A Summer Internship Project Report

WORKING CAPITAL STATEMENT AND RATIO ANALYSIS ON DUDHSAGAR DAIRY

Submitted to: Gujarat Technological University, Ahmedabad & Golden Jubilee Institute of Management & Technology, Sidhpur By NAME: - MANISH.C.PRAJAPATI ROLL NO: 45 In partial fulfillment of the degree of Master of Business Administration On 31-07-2010

CERTIFICATE

PREFACE
As per the curriculum of Gujarat Technology University, it is essential for every student to carry out Summer Project. It provides real opportunity for students to apply their theoretical knowledge in practical field. In the area of competition & globalization, the marketing researches gain performance. It also gives the experience of the practical field. Today there is a lot of competition because of rapid changes in the taste & preferences of the consumers. During preparation of this project report I came to know about various aspect of the company. It is indeed a golden opportunity for me in the study management and a matter of esteem by itself. As per the task of M.B.A. programmed, I got the opportunity to carry out my training at Dudhsagar Dairy at Mehsana. It was a great & a golden chance to enrich my knowledge by comparing my theoretical knowledge with the ongoing managerial project of the company. I got an opportunity to undergo training from an esteemed organization MEHSANA DISTRICT CO-OPERAQTIVE MILK PRODUCERS UNION LTD. MEHSANA, Wherein I received practical insights & relevant information & could avail of the much needed vital exposure of the company environment which would be great help in enhancing my skills & professional capabilities in the near future,. During my association with the Company. I found that the staffs were quite cooperative & helpful in solving the queries & concerns relating to the project.

ACKNOWLEDGEMENT
The Successful completion of a project requires active involvement of many people. From the time of inception of an idea to its implementation, many brains work together & that only provides fruitful results. I wish to acknowledge the help of all these people who have provided us with information, guidance & other help during our training period, without their help, it would have been difficult for me to have reached stage of completion of my training. I am thankful to MR.HITESH.A.PATEL (H.O.D of golden jubilee) who give me permission to take summer training in dudhsagar dairy and also thankful to our faculty, Prof. Arun Godyal, Prof. Priya Panchal Prof. Urvi Bhatt they give me information support about my project. In writing this project report, I have drawn on thoughts from a variety of disciplines that have bearing on the different facts of the topic. I own a profound intellectual debt to numerous authors whose ideas & contribution have shaped my thinking on this subject. First of all I am thankful to management authorities for providing me with the opportunity to carry out my training in the organization. I am thank full to Mr. George Samuel, Deputy General Manager (F & A) giving us this opportunity to under go training at Finance, MIS & Audit Department and guidance for working on the project in various aspects and in which I have taken vital experience. In addition, I am heartily thankful to Mr. Burhanuddin Vohra (F & A) providing me necessary informations and guidance for completing the project in Mehsana District Cooperative Milk Producers union Limited.

EXECUTIVE SUMMARY
Introduction:
Dudhsagar Dairy is Asias largest Dairy Co-operative and its products are marketed in the brand of Amul & Dudhsagar by Gujarat Co-operative milk marketing federation. This Grand Project provides a golden opportunity to me for getting a perfect knowledge and experience. As a part of my learning in management field and requirement of MBA programme, I have been given an opportunity to grab practical knowledge in the area of Finance and I had selected the esteem organization MEHSANA DISTRICT CO-OPERATIVE MILK PRODUCERS UNION LTD. Mehsana for my project work. I have made my best efforts to get knowledge and experience. During this training, I had collected necessary information, and I present all the necessary information to understand the workings of the organization. Here, we have presented the comprehensive project report named, WORKING CAPITAL MANAGEMENT & RATIO ANALYSIS of Dudhsagar Dairy contains different chapters for different kinds of analysis such as: - Ratio Analysis, working capital management, Under Ratio Analysis I have covered all four of ratio such as:1 1 1 1 1 1 1 1 1 1 Liquidity Ratio, Leverage Ratio, Profitability Ratio Capital Gearing Ratio. Turn over Ratio.

Each ratio is calculated for last 3 years from 2007-08 to 2009-10. Ratio Analysis is helpful in establishing relation between two items of financial statements. All ratios also contain detailed interpretation. In this report I have also calculated ratio & compared with standard ratio. 5

Under working capital management I have covered points like: 2008 to 2010 working capital statement and analysis. Reason for increase decrease in working capital statement. Analysis and suggestion of working capital statement.

INDEX
CONTENT Preface Acknowledgement Executive Summary Part-1 Company profile Progres Journey of Dudhsagar Dairy History of dudhsagar dairy Board of Directors Historical background inauguration Name of the products Part-2 Literature review Part-3 Objectives of project Part-4 Introduction of research & methodology Types of research& methodology Part-5 Basic information of financial department Account department Internal audit department Structure of finance management Process of finance & account Financial planning Budgeting & costing Statutory budget Costing activity Capital structure PART-6 Introduction of working capital Need of working capital management Gross and net working capital Types of working capital Determinants PART-7 Finding of Ratio & Analysis PART-8 Findings 7 PAGE I II III 8 8 9 11 12 13 18 17 19 19 22 22 22 23 24 25 25 26 27 27 29 29 30 31 31 54 77

Recommendation Conclusion Bibliography

78 79 80

PART 1

COMPANY PROFILE

The MEHSANA DISTRICT CO-OPERATIVE MILK PRODUCERS UNION LTD. Mehsana dairy is a Co-operative organization registered under Co-operative Societies Act.1925 on 08-11-1960 by Registration No. c/-1960. It has about 1238 member villages milk co-operative societies in Mehsana District from whom it procures milk. The Societies have over 4, 81,878 producer members. The MEHSANA DISTRICT CO-OPERATIVE MILK PRODUCERS UNION LTD has its head Quarters & Dairy plant in Mehsana town. The union has five milk chilling centers at Vihar, Kheralu, Kadi, Hansapur, & Harij, these chilling centers helps to store milk for longer period and easier milk collection from all the societies. All these centers are located in the rural area. It has two cattle feed plants at Boriavi & Ubkhal (capacity 450 M.T each) & an animal breeding station at Jagudan, this breeding station helps to improve milk products animal. The Union provides various technical inputs to its members through village milk cooperative societies. The milk collected is processed in to various products such as market Milk, Butter, Ghee, Milk Powder & Sweetened Condensed Milk. The market milk is sold in Mehsana District directly by the Union, whereas other milk products are marketed by the Gujarat Co-operative milk marketing federation into which the union is totally committed to provide quality products & services to its customers with the ultimate satisfaction.

PROGRESSIVE JOURNEY OF DUDHSAGAR DAIRY

Mehsana largest milk producing district of Gujarat is famous since long for cattle breeding & animal husbandry practices. Large, small & marginal farmers & landless labourers are engaged in the practices of animal keeping & milk production. The high yielding well known Mehsani buffalo breed is native of the district & is known for its potential of economical milk production.

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The union makes use of most advanced technologies for manufacture of various milk products, for providing better animal health care services & for building socio-economic strength.

HISTORY OF DUDHSAGAR DAIRY

In 1985 UNICEF had expected that they will garnered plenty of milk from the mehsana region. The members of UNICEF were discussed with late shree MANSIGH BHAI PRITHVIRAJ PATEL about this matter .Mansighbhai always kindly towards the farmers. He got the fact that the duties of the intermediaries will be eliminate, the producers will have the enormous benefits from the milk and eventually the customers will get superior quality of milk. Producers could receive their actual price. With the aid of his idea there was an establishment of MEHSANA DISTRICT COOPERATIVE DAIRY in 8-11-1960.In the beginning period 3000 litres milk procured from the vijapur region which comprised of 11 villages and delivered to the AHMEDABAD MUNICIPLE CORPORATION DAIRY. On 2-4-1963 shri Morarji desai had inaugurated of dudhsagar dairy.

MILK CENTRES:
Due to large activities of dairy there are 5 centers (milk collection) established which are50 km away from mehsana. (Vijapur,Kheralu,Hansalpur,Harij,and Kadi.)With the help of larger numbers of trucks, it collects milk from several dairy centres then put the stock of milk into the cold storage for pasteurized and then supply to main plant such as MEHSANA DUDHSAGAR DAIRY MANESAR(HARIANA) as well as other various centres.

BULK MILK CHILLING UNIT:

Since 1999 the union had decided to set up a bulk milk chilling unit on milk centres for the purpose of maintaining the quality of milk. Milk is making cool for 4 se.grade.So the bacteria can hinder to increase and the quality of milk remain good.

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At present, there are 150 or near by bulkcooler have been set up.However in coming next 5 years expecting to set up bulkcoolers over all the milk centres.

ANIMALS HEALTH SERVICES:

Currently total 25 service centres have been running by the union.When any animal get the disease or fall down into the fever then directly informed to the animal analysts and he or she reach to it and provide the appropriate treatment to the particular animal then taking the charges of rs.80 for giving treatment.

CONTINUOUSLY ENCOURAGE TO PRODUCERS:

The milk producers and their animals have to take an insurance.Requisite equipments which are milking machine chafter, cooling system and so many medicines have been given for animal care.In milk centres,sagardan,maize bhardo,mineral mixture,primary treatment medicines for animals and milk ingredients products provided by the union.

