Profit and Loss A/c and Balance Sheet can be prepared in the form of comparative

financial statements.

1). Comparative Profit an Loss Account:- A comparative P&L a/c will show the absolute

figures for two or more periods, the absolute change from one period to another and if desired,

the change in terms of percentages. Since the figures for two or more periods are shown side by

side, the reader can quickly ascertain sales have increased or decreased, whether cost of sales has

increased or decreased etc.,. Thus only a reading of data included in this statement will be

helpful in deriving meaning conclusions.

2). Comparative Balance Sheet:- Comparative Balance Sheet as on two or more different
dates can be used for comparing assets and liabilities and find out any increase or decrease in

those items.

COMMON SIZE FINANCIAL STATEMENT ANALYSIS

Common size financial statements are those in which figures reported are converted into

percentage to some common base. In the Profit and Loss Accounts, the sales figures is assumed

to be 100 and all figured are expressed as a percentage of sales. Similarly in the Balance Sheet

the total of assets or liabilities is taken as 100 and the entire figure are expressed as a percentage

of this total.

From this statement, when read horizontally do not give information about the trend of

individual items but the trend of their relationship to total. Observation of these trends is not

very useful because there are no definite norms for the proportion of each items to total. For e.g.,

if it is established that in business the sundry debtors should be 20% of total assets, while

32
inventory should be 30% of total assets, the computation of various ratio to total assets would be

very useful. But since there are no such established standard proportion, calculation of

percentages of different items of assets or liabilities is not of much use. On account of this

reason common size financial statements are not much useful for financial analysis. However,

this statements are useful studying the comparative financial position of two or more business.

CASH FLOW ANALYSIS

A cash flow statement is useful for short term planning. A business enterprise needs sufficient

cash to meet its various obligations in the near future such as payment for purchase of fixed

assets, payment of debts maturing in the near future, expenses of the business etc.,. A historical

analysis of the different sources and applications of cash will enable the management to make

reliable cash flow projection for the immediate future. Also it discloses the volume as well as the

speed at which the cash flows in the different segments of the business. This helps the

managements in knowing the amount of capital tied up in a particular segment of the business.

The technique of cash flow analysis, when used in conjunction with ratio analysis serves as a

barometer in measuring the profitability and financial position of the business.

COST VOLUME PROFIT (CVP) ANALYSIS

Profit is the important measure of firm’s performance. An analysis of the effects of various

factors on profit is an essential step in the financial planning & decision making. The analytical

technique used to study the behavior of profit in response to the changes in volume, costs and

price is called the cost volume profit (CVP) analysis. It is a device used to determine the

33
usefulness of the profit analysis helps to determine the usefulness of the profit analysis helps to

determine the minimum sales volume to avoid losses and the sales volume at which the profit

goal of the firm will be achieve. As an ultimate objective, it helps management in seeking the

most profitable combination of costs and volume. A dynamic implications of its short run

decision about fixed costs, variable costs volume and selling price for its short run decisions

about fixed costs, variable costs, volume and selling price for its profit plans on a continuous

basis.

The CVP analysis is on immense utility to management as it provides an insight into effects

and interrelationship of factors which influence profits of the firm. It is with the help of the CVP

analysis that the finance executive is enabled to present facts and figures

34
Chapter – 2
Research design

OBJECTIVE OF THE STUDY:

The objective of the study is to evaluate the financial performance of KMF, Cattle feed unit over

a period of past 4 years (FY 2004-05 to 2007-08). The study shall cover the following areas:

1. study of Balance sheet and profit and loss account


35
2. To study whether the financial performance is improving or deteriorating

3. To suggest measures and recommend alternative, key factors for decision if any for the

successful performance of the company. On the basis whether it can improve the

profitability, liquidity, stability and performance.

HYPOTHESIS:

“The study has been undertaken to see that whether financial performance of the company is

improving or deteriorating”

METHODOLOGY:

The study has entirely based on the secondary data. Information is collected from the Profit and

Loss account and Balance Sheet of last four years, i.e., 2006-07 to 2009-10. The data is analyzed

with the help of Ration Analysis. Apart from this, personal and informal discussions were held

with the executives in the Finance& Accounts Department and other departments of the

corporation. Where as the theoretical concept is taken from various text books reference on

financial management.

SOURCES OF DATA COLLECTION:

As the study related to the analysis and interpretation of financial performance, there is no need

for the collection of structured data. Company’s annual reports for the past 4 years are be

36
referred and direct interviews with various financial senior executives was carried out for

completing the study.

ANALYSIS OF DATA

The analysis is mainly consisted of through study of the financial data available in the financial

statement. The data collected will be subjected to analysis through the Ratio analysis techniques

or tools. This analysis is arrived at on the basis of the Profit and Loss Account and Balance

Sheet of the published books of accounts of the corporation.

DEFINITIONS AND CONCEPTS:

1. ANALYSIS AND INTERPRETATION OF FINANCIAL STATEMENT:- Refers to

such a treatment of the information contained in the Profit and Loss Account and

Balance Sheet so as to full diagnosis of the profitability and financial soundness of the

business.

2. FINANCIAL RATION ANALYSIS:- This is the most important tool available to

financial analyst for their work. It shows the relationship in mathematical terms between

two interrelated accounting figures.

3. TREND ANALYSIS: Trend analysis is for studying financial statements over a period of

time i.e., year to year, month to month.

4. FUNDS FLOW STATEMENT: The funds flow statement, drawing based on the

information contained in the basic financial statement which shows the sources of funds

and application of funds during the period.

37
5. PROFITABILITY RATIO:- Are calculated to measure the operating efficiency of the

company. It gives some yardsticks to measure profit in relative terms, either with

reference to sales or assets.

6. GROSS PROFIT RATIO: Is defined as the difference between net sales and cost of

goods sold

7. NET PROFIT RATIO: This ratio shows the earnings left for shareholders (both equity

and preference) as a percentage of Net Sales

8. OPERATAING PROFIT RATIO:- For evaluating the operating performance of the

company

9. EARNINGS PER SHARE (EPS): It is calculated by dividing earnings available to the

equity shareholders (Net profit or PAT) by the number of equity shares outstanding on

the year ending on 31st Mar every financial year.

10.RETURN ON INVESTMENT: It is a measure of company earnings on investing a unit

of capital whether equity or preference

11. CURRENT RATIO:- It indicated the relationship between total current assets and the

total current liabilities in a company i.e., net working capital.

12. CAPITAL STRUCATURE RATIO:- The purpose of this ratio is to identify the source of

funds that is proportion mix of debt and equity.

13. DEBT EQUITY RATIO: It is determined to ascertain the soundness of long term

financial policies of the company. The ratio indicated the proportion of owner’s stake in the

business compared to long term debts.

38
Chapter –3
Company profile

1 BACKGROUND AND INCEPTION OF THE COMPANY

39
The Hassan Co-operative Milk Producers’ Societies Union Ltd. (HCMPSUL) has come
into existence on 4th June 1975 with the object to develop dairy development activities in the
rural area.

