CHAPTER – 1 INTRODUCTION 1 The Erode District Cooperative Milk Producers’ Union Limited is a replica of the District Milk Unions in Gujarat State based on the famed “Amul” system. 2 The Erode Milk Union is, therefore, sandwiched in the middle of the 3-tier system popularly known as the “ANAND” or “ AMUL ” pattern consisting of an apex State level Federation at Chennai, the Unions at the district level and the primary cooperative societies at the village level. 3 On February 1, 1981, the commercial activities of the cooperative were handed over to Tamilnadu Co-operative Milk Producers’ Federation Limited which sold milk and milk products under the trademark “Aavin” 4 With many private companies entering the field of dairy, the Tamil Nadu government is giving high priority to improve the performance of the cooperatives. Tamil Nadu is one of the leading states in India in milk productionwith about 14.5 million litres per day.
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CHAPTER – 1
INTRODUCTION
1 The Erode District Cooperative Milk Producers’ Union Limited is a replica of the District
Milk Unions in Gujarat State based on the famed “Amul” system.
2 The Erode Milk Union is, therefore, sandwiched in the middle of the 3-tier system popularly
known as the “ANAND” or “ AMUL” pattern consisting of an apex State level Federation at
Chennai, the Unions at the district level and the primary cooperative societies at the village
level.
3 On February 1, 1981, the commercial activities of the cooperative were handed over to
Tamilnadu Co-operative Milk Producers’ Federation Limited which sold milk and milk
products under the trademark “Aavin”
4 With many private companies entering the field of dairy, the Tamil Nadu government is
giving high priority to improve the performance of the cooperatives. Tamil Nadu is one of
the leading states in India in milk productionwith about 14.5 million litres per day.
INTRODUCTION OF THE STUDY
1 The entire project has been funded by the National Dairy Development Board, Anand
through the Government of Tamilnadu and the Tamilnadu Co-operative Milk Producers’
Federation.
2 The Project has been funded under the nationwide Operation Flood Programme with an
aim to bring about a socio economic awakening in rural India.
3 The Erode Milk Union was registered on 07, 02 1975 and started functioning on
1.01.1976. It’s Area of Operation became the entire Erode District. Milk is now supplied
from 749 primary milk cooperative societies to the Feeder.
4 Balancing Dairy directly, and through the chilling centers at Sankarndampalayam,
Sathyamangalam and Thalavadi. Cattle Feed is being manufactured at the Cattle Feed
Plant at Erode.
1.2 INDUSTRY PROFILE:
Dairy is place where handling of milk and milk products is done. Technology refers to
the applications of scientific knowledge for practical purpose. Dairy technology has been
defined as that branch of dairy science, which deals with the processing of milk manufacturing of
milk products on industrial scale.
In developed countries such as the USA the year 1850, is seen as the dividing line
between farm and factory scale production. Various factors contributed to this changes in these
countries, via concentration of population in cities where job were plentiful, rapid
industrialization improvement of transportation facilities, development of machine &
technologies, etc. Whereas rural areas were identified for milk production, the urban centers
were selected for the location of milk processing plants & product manufacturing factories.
The Indian dairy industry has made rapid progress since independence. A large number
of modern milk plants and product factories has been establisher these organized dairies have
been successfully engaged in the routine commercial production of pasteurized bottle milk and
various dairy products. With modern knowledge of the protection of milk during transportation,
it becomes possible to locate dairies where land was less expensive and corps could be growth
more economically.
In Indian, the market milk technology may be considered to have commenced in 1950,
with the functioning of Aarey milk colony, and milk product technology in 1956 with the
establishment of AMUL Dairy ANAND.
Dairy Industry in India
More than 2500 million people economically active in agriculture in the world. Probably
75% of them are wholly or partly dependent on livestock farming. India which has 66% of
economically active population engaged in agriculture. It derives 31% of GDP from agriculture.
The share of livestock is estimated at 21% of total agriculture sector.
History of Indian Milk Industry
Organized milk handling was made in Indian with the establishment of military dairy
farms, with his
1 Handling of milk in cooperative milk unions established all over the country on a
small scale in the early stages.
2 Long distance refrigerated rail transport of milk from anand to Mumbai since
1945.
3 Pasteurization and bottling of milk on a large scale for organized distribution was
started at Aarey in 1950, in Calcutta (haringhota) 1959, in Delhi 1959, in Madras
1963, etc.
4 Establishment of milk plants under the 5 year plan for dairy development all over
India.
Establishment of milk plants under the five-years plans for dairy Development all over
India. There were taken up with the dual object of increasing the national level milk
consumption and ensuring better return to the primary milk producer. Their main aim was to
produce more, better and cheaper milk.
About Indian Dairy Sector
Dairy development in India has acknowledged the world over as one of modern India’s
most successful development program. India’s is the second largest milk producing country with
anticipated production of about 78 million tons during 1999-2000.
The milk surplus states are Uttar Pradesh, Punjab, Haryana, Rajasthan, Gujarat,
Maharashtra, Andhra Pradesh, Karnataka and Tamil Nadu, the manufacturing of, milk products
in concentrated in these milk surplus stats.
Dairy sector has assume much significance by generating income not one to the rural but
also to the urban and semi urban population in the state especially to women by providing
essential nutrient to all walks of life. It provides live hood to millions of small marginal farmers
in the state.
Tamil Nadu is an agriculture oriented state and majority of the farmers owns cattle.
Dairying provides the main source of income next to agriculture. The state dairy development
department was established in 1958 and from this the control and administration of milk
cooperative comes under this Dairy Development Board.
National dairy development board (NDDB)
The national dairy board was creating to promote, finance and activities that seek strength
to farmer cooperatives and support national policies that are favorable to the growth of such
institutions. Fundamental to NDDB’S effort are cooperative principles and cooperative
strategies.
The National Dairy Development Board is an institution of national importance setup by
an act of parliament of India. The main office is located in Anand, Gujarat with regional offices
throughout the country. NDDB’S subsidiaries include mother dairy, Delhi. It was founded by
Dr. Verghese Kurien and Dr. Amrita Patel is the current chairman of the national dairy
development board Anand.
The national dairy development board (NDDB) was create in 1965 fulfilling the desire of
then prime minister of India- the late Lal Bahadur Shastri to extent the success of the kaira co-
operative milk producers union(Amul) of the other parts of India.
NDDB has now integrated 96000 dairy co-operatives in what it calls the Anand pattern,
linking the village society to the state federations in a three-tier structure.
NDDB launched its perspective plan 2010 with four thrust areas:
1 Quallity assurance,
2 Productively enhancement,
3 Institution building and
4 National Information
World Buffalo Population
147 million about 142 millions in Asia & Pacific
India
Leading most buffalo populated country; 78 millions most of them are Reverie
(depending upon variation in their habitat and genome)
Milk production
About 95% of world buffalo milk (45.3 million tones) is produced in Asia & Pacific,
while 64.4% is produced in India.
Distribution,which should be planned and executed intelligently. Distribution facilities
consist of:
1 The physical equipment and personnel required for transporting the product from
the milk storage rooms to the consumer/retailer.
2 Sales promotion personnel.
1.3 COMPANY PROFILE
THE ERODE DISTRICT CO-OPERATIVE MILK PRODUCERS’S UNION LIMITED
The Erode District co-operative Milk Producers’ Union Limited is a replica of the District
milk Unions in Gujarat State based on the Famed” AMUL” System. The Erode Milk Union is,
therefore sandwiched in the middle of the 3-tier system popularly known as the “ANAND” or
“AMUL” pattern consisting of an apex state level federation at Chennai, the union sat the district
level of the primary cooperative societies at the village level.
