MEHSANA DIST. CO-OPERATIVE MILK PRODUCERS' UNION LTD. DUDHSAGAR DAIRY, HIGHWAY, MEHSANA – 384 002 S.P.B.PATEL ENGG. COLLEGE(MBA PROGRAMME)MEHSANA 1 INDIAN DAIRY INDUSTRY (NDDB):- National Dairy Development Board, an institution of national importance was setup by the Government of India to promote plan & organize programmers for development of dairy & other agriculture based & allied industries along co-operative lines on an intensive & nationwide basis. Gujarat Co-operative Milk Marketing Federation Gujarat Co-operative Milk Marketing Federation (GCMMF) is India's largest food products marketing organization. It is a state level apex body of milk co-operative in Gujarat which aims to provide remunerative returns to the farmers & also serves the interest of consumers by providing quality products which are good value for money. No. of Producer Members: 2.79 million No. of Village Societies: 13,328 Total Milk handling capacity: 11.22 million liters per day Milk collection (Total - 2008-09): 3.05 billion liters Milk collection (Daily Average 2008-09) 8.4 million liters Milk Drying Capacity: 626 Mts. per day Cattle feed manufactured capacity 3500 Mts per day producer’s Union
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INTERPRETATION Secured Loan are loans taken on the security of a company’s assets, such as land, building, plant, inventories, and debtors. Debentures and loan from bank and financial institution are generally secured. For the Dudhsagar dairy:- In the above Sagar graph we see that In the year 2006-07,2007-08,2008-09 Consistent Decreased in the secured loan and there was saw that firm had good Financial situation in last two year. For Banas Dairy :-In the above graph in year 2006-07 there was increase in the secured loan and then it was decreased in 2007-08. So we can say that company’s financial status is growing and this is good for the company. But in the 2008-09 The Banas secured loan increased by 88.45% there were huge increased in the loan. Because of the new plant is under construction in banas Dairy. So that Banas Dairy should increase their loans in current financial year. So we easily decided that the Dudhsagar dairy is more financial strong to the Banas dairy.
Fixed assets are the assets that are held for use in the business and not for sale. Land, building, plant
and machinery, furniture and fittings, and vehicles are examples of fixed assets.
For Dudhsagar Dairy:- In the Above Graph we can see that the Dudhsagar Fixed Assets increased in
first year by8%.But in the current year data the fixed assets jumped at 4723.20 lacks. Because make a
new plant In Dudhmansagar dairy manesar.
For Banas Dairy:- In the above graph net fixed assets is increasing by 6%. However, in subsequent year it has increased by 52%. We interpret that company’s investment in net fixed assets has been increase within the span of two years. Banas Dairy’s fixed increased 52% Because of the new plant.We compare between Sagar & Banas Dairy Dudhsagar’s fixed assets jumped very highly & the Banas Fixed assets raised few numbers.
INTERPRETATION Debtors refer the current assets in the firm. When the debtors is very high then say that the firm done business on the credit base. If the debtors is very high then affected to the liquidity of the firm.
INTERPRETATION Here loan & advance saw the firm current assets. The firm should give some advance payment for their responsibilities. And some loans give to their Branches for improvement. So the loan & advances come under current assets.
For Dudhsagar Dairy:- in the above graph we clearly mention that management should give loan & advance in every year& that was increase in every year. But in the current year there is a huge increment in the loan& advances.
For Banas Dairy:- in the above graph we clearly mention that management should give loan & advance in every year& that was increase in every year.
Ratio analysis is a powerful tool of financial analysis, where ratios are used as a yardstick for evaluating the financial condition and performance of a firm. Analysis and interpretation of various accounting ratios give a skilled and experienced analysts a better understanding of the financial condition and performance of the firm that what he could have obtained only through a persuade of the financial statements. The term ratio refers to the numerical or quantitive relationship between two items or variables. It can be expressed as (1) percentages (2) fractions and (3) proportion of numbers.
These alternative methods of expressing items which are related to each other are, for purpose of financial analysis referred to as ratio analysis. It should be noted that computing the ratios does not add any information that already inherited in the figures of profits and sales. What the ratios do is a more meaningful way so as to enable us to draw conclusions from them. The systematic use of ratio to interpret the financial statements for knowing the strength and weakness of a firm as well as its historical performance and current financial condition.
The ratio analysis as a quantitive tool enables analysists to draw quantitive information about net profits adequate, efficient uses of assets, firm’s currents obligations etc.