FODDER:
The union has been producing different fodder such as purakdan, sagardan,new sagar highprodan with 900 metric tons daily from boriyavi and ubkhal factories.While 1000 metric tons plant is going to established at jagudan.

AWARENESS PROGRAMMES:
The union continuously conducted the awareness programme for adopting newly or latest technology.

MILK CENTRES:
Milk producers of villages have to fill up their milk in morning and evening duration in the milk centres.Where they have to receive the payment on the basis of weight of milk and the fat. The measurement of weight of milk done by the electronic weight equipments and for fat it can be measure by electronic milcho machine. Then after sent one fully information slip to the customers which is calculated through computers.

COLOUR PAINTS:
All the milk centers has same colour buildings and for that giving 50% sustain for creating the same image. Till now 250 centers have got the benefit of it.

I.S.O:
Mehsana which is the imperative plant of the milk union get the I.S.O. as well as H.A.C.C.P.Even cattle field factories, jagudan, animal care centers and dudhmansagar dairy manesar (hariana) receive the I.S.O. 12

HISTORICAL BACKGROUND INAUGURATION

1960 - Establishment of the MDCMPU Ltd. 1961 - Started milk supply to Ahmadabad Municipal dairy. 1963 - The MDCMPU ltd Inaugurated 1964 1965 Inauguration of the Vihar chilling center. Main Dairy At Mehsana

1966 - Establishment for the animal husbandry by the Union. 1967 - Innogration of the Kheralu chilling center. 1968 - Milk supply to the Delhi started. 1969 - Inauguration of the cattle feed in Boriavi. 1970 - Establishment of new powder section-N1. 1971 - Vihar chilling center established unit with capacity 60,000L 1972 - Loan for purchasing cows & buffaloes. 1973 - Inauguration of the Hansapur chilling center. 1974 - N2 powder plant has inaugurated.. 1975 - Inauguration of the Harij chilling center 1976 - Harij chilling center has started collecting milk. 1977 - Animal insurance policy has started. 1978 - Kadi chilling center has started. 1979 - Wireless radio telephone facility for animal Husbandry has provided. 1980 - Liquid nitrogen plant & artificial insemination at Jagudan has started. 1981 - Cattle feed plant at Ubkhal has started. 1982 - Government thanks Dudhsagar dairy for collecting large quantity of milk. 1983 N3 powder plant has inaugurated. 1991 - N4 powder plant has inaugurated. 1995 - Scm Plant Mehsana 2000 - Scm Plant Mehsana 2001 - Automation N4 Plant 2004 - ERP Oracle 11i Business Suite Implementation 2006 - Established Dudhmansagar Dairy at Manesar, Haryana 2009- Celebration of Golden jubilee.

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BOARD OF DIRECTORS

1 2 3 4 5 6 7 8 9 10

Shri. Vipulbhai M Chaudhary Chairman Shri. Patel Harjivanbhai Devabhai Vice Chairman Shri. Patel Rambhai Baldevbhai Member Shri. Desai Khengarbhai Bijalbhai Member Shri. Chaudhary Ramjibhai Savjibhai Member Shri. Desai Ramjibhai Karamshibhai Member Shri. Vihol Chandanji Ravaji Member Shri. Patel Mafatlal Manganlal Member Shri. Patel Prahladbhai Prabhudas Member Shri. Chaudhary BecharbhaiMember Jeshingbhai 11 Shri. Nardolia Ahemadbhai Alji Member 12 13 14 15 16 17 18 19 Shri. Thakor Divanji Javanji Shri. Patel Kalabhai Dwarkadas Smt. Shah Rajeshriben Naileshbhai Smt. Chaudhary Vakhatben Haribhai Smt. Chaudhary Daliben Hirabhai Shri. Dist. Registrar Shri. Bharat M. Vyas Shri. K.C. Verma Member Member Member Member Member Member Member Managing Director

Rajpur Meda Aadraj Palodar Khandosan Khakhdi Pilvai Umiyanagar Umta Indrapura Karan (Ishmailpura) Vadhar (Vad) Anandpura (Ku.) Santej Gangapura Orda Mehsana GCMMF - Anand Mehsana

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Name of the Products: Sager gold, (Pasteurized full cream milk 6.0% Fat & 9.0% SNF.) Sager standard, Amul Shakti Pasteurized standard milk, Amul ghee, Sager ghee, Sager sfurti flavored milk, Amul cool flavored milk, Amul Spray infant milk food, Sager skimmed milk powder, Amulya dairy whitener, Amul whole milk powder Amul Pasteurized butter, Amul mithai mate. Sagardan (Cattle Feed)

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PART 2

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LITERATURE REVIEW
By: Nancy Beneda, Ph.D., C.P.A. & Yilei Zhang Ph.D .comment There are two types of working capital. 1. Gross working capital (GWC) GWC refers to the firms total investment in current assets. Current assets (CA) are the assets which can be converted into cash within an accounting year (or operating cycle) and include cash, short-term securities, debtors, (accounts receivable or book debts) bills receivable and stock (inventory). 2. Net working capital (NWC). NWC refers to the difference between current assets and current liabilities. Current liabilities (CL) are those claims of outsiders which are expected to mature for payment within an accounting year and include creditors (accounts payable), bills payable, and outstanding expenses. Working capital policy refers to the firm's policies regarding 1) target levels for each category of current operating assets and liabilities, and 2) how current assets will be financed. Generally good working capital policy (i.e. under conditions of certainty) is considered to be one in which holdings of cash, securities, inventories, fixed assets, and accounts payables are minimized. The level of accounts receivables should be used as a means of stimulating sales and other income. Previous literature on working capital management has found a negative association, overall, between level of working capital and operating performance as measured by operating returns and operating margins. Under conditions of certainty (i.e. sales, costs, lead times, payment periods, and so on, are known), firms have little reason to hold more working capital than a minimum level. Larger amounts would increase the level of operating assets, increase the need for external funding, resulting in lower return on assets and a lower return on equity, without any increase in profit.

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PART 3

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OBJECTIVES OF PROJECT

To study about the cash management structure of the Dudhsagar dairy and inflow -outflow of cash in the dairy. To study about accurate financial position of dairy. To garner the perfect financial data. To measure the credit of dairy in market through financial information. To know about dairy`s liquidity.

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PART 4

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RESEARCH & METHODOLOGY

INTRODUCTION
The term research refers to the systematic method consisting of enunciating the problem , formulating a hypothesis collecting the data , analyzing the facts and reaching the certain conclusions either in the form of solution towards the concern problem or in certain generalization for some theoretical formulation . Research Methodology is a way to systematically solve the research problem .It may be understood as a science of studying how research is done scientifically.

TYPES OF RESEARCH & METHEDOLOGY

There are two types of research. 1. PRIMARY RESEARCH DEFINATION: Data that you or your colleagues collect specifically for the purpose of answering your research question. METHODS OF PRIMARY RESEARCH Personal survey. Telephone survey. Mail survey. Internet survey. Fax survey.

Collected data through discussion with the Finance manager in dudhsagar dairy. Collected data during working in dudhsagar dairy.

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2. SECONDARY RESEARCH
DEFINATION Existing data collected for another purpose that you employ to answer your research question.

METHOD OF SECONDARY RESEARCH There are two types of method use in secondary research. Internal data Internal data like accounting information, sales information and customer complaints etc. This data are store in data mining. External data External data are like different magazines, journals, News papers and Internet. Collected data from personnel manual of dudhsagar dairy.

For this project Ive used the secondary data in the form of Annual report 2007-2008, and Annual report 2008-2009 Annual report 2009-2010.

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PART 5

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Finance Department
Basic information of financial department
Finance Management is the part of the Managerial activity, which is concerned with planning, and controlling of the firms financial resources. It is an applied branch of general management it has to plan to organize and control the finance of the enterprise. Chief duties of financial management are planning and control of corporate finance. Financial Management is called upon to take three major decisions viz. Investment decision, financial decision, and dividend decision. Financial Management involves the implementation of these three major decisions it is an integral part of overall management rather than merely a staff activity concerned with fund raising operations without sound management of financial resources, business cannot achieve its objective and may occur heavy losses. Thus financing management is charge of efficient planning and control of the cycle of flow of funds inflow and outflow of funds.

Accounts dept:Shri Anil Kumar Gang is the in-charge of accounts dept. And Shri George Samuel, is the head of Internal Audit dept, MIS & Finance dept. Commercial section is being governed by set defined rules and regulations as per the Co-operative society. Accounts dept. is broadly dividing into billing section, Cash/Bank section keeping, various scheme plans for employees. Day to day activity is being worked out by and all policy matter is being handling by Shri George Samuel and Shri Anil Kumar Gang jointly.