Milk is now supplied from 749 primary milk co-operative societies to the Feeder
Balancing Dairy Directly and through the chilling centers at Sankarndampalayam,
Sathyamangalam and Thalavadi. Cattle Feed is being manufactured at the cattle Feed Plant at
Erode.
The entire project has been funded by the National Dairy development Board, ANAND
through the Government of Tamil Nadu Co-operative Milk Producers Federation. The project
has been funded under the nationwide Operation Flood programmed with an aim to bring about
socio economic awakening in rural India.
This area of Operation of the Erode Milk Union is the entire Revenue District. Milk is
supplied to the Feeder Balancing diary either directly from nearby societies within a radius of
approximately 40 Kilometers and through the chilling centers beyond this distance. The map
shows the geographical locations of these units in the District and the milk supplied to the Dairy.
The flow of the milk form the societies to its eventual marketing are shown below to give a
bird’s eye view of the functioning areas of the processing of milk and the manufacturing of the
various products. Mill is also supplied to other District Unions during their times of necessity
form this Union during their times of necessity from this union besides the supply to the Tamil
Nadu Co-operative Milk Producers Federation for metro consumption. The Unions major
products are standardized milk, skim milk powder, butter and ghee. The excess fat form milk
after standardization is converted to butter and ghee. The unions have a 10-ton and a 30-ton
powder plant for the production of milk powder.
Besides milk powder, butter and ghee the Union also manufactures popular products like
Milk khova, flavored Milk masala, Buttermilk in sachets and ice cream for local customers.
These products have found a regular market locally. Milk powder, butter and ghee from this
Union are of the highest quality and are in good demand in the upcountry markets.
This bulk marketing of these products is done by the Tamil Nadu Co-operative Milk
Producers Federation at Chennai. Technical Input Programs; Animal Husbandry: The Union
provides free animal husbandry coverage and emergency veterinary services round the clock for
the animals of the milk producers in the district.
Erode District Co-operative society was started by milk producer and the State
Government. This was started for the benefit of the milk product. The Company has ISO-2000
certified and ISI certified for the skimmed milk power production and the Erode Dairy ghee is
sold with AGMARK certificate.
1 Date of Registration : 07.02.1975
2 Date of Functioning : 01.07.1976
3 Authorized share : Rs.500. lakhs
4 Share Capital : Rs. 63.0 lakhs
5 Area of Operation : Erode&TiruppurDistrict
Functional Units
1 Commencement of Production : 01.03.1981
2 Total area : 55 acres
3 Liquid Milk Processing : 2.0 lakhs liters per day
4 No. of Milk Routes : 24
5 No. of employees worked : 481
Erode District
1 Feeder Balancing Dairy
2 Sathyamangalam CC
3 Thalavadi CC
4 Bulk milk coolers – 10 Nos
5 Cattle Feed Plant, Erode
Tiruppur District
1 Sankarndampalayam CC
2 Bulk Milk Coolers- 02Nos.
Besides milk powder, butter and ghee the Union also manufactures popular products like
milk Khoa, flavored milk, masala buttermilk in sachets, and ice cream for local customers.
Technical Input Programs; Animal Husbandry: The Union provides free animal
husbandry coverage and emergency veterinary services round the clock for the animals of the
milk producers in the district.
Quality Policy:
Erode aavin is committed to provide hygienically produced milk and milk product by
continual improvement of product and services to the utmost satisfaction of customer.
Quality Object
1 To adopt hygienic production f milk and milk product.
2 To improve the customer satisfaction’
3 To enhance the competency of employees by training and development
Continual improvement of quality of products and services.
MAIN THEME OF THE PROJECT
2.1 REVIEW OF LITERATURE
OBJECTIVES OF THE STUDY.
1 To study the workingcapital in general and particular to Erode district
cooperative milk producer's union ltd.
2 To study the status of receivable management
3 To Evaluate the pattern of inventory management.
4 To know the cash position.
To analysis the level of cash management.
SCOPE OF THE STUDY:
Inorder to findout the various components of the workingcapital in details with
help of this analysis.
This study helps to the organisation to well management to the cashposition, deptors
and creditors .
Andalso it helps the further study for the new research in the area of
workingcapital.
REVIEW OF LITERATURE
Working capital needs
The working capital is used to pay short term obligation such as accounts
payable and buying inventory.If the working dips too low,risk is running out of cash. Even
profitable business can run in to trouble they lose the ability to meet their short term obligation.
The calculater assists in determining the working capital needed for the next year.
DEFINITION
Annual growth
The percent of growth you expect over the next year.
Total Current Assets
This is any cash or assets that can be quickly turned into cash. This includes prepaid
expenses, accounts receivable,most securities and inventory.
Total current liabilities
This is a liability in the immediate future. This includes wages , taxes and accounts payable.
Current ratio
Current assets divided by current liabilities. The current ratio helps to determine if there
is enough capital to meet short term financial obligations . a general rule of thumb is to have a
current ratio of 2.0 although this will vary by business and industry, a number above too many
indicate a poor use of capital. A current ratio under too many indicate an liability to pay current
financial obligation with a measure of safty.
Working capital
Working capital is used by lenders to help gauge the ability for a company to weather
difficult financial periods. Working capital is calculated by subtracting current liabilities from
current assets. Due to differences in business and the fact that working capital is not a ratio but
an absolute amount,it is difficult to predict is not a ratio but an absolute amount, it si difficult to
predict is not a ratio but an absolute amount, it is difficult to predict what the ideal amount of
working capital as would be for business. To calculate working capital requirements this
calculator uses the current ratio to codetermine a target mount of working capital.
Author name of working capital management:
Hrishikes Battacharya
Archon fung
NH Back
I.M Pandey
Working capital management by Maheswari
Company annual Reports
LIMITATIONS OF THE STUDY
Through the project, work has been completed successfully, a few limitations as
observed. However, proper career has been taken to overcome the impact of limitations on the
study.
1 The study is conducted with the available data gathered from the annual reports of
EDCMPUL and the analysis was made accordingly.
2 One cannot make an accurate analysis, using the data of five years and judge the
performance of the whole company.
3 Only Secondary data are used for the analysis, they were extracted for publishing the
statements of the corporation.
4 This research is mainly based on ratio analysis and other tools to certain extent.
5 It deals with working capital management only.
FINANCIAL MANAGEMENT
Financial management is concerned with the acquisition, financing and management of
assets with same over all goals in mind. “Financial management is the managerial activity which
is concerned with the planning and controlling of the firm’s financial resources”. Though it was a
branch of economics till 1890, as a separate activity or discipline it is of recent origin. Still, it has
no unique body of knowledge of its own, and draws heavily on economics for its theoretical
concepts even today.
The subject of financial management is of immense interest to both academicians and
practicing managers. It is of great interest to academicians because the subject is still developing,
and there are still certain areas where controversies exist for which no unanimous solutions have
been reached as yet practicing managers are interested in this subject because among the most
crucial decisions of the firm are those which relate to finance, and an understanding of the theory
of financial management provides them with conceptual and analytical insights to make these
decisions skill fully.
