Final Project Report Omfed

Financial statement analysis

Industry analysis

The history of Indian Milk Products is perhaps as old as Indian civilisation itself. Even as our

ancestors began to domesticate milch animals, they found innovative ways to convert highly

perishable milk into more stable and longer lasting milk products. It is a part of Indian culture

to revere cows, and Kings of yore often gifted cattle as rewards to their kinsmen. Therefore, it

is not surprising that Indians have a deep rooted tradition of using milk and milk products. It

Orissa state co-operative milk producer’s federation limited (OMFED)1


is a customary practice to grace Indian ceremonies and functions with ghee, butter and

sweets.

From time immemorial, India's traditional foods with their extraordinary variety and richness

have served people's needs for nutrition and sound health. Within this wide range, dairy

products from different regions of the country have provided a wide array of sweets and other

specialties that are a gourmet's delight. These also meet the needs for proteins and calcium in

people's daily diet. The story of Indian mithais is literally of epic proportions.

From time immemorial, the foundation of our milk production has been in hands of the land-

less farmers in villages. At the same time, the processing of milk into dairy products has been

handled by millions of village "halwais" and their street-corner counterparts in towns and

cities. These two groups form the core of the traditional dairy sector, the largest and fastest

growing sector of Indian dairying. The value of its products exceeds Rs. 50,000 crores per

year.

When we say 'Indian' milk products we tend to distinguish such products from Western milk

products such as cheese, yogurt, ice-creams, sweetened condensed milk and butter oil. How-

ever, we do have parallels for all such western products in the form of paneer, curd/lassi,

kulfi, rabri and ghee. Perhaps, the only major western milk product where it is difficult to

draw comparisons is milk powder. In the days following Independence, we have generally

concentrated our efforts in encouraging milk production through marketing of liquid milk, ei-

ther as fresh milk or with the help of recombining milk powder and white butter. This was

done for three reasons. Firstly, to encourage consumption of liquid milk since it provides nu-

trition in a more wholesome manner as compared to milk products. Secondly, as compared to

value added milk products, liquid milk has always remained far more affordable. Thirdly, liq-

uid milk has always been in demand for use as a whitener with tea and coffee. Traditional

milk products represent the most prolific segment of our Indian Dairy Industry. Despite the

immensity of volume of milk handled, preparation and marketing are confined to the unorga-

nized sector. Since most of the western-type dairy products manufactured by the organized

sector of the Dairy Industry are reaching near saturation level in the existing domestic and in-

ternational markets, the entire range of Indian milk products represent the most promising

venue for diversification. Furthermore, Dairying has played a prominent role in strengthening

our rural economy. It has been recognized as an instrument to bring about socio-economic

transformation by helping the landless and marginal farmers.



One weak link in the otherwise sound growth of dairying has been the general neglect that the

traditional milk processing methods has received from the modern sector. Although the pro-

cesses of making sweets have undergone continuous change, the time has now come to inte-

grate traditional methods with modern culinary technology to meet consumer demands for

better standardized quality, longer shelf-life and greater convenience. A socially responsive

approach and more purposeful application of scientific and industrial techniques is required

to rebuild our age-old practices to ensure the manufacture of indigenous milk products of uni-

formly high quality. However, in the past three decades, considerable R&D work has been

done to bring about the much-needed value addition in the making of these age-old milk deli-

cacies. Various R&D groups in different parts of the country have initiated steps to meet

these needs. As a result, better processes, equipment, packaging materials and systems have

been developed.

For sustaining further development, Nation's Dairy Industry would have to cope with the

rapid transformations that are taking place in the world economies, consequent to the GATT

Agreement. International trade is being strongly regulated by the WTO guidelines. Newer

and stricter sanitary and phytosanitary standards are being formed for regulating quality pa-

rameters of the export products. Under these newly emerging circumstances, quality stan-

dards for production and processing milk cannot remain at variance with the international

standards. The superior quality of dairy products coupled with concerns for environment and

product safety will require significant changes in the way milk products are produced and

packaged. India would have to critically assess the changing global scenario if the Nation's

Dairy Industry wishes to turn the opportunities in our favour.

Over the years, efforts at expanding liquid milk availability — through increased milk pro-

duction — has resulted in per capita availability of liquid milk growing from 107 grams per

day in 1970 to a current level of more than 246 grams per day. The opportunity provided by

increased availability of liquid milk can now be used for efficiently manufacturing and mar-

keting Indian milk products with long shelf life. This will help in tapping the potential de -

mand for Indian milk products in both the domestic and foreign markets.

All these things could happen with a quality assurance of raw material and technical human

resource training at different levels. This can only be achieved by an appropriate appraisal

and awareness to be brought on a very large scale since this is a highly dissipated industry

and has its origin from tiny, cottage all the way to large scale industry. The Indian milk prod-

ucts also need to be addressed in terms of value addition and in terms of bringing the tradition



and processing itself and extension of shelf life for the ethnic tongue around the world.

It can easily assume that this is a very important contribution that we could do to the rest of

the world through promoting the Indian milk products both from the taste angle as well as the

health angle. In this context, we also require dedicated workers with emphasis on packaging

with a clear mandate of once again the concepts of quality and safety engulfed into it. The In-

dian equipment manufacturers, many of them who are of international standards, could really

make a difference in the overall impact of this industry through adaptable equipments.

As we know the market for the 80 million tonnes of milk in India, the figure of 100 million

tonnes does not seem to be far away. We need to strategically plan all this into food safety,

food security including nutrition to convert the dairy industry in the market into a very prof-

itable sector, thus ensuring the industry stability on the one hand and the production stability

on the other hand.

Time has come for the second phase of the White Revolution to focus on the traditional milk

products by the application of modern technology for their large-scale production. One new

revolution that India has embarked on is the industrial scale production of hitherto handmade

traditional milk products. Recent innovations in technology are having a wide-ranging impact

on the growth of dairying. These technical advances are creating new economic opportunities

par excellence for a range of agribusiness enterprises to expand avenues for enhanced income

in India.

Beneficiaries of these innovative technologies are India's 70 million milk producers, largely

women, who look after cows, as they have done from time immemorial. This group includes

a large number from non-farm sector who are landless and have limited livelihood options.

Dairy industry in Orissa

The prospect of improving the dairy income in the state of Orissa, which is one of the poorest

states in India, is highly vital for small-scale producers, which currently form the backbone of

the dairy industry. a study has been developed by an International Farm Comparison Network

(IFCN) which is based on the concept of Â‘typical farmsÂ’. Three broad farm types were

selected to represent 'typical farms' in the state: farms stall feeding two dairy animals (buffalo

or local cattle), representing the most common farm type found in the state, farms with six

dairy animals, located in peri-urban areas benefiting from good market access, and rural



farms practicing a form of pastoral production system in areas where communal grazing land

is available. Each farm is described in detail with assets, production costs, profits and other

economic information presented both graphically and in the text. A comparison with similar

farms in the state of Haryana is provided. The study finds that all farms cover the dairy cash

costs but that on the smaller farms returns to family labour are below local wage rates.

However, the small scale dairy farms will persist as long as alternative employment

opportunities for family labour are scarce. It also appears that there is a large potential to

reduce milk production costs of smallholder dairy farming and increase family farm income

through milk production by better breed, feed and herd management. Although milk yields in

Orissa are much lower than in Haryana, farmers in Orissa produce milk at competitive costs

due to lower land costs and lower wage rates. The availability of grazing land in Orissa and

cheaper feed also contributes to lowering the costs of milk production. Smallholders using

buffalo for milk production in Orissa were found to be more cost competitive than similar

farms in Haryana. Hence suitable strategies to promote such buffalo-based systems should

have potential for improving the production and competitive position of dairying in Orissa.