Internal Audit dept:Shri George Samuel is the head of Internal Audit. Department handles the internal audit functions in various parameters as Financial, Operational, Special Assignments & Propriety areas. All the activities Internal audit dept. is out sourced to Parikh Saha & Associates ( CA Firm ) and activities broadly divided into pre-audit of payments; post audit of books, post audit stock, continuous physical verification, 100% purchase procedure, P&L & B/S audit. The internal audit procedure is defined in depth in Internal Audit Manual. The whole audit programme is well defined in advance and respective personnel are being responsible for the 24

distributed work area.Internal auditors give their monthly report covering all departments & activities Dudhsagar Mansagar with suggestion for improvements in the standard format. The summerised report sent to corresponding departments for necessary improvemts and commitments. Any queries are being seriously vouched and highlighted to the management to take rigorous steps for the same. After finalizing the internal audit workings, same set of books are being given to Government auditors for their audit purpose. Government auditors vouch the books and puts query (if any) for the clarification with the Unions management and ask for the explanation of the query. Once the Government auditors are satisfied with the explanation of the query, the same is being freeze and cleared.

Structure of Finance Management:Chairman

Managing Director

General Manager (Commercial)

Deputy General Manager

Assistant General Manager

Senior Manager Managers

Deputy Manager

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Assistant Manager Sr. Executive

Executive

Asst. Executive

Jr. Executive Sr. Assistant Assistant Sr. Clerk Jr. Clerk

Process of Finance & Account

The accounting function covering the Mehsana office and plant, the five Chilling centers at Vihar, Kadi, Harij, Hansapur, and Kheralu, DURDA, Manesar and two cattle feed plants at Boriavi and Ubkhal are performed by the Accounts Department at Mehsana head office of Dudhsagar dairy. All the purchase and sales for Dudhsagar dairy are executed from the Mehsana head office centrally. The purpose and scope of Account process are Management of Financial resource of the union accurate and timely payment to societies and supplies, maintain proper books of the union and advice. Dudhsagar Dairys management performance is based on accounting records, finance process includes the accounting functions of payables, Receivable, Cash Management, Asset Management, and General Accounting & Reporting functions including revenue and capital Budgeting. It also covers Costing

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activities performed at Dudhsagar dairy. The Audit budgeting and costing process is performed by the internal Audit department in closeness with Accounts Department.

Financial Planning
A firm needs to manage its resource effectively and efficiently to achieve its objective. The managing ofresources in an a effective manner is possible only when the management work out the future course of action in advance and take decision in professional manner and rational manner thats why financial planning is very Important financial planning is a statement estimating the amount of capital and determining its composition. It includes; Determination the amount needed for implementing the business plans. The determination form and proportionate amount of securities. Laying down the policies as to administration of financial plan.

Steps for Financial Planning:Analysis of past performance Establishing objective Determine investment need Forecasting cash flow Financing

Budgeting & Costing

Currently the budgeting activities are restricted to annual preparation of budget and monitoring of budget versus actual cost quietly. Budget is made annually by manually obtaining the amount from each department against the several budget head description in a form. Dudhsagar wants to track and implement budgetary controls while making expenditure.

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Dudhsagar has limited exercise towards allotment and structuring of cost code, sub code and purpose code according operation classification. As sales are more or less regulated, a more system orientation is adhered to in drafting cost budgets. The code allocation practice is on to allot the codes based on direct cost and than to the sub division or activity the codes are both all allotted to process and product. In case of stores stock transfer is booked to stock ledger code and subsequent issues and consumption are booked. In case of finance and accounts, situation is different in case where the tally accounts and budget codes are same and in circumstance where they are different. In case where they are different the budget accounting.system codes are input against each account automatic conversation to Bureau of Accounting Standard Codes occur where they same. Budget is tracked against the cost centers and sub centers are defined with the responsibility center but currently the responsibility centers are not in use the stores consumption tracked till the cost center and sub center level at the time of consumption itself for other expenses like repairs and maintenance travel expense and other office expenses the cost center and sub centers are entered to categories the expenses after exporting them into an oracle based system from the tally system for the purpose of tracking. A quartly budget review report is prepared depicting the quartly budget amount actual expense and variance figures along with the cumulative figures.

Statutory Budget:It is required to be prepared by Dudhsagar under the co-operative act this budget is prepared annually and approved in the annual general matting as according to the law and including in the annual report this budget in is prepared by the internal audit department. The budget is internal to Dudhsagar and not presented in the board AGM. The budget is prepared by seeking the budget amount from all the departments by giving the respective budget heads pertaining to the specific department for aiding the departments to prepare the budget. The relevant previous wears expenditure is given to them from the trial balance if required the detail expenditure is also given by the accounts departments. The departments provide the budget after approval from the departmental head. The consolidated Capital budget for the year is prepared by MIS & AUDIT dept. Which is then presented to 28

the Managing Director. The MD can revise the budget before approving it, to be presented to the board. The board recommends the budget in the AGM seeking its approval.

Costing Activities:Dudhsagar Dairy product costing is done on a yearly basis for the financial year. ERP is updated yearly with the costing standards. This is too limited to the product group costing. As the value of asset is not finally known production wise process, depreciation is avoided for allocation to the product groups. The yearly cost sheets forms an important basis in the estimation of costs, pack wise prepared, yearly for all products packs. The costing system is reviewed monthly for improvements. Of late concept of conversation costing where by the milk purchase price is excluded from the estimated contribution analyses. The client opinions that as milk purchase price of the last year does not reflect the current and by comparing the gross contribution and gross profit visa-a-versa the milk Purchase price existing as on the date, one could as certain the profitability of the products and packs. The incremental cost of milk for FAT, SNF and moisture are based on standard costing. The unit price is the actual transportation and chilling post based on the previous years financial data. The wastage is calculated based on actual content of the milk FAT and SNF content in the milk purchased of the previous year less the standard content of FAT and SNF for actual production for which milk had been consumed. This wastage is applied to the FAT and SNF inputs in proportion. Based on the standard inputs the actual quantity product wise is derived applying the wastage rate on the standard consumption.

Capital Structure
Capital is one of the most important factors of production without capital organization cannot produce any products or other type of the activity. Capital includes share capital reserve and surplus and long term liabilities. The authorized share capital of the dairy is 1,00,00, 000 shares of Rs. 100 each and the capital is 1,00,00,00,000.

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PART 6

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INTRODUCTION
1. Introduction of Working capital management Workining capital management is concerned with the problems arise in manage the current assets, the current liabilities and the inter between them. The term current assets refers to those attempting to

relationship that exist

assets which in ordinary course of

business can be, or, will be, turned in to cash within one year without undergoing a diminution in value and without disrupting the operation of the firm. The major current assets are cash, marketable securities, account receivable and inventory. Current liabilities ware those liabilities which intended at there inception to be paid in ordinary course of business, within a year, out of the current assets or earnings of the concern. The basic current liabilities are account payable, bill payable, bank over-draft, and outstanding expenses. The goal of working capital management is to manage the firms current assets and current liabilities in such way that the satisfactory level of working capital is mentioned. The current should be large enough to cover its current liabilities in order to ensure a reasonable margin of the safety. Definition:1 According to Guttmann & DougallExcess of current assets over current liabilities. 1 According to Park & GladsonThe excess of current assets of a business (i.e. cash, accounts (such as government). receivables, inventories) over current items owned to employees and others salaries & wages payable, accounts payable, taxes owned to 2. Need of working capital management The need for working capital gross or current assets cannot be over emphasized. As already observed, the objective of financial decision making is to maximize the shareholders wealth. To achieve this, it is necessary to generate sufficient profits can be earned will naturally depend upon the magnitude of the sales among other things but sales cannot convert into cash. There is a need for working capital in the form of current assets to deal with the problem arising out of lack of immediate realization of cash against goods sold. Therefore sufficient working capital is necessary to sustain sales activity. Technically this is refers to operating or cash cycle. If the company has certain amount of cash, it will be required for 31

purchasing the raw material may be available on credit basis. Then the company has to Spend some Amount for labour and factory overhead to convert the raw material in work in progress, and ultimately finished goods. These finished goods convert in to sales on finished credit basis in the form of sundry debtors. Sundry debtors are converting into cash after expiry of credit period. Thus some amount of cash is blocked in raw materials, WIP, goods, and sundry debtors and day to day cash requirements. However some part of current assets may be financed by the current liabilities also. The amount required to be invested in this current assets is always higher than the funds available from current liabilities. This is the precise reason why the needs for working capital arise

3. Gross working capital and Net working capital

There are two concepts of working capital management 1) Gross working capital (GWC) Gross working capital refers to the firms investment In current assets. Current assets are the assets which can be convert in to cash within year includes cash, short term securities, debtors, bills receivable and inventory. 2) Net working capital (NWC) Net working capital refers to the difference between current assets and current liabilities. Current liabilities are those claims of outsiders which are expected to mature for payment within an accounting year and include creditors, bills payable and outstanding expenses. Net working capital can be positive or negative efficient working capital management requires that firms should operate with some amount of net working capital, the exact amount varying from firm to firm and depending, among other things; on the nature of industries.net working capital is necessary because the cash outflows and inflows do not predictable the coincide. The cash outflows resulting from payment of current liabilities are relatively predictable. The cash inflow are however difficult to predict. The more cash inflows are, the less net working capital will be required. The concept of working capital was, first evolved by Karl Marx. Marx used the term variable capital means outlays for payrolls advanced to workers before the completion of work. He compared this with constant capital which according to him is nothing but dead labour. This variable capital is nothing Wage fund which remains blocked in terms of financial management, in workin-process along with other operating expenses until it is 32

released through sale of finished goods. Although Marx did not mentioned that workers also gave credit to the firm by accepting periodical payment of wages which funded a portioned of W.I.P, the concept of working capital, as we understand today was embedded in his variable Capital.