In June 1974 an integrated project was launched in Karnataka to restructure and


recognize the dairy industry on the co-operative principles and to lay foundation for new
direction in dairy development. Work on the first ever the World Bank aided dairy development
project was initiated in 1975. Initially it covered 4 districts of Karnataka such as Mysore,
Hassan, Tumkur, and Bangalore.

Hassan Co-operative milk producers’ society union ltd. was set up to implement the project by
Karnataka dairy development co-operation (KDDC). It has registered on 30 th March 1977 after
formation of milk societies. The operational jurisdiction of the union extended to 3 districts
namely Hassan, Chickamagalur and Kedge.

The Aims of the HCMPSUL

The main aims of the milk union

1. To organize DCS in rural areas & to procure surplus milk.

2. Providing correct pricing & continuous market to the producers throughout the year.

3. Providing technical input facilities like veterinary facilities, artificial insemination services
feed & training facilities.

4. Socio-economic development of the village producers/farmers by regular payment every


week.

5. Supply of Nadine milk & Milk products to the customers by distribution channels.

6. Providing employment facilities in rural area for unemployed youths.

2.2 NATURE OF BUSINESS CARRIED

40
Hassan milk union carried on the business of producing and marketing milk and milk
Products, such as Peda, curd, Ghee, Buttermilk.
Hassan milk union procuring surplus milk in the rural area and
provide input activities to dairy co-operative societies like artificial
insemination, supply cattle feed, animal health care programs for the
upliftment of the producers. It purchased some products from KMF viz
Nadine floured milk, Badam powder, Jamoon mix, Nadine bite, Skimmed milk
powder (SMP), Mysore pack etc. All purchased and produced products were
sold by its own.

2.3 VISION, MISSION AND QUALITY POLICY

Vision statement

The Union strives hard to adapt the modern and eco-friendly technologies to produce to
milk and milk products of International standards and to make ‘Nadine’ a global benchmark in
Quality.

Mission statement

The mission of Hassan milk union is to render the best services at nominal costs to its
members to increase the milk production and produce good quality milk by paying remunerative
price throughout the year, thereby improving their socio-economic conditions while ensuring
high quality milk and milk products to the delighted level of the consumers at competitive price.

Quality Policy

Hassan milk union is committed to the upliftment of its producer members by


supporting them to produce surplus milk of good quality and continually satisfy customer
expectations by timely delivery of good quality milk and milk products meeting to legal
standards by developing an healthy relationship with the suppliers and motivating the work force
to adhere to good manufacturing policies.

41
PRODUCT PROFILE
Product may anything that can offered to the market to satisfy wants and needs. The various
products produced at HCMPSUL and their descriptions are described below:

Nadine Toned Milk:

Karnataka’s most favorite milk. Nadine toned fresh and pure milk containing 3.0% fat and 8.5%
SNF.

Nadine Homogenized Milk:


Homogenized Milk is pure milk which is homogenized and pasteurized. Consistent right
through, it gives you more cups of tea or coffee and is easily digestible.Nandini Full Cream
Milk: Full Cream milk. Containing 6% Fat and 9 % SNF.A rich, creamier and tastier milk, Ideal
for preparing home-made sweets & savories.

Price list of various types of milk:

Market
Sl No Milk & milk products Packing Quantity
price

1 Toned Milk Sachet 500ml 8.00


2 Toned Milk Sachet 1000ml 16.00
Homogenized
3 Sachet 500ml 9.00
Standardized Milk
Homogenized
4 Sachet 1000ml 18.00
Standardized Milk

5 Full cream Milk Sachet 500ml 11.00

6 Full cream Milk Sachet 1000ml 22.00

42
Curd
Nadine Curd made from pure milk. It's thick and delicious. Giving you all the goodness
of homemade curds, Available in 200gms and 500gms sachet.

The price list of Curd:


Sl No Particulars Packing Quantity Price in Rs
1 Nanina Curd Sachet 200 ml 5 -00

2 Nadine Curd Sachet 500ml 10 -00

3 Nadine Curd Bulk Can 1000 ml 19 -00

Butter Milk:
Nadine spiced Butter Milk is a refreshing health drink. It is made from quality curds and is blended with
fresh green chilies, green coriander leaves, asafetida and fresh ginger. Nadine spiced butter promotes health
and easy digestion.

Price List of butter Milk


SL NO Particulars Packing Quantity Price in Rs

1 Butter Milk Sachet 200ml 4.00


2 Butter Milk (Tetra Sachet 200ml 8.00
pack)

Nadine Ghee
Nadine Ghee made from pure butter. It is fresh and pure with a delicious flavor. Hygienically
manufactured and packed in a special pack to retain the goodness of pure ghee. Shelf life of 6
months at ambient temperatures.

Price list of ghee:

Sl NO Particulars Packing Quantity Price in Rs

43
1 Nadine ghee Sachet 50ml 13.50

2 Nadine ghee Sachet 100ml 23.00

3 Nadine ghee Sachet 200ml 44.00

4 Nanina ghee Sachet 500ml 107.00

5 Nadine ghee Sachet 1000ml 210.00

6 Nadine ghee (bulk) Tin 15kg 3150.00

Peda

No matter what you are celebrating! Made from pure milk, Nanina Peda is a delicious treat for
the family. Store at room temperature approximately 7 days. Available in 250gms pack
containing 10 pieces each.

Price list of Peda:

Particular Packing Quantity Price in Rs


Sl No
1 Nandini Peda 10 grams Box 100 grams 23-00

2 Nandini Peda 25 grams Box 250 grams 55 -00

2.

5 AREA OF OPERATION

44
Companies are always looking to carry business, where the required resources are easily
available. Area of operation plays a vital role while fixing price, there by development of the
company. Because if the area has suitable environment, raw material, Skilled labors for less
wages, then it will reduces the cost of production.

Hassan milk union carrying business in Regional level that includes 3 districts viz Hassan,
Chikkamagalur, and kodagu.Hassan district covers eight talks, namely Channaraypatna , Hassan,
Arasikere, Sakaleshpur, Belur, Allure, Arakalagud, and Holenarasipura. It collects the milk from
various villages of these eight taluks.Chikkamagaluru district covers, Chikkamagaluru, Kadar,
and Tarikere. Kodagu District covers Somavarapete, Virajpete, and Madakeri. In Kudige dairy
totally 50000 LPD is renovated at the cost of 251 lakhs with assistance of National Dairy
Development Board.

2.6 OWNERSHIP PATTERN

Even government has control over the union. The farmers are the real owners of the
Hassan milk union. Any person who has delivered or contributes 270 days milk to the milk
society has the rights to vote to elect committee members of the village milk society. These
members will select presidents for the village milk society.

Then these selected presidents will elect Board of Directors of the Milk Union. These
Board of Directors will select one among them as president of Hassan milk union. If any
members have any queries they can discuss with president in the meeting. In case of president
absence, they can meet Managing Director for the solution. Now the president of Hassan milk
union is Mr. H D REVANNA .The Managing Director and the Board controls the entire union.
If the company earns profit, that will be distributed to the member societies based on their
contribution.

