Project Report on Study

Of

Financial Analysis

At

Verka Milk Plant Bathinda

Submitted To: Dr. Apar Singh Submitted By:

Akashdeep Kaur

MBA- 2nd

Roll No. 120426189

SCHOOL OF MANAGEMENT STUDIES

PUNJABI UNIVERSITY, PATIALA

1
ACKNOWLEDGEMENT

I am highly indebted to the management of Verka Milk Plant Bathinda to undertake me as

training in their organization. I would like to thank specially to Mr. S. K. Sharma (General
Manager) for providing me an opportunity to undertake training at Verka Milk Plant
Bathinda.

I wish to express my gratitude towards Mr. A. K. Wadhwa for permitting me to work under
his guidance and cooperation. I have no words to express my gratitude to the profound
interest taken by him at every stage of the project. His encouragement and support made my
target easily achievable. I would also like to thank other office and marketing staff of Verka
Milk Plant Bathinda for their cooperation and helpful behaviour.

I also express my sincere thanks to my parents and friends who always have been source of
inspiration to me and supported me morally and financially in every activity during the
training.

Above all I would like to thank almighty for showering

his blessings to complete the project.

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PREFACE

For the completion of the MBA , it has been mandatory to obtain an Industrial Training in
Finance. This training session really help me in gathering knowledge of market.

I have prepared this project on the topic “Financial Analysis of Verka Milk Plant Bathinda”
in which I have written about how an organization can manage its working capital in its daily
business operations.

This report is prepared during training is life’s greatest treasure as it is full of experience,
observation and knowledge. The training held was very gainful as it took us close to real life.
This period also provide a chance to give theoretical knowledge a practical result.

This report is a result of 45 days training that I have taken at verka milk plant bti. It has been
very educative and fruitful experience for me for it has given me an insight into some
practical experience.

I wish this great organization success so it may flourish and serve the nation and have to
achieve many goals.

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STUDENT DECLARATION

I hereby declare that the summer training report entitled submitted in the partial
fulfillment of the requirement for degree of M.B.A.

To verka milk plant Bathinda is my original work and not submitted for the award of any
other degree, diploma or any other similar title or price.

Project guide: Name:

Mr. A. K. Wadhwa Akashdeep kaur

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 CONTENTS

 Introduction Indian dairy industry

 Dairy Plants
 MILKFED- PUNJAB
 MILK PLANT BATHINDA
 MANAGEMENT BOARD OF DIRECTORS
 Objectives of the study
 Scope of the study
 Research methodology
 Limitations of the study
 An Introduction to Financial Analysis
 Objectives and procedure of Financial Analysis
 Types of Financial Analysis
 Goals of Financial Analysis
 Methods of Financial Analysis
 Limitations and interpretation
 Research and methodology
 Objectives of Research
 Limitations and suggestions
 Findings
 Conclusion
 Bibliography

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 INTRODUCTION

The dairy sector in the India has shown remarkable development in the past decade and India
has now become one of the largest producers of milk and value-added milk products in the
world. The dairy sector has developed through co-operatives in many parts of the State.
During 1997-98, the State had 60 milk processing plants with an aggregate processing
capacity of 6 million lack liters per day. In addition to these processing plants and 45 co-
operatives milk chilling centre operate in the State.

With the increase in milk production. Maharashtra now regularly exports milk to
neighbouring states. It has also initiated a free school feeding scheme, benefiting more than
three million school children from over 19,000 schools all over the State.

INDIAN DAIRY INDUSTRY

Dairy is a place where handling of milk and milk products is done and technology refers to
the application of scientific knowledge for practical purposes. Dairy technology has been
defined as that branch of dairy science, which deals with the processing of milk and the
manufacture of milk products on an industrial scale.

In developed dairying countries such as the U.S.A., the year 1850 is seen as the dividing line
between farm and factory-scale production. Various factors contributed to this change in
these countries, viz. concentration of population in cities where jobs were plentiful, rapid
industrialization, improvement of transportation facilities, development of machines, etc.
whereas the rural areas were identified for milk production, the urban centers were selected
for the location of milk processing plants and product manufacturing factories. These plants
and factories were rapidly expanded and modernized with improved machinery and
equipment to secure the various advantages of large-scale production. Nearly all the milk in
the U.S.A. before 1900 was delivered as raw (natural) milk. Gradually farmers within easy
driving distance began delivering milk over regular routes in the cities. This was the
beginning of the fluid milk-sheds which surround the large cities of today. Prior to the 1850s

6
most milk was necessarily produced within a short distance of the place of consumption
because of lack of suitable means of transportation and refrigeration.

The Indian Dairy Industry has made rapid progress since Independence. A large number of
modern milk plants and product factories have since been established. These organized
dairies have been successfully engaged in the routine commercial production of pasteurized
bottled milk and various Western and Indian dairy products. With modern knowledge of the
protection of milk during transportation, it became possible to locate dairies where land was
less expensive and crops could be grown more economically.

In India, the market milk technology may be considered to have commenced in 1950, with
the functioning of the Central Dairy of Aarey Milk Colony, and milk product technology in
1956 with the establishment of AMUL Dairy, Anand. The industry is still in its infancy and
barely 10% of our total milk production under goes organized handling.

HISTORY OF INDIAN MARKET MILK INDUSTRY

Beginning in organized milk handling was made in India with the establishment of Military
Dairy Farms.

 Handling of milk in Co-operative Milk Unions established all over the country on a
small scale in the early stages.
 Long distance refrigerated rail-transport of milk from Anand to Bombay since 1945
 Pasteurization and bottling of milk on a large scale for organized distribution was
started at Aarey (1950), Calcutta (Haringhata, 1959), Delhi (1959), Worli (1961),
Madras (1963) etc.

