A STUDY ON

“RATIO ANALYSIS”
WITH REFERENCE TO

VIJAYA DAIRY
VIJAYAWADA
A PROJECT REPORT SUBMITTED TO

JNT UNIVERSITY
IN PARTIAL FULFILMENT OF THE REQUIREMENT FOR THE AWARD OF THE

MASTER OF BUSINESS ADMINISTRATION

SUBMITTED BY

P.SANKAR RAO
(Regd. No. 11X21E00129)
UNDER THE GUIDANCE OF

SK. IRSHAD,MBA,M.COM
,
POST GRADUATE DEPARTMENT OF BUSINESS ADMINISTRTIO

PRIYADARSHINI INSTITUTE OF TECHNOLOGY &

SCIENCE
CHINTALPUDI-522306
2011-2013
 DECLARATION

I, hereby declare that this project report entitled as a study on

RATIO ANALYSIS in VIJAYA DAIRY, vijayawada has been prepared by me

during the year 2011- 2013, in partial Fulfillment of the requirement for

the award of my “MASTER OF BUSINESS ADMINISTRATION” in

PRIYADASHANI INSTITUTE OF SCIENCE AND TECNOLOGY

CHINTALAPUDI, DUGGIRALA, TENALI, Affiliated to JNT UNIVERSITY,

KAKANADA

I also declare that this project is the outcome of my own efforts and it has

not been submitted to any other University for the award of any other

degree or diploma.

P.SANKAR RAO

11X21E0029

Date:

Place:
 CERTIFICATE

This is to certify that the Project Report entitled “RATIO

ANALYSIS” with reference to VIJAYA DAIRY, Vijayawada is a bonafide

work of Mr. P. SANKAR RAO under my Guidance and Direction in the

Partial Fulfillment for the award of “Master of Business- Administration”

during the period 2011-2013.

Project Guide Head of Department

ACKNOWLEDGEMENT

I express my sincere thanks to MR.SK. IRSHAD, Head, Department of

Management studies, PRIYADARSHINI INSTITUTE OF TECHNOLOGY &

SCIENCE for permitting to do the project work.

I express my sincere thanks to Mr SK. IRSHAD, faculty, for her valuable

Guidance and Enthusiastic Encouragement in motivating me to take up

the project work.

I am Indebted to Sri. T.BABU RAO, Advisor (TRG) VIJAYA DAIRY, for

providing me an opportunity to do my project work in their esteemed

organization with whose timely help my project work could not have

been successful.

I would like to express my heartfelt Gratitude to my family for their Co-

operation, and to all those who have helped me directly and indirectly

with their Suggestions and Encouragement in making this project work a

success.
 CONTENTS
INTRODUCTION TO FINANCIAL MANAGEMENT
CHAPTER-I
 INTRODUCTION
 NEED FOR THE STUDY
 OBJECTIVES OF THE STUDY
 SCOPE OF THE STUDY
 METHODOLOGY
 LIMITATIONS

CHAPTER-II
INDUSTRY PROFILE
CHAPTER-III
COMPANY PROFILE
CHAPTER-IV
THEORTICALLY FRAME WORK
CHAPTER-V
DATA ANALYSIS & INTERPRETATION
CHAPTER-VI
 FINDINGS AND SUGGESTIONS
 ABBREVATIONS
 GLOSSARY
 ABBREVATIONS
SL.NO LIST OF TABLES PAGE NO.

5.1 CURRENT RATIO

5.2 QUICK RATIO
5.3 CASH RATIO
5.4 NET WORKING CAPITAL RATIO
5.5 DEBT RATIO
5.6 DEBT EQUITY RATIO
5.7 PROPRIETORY RATIO
5.8 RETURN ON EQUITY
5.9 RETURN ON INVESTMENT
5.10 EARNINGS PER SHARE
5.11 DIVIDEND PER SHARE
5.12 DIVIDEND PAYOUT RATIO
5.13 PRICE EARNINGRATIO
SL.NO LIST OF GRAPHS PAGE NO.

5.1 CURRENT RATIO

5.2 QUICK RATIO
5.3 CASH RATIO
5.4 NET WORKING CAPITAL RATIO
5.5 DEBT RATIO
5.6 DEBT EQUITY RATIO
5.7 PROPRIETORY RATIO
5.8 RETURN ON EQUITY
5.9 RETURN ON INVESTMENT
5.10 EARNINGS PER SHARE
5.11 DIVIDEND PER SHARE
5.12 DIVIDEND PAYOUT RATIO
5.13 PRICE EARNING RATIO
 INTRODUCTION
TO
FINANCIAL MANAGEMENT
INTRODUCTION TO FINANCIAL MANAGEMENT

Financial Management is that activity which is concerned with the

planning and controlling of the firm’s financial resources. It was a branch

of economics till1890, as a separate activity discipline of recent origin.

Still, it has no unique body of knowledge of its own and draws heavily on

economics for its theoretical concepts even today.

Financial Management is a managerial activity, which is concerned with

planning and controlling of firms financial resources. Theory of Financial

Management provides conceptual and analytical insight to make

decisions relating to financial aspects of organization skillfully.

MEANING OF FINANCIAL MANAGEMENT

“Financial Management is concerned with the efficient use of an

important economic resources, namely Capital Fund”. -------------

SOLOMAN

“Financial Management deal with procurement of funds and their

effective utilization in the Business”. ----------S.C.KUCHHAL

“Financial Management is concerned with the managerial decisions that

result in the acquisition and financing of short term and long term credits

for the firm”. ------------PHILLIPPATUS

From the above definitions, we can understand that there are, two basic

aspects of financial management viz., ‘procurement of Funds’ and

‘Effective use of these Funds’ to achieve business objectives.

PROCUREMENT OF FUNDS:

Since funds can be obtained from different sources,

therefore their procurement is always considered as a complex problem

by Business concerns. Funds procured from different sources have

different characteristics in terms of risk-cost and control.

THE FUNDS MAY BE RAISED:

 By issue of Equity shares

 By way of Debentures
 Also procured from Financial Institutions etc.

PROCUREMENT OF FUNDS INTER ALIAS INCLUDES:

 Identification of Sources of Finance

 Determination of Financial mix
 Raising of Funds
 Division of profits between dividends and retention of profits i. e.,

internal fund generation

OBJECTIVES OF FINANCIAL MANAGEMENT:

Efficient Financial Management requires the existence of some objectives

or goals because Judgement as to whether or not a Financial Decision is

efficient must be made in the lights of some objectives of Financial

Management.

They are:

1. Profit Maximization

2. Wealth Maximization

FINANCE FUNCTIONS OR DECISIONS INCLUDE:

 Investment (or) long term-mix decision

 Financing (or) capital-mix decision
 Dividend (or) profit allocation-mix
 Liquidity (or) short-term asset-mix decision
 CHAPTER-I
INTRODUCTION

INTRODUCTION

Ratios are among the best known and most widely used tools of financial
analysis. Ratio is defined formally as the indicated quotient of two
mathematical expressions. An operational definition of a financial ratio is
it is the relationship between the two values. Generally it is defined as the
strengths and weaknesses of a firm as well as its historical performance
and liquidity position can be determined.

A financial ratio is a relationship between two accounting numbers.

Ratios help to make a qualitative judgment about the firm’s financial
performance.

Ratio analysis is a process of identifying the financial strengths and

weaknesses of the firm. This may be accomplished either through a trend
analysis of the firm’s ratios over a period of time or through a
comparison of the firm’s ratios with its nearest competitors and with the
industry averages. The four most important financial dimensions, which
a firm would like to analyse, are: liquidity, leverage, activity and
profitability.

Ratio analysis is a very useful tool to raise relevant questions on a

number of managerial issues. It provides clues to investigate those issues
in detail. However, caution needs to be applied while interpreting ratios
as they are calculated from the accounting numbers. Accounting numbers
suffer from accounting policy changes, arbitrary allocation procedures
and inflation.
The essence of the financial soundness of a company lies in balancing its
goals, commercial strategy, product-market choices and resultant
financial needs. The company should have financial capability and
flexibility to pursue its commercial strategy. Ratio analysis is a very
useful analytical technique to raise pertinent questions on a number of
managerial issues. It assessing the financial health of the company with
the help of ratio analysis, answers to the following questions relating to
the company’s profitability, assets utilization, liquidity, financing and
strategies capabilities may be sought.

NEED FOR STUDY:

Finance is a body of facts, principles and theories dealing with raising
and using of money by individuals, business and government. Financial
management is that management activity which is concerned with the
planning and controlling of the firm’s financial resources.

Financial reports like annual reports etc. are one of important resources
of information for judging the operational and financial performance of a
business. Ratio analysis is the basis for scientific and quick decision-
making process. Ratios provide quick insight in to the strengths and
weakness of the firm

Ratio analysis is a powerful tool of financial analysis. In financial

analysis; a ratio is used as a bench mark for evaluating the financial
position and performance of a firm. The absolute accounting figures
reported in financial statements do not provide a meaningful
understanding of a performance and financial position of the firm.

An accounting figure conveys meaning when it is related to some other

relevant information. For example, an Rs.5crore net profit may look
impressive, but the firm’s performance can be said to be good or bad only
when the firm net profit is related to firm’s investment. Ratios help to
summaries large quantities of financial data and to make qualitative
judgment about the firm’s financial performance.
OBJECTIVES OF THE STUDY:
1.To know the history and growth of VIJAYA DAIRY this will be used as

background information to the proposed work.

2.To assess the financial performance of VIJAYA DAIRY.

3.To study the working of VIJAYA DAIRY by using financial ratios.

4.Establish the objectives of the analysis.

5.To identify the gaps and make the interpretations and suggestions to fill

the gaps.

6.To study the extent of the financial ratios useful for appraising a

project.

7.To study the nature of financial ratios used by VIJAYA DAIRY in the

project appraisal.