2.7 COMPETITORS INFORMATION

There are many competitors viz., Milk Wave, Shivashakthi, Shruthi dairy, Thirumala, Krishna
Dairy, Kaveri, Amrutha, Surabi, Jersey etc are producing similar product in same area with
similar strategy.

The Table shows the competitors information in HASSAN DISTRICT

45
CITY/DISTRICT COMPETITOR PLACE OF SALES IN LPD
BRAND PROCUREMENT (Liters per day)

1.Hassan Kaveri Kunigal 200


Aragua Belgaum 100
2.Arasikere Jenukal Arasikere 250
Aragua Belgaum 100
Srinivasa Kunigal 200
3.Chenraypatna Kaveri Kunigal 350
Jersey Bangalore 350
4.Sakleshpur Kaveri Kunigal 600

5.Belur Kaveri Kunigal 40


Aragua Belgaum 100
TOTAL _ _ 2290

The Table shows the competitors information in CHIKMAGLURDISTRICT

CITY/DISTRICT COMPETITOR PLACE OF SALES IN


BRAND PROCUREMENT LPD
1.Chikmaglur Milky wave Kunigal 2000

2.Kadur Srinivasa Kunigal 200

3.Mudigere Kamadhenu Moodier 200

Kaveri Kunigal 500

TOTAL _ _ 2900

The Table shows the competitors information in COORG DISTRICT


46
CITY/DISTRICT COMPETITOR PLACE OF SALES IN LPD
BRAND PRCUREMENT

1.Somvarapete Jersey Bangalore 600

2.Madikeri Jersey Bangalore 350

3.Kushalanagara Jersey Bangalore 250

4.Veerajpete Jersey Bangalore 80

5.Gonikoppa Jersey Bangalore 350

6.Kudige Jersey Bangalore 60

7.Balale Jersey Bangalore 20

TOTAL _ _ 1710

2.8 INFRASTRUCTURAL FACILITIES

The HCMPSUL is situated in the industrial estate beside the national highway (NH – 48)
a prime locality occupying a vast and ample space of 25 acres.

The building is situated besides the national highway it is noise free zone. The main
building consists of administrative department, finance and MIS department. Beside the main
building, a canteen and other building where marketing and purchase departments are situated.
The internal parts of the departments are arranged in such a way that there is sufficient space for
office work and arrangements are made for proper ventilation.

47
Power and Fuel

The Karnataka power transmission corporation supplies the power up to 425 kilowatts
per month to HCMPSUL. In case of any shortage, it is equilibrated using diesel generators.

The diesel required per day, an average 2.25 tones. Required fuel is supplying by its
own petrol bunk.

Other facilities

1. Emergency facility
2. First aid facility
3. Mobile veterinary facility
4. Artificial insemination facility
5. Providing feeds and fodder
6. Training and development facility to DCS
7. Clean milk production
8. Vision programmed-under taken from NDDB[National dairy development board]

2.9 ACHIEVEMENT/AWARDS

Organization of dairy cooperative socities-1192, DCS functional-1112, Membership


(nos.) - 172113, Average Milk Procurement (TKGPD) - 340269, DCS under IB programme-45,
Number of first centers-370, Women Memberships (nos.)-55708, Number of AI done- 25219,
Number of cluster AI centers-80, Fodder seed sales - 96, Fodder slips supply – 25 lakhs, DCS
under CMP - 700, Average Milk Sales LPD-121858, Average curd Sales/day - 10850

HCMPSUL has got to 4 awards

• National Energy Conservation Award -2004 Received on 14th Dec from Dr.
Manamohan Singh, Prime Minister of India.
• National Energy Conservation Award-2005 Received on 14th Dec from Dr. A.P.J.
Abdul Kalama, President of India.
• National Energy Conservation award-2006 Received on 14th Dec from Honorable
Power Minister, Sushilkumar

48
• National Energy Conservation award-2007.Received on 14th Dec from PratibhaPatil,
President of India.

• ISO-9001:2000 certification

2.10 WORK FLOW MODEL

Preliminarily the raw milk is collected from the stores department. Then the raw milk
goes through a process in production department where the milk and milk products are
produced. Produced products are clearly checked and packed in accordance to the quantity
required. This process will carry by quality control department. Finally the products which are
ready for sales are send to the sales and marketing department to distribute it to the consumer
through various distribution channels like milk parlors, milk depots, and other retail outlets etc.

PRIMARY MILK PRODUCER

VILLAGES DAIRY CO-OPERATIVE SOCITIES

TRANSPORTATION

DAIRY/CHILLING CENTRES

SECURITY CHECK

MILK RECEPTION DOCK

49
GOOD MILK IS RECEIVED

QUALITY CHECK (FAT, SNF)

CHILLING MILK

PROCESSING

PACKING SECTION PRODUCTION SECTION

DISPATCH THROUGH TRANSPORTATION

SECURITY CHECK, AGENTS AND CONSUMERS

50
2.11 FUTURE GROWTH AND PROSPECTS

Perspective plan of National Development Dairy (NDDB) for the creation of processing

infrastructure facility as Hassan Dairy.

• To establish packing station at Channarayapatna.

• To establish Hi-tech parlors at Channarayapatana.

• To establish ATM (All Time Milk) in all Talk levels.

• Expansion of Holenarasipura Chilling centre.

• Introduction of clean milk production (CMP) at all levels.

• Introduction of Dairy Animal Management (DAM).

• Introduction of Total Quality Management (TQM) program in all levels.

• Introduction of Total Energy Management Program(TEM).

• Introduction of the cluster concept to increase the consumption.

• Comprehensive training programs for DCS (District Co-operative Society)personnel and

milk union personnel

3. MCKENSEY’S 7-S FRAMEWORK

The 7-S framework was developed by the consultants at the McKinney Company, a
very well known management consultancy firm in United States towards the end of the 1970 to
diagnose the causes of organizational problem and to formulated programs for improvement.

7-S model a systematic approach in improving organizations

The 7-s diagram illustrates the multiplicity-interconnectedness of elements that define the
organization ability to change. It looks as the seven key elements that make the organizations
successful, or not, strategy, structure, systems, styles, skills, staff, and shared values.

51
.