IMPORTANCE OF FINANCIAL MANAGEMENT
Financial management is applicable to every type of organization, irrespective of its size,
kind or nature. Thus it is important and useful for all type of ownership organization where there
is a use of finance; financial management is helpful every management aims to utilize its funds
in a best possible and profitable way. So this subject is acquiring a universal applicability. It is
indispensable in any organization as it helps in:
1 Financial planning and successful promotion of an enterprise.
2 Acquisition of funds and when required at the minimum possible cost.
3 Proper use and allocation of funds.
4 Taking sound financial decisions
5 Improving the profitability through financial controls
6 Increasing the wealth of the investors and the nation and
7 Promoting and mobilizing individual and corporate savings
FINANCIAL ANALYSIS
Financial analysis is an in-depth study a firm’s financial position (i.e., capital, assets and
liabilities of a firm at a point of times and its financial performance (i.e. income, profitability,
solvency, earnings per share, dividend payout etc) over a period of time.
“Financial analysis is a study of relationship among the various financial items and their
trend as shown in financial statements. It is also called financial statement analysis”.
According to ‘I.M.Pandey’, financial analysis is the process of identifying the financial
strength and weakness of the firm by properly establishing relationship between the item of
balance sheet and profit and loss account”.
FINANCIAL STATEMENTS
A firm communicates financial information to the users through financial statements and
reports. Financial statement contains summarized information of the firm’s financial affairs,
organized systematically. Two basic financial statements are prepared for the purpose of external
reporting to owners, investors and creditors are;
1 Balance sheet or statements of financial position.
2 Profit and loss account or income statement.
These statements are contained in company’s annual report. Financial statements are
prepared for decision making.
OBJECTIVES
The basic objective of financial statement is to assist in decision making. The other
objectives are;
1 Proving reliable information about economic resources, their obligation, changes
in net resources and the earnings potential of the enterprise.
2 To disclose to the extent possible, other information related to the financial
statement that is relevant to statement users.
NATURE:
Financial statement reflects, “A combination of recorded facts, accounting convictions
and personal judgment and conventions applied affect the materiality”. This implies that
recorded facts, accounting conventions personal judgments affect data exhibited in the financial
statement.
USE AND IMPORTANCE OF FINANCIAL STATEMENTS:
These statements are useful to management investors, creditors, bankers, workers, and
government and public at large. The major uses of financial statement are:
1 As a report of stewardship
2 As a basis for fiscal policy
3 To determine the legality of dividends
4 As guide to advice dividend action
5 As a basis for the granting of credit
6 As informative for perspective investors in an enterprise
7 As a guide to the value of investment already made
8 As an aid to government supervision
9 As a basis for price or rate regulation
10 As a basis for taxation
LIMITATIONS OF THE FINANCIAL STATEMENTS
Though financial statements are relevant and useful for the concern, still they do not
provide a final picture of the concern.
1 Only interim reports: The data given in these statements are only approximate.
The actual position can only be determined when the business is sold or
liquidated.
2 Do not give exact position: Since the statements are expressed in monetary
values and the calculation of monetary values are not accurate they do not give
exact position.
3 Historical Costs: The financial statements are prepared on the basis of historical
costs or original costs.
4 Impact of Non-monetary factors ignored: There are certain factors which have
a bearing on the financial position and operating results of the business but they
do not become a part of these statements because they cannot be measured in
monetary terms.
5 No Precision: The precision of financial data is not possible because the
statements deal with the matters which can not be precisely stated
FINANCIAL STATEMENT ANALYSIS
Financial analysis is the process of identifying the financial strength and weakness of the
firm by properly stabling relationship between the items of the balance sheet and profit and loss
account.
According to ‘Metcalf Titard’,
“A process of evaluating the relationship between component parts of a financial
statement to obtain better understanding of a firm’s positional performance”.
TYPES OF FINANCIAL ANALYSIS
We can classify various types of financial analysis into different categories depending up
on (i) materials used and (ii) The method of Modus Operandi as follows.
On the basis of material used
1 External Analysis: This analysis is done by outsiders who do not have access to
the detailed internal accounting records of the business firm.
2 Internal Analysis: The analysis conducted by the persons who have access to the
internal accounting records of one accounting period.
On the basis of Modus Operandi
3 Vertical Analysis: This analysis done for a number of years. Financial statements
of a number of years of concerns are analyzed here.
4 Horizontal Analysis: Here the analysis is done for a single year only
METHODS OR DEVICES OF FINANCIAL ANALYSIS
A number of methods or devices are used to study the relationship between different
statements. An effort is made to use these devices, which clearly analyze the position of the
enterprise. The following methods of analysis are generally used:
1. COMPARATIVE STATEMENTS
The comparative financial statements are statements of the financial position at different
period of time. The elements of financial position are shown as a comparative form so as to give
an idea of financial position at two or more periods. From the practical unit of view, generally
two financial statements are prepared comparative form for financial analysis purposes. They are
5 Comparative balance sheet and
6 Comparative income statement.
2. TREND ANALYSIS
Trend percentages are immensely helpful in making a comparative study of the financial
statements for several years. The method of calculating trend percentage involves the
calculations of percentage relationship that each item bears to the same item in the base year.
Any year may be taken as a base year. It is usually the earliest year. Any intervening year may
also be taken as the base year. Each item of base year is take as 100 and on that basis; the
percentage of each of the items of each of the years are calculated. These percentages can be
taken as index numbers, showing relative changes in the financial data resulting with the passage
of time.
The method of trend percentages is an useful analytical device for the management since
by substitutions of percentage for large amounts, the brevity and readability are achieved.
However, trend percentages are not calculated for all items in the financial statements. They are
usually calculated for major items. Since the purpose is to highlight important changes. Both the
income statement and balance sheet can be prepared in the form of trend percentage.
Financial statements of a number of years are required for the purpose of calculating trend or
percentage and information contained in these statements are tabulated separately for a number
of years. This method of analysis is adopted to determine the direction, either ‘upward’ or
‘downward’. The calculation of trend ratio involves the ascertainment of arithmetical
relationship with each item of the base year. The trend percentage ratios can be considered as
index numbers showing relative changes in the financial data over a period of years. The method
of trend percentage is useful to the management because it is an analytical device. While
calculating trend percentage, care should be taken regarding the following:
1. The accounting principles and practices followed should be constant throughout the
period for which analysis is made.
2. Trend percentage should be carefully selected. It must be representative of the items
shown in the statement.
3. Trend percentage should be calculated only for items having logical relationship with one
another.
4. Trend percentage should be studied after considering the absolute figures on which they
are based. Otherwise they may give misleading results.
5. The figure for the current year should also be adjusted in the light of price level changes
as compared to the base year before calculating the trend percentage.
3. RATIO ANALYSIS
Ratio analysis is a powerful tool of financial analysis. A ratio is defined as “The indicated
quotient of two mathematical expressions and the relationship between two or more things”. In
financial analysis, a ratio is used as an index or yard sticks for evaluating the financial position
and performance of a firm. The absolute accounting figures reported in the financial statements
do not provide a meaningful understanding of the performance and financial position of a firm.
An accounting figure conveys meaning when it is related to some other relevant information.
The relationship between two accounting figures expressed mathematically is known as
‘financial ratio’. Ratios help to summaries the large quantities of financial data and to make
qualitative judgment about the firm’s financial performance.
Ratio analysis is a technique of analysis and interpretation of financial statements. It is
the process of establishing and interpreting various ratios for helping in making certain decisions.
It involves the following.
1. Selection of relevant data from the financial statements depending upon the objective of
the analysis.
2. Calculation of appropriate ratios from the above data.
3. Comparison of the calculated ratio’s with the ratios of the same firm in the past, or the
ratios of some other firms or the comparison with the ratio of the industry to which the
firm belongs.
4. Interpretations of the ratios.
In view of requirements of the various users of ratios we may classify them into the
following four important categories.
