CHAPTER I

INTRODUCTION

1.1Meaning of Finance
Finance is regarded as the lifeblood of a business enterprise. This is because in the modern money-oriented economy, finance is one of the basic foundations of all kinds of economic activities. It is the matter key, which provides access to all sources for being employed in manufacturing and merchandising activities. It has rightly been said that business needs money to make more money. However, it is also true that money begets more money, only when it is properly managed. Hence, efficient management of every business enterprise is closely linked with efficient management of its finance. 1.2 Business Finance Accounting is the process of identifying measuring and communicating economic to permit informed judgments and decisions by users of the information. It involves recording, classifying and summarizing various business transactions. The end products of business transactions are the financial statements comprising primarily the position statement or the Balance sheet and the income statement or profit and loss Account. These statements are the outcome of summarizing process of accounting and are, therefore, the sources of information on the basis of which conclusions are drawn about the profitability and the financial position of a concern. Financial statements are the basis for decision making by the management as well as all outsiders who are interested in the affairs of the firm such as investors, creditors, customers, suppliers, financial institutions, employees, potential investors, resourcement and general public the analysis and interpretation of financial statements depends on the nature type of information available in these statements.

1.3 Importance of Finance A financial statement is a collection of data organized according procedure. Its purpose is to convey an understanding of some financial aspects of a business firm. It may shoe a position at a moment in time, as in the case of a balance sheet, or may reveal a series of activities over a given period of time, as in the case of income statement. Thus, the term financial statements generally refers to the two statements: (i) (ii) The position statement or balance sheet The income statement or profit and loss account. These statements are used to convey to management and other interested outsiders the profitability and financial position of a firm. Financial statements are the sources of information on the basis of which conclusions are drawn about the profitability and financial position of a concern. They are the major means employed by firms to present their financial situation of owners, creditors and the general public. The primary objective of a financial statement is to assist in decision making. Financial statements are prepared primarily for decision making. dominant role in setting the frame work of managerial decisions. They play a But the information

provided in the financial statements is not an end in itself as no meaningful conclusions can be drawn from these statements alone. However, the information provided in the financial statements is to immense use in making decisions through analysis and interpretation of financial statement. Financial analysis is the process of identifying the financial strengths and weakness of the firm by properly establishing relationship between the items of balance sheet and the profit and loss account. These are various methods or techniques used in analyzing financial statements, such as comparative statements, trend analysis, common size statements, schedule of changes in working capital, funds flow and cash flow analysis, costvolume profit analysis and ratio analysis. Finance is the vital factor without which no economic utilization of all other factors of production. Perpetual existence of the economic enterprise depends on effective procurement and optimal utilization of finance. Management of finance to secure good working results becomes inevitable in the modern business world. If it is managed systematically, a good

return in terms of profit can be expected. If nor, the very existence of the economic enterprise will become questionable. Financial management is the use of accounting knowledge, economic models, mathematical rules and aspects of a system analysis and behavioural science for he specific purpose of assisting management in its functions of financial planning and control. It explains that financial management takes much of the materials found in other subjects and uses as its tools. It also stress on financial planning and control. The importance of financial management cannot be over emphasized. In every organization, where the funds are involved, sound financial management is necessary. Bad production management and bad sales management have slain in hundreds, but faulty financial management have slain in thousands. Finance managers must realize that when a firm makes a major decision, the effect of the action will be felt throughout the enterprise.

1.4 Objectives of financial statements:

To provide reliable financial information about economic resources and obligations of a business firm. To provide other needed information about change in such economic resources and obligations. To provide reliable information about changes in net resources (resources less obligations arising out of business activities.) To provide financial information that assists in estimating the earning potential of business. To disclose, to the extent possible, other information related to the financial statements that is relevant to the needs of the users of these statements.

1.5 Limitations of Financial Statements:

The Financial Statements suffer from the following limitations: Only Interim Reports:

These statements do not give a final picture of the concern. The data given in these statements is only approximate. The actual position can only be determined when the business is sold or liquidated.

Do not give Exact Position: The Financial statements are expressed in monetary values, so they appear to give final and accurate position. The concern is expected to continue in the future. accumulated depreciation. Historical Costs: The Financial Statements are prepared on the bases of historical costs or original costs. The value of assets decreases with passage of time current price changes are not taken in to account. Impact of Non-monetary Factors Ignored: There are certain factors, which have a bearing on the financial position an operating result of the business, but they do not become a part of these statements because they cannot be measured in monetary terms. No Precision: The precision of Financial Statements data is not possible because the statements deal with matters, which cannot be precisely stated. So fixed assets are shown at cost less

CHAPTER II PROFILEOF THE STUDY

2.1 INDUSTRY PROFILE The Dairy Development Department was established in 1958 in Tamilnadu. The administrative and statutory control over all the milk cooperatives in the State were transferred to the Dairy Development Department on 1.8.1965. The Commissioner for Milk Production and Dairy Development was made as the functional Registrar under the Tamilnadu Cooperative Societies Act. With the adoption of 'Anand pattern' in the State of Tamilnadu, Tamilnadu Co-operative Milk Producers' Federation Limited was registered in the State on 1st February 1981. The commercial activities of the Department such as Milk Procurement, Processing, Chilling, packing and sale of milk to the consumers etc., hitherto dealt with by the Tamilnadu Dairy Development Corporation Ltd., were transferred to the newly registered Tamilnadu Co-operative Milk Producers' Federation Limited, popularly known as "Aavin". In the wake of liberalization policy, private dairies have also entered into the field of dairying. As per the directions of the Honorable Chief Minister of Tamilnadu high priority has been given for improving the performance of milk Co-operatives by adopting a systematic approach and proper strategy in Milk Co-operatives. Significant achievement has
5

been made by Milk Producers' Cooperative Societies, Unions and Federation in the State of Tamilnadu. The cattle population in India is approximately 15% of total cattle population in the world. India stood no. 1 position in milk production. Tamilnadu is one of the leading state in milk production. The milk production in Tamilnadu per day is 145.88 Lakh litres.

OBJECTIVES OF THE DAIRY DEVELOPMENT DEPARTMENT:

Assure a remunerative price for the milk produced by the member of the Milk Producers' Co-operative Societies through a stable, steady and well organized market support. Distribution of quality milk and milk products to the consumers at reasonable price. Keeping these objectives in mind, a number of activities are undertaken by the Dairy Development Department, viz., Provision of free veterinary health cover to all animals owned by the members of milk cooperatives, implementation of Artificial Insemination Programme, supply of balanced cattle feed and inculcation of farmers with the modern animal husbandry methods and practices. All activities, which are essential for the up gradation of the milch animals and improving their productivity in the long run, have been undertaken. Provision of necessary infrastructure facilities for marketing milk and milk products and supply of quality milk to the consumer has been made by way of establishing new chilling centers, pasteurization plants and adoption of modern processing system.

DEPARTMENTAL SET UP:

The Commissioner for Milk Production and Dairy Development is the Head of the Dairy Development Department. He is the functional registrar in respect of Dairy Cooperatives in the State. He is also the Ex-officio Managing Director of the Tamilnadu Cooperative Milk Producers' Federation Limited. i.e. Aavin. The Commissioner for Milk Production and Dairy Development exercises all the statutory powers with regard to the registration of societies, supervision, inspection, inquiry, disputes, liquidation of milk cooperatives including the District Cooperative Milk Producers' Unions and Federation under the relevant provisions of the Tamilnadu Cooperative Societies Act, 1983 and Tamilnadu Cooperative Societies Rules, 1988. While discharging the statutory functions, the Commissioner for Milk Production and Dairy Development is assisted by the Deputy Milk Commissioner (Co-operation) in the rank of Joint Registrar of Cooperative Societies and a Deputy Registrar at the Headquarters besides 23 Deputy Registrars (Dairying) at the District level by way of conferring the powers of the functional Registrar.

