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CONTENTS
CHAPTERS PAGE.NO
CHAPTER-I
INTRODUCTION
SIGNIFICANCE OF THE STUDY
NEED FOR THE STUDY
OBJECTIVES OF THE STUDY
METHODOLOGY
LIMITATIONS OF THE STUDY
CHAPTER-II
PROFILE OF MILK INDUSTRY.
PROFILE OF THE KRISHNA DISTRICT MILK PRODUCERS
MUTUALLY AIDED CO-OP UNION LTD.
CHAPTER-III
PROFITABILITY ANALYSIS
CHAPTER-IV
DATA ANALYSIS
CHAPTER-V
SUMMARY & SUGGESTIONS
BIBLIOGRAPHY
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CERTIFICATE
This is to certify that the project entitled PROFITABILITY
ANALYSIS in THE KRISHNA DISTRICT MILK PRODUCERS
MUTUALLY AIDED CO-OP UNION LTD that is being submitted by
Miss. UJJWALA BETINA partial fulfillment for the award of the MBA
(Master of Business Administration) from VESTAL Institute of
Management and IT to Andhra University under my guidance and
supervision.
Place:
(V. SANDHYA CHOWDARY)
Date: project guide
VESTAL Institute of Management and IT
Eluru.
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DECLARATION
I here by declare that the project work entitled
PROFITABILITY ANALYSIS in THE KRISHNA DISTRICT
MILK PRODUCERS MUTUALLY AIDED CO-OP UNION LTD.
Submitted by me to Department of MBA, VESTAL Institute of
Management and IT, Eluru in partial fulfillment for the award of
degree of Master of Business Administration is my own and has
not been submitted to any other University for any degree or
diploma.
Place: Eluru,
Date: (UJJWALA BETINA)
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ACKNOWLEDGEMENT
I would like to express my sincere gratitude to all those
who have been helpful in the completion of this project during my
summer training in THE KRISHNA DISTRICT MILK PRODUCERS
MUTUALLY AIDED CO-OP UNION LTD.
I am grateful to Mr.Laxmaya, Head-Finance
Department, THE KRISHNA DISTRICT MILK PRODUCERS
MUTUALLY AIDED CO-OP UNION LTD who permitted me and
given me opportunity to under go summer training in this
organization.
.
I am thankful to Mr.T.Veera swamy, director of
VESTAL Institute of Management and IT and Ms.Thanuja jyothi
for their help getting permission to do this project work and Ms.
V.Sandhya for his valuable guidance, constructive suggestions
and encouragement through out the course of study and
preparation of this project report.
(UJJWALA BETINA)
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SIGNIFICANCE OF THE STUDY:
The basis for financial analysis of any firm is financial information. A business
firm prepares its financial statements as they provide useful financial information and are
helpful for the purpose of decision-making. Financial information is needed to predict,
compare and evaluate the firms earning ability. The profit or loss statement shows the
operating profit of the concern and the balance sheet depicts the balance value of
acquired assets and liabilities at a particular point of time. For the purpose of obtaining
the material and relevant information necessary for ascertaining the financial strengths
and weakness to an enterprise, it is necessary to analyze the data depicted in the financial
statement. The analysis is done by properly establishing the relations ship between the
items of balance sheet and profit and loss account.
Financial statement analysis is a meaningful interpretation of Financial
statements for parties demanding financial information. There are certain steps, which
have to be taken into consideration for financial statement analysis. The analysis and
interpretation of financial statements is an important accounting activity. The end users of
financial statements will get further insight about financial strengths and weakness of the
firm. Management will be particularly interested in knowing financial strengths of firm to
make their best use to be able to spot out financial weakness to take suitable corrective
actions also the future plans of firm should be laid down in view of firm's financial
strengths and weakness.
A proper financial analysis must be used to analyze a firm's past performance and
assess its present financial strength for making the better future plans. The financial
resources of every organization are always scarce and therefore require proper planning
and control in order to achieve the best out of funds available. The financial information
of companies consists of three basic financial statements viz; balance sheet, the trading
and profit and loss account, and the profit and loss appropriation account. These
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statements are very useful for evaluating the financial position and performance of a firm
through financial analysis.
The information given in basic financial statements serves no useful purpose
unless it is interpreted and analyzed in some comparable terms.
Need for study:
After the liberalization, many MNCS entered into the market. Financial analysis
must require for a company in this cut through competition. Because of that reason ratio
analysis is used in analyzing the firms position. Known that fact the success of an
organization depends upon the financial management. This situation has created an
interest to study and analysis some of the financial aspects of this corporation. Hence a
study may be undertaken on financial analysis through ratio in KDMPMACU,
Vijayawada.
Objective of the study:
Keeping in view of abovementioned facts, the following are the objectives of
the study.
To analyze the financial performance the firm thorough calculation of variousrations.
To study the financial strengths and weakness of the firm To examine the short-term solvency of the firm. To evaluate the capital structure of the firm through leverage rations To find out the reasons of the problem and to evaluation possible way of the
resolving the problem.
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Methodology of the study:
The data related to the financial statements of the KDMPMACU and information
relating to the Ratio Analysis has been collected using primary and secondary data.
Primary data:
Information, which is not available in annual reports and books of the company, is
collected from the primary data, primary data is collected from discussions with the
executives of the company.
Secondary data:
Data relating to the financial statements of the KDMPAMACU have been
collected from the published annual reports. The other information regarding this topic
has been collected form the various magazines, textbooks and websites.
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Limitation of the study:
The entire study is based on financial data that is provided by the companys
financial statements. Therefore the following are the limitations of the study.
The limitations of ratio analysis are applicable to the study. The study is limited to a period of 8 weeks. Calculate ratio may not be future indicators. Ratio analysis is one of the tools of evaluating the firm.
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CHAPTER - II
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PROFILE OF THE MILK INDUSTRY
India is known to be an agricultural economy. Indian Agriculture supports about
65% of its population. Dairy and livestock sectors play a pivotal role in Indias Agrobased economy. Animal Husbandry and Dairy Development has greater prominence in
Rural Economy. The dairying is subsidiary to agriculture and practiced since time
immemorial.
Milk is the leading agriculture produce worlds most important and versatile food.
There was no market facility for the surplus milk produced in village in the olden days.
The market was in the hands of a middleman called vendor who operates between
producer and consumer in those days. The producer was exploited by the vendors.
The marketable surplus in the rural area and the4 rapid urbanization in the country
led to organize projects for surplus milk procurement from the villages and to supply
pasteurized liquid milk to the needy urban and semi urban consumers.
The age old dairying grew, in organized sector with the governmental control and
support. There were few competitors in the organized sector for milk market. So also
very few small investor owned firms in the Milk Business as we studied.
The Government has taken inspiring initiatives for structural modes nation-wide
for dairy development, animal husbandry and allied industries.
The cooperative movement with its widespread network has made strong grass
roots and insights into the concerns of dairying in India.
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NDDB:
An autonomous National Dairy Development Board (NDDB) under the Ministry
of Agriculture was set up to organize the milk producers cooperatives on AMUL (Anand
Milk Union Limited) pattern. The NDDB was headed by Dr. Verghese KUrien, who
architected the dairy industry in the country. The NDDBS role in bringing about a sea
change in dairying in India since 70s has been credible. It launched, implemented and
fulfilled the OPERATION FLOOD program in two phases in the country (1970-90).
Milk products imports was controlled and canalized by the government mostly on the
advice of NDDB.
This planned correlation of b3eneficial policies, very limited completion and a
well designed and managed program allowed the Dairy Cooperatives movement to
achieve the leading role in dairy development in out nation.
Dairy plants operating in India:
(Source: I&ids-2002-03.)
Dairy Plants Number Capacity0001/day
Cooperative 1223 28394
private 403 32415
Other 63 12170
Total 678 72979
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Anand pattern Dairy Cooperatives:
The Anand pattern Dairy Cooperatives were replicated primarily across the
country to eliminate middlemen in milk business to empower the millions of rural milk
producers to take control over Dairy Cooperatives by setting up cooperatives creating an
institutional structure to enable the farmers to realize maxim share of consumer rupee and
there by; bringing about overall social-economic development at the village level. In
Anand model, a vertically integrated 3 tier Dairy Cooperative structure i.e. 1) Society at
village level, 2)Union at District level and 3)Federation at state level in various States.
The dairy Cooperatives have played an important role in increasing the production of
milk and its handling in organized sector. Farmers are actually encouraged to manage
their own business controlling procurement, processing and most importantly marketing
of their milk and milk products. In the whole value chain marketing is the important only.
