Documente Academic
Documente Profesional
Documente Cultură
Submitted To
MANGALORE UNIVERSITY
By
AJAYKUMAR
Reg No:
MS.MEENAKSHI RAO
Lecturer, AJIM
2009-2011
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Chapter – 1
INTRODUCTION
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INTRODUCTION
The world of business today has undergone a complete metamorphosis. This process was further
augmented by various rounds of GATT agreements that culminated into WTO- a new world
order to Trade and Business. The command economy has yielded place to market economy with
wide ranging implications for Indian business and industry which have to be globally
competitive in terms of technology, costs and quality. To cope up with these challenges, a new
breed of professional managers is needed. Some of the traditional theories of management are
being challenged today in terms of their relevance in the fast changing environment, and new
management practices and concepts are evolving. Unfortunately, however, not many text books
are available in India, which thoroughly deals with these changes and which can be gainfully
The present text on Financial Management may be seen and appreciated in the above context. In
and audit committees, I have been a witness to the changes that have taken place in finance
function having far reaching implications for corporate management. In recent years, therefore,
financial management has attracted a lot of attention by the corporate sector. Goods
professionally managed companies are greatly concerned about their capital structure, cost of
capital, working capital management, project appraisal, corporate governance and so on. They
are trying to bring down their cost of debt to international level not only by using new financial
instruments but also by borrowing abroad. LIBOR linked short term borrowing has become very
common in such companies with all the implications of exchange rate risks and their
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management. With the world really becoming a global village, international financial
management has assumed added significance. Unprecedented changes have been taking place in
various financial sectors like banking, insurance and capital market. Information technology has
not only added new dimensions to the delivery of financial services, but has also provided a
more rigorous analytical framework for decision making. Hence managers have deal with a
many more contemporary issues in fiancé, economy, technology, trade and commerce etc., in the
FINANCE:
Finance has been described as a lubricant of economic activity, without which the entire
business will grind to a halt, and money has been aptly described by monetary economist called
Geoffrey Crow there, “Finance as the essential invention on which all the rest is based. With
unlimited wants and limited financial resources, the financier is concerned with what is
avoid cash flow problems and to ensure the profitability of the enterprises be it in any sector of
economy i.e., public sector, private sector, industrial, agricultural, co-operative, banking and
The finance manger has to ensure the rational decision making efforts at the each any every
successive stages of pre investment and post investment. In the absence of proper appraisal
system and evaluation of managerial abilities, there will be misallocation mortality and lopsided
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Business Finance as a Finance Function
According to Guttmann and Douglas, “Business finance can be broadly defined as the activity
concerned with planning, raising, controlling and administering of funds used in the business In
the words of R.C.Osborn, “ Finance function is the process of acquiring and utilizing funds by a
Financial Management is that managerial activity which is concerned with the planning and
economic resource namely, Capital funds. This can be possible only when funds are procured in
a manner that the risk, cost, and control considerations are properly balanced in a given situation
In other words the Financial Management is basically concerned with two important aspects:
So, it is clear that Financial Management refers to all those managerial activities or efforts which
are concerned with the ascertainment of the finance, short term as well as long term needed by
the company, determination of the sources suitable under the given circumstances and collection
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of the funds in time, and control over the utilization of fun Every organization, irrespective of
particularly a business firm is confronted with issues and decisions like the following, which
Financial Management is broadly concerned with the acquisition and use of funds by a business
○ How large should the firm be and how fast would it assets?
○ How should the firm analysis, plan and control its financial affairs?
Funds Requirement Decision: A careful estimate has to be made about the total funds
required by the enterprise taking into account both the fixed and working capital
requirements.
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1. Financing Decision: Provision of funds requirement at the proper time is one of the
2. Investment Decision: The Finance Manger has to evaluate different proposals and select
of Finance Manager in the organization to keep happy the equity stakeholders or owners
of the organization.
Apart from the above main function, following subsidiary function are also performed by the
finance manager:
iv) To keep track of capital market, stock exchange quotation and behavior of
As Collins books has remarked “Bad production management and bad sales management have
Sound financial management is essential in both profit and non profit making organization. The
financial management helps in monitoring the effective deployment of funds in fixed assets and
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in working capital assets. The financial management assesses the finance position of the
company through the working out of the return on capital, debt equity ration, and cost of capital
from each source etc., and comparison of the capital structure with that of similar companies.
Also it helps in Profit planning, capital expenditure, measuring cost, given input of funds.
users. Financial statements are prepared for the purpose of presenting a periodical review or
According to Smith and Ashbin, Financial Statements is, “ The end product of financial
that purports to reveal the financial position of the enterprise, the result of its recent activities
Balance sheet is of the most significant financial statement in the organization. It indicates the
financial condition or the state of affairs of a business at a particular point of time. More
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specification about resources and obligations of a business entity and about its owner’s interest
Profit and Loss account is the “Score-Board” of the firm’s performance during a particular
period. It explains that what has happened to a business because of operations between two
Balance Sheet dates. In short, it is the accounting report, which summarized the revenues,
expenses, and the difference between them for an accounting period. The Profit and Loss
The financial statements summarize the end-result of business activities of an enterprise during
an accounting period in monetary terms which are indicators of the two significant factors viz.
a) Profitability and
b) Financial soundness
Analysis and interpretation of financial statements, therefore refers to such a treatment of the
information contained in the Profit and Loss account and Balance Sheet so as to afford full
A distinction here can be made between the two terms – “Analysis” and “Interpretation”. The
terms analysis means, methodical classification of the data given in the financial statements. The
figures given in the financial statements will not help one, unless they are put in a simplified
form. The term interpretation means explaining the meaning and significance of the data so
simplified
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However both “Analysis” and “Interpretation” are complementary to each other. Interpretation
“Financial Statement analysis is largely a study of the relationship among the various financial
factors in a business disclosed by a single set of statement and a study of the trend of these
of information, which if properly read, analyzed or interpreted can provide valuable insights into
a firm’s performance and position. Also it is the starting point for making plan, before using any
sophisticated forecasting and planning procedure. By analyzing these statements, firm can
Usually management would be particularly interested in knowing the financial strength of firm
to make their best use and to be able to spot out the financial weakness of the firm to take
suitable corrective action. The future plan of the firm should be laid down in view of the firm’s
financial strength and weakness. In short, through financial analysis and interpretation it helps
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Parties demanding Financial Analysis
The traditional view is that the financial statements are prepared for the proprietors and
accounting for which just aids the stewardship function. In recent years, this concept of
stewardship accounting has been dramatically changed. A user oriented approach has instead
changed to fit the purposes of the recipient of financial information. Whenever ownership is
separated from administration, is natural for the owner to understand how money contributed by
him is utilized by the administrators. Hence it leads to enquiry by the owner can be called as the
disclosure which is an important part of good corporate governance. Financial statement analysis
may be done for a variety of purpose, which may range from a simple analysis of short term
weaknesses of the undertaking in various areas. Also the nature of analysis will differ depending
Important prominent users who go through the report of financial statements for analysis are:
b) Employees
c) Trade creditors
e) Managers
f) Customers
h) Others
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Types of Financial Statement Analysis
Financial analysis can be classified into different categories depending upon (1) The material
a) External analysis:- This analysis is done by those who are outsiders for the business.