FUNCTIONS OF THE DAIRY DEVELOPMENT DEPARTMENT:

The main functions of the Dairy Development Department include Organization of societies, registration of societies, supervision and control of primary milk cooperatives, District Cooperative Milk Producers Unions and Tamilnadu Cooperative Milk Producers Federation. The Dairy Development Department exercises statutory function - like Inquiry, Inspection, Surcharge and Super session, appointment of special officers, liquidation and winding up of dormant Societies etc. The Commissioner for Milk Production and Dairy Development, Deputy Milk Commissioner (Co-operation), and Circle Deputy Registrars (Dairying) are vested with quasi-Judicial powers in respect of settlement of disputes, appeal, revision and review under various provisions of Tamilnadu Cooperative Societies Act, 1983 & the Tamilnadu Cooperative societies Rules, 1988 made there under.The Commissioner for Milk Production and Dairy Development has been designated as the State Registering Authority for the state of Tamilnadu, under the provisions of Milk and Milk ProducOrder'92. All the Dairy units including private Dairies handling more than 10,000 lpd of milk or Milk Products containing milk solids in excess of 500 Metric tones per annum have to obtain registration certificate under the provision of Milk and Milk Products Order'92. The Commissioner for Milk Production and Dairy Development / State Registering Authority has
7

been conferred with powers to register the dairy units having handling capacity from 10,000 lpd to 2,00,000 lpd. The Commissioner / State Registering Authority, Deputy Milk Commissioner (Co-operation) / District collectors and Deputy Registrars (Dairying) have been authorized to carry out supervision and periodic inspection of the dairies.

PRIMARY DAIRY COOPERATIVES MILK SOCIETIES:

A minimum of 25 or more individuals competent to contract under section 11 of the Indian Contract Act of 1872, owning Milch animals, can form a Primary Dairy Cooperative Society, with one or more villages as its area of operation. Such persons have to approach the Circle Deputy Registrar's (Dairying) office functioning at the District for further guidance. The members of Primary Cooperative milk society have to supply milk to the Society which will procure milk on quality basis and they will receive milk cost once in 10 days / 15 days from the Society. Milch animals are provided with free veterinary health cover, artificial insemination and the supply of balanced cattle feed.

WOMEN MILK PRODUCERS CO-OPERATIVE SOCIETIES:

In order to encourage the women members to contribute more to the dairy sector, they are being called upon to organize women milk producers' cooperative societies in their respective areas. There are 1210 women milk Producers cooperative societies functioning in Tamilnadu. Primary Milk Cooperative Societies and District cooperative Milk Producers Unions and Federation were previously administered by elected Boards. As the terms of office of the members of elected Board already expired and as they were continuing only on extended term of office as per section 33(10)(aa) of Tamilnadu Cooperative Societies Act, 1983, the Government issued orders terminating the extended term of office of members of Boards of these societies and the Special Officers have been appointed under section 89(1) of Tamilnadu Cooperative Societies Act, 1983. All the primary Milk Cooperative Societies are now functioning under the Control of Special Officers since 26.5.2001. In respect of District Cooperative Milk Producers Unions, the Collectors of respective Districts have been appointed as Special Officers and for Tamilnadu Cooperative Milk Producers Federation
8

Ltd., the Managing Director of the Federation has been appointed as Special Officer. Consequent on the bifurcation of the Dharmapuri District and creation of new District namely Krishnagiri, the District Collector of Krishnagiri has been appointed as Special Officer of Dharmapuri District Cooperative Milk Producers Unions Ltd., with effect from 27.2.

2.2 COMPANY PROFILE

INTRODUCTION:
Tamilnadu Co-Operative Milk Producers' Federation Limited was constituted on 1st February 1981. Federation is Procuring, Processing and Marketing of Milk and Milk Products. Federation has implemented the Dairy Development activities under Operation Flood Programme with a financial and technical assistance of National Dairy Development Board. Chennai Metro is having 4 Dairies. Milk Procurement, Processing and distribution are being attended by the District Unions in the respective areas. Federation is carrying out improvements of Milch animals.

Metro Dairies are,

1.Central Dairy, Madhavaram Milk Colony, Chennai 600 051 with a capacity of 3.0 LLPD 2. Ambattur Dairy, Chennai 600 098 with a capacity of 4.0 LLPD 3. Sholinganallur Dairy, Chennai 600 119 with a capacity of 4.0 LLPD &
9

All the 4 Dairies are carrying out Processing, Packing and Distribution of Milk and Milk Products as per HACCP, MMPO and NDDB Norms. Ambattur Dairy is Producing Sterilized Flavored Milk in four different flavors. Products Dairy, Ambattur is Preparing the following Milk Products, with a capacity of 12,000 Litres per day. Milk Khoa; Mysore Pa ; Gulab Jamun; Khalakand; Butter Milk; Lassi; Curd Yoghurt; Ice-cream Varieties; Ice-cream Varieties without sugar.

Federation supervises, co-ordinates and offers technical assistance to the District Unions and Primary Co-operative Societies. It undertakes Planning, Procurement, Erection and Expansion of Chilling Centers and Dairies to the District Unions on Turn-key basis. Federation also implements clean Milk Production, Development of Milch animals providing basic infrastructure development activities for the Primary Co-operative Societies. Federation markets Milk and Milk Products to the Co-operative Federations in India. Federation has taken steps to promote exports of Skimmed Milk Powder and Ghee to Srilanka, Malaysia and Singapore. Aavin welcomes you to a unique experience in gourmet eating. Here we have made an effort to take you on an unforgettable culinary journey to delicious dairy recipe routes of India, combined with exotic flavors and healthful preparations, to bring flavors into all walk of your life. All recipes presented here are based on readily available ingredients and with simple step-by-step instructions. So just select the category and look for your favorite recipe and if you don't find one, let us know. When it comes to milk products, there's something for everyone! The dairy industry has developed a variety of great tasting, lower-fat products, milks, fermented milk, cream and yogurt products. These web pages include lots of tantalizing recipes and great tips to help you include Milk Products in your healthy eating plan. We plan to continually build the recipe site each month, so look to us for interesting ideas. Enjoy! Delight cooking Recipescategory

FUNCTIONS OF DISTRICT COOPERATIVE MILK PRODUCERS UNIONS:

10

There are 17 District Cooperative Milk Producers' Unions functioning in the State of Tamilnadu covering 30 Districts. There are 15 Dairies in District Co-operative Milk Producers' Unions with an installed processing capacity of 19.42 llpd. There are 36 Chilling Centres (Functional) in District Co-operative Milk Producers' Unions with installed chilling capacities of 13.55 llpd.

Establishment of chilling centers:

Formation of new milk routes to collect milk produced by the members of the societies. Collection of milk from societies, process and pack in modern dairy plants by maintaining quality standards. Supply of quality milk to Chennai Metro under hygienic conditions. Fixation of procurement and selling price of Milk Increase of liquid milk sales by introducing innovative sales promotional activities. Supply of inputs to the members of the societies. Extending Artificial insemination services to the cattle owned by the members of Milk Cooperative Societies. Providing milk cans, Milk 'O' testers and LN2 containers. Salem, Erode, Madurai and Dharmapuri Unions are the Feeder Balancing Dairies. Surplus milk in the District Unions, after meeting their local sales is diverted to the nearest Feeder Balancing Dairies for conversion into milk products, such as Skim Milk Powder, Butter and Ghee. The three Cattle Feed Plants at Madhavaram, Erode and Kappalur are run by the Kancheepuram - Tiruvallur Union, Erode Union, Madurai Union respectively. The production capacity of these cattle feed plants is 100 MT per day each. The balanced cattle feed produced in the form of pellets and mash are supplied to the members of the Milk Co-operatives, livestock farms manned by the Animal Husbandry Department and to various local bodies including the Corporation of Chennai.

FUNCTIONS OF FEDERATION (TCMPF):

11

The Tamilnadu Co-operative Milk Producers' Federation Limited is an apex body of 17 District Cooperative Milk Producers' Unions. The Federation has four dairy plants in Chennai, one at Ambattur with a capacity of 4.00 lakh liters per day, another at Madhavaram with a capacity of 2.00 lakh liters per day and the third dairy at Sholinganallur with a capacity of 4.00 lakh liters per day. These dairies collect milk from District Unions process and pack in sachets and send for sale to the consumers in and around Chennai City. The fourth product dairy at Ambattur is engaged in the manufacture of milk products such as Yogurt, ice cream, Khova, Kulab jamoon, Buttermilk, Curd and Mysore pa.

MILK PROCUREMENT BY DCMPUs:

Most of the rural people especially women make their livelihood by rearing Milch animals and by supplying milk to the Co-operatives. Keeping this in view and to improve the rural economy and to enhance the personal income of the stake holders in rural area, Government of Tamilnadu directed the Tamilnadu Co-operative Milk Producers Federation and District Co-operative Milk Producers Union to raise the procurement price of the cow's milk from Rs.10.50 to Rs.12.00 per liter and that of the buffalos milk from Rs.12.50 to Rs.14.00 with effect from 07.03.2007 and the milk cost as per the revised procurement price is being disbursed to the Milk producers. The procurement price payable to milk producers was increased from 01.09.2009 as follows: Milk Procurement price Table No. 2.2.1 Buffalo milk Price per Litre (in Rs.) 7.0%Fat and 8.8% SNF Before 7.3.2009 From 7.3.2009 Cow milk Price per Litre (in Rs.) 4.5% Fat and 8.5% SNF Before 7.3.2009 From 7.3.2009

12

14.00

17.50

12.50

14.50

Average milk procurement in DCMPUs in lakh liters per day.