Their real assets are ownership of cooperatives and brand of their product. The
foundation for success of dairy cooperatives 2wha built through OPERATION FLOOD
91970-90). Only true and effective participation in genuine producer institution gave
Indian farmers their rightful and deserved place in our agricultural economy. The real
strength of Diary cooperative structure lies in the village. The estimated overall surplus
of milk in the country is paving way to find a sustainable domestic and overseas market
by value addition to the produces.
Dairy Cooperative Societies in India
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WHITE REVOLUTION:
The WHITE REVOLUTION popularly down is the first revolution in dairy
sector. It provide dairy cooperative network covering about 12million farmer members
in over 115000 Villages Dairy Cooperatives in 170 Milk sheds spread over 270 District
all across the country.
Total Farmer Members under Cooperatives
0
20000
40000
60000
80000
100000
120000
140000
1980-81 1990-91 2000-01 2005-06 2006-07
RATIO
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(SOURCE: AR, NDDB)
In India Diary industry thus has the saga of success and led to WHITE
REVOLUTION in 80s. Dr.Varghese kurien for his pioneering efforts in this
phenomenon is aptly regarded as FATHER OF WHITE RECOLUTION.
Milk produced by Co. operatives
0
2000
4000
6000
8000
10000
12000
14000
1 2 3 4 5
RATIO
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Milk production in India:
India, the current leader in dairy worlds achieved first rank in milk production
with an annual production of 910 million tones of milk. It is contributing about 30% of
total value of agricultural GDP. The value of milk out put and its products is 17000 core
and that of diary industry as a while is 105000 core rupees. Nearly, 18% of total milk is
being produced by weaker sections of society to supplement their income for livelihood
which ultimately made India the highest production of milk in the world. The fact is that
this highest milk production is due to involvement of 70 million rural milk animal
household maintaining 108 million beads cattle (i.e.64million cows and 44 million
buffaloes).
Buffaloes contribute largest to the milk pool with about 46.5 million tones955%).
Thus the dairying is the main stay of Indian Rural Economy and regarded as one of the
vital instrument of economic and social changes by employment and income generation.Approximately, Rs 300 million is ploughed back to Indian Villages on every single day
by way of milk payment.
After independence several technologies have been evolved for increasing
production, productivity of the crop as well as animals by improving the adoptive
0
5000
10000
15000
20000
25000
1980-81 1990-91 2000-01 2005-06 2006-07
RATIO
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behavior of the farmer. The dairy is the sector where the poor contributes to the growth
directly instead of getting benefit from growth generated elsewhere.
The Indian dairy scenario is so constantly looking ahead and promises to take
grater strides in making dairying more remunerative to the farmers. The problem of rural
employment and poverty broadly correspond to agricultural scenario in the country. The
programs have been restructured dovetailing with many projects under Rural, Animal
Husbandry Departments by the Government. Milk production enhancement schemes
were widely introduced by Animal Husbandry Departments. Animal breed up-gradation,
artificial insemination, etc have extensively organized. There has been a consistent
growth in milk production over the last few decades at a rate of 4%. The National Policy
on Agricultural advises farmers to diversify their risks by avoiding mono-cropping and
take of Animal Husbandry, Dairy and other businesses. Production of 100 million tones
of milk and a per capita milk availability of 245 g/day in 2006-07 is the overall
anticipated target.
Production and per capita availability of Milk
Per
capita availability of milk compare to other animal products
YearProduction
(Million In tones)
Per Capita
Availability ofMilk in Grams
1950-50 17 47.10
1960-61 20 45.60
1973.74 23.20 40.40
1980-81 31.60 46.20
1990-91 53.90 63.70
1992-93 58 66.80
1993-94 61.20 69.20
1994-95 63.50 70.60
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The average milk production from the buffaloes Is more than twice that of
nondescript cow. Buffalo is predominantly a milk animal. It is regarded as a triple
purpose animal also contributing milk, draught and meat as compared to the dual purpose
native cattle. Buffalo milk also fetches a good remunerative price to the farmers because
of its high fat content. The importance of deployment of appropriate technology for
improving the productivity and reducing the cost of milk production as also improving
the quality of mi8lk at producer level is addressed on requited scale with positive results.
Farm level Targets for milk production
Animal product Animal productionPer capita
availability
Milk 84.5 million tones 224ml/day
Eggs 34034millions 34/annum
Meat 4694000tones 4700gms/annsum
Wool 50.70 51r/annum
Farming system category of Dairy stocktargeted production
(kg/day)
Dairy stock under crop livestock integrated system up to 10 kg
Intensive Commercial Dairying
Indigenous milk breeds 10-15 kg
Cross Bred 15.25 kg
Buffaloes 10-15 kg
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The dairying as an integral part of agri-business in India is growing rapidly. The
upsurge in the dairy sector following liberalizations has been a shot in the arms of private
sector in India. The increase in demand for value added products and increasing
investment in the cooperative and private sectors provides grater impetus to the demand
for milk processing equipment simultaneously in the county. There are many large Dairy
engineering companies established in the county providing complete solutions to the
dairy industry to cater to the need of equipment for processing, automation and
packaging. They are successful in the state of the art process technology.
Institutional capacities in India
The traditional dairy products are available commodity group in India because
they result in trade worth of rs.250 billion and play a very significant role in the socio-economic and religious activities of our population. It is estimated that more than half of
total milk produces is converted into variety of Indian Dairy Products by unorganized
sector has remained largely confined to handling of liquid milk and to some extent
production of milk powder and Ghee. The per capita income is naturally increases the
demand for milk and milk products. With an increase in the domestic consumer base and
continuous rise in the Indian ethnic population in many parts of the world, there will be
an increased demand for value added Indian Dairy products particularly those with
extended shelf-life and also which are ready-to-serve and ready-to-reconstitute types in
the present trends. The Indian Dairy Industry is essentially considered to initiate
manufacture of mass market products for domestic as well as export markets. The dairies
are modernizing to manufacture newer products with food safety to meet the every
changing food habits of the consumer.
Institutions handling capacityNumber/capacity of
Handling
Dairy Cooperatives 84289
Rural Milk Procurement 15780 Tones/day
Milk Marketing 9534 Tones/day
Liquid Milk Processing Capacity 27084 Tones/day
Power Manufacturing Capacity 1054 Tones/day
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Dairy Exports
(Source: I&IDS2002-03)
The demand for milk and milk products is hiking fast and projected to be 5
million tones per annum on average over the next 15 years. It is estimated to be 180
million tones per annum by the end of 13th
Five year Plan (2021-21). The draft National
Dairy Plan with an estimated outlay of Rs.173 billion focuses on
1. Productivity measures to enhance milk production at the required place, toensure that demand is met by domestic production and not by imports and
2. Strengthening and expanding infrastructure at village to dairy plant levelto procure, process and market milk through existing and new institutional
structures.
It is envisaged that these two interventions by appropriate authority will enable
the organized dairy sector to increase its share of marketable surplus from a current level
of 3 per to around 65% by 2021-22 and thus ensure a consistent supply of quality milk toconsumers.
Dairy Product
Value
(Rs in Millions)
Milk and Cream (Non-concentrated) 0.60
Milk and Cream (Concentrated) 736.00
Butter Milk, Yogurt, Cream 0.90
Butter and Butte4r Oil 237.40
Whey and Whey Products 37.10
Cheese and Curd 7.50
Total 1019.50
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Liquid Milk marketing under cooperatives
At this juncture, there are few critical and interrelated challenges too for the dairy
industry.
The cooperatives are no longer the only major players in our milk markets. The
entry of private sector and multinationals in the dairy business is no longer regulated
following liberalization policies of the Government. Many privateers made serous
inroads into the best milk sheds and deploying the full range of modern professional
marketing methods. The result is that they are capturing ever increasing share of milk
and milk products market containing the growth of cooperative produce in the market.
The milk procured by the cooperative sector seems to be only about 15% of the
marketable surplus.
In the strengthening Cooperative Business the NDDB conceptualized New
Generation cooperatives called Milk Producers Institutions (MIPS) for better and more
stable incomes in the competitive environment.
0
2000
4000
6000
8000
10000
12000
14000
16000
18000
20000
1980-81 1990-91 2000-01 2005-06 20006-07
RATIO
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Milk producers Companies incorporated under the producer Company Chapter of
Companies Act, 1956 which retain the character of cooperatives both in spilt and
practice. They are required to adhere to and uphold the basic principles of cooperation.