Organisation analysis

Being one of the poorest states, majority of the population are dependant on the

traditional occupation like agriculture, diary and handloom in some parts of Orissa. The

process of industrialization has always been slow though the state enjoys a great variety of

mineral resources. Poor irrigation facility made agriculture as a part time occupation for a

majority of marginal farmers. The farmers use to travel to urban centres as daily wage earners

and this practice made their life more miserable due to exploitation and addictions.

There was a large concentration of cattle in the rural areas in the form of cows and

buffalos. They supported the family requirements only and the cast of Gauda traditionally

sells the milk in the area. The rich had the privilege of keeping cows for their own use and



celebrations. It was never thought of as a viable alternative of livelihood for many farmers till

Omfed came in to existence. The journey of Omfed has changed the life of many families in

Orissa, particularly in the coastal and western part of Orissa. Omfed has emerged as the

trusted milk man to all its stake holders. The urban middleclass has a product which is safe

and clean for their children and has a quality assurance on content and hygiene. The process

itself pasteurizes the milk and kills the germs and bacteria.

Milk is served fresh every day twice to the urban consumers and shopkeepers in a fresh

poly pack. This milk is collected from different parts of the state and are brought to the

chilling plant .They are packaged in assortments for sale in the markets. Other than the

different varieties of toned milk Omfed also markets various kinds of value added products

like ghee, sweet and plain curd milk, table butter and butter milk.

In the summers of 1998 Omfed experimented by test marketing horticulture products in

the form of pickle ,tomato sauce, orange squash, lemon squash ,juices , mango and pine apple

squash. These products were initially test marketed in the urban cities of Orissa and the

results were very motivating for them to go for full scale launch in the subsequent period of

time. Omfed had an advantage through its vast network of milk booths to make the product

available immediately to consumers. There was literally no investment to market horticulture

products as the customers saw them in the Omfed milk booths every time they visited the

booth. The second advantage the brand quality assurance. Though the products were

manufactured by the horticulture department, they were marketed as Omfed brands in the

market.

These products have a high seasonal demand during summers and availability of these

items in the milk booths made the customer go for an early trial with fewer expenses in

promotion and advertising. The market for sauces, squash and pickles are traditionally

concentrated in Orissa due to the availability of branded items like Kissan, Druck and Maggi.

Omfed decided to break the restrictions of selling these products from the milk booths only

and launched the items through the intermediaries’ .Dealers and distributors were appointed

in different area and the product moved in to the grocery counters.

Prior to this development Omfed was selling the value added milk products like ghee,

butter and the butter milk through retailers. The butter milk was a success in the market as



people preferred it in summers to the soft drinks due to the humid conditions in the market.

The sweet curd was also a success as housewives started buying them in the common grocery

for their children and there was a liking of the product by kids.

This success makes Omfed to look beyond their core strength of marketing milk and

milk related products to other business area. This was significant for them as they have also

to perform a social obligation in generating profitable employment to the rural poor through

their cooperative society network so that more and more are brought above the poverty line.

ACTIVITIES

The principal activities of Omfed can be divided into the following categories:

1. Organization of Anand pattern

2. Operation Flood program in Orissa

3. Procurement of milk

4. Technical inputs

5. Women’s diary Project

6. Processing and Marketing

7. Omfed Products

8. Training

Anand Pattern

The Anand Pattern is the successful formula first adopted by the Kaira District

Coop. Milk Producers’ UnionLtd.(AMUL). This is to collectively procure, process and

Market their surplus milk. This is a Three Tier System- the Village Society, (Concerned

Mainly with the primary producers and collection of milk), the District Milk Union,

(looking after milk procurement, chilling and supply of technical inputs like Artificial

Insemination, Animal Health Care, Supply of Balanced Cattle Feed & Fodder,

Training/Extension etc.) And the Milk Federation looks after processing and marketing of



Milk & Milk Products, Central Technical Input activities etc. for milk yield enhancement

Of the animals of the milk Producers.

Anand Pattern is a system that is collectively Owned, Operated and Controlled by the

farmers. It ensures a fair price to the farmer and high quality milk and milk products to the

consumers. In short, the Anand Pattern means the utilization of resources in the most

profitable manner at grass-root level. The maximization of profit and production through

cooperative effort is the hallmark of the .Anand Pattern

Structure of Anand Pattern

The basic unit under the Anand Pattern is a village cooperative society of milk

producers. It is a voluntary association of rural milk producers wishing to market their

milk collectively. A village coop. Society of primary producers is formed under the

guidance of a Supervisor of the milk union. A milk producer becomes a member by

paying an entrance fee of Rs.1 and buying a share of Rs.10. He/she must undertake to sell

surplus milk only to the Society after meeting his family's demand. The members elect

the Managing Committee of 9 members and the committee elects a Chairman out of

themselves. Managing Committee Members are honorary. They employ a Secretary,

Milk Tester, A. I. Worker and Head Loader and so on to run the day-to-day business of

the society. Milk producers bring milk to the society every morning and evening. The

quantity of milk is measured. A small sample of milk is taken from the milk for testing its

quality. Payment for milk is made on the basis of its quality and quantity. The Milk

Union carries this collected milk from the society by their hired transport vehicles to their

milk chilling/processing plants. This comes from the profit of the society. The society

makes profit by selling the milk to the milk union and get bonus/price difference and

milk union gets profit by selling to the federation and also gets price difference out of the

federations’ profit.



Milk Union

A Board of Directors who get elected in the following manner manages the milk union:

12-are elected farmer representatives.

01- A nominee of the financing institution (NDDB).

01- A nominee of the Milk Federation (Omfed).

01- General Manager of the Milk Union as the Ex-officio Secretary.

At present, collector is the chairman of the Milk Union. General Manager is the

Chief Business Officer of the Union who in turn appoints other managerial, technical &

staff employees. This Board frames milk union’s policies regarding milk procurement

and supply, fund management etc. where as the General Manager looks after the day-to-

day operation under the guidance and direction of the board.

Every society is continuously guided, supervised and controlled by the union so

that it remains efficient, strong and viable. There is a continuous and concurrent audit of

all the societies on a quality basis to ensure a clean milk business.

Milk Federation

The Federation is managed by a Board of Directors elected in the following manner:

1.Three are Government of Orissa nominees.

2.One from the financing agency.

3.The selected chairmen of the Affiliated Milk Unions

The Chairman of the Federation is to be elected by the board of directors. The Federation

looks after processing and marketing of the milk and milk products.



Anand Pattern cooperative milk producers' organization (figure 2.1)



OPERATION FLOOD- 1

The govt. of India launches “operation flood” project in 1970. It was aimed at creating flood

of rurally produced milk in the urban consuming center. The first phase of this program

(operation flood 1) had five years duration from 1970-75. It was started in 1970 covering ten

states and one union territory, having 18th milk sheds i.e. Andhra Pradesh, Bihar, Gujarat,

Haryana, Maharashtra, Punjab, Rajasthan, Tamilnadu, Uttarpradesh, West Bengal and Delhi.

The project had an initial outlay of Rs. 94.5, which was later increased to Rs. 116.40 crore. It

was mainly aimed at developing the milk marketing system in the country.

As such major demand center like Delhi, Kolkata, Bombay and Delhi are linked with rural

milk producing pockets in the country. The funds for the implementation of operation flood

program were generated by the sale of 127.517 tones of skim milk power and36, 696 tones to

butter oil provided by world food programme. A total of 116.4 cores were generated for the

implementation of this programme. Indian Dairy Corporation was specially set up by the

central government for receiving these gift commodities and generating their funds by their

sale for implementation of the project.

OBJECTIVES

The programme had following major co-operatives:-

Increase in the capacity of milk processing facilities.

Change in the urban markets form traditional raw milk supplies to the modern dairies milk

supplies.

Resettlement of city based cattle in rural areas.

Development of long distance milk transportation and storage facilities.

