Beruflich Dokumente
Kultur Dokumente
Executive Summary
This project is carried out in Dharwad Milk Union, which is a part of Karnataka Milk Federation (KMF). KMF is a co-operative apex body in the state of Karnataka representing dairy farmers organization and also implementing dairy development activities to achieve the dairy objectives. KMF has 13 Milk unions and D.M.U. is one among the 13 unions. The project helps to study the practice in working capital by D.M.U. in the past years and to calculate managements performance in the past five years.
A working capital plays an important role in the successful operation of business activities. The need for working capital is very necessary for any business house. Working capital is a matter of top priority, as it has a light on liquidity, solvency and profitability.
This study is undertaken to analyse the firms liquidity and to test firms efficiency in utilization of its current assets and resources.
A Study to analyse the firms liquidity and to test firms efficiency in utilization of its current assets and resources at Dharwad Milk Union
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The study is undertaken to know the present liquidity position and working of the Dharwad Milk Union, Dharwad. This project will throw light on firms competitiveness with other firms and on the financial position. It also helps to know whether D.M.U. has properly utilized its resources and assets. The scope of the study is limited to financial aspects of the Dharwad Milk Union.
1. As this an academic efforts, it is limited by time, cost and coverage. 2. This study covers only a part of Dharwad Milk Union. 3. The present study covers only 3 years financial data. 4. It covers only annual reports of the firm.
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Research Methodoly
Research methodology is nothing but systematic investigation and study of sources & materials. It establishes facts and helps in making conclusions.
Sources of Data:
The data has been collected from both primary sources as well as secondary sources.
Primary Sources:
Primary data are the data gathered at first hand. It is collected by direct interviews and discussing the subject matter with the management, staff employees and academicians.
Secondary Sources:
Secondary data are the data that have been compiled or derived from other sources meant for some other purpose. It is collected from book records maintained by administration department, published books and also collected from the trading and profit and loss accounts and balance sheets of last 3 years of D.M.U.
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Industry Profile
Dairy Industry In India
The dairy industry plays an important role in the socio-economic development of India. The dairy industry in India is instrumental in providing cheap nutritional food to the vast population of India and also generates huge employment opportunities for people in rural places. The Department of Animal Husbandry, Dairying, and Fisheries, which falls under the central Ministry of Agriculture, is responsible for all the matters relating to dairy development in the country. This department provides advice to the state governments and Union Territories in formulating programmes and policies for dairy development. It also looks after all the matters relating to production and preservation of livestock farms (cattle and sheep). To keep focus on the dairy industry, a premier institution known as the National Dairy Development Board was established. This institution is a statutory body that was established in 1987. The main aim to set up the board was to accelerate the pace of dairy development in the country and attract new investments. India is a wonderland for investors looking for investment opportunities in the dairy industry. The dairy industry of India holds great potential for investment and promises high returns to the investors. The reasons why the industry has huge potential for attracting new foreign investment are: There is a basic raw material needed for the dairy industry; that is, milk is available in abundance. India has a plentiful supply of technically skilled labourers. There is an easy availability of technological infrastructure. India has all the key elements required for a free market system.
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There are different sectors within the dairy industry that promise great business investment opportunities: Biotechnology: The Indian cattle yield less milk as compared to their foreign counterparts. The Indian cattle breeders are on the lookout for ways to improve their milk yield through crossbreeding. Thus, there is a huge potential available for foreign investors to invest in dairy cattle breeding of high-quality buffaloes with hybrid cows. There is also great scope for investment in different dairy cultures, including dairy biologics, enzymes, probiotics, and other coloring materials for food processing. Producing biopreservative ingredients based on dairy fermentation, such as pediococcin, aciophilin, bulgarican, and Nisin contained in dairy powder, also promise great investment opportunity.
Dairy/Food Processing Equipment: Great potential lies for foreign investment for manufacturing and marketing of costeffective, top-quality food processing machinery.
Food Packaging Instruments: There is a tremendous investment opportunity for foreign investors in the manufacturing of both machinery and packaging materials that aid the development of brand loyalty and gives a clear edge in the marketing of dairy products.
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Retailing: Retailing of dairy products also promises great investment opportunities for standardization and upgrading dairy products in the main metropolitan cities.
Manufacture of Ingredients: Several ingredients are involved in the making of different dairy products like ghee, condensed milk, and cheese. Manufacturing of ingredients for these products offers a great potential for foreign investment.
Finished Products: There is a great scope for investment in the manufacturing of finished dairy products such as cheese sauce and cheese powders.
Technically Advanced Manufacturing Units: There is a great opportunity for foreign investors to invest in establishing manufacturing units for dairy products. The investors can build world-class manufacturing units and let them for hire. Building manufacturing units supports specialized dairy-related activities, such as cheese slicing, cheese packaging, butter printing, and dicing lines, which hold greater potential over other activities. Thus, the dairy industry in India has huge investment opportunities in a variety of sectors. The investors are all set to gain profitable returns on their investment.
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Industry Profile
HISTORY:
The diary and animal husbandry received attention after the independence. There were lot of progressive steps taken by the government through five-year plans. Indian councils for the agriculture research mostly drew up these plans.
Further, our late Prime Minister Lal Bahaddur Shastri felt the need for setting up cooperative society throughout the country for the sake of rural development. This led to the formation of National Dairy Development Board in 1965. This board was registered under the Societies Registration Act and The Public Trust Act, having its office at Anand, Gujarat.
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The NDDB was established in 1965, the board registered under the Societies Registration Act and the public trust Act fulfilling the desire of the Prime Minister of India, the late Lal Bahaddur Shastri to extend the number of the Kaira Co-operative milk producers union (AMUL) to other parts of India. Dr Vergese Kurien was the founder chairman. The success combined the wisdom and energy of farmers with professional management to successful capture of liquid milk and milk product markets while supporting farmers investment with inputs & services.