STRUCTURE
The functional structure of HCMPSUL is appropriate for an organization with several
product lines. It ensures maximum use of the principle of specialization. Since the workers have
performing a limited number of functions, their efficiency would be very high. Hassan milk
union mainly has marketing, administration, finance, and MIS department

52
ORGANISATION STRUCTURE

PROCUREMENT
MISDEPARTMEN
FINANCE
PURCHASES AND INPUT
PERSONAL
DEPARTMENT
ADMINISTRATION
PRODUCTIO
MARKETING
BODs-
MD [ CEO
DEPARTMENT
NT
ASSISTANCE
DEPARTMENT
DEPARTMEN
CHAIRPERSON
]
DEPARTMENT
T
DAIRY
PLANT

Administration Department

It takes care and controls all other departments in the union

53
54
DEPUTY
TRAINING
LEGAL
AND ALLIED
ESTABLISH-
ADMINISTRATION
MANAGER
ACTIVITIES
CELL
MENT
DEPARTMENT
(PERSONNE
L)

55
ASSISTANT MANAGER
ADMINISTRA-TIVE
SUPPORTOFFICER
STAFF

OFFICE SUPERINTEN-
DENT

Finance Department

56
MILK MANAGE
KUDIGE
INTER CAS
SUB
ACCOUNTSSUB
SUB
FINANCE
SUPPOR
GENERAL
ASSISTANT
ACCOUNTS
CASH
BILL DAIRY
DAIRY
MARKET
AND BILLS
AUDITPETROL Finance
PAY
PAY TR
STAFH
STAF
STAF
DEPARTMENT
OFFICE
UNIT
MANAGER
SUPER
SALES
SUPERBILLS
BUNK
INTER DAIRY
BILLS
SUPER (FINANCE
FF
STAFF
ACCOUNTS
INTENDENT
(FINANCE)
INTENDENT
INTENDENT
SALES
SUPER
) BILL
MILK
INTENDENT
PETROL
BUNK
SUPER
INTENDENT

department of the union is well staffed with resource personnel. The

57
department takes care of all the financial transactions of the union. The
department is fully computerized.

Marketing Department
Marketing department plays a vital role in determining the future
abilities of the company. Its main objective is to distribute goods from
producers to the customers. It distributes milk to consumers and also
provides consumer education through ad campaigns and participating in
various exhibitions.

58
ASSISTANT
CHIKMAGLOR
MARKETING
HASSA
SUBMANAGER
COORG
ASSISTANT
MARKETING
DEPUTY
MANAGER OFFICER
PROGRAM
EXTENSIONPRODUCT
OFFICER
N
E
((MARKETIN
MERCARA
STAF
MANAGER
OFFICER
MANAGER GRADE
F
)
HQA
-1
(MARKETING)
G)
E.O. (GRADE
---) -2
SUB STAFF

59
Purchase Department:

This department plays major role because the quality of milk which is
procured from the different societies should be maintained equally. Because
1 liter of spoiled milk is enough to spoil the whole milk in the company. So
the purchase department must be careful while purchasing the milk.

PURCHASE DEPARTMENT

SUB STAFF

STRATEGY

The route that organization has chosen for its future growth, a plan
organization formulates to go sustainable competitive advantage. Strategy

60
means those actions that a company plans in response to or anticipation of
change to its external environment.

Strategy refers to the determination of the purpose & the basic long
term objectives of an enterprise & the adoption of courses of action &
allocation of resource necessary to achieve the aims.

PRICING STRATEGY:-

Price is an important element in the marketing mix. The right price can
be determined through pricing research & by adopting the test marketing
techniques. A price policy is thus a standing answer of the firm. If
competition is mainly on price basis, then each company prices its product
at the same level as its products at the same level of prices of its
competition.

Hassan milk union is formulating appropriate strategies in order to


meet the challenges and to develop and strengthen dairy co-operative
movements on the following thrust namely:

1. Procurement, processing and marketing

2. Quality assurance program

3. Reasonable pricing

SYSTEM

The formal & informal procedures, including innovation system,


compensation system, MIS capital allocation System that governed every
activity. Changes in strategy may be implemented with changes in systems
rather than in the company structure. Changes in company structure, for

61
e.g., from functional to individual or functional to matrix or divisional to
matrix could also necessitate changes in the systems in various degrees.
System refers to all the rules, regulations, and procedures, both formal and
informal that complement the organization structure.

Milk Procurement Procedure

The production department is responsible for procurement of raw milk.


It consists of two wings called purchase and stores. Purchase wing is
processing of raw milk and stores wing is receiving and issuing the same to
the user department.

The procurement and input department is concerned with collection of


milk from various DCS.

• To follow up daily procure schedule as per the plan.


• To collect quality of milk by checking fat content.
• To maintain good relationship with DCS.
• To send procured milk to production unit.
Indent is raised by the user department and is registered at stores
after verifying the availability of stock at stores. After registration, the
indent is forwarded to purchase wing for procurement. At the time of
registration of indent if stock is available, it is issued to the user
department and the indent is cancelled.

On receipt of indent the purchase wing lends enquires to various suppliers who normally
supply the milk and milk products. Then these suppliers submit their offers. After receiving the
offers, a comparative statement is made and forwarded to the general manager for
recommendations. The General Manager chooses a most suitable offer for placement of
purchase order.

62
Then products/goods inspection note is prepared and forwarded to the GM
department for inspection of the milk & milk products supplied. Then the GM
inspects the material with quality experts at stores and accepts the same on
reject depends upon the quality of products. The rejected producers/goods
are returned to the suppliers.

Whenever the union required milk and milk products or any materials they
approach stores along with issue voucher against which product/goods
issued and consumed. Periodic stock verification is conducted at stores to
check the inventory.

The cans from the trucks are introduced to procuring & can washer machine,
during this process the machine automatically opens the lid of the milk can
and milk is collected in a chilling tank. Then the raw milk is pre chilled at 6-
8% to arrest the growth of micro-organisms. The milk cans are automatically
washed and placed outside. Again the trucks are weighed to get the exact
value of the raw milk obtained.

SKILL

To import required skill, Hassan Co-operative milk producers’


society conducting training programmer i.e., both on the job training and off
the job training which increases the knowledge and skill of an employee for
doing the job.

On-the-Job Training Method

HSN milk co-operative society provides On-the-Job training according


to the need. For this method of training, they are inviting experts from

63
various training institutions. This type of training will be conducting once in
three months/six months/ a year.

The methods of on-the-job training, which are adopted by Hassan


milk union, are as follows:

Coaching

The trainer is placed under a particular supervision who functions as a


coach in training the individuals according to organization requirements. To
give coach they are inviting experts from various institutions like National
Dairy Development Board (NDDB), and sometimes top managers of the
organization etc.

Job Instructions

The union conducting this type of training at the time of selected new
employees. Under this method the experts or the superior explains to the
trainee the way of doing the job and allow him to do the job.

Off the Job Training

Under this method of training, trainee is separated from the job


situation. Here employee can place his entire concentration to learn rather
then spending time in performing job.

Visible Training

Under this method, actual work condition is stimulated in a classroom.


Hassan milk union sends its employees to National Dairy Development Board
(NDDB), Mehsana, Confederation for Indian industries (CII) and NDDB An and
for technical training. This type of training is commonly used for training
individuals for technical and clerical job.

64
Seminars

Under this method, the individual give seminar on selected topic.


Supervisory personnel given seminars in difference institutions like NDDB An
and, NDDB E-Board, and Confederation of Indian Industries (CII) etc.