Development of milk procurement system like Anand pattern.

Improvement in Dairy Farming Standard.

Operation Flood Program in Orissa

Operation Flood II

The Operation Flood II Program, which was launched under the aegis of National

Dairy Development Board (NDDB) implemented in the state of Orissa from 1981,

initially covering four districts viz., Cuttack, Dhenkanal, Keonjhar, and Puri. The Orissa State

Cooperative Milk Producers’ Federation came in to being from the year 1980-81, after



Taking over the Phulanakhara dairy and the functioning started form 26th January 1981.

This followed an agreement signed on the 30th May 1979 between the Govt. of

Orissa and the then Indian Dairy Corporation (now amalgamated with the National Dairy

Development Board) for implementation of Operation Flood Project II by the Govt. of

India, the State Government, the Indian Dairy Corporation, the National Dairy

Development Board and the Milk Producers Cooperatives, with assistance from the

international Development Association. This was later buttressed by a guaranteed deed

dated 05.09.81 given by the then Forest, Fisheries and Animal Husbandry Department on

behalf of the state Government, to the then Indian Dairy Corporation for financial

assistance to be received as per the Loans-cum-Grants Agreements by the Orissa Milk

Federation from the Indian Dairy Corporation. The Operation Flood II Program ended on

30.09.87.

OMFED started functioning from its own corporative office building at R-2 Shahid Nagar

8thAPril 1985. One chilling plant of 10,000 LPD was started at Tritol in June 1985 by Cuttack

milk union and another one with 20,000 LPD capacities by Puri milk union.

One Dairy Plant of 60,000 litres per day capacity was commissioned in December

1985. There are 10 nos. of chilling plants with a total capacity of 48,500 litres per day.

Cattle feed plant of 100 MT capacity also started functioning from September 1985. A

Training-cum-Demonstration center was organized at Jagannathpur, Puri near Cuttack-

Bhubaneswar national highway after the State Govt. handed over the land along with the

infrastructures existing there on a management basis. Under Production Enhancement

Program input facilities were provided to the producers through District Milk Unions and

Dairy cooperative Societies under the technical and financial assistance of NDDB.



Operation Flood III

The Operation Flood III Program is implemented in Operation Flood districts of

the state from October’87. Under this program the Sambalpur district is included from

August 1989. Expansion of Bhubaneswar Dairy from 60,000 LPD to 75,000 LPD;

expansion of Tirtol Milk Chilling Center from 10,000 LPD to 20,000 LPD; a new chilling

plant with a capacity of 20,000 LPD at Nimapara (Puri) in place of 4000 LPD Unit;

strengthening of Cattle feed plant at Radhadamodarpur (Cuttack) are some of the major

projects taken up under the Operation Flood III Program.

For this purpose, a letter of understanding between the State Govt., represented by

the then forest, Fisheries and Animal Husbandry Department (latter renamed as Fisheries

and Animal Resources Development Department) and the National Dairy Development

Board, as successor of the erstwhile Indian Dairy Corporation was signed on 27.08.1988,

specifying the parameters for implementing the Operation Flood III Program. The Loan-

cum-Grant Agreement between the National Dairy Development Board and the Orissa

Milk Federation as well as the concerned District Milk Unions for the financial assistance

under Operation Flood III has been executed. The state Govt. guarantee on behalf of the

Orissa Milk Federation and the District Milk Unions as the letter of understanding to the

National Dairy Development Board has been executed on 05.05.92.

The organization was established with the following objectives

To carry out activities for promoting production, procurement, processing and

marketing of milk & milk products for economic development of the rural farming

community.

Development and expansion of such allied activities as may be conductive for the

promotion of the dairy industry. Improvement and protection of milch animals and

economic betterment of those engaged in milk production. In particular and without



prejudice to the generality of the forgoing objective, the federation may:

• Purchase and/or erect building, plant machinery and other ancillary objects to carry

out business

•Study problems of mutual interest related to procurement, marketing of dairy and

allied products

•Purchase commodities from the members of other sources without affecting the

Interest of the members, process, manufacture, distribute and sell them same, arrange

to manufacture / purchase and distribute balanced cattle feed and for the purpose to

set up Milk collection and chilling centres, Milk Processing Plants, Product factories

Etc, in any of the district covered under its area of operation

•Provide veterinary aid and artificial insemination services and to undertake animal

husbandry activities so as to improve animal health care disease control facilities

•Advice, guide and assists the Milk Union in all respects of management, supervision

audit functions. •Render technical, administrative, financial and other necessary assistance to the

member unions and enter in to collaboration agreement with someone, if the need

arises

•Advise the member unions on price fixations, public relation and allied matters.

A brief note on sambalpur dairy

Sambalpur dairy a unit of OMFED (Orissa state co-op. Milk producers federation) was

commissioned on 01.01.1990 under operation flood programme (phase-iii) of NDDB by an

agreement with the government of orissa.

The old chiplima chilling unit having a capacity of 2000 LPD (litre per day) at the state

dairy farm established by the sambalpur districts milk union was closed and OMFED started

its new 10,000 ltrs plant at an estimated project cost of Rs 66.80 lakh for the undivided

sambalpur district near Goshala chhack in an area of 6.0 acres adjacent to N.H-6. On the first

day, the unit collected only 2207 Kgs of raw milk from the nearby MPCS.



Recently the plant capacity has increased to 50,000 Ltrs at the capital cost of approx. 1.5

crores. After expansion the unit is not only catering pasteurised full cream milk & toned milk

for the customer of sambalpur, bargarh, balangir burla, hirakud, deogarh, padampur etc. But

also added new products like ghee, sweet curd, plain curd, butter milk etc. With in the present

capacity.

SALIENT FEATURE OF OMFED DAIRY:-

INSTALLED CAPACITY- 50,000 LITRES PER DAY

PROJECT EXECUTED BY-NATIONAL DAIRY DEVELOPMENT BOARD

INITIAL PROJECT COST- 66.80 LAKH

EXPANSION PROJECT COST- 1.5 CRORES

TRIAL RUN STARTED ON -1ST JANUARY, 1990

MARKETING AREA- SAMBALPUR, BURLA, DEOGARH, RENGALI, REDHAKHOL,

BARGARH, PADAMPUR, SONEPUR, TITILAGARH, NUAPADA

MILK SHED AREA- DEOGARH, SAMBALPUR, BARGARH, BOLANGIR

Machineries available (table 2.1)

SL.NO DESCRIPTION QUANTITY CAPACITY

01 S.S. Storage tanks 06 50,000 Lts

02 Pasteuriser 02 2,000 LPH each

03 Homogeniser 01 2,500 LPH

04 Tripurpose separator 02 2500 LPH, 2000 LPH

05 Reconstitution tank 01 1000 Ltrs

06 Packaging unit 04 5000 Ltrs/ hr

7 Refrigeration compressor 05 30 Ton

08 Air compressor 02 06 M3/Hr

09 D.G sets 02 63 KVA/ 50 KVA

10 Boilers (coal fired) 02 300 kg/ hr

11 Bore well 02 800 LPH each

12 Substation 01 200 KVA

13 Effluent treatment plant 01 30000 Ltrs



MANAGEMENT:-

the orissa state co-operative milk producers federation Ltd. Is controlled by a board of

directors which consist of chairmen of affiliated milk unions. Three nominees of the

government of orissa, a nominee of the national dairy development board and managing

director of the federation (who is an ex-office member). The chairman of the board elected

amongst the member of the board. The post of chairman of the federation is honorary.

FINANCE:-

the federation had received funds (loan & grant) from the Indian dairy corporation/

national dairy development board (N.D.D.B) for the implementation of operation flood

programme (OF-ii, OF-iii) in different districts for different activities such as milk

processing, technical input programme, support to dairy co-operatives, manpower training

etc. This federation also received funds towards cooperative development programme from

N.D.D.B which has been successfully implimented in the different districts and for the

implimentation of technology mission on dairy development (T.M.D.D) in the O.F districts.