The Growth:
NDDB began its operations with the mission of making dairying a vehicle to a better future for millions of gross tools milk producers. The mission has achieved to make India become the worlds largest milk producing country.
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Objectives of NDDB:
To sponsor, promote, manage, acquire, construct or control any plant or work which promotes projects of general public utility relation to dairying. To make information available on request to technical services to increase production of milk. To prepare initial feasibility studies of dairying and other dairy related projects and undertake subsequent designing planning and start up those projects. To undertake research and development programmes related to production and marketing of milk and milk products. To provide assistance for exchange of information to other international agencies.
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The KMF implements all the project activities. After all project activities are accomplished, the Federation aims at formulating Marketing strategies in marketing the milk and milk products.
The foremost function of KMF is to co-ordinate the activities between the Unions and also in making market available so that the production increases. The federation also manages to market milk and milk products outside the state. It manages surpluses and deficiencies of liquid milk among the milk unions and helps in dispatching the milk and milk products at reasonable price. Training and development of senior managerial personnel, acquiring and applying all recent technologies, prescribing quality guidelines and norms. Provides balanced cattle feed, mineral mixture, frozen semen straws and liquid nitrogen reproduced.
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The growth over the years and activities undertaken by Karnataka Milk Federation (KMF) is summarized briefly here :
Unit Numbers
1976 - 77 416
2009 - 10 11520
Numbers Kgs/Day
37,000 50,000
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Establishment:
The Dharwad Milk Union is a co-operative society among the 13 establishments under KMF. The DMU is one of the most modern plants in the country. It is located in the specious 25 acres of land, located in Lakkammanahalli Industrial Area, adjacent to the National Highway-4.
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Company Profile:
Company Name Nature of Business Type of Ownership Tel-No Raw Material Milk
Dharwad Co-operative Milk Producers Union Ltd,
Lakkammanahalli Industrial Area, P.B.Road, Dharwad-580004 Mfg / Service / Semi-agro based Co-operative Unit Co-operative Unit 0836-2467643, 2461876, 2468380. 80,000 LPD, Water 5 to 6 lack liters/day, Coal 4 to 5 tone
Capacity of Plant
Milk, Butter, Ghee, Gurtz, Pedha, Milk creams, Curd, Lassi, Khova. Rs. 7 crore 551 Societies
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DMU was Rs. 7crore project of which Government has Rs. 2crore of share capital and authorized capital of DMU is Rs. 5crore. DMU formed 551 milk producers co-operative societies in Dharwad, Gadag, Haveri, and Uttar Kannada districts. DMU is collecting 80 thousand liters of milk per day from its societies and sells 70 thousand liters of milk per day and the remaining milk is used for producing milk products.
Functions Of DMU:
The main function of DMU is to procure milk from villagers and pay them the right price. To educate the villagers about milk and its quality. To make Nandini as a part of daily life.
Objectives of DMU:
Providing hygienic and good quality milk to the consumers. To build the economic strength of the milk products in villages. To eliminate middlemen in the business so that milk products receive their appropriate share of bread. To provide milk at reasonable rates to the consumers. To build bridge between masses of rural producers and millions of consumers. To ensure maximum returns to the milk producers. To facilitate rural development by providing opportunities for self-development at village level. To build village level institutions in co-operative sector to manage the dairy activities.
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Nandini Toned Fresh and Pure milk 500 ml Rs.8.50 containing 3.0% fat and 8.5% SNF. Available in 500ml and 1litre packs. Standard (500 ml) Milk 9.50
Nandini Homogenized Milk is pure milk 500 ml which is homogenized and pasteurized. Consistent right through, it gives you more cups of tea or coffee and is easily digestible.
Rs.8
Full Cream milk. Containing 6% Fat and 9 % SNF. Rich, creamier and tastier milk, Ideal for preparing home-made sweets & savories.
Buffalo's milk, 100% pure pasteurized 500 ml Rs.10 processed and packed hygienically. This milk has 5% fat and 9% SNF. 5 liter Rs.100
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A taste of purity. Nandini Ghee made from pure butter. It is fresh and pure with a delicious flavor. Hygienically manufactured and packed in a special 500 gm Rs.99.5 pack to retain the goodness of pure ghee. Shelf life of 6 months at ambient temperatures. Available in 200ml, 500ml, 1000ml sachets, 5lts tins and 15.0 200 gm Rs.41 kg tins.
Rich, smooth and delicious. Nandini Butter is made 100 gm Rs.18 out of fresh pasteurized cream. Rich taste, smooth texture and the rich purity of cow's milk makes any preparation a delicious treat. Available in 100gms 500 gm Rs.85 (salted), 200gms and 500gms cartons both salted and unsalted.
Nandini Curd made from pure milk. It's thick and 500 ml Rs.10 delicious. Giving you all the goodness of homemade curds. Available in 200gms and 500gms sachet. 200 ml Rs.5
Great way to those soft and juicy jamoon treats at 200 gm Rs.32 home! Nandini Gulab Jamoon Mix is made from Nandini skimmed milk powder, Maida, Soji and Nandini Special Grade Ghee. Available in 100gms and 200gms standy pouch with a five layer foil lamination. Shelf life of 6 months.
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No matter what you are celebrating! Made from pure milk, 250 Nandini Peda is a delicious treat for the family. Store at room Rs.35 temperature approximately 7 days Available in 250gms pack containing 10 pieces each.
gm
Sterilized flavored milk, a nutritious and healthy drink and an 200 all-season wholesome drink available in five different flavors Rs.12 - pineapple, rose, badam, pista.
gm
Nutritious, delicious creamy ice cream is manufactured at ISO 9002/HACCP certified Mother Dairy modern plant. The range includes Vanilla, Strawberry, Pineapple, Mango, Chocolate, Butter scotch, Kesar Pista, Orange & Mango Candies, Mango & Raspberry Dollies, Choc bar and Ball varieties Vanilla, Strawberry.