Establishment of Milk Plants under the Five-Year Plans for Dairy Development all over
India. These were taken up with the dual object of increasing the national level of milk
consumption and ensuing better returns to the primary milk producer. Their main aim was to
produce more, better and cheaper milk.

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DAIRY INDUSTRY IN INDIA

More than 2,445 million people economically active in agriculture in the world, probably 2/3
or even more ¾ of them are wholly or partly dependent on livestock farming. India is
endowed with rich flora & Fauna & continues to be vital avenue for employment and income
generation, especially in rural areas. India, which has 66% of economically active population,
engaged in agriculture, derives 31% of Gross Domestic Product GDP from agriculture. The
share of livestock product is estimated at 21% of total agricultural sector.

Contribution of live stock sector to gross domestic product

(Percentage contribution)

1950-51 1990-91
63.5 67.0
12.0 16.0
4.1 3.1
1.3 0.3
16.5 10.0

Live stock populations:

Number of animals (in thousands)
(Source: production yearbook 1995 /FAO statistics division)

Sheeps Goats Pigs Chickens Cattle

45000 119242 11780 435 194655
Buffaloes Horses Mules Camels
Milk Production
79500 990 1742 1520
1950 – 17 million tonnes

1996 – 70.8 million tonnes

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1997 – 74.3 mT

(Projected) 2020 – 240 mT

Sr. Constituents Buffalo Cow Goat Liquid skimmed milk Expected to reach-

no 220 to 250 mT –
2020
1 Moisture (gm) 81.00 87.50 86.80 92.10
2 Protein (gm) 4.30 3.20 3.30 2.50 India contributes to
3 Fat (gm) 6.50 4.10 4.50 0.10 world milk
4 Minerals (gm) 0.80 0.80 0.80 0.70 production rise from
5 Carbohydrates (gm) 5.00 4.40 4.60 4.60 12-15 % & it will
6 Energy calories (kcal) 117.00 67.00 72.00 29.00 increase up to 30-

7 Calcium (mg) 210.00 120.00 170.00 120.00 35% (year 2020)

8 Phosphorus (mg) 130.00 90.00 120.00 90.00

Milk Composition
9 Iron (mg) 0.20 0.20 0.30 0.20

Indian Buffaloes: (Dairy business Directory 1996)

Buffaloes are classified into two categories;

1) Reverine (depending upon variation in their habitat & genome)

2) Swamp

Swamp buffaloes: - 48 chromosomes

South East Asian countries

Stocky animals, marshy land habitat

River Buffaloes: - 50 chromosomes

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- Massive in size and curled horns

- Prefer to enter clear water

India:

Leading most buffalo populated country

78 millions most of reverine

Milk production: About 95% of world buffalo milk (45.3 million tones) is produced in Asia
&Pacific, while 64.4% is produced in India (FAO.1992)

From 1950 to 1992 milk production in the world increased by 4.26%

The % of total bovines slaughtered;

Total bovine slaughtered (%)

World 17.1 to 17.4% or - 1.6% per annum

India 15% per annum

Asia 6.6%

Increasing trend of buffalo population in most of the Asian countries in Brazil and Italy

Production performance

Growth: The average birth wt.(Indian buffaloes) low 21 kg High 41 kg

Higher in male calves than in females
Average daily gain of 548 gm between 3-6 months404 gm between birth to 36 months
Body weight at first calving- ranges from
367kg(Dharwati)to531kg(NiliRavi)
Higher growth rate in reverine breeds than swamp

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MILK PRODUCTION

Production performance of different breeds of Buffaloes:

Age at 1st calving Lactation. Lactation Length (days)

(months) Yield (kg)
Buffalo Avg. Range Avg. Range Avg. (Range)
Murrah 43.0 39.9-54.5 1850 1476-2515 315(267-365)
Nili Ravi 42.0 41.4-47.3 1765 1596-2808 2808 (09)

DAIRY PLANTS

India's modern milk supply goes back to December 15, 1950, when the Aarey Milk Plant in
Bombay launched the supply of pasteurized and bottled milk on large-scale for the first time
in India. Subsequently, over the years, the share of the organized sector increased after the
launching of Operation Flood in 1970.

From an insignificant 200,000 liters per day (lpd) milk processing in 1951, the organized
sector is presently handling over 20 million lpd in almost 500 dairy plants. Already, one of
the world’s largest liquid milk plants is located in Delhi, handling over 800,000 liters of milk
per day (Mother Dairy, Delhi). India's first automated dairy (capacity: 1 mlpd), Mother Dairy,
Gandhinagar, was commissioned at Gandhinagar near Ahmedabad, Gujarat, in Western India.
It is owned by India’s biggest dairy cooperative group, Gujarat Cooperative Milk Marketing
Federation (GCMMF) in Anand, with an annual turnover in excess of Rs 22 billion (US $500
million) in 1999.

Dairy Plants Update: India's first vertical dairy commissioned

Amul-III with its satellite dairies at Anand in Gujarat, with total installed capacity of 1.5 tone
(capacity: 400,000 lpd) has been commissioned at Noida, outside Delhi, in 1999. It is owned

11
and managed by the Pradeshik Cooperative Dairy Federation Limited, Lucknow in Uttar
Pradesh.

RESOURCES: DAIRY PLANTS

In this section Dairy plants are listed alphabetically and region wise, including liquid milk
plants and product manufacturers, both Western and indigenous, in the public, cooperative
and private sectors. The address, phone and fax numbers, list of products manufactured and
capacities and other details of these Plants can be obtained from DAIRY INDIA 1997 or
from us.