They are required to adhere to and uphold the basic principles of cooperation. They
operate with in the same business and regulatory frame work enjoyed by companies.
Cooperatives are also seeking to expand business through horizontal growth often
achieved through alliances and joint ventures with other cooperatives and investor owned
business. This is being followed gradually in some of states in the country with the
active support of the NDDB. The NDDB is taking lead in this direction in spite of
criticism from some quarters that is basically against its constitution. This transformation
to follow all over the county is to be hopefully watched for its results .
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PROFILE OF THE
KRISHNA MILK PRODUCERS MUTUALLY AIDED
CO-OPERATIVE UNION LIMITED
The Krishna District in Andhra Pradesh is endowed with rich agricultural and
livestock wealth, which are two main planks to keep the district ahead of other in the
state. Agriculture and dairying is a subsidiary occupation for the majority of people in
the district. Most of them are marginal, landless, poor farmers and laborers. The Krishna
district has great potential for milk production with a substantial marketable surplus to
tap. The market oriented milk production is the key livestock activity to generate stable
income for the farmer. About 90% of rural households are directly concerned with
livestock production 40% are mainly dairy oriented. It is livelihood security to the rural
poor and buffers the risks due to crop failure.
Cattle Population in Krishna (2006-07)
BREED ABLE
ANIMALS
POPULATION
In Lakes
Buffaloes 4.14
Cows 0.38
Total 4.52
The organized dairying in Krishna District commenced in 1965 by the state
Government with the assistance of UNICEF. (United Nations International Children
Emergency fund). Under a pilot project named INTEGRATED MILK PROJECT-
HYDERABAD AND VIJAYAWADA (1960) a milk supply scheme was introduced in
1965 to organize milk collection from the villages, to Process at Chilling Center and
supply pasteurized milk to the Consumers at Vijayawada and Hyderabad. The Milk
Supply Scheme was a great success with its services to the producers and Quality
supplies to the consumers. The initial procurement network was gradually extended to all
over the district within a span of 5 years. The milk Products Factory first of its kind in
South India was established and commissioned in Vijayawada by 1969.
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Starting with a tiny procurement of 243 liters of milk on 11-02-1965 under the
milk Chilling Center, pamarru, the collection in the District has surpassed one lakes-
installed capacity of Milk Products Factory, Vijayawada with in two years i.e. in 1971
necessitating Additional capacities.
The Units were under Dairy Development Department (1971). The products
manufactured at Milk Products Factory, Vijayawada such as Butter, Ghee, skim Milk
Powder, Whole Milk powder whole Milk Powder and infant Milk Food with the brand
name VIJAYA earned appreciation of consumers all over the county. The VIJAYA
became synonym for superior quality competing AMUL. The Milk Project is a buzzword
among the public all over the region. The expansion of milk Products Factory, to meet
the increased handling needs has been taken up later under OPERATIONFLOOD
programmed by National Dairy Development Board (NDDB).
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Existing infrastructure Facilities in Krishna Union
S.NONAME OF THE
FACILITY
UNIT CAPACITY
MILK CHILLING
1 Pammaru Liters/Day 50000
2 Verrankilock Liters/day 18000
3 Gudlavalleru Liters/day 18000
4 Hanuman Junction Liters/day 18000
5 Chillakallu Liters/day 12000
6 Tirucvur Liters/Day 12000
TOTAL CHILLING 128000
II MILK PROCESSING Lakes liters/Day 2.50
III GHEE Manufacture MITS/Day 18.00
IV Milk Drying MITS/Day 22.00
V U.H.T.Milk MITS/Day 45000
VI CATTLE FEED MIXING FACILITY
1 BUDHAVARAM MITS/Day 30.00
2 Gudlavalleru MITS/Day 18.00
TOTAL 48.00
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Organization
Integrated Milk Project 91960)
Dairy Development Department (1971)
AP Dairy Development Corporation Ltd (1974)
AP Dairy Development Co-op Federation Ltd (1981)
Milk Coop Societies 676
Milk Producers Associations 320
Procurement Routes 35
Women Dairy Coop Societies 103
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There was a big retinue of 1850 staff in different categories working under the
dairy Units in the District under the administrative control of AP Dairy Development
Corporation (APDDC) a State Government Undertaking in 1974.
The nationwide strategic and structural changes organized for Dairy Development
activities across the nation have brought the dairy units under the coo0perative set up In
Andhra Pradesh in 1981.The replication of Anand pattern Dairy Cooperatives in Krishna
District has its beginning with the all out support of NDDB. Primary Milk Producers
Cooperative Society at Village level and District Milk Producers Cooperative Union at
District level and AP Dairy Development Cooperative Federation At state level have
come in to being. Enormous infrastructure financed by NDDB under Operation Flood
program was developed for procurement, processing and marketing in the District.
The structural and institutional reforms that are part and parcel of NDDB took
few years to unfold Krishna Milk Union in 1983 functioning under the AP Dairy
Development Cooperative federation an Apex Body under APCS, 1964. (Andhra
Pradesh Cooperative Societies Act, 1964).The management of dairy units in Krishna
District transferred to the respective democratically elected Bard of management with
assets and liabilities and staff as is where is with effect from 08.02.1985. The producer is
the owner of the business.
Assets and liabilities as on 08-02-1985
S.
PARTICULARS
VALUE
(RS.In lakes)
1 Assets Hyd. From APDDCF 173.96
2 Assets Hyd. From APDDCF 241.37
Total 415.33
1 Loans Transferred from APDDCF 231.21
2 Net Value of Assets Transferred 184.12
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The Union has to function as per the bye-laws. The APDDCF is the Apex Body.
Marketing with in the district is of the union and outside the state, it is controlled by
Federation. The operational area of the Union is restricted to Krishna District only.
The Union with its inherent problems had undergone travails in 80s and 90s for
survival. The performance of federation towards its constituent union was deplorable.
The Federation has been impeded by carious institutional and management weaknesses.
Unfortunately, it has not adopted the view of let us get through the crisis together.
Krishna Union was running with abnormal staff cost of 22 percent over its turnover,
which is un bearable, and against the industrial norms threatening the very existence of
the Union.
The Union ventured to prune the surplus manpower by implementing VRS
(Voluntary Retirement Scheme) in a phased manner with an outlay of Rs.10crores. The
state Government and NDDB funded one third of the total investment.
Staff Cost
Year 1985 1992 2001 2007
No. of Employees 1850 1800 1100 570
Salary Cost per
Annum (in lakes)289 670 1629 2400
Krishna Union adopted several measures to discharge its liabilities and to have a
turnaround so as to herald a new path to get better and assured returns to the member
producer to his produce-MILK building well governed producer centric institutions with
Mission and Vision.
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Voluntary Retirement Scheme
Phase No. of Employees Retired
Fist to Vth 86
Total 736
Mission:
Farmers prosperity through technical innovations and Customer orientation with
specific focus on quality and cost.
Vision:
Dairying in the district to be the major instrument of Strengthening rural economyand making available safe Milk and Milk Products.
Quality Policy:
Aiming to be a technologically advanced dairy with global outlook providing
products and services of highest quality delighting the customers.
The Krishna Union has successfully:
1. Evolved long term policies to encourage and augment milk production andproductivity in the District.
2. Improved efficiency in reducing the cost of operations, at every stage from ruralfarmer to urban customer.
3. Increased the availability of milk and Milk Products every nook and corner ofDistrict.
4. Developed and restructured manpower of organization to achieve competitiveedge.
5. Consolidated the cooperatives structure among the dairy farmer.
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Dairy Cooperatives Organized
2002-03 2003-04 2004-05 2005-06 2006-07
630 634 636 636 676
Farmer Member
Year No. of Farmers
2002-03 118700
2003-04 119000
2004-05 125000
2005-06 128286
2006-07 131272
2007-08 131272
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Procurement Price Increase
YearMilk Price
KG.Fat RS
2002-03 175.00
2003-04 185.00
2004-05 195.00
2005-06 200.00
2006-07 215.00
2007-08 255.00
Most of the villages Dairy Cooperative Societies are viable and managed by the
producer members receiving better technical know-how. The Government has enactedAPMACS Act, 1995. (Andhra Pradesh Mutually Aided Cooperative Societies Act,
1995), which provides autonomy to the cooperatives. As per the policy and directives
from the state Government/Federation, the Dairy Cooperatives registered under APCS
Act, 1964 were converted into APMACS Act, 1995. the Krishna Milk Union also opted
for conversion into APMACS Act, 1995 in July 2001 in consonance with the wishes of
its member producers.