Nandini spiced Butter Milk is a refreshing health drink. It is made from quality curds and is blended with fresh green chilies, green coriander leaves, asafoetida and fresh ginger. Nandini spiced butter promotes health and easy digestion. It is available in 200 ml packs and is priced at most competitive rates, so that it is affordable to all sections of people.
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Cow's pure milk, UHT processed bacteria free in a tamper-proof tetra-fino pack which keeps this milk fresh for 60 days without refrigeration until opened. Available in 500ml Fino and in 200ml Bricks.
Fresh and tasty, Nandini Mysore Pak is made from quality Bengal Gram, Nandini Ghee and Sugar. It's a delicious way to relish a sweet moment.
250 gm Rs.55
Pure and tasty dishes with Nandini Paneer! A fresh, nutritive product made by coagulating pure milk, it is an excellent source of milk protein. Nandini paneer is ideal for vegetarian dishes such as mutter paneer, sag paneer and various other dishes.
200 gm Rs.26
A delicious beverage with hot or cold milk. It can be used for kheer, kesaribath, desserts or ice cream. It's the goodness of Badam mixed with almond, edible starch, saffron, skimmed milk powder and cane sugar to give you the ideal Badam delight.
200 gm Rs.42
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DCS
Sample Testing
Chilling
Storing
Pasteurization
Separation
Homogenization
Storing
Packing
Dispatching
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Director (Elected-8)
Director (Ex-officer-5)
Director (Nominated-3)
Managing Director
P&I
Production
Finance
Admin
Security
Marketing
Deputy Manager
Deputy Manager
Deputy Manager
Deputy Manager
Senior Supervisor
Deputy Manager
Extension Officer
Q.C Officer
A/Cs Assistant
Assistants Manager
Junior Supervisor
Assistant
Helper
Assistant
Helper
Helper
Helper
Workers
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Products of DMU
Milk:
Toned milk Double toned milk Standard milk Shubham milk
Milk products:
Ghee Butter Ice-cream Mysore pak Nandini bite Paneer Lassi Jamoon mix Pedha Badam powder Curd Butter milk And few more
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Departments Of DMU:
1. Administration Department.
2. Purchase Department.
3. Marketing Department.
5. Production Department.
8. Finance Department.
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Administration Department
The administration department controls the overall functioning of the organization. The department looks after administration functions such as payment of salaries, arrangement of meetings, formation of policies etc.
The general functions of this department are as follows: Up-to-date maintenance of files, records etc. Collecting and presenting data in the form of useful information from records. Implementing the organization systems, producers and policies in a co-ordinate manner. Ensuring of smooth running of the office by interfacing with the external agencies as required. For example, payment of telephone bills, electricity, water supply bills etc. Providing required facilities etc.
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DEPUTY MANAGER
ASSISTANT MANAGER(BOARD)
ADMN SUPERINTENDENT
ADMN SUPERINTENDENT
ADMN, ASSISTANT
TIME
CANTEEN
SECURITY
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Purchase Department
The main work of the purchase department is to make purchase of various materials required by different departments. After ascertaining the stock position by stores department, an indent is sent by different departments duly approved by the managing director. This department then comes into picture to purchase those materials.
It also maintains records of all supplies, calls for tenders, quotations etc. Quotations for lowest rate are sanctioned. Purchase department can make purchases upto Rs.50,000/- If the purchase amount exceeds Rs.50,000/- , then the approval of the board member is must.
Purchase Officer
Purchase Superintendent
Helpers
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Marketing Department
This department manages the sale of milk, milk products and advertisements. It sells the goods in four districts namely Dharwad, Gadag, Haveri and Uttar Kannada in the brand name Nandini. Marketing department performs the following functions: Marketing of milk and milk products through own network. Market development and sales promotion. Reconciliation of sales with all agents, outlets and milk parlours. Consumers grievances. Need based marketing (pedha, ghee etc.). To take up suppliers.
Operating areas: DMUs Nandini milk is marketed in Hubli-Dharwad, Karwar, Gadag, Haveri, Uttar Karnataka, North Goa and 26 Taluks in Maharashtra. The milk is marketed through retailers. Marketing department has the following objectives: To increase the market share of Nandini. To set up more marketing strategies. To be responsive to consumers and channel members. To promote more of Nandini milk and milk products through intense advertising. Competitors: The Nandini milk is facing lot of competition in the market. The prime competitors are private brands like Bharat, Krishna, Dutta, Mysore, Gopal, Kazi, Arokya and loose vendors.
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Promotional Activities:
To overcome the neck-to-neck competition, different promotional activities are followed with the help of KMF and IMDDB for building the brand image of Nandini and enhancement of sale of milk and milk products. Advertisements in all available medias. Sponsoring events viz. cricket match, exhibitions etc. Participation in trade fairs.
Distribution Channels:
DMU has its own marketing channels. However, it follows two types of direct channels: 1.Consumer Market: DMU is selling directly to the consumers through its special vendors. It also distributes to a total of 800 retailers and milk parlours which sell only KMF products. There is demand of 85,000-90,000 ltrs of milk per day. 2.Instituitional Market: There is demand for about 4,000 ltrs of milk per hour from various sources like institutions, hospitals, jails, schools, hotels etc. Strategies adopted by the department to enhance the sale of its products are: Conducting awareness programme of milk and homogenized processed milk. Attain daily complaints of consumers and retailers. Need for healthy promotional activities against competitors. Adopting differentiated marketing strategies in place of undifferentiated marketing strategies.