DEFINITION OF RATIO:“The relationship between two accounting figures expressed mathematically, is known as ratio
or financial ratio.”
“The alternative methods of expressing items which are related to each other are, for purpose of financial analysis, referred to as ratio analysis.”
STANDARD OF COMPARISION:
The ratio analysis involves comparison for a useful interpretation of the financial statements a single ratio in itself does not indicates favorable or unfavorable condition. Some standards of comparison are useful here, which may consist of:
Ratio calculated from the past financial statements of the same firm.
Ratio developed using the projected or pro forma, financial statement of the same year.
Ratios of some selected firms, especially the most progressive and successful. At the same point of time, and
The easiest way to evaluate the performance of a firm is to compare its current ratios with the past ratios. It gives an indication of the direction of change and reflects whether the firm’s financial performance has improved, deteriorated or remained constant over time. The change may be affected by changes in the firm’s performance.
Sometimes future ratios are used as the standards of comparison of past ratios with future ratios show the firms relative strengths and weaknesses in the past and the future. If the future ratio indicates the weak financial position, corrective actions should be initiated.
In the other way, we can compare ratios of one firm with some selected firms in the same industry at the same point in time. It is more useful to compare the firms’ ratios with ratio of a few carefully selected competitors, who have similar operations. It indicates the relative financial position of the firm.
For determining the financial condition and performance of a firm, this ratio may be compared with average ratios of the industry of which the firm is a member. It helps to ascertain the financial standing and capability of the firm in the industry to which it belongs. Industry ratios are important standards in view of the fact that each has its own characteristics which influence the financial and operating relationships.
NATURE OF RATIO ANALYSIS:
Ratio analysis is a powerful tool of financial analysis. A ratio is a indication quotient of twomathematical expressions, which is used as an index or yardstick for evaluating the financial position and performance of a firm. The absolute accounting figures do not provide a meaning understanding of the performance and financial position of the firm.
An accounting figure conveys meaning when it is related to some other relevant information. Ratios help to summarize the large quantities of financial data and to make qualitative judgment about the firm’s performance. The greater the ratio, the greater the firms liquidity and the vice-versa. The point to note is that a ratio indicates a quantities relationship, which can be used to make a quantitive judgment. Such is the nature of all the financial ratios.
IMPORTANCE OF RATIO ANALYSIS: The importance of ratio analysis lies in the fact that it represents facts on a comparative basic
and enables the drawings of a inferences regarding the performance of a firm. In respect of the following aspects, ratio analysis is relevant.
3. ASSETS TURNOVER RATIO: (a) INVENTORY / STOCK TURNOVER RATIO
(b) AVERAGE AGE OF INVENTORIES
(c) TOTAL ASSETS TURNOVER
(d) NET FIXED ASSETS TURNOVER
(e) NET WORKING CAPITAL TURNOVER
(f) DEBTORS TURNOVER
4. FINANCE / LEVERAGE / CAPITAL RATIO:(a) PROPRIETORY RATIO
(b) DEBT EQUITY RATIO (c) EARNING PER SHARE (EPS)
LIQUIDITY RATIO.It is extremely essential for a firm to be able to meet its obligation as they become due.
Liquidity ratio measures the ability of the firm to meet its current obligations. Liquidity ratios by establishing a relationship between cash and other current assets to current obligations provide a quick measure of liquidity. The failure of a company to meet its obligations due to lack of sufficient liquidity, will result in bad credit image or even in law suits resulting in the closure of the company. Proper balance between liquidity and profitability is required for efficient management.
The liquidity ratio measures the ability of the firm to meet its short term obligation and reflect the short term financial strength/ solvency of a firm. The main ratio which indicates the liquidity of a firm is:
Current ratio is the most widely used ratio which shows the proportion of current assets to current liability. It is a measure that working capital is available on time or not.
Current ratio: - current assets
Current liability
SIGNIFICANCE:
The current ratio is not only a measure of solvency but it is an index of the working capital available to the margin of safety. It means. it is a crude and quick measure of the firm’s liquidity.
Composition of current ratio is very important at the time of interpretation. Current ratio indicates the sound short term finance from the creditor’s point of view. But on the other hand the higher ratio indicates blocking of funds in current assets. As a conventional rule, current ratio of 2:1 or more is considered satisfactory. To through more light on the quality of current assets the percentage of the current assets is to be calculated.
