On RATIO ANALYSIS in the Hisar Jind Co Operative Milk Producers Union Ltd VITA MILK

SUMMER TRAINING REPORT

ON RATIO ANALYSIS IN

The Hisar- jind Co-operative Milk Producer’s Union

Ltd.

MILK PLANT JIND

SUBMITTED IN PARTIAL FULFILLMENT FOR THE AWARD OF

MASTERS DEGREE IN BUSINESS ADMINISTRATION

SESSION 2010-2012

UNDER THE GUIDENCE OF: SUBMITTED BY: MR. ARUN GUPTA RAJENDER(ASSISTANT MANAGER) MBA 2010- 12 HISAR MILK PLANT JIND. ROLLNO.95

UNIVERSITY SCHOOL OF MANAGEMENT

KURUKSHETRA

DECLARATION

I Rajender studying in University School Of Management do hereby declare that this project

titled “Ratio Analysis of The Hisar-Jind Co-operative Milk Producer’s Union Ltd. Milk

Plant,Hisar-Jind has been prepared by me, under the guidance of Mr. ARUN GUPTA,

Assistant Manager (Accounts), VITA.

I further declare that this project report has not been submitted earlier to any other University or

Institute for the award of any degree or diploma.

Rajender

ACKNOWLEDGEMENT

The satisfaction and euphoria that accompany the successful completion of any task would be

incomplete without mentioning the people who made it possible, whose consistent guidance and

encouragement crowned the efforts with success.

To begin with I am thankful to The Hisar-jind Co-operative Milk Producer’s Union Ltd.

Milk Plant jind for giving me an opportunity to do my summer training in the organization.

This report is by far the most significant accomplishment in my post graduation and life, it would

be impossible without people who supported and believe in me.

I have immense pleasure in expressing my sincere sense of gratitude to a Mr Arun gupta

(Assistant Manager) for their excellent guidance, constructive criticism and above all constant

encouragement and inspiration which led to successful completion of this project.

RAJENDER

USM KUK

PREFACE

Practical training provides a golden opportunity to implement studied rules and regulation. In the

absence of Practical knowledge, theoretical knowledge is incomplete. This indented for the

experience gained by me during Summer Training in The Hisar-jindCo-operative Milk

Producer’s Union Ltd. Milk Plant Hisar-jind

As per the curriculum requirement, I did 7 weeks training in The Hisar-jind Co-operative Milk

Producer’s Union Ltd. Milk Plant jind Working in such a big concern, no matter for a very

small period was really a matter of pride. My area of work in that concern was confined to

Account section and moreover it was not possible for me to cover all the areas of Account

section in such a short period of time so I concentrated my working on the project assigned to me

i.e. RATIO ANALYSIS. So the learning during the training in The Hisar-jind Co-operative

Milk Producer’s Union Ltd. Milk Plant jind. a report of that is being presented in the following

pages.

I have also gained confidence to interact with different persons working at reputed posts in the

organization. I have also learned how to work efficiently in a stressful environment. During the

summer training, in preparing the project report, I have tried my level best effort to make it

reliable, compact and accurate.

Rajender

INDEX

CONTENTS PAGE NO

• CHAPTER 1- INTRODUCTION 1-28

• Company Profile 2-13

• Introduction to Topic 14-28

• Ratio Analysis

• CHAPTER 2- RESEARCH METHODOLOGY 29-33

• Problem Statement 30

• Objectives of the Study 31

• Database 32

• Limitation of the Study 33

• CHAPTER 3- INTERPRETATION & ANALYSIS 34-55

• Data Analysis

• Liquidity Ratio 35-38

• Leverage Ratio 38-44

• Activity Ratio 45-50

• Profitability Ratio 50-55

• CHAPTER 4- RESULTS & CONCLUSION 56-59

• Findings 57

• Suggestions 58

• Conclusion 59

• CHAPTER 5- ANNEXURES 60-64

• Balance Sheet 61

• Profit & loss A/c 62-63

• Bibliography 64

CHAPTER -1INTRODUCTION

COMPANY PROFILE

DESAN MEIN DES HARYANA JIT DUDH DAHI KA KHANA……

Haryana is the region where milk is an important constituent of the daily fare. The Haryana state

came into existence on the 1st day of November 1966 as a separate state of union of India. Earlier

to this day, the state was a part of combined Punjab state. For the development of dairy activities,

the state govt. formed a corporation in the public sector under the name and style of

“HARYANA DAIRY DEVLOPMENT CORPORATION LTD” (HDDC) with its registered

office at Chandigarh. HDDC provided the marketing facilities to the milk producers for their

surplus quantity of milk products, the HDDC set up its first milk plant in the heart of the state in

the city of JIND with an installed capacity of 50000 liters per day. The JIND plant came into

existence in the year 1969 and the infrastructure enabled the milk plant to process the milk and

manufacture GHEE, BUTTER and POWDER under the brand name of VITA.

It was the time when the success of ANAND PATTERN co-operative milk producer’s societies

was on everyone’s mind. NATIONAL DAIRY DEVELOPMENT BOARD (NDDB), ANAND

AND INDIAN DAIRY CORPOTATION (a govt. of India venture) decided to replicate the

ANAND PATTERN for the purpose. It is primarily a three-tier system i.e. state level ‘CO-

OPERATIVE FEDERTION’, district level ‘MILK UNIONS’ and village level ‘MILK

SOCIETIES’. All these work on the co-operative system.

• Organization of village level milk societies on ANAND PATTERN.

• Purchase of milk testing equipment, stationery and balanced cattle feed etc. from the

manufacturers in bulk and supply the same to the societies.

• Supervise the working of the societies through its staff.

The union was paid a fixed amount of commission on the quantity of milk so collected by the co-

operative societies by the corporation to meet its expenses.

To replicate further the ANAND PATTERN in the state of Haryana, a state federation was

formed under the name and style of “Haryana Dairy Development Co-operative Federation Ltd.”

w.e.f. 1.4.1977 and all the milk plants, setup by the corporation, along with the staff were

transferred to the federation on lease basis. Even after the formation of state level federation,

responsibilities and activities of the milk unions remained the same as before at the district level.

In the year 1982, the federation decided to transfer its “P and I” activities along with the staff to

the ten district milk unions existing at the time, in view of the demand for implementation of

ANAND PATTERN in the state in true spirit. But the powers of deciding the policies in regards

to milk procurement i.e. milk procurement rates to be given to the societies, rate of commission

to the union to meet its expenses and milk processing facilities remained with the federation.

Initially the federation was declaring milk procurement rates based on the realization of the value

of milk products minus the federation expenses. Milk producers did not consider the rates

declared by the federation very remunerative and thus milk procurement remained much below

the installed capacity of the plants all the time. Due to lower milk procurement and less rate of

commission to the unions, the unions went into heavy losses. Since the procurement was very

less as compared to the capacity utilization, the federation also went into the red. There had been

heavy losses in the organization at all the levels and in-discipline amongst the staff also grew.

To overcome this situation and to bring the organization out of red, the then management of the

federation took some hard steps. These included taking disciplinary action against the erring

employees, amalgamation of nearby unions into a single union (to reduce overheads by pooling

of available sources) and combining of efforts so that the organization could be taken out of red.

The main change in the federation policy was to change the milk procurement policy. This was

now linked to the market rates of procurement of milk rather than the previous policy of

realization value of milk products.

Under this decision, following five milk unions were formed in the year 1991:

• The Ambala district co-operative milk producer’s union ltd.

• The karnal & Kurukshetra co-operative milk producer’s union ltd.

• The Hissar and Jind co-operative milk producer’s union ltd.

• The Gurgaon and Rohtak co-operative milk producer’s union ltd.

• The Sirsa district co-operative milk producer’s union ltd.

The average milk procurement for 1998-99 was at 45109 LPD at jind. However, the daily hand

and jind 110450 LPD respectively. The union has reached a turnover of Rs. 180 crores.

Besides custom packing of fluid milk in poly packs for Mother Dairy, Delhi, the union is also

manufacturing milk and products like butter, ghee and paneer under the HDDCF brand name of

“VITA” for which the union has a well trained, experienced and committed work force.

Close interaction with Mother Dairy, Delhi has opened the gateway to modern management

ideas for the workforce, which wants to implement international quality and food safety systems

in the milk plants. Milk plant hisar-jind had gone in for modernization and certification under

ISO-9002 Quality Management System and IS-15000 Food Safety System (HACCP) in August

1999.