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1.Stores Department:This department stores materials required for day-to-day consumption required in the production process and for other purposes. The stores department in DMU follows the Cordex System (Coded Control System). A card is maintained for each item and a number is allotted. The card attached to each article consists of amount balance, date of issue, purchase etc. This is later recorded in separate ledger book. The inventories are of different kinds ranging from mechanical, spares, packing items to animal drugs and satisfactory and veterinary drugs. There are at least 4,000 different inventories. It has to maintain the proper records of the stores. It has to control the storage costs and reduce it as much as possible. It has to send indent from stores to purchase section when there is storage of stock. It has to send stock report to finance department. It has to supply the necessary materials to the entire departments.
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2.Finished Goods Stores Department This department works as interface between production department and marketing department. It is mainly concerned with the maintenance of finished goods and its records. The goods stored are mainly non-pre indent sent by marketing department. This department uses the First In First Out (FIFO) method of inventory to manage the stock. A separate ledger account is maintained for each item and it shows the receipt and dispatch of goods. Before dispatching, approval of the goods by the quality department is mandatory. A consolidated daily and monthly report is submitted to production and finance department.
Marketing Assistant
Account Assistant
Daily Operators
Daily Workers
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DMU fixes minimum of Rs.14.60 (Fat: 3.5 %, SNF: 8.5 %) for cow milk and Rs.18.60 (Fat: 6 %, SNF: 9 %) for buffalo milk. Sometimes prices vary with quality.Procurement of milk varies season wise. During flash season i.e. from September to December, the milk productivity will be high. During summer, it will come down.
Milk collected from the societies will be taken to the nearest chilling centre. Here the quality i.e. fat and SNE content of milk will be checked and confirmed with that of the checklist sent by the society.Then milk is loaded into tankers to be taken to the union. There are nearly 6 chilling centres under the Dharwad Milk Union and about 600 milk societies. Once milk is brought to the union, it is rechecked for the quality and freshness and then down loaded and directed to the production department.
If the milk is spoiled, it is brought to the notice of the society immediately. But in case of far away, the driver and the contractor will be held responsible for the loss, if milk by tankers spoil due to the delay. As per the law of the society recommended by the union states members should supply milk only to the union and other agency. The extension officers at various chilling centres take care of this.
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To upgrade the functioning and expand the productive capacity of each society the union provides many facilities:
Remunerative price for the milk produced. Animal husbandry and veterinary health care programmed for the member animals. Cross breeding programmers. Supplying power seeds for animal development. Imparting training to all the members of co-operatives for smooth functioning of cooperatives. Subsidized cattle feed to the members of the society. DMU has 13 doctors to provide door-to-door service. First aid centers in every co-operative society. Conducting animal health camp every 2 weeks. Procurement and input department structure.
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Procurement Manager
Technical Wing
Deputy Manager
Deputy Manager
Assistant Manager
Assistant Manager
Extension Officer
Clerks
Helpers
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Production Department
The main object of this department is to follow up production schedule as per plan and maintain close and co-operative relationship with other departments and ensures to upgrade the technical efficiency of production. Most of the production equipments are imported from Sweden and Denmark. The entire production has procedure and at every stage of production, proper care is taken to maintain the quality and freshness of milk and milk production.
Production Procedure:
When the milk is received from the cans and tankers, it is tested for quality. From these tanks the milk is sent though steel pipes to undergo pasteurization, cooled to 4-5 degree C. After pasteurization, the milk is taken to the cream separator machine (to get other milk products) where the cream is separated according to the standard norms. This is called skimmed milk. It is then directed towards standardization process to procure for variety of milk by mixing with appropriate proportion of cream. These varieties of milk are then packed in different packets and stored in cold storage for dispatch. Other milk production such as butter, ghee, milk powder, curd, lassi, pedha are also produced and stored in cold storage.
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Deputy Manager
Office Staff
Asst. Manager
Asst.(Accounts)
Technical Officer
Clerk
Senior Supervisor
Junior Supervisor
Dairy Operators
Dairy Technician
Dairy Worker
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The main task of the quality control department is checking the quality of milk and milk products in the plant. There are various tests conducted by the officers to meet this requirement. If any product does not pass the quality standards then that would be rejected. Even before dispatching the products, they undergo testing and they must get approved by the quality department.
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Transportation Medical Uniform Canteen Provident fund Gratuity Womens pregnancy allowance
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Finance Department
This department controls the financial activities such as preparation of annual report, maintenance of accounts etc. This department is responsible for keeping all the inward and outward flow of money of unions. It prepares budget every year and financial rules for receipts and payments.
Functions:
To prepare monthly accounts (Receipts & Payment A/c, Profit & Loss A/c, Balance Sheet). To prepare quarterly financial statements. To prepare integrated business plans. To prepare year ending financial statement. To get accounts audited from statutory books of accounts.
1. Pre-audit system: done by Finance and Account Department every year. 2. Statutory System: done by private Charted Accountants every year.
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Deputy Manager
Assistant Manager
Assistant Accountants
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Financial Statement
A financial statement is an organized collection of data according to logical and consistent accounting procedures. Its purpose is to convey understanding of some financial aspects of business firm. It may show a position at a moment in time as in the case of b/s or may reveal a series of activities over a given period of time as in case of income statement. Financial statement are prepared for the management to deal with a. b. Status of investments. Results achieved during a given period under review.
1. Income Statement: The income statement also termed as (profit or loss account) is
generally considered to be the most useful of all financial statements. It explains what has happened to a business as a result of operations between two balance sheet dates. It discloses the revenue realized from the sale of goods and the costs incurred in the process of producing the scheme. It tells the story of progress or decline over given period and why and how an indicated result was achieved.
3. Statement of Retained Earnings: The term retained earnings means the accumulated
excess of earnings over losses and dividends. The balance shown in income statement is transferred to the balance through this statement after making necessary appropriations. It is thus a connecting link between the balance sheet and the income statement. This statement is also termed as profit and loss appropriation account in case of companies.