Elections are being held as per byelaws to the Board of Management of Krishna
Union under APMACS Act, 1995.
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General Body
Board of Union
Managing Committee
Village Society
Member Producer
In the Society
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The Board of Management is translating its concepts into realities as we study
further.
The Union was under tremendous pressure at a stage to reformulate independently
under the APMACS Act, 1995 since 2001. Both the state Federation and Government
have adopted different stance towards the Union under the APMACS Act as the
Federation can no longer exercise control over the Union as they enjoy autonomy in their
affairs. The cooperation and coordination to the Union from the APDDCF is lacking.
Relations between Union and Federation stained. Several hurdles were crated in
marketing activities of the Union in order to affect its fiscal status to organize the
business. The State Government has finally promulgated an Ordinance in Feb 2006 de-
linking the Dairy cooperatives only from the APMACS Act, 1995 and bringing them
back into the APCS Act, 1964 under which they can have full administrative control.
The Union approached the High Court in the matter and their appeal was allowed and
dismissed the Ordinance issued as unconstituti0oanl since then the Government and the
Federation were adopted a vindictive attitude towards the Union in all its spheres. The
Krishna Milk Union is taking tentative steps to address the potent yet potential volatile
question of autonomy under the APMACS Act.
The farmers of Krishna District have so much faith and trust in Krishna Milk
Union and giving their produce in maximum in spite of private players. The Union has
sustained share of 70% in procurement and 60% in liquid milk marketing. The Krishna
Union is distinctly placed in the dairy map of Andhra Pradesh by its continuous growth.
The union is trying to maintain a long time e position with regard to short-term
difficulties faced in organizing the union and the industry in the district. It is poised to
avail of the producers confidence, the resources and the network to pursue its mission of
serving the Producers there by socioeconomic growth dairy and industry in general.
The Krishna Union is translating its concepts into reality as we go in detail.
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The Krishna Union has the Salient Features
1. Turnover of Business reached to Rs.164 Cores in 2006-07.
2. Dairy Average Milk Procurement 185000 Lts.
3. Highest Milk Procurement 310000 Lts.
4. Dairy Average Milk Sales 164000 Lts.
5. Obtained ISO; 9001:2000 and HACCA.
Milk is inherently one of the best Good for You foods in todays
market place.
Changing consumer food habits, preferences increasing health consciousness and
also the upsurge in the economy are leading to dramatic change in the market trends
frequently.
Demand is a phenomenon based primarily on need of the consumers purchasing
power and product quality.
Vijaya the renowned brand of Krishna Milk Union has strong equity among
consumers. It has been able to make an impact despite the premium pricing. The brand
offer, good margin to the traders. Union has a direct liquid milk market of 80% out of itsprocurement. It is converting surplus milk into diverse products.
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PRODUCT MIX OF UNION
Market Milk
Vijaya Gold * Vijaya Special * Vijaya Premium
Vijaya Economy *Vijaya Low Fat
Long Life Products
UHT Milk in 1 it pack * UHT Milk in 200ml pack * UHT Low Fact Milk.
Fresh Milk Products
Basundi * Curd * Lassie * Butter Milk * Sterilized Flavored Milk
Fresh Milk Products
Cooking Butter * Milk Cake * Skim Milk Powder * Paneer * Doodh Peda
* Ghee
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With its wise-policies maintaining equilibrium between supply and demand
through out the year without imposing restrictions in the supplies of milk and milk
products.
Milk Production has risen but productivity is low. Effort is on for quality in milk
production upstream of the processing plant. Union is involved in producing good
products establishing quality by upstream integration with Good Hygiene practices given
by cooperatives. For Downstream side, the checks at plant and market level too exist.
Quality is equally valued by one and all in the set up. The employees quality
consciousness and commitment makes the products superior in spite of stiff completion
from carious other brands in the domestic market. After initial focus on the homemarkets, and attaining considerable national market is now targeting on the overseas
market.
The union is publishing a Monthly News Magazine titled; Krishna Ksheeravani
a media on carious aspects of dairying to the member producers.
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The dairy and livestock development is very much linked with veterinary. The
Stable sustained income being provided by Krishna Union to the Dairy farmers is
creating an enthusiasm among the farmers to rear quality breed for higher yield.
Comparing to the cattle population the scale of our veterinary services to the needy
farmer is not up to the mark for various reasons. The increasing shortage of qualified
veterinary and Para-medical staff, inadequate veterinary dispensaries restricted budgetary
allocations for Animal Husbandry and paucity of funds for Vet-Medicare are a few
co0nstraints that need to be addressed with by state Government.
The Krishna Union realizing the importance of input services to the farmers for
sustained milk production is
1. Deploying retired veterinarians at each Milk Chilling Center for animal healthcare services in the clustered villages.
2. Imparting training to the staff of Dairy Cooperative in Veterinary First Aid andArtificial Insemination.
3. Providing fodder seed and slips.
4. Supplying balance feed for animals.
5. Organizing Mass veterinary camps.
6. Subsidizing cattle insurance premium.
7. Inducting Murrah breeding bull to upgrade the local breed.
Women empowerment
Women are exclusively manning 104 Dairy Cooperatives, which provides them
empowerment.
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MILK PRODUCTS FACTORY FUNCIONAL CHART
Raw Milk Reception Dock:
Receives Raw Milk Chilled Milk from different sources.
Tests initial Keeping quality accepts for further process and weighs milk received.
Collects Samples for Fat & SNF analysis by QCL for determination of valuepayable.
Pumps to processing section for further treatment of milk.
PROCESSING:
Pasteurization Cream separation Homogenization Standardization/ Toning of milk as per different standards for marketing. Reconstitution and Recombining of milk. Stores milk for other operations / utilities.
BUTTER:
Obtains cream and ripens for Butter Making. Produces white Butter, packs in 20kg blocks and stores.
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GHEE:
Converts Butter and Cream into Ghee maintaining, AG Mark standards.
Packs in Bulk Packs (15Kg) and small consumer packs for market.
POWDER:
Draws milk from processing section and spray dry into SMP, WMP.
Packs in 25Kg poly liners for future disposal.ASEPTIC PACKAGING STATION:
Treats milk at Ultra High Temp and packs aseptically for long shelf life with outrefrigeration.
Undertakes custom packaging of beverages.
PRE PACK:
Packaging of different quality types of milk in sachets and in cans for market.
Storage of satiated milk for distribution.
BI-PRODUCTS:
Manufactures various traditional products to meet market demand.
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CIP: (Cleaning in-place)
Cleaning all daily equipment after each days operation to ensure hygieneand sanitation for further operation.
FG section: (Finished Goods)
Stocks all finished products for subsequent release as per requirementindents.
STORES: (General and Mechanical)
Keeps inventory, supplies packing materials for different products,chemicals, equipment, spares required in the dairy operations regularly.
ENGINEERING DEPARTMENT:
BOILER: General steam required for dairy operations.
ELECTRICAL: Monitors power supplies for all operational needs.
REFREIGERATION: Meets refrigeration requirements of the Dairy.
MAINTENANCE: Look-after both the trouble shooting and preventive maintenance
of dairy plant for smooth and uninterrupted opera ions.
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QUALITY CONTROL LABORATORY (QCL):
Oversees ensuring rigorous quality control checks as per relative Laws/Acts at various level of production and Operations.
Product gets out after the clearance by QCL.
Stringent checks adopted on purchases and supply of stress material of theorganization.
CIVIL:
Executes all civil nature of works for up-keeping of units.
TRANSPORT:
Provides limited transport facilities.
SECURITY: Shoulders responsibility of security and vigilance in the dairy and units to
prevent untoward incidents of any nature.
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CHAPTERIII
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FINANCIAL ANALYSIS:
The analysis and interpretation of financial statements is an important
accounting activity. The end users of financial statements will get further insight
about financial strengths and weakness of the firm. Management will be
particularly interested in knowing financial strengths of firm to make their best use
to be able to spot out financial weakness to take suitable corrective actions also the
future plans of firm should be laid down in view of firm's financial strengths and
weakness.
A proper financial analysis must be used to analyze a firm's past
performance and assess its present financial strength for making the better future
plans. The financial resources of every organization are always scarce and
therefore require proper planning and control in order to achieve the best out of
funds available.
The financial information of companies consists of three basic financial
statements viz; balance sheet, the trading and profit and loss account, and the
profit and loss appropriation account. These statements are very useful for
evaluating the financial position and performance of a firm through financial
analysis.
The information given in basic financial statements serves no useful
purpose unless it is interpreted and analyzed in some comparable terms.