A turn around had been achieved and the future is promising with an investment of Rs. 1.46

crores, generated internally by the milk plant, during 1998-99 for up gradation and automation of

the plant. During the year 1999-2000 too modernization projects costing Rs. 56 lakhs were

implemented.

The number of villages of jind district supply milk too the hisar-jind milk plant.such as

UCHANA,KHATKAR,JULANA,SHAPAR,KANDELA,NAGURA,NARNAUND,KALTA.IGR

A,KAIR KHERI,and many others.

COMPANY LOGO

NATIONAL DAIRY DEVELOPMENT BOARD (NDDB)

The National Dairy Development Board (NDDB) was founded to replace exploitation with

empowerment, tradition with modernity, stagnation with growth and transforming dairying into

an instrument for the development of India farmers.

The National Dairy Development Board was created in 1965 in response to the Prime Minister

Lal Bahadur Shastri’s call to “transplant the spirit of ANAND in many other places”. He

wanted the ANAND MODEL of dairy development – with institutions owned by rural

producers, which were sensitive to their needs and responsive to their demands – replicated in

other parts of the country.

The Board’s creation was routed in the conviction that our nation’s socio-economic progress lies

largely on the development of rural India.

Thus NDDB’s mandate is to promote, finance and support producer-owned and controlled

organizations. NDDB’s programmers and activities seek to strengthen farmer co-operatives and

support national policies that are favorable to the growth of such institutions.

With a mission to make dairying a vehicle for a better future for millions of grassroots milk

producers in rural India, the NDDB launched “Operation Flood”, the world’s largest dairy

development programmer, in 1970. It made India the world’s largest milk producing nation and

within three decades, “Operation Flood” led to the creation of more than 100000 village level

diary co-operatives nationwide. These co-operatives procured an average of 25.09 million kg of

milk per day and marketed an average of 20.04 million liters of milk per day in the year 2008-09.

NDDB has embarked upon a national campaign to create an umbrella brand identity for

associated co-operative milk brand. This is based on quality guidelines, standardized

presentation and packaging. The Operation Flood Logo – ‘Milk Drop’ has been adopted as the

symbol for fresh and pure milk. To enhance visibility, milk pouch designs have been

standardized through an established colour code to distinguish different types of milk.

The ‘Milk Drop’ is used on milk sachets, retail signs and distribution vehicles to promote a better

recall for all co-operative brands in the marketplace. As a prelude to the campaign, NDDB

worked out strict quality guidelines that a participating brand must conform before it qualifies for

the campaign. These guidelines relate to improving quality at various levels.

At present 16 brands across 15 states and one union territory are participating in the

campaign.

HARYANA DAIRY DEVELOPMENT CO-OPERATIVE FEDERATION

HARYANA is one of the most progressive states of Republic of India. In the domain of dairy

development it is well known for its productive milk cattle particularly the ‘Murrah’ Buffaloes

and Haryana Cows. The economy of the state is predominantly based on agriculture. People rear

and breed cattle subsidiary occupation. Milk production in the state was estimated around 147

lakhs liters per day during 2006-07.

The essence of various programmes launched in the State has been to adopt the ANAND

PATTERN of Milk Co-operatives. Under this system, all the functions of dairying like milk

procurement, processing and marketing are controlled by the Milk producers themselves. It has

three tier system comprising milk Producers Societies at the village level, Milk Producers Co-

operative Union at the district level and the state Milk Federation as an apex body at the state

level.

The Haryana Dairy Development Co-operative Federation Ltd. registered under Haryana

Co-operative Societies Act came into existence on April 1, 1977. Its authorized share capital is

Rs.4000 lakhs. It was established with the primary aim to promote economic interests of the milk

producers of Haryana particularly those belonging to weaker sections of the village community

by procuring and processing milk into milk products and marketing thereof by itself or through

its unions. In furtherance of the above objects, the Federation undertakes a number of activities

such as establishment of milk plants, marketing of VITA BRAND milk products of the Milk

Unions. Its turnover during is Rs.768.00 crores. It also extends technical guidance to the Unions

in all spheres of personnel, technical, marketing and financial management as well as makes

them quality conscious, through use of modern methods of laboratory testing of various

products.

Quality –VITA the Hallmark of Quality

As part of stringent quality measures, milk required for processing VITA products is procured

from Dairy Co-operative Societies only. It is ensured that the milk is transported to chilling

canters and plants in clean and sterilized milk cans as quickly as possible. All quality measures

as per Standard of Bureau of Indian Standards/ Agmark are being applied before the products are

marketed. Well-equipped laboratories are functioning in the chilling centers and milk plants to

maintain ideal quality standards. VITA is the endorsement of quality, a commendation we are

Proud of. Milk Plant Rohtak, Ballabgarh, Ambala and Jind have obtained ISO-9002 and

IS-15000 certificates. Remaining Plants would also obtain ISO-9002 shortly. Each Plant has

taken steps for implementing Hazard Analysis and Critical Control Points (HACCP).

DISTRICT MILK PRODUCER’S CO-OPERATIVE UNIONS

The Primary Milk Societies (PMS) functioning at the village level join to form a Milk Union for

carrying out such activities which are conducive and essential for the socio-economic

development of milk producers, by procuring and processing of milk and marketing of milk

products. The Board of Directors comprising 8 members elected out of the Chairmen of affiliated

Primary Milk Societies run the day-to-day administration through Chief Executive officer.

These Unions either process milk at their own level or pass the same to the milk plants of other

milk unions for processing. They also organize new Primary Milk Societies at the village level.

A brief matrix of the Milk Unions is as follows:

MILK UNIONS IN HARYANA

Sr. No. Name of the Union Date of Regis.

1 The Ambala District Co-operative Milk Producer’s Union Ltd., Ambala 10.03.1973

2 The Rohtak District Co-operative Milk Producer’s Union Ltd., Rohtak 01.04.2003

3 The Hisar-Jind Co-operative Milk Producer’s Union Ltd., Jind 10.07.1991

4 The Kurukshetra-Karnal Co-operative Milk Producer’s Union Ltd., Kurukshetra 05.07.1991

5 The Sirsa District Co-operative Milk Producer’s Union Ltd., Sirsa 10.01.1978

6 The Ballabgarh Co-operative Milk Producer’s Union Ltd., Ballabgarh 01.04.2003

There are five milk plants operating in the Co-operative Sector in Haryana. These are located at

Ambala, Jind, Rohtak, Sirsa and Ballabgarh having a handling capacity of 470000 liters per day.

PRIMARY MILK SOCIETY

The Primary Milk Society is the foundation of the Co-operative structure. The efficiency of the

movement solely lies in the strength of these Societies. Primary Milk Societies are organized at

the rate of one society per village. The purpose of such a society is to promote the economic

interests of its members by improving quality, and increasing quantity of milk production per

buffalo or cow and to provide necessary guidance and assistance to its members and supply milk

to Milk Unions. These societies also supply cattle feed etc. to their members with a view to

enhancing milk production. The Managing Committee of the Society comprises members elected

by those members who are eligible to participate and vote in the General Body Meeting.

GROWTH AT A GLANCE

Functional

Societies

(Avg)

Year2000-

01

2001-

02

2002-

03

2003-

04

2004-

05

2005-

06

2006-

07

2007-

08

2008-

09

Nos. 2710 2885 3166 3350 3906 4127 5028 5980 6167

Status of Milk Booths under Union

As On 31.10.2010

Sr. No. Name of the Union No. of Booths

1 The Ambala District Co-operative Milk Producer’s Union Ltd., Ambala 85

2 The Rohtak District Co-operative Milk Producer’s Union Ltd., Rohtak 61

3 The Hisar-Jind Co-operative Milk Producer’s Union Ltd., Jind 80

4 The Kurukshetra-Karnal Co-operative Milk Producer’s Union Ltd., Kurukshetra 26

5 The Sirsa District Co-operative Milk Producer’s Union Ltd., Sirsa 17

6 The Ballabgarh Co-operative Milk Producer’s Union Ltd., Ballabgarh 99

MANGO DRINK

SWEETENED FLAVOURED

DOUBLE TONED MILK

NAMKEEN LASSI

MITHI LASSI

TABLE BUTTER GHEE (AGMARK)

DAHI

JAL JEERA

http://www.vitaindia.com/xbutter.html

http://www.vitaindia.com/xghee.html

MILK

PANEER

COW MILK GHEE

KHEER

http://www.vitaindia.com/xpanner.html

MILK CAKE KAJU PINNI

VITA PRODUCTS PRICE

HARYANA DAIRY DEVELOPMENT COOPERATIVE FEDRATION LTD.