SCOPE OF THE STUDY:

This study analyses the firm’s past performance and assesses its financial
strengths through the study of various types of ratios using the data
stated for the financial years starting from 2007-2011.
This is expected to highlight performance of the company so as to enable
me to draw appropriate conclusions. It is also submitted that the project
is undertaken at corporate level i.e. for VIJAYA DAIRY as a whole. Analysis
at divisional level is not attempted because of the volume and time
constraints.

While the conclusions drawn are my own, it is submitted that the same
are based in the information and data collected and my discussions with
concerned executives without prejudice to alternative courses of action.

METHODOLOGY:

1. COLLECTION OF DATA:
Methodology is a systematic procedure for collecting information in
order to analyze and verify the phenomenon. For the study of all the
objectives the following methodology is adopted. The collection of
information is done through two principle sources.

1. Primary Source:
The information was collected from personal interviews and
discussions with various officials in the firm.

2. Secondary Source
The rest of the information was collected from annual reports of the
company for the relevant period. Annual reports include Profit & loss
statements and Balance sheets. In those reports contains the results of
the past performance have been considered to be the most important
reliable source of financial data of the concern.

LIMITATIONS OF THE STUDY

1.Due to the time constraint only few ratios were worked to study the

performance of VIJAYA DAIRY for a period of 5 years.

2.Lack of time is another limiting factor i. e, the schedule period of 6

weeks are not sufficient to cover vast subject of ratio analysis.

3.Due to time constraint this study covers only one case study.

4.This study is solely pertaining to ratio analysis of VIJAYA DAIRY being

operated by VIJAYA DAIRY

5.Various methods and techniques adopted by other financial institutions

in Financing Ratio Analysis cannot be touched.

6. This study is restricted to head office only.

7.Other Limitations of the study are:

 False Results
 Limited Comparability
 Absence of standard Universally accepted terminology
 Ignoring qualitative factors.
 CHAPTER-II
INDUSTRY PROFILE

INDUSTRY PROFILE

Industry scenario:-
Dairy has been of life in India since the ancient times. The modern diary
Industry took root in 1950 with the sale of bottled milk in Bombay from
array milk colony. The first large scale milk product factory was started in
1945 at Anand a co operative vender, with the assistance of UNICEF, for
the products were making from the buffalo milk powder, table butter and
ghee. These products were making from the buffalo milk.

The world`s largest development program program over

undertaken, the operation flood undertook and gigantic task of
upgrading and modernizing with production, procurement, processing
and marketing with assistance provided by the world bank and other
external agencies, designed and implemented by the National Diary
Development Board (NDDB) and the Indian Diary Corporation. The
project was launched in July, 1970. It`s basic concept compromises the
establishment of co-operative structure on Anand pattern.

Operation flood – 1:

Operation flood – 1 also referred to as white revolution in a

gigantic project profounder by government of India for developing
diary industry in the country. The operation flood – 2 originally
meant to be completion at total cost of about Rs .116 cores. The
operation flood – 2 was wholly financed by setting in India free
metric tons of bottle oil donated out of the surpluses of European
Economic Community.

ANAND PATTERN – 1:

Under the operation flood-1 the program for increasing

milk production was taken up in ice hinter lands of various breading
tracks on anand pattern and loudly proclaimed with a trample. the co –
operative were started originally in 18 of Indian milk shed districts and
later on mine more milk shed areas were added to make a total of 27 in
10 states of the country viz., Maharashtra, tamilnadu, Andhra Pradesh,
west Bengal , Bihar , Haryana, Punjab, Uttar Pradesh and Rajasthan.

Those dairy co-operatives are based on the model

known as anand pattern of dairy co-operative. Under anand pattern
concept rural co-operative infrastructure was to be built in the village,
the milk producers were to form their own village diary co-operative.
Thus pattern diary co-operative union organizes mobile veterinary and
artificial insemination counters.

In the sphere of co-operativisation the no. of anand

pattern organized societies under operation flood was 63121 on aprial
1st 1991 as age INST 60753 a year ago indicate one that year as many as
2368 new diary co-operative were formed.

OPERATION FLOOD -2:

The operation flood -2 which was started in July 1978 is

Scheduled to be completed in 1985 at a cost of 483 cores.
 A humble attempt has been made in it sufficient in appraisal of the
achievement made in some sufficient field during operating flood-1.
These achievements if all made particularly the Anand pattern diary co-
operative unions are to serve now bedrock of operation flood. Their
unions are to act to the starting Nucleuses for co-operative cluster
federation. The main instrument for this gigantic project operation flood-
2

The Indian Diary co-operative national possible are not

required to indicate the basis in which the state wise allocations were
made in operation flood-2 up to end of the 11,1979 Gujarat state got the
lion’s shares of 1666. 7o,00,000 five state Haryana, Bihar, Rajasthan and
Andhra Pradesh put together the total disbursement in their case was
1732 lakhs only. This trend is going to be maintained in operation flood-2

Operation flood-3:

The Indian dairy Industry is growing rapidly and may become a

string competitor to world Diary powder. The milk sector in the second
largest contribution to the agricultural economy in term of produce
phenomenal growth is a result of national diary development Board
through the operation Flood programs.

Operation Flood-2 now in its closing phase only consolidated the

procurement affords to boost production. The projection for milk output
for 200 AD is nearly 90 tones at on 5% growth diary factories established
under operation flood, which cover 170 milk sheds can handle 14.3
million liters milk dairy. They have a milk drying capacity of about 696
tons per day.

The rapid growth in milk production did way with import of milk
powder exceptfora (26400 tones) during the drought years.

MAJOR DAIRY PRODUCTS AND BRANDS:

COMPANY BRANDS MAJOR PRODUCTS

Nestle Milk –maid, Sweet condensed milk

Cerelac, lactogen, Powder , malted food,
milk
Milo & everyday
Powder & dairy whitener,
Ghee & ice cream.

Mild foods limited Milk food Ghee & ice cream

Cadbury Bourn vita Infant milk food,

Malted milk food.

Britannia Milk man Flavor milk, ghee milk

Powder, biscuits & Ghee.

NATIONAL DAIRY DEVELOPMENT BOARD:

At the time of industrialization at cattle feed factory at Knjari in

October 1964 the late sir LALBAHADUR SASTRY, the prime minister of
India paid unscheduled visits producers co-operative societies and stated
there overnight. He was impressed by the social economic changes
brought milk co-operatives in Krishna district and desired to have a
national level organization to milk producers co-operative societies
replicate Anandsin other part of the Country
 Thus the National Diary development Board was sent up under the
empowerment of ministry of Agriculture and Irrigation, Govt. of India in
September 1965under the society Registration Act 1860 and the Bombay
Trust Act 1950. The president of India nominates the Board of directors
including Chairman, secretary, and National Dairy development Board in
the chief of the organization.

ANAND PATTERAN DAIRY DEVELOPEDMENT:

The information Anand pattern of milk co-operative was launched

with the organization of Krishna District Co-operative Milk producers
Union Limited. In this pattern the function of dairy is milk procurement,
processing and marketing are controlled by the milk producers
themselves.

INSTALLED PROCESSING CAPACITIES:

S.NO Name of Milk Powder Butter Ghee U.H.T
the dairy
processing Mfg Mfg Mfg

1 Vishakha 300 13 - 8 50
Dairy
2 Rajahmundry 150 - - 4 -
 3 Vijayawada 250 22 12 25 -

4 Ongole Dairy 300 30 8 10 -

5 Nellore Dairy 75 - - 4 -

6 Chittor MPF 200 14 - 8 -

7 Nandayal 150 10 - 4 -
MPF
8 Hyderabad 250 12 - 8 30

9 Mother Dairy 200 - 4 4 -

Hayatnagar
10 Other dairies 249 - - - -

DAIRY INDUSTRY IN ANDHRA PRADESH:

The program Dairy Industry was mooted with commendable help

of the United International children’s Emergency Fund, Food and
agriculture Organization and freedom from Hunger company campaign
organization of the U.K. These organization insisted a lot of the
establishment of the dairy units at Hydria and Vijayawada in 1967 and
1969 respectively, which lead to pioneer dairy development in Andhra
Pradesh later to set cooling and chilling centers have been setup to feed
these two gigantic units.
 The Government of Andhra Pradesh started
dairy development corporation to interest of milk producers and
ensuring adequate supply of fresh milk at reasonable price to the urban
consumers as A.P.D.D.C, come in to the existence on 2nd April 1974.
A.P.D.D.C, providing employment to nearly 20 employees and organism
easy many as 87 dairy units including seven milk factories, 13 district
dairies 22 chilling centers 18 cooling center and 15 mini cooling centers.

In addition to that the private units contributing their

little mite in the development of dairy industry M/s. Hindustan milk
foods that has started a malted milk product factory in Rajahmundry.
Further to enhance working efficiency and to increase the turnover, the
Government has constituted on autonomous dairy development.
Corporation on the recommendation measure the dairy industry
improving towards massive milk production and milk collection

DAIRY DEVELOPMENT:
In 1960 pilot milk supply scheme was started in the
state for the dairy development. Its initial capacity was 100 liters a day in
the time of starting. Now its daily collection increased to 11 lakhs liters
per day. It is also working as alien between milk producers of the towns
providing reasonable price to the producers to maintain stable market.

A.P. DAIRY DEVELOPMENT CO-OPERATIVE FEDERATION

(A.P.D.D.C.F.):
A.P.D.D.C.F. was formed in October, 1981 to implement
Operation Flood-2 program through active involvement of producers in
organization milk production, procurement, processing and marketing
on ‘’three-tier’’. Co-operative structure as per the National government of
India . The three-tier system consists of primary co-operatives societies
13 village level., co-operative union at district level and federation at
state level.
OPERATION FLOOD:

In our state operation flood was divided in three “Anand Level’

1. Village level-D.C.S.
2. District level-13

OPERATION FIOOD PROGRAMM:

Indian dairy Development Corporation own the
responsibility of implementation of operation flood program, which
provides money assistance, put 70% towards loans and 30%as subsidy.
National Dairy Development corporation selected district of State for
implementation of operation fiod.