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and compounding techniques play significant roles in capital budgeting and latter one in the management of current assets. 2. The large holding of current assets, especially cash strengthens the firms liquidity
position (reduces riskiness) but also reduces the overall profitability. Thus a risk returns trade off is involved in holding current assets. 3. Level of fixed as well as current assets depends upon expected sales but it is only
current assets which can be adjusted with sales fluctuations in the short run. Thus the firm has a greater degree of flexibility in managing current assets. Working capital refers to the amount of capital which is readily available to an organization. That is, working capital is the difference between resources in cash and readily convertible into cash (current assets) and organizational commitments for which cash will soon be required (current liabilities). Thus working capital involves activities such as arranging the short-term finance, negotiating favourable credit terms, controlling the movement of cash, administrating accounts receivables and monitoring the investments also a great deal of time.
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2. Variable Working Capital: It refers to the working capital that changes with the volume of business, it may be divided into two classes. (a) Seasonal Working Capital: There are many lines of business where the volumes of operations are different in different seasons and hence the amount of working capital varies with seasons. The capital required to meet the seasonal needs of the enterprise knows as Seasonal Working Capital.
(b) Special Working Capital: The capital required to meet any special operations such as experiments with new products or new techniques of production and making interior advertising campaign etc is also known as Special Working Capital.
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Therefore working capital is required for: To meet the cost of inventories including total of raw materials, purchased parts, operating supplies, work in progress, finished goods. To pay wages, salaries for indirect labor, clerical staff, managerial and supervision staff. To meet overhead costs including those of maintenance service activities, fuel, power charges, taxes and general expense administration. To bear the expansion (with regard to promotion of sales) e.g. expenses on packing, advertisement, salesmanship, sales servicing, credit facilities, delivery services, etc.
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Objectives of WC management:
Deciding optimum level of investment in various WC assets. Decide optimal mix of short-term and long-term capital. Decide appropriate means of short term financing.
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A) Current Assets: Components of current assets are as follows: 1. Cash and bank balance 2. Stock of raw materials at cost- work in process and finished goods. 3. Advanced recoverable in cash or kind for value to be received. 4. Deposits under the company scheme. 5. Advanced payment of income takes credit certificates. 6. Outstanding debts for a period exceeding six months. 7. Balance with central excise authorities.
B) Current Liabilities: Components of Current Liabilities are as follows: 1. Sundry Creditors for the goods and expenses. 2. Income tax deducted at sources from contractors. 3. Expenses Payable. 4. Unclaimed Dividend. 5. Security Deposits. 6. Liabilities for bills discounted. 7. Bank overdraft acceptance.
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Operating Cycle:
Operating cycle or working capital cycle indicates the length of time between a firms paying for raw materials entering into finished stock and receiving cash on the sales of such finished stock. This operating cycle differs from firm to firm. Longer the operating cycle greater will be the amount of working capital required and vice versa. Thus it plays an important role in determining the working capital needs of a firm.
Cash
Raw Materials
Debtors
Sales
Work In Process
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Operating Cycle is the time duration required to convert sales, after the conversion of resources into inventories, into cash. The operating cycle of a DMU involves three phases. 1. Acquisition of resources such as raw material, labor, power and fuel etc. 2. Manufacture of the product which includes conversion of raw material into workin- progress into finished goods. 3. Sales of the product either for cash or on credit.
In the Dharwad Milk Union (manufacturing concern), the working capital operating cycle starts with the purchase of raw materials and ends with the realization of cash from the sale of finished products. It is also called as cash conversion cycle. It involves the purchase of raw materials and stores, fits into stocks of finished goods through the work-in-progress with the progressive increment of labour and service costs, conversion of finished goods (Milk & Milk Products) into sales, debtors and receivables and ultimately realization of cash and this cycle continues again from cash to purchases of raw material and so on.
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2. Manufacturing Cycle: It comprises of the purchase and use of raw materials and the production of finished goods. Longer the manufacturing cycle, large will be the firms working capital requirements.
3. Credit Policy: The credit policy relating to sales and purchases also affects the working capital. The credit policy influences the requirement of working capital in two ways: 1) 2) Credit terms generated by the firm to its customers. Credit terms available to the firm from its creditors.
4. Growth & Expansion: As a firm grows, it is logical to expect that a large amount of working capital is required. The growth in volume of the business effects the requirements of working capital. If the firm goes on diversifying its activities, the working capital also increases.
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5. Price Level Changes: Changes in the price level also affect the requirements of working capital. The rising price levels will require a firm to maintain higher amount of working capital. Same level of current assets will need increased investment when price are increasing.
6. Operating Efficiency & Performance: The operating efficiency of the firm relates to the optimum utilization of resources at minimum costs. The firm will be effectively contributing to its working capital if it is efficient in controlling operating costs. The use of working capital is improved and pace of cash cycle is accelerated with operating efficiency.
7. Level of Taxes: Tax liability is the short-term liability. The amount of taxes to be paid in advance creates the need for working capital. If the tax liability increases, it leads to an increase in the requirement of working capital and vice versa. The need for working capital varies with the tax rates and advance tax provisions.
8.Sales Growth: The working capital needs of the firm increase as its sales grow. The growing firm may need to invest funds in fixed assets in order to sustain its growing production and sales. This will in turn increase investment in current assets to support enlarged scale of operations.
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1. Permanent/Long term sources: Shares capital Debentures Public deposits Ploughing back of profits Loan from financial instituitions
2.Temporary/ Short term sources: Indigenous bankers are the short term source for financing the working capital Trade credits Instalment credits Income received in advance Customers advance Bank loans which include cash credit and overdraft Commercial papers Purchasing and discounting of bills
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Current Assets include: Closing Stock, Deposits (asset), Loans & Advances, Sundry Debtors, Cash-in-hand, and Bank Accounts. Current Liabilities include: GRANTS, O.S.L, Other Liabilities, Salary Recovers, Security Deposit A/C, Unpaid Salary/ Wages A/C, Duties & Taxes, Sundry Creditors.