Activity Ratios
Profitability Ratios
Activity Ratios
Activity ratios reflect the firm’s efficiency in utilizing its assets
Profitability ratios
Profitability ratios measure overall performance and effectiveness of the firm
The Organizational Structure of the Company is as follows:
Chairman and Board of Directors
General Manager
Deputy Manager
Assistant Manager
Superintendent
Assistant Assistant Typist
Sub Staff
Chairman and Board of Directors
General Manager
Deputy Manager
Assistant Manager
Superintendent
Assistant Assistant Typist
Sub Staff
VARIOUS DEPARTMENTAL FUNCTIONS
3.1 PURCHASE DEPARTMENT
Purchase Department performs various functions for receiving intense requirement,
sending requires to various suppliers, receiving offer from the supplier, opening the offer before
standing committee. Committee report to submitted for the approve for the GM. Purchase order
will be placed after getting the GM approval. Material should be supplied to the store. Bills will
be receive after certification and recommend for the supplier to account section. From account
section payment will be made to the supplier in the form of check. In the purchase department
are worked employees 4. One manager, two executives and one typist. Furnishing data to MIS as
required. Overall supervision of the officers and staff in Accounts Section.
3.2 PRODUCTION DEPARTMENT
This mixed milk is further processed to get any of the following five types
1 Standardized milk
2 Full cream milk
3 Toned milk
4 Double toned milk
5 Skimmed milk
The fat content and the solid non fat content of the above types of milk are given below:
BUTTER
Milk Cream Butter Packing
1 The butter produced per day 12000 litter
GHEE
Butter Ghee Packing
2 The Gee produced per day 12000 litter
MILK KHOA
Milk heavy heating (80% of milk is melting) sugar milk khoa
ICE CREAM
Cream Ice Cream
SOME OF THE PRODUCTS
1 BUTTER
2 GHEE
3 MILK KHOA
4 FLAVOURED MILK
5 MASALA BUTTERMILK IN SACHETS
6 ICE CREAM
7 MILK POWDER
3.3 MARKETING
Around 42000 lits of milk per day in sachets and bulk are being sold in the city and sub
urban of Erode. 70,000 lits per day is being diverted into metro sales through tankers and trains.
About 15000 lits per day is being sold to other unions.
Federation markers Milk and Milk Products to the Co-operative Federations in India.
Federation has taken steps to promote exports of Skimmed Milk Powder and Ghee to Srilanka,
Malaysia and Singapore.
3.4 ACCOUNT SECTION
1 Preparation of Profit and Loss Account, Trading and Balance Sheet and other financial
statements as and when required by Tamilnadu Cooperative Milk Producers Federation
Ltd, / National Dairy Development Board.
2 Preparation of Budget for placing before the Board and to have effective budgetary
control, on the approval chart.
3 Filling Sales Tax/Income Tax returns in accordance of the provisions of the Act and
rules. Payment of all kinds of taxes on the due dates.
4 Appointment of internal auditor.
5 Prompt settlement of milk bills to societies and processing all bills in accordance with
procedures & rules. Sanction of all personal claims and advances as per standard
provisions.
3.5 HUMAN RESOURSE (ADMINISTRATION)
Manager (IR) is responsible for dealing with General Administration, Service Matters,
Industrial Relations and Personnel / Human Resource Management of the Union.
1 Manager (IR) is responsible for passing and proper movement of files attended by the
Ministerial Staff of the Personnel & Administration and Industrial Relations Section to
the Deputy General Manager (Admn) and with reference to the General Manager as the
case may be.
3.6 CIVIL DEPARTMENT
Maintained the Building, white wash and maintained toilet and rooms Allotment of
quarters to the employees. Building loans, employee loan loans will be issued .We are covering
the chilling canter (i.e. sathyamangalam, Thalavadi ect.). Construct the new buildings. Maintains
of office furniture. Administrative control GM. Technical control Head office (Chennai)
3.7 POWER PLANT
The powder plant is this dairy is one of the biggest plants in south India. Out of the 17
plants in the union 4 are producing powders. Aavin dairy Erode has 2 powder plants of capacity
10 MT & 30 MT producing skim milk powder and whole milk powder according to the
availability of milk. SMP has got export license and ISI extra grade certification.
3.8 TRANSPORT DEPARTMENT
In the transport department two type of activities are followed that are
1 Maintains and operation of department vehicle like tanker, lorry, car and jeep
2 Washing movement of the private sector. In the private sector running in to the lorry have
30.
3.9 QUALITY CONTROL
There are two stage of quality control:
1 Product Testing center
2 Milk Testing center
To conduct chemical and bacteriological tests on the water, stored milk and milk products,
effluent plant at specific and regular intervals and to furnish reports to the Deputy General
Manager (Production) to take appropriate action as required. To inspect and verify all analytical
records and registers maintained in the laboratories of the Union.
CHAPTER 3
PROBLEM IDENTIFIED AND RECOMMENDATIONS
4.1 .1 Study on Working Capital Management
This project work has been concentrated to the study on working capital management of
Erode District Co – Operative Milk Producers’ Union Limited.
Capital required for a business can be classified under two main categories viz,
1 Fixed Capital and
2 Working Capital
Every business needs funds for two purposes for its establishment and to carry out its day-
to-day operations long-term funds are required to create production facilities through purchase of
fixed assets such as plant and machinery, land, building furniture, etc. investments in these assets
represent that part of firms capital which is blocked on a permanent or fixed basis and is called
fixed capital funds are also needed fort short-term purposes from for the purchase of raw
materials. Payment of wages other day-to-day expense, etc. these funds are known as working
capital. In simple words, working capital refers to that part of the firm’s capital which is
required for financing short term or current assets such as such, marketable securities, debtors
and inventories. Funds, thus invested in current assets keep revolving fast and are being
constantly converted into cash and this cash flow again in exchanging for other current asses.
Hence, it is also known as revolving or circulating capital or short-term capital.
In the words of shubin,”Working Capital is the amount of funds necessary to cover the
costs of operating the enterprise.
NEED FOR WORKING CAPITAL
Beyond the limit, both the current assets, i.e., inadequate working capital and excessive
working capital are dangerous. Beyond the limitations of both the level, the common goal of the
organization cannot be achieved.
Working capital management provides effective and efficient decision to allocate the
currents assets.
CONCEPTS OF WORKING CAPITAL
They are two concepts of working capital are,
Gross Working Capital
Gross working capital refers to the firm’s investment in current assets. Current assets are
the assets which can be converted in to cash within an accounting year (or operating cycle) and
include cash, short-term securities, debtors, (Accounts receivables or book debts) bills receivable
and stock.
Calculation of Gross Working Capital
In the broad sense, the term Gross Working Capital represents to the amount the funds
invested in current assets.
Components of Current Assets:
1 Cash in hand and bank balance
2 Bills receivable
3 Sundry debtors [Less provisions for Bad Debts]
4 Inventories of stocks, such as:
Raw materials
Work in progress
Stores and spares
Finished goods
Prepaid expenses
Accrued income
Deposits
Net Working Capital
Net working capital refers to the difference between current assets and current liabilities.
Current liabilities are those claims of outside which are accepted to mature for payment within
an accounting year and include creditors, bills payable and outstanding expenses.
Net working capital can be positive or negative
1 A positive net working capital will arise when current assets exceed current liabilities.
2 A negative net working capital occurs when current liabilities are in excess of current
assets.
Calculation of Net Working Capital
Net working capital is the excess of current asset over current liabilities or say:
[Net Working Capital = Current Assets – Current Liabilities]
Net working capital may be positive or negative. When the current assets exceed the
current liabilities the working capital is positive and the negative working capital results, when
the current liabilities are more than current assets.