Average Milk Procurement Table no. 2.2.2 Year 2004-2005 Year 2005-2006 Year 2006-2007 Year 2007-2008 Year 2008-2009 Year 2009-2010 17.49 15.79 17.26 20.56 21.59 22.10

MARKETING:
The three wings are carrying out the marketing of milk and milk products of the Federation namely: 1. Metro Liquid milk marketing. 2. Metro Milk Product marketing. 3. Up country marketing. The product wing of the Federation located at Nandanam directly carries of marketing of the products in Chennai Metro and suburbs.

The sales of milk in sachets is being carried out through 24 zones, 516 Depots, 364

13

Distribution Points, 35 Whole Sale Milk Distributors, 89 Milk Retailers and 48 Milk Consumers Co-operative Societies. The sale of milk product is being carried out through 42 parlours, 185 Franchise Retail Outlets (FROs), 12 Wholesale dealers, and 4824 Retailers. Standardised milk, Buffalo milk and double toned milk are being sold through 218 Automatic Vending Machines and 185 FRPs to the city consumers. Milk products are also sold in certain AVM Units. Sachet milk sales are also carried out in AVM units.

MILK SELLING PRICE:

The selling price of Toned / Standardised / Full Cream milk in sachets and in AVM units are as detailed below:

Sachet Milk:
Milk Tariff Table No. 2.2.3
New price chart (With Effect From 01-09-2009) AAVIN MILK: TARIFF STRUCTURE Variety Fat SNF * Monthly Card ** (%) (%) Present rate Revised rate Toned milk 1 lit Tone milk 500 ml Standardized milk 500 ml Standardized milk 500 ml *** Full cream milk 500 ml Double toned milk 500 ml 3 3 4.5 4.5 6.0 1.5 8.5 8.5 8.5 8.5 9.0 9.0 15.75 7.90 9.50 9.25 10.50 7.75 17.75 8.90 11.00 10.75 12.00 9.25

(in Rs) Maximum Retail Price Present Revised rate rate 18.00 20.50 9.00 11.00 10.00 12.00 9.00 10.25 13.00 12.00 14.00 11.00

Standardized Milk Tariff Table No. 2.2.4 AVM units Standardised Milk (Per litre)
14

4.5% / 8.5% Card Rs. 15.50 MRP Rs. 16.00

STRENGTHENING INFRASTRUCTURE FOR QUALITY AND CLEAN MILK PRODUCTION:

Government of India sponsored a scheme called Strengthening Infrastructure for Quality and Clean Milk Production to strengthen infrastructure facilities and to ensure Clean milk production at village level. The period of the scheme is two / three years. Objective of the scheme is to train farmers on clean milk production activities, to provide chemicals and utensils to pouring members, to strengthen district union dairies / chilling centers laboratory and to install bulk milk coolers at societies to improve initial quality of milk. Government of India will release the entire amount as full grant for training, provision of antiseptic solutions, supply of stainless steel utensils and modernization of Quality Control Labs at Dairies / Chilling Centers. Government of India will release 75 percent as grant for installation of bulk milk coolers and the remaining 25 percent will be met by the concerned beneficiary District Unions. Government of India so far has sanctioned Rs.1224.21 lakhs to Vellore, Villupuram, Trichy, Dharmapuri, Salem Kancheepuram-Tiruvallur, Erode, Nilgiris and Madurai milk Unions for the implementation of the scheme.

15

Under these schemes, 48001 members will be benefited, 90 Bulk Milk Coolers will be installed and the chilling capacity will be increased by another 3.71 lakhs LPD.

DISTRICT UNIONS OF FEDERATION :

There are 17 District Co-operative Milk Producers Unions functioning in Tamil Nadu, covering 30 Districts. They are 1.Kancheepuram-Tiruvallur , 2.Villupuram , 3.Vellore , 4.Dharmapuri , 5.Salem , 6.Erode , 7.Coimbatore , 8.Nilgiris , 9.Madurai , 10.Dindigul , 11.Trichy , 12.Thanjavur , 13.Pudukkottai, 14.Sivagangai , 15.Virudhunagar ,16.Tirunelveli , 17.Kanyakumari THE TAMILNADU CO-OPERATIVE MILK PRODUCERS FEDERATION LTD NUCLEUS JERSEY AND STUD FARM FINGER POST P.O., OOTACAMUND 643 006, NILGIRIS DISTRICT, TAMIL NADU PHONE: (0423) 2444059, FAX: (0423) 2400143, email: aavin@sancharnet.in

INCEPTION :
Started at Udhagamandalam on 29.03.1973 under the direct control of the Tamil Nadu Dairy Development Corporation now Tamilnadu Co-operative Milk Producers Federation Limited.

LOCATION:
Situated in 37.725 acres of land taken on lease from the Forest Department, adjacent to the Gymkhana Club, Ooty. Financial Assistance The erstwhile Indian Dairy Corporation Technical Guidance National Dairy Development Board. Divisions of the Farm (a) Bull Mother Farm (b) Stud Farm (c) Frozen Semen Bank (d) Liquid Nitrogen Plant

16

(e) Fodder Farm (f) Quality Control Laboratory

OBJECTIVES :
i) To maintain pedigreed Jersey cattle, to produce genetically superior Jersey Breeding Bulls and Cows. ii) To produce Frozen Semen Straws from genetically superior Jersey , Friesian and Cross-bred Bulls and supply the same throughout Tamil Nadu for Artificial Insemination of Cattle. iii) To augment milk production in local cattle in the milk sheds of Tamil Nadu under Operation Flood by Cross-breeding through Artificial Insemination using quality Frozen Semen produced from high milk yielding pure-bred and cross-bred bulls with superior germ plasm. Animal Strength Table No. 2.2.5

ANIMAL STRENGTH AS ON 31-12-2009

JERSEY CROSS -FRIESIAN CROSS --

DESCRIPTION JERSEY COWS FEMALES CALVES: HEIFERS MALES: CALVES 09 05 02 12

FRIESIAN --

TOTAL 12

---

---

---

05 02

--

01 02

10 03 81 113

YOUNG BULLS 1 BREEDING BULLS TOTAL 29 58 49 49 03 03

0 03

17

SEMEN DISTRIBUTION:
Frozen Semen Straws produced from this unit are distributed to all the District Co-operative Milk Producers Unions in Tamil Nadu.

Our other Customers:

1. Chittoor District Co-operative Milk Producers Union, A.P. 2. Andhra Pradesh Livestock Development Agency, A.P. 3. Kerala Livestock Development Agency, Palakkad (on exchange basis) 4. National Dairy Research Institute, Kalyani 5. Department of Animal Husbandry, Haryana 6. Patna Animal Development (Pvt) Ltd., Bihar 7. Private practitioners. 8. Sikkim Livestock Development Board , Sikkim 9. Department of Animal Husbandry, Tamil Nadu. 10. Department of Animal Husbandry, Pondicherry .

Metro Dairies are,

1.Central Dairy, Madhavaram Milk Colony, Chennai 600 051 with a capacity of 3.0 LLPD 2. Ambattur Dairy, Chennai 600 098 with a capacity of 4.0 LLPD 3. Sholinganallur Dairy, Chennai 600 119 with a capacity of 4.0 LLPD &

Ambattur Dairy
Ambattur Dairy is situated in the SIDCO Industrial Estate at Plot No.29 & 30, Industrial Estate, Ambattur, Chennai 600 098. Ambattur Dairy was established on 16.04.1976 by Shri.Fakrudin Ali Ahemed the President of India under the Operation Flood Programme of Government of India. The Dairy was constructed by the National Dairy Development Board on Turn-key basis with a capacity of 2.0 Lakh Liters per day for Bulk Vending dispatches. The Sachet production was added during 1980. Ambattur Dairy handles

18

3.4 Lakh Liters per day in sachets, 0.3 Lakh Liters for Bulk Vending dispatches and 0.1 Lakh Liters per day processed chilled water to Products Dairy. The sterilized flavored milk in bottles production at the rate of 2000 bottles is carried out in four different flavours. Pista, Badam, Elachi and Pineapple in 200 ML. Bottles. The marketing demands are met as per the needs. The distribution of Milk is spread from North Chennai George Town to Chromepet on the South and upto Thiruvallur on the west. The Dairy is equipped with adequate processing facilities. The latest Pasteurizer, Homogenizer and Packing machines were added as per the needs. The Dairy is equipped with an Effluent Treatment Plant with a capacity of 4.0 Lakh Liters per day. Effluent Treatment Plant functions as per the norms of the Tamilnadu Pollution Control Board and the treated trade Effluent is utilized for Agriculture purpose within the Dairy premises.