Role Playing

Under this method participant plays the role of certain characters, like
general manager, marketing manager, technicians, workers and the like.
The union provides this training to manager/employees in order to develop
the interpersonal relationship between the employees. This type of training
is giving by Ramakrishna Institute of Morale (RIM) and spiritual education.

STYLE

The relationship approach of top management & the organizations


overall operating approach, also the Style in which the organizations makes
decisions. Style impacts how they work interact with each other & with
customers. For the achievement of the objective of the enterprise there
must be exist a cordial owner employee relationship.

The owners are willing to pay good remuneration to employee if they


are honest & efficient. At the same time, employees ready to work hardly &
sincerely, when they are job security &good pay skills, good relationship
between the owners & employees can make easily.

STAFF

The people in organization are very dedicated and work towards the
improvement of organization. The skill level of the works is work oriented &
their specialized in their respective field work.

65
Staffs refer to people in the enterprise & their socialization into
organizational culture. The staff in HCMPSUL has good relationship with
each other. The staff is well qualified and suits for their respective jobs. They
are satisfied with their work, which is reflected by the non stoppage of any
work in HCMPSUL.

Staff refers to the organizations human resources. Management is


concerned with the accomplishment of objectives by utilizing physical and
financial resources through the efforts of manpower.

TECHNICAL STAFF 123

NON-TECHNICAL STAFF 191

MANAGERIAL 45

UNSKILLED 58

TOTAL 417

SHARED VALUE

“It deals with the values & believes of the company. Ultimately they
guide employees towards behavior. In other words share the same guiding
values when started when value element started are presented. Companies
are usually successful at the strategy implementation”.

Each every company must follow shared value. Shared value refers to
the attitude, culture, beliefs, and philosophy of an organization. It is the
backbone of an Organizational success. These values have great meaning
because they focus attention provide broader sense of purpose. They also
give strong basis of stability to an organization in a rapidly changing
environment providing basic meaning to people working in the organization.

66
1. Providing assured and remunerative market for the milk, produced by the former
members.
2. Providing quality milk to urban consumers.
3. To build village level institutions in co-operative sectors to manage the dairy
activities’

4. To ensure provision of milk production inputs, processing facilities


and dissemination of know how

5. To facilitate rural development by providing opportunities for self-employment at


village level, presenting migration to urban areas, introducing cash economy and
opportunity for steady income.

SWOT ANALYSIS

STRENGTHS
➢ Nadine Brand: Nadine products are well branded in the market because of their
quality

➢ Man Power: There are well experienced, professionally trained technical employees
working in the company with minimum experience of 15 years. It helps organization to
maintain the quality of the product.

➢ Location: Hassan milk union is located in industrial estate beside NH-48 where people
can easily find the company. It reduces the cost of transportation and leads to publicity of
company name.

➢ Government Support :It is supported by government of Karnataka with grants and


loans

67
WEAKNESS
➢ Decision –making and control rules by K.M.F & Karnataka government.

➢ All major policies and terms are directed by KMF, which is constituted by various
unions .Hence major decisions and constructive works are delayed.

➢ Bad condition of roads makes milk procurement and also distribution problematic.

OPPORTUNITIES:

➢ There is demand for Nadine Products in other states viz Kerala, Goa. So it can sell its
product to those states along with Tamilnadu and Andhra Pradesh

➢ New Product Innovation: It can innovate new products dairy Sweets in the same
product line.

➢ Diversification: Organization has the potential to diversify into various related business.

➢ Employment: It provides more employment opportunity to the people. Young,


enthusiastic employees put their best efforts, which results in the growth of organization.

THREATS

➢ Market uncertainty: There is a price fluctuation in the market, it may leads to decrease
the demand and there by reduction in profit.

➢ Competition: Competitors are coming up with similar product, this is the main threat
posed by the external environment.

68
Chapter – 4

Data analysis and


Interpretation

69
Comparative Balance Sheets for the last four years ending on
31st Mar are as follows:-
(Rs. in Lakhs)

70
PARTICULARS 2006-07 2007-08 2008- 2009-
09 10
SOURCES OF FUND
Share Capital
Reserves and Surplus 392.86 383.52 372.92 361.85
Profit and Loss A/c 15.57 - 201.47 69.64
LOANS
Secured Loan 185.25 449.26 449.47 397.21
Unsecured Loan 188.51 204.83 219.99 236.26
TOTAL 782.20 1036.88 1243.63 1064.9
8
APPLICATION OF
FUNDS
Fixed Assets 585.12 955.36 928.48 1251.5
2
Current Assets Loans
&Advances
Cash and Bank Balance 10.98 7.04 14.92 37.56
Sundry Debtors 262.84 105.78 481.61 0.156
Inventory 239.73 411.32 465.26 529.91
Loans and Advances 60.13 24.83 91.74 39.62
TOTAL 573.69 548.99 1053.54 607.25
Less: Current Liabilities 376.61 512.98 738.39 793.79
and provisions
Net Current Assets 197.08 36.00 315.15 -
186.53
Profit/Loss A/c 0.00 45.51 0.00 0.00
71
Manufacturing & Trading Account for the last four years
ending 31st Mar are as follows:-

(Rs. in Lakhs)

72
PARTICULARS 2006- 2007- 2008- 2009-10
07 08 09

Opening Stock 230.65 239.73 411.32 465.26


Purchases 2028.5 2679.3 3776.4 4538.83
4 8 9
Inter unit Transfers 154.94 131.05 247.05 218.63
Processing &Manufacturing 66.27 86.73 115.74 124.52
Expenses
Salaries, Wages & other 61.20 71.01 96.20 131.76
benefits

Gross Profit carried to P&L 787.2 52.51 305.3 180.72


A/c 2 9

TOTAL 2620. 3260.4 4952. 5659.73


35 4 20

Sales 2361.7 2842.6 4481.7 5066.74


5 1 9
Inter unit Transfers 18.85 6.51 5.41 63.07
Closing Stock 239.73 411.32 465.26 529.91

TOTAL 2620. 3260.4 4952. 5659.73


35 4 20

73
Profit & Loss Account foe the last four years for the year
ending 31st Mar are as follows:-

(Rs. In Lakhs)

PARTICULARS 2006- 2007- 2008- 2009-


07 08 09 10

Salaries, Wages and other 15.30 17.75 24.05 32.94


benefits
Administrative Expenses 15.72 18.64 20.92 29.15
Rent, Rates, Taxes, License & 0.53 5.32 1.91 1.40
Insurance
Selling & Distribution Expenses 1.62 0.97 2.52 0.11
Interest & Bank Charges 32.40 38.23 47.08 41.30
Repairs & Maintenance of 0.00 0.00 0.00 0.00
Vehicle
Depreciation 29.65 48.84 48.78 53.94
Net Profit 15.57 0.00 201.47 69.64

TOTAL 110.81 129.7 346.75 228.51


8

Gross Profit 78.72 52.51 305.39 180.72


Other Income 32.05 31.63 39.40 46.16
Interest on Deposits & 0.03 0.11 1.95 1.63
Advances

74
Net Loss 0.00 45.51 0.00 0.00

TOTAL 110.81 129.7 346.75 228.51


8

PROFITABILITY RATIOS:

A business is run primarily for profit. So its performance has been

measured in terms of profit. Profitability ratios give some

yardsticks to measure profit in relative terms, either with

reference to sales or assets or capital employed.

