study on service quality of squaresoft technologies

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A STUDY ON FINANCIAL RATIO ANALYSIS SALEM DISTRICT COOPERATIVE MILK PRODUCERS UNION

LTD, SALEM.

PROJECT REPORT

Submitted by

P.ANITHAReg no: 108001611002

In partial fulfillment for the award of the degree

of

MASTER OF BUSINESS ADMINISTRATION

IN

DEPARTMENT OF MANAGEMENT STUDIES

PAAVAI COLLEGE OF ENGINNERING

PACHAL, NAMAKKAL-637 018JUNE 2012

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BONAFIDE CERTIFICATE

PAAVAI COLLEGE OF ENGINEERING

PACHAL, NAMAKKAL – 637 018

DEPARTMENT OF MANAGEMENT STUDIES

PROJECT WORK

JUNE – 2012

This is to certify that the project entitled

A STUDY ON FINANCIAL RATIO ANALYSIS IN THE SALEM

DISTRICT CO-OP. MILK PRODUCERS UNION LTD., SALEM.Is the bonafide record of project work done by

P.ANITHA

Register No: 108001611002

MBA during the year 2010 - 2012

------------------------ -------------------------------------

Project Guide Head of the Department

Submitted for the Project Viva-Voce examination held on……………

----------------------------- ------------------------------ Internal

Examiner External Examiner

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DECLARATION

I affirm that the project work titled “A STUDY ON FINACIAL RATIO ANALYSIS

IN THE SALEM DISTRICT CO-OP. MILK PRODUCERS UNION LTD SALEM .” being

submitted in partial fulfillment for the award of MASTER OF BUSINESS

ADMINISTRATION is the original work carried out by me. It has not formed the part of any

other project work submitted for award of any degree or diploma, either in this or any other

University.

Signature of the Student

P.ANITHA

Reg. No.: 108001611002

I certify that the declaration made above by the candidate is true.

Signature of the Guide

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ACKNOWLEDGEMENT

I am indebted to the all powerful ALMIGHTY GOD for all the blessings he showered on

me and for being with me throughout the study.

I would like to express my gratitude to Shri. N.V. Natarajan. B.Com. F.C.A., Chairman

and Smt. N. Mangaiarkarasi, M.Sc., Correspondent, Paavai Institutions’, Pachal, Namakkal for

giving me an opportunity and facility to complete this training.

I wish to place my deep sense of gratitude to Prof. K.K. Ramasamy ME.,

(Ph.d).,Director- Administration and Paavai Institutions, Pachal, Namakkal for all the

encouragement received during the MBA course.

I would like to express my gratitude to Dr. V. Murali Basakaran, M.E., Ph.D.,

Principal, Paavai College of Engineering.

I would like to express my gratitude to Mr. M. Gurusamy, MBA, M.Phil, (Ph.D.),

Assistant Professor and Head, Department of Management Studies, Paavai College of

Engineering.

I owe my boundless thanks and gratitude towards my faculty guide, Mr. T.

Ravichandran MBA, M.Phil., Assistant Professor, Department of Management Studies, Paavai

College of Engineering for his guidance and help to do my project report successfully. I also

express my gratitude to all the other faculty members of the department.

I express my sincere thanks to Mr.C.Kathiravan, Sir, General Manager (F&A),

SALEM DISTRICT CO-OP. MILK PRODUCERS UNION LTD., SALEM, for giving me

permission to undertake this project work in the esteemed company.

P.ANITHA

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ABSTRACT

The researcher as part of curriculum has conducted a study to find out to financial

performance of the company. The data utilized for the study is secondary in nature. The

required data is collected from the budgeted formats, Flash results and Five –year annual

diary of the company. The data has been collected for a period of five years from 2006-

2007 to 2010-2011.

The ratios concerned in the study are profitability ratios, turnover ratios and solvency

ratios.

1. Profitability ratios:

Return on investment ratio, Return on total asset ratio, Gross profit ratio, Net

profit ratio, Operating ratio, Operating profits ratio, Expenses ratio,

2. Turnover ratios:

Inventory turnover ratio, Inventory turnover period, Debtor turnover ratio, Debt

collection period, Creditors turnover ratio, Credit payment period, Working capital

turnover ratio, Fixed assets turnover ratio, Capital turnover ratio.

3. Solvency ratios:

Current ratio, Liquid ratio, Absolute liquid ratio.

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TABLE OF CONTENTS

CHAPTER

NO

DESCRIPTION PAGE NO

ABSTRACT

LIST OF TABLES

LIST OF CHARTS

1 INTRODUCTION

1.1 Introduction of the study

1

1.2 Problem of the study 2

1.3 Objectives of the study 3

1.4 Scope of the study 3

1.5 Limitations of the study 3

Profiles

1.6 Industry profile 3

1.7 Company profile 9

Literature survey

1.8 Review of literature 15

1.9 Research methodology 17

2 Data analysis and Interpretation

2.1 Analysis Part-1 19



3 Conclusion

3.1 Finding 65

3.2 Suggestions 67

3.3 Conclusion 68

4 Scope for future research 69

BIBLIOGRAPHY 70

ANNEXURE 71

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LIST OF TABLES

Table No. Particulars Page No.

2.1 Profitability Ratios

2.1.1 Table showing Return on investment ratio 19

2.1.2 Table showing Return on capital employed ratio 21

2.1.3 Table showing Return on total assets ratio 23

2.1.4 Table showing Gross profit ratio 25

2.1.5 Table showing Net profit ratio 27

2.1.6 Table showing Operating ratio 29

2.1.7 Table showing Operating profit ratio 31

2.1.8 Table showing Financial expenses ratio 33

2.1.9 Table showing Operating expenses ratio 35

2.1.10 Table showing Non-Operating expenses ratio 37

2.2 Turnover ratios

2.2.1 Table showing Inventory turnover ratio 39

2.2.2 Table showing Inventory conversion period 41

2.2.3 Table showing Debtors turnover ratio 43

2.2.4 Table showing Debtors collection period 45

2.2.5 Table showing Creditors turnover ratio 47

2.2.6 Table showing Creditors payment period 49

2.2.7 Table showing Working capital turnover ratio 51

2.2.8 Table showing Fixed assets Turnover ratio 53

2.2.9 Table showing capital turnover ratio 55

2.3 Solvency ratios

2.4.1 Table showing Current ratio 57

2.4.2 Table showing Liquid ratio 59

2.3.3 Table showing Absolute liquid ratio 61

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Table No. Particulars Page No.

2.1 Profitability Ratios 20

2.1.1 Chart showing Return on investment ratio 22

2.1.2 Chart showing Return on capital employed ratio 24

2.1.3 Chart showing Return on total assets ratio 26

2.1.4 Chart showing Gross profit ratio 28

2.1.5 Chart showing Net profit ratio 30

2.1.6 Chart showing Operating ratio 32

2.1.7 Chart showing Operating profit ratio 34

2.1.8 Chart showing Financial expenses ratio 36

2.1.9 Chart showing Operating expenses ratio 38

2.1.10 Chart showing Non-Operating expenses ratio 40

2.2 Turnover ratios

2.2.1 Chart showing Inventory turnover ratio 42

2.2.2 Chart showing Inventory conversion period 44

2.2.3 Chart showing Debtors turnover ratio 46

2.2.4 Chart showing Debtors collection period 48

2.2.5 Chart showing Creditors turnover ratio 50

2.2.6 Chart showing Creditors payment period 52

2.2.7 Chart showing Working capital turnover ratio 54

2.2.8 Chart showing Fixed assets turnover ratio 56

2.2.9 Chart showing capital turnover ratio 58

2.3 Solvency ratios

2.4.1 Chart showing Current ratio 60

2.4.2 Chart showing Liquid ratio 62

2.3.3 Chart showing Absolute liquid ratio 64

LIST OF CHARTS

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INTRODUCTION

1.1 INTRODUCTION

Ratio analysis is one of the techniques of financial analysis to evaluate the financial

condition and performance of a business concern. Simply, ratio means the comparison of one

figure to other relevant figure or figures.

“Finance may be defined as that administrative area or set of administrative functions in

an organization which relate with the arrangement of cash and credit so that the organization

may have the means to carry out its objective as satisfactorily as possible”.

The main activities to the successful administration of finance in any organization

comprise financial planning, raising the needed funds, financial analysis and control. Analysis of

financial statement in a business deserves much attention in carrying out finance function. It

helps to regains prospective analysis of operative period for the purpose of evaluating the

wisdom and efficiency of financial planning. Analysis of what has happened should be of great

value in improving the standards, techniques and procedures of financial control involved in

carrying out finance function.

FINANCIAL MANAGEMENT

Financial management is broadly concerned with the procurement and effective

utilization of funds by a business firm. Financial management emerged as a distinct field of

study at the turn of this century. Its evolution may be divided into two broad phases.