19

MADHAVARAM
Central Dairy is situated in North Chennai and Commissioned during January 1963 (20.01.1963) at a total outlay of Rs.44/- Lakhs to Process and Sell Milk to the city consumers. The foundation was laid on 15.10.1959 by Shri.S.K.Patil, Minister for Food and Agriculture, Government of India. The Plant and Machineries were gifted by the Government and the people of New Zealand under Colombo plan. Central Dairy started the operations under the control of Madras Milk Dairy Project which was converted as Dairy Development Department under the control of Commissioner for Milk Production and Dairy Development Department. Commissioner for Milk Production and Dairy Development is also the Registrar of Milk Co-operatives. The Tamilnadu Dairy Development Corporation was formed under Companies Act on 01.07.1972 and taken over the Dairy Units, Transport and other commercial activities of Dairy Development Department. Madurai Dairy was taken over by Tamilnadu Dairy Development Corporation w.e.f. 01.07.1974. Tamilnadu Dairy Development Corporation has given birth to TCMPF Ltd. (The Tamilnadu Co-Operative Milk Producers' Federation Limited) Act.,

The Amul Pattern consists of three tiers:

Village level Producers Co-operative Society District Level Milk Co-operative Producers Union State Level Apex Federation. Central Dairy was erected to handled 1.0 Lakh Liters per day in bottles and later converted to Production of sachets w.e.f. 1997. Present handling capacity is 3.0 Lakh Liters per day, dispatches 2.7 Lakh Liters per day in sachets, 0.2 Lakh Liters per day to Bulk Vending Units and 0.10 Lakh Liters per day Pasteurized Chilled water to Products Dairy. Dairy is equipped with latest Processing Plant, Homogenizer, CIP System and Packing Machines. Dairy is having Solar panels to heat the feed water to the Boilers. The Dairy caters the needs of North, Central and parts of South Chennai. The distributions spread from Ponneri to Mylapore in Chennai City. The Dairy is equipped with latest Effluent Treatment Plant to handle 3.0 Lakh Liters per day. The Effluent Treatment Plant functions as per the norms of the Tamilnadu Pollution Control Board and Treated Effluent Water is utilized for Agriculture and
20

Garden purpose within the Dairy and also to the Fodder Farm of the Dairy Development Department.

Quality Policy
"TCMPF Ltd., is committed to supply milk, and milk products of quality at competitive price to satisfaction of the customers and to strive for excellence and customer delighted.

SHOLINGANALLUR DAIRY
Dairy is situated at Sholinganallur on Old Mahabalipuram Road on the Information Technology Corridor. Sholinganallur Dairy was established during May 1995 with a handling capacity of 4.0 Lakh Liters per day, 3.0 Lakh Liters for Bulk Vending dispatches and 1.0 Lakh Liters per day in sachets. The present handling is 3.4 Lakh Liters per day in sachets and 0.3 Lakh Liters per day for Bulk Vending dispatches. This is the first automatic Dairy having Reception, Quality check and Processing with Programmed Logistics Control System. The dairy is equipped with Processing, Quality assurance, CIP, Packing and Cold Storage facilities. Dairy is equipped with latest

Effluent Treatment Plant to handle 5.0 Lakh Liters per day. Effluent Treatment Plant is operated as per the Tamilnadu Pollution Control Board norms and the treated trade effluent water is used for agriculture purpose within the Dairy premises. This Dairy caters the needs of South Chennai and Pheripheral areas upto Chengalpet, Kalpakkam in the South and upto Kancheepuram on the West.

CHAPTER III DESIGN OF THE STUDY

21

3.1 OBJECTIVES OF THE STUDY:

3.1.1 Primary Objective: To Study on Financial Analysis in Aavin 3.1.2 Secondary Objective: 1. To study the liquidity of AAVIN 2. To study the solvency of the Company. 2. 3. To study the profitability of the Company. To identify the problems of the Company in the areas of liquidity, solvency and profitability and to offer concrete suggestions to tackle the problems.

3.2 SCOPE OF THE STUDY: There are various methods of research study. Case study is one of the research studies. In this study, the present researcher has analyzed the Financial performance of

22

AAVIN. The liquidity solvency and profitability was analyzed to know whether the company is capable of generating profits and capable of meeting its obligations in time.

3.3 SIGNIFICANCE OF THE STUDY:

This study aims at creating an awareness among he management and share holders of AAVIN regarding the importance of financial management through proper methods. The present study will throw light on the finance performance of the Company in terms of liquidity, solvency and profitability. The tools applied to find out the level of financial performance will pinpoint the areas requiring improvement. 3.4 LIMITATIONS OF THE STUDY: The limitations of the study are furnished below: 1. Financial account itself has its own limitations like personal judgment of the accountant. 2. In this study, only selected ratios were used. 3. Since the study relates to AAVIN generalized. the findings and suggestions cannot be

3.5 RESEARCH METHOLODOGY

23

Research methodology is the way to systematically solve the research problem. This study on Inventory Management can be grouped under the analytical research studies. The study can also be called as analytical studies because the facts and informations that is readily available are being used to make critical evaluations of Inventory Management at AAVIN LTD, CHENNAI. The study can also be called as a descriptive studies because the portrays accurately the characteristics of a particular individual, situation or a group. 1.5.1. RESEARCH DESIGN ANALYTICAL DESIGN The researcher has to use facts or information already available and analyze those facts to make a critical evaluation of the material.

1.5.2. DATA COLLECTION METHOD Secondary Data Apart from the primary data, the branch schedules, audited accounts and system applications and data processing (SAP) package for the relevant period have also been used extensively. The data from the reports have been analyzed using various tools and techniques with the view to evaluate the performance in the management of current assets.

1.5.3. INVENTORY CONTROL TECHNIQUES

24

A. ABC Analysis B. XYZ Analysis C. SED Analysis D. FSND Analysis

1.5.4 FINANCIAL ANALYSIS A. Ratio analysis

1.5.5 STATISTICAL TOOLS A. Coefficient of Correlation B. Index Numbers C. Trend Analysis

PERIOD OF STUDY:
The study covers a period of five years from 2004 - 05 to 2008 - 09. The accounting year of the company is 1st April to 31st March every year.

3.6 REVIEW OF LITERATURE

25

For every project literature review is quite essential as it reveals the synopsis, reason behind the choice of particular area of study. It enables a person to get an idea about the study being made and forms the base for further analysis. Academic journals, books, published and unpublished bibliographies are the primary sources are the review of earlier studies. Before choosing a project it is essential that one should be thorough with the area of study and able to rephrase the same in meaningful terms. Inventories are the stock of products that the company manufactures for sale and components that make up the products. The inventory of a manufacturing unit includes raw materials, work in progress, finished goods and supplies. Inventories constitute a significant part of the current assets of a 60% of current assets in Indian Companies. Because of large size of inventories maintained by firms a considerable amount of funds is required to be committed to them. It is therefore absolutely imperative to manage inventories efficiently and effectively in order to avoid unnecessary investment. A firm neglecting the management of inventories will be jeopardizing its long run profitability and may fail ultimately. It is possible for a company to reduce its level of inventories to a considerable degree. E.g.10 to 20% without any adverse effect on production and sales by using simple inventory planning and control techniques. The reduction in excessive inventories caries a favorable impact on a companys profitability.

INVENTORY CONTROL TECHNIQUES

26

Every organization consumes several items of stores. All these items dont need equal importance. A high degree of control of inventories of each item is neither practical nor worthwhile. Therefore, it becomes necessary to classify items ingroup depending upon their degree of importance. A. ABC ANALYSIS OF INVENTORY CONTROL

ABC analysis is a basic analytical management tool, popularly known as Always Better Control, has universal applications in many are as of human endeavor. This technique tries to analyze the distribution of any characteristic by money value of importance in order to determine priority. In materials management, this technique has been applied in areas needing selective control, such as inventory, criticality of items, obsolete stocks, purchasing order, inspections etc. A= 5-10% of top number of items account for 70% total consumption. value B= 15-20% of the number of items account for 20% of total consumption value C= 70-80% of the number of items account for 15% of total consumption value. B. XYZ ANALYSIS : While the ABC classification of inventories has consumption value as basis, the XYZ analysis has the closing inventory value as the basis for classification of inventories. X- Items with high inventory value Y- Items with moderate inventory value. Z- Items with low inventory value

27

The XYZ analysis, done once in a year, helps to identify the items that are being stocked extensively. A combination of ABC & XYZ analysis will help the firm to have better inventory control.