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Tools and techniques of financial statements:
A host of methods or techniques is used to study the relationship between
different statements. However, the following methods of analysis are generally
used:
1. Comparative financial statements2. Common-size statement3. Trend analysis4. Ratio analysis
1. Comparative financial statements :
Comparative financial statements are statements of financial position at different
periods of time. Usually , two financial statements(balance sheet and income statement)
are prepared in a comparative form placing figures for two or more periods side by side.
Comparative statement analysis refers to comparison of financial statement pertaining to
two different periods by putting them side-by-side and finding out the changes in
absolute and relative changes.
Points to be noted:
a. The financial date that is to be compared be properly defined. A particular
account head must have the same connotation for all periods of comparison.
b. The accounting policies followed during the period of comparison should
be uniform if there are any changes in any policies, the figure should be
uniform if there are any changes in any policies, the figure should be
adjusted to ensure uniformity.
c. It is preferable to present financial information in vertical statement form.
The comparative financial statement must reveal changes in both absolute and
relative measures.
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2. Common-size statements :
Common size statement facilitates comparison of financial statement not
only of a single firm over a period of time, but also comparison of financial
statement of different companied for any given time. Under, this method, all the
items of the statement are presented as a percentage of a particular item.
Therefore, even if the related absolute figures are in respect of vastly differently
scale of operations, a common base for comparison is created.
Incase of a common size income statement, all the items are presented as a
percentage of new sales. A common size balance sheet shows each item as a percentage
of total assets or total liabilities. A common size statement helps. In determining the
relative efficiency and soundness of a firm and helps in understanding its financial
strategy.
The common-size statements (balance sheet and income statement) are
generally shown in analytical percentages. Common-size are those in which
figures are stated after converting them into percentage to some common base.
These statements are often called component percentages or 100 percent
statements because each statement is reduced to the total of 100 and each
individual item is stated as a percentage of the total of 100.
3. Trend analysis:
Trend analysis involves computation of index numbers of movements of
various financial items in the financial statement for a number of periods. It helps
in understanding the nature and rate of movements in various financial factors.
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However, conclusions should not be drawn on the basis of a single trend.
Trends of related items should be carefully studied. Due weight age should be
given to extraneous factors such as government policy, economic conditions etc.
they can affect the trend significantly.
Points to be noted:
a. The accounting policies for the entire period should be uniform.b. Trend value must be read along with absolute values.c. Non - financial factors should be considered while interpretation.
Absolute value of the item for the periodTrend Analysis = ------------------------------------------------------------- X 100
Absolute value of the item in the base period
4. RATIO ANALYSIS:
Financial statements are prepared primarily for decision making. They play a
dominant role in setting the frame work of managerial decisions. Financial analysis is
the process of identifying the financial strengths and weakness of the firm by properly
establishing relationship between the items of the balance sheet and the profit and loss
account. There are various methods or techniques used in analyzing financial
statements, such as comparative statements, schedule of changes in working capital
statements, such as comparative statements, schedule of changes in working capital,
common size percentage, funds analysis, trend analysis and ration analysis. The ratio
analysis is the most powerful tool of financial analysis.
MEANAING OF RATIO:
According to accountants hand book by WIXON, KEL AND BEDFORD,a
ratio is an expression of the quantitative relationship between two numbers. A ratio is
simple arithmetical expression of the relationship of one number to another. It may be
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defined as the indicated quotient of two mathematical expressions. Ratio provides clues
to the financial position of a concern. One can draw conclusions about the exact financial
position a concern with the help of ratios. Ration 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.
PURPOSE OF RATIO ANALYSIS:
The ratio analysis is one of the most powerful tools of financial Analysis. It is
used as a device to analyses and interpret the financial statements can be analyzed more
clearly and decisions made from such analysis.By the use of ratio analysis one can
measure the financial conditions of a firm and can point out whether the conditions is
strong, good, questionable or poor.
USES:
Financial statements are prepared primarily for decision making. Ratio analysis
helps in making decision from the information provided in financial statements.
Ratio analysis is of much help in forecasting and planning. Meaningful conclusions canbe drawn for future from these ratios.
Financial strength and weakness of a firm are communicated in an easier manner
by using ratios. Ratios help in communication and enhance the value of the financial
statements.
Ratios even in coordination which is of utmost importance in effective business
management. Ratio analysis also helps in making effective control of the business.
Standard ratios can be based upon preformed financial statements and variances ordeviations, if any, can be found by comparing the actual with the standards so as to take a
corrective action at the right time. Ratios are of immense importance in the analysis and
interpretation of financial statements as they bring out the strength or weakness of a firm.
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INTER-FIRM COMPARISON:
Ratios of one firm can also be compared with the ratios of some other selected
firms in the same industry at the same point of time. This kind of comparison helps in
evaluating relative financial position and performance of the firm.
INTRA-FIRM COMPARISON;
Ratios of various departments in the same firm or organization were compared in
intra firm comparison.
LIMITATIONS OF RATIO ANALYSIS:
The ratio analysis is one of the most powerful tools of financial management.
Through ratios are simple of calculate and easy to understand, they from some serious
limitations.
Limited use of single ratio: A single ratio, usually, does not convey much of a sense.
To make a better interpretation a number of ratios have to be calculated which is likely to
confuse the analyst than help him in making any meaningful conclusion.
Lack of adequate standards: There are no well accepted standards or rules of thumb for
all rations which can b e accepted as norms. It renders interpretation of the ratios
difficult.
Inherent limitations of accounting: Like financial statements, ratios also suffer from the
inherent weakness of accounting records such as their historical nature. Ratios of the past
are not necessarily true indicators of the future.
Change of accounting procedure: Change in accounting procedure by a firm often
makes ratio analysis misleading. E.g., a change in the calculation of methods ofinventors form FIFO to LIFO increase the cost of sales and reduces considerable the
value of closing stocks which makes stock turnover ratio to be lucrative and an
unfavorable gross profit ratio.
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Personal Bias: Ratios are only means of financial analysis and not an end in itself.
Ratios have to be interpreted and different people may interpret the same ratios in
different ways.
Classifications of ratios:
The use of ratio analysis is not confined to financial manager only. There are
different parties interested in the ration analysis for knowing the financial position of a
firm for different purposes. In view of various users of ratios. There are many types of
ratios which can be calculated from the information given in the financial statements.
They might must be used for financial analysis
1. Balance sheet ratios 1. Liquidity ratios 1. Primary2. Profit & loss statements 2. Leverage ratios 2. Secondary3. Mixed ratios 3. Activity ratio
a. Creditors Turnover 4. Profitability ratiosb. Return on capitalc. Inventory Turnoverd. Return on Total Ratiose. Earning Per Sharef. Price of Earning
Ratios
Traditional
classificaiton
Functional
classificationSignificance
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Types of ratios:
Several ratios calculating from the accounting data can be grouped into the
various classes according to the financial activities or function to be evaluated. The
various parties that are generally under taken financial analysis to measure solvency andprofitability of the firm. Management is interested in evaluating every aspect of all
parties and see that the firm grows profitability. In view of the requirements of the
various users of ratios, we may classify them into following four important categories.
Liquidity Leverage
Activity ratio
Profitability ratioLiquidity ratio:
Liquidity ratio measure the ability of the firm to meet its current obligations.
Analysis of liquidity needs the preparation of cash, budgets and cash funds flow
statements. But liquidity ratios by establishing relation cash and other current assets to
current obligations provide a quick measure of liquidity. A firm should ensure that it
does not suffer from lack of liquidity, and also that it is not too much highly liquid. The
failure of company to meets it obligations due to lack of sufficient liquidity will result in
bad credit image. A very high degree of liquidity is also bad. Ideal assets ear nothing.
The firms funds will be un necessarily tied up in current assets. Therefore it is
necessarily to strike proper balance between liquid and lack of liquidity.
The most common ratios, which indicate the extent of liquidity or lack of,
It, are:
Current ratio Quick ratio Absolute ratio
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Current ratio:
It is called by dividing current assets by current liabilities,
Current Assets
Current ratio = -----------------
Current Liabilities
The ratio greater than one means that the firm has more current assets than current
ration of 2 to 1 or more is considered satisfactory. The current ratio represents a margin
of safety for credits.
