A FINANCIAL ANALYSIS OF SABARKANTHA

DISTRICT CO-OPERATIVE MILK PRODUCERS UNION

LTD. HIMMATNAGAR
(2004-2010)
UNDER THE GUIDENCED OF:DEVJIBHAI PATEL
(SENIOR ACCOUNTING OFFICER)
SABAR DAIRY

SUBMITED BY:UTSAV.H.SUKHADIYA
ENRLL.NO. -097510592005

SUBMITTED TO:-

TABLE OF CONTENT
SR.NO.
1
2
3
4
5
6
7
7.1
7.2
7.3
8
8.1
9
10
11
12
13
14
15
16

PARTICULAR
Student Declaration
Preface
Acknowledgement
Project guide certificate
Executive Summary
Dairy Industry Overview
Sabar Dairy: - Introduction
Company Profile
History & Development
SWOT Analysis
Ratio Analysis
Limitation of Ratio Analysis
Common Size balance Sheet
Income Statement
Forecasting & Planning
Cash flow Analysis
Leverage
Conclusion & Findings of Study
Bibliography
Appendix

P.g.NO.
I
1
2
3
4
9
10
13
22
29
47
48
49
50
53
61
70
74
75

DECLARATION
I, UTSAV SUKHADIYA, hereby declare that the project titled A Project on Financial Analysis of
Sabar Dairy from 2004-2010 is an original work carried out by me at Sabar Dairy Himatnagar as
partial fulfillment requirement of MBA degree of GTU. Further this project has not been previously
submitted for award of any degree of Institute of Technology and Management of any other
university.
Place: Gandhinagar, Sadra.

UTSAV SUKHADIYA

Date: 25/07/2010

MBA
ROLL: 55
SIM TAJPUR.

PREFACE
The management has wider scope, the important of management expands day to day because, there
is large number of companies in small and large comes into existence. Industrial knowledge likes a
coin, which has two sides. One is theoretical and another is practical knowledge. Both are very
important for the report. But in fact practical knowledge is more important than the theoretical.

Industrial knowledge is an important part of the syllabus for MBA student. Studying only the
management theories does not enough to student in the management field. Personality of the
student industrial knowledge guide the student and play visa role in improving personality of the
student of the business administration and understanding regarding the theories of the management,
management is an important area where practical studies a lot of conceptual clearing and also give
a clear cut understanding of the application of management principles.
This report includes financial analysis of sabar dairy in which Ratio Analysis, Projected
Forecasting and Planning, Projected Cash flow statement, income statement, common size
-Balance sheet, leverage. The main objective of this report is to know about financial conditions of
the company; analysis it and give suggestion to what to do in the future. What type of policy
should be adopted or may be changes by the top management.
For this purpose I collect secondary data from the company like annual report of last six years and
also other qualitative data from the employees of the company; sometimes I was go to the
different- different departments of the company and observe to the employee and noted in the
mind give my views also noted in my project report.

-1-

ACKNOWLEDGEMENT
This report is not the result of a single hand rather various people are involved
directly & indirectly contributing in some way or the other. I am indebted to Mr.Pravesh
Bhadvya Director and Dr.Gajendra samar of the Sabar institute of management for
providing an opportunity of doing Summer Training in Sabar Dairy and allowing me to use the
resources of the institute during this Project.
I am extremely thankful to my Project guide prof. Ishan Pandya of Sabar
institute of management as an internal guide & Mr. Devjibhai Patel Senior Accounting
Officer of Sabar Dairy as an external guide for precious guidance regarding the preparation
format of the Project report & provide other valuable information related to project. They have
been excellent guides & were available at any hour of need; without them friendly and cheerful
guidance, this Project would never materialize. I am also thankful to other staff members of the
Sabar Dairy to give valuable support for this Project.
Last but not least, I extend my sincere thanks to all my friends, colleagues who
provide the source of inspiration for doing better work on project

-2-

EXECUTIVE SUMMARY
Executive summary is an important part of the project report in which I have included all the
information of my project in a short manner. My project title is Financial Analysis of Sabarkantha
Districtive Milk Producers Union Limited from 2004-2010.
Milk industry has undergone a revolution in this century with the development of science and
technology. Milk is most vital nutritious product upon which every human being depends. It is
perishable in nature understanding the nature of perish ability of these product technologists tried
their best to preserve this product so as to ensure its use in products.
Sardar Vallabhbhai Patel gives the first idea to establish and Co-operative business of
milk.
Amul dairy has been established near about us a result at the time in Anand. Amul dairy got the
milk from two Talukas as that time and it had about 1000 societies and it procures about 9000
Ltrs. Milk.
The Sabarkantha Districtive Milk Producers Union Limited, Himatnagar is a milk processing unit
in the Sabarkantha district. It is also known as SABAR Dairy. The main objective of sabar dairy is
to collect milk from sabarkantha district and manufacture different types of milk products and to
customers at a lowest price. Sabar dairy produces the different milk base products but those all
products marketed by GCMMF (Gujarat Co-operative Milk Marketing Federation Limited, Anand),
In short all major activities regarding marketing are done on the priority of the GCMMF.
The National Dairy Development Board (NDDB) was formed in 1965 and was charged with the
responsibility of building cooperative dairies in India on the Anand pattern.
In the beginning, the NDDB faced many obstacles. The Dairy Board had few financial resources;
state governments and departments had little interest in turning over their responsibilities to farmers
and, even more, in becoming employees of farmers. The National Dairy Development Board was
created to promote, finance and support producer-owned and controlled organizations
This report includes financial analysis of sabar dairy in which Ratio Analysis, Projected Forecasting
and Planning, Projected Cash flow statement, income statement, common size -Balance sheet,
leverage. The main objective of this report is to know about financial conditions of the company;
analysis it and give suggestion to what to do in the future. What type of policy should be adopted or
may be changes by the top management.

-3-

Introduction of Dairy Industry

There has been a total revaluation in sector like industries economic situation, political situation
and trying to focus to the best to capture the maximum benefits. Milk industry has undergone a
revolution in this century with the development of science and technology. Milk is most vital
nutritious product upon which every human being depends. It is perishable in nature understanding
the nature of perish ability of these product technologists tried their best to preserve this product so
as to ensure its use in products. The dairy industry has come up to the present stage because of the
well planned effective co ordination of national dairy development board and co ordination of
the Government at federation, the nature of every organization in a country regardless of its
economics system is to increase. Productivity so as to full fill the wants and needs of its citizens
and
then
to
improve
the
standard
of
living
of
the
people.

History and Development of Dairy Industry

Sardar Vallabhbhai Patel gives the first idea to establish and Co-operative business of milk. Amul
dairy has been established near about us a result at the time in Anand. Amul dairy got the milk
from two Talukas as that time and it had about 1000 societies and it procures about 9000 Ltrs.
Milk. And give the idea to setup Panchmahal Dairy in stage 40 to 50 villages agreed provide milk
to the dairy. They collected 21,000 Ltrs. Milk from those villages in the beginning. This dairy is
called Panchmahal dairy.
In 1970 National Dairy Development Board (NDDB) was also established in Anand and the state
level offices NDDB is in Delhi. The NDDB's chairman is Dr. V. Kurain in beginning on account
of inadequate finance the Dairy was selling very less milk. Only few people ware agree to provide
milk to the dairy. For Bringing milk the truck or tempo was used.
Panchmahal District is situated in the eastern part of Gujarat state with 1900 in habited villages
consisting of 33.2 Lakes (1966 census) of which 9802 thousand represent schedule tribe making
sizable 45% of the total human population, which is mainly concentrated in 5 tribal Talukas and 2
pockets the undulated terrain made of hills, rocks and shallows soils. The dependences of
agriculture mostly on scarcity rainfalls and merge irrigation facilities and the advises all together
make a huge obstacle in the development of the district. The Panchmahal District Co-operatives
milk produces union was organization as Godhra in may 1973.initially from 40 villages the dairy
Co-operative daily 21000Ltrs. Of milk was produces and delivered to the adjacent district union in
Kheda, Baroda on account of two lack of processing facilities at Godhra only bordering villages
ware availing these benefits of arrangements so to make it in reach of a larger numbers of deep
seated villages. Milk producers a milk processing plant with 30,000Ltrs.capacity holder was
established at Godhra in 1977.

-4-

Under operation flood III programmers it as proposed to procedure milk from 725 dcs by 1992.
The procurement expected to be of 90,000 by the end of 1992. The proposed financial outlay under
III programmers for union was Rs.315lakes, which involved investment on chilling center.
Expansion of existing dairy plant technical input services and support to villages dairy Cooperative. At present the dairy production of milk is 4 to 5 lakes liters.

Dairy Industry in India

The dairy industry occupies an important place in the Indian economy. As India is an agriculture
oriented economy and around 65% of its people still depending on agriculture and still many
farmers use the old method of farming using the cattle, cattle breeding is done on a vast scale. The
cattle not only provide the means for cultivation but also it provides milk to the household.

The government of India also helped the industry to develop by giving its full assistance and with
the launching of operation flood in the 7 th 5 year plans the industry got the needed impetus. At
the time if independence the growth rate of the industry was less at around 1% but with the help of
the government the growth rate increased to 4.2%.

Percapita availability:
Recommended 210 gm
India

1950

132 gm

1997

214 gm

2020

290 gm

-5-

India contributes 35% of total Asian milk

Dairy Industry profile 2010

Human Population

953 million (70 million dairy farmers)

Milk production
Average annual growth rate

74.3 million tons (203.5 million 1 pd)

5.6%

(2006-2010)
Per capita milk availability

214 gm/day or 78 kg/year

Milch animals

57 million cows;
39 million buffaloes

Milk yield per breedable bovine in milk

1,250kg

Cattle feed production (organized sector)

1.5 million tonnes

Turnover of veterinary pharmaceuticals

Rs 550 crores

Dairy plants throughout

20 mlpd

Throughout as percentage of total milk output

Value of output of milk group

10
Rs 50,051 crores

(Based on producers price)

Value of output of dairy industry
Rs 105,000 crores
(Based on retail price)
Milk Composition

Sr. Constituents Buffalo Cow

no

Goat

Liquid skimmed
milk

1 Moisture (gm) 81.00 87.50 86.80

92.10

Protein (gm)

4.30

3.20

3.30

2.50

Fat (gm)

6.50

4.10

4.50

0.10

0.80

0.80

0.80

0.70

5 Carbohydrates 5.00
(gm)

4.40

4.60

4.60

Energy
117.00 67.00 72.00
calories (kcal)

29.00

7 Calcium (mg) 210.00 120.00 170.00

120.00

Phosphorus
(mg)

90.00

Iron (mg)

4 Minerals (gm)

130.00 90.00 120.00

0.20

0.20

0.30

0.20

-6Indian Buffaloes: (Dairy business Directory 2006)

Buffaloes are classified into two categories;
1) Reverine (depending upon variation in their habitat & genome)
2) Swamp
Swamp buffaloes: - 48 chromosomes
South East Asian countries
Stocky animals, marshy land habitat
River Buffaloes: - 50 chromosomes
- Massive in size and curled horns
- Prefer to enter clear water
Worlds Buffalo population:
147 million

About 142 millions in Asia & Pacific

India:
Leading most buffalo populated country
78 millions most of reverine
Milk production: About 95% of world buffalo milk (45.3 million tonnes) is produced in Asia
&Pacific, while 64.4% is produced in India (FAO.1992)
From 1950 to 1992 milk production in the world increased by 4.26%
The % of total bovines slaughtered;
Total bovine slaughtered (%)
World 17.1 to 17.4% or - 1.6% per annum
India 15% per annum
Asia 6.6%
-7BREEDS
Classified on phenotypic & geographic locations;
Cockril (1982) = Buffalo river type; two sub groups;
1. Horns are closed and set close to head & are down swept; e.g. Murrah, Ravi, Mehasana,
Jaffarabadi, Sambalpur
2. Horns are sickle shaped and unswept: e.g. Bhadawari, Kalahandi, Kanara, Manda, Nagpuri,
Pandharpuri, Surti, Tarai & Toda

Breeds of Buffaloes of Indian Origin and Breeding Tracts:

Group

Breed

Breeding tract

Murrah
type

Murrah
Nili Ravi

Rohtak, Jind,Hisar, Bhiwari, Sonepat

(Hariyam)
Ferozepur (Punjab)

Gujarat

Surti
Jaffarabadi
Mehsana

Kaira and Baroda

Kutch, Jungarh & Jamnagar dist
Mehsana, sabarkantha, Banaskantha Dist.