C. SED ANALYSIS SED Analysis helps firm to classify its materials based on their availability in the market. This will have an impact on the decision for fixing leadtime for any time. Longer the lead-time indicates the criticality of the item. The classification runs like this: S= Scarce Items E= Easy (not difficult to get) Items D= Difficult (to procure) Items The items needed to manufacture the relays; control panel and medium voltage are grouped as local and foreign supplies. RMC1, RMC2 are the item classes that indicates local purchase. RMC3, RMC4 represents the imported items. RMC4 category exists only for the Relays being produced. AREVA considers the RMC4 items as scarce items(S items). The local suppliers being prompt and reliable for RMC1, RMC2 are considered as items that are always available (E items). The RMC3 & RMC4 items, through available in the market, are considered as trading items and are grouped under those items which are available in the market with difficulty (D items). D.FSND ANALYSIS All the items are not required with the same frequency in any organization. Some are required regularly, some occasionally and some once in a while

28

FSND

Analysis places the items in four categories: F= Fast Moving Items S= Slow Moving Items N= Non-Moving Items D= Dead Items

Inventory policies and models for these groups are different. Theoretical models have validity for F items with regular consumption. Spares are slow moving (s) and require special management. Disposal policies are designed to control dead stock. This analysis is useful mainly to combat obsolete items. Cut-off points are usually based on the number of issues in the past 2-3 years.

FSND IN TCMPF LTD, CHENNAI: The products manufactured inAAVIN LTD, CHENNAI based on the customers demand for the same over a period of time. In AAVIN LTD, CHENNAI, the products for which demand is regular over the entire year including peak demands are considered as fast moving & the items used to produce those products are labeled as F items The demand doesnt remain in the peak all the time. When the demand for a product reduces, the items used to make that product remains in stores and moves slowly. They are termed as S items. There are products, which are demanded, in a particular season. The demand for these items is more when electric supply fluctuations are more. For rest of the period, these items are considered as non-moving and are stored as the stocks.
29

Dead items are those items, which constitute to make a product, which has become obsolete due to change in design of a product demanded. E.g., the Air circuit breakers, which were produced, based on the expectation that its demand will continue, become obsolete due to change in requirement pattern of the product. The items forming part of such products are considered as dead items. AAVIN LTD, CHENNAI takes due care that the items stored especially the Dead and a Non-moving item doesnt affect its cost constitution to a major extent. inventory policy is designed with the base to avoid unnecessary cost on inventory. The

FINANCIAL ANALYSIS A. RATIO ANALYSIS RATIO A ratio is a mathematical relationship between two items expressed in quantitative form. Ratio can be defined as Relationships expressed in quantitative items between figures which have cause and effect relationships or which are connected with each other in some manner or the other

1. PROFITABILITY RATIO Ability to make maximum profit from optimum utilization of resources by a business concern is termed as profitability. Profit is an absolute measure of earning capacity. It depends on sales, cost and utilization of resources. Operating ratio: This ratio indicates the relationship between total operating expenses and sales.
30

Operating Ratio =

Cost of sales + operating expenses Net Sales

100

Total Operating expenses include cost of goods sold + Administrative, Selling and distributing expenses Net Sales = Total Sales Sales Returns Operating ratios measures the amount of expenditure incurred in production, sales and distribution of output. It indicates operational efficiency of the firm. Lower the ratio more is the efficiency. It should provide fair return to shareholders and other investors.

2. ACTIVITY RATIOS These ratios are also called as performance or turnover ratios. The term operational efficiency, highlighted by activity ratios, refers to effective, profitable and rational use of resources available to the concern. To examine the judicious utilization of resources, wisdom and farsightedness in observing the financial policies lay down & these ratios are computed. INVENTORY TURNOVER RATIO: It is also called as stock turnover ratio or stock velocity ratio. This ratio is calculated to ascertain the efficiency of inventory management in terms of capital investment. It shows the relationship between the cost of goods sold and the amount of average inventory. This ratio helps to evaluate and review the inventory policy of the firm. It indicates the number of times the inventory is turned over during a particular accounting period.

Stock turnover ratio =

Cost of goods sold Average inventory

31

Where, average inventories = Opening stock + closing stock 2

WORKING CAPITAL TURNOVER RATIO: Working capital ratio measures the effective utilization of working capital. The ratio establishes relationship between cost of sales and working capital. Sales (or) cost of sales Working capital turnover ratio = Net working Capital Where, Net working capital = Current Assets Current liabilities Higher sales in comparison to working capital indicate overtrading and longer sales in comparison to Working capital indicate undertaking. A higher ratio is the indication of lower investment of working capital and more profit. 3. SOLVENCY OR FINANCIAL RATIOS Current Ratio: = Current Assets / Current Liabilities. Current Ratio: In the operating cycle of the firm the current assets are converted into cash to provide funds for the payment of current liabilities. So higher the current ratio, higher the short term liquidity, But care should be taken regarding the composition of current assets. A firm that has large amount of cash and accounts receivable is more liquid than a firm having large amount of inventories in its current assets.

32

Quick Ratio : This is a more stringent measure of liquidity because inventories, which are least liquid of current assets, are excluded. This is because inventories have to go through a two-step process of first being sold and converted into receivables and secondly collected. Quick ratio indicates the ability of the firm to meet its liabilities without relying on the sale and recovery of its inventories It is calculated by comparing the quick assets with the current liabilities Quick asset Quick ratio = Current liability

Where, quick asset refers to assets, which are quickly convertible to cash. Current asset other than stock and prepaid expenses are considered as quick assets. The ideal liquid ratio is 1. CURRENT ASSET INTENSITY RATIO: Inventory constitutes an important item of current assets. Inventories are

considered as a part of current asset wherein more concentration is needed especially in a manufacturing unit. The current asset intensiveness indicates the high degree of relationship that exits in between the two variables viz., inventory and current assets. Inventory Current Asset Intensity Ratio = -------------------------------- X 100 Current Asset

33

PROPORTION OF INVENTORY TO NETWORING CAPITAL: Net working capital is the excess of current asset over Current liabilities. It refers to that part of Current asset, which remains after the current obligations are being met out of Current asset. Inventory also forms part of Current Asset and hence can be included to discharge the current obligation. The inventory to Net working capital table below helps to find the ability of AAVIN LTD, CHENNAI., works to pay off its Current Liabilities. The ration is arrived as under. Inventory Inventory to Net Working Capital = Net working Capital WORK -IN- PROGRESS TO INVENTORIES: The ratio helps to analyze the position of work-in-progress in total inventory. It shows clearly how funds are locked up in work-in-progress. The table indicates the proportion of work-in-progress to the inventories in AAVIN LTD, CHENNAI FINISHED GOODS TO INVENTORIES: This ratio shows the constitution of finished goods in the overall inventories at AAVIN LTD, CHENNAI. The exact relationship among the two variables viz., inventories and finished goods are found with the help of this ratio. This ratio is calculated as

Finished goods Finished Goods to Inventories = --------------------Inventory

34

This ratio measures the efficiency of the manufacturing function in scheduling the production and the efficiency of the marketing function in disposal of outputs of an enterprise by constantly feeding the distribution channels. This ratio also indicates the presence of unresolved conflicts between the marketing management and the financial management; the former trying to keep its distribution channel overstocked for fear of stock outs and the latter trying to keep it low for fear of high interest cost involved in carrying these inventories low ratio not only indicated the presence of unresolved conflicts but also indicate that the products of the enterprise are losing markets due to price competition or general recession. A higher value of this ratio indicates that the firms products are being sold fast.

Finished goods inventory turnover ratio helps credit manager to decide on the length of the credit he might allow to the applicant firm.