However current ratio is continuously increasing over the period because decreasing in current liabilities and also huge decreasing in cash and bank balance.
For Banas dairy:- In the year 2006-07 to 2007-08 we saw in the Banas dairy current assets are
increasingly in more number. Opposite that the current liability is decreasing mode so the current ratio is good for the two year. But year2008-09 Banas dairy increasing its liabilities so the Ratio was goes to 3.188 it was little more to the previous year.
For Dudhsagar Dairy:- The Dudhsagar Dairy’s Current ratio was sawn constant rise mode but not high mode
so the Current ratio of the sagar is little bit good.
2. QUICK RATIO
A variant of current ratio is the liquid ratio or quick ratio which is designed to show the amount of cash available to meet immediate payments. It is obtained by dividing the liquid assets to liquid liabilities.
Quick assets are obtained by deducting stock -in trade from current assets.
The ideal liquid ratio is 1:1. The firm has more liquid position and it is good for the company because the firm should have some cash on hand to meet daily expense.
For Banas Dairy:- The liquidity ratio in the year 2006-07 in little less so the ratio was good.
But in the year 2007-08 their ware more but in the year 2008-09 the ratio is more increase because there is huge increase in cash and bank balance.
For the Dudhsagar dairy:- When we see the Dudhsagar Liquidity ratio we would easily decided that is an ideal ratio
for the any firm. In the liquidity ratio the ideal ratio is 1:1 and the dudhsagar ratio is matching the ideal
level. So we easily comparison the dudhsagar dairy is good liquidity position other than banas
Profitability is an indication of the efficiency with which the operations of the business are carried on. Poor operational performance may indicate poor sales and poor profit. A Lower profitability may arise due to lack of control over the expenses. Bankers, financial institutions and other creditors look at the profitability ratios as an indicator whether or not the firm earns substantially more than it pays interest for the use of borrowed funds whether the ultimate repayment of their debts appear reasonably certain. Owners are interested to know the profitability as it indicates the return which they can get on their investments.
1. GROSS PROFIT RATIO:
The ideal ratio is 25% for the trading concern while 15% for the manufacturing concern. This ratio shows the margin left after meeting manufacturing costs. It measures the efficiency of production as well as pricing.
The ratio helps in determining the efficiency with which affairs of the business are being managed. It also indicates the firm’s capacity to withstand adverse economic condition.
The ratio is an effective measure to check the profitability of business. However, constant increase in the net profit ratio year after year is a definite indication of improving condition of the business. If the net margin is inadequate, the firm will fail to achieve satisfactory return on owners’ equity.
But not in this case the ratio is decreasing year by year the ratio of 2007-08 was 7% & in the year 2008-09 ratio decrease by 15% There was not good for any firm.
For Dudhsagar Dairy:- Here in the case of Sagar dairy the net profit ratio is constant decrease last three year. In
year 2007-08 19% & year2008-09 12% Decrease. Compare two dairy Ratio there is a constant Decrease in the three year.
Reason for that is the Dairy firm is public Assets & its main aim is not profit but make financial strongest to the poor farmer. So they should contribute most part of profit in the development of society.
(3)OPERATING PROFIT RATIO:
Operating profit ratio can be found out after excluding all non-operating expenses like interest and taxes that means earning before interest and tax.
The ratio is decrease year by year because the cogs is increasing year by year the main reason behind increasing cogs is cost of purchase of raw material is increase in every year.
For Banas:- The ratio in the year 2006-07 is 0.99% and thereafter the ratio is 0.9938%&0.9977 in the
year 2007-08 and 2008-09 respectively. For Dudhsagar:- The ratio in the year 2006-07 is 0.9942% and thereafter the ratio is 0.9959%&1.0832 in the
year 2007-08 and 2008-09 respectively.
(3)RATE OF RETURN ON INVESTMENT:
It is also known as return on capital employed or return on assets. It measures how efficiently the capital is employed.
R.O.R.O.I = EBIT *100
Total Investment
This ratio is spitted into following two parts by inserting “sales” in the above formula.
The rate of return on investment in the year 2006-07 was the highest compare to other year but thereafter the ratio goes down.
For Banas Dairy:- In the year 2007-08 it decreased to 57% due decrease in the profit margin that is7 %. In the year 2008-09 the ratio goes down because EBIT is decreasing every year and so the
ratio is only 33%. For Dudhsagar Dairy;- In the year 2007-08 it decreased to9% due decrease in the profit margin that is19 %. In the year 2008-09 the ratio goes down because EBIT is decreasing every year and so the
ratio is only 65%. Compare Between two dairy that was clearly Mention that Banas R.O.R.O.I Better then the
dudhsagar.