The term outsiders include investors, credit agencies, government agencies and other
creditors who have no access to the internal records of the company. mainly depend
upon, the published financial statements. Their analysis serves only a limited purpose.
b) Internal Analysis:- This analysis is done by persons who have access to the books of
account and other information related to the business. Such an analysis can, therefore, be
done by executive and employees or by officers appointed for this purpose by the
government or the court under power vested in them. The analysis is done depending
a) Horizontal Analysis:- In case of this type of analysis, financial statements for a number
of years are reviewed and analyzed. The current year’s figures are compared with the
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standard or base year. The analysis statement usually contains figures for two or more
years and the changes arte shown regarding each item from the base year usually in the
form of percentage.. Such an analysis given the considerable insight into levels and areas
of strength and weakness. Since this type of analysis is based on the data from year to
relationship of the various items in the financial statements on a particular date, e.g. : the
ratios of different items of costs for a particular period may be calculated with the sales
for that period. Such an analysis is useful in comparing the performance of several
companies in the same group or divisions or departments in the same company. Since
this analysis depends on the data for one period, this is not very conducive to a proper
2. Identification of data source (which part of the annual report or other information is
The Financial statement analysis is purposive and not necessarily comprehensive to cover all
possible uses. Since it is purposive, analysis may be restricted to any particular portion of the
available financial statement taking care to ensure objectivity and unbiased ness. Also depending
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upon his purpose, user can choose any of the techniques or tools for analyzing the financial
statement.
HISTORY OF KMF
The Karnataka Co-operative milk producer’s federation was organized in 1972 initially with the
objective of creating white revolution in Karnataka and India so as to support the farmers in their
subsidiary activities as dairying for their lively hood in collaboration with co-operative milk
societies in the Name of Karnataka Dairy Development Corporation (KDDC) later on it was
The Cattle Feed Plants are units of KMF which aims in serving the Milk producers, farmers
through production and distribution of Cattle Feed. The Cattle Feed Plants are serving the milk
unions and farmers in providing hygiene, qualitative, quantitative cattle feed in time which in
The farmers thus can produce a hygiene, sufficient milk in all seasons, the idea of Cattle Feed
Plants was developed before 30 to 40 years only through un informal methods of feeding cattle
The KMF was initially depends on some commercial Cattle Feed Plants like Mandy a Feeds,
Mysore Feeds, Raychur Cattle Feeds and O.K. feeds for satisfying the demands of milk
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The first cattle feed plant of KMF was started at Rajanukunte Bangalore in 1983, 21 st of March.
Later on KMF established another three Cattle Feed Plants in Karnataka including Cattle Feed
Plant, Hassan.
Now a day’s animal husbandry (dairy activities) is one of the important and foremost filed of
farmers to have economic stability. Due to frequent fluctuations in the prices of the agricultural
products produced by the farmers and interference of middlemen in the market and others,
farmers are facing a number of problems to fulfill their economic needs and to have economic
stability. Because of the above reasons to satisfy their day to day economic needs farmers are
mainly depended on dairy activities. Animal husbandry becomes the part and partial of the life
of the farmers of India today. Especially in the state of Karnataka dairy activities are growing
rapidly. It is in the next place (Second) after Gujarat in India. It may be come to first place in
India recently. KMF was established in the name of KDDC with the intention of “White
Revolution”.
To reach its prime objective of “White Revolution” KMF has taken many steps . They are:-
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b) Providing financial support to develop societies
Among the above steps taken by the KMF to develop its activities Production of Cattle Feed is
one of the most important step. To procure more and more milk, cattle need hygienic
(qualitative) feed. In this regard KMF has established four cattle feed plants to produce balanced
and qualitative cattle feed which contains a numbers of qualitative ingredients like DORB, Rice
polish, Soya Cake, Cotton Seed Cake, Sunflower Cake, Broken Rice, Maize, Mineral Mixture,
Molasses, Urea, Calcite Powder etc. Among these four Cattle Feed plants Cattle Feed Plant-
Hassan is producing 200 mts of cattle feed daily in the name of Nadine (Product- Bypass pellet
and Product Type I pellet). To produce the cattle feed, unit purchases the above mentioned raw
materials from the registered and authorized suppliers at competitive rates subject to some
standards formulated by National Dairy Development Board, An and, Gujarat. Process these
materials through modernized machineries with the intention of reduction of cost of production
and finally supplies the cattle feed to the milk producers through milk unions at very cheaper
rates. Quality of the feed and selling price motivate farmers to purchase and use of the Nadine
In addition to the above, the major raw materials used by the cattle feed plant for production are
mainly agricultural products, KMF purchases raw materials from farmers and authorized dealers
at reasonable rates. Indirectly it gives supporting rates for agricultural products and it encourages
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farmers to produce agricultural products. and it helps to have economic stability of the farmers.
Cattle feed plant, Hassan purchases some of the raw-materials like maize, broken rice and others
from local farmers of Hassan, Mysore and Dakshina kannada District and cake items from other
districts and from other states also and supply cattle feed to the milk producers of Hassan,
Mysore and Dakshina Kannada milk unions. Indirectly it is helpful to procurement of more and
more milk. Cattle Feed Units of Karnataka Milk Federation are working for the interest of milk
producers. At present this organization is one of the rapidly growing organization in co-
operative sector
The Cattle Feed Plant, Hassan is an unit of KMF established on 23rd Oct,1998 at Gandhi agar,
M. Hosakoppalu Post, Hassan. And this plant occupying the 6.07 hits under survey no.3 and 4 of
Hassan Municipal.
KMF made a deed with NDDB on 07.09.96 on Turnkey basis to establish this plant. And with
the technical, financial and professional assistance of NDDB and state government this plant
was came into existence with the capacity of 100 mt per day to satisfy the feed demand of the
farmers belongs to Hassan Milk Union Ltd., Mysore Milk Union Ltd., and Dakshina Kannada
This plant was established with the capital of Rs.8.43 crore. The details of sources of fund is as
below:-
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Rs. In Cr
The plant started its commercial production from October, 1998 by producing Type II pellet. At
present the present the plant producing three types of cattle feeds. They are as under
1. Type II Pellet
2. Bypass Pellet
3. Type I Pellet
1. Purchase Department
2. Inventory/Distribution Department
5. Production Department
6. Finance Department
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Each sections are administering by separate by separate section heads and controlling by General
Manager
OBJECTIVES OF ORGANISATION
KMF Cattle Feed Plants came into force with the object of White Revolution through production
and supply of cattle feed to the farmers. To fulfill the primary objective the organization follows
Cattle Feed Plants also helps to the farmers by purchasing crops as ingredients in producing the
cattle feed. Also it helps to balance in financial position of the farmers through high procurement
of milk.