Table-1 The Table Showing Current Ratio Year 2007-08 2008-09 2009-10 Current assets 8,62,29,464 7,53,69,860 9,85,39,092 Current Liabilities 5,37,36,056 5,80,79,322 7,56,55,623 Current Ratio 1.60 1.30 1.30
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Current Ratio
1.8 1.6 1.4 1.2 1 0.8 0.6 0.4 0.2 0 2007-08 2008-09 2009-10 Current Ratio
Interpretation:
From this, we can understand that the company had held Rs.1.60 of current assets to meet its current liabilities of Rs.1 for the year 2007-2008. Similarly 1.30:1 for the years 2008-2009 and 2009-2010. As a conventional rule, a current ratio of 2 to 1 is considered satisfactory. The firm has a current ratio1.30:1, through which it may be interpreted to be insufficiently liquid. However, an arbitrary standard of 2 to 1 should not be blindly followed. Firms with less than 2 to 1 current ratio may be doing well and while firms with 2 to 1 or even higher current ratios may be struggling to meet their obligations. However, current ratio is the crude and quick measure of the firms liquidity.
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2). Quick Ratio / Liquidity Ratio: This ratio is also termed as Acid-test ratio. A Quick ratio is concerned with standard of 1:1 and the relationship between quick assets and current liabilities. It is a measure of liquidity calculated dividing current assets minus inventory and prepaid expenses by current liabilities. The Quick Ratio is the ratio between quick current assets and current liabilities. It is calculated by dividing the Quick Current Assets by the Current Liabilities.
QUICK RATIO = QUICK CURRENT ASSETS CURRENT LIBILITIES
Table: 2
The Table Showing Quick Ratio Year 2007-08 2008-09 2009-10 Quick Assets 5,60,85,341 4,80,84,737 7,73,45,341 Current Liabilities 5,37,36,056 5,80,79,322 7,56,55,623 Quick Ratio 1.04 0.83 1.02
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Quick Ratio
1.2 1 0.8 0.6 0.4 0.2 0 2007-08 2008-09 2009-10 Quick Ratio
Interpretation: From this, we can understand that the company had held Rs.1.04 of quick assets to meet Rs.1 current liability. Generally, a quick ratio of 1 to 1 is considered to represent a satisfactory current financial condition. The company is having 1.04:1, 0.83:1, 1.02:1 for the years 2007-2008, 2008-2009 and 2009-2010 respectively. Here we can notice that 1.04 and 1.02 are more than the satisfactory level. Although quick ratio is more penetrating test of liquidity, yet it should be used cautiously. A quick ratio of 1 to 1 or more does not necessarily imply sound liquidity position. It should be noted that all the debtors may not be liquid and cash may be immediately needed to pay operating expenses. It should be noted that inventories are not absolutely non-liquid. Thus company with a high value of quick ratio can suffer from the shortage of funds if it has slow paying, doubtful and long-duration outstanding debtors. On the other hand, a company with low value of quick ratio may really be prospering and paying its current obligation in time if it has been turning over its inventories efficiently. Nevertheless, the quick ratio remains an important index of firms liquidity.
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3). Inventory Turnover Ratio/Stock Turnover Ratio: Every firm has to maintain a certain level of inventory of finished goods so as to meet the requirements of the business. The inventory turnover reflects the efficiency of inventory management. The higher the ratio, the more efficient the management of inventories & vice versa. This ratio establishes relationship between cost of goods sold during a given period of time and average amount of inventory held during that period. It can be ascertained by following formula:
Cost of Goods Sold = Sales Gross Profit Average Inventory = Opening Stock + Closing Stock / 2 Table: - 3 The Table Showing Inventory Turnover Ratio Year 2007-08 2008-09 2009-10 Cost of Goods Sold 43,98,40,675 49,50,39,504 59,57,37,895 Average Inventory 2,71,51,621 2,87,14,623 2,42,39,437 Inventory Turnover Ratio 16.20 17.24 24.57
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Interpretation: From this, we can understand that the inventory turnover of Dharwad Milk Union is increasing. This shows that the firms performance is better in selling its products. Inventory turnover ratio measures the velocity of conversion of stock into sales. Usually a high inventory turnover/stock velocity indicates efficient management of inventory because more frequently the stocks are sold, the lesser amount of money is required to finance the inventory. A low inventory turnover ratio indicates an inefficient management of inventory. A low inventory turnover implies over-investment in inventories, dull business, poor quality of goods, stock accumulation, accumulation of obsolete and slow moving goods and low profits as compared to total investment. The inventory turnover ratio is also an index of profitability, where a high ratio signifies more profit, a low ratio signifies low profit. Sometimes, a high inventory turnover ratio may not be accompanied by relatively high profits. Similarly a high turnover ratio may be due to under-investment in inventories. It may also be mentioned here that there are no rule of thumb or standard for interpreting the inventory turnover ratio. The norms may be different for different firms depending upon the nature of industry and business conditions. However the study of the comparative or trend analysis of inventory turnover is still useful for financial analysis.
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4). Inventory Conversion Period: Inventory period is the time lag between the purchase of raw materials & sale of finished goods. It includes: Raw Materials Conversion Period W-I-P Conversion Period Finished Goods Conversion Period
No. of Days in a Year 365 days Table: - 4 The Table Showing Inventory Conversion Period Year 2007-08 2008-09 2009-10 No. of Days in a Year 365 365 365 I.T.R 16.20 17.24 24.57 Inventory Conversion Period 23 21 15
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Interpretation: From this we get to know the number of days Dharwad Milk Union is taking to convert raw materials into finished products. In last 3 years, the company has improved its conversion period yearly. It indicates the faster conversion of inventory & the faster sale of its goods.. D.M.U has been maintaining better inventory conversion period.