Uttar
Pradesh

Bhadawari
Tarai

Bhadawari estate, Beh Tehsil in Agra, Gwalior & Etawah dist.

Tarai region of U.P.

Central India

Nagpuri
Pandharpuri
Kalahandi
Sambalpur

Nagpur, Akola, Amravati dist. South maharashtra, west A.P.,

north Karnataka Hilly region of Andra Pradesh and Orissa
Bilaspur dist.

South India

Toda
South Kanara

Nilgiri Hills
West coast in Kerela

Buffaloes found in the north eastern states and the eastern coastal region of India & in China
South east Asian countries e.g. Philippines, Thailand, Malaysia, Vietnam, Srilanka, Burma, Laos,
Kampuchea, Bangladesh etc. have been classified as swamp buffaloes on the basis of their genetic
constitution (2n=48) & natural habitat. The breeds includes in these groups are Manda &
Palakhemundi.

-8-

SABAR DAIRY

The Sabarkantha Districtive Milk Producers Union

Limited, Himatnagar is a milk processing unit in the
Sabarkantha district. It is also known as SABAR
Dairy. The main objective of sabar dairy is to collect
milk from sabarkantha district and manufacture
different types of milk products and to customers at a
lowest price. Sabar dairy produces the different milk
base products but those all products marketed by
GCMMF (Gujarat Co-operative Milk Marketing
Federation Limited, Anand), In short all major
activities regarding marketing are done on the priority
of the GCMMF.

Sabar dairy have main four departments are as under:

1. Production department
2. Human resource department
3. Marketing department
4. Finance department
These all four departments their activity efficiently. The human resource department has their main
activity like to give to training to a new person for vacancies and select a right person for right job,
give promotion to the employee. The Production department has their main activity to collect milk
and check it among different according to guaranty distributes it among different sections and
manufactured product.
The finance department has a main duty to utilize scare resources effectively and to manage the
financial resources. The marketing department does its activity under GCMMF.

-9-

Company profile

Basic information: SABARKANTHA DISTRICT CO-OPERATIVE PRODUCERS UNION LTD.

Boria, Himatnagar 383006
Gujarat, India. Tel.No. (02772)226051 to 226060
Website: www.sabardairy.co.in
Year of Establishment 1964 A.D
Type of Business: - Manufacturing Unit.
Size of the Organization: - Large Scale
Forms of the Organization: - Co-operative union Ltd.
Name of the Auditor: - R.M Aasodiya, Milk Audit office, Himatnagar.
Bankers: - 1. The sabarkantha District Central Co-operative Bank Ltd.
2. Dena Bank
3. State Bank of India
4. Bank of Baroda
5. H.D.F.C Bank
6. I.C.I.C.I Bank
Co-operative union members: Sabarkantha, Bharuch, Gandhinagar, Kaira, Mehsana, Surat, Baroda, Banas, Panchmahal,
Anand, Mother Dairy, Ahmedabad.

-10-

 BOARD OF DIRECTORS :No

Name

Designation

Jethabhai P. Patel

Chairman

Jyantibhai B. Patel

Vice chairman

Khemabhai H. Patel

Directors

Jashubhai S. Patel

Directors

Ramabhai G. Patel

Directors

Bhogibhai R. Patel

Directors

Kantibhai S. Patel

Directors

Dhurabhai K. Patel

Directors

Subhashbhai N. Patel

Directors

10

Lilachandbhai B. Patel

Directors

11

Jesingbhai R. Patel

Directors

12

Vipulbhai R. Patel

Directors

13

Dolatsingh J. Chauhan

Directors

14

Manibhai I. Patel

Directors

15

Jyantibhai V. Patel

Directors

16

Kantibhai D. Patel

Directors

17

M.C.Shah

Directors

18

R.S. Sodhi

Directors

19

District ragistar coop.Societies

Directors

20

Kanubhai M. Patel

Directors

21

Dr. Babubhai M. Patel

M.D.

-11-

History & Development

In 1990, the 'UNISEF' Team visited the Sabarkantha district & they tries to improve milk industry
Sabarkantha for this objective they select Himatnagar for establishing milk processing unit. This is
their recommendation to start the dairy on Co-operative bases to improve milk industry in
Sabarkantha district.
The Sabarkantha District Co-operative Milk Producers Union Ltd, Himatnagar" was also known
as Sabar dairy in Gujarat. Sabar dairy was established before forty five years that means 27 th
November 1964.
Sabar dairy was registered with the name of "The Sabarkantha District Co-operative Milk
Producer's Union Ltd., Himatnagar" and also gets the certificate of ISO-9002.
In Gujarat Sabar dairy is one of the leading milk producing unit.

Storage
Introduction
Modern milk plants hold both raw and pasteurized milks for a much longer period than before.
Normally the milk storage capacity is equal to one days intake. This allows a more nearly uniform
work-day for processing and bottling operations with less dependence on the time for receiving
raw milk. Storage tanks are used in Milk Plants for the storage of raw, pasteurized, or processed
products, often in very large volumes. Because of the longer periods of holding, storage tanks are
among the most important items of equipment. They must be designed for ease in sanitation,
preferably by the circulation-cleaning method. In addition, the tanks should be insulated or
refrigerated, so that they can maintain the required temperature throughout the holding period.
Agitation should be adequate for homogeneous mixing, but gentle enough to prevent churning and
incorporation of air.
Objectives

To maintain milk at a low temperature so as to prevent any deterioration in quality prior to

processing/product manufacture;
To facilitate bulking of the raw milk supply, which will ensure uniform composition;
To allow for uninterrupted operation during processing and bottling;
To facilitate standardization of the milk.

-12-

Types of Storage
Insulated or Refrigerated
In the former, there are 5 to 7.5 cm. of insulating material between the inner and outer linings; in
the latter, the space between the two linings is used for circulation of the cooling medium. Another
variation of the refrigerated type is the cold-wall tank.
Horizontal or Vertical
While the former requires more floor space and less headspace, the latter requires less floor space
and more headspace. Modern circulation cleaning methods have made very large vertical storage
tanks practical.
Rectangular, Cylindrical or Oval
Of these, the first suffers from the disadvantage of having dead corners during agitation, while the
other two do not.
Built for gravity flow, air-pressure or vacuum operation
The first is the most common. However, air pressure is sometimes used to evacuate the product.
This requires special construction of the storage tank for greater strength than necessary for
normally operations under gravity flow.
Location
In one system, the storage tanks are located on an upper floor. The milk is pumped from the
receiving room to the floor above. It then flows by gravity to the pre-heater, filter or clarifier,
pasteurizer, cooler and bottling machine. In another system, the milk is pumped from the storage
tanks through a pre heater and filter into the pasteurizer. Hence it may flow by gravity to the
cooler, or it may be pumped to the cooler while hot.
Parts of a Storage Tank
Sight glass;

Safety valve;

Light glass and lamp;

Legs;

Ladder;

indicating thermometer;

Volume-meter.

Air vent;

Manhole;

Inlet;

Agitator;

Outlet valve;

-13-

Dairy Products
FLOW CHART OF CONVERSION OF MILK INTO TRADITIONAL DAIRY PRODUCTS
Milk

Cultured

Condensed Acid

Precipitation

1.Shrikhand

1.Mishti dol

1.Paneer

2.Ghee

2.Rabri

2.Sandesh

3.Lassi

3.Kheer

4.Kadbi

4.Khoa

3.Rasgoola
4.Pantoda

Burfi

Pedha

Kalakand

Gulabjamun

5.Rasmalai

Summary of utilization of milk in dairy

Items

Percentage in relation to
Total milk production Total quantity
converted into
milk products

Fluid milk

44.5

Manufactured milk

55.5

(100)

Ghee

32.7

58.9

Dahi

7.8

14.0

Butter

6.3

11.4

Khoa

4.9

8.8

Ice cream

0.7

1.3

Cream

1.9

3.4

Other products
(Mainly chhana)

1.2

2.2

-14-

Flow diagram of milk processing

RAW MATERIAL

Dump Tank

Clarification

Cooling and storing

Preheating

Standardization

Liquid milk

(Optional)
Cream

Butter

Homogenization
Ghee

Pasteurization

Packing

Cold storage

Distribution

Whole milk (6%

fat)
Standard Milk
(4.5% fat)

Toned Milk (3%

fat)
Double toned milk
(1.5% fat)

-15-

The company has achieved the following national level awards and State level Awards
during different years:
1. The national productivity Award for years 1987-88(2nd rank), 1989-90(1st), and 1990- 91
(1st) and for years1997-98, 1999-2000 (certificate of merit).
2. The Vikas Ratna award for year 1995(1st)
3. The National safety council awards for years 1992 and 2001 (1st rank)
4. The Gujarat safety council Awards for years 1996(1st) and 2000(certificate of merit)

CONCLUSION

After doing the project on sabar dairy conclude that there is very simple distribution channel. The
main competitor has advantage of Personal selling .The marketing of all products manufactured by
sabar dairy are marketed by GCMMF ltd. All the products manufactured sold under the brand
name of "AMUL" .the advertising, distribution of the products and development of the marketing
policies are performed by GCMMF ltd. The main competitors of amul are Nestle, Glexco, Royal,
Cadbury & other private dairy. Local Milkmen are main competitors of the sabar dairy. This is a
good example of co-operative organization.

-16-

National Dairy Development Board (NDDB)

The National Dairy Development Board (NDDB) was formed in 1965 and was charged with the
responsibility of building cooperative dairies in India on the Anand pattern.
In the beginning, the NDDB faced many obstacles. The Dairy Board had few financial resources; state
governments and departments had little interest in turning over their responsibilities to farmers and, even
more, in becoming employees of farmers.
In Gujarat, farmer initiatives, supported by the Kaira Union, resulted in significant progress; elsewhere
little change occurred. It was about this time that mountains of powder and lakes of butter oil were
accumulating in Europe.

It was, just a matter of time until some kindly European gentleman decided that this should be
donated, or sold at subsidised prices, to help the poor people of India. Were that to happen, it
would have been the death knell of our nascent dairy industry.
It was to face this potential threat that the idea arose of using food aid to generate the financial
resources necessary to create Anands throughout India. Fortunately there were individuals of
wisdom and foresight in both India and Europe who supported the idea.
So, commodities were reconstituted as liquid milk and sold at prices comparable to those in the
domestic market. The funds that were generated were used to finance the development of our
cooperative dairy industry. Thus, what was a serious threat was successfully turned into an asset.
in 1987, the NDDB was merged with the Indian Dairy Corporation, and vide an Act of
Parliament it was accorded a statutory status, constituted as a body corporate and declared an
institution of national importance.
NDDB under its umbrella had Mother Dairy (milk unit) and a fruits and vegetables unit. Mother
dairy and fruits & vegetables unit were later merged into a holding company called Mother Dairy
Fruits & Vegetables Ltd.

Support Role of NDDB

The National Dairy Development Board was created to promote, finance and support producerowned and controlled organizations.
NDDB's programmes and activities seek to strengthen farmer cooperatives and support national
policies that are favourable to the growth of such institutions. Fundamental to NDDB's efforts
are cooperative principles and cooperative strategies.
As the prime mover of the programme, in addition to financing the unions on a grant-cum-loan
basis, NDDB provides extensive support for their successful performance.
It coordinates its activities with those of the Technology Mission for Dairy Development and
other government agencies.
NDDB assists the unions in recruitment and training of personnel; technical help is provided in
design and selection of equipment as well as in construction of dairy plants on a turnkey basis.
Operation Flood's success led to NDDB evolving similar programmes for other commodities.
Where potential synergies exist, NDDB has created commercial firms to exploit these for the
benefit of rural producers.
-17-

Various entities under NDDB

The various entities which work under NDDB, to whom NDDB provides help are:1. MDFVPL Mother Dairy Fruit & Vegetable (P) Ltd., which is the Holding company and
whose primary responsibility is to provide direction to all the group companies in Financial, IT
and HR activities.
2. MDFL Mother Dairy Foods Ltd., whose primary responsibility is to form JV companies for
marketing activities.
3. MDFPL Mother Dairy Foods Processing Ltd., whose primary responsibility is to procure,
process and distribute milk and milk products. It also has the fruits & vegetables unit under it.
4. MDDL Mother Dairy Delhi Ltd., which is a Joint venture between MDFPL & MDFL and
responsible for the sales & marketing activities in the Delhi region through milk shops and
retailers.
5. MDIL Mother Dairy India Ltd, whose primary responsibility is to sell & market and
distribute Products other than milk through distributors throughout India.
During 2001-02, NDDB's outstanding investment in co-operatives has dipped from Rs 1,227.58
crore to Rs 946.70 crore, indicative of the increased profile of subsidiary companies in its
operations.