All of the above objectives helps to reach the primary goal i.e., WHITE REVOLUTION through
production and supply of hygiene and qualitative cattle feed to the farmers at a reasonable rate.
A financial analysis can adopt the following tools for analysis of the financial statement. There
are also termed as methods of financial analysis. This chapter describes how this information is
analyzed, both by parties outside the firm and by the company’s own management.
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All analysis of accounting data involves comparisons. An absolute statement, such as “Company
X earned $ 1 million profit, “is by itself not useful. It becomes useful only when the $ 1 million
is compared with something else. The comparison may be quite imprecise and intuitive. For
example, if we know that company X is an industrial giant with tens of thousands of employees.
We know intuitively that $ 1 million profit is a poor showing, because we have built up in our
minds the impression that many companies should earn much more than that. Or, the
comparison may be much more formal, explicit and precise as is the case when the $ 1 million
profit this year is compared with last year’s profit. In either case, it is the process of comparison
BUSINESS OBJECTIVES
Comparisons are essentially intended to shed light on how well a company is achieving its
objectives. In order to decide the types of comparisons that are useful, we need first to consider
what a business is all about what its objectives are. Let us say, as a generalization and insofar as
it can be measured quantitatively, that the overall objective of a business is to earn a satisfactory
return on the funds invested in it, consistent with maintaining a sound financial position.” (Note
that this statement is limited to facts that can be expressed numerically. However, employee
are also important and must be taken into account whenever possible in appraising the overall
success of an enterprise. This generalized statement of objectives has two aspects: (1) earning a
satisfactory return on investment and (2) maintaining a sound financial position. Each is
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Return on Investment: Return on investment (ROI) is broadly defined as net income divided by
investment. The term investment is used in three different senses in financial analysis, thus
giving three different ROI rations: return on assets, return on owners’ equity and return on
invested capital.
Return on Assets (ROA) reflects how much the firm has earned on the investment of all the
financial resources committed to the firm. Thus, the ROA measure is appropriate if one
considers the investment in the firm to include current liabilities, long term liabilities, and
owners’ equity, which are the total sources of funds invested in the assets. It is a useful measure
if one wants to evaluate how well an enterprise has used its funds, without regard to the relative
magnitudes the sources of those funds (short-term creditors, long term creditors, bondholders,
and shareholders).
The ROA ratio often is used by top management to evaluate individual business units within a
multidivisional firm (e.g., the laundry equipment division of a household appliance firm). The
division manager has significant influence over the assets used in the division but has little
control over how those assets are financed, because the division does not arrange its own loans,
issue its own bonds or capital stock, or in many cases pay its own bill (current liabilities).
Return on owners, equity (ROE) reflects how much the firm has earned on the funds invested
by the shareholders (either directly or through retained earnings). This ROE ratio is obviously of
responsible for operating the business in the owners’ best interest. The ratio is not generally of
interest to division managers, however, because they are primarily concerned with the efficient
use of assets rather than with the relative roles of creditors and shareholders in financing those
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assets. The third ratio is return on invested capital (ROIC): Invested capital (also called
permanent capital) is equal to non current liabilities plus shareholders’ equity and hence
represents the funds entrusted to the firm for relatively long periods of time. ROIC focuses on
the use of this permanent capital. It is presumed that the current liabilities will fluctuate more on
less automatically with changes in current assets and that both vary with the level of current
operations.
Invested capital is also equal to working capital plus non current assets. This equivalency points
out that the owners and long term creditors of the firm must in effect finance the plant and
equipment. Other long term assets of the firm and the portion of current assets that is not
financed by current liabilities. Some firms use ROIC to measure divisional performance, often
labeling the ratio return on capital employed (ROCE) or return on net assets (RONA). This
measure is appropriate for those divisions whose managers have a significant influence on
decisions regarding assets acquisitions, purchasing and production schedules (which determine
inventory levels). Credit policy (account receivables) cash management and on level of their
current liabilities.
shareholders’ investment could be increased if incremental investments in the assets for new
projects were financed solely by liabilities, provided the return on these incremental investments
exceeds the interest cost of the added debt. This “financial leverage” policy, however, would
increase the shareholders’ risk of losing their investment, because interest charges and principal
repayments on the liabilities are fixed obligations and failure to make these payments could
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throw the company into bankruptcy. The degree of risk in a situation can be measured in part by
the relative amounts of liabilities and owners’ equity and by the funds available to discharge the
Structure of the analysis: Many ratios have been described in previous chapters. In this
section, these ratios and others are discussed in a sequence intended to facilitate an
understanding of the total business. Thus, we shall assume here that one first looks at the firm’s
performance in the broadest terms and then works down through various levels of detail in order
to identify the significant factors that accounted for the overall results, If the values of the rations
used in this analysis are compared with their values for other time periods, this comparison is
called a longitudinal, or trend analysis. Dozens of ratios can be computed from a single set of
financial statements. Each analyst tends to have a set of favorite ratios, selected from those
RATIO ANALYSIS
Ratio analysis measures the relationship between two data. For ex: Male – Female ratio of the
population of a country. Absolute comparison between two figures does not carry much sense.
When spoken in terms of ratio it becomes much more penetrating and meaningful. So a ratio it
defined as the indicated quotient of two mathematical “expression” and as “ the relationship
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Standards of Comparison:-The ratio analysis involves comparison for a useful interpretation
of the financial statements. A single ratio in itself does not indicate favorable or unfavorable
conditions. It should be compared with some standard. Standard of comparison may consists of:
1. Ratio calculated from the past financial statements of the same firm
2. Ratios developed using the projected or pro-forma, financial statements of the same firm
3. Ratio of some selected firm, especially the most progressive and successful, at the same
From the above four, the easiest way to evaluate the performance of a firm is to the first one i.e.,
Classification of ratios:-
Ratios can be classified into different categories depending on the basis of classification. The
traditional statement to which are determinants of a ratio belong. On the basis the ratio could be
classified as:
Traditional Classification
1. Profit and Loss A/c Ratios:- G/P ratio, N/P ratio, Stock turn over ratio, Operating
ration etc
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3. Composite Ratios:- Fixed assets turnover ratio, Debtors turnover ratio etc.,
Functional Classifications:
1. Profitability Ratios:- Profitability of the organization reflects the final result of business
operation, and it will have no future if it fails to make sufficient profits. Therefore, the financial
manager should continuously evaluate the efficiency of its company’s in term of profits. Hence
the profitability ratios are calculated to measure the operating efficiency of the company.
Besides management of the company, creditor wants to get interest and repayment of principal
regularly. Owners want to get a reasonable rate of return in their investments. This is possible
only when the company earns enough profits. Generally, two major types of profitability ratios
are calculated.