Verka - Punjab's leading milk brand

One of the leading dairy brands of North India, Verka, is yet another contribution from the
state of Punjab. The flagship brand of the Punjab State Cooperative Milk Producers'
Federation Ltd (Milkfed), Verka is today enjoying the patronage of customers both within
and outside the country. Milkfed's future programmes can never be complete without Verka.
Verka is a brand leader in milk powders particularly in northern & eastern sectors. The
Milkfed brand commands a premium price over milk powders manufactured by competitors,
which include multinational as well as private trade and other cooperative federations.
Milkfed claims that Verka has carved a niche on the basis of the sheer strength of its quality,
freshness and purity.

Milkfed is serving nationwide consumers through its network of Regional offices and strong
distribution channels. Milkfed markets a wide variety of products, which include liquid milk,
skimmed milk powder, whole milk powder, infant food, ghee, butter, cheese, lassi, SFM, ice
cream, malted food and Verka Vigor etc. The annual turnover of Milkfed has touched to Rs
450 crore.

Milkfed states that it has successfully leveraged on the brand equity of Verka to launch new
trends, needs, tastes and hopes. Verka brands included varied varieties of cheese like the
processed cheddar cheese, cheese spread, and cheese singles. There are also milk powders
like Dairy Whitener, Skimmed Milk Powder and Infant Milk Powder.
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Health Drinks like Verka Vigour, Verka Lassi, Sweetened Flavored Milk and a mango drink
called Raseela have also hit the markets. Milkfed has now come out with Verka Curd and a
whole lot of different flavours of ice creams. Milkfed has also made a foray into the
international markets. They say that it was the domestic competition that drove them to alien
destinations. However, Milkfed has already established its ghee market in the Middle East.
Verka ghee reaches all the Emirates and is available in almost all super markets. In addition
to ghee, SMP is also exported to Asian Countries like Philippines, Bangladesh and Sri Lanka.
Verka Malt Plus (Malted Milk food) is being exported to Bangladesh also.

With Technology Mission Programmes, ever widening markets and increasing exports,
Milkfed is preparing itself to take Verka to greater heights. The federation has planned to
introduce more value-added products like Tetra-Pack Plain Milk and low calorie lassi. It has
also sought technical assistance from the Israel Dairy Board to initiate breed improvement
and milk production enhancement programme in the state.

Milkfed not only provides assured market to milk producers but also carries inputs to enhance
milk to their doorsteps. The District Cooperative Milk Producer's Unions and Milk Plants
have attained self-sufficiency or are on the threshold of attaining it. Milkfed has played a very
vital role in providing a strong base for remunerative price to the producer; they get more
money for their milk and payments are timely. In addition technical input services in feeding,
breeding and management are easily accessible. Value addition is one of Milkfed's thrust
areas and the plants produce not only pasturised, homogenised milk but also buttermilk,
cream, cheese, ice cream, butter and clarified butter-oil (ghee) and several other products.
The Milk Unions have marketed milk and milk products of the value of Rs 202.87 crore
during the previous year.

It should be noted that the state government has recently announced a new project in which
78 bulk milk coolers are to be installed by the central government at the level of milk
cooperatives in the districts of Ropar, Ludhiana, Gurdaspur and Patiala under a Centrally
Sponsored Scheme. For this purpose, the Government of India has already released an
amount of Rs 143.15 lakh for the installation of 24 bulk milk coolers for implementation of

13
this programme in Ropar district. This move is expected to help the farmers to produce
quality milk and get better farm gate price and consumers shall get quality milk. The
budgetary outlay for the programme is Rs 1.41 crore. Milkfed is an apex body at the state
level. It has 11 Milk Unions at district level operating 10 milk plants and more than 5,000
cooperative societies at village level with a total of 3 lakh members.

Apart from the main arena of collecting more and more milk and enrolling more and more
milk producers, Milkfed and its units have a work force of about 5000 employees. Every
morning and evening milk is lifted from the villages through private vehicles - this means
regular employment to about 600 transporters, most of whom are self-employed. Some
10,000 workers man the milk procurement and technical input operations.

MILKFED-PUNJAB

The Punjab State Cooperative Milk Producers’ Federation Limited popularly known as
MILKFED Punjab, came into existence in 1973 with a twin objective of providing
remunerative milk market to the Milk Producers in the State by value addition and marketing
of produce on one hand and to provide technical inputs to the milk producers for
enhancement of milk production on the other hand. Although the federation was registered
much earlier, but it came to real self in the year 1983 when all the milk plants of the erstwhile
Punjab Dairy Development Corporation Limited were handed over to Cooperative sector and
the entire State was covered under Operation Flood to give the farmers a better deal and our
valued customers better products. Today, when we look back, we think we have fulfilled the
promise to some extent. The setup of the organization is a three tier system, Milk Producers
Cooperative Societies at the village level, Milk Unions at District level and Federation as an
Apex Body at State level. MILKFED Punjab has continuously advanced towards its coveted
objectives well defined in its byelaws. § Home § Organization § Procurement § Products §
Marketing § Achievements § Looking Beyond

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Milkfed has formulated company specifications for its milk & milk products

To provide standard and quality of products to consumers.

Milk Cheese & Paneer Drinks

Ghee & Butter Icecream & Sweets Milk Powder

Fresh Products Packing

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On the basis of quality with efficient administration, MILKFED has not only established new
mile stone of providing services to Dairy farmers but scaled new heights in delighting
esteemed customers also. This has resulted into tremendous achievements in all fields.