-18-

ORGANIZATIONAL STRUCTURE OF FINANCIAL DEPARTMENT

CHAIRMAN P.A
|
VICE CHAIRMAN
|
MANAGING DIRECTOR P.A
|
GENERAL MANAGER
|
D.G.M. FINANCE
|
A.G.M. ACCOUNTANT
|
SENIOUR MANAGER
|
MANAGER
|
DEPUTY MANAGER
|
ASSISTANT MANAGER
|
SENIOUR SUPPERITENDENT
-19-|

|
SUPPERITENDENT
|
ASSISTANT SUPPERITENDENT
|
SENIOUR OFFICER
|
OFFICER
|
ASSISTANT OFFICER
|
SENIOUR ASSISTANT
|
ASSISTANT
|
ATTENDENT
|
PEON

-20-

Latest Controversy in Dairy Industry

Amul wants to take off its Brand from the GCMMF
13/6/2010, the Board of Directors of Amul decided to take off its Amul Brand from the Gujarat
Co-operative Milk Marketing Federation Ltd. (GCMMF). According to the contract made
between Board of Directors of GCMMF & Board of Directors of Amul at the time of
establishment of GCMMF, Amul must give notice before 1 year to take this Decision.
Amul Dairy will arrange Annual General Meeting on 25 th June & may be to take Decision about
it. The M.D of the Amul B.M.Vyas resigned from the GCMMF.
The responsible factor is the dispute going in the GCMMF & the Amul think that it will affect to
the Brand name of the Amul.
There are 12 milk producers sales the manufactured product under the Brand name of the Amul.
Amul believe that if the milk producers sales inferior product under Amul Brand, it will serious
affect to the image of the company.

-21-

SWOT ANALYSIS

STRENGTH:1. BETTER GEOGRAPHIC LOCATION: - AVAILABILITY OF BETTER ROAD

TRANSPORTS FACILITY BECAUSE OF NEAR BY NATIONAL HIGHWAY 8.
AVAILABILITY OF LOCAL MARKET OF PRODUCT.
2. DAIRY INDUSTRY MAINLY ON THE BASES OF CO-OPERATIVE AND NOT
COMPETITION.
3. CONTINUESLY IMPROVEMENT (KAIZEN) IN PRODUCT & PRODUCTION
METHODS AND PROPOSITION.
4. AMUL BRAND ITSELF IS STRENGTH OF THE COMPANY.
5. EARNING PER SHARE INCREASES EVERY YEARS.
6. EFFECTIVE MANAGEMENT INFORMATION SYSTEM.
7. GOOD INFRASTRUCTURAL FACILITIES.

WEAKNESSES: 1. OVEREMPLOYEMENT IN THE DIFFERENT DIFFERENT DEPARMENTS OF

THE COMPANY.
2. HIGH COST OF PRODUCTION AND/OR OPERATING COST INCLUDING
MAINLY TRANSPORT COST, FUEL COST AND ADMINISTRATIVE EXPENSES.
3. SERVICE DELIVERY PERCEPTION IS WEAK.
4. OLD EQUIPMENT NEEDS REPLACEMENT LIKE MODERN COMPUTERIZATION,
OLD & TRADITIONAL PRINTERS.
5. LACK OF PROFESSIONALISM IN THE EMPLOYEES.

-22-

OPPORTUNITIES: 1. NO GOVERNMENT INTERFERANCE IN THE MANAGEMENT OF DAIRY

INDUSTRIES.
2. READY STRUCTURE AVAILABLE FOR MARKETING CHANNEL INCLUDING
SUPPLY CHAIN, TRANSPORTATION CHANNEL ETC.
3. IT SUPPORT IN ADVERTISEMENT FOR RURAL SECTOR FROM NATIONAL
LEVEL.
4. EXPANSION OF WORKING OF THE UNIT IN UTTAR PRADESH & HARIYANA.

THREATS: 1. THREAT FROM PRIVATE DAIRIES ENTERS IN THE MARKET.

2. LACK OF AWARENESS ABOUT THE CO-OPERATIVE UNIONS IN THE VILLAGES;
SOME PEOPLE STILL NOT JOINED TO THE DAIRIES UNION.
3. THE PEOPLE ARE NOT READY TO CHANGE FROM TRADITIONAL SYSTEM OF
USING HOUSEHOLD MILK PRODUCE BY OWN CATTEL.

-23-

No. of Artificial Inseminations:

1.
Cows (with Frozen Semen)
2.
Buffaloes (with Frozen semen)

1.
Dairy Visit:
No. of Societies & Other Institutions.

10

2.
No. of Visitors.

Special Visits (Veterinary Services)

3. No. of Cross-bread calves borne

A.I. Centers (Frozen Semen)

5 Tones)Sale of SABARDAN Cattle Feed (in Metric

No. of Primary Societies having own Building

Rajaka Seeds supplied (in kgs)

92,998

( in kgs)Milk collected from societies

979

Members of Societies

1,71,224

1,58,537

13,571

164

4,16,105

23,670

222

4,29,025

48,595

1,34,280

1,29,539

43,884

3,05,504

197

3,445

99,957

980

32,20,54,448

2,80,038

1,690

2005 -2006

2,88,076

187

30,73,52,636

2,72,811

1,670

Milk Cooperative Societies

2004 2005

Particular

Sr.No.

2,90,021

1,714

2007 2008

19,098

261

3,89,659

57,670

1,71,985

1,37,517

3,09,502

206

9,805

1,06,743

978

21,097

239

3,71,189

57,511

1,80,494

1,58,807

3,39,301

209

3,000

1,24,401

981

32,33,67,731 36,95,19,961

2,88,359

1,698

2006 -2007

45,404

328

3,11,170

71,660

1,88,147

1,77,281

3,65,428

209

2,685

1,58,591

991

40,93,14,686

3,00,603

1,732

2008 2009

Progress of Dairy Activities

-24-

INTRODUCTION:Financial management is that managerial activity which is concerned with the

Planning and controlling firms financial resources. It was a branch of economics till
1980 and as a separate discipline, it is of recent origin. The subject of financial
management is of immense interest to both academicians and practicing managers. The
Financial management includes four important decisions are as under:
Dividend decision
Financing decision
Liquidity decision
Investment decision

Accounting Policies and Continuants Liabilities:The Sabar dairy follows the rules and regulation of the accounting standard and system. The
accounting policies are as under:

Accounting system:Accounting systems are maintained on accrued accounting concept and generally accepted
accounting policies.

Fixed Assets:Assets are valued at historical cost including purchase price and cost incurred to put such
assets in its working condition.

Investments:Investment made for a long term, hence valued at cost.

Depreciation:Depreciation on fixed assets is calculated as per written down value method.

-25-

Valuation of inventory:- trading stock: cost or expected realizable value whichever is lower.
- Raw-material, packing material: at cost
- Stores and spares: At realizable value

Retirement Benefits to Employees:Contribution toward gratuity and superannuation scheme deposited with the Life Insurance
Corporation of India.

Encashment of leave:As and when requested by the employees the union pay have accounted in the year for
which they demand.

-26-

ANNUAL TURNOVER
YEARS
ANNUAL
TURNOVER

200001
376.40

200102
351.88

200203
437.75

200304
497.41

200405
503.28

200506
601.15

200607
677.98

200708
795.6
1

200809
1034.2
3

200910
1192.38

RS. IN CRORE

ANNUAL TURNOVER
1400
1200
1000
800
600
400
200
0

1034.23 1192.38
677.98
376.4

437.75
351.88

497.41

503.28

795.61

601.15

2000-01 2001-02 2002-03 2003-04 2004-05 2005-06 2006-07 2007-08 2008-09 2009-10
YEARS

INTERPRETATION: - The Companys Annual Turnover increasing in trend from last ten years. In last
year 158 crore Turnover increases as compare to Annual Turnover of preceding financial year. The
companys growth rate is highest out of other dairies unions. The Turnover is 1192.38 crore during this
financial year.

AVERAGE MILK PROCUREMENT PER DAY

YEARS
AVG. MILK
PROCUREMENT
PER DAY

200001
6.08

200102
6.36

200203
7.18

200304
7.40

200405
8.42

200506
8.82

200607
8.86

200708
10.10

200809
11.21

AVG. MILK PROCUREMENT PER DAY

K.G. IN LAKH

12

8.82

10
8
6

7.18
6.08

7.4

8.86

10.1

11.21

11.15

8.42

6.36

4
2
0
2000-01 2001-02 2002-03 2003-04 2004-05 2005-06 2006-07 2007-08 2008-09 2009-10
YEARS

200910
11.15

-27-

SALES OF SABAR DAN

YEARS
SALES OF
SABAR
DAN

200001
49.45

200102
56.98

200203
70.12

200304
78.12

200405
92.99

200506
99.96

200607
106.74

200708
124.4
0

200809
158.59

200910
167.42

THOUSAND METRIC
TONNS

SALES OF SABAR DAN

200
124.4

150
70.12

100
50

49.45

78.12

99.96

92.99

158.59

167.42

106.74

56.98

0
2000-01 2001-02 2002-03 2003-04 2004-05 2005-06 2006-07 2007-08 2008-09 2009-10
YEARS

AVERAGE MILK PRICE

YEARS
AVG. MILK
PRICE

200001
188.00

200102
184.60

200203
185.00

200304
212.00

200405
221.00

200506
212.50

200607
242.00

200708
284.0
0

200809
303.00

303

345

RS.

AVG. MILK PRICE

400
350
300
250
200
150
100
50
0

284
212
188

184.6

185

221

212.5

242

2000-01 2001-02 2002-03 2003-04 2004-05 2005-06 2006-07 2007-08 2008-09 2009-10
YEARS

200910
345.00

-28-

Ratio Analysis
PROFITABILITY RATIO
Gross Profit Ratio = Gross Profit X100
Net Sales
YEARS
GROSS
PROFIT
NET
SALES
GROSS
PROFIT
RATIO

2004 -05
29,65,27,555

2005 -06
35,32,80,974

2006 -07
32,78,34,809

2007 -08
35,02,45,834

2008 -09
36,16,97,157

2009 -10
38,87,05,342

4,99,47,54,05
3
5.94%

5,98,72,07,21
1
5.90%

6,73,44,87,70
0
4.87%

7,89,63,33,22
9
4.44%

10,34,22,51,54
3
3.50%

11,79,22,13,840
3.30%

GROSS PROFIT RATIO

7.00%
6.00%
5.00%
4.00%
3.00%
2.00%
1.00%
0.00%

GROSS PROFIT RATIO

2004 2005 2006 2007 2008 2009

-05
-06
-07
-08
-09
-10

INTERPRETATION: - Gross profit ratio expresses relationship between Gross Profit &
Net Sales. The Gross Profit should be adequate to cover operating expenses and to provide for
fixed charges, dividends & building up of reserves.
The companys Gross Profit Ratio decline as per Six Years Data which is given above;
this is because of Cost of Production increase continuously every years. Especially that the
Packaging Cost, Power & Fuel Cost increasing day by day; and the raw material Cost is also
increase every years.
The company should focused on research & development on new & innovative
Packaging style, size, methods which can reduce cost of Packaging; and also try to find out
substitute of fuel i.e. use biogas or natural gas instead of solid fuel which can reduce power &
fuel cost and also it is helpful to the environment.
-29-

Net Profit Ratio = Net Profit X 100

Net Sales
YEARS

2004 -05

2005 -06

2006 -07

2007 -08

2008 -09

2009 -10

NET
PROFIT
NET
SALES
NET
PROFIT
RATIO

3,08,83,766

2,67,46,048

3,22,45,198

3,37,30,564

3,42,17,707

5,35,28,008

4,99,47,54,05
3
0.62%

5,98,72,07,21
1
0.45%

6,73,44,87,70
0
0.48%

7,89,63,33,22
9
0.43%

10,34,22,51,54
3
0.33%

11,79,22,13,8
40
0.45%

NET PROFIT RATIO

0.70%
0.60%
0.50%
0.40%
0.30%
0.20%
0.10%
0.00%

NET PROFIT RATIO

2004 - 2005 - 2006 - 2007 - 2008 - 2009 05

06
07
08
09
10

INTERPRETATION: - Net Profit Ratio helps in determining the efficiency with which
affairs of the business are being managed. This Ratio is thus an effective measure to check
the Operational efficiency the profitability of a business.
The companys Net Profit Ratio is very irregular. The company earns Avg.
Profit of Rs.0.45 against Net Sales of Rs.100 as per six years data given above. The reason is
only high cost of Operations. The Major Portion of the revenue covered by operational
cost.