4. Type of working capital

The operating cycle creates the need for current assets (working capital). explain this between permanent and However the need does not come to an end after the cycle is completed to continuing need of current assets a destination should be drawn temporary working capital. 1) Permanent working capital A minimum level of current assets , which is continuously required by a firm to carry on its business operations , is referred to as permanent or fixed working capital.The need for current assets arises, as already observed, because of the cash certain minimum level of working capital is cycle. To carry on business necessary on continues and uninterrupted

basis. For all practical purpose, this requirement will have to be met permanent as with other fixed assets. This requirement refers to as permanent or fixed working capital 2) fluctuating or variable working capital The extra working capital needed to support the changing production and sales activities of the firm is referred to as fluctuating or variable working capital .Any amount over and above the permanent level of working capital is fluctuation in demand consequent upon temporary, fluctuating

or variable, working capital. This portion of the required working capital is needed to meet changes in production and sales as result of seasonal working capital is working capital line may not be changes that the permanent level is fairly castanet; while temporary fluctuating in the case of an expanding firm the permanent horizontal. This may be because of changes in demand for permanent current assets might be increasing to support a rising level of activity.

5. Determinants of working capital

The amount of working capital is depends upon a following factors

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1) Nature of business Some businesses are such, due to their very nature, that their requirement of fixed capital is more rather than working capital. These businesses sell services and not the commodities and that too on cash basis. As such, no founds are blocked in piling inventories and also no funds are blocked in receivables. E.g. public utility services like railways, infrastructure oriented project etc. there requirement of working capital is less. On the other hand, there are some businesses like trading activity, where requirement of fixed capital is less but more money is blocked in inventories and debtors. 2) Length of production cycle In some business like machine tools industry, the time gap between the amount may be blocked Either in raw material or 3) Size and growth of business In very small company the working capital requirement is quit high due to high overhead, higher buying and selling cost etc. as such medium size business requirements may adversely affect by the increasing size. 4) Business/ Trade cycle If the company is the operating in the time of boom, the working capital requirement positively has edge over the small companies. But if the business start growing after certain limit, the working capital acquisition of

raw material till the end of final production of finished products itself is quit high. As such work in progress or finished goods or even in debtors. Naturally there need of working capital is high.

may be more as the company may like to buy more raw material, may increase the production and sales to take the benefit of favorable market, due to increase in the sales, there may more and more amount of funds blocked in stock and debtors etc. similarly in the case of depressions also, working capital may be high as the sales terms of value and quantity may be reducing, there may be unnecessary piling up of stack without getting sold, the receivable may not be recovered in time etc. 5) Terms of purchase and sales Some time due to competition or custom, it may be necessary for the company to extend more 34

and more credit to customers, as result which more and more amount is locked up in debtors or bills receivables which increase the working capital requirement. On the other hand, in the case of purchase, if the credit is offered by suppliers of goods and services, a part of working capital requirement may be financed by them, but it is necessary to purchase on cash basis, the working capital requirement will be higher. 6) Profitability The profitability of the business may be vary in each and every individual case, which is in turn its depend on numerous factors, but high profitability will positively reduce the strain on working capital requirement of the company, because the profits to the extend that they earned in cash may be used to meet the working capital requirement of the company. 7) Operating efficiency If the business is carried on more efficiently, it can operate in profits which may reduce the strain on working capital; it may ensure proper utilization of existing resources by eliminating the waste and improved coordination etc.

35

ANNUAL REPORT 2007-2008

BALANCE SHEET TABL E: 1 31-3-2007 Rupees
250000000

Liabilities

Rupees

31-3-2008 Rupees
250000000

182943200 105246176 57778675 102691984 265716835 411886167 356273083 465998907

AUTHORISED SHARE 250000000 CAPITAL 25,00,000 Shares of Rs. 100 each SHARE CAPITAL : (FULLY PAID UP) RESERVES Reserve Fund (As per 114578916 schedule A) Other Funds ( As per 66195354 Schedule A ) N D D B Grant / subsidy 102691984 A) LOANS Secured; Bank of Baroda- cash 501901797 credit account Bank of India- cash credit 526145153 account HDFC Bank cash credit 166680452 account (Secured by Hypothecation of Stock & Book Debts) Bank of Baroda-FDOD 75271732 Bank of india term loan 12500000 State Bank of india-term 178358000 loan (secured by hypothecation of fixed assets) Unsecured: Convertible debentures of 136516100 rs. 100 each Bank short term loan ICICI bank HDFC Bank 600000000

183107200

283466254

253358000 1487516157

1460857134

136516100 500000000 636516100

736516100 CURRENT 36

314612337 5634 1223474127 72032031 112972951 77558291 10238708 50162554 1861056633 37330960

LIABILITIES& PROVISIONS Deposits Unpaid dividend Due nto societies Outstanding against expenses Outstanding against purchases Sundry creditors Debenture redemption premium Provision for income tax Profit&loss Accounts

379986885 7423 740415963 95881537 140793050 67006202 14334191 55262554 1493687805 35497815

TABLE: 2
31-3-2007 Rupees 1826592907 (994635215) 831957692 9695503 77026920 16000 77042920 762183626 118143040 49043885 115980241 84675742 1130026534 INVENTORIES Finished Goods Stock in-Process Milk Stock Stores Stock Raw Materials Stock 1324870445 151429162 37407274 128153875 104542169 1746402925 TRADE DEBTORS (Unsecured,considered good except stated otherwise) Debt due for more than six 4635339 months Other Debts 839671444 LOANS & ADVANCES Deposits Due from Societies 37 16090242 224155 FIXED ASSETS Gross Block (As per Schedule B) Less: Depreciation Fund ( As per Schedule B) Net Block Capital Work in Process INVESTMENTS (At Cost) Investment in Shares National Saving Certificate Rupees 2012012911 (1113404016) 898608895 10713587 98191020 16000 98207020 31-3-2008 Rupees

22659871 605826739 10419263 453583

61529293 24547578 181347058 278296775 222318

Advances Sundry Debtors Advance Income Tax

61272859 17012967 205793624 300393847

5084889 1507639177

2627467 1515573851

CASH & BANK BALANCES Cash & Cash Equivalent 179132 in Hand Balances with Scheduled Banks: In Current Account 1240092 In Fixed Deposit Accounts 293075334 Balance with Co-operative Bank: In Current Account 4693 294499251

TABLE: 3
2006-2007 Rupees 1051298582 161073409 33392648 1245764639 8930681333 366069948 1982968666 18118133 14031551 317897797 279753718 96112142 61299639 40265698 12026015 Expenditure To opening stocks Finished goods Stock- in-process Milk stock To milk purchases expenses To purchase transport& procurement exp. To material consume TO cooperative development expenses To processing expenses To power & fuel expenses To salaries &wages To staff PF gratuity & other amenities TO repair & maintenance TO freight & carriage charge To marketing expenses To postage, telephone, painting, &stationary exp. TO insurance premium To rent, rates, &taxes 38 Rupees 762183626 118143040 49043885 929370551 11388237501 490701293 2365212470 20839892 16825130 374750901 280769559 77248480 67239455 50948347 11436918 2007-2008 rupees

6443369 6410080 8035693 10741408 17890105 101258595 113446183 12211 1694465 37330960 13668242348

TO audit fees To miscellaneous exp. TO interest &bank commission TO depreciation TO donation TO provision for income tax TO net profit

4712322 3749309 5294435 15710259 31869931 69956538 121655115 0 5677035 35497815 16394703256

TABLE: 4
2006-07 Rupees 12659228733 12021485 45641345 21980234 762183626 118143040 49043885 929370551 Income By sales By dividend income By interest By misc. income By closing stock Finished goods Stock-in-process Milk stock Rupees 2007-08 Rupees 14821827512 12131790 44364702 10627294

1324870445 151429162 29452351 1505751958

WORKING CAPITAL STATEMENT

Particular Current assets Stock Finished goods Stock in process Milk stock Stores stock Raw material Trade debtors: Debt due for more than six months Other debts Loan & 2007 762183626 118143040 49043885 115980241 84675742 22659871 605826739 2008 1324870445 151429162 37407274 128153875 104542169 4635339 839671444 39 Increase 562686819 33286122 12173634 19866427 233844705 decrease 11636611 18024532 -

advances Deposits Due from societies Advances Sundry debtors Advance tax Cash & bank balance Cash & cash equivalent in hand balances with scheduled banks Total current assent (A) Current liabilities Due to societies Unpaid dividend Outstanding against expenses Outstanding against purchases Sundry creditors Provision for income tax Total current liabilities (B) Working capital (A-B) Increase in working capital

10419263 453583 61529293 24547578 181347058 222318

16090242 224155 61272859 17012967 205793624 179132

5670979 256434 7534611 24446566 -

229428 43186

2037032237 1223474127 5634 72032031 112972951 47558291 50162554

2891282687 740415963 7423 95881537 140793050 67006202 55262554

899766297 483058164 10552089 -

29933757 17889 23849506 27820099 5100000

1536205588 500826649 1291089309 1791915958

1099366729 1791915958 1791915958

493610253

56771394

1393376550

1291089309 1393376550

ANALYSIS OF THE WORKING CAPITAL STATEMENT

40

Above statement show that in 2007-08 years. Current assent in year 2007 was 2037032237 crores while in year 2008 current assent was 2891282687. As compared to current assets of year 2007, current asset of year 2008 was increase. While a current liability in year 2007 was 1536205588 crores and in year 2008, a current liability was 1099366729 crores. The comparison to current liabilities of year 2007 current liabilities of year 2008 was increase. Due to current liabilities subtract from the current asset year 2007-2008 than, the working capital has been increased 1291089309 so, that company should need to manage more capital.