DISTRICT SELECTED UNDER OPERATION

District Milk sheds/unions

Krishna Krishna

Srikakulam Vishaka

Vijayanagaram Vishaka
Visakapatnam Vishaka

East Godavari Godavari

West Godavari Godavari

Chitoor Chitoor

Kurnool Kurnool

Cuddapah Cuddapah

Nalgonda Nalgonda

Rangareddy Rangareddy

Medak Medak

Nizamabad Nizamabad
 CHAPTER-III
COMPANY PROFILE

COMPANY PROFILE

Amul symbolizes the successful struggle of Krishna District

farmers to earn a fair price for their products. It reached climax in 1945.
The milk was then collected by a private trader Mr. Piston Edurji person
through contractors for Bombay milk scheme. Every milk producers can
become a member of the co-operative society. At general meetings of
members, representatives are selected to form a managing committee,
which manager the day to affairs to milk collection and its testing
concept, sold cattle feed. Each society also provides artificial
Insemination (A.I) services and veterinary first aid.

FUTURE FOCUS

India is the largest producer of milk in the world. Milk and milk products
accounts for a significant 17% of India's total expenditure on food. India's
total milk production is projected to grow to 108 million tons by end of
2008 according to the tenth five years plan estimates. India's is on the
verge of assuming to an important position in the global dairy industry.
The 50000 to new branded butter market, valued at US $ 133 million is
estimated to be growing at 8-10% per annum. The chase market is
estimated to be US $ 10 million in value terms and an estimated 540000
tons in volume terms, and has been growing at a compounded annual
growth rate (C.A.G.R) of 8-9% during 1999-2003. The growth in urban
areas has been higher at about 15% per annum. The ice cream market in
India is estimated to be about US $ 199 million per annum. A few
corporate employers, including MNC's are now focusing on this market.
For example, Nestle and Britannia have forayed into emerging segments
such as Ultra Heated Treatment (D.H.T)
and flavoured milk. Ultra Heat treated (U.H.T) milk is becoming popular

and the market is estimated at US $ 33.4 million (Rs. 1.5 billion).

The growth and future potential in the dairy sector have resulted
in significant investments into this sector in the last decade. Total
investment in the dairy sector during 1991-2002 was around US $ 3.3
million, of which foreign investment was US $ 245.5 million. Current
consumer trends like increasing urbanization indicate that this segment
will continue to be attractive in the future.

DAIRY INDUSTRY IN ANDHRA PRADESH

In Andhra Pradesh, agriculture is the major activity and the dairy

industry has a natural link with it as it is a complementary activity. The
progressive farmers of Andhra Pradesh are known for their scientific and
technological applications in the forms. In the initial stage, the dairy
development was soon shifted to a directorate. At that time of the
industry was mostly in the hands of private individuals and the quality
and price of milk was highly variable. A pilot project was started in 1961
and later the milk projects at Hyderabad and Vijayawada came into
existence with the gift of milk processing units from UNICEF. Projects
gave a new turn to the industry and soon chilling canters were
established in Krishna District. Later co-operative dairies were started in
Nellore, Chittor, Warangal and Kurnool. Dairy Development become a
part of Ministry of Agriculture and Food at the state level and the
activities of the Central dairy, its other dairy units and the co-operative
dairies come into scrutiny in 1971.
A.P Dairy Development Co-Operative Limited
The Genesis:
A state wide enterprise of co-operative for dairy development, the Andhra
Pradesh dairy development co-operative federation (A.P.D.D.C.F), as an
enterprise of one million fanners for dairy development, had its genesis in
1981, with a three tier co-operative

structure.

Objectives:

 To organize co-operative of milk producers at village and district

levels.
 Provide essential inputs to enhance milk production fed and
flooder production. Grass breeding programs, veterinary aid, and
take up development programs to provide effective leadership and
management skills to the milk producers to help them manage
their own 9200 co-operative.
 Development infrastructure for processing of milk and
manufacture of dairy
products and market wholesome and quality milk and milk
products.
 Fulfill the consumer needs of liquid mild milk products in the state.
 Develop new products and packaging lines in time with the
changing scenario of consumer market and needs.
 Integrate dairy development with overall rural development effort
sand provide
greater employment to the rural poor.
 Today there are 7000 co-operatives with 300 all women co-
operatives and a membership of over 8 lakh people across the
state.

Table 3.3

APDDCF AT A GLANCE

District Milk Unions 10 No.

Milk Sheds 5 No.

Milk Products Factories 7 No.

District Dairies 9 No.

Major Dairies 2 No.

Chilling Capacity 11.37 LLPD

Processing Capacity

Milk Products Factories 17.50 LLPD

District Dairies 3.24 LLPD

Major Dairies 3.50 LLPD

Total Processing Capacity 24.24 LLPD

Milk Collection Routes 421 No.

Milk Procedures Associations 4958 No.

Milk Collection Centres 9228 No.

Turnover 1999-00 637.43 Crores

 KRISHNA MILK UNION AN OVERVIEW

The Krishna District in Andhra Pradesh is endowed with rich

agricultural and livestock wealth which are two main planks to keep the
district ahead of others in the state. Agricultural and dairying is a
subsidiary occupation for the majority of people in the district. Most of
them are marginal, leadless, poor farmers and labourers.

The Krishna District has great potential for milk production with a
substantial marketable surplus to top. The market oriented milk production
is the key livestock activity to generate stable income for the farmer. About
90% of rural households are directly concerned with livelihood security to
the rural poor and buffers the risk due to crop failure.

The organization dairying in Krishna District commenced in 1965 by

the state Government with the assistance of UNICEF (United Nations
International Children Emergency Fund). Under a pilot project named
INTEGATED MILK PROJECT HYDERABAD AND VIJAYAWADA (1990) a Milk
Supply Scheme was introduced in 1965 to organize milk collection form the
villages, to process at chilling centre and supply pasteurized milk to the
consumers at Vijayawada and Hyderabad. The milk supply scheme was a
great success with its services to the producers and quality supplies to the
consumers. The initial procurement network was gradually extended to all
over the district within a span of 5 years. The "milk product factory" first of
its kind in south India was established and commissioned in Vijayawada by
1969.
 Starting with a tiny procurement of 243 liters of milk on 11-2-1965
under the milk
chilling centre, Pamarru the collection in the district has surpassed one
Lakh installed capacity of milk products factory, Vijayawada within two
years i.e., In 1971 necessitating additional capacities. The units were
under dairy development department (1971). The products
manufactured at milk products factory, Vijayawada such as butter, ghee,
skim milk powder, whole milk powder and infant milk food with brand
name VIJAYA earned appreciation of consumers all over the country.

The VIJAYA become synonym for superior quality competing AMUL.

The project is a buzz word among the public all over the region. The
expansion of milk products factory to meet the increased handling needs
has been taken up later under OPERATION FLOOD programmed by
National dairy development board (NDDB).
 Cattle Population in Krishna

(2007-08)

BREED ABLE ANIMALS PULATION in lakhs

Buffaloes 4.14

Cows 038

Total 4.52
 EXISTING INFASTRUCTURAL FACILITIES IN KRISHNA UNION

S.NO NAME OF THE FACILITY UNIT CAPACITY

I MILK CHILLING
1 Pamarru Litter/Day 50000

2 Verrankilock Litter/Day 18000

3 Gudlavalleru Litter/Day 18000

4 Hanuman Junction Litter/Day 18000

5 Chillakallu Litter/Day 12000

6 Tiruvuru Litter/Day 12000

TOTAL CHILLIN: 128000

II MILK. PROCESSING Litter/Day 2.30

III GHEE MANUFACTURE MlTs/Day 18.00

IV MILK DRYING MlTs/Day 22.00

V U.H.T.MILK MlTs/Day 45000

VI CATTLE FEED MIXING FACILITY

1 Budhavaram MlTs/Day 30.00

2 Gudlavalleru MITs/Day 18.00

Total 48.00

Procurement network: (2007-08)

Milk Co-operative Societies 676

Milk producers Associations 320

Procurement Routes 35

Women Dairy Co-operative Societies 103

ORGANIZATION:

 Integrated Milk Project (I960)

 Dairy Development Deportment (1971)

 AP Dairy Development Corporation Ltd (1974)

 AP Dairy Development Co-operative Federation Ltd (1981)

There was a big retinue of 1850 staff in different categories working

under the dairy units in the District under the administrative control of
AP dairy Development Corporation (APDDC) a state government
undertaking in 1974.

The nationwide strategic and structural changes organized for dairy

development activities across the nation have brought the dairy units

under the co-operative set up in Andhra Pradesh in 1981.

The replication of Anand pattern dairy co-operative is in Krishna

District has its beginning with the all out support of NDDB. Primary Milk
producers co-operative society at village level and District milk
producers cooperative union at District milk producers cooperative
union at district level and AP dairy development cooperative federation
at state level have come in to being. Enormous infrastructure financed by
under operation flood programme was developed for procurement
processing and marketing in the district AP.
 FEDERATION

(STATE LEVEL)

UNION (DISTRICT

LEVEL)

SOCIETY

(VILLAGE LEVEL)

The structural and institutional reform that are part and parcel of
NDDB took few years to unfold Krishna milk union in 1983 functioning
under the AP dairy development cooperative federation an apex body
under APCS, 1964 (Andhra Pradesh Cooperative Societies Act, 1964).

The management of dairy units in Krishna District transferred to

the respective democratically elected board of management with assets
and liabilities and staff as is where is with effect from 08.02.1985. The
producer is the owner of the business.
 S.No Particulars Value (Rs. In lakhs)

1 Assets Hyd. Form APPDDCF 173.96

2 Assets Hyd. Form APPDDCF 241.37

Total 415.33

1 Loans transferred from APPDPCF 231.21

2 Net value of Assets transferred 184.12

The union has to function as per the bye-laws. The APDDCF is the
Apex Body, marketing within the district is of the union and outside the
state it is controlled by Federation. The operational area of the union is
restricted to Krishna District only.

1 ho union with iis inherent problems had undergone travails in

80s and 90s ftom survival. The performance of Federation towards its
constituent union was deplorable. The Federation has been impeded by
various institutional and management weaknesses. Unfortunately, it has
not adopted the view of "let us get through the crisis together".