-30-

Operating Ratio = Operating costs X 100

Net Sales
YEARS
OPERATING
RATIO

2004 -05
99.38%

2005 -06
99.55%

2006 -07
99.52%

2007 -08
99.57%

2008 -09
99.67%

2009 -10
99.55%

100.20%
100.00%
99.80%

NET PROFIT RATIO

99.60%

OPERATING RATIO

99.40%
99.20%
99.00%
2004 - 2005 - 2006 - 2007 - 2008 - 2009 05
06
07
08
09
10

INTERPRETATION: - This ratio is a complementary of Net Profit ratio. That means the
Net Profit Ratio is 0.45%, the Operating Ratio is 99.55%. Operating Costs include the cost
of direct material, direct labor and other overheads, viz., factory, office or selling, financial
charges such as interest, provision for taxation, etc.
The company can reduce Administrative Expenses & other Financial Expenses
by effective utilization of Resources. The company should remove over staffing in the
company by encouraging employees to use VRS scheme. The company should also
attention on reduce wastage of stationary and other material.

-31-

Overall Profitability Ratio =

Net Profit
X100
Capital Employed

YEARS

2004 -05

2005 -06

2006 -07

2007 -08

2008 -09

2009 -10

NET
PROFIT
CAPIT
AL
EMPLO
YED
OVERA
LL
PROFIT
ABILIT
Y
RATIO

3,08,83,766

2,67,46,048

3,22,45,198

3,37,30,564

3,42,17,707

5,35,28,008

1,87,88,30,36
1

1,82,99,25,40
1

1,89,92,78,32
5

1.69.83.99.28
2

3,11,76,84,292

4,73,04,15,740

1.64%

1.46%

1.70%

1.99%

1.10%

1.13%

OVERALL PROFITABILITY RATIO

2.50%
2.00%

1.64%

1.70%

1.99%
1.13%

1.50%
1.00%

1.46%

1.10%

OVERALL
PROFITABILITY
RATIO

0.50%
0.00%
2004 - 2005 - 2006 - 2007 - 2008 - 2009 05
06
07
08
09
10

INTERPRETATION: - It is also called as Return on Investment. It indicates the

percentage of return on the total capital employed in the business.
The companys overall profitability is very irregular as per six years data.
This Ratio trend expresses inefficiencies of the company. The Net Profits are very low in
every year than invested in total assets.
Total Assets include Fixed as well as Current Assets but excluded Fictitious
Assets. The Assets of the company do not properly utilize, some part of the assets may be
underutilized. The company should properly manage its total assets, especially Fixed
Assets.
-32-

Earning Per Share =

Net Profit
No. Equity Share

YEARS

2004 -05

2005 -06

2006 -07

2007 -08

2008 -09

2009 -10

NET
PROFIT
NO.
EQUITY
SHARES
EPS

3,08,83,766

2,67,46,048

3,22,45,198

3,37,30,564

3,42,17,707

5,35,28,008

10,19,666

10,19,293

10,19,106

10,19,106

10,19,125

10,19,125

Rs.30.29

Rs.26.24

Rs.31.64

Rs.33.10

Rs.33.58

Rs.52.52

RS.

EPS
60
50
40
30
20
10
0

52.52
30.29

31.64

33.1

2006 -07

2007 -08

33.58

26.24

2004 -05

2005 -06

2008 -09

2009 -10

YEARS

INTERPRETATION: - The Earning per Share helps in determining the Market Value of
the equity share of the company. It also helps in estimating the companys capacity to pay
dividend to its equity shareholders.
The companys EPS is increasing every year, especially in the last year the
EPS is highest forever. This is because of the company issues debentures as well as
borrowings external funds from Bank & N.D.D.B Loan.
The company should use maximum external fund instead of issuing new
equity share, The Company should raise fund from short term loan for meeting to working
capital. And if Company wants to purchase new Assets, they can borrowings from Long
term Loans from Bank or N.D.D.B.

-33-

Dividend per Share = Declared dividend X Paid up Value

100
YEARS

2004 -05

2005 -06

2006 -07

2007 -08

2008 -09

2009 -10

DPS

4.079

6.12

6.12

6.12

6.12

6.12

DPS
8

Rs.

6.12

6.12

6.12

6.12

6.12

4.079

DPS

2
0
2004 -05 2005 -06 2006 -07 2007 -08 2008 -09 2009 -10
years

INTERPRETATION: - The Companys dividend per Share Ratio almost constant every
years. The company pays almost Rs.6 per Share every year. The Company declared 15%
dividend from the Net Profit and rest of the earnings are accumulated in the reserves &
surplus.
The companys authorized capital is Rs. 25, 00, 00,000 but paid up capital is
less than that. The company issues Share from the Authorized Capital when needed.

-34-

TURNOVER RATIO
Turnover Ratio =
Sales
S
Capital Employed (Total Assets)
YEARS
NET SALES
CAPITAL
EMPLOYED
TURN
OVER
RATIO

2004 -05
4,99,47,54,05
3
1,87,88,30,36
1
2.66

2005 -06
5,98,72,07,21
1
1,82,99,25,40
1
3.27

2006 -07
6,73,44,87,70
0
1,89,92,78,32
5
3.55

2007 -08
7,89,63,33,22
9
1.69.83.99.28
2
4.65

2008 -09
10,34,22,51,5
43
3,11,76,84,29
2
3.32

2009 -10
11,79,22,13,
840
4,73,04,15,74
0
2.49

Turn over Ratio

Times

5
4
3
2

2.66

3.27

3.55
4.65

3.32

2.49

1
0
2004 -05

2005 -06

2006 -07

2007 -08

2008 -09

2009 -10

years

INTERPRETATION: - The Turnover Ratio or Activity Ratio indicate the efficiency with
the capital employed is rotated in the business. Higher the rate of rotation, the greater will
be the profitability.
The companys Turnover Ratio is overall good. The sales of the company is
increases every year, the assets of the company somewhat constant between 2004-2008, but
last two years saw that the Assets of the company increases rapidly, therefore the Turnover
Ratio decline, but it doesnt worry about it.

-35-

Fixed Assets Turnover Ratio =

Net Sales
Fixed Assets

YEARS

2004 -05

2005 -06

2006 -07

2007 -08

2008 -09

2009 -10

FIXED ASSETS
TURN OVER
RATIO

32.20

32.26

36.41

41.96

43.40

33.99

TIMES

FIXED ASSETS TURN OVER RATIO

50
40
30
20
10
0

41.96 43.4
32.2 32.26

36.41

33.99
FIXED ASSETS TURN
OVER RATIO

2004 - 2005 - 2006 - 2007 - 2008 - 2009 05

06
07
08
09
10
YEARS

INTERPRETATION: - This Ratio indicates the extent to which the investments in fixed
assets contributed toward Sales.
The companys Fixed Assets Turnover Ratio is good. The company can properly
utilized its Fixed Assets, and get good return from it. The trend of Fixed Assets Turnover
Ratio almost constants, it indicates good performance to utilization of Fixed Assets of the
company.

-36-

Working Capital Turnover Ratio =

Net Sales
Working Capital

YEARS

2004 -05

2005 -06

2006 -07

2007 -08

2008 -09

2009 -10

NET
SALES

4,99,47,54,053

5,98,72,07,21
1

6,73,44,87,70
0

7,89,63,33,22
9

10,34,22,51,54
3

11,79,22,13,8
40

W.C
W.C.T
RATIO

24,79,71,803
20.14

23,47,19,181
25.51

25,24,88,748
26.67

25,75,81,674
30.66

24,26,25,119
42.63

22,87,12,199
51.56

TIMES

W.C.T RATIO
60
50
40
30
20
10
0

51.56
42.63
30.66
20.14

25.51

26.67

2004 -05

2005 -06

2006 -07

2007 -08

2008 -09

2009 -10

YEARS

INTERPRETATION: - This Ratio indicates whether or not working capital has been
effectively utilized in making sales.
The trend of the Ratio saw that company use its working capital properly. As
per six years data the working capital turnover ratio increases every years. The direction of
W.C.T Ratio saws positive. It indicates that the companys working capital has been
utilized effectively in making sales.

-37-

Debtors Turnover Ratio

(Debtors Velocity)

=
Credit Sales
Avg. Accounts Receivable

YEARS

2004 -05

2005 -06

2006 -07

2007 -08

2008 -09

2009 -10

CREDIT
SALES

4,99,47,54,053

5,98,72,07,21
1

6,73,44,87,70
0

7,89,63,33,22
9

10,34,22,51,54
3

11,79,22,13,8
40

AVG.
A\C
RECEI
VABLE
D.T
RATIO

1,66,46,651.5

16,27,90,122.
5

21,38,11,517

21,77,50,871.
5

33,18,53,240

20,69,47,721

300

36.78

31.50

36.26

31.17

56.98

D.T RATIO

TIMES

400
300

300

200
56.98

100

36.78

36.26

31.5

31.17

0
2004 -05

2005 -06

2006 -07

2007 -08

2008 -09

2009 -10

YEARS

INTERPRETATION: - Debtors is an important constituent of current assets and therefore

the quality of debtors to a great extent determines a firms liquidity. This Ratio indicates
the efficiency of the staff entrusted with collection of book debts.
The Companys Debtors Turnover Ratio saw Fed pattern i.e. in 2004-05 is high
and then drastically declining in next immediate year. This situation indicates the company
becomes very lenient in collection of book debt. The company wants to increase its sales by
giving more credit period to its customers.

-38-

Debt Collection Period = Avg. Accounts Receivable X 360

Credit Sales for the year
YEARS

2004 -05

2005 -06

2006 -07

2007 -08

2008 -09

2009 -10

AVG.
A\C
RECEIVABLE

1,66,46,651.
5

16,27,90,122.
5

21,38,11,517

21,77,50,871.
5

33,18,53,240

20,69,47,721

CREDIT
SALES

4,99,47,54,0
53
1 day

5,98,72,07,21
1
10 days

6,73,44,87,70
0
11days

7,89,63,33,22
9
10 days

10,34,22,51,54
3
12 days

11,79,22,13,8
40
6 days

DEBT
COLLECTION
PERIOD

DEBT COLLECTION PERIOD

12
10
8
DAYS 6
4
2
0

10

11

10

12
6

1
2004 - 2005 - 2006 - 2007 - 2008 - 2009 05
06
07
08
09
10
YEARS

INTERPRETATION: - This ratio indicates the extent to which the debts have been
collected in time. It gives the average debt collection period. The Ratio is very helpful to the
lenders because it explains to them whether their borrowers are collecting money within a
reasonable time. An increase in the period will result in greater blockage of funds in
debtors.
The companys Debt collection period increasing as per the above chart, because of
the company becomes very lenient toward his debtors. The company gives more periods to
repayment of the debt. The company should be aware of its working capital requirements, and
then make the policy of the credit period allow to its customer.