Components of Current Liabilities
1 Bills payable
2 Sundry creditors
3 Accrued or Outstanding Expenses
4 Short term loans, advances and deposits
5 Bank overdraft
6 Provision for transactions
KINDS OF WORKING CAPITAL
On the basis of concept
1. Gross working capital
2. Net working capital
On the basis of time
1. Permanent or fixed working capital
2. Temporary or variable working capital
Permanent or fixed working capital
1. Regular working capital
2. Reserve working capital
Temporary or variable working capital
1. Seasonal working capital
2. Special working capital
Two Dangerous Points of Currents Assets
Danger of Inadequate Working Capital
1. Inadequate working capital will lead to a condition, in which one cannot pay its short-
term liabilities in time. So there arises a situation where there is a loss of reputation
and tight credit terms.
2. The Organisation’s requirement cannot be fulfilled in bulk: hence it cannot take the
advantage of cash discounts.
3. Difficulties will arise in meeting the day-to-day expenses. This will lead to
inefficiency and increase in costs with the minimum profits.
4. Lack of working capital will lead to less favorable marketing conditions and less
profitable projects.
5. Due to scarcity of working capital fixed assets are not properly utilized. Thus results
in the fall of investments return.
Dangers of Excessive Working Capital
1. Excessive working capital will lead to low investments in fixed assets. Hence there
will be no profits for the business and there can be on proper rate of return on its
investments.
2. The low rate of return investment will lead to the fall in the value of share.
3. Excessive working capital will lead to unnecessary purchasing and excessive amount
of inventories, as a result, there are chances of theft and loses.
4. Excessive debtors and defective credit policy are the indication of excessive working
capital. There may be delay in collection and increased incidence of bad debts.
5. Excessive working capital will make the management complacent. This will lead to
overall inefficiency in the organisation
4. 1.2 RESEARCH METHODOLOGY
Research Design and Sampling
The study adopts descriptive design as it intents to explain the historical data
Disproportionate convenient sampling is used for collection secondary data. Out of 48 years of
life of the company, only the recent 5 years have been taken for study. The study is primary
descriptive in nature.
Data Collection Method
Research Methodology means it provides valuable guidelines to do the project
systematically. In other words it indicates way to collecting analyzing and interpreting the data.
In every persons day-to-day life they do lot of activities. The every activity mostly
depends upon one objective and scope. With out adequate objectives and ambitions, it is very
difficult to achieve desire goal effectively. The objective and aims indirectly formulate and re-
correct the activities. Now we see about objectives important and scope of the study.
The task of data collection begins after a research problem has been defined and research
design/plan chalked out. While deciding about the method of data collection to be used for the
study, the researcher should keep in mind two types of data viz., primary and secondary.
Tools of Data Collection
1. Primary data
The primary data are those which are collected afresh and for the first time, and thus
happen to be original in character we collect primary data during the course of doing
experiments in an experimental research but in case we do research of the descriptive type and
perform surveys, whether sample surveys or census surveys, then we can obtain primary data
either through observation or through direct communication with respondents in one form or
another or through personal interviews.
1 This Method of data collection is not possible for Financial Performance
Analysis
2. Secondary data
Secondary data means data that are already available i.e. they refer to the data which have
already been collected and analyses by someone else. When the researcher utilizes secondary
data. Then he has to look into various sources from where he can obtain them. In this case he is
certainly not confronted with the problems that are usually associated with the collection of
original data. Secondary data may either be published data or unpublished data.
1 This Method of data collection is possible for Financial Performance
Analysis.
Techniques of analysis
The quantitative techniques apply sin the study were
i) Ratio Analysis
ii) Schedule of changes in working capital Management
CHAPTER 4
DATA ANALYSIS AND INTERPRETATION
LIQUID RATIOS
Current Ratio
Current assets mean which can be converted into cash within a year. Current liabilities
mean those obligations maturing within a year. Ideal value of current ratio is 2:1. It means
every one rupee of current assets less then Rs. 2, it shows inefficiency to manage current assets.
The following formula is used to find out the current ratio.
Current Assets
Current Ratio =------------------------------------
Current Liabilities
Table - 4.1.3.1
Current Ratio
(Rs. In lakhs)
Year Current Assets Current Liabilities Ratio (Time)
2003-2004 6,83,88,737 16,43,95,931 0.42
2004-2005 7,97,79,703 14,93,76,834 0.53
2005-2006 7,27,02,272 22,00,98,025 0.33
2006-2007 6,15,50,421 19,26,02,844 0.32
2007-2008 8,19,11,825 20,84,90,782 0.39
Source: Secondary data
Interpretation
Table 4.1.3.2 shows that the current ratio of the firm is satisfactory during the years 2000-
01 to 2004-05. For all the periods taken for study shows that the current assets are more than
current liabilities and hence the organization’s ability to meet current obligations is increased,
resulting in excellent short term solvency position an also greater safety of funds to short term
investors.
2003-2004 2004-2005 2005-2006 2006-2007 2007-20080
0.1
0.2
0.3
0.4
0.5
0.6
0.42
0.53
0.330000000000001
0.320000000000001
0.390000000000001
CURRENT RATIO
3.5.1 .b QUICK RATIO
Quick ratio is known as “acid test ratio” or “liquidity ratio is a more rigorous test of liquidity
than the current ratio. The role of thumb is 1:1.
Liquid assets
Quick ratio = -------------------------------------
Current liabilities
3.5.1.b. QUICK RATIO
S.NO YEAR QUICK ASSET (IN
RS/-)
CURRENT
LIABILITIES(IN RS/-)
RATIO
1 2003-2004 40119.37 18022.33 2.23
2 2004-2005 37061.99 12913.18 2.9
3 2005-2006 37774.37 13606.80 2.8
4 2006-2007 68612.75 41817.95 1.6
5 2007-2008 77877.82 51283.44 1.52
SOUCE: ANNUAL REPORT OF THE YEAR 2003-2008
CHART 3.5.1(B)
2003-2004 2004-2005 2005-2006 2006-2007 2007-20080
0.5
1
1.5
2
2.5
3
3.5
2.23
2.9 2.8
1.6 1.52
QUICK RATIO
INTERPRETATION: The standard liquid ratio is 1:1. From this table shows that the
highest increased asset is at 2.9 in the period of 2004-2005. The lowest ratio is shown in the year
2007-2008.
4.1.3.6 INVENTORY TURNOVER RATIO
The inventory turnover ratio indicates the inventory is turning in to receivable through
sales. Generally high inventory turnover indicates a good inventory management. A low
inventory turnover indicates inefficiency to manage the inventories.
High inventory turnover means very low level of inventory which results in frequent
stock out. Low inventory turnover means unnecessary tie up the funds in inventory.
The following formula is used to find out the inventory turnover ratio.
Cost of goods sale = Sales – Gross Profit
Opening Stock + Closing Stock
Average Stock = ----------------------------------------------------
Cost of goods sold
TABLE 4.1.3.6
Statement Showing Inventory Turnover Ratio
(Rs. in Lakhs)
Year Cost of goods sold Average Stock Ratio
2003-2004 40,03,79,604 26537390 15.09
2004-2005 51,02,63,704 30632853 16.66
2005-2006 104,03,87,694 33843120 30.74
2006-2007 67,64,71,045 30975313 21.84
2007-2008 76,28,51,312 26701362 28.57
Source: Secondary data
Interpretation
Table 4.1.3.6 clear that the stock turnover ratio is decreased from a high of 11.48 in 2000-
01 to 9.47 in 2005-06 and it was increased to 10.31 and 29.22 times respectively for the
subsequent years. It reveals that the inventory was efficiently managed since 2002-03 to 2004-
2005.
