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A REPORT ON
WORKING CAPITAL MANAGEMENT IN DAIRYCO-OPERATIVE
SUBMITTED IN PARTIAL FULFILLMENT FOR THE
DEGREE OF
BACHELOR OF BUSINESS ADMINISTRATION
(BBA)
UNDER THE GUIDANCE OF: SUBMITTED BY:
MR.MANISH TIRKEY RAGVENDRA KUMAR
LECTURER 08BBAH028
JSBS
SHIATS,
ALLAHABAD
SAM HIGGINBOTTOM INSTITUTE OF AGRICULTURE, TECHNOLOGYAND SCIENCES, ALLAHABAD
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DECLARATION
I, RAGVENDRA KUMAR, hereby declared that the researchwork presented in this report entitled WORKING
CAPITAL MANAGEMENT IN DAIRY CO-OPERATIVE. for
the fulfillment of the award of Bachelor in Business
Administration (Hons.).
from SAM HIGGINBOTTOM INSTITUTE OF AGRICULTURE,TECHNOLOGY AND SCIENCES, ALLAHABAD is based
on my work during the summer training in the
LUCKNOW PRODUCERS CO-OPERATIVE MILK UNION
LTD. The project embodies the result of original work
and studies carried out by me and the contents of the
project do not form the basis for the award of any
other degree to me or to anybody else.
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ACKOWNLEDGEMENT
I am thankful to management to study the
WORKING CAPITAL MANAGEMENT IN DAIRY CO-
OPERATIVE for granting the permission,
corporation and valuable information for
competition of this project.No words are enough to thank Mr. Tapesh Yadav
(Finance Manager) and
Mr. Tripathi, LUCKNOW PRODUCERS CO-
OPERATIVE MILK UNION LTD
Who not only inspired me to work on this projectbut also accepted to guide me.
In spite of heavy responsibilities and busy
schedules, they always managed time to provide
Proper guidance.
Last but not the least, I would like to say that my
parents and friends for giving me their constant
support and encouragement in completion of my
project.
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INTRODUCTION
AN INTODUCTION OF FMCG INDUSTRY
The FMCG sector is a cornerstone of the Indian economy. This
sector can drive growth, enhance quality of life, create jobs, and
support penetration of technology. A vibrant FMCG sector can
boost agricultural product and export. It contributed to the
exchequer significantly, disperse technology across the value
chain and usher in the product innovation. This innovation can
improve Indian Health standards.
Fast Moving Consumer Good (FMCG) industry has a long history.
However, the Indian FMCG began to take shape only during the
last fifty-odd years Today, the Indian FMCG industry continues to
suffer from a definitional dilemma. In fact, the industry is yet to
Crystallize in terms of definition and market, size, among others.
The definitional confusion that has marked the Indian FMCG
industry is getting confounded. Some others call it the CPG
industry and some even call it the PMCG industry. The Indian
FMCG industry has suffered because of the confusion.
It is an industry which touches every aspect of human life from
looks to hygiene to palate.
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Perhaps defining as industry whose scope is so vast is not so
easy.
The government is at crossroads not knowing how and where to
slot the Indian FMCG industry and unsurprisingly, the manner in
which it has treated an industry which holds tremendous promise
as producer of goods that pervade everyday life has been only
callous. The facts that the FMCG industry is a noteworthy
employer and a major tax payer are being ignored.
The only thing that is cheering the industry are the reforms of the
nineties. Post reforms, the industries is excited about a
burgeoning rural population whose income are rising and which is
a willing to spend on goods designed to improve lifestyle. What is
needed now is a change in the mindset of the mandarins, FMCG
industry -friendly legislation are the needs of the hour. It does not
matter whether changes are being brought about by dawning
market realities or the ongoing economic reforms. One thing is
certain here: The Indian FMCG industry has a promising future to
look forward to.
In terms of growth potential, the Indian market is a great horse to
bet on. With a little help
and understanding from the government, the Indian FMCG can
realize its true potential.So far, it has been a checked graph for the MNCs operating in the
Indian FMCG industry. Domestic companies are only beginning to
make their presence felt in the industry. It has taken tremendous
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consumer insight and market savings for the FMCG players to
reach where they are today. But, the journey has only begun.