-39-

Creditors Turnover Ratio = Credit Purchase

Avg. A/c Payables
YEARS

2004 -05

2005 -06

2006 -07

2007 -08

2008 -09

2009 -10

CREDIT
PURCH
ASE

4,67,57,50,181

4,70,65,54,20
6

5,41,43,43,89
3

7,26,16,05,12
8

8,71,51,00,862

10,24,51,12,2
03

AVG.
A\C
PAYEABLES
C.T
RATIO

44,95,44,662.5

39,52,29,615

39,83,83,182.
5

59,87,09,648.
5

1,29,07,77,314

2,04,97,89,52
1.5

10.40

11.90

13.59

12.13

6.75

5.00

CREDITORS TURNOVER RATIO

15
TIMES

10.4 11.9

13.59

12.13
6.75

10

5
0

2004 - 2005 - 2006 - 2007 - 2008 - 2009 05

06
07
08
09
10
YEARS

INTERPRETATION: - The creditors turnover ratio indicates about the promptness in

making payment of credit purchases. A higher creditors turnover ratio signifies that the
creditors are being paid promptly, thus enhancing the credit worthiness of the company.
The trend of the chart shows that the companys creditors turnover ratio declining
i.e. the creditors give more time for payment of debt. So enhancing the credit worthiness of
the company by the creditors.

-40-

Credit Period Enjoyed = Avg. A/c Payables X 360

Credit Purchase
YEARS

2004 -05

2005 -06

2006 -07

2007 -08

2008 -09

2009 -10

AVG. A\C
PAYEABLES

44,95,44,66
2.5

39,52,29,615

39,83,83,182.
5

59,87,09,648.
5

1,29,07,77,314

2,04,97,89,52
1.5

CREDIT
PURCHASE

4,67,57,50,1 4,70,65,54,20
81
6
35 days
30 days

5,41,43,43,89
3
26 days

7,26,16,05,12
8
30 days

8,71,51,00,862

10,24,51,12,2
03
72 days

CREDIT
PERIOD
ENJOYED

53 days

CREDIT PERIOD ENJOYED

DAYS

80

72

60
40
20

53
35

30

26

30

CREDIT PERIOD
ENJOYED

0
2004 - 2005 - 2006 - 2007 - 2008 - 2009 05
06
07
08
09
10
YEARS

INTERPRETATION: - The Debt collection period enjoyed ratio indicates about the
promptness in making payment of credit purchases. A lower credit period enjoyed ratio
signifies that the creditors are being paid promptly, thus enhancing the credit worthiness of
the company.
The companys credit worthiness increasing from last three years as per the
above chart shows. The company enjoyed almost two and half months credit period. The
company gives credit worthiness to its debtors very lower than enjoyed period; this situation
is in fever of the company.

-41-

Stock Turnover Ratio = Cost of goods Sold

Avg. Inventory
YEARS

2004 -05

COGS
AVG.
INVENTRY

STOCK

2005 -06

2006 -07

2007 -08

2008 -09

2009 -10

4,69,82,26,4 5,63,39,26,23
98
7

6,40,66,52,89
1

7,54,60,87,39
5

9,98,05,54,386

11,40,35,08,4
98

42,52,89,02
9
11.05 Times

37,86,42,106.
5
16.92 Times

52,39,19,260

67,47,30,328.5

52,61,50,648

14.40 Times

14.80 Times

21.67 Times

61,42,06,324.
5
9.17 Times

TURNOVER

RATIO
STOCK TURNOVER RATIO
25

21.67
16.92

TIMES

20
15

11.05

10

14.4

14.8

2007 -08

2008 -09

9.17

5
0
2004 -05

2005 -06

2006 -07

2009 -10

YEARS

INTERPRETATION: - This ratio indicates whether investment in inventory is efficiently used or

not. A high inventory turnover ratio indicates high sales. The ratio is, therefore, a measure to
discover the possible trouble in the form of overstocking or overvaluation. A low inventory
turnover ratio results in blocking of funds in inventory which may ultimately result in heavy losses
due to inventory becoming obsolete or lower in quality.

The companys stock turnover ratio is overall good but very irregular in nature. As
per the last six years data there are lot of variation shown, so its difficult to know how much stock
should be keep in future. As per the last year figure shows highest stock turnover of the company.

-42-

Fixed Assets Ratio =

YEARS

2004 -05

2005 -06

2006 -07

FIXED
ASSETS

15,51,03,465

18,55,63,304

18,49,51,116

LONG
TERM
FUNDS

41,82,41,192

43,95,86,127

45,12,44,356

FIXED
ASSTES
RATIO

0.37:1
OR
37%

0.42:1
OR
42%

0.41:1
OR
41%

Fixed Assets
Long term Fund
2007 -08

2008 -09

2009 -10

23,83,14,855

34,69,34,808

46,72,49,421

50,19,11,957

52,18,48,289

0.40:1
OR
40%

0.48:1
OR
48%

0.66:1
OR
66%

18,82,08,621

FIXED ASSTES RATIO

80%
60%
40%

66%
37%

42%

41%
40%

20%

48%

0%
2004 -05

2005 -06

2006 -07

2007 -08

2008 -09

2009 -10

YEARS

INTERPRETATION: - The ratio should not be more than 1. If it is less than 1, it shows
that a part of the working capital has been financed through long-term funds. The ideal
ratio is 0.67 or 67%.

The companys Fixed Assets Turnover Ratio is less than 1 as per the above chart.
The last year Ratio is very ideal. The trend of the ratio shows that the large part of the
working capital financed through long-term funds like N.D.D.B Loan and Debenture or
long term Bank Loan.

-43-

FINANCIAL RATIO
Current Ratio = Current Assets
Current Liabilities
YEARS

2004 -05

2005 -06

2006 -07

2007 -08

2008 -09

2009 -10

CURRENT
ASSETS

1,14,70,61,12
8

1,02,51,78,41
1

1,04,92,55,11
3

1,45,50,00,97
1

2,82,41,79,74
7

4,32,82,91,24
2

CURRENT
LIABILITIES
CURRENT
RATIO

89,90,89,325

79,04,59,230

79,67,66,365

1,19,74,19,29
7

2,58,15,54,62
8

4,09,95,79,04
3

1.28:1

1.30:1

1.32:1

1.21:1

1.09:1

1.06:1

CURRENT RATIO
1.5

1.28

1.3

2004 -05

2005 -06

1.32

1.21

1.09

1.06

2008 -09

2009 -10

1
0.5
0
2006 -07

2007 -08

YEARS

INTERPRETATION: - This ratio is an indicator of the firms commitment to meet its

short-term liabilities. Current Assets mean cash or convertible in to cash during the
operating cycle of business (which is of not more than a year). Current liabilities mean
liabilities payable within a years time either out of existing current assets or by creation of
new current liabilities. An ideal ratio is 2 and is considered as a safe margin of solvency.

The companys current ratio is more than 1 but it is continuously decline over a period of
time. The current liabilities increase higher rate than current assets. The reason is that the
company raise short term loan from bank in last three years.

-44-

Liquidity Ratio = Liquid Assets

Current Assets
YEARS

2004 -05

2005 -06

2006 -07

2007 -08

2008 -09

2009 -10

LIQUIDE
ASSETS

29,48,73,192

41,16,36,961

62,86,93,852

47,86,71,573

1,98,70,53,06
0

3,62,80,89,61
1

CURRENT
LIABILITIES

89,90,89,325

79,04,59,230

79,67,66,365

1,19,74,19,29
7

2,58,15,54,62
8

4,09,95,79,04
3

LIQUIDITY

0.33;1

0.52:1

0.79:1

0.40:1

0.77:1

0.88:1

RATIO

LIQUIDITY RATIO
1

0.79

0.8
0.6
0.4

0.77

0.88

0.52
0.4

0.33

0.2
0
2004 -05

2005 -06

2006 -07 2007 -08

YEARS

2008 -09

2009 -10

INTERPRETATION: - This ratio is also termed as acid test ratio or quick ratio.
Liquid assets mean which are immediately convertible into cash without much loss. The
ratio is an indicator of short term solvency of the company. The ideal ratio is 1:1.
The companys liquid ratio is irregular and less than 1. It shows weak liquid
situation of the company, but last year figure maintained liquidity, it is somewhat nearby
ideal ratio.

-45-

Proprietary Ratio = Shareholders fund

Total tangible Assets
YEARS

2004 -05

2005 -06

2006 -07

2007 -08

2008 -09

2009 -10

SHARE
HOLDERS
FUND
TOTAL

10,19,66,600

10,19,29,300

10,19,10,600

10,19,10,600

10,19,12,500

10,19,12,500

20,11,53,155

23,16,12,994

23,10,00,806

24,33,98,311

29,35,04,545

40,21,24,498

51%

44%

44%

42%

35%

25%

TANGIBLE

ASSETS
PROPRIETARY
RATIO

60%

51%

50%

PROPRIETARY RATIO
44%

44%
35%

40%

42%

30%

25%

20%
10%
0%
2004 -05

2005 -06 2006 -07 2007 -08 2008 -09

YEARS

2009 -10

INTERPRETATION: - It is a variant of debt-equity ratio It establishes relationship

between the proprietors or shareholders funds and the total tangible assets. This ratio
focuses the attention on the general financial strength of the business. It can find out the
proportion of shareholders funds in the total assets employed in the business. A ratio
below 50% may be alarming for the creditors since they may have to lose heavily in the
event of liquidation of the company.
As per the above chart, the companys proprietary ratio is decline steadily. It is
dangerous to the creditor who gives more credit period to the company for making
payment of the debt.

-46-

LIMITATION OF RATIO ANALYSIS

1. COMPARATIVE STUDY REQUIRED: - I do not considered comparative study with

the result of similar business. However, such a comparison only provides a glimpse of the
past performance and forecasts for future may not prove correct since several other
factors like management policies, some External and/or Internal factors, etc., may affect
the future operations. The comparison of one firm with another on the basis of ratio
analysis without taking into account the fact of companies having different accounting
policies, will be misleading and meaningless. Or may be possible the firm itself may
change its accounting policies from one period to another.
2. LIMITATIONS OF FINANCIAL STATEMENTS: - These Ratios are based on the
information which has been recorded in the financial statement. Ex. Like non-financial
charges also important for the business are not revealed by the financial statements. If the
management of the company changes, Different accounting policies may be adopted by
management of different companies regarding valuation of inventories, depreciation,
research and development expenditure and treatment of deferred revenue expenditure,
etc.
3.

RATIOS ALONE ARE NOT ADEQUATE: - Ratios cannot be taken as final

regarding good or bad financial position of the business. Other things have also to be
seen. Ratios may be linked to rail road, they tell the analyst, stop, look and listen.

4. WINDOW DRESSING: - It means manipulation of accounts in a way so as to conceal

vital facts and present the financial statements in away to show a better or bed position
than what it actually is.
5. PROBLEM OF PRICE LEVEL CHANGES: - Financial analysis based on accounting
ratios will give misleading results if the effects of changes in price level are not taken into
account. Price of plant & machinery when set up a company and the method adopted of
depreciation charges, price of product changes may saw the change in amount of sales of
the company.
6. NO FIXED STANDERDS: - The standard of the Ratio may be different from company
to company according to the nature & size of the business.