Quick ratio:
Quick ratio is used as a measure of the companys ability to meet its
current obligations. Theis ratio is calculated as a supplement to the current
ratio in analyzing the liquidity of the firm. This can be calculated as
Quick Assets
Quick ratio = --------------------
Quick Liabilities
Quick Assets = Current AssetsStock and Pre Paid expenses
Quick Liabilities = Current Liabilities - Bank OD
A normal standard of 1 ; 1 acceptable quick ratio. A very high or very
how ratio is not desirable. It is used to measure the ability of the company to meet its
current liabilities at short notice.
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Absolute Liquid ratio:
Absolute liquid ratio is also be calculated together with current ratio and acid test
ratio as to exclude even receivables from the current assets and find out the absolute
liquid assets.
Absolute liquid assets
Absolute liquid ratio = ------------------------------
Current liabilities
Capital structure / leverage ratios / Long-term solvency ratio:
The long-term financial stability of a firm is considered as dependent upon its
ability to meet all its liabilities. The ratios, which are measuring the long-term solvency,
are:
DebtEquity ratio Share holders equity / property ratio Fixed assets to long term funds ratio
Debt to net converge ratio
Interest coverage ratio
Debt equity ratio:
Debt equity ratio indicates the relationship between long-term debts and
shareholders funds, it helps in knowing the soundness of the long-term financial policies
of a company. It is calculated as:
Long-term debt
DebtEquity = ----------------------------
Share holders funds
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Interest coverage ratio:
Interest coverage ratio shows how many interest. The ratio is calculated as:
Long term debt
Interest coverage ratio = --------------------------
Share holders funds
Interest coverage ratio:
Interest coverage ratio shows how many interest. The ratio is calculated as:
EBIT
Interest coverage ratio = -----------
Interest
Activity ratios:
Activity ratios measure how efficiency the firm employees its resources. These
ratios involve comparison between the level of sates and investment in various accounts
such as inventories, debtors, creditors, fixed assets etc., Activity ratios are used to
measure the speed with which various accounts are converted into sales are cash.
Every turnover ratio is calculated by dividing cost of goods sold or net sales by
respective account and each ratio gives the speed in which it turns cash or sales.
Cost goods sold (CGS): SalesGross Profit
The Major Turnover Ratios are:
Inventory turnover ratio Debtors turnover ratio Creditors turnover ratio
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Capital turnover ratio Working capital turnover ratio Fixed assets turnover ratio Total assets turnover ratio
1. Inventory turnover ratio:
Inventory turnover ratio indicates the number of times the stock has been turnover
during the paid and evaluates the efficiency with which a firm is able to manager its
inventory.
Cost of goods sold
Inventory turnover ratio = ---------------------------
Average inventory
Average inventory = Opening stock + Closing Stock/2
2. Debtors turnover ratio:
It used to show how the capital employed is efficiency use in the business. It
indicates the firms ability to generate sales per rupee capital employed.
Net sales
Capital turnover ratio = ------------------------
Working employed
Capital employed = Long-term funds + Reserve & Surplus +
preferential share Capital + Equity Share Capital
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3. Working capital turnover ratio:
Working capital of a concern is directly related to sales. The current assets like
debtors, bills debtors, bills receivables, cash stock etc., changing with increase or
decrease in sales.
Sales
Working capital turnover ratio = --------------------
Working capital
Working capital = Current assetsCurrent liabilities
4.Fixed assets turnover ratio:
Fixed assets turnover ratio shows a relation between sales and fixed assets.
Sales
Fixed assets turnover ratio = ---------------
Fixed assets
5. Total assets turnover ratio:
Total assets turnover ratio shows a relation between sales total assets.
Net sales
Total assets turnover ratio = ----------------
Fixed assets
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Profitability ratio:
Profitability is the overall measure of the companies with regard to efficient and
effective utilization of resources at their command. It indicates in a nutshell the
effectiveness of the decisions taken by the management from time to time.
Profitability ratios are of utmost importance for a concern. These ratios are
calculated to enlighten the end results of business activities which is the sole criterion of
the overall efficiency of a business concern.
Profitability ratio helps in assessing the adequacy of profits earned by the
company and also discovers whether profitability is increasing or decreasing.
Profitability ratios are measured with respect to sales, capital employed total assets
employed shareholders funds etc., and the major profitability ratios are,
Return on investment Return on capital employed Return on share holders funds Return on total assets Gross profit ratio Net profit ratio Operating profit ratio
1. Gross profit ratio:
Gross profit ratio measure the gross margin on the total net sales of company.
This ratio measure the efficiency of companys operation and can be sued to compare
with previous years results. Higher the gross profit ratio, better is for the company.
Gross profit * 100
Gross profit ratio = -----------------------
Net sales
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Gross profit = SalesCost of goods sold
Net Sales = Sales - Sales Returns
This ratio is designed to focus attention on the net profit margin arising from
business operations after interest and tax.
Net Profit
Net profit ratio = -------------
Sales * 100
2. Operating profit ratio:
This ratio is calculated by dividing earnings before tax and interest by sales. This
ratio is calculated as:
Net profit after interest and tax * 100
Return on capital employed= ------------------------------------------------
Capital employed
Return of total assets:
It established relationship between profit before interest and tax .
EBIT * 100
Return on total assets = ---------------
Total assets
Return on share holders funds:
I establish the relations hip between the net profit after tax and to share holders
equity.
NAPT * 100
Return on shareholders funds = ---------------------------
Share holders equity
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CHAPTER - IV
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I. PROFITABILITY RATIOS
Gross Profit Ratio:
The gross profit ratio indicates the extent to which selling prices of goods per unit
may decline without resulting the losses on operations of a firm. This reflects the
efficiency with which the firm produces its products. There is no standard norm of the
Gross Profit Ratio.
Gross profit * 100
Gross profit ratio = -----------------------
Net sales
Year Gross Profit Net Sales Ratio
2003-04 254067403 1136973196 22.35
2004-05 249110668 1257182689 19.81
2005-06 263510297 1367480960 19.27
2006-07 291057212 1573930933 18.49
2007-08 326551326 1628286699 20.05
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Interpretation:
We observe the above analysis it can be clearly find out that the profitability firm
is very good. The is the ratio in 2003-04 it was 22.38 it shows the good position of the
firm. In the later year in 2004-05 it was 19.81 and in 2005-06 it is 19.27 and in 2006-07 it
is 18.49 but is 2007-08 the ratio is 20.05 it was a in increase trend. It is advisable to the
firm to maintain in the ratio of in 2003-04 by that the firm will be more profitability
position.
Operating Ratio:
0
5
10
15
20
25
2004 2005 2006 2007 2008
Ratio
Years
rat
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Operating ratio indicates the percentage of net sleds the is consumed by the
operating cost. Obviously, higher the operating ratio, the less interest, income-tax,
dividend and reserves. There is no rule f thumb for this ratio as it may differ from firmto depending upon the mature of the business and the capital structure however, 75% to
85% may be considered to be a good ratio in the case of manufacturing undertaking,
operating ratio is considered to be a yardstick of operating efficiency.
Net profit after interest and tax * 100
Return on capital employed = ------------------------------------------------
Capital employed
Year Operating Cost Net Sales Ratio
2003-04 935081812 1136973196 82.60
2004-05 1052129915 1257182689 83.69
2005-06 1208938534 1367480960 88.41
2006-07 1305164294 1573930933 82.93
2007-08 1401241487 1628286699 86.06
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Interpretation:
It can be clearly understood that the operating efficiency of the firm was
satisfactory in the 2003-04 the ratio is 2.6 in the later gradually increased in the year
2005-06 it is 8.41 in the later gradually decrease in year 2006-07 it is the ratio was 82.93
but in 2007-08 the ratio is 86.06 it reached the satisfactory position. So it was advisable
to the firm to maintain the ratio as 2007-08 by that the firm can maintain in the
satisfactory position.
Operating Profit Ratio:
79
80
81
82
83
84
85
86
87
88
89
2004 2005 2006 2007 2008
Ratio
Years
ratios
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Operating Profit
Operating Profit = ------------------------- * 100
Net sales
Year Operating Profit Net Sales Ratio
2003-04 131210561 1136973196 11.54
2004-05 228179650 1257182689 17.91
2005-06 248830945 1367480960 18.19
2006-07 122962511 1573930933 7.81
2007-08 154783110 1628286699 9.50
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Interpretation:
It can be clearly understood that the operating profit ratio is 11.54 in 2003-04,
after it reaches 17.91 in 2004-05 & 18.19 in 2005-06, after that there is big fall in the
ratio 7.81 in 2006-07 & 9.50 in 2007-08.