CHART - 4.1.3.6 SHOWING INVENTORY TURNOVER RATIO
2003-2004 2004-2005 2005-2006 2006-2007 2007-20080
5
10
15
20
25
30
35
15.0916.66
30.74
21.84
28.57
INVENTORY TURN OVER RATIO
3.5.2 .b INVENTORY CONVERSION PERIOD
It may be also be of interest to see average time taken for clearing the stock. This period ius
calculated by dividing the no. of days inventory turn over.
Days in the year
Inventory conversion period= --------------------------------
Inventory turnover ratio
Chart 3.5.2.(b) Inventory conversion period
S.NO YEAR NO OF DAYS IN A
YEAR(IN RS/-)
INVENTORY TURN
OVERT RATIO(IN
RS/-)
NO OF DAYS
1 2003-2004 365 4.6 79
2 2004-2005 365 3.8 96
3 2005-2006 365 4.2 46
4 2006-2007 365 2.2 165
5 2007-2008 365 1.4 260
Source : Secondary data
Interpretation: From this table it is interpreted that the inventory conversion period shows a
fluctuating trend. The period is high during 2007-2008 with 260 days. The no of days is lower
during 2005-2006 with 79 days due to increase in inventory turn over ratio.
CHART 3.5.2.(B).
2003-2004 2004-2005 2005-2006 2006-2007 2007-20080
50
100
150
200
250
300
7996
46
165
260
INVENTORY CONVERSION PERIOD
CHART - 4.1.3.1 DEPTOR TURN OVER RATIO
4.1.3.2 Debtors Turnover Ratio
Debtors Turnover Ratio indicates the velocity of debt collection of firm. In simple
words, it indicates the number of times average debtors (receivables) are turned over during a
year.
The following formula is used to find out the Debtors Turnover Ratio
Total Sales
Debtors Turnover Ratio =--------------------------------------------
Debtors
TABLE - 4.1.3.2
Statement Showing Debtors Turnover Ratio
(Rs. in Lakhs)
YearsSales Debtors Ratio (Time)
2003-2004 40,03,79,604 30,43,75,021 1.32
2004-2005 51,02,63,704 32,74,37,511 1.56
2005-2006 104,03,87,694 23,33,41,633 4.46
2006-2007 67,64,71,045 11,69,40,934 5.78
2007-2008 76,28,51,312 11,76,42,698 6.48
Source: Secondary data
Interpretation
Table 4.1.3.2 Clear that debtor’s turnover ratio during 2002-2003 there was a higher
value of debtors turnover i.e., 3 times indicates the efficient management, but the company make
an low credit sale in this period. In all the remaining years debtors turnover ratio ranges from
2.71 to 2.98 times, implies inefficient management of debtors and less liquid debtors
2003-2004 2004-2005 2005-2006 2006-2007 2007-20080
1
2
3
4
5
6
7
1.321.56
4.46
5.78
6.48
DEBTORS RATIO
CHART - 4.1.3.2 DEBTORS TURNOVER RATIO
4.1.3.3 Average Collection Period Ratio
The Average Collection Period represents the average number of days for which a firm
has to wait before its receivables are converted into cash. It measures the quality of debtors.
The following formula is used to find out the Average Collection Period Ratio.
Debtors
Collection Period = --------------------------------------x No. of working days
Sales
TABLE 4.1.3.3
Statement Showing Average Collection Period Ratio
YearDebtors Sales Days
2003-2004 30,43,75,021 40,03,79,604 114
2004-2005 32,74,37,511 51,02,63,704 106
2005-2006 23,33,41,633 104,03,87,694 56
2006-2007 11,69,40,934 67,64,71,045 47
2007-2008 11,76,42,698 76,28,51,312 41
(Rs. in Lakhs)
Source: Secondary data
Interpretation
Table 4.1.3.3 Clear that the average collection period during 2002-2003 and 2004-2005
has minimum number of days, so there is a quick payment by the debtors. 2000-2001, 2002-
20003 and 2003-2004 implies the inefficient collection performance.
2003-2004 2004-2005 2005-2006 2006-2007 2007-20080
20
40
60
80
100
120 114
106
56
4741
AVERAGE COLLECTION PERIOD RATIO
4.1.3.4 Creditors Turnover Ratio
This ratio indicates the velocity with which the creditors are turned over in relation to
purchases. The analysis of creditors turnover ratio is basically is the same as the debtors
turnover ratio except that in place of trade debtors, trade creditors is taken as one of the
components of the ratio and in place of sales, purchases where taken.
The following formula is used to find out the Creditors Turnover Ratio
Total Purchases
Creditors Turnover Ratio = -----------------------------------------------------
Creditors
TABLE. 4.1.3.4
Statement Showing Creditors Turnover Ratio
(Rs. in Lakhs)
Year Total Purchases Creditors Ratio (time)
2003-2004 671573601 164395938 4.09
2004-2005 802562731 149376834 5.37
2005-2006 831683666 2300289706 0.36
2006-2007 759495144 982992962 0.77
2007-2008 796829596 1084646289 0.73
Source: Secondary data
Interpretation
Table 4.1.3.4 clear that Creditors turnover ratio ranges from 2.01 to 5.47 times during the
study period. During 2004-05 there was favorable result and 200-2001 to 2003-2004 was lower
creditor’s velocity, are les favorable.
CHART - 4.1.3.4 SHOWING CREDITORS TURNOVER RATIO
2003-2004 2004-2005 2005-2006 2006-2007 2007-20080
1
2
3
4
5
6
4.09
5.37
0.36
0.770000000000001
0.730000000000001
CREDITORS TURN OVER RATIO
4.1.3.5 Average Payment Period Ratio
The Average Payment Period represents the average number of days taken by a firm to
pay its creditors. Generally lower the ratio, the better is the liquidity position of the firm and
higher the ratio, less liquidity is the position of the firm.
The following formula is used to find out the Average Payment Period Ratio
Creditors
Average Payment Period = -------------------------------------- x No. of working days
Ratio Purchases
TABLE. 4.1.3.5
Statement Showing Average Payment Period Ratio
(Rs. in Lakhs)
Year Creditors Total Purchases Days
2003-2004164395938 671573601
37
2004-2005149376834 802562731
31
2005-20062300289706 831683666
401
2006-2007982992962 759495144
166
2007-20081084646289 796829596
304
Source: Secondary data
Interpretation
Table 4.1.3.5 clear that Average payment period ratio during 2000-2001 and 2001-2002
implies greater credit period enjoyed by the company, but during 2002-2003 to 2004-2005 the
company has better liquidity position.
CHART - 4.1.3.5 SHOWING AVERAGE PAYMENT PERIOD RATIO
2003-2004 2004-2005 2005-2006 2006-2007 2007-20080
50
100
150
200
250
300
350
400
450
37 31
401
166
304
AVERAGE PAYMENT PERIOD RATIO
4.1.3.10 Working Capital
Working Capital= Current asset – Current Liabilities
TABLE 4.1.3.10
Statement Showing Working Capital
(Rs. in Lakhs)
Year Current Assets Current Liability Working Capital
2003-2004 5252.56 3791.70 1460.86
2004-2005 5863.35 4500.48 1362.57
2005-2006 5034.46 3067.01 1967.45
2006-2007 5920.10 1881.99 4038.11
2007-2008 5930.10 1791.03 4139.07
Source: Secondary Data
Table 4.1.3.10 clear that working capital statement the above table shows working capital
position of company during the study period. It ranges Rs. 1362.87 to 4139.07 lakhs.