-47-

COMMON SIZE BALANCE SHEET

PARTICULAR
LIABILITIES
EQUITY SHARE CAPITAL
OF RS.100 EACH
RESERVE FUND &
OTHER FUND
DEPRECIATION FUND
DEBENTURES &
N.D.D.B LOANS

2004 - 05

2005 - 06

2006 - 07

2007- 08

2008 - 09

2009 - 10

5.43%

5.57%

5.37%

4.31%

2.66%

1.84%

16.83%

18.45%

18.39%

15.44%

10.42%

7.60%

28.24%
-

31.32%
-

32.59%
-

28.22%
-

18.78%
-

14.39%
1.00%

CURRENT LIABILITIES
DEPOSITS
SUNDRY CREDITORS
CREDITORS SOCIETIES
CREDITORS FOR GOODS
BANK LOANS
NET PROFIT (P & L A/C)

2.30%
18.85%
20.04%
6.67%
1.64%

2.30%
16.37%
20.26%
4.26%
1.46%

2.39%
12.90%
21.68%
4.98%
1.70%

2.13%
14.46%
15.04%
6.29%
12.68%
1.43%

1.31%
12.06%
21.01%
5.25%
27.08%
0.89%

0.57%
7.78%
18.45%
4.40%
43.00%
0.97%

TOTAL

100%

100%

100%

100%

100%

100%

FIXED ASSETS
SHARE INVESTMENT
STOCK
TRADING STOCK
STORES
ADVANCES &
RECEIVABLE
DEPOSITES
ADVANCES
SUNDRY DEBTORS
DUE FROM SOCIETIES
TRADE DEBTORS
CASH & BANK BALANCE
FIXED & CALL DEPOSITS
CURRENT BANK A/C
CASH ON HAND

36.50%
2.45%

41.46%
2.52%

42.33%
2.42%

36.17%
2.33%

25.00%
1.44%

20.67%
1.00%

39.10%
5.14%

26.99%
5.46%

13.87%
6.93%

33.15%
6.54%

14.72%
4.25%

8.82%
3.13%

0.31%
0.66%
0.15%
0.01%
0.64%

0.31%
0.77%
0.17%
0.03%
16.50%

0.31%
1.03%
0.22%
0.03%
20.92%

0.67%
0.90%
0.13%
0.04%
16.67%

0.53%
2.31%
0.05%
14.41%

0.40%
0.31%
0.01%
0.36%
6.41%

14.69%
0.34%
0.01%

5.27%
0.50%
0.02%

11.63%
0.28%
0.02%

2.23%
1.14%
0.02%

36.66%
0.64%
0.006%

58.74%
0.14%
0.005%

TOTAL

100%

100%

100%

100%

100%

100%

-48-

INCOME STATEMENT

PARTICULAR
NET SALES
LESS: COST OF GOODS
SOLD
GROSS PROFIT

2004 -05
100%
94.06%

2005 06
100%
94.10%

2006 - 07
100%
95.13%

2007 - 08
100%
95.56%

2008 - 09
100%
96.5%

2009 - 10
100%
96.7%

5.94%

5.90%

4.87%

4.44%

3.50%

3.30%

4.22%

4.39%

3.53%

3.20%

2.30%

1.88%

OPERATING PROFIT
LESS: INTEREST &
DEPRECIATION
INCOME TAX

1.72%
1.10%

1.51%
1.03%

1.34%
0.79%

1.24%
0.76%

1.20%
0.82%

1.42%
0.89%

0.03%

0.07%

0.05%

0.05%

0.08%

NET PROFIT (EAT)

0.62%

0.45%

0.48%

0.43%

0.33%

0.45%

LESS: SELLING,
GENERAL
-ADMINISTRATIVE
EXP.

-49-

FINANCIAL PLANNING AND FORCASTING

FINANCIAL PLANNING IS PART OF A LARGER PLANNING SYSTEM IN THE
FIRM.THE PLANNING PROCESS BEGINS WITH A STATEMENT OF THE FIRMS
MISSION, WHICH IS USUALLY STATED IN QUALITATIVE TERMS.
A LONG-TERM FINANCIAL PLAN REPRESENTS A BLUEPRINT OF WHAT A FIRM
PROPOSES TO DO IN THE FUTURE.TYPICALLY IT COVERS A PERIOD OF THREE TO
TEN YEARS; MOST COMMONLY IT SPANS A PERIOD OF FIVE YEARS.
NATURALLY, PLANNING OVER SUCH AN EXTENDED TIME HORIZON TENDS TO BE
IN FAIRLY AGGREGATIVE TERMS. CERTAIN COMMON ELEMENTS:
1. ECONOMIC ASSUMPTIONS: - INTEREST RATE, TAX RATE, INFLATION
RATE, GROWTH RATE, AND EXCHANGE RATE.
2. SALES FORCAST: - IT IS STARTING POINT OF THE FINANCIAL FORCASTING
EXERCISE.
3. PRO FORMA STATEMENTS: - THE HEART OF FINANCIAL PLANS IS THE
(FORECAST) PROFIT & LOSS A/C AND BALANCE SHEET.
4. ASSETS REQUIREMENTS: - THE FINANCIAL PLAN SPELLS OUT THE
PROJECTED
CAPITAL
INVESTMENTS
AND
WORKING
CAPITAL
REQUIREMENTS OVER TIME.
5. FINANCIAL PLAN: - THE CAPITAL BUDGETING DECISION, WORKING
CAPITAL DECISION, CAPITAL STRUCTURE DECISION, AND DIVIDEND
DECISION HAVE TO BE ESTABLISHED FOR DEVELOPING AN EXPLICIT
FINANCIAL PLAN.
LIMITATIONS: 1. Forecasting is only based on the trend going on from last six years.
2. Do not considered price change of the product frequently in the market; and also
impact of inflation in the economy of the country.
3. Some statistics taken based on my judgment and assumption.
4. Some statistics taken same over time period in Projected P&L a/c and balance sheet.

-50-

FORECASTING & PLANNING

PROJECTED
PROFIT & LOSS A/C
PARTICULAR

2010 11

2011 - 12

2012 13

NET SALES
LESS: COST OF
GOODS SOLDS

14,02,23,57,321
13,36,89,15,470

16,67,42,65,537
15,89,72,44,763

19,82,77,02,635
18,90,37,31,690

GROSS PROFIT
LESS: SELLING ,
GENERAL
ADMINISTRATIVE
EXP.

65,34,41,851
45,57,26,613

77,70,20,774
54,19,13,630

92,39,70,945
64,44,00,336

OPERATING PROFIT
LESS: INTEREST &
DEPRECIATION
INCOME TAX PRO.

19,77,15,238
12,62,01,216

23,51,07,144
15,00,68,390

27,95,70,609
17,84,49,324

84,13,414

1,00,04,559

1,18,96,622

NET PROFIT

6,31,00,608

7,50,34,195

8,92,24,663

INTERPRETATION The Sales forecasting is based on Quantitative Techniques; it taken

from Historical data as per the balance sheet of the company. The calculation of average sales
percentage of last six years and this percentage multiply with the last year Sales. The Cost of
Goods Sold is also taken by this method. The NET PROFIT shows increasing trends from 201011 to 2012-13.

-51-

PROJECTED
BALANCE SHEET
PARTICULAR

2010 - 11

2011 - 12

2012 13

NET SALES
ASSETS
FIXED ASSETS (NET
BLOCK)
INVESTMENT
CURRENT ASSETS,
LOANS & ADVANCES
CASH & BANK
RECEIVABLES
INVENTORIES
PREPAID EXP.
DEBTORS
TOTAL

14,02,23,57,321

16,67,42,65,537

19,82,77,02,635

38,72,50,768

46,04,87,633

54,72,44,590

6,61,44,845

6,61,44,845

6,61,44,845

1,24,51,85,330
57,86,55,945
1,33,21,23,945
6,82,42,138
28,03,412
3,68,04,06,383

1,48,06,74,780
68,80,91,360
1,58,40,55,225
8,11,48,090
50,27,593
4,36,91,80,540

1,76,06,99,995
81,88,84,120
1,88,36,31,750
9,71,55,740
51,28,363
5,17,88,89,408

LIABILITIES
SHARE CAPITAL
RESERVE & SURPLUSS
SECURED LOAN
DEBENTURE
BANK BORROWINGS
CURRENT LIABILITIES

10,19,12,500
68,28,88,805

10,19,12,500
81,20,36,730

10,19,12,500
96,56,09,120

4,97,13,400
86,50,00,000
1,91,77,91,070

4,97,13,400
1,05,00,00,000
2,28,04,83,715

4,97,13,400
1,26,00,00,000
2,71,24,29,725

NET PROFIT
TOTAL

6,31,00,608
3,68,04,06,383

7,50,34,195
4,36,91,80,540

8,92,24,663
5,17,88,89,408

INTERPRETATION As per the above projected balance sheet FIXED ASSETS requirement
will increase for expansion of the existing unit. The CURRENT ASSETS including cash& bank,
debtors, inventories, receivable etc; will increase as per future requirement and also the
CURRENT LIABILITIES will increases especially that bank borrowing and sundry debtors.

-52-

CASH FLOW
ANALYSIS

MEANING OF CASHFLOW 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 application of cash will enable the management to make
reliable cash flow projection for the immediate future.

UTILITY OF CASH FLOW ANALYSIS

1. HELP IN EFFICIENT CASH MANAGEMENT

2. HELPS IN INTERNAL FINANCIAL MANAGEMENT: - e.g., possibility of repayment
of long term debts, dividend policies, planning replacement of plant and machinery, etc.
3. DISCLOSES THE MOVEMENTS OF CASH
4. DISCLOSES SUCCESS OR FAILURE OF CASH PLANNING

LIMITATIONS OF CASH FLOW ANALYSIS

1. Cash flow statement cannot be equated with the Income Statement. An Income Statement
takes into account both cash as well as non-cash items and, therefore, net cash does not
necessarily mean net income of the business.
2. The cash balance as disclosed by the cash flow statement may not represent the real
liquid position of the business since it can be easily influenced by postponing purchases
and other payment.
3. Cash flow statement cannot replace the income Statement or the Funds Flow Statement.

-53-

DIFFERNCE BETWEEN CASH FLOW & FUND FLOW ANALYSIS

1. A Cash flow Analysis is concerned only with the change in cash position while a Fund
Flow Analysis is concerned with change in working capital position.
2. A Cash Flow Statement is merely a record of cash receipt and disbursements. While
studying the short-term solvency of a business one is interested not only in cash balance
but also in the assets which can be easily converted into cash.
3. Cash is part of working capital and, therefore, an improvement in cash position result in
improvement in the funds position but reverse is not true. Sound funds position does not
necessarily means sound cash position but a sound cash position generally means sound
funds position.
4. Cash flow analysis is more useful to the management as a tool of financial analysis in
short-period as compared to funds flow analysis. The shorter period covered by the
analysis, greater is the importance of cash flow analysis.

-54-

REPORT FORM OF BALANCE SHEET

SOURCES OF
FUND

2009 -10

2008 -09

INCREASE

DECREASE

RS.
10,19,12,500

RS.
10,19,12,500

RS.
-

RS.
-

41,99,35,789

39,99,99,457

1,99,36,332

57,47,000

57,47,000

DEBENTURES
CURRENT
LIABILITIES:-

4,97,13,400

4,97,13,400

DEPOSITES (TAKEN)
SUNDRY CREDITORS
CREDITORS SOCIETIES

3,13,06,188
42,97,44,890
1,01,97,09,775

5,04,39,703
46,28,83,170
80,66,30,505

21,30,79,270

1,91,33,515
3,31,38,280
-

CREDITORS FOR
GOODS

24,33,56,871

20,15,98,003

4,17,58,868

BANK BORROWINGS
NET PROFIT

2,37,54,61,319
5,35,28,008

1,06,00,03,247
3,42,17,707

1,31,54,58,072
1,93,10,301

34,69,34,808
5,51,89,690

23,83,14,855
5,51,89,690

10,86,19,953
-

78,20,235
66,03,43,003
1,71,11,365
2,21,33,204
1,99,72,295
2,55,649
35,40,64,519
3,24,59,76,913

2,47,27,136
72,81,59,591
8,85,39,404
2,04,27,692
2,43,369
55,29,33,258
1,40,73,43,171

17,05,512
1,99,72,295
12,280
1,83,86,33,742

1,69,06,901
6,78,16,588
7,14,28,039
19,88,68,739
-

SHARE HOLDERS
FUND
RESERVE & SURPLUSS
LOANS:N.D.D.B LOAN

APPLICATION OF
FUNDS
FIXED ASSETS
INVESTMENT
CURRENT ASSETS
BANK A/C
INVENTORIES
ADVANCES
DEPOSITS (GIVEN)
DUE FROM SOCIETIES
CASH ON HAND
TRADE DEBTORS
FIXED DEPOSITES

-55-

PROJECTED CASH FLOW STATEMENT

2010-11

SOURCES OF CASH

AMOUNT RS.