Sales
Sales
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Sales
Sales
Total Assets
Net worth
2. Activity Ratios:- This ratio is also called as turnover ratio, Asset management ratio. It
measures how efficiently the assets are employed by the firm. These ratios are based on the
relationship between the level of activity, represented by sales or cost of goods sold, and levels
of various assets. A proper balance between sales and assets generally reflects that assets are
managed well. Several activity ratios can be calculated to judge the effectiveness of asset
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I. Inventory Turnover Ration= Cost of Goods
Average Inventory
Average Debtors
Total Assets
V. Working capital
This ratio indicates whether or not working capital has been effectively utilized in making sales.
3. Financial Ratios: Financial ratios indicate about the financial position of the company. The
and meet all its obligations both long term as well as shortly term without strain. Thus, its
financial position has to be judged from two angles i.e., short term as well as long term.
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2.4 Liquidity Ratios: Liquidity refers to the ability of a firm to meet its obligations in the short
Current Liabilities
Current liabilities
This quick ratio is a fairly stringent measure of liquidity. It is based on those current assets
which arte highly liquid. Inventories are excluded from the numerator of this ratio because, those
1.5 Leverage Ratios:- Leverage ratios help in assessing the risk arising from the use of
Equity capital
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3. Makes intra firm comparison possible
4. Helps in planning
1. SHARE HOLDERS:- Some shareholders are interested in short run performance of the
company. So they can embark upon dividend per share ratio. Some others may be
interested in holding the shares in the long-term. So they have to go in for more details.
They should judge long term solvency position. ROE and EPS.
2. ANALYST ADVISORS:- They advise the present and potential investors about their
buy/sell and lending decision. They generally review all the financial characteristics.
3. TAX AUTHORITIES:- They judge the reliability of the financial information presented
by a enterprise. By using various ratios and applying the logic of inter relationship, they
4. CREDIT RATING AGENCIES:- Presently in India the credit rating agencies rank the
companies in terms of a specific loan or deposit. They also use financial ratio along with
5. EMPLOYEES AND TRADE UNIONS:- They use mainly profitability ratios and
6. AUDITORS:- Like tax authorities, auditors use ratio as part of comparability test on the
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.7. DISTRESS ANALYSTS:- Ratios are useful tools for industrial units.
The fund flow statement is drawn based on the information contained in the basic financial
statements, shows the scores of funds and application of funds during the period. Funds flow
analysis provided insight into the movements of funds and helps in understanding the changes in
In business, several transactions take place. Some of these transactions increase the funds while
other decreases the funds. Some may not make any change in the funds position. In case of
transactions results in inverse of funds it will be termed as a source of funds. For eg., if the funds
are Rs.10000/- and on account of business transaction, say issue of shares, they become
Rs.15000/-. Issue of shares will be taken as source of funds. In case transaction results decrease
of funds, it will be taken as an application or use of funds. For eg., if the funds are Rs.10000/-
and on account of a transaction, say purchase of furniture of Rs.5000/- they stand reduced to
TREND ANALYSIS
In financial analysis, the direction of changes over a period of years is a crucial importance.
Trend analysis or time series are immensely helpful in making a comparative study of the
financial statement for several years. The method of calculating trend percentage involves the
calculation of percentage relationship that each items bears to the same items in the base year.
Any intervention year may also be taken as the base year. Each item of a base year is taken as
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100 and on that basis the percentage for each of the items of each of the years are calculated.
These percentages can also be taken as index numbers showing relating changes in the financial
Computation:
1. A statement is taken as a base with reference to which are other statements are studied.
3. Trend percentage are calculated in comparison to the base year and interpretations are
made
The method of trend percentages is useful, analytical device for the management. Since by
substitution of percentages for large amounts, the brevity and readability are achieved. Also
trend analysis leads you to question the causes for the tendency; in turn the identification of
Comparative financial statements are those statements which have been designed in way so as to
financial position embodied in such statements. In these statements, figures for two or more
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Both Profit and Loss A/c and Balance Sheet can be prepared in the form of comparative
financial statements.
1). Comparative Profit an Loss Account:- A comparative P&L a/c will show the absolute
figures for two or more periods, the absolute change from one period to another and if desired,
the change in terms of percentages. Since the figures for two or more periods are shown side by
side, the reader can quickly ascertain sales have increased or decreased, whether cost of sales has
increased or decreased etc.,. Thus only a reading of data included in this statement will be
2). Comparative Balance Sheet:- Comparative Balance Sheet as on two or more different
dates can be used for comparing assets and liabilities and find out any increase or decrease in
those items.
Common size financial statements are those in which figures reported are converted into
percentage to some common base. In the Profit and Loss Accounts, the sales figures is assumed
to be 100 and all figured are expressed as a percentage of sales. Similarly in the Balance Sheet
the total of assets or liabilities is taken as 100 and the entire figure are expressed as a percentage
of this total.
From this statement, when read horizontally do not give information about the trend of
individual items but the trend of their relationship to total. Observation of these trends is not
very useful because there are no definite norms for the proportion of each items to total. For e.g.,
if it is established that in business the sundry debtors should be 20% of total assets, while
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inventory should be 30% of total assets, the computation of various ratio to total assets would be
very useful. But since there are no such established standard proportion, calculation of
percentages of different items of assets or liabilities is not of much use. On account of this
reason common size financial statements are not much useful for financial analysis. However,
this statements are useful studying the comparative financial position of two or more business.
A cash flow statement is useful for short term planning. A business enterprise needs sufficient
cash to meet its various obligations in the near future such as payment for purchase of fixed
assets, payment of debts maturing in the near future, expenses of the business etc.,. A historical
analysis of the different sources and applications of cash will enable the management to make
reliable cash flow projection for the immediate future. Also it discloses the volume as well as the
speed at which the cash flows in the different segments of the business. This helps the
managements in knowing the amount of capital tied up in a particular segment of the business.
The technique of cash flow analysis, when used in conjunction with ratio analysis serves as a
Profit is the important measure of firm’s performance. An analysis of the effects of various
factors on profit is an essential step in the financial planning & decision making. The analytical
technique used to study the behavior of profit in response to the changes in volume, costs and
price is called the cost volume profit (CVP) analysis. It is a device used to determine the
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usefulness of the profit analysis helps to determine the usefulness of the profit analysis helps to
determine the minimum sales volume to avoid losses and the sales volume at which the profit
goal of the firm will be achieve. As an ultimate objective, it helps management in seeking the
most profitable combination of costs and volume. A dynamic implications of its short run
decision about fixed costs, variable costs volume and selling price for its short run decisions
about fixed costs, variable costs, volume and selling price for its profit plans on a continuous
basis.
The CVP analysis is on immense utility to management as it provides an insight into effects
and interrelationship of factors which influence profits of the firm. It is with the help of the CVP
analysis that the finance executive is enabled to present facts and figures
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Chapter – 2
Research design
The objective of the study is to evaluate the financial performance of KMF, Cattle feed unit over
a period of past 4 years (FY 2004-05 to 2007-08). The study shall cover the following areas:
3. To suggest measures and recommend alternative, key factors for decision if any for the
successful performance of the company. On the basis whether it can improve the
HYPOTHESIS:
“The study has been undertaken to see that whether financial performance of the company is
improving or deteriorating”
METHODOLOGY:
The study has entirely based on the secondary data. Information is collected from the Profit and
Loss account and Balance Sheet of last four years, i.e., 2006-07 to 2009-10. The data is analyzed
with the help of Ration Analysis. Apart from this, personal and informal discussions were held
with the executives in the Finance& Accounts Department and other departments of the
corporation. Where as the theoretical concept is taken from various text books reference on
financial management.