2003-2004 2004-2005 2005-2006 2006-2007 2007-20080
500
1000
1500
2000
2500
3000
3500
4000
4500
1460.86 1362.57
1967.45
4038.11 4139.07
WORKING CAPITAL
3.5.3.b EQUITY RATIO
Equity ratio is otherwise called properority ratio. This ratio indicates the extent to which the asset
of the company can be lost without the extent to which the asset of the company ncan be lost
without affecting the interest of the creditors.
Shareholders Fund
Equity Ratio = -------------------------------------
Total Asset
3.5.3.B EQUITY RATIO
S.NO YEAR SHAREHOLDER
S FUND (IN RS/-)
TOTAL ASSET
(IN RS/-)
RATIO
1 2003-2004 23042.2 55206.88 0.42
2 2004-2005 24809.6 52169.77 0.5
3 2005-2006 25828.44 53179.22 0.5
4 2006-2007 26661.34 83355.38 0.3
5 2007-2008 26925.67 102164.12 0.3
INTERPRETATION: From the above table, it is clear that the ratio is not ioncreased in last
year butr the long term solvency position of the company is satisfactory. It can be intyerpreted
that the ratio is high during the period 2003-2004 with 0.42. the ratio is low during the period
2003-2006.
2003-2004 2004-2005 2005-2006 2006-2007 2007-20080
0.1
0.2
0.3
0.4
0.5
0.6
0.42
0.5 0.5
0.3 0.3
EQUITY RATIO
3.5.3.C SOLVENCY RATIO
The ratio shows the relationship between trhe total liabilities due to the outsiders and the total
asset of the firm.
Total liabilities due to outsiders
Solvency Ratio =---------------------------------------------------
Total Assets
3.5.3.C SOLVENCY RATIO
S.NO YEAR TOTAL LIABILITIES DUE
TO OUTSIDERS
(IN RS/-)
TOTAL ASSETS
(IN RS/-)
RATIO
1 2003-2004 151808.3 55206.88 2.75
2 2004-2005 3855.3 52169.77 0.1
3 2005-2006 8442.7 53179.22 0.2
4 2006-2007 33925.4 83355.38 0.41
5 2007-2008 40879.7 102164.12 0.40
SOLVENCY RATIO
2003-2004 2004-2005 2005-2006 2006-2007 2007-20080
0.5
1
1.5
2
2.5
32.75
0.10.2
0.41 0.4
RATIO
INTERPRETATION: It is clear from above that the ratio is low and the performance of the
company is satisfactory. It can be interpreted that the ratio is high during the period 2003-2004
with 2.75 and the ratio is low during the period 2004-2005 with 0.1 shows the company has
improved the financial position.
4.1.3.8 Gross Profit Ratio
Gross Profit ratio measures the relationship of gross profit to net sales and is usually
represented as a percentage. The gross profit ratio indicates the extent to which selling prices of
goods per unit may decline without resulting in losses on operations of a firm. It reflects the
efficiency with which a firm produces its products.
The following formula is used to find out the Gross Profit ratio.
Gross Profit
Gross Profit Ratio =-------------------------------------x 100
Net Sales
TABLE. 4.1.3.8
Statement Showing Gross Profit Ratio
(Rs. in Lakhs)
YearCost of goods
soldFixed Assets Ratio (%)
2003-2004 7179.79 1058.15 6.79
2004-2005 8326.60 1072.05 7.77
2005-2006 7537.38 1075.83 7.01
2006-2007 6704.38 1139.86 5.88
2007-2008 6704.48 1172.65 7.46
Source: Secondary data
Interpretation
Table 4.1.3.8 clear that Gross profit ratio ranges from 3.26% to 21.59% during the study
period Gross profit ratio decreased during 21-202. During the year 2003-2004 it increased to
21.59% due to increase the sales.
2003-2004 2004-2005 2005-2006 2006-2007 2007-20080
1
2
3
4
5
6
7
8
9
6.79
7.77
7.01
5.88
7.46
GROSS PROFIT RATIO
4.1.3.9 Net Profit Ratio
Net profit Ratio establishes a relationship between net profit and sales and indicates the
efficiency of the management in manufacturing, selling, administrative and other activities of the
company. This ratio indicates the firm’s capacity to face adverse economic
conditions.
The following formula is used to find out the Net Profit ratio.
Net Profit
Net Profit Ratio= ---------------------------------- x 100
Net Sales
Table.4.1.3.9
Statement Showing Net Profit Ratio
(Rs. In Lakhs)
YearNet Profit after
taxSales Ratio (Time)
2003-2004 254.27 7716.01 -3.28
2004-2005 412.27 8607.18 -4.79
2005-2006 44.63 9334.56 0.48
2006-2007 498.69 8550.88 -5.83
2007-2008 809.06 9742.90 -8.30
Source: Secondary data
Table 4.1.3.9 clear that Net profit ratio ranges from -8.30 to -5.83 during the study
period. Net profit ratio shows, there final was constant increase or decrease in ratio.
2003-2004
2004-2005
2005-2006
2006-2007
2007-2008
-9 -8 -7 -6 -5 -4 -3 -2 -1 0 1
-3.28
-4.79
0.48
-5.83
-8.3
NET PROFIT RATIO
4.1.3.7 EXPENSES RATIO
This ratio indicates the extent to which the investment in fixed assets contributes towards
sales. It indicates whether the investment in fixed assets has been judicious or not.
The following formula is used to find out the fixed assets turnover ratio.
Particular expenses
EXPENSES RATIO = ------------------------------------------- ×100
sales
TABLE 4.1.3.8
Expenses Ratio
(Rs. in Lakhs)
Year
Selling and
administration
overhead
Sales Ratio (%)
2003-2004 10525704 40,03,79,604 0.03
2004-2005 11376054 51,02,63,704 0.02
2005-2006 13578614 104,03,87,694 0.01
2006-2007 27600281 67,64,71,045 0.04
2007-2008 18026147 76,28,51,312 0.02
Source: Secondary data
Interpretation
Table 4.1.3.7 clear that the fixed assets turnover ratio is increased from a low of 6.79 in
2004-05 to 97.77.47 in 2005-06. The decreased 2002-03 and 2003-04 to 7.01-5.88 then it
increase range 7.46 in 2008-09. It reveals that the fixed asset was efficiently managed on2001-02
2003-2004 2004-2005 2005-2006 2006-20070
0.005
0.01
0.015
0.02
0.025
0.03
0.035
0.04
0.045
0.03
0.02
0.01
0.04
0.02
Expenses Ratio
CHART - 4.1.3.3 AVERAGE COLLECTION PERIOD RATIO
PAYABLE RATIO
TABLE - 7
CHART - 4.1.3.7 SHOWING FIXED ASSETS TURNOVER RATIO
YearCost of goods sold
Fixed Assets Ratio (time)
2003-2004 40,03,79,604 85627492 4.68
2004-2005 51,02,63,704 117250062 4.35
2005-2006 104,03,87,694 120892576 8.61
2006-2007 67,64,71,045 177331868 3.81
2007-2008 76,28,51,312 180248678 4.23
2003-2004 2004-2005 2005-2006 2006-2007 2007-20080
1
2
3
4
5
6
7
8
9
10
4.684.35
8.61
3.814.23
FIXED ASSET TURN OVER RATIO
CHART - 4.1.3.10 SHOWING WORKING CAPTIAL
ANALYSIS OF CURRENT ASSETS AND CURRENT LIABILITIES
4.1.3.11 ANALYSIS OF CURRENT ASSETS
TABLES – 4.1.3.11
Particulars 2003-4 %2004-
05%
2005-
06%
2006-
07%
2007-
08%
Sundry
Debtors2737.67 65.03
3094.3
464.84 2780.03
70.9
73158.66 69.55
3274.3
768.31
Inventories 1387.16 32.951614.5
733.83 1083.27
27.6
61098.85 24.20
1250.3
426.08
Cash &
Bank85.25 2.02 63.39 1.33 53.70 1.37 283.89 6.25 268.73 5.61
Total 4210.08 1004772.3
0100 3917 100 4541.40 100
4793.4
4100
Source: Secondary data
1) Sundry Debtors: The percentage of sundry debtors to total assets during the period
of study was the range of zigzag manner, from 64.84 to 70.97.