The traditional phase and modern phase finance theory, in general resist on the premise

that the goal of the firm to its equity shareholders. This means that the goal of the firm should be

to maximization of shared as wealth, expressing the shareholders point of view, several

alternatives have been suggested, maximization of earning per share, maximization of returns on

equity etc

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FINANCIAL ANALYSIS

The financial statement provides a summary of the account of a business enterprise. To

understand the financial performance and condition of a firm, its stakeholders look at the three

financial statements, via, the balance sheet, the profit and loss account and the sources and uses

of a funds statement.

MEANING OF FINANCIAL RATIO

A relationship between various accounting figures, which are connected with each other,

expressed in mathematical terms, is called accounting ratios.

"The relationship of one item to another expressed in simple mathematical form is known

as ratio."

For example:

Profit shown by two-business concern is Rs. 50,000 and Rs. 1,00,000. It is difficult to say

which business concern is more efficient unless figures of capital investment or sales are also

available.

1.2 PROBLEM OF THE STUDY

Many ratio is are calculated on the basis of the balance sheet figures. This figures as on the

balance sheets data only and may not be indicative of the Year-round position.

Ratios are tools of quantitative analysis, which ignore qualitative point of view.

Ratios are generally distorted by inflation.

Ratios give flash result, if they are calculated form in correct accounting data.

Ratios are calculated on the basis of post data. Therefore, they do not provided complete

information for future forecasting.

Ratios may be misleading, if they are pasted on flash or window-dressed accounting

information.

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1.3 OBJECTIVES OF THE STUDY

The objectives of financial ratio analysis are as follows. These,

To determine the financial condition and financial performance of the firm.

To involves comparison for a useful interpretation of the financial statements.

To helps in finding solution to unfavorable financial statements

To helps to take suitable corrective measures when the financial condition and

performance are unfavorable to the firm in comparison to other firms in the same

industry.

1.4 SCOPE OF THE STUDY

The purpose of the study was to know the financial performance of the unit. For this the

ratio analysis tool was most suitable. This would reveal the solvency position of the unit. The

trend of sales and profitability for the past 5 Years was calculated to know if any deviations

occurred and to know the reasons for it. However the study had its own limitations like ratio

analysis is a post-mortem analysis and the data utilized were secondary in nature etc.

1.5 LIMITATIONS OF THE STUDY

In spite of many advantages, there are certain limitations of the ratio analysis techniques

and they should be kept in mind while using them in interpreting financial statements. The

following are the main limitations of accounting ratios:

Limited Comparability: Different firms apply different accounting policies. Therefore

the ratio of one firm can’t always be compared with the ratio of other firm. Some firms

may value the closing stock on LIFO basis while some other firms may value on FIFO

basis. Similarly there may be difference in providing depreciation of fixed assets or

certain of provision for doubtful debts etc.

False Results: Accounting ratios are based on data drawn from accounting records. In

case that data is correct, then only the ratios will be correct. For example, valuation of

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stock is based on very high price, the profits of the concern will be inflated and it will

indicate a wrong financial position. The data therefore must be absolutely correct.

Effect of Price Level Changes: Price level changes often make the comparison of

figures difficult over a period of time. Changes in price affects the cost of production,

sales and also the value of assets. Therefore, it is necessary to make proper adjustment for

price-level changes before any comparison.

Qualitative factors are ignored: Ratio analysis is a technique of quantitative analysis

and thus, ignores qualitative factors, which may be important in decision making. For

example, average collection period may be equal to standard credit period, but some

debtors may be in the list of doubtful debts, which is not disclosed by ratio analysis.

Effect of window-dressing: In order to cover up their bad financial position some

companies resort to window dressing. They may record the accounting data according to

the convenience to show the financial position of the company in a better way.

Costly Technique: Ratio analysis is a costly technique and can be used by big business

houses. Small business units are not able to afford it.

Misleading Results: In the absence of absolute data, the result may be misleading. For

example, the gross profit of two firms is 25%. Whereas the profit earned by one is just

Rs. 5,000 and sales are Rs. 20,000 and profit earned by the other one is Rs. 10,00,000 and

sales are Rs. 40,00,000. Even the profitability of the two firms is same but the magnitude

of their business is quite different.

Absence of standard university accepted terminology: There are no standard ratios,

which are universally accepted for comparison purposes. As such, the significance of

ratio analysis technique is reduced.

1.6 INDUSTRY PROFILE

Dairy is place where handling of milk and milk products done. Technology refers to the

applications of scientific knowledge for practical purpose. Dairy technology has been defined as

that branch of dairy science, which deals with the processing of milk manufacturing of milk

products on industrial scale.

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In developed countries such as the USA the Year 1850, is seen as the dividing line

between farm and factory scale production. Various factors contributed to this changes in these

countries, via concentration of population in cities where job were plentiful, rapid

industrialization improvement of transportation facilities, development of machine &

technologies, etc. Whereas rural areas were identified for milk production, the urban centre’s

were selected for the location of milk processing plants & product manufacturing factories.

The Indian diary industry has made rapid progress since independence. A large number of

modern milk plants and product factories have been established these organized dairies have

been successfully engaged in the routine commercial production of pasteurized bottle milk and

various dairy products. With modern knowledge of the protection of milk during transportation,

it becomes possible to locate dairies where land was less expensive and corps could be growth

more economically.

In India, the market milk technology maybe considered to have commence 1950, with the

functioning of aarey milk colony, and milk product technology in 1956 with the establishment of

AMUL dairy ANAND.

Dairy industry in India

More than 2500 million people economically active in agriculture in the world. Probably

75% of them are wholly or partly dependent on livestock farming. India which has 66% of

economically active population engaged in agriculture. It derives 31% of GDP from agriculture.

The share of livestock is estimated at 21% of total agriculture sector.

History of Indian milk industry

Organized milk handling was made in Indian with the establishment of military dairy farms,

with his

Handling of milk in cooperative milk unions established all over the country on a small

scale in the early stages.

Long distance refrigerated rail transport of milk form anand to Mumbai since 1945.

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Pasteurization and bottling of milk on a large scale for organized distribution was started

at aarey in 1950, in Calcutta (haringhota) 1959, in Delhi 1959, in madras 1963, etc.

Establishment of milk plants under the 5 Year plan for dairy development all over India.

Establishment of milk plants under the five – Year plans for dairy development all over

India. There were taken up with the dual object of increasing the national level milk

consumption and ensuring better return to the primary milk producer. Their main aim was

to produce more, better and cheaper milk.

About Indian dairy sector

Dairy development in India has acknowledged the world over as one of modern India’s

most successful development program. India’s is the second largest milk producing country with

anticipated production of about 78 million tons during 1999-2000.

The milk surplus states are utter Pradesh, Punjab, Haryana, Rajasthan, Gujarat,

Maharashtra, anta Pradesh, Karnataka and Tamilnadu, the manufacturing of milk products in

concentrated in these milk surplus states. Dairy sector has assume much significance by

generating income not one to the rural but also to the urban and semi urban population in the

state especially to women by providing essential nutrient to all walks of life. It provides live

hood to millions of small marginal farmers in the state.

Tamilnadu is an agriculture oriented state and majority of the farmers owns cattle.

Dairying provides the main source of income next to agriculture. The state dairy development

department was established in 1958 and forms this control and administrative of milk

cooperative comes under this dairy development board.

National dairy development board (NDDB)

The national dairy board was creating to promote, finance and activities that seek strength

to farmer cooperatives and support national policies that are favorable to the growth of such

institutions. Fundamental to NDDB’S effort are cooperative principles and cooperative

strategies.

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The national dairy development board is an institution of national importance setup by an

act of parliament of India. The main office is located in an and, Gujarat with regional offices

throughout the country. NDDB,S subsidiaries include mother dairy, Delhi. It was founded by Dr.

Varghese kurien and Dr. amrita Patel is the current chairman of the national dairy development

board anand.

The national dairy development board (NDDB) was create in 1965 fulfilling the desire of

then prime minister of India-the late lal bhadur shastri to extent the success of the kaira

cooperative milk producers union (amul) of the other parts of India.

NDDB has now integrated 96,000 dairy co-operatives in what it calls the anand pattern,

linking the village society to the state federations in a three-tire structure. NDDB launched its

perspective plan 2010 with four thrust areas:

Quality assurance

Productively enhancement

Institution building

National information

World buffalo population

147 million about 142 millions in Asia & pacific India

Leading most buffalo populated country; 78 millions most of them are reverine (depending

upon variation in their habitat and genome)

Milk production

About 95% of world buffalo milk (45.3 million tons) is produced in Asia & pacific, while

64.4% is produced in India.

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Storage

Modern milk plant holds both raw and pasteurized milks for a much longer period than

before. Normally the milk storage capacity is equal to one days intake. This allows a more nearly

uniform work – day for processing and bottling operations with less dependence of the time for

receiving raw milk. Storage tanks are used in milk plants for the storage of raw, pasteurized, or

processed products, often in very large volumes. Because of the longer periods of holding,

storage tanks are among the most important items of equipment. They must be designed for ease

in sanitation, preferable by the circulation- cleaning method. In addition, the tanks shout be

insulated or refrigerated, so that they can maintain the required temperature throughout the

holding period. Agitation should be adequate for homogeneous mixing, but gentle enough to

prevent churning and incorporation of air.