As the study related to the analysis and interpretation of financial performance, there is no need
for the collection of structured data. Company’s annual reports for the past 4 years are be
36
referred and direct interviews with various financial senior executives was carried out for
ANALYSIS OF DATA
The analysis is mainly consisted of through study of the financial data available in the financial
statement. The data collected will be subjected to analysis through the Ratio analysis techniques
or tools. This analysis is arrived at on the basis of the Profit and Loss Account and Balance
such a treatment of the information contained in the Profit and Loss Account and
Balance Sheet so as to full diagnosis of the profitability and financial soundness of the
business.
financial analyst for their work. It shows the relationship in mathematical terms between
3. TREND ANALYSIS: Trend analysis is for studying financial statements over a period of
4. FUNDS FLOW STATEMENT: The funds flow statement, drawing based on the
information contained in the basic financial statement which shows the sources of funds
37
5. PROFITABILITY RATIO:- Are calculated to measure the operating efficiency of the
company. It gives some yardsticks to measure profit in relative terms, either with
6. GROSS PROFIT RATIO: Is defined as the difference between net sales and cost of
goods sold
7. NET PROFIT RATIO: This ratio shows the earnings left for shareholders (both equity
company
equity shareholders (Net profit or PAT) by the number of equity shares outstanding on
11. CURRENT RATIO:- It indicated the relationship between total current assets and the
12. CAPITAL STRUCATURE RATIO:- The purpose of this ratio is to identify the source of
13. DEBT EQUITY RATIO: It is determined to ascertain the soundness of long term
financial policies of the company. The ratio indicated the proportion of owner’s stake in the
38
Chapter –3
Company profile
39
The Hassan Co-operative Milk Producers’ Societies Union Ltd. (HCMPSUL) has come
into existence on 4th June 1975 with the object to develop dairy development activities in the
rural area.
Hassan Co-operative milk producers’ society union ltd. was set up to implement the project by
Karnataka dairy development co-operation (KDDC). It has registered on 30 th March 1977 after
formation of milk societies. The operational jurisdiction of the union extended to 3 districts
namely Hassan, Chickamagalur and Kedge.
2. Providing correct pricing & continuous market to the producers throughout the year.
3. Providing technical input facilities like veterinary facilities, artificial insemination services
feed & training facilities.
5. Supply of Nadine milk & Milk products to the customers by distribution channels.
40
Hassan milk union carried on the business of producing and marketing milk and milk
Products, such as Peda, curd, Ghee, Buttermilk.
Hassan milk union procuring surplus milk in the rural area and
provide input activities to dairy co-operative societies like artificial
insemination, supply cattle feed, animal health care programs for the
upliftment of the producers. It purchased some products from KMF viz
Nadine floured milk, Badam powder, Jamoon mix, Nadine bite, Skimmed milk
powder (SMP), Mysore pack etc. All purchased and produced products were
sold by its own.
Vision statement
The Union strives hard to adapt the modern and eco-friendly technologies to produce to
milk and milk products of International standards and to make ‘Nadine’ a global benchmark in
Quality.
Mission statement
The mission of Hassan milk union is to render the best services at nominal costs to its
members to increase the milk production and produce good quality milk by paying remunerative
price throughout the year, thereby improving their socio-economic conditions while ensuring
high quality milk and milk products to the delighted level of the consumers at competitive price.
Quality Policy
41
PRODUCT PROFILE
Product may anything that can offered to the market to satisfy wants and needs. The various
products produced at HCMPSUL and their descriptions are described below:
Karnataka’s most favorite milk. Nadine toned fresh and pure milk containing 3.0% fat and 8.5%
SNF.
Market
Sl No Milk & milk products Packing Quantity
price
42
Curd
Nadine Curd made from pure milk. It's thick and delicious. Giving you all the goodness
of homemade curds, Available in 200gms and 500gms sachet.
Butter Milk:
Nadine spiced Butter Milk is a refreshing health drink. It is made from quality curds and is blended with
fresh green chilies, green coriander leaves, asafetida and fresh ginger. Nadine spiced butter promotes health
and easy digestion.
Nadine Ghee
Nadine Ghee made from pure butter. It is fresh and pure with a delicious flavor. Hygienically
manufactured and packed in a special pack to retain the goodness of pure ghee. Shelf life of 6
months at ambient temperatures.
43
1 Nadine ghee Sachet 50ml 13.50
Peda
No matter what you are celebrating! Made from pure milk, Nanina Peda is a delicious treat for
the family. Store at room temperature approximately 7 days. Available in 250gms pack
containing 10 pieces each.
2.
5 AREA OF OPERATION
44
Companies are always looking to carry business, where the required resources are easily
available. Area of operation plays a vital role while fixing price, there by development of the
company. Because if the area has suitable environment, raw material, Skilled labors for less
wages, then it will reduces the cost of production.
Hassan milk union carrying business in Regional level that includes 3 districts viz Hassan,
Chikkamagalur, and kodagu.Hassan district covers eight talks, namely Channaraypatna , Hassan,
Arasikere, Sakaleshpur, Belur, Allure, Arakalagud, and Holenarasipura. It collects the milk from
various villages of these eight taluks.Chikkamagaluru district covers, Chikkamagaluru, Kadar,
and Tarikere. Kodagu District covers Somavarapete, Virajpete, and Madakeri. In Kudige dairy
totally 50000 LPD is renovated at the cost of 251 lakhs with assistance of National Dairy
Development Board.
Even government has control over the union. The farmers are the real owners of the
Hassan milk union. Any person who has delivered or contributes 270 days milk to the milk
society has the rights to vote to elect committee members of the village milk society. These
members will select presidents for the village milk society.
Then these selected presidents will elect Board of Directors of the Milk Union. These
Board of Directors will select one among them as president of Hassan milk union. If any
members have any queries they can discuss with president in the meeting. In case of president
absence, they can meet Managing Director for the solution. Now the president of Hassan milk
union is Mr. H D REVANNA .The Managing Director and the Board controls the entire union.
If the company earns profit, that will be distributed to the member societies based on their
contribution.
There are many competitors viz., Milk Wave, Shivashakthi, Shruthi dairy, Thirumala, Krishna
Dairy, Kaveri, Amrutha, Surabi, Jersey etc are producing similar product in same area with
similar strategy.
45
CITY/DISTRICT COMPETITOR PLACE OF SALES IN LPD
BRAND PROCUREMENT (Liters per day)
TOTAL _ _ 2900
TOTAL _ _ 1710
The HCMPSUL is situated in the industrial estate beside the national highway (NH – 48)
a prime locality occupying a vast and ample space of 25 acres.