Reason for raising working capital

To increase stock in 2008 compared 2007. To increase in current asset in 2008 compared to 2007. Dairy might create more debtors, stock/inventories, and cash & bank balance in 2007-08.

ANNUAL REPORT 2008-09

41

BALANCE SHEET TABLE: 5 31-3-2008 Rupees

250000000

Liabilities

Rupees

31-3-2009 Rupees
250000000

183107200 114578916 66195354 102691984 265716835 501901797 526145153 166680452

AUTHORISED SHARE 250000000 CAPITAL 25,00,000 Shares of Rs. 100 each SHARE CAPITAL : (FULLY PAID UP) RESERVES Reserve Fund (As per 123453370 schedule A) Other Funds ( As per 76725064 Schedule A ) Asset revaluation reserve 3606286836 N D D B Grant / subsidy 102691984 A) LOANS Secured; Bank of Baroda- cash credit account Bank of India- cash credit account HDFC Bank cash credit account (secure by hypothecation of stock & book debts) Bank of Baroda-FDOD Bank of india term loan State Bank of india-term loan (secured by hypothecation of fixed assets) ICICI Long term loan

183197200

3909157254 349046474 309472012 -14259964

27455000 133249793

136516100 6000000000

400000000 1204963315

Unsecured: Convertible debentures of 136516100 rs. 100 each ICICI bank 650000000 HDFC Bank 1700000000 2486516100 CURRENT LIABILITIES& PROVISIONS 42

379986885 7423 740415963 95881537 140793050 67006202 14334191 55262554 1493687805 35497815

Deposits Unpaid dividend Due nto societies Outstanding against expenses Outstanding against purchases Sundry creditors Debenture redemption premium Provision for income tax Provision for contingent liabilities Profit&loss Accounts

480085481 8443 1367281855 140989987 181912808 84786012 18429674 73087554 3471578 2350053392 37199456

TABLE: 6
31-3-2008 Rupees 2012012911 (1113404016) 898608895 10713587 FIXED ASSETS Gross Block (As per Schedule B) Less:Depreciation Fund ( As per Schedule B) Net Block Capital Work in Process INVESTMENTS (At Cost) Investment in Shares National Saving Certificate INVENTORIES Finished Goods Stock in-Process Milk Stock Stores,Spares,Packing Materials, etc Raw Materials Stock Rupees 5743402289 1232456526 4510945763 212254155 31-3-2009 Rupees

98191020 16000 98207020 1324870445 151429162 37407274 128153875 104542169 1746402925

98191020 22000 98213020 13223322635 200479261 55509293 154635367 167348020 19002945765

4635339

TRADE DEBTORS (Unsecured,considered good except stated otherwise) Debt due for more 13383734 than six months 43

839671444 844306783 16090242 224155 61272859 17012967 205793624 300393847 179132

Other Debts LOANS & ADVANCES Deposits Due from Societies Advances Sundry Debtors Advance Income Tax CASH & BANK BALANCES Cash & Cash Equivalent in Hand Balances with Scheduled Banks: In Current Account In Fixed Deposit Accounts Balance with Cooperative Bank: In Current Account

557985283 571369017 16515347 1091642 269260674 318400890 212739670 531448223 16907

1240092 293075334

43544569 2300846991

4693 294499251

2153496 2346561963

PROFIT & LOSS STATEMENT TABLE: 7

2007-2008 Rupees 762183626 118143040 49043885 929370551 11388237501 490701293 2365212470 20839892 16825130 374750901 Expenditure To opening stocks Finished goods Stock- in-process Milk stock To milk purchases expenses To purchase transport& procurement exp. To material consume TO cooperative development expenses To processing expenses To power & fuel Rupees 151429162 1324870445 29452351 1505751958 12448930258 664657071 2988357484 21808578 18647354 479878006 2008-2009 rupees

44

280769559 77248480 67239455 50948347 11436918 4712322 3749309 5294435 15710259 31869931 69956538 121655115 0 5677035 35497815 16394703256

expenses To salaries &wages To staff PF gratuity & other amenities TO repair & maintenance TO freight & carriage charge To marketing expenses To postage, telephone, painting, &stationary exp. TO insurance premium To rent, rates, &taxes TO audit fees To miscellaneous exp. TO interest &bank commission TO depreciation TO donation TO provision for income tax TO net profit

354520320 97499710 83125090 65538769 9964683 6644787 2876917 7801914 10669377 36003267 156708131 120425999 18928748 3471578 37199456 19139409455

TABLE: 8
2007-08 Rupees 14821827512 12131790 44364702 10627294 1324870445 151429162 29452351 1505751958 Income By sales By dividend income By interest By misc. income By closing stock Finished goods Stock-in-process Milk stock Rupees 2008-09 Rupees 17502649176 12430264 40315603 14760123

1322322635 200479261 46452393 1569254289

WORKING CAPITAL STATEMENT

45

Particular Current assets Stock Finished goods Stock in process Milk stock Stores stock Raw material Trade debtors: Debt due for more than six months Other debts Loan & advances Deposits Due from societies Advances Sundry debtors Advance tax Cash & bank balance Cash & cash equivalent in hand balances with scheduled banks Total current assent (A) Current liabilities Due to societies Unpaid dividend Outstanding against expenses Outstanding against purchases Sundry creditors Provision for income tax Total current liabilities (B) Working capital (A-B) Decrease in

2008 1324870445 151429162 37407274 128153875 104542169 4635339 839671444 16090242 224155 61272859 17012967 205793624 179132

2009 1322322635 200479261 55509293 154635367 167348020 13383734 557985283 16515347 1091642 269260674 31840890 212739670 16907

Increase 49050099 18102019 26481092 62805851 8748395 425105 867487 207987815 14827923 6946046 -

decrease 2547810 281686161 162225

2891282687 740415963 7423 95881537 140793050 67006202 55262554

3003128123 1367281855 8443 140989987 181912808 84786012 73087554

396242232 626865892 1020 45108450 41119758 17779810 17825000

284396196 -

1099366729 179115958

1848066650 1155062064 46

748699930

287867774

working capital

179115958

636853894 179115958

636853894 1033096126

1033096126

Year 2008-2009
Current asset; 2008 2009 Current liabilities: 2008 2009 Rs. Rs. 1099366729 1848066659 Rs. Rs. 2891282687 3003128723

Due to current liabilities deduct from the current asset from 2008-2009 than working capital has been decrease Rs 636853894 so, that the company should not required to manage or to raise more capital.

Reason for decrease working capital

To decrease trade debtors in 2009 compared 2008. May be dairy did not give goods on a credit basis more to the customers. To increase current liabilities in 2009 compared 2008, to increase due to societies, unpaid dividend, outstanding against expenses, outstanding against purchases, sundry creditors, and provision for income tax. Because of raise in due to societies, Unpaid dividend dairy has not providing dividend to the shareholders and the employees on a time, Outstanding expenses-dairy has not paid a huge amount as a expenses which are pending, Sundry creditors- Dairy might got the large amount of loan from creditors.

ANNUAL REPORT 2009-2010

47

BALANCE SHEET TABLE: 9 31-3-2009 Rupees 250000000 Liabilities

AUTHORISED CAPITAL SHARE

Rupees

31-3-2010 Rupees 1000000000

100,00,000 Shares of Rs. 100 each 183107200

123453370 76725064 3606286836 102691984 3909157254 349046474 309472012 -14259964 LOANS Secured; Bank of Baroda- cash credit account Bank of India- cash credit account HDFC Bank cash credit account (secure by hypothecation of stock & book debts) Bank of Baroda-FDOD Bank of india term loan State Bank of india-term loan (secured by hypothecation of fixed assets) ICICI Long term loan Bank of india FDOD IDBI FDOD 102106760 220522475 -90828700 SHARE CAPITAL : (FULLY PAID UP) RESERVES Reserve Fund (As per 132753234 schedule A) Other Funds ( As per 80212752 Schedule A ) Asset revaluation reserve 3647417746 N D D B Grant / subsidy 108271902 A) 440242900

3968655634

27455000 133249793

380593256 20995000 73704477

400000000 136516100 650000000 1700000000 3691479415

393333333 799753299 824310389

Unsecured: Convertible debentures of rs. 100 each ICICI bank 1000000000 HDFC Bank 2700000000 Axis bank 501826222 6926316511

48

480085481 8443 1367281855 140989987 181912808 84786012 18429674 73087554 3471578 2350053392 37199456