Krishna union was running with abnormal staff cost of 22% over
its turnover which is unbearable and against the industrial norms
threatening the very existence of the union.
Staff Cost

Year 1985 1992 2001 2008

No. of Employees 1850 1800 570 1100

Salary cost per annum (in

289 670 1629 2400
lakhs)

Krishna union adopted several measures to discharge its liabilities

and to have a turnaround so as to herald a new path to get better and
assured returns to the member producer to his produce milk building
well governed producer centric institutions whit its

Table on VRS

Phase No. On Employees retired

1st to 5th 650

2007-08 onwards 70

Total 720
MISSION AND VISION

Mission:

Farmer's prosperity through technical innovations and customer

orientation with specific focuses on quality and cost

Vision:

Dairying in the district to be the major instrument of strengthening

rural economy and making available sage milk and milk products.+
Quality Policy:

Aiming to be a technologically advanced dairy with global outlook

providing products and services of highest quality delighting the

customers.

The Krishna Union has successfully:

1. Evolved long policies to encourage and augment milk

production and productivity in the District.
2. Improved efficiency in reducing the cost of operations, at
every stage from rural farmer to urban customer.
3. Increased the availability of milk and milk products every
look and corner of district.
4. Developed and restructured manpower of organization
to achieve competitive edge.
5. Consolidated the cooperative structure among the dairy
farmer.

Dairy Cooperatives Organized:

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

630 634 636 636 676

Farmer Members:

Year No. On farmers

2006-07 118700

2007-08 119000

2008-09 125000

2009-10 128286
20010-11 131272

Procurement price increases

Years Milk Price (Kg. Fats Rs.)

2004-05 175.00

2005-06 185.00

2006-07 195.00

2007-08 200.00

2008-09 215.00

2009-10 255.00
MILK PROCUREMENT PRICE

Most of the village dairy cooperative societies are viable and

managed by the producer members receiving better technical knowhow.
The government has enacted APMACS act, 1995 (Andhra Pradesh
Mutually Aided cooperative Societies) which provides autonomy to the
cooperatives. As per the policy and directive or from the state
government/ Federation, the Dairy cooperatives registered under APCS
act, 1664 were converted in to APMACS act, 1995. The Krishna Milk
union also opted for conversion into APMACS act, 1995 in July 2001 III
consonance with the wish her of its member producers.

Election is being help as per byelaws to the Board of Management

of Krishna Milk union under APMACS act, 1995.

 General Body

Board of Union

Managing Committee
of Villages are
Society

Member producer in the Society

The board of management is translating its concept in to realities as

we study further.
Milk Procurement Average per day (185,000 liters)
 Milk Sales Average Per day (1, 70,000 liters)

The union was under tremendous pressure at a stage to reformulate

independently

Under the APMACS act 1995 since 2001. Both the State Federation and
Government have adopted different stance towards the union under the
APMACS act as the Federation can no longer exercise control over the
unions as they enjoy autonomy in their affairs. The cooperation and
coordination to the union from the APDDCF is lacking. Relations between
union and Federation strained. Several hurdles were created in
marketing to the activities of the union in order to affect its fiscal status
to organize the business. The State Government has finally promulgate
on ordinance in Feb 2006 de linking the dairy cooperatives only from the
APMACS act 1995 and brining them back into the APCS act 1964 under
which they can have full administrative control. The union approached
the High Court in the matter and their appeal was allowed and dismissed
the dismissed the ordinance as unconstitutional. Since then the
Government and the Federation were adopted a vindictive attitude
towards the union in all its spheres.

The Krishna milk union is taking tentative steps to add fess

the potent yet potential volatile of autonomy under the APMACS act.

The farmers of Krishna District have so much faith and trust in

Krishna milk union and giving their produce in maximum in spite of
private players. The union has sustained share of 70% in procurement
and 60% in liquid marketing. The Krishna union is distinctly place in the
dairy map of Andhra Pradesh by its continuo's growth. The union is
trying to maintain a long time position with regard to short term
difficulties faced in organizing the union and the industry in the district,
it is poised to avail of the producers confidence, the resources and the
network to pursue its mission of serving the producers thereby socio
economic growth dairy and industry in general.

The Krishna union is translating its concepts in to reality as we go in

detail.
The Krishna union has the salient feature:

1. Turnover of Business reached to Rs. 164 Crores in

2007-08

2. Dairy average milk procurement 185000 Lts

3. Highest milk procurement 310000 Lts

4. Dairy average milk sales 164000 Its

5. Obtained ISO: 9001:2000 and IIACCA.

 Milk is inherently one of the best "Good for you" foods in today's
market place. Changing consumer food habits, preferences increasing
health consciousness and also the upsurge in the economy are leading to
dramatic change in the market trends frequently.

Demand is a phenomenon based primarily on need of the

consumer's purchasing power and product quality.

Vijaya the renowned brand of Krishna milk union has strong equity
amount consumers. It has been able to make an impact despite the
premium pricing. The brand offer, good margin to the traders, union has
a direct liquid milk market of 80% out of its procurement. It is
converting surplus milk in to diverse products.
 PRODUCT MIX OF UNION

Market Milk

Vijaya Gold, Vijaya Special, Vijaya Premium, Vijaya Economy,

Vijaya Low Fat

Long Life Products

UHT Milk in 1 It pack, UHT Milk in 200 ml pack, UHT Milk Low Fat

Fresh Milk Products

Basundi, Curd, Lassi, Butter Milk, Sterilized

Flavoured Milk
 Fresh Milk Products

Cooking Butter, Milk Cake, Skim Milk Powder, Pannier, Doodh Peda,
Ghee With its Wise-policies maintaining equilibrium between supply and
demand throughout the year without imposing restriction in the supplies
of milk products.

Milk Production has risen but productivity is low. Effort is on for

quality in Milk production upstream of processing plant. Union is
involved in producing good products establishing quality by upstream
integration with good Hygienic practices give by cooperatives. For down
stem side, the checks at plant and market level too exist. Quality is
equally by one and all in the set up.The employee's quality consciousness
and commitment makes the products superior in spite in stiff
competition from various other domestic markets. After initial focus on
the home markets, and attaining considerable national market and is
now targeting on the over sees market.
 The union is publishing a monthly news magazine titled KRISHNA
KSHEERAVANI a media on various aspects of dairying to the member
producers. The dairy and livestock development is very much linked with
veterinary. The stable/sustained income being provided by Krishna
Union to the Dairy farmers is creating and enthusiasm among the
farmers to rear quality breed for higher yield. Comparing to the
population the scale of our veterinary services to the needy farmer is not
up to the mark for various reasons.

The Krishna Union realizing the importance of input services to the

farmers for sustained milk production is:

1. Deploying retired veterinarians at each Milk Chilling centre for

animal health care services in the clustered villages.
2. Imparting training to the staff of Dairy Cooperative in veterinary
first aid and artificial insemination.
3. Providing fodder seed and slips.

4. Supplying balance feed for animals. Organizing mass

veterinary camps.

Women empowerment:

Women are exclusively manning 104 dairy cooperatives

which provide them empowerment.
MILK PRODUCTS FACTORY FUNCTIONAL

CHART RAW MAILK RECEIPTION DOCK

1. Receives Raw Milk/ Chilling Milk tonn different sources.

2. Tests initial keeping quality accepts for further process and weighs

milk received.

3. Collects samples for Fat & SNF analysis by QCL for determination of

value

payable.

4. Pumps to processing section for further treatment of milk.

PROCESSING

1. Pasteurization.
2. Cream separation.
3. Homogenization.
4. Standardization / Toning of milk as per different standards for
marketing.
5. Reconstitution and Recombining of milk.
6. Stores milk for other operations / Utilities.

BUTTER:

 OBTAINS CREAM AND RIPENS FOR Butter

Marketing.
 Produces white Butter, packs in 20 Kg blocks and
stores.
GHEE:

♦ Converts Butter and Cream into Ghee maintaining 'AG' Mark

standards.

♦ Packs in Bulk pack (15 Kg) and small consumer packs for market.

POWDER:

♦ Draws milk from processing section and spray dry into SMP, WMP.

♦ Packs in 25 Kg poly liners for further disposal.

ASEPTIC PACKAGING STATION:

 Treats milk at ultra high temp and packs aseptically for long
shelf life without
Refrigeration.

 Undertakes custom packaging of

beverages.

PRE PACK:

♦ Packaging of different quality / types of milk in sachets and in

cans for market.
♦ Storage of sacheted milk for distribution.

BIPRODUCTS:
 ♦ Manufactures various traditional products to meet market

demand.

CIP: (Cleaning in _place)

 Cleaning all dairy equipment after each day's operation to ensure

hygiene and sanitation for further operations.

FG Section: (Finished Goods)

 Stocks all finished products for subsequent release as per

requirements indents.

STORES: (General and Mechanical)

 Keeps inventory, supplies packing materials for different

products, chemicals, equipment, spares required in the dairy
operations regularly.

ENGINEERING DEPARTMENT:

Boiler : Generates steam required for dairy operations.

Electrical : monitors power supplies for all operational

needs.

Refrigeration : refrigeration requirements of the dairy.

Maintenance : Look after both the trouble shooting and preventive

Maintenance Of dairy plant for smooth and

Uninterrupted operations
QUALITY CONTROL LABORATORY (QCL):

1. Overseas ensuring rigorous quality control checks as per

relative Laws / Acts at various levels of production and
operations.
1. Product gets out after the clearance by QCL.

1. Stringent checks adopted on purchase and supply of stores material

CIVIL : Executes all civil nature of works for up

keeping of units. TRANSPORT: Provides limited transport

facilities.
 CHAPTER-IV

RATIO ANALYSIS
{A THEORETICAL FRAME WORK}
 RATIO ANALYSIS
{A THEORETICAL FRAME WORK}

MEANING OF RATIO:

The term ratio refers to the numerical or quantitative relationship

between two items or variables. A ratio is calculated by dividing one
item of the relationship with the other.