Profitability in relation to sales or income:

A company should be able to produce adequate profit on each

rupee of sales. If sales do no generate sufficient profit, it would be

very difficult for the firm to cover operating expenses and interest

charges and as a result, it will fail to earn any profits for owners.

Measures of Profit:

a) Gross Profit - Sales minus cost of goods sold

b) Net Profit (PAT) - Result of impact of all factors on

75
Earnings

c) Operating Profit - Earnings before interest and taxes

(EBIT)

a) GROSS PROFIT RATIO: This ratio indicates the average

spread between the cost of goods sold and sales or income.

A high gross profit margin ratio is a sign of good

management. A gross profit margin ratio may increase due

to any of the following factors.

• Higher sales price cost of goods sold remaining

constant

• Lower the cost of goods sold, sales prices remaining

constant

• A combination of variations in sales price and cost, the

margin widening

• An increase in the proportionate volume of higher

margin item

76
The analysis of these factors will reveal to the management how

a depressed gross profit margin can be removed.

A low gross profit margin may reflect higher cost of goods sold

due to the firm’s inability to purchase at favorable terms, in

efficient utilization of plant and machinery, or over investment in

plant and machinery, resulting in highest cost of production. This

ratio will also be low due to fall in prices in the market or market

reduction in selling price by the firm in an attempt to obtain large

sales volume, the cost of goods sold remaining unchanged. The

financial manager must be able to detect the courses of falling

gross margin and initiative action to improve situation.

There is no norm for judging this ratio; therefore, the evaluation

of business on its basis is a matter of judgment. However the

gross profit should be adequate to cover operating expenses and

to provide for fixed charges, dividends and building up of

reserves.

GROSS PROFIT RATIO = GROSS PROFIT X 100

77
SALES

1. TABLE OF GROSS PROFIT RATIO

(Rs.In Lakes)

YEARS(A) GROSS SALES(C) RATIO (In %)

PROFIT(B) (B/C*100)

2006-07 78.72 2361.75 3.33

2007-08 52.51 2842.61 1.84

2008-09 305.39 4481.79 6.81

2009-10 180.72 5066.74 3.57

Source: Annual Report

ANALYSIS: The gross profit was decreasing expect in the year 2006-07.

CHART .1

INTERPRETATION:

The ideal gross profit ratio is 25% to 30%. The gross profit ratio

decreasing from one year to another year means profit earned by sales less

than one year to another year.

78
A) OPERATING PROFIT RATIO: The profit after tax figure excludes

interest on borrowing. Interest is tax deductible, and therefore, a firm

which pays more interest pay less taxes. Tax saved on account of

payment of interest is called interest tax shield. Thus the conventional

measure of net profit margin- PAT to sales ratio is affected by the

firm’s financing policy. For a true comparison of the operating

performance of firms, we must ignore the effect of financial leverage

viz, the measure of profit should ignore interest and its tax effect.

OPERATING PROFIT RATIO = OPEARATI NG PROFIT X 100

TURNOVER

2. TABLE OF OPERATING PROFIT RATIO

(Rs.In

Lakhs)

YEARS( GROSS OPERATING OPERATING SALES(E RATIO (In

A) PROFIT(B EXPENSES(C PROFIT ) %)

) ) (D/E*100)
(B-C=D)

2006-07 78.72 62.83 15.88 2361.75 0.67

2007-08 52.51 91.54 -39.02 2842.61 -1.33

2008-09 305.39 98.19 207.19 4481.79 4.62

2009-10 180.72 117.56 63.15 5066.74 1.25

79
Source: Annual Report

ANALYSIS

The operating profit ratio is 0.67% in the year 2004-05, it is -1.33% in the

year 2005-06, it is 4.62% in the year 2006-07, and it is 1.25% in the year

2007-08.

CHART 2

INTERPRETATION:

A high operating profit ratio indicates that profitability of a concern

is good.

On the other hand a low operating profit ratio indicates that the profitability

of the enterprise is poor.

In case of KMF, Cattle feed unit that the profit is increasing from 2006-07

year this is the good prospect for the concern. But the company has a poor

performance in the year 2005-06 because it has a negative profit in that

year

80
a) NET PROFIT RATIO: This ratio indicates net margin earned on sale of

Rs.100. This ratio helped in determining the efficiency with which

affairs of the business are being managed. An increase in the ratio

over the previous period indicates improvement in the operational

efficiency of the business provided the gross profit ratio is constant. It

indicates that the management’s efficiency in manufacturing area,

administrating and selling the products.

b) NET PROFIT RATIO = NET PROFIT X 100

NET SALES

3. TABLE OF NET PROFIT RATIO (Rs.In Lakhs)

YEARS(A NET SALES(C RATIO (In%)

) PROFIT(B) ) (B/C*100)

2006-07 15.57 2361.75 0.65

2007-08 -45.51 2842.61 -1.60

2008-09 201.47 4481.79 4.50

2009-10 69.64 5066.74 1.37

Source: Annual Report

ANALYSIS

The net profit is 0.65% in the year 2004-05, it is decreased to -1.60% in the

year 2005-06, again it is increased to 4.5% in the year 2006-07

81
CHART 3

INTERPRETATION:

A high net profit ratio indicates that profitability of a

concern is good.

On the other hand a low net profit ratio indicates that the profitability of

the enterprise is poor.

In case of KMF, Cattle feed unit that the profit is increasing after 2006-07

year this is the good prospect for the concern. But the company has a

poor performance in the year 2006-07 because it has a negative profit in

that year

d) OPERATING RATIO:-It is the ratio between the operating cost and sales.

Operating co means all expenses for operating or running the business. It

includes opening stock, purchases, direct expenses, administrative

expenses, selling and distribution expenses. A net sale means sales minus

sales returns. The ratio indicates the efficiency of the management to

conduct the business. It indicates the efficiency of the organization.

OPERATING RATIO=OPERATING COST X 100

82
SALES

4. TABLE OF NET PROFIT RATIO


(Rs.In Lakhs)

YEAR COST OPERATING OPERATING SALES RATIO (In %)

S(A) OF EXPENSES( COST(B+C= (E) (D/E*100)

GOODS C) D)

SOLD(B)

2006- 2283.03 62.83 2345.87 2361.7 99.33

07 5

2007- 2790.09 91.54 2881.64 2842.6 101.37

08 1

2008- 4176.40 98.19 4274.60 4481.7 95.38

09 9

2009- 4886.02 117.56 5003.59 5066.7 98.75

10 4
Source: Annual Report

ANALYSIS:

The operating ratio or operating cost ratio was 99.33% in the year 2006-

07,101.37% in the year 2007-08, 95.38%in the year 2007-08 and

98.75%in the year 2009-10

CHART 4

83
INTERPREATION:

The standard operating ratio is 10%. So, an operating profit ratio

of 10% or more is an indication of operating efficiency of the business. In

case of this company, it is good enough.