Purpose

To maintain a milk at low temperature so as to prevent any deterioration in quality prior

to processing/product manufacture.

To facilitate bulking of the raw milk supply, which will ensure uniform composition.

To allow for uninterrupted operation during processing and bottling.

To facilitate standardization of the milk.

Types of storage

1. Insulates or refrigerated

In the former, there are5 to 7.5 cm of insulating material between the inner and outer

linings: in the latter, the space between the linings is used for circulation of the cooling

medium. Another variation of refrigerated type is the cold-walk tank.

2. Horizontal or vertical

While the former requires more floor space and more headspace. Modern

circulation cleaning methods have made very large vertical storage tanks practical.

3. Rectangular cylindrical and oval

Of these, first suffers from the disadvantage of having dead corners during

agitation while the other two do not.

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4. Built for Gravity flow, air-pressure or Vacuum Operation

The first is the most common. However, air-pressure is sometimes used to

evaluate the product. This requires the special construction of the storage tank for

greater strength then necessary for normally operations under gravity flow.

5. Location

In one of system, the storage tanks are located on the upper floor. The milk is

pumped from the receiving room to the floor above. It then flows by gravity to

the pre-heater, filter or clarifier, pasteurizer. Hence it may flow by gravity to

the cooler while hot.

Distribution

Distribution of milk is the last or final stage of the market milk industry.

Others are preparatory to placing the product into the hands of the consumer. The quality

of the product alone will not assure its wide distribution, which should be planned

and executed intelligently.

1.7 COMPANY PROFILE

The prestigious Salem Dairy complex is situated in about in 46 acres of land

bound by Sithanur and Dhalavaipatty villages. It is located just 6 KM away from Salem

railway junction on the way to GOVT Medical College and Salem Steel Plant.

The Salem District Co- op Milk producers’ Union Ltd., has been registered on

10.07.1978 and started functioning from 07-10-1978. To begin with, the union started

procuring 33,100 LPD of milk from 227 affiliated primary milk coop societies.

Then gradually expanded its activities and now reached a daily average

procurement of more than 4.0 LAKS Litters per day from 1049 functional DCS. It is a

Feeder Balancing Dairy i .e converting surplus milk solids into products like butter, ghee

and skim milk powder. The commercial production of products VIZ. Butter, Ghee and Skim

Milk Powder started on 16-08-1983. ALL the Union activities are fully computerized.

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The Salem District Cooperative Milk Producers Union Limited is a replica of the district

milk union in Gujarat state based on the “AMUL” system. The Salem milk union is therefore

sandwiched in the middle of the 3-tier system popularly known as “ANAND” or “AMUL”

pattern consisting of an apex state level federation at Chennai, the union at the district level and

the primary cooperative societies at the village level

The national dairy development board, Anand through the Government of Tamil Nadu

and the Tamil Nadu co-operative milk Producers federation, has funded the entire project. The

project had been funded under the nationwide operation flood programmed with an aim to bring

about a socioeconomic awakening in rural India. The district union has 728 primary

milk co-operative at its base and the Tamil Nadu Co-operative milk producers

federation as its apex body.

This union is specially featured with

1. Training Centre

2. Progeny Testing Scheme

3. Clean Milk Production at farmer Level

4. Packaging Station

5. Milk Powder Plant

6. ISO 9001:2000 Certification

7. Export.

FUNCTIONS OF DISTRICT CO-OPERATIVE MILK PRODUCERS UNION

Establishment of chilling centers.

Formation of new milk routes to collect the milk produced by the member

societies.

Collection of milk from societies, process and pack in modern diary plant by

maintaining quality standards.

Fixation of procurement and selling price of milk.

Increase of milk sales by introducing innovative sales promotion activities.

Supply of inputs to the member societies obtained from unions.

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Salem union is acting as a feeder balancing diary.

SPECIAL FEATURES OF THE COMPANY

Weekly four rail milk tankers of about 16000 liters milk is supplied to

mother dairy, Delhi from the Salem Diary

1. Average 13000 Liters of pure milk is supplied for Chennai metro sales from

Salem diary.

2. Milk products like butter, ghee, skimmed milk powder, bead, dates Khova flavored

milk, Butter milk, badam milk powder, ice cream are produced at Salem diary

and selling to customers according to their requirements.

3. The company has ISO 9001-2000 certified and ISI certified for the skimmed milk powder

production and the Salem diary ghee is sold with AGMARK certificate.

4. National wide database laboratory established at Salem diary out of 15 milk producers

union selected by national diary development board in india.

5. Union is selling ghee to THIRUPPATHI THIRUMALA DEVASTHANAM in tankers

for laddu preparation.

6. The union spends 154.42 lakhs, 167.2 lakhs, 187.74 lakhs, and 219.28 lakhs for

marketing for the past five Years, which includes transport and agents commission.

7. The union spends 3 lakhs for advertisement.

OBJECTIVES:

To purchase pool process, manufacturing, distribute and sell, milk and milk by products

to the members of the affiliated societies and other private organization without affecting

the interests of the affiliated societies and their members.

To provide vednary artificial insemination services, medicines and undertake cattle

insurance.

To buy animals on behalf of the affiliated societies and their members.

To purchase of cattle feed at whole sale rate distribution to members.

To establish dairy forms and plants with equipments for pasteurization.

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FUNCTIONS:

To purchase milk in both in the every day morning and evening.

Properly paying amount for milk producers at before 10 days.

Service provide on transport activities should making

Regulating for finance, marketing, packaging, and plant activities.

To watching sub small booths and plant activities.

LOCATION:

The dairy complex is situated in about 46 acres of land bounded by sithanur and

dhalavaipatty villages in steel plant road.

PROCUREMENT:

In total 1100 milk producer’s co-operative societies are affiliated and 932 societies are

functioning. The milk is collected through 55 milk routes daily ranging from 2.5 lacks liters of

milk per day depending on the season.

The procurement and input operation are managed through8 milk procurement team offices

at Salem, sankari, namakkal, p.velur, attur, rasipuram, mettur, and valapady. The milk is

delivered at the dock of the three chilling centers at namakkal, p.velur, attur and the main dairy at

Salem for chilling.

INPUT:

Artificial insemination service input veterinary service and emergency veterinary service

and being provided to the animals of the producers in societies by the veterinarians of this union.

Further, artificial inseminations with exotic, cross bred and Murray bull semen are being

undertaken through the 564 artificial insemination sub-centre of the primary societies / union and

doing on an average of 26,000 artificial insemination per month. Nutritious cattle feed is being

supplied to the members at par rate.

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FODDER

The union has taken up cultivation of fodder crops like cumbu napier, hamil grass, buffaloe

grass, subabul, sithakathi cholam, cumbu, maize, cowpea and hedge Lucerne etc. for distribution

of seed materials to the milk producers through milk cooperative societies at free of cost/at

nominal cost.

TRAINING CENTRE:

The union had setup a training center in the Year 1985 under operation flood. The training

center is imparting training to the DCS personal of our union and also from periyar, Coimbatore

and nil iris unions.

The training centre conducts the programmers’ such as:

1. Secretary training

2. Milk tester training

3. A.H.Worker

4. Management committee members

5. Dairy animal management training

6. A.I.Refresher training

7. Cluster A.I. Training

STEP (Support training employment program)

It is proposed to organized and assist 25 women dairy co-operatives both in Salem and

namakkal districts during the period from 2002 to 2005, involving 1750 women members

through self help groups. The proposed 25 dairy co-operative will have 70 members in each

society and they will be identified, trained in all aspects of dairying and monitored continuously

for their economic enlistment.

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DAIRY:

The dairy has installed capacity to process 3 lakes liters of milk per day, to produce 10 MT

of skim milk powder 9 MT of butter and 6 MT of ghee. The quantity of milk available after local

sales and dispatch to Chennai is converted into products viz., butter, ghee and skim milk powder.

Ghee and skim milk powder are being said in the markets all over India through the Tamil nadu

co-op.

Milk producer’s federation Ltd., Chennai with “Agmark” and “ISI” grades respectively. Our

products bear the famous brand name of “AAVIN”. I.S.O. 9002 Certificate also obtained for

production and supply of milk, skim milk powder, butter, ghee and UHT milk in tetra pack.

ASEPTIC PACKAGING STATION

Ultra high temperature treated milk has a shelf life of 120 days at room temperature without

refrigeration. For ultra high temperature treatment, milk of low bacteriological count is taken and

is subjected to high temperature of 140 degree C gradually (Exposed for 2 seconds”) and cooled

back to ambient temperature and packed in sterile aluminum foil polythene paper in the shape of

brick.