CURRENT LIABILITIES& PROVISIONS Deposits Unpaid dividend Due nto societies Outstanding against expenses Outstanding against purchases Sundry creditors Debenture redemption premium Provision for income tax Provision for contingent liabilities Profit&loss Accounts

550454398 8753 1760611812 160510820 136437006 34305373 73087554 3471578 2758887294 62191803

TABLE: 10
31-3-2008 Rupees 5743402289 1232456526 4510945763 212254155 98191020 22000 98213020 13223322635 200479261 55509293 154635367 167348020 19002945765 INVENTORIES Finished Goods Stock in-Process Milk Stock Stores,Spares,Packin g Materials, etc Raw Materials Stock TRADE DEBTORS (Unsecured, considered good except stated 49 1318664138 92710123 60361534 203400780 310832670 1991969245 FIXED ASSETS Gross Block (As per Schedule B) Less:Depreciation Fund ( As per Schedule B) Net Block Capital Work in Process Pre-operative expens INVESTMENTS (At Cost) Investment in Shares National Saving Certificate Rupees 6783864859 1488795834 5295069025 95210086 12676992 98312020 300000 98342020 31-3-2009 Rupees

13383734 557985283 571369017 16515347 1091642 269260674 318400890 212739670 531448223 16907

otherwise) Debt due for more than 8873944 six months Other Debts 599359016 608232960 LOANS & ADVANCES Deposits Due from Societies Advances Sundry Debtors Advance Income Tax CASH & BANK BALANCES Cash & Cash Equivalent in Hand Balances with Scheduled Banks: In Current Account In Fixed Deposit Accounts Balance with Cooperative Bank: In Current Account 27551315 470193 524948613 60056061 238244538 851270720 101657

43544569 2300846991

345866565 4854984167 2570705 5203523094

2153496 2346561963

TABLE: 11
2008-2009 Rupees 1324870445 151429162 29452351 1505751958 Expenditure To opening stocks Finished goods Stock- in-process Milk stock Rupees 46452393 200479261 1312322635 1569254289 2009-2010 rupees

50

12448930258 664657071 2988357484 21808578 18647354 479878006 354520320 97499710 83125090 65538769 9964683 6644787 2876917 7801914 10669377 36003267 156708131 120425999 18928748 3471578 37199456 19139409455

To milk purchases expenses To purchase transport& procurement exp. To material consume TO cooperative development expenses To processing expenses To power & fuel expenses To salaries &wages To staff PF gratuity & other amenities TO repair & maintenance TO freight & carriage charge To marketing expenses To postage, telephone, painting, &stationary exp. TO insurance premium To rent, rates, &taxes TO audit fees To miscellaneous exp. TO interest &bank commission TO depreciation Excise expense TO provision for income tax To provision for contigent liabilities TO net profit

13715418604 837766749 4097896791 39109029 19747829 400660952 360600958 96440910 97694330 66964134 12030875 8603470 3314360 8755570 18747659 66255038 223177746 186543559 41360124 135746 62191803 21932673525

TABLE: 12
2008-09 Rupees 17502649176 12430264 Income By sales By dividend income 51 Rupees 2009-10 Rupees 20278526480 18374140

40315603 14760123 1322322635 200479261 46452393 1569254289

By interest By misc. income By closing stock Finished goods Stock-in-process Milk stock

162635227 21120730 1318664138 92710123 40642687

WORKING CAPITAL STATEMENT

Particular Current assets Stock Finished goods Stock in process Milk stock Stores stock Raw material Trade debtors: Debt due for more than six months Other debts Loan & advances Deposits Due from societies Advances Sundry debtors Advance tax Cash & bank balance Cash & cash equivalent in hand balances with scheduled banks Total current assent (A) Current liabilities Due to societies Unpaid dividend Outstanding against expenses Outstanding 2009 1322322635 200479261 55509293 154635367 167348020 13383734 557985283 16515347 1091642 269260674 31840890 212739670 16907 2010 1318664138 92710123 60361534 209400780 310832670 8873944 599359016 27551315 470193 524948613 60056061 238244538 101657 Increase 4852241 54765413 143484650 41373733 11035968 255687939 28215171 25504868 84750 decrease 3658497 107769138 4509790 621449 -

3003128123 1367281855 8443 140989987 181912808

3451574582 1760611812 8753 160510820 136437006 52

565004733 45475802

116558874 393329957 310 19520833 -

against purchases Sundry creditors Provision for income tax Total current liabilities (B) Working capital (A-B) Increase in working capital

84786012 73087554

74305373 73087554

10480639 -

1848066650 1155062064 91551200 1246613264

2204961318 1246613264 1246613264

55856441 620961174

412851100 91551200 620961174

Year 2009-2010
Current asset 2009: 2010: 2009: 2010: 3003128723 3451574582 1848066659 2204961318

Current liabilities

Due to current asset deduct from the current liabilities from 2009-2010 than working capital has been increased Rs, 91551200 so, that the company should need to manage more capital.

Reason for increase working capital

To increase in stock-Due to invest high in stocks. To increase in trade debtors-Due to extend the collection period. To increase in loans & advances-Garner more loans from outside. To increase in cash & bank balance-May be due to cash sales dairy maintain gigantic cash and bank balance.

53

SUGGESTIONS OF WORKING CAPITAL

Company should try to avoid excess stock so that it can reduced blocking of money in

the stock company can reduced its working capital by maintaining level of stock. Company should reduced it account receivable period so that it can minimize working

capital requirement. The level of loan and advance should be reduced to minimize working capital need. Increase in outstanding expenses will help the company in reducing cash on hand. Company should not give more credit period to their debtors. Company should invest more in marketable securities instead of fixed deposits to

meet it obligation. Operating cycle should reduce to increase cash on hand.

Company should try increase cash sales instead of credit sales.

54

PART 7

55

FINDINGS, ANALYSIS AND INTERPRETATION OBJECTIVES

The Main objective of Ratio analysis:The Balance Sheet and the Statement of Income are essential, but they are only the starting point for successful financial management. Apply Ratio Analysis to Financial Statements to analyze the success, failure, and progress of your business. Ratio Analysis enables the business owner/manager to spot trends in a business and to compare its performance and condition with the average performance of similar businesses in the same industry. To do this compare your ratios with the average of businesses similar to yours and compare your own ratios for several successive years, watching especially for any unfavorable trends that may be starting. Ratio analysis may provide the all-important early warning indications that allow you to solve your business problems before your business is destroyed by them.

FUNCTIONAL CLASSIFICATION OF RATIO ANALYSIS:LIQUIDITY RATIO: Liquidity is the ability of a company to meet its short-term obligation when they fall due. A company should have enough cash & other current assets, which can be converted into cash so that it can pay its suppliers & lenders on time.

Current ratio: The Current Ratio expresses the relationship between the firms current assets and its current liabilities. Current assets normally include cash, marketable securities, accounts receivable and inventories. Current liabilities consist of accounts payable, short term notes payable,

56

short-term loans, current maturities of long term debt, accrued income taxes and other accrued expenses Current Assets Current ratio = Current liability Working note:-

Particular Current Assets Current Liabilities Current Ratio

2007-08 318560280 6 1493687805 2.1 3

2008-09 5349673 779 235005339 2 2.28

2009-2010 8654996019 2758887294 3.14

Graph:

INTERPRETATION:From the above graph it is emptive that dairy get higher current assets which is a good sign for any company. Per year ratio has been growing up due to rise in followings; Raw material stock, deposits, advance income tax, trade debtors, etc. Due to augment in current assets dairy can easily meets its current obligation.

57

The main question this ratio addresses is: "Does your business have enough current assets to meet the payment schedule of its current debts with a margin of safety for possible losses in current assets, such as inventory shrinkage or collectable accounts?" A generally acceptable current ratio is 2 to 1. But whether or not a specific ratio is satisfactory depends on the nature of the business and the characteristics of its current assets and liabilities. The minimum acceptable current ratio is obviously 1:1, but that relationship is usually playing it too close for comfort. If you decide your business's current ratio is too low, you may be able to raise it by:

Paying some debts. Increasing your current assets from loans or other borrowings with a maturity of more than one year.

Converting non-current assets into current assets. Increasing your current assets from new equity contributions. Putting profits back into the business.

Quick ratio: Quick ratio establishes a relationship between quick, Or liquid assets & current liabilities. Measures assets that are quickly converted into cash and they are compared with current liabilities. This ratio realizes that some of current assets are not easily convertible. The quick ratio, also referred to as acid test ratio, examines the ability of the business to cover its short-term obligations from its quick assets only (i.e. it ignores stock). The quick ratio is calculated as follows

Quick ratio =

Liquidity assets Current liability

58

Working note:-

Particular Current assets Stock Liquidity Assets Current Liabilities Quick Ratio

2007-08 3185602806 1746402925 1439199881 1493687805 0.96

2008-09 5349673779 1900294576 3449379203 2350053392 1.47

2009-2010 8654996019 1991969245 6663026774 2758887294 2.42

Graph

59

INTERPRETATION:The quick ratio shows the liquidity of the organization. In the Dudhsagar Dairy we can see that the ratio of the 2007-08 was 0.96, 2008-09 it was 1.47 & current year it is 2.42. We can see that in 2007-08, 08-09 and 09-10 the ratio goes up. It shows that dairy maintains its liquidity. It is almost constant. May be dairy has a strong power of collection of cash from debtors. May be current assets higher than current liabilities which help the dairy to convert into the cash.