In other words, ratios, as a tool of financial management, can be

expressed as

a) Percentage,
b) Fraction, and
c) Proportion of numbers

The ratios reveal the relationship in a more meaningful way so as to

enable us to draw conclusions from them.

The use of ratios, as a tool of financial management, involves their

comparison as single ratio, unlike the absolute figures, which fails to
reveal the position.
RATIO ANALYSIS:

The ratio analysis converts figures into meaningful comparison forms and
removes the difficulty of drawing inferences on the basis of absolute
figures.

Comparison with related facts is, therefore, the basis of ratio analysis.
Four types of comparisons are involved:

i. Trend ratios, i.e. comparison of the ratios of the same firm over
time,
ii. Inter-firm comparison,
iii. Comparison of items with in a single years financial statement
of a firm;
iv. Comparison with standards or plans.

Trend ratios involve a comparison of ratios of an over time, i.e.

present ratios are compared with past ratios for the same firm. Trend
ratios indicate the direction of change in the performance –
improvement or deterioration or constancy over the years.

The inter-firm comparison, involving comparison of the ratios of a

firm with those of others in the same line of business or for the
industry as a whole reflects its performance in relation to its
competitors.
NATURE OF RATIO ANALYSIS:

Ratio analysis is a powerful tool of financial analysis. A ratio is defined

as “the indicated quotient of mathematical expression” and as “the
relationship between two or more things”. A ratio is used as
benchmark for evaluating the financial position and performance of
the firm. The relationships between two accounting figures,
expressed mathematically, are known as a financial ratio. Ratio
helps to summaries large quantities of financial data and to make
quantitative judgment about the firm’s financial performance.

The persons interested in the analysis of financial statements can be

grouped under three heads owners (or)

 Investors who are desire primarily a basis for estimating

earning capacity.
 Creditors who are concerned primarily with liquidity and
ability to pay interest a redeem loan within a specified period.
 Management is interested in evolving analytical tools that will
measure costs, efficiency, liquidity and profitability with a view
to make intelligent decisions.
 Statutory bodies/Government to measure taxes paid in terms
of revenues or profits earned by the companies
UTILITY OF RATIO ANALYSIS:
The ratio analysis is the most powerful tool of the financial analysis.
As stated in the beginning, many diverse groups of people are
interested in analyzing the financial information to indicate the
operating and financial efficiency, and growth of the firm. These
people use ratios to determine those financial characteristics of the
firm in which they are interested. With the help of ratios, one can
determined
The ability of the firm to meet its current and future obligations.
 The extent to which the firm has used its long-term solvency by
borrowings funds.
 The efficiency with which the firm is utilizing its assets in
generating revenue.
 The overall operating efficiency and performance of the firm.
ADVANTAGES OF RATIO ANALYSIS:

Ratio analysis when rightly used offers the following advantages:

1. It facilitates the comprehension of financial statements and

evaluation of several aspects such as financial health,
profitability and operational efficiency of the undertaking.
2. It provides inter-firm comparison to measure efficiency and
helps the management to take remedial measures.
3. It is also helpful in forewarning corporate sickness and helps
the management to take corrective action.
4. Trend analysis with the use of ratios helps in planning and
forecasting.

It helps in investment decision in the case of investors and lending

decisions in the case of bankers and financial institutions.
LIMITATIONS OF RATIO ANALYSIS:

The two major purposes of financial statement analysis are:

(1)Inflation adjusted
(2)Future looking
(3)Determination of financial solvency and
(4)Evaluation of profitability.
In the case of the first we are trying to asses the capability of the
company to meet its financial obligations as they mature in the case
of the second an evaluation is made about future rate of return as a
whole or for a particular security in which we are interested. We use
more than one ratio for each purpose. Some of the important
limitations of this tool are:

(a)Ratio analysis is based on financial statements, which are

themselves subject to severe limitations. Therefore, any
ratio analysis based on such statements suffers from similar
limitations.

(b) In the case of inter –firm comparison no two firms are

similar in age, size and product unit. Therefore, any
comparison of ratios of two such firms must take these
factors into account.
(c)Both the inter-period and inter- firm comparison is affected
by price level changes. A change in price-level can affect the
validity of ratios calculated for different time periods. In
such a case the ratio analysis may not clearly indicate the
trends in solvency and profitability of the company.

(d) Unless the various terms like gross profit, operating

profit, net profit, current assets, current liabilities, etc., are
properly defined, comparisons become meaningless. This
problem is now being solved with the adoption of
international accounting standards. Difference in accounting
policies with reference to stock valuation, depreciation and
other matters can also create problems in the matter of
inter-firm comparison and also inter-period comparison.

(e)Ratios are simple to understand and easy to calculate.

Therefore, there has been a tendency to over employ them.
How ever, it should be clearly understood that ratios are
only tools and the personal judgment of analyst is more
important. Again, the analyst should not merely rely on a
single ratio. He has to take several ratios (connected) into
account before reaching a conclusion.

(f) Conclusions from analysis of statements are not sure

indicators of bad or good management. They merely convey
certain observations pointing of matters needing
investigations. It is not wise to assume without further
 investigation that a condition particularly favorable or
unfavorable is present.

(g)Ratio analysis is based on the balance sheet prepared on the

accounting date. This practice, in some cases may lead to
window-dressing to cover up bad financial position. So,
ratios based on such figures are not reliable. It is, therefore
for the analyst to base his ratios on the average figures
pertaining to the accounting date.

(h) Ratio analysis is only a tool and is helpful to spot out the
symptoms. The analyst has to carry out further
investigations and exercise his judgment in arriving at a
correct diagnosis.

FINANCIAL STATEMENT ANALYSIS:

The focus of financial analysis is one key figures contained in the

financial statements and the significant relationship that exists
between them.

“Analysis financial statements “are a process of evaluating

relationship between components parts of financial statements to
obtain a better understanding of a firm’s position and performance”.
Financial ratio analysis is the calculation and comparison of ratios, which
are derived from the information in a company's financial
statements. The level and historical trends of these ratios can be
used to make inferences about a company's financial condition, its
operations and attractiveness as an investment.
Financial ratios are calculated from one or more pieces of information
from a company's financial statements. For example, the "gross margin"
is the gross profit from operations divided by the total sales or revenues
of a company, expressed in percentage terms. In isolation, a financial
ratio is a useless piece of information. In context, however, a financial
ratio can give a financial analyst an excellent picture of a company's
situation and the trends that are developing.

USERS OF FINANCIAL ANALYSIS:

Financial analysis is the process of identifying the financial strengths and
weakness of the firm by properly establishing relationship between the
items of the balance sheet and the profit and loss account. Financial
analysis can be undertaken by management of the firm, or by parties
outside the firm, viz. owners, creditors and others. The nature of analysis
will differ depending on the purpose of the analyst.
 TRADE CREDITORS are interested in firm’s ability to meet
claims over a very short period. Their analysis will, therefore,
confine to the evaluation of the firm’s liquidity position.

 SUPPLIRES OF LONG –TERM DEBT are concerned with the

firm’s long-term solvency and survival. They analyze the firm’s
profitability over time, its ability to generate cash to be able to pay
interest and repay principle and the relationship between various
sources of funds. Long –term creditors do analyze the historical
financial statements, but they place more emphasis on the firm’s
projected or pro forma, financial statements to make analysis about
its future solvency and profitability.

 INVESTORS, who have invested their money in the firm’s shares,

are most concerned about the firm’s earnings. They restore more
confidencein those firms that show steady growth in earnings. As
such, they concentrate on the analysis of the firm’s present and
future profitability. They also interested in the firm’s financial
structure to the extent it influence the firm’s earnings ability and
risk.

 MANAGEMENT of the firm would be interested in every aspect

of the financial analysis. It is their overall responsibility to see that
the resources of the firm are used most effectively, and that the
firm’s financial condition is sound.
TYPES OF RATIOS:

So many ratios, calculated from the accounting data, can be grouped into
various classes according to financial activity or function to be
evaluated. The parties interested in financial analysis are short and
long creditors, owners and management. Short-term creditor’s main
interest is in the liquidity position or the short-term solvency of the
firm. Long-term creditors are interested in long-term solvency and
profitability of the firm. Owners concentrate on the firm’s
profitability and financial condition. Management is interested in
evaluating every aspect of the firm’s performance. In view of the
requirement of the various users of ratios, we may classify them into
the following four important categories.

1. LIQUIDITY RATIOS
2. LEVERAGE RATIOS
3. ACTIVITY RATIOS
4. PROFITABILITY RATIOS
Liquidity Ratios:

Liquidity ratios measure the ability of the firm to meet its current
obligations. Liquidity ratios help in establishing a relationship
between cash and other current assets, to current obligations to
provide a quick measure of liquidity. A firm should ensure that it
does not suffer from lack of liquidity and that it does not have
excess liquidity. A very high degree of liquidity is also bad, ideal
assets earn nothing. The firm’s funds will be unnecessarily tied up in
current assets. Therefore it is necessary to strike a proper balance
between high liquidity.
 Current Ratio
 Quick Ratio
 Cash or Super Quick Ratio
 Net working Capital Ratio

Leverage Ratios:
The short-term creditors, like bankers and suppliers of raw material, are
more concerned with the firm’s current debt paying ability. On the
other hand, Long-term creditors like, debenture holders, financial
institutions etc. are more concerned with the firm’s long-term
financial strength.To judge the Long-term financial position of the
firm, financial leverage or capital structure ratios are calculated.
These should be an appropriate mix of debt and owners equity in
financing the firm’s assets.
The process of magnifying the shareholders return through the use of debt
is called “financial leverage”, or “financial gearing”, or “trading on
equity”.
Leverage ratios are calculated to measure the financial risk and the firm’s
ability of using debt to share holder’s advantage.