PROFILE OF THE
COMPANY
Name of the organization
LUCKNOW PROODUCERS CO-OPERATIVE
MILK UNION LTD
Address of the organization
22, Jopling Road, Lucknow
Established
In year 1938
Registration
23rd March 1938
First Dairy Inspector
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N.K. Bhargava
Place of Establishment Initialy at Charbagh, Shifted to
Ganesh ji, Presently
at 22, Jopling Road, Lucknow
Founder
Raj bahadur Gopal Lal Pandya
Board Of Directors
Mr. Gopal Pandya
Mr. N.C. Chaturvedi
Mr. Tej Shanker
Mr. Pushkar Nath Bhatt
Per Day Production Of Milk Initially 4000Ltr
Area of Distribution
Initially- Bakshi ka talab, Tewari Ganj
At Present- entire District
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ABOUT THE COMPANY
The common brand name of the company is PARAG the
meaning of PARAG is the pollen of flower the slogan in the logo is:
-
PURE NATURAL & GOOD HEALTH
Parag milk shed is situated in the Lucknow, the capital of Uttar
Pradesh since independence it has formed part of the traditional
supply line of agriculture products from the village to the big
cities rich in its milk potential the milk shed has, in the source of
last few decades been thoroughly exploited by small traders and
powerful contractors and well organized private dairies. Thus,
while such intermediaries were retaining large profits the rural
milk producers found their position deteriorating day by day.
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In 1950-a co-operative milk supply union was organized in
Lucknow , which started collecting milk from village and supplied
to Lucknow and local markets. This milk union continued function
for about a decade, in the mean time Lucknow milk scheme was
established by government of India in 1959-60 to ensure cheaper
milk to the local pollution of Lucknow. The scheme started
operating through 12 chilling centers in Eastern Uttar Pradesh.
These chilling centers were mainly coated in thither district of
Lucknow , Barabanki, Raebareli , Kanpur, Unnao, Sitapur etc . The
milk was mainly collected through contractors. 10 milk unionswere also found almost at the same time, around each chilling
center. These continued functioning in a rather lop-sided manner
till 1977.
DAIRY DEVELOPMENT IN UTTAR PRADESH(AT A GLANCE)U.P. is the highest milk producing State in India having a share of
18% of the total production
of the country. The per capita availability of milk has gone up to
224 grams.
Dairy development programme is being implemented in State
through the following sectors:-
Cooperative Sector
Private Sector
Cooperative Sector:-
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In the year1917 saw the advent of the First Co-operative Milk
Society at Katra,
LUCKNOW. It was unfortunate that no special efforts were made
in this direction for the
next two decades. It was then in the year 1938 LUCKNOW
PRODUCERS CO-
OPERATIVE MILK UNION was established. In the coming years
Lucknow, Varanasi, Kanpur, Haldwani, Nainital and Lucknow Milk
Unions saw the light of the day.
To accelerate the pace of Dairy Development in the State aState Level apex autonomous unit PRADESHIK CO-OPERATIVE
DAIRY FEDERATION LIMITED was established in the year 1962.
Initially the federation played the role of a Technical Advisor. As
years went by PCDF Ltd. became proficient and was given the
World Bank assisted Operation Flood Programme in the State.
Objectives of the O.F. Programme
(1) Capturing a dominant share of the urban milk market, hitherto
served by a multitude of small milk vendors.
(2) Creating a procurement network to link numerous cooperative
producer societies in different milk shed areas to the organized
urban dairy industry.
(3) Upgrading the milk production capacity of Indian bovine stock
through a
Programme of crossbreeding, veterinary services and auxiliary
activities.
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The Operation Flood Programme in the State was being
implemented by a three tier.