The main advantages of ultra high temperature treated milk are:

No refrigeration is required.

Very hygienic and no adulteration can be done.

Single way transportation, easy for storage, pilfer-proof and convenience to consume.

Reasonable price.

QUALITY CONTROL:

The role of the lab is to assist in stage-wise testing and reporting the quality status of milk

processed and standardized so that milk of the correct standards are prepared and marketed.

Similarly cream, butter, butter-milk, ghee and skim milk powder are tested at regular intervals

both during production and storage to check that there is no quality deterioration.

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Water, cleaning chemicals acking materials, etc., are also tested regularly to ensure their

conformity to pre-set standards. The bacteriologists check incoming and processed in milk and

also milk products in addition to water & environmental air to ensure that they are they also

check the sterility of plant and equipmend to ensure their hygienic status. The dairy has an

effluent treatment plant. The effluent is tested periodically to ensure that it satisfies the standards

prescribed by the tamil nadu pollution control board.

CANTEEN

The company provides canteen facilities for all employees satisfying their physiological

needs at subsidized rate.

SAFETY

The company through safety committee provides safety measures to workers in the company.

There is first-aid and provide firing equipments.

1.8 REVIEW OF LITERATURE

The traditionally stated major purpose of using financial data in the ratio form is

making the results comparable across firms and over time by controlling for size. This basic

assertion gives rise to one of the fundamental trends in financial ratio analysis (or FRA for short,

in this paper). The usually stated requirement in controlling for size is that the numerator and the

denominator of a financial ratio are proportional.

The seminal paper is this field is lev and sunder (1979). They point out, using theoretical

deduction, that in order to control for the size effect, the financial ratio must fulfill very

restrictive proportionality assumptions (about the error term, existence of the intercept, linearity,

and dependence on other variables in the basic financial variables relationship models Y = Bx +

e and its ratio format Y/X = b + e/X). It is shown that the choice of the size deflator (the ratio

denominator) is a critical issue. Furthermore, lev and sunder bring up the problems caused in

multiple regression models where the explaining variables are ratios with the same denominator.

This is a fact that has been discussed earlier oriented literature like in kuh and meyer(1955).

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Two interrelated trends are evident. Theoretical discussions about the ratio format in FRA

and empirical testing of the ratio model. While mostly tackling the former Whittington (1980)

independently presents illustrative results finding the ratio specification inappropriate in a

sample of U.K. firms. Whittington also discusses the usage of a quadratic form in FRA.

Significant instability in the results was reported.

The proportionality considerations have implications on various facets of FRA. Barnes

(1982) shows how the non-normality of financial ratios can results from the underlying

relationships of the constituents of the financial ratios. He is thus able to tie in the ratio format

aspects with the distributional properties of financial ratios (to be discussed later in this review).

In the discussion on barnes’s paper (horrigan, 1983, barnes, 1983), horrigan puts forward that

financial ratio research should be more interested in the role of the financial ratios themselves

than in “the nature of the ratios’ components or to the ratios’ incidental role as data size

deflators”.

To extrapolate from Horrigan’s critique, in our own interpretation the validity of

financial ratio analysis should be determined by its usefulness to the decision making process of

the different interested parties (owners, management, personnel,…). To illustrate, consider the

potential impact of economics of scale. To assess the efficiency of management a direct

comparison of financial ratios of small and big firms would have to be adjusted for the size

effect. On the other hand, an investor evaluating different investment targets might be more

interested in the level of profitability regardless whether or not it is a result of the size effect.

McDonald and morris (1982, 1985) present the first extensive empirical studies of the statistical

validity of the statistical validity of the financial ratio method. The authors use three models with

two samples, one with a single industry the other with one randomly selected firm form each

(four-digit SIC) industry branch to investigate the implications if homogeneity on

proportionality. The first model is the traditional model for replacement of financial ratios by

bivariate regression, with intercept Y(i)=a+bX(i)+e(i). the above model is central in this area. It

is characteristic that the testing for proportionality is considered in terms.

26

1.9 RESEARCH METHODOLOGY

This part highlights the period of the study, sources of data and techniques used in the

analysis. It focuses on the critical assessment of the financial position of “The Salem District

Co-Op Milk Producers” Union Ltd. These are illustrated explained as under:

1.9.1 RESEARCH DESIGN

Research design is purely and simply the framework or plan for a study that guides the

collection and analysis of the data. The function of researcher is to ensure that the

required data collected are accurate and economical also

Analytical research technique was adopted in the project. Generally, analytical techniques

are designed to analyze something and it collects data for a definite and certain purpose.

The project study mainly focuses on the critical assessment of the financial position of

“The Salem District Co-Op Milk Producers” Union Ltd, and deals with financial

statement analysis, financial planning and financial control.

PLAN OF ANAYLISIS

Data collected from all the available sources will be tabulated, analyzed, interpreted and

supported with relevant chart, ratios, tables, graphs, etc., where ever necessary and suggestions

arising thereof will also be listed in the project. An attempt has been made to study the working

capital management as part and parcel of packing operations at “The Salem District Co-Op Milk

Producers” Union Ltd.

1.9.2 METHODS OF COLLECTION

The data for the analysis are collected and gathered from the printed company reports of

“The Salem District Co-Op Milk Producers” Union Ltd, official files, records, ledgers and other

available related materials

27

PRIMARY DATA

With a purpose to strengthen and validate the study, personal contacts were made with the

executives and officials of the finance division of “The Salem District Co-Op Milk Producers”

Union Ltd in the form of personal discussion, data collection analysis of reports and MIS formats

etc.,

SECONDARY DATA

The secondary data are collected from Company reports, institute magazines, department

manuals, brochures mainly from the balance sheet, income and expenditure and periodicals etc.,

PERIOD OF STUDY

The study period covers the financial performance of “The Salem District Co-Op Milk

Producers” Union Ltd during the six Year period commencing 2006-07 to 2010- 2011.

28

2.1 PROFITABILITY RATIO

Gross turnover less excise duty, the net turnover is the value of production. Profit before

tax to gross turnover less excise duty is calculated to know the profitability for the given value of

production.

Profitability ratio=Net profitsales

× salesTotalassets

TABLE NO. 2.1 SHOWING PROFITABILITY RATIOS

(In Rupees)

Year Net profit Sales Total assetsProfitability

ratio

2006-07 Loss 1750215219 708411419.3 Nil

2007-08 39499088.8 2105029041 829565163.4 0.04

2008-09 38280580.59 2519940197 799952281.5 0.04

2009-10 59458833.5 2789242348 987708599.8 0.06

2010-11 84844351.01 2852974753 1104383837 0.07

Average 0.042

(Annual Reports of the Salem District Co-Op. Milk Producers Union Ltd.)

INTERPRETATION:

Though in the first year there is no profit, the following years profitability ration started

improving from 0.04 to 0.07.

29

CHART NO. 2.1 SHOWING PROFITABILITY RATIO

2006-07 2007-08 2008-09 2009-10 2010-110

0.01

0.02

0.03

0.04

0.05

0.06

0.07

0.08

Profitability ratio

Profitability ratio

30

2.1.1 RETURN ON INVESTMENT

This ratio is called return on “capital employed “. It measures the sufficiency or otherwise

of profit in relation to capital employed.

Returnon investment= Operating profitCapital employed

×100

TABLE NO. 2.1.1 SHOWING RETURN ON INVESTMENT RATIO

(In

Rupees)

Year Operating profits capital employed Return on investment

2006-07 47762830.6 326967844.6 14.60

2007-08 50626056.7 320489113.2 15.79

2008-09 64486698.5 394186700 16.35

2009-10 71896375.5 482866505 14.88

2010-11 104585176.5 524725717.5 19.93

Average 16.31


INTERPRETATION:

The return on investment for the five years average is 16.31%. The return on investment

rate has progressively changed from the year 2006-07 to year 2010-11. The financial year 2006-

07 the return on investment was 14.60. It has increased in to 19.93 in year 2010-11.

31

CHART NO. 2.1.1 SHOWING RETURN ON INVESTMENT RATIO

32

2006-07 2007-08 2008-09 2009-10 2010-11

0

5

10

15

20

25

Return on investment

Return on investment

2.1.2 RETURN ON CAPITAL EMPLOYED RATIO

33

Return on capital employed (ROCE) ratio is one of the important tools used to identify

companies that offer good value and have the potential to grow. The ROCE ratio helps to

identify good business that earns more relative to the price being paid than others.

Returnon capital employed ratio= Net profit after taxesGross capital employed

×100

TABLE NO. 4.1.1 SHOWING RETURN ON CAPITAL EMPLOYED RATIO

Year Net profit after taxes Gross capital employed

Return on capital employed ratio

2006-07 Loss 1908411419 Nil

2007-08 39499088.8 829565163.4 4.76

2008-09 38280580.59 799952281.5 4.78

2009-10 59458833.5 987708599.8 6.01

2010-11 84844351.01 1104383837 7.68

Average 4.65


INTERPRETATION:

The return on capital employed ratio from the year 2007-08 to 2010-11 showing

increasing trend.