LIQUIDITY RATIO:

The term ‘Liquidity’ and short term solvency are used synonymously.

Liquidity means ability of the business to pay short term liabilities or ability

to realize value in money, the most liquid of asset in ability to pay off short

term liabilities affects its credibility as well as its credit rating continuous

default on the part of the business leads to commercial bankruptcy.

Eventually such commercial bankruptcy may lead to its sickness and

dissolution. Short term lenders and creditors of a business are very much

interested to know its sate of liquidity because of their financial stake.

Excess liquidity, would reflect lower profitability, deterioration in managerial

efficiency, increased speculation and unjustified expansion. Too little

liquidity than may lead to frustration of business objection, reduced ratio of

return, business opportunity missed and weakness of morale. The most

common ratio which indicates the extent of liquidity is as under:

84
A) CURRENT RATIO:-Current assets include cash and those assets which can

be converted into cash within a year. All obligations making within a year are

included in current liabilities. The current ratio is a measure of the

company’s short term solvency. It indicates the ability of current assets in

rupee for every one rupee of current liability. A ratio of greater than one

means that the firm has more current assets than current claims against

them.

Higher the ratio better is the coverage. Traditionally, it is also called 2:1 ratio

i.e., ‘2’ is the standard for current assets for each unit of current liabilities.

But this is only a conservative outlook about the coverage of current

liabilities. Generally the level of current ratio varies from industry depending

on the special industry characteristics. Also a firm differs from the industry

ratio because of policy.

Higher current ratio indicates inadequate employment of funds while a poor

current ratio is a danger signal to the management.

CURRENT RATIO = CURRENT ASSETS

CURRENT LIABILITIES

5.TABLE OF CURRENT RATIO:

(Rs. In Lakhs)

85
YEARS CURRENT CURRENT NET CURRENT

ASSETS LIABILITIES CURRENT RATIO

ASSETS

2006- 573.69 376.61 197.08 1.52:1

07

2007- 548.99 512.98 36.00 1.07:1

08

2008- 1053.54 738.39 315.15 1.43:1

09

2009- 607.25 793.79 -186.53 0.77:1

10

Source: Annual Report

ANALYSIS ; In KMF, Cattle feed unit, current ratio has been decreasing

from 2006-07 to 2007-07 and it has increased from the year 2007-08 to

2008-09 and again it decreased in the year 2009-10

CHART 5

86
INTERPRETATION:

Current ratio is one of the tool to project the short term solvency of the

company. It shows the short term liquidity of the organization. Without

having a strong or sound short term liquidity, it is very difficult to manage

day to day financial operations of the organization. For the financial industry

the standard ratio is 2:1. In this case the ratio is very much below the

standard which shows non-liquidity of funds. The above figures indicate that,

short liquidity or financial position/working capital position of the

organization is very weak. If we consider the short term investment as

current assets, then current ration will be more than the industrial standard.

Hence actual short term liquidity position of the organization is good

QUICK RATIO: - The current ratio does not measure accurately the liquidity

or the short-term solvency of a concern. That is, the current ratio is not a

sufficient index of the liquidity of a concern. This is because of current

assets include items such as stocks and prepaid expenses, which are not

easily

87
Realizable. Quick ratio is ratio which expresses the relationship between

quick or liquid assets and currents liabilities.

QUICK RATIO = QUICK ASSETS

CURRENT LIABILITIES

6. TABLE OF QUICK RATIO:- (Rs,

In Lakhs)

YEARS QUICK CURRENT QUICK

ASSETS LIABILITIES RATIO

2006- 273.82 376.61 0.73:1

07

2007- 112.82 512.98 0.22:1

08

2008- 496.53 738.39 0.63:1

09

2009- 377.20 793.79 0.05:1

10

ANALYSIS:

In KMF, Cattle feed unit, the Quick ratio was fluctuating. It was 0.73 in

2004-05, 0.22 in the year 2005-06, o.63 in the year 2006-07, and 0.05 in the

year 2007-0

88
CHART 6

INTERPRETATION:

As observed from the above figures, there is a marginal variation in the

quick ratio of the organization. The ideal quick ratio is 1:1. Quick ratio of the

organization is marginally lower than the ideal ratio. Theabove figures (quick

assets) are excluding short term investments which may be considered as

liquid assets. If they are included in quick assets, liquid ratio of the

organization is higher than the ideal ratio. It indicates a strong short term

liquidity position of the organization and also indicates lesser contribution of

inventories among total current assets which cannot be realized quickly. In

turn it shows a strong inventory turnover and better working capital

management of the organization.

CAPITAL STRUCTURE RATIO (LEVERAGE RATIO)

89
Capital structure of a business consists of long term funds, which are not

repayable in the short run and short term funds, which are re-payable in the

short run.

The short term creditors, like bankers and short term creditors are more

concerned with the company’s current debt-paying ability. On the other

hand, long term creditors like debenture holders, financial institution etc.,

are more concerned with the company’s long term financial strength.

This ratio indicates mix of funds provided by owners and lenders. In other

words leverage ratio may be calculated from the Balance Sheet items to

determine the proportion of debt in total financing.

A) DEBT- EQUITY RATIO: It is determined to ascertain the soundness of

the long – term financial policies of company. The ratio indicates the

proportion of owner’s stake in the business. Excessive liabilities tend to

cause insolvency. The ratio indicates the extent to which the company

depends upon outsiders for its existence. The ratio provides a margin of

safety to the creditors, it tells the owners the extent to which they can gain

the benefits or maintain control with a limited investment.

DEBT-EQUITY RATIO= DEBT

EQUI

90
7. TABLE OF DEBT EQUITY RATIO (Rs. In lakhs)

YEARS DEBT EQUITY DEBT-EQUITY

RATIO

2006- 373.77 392.86 0.95:1

07

2007- 653.35 383.52 1.70:1

08

2008- 669.46 372.69 1.80:1

09

2009- 633.48 361.85 1.75:1

10

Source: Annual Report

ANALYSIS:

In the given case the ratio is 0.95:1, 1.70:1, 1.80:1 and 1.75:1 for the

Financial Year 2006-07, 2007-08, 2008-09 and 2009-10 respectively. Any

discrepancies in debt: equity ratio will have drastic financial effect/impact on

the company’s financial performance. Portion of debt in the capital structure

goes on increasing from 2006-07 to 2007-08 from 0.95 in 2009-010 to 1.70

in 2006-07 and to 1.80 in 2006-067 but it has been decreased to 1.75 in

2009-10

91
CHART 7

INTERPRETATION Increase in debt indicates weak financial structure of

the concern. But Industry’s standard of the debt equity ratio is 2:1. If the

debt is less than two times the equity, the logical conclusion is that the

financial structure of the concern is sound. Debt portion of the organization

is less than two times as observed in the above figures; hence the capital

structure of the organization is sound.