Private sector:
Presently 25 registered private dairy are functioning in different
districts of the State, with a total handling capacity of 46.64 lacs
liter per day.The Dairy Development Department is also running
some supportive programmes for dairy development in state of
Uttar Pradesh as : IMDP, WDP, RFWP, UPDASP, SCP, Shwet Kranti
Yojna.IMDP Intensive Mini Dairy Project:
The largest employment generation programme named a IMDP
under Deen Dayal Rojgar Yojna was initiated in the year 1991.
The programme was launched in 17 districts of the State in the
first phase. In due course of time the scheme at the Government
level was renamed as Vishes Rojgar Yojna. For the year 1999-
2000 the total number of mini dairy stands at 18, 5000 in 73
districts of the state.
WDP Women Dairy Project:
In its efforts to remove gender basis the state Government has
initiated WDP through Government of India, wherein part of the
programme is being funded under the STEP programme of theState Government. The progress as on date reflects 2096 women
societies with a membership of 80345.
RFWP Rural Family Welfare Programme :
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Under the aegis of SIFPSA a family welfare project is running at
present. It is an ideal programme for family welfare through dairy
cooperative society. It is currently operating in 13 districts.
Further 3 new districts will be added U.P.
UPDASP Uttar Pradesh Diversified Agriculture Support Project:
A World Bank assisted Project it is operative through the following
components:- PHAP - Public Health Awareness Programme.The
programme is operational in 15 districts of the State for a period
of MRCB Milk Recording & Conservation of Breed. The
programme is operational in 07 districts of the state for a period
of Special Achievements/Initiatives the highest ever Milk
Procurement in a single day that touched the magical 13.58 Kgs
Mark.Efforts are on to bring in our Major Dairies under the ISO
9002 fold, wherein Lucknow Dairy & Parag Dairy have already
been awarded the ISO 9002 Certification.
To fulfill the vision and the dream of strengthening the Federation
of that it is able to meet the ever increasing competition on all
fronts an Satat Sudhar Yojna has been initiated.
Total NMG supplies 3.20 lac liters/day.
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OBJECTIVES OF COMPANY
OBJECTIVES: -
PCDFS front-end objective was to see that there was enough milk
for everyone in town.
Marketing is simply the PCDFS tool to achieve their ultimate
objective and delivering the pure parag milk to every home.
PURPOSE:-
PCDFS aims to build a system to ensure that individual farmer
got a fair price for the milk he sold.
MISSION:-
PCDFS mission is to become the strongest marketingorganization by 2005.PCDFS came into existence in 23rd march
1938,with the simple intension of ensuring a fair return to the
producers. Which was implemented in UP is the year 1983-1984
provided the much needed impetus to co-operation. The mission
was to develop a product mix that would not only promote
sustained growth but also help member union to develop
adequate.
Production and processing facilities. It also aimed to offer quality
products at fair price, and to do so by achieving economies of
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scale and costs. And this mission gave birth to brands like parag
and Amul.
VISION:-
To increase its number of Parag milk customers and its turnover
to 50 crores by 2005 by product diversification.
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PRODUCT PROFILE1. Butter:-
It contains less than 80% milk fat and more than 15%
moisture and high acidity. It is prepared exclusively from milk
cream of curd of cow or buffalo milk without the addition of salt,
color or any preservative and is intended for cooking or for
preparation of Ghee.
2. Ghee:-
About 43% of total quantity of milk produced in India is
manufactured first into butter and then converted into Ghee. Bulk
of Ghee is derived from buffalo milk because it is richer in fat that
cow milk. In Parag surplus butter is mutted in steam jacket
kettles. Which are equipped with mechanical stirrers and heatedwith steam till the moisture is removed.
3. Paneer:-
In Parag, Paneer is produced by the traditional method in
which citric acid is added to the boiled milk and the milk
immediately gets adulterated and water is separated and paneer
is obtained. It contains less than 50% frat of more than 60%
moisture.
4. Others :-
Skimmed milk powder, cake and khoya are other products
produced by Parag.
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5. Future Products:-
Some new products like coffee powder, ready to make ice-cream
powder, baby food and other milk drinks are in the testing stages.