Net Profit Ratio:
0
2
4
68
10
12
14
16
18
20
2004 2005 2006 2007 2008
Ratio
Years
ratios
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Net profit Ratio establishes a relationship between the net profit and sales and
indicates the efficiency of the management in manufacturing, selling administrative and
other activities of true firm. This ratio is overall measure of firms profitability. The
ratio is very useful as if the profit is not sufficient, the firm shall not be also to achieve a
satisfactory return on its investments
Net Profit
Net profit ratio = -------------
Sales * 100
Year Net Profit Net Sales Ratio
2003-04 1462125 1136973196 0.12
2004-05 2524495 1257182689 0.20
2005-06 933498 1367480960 0.06
2006-07 806059 1573930933 0.05
2007-08 2627248 1628286699 0.16
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Interpretation:
It we observe the analysis the firm 2003-04 the net profit ratio is 0.128 and it was
gradually increases 0.20 in the year it was decline that is 2005-06 it was 0.06 and in
2006-07 0.051 it is but in 2007-08 the net profit ratio is 0.16. So it is advisable to the firm
to maintain the ratio as in 2004-05 and in a increasing trend by that it can reach
satisfactory position
0
0.02
0.04
0.06
0.08
0.1
0.12
0.14
0.16
0.18
0.2
2004 2005 2006 2007 2008
Rato
Years
ratios
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Return on Share Holders Investment:
RIO is relationship between net profits and proprietors funds. Here the net
profits are visualized from the view-point of owners. This is the most important ratio
used for measuring the overall efficiency of the firm. As the primary objective of the
business of the business is to maximize its earnings. This ratio indicates the extent to
which this primary objective of business is being achieved. This ratio is of great
importance to the present and prospective share holders as well as the management of the
company
N.P. after Tax= ------------------------------ * 100
Share holders Equity
Year N.P. after Tax Share holders Equity Ratio
2003-04 1462125 33347902 4.38
2004-05 2524495 42557565 5.93
2005-06 933498 50919771 1.83
2006-07 806059 59043558 1.37
2007-08 2627248 68692536 3.82
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Interpretation:
It we observe the analysis it can be clearly found out that the return investment at
the present year satisfactory and there return may also decreased when ever the firm face
adverse economic conditions in 2004-05 it reaches the better position i.e 5.93 lter it was
gradually decline. But in 2007-08 is 3.82. It is advisable to the firm to maintain
increasing trend to get the best results.
0
1
2
3
4
5
6
2004 2005 2006 2007 2008
Ratio
Years
ratios
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II. LIQUIDITY RATIOS
CURRENT RATIO:
Current ratio always known as working capital ratio. Current ratio indicates, in
rough fashion, the liquidity of current assets or the ability of a business to meet its
maturing current obligations. The ideal form of the ratio is two top one (2:1 that means
two times of current assets to one time of current liabilities. If there is shrinkage or hand
loans etc. Will decline,
Current Assets
Current ratio = ---------------------
Current Liabilities
Year Current Assets Current Liabilities Ratio
2003-04 23,34,60,276 12,02,20,399 1.94
2004-05 23,95,57,366 12,38,42,895 1.93
2005-06 27,87,73,455 15,83,85,610 1.76
2006-07 29,69,44,630 15,18,90,249 1.95
2007-08 34,63,20,481 16,96,38,535 2.04
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Interpretation:
Current Ratio of the company assets are performing their job efficiency and
effectively by maintain the current assets for current liabilities in current manner that is
2:1 ratio. 2003-2004 the ratio is the1.94later gradually increased in 2007-2008 but in
2005-06 there was a slight decline in ratio i.e. 1.76.Ultimately it is advised for the
company to maintain the same level of current ratio is obtained 2006-2007 i.e 1.95 but in
2007-08 the ratio is 2.04 current assets double the current liabilities are considered to be
satisfactory for the firm.
1.6
1.651.7
1.75
1.8
1.85
1.9
1.952
2.05
2003-04 2004-05 2005-06 2006-07 2007-08
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QUICK RATIO:
Quick ratio is used as a measure of the companys ability to meet its
current obligations. This ratio is calculated as a supplement to the current
ratio in analyzing the liquidity of the firm. This can be calculated as
Quick Assets
Quick ratio = --------------------
Quick Liabilities
Year QUICK ASSETS Current Liabilities Ratio
2003-04 11,90,85,679 12,02,20,399 0.99
2004-05 13,22,21,296 12,38,42,895 1.07
2005-06 13,34,81,280 15,83,85,610 0.84
2006-07 16,58,05,298 15,18,90,249 1.09
2007-08 19,12,76,260 16,96,38,535 1.13
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Interpretation:
The quick ratio for K.D.M.P.M.A.C.U.L is table during the period of study. The
idea norms at this ratio are 1:1 in 2003-04 its ratio is 0.99 it way going on increasing in
2004-05 it reached 1.07 ratios on 2006-07 it reached 1.09 in 2005-06 there was a slight
decline in the ratio i.e. 0.83 but in 2007-08 the ratio is 1.13 it was increased.
By observing the above graph we can know that can reach 1 norm in fourth
coming year it is fallows the increasing trend as 2007-2008.
0
0.2
0.4
0.6
0.8
1
1.2
2003-04 2004-05 2005-06 2006-07 2007-08
RATIO
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ABSOLUTE LIQUIDITY RATIO:
The absolute liquidity ratio is also known as super quick ratio. Through
receivable are generally more liquid in nature than inventories. There may be doubts
regarding the real stability of debts. Therefore, absolute liquidity ratio relates the sum of
cash and marketable securities to the total current liabilities.
ABSOLUTE LIQUID ASSETS
ABSOLUTE LIQUIDITY RATIO = ------------------------------------
Current Liabilities
YearABSOLUTE
LIQUID ASSETSCurrent Liabilities Ratio
2003-04 3,57,17,842 12,02,20,399 0.29
2004-05 5,43,33,642 12,38,42,895 0.43
2005-06 5,78,46,870 15,83,85,610 0.37
2006-07 11,65,82,542 15,18,90,249 0.77
2007-08 14,27,11,671 16,96,38,535 0.84
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Interpretation:
Absolute liquidity ratio of K.D.M.P.M.A.C.U.L is presented in table during the
period of study. The desirable norms of this ratio are 1:2 in 2003-2004. Ratio is 0.297. As
in the above graph there where many fluctuating in the liquidity position of the company
2005-06 ratio is 0.37 and 2006-07 ratio is 0.77 in 2007-08 the absolute liquidity ratio it
was increased trend.By observing this we can say the firm is not marinating the perfect
norms of the cash balance in companion with the current liabilities in 2007-08 it was
marinating good ratio.
0
0.1
0.2
0.3
0.4
0.5
0.6
0.7
0.8
0.9
2003-04 2004-05 2005-06 2006-07 2007-08
RATIO
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III. LEVERAGE RATIOS
DEBT EQUITY RATIO:
The debt equity ratio is the measure of relative claims of creditors and owners
against the firms assets. There are various interpretations of debt and equity and there
fore debt-equity may be calculated in number of ways. The term debt considered here is
exclusive of current liabilities and equity refers to own funds. A low ratio implies a
greater claim of owners that of creditors. An ideal norm of the ratios is 1:1
OUT SIDER FUNDS
DEBT EQUITY RATIO= -------------------------------- * 100
SHARE HOLDERS FUNDS
YEAR OUT SIDER FUNDS SHARE HOLDERS
FUNDS
RATIO
2003-04 18370913.5 33347902 5.51
2004-05 159661514 42557565 3.75
2005-06 152930946 50919771 3.00
2006-07 169216284 59043558 2.87
2007-08 207885478 68692536 3.03
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Interpretation:
The debt equity ratio of K.D.M.P.M.A.C.U.L is presented in table during the
study an ideas norms of this ration is 1:1 in 2003-04 ratio in 5.51 through there are
fluctuating in this ratio. This ratio is always above the norms of 1:1 in 2005-06 ratio in
3.00 and 2006-07 ratio is 2.87 but in 2007-08 ratio is 3.03 it was increased by 3.03. By
observing the above position of ratio we can say that owns are putting in relatively lessmoney or there own and were relying on heavy debt the firm should flow the ratio as in
2007-08 i.e 3.03 by that reach it ides norm i.e. 1:1.
0
1
2
3
4
5
6
2003-04 2004-05 2005-06 2006-07 2007-08
RATIO
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PROPRETARY RATIO:
As equity ratio represents the relationship of owners funds to total assets, higher
the ratio or the share holders in total capital of the company better is the long term
solvency position of the company can be lost without affecting the interest of the
credito0rs of the company. This ratio is indirectly indicating that the company is highly
relied on the creditors of the company.