The building is situated besides the national highway it is noise free zone. The main
building consists of administrative department, finance and MIS department. Beside the main
building, a canteen and other building where marketing and purchase departments are situated.
The internal parts of the departments are arranged in such a way that there is sufficient space for
office work and arrangements are made for proper ventilation.
47
Power and Fuel
The Karnataka power transmission corporation supplies the power up to 425 kilowatts
per month to HCMPSUL. In case of any shortage, it is equilibrated using diesel generators.
The diesel required per day, an average 2.25 tones. Required fuel is supplying by its
own petrol bunk.
Other facilities
1. Emergency facility
2. First aid facility
3. Mobile veterinary facility
4. Artificial insemination facility
5. Providing feeds and fodder
6. Training and development facility to DCS
7. Clean milk production
8. Vision programmed-under taken from NDDB[National dairy development board]
2.9 ACHIEVEMENT/AWARDS
• National Energy Conservation Award -2004 Received on 14th Dec from Dr.
Manamohan Singh, Prime Minister of India.
• National Energy Conservation Award-2005 Received on 14th Dec from Dr. A.P.J.
Abdul Kalama, President of India.
• National Energy Conservation award-2006 Received on 14th Dec from Honorable
Power Minister, Sushilkumar
48
• National Energy Conservation award-2007.Received on 14th Dec from PratibhaPatil,
President of India.
• ISO-9001:2000 certification
Preliminarily the raw milk is collected from the stores department. Then the raw milk
goes through a process in production department where the milk and milk products are
produced. Produced products are clearly checked and packed in accordance to the quantity
required. This process will carry by quality control department. Finally the products which are
ready for sales are send to the sales and marketing department to distribute it to the consumer
through various distribution channels like milk parlors, milk depots, and other retail outlets etc.
TRANSPORTATION
DAIRY/CHILLING CENTRES
SECURITY CHECK
49
GOOD MILK IS RECEIVED
CHILLING MILK
PROCESSING
50
2.11 FUTURE GROWTH AND PROSPECTS
Perspective plan of National Development Dairy (NDDB) for the creation of processing
The 7-S framework was developed by the consultants at the McKinney Company, a
very well known management consultancy firm in United States towards the end of the 1970 to
diagnose the causes of organizational problem and to formulated programs for improvement.
The 7-s diagram illustrates the multiplicity-interconnectedness of elements that define the
organization ability to change. It looks as the seven key elements that make the organizations
successful, or not, strategy, structure, systems, styles, skills, staff, and shared values.
51
.
STRUCTURE
The functional structure of HCMPSUL is appropriate for an organization with several
product lines. It ensures maximum use of the principle of specialization. Since the workers have
performing a limited number of functions, their efficiency would be very high. Hassan milk
union mainly has marketing, administration, finance, and MIS department
52
ORGANISATION STRUCTURE
PROCUREMENT
MISDEPARTMEN
FINANCE
PURCHASES AND INPUT
PERSONAL
DEPARTMENT
ADMINISTRATION
PRODUCTIO
MARKETING
BODs-
MD [ CEO
DEPARTMENT
NT
ASSISTANCE
DEPARTMENT
DEPARTMEN
CHAIRPERSON
]
DEPARTMENT
T
DAIRY
PLANT
Administration Department
53
54
DEPUTY
TRAINING
LEGAL
AND ALLIED
ESTABLISH-
ADMINISTRATION
MANAGER
ACTIVITIES
CELL
MENT
DEPARTMENT
(PERSONNE
L)
55
ASSISTANT MANAGER
ADMINISTRA-TIVE
SUPPORTOFFICER
STAFF
OFFICE SUPERINTEN-
DENT
Finance Department
56
MILK MANAGE
KUDIGE
INTER CAS
SUB
ACCOUNTSSUB
SUB
FINANCE
SUPPOR
GENERAL
ASSISTANT
ACCOUNTS
CASH
BILL DAIRY
DAIRY
MARKET
AND BILLS
AUDITPETROL Finance
PAY
PAY TR
STAFH
STAF
STAF
DEPARTMENT
OFFICE
UNIT
MANAGER
SUPER
SALES
SUPERBILLS
BUNK
INTER DAIRY
BILLS
SUPER (FINANCE
FF
STAFF
ACCOUNTS
INTENDENT
(FINANCE)
INTENDENT
INTENDENT
SALES
SUPER
) BILL
MILK
INTENDENT
PETROL
BUNK
SUPER
INTENDENT
57
department takes care of all the financial transactions of the union. The
department is fully computerized.
Marketing Department
Marketing department plays a vital role in determining the future
abilities of the company. Its main objective is to distribute goods from
producers to the customers. It distributes milk to consumers and also
provides consumer education through ad campaigns and participating in
various exhibitions.
58
ASSISTANT
CHIKMAGLOR
MARKETING
HASSA
SUBMANAGER
COORG
ASSISTANT
MARKETING
DEPUTY
MANAGER OFFICER
PROGRAM
EXTENSIONPRODUCT
OFFICER
N
E
((MARKETIN
MERCARA
STAF
MANAGER
OFFICER
MANAGER GRADE
F
)
HQA
-1
(MARKETING)
G)
E.O. (GRADE
---) -2
SUB STAFF
59
Purchase Department:
This department plays major role because the quality of milk which is
procured from the different societies should be maintained equally. Because
1 liter of spoiled milk is enough to spoil the whole milk in the company. So
the purchase department must be careful while purchasing the milk.
PURCHASE DEPARTMENT
SUB STAFF
STRATEGY
The route that organization has chosen for its future growth, a plan
organization formulates to go sustainable competitive advantage. Strategy
60
means those actions that a company plans in response to or anticipation of
change to its external environment.
Strategy refers to the determination of the purpose & the basic long
term objectives of an enterprise & the adoption of courses of action &
allocation of resource necessary to achieve the aims.
PRICING STRATEGY:-
Price is an important element in the marketing mix. The right price can
be determined through pricing research & by adopting the test marketing
techniques. A price policy is thus a standing answer of the firm. If
competition is mainly on price basis, then each company prices its product
at the same level as its products at the same level of prices of its
competition.
3. Reasonable pricing
SYSTEM
61
e.g., from functional to individual or functional to matrix or divisional to
matrix could also necessitate changes in the systems in various degrees.
System refers to all the rules, regulations, and procedures, both formal and
informal that complement the organization structure.
On receipt of indent the purchase wing lends enquires to various suppliers who normally
supply the milk and milk products. Then these suppliers submit their offers. After receiving the
offers, a comparative statement is made and forwarded to the general manager for
recommendations. The General Manager chooses a most suitable offer for placement of
purchase order.
62
Then products/goods inspection note is prepared and forwarded to the GM
department for inspection of the milk & milk products supplied. Then the GM
inspects the material with quality experts at stores and accepts the same on
reject depends upon the quality of products. The rejected producers/goods
are returned to the suppliers.