PARAGS MILK PRODUCTS:-
Butter available in 20 gm., 100 gm., and 500 gm. packs.
Pure Ghee available Kg.
Paneer - vailable in 100 gm.
Skimmed milk powder - in 500 gm. cartons & 200 & 500 gm.
plastic bottles.
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OBJECTIVE OF THE STUDY
The purpose of this project is to diagnose the information
contained in financial statement as to judge the profitability and
current financial statement .
To estimate the working capital requirement of the firm . just like
a doctor examine his patient by recording his body temperature,
blood pressure , etc . Before making his conclusion regarding the
illness and before giving his treatment ,a financial analyst
analysis the with various tools and technique of analysis beforecommenting upon the financial affairs (positive and negative) &
working capital condition of an enterprise . the analysis and
interpretation of financial statement is essential to bring out the
mystery behind the figures ai financial statement is essential to
bring out the mystery behind the figures in financial statements .
the main objectives of the study are as related to the topic are as
under:
To find out the concept of working capital & cash flow
analysis.
To find out and analyse the group wise composition of
working capital in Parag dairy.
To study the different mechanism maintain proper working
capital in Parag dairy .
Estimation of working capital.
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Evaluating working capital requirement in the manufacturing
firm.
To find various alternatives of working capital .
To analyse the financial position of the Parag Dairy.
Scope and limitation of the
studyWorking capital is considered as central nervous system of firm.
The importance of working capital is reflected in fact that financial
managers spend most of their time in managing current assets
and liabilities. Adequate working needs to be maintained in order
to discharge day to day liabilities and protect the business from
adverse effects in times of calamities and emergencies. It aims at
protecting the power of assets and maximize the return on
investment. In other words , goal of working capital management
is to minimize the cost of working capital while maximising a
firms profits.
Scope
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Determining the total funds required to met the current
operations of the firm(i.e. determining the level pf
current assets ).
To decide the structure of current assets(i.e. the
proportion of long term and short term capital to
finance current assets).
To evolve suitable policies, procedures and reporting
systems for controlling the individual components of
current assets( mainly cash receivables and inventory ).
To determine the various sources of working capital.
To ensure optimum investment in current assets.
To strike balance between the twin objectives of
liquidity and profitability in the use of funds.
To ensure adequate flow of funds for of funds for
current operations.
To speed up the flow of funds or to minimize the
stagnation funds.
Limitation of study
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Unnecessary accumulation of inventories which
leads to mishandling of inventories, waste theft
and loses in increase..
Excessive of working capital is indication of
defective credit policy and slack in collection
period. These leads to higher bad debt losses that
reduce profits.
It makes management complacent which
degenerates in to managerial inefficiency.
Inadequate working capital stagnates growth.
It becomes difficult to implement operating plans
and achieve the firms target profits.
It leads to inefficient utilization of fixed assets.
Management of working
capital
1.INVENTORY
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It is time to review our inventory level and ensure
reduction as number of days of turnover. Sincere effort
should be made for liquidation of non / slow moving
inventory.
The inventory against AMAS need to be received &
reduced.
2.BOOK DEBTS
Units and business sector should continued with their
vigorous efforts to achieve minimum level of 180 days to
turn over at the company level.
The areas to be forced apart from the collectable
outstanding from the current bills are dues against
differed debts , bills under verification , turn over
recognized but not billed due to various reasons etc.
This dispatches, which only add to turn over , withoutimmediate billing and corresponding cash collections are
to be reviewed thoroughly and the billing schedule with
the customer may be reviewed for changes. The practices
of dispatching material which could not be billed
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immediately is not be encouraged head of the unit shall
personally reviewed goods dispatched but pending billing
for more than three on regular basis. A focused
presentation on this has to be made to the budget team
units must strive hard to control the increase in differed
debts and also old and held outstanding.
3.CONTRACT CLOSING ISSUES
Miner supply from units to settle outstanding commercial
disputes in respect of project completed in the part of
contract were of contract and realisation of large overdue
outstanding an amount of Rs. 3.6 cr. Is outstanding
against final payment which could be realised by the
solving to the contract closing issues. This will also enable
to withdraw huge amount of provision created for
contractual obligation. Units shall make focused
presentation on their action plan to the budget team.