TURNOVER:

The annual turnover of Milkfed which was Rs.1250 crores in the year 2011 has hit the level
of Rs.1438 crores in the year 2012.

turnover (in crores)

1600
1400
1200
1000
800 turnover (in crores)
600
400
200
0
2009 2010 2011 2012

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 EQUITY PARTICIPATION:

The paid-up equity of Milkfed as on 31.3.2012 was to the tune of Rs.46.86 crores which
comprises of Rs.28. crores from the cooperative members and balance Rs.17.93 crores from
State Government.

MILKFED GROWTH AT A GLANCE

PARTICULARS UNIT 2007-08 2008-09 2009-10 2010-11 2011-12

FUNCTIONAL
CUMMU.NOS. 6445 6104 6101 5989 6155
SOCIETIES

CUMMU.NOS
MEMBERSHIP 3.76 3.56 3.63 3.60 3.65
IN LACS

AVG. DAILY MILK

LKG SPD 7.45 7.81 7.82 7.78 8.21
PROC

PEAK MILK PROC LKG SPD 10.04 11.64 11.37 11.54 12.39

A.I. CLUSTER
COOMU.NOS. 323 341 388 433 504
SOCS.

FODDER SEED
M.Ts. 444.10 400.30 430.00 500.00 572.00
SUPPLIED

CATTLE FEED
M.Ts. 73724 66970 66750 73577 86174
SOLD

AVG..DAILY CITY
LLPD 4.97 5.27 5.67 5.81 6.16
SUPPLY

SALE OF SFM LAC PKTS/BTLS 30.32 35.85 42.49 41.92 61.11

SALE OF LASSI LAC PACKETS 10.54 12.20 16.89 19.16 29.51

SALE OF ICE-
LAC LITRES 9.17 10.23 12.18 15.61 17.68
CREAM

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EXPORTS RS.IN LACS 698.17 1142.28 713.67 1140.35 1334.90

TURNOVER RS.IN CRORES 585.00 653.00 675.00 760.00 931.00

MILK PROCUREMENT NETWORK:

Working on "Anand Pattern" the process of organizing societies at village level started in
Punjab as early as 1978. Presently, there is strong Network of about 6155 ( as on 31.3.2008)
Milk Producers Cooperative Societies organized at village
level. About 3.65 Lakh milk producer members are
attached to these societies. Fresh milkis procured from the
milk producers twice aday through village level societies
directly without the assistance of any middleman.

INPUT SERVICES:

It is one of the fundamental objectives of MILKFED to

carry out activities for promoting milk production in the
State. In view of this, various technical input services like
veterinary health care, artificial insemination services, vaccination, supply of VERKA
balanced cattle feed and quality fodder seed etc. are provided for enhancing milk production
and economic development of farming community.

CLEAN MILK PRODUCTION PROGRAMME:

For improving quality of raw milk right from milk producer's level, q massive programme
called "CMP" has been launched under which 195 Bulk Milk Coolers have been installed in
18
the societies and many more in pipe line. Besides, more than 1000 Automatic Milk Collection
Stations have been provided to the societies for bringing efficiency and total transparency in
the system. Traditional manual method of milk testing at society level is being replaced with
Electronic Milk Testers.

WOMEN DAIRY PROJECT:

Household level dairying is largely the domain of women especially in small and marginal
household families. In view of this fact, Milkfed has undertaken Women Dairy Project in six
Milk Unions namely Hoshiarpur, Ropar, Patiala, Jalandhar, Ludhiana and Amritsar with an
objective to empower rural women in the field of dairy. This Programme is being
implemented under Support to Training & Employment Programme (STEP) with the
assistance of Government of India. Under this programme, 390 women societies with 19860
women beneficiary members will be organized.

SETTING UP OF BIG COMMERCIAL DAIRY FARMS:

In order to enhance the milk production and making the dairy farming a profitable and
sustainable profession, Milkfed has planned to
establish at least ten progressive big dairy farms in
each Milk Union by arranging soft terms loans
from the banks.

PRODUCTIVITY ENHANCEMENT PROGRAMME:

With a view to enhance milk production so as to reduce average cost per Kg. of milk
produced, Milkfed and its affiliated Milk Unions are providing technical input services like
animal health care, artificial insemination services, vaccination, supply of balanced cattle

19
feed, supply of quality fodder seeds etc. to specific target group i.e. Milk Producers
Cooperative Members at their door steps.

COMMUNITY BASED SILAGE MAKING IN KANDI AREAS:

Milkfed initiated community based silage making to fulfill shortage of green fodder in Kandi
area of Hoshiarpur & Gurdaspur. This will ensure avalability of green fodder in the shape of
Silage during scarcity period. This will help in improving milk production. 50 Silo pits of
capacity 150 M.T. each will be constructed during the year 2009-10. Rs.10.15 crore shall be
given as capital grant for construction of Silo pits, chaff cutters, weighing balance and
training.

FODDERSEED MULTIPLICATION PROGRAMME:

Non availabilty of quality fodder seed was a major constraint. Milkfed established its own
automatic fodder seed production & processing unit at Bassi Pathana of capacity - 15
MT/Day. During the year, Milkfed produced 6228 quintals of quality fodder seed and during
the year more than 8000 quintals of seed will be produced.

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PROVIDING MILKING MACHINES/MILKING PARLOURS:

To upgrade milking technology, Milkfed is providing milking machines/milking parlours to

dairy cooperative societies/progressive dairy farmers at 50%/25% subsidy. Till date 450
Milking Machines and 4 Milking Parlors have been provided against the target of 800
milking machines for the year 2009-10. Rs.2.00 crore have been received from Govt. of
Punjab as financial assistance. This will improve Bacteriological quality of milk, hygienic
conditions of teats of animals and reduce stress to animals/Milkers and somatic cell counts.