TURN OVER / ACTIVITY RATIO:-
Turnover or activity Ratios are employed to evaluate the efficiency with which the firm manages and utilizes its assets. Funds of creditors and owners are invested in various assets to generate sales and profit. So, these ratios are helpful in knowing the speed with which assets are being compared or turned into sales. It shows relationship between sales and assets.
(1) INVENTORY / STOCK TURNOVER RATIO:
Inventory turnover is a valuable measure of selling efficiency and inventory quality. It expresses the frequency with which average level of inventory investment is turned over through operations. It signifies the liquidity of the inventory.
This ratio indicates how many times in a year the stock is turnover. Higher the ratio better it is.
Inventory turnover ratio indicates the relationship between the cost of goods sold and the inventory level. Higher the inventory ratio, larger the amount of sales, the smaller the amount of the capital tied up in inventory and the more current the merchandise stock
Banas Dairy:- The ratio in the year 2007-08 is 11% decrease& in the year 2008-09 to 3% which is not good
sign of company. Dudhsagar dairy:- The ratio in the year 2007-08 is 4%Increase. in the year 2008-09 to 2%
which is good sign of company. Compare this ratio between two dairy clearly indicate that dudhsagar ratio is very good
This ratio indicates the waiting period of the investments in the inventories and is measured in days, week or months. Inventory turnover and average age of the inventories are inversely related. High inventory turnover ratio is goods but longer age of the inventory is bad as it indicates idle blocking of money in the inventories.
For Banas: In the year 2006-07 it was the lowest that is 35 days and it was increasing year by year
to35days to 40days respectively which shows or indicates that idle blocking of money in the inventories year by year which is not good for the company or firm.
For Dudhsagar: In the year 2006-07 it was the lowest that is 48 days and it was decreasing year by year
to46days &46days respectively which shows or indicates that low blocking of money in the inventories year by year which is good for the company or firm
Compare between two Dairy it is indicate that dudhsagar ratio is little bit good to the Banas ratio.
(2) TOTAL ASSETS TURNOVER:
The amount invested in business is invested in all assets for earning profit.
CAUTION:
If the assets are old and more depreciation has been deducted than the turnover will seen more which in fact does not show efficiency.
Following points should be kept in mind while interpreting
Type of assets whether new or old & by which method depreciation is provided. The investment in fixed assets changes in the type of business for example steel business
investment in the fixed assets is very high. Sales depend upon overall efficiency in the part of management & not only on the use of
fixed assets. It is not always the case that more the sales more the profit, for this purpose difference
between selling price and cost of sales should be taken into account. The method of valuation of assets and in particular method of valuation of stock must be
examined. For Banas:- Here in the graph in the year 2006-07 it was 3.79 than it decrease to 3.32 times in the year
2007-08than in the year 2008-09 it decrease to 2.86 may be due to cash and bank balance has decrease in that year.
For Dudhsagar:- in the graph in the year 2006-07 it was 3.17 than it increase to 3.42 times in the year 2007-
08than in the year 2008-09 it decrease to 2.44 may be due to cash and bank balance have decrease in that year.
This ratio measures sales per rupees of investment in fixed assets. This ratio supposed to measure the efficacy with which fixed assets are employed. A high ratio indicates a high degree of efficacy in assets utilization and vice-versa.
A fixed assets turnover ratio has increased reflects the efficient use of fixed asset. For Banas:- But in the graph it shows in the year 2006-07 it was 17.67 times and it increased to 20.49
times in the year 2007-08 and Decrease to 18.14 in2008-09 year. There little bit constant in three year.
It is due to increase in the net sales so assets turnover ratio is increased year by year. For Dudhsagar:- In the graph it shows in the year 2006-07 it was7.56 times and it increased to 20.48 times in
the year 2007-08 and Decrease to 3.51 in2008-09 year. There little bit constant in three year.
It is due to increase in the net fixed assets so assets turnover ratio is increased in the current year.
(4) NET WORKING CAPITAL TURNOVER:
This ratio measures sales per rupees of investment in the working capital. This ratio supposed to measure the efficacy with which working capital is employed. A high ratio indicates a high degree of efficacy in working capital utilization and vice-versa.