INCREASE IN RESERVE & SURPLUSS

INCREASE IN N.D.D.B LOAN
INCREASE IN DEBENTURES
INCREASE IN BANK LOAN
INCREASE IN CREDITORS SOCIETIES
INCREASE IN CREDITORS FOR GOODS
INCREASE IN NET PROFIT
DECREASE IN STOCK
DECREASE IN ADVANCES (GIVEN)
DECREASE IN TRADE DEBTORS
DECREASE IN BANK A/C

1,99,36,332
57,47,000
4,97,13,400
1,31,54,58,072
21,30,79,270
4,17,58,868
1,93,10,301
6,78,16,588
7,14,28,039
19,88,68,739
1,69,06,901

TOTAL SOURCES

2,02,00,23,510

USES OF CASH
DECREASE IN DEPOSITES (TAKEN)
DECREASE IN SUNDRY CREDITORS
INCREASE IN FIXED ASSETS
INCREASE IN DEPOSITES GIVEN
INCREASE IN DUE FROM SOCIETIES
INCREASE IN FIXED DEPOSITS

1,91,33,515
3,31,38,280
10,86,19,953
17,05,512
1,99,72,295
1,83,86,33,742

TOTAL USES
CASH ON HAND
SUBSTRACT FROM CASH BALANCE
NET CASH REQUIRE

2,02,12,03,297
2,55,649
-11,79,787
-9,24,138

INTERPRETATION: - AS PER THE PROJECTED CASHFLOW, THE COMPANY WILL BE

REQUIRE Rs.9, 24,138 TO MEETS ITS CONTIGENCY LIABILITIES.
THE COMPANY ALREADY TAKES A BIG LOAN FROM THE BANK & FROM N.D.D.B. THE
COMPANY SHOULD DECREASE THE CREDIT PERIOD GIVEN TO ITS CUSTOMER.

-56-

REPORT FORM OF BALANCE SHEET

SOURCES OF FUND
SHARE HOLDERS FUND
RESERVE & SURPLUSS
DEBENTURES
BANK BORROWINGS
CURRENT LIABILITIES
NET PROFIT

2011 -12

2010 -11

INCREASE

DECREASE

RS.

RS.

RS.

RS.

10,19,12,500
81,20,36,730
4,97,13,400
1,05,00,00,000
2,28,04,83,715
7,50,34,195

10,19,12,500
68,28,88,805
4,97,13,400
86,50,00,000
1,91,77,91,070
6,31,00,608

12,91,47,925
18,50,00,000
36,26,92,645
1,19,33,587

APPLICATION OF
FUNDS
FIXED ASSETS
INVESTMENT
CURRENT ASSETS
BANK A/C

46,04,87,633
6,61,44,845

38,72,50,768
6,61,44,845

7,32,36,865
-

1,47,81,73,641

1,24,30,81,977

23,50,91,664

INVENTORIES

1,58,40,55,225

1,33,21,23,945

25,19,31,280

RECEIVABLES

68,80,91,360

57,86,55,945

10,94,35,415

PREPAID EXP.

8,11,48,090

6,82,42,138

1,29,05,952

DEBTORS

50,27,593

28,03,412

22,24,181

-57-

PROJECTED CASH FLOW STATEMENT

2011-12

SORCES OF CASH

AMOUNT RS.

INCREASE IN RESERVE & SURPLUSS

12,91,47,925

INCREASE IN CURRENT LIABILITIES

36,26,92,645

INCREASE IN BANK BORROWINGS

18,50,00,000

INCREASE IN NET PROFIT

1,19,33,587

TOTAL SOURCES

68,87,74,157

APPLICATION OF CASH

AMOUNT RS.

INCREASE IN FIXED ASSETS

7,32,36,865

INCREASE IN BANK A/C

23,50,91,664

INCREASE IN INVENTORIES

25,19,31,280

INCREASE IN RECEIVABLES

10,94,35,415

INCREASE IN PREPAID EXP.

1,29,05,952

INCREASE IN DEBTORS

22,24,181

TOTAL USES

68,48,25,357

CASH ON HAND

3,21,202

ADD TO CASH
TOTAL CASH ON HAND

39,48,800
42,70,002

INTERPRETATION: - AS PER THE PROJECTED CASHFLOW, THE COMPANY WILL HAVE

EXCESS AMOUNT OF CASH OF RS. 42, 70,002. THE COMPANYS POSITION WILL BECOME
GOOD THAN 2010-11. THE LIQUIDITY OF THE COMPANY WILL BE MAINTAINED IN 201112 AND WILL MEETS ITS CONTINGENCY LIABILITIES.

-58-

REPORT FORM OF BALANCE SHEET

SOURCES OF FUND

2012 -13

2011 -12

INCREASE

DECREASE

RS.

RS.

RS.

RS.

SHARE HOLDERS FUND

10,19,12,500

10,19,12,500

RESERVE & SURPLUSS

96,56,09,120

81,20,36,730

15,35,72,390

DEBENTURES

4,97,13,400

4,97,13,400

BANK BORROWINGS

1,26,00,00,000

1.05.00.00.000

21,00,00,000

CURRENT LIABILITIES

2,71,24,29,725

2,28,04,83,715

43,19,46,010

NET PROFIT

8,92,24,663

7,50,34,195

1,41,90,468

FIXED ASSETS

54,72,44,590

46,04,87,633

8,67,56,957

INVESTMENT

6,61,44,845

6,61,44,845

BANK A/C

1,75,77,25,840

1,47,81,73,641

27,95,52,199

INVENTORIES

1,88,36,31,750

1,58,40,55,225

29,95,76,525

RECEIVABLES

81,88,84,120

68,80,91,360

13,07,92,760

PREPAID EXP.

9,71,55,740

8,11,48,090

1,60,07,650

DEBTORS

51,28,363

50,27,593

1,00,770

APPLICATION OF
FUNDS

CURRENT ASSETS

-59-

PROJECTED CASH FLOW STATEMENT

2012-13

SORCES OF CASH

AMOUNT RS.

INCREASE IN RESERVE & SURPLUSS

15,35,72,390

INCREASE IN CURRENT LIABILITIES

43,19,46,010

INCREASE IN BANK BORROWINGS

21,00,00,000

INCREASE IN NET PROFIT

1,41,90,468

TOTAL SOURCES

80,97,08,868

APPLICATION OF CASH

AMOUNT RS.

INCREASE IN FIXED ASSETS

8,67,56,957

INCREASE IN BANK A/C

27,95,52,199

INCREASE IN INVENTORIES

29,95,76,525

INCREASE IN RECEIVABLES

13,07,92,760

INCREASE IN PREPAID EXP.

1,60,07,650

INCREASE IN DEBTORS

1,00,770

TOTAL USES

81,27,86,861

CASH ON HAND

3,21,202

SUBSTRACT FROM CASH

TOTAL CASH REQUIRED

-30,77,993
-27,56,791

INTERPRETATION: - AS PER THE PROJECTED CASHFLOW, THE COMPANY WILL BE

REQUIRE Rs.27, 56,791 TO MEETS ITS CONTIGENCY LIABILITIES.
THE COMPANY ALREADY TAKES A BIG LOAN FROM THE BANK & FROM N.D.D.B. THE
COMPANY SHOULD DECREASE THE CREDIT PERIOD GIVEN TO ITS CUSTOMER.

-60-

LEVERAGE

FINANCIAL & OPERATING LEVERAGE

INTRODUCTION: LEVERAGE IS THE EMPLOYMENT OF AN ASSETS/ SOURCE OF FINANCE FOR
WHICH FIRM PAYS FIXED COST/ FIXED RETURN.
THE MANAGER OF THE COMPANY SHOLD TAKE MAINLY THREE DICISION i.e.
INVESTMENT DECISION, FINANCING DECISION & DIVIDEND DECISION.
FINANCING DECISION INCLUDE TO DECIDE RAISING OF THE FUNDS FOR THE
COMPANY. SHOLD A COMPANY EMPLOYS EQUITY OR DEBT OR BOTH? WHAT ARE
IMPLICATIONS OF THE DEBT-EQUITY MIX? WHAT IS AN APPROPRIATE MIX OF DEBT
AND EQUITY?

THE CAPITAL STRUCTURE DECISION PROCESS

CAPITAL BUDGETING
DECISION

|
NEED TO RAISE FUNDS

|
CAPITALSTRUCTURE
DECISION

|
|

EXISTING CAPITAL
STRUCTURE

DESIRED DEBT EQUITY

MIX

PAYOUT POLICY

|
|

EFFECT ON RETURN

EFFECT ON RISK

|
EFFECT ON COST OF CAPITAL

|
VALUE OF THE FIRM

-61-

MEANING OF FINANCIAL LEVERAGE

The use of the fixed charges sources of fund, such as Debt & Preference capital along with the
owners equity in the capital structure, is described as financial leverage.
The financial leverage employed by a company is intended to earn more return on the fixed
charge funds than their costs. Companies differ in the use of financial leverage since it depends
on a number of factors such as the size, nature of product, capital intensity, technology, market
conditions, management attitude etc.
Operating leverage affects a firms operating profit (EBIT), while financial leverage affects
profit after tax or the earning per share. The combined effect of two leverages can be quite
significant for the earnings available to ordinary shareholders.
Operating risk: - Risk of not able to cover fixed operating costs by firm.
DEGREE OF OPERATING LEVERAGE:The DOL is defined as the % change in the earnings before interest and taxes relative to a given
% change in sales.
DEGREE OF OPRATING LEVERAGE = % change in EBIT
% change in Sales
OR
DEGREE OF OPRATING LEVERAGE = CONTRIBUTION
EBIT

DEGREE OF FINACIAL LEVERAGE:The DFL is defined as the % change in EPS due to a given % change in EBIT.
DEGREE OF FINACIAL LEVERAGE = % change in EPS
% change in EBIT
OR
DEGREE OF FINACIAL LEVERAGE = EBIT
PBT

DEGREE OF COMBINE LEVERAGE: DEGREE OF COMBINE LEVERAGE = DOL X DFL

-62-

LEVERAGE
2004-05

LESS:LESS:-

NET SALES

Rs.4,99,47,54,053

VARIABLE COST

Rs.4,70,30,03,654

CONTRIBUTION

Rs.29,17,50,399

FIXED COST

Rs.26,08,66,633

NET PROFIT (EAT)

Rs.3,08,83,766

NO.OF EQUITY SHARE

10,19,666

EPS

Rs.30.29

RETURN ON EQUITY

0.30%

DEGREE OF OPRATING LEVERAGE = CONTRIBUTION

EBIT
= 29, 17, 50,399
3, 08, 83,766
= 9.45 TIMES

INTERPRETATION: - DOL of 9.45 implies that for a given change in companys sales,
EBIT was change by 9.45 Times.
The DOL depends on fixed operating costs, the larger the fixed cost, the higher is the firms
operating leverage and its operating risk.
But it is not worried to the company because the sales are increases every year.
Therefore, high operating leverage is good when revenues are rising.
In 2004-2005 the financial leverage & combined leverage is 1 because there is no debt in the
financial structure.

-63-

LEVERAGE
2005-06

LESS:LESS:-

LESS:-

NET SALES

Rs.5,98,72,07,211

VARIABLE COST

Rs.5,66,13,37,078

CONTRIBUTION

Rs.32,58,70,133

FIXED COST

Rs.29,71,24,085

EBIT

Rs.3,22,46,048

PBT

Rs.3,22,46,048

TAX

Rs.20,00,000

EAT

Rs.2,67,46,048

NO.OF EQUITY SHARE

10,19,293

EPS
RETURN ON EQUITY

Rs.26.24
0.26%

DEGREE OF OPRATING LEVERAGE = CONTRIBUTION

EBIT
= 32, 58, 70,133
3, 22, 46,048
= 11.34 TIMES
INTERPRETATION: - DOL 11.34 of implies that for a given change in companys sales,
EBIT was change by 11.34 Times.
The companys sales are increases every year. Therefore, high operating leverage is good
when revenues are rising.
Same is here In 2005-2006 the financial leverage & combined leverage is 1 because there is
no debt in the financial structure.

-64-

LEVERAGE
2006-07

LESS:LESS:-

NET SALES

Rs.6,73,44,87,700

VARIABLE COST

Rs.6,42,37,68,521

CONTRIBUTION

Rs.31,07,19,179

FIXED COST

Rs.27,59,73,981

EBIT
LESS:INTEREST
PBT
LESS:TAX
EAT
NO.OF EQUITY SHARE

Rs.3,47,45,198
3,47,45,198
25,00,000
3,22,45,198
10,19,106

EPS

Rs.31.64

RETURN ON EQUITY

0.32%

DEGREE OF OPRATING LEVERAGE = CONTRIBUTION

EBIT
= 31, 07, 19,179
3, 47, 45,198
= 8.94 TIMES
INTERPRETATION: - DOL of 8.94 implies that for a given change in companys sales,
EBIT was change by 8.94 Times; which is less than previous years; because of the
contribution is slightly less than previous year and the EBIT is also higher.
The DOL depends on fixed operating costs, the larger the fixed cost, the higher is the firms
operating leverage and its operating risk.
In 2006-07 also the financial leverage & combined leverage is 1 because there is no debt in
the financial structure.