RATES LIST OF VITA MILK AND MILK PRODUCTS AS ON 1.4.10

Sr. No. Product Packing Rate w.e.f. Price

GHEE (Haryana / CHD / Delhi / HP)

1 Ghee rates 1 Ltr. MP 12-2-11 282.00

2 Ghee rates 1 Ltr. PP 12-2-11 280.00

3 Ghee rates 1 Ltr. Tin 12-2-11 286.00




7 Cow Milk Ghee rates (Sirsa) 1 Ltr. MP 12-2-11 292.00

8 Cow Milk Ghee rates (Sirsa) 15 Ltr. Tin 21-4-11 4346.00

TABLE BUTTER (Haryana / CHD / Delhi)

9 Table Butter 100 gm 21-4-11 24.00

10 Table Butter 500 gm 21-4-11 117.00

11 Table Butter (Un Cartuoned) 15 Kg 21-4-11 3405.00

LIQUID MILK

12 Liquid Milk (500 ml) Full Cream 1-8-11 19.00

13 Liquid Milk (500 ml) Standard 11-4-11 16.00

14 Liquid Milk (500 ml) Tonned 11-4-11 13.50

15 Liquid Milk (500 ml)Double Tonned

11-4-11 12.00

SWEETS

16Milk Cake (Milk Plant

Ambala)200 gm 14-8-11 39.00


Ambala)450 gm 14-8-11 89.00


Ambala)900 gm 14-8-11 174.00

19 Kheer (Milk Plant Ambala) 200 gm 1-6-11 15.00

20 Kaju Pinni (Milk Plant Sirsa) 900 gm 14-8-11 175.00

21 Kaju Pinni (Milk Plant Sirsa) 450 gm 14-8-11 90.00

22 Pinni (Milk Plant Jind) 900 gm 14-8-11 170.00

DAHI

23 Dahi 200 gm 1-4-11 14.00

24 Dahi 400 gm 1-4-11 24.00

DRINKING DELIGHTS

26Sweetened Flavored Milk

Butter Scotch Flavor200 ml Bottle 1-4-11 18.00

27Sweetened Flavored llaichi

Flavor200 ml Bottle 1-4-11 18.00

28 Plain Lassi 1 Litre pouch 7-5-11 20.00

29 Salted Lassi 250 ml pouch 21-6-11 9.00

30 Mithi Lassi 200 ml cup 1-4-11 15.00

31 Jal Jeera (Jind) 200 ml pouch 1-4-11 6.00

32 Plain Chhachh (BLB) 500 ml pouch 1-4-11 7.00

33 Mango Drink 500 ml 1-5-11 22.00

34 Mango Drink 1000 ml 1-5-11 38.00

ICE CREAM

35 Kulfi (Pista) 60 ml 15-6-11 15.00

36 Choco Bar 60 ml 2-7-11 13.00

37 Vanila Cup 100 ml 23-4-11 12.00

38 Butter Scotch Cup 100 ml 23-4-10 15.00

39 Kaju Kishmish Brick 800 ml 23-4-10 54.00

40 Tutti Fruity Brick 800 ml 23-4-10 54.00

41 Butter Scotch Brick 800 ml 23-4-10 52.00

42 Vanila Brick 1000 ml 23-4-10 52.00

43 Strawberry Brick 1000 ml 23-4-10 53.00

Paneer

44 Paneer 200 gm 1-4-11 36.00

45 Paneer 1 kg 1-4-11 165.00

INTRODUCTION TO TOPICRATIO ANALYSISThe term “Ratio” refers to the numerical and quantitative relationship between two items or

variables. This relationship can be exposed as

• Percentages

• Fractions

• Proportion of numbers

Ratio analysis is defined as the systematic use of the ratio to interpret the financial statements. So

that the strengths and weaknesses of a firm, as well as its historical performance and current

financial condition can be determined by ratio analysis, Ratio reflects a quantitative relationship

helps to form a quantitative judgment.

STEPS IN RATIO ANALYSIS

• The first task of the financial analysis is to select the information relevant to the decision

under consideration from the statements and calculates appropriate ratios.

• To compare the calculated ratios with the ratios of the same firm relating to the pas6t or

with the industry ratios. It facilitates in assessing success or failure of the firm.

• Third step is to interpretation, drawing of inferences and report writing conclusions are

drawn after comparison in the shape of report or recommended courses of action.

BASIS OR STANDARDS OF COMPARISON

Ratios are relative figures reflecting the relation between variables. They enable analyst to draw

conclusions regarding financial operations. They use of ratios as a tool of financial analysis

involves the comparison with related facts. This is the basis of ratio analysis. The basis of ratio

analysis is of four types.

• Past ratios, calculated from past financial statements of the firm.

• Competitor’s ratio, of the some most progressive and successful competitor firm at the

same point of time.

• Industry ratio, the industry ratios to which the firm belongs to

• Projected ratios, ratios of the future developed from the projected or pro forma financial

statements.

NATURE OF RATIO ANALYSIS

Ratio analysis is a technique of analysis and interpretation of financial statements. It is the

process of establishing and interpreting various ratios for helping in making certain decisions. It

is only a means of understanding of financial strengths and weaknesses of a firm. There are a

number of ratios which can be calculated from the information given in the financial statements,

but the analyst has to select the appropriate data and calculate only a few appropriate ratios. The

following are the four steps involved in the ratio analysis.

• Selection of relevant data from the financial statements depending upon the objective of

the analysis.

• Calculation of appropriate ratios from the above data.

• Comparison of the calculated ratios with the ratios of the same firm in the past, or the

ratios developed from projected financial statements or the ratios of some other firms or

the comparison with ratios of the industry to which the firm belongs.

INTERPRETATION OF THE RATIOS

The interpretation of ratios is an important factor. The inherent limitations of ratio analysis

should be kept in mind while interpreting them. The impact of factors such as price level

changes, change in accounting policies, window dressing etc., should also be kept in mind when

attempting to interpret ratios. The interpretation of ratios can be made in the following ways.

• Single absolute ratio

• Group of ratios

• Historical comparison

• Projected ratios

• Inter-firm comparison

GUIDELINES OR PRECAUTIONS FOR USE OF RATIOS

The calculation of ratios may not be a difficult task but their use is not easy. Following

guidelines or factors may be kept in mind while interpreting various ratios.

• Accuracy of financial statements

• Objective or purpose of analysis

• Selection of ratios

• Use of standards

• Caliber of the analysis

IMPORTANCE OF RATIO ANALYSIS

• Aid to measure general efficiency

• Aid to measure financial solvency

• Aid in forecasting and planning

• Facilitate decision making

• Aid in corrective action

• Aid in intra-firm comparison

• Act as a good communication

• Evaluation of efficiency

• Effective tool

LIMITATIONS OF RATIO ANALYSIS

• Differences in definitions

• Limitations of accounting records

• Lack of proper standards

• No allowances for price level changes

• Changes in accounting procedures

• Quantitative factors are ignored

• Limited use of single ratio

• Background is over looked

• Limited use

• Personal bias

CLASSIFICATIONS OF RATIOS

The use of ratio analysis is not confined to financial manager only. There are different parties

interested in the ratio analysis for knowing the financial position of a firm for different purposes.

Various accounting ratios can be classified as follows:

• Traditional Classification

• Functional Classification

• Significance ratios

1. Traditional Classification

• Balance sheet (or) position statement ratio: They deal with the relationship between

two balance sheet items, e.g. the ratio of current assets to current liabilities etc., both the

items must, however, pertain to the same balance sheet.

• Profit & loss account (or) revenue statement ratios: These ratios deal with the

relationship between two profit & loss account items, e.g. the ratio of gross profit to sales

etc.,

• Composite (or) inter statement ratios: These ratios exhibit the relation between a profit

& loss account or income statement item and a balance sheet items, e.g. stock turnover

ratio, or the ratio of total assets to sales.

2. Functional Classification

These include liquidity ratios, long term solvency and leverage ratios, activity ratios and

profitability ratios.