34

CHART NO.2.1.2 SHOWING RETURN ON CAPITAL EMPLOYED RATIO

2006-07 2007-08 2008-09 2009-10 2010-110

1

2

3

4

5

6

7

8



2.1.3 RETURN ON TOTAL ASSET

35

Return on total asset ratio is calculated to measure the productivity of total assets. In

the term of fictitious assets refer to the preliminary expenses, debit balance of profit and loss

account and other similar losses shown on balance sheet side.

Returnon total asset= Netprofit after tax+ I nterestTotal assets

× 100

TABLE NO. 2.1.3 SHOWING RETURN ON TOTAL ASSETS RATIO

(In Rupees)

Year Net profits after tax and interest Total assets Return on total assets ratio

2006-07 loss 708411419.3 Nil

2007-08 41258668.8 829565163.4 4.97

2008-09 50816379.59 799952281.5 6.35

2009-10 59807512.5 987708599.8 6.05

2010-11 84970087.01 1104383837 7.69

Average 5.01


INTERPRETATION:

In 2006-07 there was net loss, due to that there is no return on total assets. The retun on

total assets ratio for the next four years satisfactory..

36

CHART NO.2.1.3 SHOWING RETURN ON TOTAL ASSETS RATIO

2006-07 2007-08 2008-09 2009-10 2010-11

0

1

2

3

4

5

6

7

8

9

Return on total assets

Return on total assets ratio

2.1.4 GROSS PROFIT RATIO

37

This ratio is also known as gross margin or trade margin ratio. Gross profit ratio indicate

the difference between sales and direct cost. Gross profit ratio explains the relationship between

gross profit and net sales.

Gross profit ratio=Gross profitNet sales

×100

TABLE NO. 2.1.4 SHOWING GROSS PROFIT RATIO

(In Rupees)

Year Gross profit Net sales G.P ratio

2006-07 109096112.1 1750215219 6.23

2007-08 190031239.8 2105029041 9.02

2008-09 234025644.6 2519940197 9.28

2009-10 268910345.9 2789242348 9.64

2010-11 332000729.5 2852974753 11.63

Average 9.16


INTERPRETATION:

The above table indicates that the gross profit ratio of the firm has the normal growth

over the period of Years. It seems to that the gross profit ratio is satisfactory to the firm. As

during the Year increase in gross profit ratio is an indication of improving working condition

38

CHART NO. 2.1.4 SHOWING GROSS PROFIT RATIO

2006-07 2007-08 2008-09 2009-10 2010-110

2

4

6

8

10

12

14

Gross profit ratio

G.P ratio

2.1.5 NET PROFIT RATIO

39

This ratio is also called net profit to sales ratio. It is a measure of management’s

efficiency in operating the business successfully from the owner’s point of view. It indicates the

return on shareholder’s investment. Higher the ratio better is the operational efficiency of the

business concern.

Net profit ratio= Net profitNet sales

× 100

TABLE NO. 2.1.5 SHOWING NET PROFIT RATIO

(In Rupees)

Year Net profit Net sales N.P ratio

2006-07 Nil 1750215219 Nil

2007-08 39499088.8 2105029041 1.87

2008-09 38280580.59 2519940197 1.51

2009-10 59458833.5 2789242348 2.13

2010-11 84844351.01 2852974753 2.97

Average 1.70


INTERPRETATION:

The above table indicates that the net profit ratio of the firm has the normal growth

over the period of Years. It seems to that the net profit ratio is satisfactory to the firm. As during

the Year increase in net profit ratio is an indication of improvement in the business.

40

CHART NO. 2.1.5 SHOWING NET PROFIT RATIO

2006-07 2007-08 2008-09 2009-10 2010-110

0.5

1

1.5

2

2.5

3

3.5

Net profit ratio

N.P ratio

2.1.6 OPERATING RATIO

41

This ratio indicates the relationship between total operating expenses and sales.

Operating ratio measures the amount of expenditure incurred in production sales and

distribution of output. It indicates operational efficiency of the concern. Lower the ratio more is

the efficiency.

Operating ratio=OperatingCostNet sales

×100

TABLE NO. 2.1.6 SHOWING OPERATING RATIO

(In Rupees)

Year Operating Cost Net sales Operating ratio

2006-07 1743438935 1750215219 99.61

2007-08 2054402984 2105029041 97.59

2008-09 2455453499 2519940197 97.44

2009-10 2717345972 2789242348 97.42

2010-11 2748389576 2852974753 96.33

Average 97.68


INTERPRETATION:

The operating ratio for the last years are between 96.33 to 99.61. it shows that the

operation cost of the firm is closer to the net income of the firm.

42

CHART NO.2.1.6 SHOWING OPERATING RATIO

2006-07 2007-08 2008-09 2009-10 2010-1194

95

96

97

98

99

100

Operating ratio

Operating ratio

2.1.7 OPERATING PROFIT RATIO

43

It is the ratio of profit made from operating sources to the sales usually shown as a

percentage. It shown the operational efficiency of the firm and its measure the management

efficiency in running the routine operations of the firm.

Operating profit ratio=Operating profitNet sales

×100

TABLE NO. 4.1.7 SHOWING OPERATING PROFIT RATIO

(In Rupees)

Year Operating profit Net sales Operating profit ratio

2006-07 67762836 1750215219 3.87

2007-08 50626056.7 2105029041 2.40

2008-09 64486698.5 2519940197 2.55

2009-10 71896375.5 2789242348 2.57

2010-11 104585176.5 2852974753 3.66

Average 3.01


INTERPRETATION:

The operating profit is decreasing in the mixed trend; the reason for this is to increase in

the input raw milk cost and it has been stabilized from the Year 2

44

CHART NO. 2.1.7 SHOWING OPERATING PROFIT RATIO

2006-07 2007-08 2008-09 2009-10 2010-110

0.5

1

1.5

2

2.5

3

3.5

4

4.5

Operating profit ratio

Operating profit ratio

2.1.8 OPERATING EXPENSES RATIO

45

A category of expenditure that a business incurs as a results of performing its normal

business operations. One of the typical responsibility that management most content with is

determining how low operating expenses can be reduced without significantly affecting the

firm’s ability to compete with its competitors.

Operating Expenses ratio=Operating expensesNet sa les

× 100

TABLE NO. 2.1.8 SHOWING OPERATING EXPENSES RATIO

(In Rupees)

Year Operating expenses Net salesOperating expenses

ratio

2006-07 102319824.4 1750215219 5.84

2007-08 139405183 2105029041 6.62

2008-09 169538946.1 2519940197 6.72

2009-10 197010070.4 2789242348 7.06

2010-11 227415553 2852974753 7.97

Average 6.84


INTERPRETATION:

The operating expenses ratio is increasing on slow phase year on year. It shows that the

expenses are gradually increasing.

46

CHART NO. 2.1.8 SHOWING OPERATING EXPENSES RATIO

2006-07 2007-08 2008-09 2009-10 2010-110

1

2

3

4

5

6

7

8

9

Operating expenses ratio

Operating expenses ratio

2.1.9 NON-OPERATING EXPENSES RATIO

47

It is expense incurred by activities not relating to the core operations of the business.

Non operating expenses ratio= Non operatingexpensesNet sales

×100

TABLE NO. 2.1.9 SHOWING NON- OPERATING EXPENSES RATIO

(In Rupees)

YearNon operating

expensesNet sales

Non operating

expenses ratio

2006-07 31800618.4 1750215219 1.81

2007-08 3515910.94 2105029041 0.16

2008-09 29019374.23 2519940197 1.15

2009-10 15442883.54 2789242348 0.55

2010-11 23941651.06 2852974753 0.83

Average 0.90


INTERPRETATION:

The non operating expenses are in line with the turnover. If the turnover goes up, the ratio

will be lower. Due to increase in the volume of business and turnover the ratio is the decreasing

trend.

48

CHART NO. 2.1.9 SHOWING NON- OPERATING EXPENSES RATIO

2006-07 2007-08 2008-09 2009-10 2010-110

0.2

0.4

0.6

0.8

1

1.2

1.4

1.6

1.8

2

Non operating expenses ratio

Non operating expenses ratio

2.1.10 FINANCIAL EXPENSES RATIO

49

Financial expenses include the company’s interest expenses on long term debt and related

charges; foreign exchange losses on bet’ net expenses on the disposal of marketable securities;

Amortization of bond redemption premiums; addition to provisions for financial liabilities and

charges and impairment losses on investment.