Apart from N.D.D.B. This federation is receiving financial assistance from the government of

Orissa as grant-in aid and share capital for different activities such as establishment of dairy

infrastructures, technical input programmes, etc.

Besides this the federation also received financial assistance from Government of India

(ministry of human resouces development & department of women and child development) for

the implimentation of orissa women's dairy projects in the undivided districts of orissa.

Procurement of Milk

The milk is collected from the village based milk producers through the village

Dairy cooperative Societies. The farmers of society villages bring their surplus milk to

the society, where it is tested, quantified and the value of the milk is being fixed. Again

from the society level the milk being lifted to nearest chilling plant where it is chilled to 5

c and the same milk after chilling is transported to the nearest Dairy for processing,

packing and marketing. After marketing of milk and milk products, the realization is



routed back the producers once in 10 days in the same manner. This organization

establishes linkage from producers to consumers.

Technical Input Program

Procurement of Milk depends upon its production. If the production of milk

enhanced, the surplus of milk will be higher, and the procurement will be increased. The

production of milk depends upon the productivity of the milch animals and the

productivity of the animal depends upon its breeding, feeding, health care and

maintenance. So to enhance milk procurement, different programs are being organized in

the society level and the milk producers getting the facilities at their doorsteps, are called

the Technical Input Programs.

• Artificial Insemination: The population of crossbred milch animals in our state is very

small. For better productivity good quality milch animals are essential. So 350 Dairy

Cooperative Societies provided with Artificial Insemination facilities, out of which 18

centres are cluster centres. The society secretaries have been trained as inseminators

by OMFED. For this service, the Liquid Nitrogen, Frozen semen and all the

accessories are being supplied to the societies free of cost.

• Feed and Fodder Program: In addition to the marketing support the farmers are

provided with the best quality of cattle feed at a reasonable price from the Cattle Feed

Plant, which is owned and managed by OMFED. Fodder seeds and fodder slips are

provided free of cost to the farmers. OMFED sales around 10 KMT of cattle feeds

annually to its farmer members.

• Animal Health Care: For better yield / productivity, maintenance of milch animal is

important. The crossbreed animals need better care than the indigenous cows. So

facilities like first aid medicines, travois are being provided to the societies free of

cost. Infertility camps, veterinary routes are being conducted by the experienced



veterinarians of the Milk Unions.

• Training: The Federation has established an Integrated Training and Demonstration

Center (OMTDC) at Jagannathpur in the district of Khurdha. The Training Center has

so far imparted training to society persons in society management, artificial

insemination, first aid, dairy animal management and management committee

members. Besides these, other training programs are also conducted in this Training

Center. Training has a well-furnished hostel accommodation for 100 trainees.

Interested institutions inside the state also use these facilities on payment basis for

Various training programs.

• Embryo Transfer Technology: A highly sophisticated Embryo Transfer Technology

Project has been implemented by the federation as a state project, since March 1992.

This is assisted by NDDB to carry the most advanced technology from the laboratory

to the field for the benefit of farmers to increase the milk production.

• Programs:

National Technology mission on Dairy Development: National Technology

Mission was formulated by N.D.D.B. and was implemented in 5 Operation Flood

Districts. Its main aim was to co-ordinate among various functionaries who were

engaged in strengthening of rural farmers. Veterinary Dispensaries were equipped

With breeding facilities and these dispensaries became the nerve center of rural

milk producers.

Cooperative Development Program: The program is being formulated by

N.D.D.B. Its main aim was to inculcate co-operative spirit in the rural milk

Farmers to manage their own business.

Indo Swiss Project: Indo-Swiss project was a bilateral program between Govt. of



India and Swiss Govt. which is now under implementation in Gajam & Gajapati

district. Its main aim is to improve the productivity of animal and to provide

round the year marketing facilities at the door step of the farmer.

Women’s Diary Project

This project started in 1995 in un-divided districts of Cuttack, Dhenkanal, Puri,

Sambalpur and Keonjhar and is implemented through respective milk unions. The

Objectives of the program include

•Improvement of Economic status of the rural women through efficient and modern

Dairy management and availability of assistance for dairy farming in shape of

Subsidized cattle feed, fodder, animal health care, cattle insurance and grouped

Insurance coverage and training programs.

•Improvement of social status of rural women by formation of Anand Pattern all-

Women dairy co-operative societies and establishing linkage with related

organization for assistance on health, immunization, nutrition, literacy mission,

drinking water income generation and women empowerment etc.

• Enabling the women groups to take up employment-cum-income generation

programs through dairying.

Processing and Marketing

. The urban consumer is the last point of the Milk Flow System of Operation

Flood Program. The first point is the rural milk producer, who produces milk. Thus

Omfed not only plays a vital role to link both the points through its activities but also

Channelize crores of rupees from urban sector to rural sector in this system.

Out of the five Flood Districts, only Dhenkanal & Keonjhar Milk Unions market



Milk through their respective Dairies (Dhenkanal & Keonjhar Dairy) in the brand name

of "Omfed". The Dhenkanal Milk Union markets its milk, in towns like Dhenkanal,

Talcher, Nalco Nagar, and Angul etc. And Keonjhar Milk Union markets milk in towns

Like Keonjhar, Joda, Badbil, Anandpur etc. and supply surplus milk to Omfed. Generally

Milks are being marketed by Omfed, from its dairies by it's authorized retailers in

Different towns of the state.

Figure 2.2



Operational area (figure 2.3)



Affiliated milk unions (figure 2.4)



Organisation structure (figure 2.5)


Managing Director (IAS)

Personalmanager

Materialmanager

MISmanager

Financemanager

Marketingmanager

Projectmanager

Plant manager(Sambalpur unit)

Assistant manager Assistant manager

Superintendent Superintendent

Plant operator Assistant superintendent

Worker Junior Assistant





FINANCIAL STATEMENT ANALYSIS

Financial statements as used in business houses refer to set of reports and schedules which an

account prepared at the end of a period of time for a business enterprise. The financial

statements are the means with the help of which the accounting system performs its main

function of providing summarise information about the financial affairs of the business.

These statements comprise balance sheet and profit & loss account. In India every company

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

211 of the companies act 1956.

The significance of these statements is as follows

Balance sheet

Balance sheet is a statement showing the nature and amount of a companies asset on one side

and liabilities and capital on the other. In other words balance sheet shows the financial

position on a particular date usually at the end of one period. Balance sheet shows how the

money has been made available to the business of the company and how the money is

employed in the business.

Profit and loss account

Earning profit is the principal objective of all the business enterprise and profit and loss

account is the document which indicates the extent of success achieved by the business in

meeting this objective. Profits are of primary importance to the board of director in

evaluating the management of a business, to banks and other creditor in judging the loan

repayment capabilities and ability of the business. It is prepared for a particular period which

is mentioned along with the title of these statements, which include the name of the firm also.

Objective of financial statements

Financial statements analysis is highly essential for both internal and external stake holders in

addition to management and creditors.

1. The balance sheet lists the assets held by and the obligations (or liabilities) of the

enterprise. The balance sheet also summarizes the capital invested in the business.



2. The income statement provides a recap of the operating results by listing the revenues

and deducting the expenses of the company to arrive at a net income or loss for the

period.

3. The statement of cash flows quantifies the cash inflows and outflows of the business

for the reporting period.

4. The explanatory notes provide additional details to aid in understanding the amounts

reported in the financial statements and the basis under which the financial statements

have been prepared. Usually, explanatory notes are prepared only when the financial

statements will be provided to external users.

5. To provide financial information that assist in estimating the earning potential of a

business.