3. Significance ratios

Some ratios are important than others and the firm may classify them as primary and secondary

ratios. The primary ratio is one, which is of the prime importance to a concern. The other ratios

that support the primary ratio are called secondary ratios.

IN THE VIEW OF FUNCTIONAL CLASSIFICATION THE RATIOS ARE

• Liquidity ratio

• Leverage ratio

• Activity ratio

• Profitability ratio

1. LIQUIDITY RATIOS

Liquidity refers to the ability of a concern to meet its current obligations as & when there

becomes due. The short term obligations of a firm can be met only when there are sufficient

liquid assets. The short term obligations are met by realizing amounts from current, floating (or)

circulating assets The current assets should either be calculated liquid (or) near liquidity. They

should be convertible into cash for paying obligations of short term nature. The sufficiency (or)

insufficiency of current assets should be assessed by comparing them with short-term current

liabilities. If current assets can pay off current liabilities, then liquidity position will be

satisfactory.

To measure the liquidity of a firm the following ratios can be calculated

• Current ratio

• Quick (or) Acid-test (or) Liquid ratio

• Absolute liquid ratio (or) Cash position ratio

(a) CURRENT RATIO:

Current ratio may be defined as the relationship between current assets and current liabilities.

This ratio also known as Working capital ratio is a measure of general liquidity and is most

widely used to make the analysis of a short-term financial position (or) liquidity of a firm.

Current AssetsCurrent Ratio = Current Liabilities

Components of Current Ratio

CURRENT ASSETS CURRENT LIABILITIES

Cash in hand Outstanding or accrued expenses

Cash at bank Bank over draft

Bills receivable Bills payable

Inventories Short-term advances

Work-in-progress Sundry creditors

Marketable securities Dividend payable

Short-term investments Income-tax payable

Sundry debtors

Prepaid expenses

(b) QUICK RATIO

Quick ratio is a test of liquidity than the current ratio. The term liquidity refers to the ability of a

firm to pay its short-term obligations as & when they become due. Quick ratio may be defined as

the relationship between quick or liquid assets and current liabilities. An asset is said to be liquid

if it is converted into cash within a short period without loss of value.

Quick or Liquid AssetsQuick Ratio = Current Liabilities

Components of Quick or Liquid Ratio

QUICK ASSETS CURRENT LIABILITIES




Sundry debtors Short-term advances

Marketable securities Sundry creditors

Temporary investments Dividend payable

Income tax payable

(c) ABSOLUTE LIQUID RATIO

Although receivable, debtors and bills receivable are generally more liquid than inventories, yet

there may be doubts regarding their realization into cash immediately or in time. Hence, absolute

liquid ratio should also be calculated together with current ratio and quick ratio so as to exclude

even receivables from the current assets and find out the absolute liquid assets.

Absolute Liquid AssetsAbsolute Liquid Ratio = Current Liabilities

Components of Absolute Liquid Ratio

ABSOLUTE LIQUID ASSETS CURRENT LIABILITIES



Interest on Fixed Deposit Bills payable

Short-term advances

Sundry creditors

Dividend payable

Income tax payable

2. LEVERAGE RATIOS

The leverage or solvency ratio refers to the ability of a concern to meet its long term obligations.

Accordingly, long term solvency ratios indicate firm’s ability to meet the fixed interest and costs

and repayment schedules associated with its long term borrowings.

The following ratio serves the purpose of determining the solvency of the concern.

• Debt Equity Ratio

• Debt to total Funds Ratio

• Proprietary Ratio

• Fixed Assets to Proprietor’s Fund Ratio

• Capital Gearing Ratio

• Interest Coverage Ratio

(a) DEBT EQUITY RATIO

Debt-Equity ratio, also known as ‘External – Internal Equity’ ratio is calculated to measure the

relative claims of outsiders and the owners (i.e., shareholders) against the firm’s assets. This ratio

indicates the relationship between the external equities or the outsider funds and the internal

equities or the shareholders’ funds.

Outsiders FundsDebt-Equity Ratio = Shareholder Funds

Components of Debt-Equity Ratio

OUTSIDERS FUND SHAREHOLDERS FUND

Debentures Share capital

Mortgage loan Reserves & Surplus

Bank loan

Loan from financial institutions

Public deposits

(b) DEBT TO TOTAL FUNDS RATIO

The ratio establishes a link between the long term funds raised from outsiders and total long term

funds available in the business.

DebtDebt to Total Funds Ratio = Equity + Debt

Components of Debt to Total Funds Ratio

SHAREHOLDERS FUND TOTAL CAPITALISATION

Share capital Debentures

Reserves & Surplus Mortgage loan

Bank loan

Loan from financial institutions

Public deposits

Share capital

Reserves & Surplus

(c) PROPRIETARY RATIO

A variant to the debt-equity ratio is the proprietary ratio which is also known as equity ratio. This

ratio establishes relationship between shareholders funds to total assets of the firm.

Shareholder FundsProprietary Ratio = Total Assets

Components of Proprietary Ratio

SHAREHOLDERS FUND TOTAL ASSETS

Share capital Fixed assets

Reserves & Surplus Current Assets

Cash in hand & at bank

Bills receivable

Inventories

Marketable securities

Short-term investments

Sundry debtors

Prepaid expenses

(d) FIXED ASSETS TO PROPRIETOR’S FUND RATIO

The ratio establishes the relationship between fixed assets and shareholder’s funds, i.e., share

capital plus reserves, surpluses and retained earnings.

Fixed AssetsFixed Assets to Proprietor’s Ratio = Proprietor’s Funds

Components of Proprietary Ratio

FIXED ASSETS PROPRIETOR’S FUNDS

Machinery Share capital

Buildings Reserves & Surplus

Plant

Vehicles

(e) CAPITAL GEARING RATIO

The term ‘capital gearing’ is used to describe the relationship between equity share capital

including reserves and surpluses to preference share capital and other fixed interest-bearing

loans. If preference share capital and other fixed interest bearing loans exceed the equity share

capital including reserves, the firm is said to be highly geared.

Equity Share Capital + Res. & Sur.Capital Gearing Ratio = Fixed Cost Bearing Capital

Components of Capital Gearing Ratio

EQUITY SHAREHLDER FUND FIXED COST BEARING CAPITAL

Equity share capital Preference capital

Reserves & Surplus Debentures

Long term loans

(f) INTEREST COVERAGE RATIO

Net income to debt service ratio or interest coverage ratio is used to test the debt-servicing

capacity of a firm. The ratio is also known as Fixed Charges Cover or Times Interest Earned.

This ratio is calculated by dividing the net profit before interest and taxes by fixed interest

charges.

Net Profit (before Interest and taxes)Interest Coverage Ratio = Fixed Interest Charges

3. ACTIVITY RATIOS

Funds are invested in various assets in business to make sales and earn profits. The efficiency

with which assets are managed directly affects the volume of sales. Activity ratios measure the

efficiency (or) effectiveness with which a firm manages its resources (or) assets. These ratios are

also called “Turn over ratios” because they indicate the speed with which assets are converted or

turned over into sales.

• Stock Turnover Ratio

• Debtors Turnover Ratio

• Creditors Turnover Ratio

• Working capital turnover ratio

• Fixed assets turnover ratio

(A) STOCK TURNOVER RATIO

Stock turnover ratio is also known as inventory stock ratio is normally calculated as sales/

average inventory or cost of goods sold/ average inventory. It would indicate whether inventory

has been efficiently used or not. The purpose is to see whether only the required minimum funds

have been locked up in inventory. Inventory Turnover Ratio (I.T.R.) indicates the number of

times the stock has been turned over during the period and evaluates the efficiency with which a

firm is able to manage its inventory.

Cost of Goods SoldStock Turnover Ratio =

Average Stock

Cost of Goods Sold = Net Sales – Gross Profit

Opening Stock + Closing StockAverage Stock = 2

(b) DEBTORS TURNOVER RATIO

Debtors’ turnover ratio indicates the velocity of debt collection of firm. In simple words, it

indicates the number of times average debtors are turned over during a year.

Net Credit SalesDebtors Turnover Ratio =

Average Trade Deb.