 Debt Ratio
 Debt-Equity Ratio
 Proprietary Ratio
Activity Ratios:
Activity ratios are employed to evaluate the efficiency with which the
firm manages and utilizes its assets. These ratios are also called
Turnover Ratios, because they indicate the speed with which assets
are being converted or turned over into sales.
Activity ratios thus involve a relationship between sales and assets. A
proper balance between sales and assets generally reflects that assets
are managed well. Activity ratios help to judge the effectiveness of
asset utilizations.
 Inventory Turnover Ratio
 Debtors Turnover Ratio
 Collection Period
 Total Assets Turnover Ratio
 Net Assets Turnover Ratio
 Fixed Assets Turnover Ratio
 Working Capital Turnover Ratio

Profitability Ratios:
A company should earn profits to survive and grow over a long period of
time.
Profits are essential but it would be wrong to assume that every action
initiated by the management of a company should be aimed at
maximizing profits. Profits are the difference between revenues and
expenses over a period of time.
Profitability ratios are calculated to measure the operating efficiency of
the company. Besides management of the company, creditors and
owners are also interested in the profitability of the firm. Creditors
want to get interest and repayment of principle regularly.
Generally, two major types of profitability ratios are calculated:
 Profitability in relation to sales
 Gross Profit Margin
 Net Profit Margin

 Profitability in relation to investment

 Return on Investment
 Return on Equity
 Earnings per Share
 Dividends per Share
 Dividend Pay-Out Ratio
 Price Earning Ratio

LIQUIDITY RATIOS:

1. Current Ratio:The current ratio is an acceptable measure of the

firm’s short –term solvency. Current assets include cash within a year,
such as marketable securities, debtors and inventories. Pre- paid
expenses are also included in current assets as they represent the
payments that will not be made by the firm in the future. All
obligations maturing within a year are included in current liabilities.
Current liabilities include creditors, bills payable, accrued expenses,
short-term bank loan, income tax liability and long term debt
maturing in the current year.

The current ratio is measure of the firm’s short-term solvency. It indicates

the availability of current assets in rupees for every one rupee of
current liability. A current ratio of 2:1 is considered satisfactory. The
higher the current ratio, the greater the margin of safety; the larger
the amount of current assets in relation to current liabilities, the
more the firm’s ability to meet its obligations. It is a crude-and-
quick measure of the firm’s liquidity.
Current ratio is calculated by dividing current assets and current
liabilities.

Current assets
Current Ratio = ----------------------
Current liabilities

2. Quick Ratio:
Quick ratio establishes a relationship between quick, or liquid, assets
and current liabilities. An asset is liquid if it can be converted into
cash immediately or reasonably soon without a loss of value. Cash is
most liquid asset, other assets that are considered to be relatively
liquid assets, other assets that are considered to be relatively liquid
and included in quick assets are debtors and bills receivables and
marketable securities (temporary quoted investments). Inventories
are considered to be less liquid.

Inventories normally require sometime for realizing into cash; their

value also has a tendency to fluctuate. The quick ratio is found out by
diving quick assets by current liabilities.

Current assets – inventories

Quick ratio = ----------------------------------
Current liabilities

Generally a quick ratio of 1:1 is considered to penetrating test of

liquidity than the current ratio, yet it should be used cautiously. A
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. A low quick ratio may really be prospering and paying its
current obligation in time.

3. Cash ratio:
Since cash is the most liquid asset, a financial analyst may examine cash
ratio and its equivalent current liabilities. Trade investment or marketable
securities are equivalent of cash; therefore, they may be included in the
computation of cash ratio.
If the company carries a small amount of cash there is nothing to be
worried about the lack of cash if the company has reserves borrowing
power. In India, firms have credit limits sanctioned from banks and
easily draw cash. Cash ratio is calculated as cash and marketable
securities divided by current liabilities.

Cash + marketable securities

Cash ratio = ------------------------------------------------
Current liabilities

4. Net Working Capital Ratio:

The difference between the current assets and current liabilities
excluding short-term bank borrowings is called net working capital
or net current assets.

Net working capital

Net working capital ratio = ---------------------------
Net assets

Some times it is used to measure firm’s liquidity. If the firm is having

NWC has the greater ability to meet its current obligations.

LEVERAGERATIO
DEBT RATIO:

Several debt ratios may be used to analyze the long-term solvency of

a firm. The firm may be interested in knowing the proportion of the
interest-bearing debt (also called funded debt) in the capital
structure. It may, therefore, compute debt ratio by dividing total debt
by capital employed or net assets. Total debt will include short and
long-term borrowing from financial institutions, debentures/bonds,
referred payment arrangement for buying capital equipment, bank
borrowings, public deposits and any other interest-bearing loan.
Capital employed will include total debt and net worth

Total debt
Debt ratio = -----------------------------
Total debt + Net worth

A high ratio means that claims of creditors are greater than those of
owner. A higher level of debt introduces inflexibility in the firm’s
operations due to the increasing interference and pressure from
creditors.

5. DEBT EQUITY RATIO:

Debt equity ratio indicates the relationship describing the lenders
contribution for each rupee of the owner’s contribution is called debt
equity ratio. Debt equity ratio is directly computed by dividing total
debt by net worth. Lower the debt equity ratio higher the degree of
protection. A debt equity ratio of 2:1 is considered ideal.

Total debt
Debt equity ratio = --------------
Net worth

6. PROPRIETARY RATIO:
This ratio shows how much part of the total assets is financed by the
proprietor funds. According to dell and Bedford it is one of the most
important and is considered by much analysis as ranking with the
current ratio in indicating credit strength. It is of great use in
measuring the capital structure & long term solvency of the company.
The difference between this ratio and 100 represents the ratio of
total liabilities to total assets.

Proprietary Fund
Proprietary Ratio = ------------------------
Total Assets

ACTIVITY RATIOS:
8. INVENTORY TURNOVER RATIO:

Inventory turnover ratio indicates the efficiency of the firm in producing

and selling its product. It is calculated by dividing the cost of goods
sold by the average inventory.
Cost of goods sold
Inventory turnover ratio = ----------------------
Average inventory

9. DEBTORS TURNOVER RATIO:

The second major activity ratio is the receivables or debtors turnover

ratio. It shows how quickly receivables or debtors are converted into
cash. In other words the debtor’s turnover ratio is a test of the
liquidity of the debtors of a firm.

Sales
Debtors Turnover Ratio = ----------
Debtors

10. COLLECTION PERIOD:

The average number of days for which debtors remain outstanding is
called period in other words its debtor’s remains outstanding for 12
months. The average collection period measures the quality of
debtors since it indicates the speed of their collection.

Debtors*360
Collection period = ---------------------
Sales
11. NET ASSETS TURNOVER RATIO:
Assets are used to generate sales therefore a firm should manage its assets
efficiency to maximize sales. The relationship between sales and
assets is called assets turnover. A firm’s ability to produce a large
volume of sales for a given amount of net assets is the most
important aspects of its operating performance.

Sales
Net assets turnover ratio = ------------
Net assets

12. TOTAL ASSETS TURNOVER RATIO:

Some analysis likes to compute the total assets turnover in addition to or
instead of the net assets turnover. This ratio shows the firm’s ability
in generating sales from all financial resources committed to total
assets.

Sales
Total assets turnover ratio = ------------------
Total assets
13. FIXED ASSETS TURNOVER RATIO:
The firm may wish to know its efficiency of utilizing fixed assets and
current assets separately. The use of depreciated value of fixed assets
in computing the fixed assets turnover may render comparison of
firm’s performance over period or with other firms.
Sales
Fixed assets turnover ratio = --------------------
Net fixed assets

14. WORKING CAPITAL TURNOVER RATIO:

A firm may also like to relate net current assets or net working capital to
sales. Working capital turnover indicates for one rupee of sales the
company needs how many net current assets. This ratio indicates
whether or not working capital has been effectively utilized in
market sales.
Sales
Working capital turnover ratio = -----------------------
Net current assets
PROFITABILITY RATIOS:
15. GROSS PROFIT MARGIN:
The first profitability ratio in relation to sales is the gross profit margin
the gross profit margin reflects the efficiency with which
management produces each unit of product. This ratio indicates the
average spread between the cost of goods sold and the sales revenue.
When we subtract the gross profit margin from 10percent, we,
obtain the ratio of cost of goods sold to sales. A high gross profit
margin ratio is a sign of good management. A gross margin ratio
may increase due to any of the following factors:

Higher sales prices cost of goods sold remaining constant, lower

cost of gods sold, sales price remaining constant. A low gross profit
margin may reflect higher cost of goods sold due to the firm’s inability to
purchase raw materials at favorable term’s inefficient utilization of plant
and machinery, or over investment in plant and machinery, resulting in
higher cost of production or due to fall in prices in the market.

Sales-cost of goods sold

Gross profit margin = -------------------------------
Sales
16. NET PROFIT MARGIN:
Net profit is obtained when operating expenses; interest and taxes are
subtracted from the gross profit. Net profit margin ratio establishes a
relationship between net profit and sales and indicates
management’s efficiency in manufacturing, administrating and
selling the products. This ratio is the overall measures of the firm’s
ability to turn each rupee sales into net profit.

This ratio also indicates the firm’s capacity to withstand adverse

economic condition. A firm with a high net ratio would be in an
advantageous position to survive in the face of falling prices, rising.

Profit after tax

Net profit margin = ---------------------
Sales

17. RETURN ON INVESTMENT:

The return on investment may refer to total assets or net assets. The fund
employed in net assets is known as capital employed. Investment
represent pool of a funds supplied by shareholders and lenders. Net
assets equal net fixed assets plus current minus current liabilities
excluding bank loans. Alternatively, capital employed us equal to net
worth plus total debt.
The conventional approach of calculating return on investment
(ROI) is to divide profit after tax by investment. Where ROTA and
RONA are respectively return on total assets and return on assets.
RONA is equivalent of return on capital employed.
 EBIT(I-T)
Return on investment = ---------------------
Total assets

18. RETURN ON EQUITY (ROE):

A return on shareholder’s equity is calculated to see the profitability of
owner’s investment. ROE indicates how well the firm has used the
resources of owner’s. This ratio is one of the most important
relationships in financial analysis. The earning of satisfactory return
is the most desirable objective of a business. The ratio of net profit
to owners’ equity reflects the extent to which this objective has been
accomplished. This ratio is of great interest to the present as well as
prospective shareholders and also of great concern to management,
which has the responsibility of maximizing the owners’ welfare.