Tools

Here we have taken the financial statement of five years those are 2004-05, 2005-06, 2006-

07, 2007-08 and 2008-09. The tools we have taken to analyse the financial statement are as

follows

1. Ratio analysis

2. Trend analysis

3. Common size statement analysis

4. Comparative analysis

RATIO ANALYSIS

Introduction

The term ratio is used to describe significant relationships which exist between

figures shown in a balance sheet, profit and loss account of an organisation.

Financial statements contain much information relating to profit or loss and

financial position of the business. If these items in financial statements are considered

independently it will not be of much use. To make a meaningful reading of financial

statements, these items found in financial statements have to be compared with one another.

Ratio analysis, as a technique or analysis of financial statement uses this method of

comparing the various items found in financial statements.

Ratio analysis creates a relationship between figures or factors or variables. This

relationship helps to analyse and interpret the financial condition and performance when



applied to the financial data. The accounting ratio indicates a quantitave relationship which is

used for analysis and decision making.

Importance of ratio analysis

There are various kinds of benefits arising from ratio analysis are as follows:

1. Ratio analysis is a very important tool used for measuring performance of an

organisation.

2. It concentrates on the inter-relationship among the figures appearing in the

financial statement.

3. Ratio makes comparison easy. The said ratio is compared with the standard ratio

and this shows the efficiency utilisation of assets, etc.

4. Ratio analysis helps the management to analyse the past performance of the firm

and to make further projections.

5. Position can be easily ascertained with the help of ratio analysis.

6. Effective use of ratio can provide the details of the growth or decline of an

enterprise so that future action can be taken.

7. The appraisal of the ratios will make proper analysis about the strengths and

weakness of the firms operations.

Classification of ratios

According to the requirement of different ratios it has been classified into four

important categories.

Liquidity ratios

leverage ratios

activity ratios

profitability ratios

1. Liquidity ratios

The liquidity ratios measure the liquidity of the firm and its ability to meet its

maturing short term obligations. Liquidities defined as the ability to realise value in

money, most liquid of assets.



Liquidity refers to the ability to pay in cash, the obligation that are due. liquidity

has two dimensions quantitative and qualitative concepts. The quantitative aspect

includes the quantum, structure and utilisation of liquid assets. In qualitative aspect it

is the ability to meet all present and potential demands on cash from any source in a

manner that minimises cost and maximises the value of the firm. Thus liquidity is a

vital factor in business. Excess liquidity, through a guarantor of solvency would

reflect lower profitability, and ineffective managerial efficiency, increased speculation

and unjustified expansion, extension of too liberal credit policies. Too little liquidity

then may lead to frustration, reduced rate of return, missing of profitable business

opportunities and weakening of morale. The important ratios in measuring short term

solvency are as follows:

a. current ratio

b. quick liquid ratio

c. absolute liquid ratio

d. Stock to working capital ratio

a. Current ratio

This ratio measures the solvency of the firm in the short term. The constituents of the

current ratio are as important as the current assets themselves for evaluation of the company's

solvency position. The higher or lower current ratio will have the adverse impact on the

profitability of the organisation.

Advantages of current ratio

1. This ratio indicates the extent of current assets available to meet the current obligation.

2. This margin also leaves sufficient amount as working capital to carry out day to day

transactions.

3. This is useful in assessing the solvency and liquidity position of the company.

Current ratio= Current assets, loans and advances Current liabilities and provision



(Table 3.1.1)YEARS 2004-05 2005-06 2006-07 2007-08 2008-09

Current

assets, loans

and

advances

788154.50 10030349.75 14614717.55 12162818.48 19933030.16

Current

liabilities

and

provision

744756.36 1101126.47 1505636.56 2107718.47 1139982.97

Current

ratio

10.58 9.10 9.70 5.77 17.48

Interpretation

A current ratio 2:1 shows a highly solvent position. The current ratio of this organisation is

always higher than the recommended level, so it can meet its entire current obligation

effectively. the ratios in the year 2004-05, 2005-06, 2006-07 shows high liquidity position

which is around 10. It is not a good sign of using current asset effectively. In the year 2007-

08 the solvency position has improved but still it is higher then the recommended level. In

the year 2008-09 the ratio goes up to 17.48 which is very high than the recommended one. It

is due to the piling up of inventory and idle cash level.

b. Quick liquid ratio

Quick ratio is used as a measure of the company's ability to meet its current obligations

since bank overdraft is secured by the inventories, the other current assets must be sufficient

to meet other current liabilities. This ratio serves as a supplement to the current ratio in

analysing liquidity.

Advantages of the quick ratio

This ratio is very useful in cross checking the performance in other areas of economic

management of an enterprise. This ratio focuses on the inventory accumulation. and on

certain aspects of inventory management which will be pointed out later.



1. It is an improved variant of the current ratio in arriving at a liquidity index for an

enterprise.

Quick liquid ratio= current assets, loans and advances - inventories Current liabilities and provisions - bank overdraft

(Table 3.1.2)

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

current assets, loans and advances - inventories

5859671.10 691146.49 7507781.29 5865755.70 7329857.33

Current liabilities and provisions - bank overdraft

744756.36 1101126.47 1505636.56 2107718.47 1139982.97

Quick liquid ratio

7.86 6.27 4.98 2.78 6.42

Interpretation

A recommended ratio of acid test ratio is 1:1 but all the year starting from 2004-05 to 2008-

09 shows much higher than this recommended level. In the year 2007-08 it came nearer to the

recommended level. This higher level indicates a high solvency state of the organisation.

c. Absolute liquid ratio

Absolute liquid ratio= absolute liquid assets Current liabilities

Absolute liquid assets = cash in hand + cash at bank + short term investments



(Table 3.1.3)

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

absolute

liquid assets

5759806.08 5636638.80 6737981.23 4327624.22 6313411.63

Current liabilities

608024.11 771652.72 1004547.26 1671330.17 701932.67

Absolute

liquid ratio

9.47 7.30 6.70 2.58 8.98

Interpretation

The ideal absolute liquid ratio is taken as 1:2. In all the respective year it has gone up

then the recommended level. It shows the over accumulation of cash at bank and in hand.

d. Stock to working capital ratio

Here stock refers to inventory as the rupee value of raw materials. It may be noted that

stock is valued at cost price or market price which ever is lower. Working capital generally

means net working capital.

Working capital= current assets - current liabilities

stock to working capital ratio = Inventory x 100 Working capital

(Table 3.1.4)

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

Inventory 2028483.40 3119203.26 7106936.26 6297062.78 12603172.83

Working capital

7791203.80 9205540.33 13382748.79 8957775.75 18402353.59

stock to

working

26.03 33.88 53.10 70.2 68.48



capital ratio

Interpretation

In 2004-05 the stock level was 28.23% which is quite beneficial for the organisation but

it start increasing in rest of the year and reach a peak of 70.20% in 2007-08. It reflects over

accumulation of stock.

Activity ratio

Activity ratio measures how effectively the firm employees its resources. These ratios

are also called 'turn over or asset management ratio' which involve comparison between the

level of sales and investment in various accounts like inventories, debtors, fixed assets, etc.

Asset management ratios are used to measure the speed with which various accounts are

converted into sales or cash. The following activity ratios are calculated for analysis. These

ratios also analyse the use of resources and the utility of each component of total assets.

a. Inventory turn over ratio.

b. Inventory ratio

c. Fixed asset turn over ratio.

d. Total asset turn over ratio.

e. Working capital turn over ratio.

f. Sales to capital employed ratio

a. Inventory turnover ratio

a considerable amount of a company's capital may be tied up in the financing of raw

materials, work in process and finished goods. It is important to ensure that the level of stocks

is kept as low as possible, consistent with the need to fulfil customer’s orders in time.

The inventory turnover ratio measures how many times a company's inventory has

been sold during the year. Low liquidity turnover has impact on the liquidity of the business.