MARKETING & EXPORT

MILKFED PUNJAB is serving nation wide consumers through its net work of Regional
Offices and strong Distribution channels. MILKFED markets a wide variety of products,
which include Liquid Milk, Skimmed Milk Powder, Whole Milk Powder, Dairy Whitener,
Ghee, Butter, Cheese, Lassi, Tetra Pack Sweetened Flavored Milk, UHT milk in Tetra Pack,
Ice Cream, Malted Food Verka Vigour, Khoa etc. etc.

VERKA is brand leader in milk powders particularly in northern eastern sectors and
Skimmed Milk Powder marketed by Milkfed commands a premium price over powders
manufactured by competitors which include multi-national as well as private trade and other
Cooperative Federations. Now Verka has arrived on the sheer strength of its quality,

21
freshness and purity. And of course, it’s homemade taste at the most affordable price. To
people today, Verka is the part of their daily lives.

Milkfed, Punjab, is making available pasteurised milk packed and processed under hygienic
conditions at the doorsteps of the consumers. Keeping in view the modern days human stress,
strains and undernourished persons, those do not get adequate Vitamin A & D from other
sources, Milkfed felt its moral responsibility to take care of their health by enriching Verka
milk with Vitamin A & D.

With competition in national market zooming up efforts to enhance export of Milk Products
have been made. Milkfed has established its ghee market in Middle East market. Verka ghee
reaches all the emirates and is available almost in all the super markets. The penetration is so
deep that verka ghee is available in far off labour camps.

FUTURE PLANNING

Punjab is the State, which has pioneered the green revolution in the country. It is because of
the efforts of the Punjab farmers that India now occupies an enviable position of self-reliance
in respect of food grains on the World map. Consequent upon intensification of agriculture,
Punjab agriculture has now reached saturation level beyond which further growth appears to
be limited. This necessitates a fresh look at the agricultural scenario prevailing in the State so
that the Punjab farmer who is very enterprising and is receptive to new technology continues
to reaps the fruits of his labour without permanent damaging his environment.

The programme aims at bringing a voluntary shift in cropping pattern, introduction of

income/employment generating/productivity oriented programmes directly benefiting the
farmer of Punjab. Under the programme following schemes are proposed for Dairy
Development concerning Milkfed, Punjab:-

 Milk Production and Hygienic Quality Improvement Assistance.

 Modernization of Milk Testing.
 Establishment of Method-cum-Result Demonstration Units.

22
In the field of dairy development, Commercialized Dairy Farming for producing more milk
round the year of high quality was felt the only solution for the viability of Dairy Industry in
the present National and International Dairy Scenario. It will help 70% rural population of
Punjab in increasing their income.

With the objective to accelerate the pace of Milk Production in the State of Punjab and to
improve the quality of milk right at the Society level and to increase the milk procurement to
have 100% capacity utilization of Milk Plants, a detailed Action Plan, vision 2004 has been
prepared jointly by Milkfed, District Milk Unions and Cooperative Department spelling out
there in the various activities to be undertaken for Dairy Development in the State of Punjab.

The broad objective of the Plan is to produce maximum milk of the best quality at the least
cost per liter, collect, store and transport it at least cost in an idle way to be of best quality
when received at Milk Plants dock to utilize it for high standard value added products to earn
maximum income and inturn paying remunerative price for raw milk to the Milk Producers.

It is hoped that with the implementation of Vision-2004 plan the number of Milk Producers
Cooperative Societies will increase to 8000 from 5840 in March-2k and the membership of
these societies will increase from 3.38 lacks in March-2k to 4.75 lacks by the end of March-
2004. Similarly the average milk procurement will increase to 15.30 lack liters per day in the
2003-04 from 8.11 lack liters per day in 1999-2k. The detailed investment proposals have
been submitted to National dairy Development Board for funding.

MILK PLANT BATHINDA :

23
Milk Plant Bathinda was commissioned in September, 1974 with a total outlay of Rs. 1.6
Crores by The Punjab Dairy Dev. Corporation limited. It was one of the select co-operatives
that were covered under the Operation Flood-1 Programme. Subsequently on Ist March,
1980, it was handed over by the State Govt. to The Punjab State Co-operatives milk
Producers federation Ltd. (MILKFED) which is an apex level organization of milk producers
operative in the State. Further to this development, the Milk Plant was handed over to The
Bathinda District Co-operative Milk Producers Union Ltd. (registered in the year 1978 under
Punjab co-operative Act.) on 1st January 1988. Milk Plant set up with a twin objective of
providing remunerative milk market to the milk producers in this area and also supplies good
quality milk products to the consumers at reasonable rates and also marketing of milk
producers at village level.

The Union has a processing capacity of 100TLPD and drying capacity of 6.2 MTD. It also
owns four Milk Chilling Centers namely Rampura (15TLPD), Talwandi Sabo (10TLPD),
Bhikhi (15TLPD) and Sardulgarh (20TLPD). In addition the union has hired ice factory
Bhagta with a capacity of 20TLPD.

Milk and Milk products are prepared as per the norms by pasteurizing the milk and others
required process to fulfill the target/norms as per the market demand. Milk plan also got ISO-
9001:2000 with HACCP (as per IS: 15000: 98) and also approved by the Export Inspection
Agency New Delhi for export the milk products. Milk products having standards norms of
PFA/BIS/EGG MARK and our prescribed specification if International Standards for export
of ghee and Milk Powder to Dubai and Middle East Countries.