2) Inventories: The percentage of inventories to current assets during the period of
study was range of downward trued and if ranges from 26.08 to 33.83.
3) Cash & Bank Balances: The percentage of current assets of for past five years is in
up ward trend and it ranges from 2.02 to 5.61.
4.1.3.12 ANALYSIS OF CURRENT LIABILITIES
TABLE – 4.1.3.12
Particulars 2003-04 % 2004-05 % 2005-06 % 2006-07 % 2007-08 %
Sundry
Creditors3260.67 85.99 3994.39 88.75 2644.00 86.21 1643.76 87.35 1493.77 83.40
Customers 531.03 14.01 506.09 11.25 423.01 13.79 238.03 12.65 297.26 16.60
Total 3791.70 100 4500.48 100 3067.01 100 1881.99 100 1791.03 100
Source: Secondary data
1) Sundry Creditors: The percentage of current liabilities to EDMCPUL for the past
five years is in upward trend and it ranges from 83.40 to 88.75.
2) Customers: The percentage of current liabilities to EDMCPUL for the past five years
is in downward trend and it ranges from 11.25 to 16.60.
3.6 TREND ANALYSIS
The main objective of trend analysis is to predict the figure or the date. If a trend
can be determined, then the rate of change of progress can be ascertain and tentative
estimators covering the future made accordingly. Such forecast are of immense use in
framing the basic policies and planning for the future.
The straight line is represented by the equation YC=a+bx
Where ‘a’ and ‘b’ are constants.
a= computed trend figure of the Y variable.
b= amount of change in Y variable associated with the changes of one unit of the
Y variable.
x= units of time
where x is time deviation , ∑x=0
then
a= ∑y/n
b=∑xy/x2
3.6.1 TREND ANALYSIS
YEAR X Y X2 XY
2001 1 29042.41 1 29042.41
2002 2 30433.20 4 60866.4
2003 3 29934.57 9 269411.13
2004 4 33688.83 16 134755.32
2005 5 41533.08 25 207665.4
2006 6 42330.98 36 253985.88
∑X=21 ∑Y=206963.07 ∑X2=91 ∑XY=955726.54
X=YEARS 2001-2006
Y=Working capital requirements
Using this equation
∑y=Na+B∑x2
∑xy=a∑x+b ∑x2
Substituting the values in the equation
i.e 206963.07=6a+b21------------------(1)
955726.54=21a+b91------------------(2)
(1)*(7) 1448741.49=42a+147b--------------------------(3)
(2)*(2) 1911453.03=42a+182b--------------------------(4)
(3)-(4) 462711.59=0+-35b
35b = 462,711.59
B= 462711.59/35
B=13220.33114
Substituting (b) in equation ------(1)
We get
206963.07= 6a+13220.33114*21
206963.07= 6a+277626096
-6a= 277626.96-206963.07
-6a=70663.884/-6
A=-11772.314
B=13220.3114
3.6.2 TABLE SHOWING TREND FROM 2001-2006 AND PROJECTED WORKING CAPITAL REQUIREMENT FOR 2007-2008.YEAR Y=a+bx Trend / projection of
working capital
2001 Y=a+bx 1447.9
2002 Y=a+bx 2895.9
2003 Y=a+bx 4343.7
2004 Y=a+bx 5791.6
2005 Y=a+bx 7239.5
2006 Y=a+bx 8687.4
2007 Y=a+bx 10135.3
2008 Y=a+bx 11583.2
2001 2002 2003 2004 2005 2006 2007 20080
2000
4000
6000
8000
10000
12000
14000
PROJECTION
PROJECTION
Axis Title
Axis Title
4.1.4 FINDINGS
1. The current ratio is the organization’s ability to meet current obligation is increased,
resulting in excellent short term solvency position an also safety of funds to short term
investors.
2. Debtors turnover ratio is a higher value of debtors turn over i.e., 3 times indicate the
efficient management, but the company make a low credit sale in this period.
3. The average collection period ratio show that the inefficient collection performance.
4. Creditor’s turnover ratio is 2004-05 there was a favorable result & 2000-2001 to 2003-
2004 was lower velocity, are less favorable.
5. The average payment period ratio clear that the firm’s liquidity position is better.
6. Inventory turnover ratio is then it reveals that the inventory was efficiently since 2002-
2003 to 2004-2005 is upward trend.
7. Fixed asset turnover ratio is the study period it reveals that the fixed asset was efficiently
managed.
8. Gross profit ratio is during the study period in the five years. The final was consistent
increase or decrease in ratio.
9. Net profit ratio shows that the firm’s net profit is low it shows a very high administrative
and other the study period the five years show, there expenses of the firm.
10. A higher ratio is an indication of effective utilization of working capital. Hence
the working capital is sufficiently active during the study period.
11. The working capital ratio is the during the study period find in the upward trend.
12. The percentage of current assets of firm for the past five years is in some
fluctuation.
4.1.5 RECOMMENDATIONS
1 Over all production capacity level is low. It is increasing the cost of production. So the
company may try to increase the production it reduce the cost and increase profit.
2 Improper maintenances of stock also lead to create a loss.
3 If the Company’s sales volume increase there is a change for increasing the profit.
4 A periodic study may be done on non-moving and slow moving stock to effective control
of inventory.
5 A study may be conducted an existing system of centralized fund management to identify
its lapses / short full.
6 Low credit purchases indicate the favorable result of the creditors turnover Ratio.
7 The Company spent more amounts in maintenances expenses this leads to net loss it is
the import factor for net loss
CONCLUSION
The overall working capital management of Erode District Co-operative Milk Producers
Union Limited is effective. With its sound financial position, EDCMPUL is in a position to
manage all its problems. However, it faces problems in respect of collecting dues from its
customers like state government owned public sectors units. By implementing all the latest
technology and techniques in all areas and employing all the control measures its efficiency in
managing working capital will be improving every year.
BIBLIOGRAPHY
1. James C.Van Horne, Fundamentals Financial Management, Prentice Hall of India Pvt.
Ltd., 1984.5th
2. Khan M.Y. and Jain P.K. Financial Management, Tata McGraw Hill, 1999, 10th Edition,
pp. 117-209.
3. Kuchhall. S.C., Financial Management, Chaitanya Publishing Home, 1987, 4th Edition, pp
374-451.
4. Kuchhall. P.K., Financial Management, Himalaya publishing home, 1987, 4 th Edition, pp.
249-374.
5. Manmohan and Shiv N. Gayal, Principles of Management Accounting, Sahitya Bhawan,
Agra, 1977, 7th Edition, pp. 410-529.
6. Pandey.I.M. Financial Management, Vikask Publishing Home Pvt. Ltd., 1979, pp. 116-
201.
WEBSITE
1. www.Aavinerode.com
2. www.google.com
3. www.Aavin.com
4. www.Working capital management com
5. www. Investopedia.com
6. www.planware.org
7. http://en.wikipedia.org
8. www.studyfinance.com
6
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