SHARE HOLDERS FUNDS
Proprietary ratio = --------------------------------
TOTAL ASSETS
YEAR SHARE HOLDERS
FUNDSTOTAL ASSETS RATIO
2003-04 33347902 436970850 763
2004-05 42557565 431966652 9.85
2005-06 50919771 471839951 10.79
2006-07 59043558 494379304 11.94
2007-08 68692536 562759715 12.21
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Interpretation:
The proprietary ratio of K.D.M.P.C.U.L. is presented table. Of you examine
above analysis it can be found in proper way. This is in 2003-04 ratio is increasing year
by year in 2005-2006 it was 10.79 and 2005-06 ratio are 11.94 but in 2007-08 the ratio is
12.21. By observing this we can say that this type of slow development is not all
advisable if company always the ratio is as in 2007-08 hat is 12.21 can reach the
satisfactory.
IV. ACTIVITY RATIOS
0
2
4
6
8
10
12
14
2003-04 2004-05 2005-06 2006-07 2007-08
Ratio
Years
RATIO
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INVENTORY TURN OVER RATIOS:
The inventory turnover ratio is also known are stock turnover ratio. This ratio
usually establishes relationship between the cost of goods sold during the period and the
average amount of inventory outstanding during that period. The ratio also indicates the
number of time inventory is replaced during the year. This inventory turnover ratio has
no fixed norm.
Cost of Goods Sold
Inventory turn over ratios = ------------------------
Average Stock
YearCost of Goods
SoldAverage Stock Ratio
2003-04 882905793 98702222 8.95
2004-05 1008072021 87509747 11.52
2005-06 1103970663 97491725 11.35
2006-07 128287372 105791846 12.13
2007-08 1301735372 112736262 11.55
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Interpretation:
It is clear firm from the above analysis that the ratio are in an increasing trend
2003-04 it was 8.95 and slight design in 2005-06 it was 11.32 and 2007-08 11.55 it was
decreased the company has maintain growth. This type of growth should be maintained
by the firm in the succeeding years. It is advisable that it is better if some more times it is
increased in inventory turnover ratio is higher the operating cycle is very past and it is
very profitable for the firm.
0
2
4
6
8
10
12
14
2003-04 2004-05 2005-06 2006-07 2007-08
Ratio
Years
RATIO
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Debtors Turnover ratio:
The debtors turnover ratio is also called as receivables turnover ratio. This ratio
indicated the number of times on the average the receivables are turnover in each year.
The higher value of the ratio, the more is the efficient management of debtors. However,
this is not immediately apparent from the debtors turnover ratio and therefore it has to be
supplemented by average collection period
Net Sales
Debtors Turnover ratio = ------------------------------
Average Trade Debtors
Year Net sales Average trade debtors Ratio
2003-04 1136973196 71375346 15.93
2004-05 1257182689 70141034 17.92
2005-06 1367480960 69709699 19.62
2006-07 1573930933 44201029 35.61
2007-08 1628286699 39900771 40.81
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Interpretation:
By observing the above analysis it can be interpreted that the company officially
are not efficiently and effectively maintaining the debtors turnover ratio in the proceeding
years. The ratio in 2003-04 is 15.93 it was not at all advisable in the proceeding year the
ratio was in the increasing trend. Ultimately it is advisable to the firm to increase the
debtors turnover ratio is succeeding year by increasing the quality trade debtors leading
to sale promotion in the product of the firm and increasing the liquidity position of the
concern this was also yield great benefit to the firm.
0
2
4
6
8
10
12
14
2003-04 2004-05 2005-06 2006-07 2007-08
Ratio
Years
RATIO
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AVERAGE COLLECTION PERIOD:
The average collection period represents the average number of days for which a
firm has to wait before its receivables are converted into cash. Generally the average
collection period the better is the quality of the debtors as a short collection period
implied quick payment to debtors.
No. of Days
Average collection period = -----------------------------
Average Collection Period
Year No. of DaysAverage Collection
PeriodRatio
2003-04 360 23 days 15.93
2004-05 360 20 days 17.92
2005-06 360 18 days 19.62
2006-07 360 10 days 35.61
2007-08 360 8 days 40.81
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Interpretation:
By observing this we can say that shorter the average collections period the better
in the quality of debtors as a short collection period implies quick payment to debtors in
2003-04 collection period 23 days form 2003-04 the collection period is going on
decreasing in 2006-07 the collection period years to days. But in 2007-08 the collection
period is 8 days it was decreases. As shown above is the collection period decreased it is
benefit to the firm it is advisable to the firm to maintain the same decreasing trend in
collection period.
Total Assets turnover Ratio:
0
5
10
15
20
25
30
35
40
45
2004 2005 2006 2007 2008
ratio
years
ratios
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The relationship between sales with total assets is called Total Assets Turnover
Ratio. The Total Assets Turnover Ratio is calculated by dividing the value of the total
assets into that of net sales. A high ratio indicates over trading of fixed assets while a
low ratio shows excessive investment a symptom of idle capacity. The traditional
standard for the ratio is two times.
Net Sales
Total Assets turnover Ratio = -----------------------
Total Assets
Year Net Sales Total Assets Ratio
2003-04 1136973196 436970850 2.60
2004-05 1257182689 431966652 2.89
2005-06 1367480960 471839951 2.89
2006-07 1573930933 494379304 3.18
2007-08 1628286699 562759715 2.89
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Interpretation:
This table observing the total turnover ratio of K.M.P.M.A.C.U.L. during the
period of study it can be observed that in 2003-04 the ratio was increasing 2.6 to 3.18 in
2006-07 but in 2007-08 the ratio is 2.89 it was decreased that means the present position
of the firm is unsatisfactory. The firm is marinating a fair level of assets to the turnover.
Working Capital Turnover Ratio:
0
0.5
1
1.5
2
2.5
3
3.5
2004 2005 2006 2007 2008
Ratio
Years
ratios
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Working capital turnover ratio indicates the velocity of the utilization of net
working capital. This ratio indicates the number of times the working capital is turnover
in the course of year. This ratio measures the efficiency with which the working capital
is being used by the firm.
Cost of Goods Sold
Working Capital Turnover Ratio = -----------------------
Working Capital
Year Cost of Goods Sold Working Capital Ratio
2003-04 882905793 113239877 7.80
2004-05 1008072081 115714471 8.71
2005-06 1103970663 120387845 9.17
2006-07 1282873721 145054381 8.84
2007-08 1301735372 176681946 7.37
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Interpretation:
The table observe the working capital turnover ratio of the K.D.M.P.M.A.C.U.L.
the ratio 2003-04 7.80 the ratio is increasing year by year. In 2006-07 there was slight
decline in the ratio i.e 8.81 again there was a decreased in the ratio ie. Is 7.37 in 2007-08
so the company falls to increased trend is the firm falling increasing trend the firm
position will be satisfactory. So it advisable to the firm to maintain the grated level of
working capital is regard as the very important demand.
Fixed Assets Turnover Ratio:
0
1
2
3
4
5
6
7
8
9
10
2003-04 2004-05 2005-06 2006-07 2007-08
Ratios
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Sales
Fixed Assets Turnover = ------------------
Fixed Assets
Year Sales Fixed Assets Ratio
2003-04 882905793 148498928 5.945
2004-05 1008072021 137397639 7.343
2005-06 1103970663 148565345 7.430
2006-07 128287372 159807179 8.043
2007-08 1301735372 180894785 7.196
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Interpretation:
This table observe the fixed assets turnover ratio, in 2003-04 it 5.94, after the ratio
is increasing gradually it reaches 8.043 in 2006-07, and it fluctuates between 7 to 8%.
0
1
2
3
4
5
6
7
8
9
2004 2005 2006 2007 2008
Ratio
Years
ratios
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CHAPTER - 5
Summary
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About the Work:
We have done the project work at K.D.M.P.M.A.C.U.Ltd, Vijayawada to knowthe financial position of the firm through the analysis of ratios.
Objectives:
The main objectives of the work are
To know the financial performance and financial position of the firm. To company the relationship with items of financial statements. To company the relationship with items of financial statements. To judge the long-term financial solvency of the concern. To measure the enterprise ability to pay the interest regularly and to repay the
principal on maturity.
Sample:
We have taken the Xerox copies of balance sheets, P & L Account,
Trading Account, Manufacturing Account for the period from 2005 2008 from primarysource. We used this secondary data for conducting project work of ratio analysis.
Broad Observations:
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It is suggested that the company should try to create more