If the firm is a manufacturing firm, and the vendor firm supplies materialinputs, then maximum number of days credit that may be allowed will be calculated by extending the chain backward to include turnover of the raw material and work-inprocess inventories. COST OF GOODS SOLD RATIO A firm may decompose the operating expenses as cost of goods sold ratio and other operating expenses ratio, the ratio below portrays the cost of goods sold ratio for AAVIN LTD, CHENNAI. Cost of goods sold Cost of goods sold ratio = ----------------------------------Sales

35

STATISTICAL ANALYSIS A.COEFFICIENT OF CORRELATION The Co-efficient of correlation measures the relationship between two sets of variables. According to L.C. CORNER If two or more quantities vary in sympathy, so that movements in one ten to be Compared by corresponding movements in the other, then they are said to be correlated. The relative measure forms base for ascertaining the degree of correlation and it is denoted as r. The value of r is within the range of 1 to -1. B.INDEX NUMBER Index number is a summary measure, which states a relation between groups of related items. It is a statistical device for comparing the general level of magnitude of a group of distinct but related variables in two or more situations. The chain based index number is used only when comparison is desired from year to year. The relatives for each year are worked out on the basis of prices of the preceding year. The base year always changes. So, it is also referred as shifting base system. The index number constructed on chain base system indicates short term fluctuations. Formula for chain based index numbers

Current year L.X.R Previous year P.R Chain based index = 100 Where, L.R. Indicates Link Relatives and P.R indicates the Price Relatives.

36

Price relative for the current year Link relative = Price relative for the previous year Price relative for any year = the price relative of the previous year X the link relative of the current year.

C.TREND ANALYSIS The general tendency of the series to increase or decrease over the period of time is called the Trend of series. No Short range oscillations are included. It is a set of observation taken at specified time interval, usually at equal intervals from a sufficiently long period of time. They help in making estimates of futures. The estimate made for the future period are the forecasting and are approximate.

37

CHAPTER - IV DATA ANALYSIS AND INTERPERTATION

2.1INVENTORY CONTROL TECHNIQUES

A. ABC ANALYSIS OF INVENTORY CONTROL

2.1.1 ABC ANALYSIS FOR CONTROL PANELS

TABLE 2.1.1 year A B C Value (Rs) Value (Rs) Value (Rs) 2005-2006 27955081 7987166 3993585 2006-2007 52908923 15116835 7558417 2007-2008 23966703 6847629 3423815 2008-2009 28389139 8111182 4055591 2009-2010 24909112 7116889 3558444

2.1.2 ABC ANALYSIS THE PERIOD FOR RELAYS

38

TABLE 2.1.2

YEAR A B C Value Value Value

2005-2006 66563657 19018188 9509094

2006-2007 51305726 14658779 7329390

2007-2008 83118691 23748198 11874098

2008-2009 50758641 14502469 7251233

2009-2010 56033396 16009542 8004770

2.1.2 CHART SHOWING ABC ANALYSIS FOR RELAYS

39

2.1.3 XYZ ANALYSIS AT AAVIN

TABLE 2.1.3 YEAR 2005-2006 2006-2007 2007-2008 2008-2009 2009-2010 Source: Audited Annual Reports RELAYS (RS) 95090939 73293895 118740987 72512343 80047708 CONTROL PANELS (RS) 39935830 75584175 34238147 40555912 35584445

INTERPRETATION & INFERENCE:

The above table shows the XYZ analysis for the company for a period of 5 years. The relay products which have high inventory value are grouped as X items. The control panels which have moderate inventory values are grouped as Y items. The manufacturing and service panels which require only fewer inventories are grouped under the Z category. Relays are stocked extensively to meet the growing demand for products.

FINANCIAL ANALYSIS A. RATIO ANALYSIS

40

1. PROFITABILITY RATIOS 1.OPERATING RATIO

Operating Ratio = Cost of sales + operating expenses Net Sales 2.2.1 OPERATING RATIO X 100

TABLE 1.1
OPERATING OPERATING RATIO (%) 101.22 99.12 98.15 97.98 94.70

EXPENSES 2005-2006 4000953 2006-2007 3775629 2007-2008 4475309 2008-2009 5443039 2009-2010 7336429 Source: Audited Annual Reports

YEAR

NET SALES 3952423 3809250 4559573 5554969 7746628

INFERENCE:
A higher operating expense ratio is unfavorable since it will leave a small amount of operating income to meet interests, dividends etc. Hence lower the ratio more is the efficiency. From the above table it can be inferred that in the initial years i.e. in 2006 and 2007 the operating expenses ratio was high, but subsequently in the following years has reduced its operating ratios to 98.15, 97.9 and 94.70 in the years 2008, 2009, and 2010 respectively.

2.2.1 CHART SHOWING OPERATING RATIO

41

2. ACTIVITY RATIO 2.2.2 INVENTORY TURNOVER RATIO:

42

Stock turnover ratio =

Cost of goods sold Average inventory

Where, average inventories = Opening stock + closing stock 2 2.2.2 INVENTORY TURNOVER RATIO
TABLE 2.2.2 YEAR 2005-2006 2006-2007 2007-2008 2008-2009 2009-2010 C.G.S 2527329 2799979 3522745 4316484 5580484 AVG. INVENTORY 77789905 778063.5 793998 775811 979958 INVENTORY T/O RATIO 3.25 3.59 4.44 5.56 5.69 STOCK PERIOD (DAYS) 112.30 101.6 52.20 65.64 64.14 STOCK PERIOD (MONTHS) 3.69 3.34 2.10 2.15 2.10

Source: Audited Annual Reports INFERENCE: The ratio indicates the efficiency of the firm in selling its products. Generally a high turnover is indicative of good inventory management. It can be understood from the table that the company has steadily increased its inventory ratio 2001 and considerably decreased to 3.34, 2.70, 2.15 & 2.10 in the subsequent years respectively. Even though it averages up to 3.5 it has to redesign some method. thereby indicating efficiency. The stock period is calculated at 3.69 months for the year

2.2.2 CHART SHOWING INVENTORY TURNOVER RATIO

43

2.2.2(ii) STOCK PERIOD (DAYS) YEAR

44

STOCK PERIOD

2005-2006 2006-2007 2007-2008 2008-2009 2009-2010

112.30 101.60 82.20 65.64 64.14

INTERPRETATION: From the above table it can be seen that the stock period in days for the year 2000-2001 is 112.30, for 2001-2002 101.60, for 2002-2003 it is 82.20, for the year 2003-2004 it is 65.64 and for the year 2004-2005 it is 64.14

2.2.2(iii) STOCK PERIOD (MONTHS) YEAR 2005-2006 2006-2007 2007-2008 2008-2009 2009-2010 MONTHS 3.69 3.34 2.70 2.15 2.10

INTERPRETATION From the above table it can be seen that the stock period in months for the year 2000-2001 is 3.69, for the year 2001-2002 is 3.34, for the year 2002-2003 is 2.70, for the year 2003-2004 is 2.15 and for the year 2004-2005 is 2.10.

2.2.2(ii) CHART SHOWING STOCK PERIOD IN DAYS

45

2.2.2(iii) CHART SHOWING STOCK PERIOD IN MONTHS

2.2.3 WORKING CAPITAL TURNOVER RATIO:

46

Sales (or) cost of sales Working capital turnover ratio = Net working Capital Where, Net working capital = Current Assets Current liabilities TABLE 2.2.3 YEAR NETSALES NETWORKING CAPITAL 1077682 1185942 1092643 1159214 1174592 WORKING CAPITAL RATIO 3.67 3.21 4.17 4.79 6.59

2005-2006 3952423 2006-2007 3809250 2007-2008 4559573 2008-2009 5554969 2009-2010 7746628 Source: Audited Annual Reports

INFERENCE Working Capital Ratio measures the effective utilization of working capital. A higher ratio indicates lower investment and higher profits. From the above it can be understood that in the year 2001 the working capital turnover ratio was 3.67%, considerably it went down to3.21 in 2001-2002, but in the following 3 years i.e. from 2003 to 2005 it has shown an increasing trend.

2.2.3 CHART SHOWING WORKING CAPITAL TURNOVER RATIO

47

3. SOLVENCY OR FINANCIAL RATIOS: 2.2.4 CURRENT RATIO

48

Current Ratio = Current Assets/ Current Liabilities TABLE 2.2.4 YEAR CURRENT CURRENT LIABILITIES 1593298 1798383 1896546 2392906 3631221 ASSET 2005-2006 2670980 2006-2007 2984325 2007-2008 2989189 2008-2009 3552120 2009-2010 4805813 Source: Audited Annual Reports CURRENT RATIO 1.67 1.65 1.57 1.48 1.32

INFERENCE: This ratio shows the relationship between current assets and current liabilities. The ideal ratio is 2:1. From the above table it is understood that the companys current ratio was better in the years 00-01 and 01-02 with 1.67 & 1.65 respectively. But after that a considerable decrease can be seen reaching almost the lowest in 04-05 with 1.32. This position is unfavorable for the company as it has lesser stock of Current Assets. Hence the Company should take measure to either increase current assets or decrease current liabilities to achieve short-term financial stability.