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5). Debtors Turnover Ratio/Accounts Receivable Turnover Ratio: Debtors Turnover Ratio is an important part of current assets; it is determined by dividing the net credit sales by average debtors outstanding during the year. The analysis of the debtors turnover ratio supplements the information regarding the liquidity of an item of current assets of the firm. The ratio measures how rapidly receivables are collected. It can be ascertained by the following formula:
DEBTORS TURNOVER RATIO = TOTAL SALES DEBTORS
Total Sales includes: Sale of cattle feed, Sale of Milk, Sale of Milk Products, Sale of P & I, Other Sales. Debtors:Sundry Debtors Table: - 5 The Table Showing Debtors Turnover Ratio Year 2007-08 2008-09 2009-10 Total Sales 51,18,17,606 60,79,62,383 73,76,99,820 Debtors 1,72,44,418 2,20,73,532 2,41,79,465 Debtors Turnover Ratio 29.68 27.54 30.51
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Interpretation: From this we get to know the last 3 years debtors turnover ratio of Dharwad Milk Union. In the year 2009-10, the debts are collected rapidly i.e. 30.50 compared to other 2 years. Accounts receivable turnover ratio or debtors turnover ratio indicates the number of times the debtors are turned over a year. The higher the value of debtors turnover the more efficient is the management of debtors or more liquid the debtors are. Similarly, low debtors turnover ratio implies inefficient management of debtors or less liquid debtors. It is the reliable measure of the time of cash flow from credit sales.
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6). Debtors Collection Period: The Debtors/Receivable Turnover ratio when calculated in terms of days is known as Average Collection Period or Debtors Collection Period Ratio. The average collection period ratio represents the average number of days for which a firm has to wait before its debtors are converted into cash.
Table: - 6 The Table Showing Debtors Collection Period Year 2007-08 2008-09 2009-10 No. of Days in a Year 365 365 365 Debtors Turnover Ratio Debtors Collection Period 29.68 27.54 30.51 13 14 12
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Interpretation: From this, we get to know the debts collection period of Dharwad Milk Union. From 2007-08 to 2008-09 the debts collection period shows an increasing trend which shows customers have not made payment promptly. But in the year 2009-10 the debts collection period seems to have decreased by 2 days and shows prompt payment made by the customers compared to the previous years. This ratio measures the quality of debtors. A short collection period implies prompt payment by debtors. It reduces the chances of bad debts. Similarly, a longer collection period implies too liberal and inefficient credit collection performance. It is difficult to provide a standard collection period of debtors.
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Table: - 7 The Table Showing Creditors Turnover Ratio Year 2007-08 2008-09 2009-10 Net Purchase 38,30,26,045 42,55,91,913 51,56,87,484 Average Creditors 79,44,451 1,08,12,931 83,08,177 Creditors Turnover Ratio 48.21 39.36 62.07
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Interpretation: From this, we understand that there are ups & downs in the ratio of credit turnover. But in 2009-10, the credit payment of D.M.U has increased to 62.07. It indicates that D.M.U has been paying credit properly. The average payment period ratio represents the number of days by the firm to pay its creditors. A high creditors turnover ratio or a lower credit period ratio signifies that the creditors are being paid promptly. This situation enhances the credit worthiness of the company. However a very favorable ratio to this effect also shows that the business is not taking the full advantage of credit facilities allowed by the creditors.
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Table: - 8 The Table Showing Creditors Payment Period Year 2007-08 2008-09 2009-10 No. of Days in a Year 365 365 365 Creditors Turnover Ratio 48.21 39.36 62.07 Creditor's Payment Period 8 10 6
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Interpretation: It may be found that there are ups & downs in credit payment period of Dharwad Milk Union. But in the year 2009-10 the credit payment period is high i.e. 6 days. It indicates that the D.M.U has made its payment regularly.
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9). Working Capital Turnover Ratio: This ratio indicates whether the working capital has been properly utilized in making sales or not. This ratio measures the efficiency with the working capital. It is taken as one of the primary indicators of the short-term solvency of the business. It establishes the relationship with the net sales. This ratio represents the number of times the working capital is turned over in course of a year i.e. it measures the efficiency with which the working capital is being used by the firm. It is calculated by following formula:
WORKING CAPITAL TURNOVER RATIO = COST OF GOODS SOLD NET WORKING CAPITAL
Cost of Goods Sold = Sales Gross Profit Net Working Capital = Current Assets Current Liabilities Table: - 9 The Table Showing Working Capital Turnover Ratio Year 2007-08 2008-09 2009-10 Cost of Goods Sold 43,98,40,675 49,50,39,504 59,57,37,895 Net Working Capital 3,24,93,408 1,72,90,538 2,28,83,469 Working Capital Turnover Ratio 13.53 28.63 26.03
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Interpretation: We see that though there are ups and downs in the working capital turnover ratio over the years, there is a considerable increase in the ratio from 2007-08 to 2008-09. This shows an efficient utilisation of working capital. But again in the 2009-10 there seems to be a low trend in the ratio indicating inefficiency compared to its previous year. The working capital turnover ratio measure the efficiency with which the working capital is being used by a firm. A high ratio indicates efficient utilization of working capital and a low ratio indicates otherwise. But a very high working capital turnover ratio may also mean lack of sufficient working capital which is not a good situation.