Products : - (BRAND-VERKA)

 Milk
 Ghee
 Skimmed Milk Powder
 Whole Milk Powder
 Table Butter

24
  Paneer
 Khoa
 S.F.M.
 Milk Cake
 Lassi
 Kheer
 Ice Cream

THE EXTENSION OF THE BRAND :

After winning faith of innumerable consumers, Verka did not stop. For there was a scope for
more. Changing times brought new trends, needs, tastes and hopes. Verka dynamic as ever,
too acquired newer forms. By adding value to milk to satisfy a quality conscious society. And
what success! For, consumers could have their own pick as we came up with varied varieties
of cheese like the Processed Cheddar Cheese, Cheese Spread, and cheese Singles.
And there were milk powders like Dairy Whitener, Skimmed Milk Powder and Infant Milk
Powder. Health Drinks like Verka Vigour, Verka Lassi, Sweetened Flavoured Milk and a
mango drink called Raseela. Then there were Verka Curd and a whole lot of different
flavours of Ice Creams.

OBJECTIVES OF VERKA MILK PLANT

 The objective of milk plant is collected milk from different villages. It utilize in
proper way.
 It provides best quality of product.
 The verka milk plant is played main roll in increase the dairy form. People are shown
interest in dairy form.
 Its main purpose is made dairy business in rural area.

25
MANAGEMENT BOARD OF DIRECTORS

Sh. V.K.Singh (IAS) M.D.milk fed Punjab

S. Sandhura Singh Chairman

S.Bikermjit Singh Vice Chairman

S. Labh Singh Director

S. Sukhpal Singh Director

S. Jagsir Singh Director

S. Surjit Singh Director

S. Jawala Singh Director

S. Balwinder Singh Director

S. Amrik Singh Director

Smt. Surinder P. Kaur Director

S. Boota Singh Galib, J.R. Co-op.SOC.Ferozpur

S.H.S.Jatana Dy.Reg.co-op.SOC.BTI

S.Karnail Singh Dy.Dir. Dairy Dev .BTI

S.T.P.S.Walia Milkfed Nominee

Sh.M.D.Sharma N.D.D.B.Nominee

Sh.R.K.Tiwari G.M.Milk plant BTI

26
OUTLINE OF THE STUDY:-

Financial analysis of the statements is very important in company management so that the
various important decisions can be taken at time. It is very helpful for the related parties who
are interested in the financial position of the firm. The rationale behind the study is to
develop an understanding about the accounts department & financial statements. It gives the
practical knowledge in accounts. This study also helps in identifying the strengths &
weaknesses of the organizations. The study gives the chance to look into the matter deeply.

Scope of the study

The study is conducted only at “Verka Milk Plant Bathinda” Punjab for the period of 6
weeks. The study is based on secondary data and all the information is available within the
company itself in the form of records. I have also personally investigated the financial
statements of the company. So the scope of the study is limited up to the availability of
officials’ records and the information provided by the staff of accounts department. There
may be window dressing.

Objectives

1. The primary objective of taking up this project was to gain insight and have as much
as practical knowledge in the financial statements prepare in the company.
2. To know the present financial position of the organization for the purpose of better
understanding of the system.
3. To analyze the financial statements of the plant.
4. To find out whether the company has maintained the necessary records in proper
manner.
5. To check any shortcomings in the existing system and suggest appropriate measures.
6. To check also the quality of the products of Verka Milk Plant Bathinda.

27
Limitations of the study

There are main limitations of the study. These are as follow.

1. It is very difficult to take financial statements from the company as no one gives its
correct figures.
2. There may be window dressing of the statements also.
3. As it is government institution no one has sufficient time to attend the trainees
properly.
4. Without the proper help of trainer there is difficulty in analyzing statement.
5. Because of the lack of sufficient staff there is always hotchpotch of work. Everyone is
busy in his or her own work.
6. There is no separate training department.

RESEARCH METHODOLOGY:--

Research Design :

A research design is the arrangement of conditions for collection and

analysis of data in a manner that aims to combine relevance to the research purpose with
economy in procedure .A research design is purely and simply the framework of plan for a
study that guides the collection and analysis of data. It is a blue print that is followed in
completing a study. Keeping in view the objectives of the project. I opted for conclusive,
statistical research methods.

Statistical Techniques:

These techniques are used as they provide more accurate results. The
method eases to identify individual cases and focuses on classes, average, percentages,
measures of dispersion and others .As a result the research can make much more accurate
generalization than by any other method.

28
Recognition of information:

This step is the recognition of various types of information which

are necessary for the study of Financial Analysis.

Data Collection Methods:

Understanding of reports being prepared by the units. For understanding the various types of
reports being sent to finance department by different section, personal interviews have been
conducted with the concerned persons with prior permission from concerned department
head.

According to needed of project I have pursued secondary data collection method. I have used
Milkfed website, research book, financial statements of Verka and finance related books for
secondary data collection method. The findings & suggestions are based on personal
intellectual

Suggestions:

Suggestions on the basis of financial analysis have given for better results.

For analyzing the concept the techniques have been used:-

 capital budgeting tools

 techniques
 Statement of changes in financial analysis

LIMITATIONS OF THE STUDY:-

29
  They do not prepare cash statement separately. Cash flow statement is prepared
collectively for whole of the units.
 Time period for the study is limited.
 As the receipts from debtors is directed to the corporate office and hence not much
information regarding the receivable management could be obtained.
 Investment of funds are also made by corporate office, so it becomes difficult to know
that how much investment is made in different ways for continuous availability of
funds.