Trade Deb. = Sundry Deb. + Bill Receivables

Opening Trade Deb. + Closing Trade Deb. Avg. Trade Debtors =

2

(c) CREDITORS TURNOVER RATIO

A supplier of goods, i.e., creditor, is naturally interested in finding out how much time the firm is

likely to take in repaying its trade creditors. The analysis for creditors’ turnover is basically the

same as of debtors’ turnover ratio except that in place of trade debtors, the trade creditors are

taken as one of the components of the ratio and in place of average daily sales, average daily

purchases are taken as the other component of the ratio.

Net Credit PurchasesCreditors Turnover Ratio =

Average Trade Cr.

Trade Creditors = Sundry Cr. + Bill Payable

Opening Trade Cr. + Closing Trade Cr. Avg. Trade Creditors =

2

(d) WORKING CAPITAL TURNOVER RATIO

Working capital of a concern is directly related to sales. It indicates the velocity of the utilization

of net working capital. This indicates the no. of times the working capital is turned over in the

course of a year. A higher ratio indicates efficient utilization of working capital and a lower ratio

indicates inefficient utilization.

Cost of SalesWorking Capital Turnover Ratio =

Working Capital

Working Capital = Current Assets - Current Liabilities

Components of Working Capital

CURRENT ASSETS CURRENT LIABILITIES


Cash at bank Bank overdraft


Inventories Short-term advances

Work-in-progress Sundry creditors

Marketable securities Dividend payable

Short-term investments Income-tax payable

Sundry debtors

Prepaid expenses

(e) FIXED ASSETS TURNOVER RATIO

It is also known as sales to fixed assets ratio. This ratio measures the efficiency and profit

earning capacity of the firm. Higher the ratio, greater is the intensive utilization of fixed assets.

Lower ratio means under-utilization of fixed assets.

Cost of SalesFixed Assets Turnover Ratio =

Net Fixed Assets

Cost of Goods Sold = Net Sales – Gross Profit

Net Fixed Assets = Fixed Assets - Depreciation

4. PROFITABILITY RATIOS

The primary objectives of business undertaking are to earn profits. Because profit is the engine,

that drives the business enterprise. Generally, profitability ratios are calculated either in relation

to sales or in relation to investment. The various profitability ratios are discussed below.

• GENERAL PROFITABILITY RATIO

• Gross Profit Ratio

• Net Profit Ratio

• Operating Ratio

• PROFITABILITY RATIO BASED ON INVESTMENT

• Return on Capital Employed

• Return on Shareholder’s Funds

GENERAL PROFITABILITY RATIO

(a) GROSS PROFIT RATIO

Gross profit ratio measures the relationship of gross profit to net sales and is usually represented

as a percentage. Thus, it is calculated by dividing the gross profit by sales.

Gross ProfitGross Profit Ratio =

Net Sales

Net Sales = Sales – Sales Return

(b) NET PROFIT RATIO

Net profit ratio establishes a relationship between net profit (after tax) and sales and indicates the

efficiency of the management in manufacturing, selling administrative and other activities of the

firm.

Net Profit after TaxNet Profit Ratio =

Net Sales

Net Profit after Tax = Net Profit (–) Depreciation (–) Interest (–) Income Tax

Net Sales = Sales – Sales Return

(c) OPERATING PROFIT RATIO

Operating ratio establishes the relationship between cost of goods sold and other operating

expenses on the one hand and the sales on the other.

Operating CostOperating Ratio =

Net Sales

Operating ProfitOperating Profit Ratio =

Sales

Operating Profit = Net sales - Operating cost

PROFITABILITY RATIO BASED ON INVESTMENT

(d) RETURN ON CAPITAL EMPLIYED

Return on capital employed establishes the relationship between profits and the capital

employed. It is the primary ratio and is most widely used to measure the overall profitability and

efficiency of a business.

Adjusted Net ProfitsReturn on Capital Employed =

Capital Employed

Adjusted Profits = Profits before Interest, Tax and Dividends

Capital Employed = Fixed Assets + Working Capital

(e) RETURN ON SHAREHOLDER’S FUNDS

Return on shareholder funds is the relationship between net profits (after interest & tax) and the

proprietors’ funds. The two basic components of this ratio are net profits and shareholders’

funds. Shareholders’ funds include equity share capital, preference share capital and reserves.

Net profits are arrived at after deducting interest on long-term borrowing and income tax,

because those will be the only profits available for shareholders.

Net Profits after Int. & TaxReturn on Shareholder’s Fund=

Shareholder’s Funds

CHAPTER – 2RESEARCH

METHODOLOGY

RESEARCH METHODOLOGY

Research is a voyage of discovery, a movement from unknown to known. In common parlance, it

refers to a scientific and systematic search for pertinent information on a specific topic. It is the

pursuit of truth with the help of study, observation, comparison and experiment. Research

methods may be understood as all those method / techniques that are used by the researcher

during the course of studying his research problem.

Research methodology is a way to solve the problem scientifically and systematically. In this we

study the various steps that are generally adopted by researcher in studying his research problem

along with the logic behind them. When we talk about research methodology, we not only talk of

the research methods but also the comparison of the logic behind the method we use in the

context of our research study and explain why we are using a particular method and why not

others.

OBJECTIVES OF THE STUDY

The major objectives of the resent study are to know about financial strengths and weakness of

The Hisar-jind Co-operative Milk Producer’s Union Ltd. Milk Plant JIND through

FINANCIAL RATIO ANALYSIS.

The objectives of the study are to evaluate the performance and efficiency of the company by

using ratios as a yardstick. To understand the liquidity, profitability and efficiency positions of

the company during the study period and to evaluate and analyze various financial performance

facts of the company. Make comparisons between the ratios during different periods.

OBJECTIVES

• To study the present financial system at The Hisar-jindCo-operative Milk Producer’s

Union Ltd. Milk Plant jind.

• To determine the Profitability, Liquidity Ratios.

• To analyze the capital structure of the company with the help of Leverage ratio.

• To offer appropriate suggestions for the better performance of the organization.

DATA BASE

The information needed for fulfilling the objective of the study is collected both from primary as

well as secondary sources of data with regard to time, cost and sources available.

Primary Sources: -

Primary data is collected through observation and direct communication with Finance Manager

and other employees of Finance department.

Secondary Sources: -

Annual Reports & Records of the company are used for the purpose of report. Number of books

for the purpose has been studied for better understanding and preparing the report in a simple,

unambiguous and precise manner. Annexure, schedules & other pertinent details from various

sources are also used. Company Journal, Company Website and Special record that is maintained

by accountants has been studied while making this report.

Limitations of the Study

The study is bound up with some limitations and constraints which made efficiency of the same

extend deviate it from its main line of thought. Though no stone was left unturned to make the

study more precise, accurate and relevant to the objectives, yet there are some limitations and

general problems, which are note worthy to make study meaningful.

1. Time Constraint

The time was the major constraint for conductive the study. The time for conducting the project

was comparatively inadequate.

2. Limited Scope

The study of me was limited only to a company.

3. Lack of Deep Knowledge

Lack of deep knowledge was another limitation. To analyze the financial statements in depth one

should possess the deep knowledge of the financial analysis.

4. Only the Partial Fulfillment of the Degree

The study is carried only for the partial fulfillment of the degree of Master of Business

Administration (Finance). Due to this the researcher did not provide the whole and sole

concentration of his on the study.

5. Results cannot be generalized

In our analysis we used the trend analysis and comparative financial statements. So the results

cannot be generalized.

CHAPTER – 3INTERPRETATION &

ANALYSIS

DATA ANALYSIS

1. LIQUIDITY RATIOSLiquidity refers to the ability of a concern to meet its current obligations as & when there

becomes due. The short term obligations of a firm can be met only when there are sufficient

liquid assets. The short term obligations are met by realizing amounts from current, floating (or)

circulating assets The current assets should either be calculated liquid (or) near liquidity. They

should be convertible into cash for paying obligations of short term nature. The sufficiency (or)

insufficiency of current assets should be assessed by comparing them with short-term current

liabilities. If current assets can pay off current liabilities, then liquidity position will be

satisfactory.