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10). Current Assets Turnover Ratio: This ratio reveals the relationship between cost of goods sold and current assets. The higher the ratio, the better is the firm in utilizing its current assets. The lower ratio indicates that investment in current assets has not brought commensurate gain to the firm. It is calculated by following formula:
Table: - 10 The Table Showing Current Assets Turnover Ratio Year 2007-08 2008-09 2009-10 Total Sales 51,18,17,606 60,79,62,383 73,76,99,820 Current assets 8,62,29,464 7,53,69,860 9,85,39,092 Current Assets Turnover Ratio 5.93 8.07 7.48
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Interpretation: This helps us know how Dharwad Milk Union has utilized its current assets. From the year of 2007-08 to 2008-09 the ratio has increased and indicates that D.M.U has utilized its current assets more efficiently in that year. It reflects the good current assets management. But it has got decreased for the year 2009-10 which shows inefficient usage of current assets compared to its previous year.
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Table: - 11 The Table Showing Gross Operating Cycle Year 2007-08 2008-09 2009-10 Inventory Conversion Period 23 21 15 Debtors Collection Period Gross Operating Cycle 13 14 12 36 35 27
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Interpretation: From this we can understand that gross operating cycle has improved over the years and has shown better performance.
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12). Net Operating Cycle: Net Operating Cycle is the time length between the payment for raw material purchases & the Collection of cash for sale. It is difference between gross operating cycle & creditors conversion period. It is calculated by following formula:
Table: - 12 The Table Showing Net Operating Cycle Year 2007-08 2008-09 2009-10 Gross Operating Cycle 36 35 27 Creditor's Payment Period Net Operating Cycle 8 10 6 28 25 21
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Interpretation: From this we can understand that net operating cycle has improved over the years and has shown better performance.
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Collection Period 12 Net operating Cycle Gross Operating Cycle 28 Creditors payment Period
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25
21
Findings
1) The Current Ratio shows that for the year 2009-10, the liquidity position of the Dharwad Milk Union is less i.e. 1.30. This ratios standard norm is 2:1. So it is struggling to recover the current ratio of the firm. 2) The Quick Ratio of the Dharwad Milk Union for the year 2009-10 is 1.02.This ratios standard norm is 1:1. So the DMU seems to have maintained good quick ratio in its financial activities.
3) The Inventory Turnover Ratio of the Dharwad Milk Union has shown a considerable increase over the years and shows 24.57 for the year 2009-10. This shows that the firms performance is better in selling its products.
4) In last 3 years, the company has improved its conversion period from year to year and shows 15 for the year 2009-10. It indicates the fast conversion of inventory & the faster sale of its goods. D.M.U has been maintaining better inventory conversion period.
5) In the year 2009-10, the debts are collected rapidly i.e. 30.50 and it is higher compared to other 2 years. So the higher the debtors turnover ratio, the more efficient is the management of debtors or more liquid the debtors are.
6) From 2007-08 to 2008-09 the debts collection period shows an increasing trend which shows customers have not made payment promptly. But in the year 2009-10 the debts collection period seems to have decreased by 2 days and shows prompt payment made by the customers compared to the previous years.
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7) From this, we understand that there are ups & downs in the ratio of credit turnover. But in 2009-10, the credit payment of D.M.U has increased to 62.07. It indicates that D.M.U has been paying credit properly.
8) Credit payment period of Dharwad Milk Union for the year of 2009-10 is in decreasing trend with 6 days. It indicates the company is maintaining credit payment properly.
9) There are ups and downs in the working capital turnover ratio and has decreased for the year 2009-10. It shows the D.M.U has not properly utilized the working capital for making the sales.
10) There are ups and downs in Dharwad Milk Union in utilising its current assets and has decreased for the year 2009-10. It indicates that D.M.U has not utilised its current assets more efficiently compared to previous years.
11) The gross operating cycle has improved over the years and has shown better performance.
12) The net operating cycle has improved over the years and has shown better performance.
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Suggestions:
1.It is suggested that the Dharwad Milk Union (DMU) has to increase its current ratio.
2. It is also suggested that DMU has to maintain stability in its quick ratio.
3. The firms performance is better in selling its products. So it is suggested that the Dharwad Milk Union (DMU) has to maintain the same stability in managing its inventory and improve still better if possible and firm is also maintaining good inventory conversion period.
4. The higher the debtors turnover ratio, the more efficient is the management of debtors or more liquid the debtors are. For the recent year the firm has shown better debtors turnover ratio. So the firm has to maintain that stability and improve over time. . 5. For the recent year, debt collection period has decreased which shows prompt payment by debtors. So firm has to manage the same conditions and still improve over time.
6. A high creditors turnover ratio or a lower credit period ratio signifies that the creditors are being paid promptly. This situation enhances the credit worthiness of the company. It seems that the firm has maintained high creditors turnover ratio and lower credit period for the recent year accordingly. So firm has to manage the same conditions and still improve over time.
7. D.M.U has not properly utilized the working capital for making the sales as there have been ups and downs in its utilization and has shown decreased value for the recent year. So it is advised to make efficient use of working capital.
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9. It is suggested that Dharwad Milk Union (DMU) should continue to show better performance in its gross and net operating cycles as it has been showing over the financial years.
10. Dharwad Milk Union (DMU) should have to appoint skilled and qualified employees and also new technology in machineries. It increases efficiency and quality of the firm.
11. DMU should have to computerize all the departments in order to increase efficiency and productivity of employees.
13.DMU should have to take sales promotion measures like free home delivery to urban consumers. This helps to increase the market share through increased sales.
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Conclusion:
The study of Working Capital Management in DMU is satisfactory. I got more information on working capital management of the D.M.U. The study of the last three years liquidity position of the company is better. In the last three years company is facing several problems in finance & marketing & promotional activities. D.M.U has suffered losses due to financial problems & less quantity of milk supply in the previous years but in the recent year, it is in better position. It shows that D.M.U is improving its financial conditions & also utilizing its assets & resources properly. If D.M.U continues the same performance as in the current financial year, it can earn more profits.
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Bibliography
Text Books: I.M. Pandey Financial Management. Vikas Publishing House Pvt. Ltd. M.Y. Khan and P. K. Jain Financial Management.
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