4.CASH FLOWS
Units should ensure positive net flows through the year.
Allocation of funds to units with negative balance at any
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point of time will be done only with my approval. The units
also generate free cash flow from their operations. The
free cash flow for R.E- 2006 B.E-2007-08 should be
presented to directors.
5.CAPITAL EMPLOYED
In 2007-08, the capital employed has increased to Rs.
451,51 cr. From Rs. 447,49 cr. In 2006-07. Increase in
capital employed due to the recent investment in
modernization scheme should also give the return
commitment in the project report.
Better working capital management will help
us to reduce the capital employed.
6.DIVERSTMENT OF UNPROFITABLE PRODUCT
LINE
As part of budget exercise the unit shall have a retailed
review of the market share in the constitution with
business sectors and develop strategies.
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COST OF PRODUCTION
[1]- Cost of buying milk from cooperative or other sources.
[2]- Logistic cost of manufacturing units.
[3]- Cost of transportation to carry the milk to manufacturing unit.
[4]- Processing cost-
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[a]- Depreciation.
[b]- Labour cost.
[c]- Electricity/ water.
[d]- Maintenance cost.
[e]- Managerial cost.
[f]- Infrastructural cost.
[5]- Storage cost.
[6]- Transportation cost .
[7]- Variable cost-
[a]- Additives.
[b]- Power & feul.
[c]- Raw material.
[d]- conversion changes.
[e]- distribution changes.
[f]- cash handling changes.
[g]- C & C inward
[8]- FIXED COST
(a)- Factory and general administrative cost .
(b)- Employees cost.
(c)-Consumables.
(d) Repair and maintenances.
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(e) Telephones.
(f) Rent, rates & taxes.
(g) Insurances
(h) Professional fees
(i) Apportionment of QC cost
(j) Apportionment of administrative cost
(k) General expenses.
PRODUCTION PLANNING AND
IMPLEMENTATION
While any dairy project is implemented we look forward in the
following pattern for its project implementation.
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Various steps of project implementation are:-
1. Investment Opportunities:- Project planning; Financial
Analysis; Project Cost Estimates; Product Yields.
2. Plan for Product Manufacturing:- Technological Aspects;
Mass Balance Process Flow Diagrams; Engineering Aspects
with Building Plan Layout and Equipment List; Liquid milk
Handling products.
3. Development of Plant Layout:- Production Block; Building
Plan; Special Features; Hygiene Features; Factory Location;
Brief Specifications of Key Equipment.
4. Cleaning and Sanitation:- Cleaning Cycle; CIP; Time and
Temperature schedule; Chemical Sanitizers with the growing
consumer awareness towards health and nutrition,
appropriate packing and nutritional labeling have become
important.
This trend has been further accelerated by the changing
dietary habits and lifestyle of the ever-increasing number of
nuclear families.
They are demanding convenient, easy to cook, ready to eat
foodstuffs in appropriate that retains freshness, flavor andtaste, preserves nutrition and has a long shelf life.
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This is borne out by marked increase in expenditure on meals
away from home as well as on packaged foods, purchased
during regular grocery shopping.
5. Packaging:- While packaging any of the dairy product we
take care of the following things:
Packaging Materials:- Tin Containers, Aluminium
foil/Containers, Paper Carton Boards, Glass, Corrugated
Board, Plastic Materials specifications.
Packaging Techniques:- Vacuum Packaging, modified
atmosphere packaging, oxygen absorbers/scavengers,
poly clip system, aseptic packaging, computer-aided
designing, edible packaging, disposal of packages,
recycling, recommended packaging and storage.
Packaging Machines:- Tin can filling machine, seaming
machine, form-fill seal(FFS) machine, cup thermo-fill and
sealing machine, pre-formed cup filling, sealing and
cartoning machine, multi-fill machine, vacuum and gas
machine, shrink wrapping machine.