Financial expenses ratio=Financial expensesNet sales

×100

TABLE NO. 2.1.10 SHOWING FINANCIAL EXPENSES RATIO

(In Rupees)

Year Financial expenses Net salesFinancial expenses

ratio

2006-07 19773835.4 1750215219 1.12

2007-08 1759580 2105029041 0.08

2008-09 12529799 2519940197 0.49

2009-10 348679 2789242348 0.01

2010-11 125736 2852974753 0.00

Average 0.34


INTERPRETATION:

The financial expenses are in the line with the turnover. If the turnover goes up, the ratio

will be lower. Due to increase in the volume of business and turnover the ratio is the decreasing

trend.

50

CHART NO. 2.1.10 SHOWING FINANCIAL EXPENSES RATIO

2006-07 2007-08 2008-09 2009-10 2010-110

0.2

0.4

0.6

0.8

1

1.2

Financial expenses ratio

Financie expenses ratio

2.2 TURNOVER RATIO

51

2.2.1 INVENTORY TURNOVER RATIO

This ratio is called stock velocity ratio. It is calculated to ascertain the efficiency of

inventory management in terms of capital investment. It shows the relationship between the cost

of goods sold and the amount of average inventory. Stock turnover ratio is obtained by dividing

the cost of sales by average stock.

Inventory turnover ratio=Cost of goods soldAverage stock

× 100

TABLE NO. 2.2.1 SHOWING INVENTORY TURNOVER RATIO

(In Rupees)

Year Cost of goods sold Average stockInventory turnover

ratio

2006-07 1641119107 37399735 43.88

2007-08 1914997801 28509919 67.16

2008-09 2285914552 22802517.25 100.24

2009-10 2520332002 33552832 75.11

2010-11 2520974023 33555680 75.12

Average 72.30


INTERPRETATION:

The above table shows that the company has lower turnover ratio in the Year 2006-07.

But in the forthcoming two Years it has been increased. It is efficient inventory management and

efficiency of business operations.

52

CHART NO. 2.2.1 SHOWING INVENTORY TURNOVER RATIO

2006-07 2007-08 2008-09 2009-10 2010-110

20

40

60

80

100

120

Inventory turnover ratio

Inventory turnover ratio

2.2.2 INVENTORY TURNOVER PERIOD

53

Inventory turnover ratio can be related to time. The rations can be expressed in term of days

or months. The general objective is to increase the stock velocity as much as possible or in

effect, decrease the days or months for which items remain in stock.

Inventory turnover period(days)= No.ofdaysInventory turnover ratio

TABLE NO. 2.2.2 SHOWING INVENTORY PERIOD

(In Rupees)

Year No.of daysInventory turnover

ratio

Inventory turnover

period

2006-07 365 43.8824251 8.31

2007-08 366 67.16952795 5.44

2008-09 365 100.2483422 3.64

2009-10 365 75.11532863 4.85

2010-11 365 75.1280863 4.85

Average 5.42


INTERPRETATION:

The inventory turnover period is higher in the year 2006-07 but later on years the

turnover period is reduced. The last two years the turnover period improved again.

54

CHART NO. 2.2.2 SHOWING INVENTORY CONVERSION PERIOD

2006-07 2007-08 2008-09 2009-10 2010-110

1

2

3

4

5

6

7

8

9

Inventory turnover period

Inventory turnover period

2.2.3 DEBTOR’S TURNOVER RATIO

55

Debtor’s turnover ratio is called as receivables turnover ratio. A business concern generally

adopts different methods of sales. Goods are sold on credit based on credit policy adopted by the

firm.

Debtors turnratio

= Credit salesAverageaccounts receivable

TABLE NO. 2.2.3 SHOWING DEBTORS TURNOVER RATIO

(In Rupees)

Year Credit salesAverage accounts

receivable

Debtors turnover

ratio

2006-07 1750215219 528660692.4 4.31

2007-08 2105029041 574877086.3 3.66

2008-09 2519940197 569125298.1 4.42

2009-10 2789242348 559003612.2 4.98

2010-11 2852974753 670227718.9 4.25

Average 4.32


INTERPRETATION:

The above table shows that in the Year 2006-07, the debtors turnover ratio has decreased,

it implies in efficient of the management of debtors.

56

CHART NO. 2.2.3 SHOWING DEBTORS TURNOVER RATIO

2006-07 2007-08 2008-09 2009-10 2010-110

0.5

1

1.5

2

2.5

3

3.5

4

4.5

5

Debtors turnover ratio

debtors turnover ratio

2.2.4 DEBT COLLECTION PERIOD

57

The average collection period measure the liquidity of the firm, since a collection period

implies the prompt payment of the debtors. It also measures the credit worthiness of the

company. The average collection should be compared against the firm’s credit terms and policies

to judge its credit and collection efficiency.

Debt collection period= No .of daysDebtors turnover ratio

TABLE NO. 2.2.4 SHOWING DEBTORS COLLECTION PERIOD

(In Rupees)

Year No.of daysdebtors turnover

ratio

Debt collection

period

2006-07 365 4.310658887 110.24

2007-08 366 3.661702808 99.95

2008-09 365 4.427742372 82.43

2009-10 365 4.989667843 74.15

2010-11 365 4.256724502 85.74

Average 90.50


INTERPRETATION:

Higher turnover ratio and the shorter collection period conveys quick payment on the part

of the debtors. Collection period has been reduced from 110 days to 99.95,82.43,74.15,85.74days

shows the efficiency of the management.

58

CHART NO. 2.2.4 SHOWING DEBTORS COLLECTION PERIOD

2006-07 2007-08 2008-09 2009-10 2010-110

20

40

60

80

100

120

Debt collection period

Debt collection period

2.2.5 CREDITOR’S TURNOVER RATIO

59

This ratio is also known as accounts payable. A business concern usually purchases raw

materials, services and goods on credit. The quantum of payables of a business concern depends

upon its purchase policy, the quantity of purchase and suppliers credit policy. Creditor’s

turnover ratio indicates the number of times the payable rotate in a Year.

Creditors turnover ratio Net salesAverage accounts payable

TABLE NO. 2.2.5 SHOWING CREDITORS TURNOVER RATIO

(In Rupees)

Year Net credit purchaseAverage accounts

payable

Creditors turnover

ratio

2006-07 1496461534 453474020 4.29

2007-08 1735606814 475208115.5 3.65

2008-09 2123028913 446447362.9 4.75

2009-10 2374084372 442658868.2 5.36

2010-11 2334856808 514659228.2 4.53

Average 4.52


INTERPRETATION:

The purchase has increased due to volume of business, and the creditors turnover ratio

also increased.

60

CHART NO. 2.2.5 SHOWING CREDITORS TURNOVER RATIO

2006-07 2007-08 2008-09 2009-10 2010-110

1

2

3

4

5

6

Creditors turnover ratio

Creditors turnover ratio

2.2.6 CREDIT PAYMENT PERIOD

61

The debt payment ratio indicates the interval of payment period. If the firm does not pay off

its creditors within time, it will adversely affect the goodwill of the business

Credit payment period= No . of daysCreditorsturnover ratio

TABLE NO. 2.2.6 SHOWING CREDITORS PAYMENT PERIOD

(In Rupees)

Year No.of daysCreditors turnover

ratio

Credit payment

period

2006-07 365 4.299993975 82.60

2007-08 366 3.652308867 87.21

2008-09 365 4.755384597 76.75

2009-10 365 5.363236891 68.05

2010-11 365 4.536704445 80.45

Average 79.01


INTERPRETATION:

The credit payment period shows the reducing trend from 2006-07 to 2009-10. In the

market, this is generally products for this company. This will raise the image of the company that

it is able to meet its financial obligation.

62

CHART NO. 2.2.6 SHOWING CREDITORS PAYMENT PERIOD

2006-07 2007-08 2008-09 2009-10 2010-110

20

40

60

80

100

120

Credit payment period

Credit payment period

2.2.7 WORKING CAPITAL TURNOVER RATIO

63

Working capital ratio measures the effective utilization of working capital. It also

measures the smooth running of business or otherwise. The ratio establishes relationship between

cist if sales and working capital. Working capital turnover ratio is calculated with the help of the

following formula.

Working capital turnover ratio= Cost of goodssoldNet working capital

TABLE NO. 2.2.7 SHOWING WORKING CAPITAL TURNOVER RATIO

(In Rupees)

Year Cost of goods sold Net working capitalWorking capital

turnover ratio

2006-07 1641119107 93023148.6 17.64

2007-08 1914997801 126267972.2 15.16

2008-09 2285914552 174766790.1 13.07

2009-10 2520332002 262263200.2 9.60

2010-11 2520974023 304304169.9 8.28

Average 12.75


INTERPRETATION:

The above table indicates that the gradual growth of the ratio, but during the Year 2010-

11 the ratio has been slightly decreased to 8.28. This indicates that the efficient utilization of

working capital.

CHART NO. 2.2.7 SHOWING WORKING CAPITAL TURNOVER RATIO

64

2006-07 2007-08 2008-09 2009-10 2010-110

2

4

6

8

10

12

14

16

18

Working capital turnover ratio

Working capital turnover ratio

2.2.8 FIXED ASSETS TURNOVER RATIO

65

This ratio determines efficiency of utilizations of fixed assets and profitability of a business

concern. Higher the ratio, more is the efficiency in utilization of fixed assets. A lower ratio is

under utilization of fixed assets.