To measure the liquidity of a firm the following ratios can be calculated

• Current ratio

• Quick (or) Acid-test (or) Liquid ratio

• Absolute liquid ratio (or) Cash position ratio

LIQUIDITY RATIO

A. CURRENT RATIO

(Amount in `)

Current Ratio

Year Current Assets Current Liabilities Ratio

2006 – 07 123296313.00 54330888.59 2.27

2007 – 08 132443503.49 50127148.94 2.64

2008 – 09 205860507.99 71297804.34 2.89

2009 – 10 305913637.70 52604159.71 5.82

2010 – 11 493669302.07 30760257.42 16.05

GRAPHICAL REPRESENTATION

Interpretation

As a rule, the current ratio with 2:1 or more is considered as satisfactory position of the firm. As

we can see that in the year 2010-2011 current ratio is 16.05:1 which has reached very high as

compared to previous five years which shows that the company is not utilizing the liquid funds

properly and company is in a position to pay its current liabilities out of its current assets in time.

As per the rule this ratio is good. But very high ratio is not good for the company.

B. QUICK RATIO

(Amount in `)

Quick Ratio

Year Quick Assets Current Liabilities Ratio

2006 – 07 41284005.02 54330888.59 0.76

2007 – 08 65105975.12 50127148.94 1.30

2008 – 09 135540557.70 71297804.34 1.90

2009 – 10 219156085.82 52604159.71 4.17

2010 – 11 381937673.10 30760257.42 12.42


Interpretation

As a rule, the quick ratio with 1:1 or more is considered as satisfactory position of the firm. As

we can see that in the year 2010-2011 quick ratio is 12.42:1 which has reached very high as

compared to previous five years which shows that company is able to pay off current obligations

immediately.

As per the rule this ratio is good. But very high ratio is not good for the company.

C. ABSOULTE LIQUIDITY RATIO

(Amount in `)

Absolute Liquidity Ratio

YearAbsolute Liquid

AssetsCurrent Liabilities Ratio

2006 – 07 8687164.94 54330888.59 0.16

2007 – 08 5538256.14 50127148.94 0.11

2008 – 09 6497389.09 71297804.34 0.09

2009 – 10 10052927.09 52604159.71 0.19

2010 – 11 32755145.63 30760257.42 1.06


Interpretation

Absolute Liquid Ratio of 0.5:1 or more is supposed to be an ideal ratio. As we can see that in the

year 2010-2011 current ratio is 1.06:1 which has reached very high as compared to previous five

years which shows that company’s short-term financial position is good.

As per the rule this ratio is good and it is also good for the company.

2. LEVERAGE RATIOS

The leverage or solvency ratio refers to the ability of a concern to meet its long term obligations.

Accordingly, long term solvency ratios indicate firm’s ability to meet the fixed interest and costs

and repayment schedules associated with its long term borrowings.

The following ratio serves the purpose of determining the solvency of the concern.

• Debt Equity Ratio

• Debt to total Funds Ratio

• Proprietary Ratio

• Fixed Assets to Proprietor’s Fund Ratio

• Capital Gearing Ratio

• Interest Coverage Ratio

LEVERAGE RATIOS

A. DEBT EQUITY RATIO

(Amount in `)

Debt Equity Ratio

Year Outsider Funds Shareholder Funds Ratio

2006 – 07 112631760.87 54450607.74 2.07

2007 – 08 52861168.90 63194048.10 0.84

2008 – 09 61744210.40 63296365.79 0.98

2009 – 10 71158277.79 66921073.19 1.06

2010 – 11 261000000.00 71813190.97 3.63


Interpretation

Debt Equity Ratio of 2:1 or less is supposed to be an ideal ratio. As we can see that from the year

2006-2007 to 2008-2009 the ratio is less than 2:1 but in the last year 2009-2010 this ratio is

3.63:1 which is higher than ideal ratio which show that company claims of outsiders in long term

(creditors) are greater than those of owners.

As per the rule this ratio is not good and it is also not good for the company.

B. DEBT TO TOTAL FUNDS RATIO

(Amount in `)

Debt to Total Funds Ratio

Year Outsider Funds Total Capitalization Ratio

2006– 07 112631760.87 167082368.61 0.67

2007 – 08 52861168.90 116055217.00 0.46

2008 – 09 61744210.40 125040576.19 0.49

2009 – 10 71158277.79 138079350.98 0.52

2010 – 11 261000000.00 332813190.97 0.78


Interpretation

Debt to total funds Ratio of 0.67:1 or less is supposed to be an ideal ratio. As we can see that

from the year 2007-2008 to 2010-2011 ratio is continuously increasing which shows that

company has relied much on outside sources for raising long-term funds.

As per the rule this ratio is not good hence it is also not good for the company.

C. PROPRIETARY RATIO

(Amount in `)

Proprietary Ratio

Year Share Holders Funds Total Assets Ratio

2006 – 07 54450607.74 226207675.78 0.24

2007 – 08 63194048.10 257932727.77 0.25

2008 – 09 63296365.79 331894935.48 0.19

2009 – 10 66921073.19 433418563.96 0.15

2010 – 11 71813190.97 625356345.33 0.12


Interpretation

In Proprietary Ratio there are no ‘rules of thumb’ higher the ratio better it is for the company. As

we can see that from the year 2006-2007 to 2010-2011 ratio is continually decreasing which

shows that company’s long-term solvency position is not better.


D. FIXED ASSETS TO PROPRIETOR’S FUNDS

(Amount in `)

Fixed Assets to Proprietor’s Ratio

Year Fixed Assets Shareholder’s Funds Percentage

2006 – 07 90848300.09 54450607.74 167%

2007 – 08 109970071.59 63194048.10 174%

2008 – 09 106193589.80 63296365.79 168%

2009 – 10 105278921.57 66921073.19 157%

2010 – 11 107153312.57 71813190.97 149%


Interpretation

Fixed Assets to proprietor’s Ratio of 65% or less is better for the company. As we can see that

from the year 2006-2007 to 2010-2011 ratio is continuously decreasing which show that

company is improving this ratio but it is much higher to normal ratio this shows that owner’s

funds are not sufficient to finance the fixed assets and company has to depend upon outsiders to

finance the fixed assets.


E. CAPITAL GEARING RATIO

(Amount in `)

Capital Gearing Ratio

YearEquity Shareholder

FundFixed Cost Bearing

CapitalRatio

2006 – 07 54450607.74 112631760.87 0.48

2007 – 08 63194048.10 52861168.90 1.20

2008 – 09 63296365.79 61744210.40 1.03

2009 – 10 66921073.19 71158277.79 0.94

2010 – 11 71813190.97 261000000.00 0.28


Interpretation

In Capital Gearing Ratio there are no ‘rules of thumb’ lesser the ratio better it is for the company.

As we can see that from the year 2006-2007 to 2009-2010 ratio is continuously decreasing which

show that company capital gearing ratio is good.

As per the rule this ratio is good hence it is also good for the company.

F. INTEREST COVERAGE RATIO

(Amount in `)

Interest Coverage Ratio

Year EBIT Fixed Interest Charges Ratio

2006 – 07 7965269.89 6712032.68 1.19

2007 – 08 14538426.10 9958071.00 1.46

2008 – 09 8705714.40 4580355.10 1.90

2009 – 10 9554336.83 8070006.02 1.18

2010 – 11 11216940.37 6325295.00 1.77


Interpretation

In Interest Coverage Ratio higher the ratio better it is for the company. As we can see that from

the year 2005-2006 to 2010-2011 ratio is increasing except the year 2008-2009 which shows that

company is able to meet its commitment of fixed interest charges.


3. ACTIVITY RATIOS

Funds are invested in various assets in business to make sales and earn profits. The efficiency

with which assets are managed directly affects the volume of sales. Activity ratios measure the

efficiency (or) effectiveness with which a firm manages its resources (or) assets. These ratios are

also called “Turn over ratios” because they indicate the speed with which assets are converted or

turned over into sales.

• Stock Turnover Ratio

• Debtors Turnover Ratio

• Creditors Turnover Ratio

• Working capital turnover ratio

• Fixed assets turnover ratio

ACTIVITY RATIOS

A. STOCK TURNOVER RATIO

(Amount in `)

Stock Turnover Ratio

Year Cost of Goods Sold Average Stock Ratio

2006 – 07 989246756.66 58569423.02 16.89

2007 – 08 1379748713.93 55985834.36 24.65

2008 – 09 1740902881.50 47855588.69 36.38

2009 – 10 2044892769.85 54447919.21 37.56

2010 – 11 2273758620.65 73474740.16 30.95


Interpretation

In Stock Turnover Ratio there are no ‘rules of thumb’ higher the ratio better it is for the

company. As we can see that in the year 2005-2006 to 2008-2009 the ratio is continuously

increasing except last year 2009-2010 ratio which show that company’s previous year trends are

good but in last year the ratio is decreasing which is not good.