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FINANCIAL ASPECTS IN RUNNING OFMILK PLANT
To meet the growing demand of milk in pouches, it was envisaged
to set up in house poly pack capacity of 6 lack liters at dairy in the
adjoining plot of dairy.
However initially on experimental basis in the existing premises
poly pack operation of 50,000L/day was made operational using
existing available services with minimum investment.
The packing capacity was further expanded to 1 lack liters.
However by further adding 2 no packing machines the total
packing facility from existing premises has been increased to 1.5
lack liters per day.
Looking into space constraint further expansion in the existing
premise is not possible.
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Mean while sale of milk in pouches is increasing day by day and
average growth per year is more than 15%. There is no surplus
packing capacity available with existing co-packers.
In view of the above to take care of the next five years
requirement of additional milk in pouches, vendor development
group has recommended setting up of 6 lack liters per day of milk
packaging facility in the adjoining plot and also increasing
existing milk processing facility from 6 LLPD to 10 LLPD at dairy.
It is also necessary to have some percentage of own packing
facility from strategic point of view.
OBJECTIVE:-
1. The facility can be setup at dairy in minimum time due to
availability of required land.
2. The main input for setting up many dairy is availability of
good quality fresh water. The water quality and quantity of
underground tube wells at dairy is very good due to near the
river Gomti.
3. It is necessary to create a production facility to meet the
market demand to keep edge over the competitors in the
field.
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4. To set up and run the facility at dairy will be very cost
effective due to availability of infrastructure at dairy, which
can be in actually shared, based on need.
5. The proposed packing plant will be a role model for other co-
packers to adopt in their plants from layout of plant to
delivering final milk quality in pouches and dispatch.
Capital budgeting
techniques
1-Payback period
YEAR CASH FLOW2007 -139000002008 1279092009 358333.5
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2010 5583012011 5583012012 5493012013 549301
2014 5493012015 5493012016 549301
PBP= YEAR BEFORE RECOVERY + UNCOVERED
COST AT START OF YEAR/ CASH FLOW DURINGYEAR
= 3 + 2128445/5583010
= 3.381 Yr.
Note:
(a). Payback period is the period of time required for thecumulative expected cash flow from an investment project to
equal the initial cash flow.
(b). If the payback period calculated is less than sum maximumexpectable payback period, the proposal is expected, if not, it is
rejected .
(c).The required payback period were 3 year , our project would
be accepted.
2- Discounted Payback Period
K = Interest Rate 12.75% according to SBI.
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( 1+ K)n = 1.12 n = 10
Discount net cash flow = FV ( PVIFi, n) - ICO
YEARS(n)
1- 1279090*.88 1131994.65
2- 35333350*.72 805751.30
3- 5583010*.69 3869025.93
4- 5583010*.54 3031574.43
5- 5583010*. 61 3422385.13
6- 5493010*. 48 2636644.80
7- 5493010*. 42 2334529.25
8- 5493010*. 37 2065371.76
9- 5484005*. 33 1826173.66
10- 5484005*.29 2627782.47
3 + 2270842.99/3031574.13 = 3.7496
Note :
The discounted payback period which is similar to regular
payback excepted cash flow are discounted by the project
cost of capital.
3. Net Present Value
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CF1/(1+K)1 + CF2/(1+K)2 + ________+ CFn/(1+K)n-
ICO = K = 12.75
YEARS(n)
1- 1279090*.88 1131994.65
2- 35333350*.72 805751.30
3- 5583010*.69 3869025.93
4- 5583010*.54 3031574.43
5- 5583010*. 61 3422385.13
6- 5493010*. 48 2636644.80
7- 5493010*. 42 2334529.25
8- 5493010*. 37 2065371.76
9- 5484005*. 33 1826173.66
10- 5484005*.29 2627782.47
3 + 2270842.99/3031574.13 = 3.7496
TOTAL 24741232.38
MINUS (ICO) - 13900000.00
NET TOTAL 10840232.38
3 + 2270842.99/3031574.13 = 3.7496
NOTE:
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(a) The present value is the value of an investment
projects net cash flow minus the project initial cash outflow.