Whenever the union required milk and milk products or any materials they
approach stores along with issue voucher against which product/goods
issued and consumed. Periodic stock verification is conducted at stores to
check the inventory.
The cans from the trucks are introduced to procuring & can washer machine,
during this process the machine automatically opens the lid of the milk can
and milk is collected in a chilling tank. Then the raw milk is pre chilled at 6-
8% to arrest the growth of micro-organisms. The milk cans are automatically
washed and placed outside. Again the trucks are weighed to get the exact
value of the raw milk obtained.
SKILL
63
various training institutions. This type of training will be conducting once in
three months/six months/ a year.
Coaching
Job Instructions
The union conducting this type of training at the time of selected new
employees. Under this method the experts or the superior explains to the
trainee the way of doing the job and allow him to do the job.
Visible Training
64
Seminars
Role Playing
Under this method participant plays the role of certain characters, like
general manager, marketing manager, technicians, workers and the like.
The union provides this training to manager/employees in order to develop
the interpersonal relationship between the employees. This type of training
is giving by Ramakrishna Institute of Morale (RIM) and spiritual education.
STYLE
STAFF
The people in organization are very dedicated and work towards the
improvement of organization. The skill level of the works is work oriented &
their specialized in their respective field work.
65
Staffs refer to people in the enterprise & their socialization into
organizational culture. The staff in HCMPSUL has good relationship with
each other. The staff is well qualified and suits for their respective jobs. They
are satisfied with their work, which is reflected by the non stoppage of any
work in HCMPSUL.
MANAGERIAL 45
UNSKILLED 58
TOTAL 417
SHARED VALUE
“It deals with the values & believes of the company. Ultimately they
guide employees towards behavior. In other words share the same guiding
values when started when value element started are presented. Companies
are usually successful at the strategy implementation”.
Each every company must follow shared value. Shared value refers to
the attitude, culture, beliefs, and philosophy of an organization. It is the
backbone of an Organizational success. These values have great meaning
because they focus attention provide broader sense of purpose. They also
give strong basis of stability to an organization in a rapidly changing
environment providing basic meaning to people working in the organization.
66
1. Providing assured and remunerative market for the milk, produced by the former
members.
2. Providing quality milk to urban consumers.
3. To build village level institutions in co-operative sectors to manage the dairy
activities’
SWOT ANALYSIS
STRENGTHS
➢ Nadine Brand: Nadine products are well branded in the market because of their
quality
➢ Man Power: There are well experienced, professionally trained technical employees
working in the company with minimum experience of 15 years. It helps organization to
maintain the quality of the product.
➢ Location: Hassan milk union is located in industrial estate beside NH-48 where people
can easily find the company. It reduces the cost of transportation and leads to publicity of
company name.
67
WEAKNESS
➢ Decision –making and control rules by K.M.F & Karnataka government.
➢ All major policies and terms are directed by KMF, which is constituted by various
unions .Hence major decisions and constructive works are delayed.
➢ Bad condition of roads makes milk procurement and also distribution problematic.
OPPORTUNITIES:
➢ There is demand for Nadine Products in other states viz Kerala, Goa. So it can sell its
product to those states along with Tamilnadu and Andhra Pradesh
➢ New Product Innovation: It can innovate new products dairy Sweets in the same
product line.
➢ Diversification: Organization has the potential to diversify into various related business.
THREATS
➢ Market uncertainty: There is a price fluctuation in the market, it may leads to decrease
the demand and there by reduction in profit.
➢ Competition: Competitors are coming up with similar product, this is the main threat
posed by the external environment.
68
Chapter – 4
69
Comparative Balance Sheets for the last four years ending on
31st Mar are as follows:-
(Rs. in Lakhs)
70
PARTICULARS 2006-07 2007-08 2008- 2009-
09 10
SOURCES OF FUND
Share Capital
Reserves and Surplus 392.86 383.52 372.92 361.85
Profit and Loss A/c 15.57 - 201.47 69.64
LOANS
Secured Loan 185.25 449.26 449.47 397.21
Unsecured Loan 188.51 204.83 219.99 236.26
TOTAL 782.20 1036.88 1243.63 1064.9
8
APPLICATION OF
FUNDS
Fixed Assets 585.12 955.36 928.48 1251.5
2
Current Assets Loans
&Advances
Cash and Bank Balance 10.98 7.04 14.92 37.56
Sundry Debtors 262.84 105.78 481.61 0.156
Inventory 239.73 411.32 465.26 529.91
Loans and Advances 60.13 24.83 91.74 39.62
TOTAL 573.69 548.99 1053.54 607.25
Less: Current Liabilities 376.61 512.98 738.39 793.79
and provisions
Net Current Assets 197.08 36.00 315.15 -
186.53
Profit/Loss A/c 0.00 45.51 0.00 0.00
71
Manufacturing & Trading Account for the last four years
ending 31st Mar are as follows:-
(Rs. in Lakhs)
72
PARTICULARS 2006- 2007- 2008- 2009-10
07 08 09
73
Profit & Loss Account foe the last four years for the year
ending 31st Mar are as follows:-
(Rs. In Lakhs)
74
Net Loss 0.00 45.51 0.00 0.00
PROFITABILITY RATIOS:
very difficult for the firm to cover operating expenses and interest
charges and as a result, it will fail to earn any profits for owners.
Measures of Profit:
75
Earnings
(EBIT)
constant
constant
margin widening
margin item
76
The analysis of these factors will reveal to the management how
A low gross profit margin may reflect higher cost of goods sold
ratio will also be low due to fall in prices in the market or market
reserves.
77
SALES
(Rs.In Lakes)
PROFIT(B) (B/C*100)
ANALYSIS: The gross profit was decreasing expect in the year 2006-07.
CHART .1
INTERPRETATION:
The ideal gross profit ratio is 25% to 30%. The gross profit ratio
decreasing from one year to another year means profit earned by sales less
78
A) OPERATING PROFIT RATIO: The profit after tax figure excludes
which pays more interest pay less taxes. Tax saved on account of
viz, the measure of profit should ignore interest and its tax effect.
TURNOVER
(Rs.In
Lakhs)
) ) (D/E*100)
(B-C=D)
79
Source: Annual Report
ANALYSIS
The operating profit ratio is 0.67% in the year 2004-05, it is -1.33% in the
year 2005-06, it is 4.62% in the year 2006-07, and it is 1.25% in the year
2007-08.
CHART 2
INTERPRETATION:
is good.
On the other hand a low operating profit ratio indicates that the profitability
In case of KMF, Cattle feed unit that the profit is increasing from 2006-07
year this is the good prospect for the concern. But the company has a poor
year
80
a) NET PROFIT RATIO: This ratio indicates net margin earned on sale of
NET SALES
) PROFIT(B) ) (B/C*100)
ANALYSIS
The net profit is 0.65% in the year 2004-05, it is decreased to -1.60% in the
81
CHART 3
INTERPRETATION:
concern is good.