Profit after tax

Return on equity = ----------------------------
Net worth

19. EARNING PER SHARE: (EPS)

The profitability of the common shareholders investment can also be

measured in many other ways. One measure is to calculate the EPS.
Earning per share indicates whether or not the firm’s earnings power
on per share has increased or not. EPS simply shows the profitability
of the firm on a per share basis. It does not reflect how much is paid
as dividend and how much is retained in the business. But, as
profitability index, it is valuable and widely used ratio. It alsohelps
in estimating the company’s capacity to pay dividend to its equity
shareholders.
 Profit after tax
Earnings per share = -------------------------
Number of shares

20. DIVIDENDS PER SHARE: (DPS)

The net profits after taxes belong to shareholders. But the income, which
they really receive, is the amount of earnings distributed as cash
dividends. Large number of present and potential investors may be
interested in DPS, rather than EPS.

Dividends
Dividend per share = ----------------------
Number of shares

21. DIVIDEND PAY OUT RATIO:

A firm’s dividend policy has the effect of dividing its earnings into two
parts; retained earnings and dividends. The retained earnings
provide funds to finance the firm’s long-term growth. It is the most
significant source of financing a firm’s investment.

Dividend per share

Dividend payout ratio = -----------------------
Earning per share
22. PRICE EARNING RATIO:
This ratio is widely used by the security analysts to value the firm’s
performance as expected by investors’ judgment or expectations
about the firm’s performance.
Management is also interested in this market appraisal of the firm’s
performance and will take to find the causes if the price earning ratio
declines. Price earnings ratio reflects investor’s expectations about
the growth in the firm’s earnings. Industries differ in their growth
prospects.

Market value per share

Price earning ratio = -------------------------------
Earnings per share
 CHAPTER-V
DATA ANALYSIS &INTERPRETATION
 DATA ANALYSIS

LIQUIDITY RATIOS

Current Ratio:

FORMULA:

Current Assets
Current Ratio = ------------------------
Current Liabilities

Table No: 5.1

Current Ratio of VIJAYA DAIRY for last 5 years
(
Rs in Crores)
Current Assets Current
Year Ratio
(Cr) Liabilities (Cr)
2002-03 3487.73 2720.38 1.28
2003-04 3485.35 3532.71 0.99
2004-05 3539.29 3033.82 1.17
2005-06 5161.9 3578.07 1.44
2006-07 6289.72 3857.59 1.63

Figure: 5.1
 Graphical representation of Current Ratio

Interpretation:
The standard norm for current ratio is 2:1. The current ratio from
the period 2002-03 to 2006-07 is maximum in the year 2006-2007
which is 1.63. The current Ratio here is the minimum of the year is
2003-04 which is 0.99. Generally the higher the value of current
assets more efficient is the management of current assets. During
period of five years in 2006-07 1.63, is the higher ratio.

Quick ratio:
FORMULA:

Quick Assets
Quick Ratio = ------------------------
Current Liabilities

Table No: 5.2

Quick Ratio of VIJAYA DAIRY for last 5 years

(Rs in Crores)
Current
Year Quick Assets Ratio
Liabilities (Cr)
2002-03 2235.51 2720.38 0.82
2003-04 1951.14 3532.71 0.55
2004-05 1536.3 3033.82 0.51
2005-06 2525.61 3578.07 0.71
2006-07 2935.69 3857.59 0.76

Figure: 5.2

Graphical representation of Quick Ratio

Interpretation:
The standard norm for quick ratio is 1:1. In the year 2004, the quick
ratio has decreased to 0.55 from 0.82 over the previous year, mainly
on account of reduction in quick assets by 699.21 crores and again it
is decreased from 2004 to 2005 by 0.04 only because in this year
both quick assets and current liabilities are declined simultaneously
by 414.84 crores and 498.89 crores. But quick assets were decreased
more than current liabilities. It is increased from 2005 to 2007 by
0.28 because of both quick assets increasing by 1399.39 crores
mainly on account of 108.93 crores and cash and bank balances by
844.50 crores.

Cash Ratio:

FORMULA:
 Cash + Marketable Securities
Cash Ratio = ----------------------------------------
Current Liabilities

Table No: 5.3

Cash Ratio of VIJAYA DAIRY for last 5 years

(Rs in Crores)
Current
Year Cash Ratio
Liabilities
2002-03 378.84 2720.38 0.14
2003-04 34.04 3532.71 0.01
2004-05 55.66 3033.82 0.02
2005-06 855.82 3578.07 0.24
2006-07 900.16 3857.59 0.23

Figure: 5.3

Graphical representation of Cash Ratio

Interpretation:
The cash ratio has decreased form 0.14 to 0.01 in the year 2004 over

the previous year because cash & bank balance has decreased from

378.84 to 34.04 and current liabilities also increased from 2720.38 to

3532.71. In 2005, it is increased by 0.01 only because cash and bank

balances are increased and current liabilities are decreased by 21.62

crores and 498.89 crores. Again it is increase form 2005 to 2007 by

0.21 because cash has increased by 844.5 crores and current

liabilities increased by 823.77 crores.

Net Working Capital Ratio:

FORMULA:
 Net Working Capital
Net Working Capital Ratio = ----------------------------
Net Assets

Table No: 5.4

Net Working Capital Ratio of VIJAYA DAIRY for last 5 years

(Rs in Crores)
Net Working
Year Net Assets Ratio
Capital
2002-03 767.35 5546.18 0.14
2003-04 (47.36) 6618.65 (0.01)
2004-05 505.47 8517.06 0.06
2005-06 1583.8 9505.97 0.17
2006-07 2432.13 11110.81 0.22

Figure: 5.4

Graphical representation of Net Working Capital Ratio

Interpretation:
Working Capital ratio indicates how much capital is required to net
assets. The Working Capital ratio of VIJAYA DAIRY is 0.14 in 2003 and
in 2004 the ratio was decreased to (0.01), because here net assets
increasing constantly but the net working capital (i.e. difference
between fixed assets and current assets) is rapidly decreased by
814.71cr from 2003 to 2004.Again the ratio was increased to 0.06 in
the year 2005 and it is increasing in the year 2006 & 2007 is 0.17 &
0.22. It shows increasing phase but it is not show satisfactory
position in liquidity. So it needs rapid growth in Net Working Capital
for better liquidity.

LEVERAGE RATIOS

Debt Ratio:
FORMULA:

Total Debt
Debt ratio = ------------------------
Capital Employed

Table No: 5.5

Debt Ratio of VIJAYA DAIRY for last 5 years

(Rs in Crores)
capital
Year Total Debt Ratio
Employed
2002-03 116.98 5546.18 0.02
2003-04 120.85 6618.65 0.02
2004-05 245.36 8517.06 0.03
2005-06 119.73 9505.97 0.01
2006-07 200.88 11110.81 0.02

Figure: 5.5

Graphical representation of Debt Ratio

Interpretation:

This ratio gives information relating to the capital structure of a firm. The
debt ratio is 0.0 2 in the year 2003 & 2004. But in the year 2005 it is
increased to 0.03. But it is decreased to 0.01 in 2006, because in
2006 total debt has decreased to 125 crores from 2005 and capital
employed has also been increased to 989 crores, because in this year
capital, reserves and surplus are increased by 1165.87 crores and
borrowings are decreased by 125.63 crores. In this year differed tax
is also decreased by 51.33 crores and again it is increased to 0.02 in
the year 2007. It shows lower debt level, so this is better position
because lower level of debt indicates flexibility in the firm’s
operations.

Debt equity ratio:

FORMULA:
 Total Debt
Debt Equity Ratio = ---------------
Net Worth

Total debt = secured & UN secured loans.

Net worth =share holders funds –masc. expenses.

Table No: 5.6

Debt Equity Ratio of VIJAYA DAIRY for last 5 years

(Rs in Crores)
Year Total Debt Net Worth Ratio
2002-03 116.98 5365.6 0.02
2003-04 120.85 6410.1 0.02
2004-05 245.36 7895.6 0.03
2005-06 119.73 9061.5 0.01
2006-07 200.88 10437.08 0.02

Figure: 5.6

Graphical representation of Debt Equity Ratio

Interpretation:

The Debt-Equity Ratio of the company in the year 2003 and 2004 is
0.02 and it is increased to 0.03 because total debt of the firm
increased from 120.85 to 245.36 crores. Even though net worth has
increased from 6410.1 crores to 7895.6 crores the growth rate of
total debt is comparatively higher than the net worth growth rate.
Again it is decreased to 0.01 in the year 2006 due to decrease in total
debt. In the year 2007 it is increased to 0.02 because in this year, both
total debt and net worth has increased by 81.15 crores and 1375.58
crores. Even though the ideal ratio is 1:2, The VIJAYA DAIRY
maintains this ratio is in between only 0.01 to 0.03 crores only. This
shows the healthyness of the organization.

Proprietary Ratio:

FORMULA
 Proprietary Funds
Proprietary Ratio = ------------------------
Total Assets

Table No: 5.7

Proprietary Ratio of VIJAYA DAIRY for last 5 years

(Rs in Crores)
Proprietary
Year Total Assets Ratio
Funds)
2002-03 5365.62 8266.56 0.65
2003-04 6410.06 10151.4 0.63
2004-05 7895.61 11550.9 0.68
2005-06 9061.48 13084 0.69
2006-07 10437.1 14968.4 0.70

Figure: 5.7

Graphical representation of Proprietary Ratio

Interpretation:

The Proprietary ratio in the year 2003 was 0.65 crores and it is
decreased to 0.63 in the year 2004 because of the increase in total
assets from 8266.56 crores to 10151.36 crores.even though the
proprietary funds were increased from 5365.62 crores to 6410.06
crores,over the previous year, the growth rate of total assets is
comparatively higher. And again it is increased to 0.70 in the year
2007. Because of the increase inproprietary funds drastically by
4027.02 crores, mainly on account of reserves&surplus increased
from 6162.38 crores to 10060.86 crores. Even though the total assets
were increased from 10151.36 crores to 14968.40 crores during the
period, growth rate of Total Assets.is lesser than the growth rate of
proprietary funds.