(b) If an investment project NPV is zero or more the
project is accepted, if not it is rejected.
RESEARCH METHODOLOGY
Research is an endeavour to discover answers to intellectual
and practical problems through the application of scientific
method.
Research is a systematized effort to gain new knowledge.
-Redman and Mory.
Research is the systematic process of collecting and
analyzing information (data) in order to increase our
understanding of the phenomenon about which we are
concerned or interested.
OBJECTIVES OF RESEARCH METHODOLOGY
The purpose of research is to discover answers through the
application of scientific procedures.
The objectives are:
To gain familiarity with a phenomenon or to achieve new
insights into it Exploratory or Formulative Research.
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To portray accurately the characteristics of a particular
individual, situation or a group Descriptive Research.
To determine the frequency with which something occurs or
with which it is associated with something else Diagnostic
Research.
To test a hypothesis of a causal relationship between
variables Hypothesis-Testing Research.
CHARACTERISTICS OF RESEARCH
Research is directed towards the solution of a problem.
Research is based upon observable experience or empirical
evidence.
Research demands accurate observation and description.
Research involves gathering new data from primary sources
or using existing data for a new purpose.
Research activities are characterized by carefully designed
procedures.
Research requires expertise i.e., skill necessary to carryout
investigation, search the related literature and to understand
and analyze the data gathered.
Research is objective and logical applying every possible
test to validate the data collected and conclusions reached.
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Research involves the quest for answers to unsolved
problems.
Research requires courage.
Research is characterized by patient and unhurried activity.
Research is carefully recorded and reported.
METHODOLOGY;
The following information about the PPM plant installation:-
1- Maximum plant capacity = 6,00,000L/Day
2- Actual production of plant = 1,00,000L/Day (1yrs)
3,00,000L/Day (2yrs)
4,00,000L/Day (3yrs)
6,00,000L/Day (4yrs)
3- Working days = 365 days
4- Total projected investment = 800 lacs
INITIAL INVESTMENT:-
1yrs- civil investment = 225 lacs
Building investment = 255 lacs
2yrs- civil investment = 100 lacs
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Building investment = 80 lacs
Civil investment = 80 lacs
Building investment = 60 lacs
Depreciation building = 15%
Civil = 10%
Cost of capital = 8.5%
MRP = 18.5 avg Rs P/L
Trade margin = 1%
VARIABLE COST:-
Raw material = 16 Rs/L
Wages = .80paisa/L
General expenses = 1 Rs/L
Fixed Cost = 100 Lacs
RETURN ON INVESTMENT:-
= EBIT (1-T)/TOTAL ASSETS
Years return on investment
1yrs -.09
2yrs .20
3yrs .55
4yrs 1.412
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5yrs 1.438
NOTE:-
1. Return On Investment is negative in first year by -.09.
2. Return On Investment become positive in 2nd and 3rd year
and reaches to .55.
3. In fourth year, company has attain full capacity of
production, due to which Return On Investment has shut up
to 1.412 ( which is near about thrice the before amount ) and
reached to 1.438 in fifth year.
DEBT SERVICE COVERAGE RATIO:-
= total cost + interest + depreciation/ interest + loan repayment/
(1-T)
Years Debt Service Coverage Ratio
1yrs 60.32
2yrs 130.98
3yrs 152.88
4yrs 300.45
5yrs 316.66
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Note :-
1. Debt Service Coverage Ratio is 60.32 in first year and
reaches to 130.98 in second year and third year.
2. It has just increases 5 fold in fourth year that is 500%.
3. This calculation shows that company can easily meet the
uncertain dept repayment requirement in the following
years.
BREAK EVEN POINT:-
B.E.P. is the intersection point of the variable cost and revenue
earned.
But in this installation case. There is profit earned from 1 yrs itself
and hence we are able to cover.