2.2.4 CHART SHOWING CURRENT RATIO

49

2.2.5

ACID TEST RATIO

It is calculated by comparing the quick assets with the current liabilities Quick asset

50

Acid Test Ratio =

Current liability TABLE 2.2.5 CURRENT LIABILITIES 1593298 1798383 1896456 2392906 3631221 QUICK RATIO 1.00 1.00 0.99 0.99 0.85

YEAR 2005-2006 2006-2007 2007-2008 2008-2009 2009-2010

QUICK ASSETS 1603984 1799206 1887586 2374101 3097916

INFERENCE: This ratio establishes a relationship between quick or liquid assets and current liabilities. Generally a quick ratio of 1:1 is considered to represent a satisfactory current financial condition. It can be seen that the company has maintained the required ratio for the years 00-01 & 01-02.It was standard in the years 02-03 and 03-04 with 0.99. It slightly went down to 0.85 in 04-05. But it has maintained a standard position either way.

2.2.5 CHART SHOWING ACID TEST RATIO

51

2.2.6 CURRENT ASSET INTENSITY RATIO Inventory Current Asset Intensity = -------------------------------- X 100
52

Current Asset

TABLE 2.2.6 YEAR INVENTORY (Rs) 2005-2006 2006-2007 2007-2008 2008-2009 2009-2010 752618 803509 784487 767135 1192781 CURRENT ASSET (Rs) 2670980 2984325 2989189 3552120 4805813 CURRENT ASSET INTENSITY RATIO (%) 28.18 26.92 26.25 21.59 24.81

INFERENCE: This ratio shows the relationship between inventory and Current Assets. From the table it can be inferred that the Company has maintained a standard ratio from the year 2001 with 28.17%. It only slightly went down in the year 2004 to 21.59. But it was increased to 24.81 in 2005 higher the ratio, higher the investment in inventories.

2.2.6 CHART SHOWING CURRENT INTENSITY RATIO

53

2.2.7 PROPORTION OF INVENTORY TO NETWORING CAPITAL:

54

Inventory Inventory to Net Working Capital = Net working Capital

TABLE 2.2.7 YEAR INVENTORY NETWORKING CAPITAL 1077682 1185942 1092643 1159214 1174572 INVENTORY TO NETWORKING CAPITAL (%) 69.84 67.75 71.79 66.18 101.55

2005-2006 752618 2006-2007 803509 2007-2008 784487 2008-2009 767135 2009-2010 1192781 Source: Audited Annual Reports

INFERENCE: This ratio shows the ability of the company to pay its Current Liabilities. In the years 00-01 and 01-02 the average is 68.8% i.e. Inventories constitute 68.8% of Net working Capital. In the following years there has been a considerable increase reaching an all time high in 2005 with 101.5%.

2.2.7 CHART SHOWING PROPORTION OF INVENTORY TO NETWORKING CAPITAL

55

2.2.8 WORK -IN- PROGRESS TO INVENTORIES:

TABLE 2.2.8
56

YEAR

INVENTORY

WORK-INPROGRESS 316968 357136 311517 301212 581232

WORK-INPROGRESS TO INVENTORY (%) 2.37 2.24 2.51 2.54 2.05

2005-2006 752618 2006-2007 803509 2007-2008 784487 2008-2009 767135 2009-2010 1192781 Source: Audited Annual Reports

INFERENCE: The Companys work-in-progress to Inventories ratio was 2.37 in 00-01. Henceforth it has steadily declined reaching an all time low in 04-05 with 2.05%. This position is favorable since the company has to concentrate more on finished goods.

2.2.8 CHART SHOWING PROPORTION OF WORK-IN-PROGRESS TO INVENTORIES

57

2.2.9 FINISHED GOODS TO INVENTORIES:

TABLE 2.2.9 YEAR FINISHED GOODS INVENTORY FINISHED GOODS

58

TO (%) 2005-2006 133243 2006-2007 100756 2007-2008 82078 2008-2009 66870 2009-2010 57004 Source: Audited Annual Reports 752618 803509 784487 767135 1192781

INVENTORY 17.70 12.54 10.46 8.72 4.78

INFERENCE: The company had high finished goods to Inventory turnover in 00-01 with 17.70%. But it has decreased in subsequent years reaching 4.77% by 04-05. Such a position is favorable for the company as work-in-progress is not blocked and therefore bringing about an increase in Inventory turnover ratio.

2.2.9 CHART SHOWING PROPORTION OF FINISHED GOODS TO INVENTORIES

59

2.2.10 COST OF GOODS SOLD RATIO

TABLE 2.2.10 YEAR 2005-2006 COST OF GOODS SALES SOLD 2527329

60

RATIO (%) 63.94

3952423

2006-2007 2799979 2007-2008 3522745 2008-2009 4316484 2009-2010 5580484 Source: Audited Annual Reports

3809250 4559573 5554969 7746628

73.50 77.26 77.70 72.03

INFERENCE Cost of goods Sold Ratio depicts the other operating and selling expenses incurred. From the table it can be seen that the companys Cost of Goods Sold ratio has been steadily increasing 77.70% in 03-04. Such a situation is unfavorable for the company as it decreases the gross profit. Hence the company has to take suitable measures to reduce cost of goods sold.

2.2.10 CHART SHOWING RATIO OF COST OF GOODS SOLD

61

2.3. STATISTICAL ANALYSIS A.COEFFICIENT OF CORRELATION

62

2.3.1 COEFFICIENT OF CORRELATION BETWEEN INVENTORY AND DEBTORS

TABLE 2.3.1 INVENTORY(X) DEBTORS(Y) 75.26 139.77 80.35 163.25 78.45 174.38 76.71 216.25 119.27 282.68 430.04 976.33 Source: Audited Annual Reports X2 5664.07 6456.12 6154.40 5884.42 14225.33 38384.34 Y2 19535.65 26650.56 30408.38 46764.06 79907.98 203266.63 XY 10519.09 13117.13 13680.11 16588.53 33715.24 876201

Where X = value of inventories Y = value of debtors XY r= X2. Y2 r = 0.01 INFERENCE: The above calculations reveal that debtors and inventories are positively related in AAVIN. It indicates that when the value of inventories increase, the debtors do increase and vice-versa.

2.3.2 COEFFICIENT OF CORRELATION BETWEEN INVENTORY AND CREDITORS

TABLE 2.3.2 INVENTORY (X) 75.26 CREDITORS (Y) 130.10 X2 5664.06

63

Y2 16926.01

XY 9791.32

80.35 78.45 76.71 119.27

137.31 147.48 169.25 234.14

6456.12 6152.40 5884.42 14225.32 38384033

18854.03 21750.35 28645.56 54821.53 140997.48

11032.85 11569.80 12983.16 27925.84 73303

Source: Audited Annual Reports Where, X= value of inventories Y= value of purchase XY r= X2. X2 r = 0.003 INFERENCE The inventories and creditors are positively (Directly) related to one another. It shows that when there is an increase or decrease in inventories there will be an increase or decrease in creditors. The raise or falls of inventories depends on the demand and production of products of AAVIN.

2.3.3 COEFFICIENT OF CORRELATION BETWEEN INVENTORY AND SALES

TABLE 2.3.3 INVENTORY (X) 75.26 80.35 78.45 76.71 119.27 395024 380.92 455.95 555.95 774.66 5664.06 6456.12 6152.40 5884.42 14225.32
64

SALES

(Y)

X2

Y2 156214.56 145100.04 207890.40 308569.14 600098.11

XY 29745.76 30606.92 35769.27 42611.63 92393.69

38384.33 Source: Audited Annual Reports Where, X= value of inventories Y= value of purchase XY r= X2. X2 r = 0.002 INFERENCE

1417872.25

231127.27

The Sales in AAVIN, related to inventories shows a positive correlation. Hence it indicates increase in Sales will result in increase in inventories and vice versa.