¿assets turnover ratio=Cost of goods soldNet ¿

assets¿

TABLE NO. 2.2.8 SHOWING FIXED ASSETS TURNOVER RATIO

(In Rupees)

Year Cost of goods sold Net fixed assetsFixed asset turnover

ratio

2006-07 1641119107 1333944696 12.25

2007-08 1914997801 194221141 9.85

2008-09 2285914552 219419909.9 10.41

2009-10 2520332002 220603304.8 11.42

2010-11 2520974023 220421547.9 11.43

Average 11.07


INTERPRETATION:

The ratio shows that the fixed assets are efficiently utilized. The ratios are showing up

gradual growth over the period. It implies that the company utilizes its fixed assets efficiently.

66

CHART NO. 2.2.8 SHOWING FIXED ASSETS TURNOVER RATIO

2006-07 2007-08 2008-09 2009-10 2010-110

2

4

6

8

10

12

14

Fixed asset turnover ratio

Fixed asset turnover ratio

2.2.9 CAPITAL TURNOVER RATIO

67

Managerial efficiency is also calculated by establishing the relationship between cost of

sales or sales with the amount of capital invested in the business. Lower ratio shows the lower

profit and higher ratios show the higher profit.

Capital turnover ratio=Cost of goodssoldCapital employed

TABLE NO.2.2.9 SHOWING CAPITAL TURNOVER RATIO

(In Rupees)

Year Cost of goods sold capital employedCapital turnover

ratio

2006-07 1641119107 226967844.6 7.23

2007-08 1914997801 320489114.2 5.97

2008-09 2285914552 394186700 5.79

2009-10 2520332002 482866505 5.21

2010-11 2520974023 524725717.5 4.80

Average 5.80


INTERPRETATION:

The capital turnover ratio from 2006-07 to 2010-11 except in 2010-11 shows a gradual

increase, which depicts that the assets as whole are efficiently utilized.

68

CHART NO. 2.2.9 SHOWING CAPITAL TURNOVER RATIO

2006-07 2007-08 2008-09 2009-10 2010-110

1

2

3

4

5

6

7

8

Capital turnover ratio

Capital turnover ratio

2.3 SOLVENCY RATIO

69

2.3.1 CURRENT RATIO

Current ratio is the relationship between current assets and current liabilities.

The ratio of current assets to current liabilities is called ‘current ratio’. In order to

measure the short-term liquidity or solvency of a consent , comparison of current assets and

current liabilities is inevitable. Current ratio indicates the ability of a consent to meet its current

obligations as and when they are due for payment.

Current ratio= Current assetsCurrent liabilities

TABLE NO.2.3.1 SHOWING CURRENT RATIO

(In Rupees)

Year Current assets Current liabilities Current ratio

2006-07 574466724.3 481443574.7 1.19

2007-08 635344022.4 509076050.2 1.24

2008-09 580532371.6 405765581.5 1.43

2009-10 767105295 504842094.5 1.51

2010-11 883962289.4 579658119.5 1.52

Average 1.39


INTERPRETATION:

The table shows the liquidity position of the company. Though the current ratio is

improving from year 2006-07 to 2010-11. The current ratio is below the industry standard ratio

of 2:1.

70

CHART NO. 2.3.1 SHOWING CURRENT RATIO

2006-07 2007-08 2008-09 2009-10 2010-110

0.2

0.4

0.6

0.8

1

1.2

1.4

1.6

Current ratio

Current ratio

2.3.2 LIQUID RATIO

71

Liquid ratio is also called acid-test ratio because it is the acid test of a concern’s financial

soundness. It is the relationship between Liquid assets and Liquid liabilities. Liquid assets are

those assets, which are readily concerted into cash. They include cash and bank balance, bills

receivable, debtors, short-term investments. Liquid liabilities include creditors, bills payable,

outstanding expenses.

Liquid ratio= Liquid assetsCurrent liabilities

TABLE NO. 2.3.2 SHOWING LIQUID RATIO

(In Rupees)

Year Liquid assets Current liabilities Liquid ratio

2006-07 57114084.3 481443574.7 0.11

2007-08 634896595.4 509076050.2 1.24

2008-09 579962333.6 405765581.5 1.42

2009-10 766632258 504842094.5 1.51

2010-11 883471356.4 579658119.5 1.52

Average 1.16


INTERPRETATION:

The above table shows the liquidity position of the company. In the Year 2010-11 the

liquid ratio increases to 1.52, whereas previous Year it decrease to 1.51. In the Year by Year to

liquid ratio increased. This shows that the company has not maintained a stable liquidity

position.

72

CHART NO. 2.3.2 SHOWING LIQUID RATIO

2006-07 2007-08 2008-09 2009-10 2010-110

0.2

0.4

0.6

0.8

1

1.2

1.4

1.6

Liquid ratio

Liquid ratio

2.3.3 ABSOLUTE LIQUIDITY RATIO

73

This ratio is also called ‘cash position ratio’ or super liquid ratio. This is a variations of

liquid ratio. This ratio is calculated when liquidity is highly restricted in terms of cash and cash

equivalence. This ratio measures liquidity in terms of cash and near cash items and short-terms

current liability. Cash position ratio is calculated with the help of the following formula

Absolute liquidity ratio= Absolute liquid assetsCurrent liabilities

TABLE NO. 2.3.3 SHOWING ABSOLUTE LIQUID RATIO

(In Rupees)

Year Absolute liquid assets Current liabilities Absolute liquid ratio

2006-07 2035777.23 481443574.7 4.22

2007-08 202890.45 509076050.2 3.98

2008-09 30802408.01 405765581.5 0.07

2009-10 130679094.3 504842094.5 0.25

2010-11 111857722.4 579658119.5 0.19

Average 1.74


INTERPRETATION:

The above table shows the liquidity position of the company. The ratio has contionously

declined from the year 2006-07.

74

CHART NO. 2.3.3 SHOWING ABSOLUTE LIQUID RATIO

2006-07 2007-08 2008-09 2009-10 2010-110

0.5

1

1.5

2

2.5

3

3.5

4

4.5

Absolute liquid ratio

Absolute liquid ratio

3.1 FINDINGS:

75

Financial performance of The salem district co-op milk producers’ union ltd., salem

using profitability ratio.

Based on return on investment ratio the financial performance the is good. Since the

average return on investment is 13.19.

Based on the return on total assets employed the financial performance of the company is

satisfactory. Because there is continues minimum improvement in the ratio.

Based on gross profit ratio the financial performance of the company since to be

satisfactory. Because the gross profit ratio has soon continues improvement.

Based on the net profit ratio the financial performance of the company against

satisfactory since the net profit ratio reached 2.97 from net loss.

Based on operating ratio the financial performance of the company is not satisfactory

since the operating cost is closer to not sales. The operating ratio of the firm

Based on operating profit ratio the financial performance of the company is not

satisfactory since the average ratio is

Based on Operating expenses ratio the financial performance of the company is not

satisfactory since the expanses are increasing from the year 2006-07

Based on financial expanses ration the financial performance the company is found to be

good because in the financial expanses dramatically.

Financial performance of The Salem district co-op milk producer’s union ltd., Salem

using turnover ratio.

Based on inventory turnover ratio the financial performance of the company is good.

Since the inventory turnover ratio as sternly increase.

Based on debtor’s turnover ratio the financial performance of the company is not

satisfactory because the ratio remains between 4 to 5.

Based on creditor’s turnover ratio the financial performance of the company is not

satisfactory since the ratio has increased.

Based on working capital turnover ratio the financial performance of the company is

good.

Based on fixed assed turnover ratio the financial performance of the company is good

because the ratio as improved from 9.85 to 11.43.

76

Based on capital turnover ratio the financial performance of the company is good.

Because the assets are efficiency utilized.

Financial performance of The Salem district co-op milk producer’s union ltd., Salem

using solvency ratio.

Based on current ratio the financial performance of the company is not satisfactory

because the current ratio is lesser then industry standard ratio tool.

Based on liquid ratio the financial performance of the company is satisfactory because

the ratio is higher than industry standard.1.1

Based on absolute liquidity ratio the financial performance of the company is not

satisfactory since it is decrease from 4.22 to .19.

3.2 SUGGESSION:

77

It has found that those the profitability ratio of the company is passives but the operating

expenses ratio was not satisfactory. The operating expenses ratio is very closer to the

knot sales therefore the company should censer on ways and means to reduce to cost.

The study shows that the operating profit ratio not satisfactory so more affiants need to be

paid for improving operating profit.

Though the debtor’s turnover ratio reached 4.98 rate this ratio lies between 3.66 to 4.98.

The company can take measures to make major improvement on debtor’s turnover ratio.