INTRODUCTION OF FINANCIAL ANALYSIS:

Financial statements are prepared primarily for decision making. They play a dominant role
in setting the framework of managerial decisions. But the information provided in the
financial statements is not an end in itself as no meaningful conclusions can be drawn from
these statements alone. However, the information provided in the financial statements is of
immense use in making decisions through analysis and interpretation of financial statements.
Financial analysis is the process of identifying the strengths and weaknesses of the firm by
properly establishing relationship between the items of balance sheet and profit & loss
account.

Meaning of Financial Analysis

Analysis is the process of critically examining in detailing accounting information given in

the financial statements. Analyzing financial statements is a process of evaluating
relationship between component parts of financial statements to obtain a better understanding
of firm’s position and performance. It is the process of determining financial strengths and
weaknesses of the firm by establishing strategic relationship between the items of the balance
sheet, profit & loss account and other operative data. The analysis of financial statements thus
refers to the treatment of the information contained in the financial statements in a way so as
to afford a full diagnosis of the profitability and financial position of the firm concerned. For

30
this purpose financial statements are classified methodically, analyzed and compared with the
figures of previous years or other similar firms.

Definition of Financial Analysis

According to Kennedy and Memullar, “The analysis and interpretation of financial statements
are an attempt to determine the significance and meaning of the financial statements data so
that a forecast may be made of the prospects for future earnings, ability to pay interest and
debt maturities and profitability of a sound dividend policy.”

Objectives of Financial Analysis

The primary objective of financial statement analysis is to understand and diagnose the
information contained in the financial statement with a view to judge the profitability and
financial soundness of the firm, and to make forecast about future prospects of the firm.
These are the following objectives of analysis may be stated to bring out the significance of
such analysis:

 To assess the earning capacity of the firm.

 To assess the operational efficiency and managerial effectiveness.
 To assess the short term as well as long term solvency position of the firm.
 To make inter firm comparison.
 To make forecasts about future prospects of the firm.
 To assess the progress of the firm over the period of time.
 To help in decision making and control.
 To guide or determine the dividend action.
 To provide important information for granting credit.

31
 Parties Interested in Financial Analysis

The following parties are interested in the analysis of financial statements.

1. Investors
2. Management
3. Creditors or suppliers
4. Bankers and Financial institutions
5. Employees
6. Government
7. Trade associations
8. Stock exchanges
9. Economists and researchers
10. Taxation authorities

Procedure of Financial Analysis

Broadly speaking there are three steps involved in the analysis of financial
statements. These are: 1) selection 2) classification 3) interpretation. The first
involve selection of information relevant to the purpose of analysis of financial
statements. The second step involved is the methodical classification of the data
and the third step includes drawing of inferences and conclusions.

The following procedure is adopted for the analysis and interpretation of financial
statements:

1. The analyst should acquaint himself with the principles and postulates of
accounting. He should know the plans and policies of the management so
that he may be able to find out whether these plans are executed or not.
2. The extent of analysis should be determined so that the sphere of work
may be decided. If the aim is to find out the earning capacity of the firm
then analysis of income statement is to be undertaken. On the other hand

32
 if financial position is to be studied then balance sheet analysis will be
necessary.
3. The financial data given in the financial statements should be re-
organized and re-arranged. It will involve the grouping of similar data
under same heads, breaking down of individual components of
statements according to nature. The data is reduced to a standard form.
4. A relationship is established among financial statements with the help of
tools and techniques of analysis such as ratio, trends, common size etc.
5. The information is interpreted in a simple and understandable way. The
significance and utility of financial data is explained for helping decision
taking.
6. The conclusions drawn from interpretation are presented to the
management in the form of report.

Types of Financial Analysis

We can classify various types of financial analysis into different

categories depending upon 1) the material used 2) the method of
operation followed in the analysis or the modus operandi of analysis.
1. On the basis of material used: According to material used, financial
analysis can be of two types: a) external analysis b) internal analysis.
a) External analysis: This analysis is done by outsiders who do not
have the asses to detailed internal accounting records of the
business firm. These outsiders include investors, potential
investors, creditors, potential creditors, government agencies and
general public.
b) Internal Analysis: The analysis conducted by the persons who
have the asses to the internal accounting records of a firm is
known as internal analysis. Such as analysis can be performed by
executives and employees of the organization as well as

33
 government agencies which have statutory powers vested in
them.

2. On the basis of modus operandi: according to the operation followed

in the analysis, financial analysis can also be of two types: a)
horizontal analysis and b) vertical analysis.
a) Horizontal Analysis: Horizontal analysis refers to the comparison
of financial data of a company for several years. The figures of
various years are compared with standard year. A base year is
year chosen as beginning point. This type of analysis is also
called ‘Dynamic Analysis’.
b) Vertical Analysis: Vertical analysis refers to the study of
relationship of the various items in the financial statements of one
accounting period.

3. On the Basis of Entities Involved: on the basis of entities involved in

the analysis, it can be of two types: a) cross sectional b) time series.
a) Cross Sectional: Cross sectional analysis involves comparison of
financial data of a firm with other firms averages for the same
time period.
b) Time Series: Time series analysis involves the study of the
performance of the same firm over a period of time.

4. On the Basis of Time Horizon: On the basis of time horizon,

financial analysis can be of two types: a) short term analysis and b)
long term analysis.
a) Short Term Analysis: Short term analysis measures the liquidity
if the firm.
b) Long Term Analysis: Long term analysis involves the study of
firm’s ability to meet the interest costs and repayment schedules

34
 of its long term obligations. The solvency, stability and
profitability are measured under this type of analysis.