A. INDEX NUMBERS

2.3.4 CHAIN BASE INDEX NUMBER FOR STEEL TABLE 2.3.4 YEAR 2005-2006 2006-2007 2007-2008 2008-2009 PRICE 28.99 29.15 31.44 40.31 100 29.15/28.99*100=100.55 31.44/29.15*100=107.85 40.31/31.44*100=128.21 LINK RELATIVES 100 100.55/100*100=100.55 107.85/100.55*100=107.26 128.21/107.85*100=118.87 CHAIN INDICES

65

2009-2010 50.51 50.51/40.31*100=125.30 Source: Audited Annual Reports

125.30/128.21*100=97.73

INFERENCE: The above table shows the short-term variation in price for steel. The base year is always assumed as 100. There is a gradual increase in steel price by 18.87%, during the year 03-04 as compared to the base year. There is a decrease in steel price during the year 20042005. The change in price depends upon the changes in demand for the product, agreement made with the suppliers, quantity of products to be manufactured.

2.3.5 CHAIN BASE INDEX NUMBER FOR COPPER TABLE 2.3.5 YEAR PRICE LINK RELATIVES 2005-2006 146 100 2006-2007 139 139/146*100=95.20 2007-2008 139 139/139*100=100 2008-2009 149 149/139*100=107.19 2009-2010 195 195/149*100=130.87 Source: Audited Annual Reports CHAIN INDICES 100 95.20/100*100=95.20 100/95.20*100=105.04 107.19/100*100=107.19 130.87/107.19*100=122.09

INFERENCE:
66

The base year is always assumed ad 100. The table shows the changes in the price of the copper during the last five years. There is a gradual increase in the prices for every year. The changes in price depends upon the demand for the items, production quantity variation, and duties imposed on the item etc,

2.3.6 CHAIN BASE INDEX NUMBER FOR ALUMINIUM

TABLE 2.3.6 YEAR 2005-2006 2006-2007 2007-2008 2008-2009 2009-2010 PRICE 95.21 96.70 110.16 102.21 108.78 LINK RELATIVES 100 96.70/95.21*100=101.56 110.16/96.70*100=113.91 102.21/110.16*100=92.78 108.78/102.21*100=106.42 100 101.56/100*100=101.56 113.91/101.56*100=112.16 92.78/113.91*100=81.45 106.42/92.78*100=114.70 CHAIN INDICES

Source: Audited Annual Reports

INFERENCE:

67

The above table shows that the price of Aluminum has undergone a wide fluctuation over the past five years. The price index of the first year is always assumed as 100. The table shows that the price of Aluminum has been raised in the year 04-05. The change in the price is related to the change in the quantity demanded, quantity produced, contract price with the suppliers, management decisions, fluctuations in the market price.

C.TREND ANALYSIS 2.3.7 ESTIMATION OF INVENTORIES FOR THE YEAR 2006-2007 YEARS (X) 2005-2006 2006-2007 2007-2008 2008-2009 2009-2010 TOTAL INVENTORIES (Y) 752618 803509 784487 767135 1192781 Y=4300530 -2 -1 0 1 2 -1505236 -803509 0 767135 2385562 UY=843952 4 1 0 1 4 U2= 10 U = x-X UY U2

Source: Audited Annual Reports The equation of straight line is:

68

Y= a + b X

where, a = Y / N ; b = UY / U2 ;

The normal equations are Y = n a + b X XY = a X + b X2 Y = a + b (X-2003) = Rs 1197686 INFERENCE When other factors remain the same, the value of inventories in AAVIN, is estimated to be Rs.1197686 for the year 2007. The trend shows the increase in the inventory values, which indicates the decrease in the cost of inventories.

2.3.7 CHART SHOWING THE ESTIMATION OF INVENTORIES FOR THE YEAR 2007

Estimation of Inventories

69

TREND ANALYSIS FOR SALES TABLE 2.3.8 ESTIMATION OF SALES FOR THE YEAR 2007 YEARS (X) NETSALES (Rs) U =x-X UY U2

70

2005-2006 2006-2007 2007-2008 2008-2009 2009-2010 TOTAL

(Y) 3952423 3809250 4559573 5554969 7746628 Y=25622843

-2 -1 0 1 2

-7904846 4 -3809250 1 0 0 5554969 1 15493256 4 UY=9334129 U2= 10

The equation of straight line is: Y= a + b X where, a = Y / N ; b = UY / U2 ;

The normal equations are Y = n a + b X XY = a X + b X2 Y = a + b (X-2003) = Rs8858221 INFERENCE The estimated sales for the year 2007 is Rs 8858221 For AAVIN, when other thing remain the same.

2.3.8 CHART SHOWING ESTIMATION OF SALES FOR THE YEAR 2007

71

CHAPTER V FINDINGS, SUGGESTIONS AND CONCLUSION

FINDINGS The major findings of the analysis on inventories in AAVIN are:

72

Relays, Control Panel forms the major part of finished goods inventory in

AAVIN. The codification of raw materials and components (based on the locality of

supplier) are RMC 1, RMC 2, RMC 3 and RMC 4. RMC 1 & 2 indicates local supplier, RMC 3 & 4 represents the imported stock. Operating Ratio in the initial years i.e. in 2001 and 2002 was high, but

subsequently in the following years has reduced its operating ratios to 98.15, 97.9 and 94.70 in the years 2003, 2004, and 2005 respectively. The stock period is calculated at 3.69 months for the year 2001 and

considerably decreased to 3.34, 2.70, 2.15 & 2.10 in the subsequent years respectively. Even though it averages up to 3.5 it has to redesign some method. Working Capital ratio the year 2001 was 3.67%, considerably it went down

to3.21 in 2001-2002, but in the following 3 years i.e. from 2003 to 2005 it has shown an increasing trend.

Current ratio was better in the years 00-01 and 01-02 with 1.67 & 1.65

respectively. But after that a considerable decrease can be seen reaching almost the lowest in 04-05 with 1.32. Acid test ratio for the years 00-01 & 01-02.It was standard in the years 02-03

and 03-04 with 0.99. It slightly went down to 0.85 in 04-05. Current asset intensiveness ratio for the year 2001 with 28.17%. It only

slightly went down in the year 2004 to 21.59. But it was increased to 24.81 in 2005 higher the ratio, Higher the investment in inventories.

73

In the years 00-01 and 01-02 the average is 68.8% i.e. Inventories constitute

68.8% of Net working Capital. In the following years there has been a considerable increase reaching an all time high in 2005 with 101.5%. The company had high finished goods to Inventory turnover in 00-01 with

17.70%. But it has decreased in subsequent years reaching 4.77% by 04-05. The Companys work-in-progress to Inventories ratio was 2.37 in 00-01.

Henceforth it has steadily declined reaching an all time law in 04-05 with 2.05% The Companys Cost of Goods Sold ratio has been steadily increasing 77.70%

in 03-04 Copper, steel, and aluminum are the major raw materials in the firm. There is

a short-term oscillation in the unit price of these items during the period of study concerned

SUGGESTIONS AND RECOMMENDATIONS

74

The Inventory turnover ratio can be increased by quickening the production process and sales to earn more profit, to increase the productivity of the firm. The local suppliers (85-90%) are prompt in their supplier. It will be better if AAVIN. follows just-in-time (JIT) system for its local items being purchased. This will enable the firm to reduce its cost on inventories and to avoid unnecessary storage of materials. JIT also increases the productivity of labour, reduces the production lot sizes, and enables to meet the customers requirements of quality, cost and delivery time. It shows an effective system of manufacturing. It is referred beginning to more about this system. Adopting the combination of carious inventory control techniques like ABC, XYZ, SED, FSND, etc., will enable the firm to frame a more efficient inventory policy. Quickening the production process and sales to earn more profit, to increase the productivity of the firm, can increase the inventory turnover ratio. The inventory on an average should be some percentage of total assets as per norms. The AAVIN has more than the norms specified for inventory to total assets. Though the firm has reduced it in recent past 2 years, further reduction will enable the firm to reduce the cost and increase the profit. On the basis of changes in price, contracted price with supplier, products demand and production, economic changes, international market fluctuations, wages hike in other service costs etc., the storage level of copper, steel and aluminum must be decided. as Zero Inventory System. Conducting pilot programmers at initial stage will be a good

CONCLUSION

75

Based on the project it is concluded that even though the present inventory control management is implemented efficiently, the JIT and KANBAN system has also to be implemented for the further reduction in inventory. Hypothetically more aptitude measures have to be worked out to reduce the storage time of the components which are expensive.

REFERENCES

76

BOOKS REFERRED:
AAVIN Annual reports (2001 2005) for five years. I.M. Pandey, financial management. 9th edition Viveks Publishing House Private Ltd, New Delhi , 2002 Prasanna Chandra, Financial Management-Theory and Practices, 4th ed. New Delhi: Tata Mc Graw Hill Publishing Company Ltd, 2002.

77