Both the current ratio and liquid ratio fill below the industry standard 2:1 to 1:1. This is

on allowing indication that the company has to pay serious attains towards its as current

asset management.

3.3 CONCLUSION:

78

The Salem district co-op milk producer’s union ltd has been performing well in the milk

and milk product goods being one of the union of The Salem district co-op milk producer’s

union ltd has been showing an increasing trend in its profitability position for the past 5 years

which deficits a good sign.

The turnover ratios indicate that the average collection period has been reduced from two

month to one moth and inventory ratio is a indicates that the larger part of the amount is tied up

to inventory. So the company must take steps to improve it liquidity position.

The company has a high operational efficiency and most of the ratios seem to be

satisfaction from the point of view of both the agent and customers.

The other important factor which is worth mentioning here is that the company has been

progressing steadily on its capacity utilization in line with its growing financial performs.

4. SCOPE FOR FUTURE RESEARCH

79

Financial statement analysis is done with an intention to know the financial performance

of Salem District Co-operative Milk Produces Union Limited in Salem. In order to assess the

financial performance only financial statement of the company has been used. A never statement

analysis will portray part of the company financial performance dimension therefore future

research can be done in the areas of investment analysis, inventory management, working capital

management, cash management, method of assets deployment, credit management, effective

method of source fund.

Financial performance on human resource capital also an emerging scopeful study area.

80

BIBLIOGRAPHY:

1. T.S. Reddy, Y. Hariprasad Reddy Reprint 2003, cost and management accounting,

published by Mangham publications, Chennai-600 017.

2. T.S. Reddy, Y. Hariprasad Reddy, second edition, Financial and management

accounting, published by Mangham publications, Chennai-600 017.

3. Khan & join; Thirteenth edition-1996, Financial management, published by Charity

publications, Chennai-600 023.

4. Prasanna Chandra 3rd editions “Fundamental of financial management”, Tata

McGraw Hill publishing company- New Delhi.

Websites referred:

www.google.com

WWW.aavin.com

www.aavindaily.com

www.salem co-op milk ltd.com

http://www.salem/

http://www.aavindaily.com/

http://WWW.aavin.com/

http://www.google.com/

81

THE SALEM DISTRICT CO-OPERATIVE MILK PRODUCERS’ UNION LTD, ED. 912, SALEM

TRADING ACCOUNT FOR THE YEAR ENDED 31/03/2011

S.NO DETAILS AMOUNT S.NO DETAILS AMOUNT

1

2

3

4

OPENING STOCK

PURCHASE(MILK BY-PRODUCTS & OTHERS)

TRADE CHARGES PAID AND DUE

VAT AND TAX PAIDTOTAL

GROSS PROFIT

42299198.98

2334856808.00

276151004.02

11400248.00

1

2

3

4

SALES PROCEEDS

TRADE INCOME

VAT AND TAX COLLECTED

CLOSING STOCK

2852974752.84

107400213.98

11520860.65

24812101.00

2664707259.00

332000729.47

GRAND TOTAL 2996707988.47

GRAND TOTAL 2996707988.47

82

THE SALEM DISTRICT CO-OPERATIVE MILK PRODUCERS’ UNION LTD,ED. 912, SALEM

PROFIT AND LOSS ACCOUNT FOR THE YEAR ENDED 31/03/2011

S.NO DETAILS AMOUNT S.NO DETAILS AMOUNT

1

2

3

4

5

ESTABLISHMENT & CONTINGENCIES PAID & DUE

INTEREST PAID & DUE

RESERVE FOR DEPRECIATION

PROVISION FOR EMPLOYEE BOUNS

PROVISION FOR INCOME TAX

NET PROFIT

227415552.99

125736.00

11311149.06

4440000.00

8064766.00

1

2

GROSS PROFIT FROM TRADING ACCOUNT

MISCELLANEOUS INCOME RECEIVED & ACCURED

332000729.47

4200825.59

251357204.05

84844351.01

GRAND TOTAL 336201555.06 GRAND TOTAL 336201555.06

83

THE SALEM DISTRICT CO-OPERATIVE MILK PRODUCERS’ UNION LTD,ED. 912, SALEM

BALANCE SHEET AS ON 31/03/2011

S.NO

LIABILITIES AMOUNTS.NO

ASSETS AMOUNT

A

B

C

D

E

SHARE CAPITAL

DEPOSIT AND LOANS

a) Depositb) Loans ofc) Governmentd) TCMPF LTD

RESERVE FUND AND OTHER FUND

a) Undivided profit

NON STATUTORY RESERVES

a) Deprecation reserveb) Investment allowance c) Others

PROVISIONS

a) Under Sales Value Between Cost Price & Selling Price

b) Transport cost due from federation

c) Polyfilm deficit (1994-95)d) Interest due from TCMPFe) Expenditure made to

connection with govt. function at T.Gode

f) Amount due from federation for excess milk

g) Difference in head charges due from federation

h) Butter sales price difference

3640100.00

21222836.98261374.8087074471.0040000000.00

5699.28

179436778.728246043.00185327631.03

124096561.75

2206157.60

642556.00281192.45134150.80

863538.50

5106283.80

25140107.11

10345630.00

A

B

C

D

a) Cash on hand b) Postal stamp

on handc) Cash with

bank

INVESTMENTS

a) Depositsb) Share in co-

operative

ACCURED

a) Trade incomeb) Misc.incomec) Prepaid

expenses

VALUE OF

a) Closing stockb) Trading

charges1) Chemicals2) Glassware

articles 3) Diesel

c) Estt& cont. charges 1) Book &

forms

4249.00

111853473.40

7010027.13

120500.00

2846.00

3850128.00

490933.00

24812161.00

128622.25

0803.25

84

F

G

H

I

due from federation i) SMP sales price difference

from federation j) Vehicle repair charges

1) Dindigul union 2683.272) Dharmapuri 950.00

k) Diesel price rise amount due from TCMPF LTD,Chennai

l) Skim milk solid (fat) cost due from federation

m) Loss in SMP purchased from TCMPF

n) Loss in SMP stock non liftment from dharmapuri union

o) Short settlement of product from TCMPF

SUNDRY LIABILITIES

a) sundry creditors

a) Establishment and contingencies dues

b) Trade charges dues c) Interest tax dues d) Sales tax dues e) Purchases GRN not A/C

SUBSIDY FROM

a) NDDBb) Tamilnadu co-op. unionc) HPC ltd d) Calf rearing scheme e) AHW & THADCOf) NDDB-establishment grant to

MPCS g) Technology mission scheme h) Cent/state govt. (solar plant)

subsidy i) TN govt. subsidy on sale of

milkj) Govt. of india - CMP scheme

a) Vehicle redemption fundb) Forfeiture fundc) Staff gratuity d) Profit in disposal of

assets

3633.27178197.00

1323231.00

10776007.80

83458.00

132994.23

548084811.56

21077443.00

946456.0023605259.00917826.0010203409.38

36345035.82550000.00486720.0013800.001737574.6595000.00

171289.20144000.00

62137000.00

3412700.0075959.235500.00187808.946940.54

451.00

E

F

H

VALUE OF

a) Furniture b) Libraryc) Plant &

machineries d) Ln2 plant e) Vehiclesf) Other assets

LAND ANS BUILDING

a) Land b) Buildingsc) Building

valuation not obtained

SUNDRY DEBTORS

a) sundry debtors

b)stock deficit

c)under sales value between cost price and selling price

d) Transport cost due form federation

e) polyfilm deficit (1994-95)

f) interest due form TCMPF

g)expenditure made in connection with the govt.fuction at. T.GODE

h) Vehicle repair charges

2950849.76

39895.20

145698627.16

225620.80

12011090.90

13166899.17

210099.30

21078752.07

25039713.48

746801473.09

14762811.11

124096561.75

2206157.60

642556.00

2821192.45

134150.80

85

Je) Labour welfare fund

PROVISION FOR

a) Staff bonus b) Income tax c) Excise duty

4932159.0030655482.0091258.00

1)Dindigul union

2)Dharmapuri

i) amount due form federation for excess milk

j) Deficit in solids in conversion

k) Deficit in solids in sachet filling

l) Solid deficit to be recovered form concerned CC & FED official

m) Difference in overheadcharges due form federation

n) Butter sales prince difference due form federation

o) SMP sales price difference due from federation

p) Diesel price rise amount due form TCMPF ltd., Chennai.

q) Skim milk sold (fat) cost due form federation

r) Loss in SMP

3633.27

863538.50

3817384.78

763682.00

14920889.81

5106283.80

25146107.11

10345630.00

178197.00

1323231.00

86

purchased form TCMPF

s) Loss in SMP stock non liftment 0fromdharmapuri union.

t) Short settlement of product from TCMPF

u) Excess payment of milkNet loss: carried Down from profit & loss A/C

10776007.80

83458.00

132994.23

309961.00

121021325.47

14549558517.44 14549558517.44

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