LEVERAGE RATIO: The composition of capital of business & the proportion of owners capital & capital provided by outsiders are reflected by leverage ratios. To judge the long term financial position of the firm, financial leverage or capital structure ratios are calculated.

The ratios indicate the degree to which the activities of a firm are supported by creditors funds as opposed to owners.

The relationship of owners equity to borrowed funds is an important indicator of financial strength.

The debt requires fixed interest payments and repayment of the loan and legal action can be taken if any amounts due are not paid at the appointed time. A relatively high proportion of funds contributed by the owners indicate a cushion (surplus) which shields creditors against possible losses from default in payment.

Note: 60

The greater the proportion of equity funds, the greater the degree of financial strength. Financial leverage will be to the advantage of the ordinary shareholders as long as the rate of earnings on capital employed is greater than the rate payable on borrowed funds. The following ratios can be used to identify the financial strength and risk of the business

Proprietary ratio: To ascertain the proportion of owners fund in the total funds employees. The ratio shows proportions of proprietors funds to the total assets employed in the business. This ratio cannot exceed 100%. Proprietary Funds PR = Total Real Assets *100

Working note:-

Particular Share Capital (Paid Up) Reserves Proprietary funds Total Assets Proprietary Ratio

2007-08 183107200 283466254 466573454 4193132308 11.13%

2008-09 183197200 3909157254 4092354454 10171086717 40.24%

2009-2010 440242900 3968655634 4408898534 14156294142 31.15%

Graph

61

INTERPRETATION:The proprietary ratio shows the portion of capital & capital provide by outsider. The higher the, the stronger the financial position of the enterprise, as it signifies that the proprietors have provided larger funds to purchases the assets. In the year 2006-07 it was 10.03%, the year 2007-08it was 11.13%, and the year 2008-09 it become 40.24%.The reason behind the increasing in ratio is though the investment in increases there is a steep increase in proprietary fund. The reason behind reduce the ratio in year 2007-08 is due to less capital provided by the outsiders as well as owners, so dairy get the low ratio compare to next 2 years. May be lack of adequate capital proprietary ratio go down.

Long Term Fund to Fixed Assets:The ratio shows the relationship between fixed assets & fixed capital. The fixed capital must be more then fixed assets or must be equal to fixed assets. Long term fund Fixed assets Working note

Long term fund to fixed assets =

Particular Share capital

2007-08 183107200 62

2008-09 183197200

2009-2010

440242900 Reserves loan long term fund fixed assets Long term fund to fixed Assets 283466254 1460857134 1927430588 909322482 2.12 3909157254 1204963315 5297317769 4723199918 1.12 3968655634 2724490289 7133388823 53902791111 1.32

Graph

INTERPRETATION:From the above calculation in the year 2007-08 it was 2.12, 2007-08 it become 1.12 and 2008-09 it become 1.32.Per year dairy has been increasing investment in fix assets which create low ratio. Dairy may be procure small loan in 2008-09 this can be the reason behind fall down the ratio. Due to loan term fund higher than fix assets ratio decrease in 2008-09. Undue investment in fix assets create low ratio in 2009-10 too.]

ACTIVITY RATIO: -

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The ratios which show the efficiency with which assets are used in business are known as Activity ratio or Turnover ratio or Efficiency ratio. Activity ratios are employed to evaluate the efficiency with which the firm manages & utilizes its assets.

Total Assets Turnover ratio:Total Assets = Net Fixed Assets and Current Assets
The total assets turnover ratio can be calculated by dividing the sales by total assets of the firm. It shows that how many times you utilize your assets to make sales. Sales Total Assets Turnover ratio = Total Assets Working note:-

Particular Sales Total assets Total assets Turnover Ratio

2007-08 14821827512 4193132308 3.53

2008-09 17502649176 6564799881 2.67

2009-2010 20278526480 10508876396 1.92

Graph

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INTERPRETATION:Generally, the higher the firms total asset turnover, the more efficiently its assets have been utilized.

The firm should manage its assets efficiently to maximize sales. Dairy invest very enormous amount than past 2 years, so dairy get low ratio. May be due to having more capital dairy decided to invest in the assets.

In the Dudhsagar Dairy the ratio for the year 2007-08 it was 3.53% in 2008-09 it was 2.67% & in 2009-10 it is 1.92%.Though there is increase in sales compared to last year, there is heavy investment in assets.

Inventory turnover ratio:This ratio indicates the efficiency of firm in producing and selling its product. Cogs Inventory turnover ratio = Avg. inventory

Working note:200708 1130255738 7 121756125 5 9.28

Particular Cogs Avg. inventory Inventory turnover ratio

2008-09 130500849 98 1537503124 8.48

2009-2010 14670422694 1510635619 9.71

Graph:
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INTERPRETATION:It is clear that in 2008-09 year ratio has fall down. Due to rise in cost of goods sold compare to previous year. With increase in Sales Dairy`s selling expenses are also increase which create low ratio.

PROFITABILITY RATIO:
Profit is the difference between Revenue & Expenses over period. Profit is the ultimate output of a company, and it will have no future if it fails to make sufficient profit. There for the financial manager should continually evaluate the efficiency of the company in term of profit. The profitability ratio is calculating to measure the operating efficiency of the company. Besides management of the company, creditor & owners are also interested in the profitability of the company. Creditors want to get repayment of principal amount & interest regularly. Owners want to get a required rate of return on their investment. This is possible only when the company earns enough profits.

Gross Profit Margin Ratio: The first profitability ratio in relation to sales in the gross profit margin ratio. It is calculated by dividing the gross by sales.

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Normally the gross profit has to rise proportionately with sales. It can also be useful to compare the gross profit margin across similar businesses although there will often be good reasons for any disparity.

GPMR =

Gross Profit X 100 Sales

Working note:-

PARTICULAR Sales Closing stock Total ( A ) Opening Stock Milk Purchase Purchase exp Material Consumption. Total (B) Gross profit ( A- B) Sales GPMR ratio

2007-08 14821827512 1505751958 16327579470 929370551 11388237501 490701293 2365212470 15173521815 1154057655 14821827512 7.79

2008-09 17502649176 1569254289 19071903465 1505751958 12448930258 664657071 2988357484 17607696771 1464206694 17502649176 8.37

2009-10 20278526480 1452016948 21730543428 1569254289 13715418604 837766749 4097896791 20220336433 1510206995 20278526480 7.44

Graph

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INTERPRETATION:A high gross profit margin is good for the management. Here the gross profit ratio of the year 2007-08 is 7.79%, 2008-09 is 8.37% year of 2009-10 it become 7.44%. So all over the gross profit ratio is good as it maintains a constant trend. In 2009-10 ratio has go down because sales increase compare to past 2 years with increasing gross profit. May be fall in selling price Due to rising the cost of good sold

Dairy`s purchasing expenses has been go up.

Net Profit Ratio: Net profit is obtained when operating expenses & taxes are substrate from the gross profit. The net profit margin ratio in measured by dividing profit after tax This is a widely used measure of performance and is comparable across companies in similar industries. The fact that a business works on a very low margin need not cause alarm because there are some sectors in the industry that work on a basis of high turnover and low margins, for examples supermarket and motorcar dealers. What is more important in any trend is the margin and whether it compares well with similar businesses. Net profit ratio = Net profit X 100 Sales

Working note:-

Particular Net profit Sales Net Profit Ratio %

2007-2008 35497815 14821827512 0.24 68

2008-2009 37199456 17502649176 0.21

2009-2010 62191803 20278526480 0.31

Graph

INTERPRETATION:Net margin ratio indicates what portion of sales revenue is left to the proprietors after the alloperating expenses are met. It is indicating management efficiency in manufacturing, administrating, and selling in the products. We can see that the net profit ratio is in the year 2007-08 is 0.24%, 2008-09 is 0.21%, 200910 is 0.31%. So all over this ratios performances is average because 2007-08 net profit ratio is 0.24%% but in the year 2008-09 its decries and become 0.21%and current year its also increase and become 0.31%. So its shows decline in the profit of the company in comparison with last two years. However, differences are minor so all over performance is stable. Dairy should have to raise the net profit Because of increase in several expenses dairy did not get the remarkable profit

Earnings per Share: The profitability of the common shareholders investment can also be measured in many other ways. One such measure is to calculate the earnings per share. Whatever income remains in the business after all prior claims, other than owners claims (i.e. ordinary dividends) have been paid, will belong to the ordinary shareholders who can then make a 69

decision as to how much of this income they wish to remove from the business in the form of a dividend, and how much they wish to retain in the business. The shareholders are particularly interested in knowing how much have been earned during the financial year on each of the shares held by them. For this reason, an earnings per share figure is calculated. Clearly then, the earning per share calculation will be: EPS = PAT NO. Of equity share Working note:-

particular After tax profit No. of equity share (paid up) Earning per share

2007-08 35497815 1829432 19.43

2008-09 37199456 1831972 20.31

2009-2010 62191803 4402429 14.13

Graph

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INTERPRETATION:From the above graph it is emptive that in year 2008-09 ratio suddenly fall .So this year dairy is not earn expected amount per share. EPS ratio indicates the ratio of per share earnings of the company. This ratio is high is good for the management as well as company also. Here in the year of 2007-08 it is 19.43%, 200809 it become 20.31%, and 2008-09 it is 14.13%, so this ratio maintains their previous standard. Whatever income remains in the business after all prior claims, other than owners claims (i.e. ordinary dividends) have been paid, will belong to the ordinary shareholders who can then make a decision as to how much of this income they wish to remove from the business in the form of a dividend, and how much they wish to retain in the business. The shareholders are particularly interested in knowing how much has been earned during the financial year on each of the shares held by them. For this reason, an earning per share figure must be calculated.