Return on equity:

FORMULA
 Profit after Tax
Return on Equity = ---------------------
Net Worth

Table No: 5.8

Return on Equity of VIJAYA DAIRY for last 5 years

(Rs in Crores)
Year Profit After Tax Net Worth Ratio
2002-03 1317.35 5365.6 0.25
2003-04 1592.85 6410.1 0.25
2004-05 2191.40 7895.6 0.28
2005-06 2235.35 9061.5 0.25
2006-07 2699.97 10437.08 0.26

Figure: 5.8

Graphical representation Return on Equity

Interpretation:
The return on equity ratio of APSFC in the years 2003 and 2004 was
0.25 crores and it increased to 0.28 crores in the year 2005 as the
growth in PAT is comparatively more than the growth in Net worth.
Again it has fallen to 0.26 crores in the year 2007 because during this
period the growth in Net Worth is comparatively more than PAT
growth mainly on account of the imminent increase in reserve and
surplus from 7646.18 crores to 10437.08 crores.

Return On Investment:
FORMULA:
 EBIT (1-T)
Return on Investment = ---------------
Total Assets

Table No: 5.9

Return on Investment of VIJAYA DAIRY for last 5 years

(Rs in Crores)
Year EBIT (1-T) Total Assets Ratio
2002-03 1397.64 8266.56 0.17
2003-04 1570.37 10151.4 0.15
2004-05 1819.38 11550.9 0.16
2005-06 2198.35 13084.04 0.23
2006-07 2633.08 14968.4 0.22

Figure: 5.9

Graphical representation of Return on Investment

Interpretation:
The Return on Investment of APSFC was 0.17 crores in the year 2003
and it decreased to 0.16 crores in the year 2005 because of the
increase in total assets from 8266.56 crores to 11550.88 crores. Even
though the EBIT were increased from 5365.62 crores to 7895.61
crores, during that period, the growth rate of total assets is
comparatively higher.

Subseqently the ROI has increased to 0.18 crores in the year 2007
because of the increase in EBIT from 1819.38 crores to 2633.08
crores.Even though the total assets were increased from 7676.2
crores to11900.63 crores during this period,the growth rate of Total
Assets.is lesser than the growth rate of EBIT.

Earning per Share:

FORMULA
 Profit after Tax
Earning Per Share = -------------------------------
No. of Shares Outstanding

Table No: 5.10

Earning Per Share of VIJAYA DAIRY for last 5 years

(Rs in Crores)
No: of Shares Earning per
Year Profit After Tax
Outstanding share
2002-03 1317.35 371.3 3.55
2003-04 1592.85 371.4 4.29
2004-05 2191.40 372.3 5.89
2005-06 2235.35 375.2 5.96
2006-07 2699.97 376.22 7.18

Figure: 5.10

Graphical representation of Earning per Share

Interpretation:

As on date, the profitability of the common share holders investment

in VIJAYA DAIRY is GOOD. Earning per share of VIJAYA DAIRY into the
year 2003 was 3.55 and it increased to 5.89 in the year 2005, due to
increase in the profits. Further, in the year 2007 the EPS has gone
upto 7.18 and the profit of the company has reached Rs. 2699.97
crores as against Rs 2235.35 crores of last year which Cleary
indicates the growth of the company. Yes, naturally it attracts the
investors.

Dividend per Share:

FORMULA
 Dividends
Dividend per Share = -----------------------------
No. of shares outstanding

Table No: 5.11

Dividend per Share of VIJAYA DAIRY for last 5 years

(Rs in Crores)
No: of Shares
Year Dividends Ratio
Outstanding
2002-03 371.27 371.3 1.00
2003-04 495.36 371.4 1.33
2004-05 773.25 372.3 2.07
2005-06 995.12 375.2 2.65
2006-07 1166.282 376.22 3.10

Figure: 5.11

Graphical representation of Dividend per Share

Interpretation:

The ratio of dividend per share was 1.00 in the year 2003
whereas it has increased to 2.07 in the year 2005, due to increase in
the earnings per share. In later years i.e. by 2007 it has mounted to
3.10 which clearly indicates the successful performance of the
company. The analysis shows the steady growth of the company
which attracts more and more share holders, as at present the
probable and prospective investors are more interested rather in D P
S than E P S because the DPS is an instant benefit whereas the EPS
may be of future benefit. .

Dividend payout Ratio:

FORMULA
 Dividend per Share
Dividend payout Ratio = -------------------------
Earning Per Share

Table No: 5.12

Dividend payout Ratio of VIJAYA DAIRY for last 5 years

(Rs in Crores)

Dividend per Earning Per

Year Ratio
share Share

2002-03 1.00 3.55 0.28

2003-04 1.33 4.29 0.31
2004-05 2.07 5.89 0.35
2005-06 2.65 5.96 0.44
2006-07 3.10 7.18 0.43

Figure: 5.12

Graphical representation of Dividend Payout Ratio

Interpretation:

The dividend payout ratio of the company is increasing from 2003-

2005 by 0.07 only because the rate of dividend per share and earning
per share are almost similar so there is no rapid growth but from
2005-2006 only it is increased by 0.09 because dividend per share is
improved from 2.07 to 2.65 and earning per share is increased only
by 0.11 and it is decrease from 2006-07 by 0.01 because dividend per
share and earning per share both are increasing by 0.14 and 1.22
respectively, but there is a slight increase in earning per share than
dividend per share.

Price-earnings Ratio:

FORMULA
 Market Value of Share
Price-earning Ratio = ---------------------------
Earning Per Share

Table No: 5.13

Price-earning Ratio of VIJAYA DAIRY for last 5 years

(Rs in Crores)
Market Value of Earning Per
Year Ratio
Share Share
2002-03 41.96 3.55 11.82
2003-04 69.47 4.29 16.19
2004-05 89.25 5.89 15.15
2005-06 195.19 5.96 32.75
2006-07 150.3 7.18 20.93

Figure: 5.13

Graphical representation of Price Earnings Ratio

Interpretation:

The Price Earning Ratio of the company has increasing from 2003-
2005 by 3.44 only but 2005-2006 it is increasing more than
50%.Because market value per share is increasing rapidly from 89.25
to 195.19. But it is decreased from 2006-07 by 11.82 because the
market value for share is decreased by 40.89 and simultaneously
earning per share increased by 1.22. It is not good for company’s
growth because it shows future market price of equity shares is
undervalued.
 CHAPTER-VI
FINDINGS & SUGGESTIONS

FINDINGS AND SUGGESTIONS:

FINDINGS:
1.There is a tremendous improvement in the working of VIJAYA

DAIRY in 2005-2006. The net profit has increased from

Rs24.58crores in the year 2005-06 to 27.21crores in the year 2006-

07.

2. Overall sanctions and disbursements have also shown increasing

trend.

3. Due to Privatizing of Banking sector competition increased in the

lending business and also interest rates of term loans have gone up.

4. As a result the VIJAYA DAIRY is facing stiff competition from other

financial institutions and Banks

5. VIJAYA DAIRY has adopted turn around strategies to increase their

profits they are putting their efforts to reduce NPA and defaulters.

6. As per the analysis of various ratios in respect of the corporation

the liquidity position is improving year after year, profitability has

gone up in the recent years.

7. APSFC maintains an average 100% as disbursement with compare

to sanctions.

SUGGESTIONS:
1.APSFC shall put their efforts to further reduce NPA’ s to the level of

commercial banks.

2.The VIJAYADAIRY shall improve business substantially so that the

over all profitability is increased.

3. VIJAYADAIRY shall wipe out the accumulated losses in next one or

two years so that the corporation can raise funds by way of public

issue.

4.This study reveals that processing of application is time consuming

it takes about two months to sanction the loans.

5. VIJAYA DAIRY should fasten their process so that they can attract

more clients.

6.VIJAYADAIRY should restructure their recovery strategy i. e,

restructure penalty rate and rebate rate.

GLOSSARY
 GLOSSARY
FINANCIAL MANAGEMENT:
In the words of Howard and upton, “Finance may be defined
as that administrative area or set of administrative function in an
organization which relate with the arrangement of each and credit so
that the organization may have the means to carry out its objectives
as satisfactorily as possible.”

RATIO:
Ratio is defined as “The indicated quotient of two Mathematical
Expressions and the relationship between two or more thing.

LIQUIDITY RATIO:
They measure the ability of a firm to meet current obligations.

ACTIVITY RATIO:
They reflect firm utilizing its assets.

LEVERAGE RATIO:
They show the proportions of debt and equity in Financing firm’s
assets

PROFITABILITY RATIO:
They measure overall performance and effectiveness of a Firm.
ABBREVATIONS
 ABBREVATIONS

APSFC----------Andhra Pradesh State Financial Corporation

AB -------------- Andhra Bank
BI---------------- Bank of India
SB----------------Syndicate Bank
SBI -------------- State Bank of India
IFCI --------------Industrial Financial Corporation of India
RBI -------------- Reserve Bank of India
SBH --------------State Bank of Hyderabad
SFC -------------- State Financial Corporation
WCTL ----------- Working Capital Term Loans
IDBI --------------Industrial Development Bank of India
SIDBI -------------Small Industries Development Bank of India
FAPCCI ----------Federation of Andhra Pradesh Chambers of
Commerce & Industry
APIIC ------------Andhra Pradesh Industrial Infrastructure Corporation
Limited
BIBLIOGRAPHY
 BIBLIOGRAPHY

 Pandey I M., Financial Management, Vikas Publishing House

PVT. Ltd. , New Delhi
 Khan M Y and Jain P K : Financial management Text and
Problems . Tata Mcgraw-Hill
 R.l.Gupta and M. Radha Swamy Advanced Accountancy 13 th
Revised Edition Sultanchand and sons Educational Publishers
NewDelhi
 Annual Reports of VIJAYA DAIRY [Balance sheet and profit and
loss Account]

WEBSITES

www.apsfc.com
www.yahoo.com