B. DEBTORS TURNOVER RATIO

(Amount in `)

Debtors Turnover Ratio

Year Net Credit Sales Avg. Trade Dr. Ratio Collection Period

2006 – 07 1031504291.53 18586934.78 55.50 7 days

2007 – 08 1425577500.72 28007884.85 50.90 7 days

2008 – 09 1781031869.07 58293047.64 30.55 12 days

2009 – 10 2088598137.00 137320364.22 15.21 24 days

2010 – 11 2323788901.21 194850640.46 11.93 31 days


Interpretation

In Debtors Turnover Ratio there are no ‘rules of thumb’ higher the ratio better it is for the

company. But as per the company policy all the sales is done on cash basis except government

organisations. As we can see that in the year 2005-2006 to 2009-2010 ratio is continuously

decreasing it is due to the credit sales given to the govt. institutions.

But it is decreasing at a higher rate which is not good for the company.

C. CREDITORS TURNOVER RATIO

(Amount in

`)

Creditors Turnover Ratio

Year Net Credit Purchase Avg. Trade Cr. Ratio Payment Period

2006 – 07 862304398.38 33008439.08 26.12 14 days

2007 – 08 1218063363.76 34102557.54 35.72 10 days

2008 – 09 1569377942.91 41298110.38 38.00 10 days

2009 – 10 1849566173.60 35204283.19 52.54 7 days

2010 – 11 2048746839.00 14528146.83 141.02 3 days


Interpretation

In Creditors Turnover Ratio there are no ‘rules of thumb’ lesser the ratio better it is for the

company. But as per the company policy all the purchases of raw milk will be done on 10 days

payment basis. As we can see that from the year 2005-2006 to 2009-2010 ratio is continuously

increasing which shows that company pays the credit amount very fast.


D. WORKING CAPITAL TURNOVER RATIO

(Amount in `)

Working Capital Turnover Ratio

Year Cost of Sales Working Capital Ratio

2006 – 07 989246756.66 68965424.41 14.34

2007 – 08 1379748713.93 82316354.55 16.76

2008 – 09 1740902881.50 134562703.65 12.94

2009 – 10 2044892769.85 253309477.99 8.07

2010 – 11 2273758620.65 462909044.65 4.91


Interpretation

In Working Capital Ratio there are no ‘rules of thumb’ higher the ratio better it is for the

company but a high working capital turnover ratio is not a good situation for company. This ratio

should be compared with ratios of other firms doing similar business and making a better

interpretation of the ratio. As we can see that in the year 2006-2007 to 2009-2010 ratio is

continuously decreasing which shows that company’s working capital ratio is not good.

E. FIXED ASSETS TURNOVER RATIO

(Amount in `)

Fixed Assets Turnover Ratio

Year Cost of Sales Net Fixed Assets Ratio

2006 – 07 989246756.66 51349925.28 19.26

2007 – 08 1379748713.93 63995092.77 21.56

2008 – 09 1740902881.50 62018721.87 28.07

2009 – 10 2044892769.85 58639581.77 34.87

2010 – 11 2273758620.65 57137107.77 39.79


Interpretation

In Fixed Assets Turnover Ratio there are no ‘rules of thumb’ higher the ratio better it is for the

company. As we can see that from the year 2006-2007 to 2009-2010 ratio is continuously

increasing which show that company fixed assets turnover ratio is good.


4. PROFITABILITY RATIOS

The primary objectives of business undertaking are to earn profits. Because profit is the engine,

that drives the business enterprise. Generally, profitability ratios are calculated either in relation

to sales or in relation to investment. The various profitability ratios are discussed below.

• GENERAL PROFITABILITY RATIO

• Gross Profit Ratio

• Net Profit Ratio

• Operating Ratio

• PROFITABILITY RATIO BASED ON INVESTMENT

• Return on Capital Employed

• Return on Shareholder’s Funds

A. GROSS PROFIT RATIO

(Amount

in `)

Gross Profit Ratio

Year Gross Profit Net Sales Percentage

2006 – 07 42257534.87 1031504291.53 4.10%

2007 – 08 45828786.79 1425577500.72 3.22%

2008 – 09 40128987.57 1781031869.07 2.25%

2009 – 10 43705367.15 2088598137.00 2.09%

2010 – 11 50030280.56 2323788901.21 2.15%


Interpretation

In Gross Profit Ratio there are no ‘rules of thumb’ higher the ratio better it is for the company.

As we can see that from the year 2005-2006 to 2009-2010 ratio is continuously decreasing which

shows that company’s gross profit ratio is not good.


B. NET PROFIT RATIO

(Amount

in `)

Net Profit Ratio

Year Net Profit After Tax Net Sales Percentage

2006 – 07 1142222.89 1031504291.53 0.11%

2007 – 08 2029708.61 1425577500.72 0.14%

2008 – 09 2723149.30 1781031869.07 0.15%

2009 – 10 2676137.83 2088598137.00 0.13%

2010 – 11 3112890.69 2323788901.21 0.13%


Interpretation

In Net Profit Ratio there are no ‘rules of thumb’ higher the ratio better it is for the company. As

we can see that from the year 2005-2006 to 2007-2008 ratio is continuously increasing but in

2008-2009 and 2009-2010 the ratio has decreased which shows that company’s net profit ratio is

not good.


C. OPERATING PROFIT RATIO

(Amount in `)

Operating Profit Ratio

Year Operating Profit Net Sales Percentage

2006 – 07 18066022.69 1031504291.53 1.75%

2007 – 08 19822396.49 1425577500.72 1.39%

2008 – 09 21065818.48 1781031869.07 1.18%

2009 – 10 14107379.66 2088598137.00 0.68%

2010 – 11 15700499.56 2323788901.21 0.68%


Interpretation

In Operating Profit Ratio there are no ‘rules of thumb’ higher the ratio better it is for the

company. As we can see that from the year 2005-2006 to 2009-2010 ratio is continuously

decreasing which shows that company’s operating profit ratio is not good.


D. RETURN ON CAPITAL EMPLOYED

(Amount in `)

Return on Capital Employed

Year Adjusted Profit Capital Employed Percentage

2006 – 07 7965269.89 159813724.50 4.98%

2007 – 08 13014861.61 192286426.14 6.77%

2008 – 09 8705714.40 240756293.45 3.62%

2009 – 10 9554336.83 358588399.56 2.66%

2010 – 11 11216940.37 570062357.22 1.97%


Interpretation

In Return on Capital Employed Ratio there are no ‘rules of thumb’ higher the ratio better it is for

the company. As we can see that from the year 2006-2007 to 2009-2010 ratio is continuously

decreasing which shows that company’s return on capital employed ratio is not good.


E. RETURN ON SHAREHOLER’S FUND

(Amount in `)

Return on Shareholder’s Fund

Year Adjusted Profit Shareholder’s Funds Percentage

2006 – 07 7965269.89 54450607.74 14.63%

2007 – 08 13014861.61 63194048.10 20.60%

2008 – 09 8705714.40 63296365.79 13.75%

2009 – 10 9554336.83 66921073.19 14.28%

2010 – 11 11216940.37 71813190.97 15.62%


Interpretation

In Return on Shareholder’s Fund Ratio there are no ‘rules of thumb’ higher the ratio better it is

for the company. This ratio should be compared with ratio of other firms doing similar business

and making a better interpretation of the ratio. As we can see that from the year 2006-2007 and

2007-2008 ratio is decreasing but after that in 2008-2009 and 2009-2010 it is again increasing

which show that resources of company are well used.


CHAPTER – 4RESULTS & CONCLUSION

FINDINGS

Like a traveler, who after completing his long and arduous journey reaches his destination and

looks back upon the area covered by him for recalling the important landmarks and experiences

he came across; similarly, it would be desirable to review the various aspects of the present

study. So prior to winding up this study, an attempt is made to summarize its major findings on

the basis of forgoing chapters which deals with the analysis and interpretation of the financial

statements.

To conclude, The Hisar-jind Co-operative Milk Producer’s Union Ltd. Milk Plant jind short

term, long term and solvency financial position can be regarded as not good which is shown

through under mentioned facts and figures:-

• Liquidity position of Milk Plant Hisar-jind is not good because Quick ratio and Current

ratio is very high in previous year as compared to the last years which is due to the idle

funds.