Material cost ratio: This ratio reveals how well Material is been managed. It is important because the more times Material can turned in a given operating cycle, the greater the profit. Material consumed X 100 Sales 71

Material cost ratio =

Working note:-

Particular Material consumed Sales Material cost ratio Graph

2007-2008 2365212470 12659228733 18.69

2008-2009 2988357484 14821827512 20.16

2009-2010 4097896971 17502649176 23.41

INTERPRETATION:Per year material consume has been increasing, due to this it is create adverse impact on the ratio The expenses are very important part of any organization. The material cost of the Dudhsagar Dairy is increasing year by year. In the 2007-08, it was 18.69%, 2008-09 it was 20.16% and currently it is 23.41%. So all over material cost ratio is stable and changes are depending to current situation. Dairy has increased the sales so with that need of material has also augment, then expenses raise too.

Administrative Expenses Ratio:72

Administrative Exp ratio

Admin exp Sales

X100

Working note:Particular Salary Stationary Insurance Rent Audit fee Miscellaneous exp Interest Admin exp ( A ) Sales (B) Admin Exp Ratio ( A * 100 /B) 2007-08 280769559 4712322 3749309 5294435 15710259 31869931 96956538 439062353 14821827512 2.96 2008-09 354520320 6644787 2876917 7801914 10669377 36003267 156708131 575224713 17502649176 3.29 2009-2010 360600958 8603470 3314360 8758570 18747659 66255038 223177746 689457801 20278526480 3.40

Graph

INTERPRETATION:The admin department is a very import part of any organization, so mange it and gets the better out come. Here our Admin exp ratio is for the year 2007-08 is become 2.96, 2008-09 its become 3.29 and 2009-10 its become 3.40. The main reason behind increase the ratio is augment the expenses. Various expenses of dairy are rise which are below, Stationary, 73

Rent, Interest, Salary-with higher the no.of.employees dairy has to pay enormous salary which raise dairy`s expenses level.

Selling & Distributive Expenses Ratio:Selling & Distribution exp. Ratio = Selling & Distribution Exp. X 100 Sales

Working note:Particular Selling exp Fright & carriage exp Selling Exp. Total ( A ) Sales ( B ) Selling Exp Ratio ( A *100 / B ) 2007-08 11436918 50948347 62385265 14821827512 0.42 2008-09 9964683 65538769 75503452 17502649176 0.43 2009-2010 12030875 66964134 78995009 20278526480 0.39

Graph

INTERPRETATION:We know very well expenses are their behind seles, but beyond the limit is not a good sign for dairy. In Dudhsagar dairy the selling exp for the 2007-08 was 0.42% in 2008-09 it was 74

0.43% & in current year it is 0.39%.We can see that in 2009-10 the ratio goes down and again it increases to standard . It shows that dairy maintains its liquidity. Dairy should control over the expense, so it can easily enhance the desired profit. Folowing exp.has rised, Freight & carriage, transportation exp, etc.

Return on Net Assets: Net Assets = Net Fixed Assets and Net Current Assets This ratio is (RONA) is too divided by PAT by Net Assets. This measures how efficiently profits are being generated from the assets employed in the business when compared with the ratios of firms in a similar business. A low ratio in comparison with industry averages indicates an inefficient use of business assets. The Return on Assets Ratio is calculated as follows. PAT * 100 RONA = Net assets Working note:-

Particular Net profit Net assets Return on Net assets

2007-08 35497815 898608895 3.95

2008-09 37199456 904658927 3.92

2009-2010 62191803 1647651279 3.77

Graph

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INTERPRETATION:From the above diagram it is clear that in year 2009-10 ratio get down which does not show a robust sign of dairy .Return on net assets is measures how efficiently profits are being generated from the assets employed in the business when compared with the ratios of firms in a similar business. Here our return on net assets is for the year 2007-08 was 3.95%, 200809 was 0.82% and current year it become 1.18% (reason is high investment in net assets and no major change in profit). Dairy might invest more in the assets. Dairy should diminute investment in assets to raise the ratio level or making good condition. Show the relationship between income and total assets. High return is equal to good use of assets.

Return on Equity Share capital:To know the profitability from the viewpoint of equity share holder.

RESP =

Net Profit X 100 Equity Share Capital

Working note:76

Particular Net Profit Equity share capital (paid up) Return on equity Share Capital

2007-08 35497815 182943200 19.40

2008-09 37199456 183197200 20.31

2009-2010 62191803 440242900 14.13

Graph

INTERPRETATION:In current year dairy receive low return compare to past 2 years. This ratio compares reserves to equity capital. It may reveal the companys policy with regards to growth & distribution of dividend.

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From the above calculation we can see that in the year 2007-08 it was 19.40% in the year 2008-09 it was 20.31% & in the current year it is 14.13%. in this ratio the minor changes happened because of profit. Dairy has to improve the profit level so ratio will reach to the desired peak. Reduce the pointless expenses which can help the dairy to raise profit.

The stockholders equity includes share capital, share premium, distributable and nondistributable reserves.

Remark/comment
GCMMF (Gujarat Cooperative Milk Marketing Federation) is the marketing agent of Dudhsagar dairy and they are collecting and selling milk in the market on their behalf. The whole advertising and selling is done by GCMMF and they are collecting revenue on behalf of the dairy and transferring in to dairys account. Every transaction of Dudhsagar dairy is handled by banks like Mehsana district bank, state bank of India, bank of India, bank of Baroda, HDFC bank etc. As per the requirement of Dudhsagar dairy banks are transferring funds from their account. Now a day the employees of Dudhsagar dairy are using ERP software so that they come to know about the surplus and shortage of cash in every department. IF they found any surplus they are returning to bank and in case of shortage, immediately they are calling from the bank. The whole cash of Dudhsagar is managed by Mr.B.A.Vohra (M.Com & A.I.C.W.A).

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PART 8

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FINDINGS
Dairy has to stimulate the value of its shareholders which will be create a beneficial result for dairy. Dairy should have to diminute its expenses reach to obtain large profit. Dairy has good credit on market as per the loan credit of bank of Baroda, bank of India, HDFC bank, ICICI bank, IDBI bank and axis bank. As per current ratio and quick ratio dairy has maintain good liquidity position. Administrative ratio is gone up which shows increase in dairy expense. Current assets are more than current liabilities indicate that dairy used long term funds for short term requirement, where long term funds are most costly then short term funds.

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Recommendations
Recommendation can be use by the firm for the betterment increased of the firm after study and analysis of project report on study and analysis of working capital and ratio. I would like to recommend. Dairy should raise funds through short term sources for short term requirement of funds, which comparatively economical as compare to long term funds. Dairy should take control on debtors collection period which is major part of current assets. Dairy has to take control on cash balance because cash is non earning assets and increasing cost of funds. Dairy should reduce the inventory holding period with use of zero inventory concepts. Over all dairy has good liquidity position and sufficient funds to repayment of liabilities. Dairy has accepted conservative financial policy and thus maintaining more current assets balance. Dairy is increasing sales volume per year which supported to dairy for sustain 2nd position in Asia.

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Conclusion
Working capital management is important aspect of financial management. The study of working capital management of MEHSANA DISTRICT CO-OPERAQTIVE MILK PRODUCERS UNION LTD has revealed that the current ratio was as per the standard industrial practice but the liquidity position of the dairy showed an increasing trend. Working capital of the dairy was increasing and showing positive working capital per year. It shows good liquidity position. Positive working capital indicates that dairy has the ability of payments of short terms liabilities. Working capital increased because of increment in the current assets is more than increase in the current liabilities. Dairys current assets were always more than requirement it affect on profitability of the dairy. Current assets components shows sundry debtors were the major part in current assets it shows that the inefficient receivables collection management. In the year 2008-09 working capital decreased because of increased the expenses as manufacturing expenses and increase the price of raw material as increased in the inflation rate.

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BIBLIOGRAPHY
BOOKS:

1. I.M. Pandey Reconciliation of Cost & Financial Accounting

Page from (518-532) 2. Annual report of dudhsagar dairy 2007-2008 3. Annual report of dudhsagar dairy 2008-2009 4. Annual report of dudhsagar dairy 2009-2010 WEBSITES:

1. www.dudhsagar.com 2. www.gcmmf.com 3. www.nddb.com 4. [email protected]

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