-65-

LEVERAGE

2007-08

LESS:LESS:-

LESS:-

NET SALES

Rs.7,89,63,33,229

VARIABLE COST

Rs.7,55,65,43,549

CONTRIBUTION

Rs.33,97,89,680

FIXED COST

Rs.30,20,59,116

EBIT

Rs.3,77,30,564

PBT

Rs.3,77,30,564

TAX

Rs.40,00,000

EAT

Rs.3,37,30,564

NO.OF EQUITY SHARE

10,19,106

EPS
RETURN ON EQUITY

Rs.33.10
0.33%

DEGREE OF OPRATING LEVERAGE = CONTRIBUTION

EBIT
= 33, 97, 89,680
3,77,30,564
= 9.005 TIMES

INTERPRETATION: - DOL 9.005 of implies that for a given change in companys sales,
EBIT was change by 9.005 Times.
The companys sales increases but the variable cost and fixed cost are also increases so the
companys present sales are not sufficient to cover up a operating cost. The company
should cut down its variable cost to increase the proportion of contribution.

-66-

LEVERAGE
2008-09

LESS:LESS:-

LESS:-

NET SALES

Rs.10,34,22,51,543

VARIABLE COST

Rs.9,96,90,03,929

CONTRIBUTION

Rs.37,32,47,614

FIXED COST

Rs.33,50,29,907

EBIT

Rs.3,82,17,707

PBT

Rs.3,82,17,707

TAX

Rs.40,00,000

EAT

Rs.3,42,17,707

NO.OF EQUITY SHARE

10,19,125

EPS
RETURN ON EQUITY

Rs.33.57
0.33%

DEGREE OF OPRATING LEVERAGE = CONTRIBUTION

EBIT
= 37, 32, 47,614
3,82,17,707
= 9.77 TIMES

INTERPRETATION: - DOL 9.77 of implies that for a given change in companys sales,
EBIT was change by 9.77 Times.
Same things happens here also that the companys sales increases but the variable cost and
fixed cost are also increases so the companys present sales is not sufficient to cover up an
operating cost. The company should cut down its variable cost to increase the proportion of
contribution.

-67-

LEVERAGE
2009-10

LESS:LESS:LESS:LESS:-

NET SALES

Rs.11,79,22,13,840

VARIABLE COST

Rs.11,36,56,15,257

CONTRIBUTION

Rs.42,65,98,583

FIXED COST

Rs.36,28,68,430

EBIT

Rs.6,37,30,153

INTEREST

Rs.2,01,145

PBT

Rs.6,35,29,008

TAX

Rs.1,00,01,000

EAT

Rs.5,35,28,008

NO.OF EQUITY SHARE

10,19,125

EPS
RETURN ON EQUITY

Rs.52.52
0.52%

DEGREE OF OPRATING LEVERAGE = CONTRIBUTION

EBIT
= 42, 65, 98,583
6, 37, 30,153
= 6.69 TIMES
DEGREE OF FINACIAL LEVERAGE = EBIT
PBT
= 6, 37, 30,153
6, 35, 29,008
=1.003 TIMES
DEGREE OF COMBINE LEVERAGE = DOL X DFL
=6.69 X 1.003
=6.72 TIMES
-68-

INTERPRETATION: - DOL 6.69 of implies that for a given change in companys sales, EBIT
was change by 6.69 Times.
The companys operating leverage decreases from last three years it is indicated that the
companys present sales is not sufficient to cover up a operating cost.
In 2009-2010 the financial leverage is 1.003 times & combined leverage is 6.72. the EPS of the
company increases every years. So it is good news for the equity holders to increase the
efficiency per share and get more return per share.
The company acquire N.D.D.B loan of Rs.57, 47,000 at the rate of 3.5%; and issues debentures
of Rs.4, 97, 13,400. It is appreciable when the company acquired funds from outside to
magnifying the effect on the EPS i.e. increases EPS when the external funds acquired by firm
and also financial leverage increases.
The combine leverage is product of operating & financial leverage. Total risk is associated with
combined leverage.

-69-

CONCLUSION/FINDING OF STUDY
About dairy industry
1. The Indian dairy industry mainly on the bases of co-operative and not competitive. Of
course there are many private small scale (sole proprietary) dairy exist in the market
but nothing worried about it because major part of the market share of the dairy
industry have GCMMF in Gujarat.
2. The main objective of the dairy unions is to help the poor and individual milk producer.
Put together of each and every individual milk producers in a way that the benefits out
of these activities distributed to every ones.
3. The effect of economic meltdown do not affect to the dairy industry; because milk &
other relevant products are essential products. So the dairy industry never affected by
business cycle fluctuation. Yes, of course the company may sometimes suffer from
declining sales of products by any internal or external hurdles or weaknesses of it. Ex.
Like management policy or mismanagement in the company, low efficiency, threat
from private entrants.

About the company

4. The location of the sabar dairy is main strength of it; because of ready infrastructure
available at their, local market demands etc.
5. The sabar dairy is doing kaizen production processing system for improving product
quality proposition.
6. The Amul brand name is strength of the sabar dairy.
7. As per the findings of ratio analysis, the gross profit and net profit are declining and
varied respectively over a period of six years. The cost of goods sold increases every
year and also other administrative expenses increasing. So the avg. net profit of the
company is Rs.0.45 against Rs.100 sales.
8. The company should reduce Administrative Expenses & other Financial Expenses by
effective utilization of Resources. The company should remove over staffing in the
company by encouraging employees to use VRS scheme. The company should also
attention on reduce wastage of stationary and other material.

-70-

9. The companys overall profitability is very irregular as per six years data. This Ratio
trend expresses inefficiencies of the company. The Net Profits are very low in every
year than invested in total assets. Total Assets include Fixed as well as Current Assets
but excluded Fictitious Assets. The Assets of the company do not properly utilize, some
part of the assets may be underutilized. The company should properly manage its total
assets, especially Fixed Assets.
10. The companys EPS is increasing every year, especially in the last year the EPS is
highest forever i.e. Rs.52. This is because of the company issues debentures as well as
borrowings external funds from Bank & N.D.D.B Loan. The company should use
maximum external fund instead of issuing new equity share, The Company should raise
fund from short term loan for meeting to working capital. And if Company wants to
purchase new Assets, they can borrowings from Long term Loans from Bank or
N.D.D.B.
11. The companys Turnover Ratio is overall good. The sales of the company is increases
every year, the assets of the company somewhat constant between 2004-2008, but last
two years saw that the Assets of the company increases rapidly, therefore the Turnover
Ratio decline, but it doesnt worry about it.
12. The trend of the Ratio saw that company use its working capital properly. As per six
years data the working capital turnover ratio increases every years. The direction of
W.C.T Ratio saws positive. It indicates that the companys working capital has been
utilized effectively in making sales.
13. The Companys Debtors Turnover Ratio saw Fed pattern i.e. in 2004-05 is high and
then drastically declining in next immediate year. This situation indicates the company
becomes very lenient in collection of book debt. The company wants to increase its sales
by giving more credit period to its customers.
14. The companys creditors turnover ratios declining i.e. the creditors give more time for
payment of debt. So enhancing the credit worthiness of the company by the creditors.
The companys credit worthiness increasing from last three years as per the above
chart shows. The company enjoyed almost two and half months credit period. The
company gives credit worthiness to its creditor very lower than enjoyed period; this
situation is in fever of the company.

-71-

15. The companys stock turnover ratio is overall good but very irregular in nature. As per
the last six years data there are lot of variation shown, so its difficult to know how
much stock should be keep in future. As per the last year figure shows highest stock
turnover of the company
16. The companys Fixed Assets Turnover Ratio is less than 1 as per the above chart. The
last year Ratio is very ideal. The trend of the ratio shows that the large part of the
working capital financed through long-term funds like N.D.D.B Loan and Debenture or
long term Bank Loan.
17. The companys current ratio is more than 1 but it is continuously decline over a period
of time. The current liabilities increase higher rate than current assets. The reason is
that the company raise short term loan from bank in last three years.
18. The companys liquid ratio is irregular and less than 1. It shows weak liquid situation
of the company, but last year figure maintained liquidity, it is somewhat nearby ideal
ratio.
19. The companys proprietary ratio is decline steadily. It is dangerous to the creditor who
gives more credit period to the company for making payment of the debt.
20. As per the above projected balance sheet FIXED ASSETS requirement will increase for
expansion of the existing unit. The CURRENT ASSETS including cash& bank, debtors,
inventories, receivable etc; will increase as per future requirement and also the
CURRENT LIABILITIES will increases especially that bank borrowing and sundry
debtors.
21. DOL of 9.45 implies that for a given change in companys sales, EBIT was change by
9.45 Times. The companys sales are increases every year. Therefore, high operating
leverage is good when revenues are rising. In 2004-2005 the financial leverage &
combined leverage is 1 because there is no debt in the financial structure.
22. DOL 11.34 of implies that for a given change in companys sales, EBIT was change by
11.34 Times. The companys sales are increases every year. Therefore, high operating
leverage is good when revenues are rising. Same is here In 2005-2006 the financial
leverage & combined leverage is 1 because there is no debt in the financial structure.

-72-

23. DOL of 8.94 implies that for a given change in companys sales, EBIT was change by
8.94 Times; which is slightly less than previous years; because of the contribution is
slightly less than previous year and the EBIT is also higher. In 2006-07 the financial
leverage & combined leverage is 1 because there is no debt in the financial structure.
24. In 2007-08 DOL of 9.005 of implies that for a given change in companys sales, EBIT
was change by 9.005 Times. The companys sales increases but the variable cost and
fixed cost are also increases so the companys present sales are not sufficient to cover up
a operating cost. The company should cut down its variable cost to increase the
proportion of contribution.
25. In 2008-2009 DOL of 9.77 of implies that for a given change in companys sales, EBIT
was change by 9.77 Times. Same things happens here also that the companys sales
increases but the variable cost and fixed cost are also increases so the companys
present sales is not sufficient to cover up an operating cost. The company should cut
down its variable cost to increase the proportion of contribution.
26. DOL 6.69 of implies that for a given change in companys sales, EBIT was change by
6.69 Times. The companys operating leverage decreases from last three years it is
indicated that the companys present sales is not sufficient to cover up a operating cost.
In 2009-10 the financial leverage is 1.003 times & combined leverage is 6.72. the EPS of
the company increases every years. So it is good news for the equity holders to increase
the efficiency per share and get more return per share. The company acquire N.D.D.B
loan of Rs.57,47,000 at the rate of 3.5%; and issues debentures of Rs.4,97,13,400. It is
appreciable when the company acquired funds from outside to magnifying the effect on
the EPS i.e. increases EPS when the external funds acquired by firm and also financial
leverage increases. The combine leverage is product of operating & financial leverage.
Total risk is associated with combined leverage.

-73-

BIBLIOGRAPHY
1. FINANCIAL MANAGEMENT Prasanna Chandra; ch. Financial planning & forecasting
p.g.105
2. FINANCIAL MANAGEMENT I M Pandey; Part 3: - financing decision
Financial & operating leverage p.g.289; Part 5 financial & profit analysis
Financial statement & cash flow analysis p.g.489
3. FINANCIAL MANAGEMENT M Y Khan & P K Jain; Part 2: - cash flow
statement p.g.5.3 5.38; Ratio analysis p.g.6.1 6.72; Part 5 financing decision
Leverage
4. A Text Book of Accounting for management S.N & S.K Maheshwari Financial
Statement: - Analysis & Interpretation; p.g.2.1 2.61, p.g.2.103 2.136
5. Bhaskar News, Anand
First Published 03:11 AM [IST] (13/06/2010)
Last Updated 3:41 AM [IST] (13/06/2010)

6. www.amul.co.in
7. www.sabardairy.co.in
8. Annual report of 2004 to 2010

-74-

?
Bhaskar News, Anand
First Published 03:11 AM [IST](13/06/2010)
Last Updated 3:41 AM [IST](13/06/2010)

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