VARIABLE COST + FIXED COST + PROFIT MARGIN
We can say that BEP = variable cost
The variable cost of various years is:-
YEARS VARIABLES COST
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1yrs 64, 97, 00,000
2yrs 1,94,91,00,000
3yrs 2,59,88,00,000
4yrs 38, 98, 20,000
5yrs 38, 98, 20,000
NET PRESENT VALUE:-
= cash inflow (PVIF n, I) cash outflow
=4,80,00,000 1,80,00,000 (PVIF 1, 0.9) 1,40,00,000 (PVIF 2,
0.09) + 6,69,85,50,00 (PVIF 1, 0.09) + 26,22,15,70,63 (PVIF 3,
0.09) + 39,24,32,02,278(PVIF 4, 0.09) + 39,22,72,60,99(PVIF 5,
0.09) = 95,44,22,7875.
Note:-
1. The present value is the present value of an investment
projects net cash flow minus the project initial cash out flow.
2. If an investment project NPV is zero or more the project is
accepted, if not it is rejected.
PAY BACK PERIOD:-
Our revenue of first year is 66,83,15,000/- and our 1yrs profit is
66,35,15,000/- so are initial investment will be recovered in 1
year.
Pay Back Period
Years 2007, 2008, 2009, 2010, 2011
( PBP = Year before full recovery+ uncovered cost at start of
year/cash flow during year)
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= 0+ 61,55,15,000/66,35,15,000
=0.93 yr=1 year
Note :-
1. Pay back period is the period required for the cumulative
expected cash flow from an investment project to equal the
initial cash flow.
2. If the payback calculated is less than sum maximum
expectable payback period, the proposal is expected, if not,
it is rejected if.
3. The required payback period were 1 year, our project would
be accepted.
PROFITABILITY INDEX:-
=PV of Cash Inflows/ Initial Cash Outlay
=PV (Ct)/Co
=sigma Ct/(1+K) t/Co
Note:-
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1. Profitability index is the ratio of the present value of the
projects future net cash flow to the projects initial cash out
flow.
2. As long as PI is 1 or greater, the investment proposal isexpectable because our profitability index is greater than
one implies that our project PV is greater that its initial cash
outflow, which in turn implies that NPV is greater than zero.
SWOT ANALYSIS OF PARAG DAIRY
STRENGTH
The major strength of the traditional dairy product sector is the
mass appeal enjoyed by the wide variety of products. The market
for these products far exceeds that for western dairy products like
milk powder, table butter and cheese. Their operating margins
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are also much higher than the western dairy products. The
increasing demand for these products presents a great
opportunity for the organization.
WEAKNESS
The major weakness of this sector is the practice of inadequate
hygiene in the preparation and handling of these products and
their relatively short shelf life. The preparation and marketing of
these products is generally done by halwais and that limits
development in the sector.
OPPURTUNITY
The expanding business prospects provided by these products
and their accompanying value addition, call for a thorough study
of this sector. It would facilitate an increase in the production and
marketing of hygienically prepared and products to the demand
of a growing population as has been demonstrated at the NDDBsSugam dairy.
FINDINGS AND CONCLUSION
There is a need to maintain a balance working capital for
maximization profits or minimization of working capital cost
or to maintain balance between liquidity and profitability in
PARAG DAIRY.
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The dangerous excessive working capital of PARAG are
unnecessary accumulation of inventories, indication of
defective credit policy and stack collection period,
degeneration in to managerial inefficiency and speculative
profit grow.
The danger of inadequate working capital are- stagnated
growth, difficult to implement operating plans, difficult even
to meet day to day commitments, inefficient utilization of
fixed assets.
Working capital management goal is maintain a satisfactory
level of working capital.
Gross working capital concept of PARAG DAIRY focuses
attention on the two aspects of current assets management.
These two are- Optimum investment on current assets and
financing of current assets.
The operating cycle concept pattern to the heart of working
capital management in PARAG in a more dynamic form. The
time that elapses to convert raw materials into cash is
known as operating cycle.
Working capital requirement in PARAG DAIRY is determinedby a wide variety of factors, they are- size of business,
production cycle of process, production policy, credit policy,
availability of credit, close co-ordination between production
policy, credit policy of RBI and so on.
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