Inventory turn over ratio= Sales Average inventory



Average inventory = opening stock + closing stock 2

(Table 3.2.1)YEARS 2004-05 2005-06 2006-07 2007-08 2008-09

Sales 116423937.66 131212359.47 157091720.33 208711920.52 262757676.68

Average inventory

2017156.13 2573843.33 5113069.76 6701999.51 9450117.79

Inventory turn over ratio

57.71 50.17 30.72 31.14 27.80

Interpretation

The inventory turnover ratio shows that there is a decrease in the ratio from the year 2004-05

to 2008-09. This is due to the piling up of stock because the selling has increased

substantially.

b. Inventory ratio

The level of inventory in a company may be assessed by the use of the inventory ratio,

which measures how much has been tied up in the inventory.

Inventory ratio= Inventory x 100 Current assets

(Table 3.2.2)

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

Inventory

2028483.40 3119203.26 7106936.26 6297062.78 12603172.83

Current

assets

7791203.80 9977193.05 7480359.79 10629105.92 19104286.26

inventory

ratio

26.03 31.26 95.00 59.24 65.97



Interpretation

In the year 2004-05 the ratio was 26.03 which increased up to 95.00 in the year 2006-07 it

shows that the how much inventory is tied up in current assets. Then it was reduced up to

59.24 in 2007-08 and again marks an increase up to 65.97 in the year 2008-09.

c. Fixed assets turnover ratio

This ratio will be analysed further with ratios for each categories of assets this is a

difficult set of ratios to interpret. As asset value are based on historic cost. An increase in the

fixed asset figure may result from the replacement of an asset at an increased price or the

purchase of an additional asset intended to increase production capacity.

Fixed assets turnover ratio= Sales Fixed asset

(Table 3.2.3)YEARS 2004-05 2005-06 2006-07 2007-08 2008-09

Sales 116423937.66 131212359.47 157091720.33 208711920.52 262757676.68

Fixed asset

17644666.01 20440688.17 26896351.90 23061271.28 23794369.28

fixed assets

turnover ratio

6.59 6.41 5.84 9.05 11.04

Interpretation

It reflects that there is installation of plant machinery and building to increase the

productivity of the plant. The depreciation rate also shows the same. In the year 2004-05 it

was 6.59 and starts decreasing up to 5.84 in the year 2006-07 and again starts increasing and

reaches up to 11.04 in 2008-09. This also helps in the increase in production which reflects in



terms of increase in sales.

d. Total assets turnover ratio

The ratio indicates the number of times total assets are being turned over in a year.

Total assets turnover ratio= Sales Total assets

(Table 3.2.4)

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

Sales 116423937.66 131212359.47 157091720.33 208711920.52 262757676.68

Total assets

27402592.29 32442753.04 43566468.04 37279488.35 40782798.06

Total assets turnover ratio

4.24 4.04 3.60 5.59 6.44

Interpretation It is showing that there is a good utilisation of total asset in every year but again the rate

goes down in the year 2006-07 and again goes up to 6.44 in 2008-09 which indicates a good

sign for the organisation.

e. Working capital turnover ratio

This ratio indicates the extent of working capital turned over in achieving sales of the

firm.

Working capital turnover ratio= Sales Working capital



(Table 3.2.5)

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

Sales 116423937.66 131212359.47 157091720.33 208711920.52 262757676.68

Working capital

7791203.80 9205540.33 13382748.79 8957775.75 18402353.59

Working capital turnover ratio

6.49 26.97 11.73 23.29 14.27

Interpretation In the year 2004-05 the working capital that is turned over is only 6.49 but the next year it goes up to 26.97 it shows excess use of working capital to meet the sales. But there is an improvement can be observed in utilising working capital effectively in rest of the year. That’s why the ratio starts declining but the sale has gone up.

f. Sales to capital employed ratio

This ratio indicates efficiency in utilisation of capital employed in generating revenue.

Sales to capital employed ratio= Sales Capital employed

(Table 3.2.6)YEARS 2004-05 2005-06 2006-07 2007-08 2008-09

Sales 116423937.66 131212359.47 157091720.33 208711920.52 262757676.68

Capital employed

25435869.80 25305674.25 40279100.69 23957047.03 42196722.87

Sales to capital employed ratio

4.57 5.18 3.90 8.71 6.22

Interpretation We can observe a zigzag motion in sales to capital employed ratio. It was 4.57 in the year

2004-05, it was increased up to 5.18 then again decline up to 3.90, again mark an steep



increase up to 8.71 and in the year 2008-09 it came to 6.22. It shows that the efficiency in

using capital is improving to generate higher revenue.

Profitability ratios

These ratios are to help assessing the adequacy of profits earned by the company and

also to discover whether profitability in increasing or declining the profitability of the firm is

the net result of a large number of policies and decisions. The profitability ratios show the

combined effects of liquidity, asset management and debt management on operating results.

Profitability ratios are measured with the reference to sales, capital employed total assets

employed etc. These ratios are very important from the point of view of different set of

people who are interested in the business organisation like owners, creditors, employees,

suppliers, government organisation.

Gross profit margin

The gross profit represents the excess of sales proceeds during the period under

observation over their cost, before taking into account administration, selling and distribution

and financing charges. The ratio measures the efficiency of the companies operations and this

can also be compared with the previous year's result to ascertain efficiency.

This ratio also shows the gap between revenue and expenses at a point after which an

enterprise has to meet the expenses related to non manufacturing activities. It act as an index

of the mobility of an enterprise to meet different expenses.

Gross profit margin= Gross profit x 100 Sales

(Table 3.3.1)YEARS 2004-05 2005-06 2006-07 2007-08 2008-09

Gross profit

17967174.10 21055028.32 20241173.57 29096271.67 43820261.38

Sales 116423937.66 131212359.47 157091720.33 208711920.52 262757676.68

Gross profit

15.43 16.04 12.88 13.94 16.67



margin

Interpretation It shows that there is an increase and decrease prevails in this ratio it stands around 14%.

It is due to the fluctuation in the price of raw material and other expenses related to

production. We can say that the efficiency in operation is following a trend.

Net profit ratio

Net profit ratio express net profit as a percentage of sales. This ratio indicates the

profitability and efficiency of the business.

Net profit ratio = Net profit x 100 Net sales

(Table 3.3.2)YEARS 2004-05 2005-06 2006-07 2007-08 2008-09

Net profit 10350896.20 12724976.70 11411004.56 18435097.91 30574501.72

Net sales

116423937.66 131212359.47 157091720.33 208711920.52 262757676.68

Net profit ratio

8.89 9.69 7.26 8.83 11.63

Interpretation It is showing the efficiency of the organisation in earning profit. It stand around 9% but in the

year 2008-09 it goes up to 11.63% it reflects that the organisation is growing in an apt manner

in earning profit.

Cash profit ratio

Cash profit ratio measure the cash generation in the business as a result of the operation.

before tax and net profit from year to year owing to differences in depreciation charged. This

ratio is more reliable indicator of performance where there are sharp volatility in the profit

Cash profit ratio = Cash profit x 100 Sales



Cash profit= net profit + depreciation

(Table 3.3.3)YEARS 2004-05 2005-06 2006-07 2007-08 2008-09

Cash profit

12962363.95 15052165.00 13692108.81 22247548.13 35574501.72

Sales 116423937.66 131212359.47 157091720.33 208711920.52 262757676.68

Cash profit ratio

11.13 11.47 8.71 10.65 13.53

Interpretation

This ratio is also fluctuating a little bit from its trend which is around 11%. It is following the

same path as the gross profit and net profit ratios are following. There is seen an increase up

13.53% in the year 2008-09 which is sowing a hike in earning cash profit.