SOLVENCY RATIO

The solvency ratio is a measure of the solvency of a concern. It means the

ability of a concern to meet its total liabilities out of its total assets. It shows

the ability of the concern to meet its liability higher the ratio stronger the

financial condition.

SOLVENCY RATIO = TOTAL ASSETS

92
TOTAL LIABILITIES

8. TABLE OF SOLVENCY RATIO (Rs. In

lakhs)

YEAR TOTAL TOTAL SOLVENCY

S ASSETS LIABILITIES RATIO

2006- 1158.81 561.86 2:1

07

2007- 1504.35 962.25 1.56:1

08

2008- 1982.03 1187.86 1.67:1

09

2009- 1858.77 1191.01 1.57:1

10

Sources: Annual Report

ANALYSIS In this company solvency ratio was decreasing from 2.00in the

year 2006-07 to 1.57 in the year 2009

-CHART 8

INTERPRETATION:

93
Though no standard or ideal solvency ratio has been established,

one can say that higher the solvency ratio of the concern, the stronger is its

financial position and lower the solvency ratio, the weaker is in financial

position.

In case of this company, the solvency ratio is showing a declining

trend and it is not a good project for a company as it indicates weaker

financial position of a company.

PERFORMANCE / ACTIVITY / EFFICIENCY RATIOS

Activity ratios or performance ratios refer to ratios which measure the level

of activities, the performance or the operating efficiency of an enterprise. In

other words, they are the ratios which indicate the effective utilization of the

several of the various assets by a concern.

INVENTORY TURNOVER RATIO, STOCK TURNOVER RATIO

Inventory turnover or stock turnover ratio is the ratio which indicates the

number of times the stock is turned over during a year. The stock turnover

ratio is, generally, expressed as a rate i.e., as so many times in a year. It is

expressed as follows:-

94
Stock Turnover Ratio = Cost of goods sold

Average Stock

1. TABLE OF STOCK TURN OVER RATIO

(Rs in Lakhs)

YEAR COST OF GOODS AVG STOCK TURNOVER RATIO(In

S SOLD STOCK Times)

2006- 2283.03 235.19 9.7

07

2007- 2790.09 325.52 8.6

08

2008- 4176.40 438.29 9.5

09

2009- 4886.02 497.58 9.8

10

Source: Annual Report

ANALYSIS:

95
The stock turnover ratio was 9.7 in the year 2004-05, 8.6 in the year

2006-07, 9.5 in the year 2007-08 and 9.8 in the year 2009-10.

CHART 9

INTERPRETATION:

A stock turnover of 8 times in a year is considered ideal. As such, a

stock turnover of 8 times or more than 8 times indicates that more sales are

affected and as such, there is effective inventory management.

In case of KMF, Cattle feed unit, the ratio is good except in the year

2005-06. so company has a good position.

96
B) TOTAL ASSET TURNOVER RATIO:- Total asset turnover ratio is the

ratio between total assets and turnover.

TOTAL ASSET TURNOVER RATIO= NET SALES

TOTAL ASSETS

10. TABLE OF TOTAL ASSET TURNOVER RATIO:-

(Rs. In lakhs)

YEARS( TOTAL NET TOTAL ASSET TURNOVER

A) ASSETS(B) SALES(C) RATIO(In Times)(D=C/B)

2006-07 1158.81 2361.75 2.03

2007-08 1504.35 2842.61 1.89

2008-09 1982.03 4481.79 2.26

2009-10 1858.77 5066.74 2.73

Source: Annual Report

ANALYSIS:

In this case the total asset turnover ratio was increasing from 2.03 in

the year 2006-07 to 2.73 in the year 2008-09 except in the year 2009-10

CHART 10

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TOTAL ASSET TURNOVER RATIO

INTERPRETATION:

The ideal total assets turnover ratio is that the sales should be at

least two times the value of the assets. A total asset turnover ratio of two

times or more indicate that the assets of the concern have been utilized

efficiency and on the other hand, a total assets turnover ratio is less than

two times indicates that the assets of the concern have been under utilized.

In case of KMF, cattle feed unit the ratio is more than two times

during the year 2006-07(2.03), 2007-08(2.26) and 2008-09(2.73) this

indicates that the assets have been utilized efficiently.

C) WORKING CAPITAL TURNOVE

R RATIO:- It is the ratio between working capital and turnover. This ratio

indicates whether the business is being operated on a small or a large

amount of net working capital. Working capital is the excess of current

assets over current liabilities. Turnover means net sales i.e., total assets less

sales returns.

WORKING CAPITAL TURNOVER RATIO= NET SALES

WORKING CAPITAL

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11. TABLE OF WORKING CAPITAL TURNOVER

(Rs. In Lakhs)

YEARS(A CURRENT CURRENT WORKING NET WORKING

) ASSETS( LIABILITIES(C) CAPITAL SALES(E CAPITAL

B) ) TURNOVER
(D=B-C)
RATIO(F=E/D

2006-07 573.69 376.61 197.08 2361.75 11.98

2007-08 548.99 512.98 36.01 2842.61 78.93

2008-09 1053.54 738.39 315.15 4481.79 14.22

2009-10 607.25 793.79 -186.54 5066.74 -27.16

Source: Annual Report

ANALYSIS: In this company working capital turnover ratio is fluctuating in

11.98 in the year 2006-07, 78.93 in the year 2007-08, 14.22 in the year

2008-09 and -27.16 in the year 2009-10.

CHART 11

WORKING CAPITAL TURNOVER RATIO

INTERPRETATION:

Though there is no ideal working capital turnover ratio. One can

say that a high working capital turnover ratio indicates the efficiency and a

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lower working capital turnover ratio indicates the inefficiency of the

management in utilization of working capital. In case of this company

working capital turnover ratio is efficient in the year 2006-07 but it was

inefficient in the year 2009-10S

RAW MATERIALS CONSUMPTION RATIO:-

RM CONSUMPION RATIO= PURCHASES*100

NET SALES

12. TABLE OF RAW MATERIAL CONSUMPTION RATIO

YEARS( PURCHASES( NET RM CONSUMPTION RATIO

A) B) SALES(C) (D=B/C*100)(In %)

2006-07 2028.54 2361.75 85.90

2007-08 2679.38 2842.61 94.25

2008-09 3776.49 4481.79 84.26

2009-10 4538.83 5066.74 89.60

Source: Annual Report

ANALYSIS:

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In this case raw material consumption ratio was 85.9%in the year

2006-07, 94.25% in the year 2006-07, 84.26% in the year 2008-09 and

89.60% in the year 2009-10.

CHART 12

RAW MATERIAL CONSUMPTION RATIO

INTERPRETATION:

Raw material consumption was very high in the year 2006-07

compared to other years. It indicates the high production the year.

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CHAPTER .5
FINDINGS.SUGGESTION
CONCLUSION

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