• Gross Profit Ratio also shows the declining trend from year to year.

• Net profit of Milk Plant Hisar-jind is very low because Milk Plant jind is a co-operative

society.

• Operating Profit Ratio is also showing a declining trend from year to year.

• Return on Capital employed shows decreasing trend which is not good for the company.

It shows the weaker position of the company.

• Return on shareholders’ fund shows increasing trend which is good for the company.

• Proprietary Ratio of the Milk Plant jind shows decreasing trend, which is again not good

for the company.

• Receivable ratio show decreasing trend which has negative effect on liquidity position of

the company.

• Payable ratio shows that Milk Plant Hisasr-jind gets less days in previous year for

payment to its creditors.

SUGGESTIONS

A company’s performance is reflected through its turnover, profitability and long term & short

term financial position. From the above analysis it is clear that the financial position of the plant

is not sound. There is a need to apply long term as well as immediate stern steps. To improve the

financial position of the company, following measures are suggested:

• Efforts should be made to improve internal equity over external equity.

• Proper utilization of fixed assets is required.

• Current assets management should be checked & its level should be decreased to

overcome the problem of idle funds.

• To control the cost of goods sold, the purchase policy should be revised and purchases

should be made on favorable basis.

• To reduce administration expenses. Proper utilization of employees and workforce should

be made. There is a need to recruit and retain more efficient employees in the plant.

• To control operating cost, cost of goods sold & administration expenses should be

reduced.

• There is also a need of better inventory management, effective steps should be taken to

control inventory conversion period.

• To improve the sales, the plant should move along with the advanced technology by

modifying its sales policies, so that stock can be easily converted into sales.

• Receivable and payable ratio is also to control by extending the payment period and

receive the payment as fast as possible.

• Profitability can be increased by reduction in cost of power and fuel, higher utilization of

labour, use of higher skilled labour etc.

• The company has idle funds which can be utilized by improving the management

system.

CONCLUSION

“Success is achieved by those who try where there is nothing to lose by trying and a great deal to

gain if successful, by all means try”

W. Clement Ston

The overall conclusion of study is that the overall position of Milk Plant Hisar-jind is not good.

This is due to the taking of long term unsecured loan which also effect the bank balance of the

current asset that effect the overall ratios of the study.

Hence, we can say that the short term, long term and solvency positions of Milk Plant Hisar-jind

are not good as compared to the previous years.

CHAPTER – 5ANNEXURES

BALANCE SHEET

The Hisar-jindCo-operative Milk Producer’s Union Ltd.

BALANCE SHEET AS AT 31ST MARCH 2006, 2007, 2008, 2009, 2010 & 2011

BALANCE SHEET OF LAST FIVE YEARS

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

LIABILITIES

Share Capital 1338487.21 14764221.84 15973199.73 17180431.73 18258876.65

Reserves & Surplus

39923513.64 46400117.65 44600016.76 47064503.63 50441423.63

Grant & Subsidies

10522791.53 96336511.89 138112996.40 242568345.42 258940051.26

Unsecured Loans 112631760.87 52861168.90 61744210.40 71158277.79 261000000.00

Current Liabilities & Provisions

54330888.59 50127148.94 71297804.34 52604159.71 30760257.42

TOTAL 230793825.84 260489169.22 331728227.63 430575718.28 619400608.96

ASSETS

Fixed Assets 90848300.09 109970071.59 106193589.80 105278921.57 107153312.57

Investments 12063062.69 15519152.69 19840837.69 22226004.69 24533730.69

Current Assets 123296313.00 132443503.49 205860507.99 305913637.70 493669302.07

Losses

Upto Last Year Profit/Loss A/C

5728372.95 4586150.06 2556441.45 -166707.85 -2842845.68

During the Year Profit/Loss A/C

-1142222.89 -2029708.61 -2723149.30 -2676137.83 -3112890.69

TOTAL 230793825.84 260489169.22 331728227.63 430575718.28 619400608.96

PROFIT & LOSS ACCOUNT

TheHisar-jind Co-operative Milk Producer’s Union Ltd.

PROFIT & LOSS FOR THE YEAR ENDING 31ST MARCH 2006, 2007, 2008, 2009, 2010

& 2011

P&L ACCOUNT OF LAST FIVE YEARS

200000022222222200662222222222222222222

2007-08

2008-092009-2010

2009-10

REVENUE INCOME (` In Thousands)

Sale of Milk & Milk Prod

980536.321336611

.83165072081

8.33193370410

8.792182890

.26

Sale of Trading Goods

49750.5987824.7

8129134919.

55153455194.

24139477.

80

Sale of Scrap

1217.37 1140.88 1176131.19 1438833.97 1420.82

Closing StockFinished Goods

61121.1545626.7

746996890.4

658079612.4

784402.1

9Trading Goods

3461.56 1762.18 1325328.52 2494006.98 1973.66

SUB TOTAL

1096087.0047388.9

548322218.9

860573619.4

586375.8

6Misc Income

793.78 1364.40 1729965.42 1962865.04 1682.34

Income From TIP

13.53 26.62 6050.00 0.00 0.00

By Gross Profit

42257.5345828.7

840128987.5

743705367.1

550030.2

8

TOTAL 43064.851474357

.48183109010

3.47215113462

1.492411847

.11

REVENUE EXPENSES (` In Thousands)

O-Stock Finished Good

51406.9361121.1

54562.67 46996.89

58079.61

O-Stock Trading Goods

1149.20 3461.56 1762.18 1325.32 2494.00

R-Material Consumed

814172.431128694

.511434723.76 1703316.02

1895842.39

Manufacturing Exp.

99081.12124271.

56132558.35 153400.95

175994.79

Procureme 30173.59 35714.4 38529.72 43094.31 48496.6

nt Exp. 1 4Purchase of Tar. Good

57846.1773874.4

6136024.29 157332.87

179227.03

Gross Profit

42257.5345828.7

840128.98 43705.36

50030.28

SUB TOTAL

1096087.002900104

.133618579.18 2149171.75

2410164.76

Administrative Exp.

14049.9818250.3

617498.80 20564.63

25545.32

Selling Exp.

10092.36 7756.02 10140.27 9033.35 8784.45

Prior Period Exp.

49.15 0.00 -1564.36 0.00 0.00

NON OPERATING EXP.Royalty Paid

551.00 500.00 500.00 500.00 551.50

Lease Money

4438.28 1221.96 1221.96 1221.96 1221.96

Depreciation

5918.79 6476.60 5362.60 4793.94 4392.44

Int. on Loan HDDC

187.80 9958.07 4580.35 5500.19 307.78

Int. on Cash Cr. Limit

6137.49 0.00 0.00 0.00 6404.24

Net Profit Before I. Tax

1639.97 3056.79 4125.35 4054.14 4504.90

Income Tax on Profits

-497.75 -1027.08 -1402.21 -1378.00 -1392.01

Add Back I. Tax of Pre. Year

0.00 0.00 0.00 306.60 0.00

Net Profit after I. Tax

1142.22 2029.70 2723.14 2676.13 3112.89

TOTAL 43064.851474357

.481831090.10 2151134.62

2411847.11

BIBLIOGRAPHY

In completing this project report many books, annual reports of The Hisar-jind Co-operative

Milk Producer’s Union Ltd. Milk Plant jind and many websites are being used. I pay my

respect and thanks to them.

• Annual report of The HISAR-JIND Co-operative Milk Producer’s Union Ltd. Milk

Plant Rohtak for the last 5 years.

• GUPTA, Arun gupta, and Sharma, R.K., Management Accounting, 11nt ed., New Delhi,

Kalyani Publishers, 2009

• Kothari, C.R., Research Methodology Methods & Techniques, 2nd ed., New Delhi, New

Age International (P) Limited Publishers, 2008

• Pandey, I.M., Financial Management, 9th ed., Vikas Publishing House Pvt. Ltd., 2007

• Websites referred

• www.vitaindia.com

• www.google.com

• www.wikipedia.com

• www.nddb.org

http://www.nddb.org/

http://www.wikipedia.com/

http://www.google.com/

http://www.vitaindia.com/

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On RATIO ANALYSIS in the Hisar Jind Co Operative Milk Producers Union Ltd VITA MILK