Operating cost ratio

Operating cost ratio expresses the relationship of cost of goods sold plus operating

expense to net sales. It may be expressed as

Operating cost ratio= operating cost x 100 Net sales

(Table 3.3.4)YEARS 2004-05 2005-06 2006-07 2007-08 2008-09

operating

cost

98177801.99 109159181.33 134111568.23 178914326.43 217233461.63

Net sales

116423937.66 131212359.47 157091720.33 208711920.52 262757676.68

Operating

cost ratio

84.32 83.19 85.37 85.72 82.67

Interpretation



The operating ratio following a trend of around 83%. It is showing the operational

efficiency of the organisation. In 2008-09 the organisation is able to reduce the operating cost

so the net profit has increased.

Expense ratio

Expense ratio shows the relationship between operating costs and expenses on the one

hand and volume of sale on the other. In other words, these ratios express each element of

cost and expenses as percentage of sales.

Advantages:-

1. These ratios are useful in knowing the following aspects relating to profit and help the management to know the position of profit. That is whether the profit is on the increase or on the decrease.

i. Higher the expense ratio lowers the profit and vice-versa.ii. Higher the non manufacturing expenses ratio (marketing, administration)

lower the net profit.

Expense ratio = Expenses x100 Net sales

(Table 3.3.5)

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

Expense 98479418.10 121578161.06 140838279.66 178805775.37 225243525.35

Net sales

116423937.66 131212359.47 157091720.33 208711920.52 262757676.68

Expense ratio

84.58 92.65 89.65 85.67 85.72

Interpretation The expense ratio in terms of sale in the year 2005-06 was higher than any other year

which is 92.65. It is showing the reduced in the profit level. But the condition starts

improving in the respective year and reach up to 85.72 in the year 2008-09.



Administrative cost of sales ratio

Administrative cost of sales ratio= Administrative cost of sales x 100 Sales

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

Administrative cost

863204.20 8289130.42 1118133.10 5664158.79 1583528.20

Sales

116423937.66 131212359.47 157091720.33 208711920.52 262757676.68

Administrative cost of sales ratio

0.74 6.31 0.71 2.71 0.60

Interpretation The administrative cost is increased heavily in the year 2005-06 due to increase in

expenses of different items and usage of the items which was 6.31. Again it goes down to

0.71 and again goes up to 2.71 and finally reaches to 0.60 in 2008-09 which was lower than

all the respective year.

Selling and distribution cost to sales ratio

Selling and distribution cost to sales ratio = Selling and distribution cost x 100 Sales

(Table 3.3.6)YEARS 2004-05 2005-06 2006-07 2007-08 2008-09

Selling and distribution cost

3790646.03 5139544.72 6596742.93 4908238.63 7174298.03

Sales

116423937.66 131212359.47 157091720.33 208711920.52 262757676.68

Selling and distribution cost to sales ratio

3.25 3.91 4.19 2.35 2.63

Interpretation the selling and distribution cost was 3.25 in the year 2004-05 it increase slowly and reach



up to 4.19 in the year 2006-07 and then decrease up to 2.63 in the year 2008-09. It is due to

the effective distribution channel. It also helps in the rate of selling of products.

Cost of good sold to net sale ratio

Cost of good sold to net sale ratio = Cost of good sold x 100 Net Sales

(Table 3.3.7)

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

Cost of good sold

94666117.53 105017786.43 130253803.73 174707410.22 211763117.27

Net sales

116423937.66 131212359.47 157091720.33 208711920.52 262757676.68

Cost of good sold to net sale ratio

81.31 80.03 82.91 83.70 80.59

Interpretation It is following a trend of around 81%. It is not deviating more from its trend but it has been

decreased down to 80.59 in 2008-09 which increase in profit level.

Return on capital employed

The rate of return on investment is determined by dividing net profit by the capital employed. It consists of two components that is profit margin and investment turnover.

Advantages: It helps in measuring the profitability of the firm.

1. It indicates how effectively the operating assets are used in earning return.2. It focuses the attention on efficiency of management in managing the investments

made into the business.

Return on capital employed ratio = net profit x100 Capital employed



(Table 3.3.8)

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

Net profit 10350896.20 12724976.70 11411004.56 18435097.91 30574501.72

Capital employed

25435869.80 25305674.25 40279100.69 23957047.03 42196722.87

Return on capital employed ratio

40.69 50.28 28.32 76.95 72.45

Interpretation In the year 2004-05 the return on capital employed was 40.69. By following a zigzag motion

it goes up to 50.28. In 2006-07 it was reduced to 28.32 it is due to increase in amount of work

in progress and other fixed assets. But again it gained momentum and the return reach up to

72.45 in the year 2008-09.



TREND RATIOS

trend ratio can be defined as index numbers of the movements of the various financial

items in the financial statements for a number of periods. It is a statistical device applied in

the analysis of financial statements to reveal the trend of the items with the passage of time.

Trend ratio shows the nature and rate of movements in various financial factors. Trend ratio

can be graphically presented for better understanding by the management. They are very

useful in predicting the behaviour of the various financial factors in future. Trends of related

items should be carefully studied, before drawing any final conclusion. Since trends are

sometime significantly affected by externalities e.g government policies, economic conditions

etc.

Limitations of trend ratios

Trend ratios are not calculated for all the items. They are only calculated for the logically

connected items enabling a meaningful analysis.

a. if the accounting practices have not been followed consistently year after year, these ratios

become incomparable and misleading.

b. the trend ratios have to be interpreted in the light of certain non-financial factors like

economic conditions, government policies and management policies etc.

Interpretation

The sale is following a trend that is going upward. As the sales are going upward the

purchase of trade goods has been goes up accordingly. The rate of increase in purchase of

goods is quite lower then the increase in sales. It shows the operational efficiency. The

manufacturing expenses and distribution expenses are also increasing according to increase in

production and sale but it is less then the increase in the rate of sale. It is showing the

efficiency in operating and distribution activity of the management. The rate of increase in

other expenses is increased higher then the rate of increase in other income and also then the

rate of sales.

The share holders fund, reserve and surplus have been increasing gradually but the trend

is increasing in higher rate. Application of fund is increasing but the rate is very low, still this

is favourable for the organisation. The rate of receiving grant has been reduced but attains a

constant position from the year 2006-07 to 2008-09. The rate of increase in inventory is



similar and logical with increase in sale but the rate sky rocketed in the year 2008-09 by

202.27 %. The trend is following a zigzag motion in case of bank balances and cash at hands.

The loan and advances is quite lower in the year 2004-05 to 2006-07 but increase soaringly to

279.17% in the next year but again it come down to 150.85%.

The rate of increase in current liability follows first four year but it again start decreasing

up to 86.37% in the year 2008-09 which shows a good financial health of the organisation.



COMPARATIVE STATEMENT ANALYSIS

These financial systems are so designed as to provide time perspective to the various

elements of financial position contained therein. These statements give the data for all the

periods stated so as to show.

a. absolute money values of each item separately for each of the periods stated.

b. increase and decrease in absolute data in terms of money values.

c. increase and decrease in terms of percentage.

d. comparison expressed in ratios.

e. percentage of totals.

Such comparative statements are necessary for the study of trends and direction of

movements in the financial position and operating results. This call for a consistency in the

practise of preparing these statements, otherwise comparability may be distorted.

Comparative profit and loss account shows the operating results for a number of

accounting period and changes in the data significantly. In absolute period and changes in the

dan significantly in absolute money terms as well as relative percentage.

Comparative balance sheet shows the balance of account of asset and liability in different

dates and also the extent of their increase and decrease between these dates showing light on

the trends and direction of changes over the period.