On the other hand a low net profit ratio indicates that the profitability of
In case of KMF, Cattle feed unit that the profit is increasing after 2006-07
year this is the good prospect for the concern. But the company has a
that year
d) OPERATING RATIO:-It is the ratio between the operating cost and sales.
expenses, selling and distribution expenses. A net sale means sales minus
82
SALES
GOODS C) D)
SOLD(B)
07 5
08 1
09 9
10 4
Source: Annual Report
ANALYSIS:
The operating ratio or operating cost ratio was 99.33% in the year 2006-
CHART 4
83
INTERPREATION:
LIQUIDITY RATIO:
The term ‘Liquidity’ and short term solvency are used synonymously.
Liquidity means ability of the business to pay short term liabilities or ability
to realize value in money, the most liquid of asset in ability to pay off short
term liabilities affects its credibility as well as its credit rating continuous
dissolution. Short term lenders and creditors of a business are very much
84
A) CURRENT RATIO:-Current assets include cash and those assets which can
be converted into cash within a year. All obligations making within a year are
rupee for every one rupee of current liability. A ratio of greater than one
means that the firm has more current assets than current claims against
them.
Higher the ratio better is the coverage. Traditionally, it is also called 2:1 ratio
i.e., ‘2’ is the standard for current assets for each unit of current liabilities.
liabilities. Generally the level of current ratio varies from industry depending
on the special industry characteristics. Also a firm differs from the industry
CURRENT LIABILITIES
(Rs. In Lakhs)
85
YEARS CURRENT CURRENT NET CURRENT
ASSETS
07
08
09
10
ANALYSIS ; In KMF, Cattle feed unit, current ratio has been decreasing
from 2006-07 to 2007-07 and it has increased from the year 2007-08 to
CHART 5
86
INTERPRETATION:
Current ratio is one of the tool to project the short term solvency of the
day to day financial operations of the organization. For the financial industry
the standard ratio is 2:1. In this case the ratio is very much below the
standard which shows non-liquidity of funds. The above figures indicate that,
current assets, then current ration will be more than the industrial standard.
QUICK RATIO: - The current ratio does not measure accurately the liquidity
or the short-term solvency of a concern. That is, the current ratio is not a
assets include items such as stocks and prepaid expenses, which are not
easily
87
Realizable. Quick ratio is ratio which expresses the relationship between
CURRENT LIABILITIES
In Lakhs)
07
08
09
10
ANALYSIS:
In KMF, Cattle feed unit, the Quick ratio was fluctuating. It was 0.73 in
2004-05, 0.22 in the year 2005-06, o.63 in the year 2006-07, and 0.05 in the
year 2007-0
88
CHART 6
INTERPRETATION:
quick ratio of the organization. The ideal quick ratio is 1:1. Quick ratio of the
organization is marginally lower than the ideal ratio. Theabove figures (quick
liquid assets. If they are included in quick assets, liquid ratio of the
organization is higher than the ideal ratio. It indicates a strong short term
89
Capital structure of a business consists of long term funds, which are not
repayable in the short run and short term funds, which are re-payable in the
short run.
The short term creditors, like bankers and short term creditors are more
hand, long term creditors like debenture holders, financial institution etc.,
are more concerned with the company’s long term financial strength.
This ratio indicates mix of funds provided by owners and lenders. In other
words leverage ratio may be calculated from the Balance Sheet items to
the long – term financial policies of company. The ratio indicates the
cause insolvency. The ratio indicates the extent to which the company
depends upon outsiders for its existence. The ratio provides a margin of
safety to the creditors, it tells the owners the extent to which they can gain
EQUI
90
7. TABLE OF DEBT EQUITY RATIO (Rs. In lakhs)
RATIO
07
08
09
10
ANALYSIS:
In the given case the ratio is 0.95:1, 1.70:1, 1.80:1 and 1.75:1 for the
2009-10
91
CHART 7
the concern. But Industry’s standard of the debt equity ratio is 2:1. If the
debt is less than two times the equity, the logical conclusion is that the
is less than two times as observed in the above figures; hence the capital
SOLVENCY RATIO
ability of a concern to meet its total liabilities out of its total assets. It shows
the ability of the concern to meet its liability higher the ratio stronger the
financial condition.
92
TOTAL LIABILITIES
lakhs)
07
08
09
10
ANALYSIS In this company solvency ratio was decreasing from 2.00in the
-CHART 8
INTERPRETATION:
93
Though no standard or ideal solvency ratio has been established,
one can say that higher the solvency ratio of the concern, the stronger is its
financial position and lower the solvency ratio, the weaker is in financial
position.
Activity ratios or performance ratios refer to ratios which measure the level
other words, they are the ratios which indicate the effective utilization of the
Inventory turnover or stock turnover ratio is the ratio which indicates the
number of times the stock is turned over during a year. The stock turnover
expressed as follows:-
94
Stock Turnover Ratio = Cost of goods sold
Average Stock
(Rs in Lakhs)
07
08
09
10
ANALYSIS:
95
The stock turnover ratio was 9.7 in the year 2004-05, 8.6 in the year
2006-07, 9.5 in the year 2007-08 and 9.8 in the year 2009-10.
CHART 9
INTERPRETATION:
stock turnover of 8 times or more than 8 times indicates that more sales are
In case of KMF, Cattle feed unit, the ratio is good except in the year
96
B) TOTAL ASSET TURNOVER RATIO:- Total asset turnover ratio is the
TOTAL ASSETS
(Rs. In lakhs)
ANALYSIS:
In this case the total asset turnover ratio was increasing from 2.03 in
the year 2006-07 to 2.73 in the year 2008-09 except in the year 2009-10
CHART 10
97
TOTAL ASSET TURNOVER RATIO
INTERPRETATION:
The ideal total assets turnover ratio is that the sales should be at
least two times the value of the assets. A total asset turnover ratio of two
times or more indicate that the assets of the concern have been utilized
efficiency and on the other hand, a total assets turnover ratio is less than
two times indicates that the assets of the concern have been under utilized.
In case of KMF, cattle feed unit the ratio is more than two times
R RATIO:- It is the ratio between working capital and turnover. This ratio
assets over current liabilities. Turnover means net sales i.e., total assets less
sales returns.
WORKING CAPITAL
98
11. TABLE OF WORKING CAPITAL TURNOVER
(Rs. In Lakhs)
B) ) TURNOVER
(D=B-C)
RATIO(F=E/D
11.98 in the year 2006-07, 78.93 in the year 2007-08, 14.22 in the year
CHART 11
INTERPRETATION:
say that a high working capital turnover ratio indicates the efficiency and a
99
lower working capital turnover ratio indicates the inefficiency of the
working capital turnover ratio is efficient in the year 2006-07 but it was
NET SALES
A) B) SALES(C) (D=B/C*100)(In %)
ANALYSIS:
100
In this case raw material consumption ratio was 85.9%in the year
2006-07, 94.25% in the year 2006-07, 84.26% in the year 2008-09 and
CHART 12
INTERPRETATION:
101
CHAPTER .5
FINDINGS.SUGGESTION
CONCLUSION
102