NET WORKING CAPITAL TURNOVER = SALES
NET WORKING CAPITAL
(Rs. In Cr)
YEAR 2006-2007 2007-2008 2008-2009Banas Sagar Banas Sagar Banas Sagar
NET SALES 933.97 1265.92 1149.88 1482.18 1546.78 1750.26
The ratio is in negative manner because the net working capital is in negative manner because the current liabilities are more than assets.
(5) DEBTORS TURNOVER:-
The analysis of the debtor’s turnover ratio supplements the information regarding the liquidation of one item of current assets of the firm. It measures how rapidly debts are collected. It is a measure of assessing the ability of the company to promote sales with minimum investments in uncollected debtors. It indicates timely quick collection or pre-matured collections through cash discounting incentives, bill discounting or factoring the book-debts.
INTERPRETATION: Debtors refer the current assets in the firm. When the debtors is very high then say that the firm done business on the credit base. If the debtors is very high then affected to the liquidity of the firm. For the Banas dairy: Banas sales in the year2006-07 were 934 Cr. on part that Rs.531cr. sales should do by Credit base. So that was high ratio. Next sales year sales were increase that effect on the debtors. But in current year Sales increase but debtors fall down that is good sign for the liquidity of the firm. For Dudhsagar Dairy:- In the above graph we see that the Sagar Debtors was increase in the year 2008.then after over all ratio is good. So dudhsagar should done their business most of cash bases. Compare between two dairy there are little bit same in all three year.
To judge the long term financial position of the firm, financial leverage or capital structure ratio is calculated. It indicates mix of the funds provided by the owners and the lenders. Long-term creditors, like debentures holders, financial institutions strength. In fact, the firm should have a strong short term as well as long term financial position.
Leverage can work in opposite direction also. If the cost of debt is higher than the firm’s overall rate of return, the earnings of shareholders will be reduced. If the firm is actually liquidated for non-payment of debt-holders’ dues, the worse suffers will be share holders.
(1) PROPRIETORY RATIO:-
The ratio indicates the proportion of total assets financed by owners. It is a variant of debt equity ratio. It established relationship between the proprietor’s funds and the total assets. This ratio focuses the attention on the general financial strength of the business enterprise. Higher the ratio stronger the position of enterprises. It indicates that proprietor have provided more fund to purchase the assets. If it is 100% that is business does not used any outside fund that is not using its reputation & bringing cash from outside, bringing more assets & multiplying business. This opportunity is lost by the conservative approach.
Dairy firm is a Public Property & Here equity holders are only milk produces. Dairy share are not trade in the market. In the Dairy nobody is owner They are only Member of Board directors.
(3) DEBT- EQUITY RATIO:
This ratio can be found out by dividing long term debt to total capital employed .This ratios are calculated to measure the financial risk.
It is a variant of debt equity ratio. The ratio is of particular importance to the creditors who can find out the proportion of share holders funds in the total assets employed in the business.
A high ratio will indicate a relatively little danger to the creditors, etc in the event of forced reorganization or winding up of the company. A low ratio indicates greater risk to the creditors since in the events of losses a part of their money may be lost besides loss to the proprietors of the business.
For Banas: In the year 2006-07 the ratio is 3.01 and in the year 2007-08 the ratio is 1.22 and in the year
For Dudhsagar:- In the year 2006-07 the ratio is 9.58 and in the year 2007-08 the ratio is 9.52 and in the year it goes up to 27.91 which is not good sign of company. Because there was a huge increase in long term debt.
VALUATION RATIOS:
Valuation ratios are the results of the management of above four categories of the functional ratios. Valuation ratios are generally presented on a per share basis and thus are more useful to the equity investors.
(1) EARNING PER SHARE (EPS)
This is the measurement of calculating the profitability of the common share holders. As a profitability index, it is a valuable and widely used ratio. Adjustments for bonus or rights issues should be made while comparing earning per share over a period of time.
This ratio shows the profitability of the firm on a per share basis. It helps in deciding that the equity share capital is being used effectively or not.
For Banas:- The earnings per share during the year 2006-2007 13.59 was the lowest but in the in the
2007-2008 &2008-2009 it increased to 15.61 & 17.88 because of more profits. It was good for the shareholder’s point of view.
For Dudhsagar:- The earnings per share during the year 2006-2007 14.87 was the lowest but in the in the
2007-2008 &2008-2009 it decreased to14.119 & 14.87 because of less profits. It was little bit not well for the shareholder’s point of view.