Interpretation

Study of income statement reveals that there has been an increase of Rs 65223435.09 in

sales, but at the same time cost of goods sold has also increased by Rs.37055707.05. In

relative term sales increased by 34.88% while cost of good sold 21.21%. It means due to the

operational efficiency the rate of increase in cost of good sold is lesser then the rate of

increase in sales. The rate of advertising is 27.18% which is lower then the rate of increase in

sales and also in absolute term it is only increased 6411, which is quite negligible as

compared to sales volume. Processing expense has been increased Rs.1263428 but in relative

term the rate of increase in processing expense is quite nearer to the rate of increase in sales.

There has been a substantial decrease in other incomes both in relative term and absolute

term. It reflects that the management is giving more emphasis on its core business rather than

other miscellaneous activity. There has been an increase in selling expenses in absolute term



which is Rs.2696835.87 and it helps in the increase in sales up to Rs.65223435. in relative

term the rate is much higher then the rate of increase in sales. It is due to the increase in the

rate of expense in marketing expense and purchase of crate for distribution at a rate of 583%

and 805.78% respectively.

There is a 50.60% increase in gross profit which is due to the less increase in the rate of

cost of goods sold and processing expenses which is 21.21% and 30.03% respectively.

The depreciation rate is increase up to 1187549.79 in absolute terms and 31.15% in relative

term which indicates that improved plant machinery has been installed which helps I the

increase of the productivity, and the productivity reflects in the sales volume. Insurance

charges have been increased 58.94% in the relative term which will impart a secure

operational function. Printing and stationary is increased up to Rs. 48464.15 which is

203.12% then the previous year. It indicates that there must be wastage or improper handling

of this material. Sales promotion has been decreased by 25.56% which is not a goods sign for

the organisation. As the sales promotion is an inevitable part of a good business. The sales

have been increased and the sales promotion should also increase accordingly. A staff welfare

and canteen expense has been increased by Rs.34572.25 which is 26.13% higher then the

previous year. It is helpful in motivating the staff. The entertainment expense has been

increased by Rs.10963 from its previous year. In absolute term it is less but in relative term

the increase is 174.85% which is not a favourable condition. Liveries and safety materials are

used and maintained properly so the expenses have been reduced by 3.92% which is

contributing towards organisational profit. Building and gardening cost has been increasing

soaringly which is 850.83% higher then the previous year and rupees 45919 in absolute terms

which is due to the development and maintenance of the infrastructure. Bonus is hike up to

66.43% then the last year which indicates the profitability and transparency of the

organisation which leads to organisational efficiency. Other expense has been increased by Rs

105402.21 in absolute term and 24.67% in relative term then the previous year.

The current asset has been increased by 67.38% and the current liability has been decreased

drastically by -45.01% which is showing over solvency of the organisation. It is severely

affecting the current ratio by increasing it to a very high level then the recommended one.

Cash in hand and bank, inventories has been increased which is due to the improper

investment of the funds. Loans and advances have been decreased by 45.96% in relative term

and Rs. 704986.65 in absolute term which is a good sign for the organisation. There is a

soaring hike can be seen in case of sundry debtors which is 183274.88 in absolute term and

4147.50 % I relative term. It is showing the inefficient use of current assets. Government and



other grants have been increased by 12720788.12 in absolute term and 2488.49% in relative

term which is enhancing the strength of the organisation. The computer expenses are

increased by Rs. 88850.00 due to installation of new computers and printers. All these

increase in fixed asset is reflecting in the provision for depreciation which is increased

2944601.41 and 143.26% in relative term. The share holders fund, reserve & surplus have

been increased by 42.90% and Rs. 30638760.05 in absolute term which is showing high

financial viability of the organisation.



COMMON SIZE STATEMENT ANALYSIS

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

percentages to some common base. For this, items in the financial statement are presented as

percentages or ratios to total of the item and a common base for the comparison is provided.

Each percentage shows the relation of the individual item to its respective total. In a common

size income statement the sales figure is assumed to be equal to 100 and all other figures of

cost or expenses are expressed as percentage of sales. A common size income statement for

different periods helps to reveal the efficiency or otherwise of incurring any cost or expense.

In a common size balance sheet total of assets and liability are taken as 100 and all the

respected figures are expressed as the percentage of total. Comparative common size balance

sheet for different period helps to highlight the trends in different items.

Interpretation

The cost of good sold has been decreased from 93.43% to 83.96% in the year 2008-09.

Which increase in the gross profit level up to 17.37% which was previously 15.56% in 2007-

08. Other expense like selling expenses is increased. It is due to the increase in sale but

effective use of funds as the increase in relative term then the previous year is very little.

Despite of increase in sales the processing expenses was less then the previous year it is

indicating the operational efficiency of the firm. Other income has been declined as the firm

is concentrating only upon its core activity.

Omfed appears to be a traditionally financed with share holders fund and reserve &

surplus. It doesn’t have any long term liability. In the year 2008-09, 50% of the reserve and

surplus and shareholders fund has been invested which was 97.13 % in the year 2007-08.

Total liability also constitutes of 50% of total liability and capital which is very high then the

previous year 2007-08. Out of total assets, fixed asset constitute the major part which is

63.66^ in 2007-08 and 64.20% in the year 2008-09. It shows the fixed productive asset of the

firm. Piling up of inventories increased up to 22.17%. Cash in hand and bank was reduced to

11.85% which shows investment of funds. Loans and advances also decreased which is

1.46% in 2008-09 then 4.58 % in 2007-08 which shows healthy financial system of OMFED.



Findings and Recommendation



The financial statement of OMFED Sambalpur unit has given a broad idea about the

organization. The tools that we used to analyse the financial statement reveals many vital

information regarding the organisation’s financial strength. The findings of this analysis show

that the financial strength of this organization is very healthy. It is earning profit at a higher

rate. The accounts of reserve and surplus, share holders fund is very high. As the organization

is enhancing the livelihood, socio economic condition of poor people so government is

providing huge grants to it.

The labour cost in this area is very low, availability of raw material in this area is more.

There persists a technological, product, raw material transfer among the different unit of

OMFED.

All the above factor helping the organization to grow at a faster rate. We have found out a

small weak link in the organization. Despite of huge asset possessed by the organization the

investment opportunity is very thin. The liquidity ratio shows that asset remain idle with out

any proper investment. So we would like to add that if sophisticated machinery will be

installed or the capacity of the plant will be enhanced and maintaining a high level of

distribution channel would hike the quality of the product and easy availability of product to

the customer. So it will lead to increase in the profitability up to many folds. The financial

statement also shows that the expenditure on sales promotion and advertising is very

depressing as compared to the sales. Yes it is very eloquent that the rate of sales is very high

but there is a huge potential for increase the sales in dairy product. Which can only be

achieved by sales promotion. Inventory management is not satisfactory as it is seen on the

balance sheet that inventory is piling up heavily.

Rest we can say that the organization is developing since inception. It has also gained a

momentum of incurring profit. They are moving from the stage of maximum utilization of

resource to optimum utilization of resource which is very important for the organization.



Appendix


010

2030

4050

6070

8090

100

ratio

2004-05 2005-06 2006-07 2007-08 2008-09

year

Inventory ratio

Inventory ratio



0

5

10

15

20

25

30

ratio

2004-05 2005-06 2006-07 2007-08 2008-09

year

Activity ratio

Working capital turn over ratio

Sales to capital employed ratio




Trend ratio

0

20

40

60

80

100

120

140

2004-05 2005-06 2006-07 2007-08 2008-09

year

valu

e

Net block

Capital work in progress

Grants







Bibliography

Financial Management-By I.M. Pandey

Financial Management-By Khan and Jain

Financial Statement Analysis:- By Gupta and

Mehra.

Financial Management:- By Sudhindra Bhat

www.omfed.org

www.google.co.in


http://www.google.co.in/

http://www.omfed.org/

Final Project Report Omfed

Documents

traditional milk products

western milk products

processing of milk

processing milk

lasting milk products

condensed milk

perishable milk

fresh milk