Goals

Financial analysts often assess the firm's:

1. Profitability -its ability to earn income and sustain growth in both short-term and long-
term. A company's degree of profitability is usually based on the income statement, which
reports on the company's results of operations;

2. Solvency - its ability to pay its obligation to creditors and other third parties in the long-
term;

3. Liquidity - its ability to maintain positive cash flow, while satisfying immediate
obligations;

4. Stability- the firm's ability to remain in business in the long run, without having to sustain
significant losses in the conduct of its business. Assessing a company's stability requires the
use of both the income statement and the balance sheet, as well as other financial and non-
financial indicators.

Methods of Financial Analysis

A numbers of methods or devices are used to study the relationship between different
statements. The following methods of analysis are generally used:

1) Comparative Statements
2) Trend Analysis
3) Common- Size Statements
4) Funds Flow Analysis
5) Cash Flow Analysis

35
 6) Ratio Analysis
7) Cost- Volume-Profit Analysis

1.Comparative Statements: The comparative financial statements are statements of the

financial position of different period of time. The elements of financial position are shown in
a comparative form so as to give an idea of financial position at two or more periods. The
comparative statements may show:

a. Absolute figures (rupee amounts)

b. Changes in absolute figures

c. Absolute data in terms of percentages

d. Increase or decrease in terms of percentages

From practical point of view, generally, two financial statements are prepared in comparative
form for financial analysis purpose. These are balance sheet and income statement. These
show not only the comparison of figures of two periods but also are relationship between
balance sheet and income statement enables an in depth study of financial position and
operative surplus.

a. Comparative Balance Sheet: The comparative balance sheet analysis is the study of
the trend of the same items, and computed items in two or more balance sheets of the
same business enterprise on different dates. The changes in periodic balance sheet
items reflect the conduct of a business. The changes can be observed by comparison
of balance sheet at the beginning and at the end of the period and these changes can
help in forming an opinion about the progress of an enterprise.

36
 Comparative Balance Sheet

As on 31.3.2011 and 31.3.2012

2011 2012 Absolute change %age change

Assets

Fixed Assets(A) 7,31,57,687.97 7,43,59,463.97 12,01,776 1.64

Investments(B) 1,25,00,100 1,25,00,100 - -

Working Capital(C):-

Current Assets 7,37,63,885.26 14,21,51,557.93 6,83,87,672.64 92.71

Less: Current 26,06,45,936.59 25,82,64,140.47 23,81,796.10 0,91

Liabilities

(C) = (186882051.20) (116112582.60) (70769468.6) 37.87

Profit and Loss a/c

(D)
207529797.06 217237252.65 9707455.50 4.68

Total Assets = 106305533.70 187984233.90 81678700.20 76.8

(A+B+C+D)

Liabilities

37
Share Capital 12009600 12010605 1005 0.008

Reserve and Surplus 59964 59964 - -

Secured and Short 33462895.08 113550550.28 80087655.22 239.33

term loans

Depreciation Reserve
60773074.62 62363114.80 1590040.18 2.62
Total Liabilities 106305533.70 187984234.10 81678700.20 76.83

Interpretation:

1) Comparative balance sheet reveals that during 2012 there has been increased in fixed
assets of Rs. 12,01,776 , i.e. 1.64% while the share capital has increased by Rs. 1005 and
loans decreased by Rs. 80087655.22.

2) The current assets have been increased by Rs.6,83,876 i.e. 92.71%. The current liabilities
have been decreased by Rs. 23,81,796. This depicts that the company has somewhat
improved.

3)The overall financial position of the company is bad.

Advantages of Comparative Balance Sheet:

The following are the main advantages of the comparative balance sheet:

 The comparative balance sheet depicts the position of the firm on different dates
and also the extent of the increase or decrease between these dates.
 The comparative balance sheet shows the position of the firm as well as it marks
out travels over a period of time.

38
  Comparative balance sheet highlights the change as well as the position whereas
in single balance sheet only position can be known.
 Comparative balance sheet bridges the Balance Sheet and Profit & Loss Account.
It shows the effects of operations on the assets, liabilities and capital.

b. Comparative Income Statement: The comparative income statement gives the

results of the operations of the business. The statement discloses the net profit or net
loss resulting from the operation of the business. Such statements show the operating
results for a number of accounting periods so that changes in absolute data from one
period to another period may be stated in terms of absolute changes or in terms of
percentages. This statement helps in deriving meaningful conclusion as it is very easy
to ascertain the changes in sales volume, administrative expenses, selling and
distribution expenses, cost of sales etc.
COMPRATIVE INCOME STATEMENT as on 31.3.2011 and 31.3.2012

Items 2011 2012 Absolute change in %age

2012 change
Sales 740102002.42 720989597.53 (191124049) (2.58)

(-)Cost of 747517361 709320585.6 (38196775.4) (5.11)

goods sold

Gross
(74153586) 11669011.9 19084370.5 257.36
Profit(A)

(-)Operating
Expenses(B):
20746016.01 21551515.65 805499.64 3.88

Operting.
(28161374.61) (9882503.75) (1827880.86) (64.91)
Profit(A-B)

39
(+)Non-
35522847.76 175048.34 (3547799.42) (0.99)
Operating
Profits

(-)Interest
------- -------- ------ ----
Paid

Net Profit
Before Tax 7361473.15 (9707455.41) (17068928.56) (231.87)

2) Trend Analysis: This analysis is important tool of horizontal financial analysis. This
analysis enables to know the changes in the changes in the financial function and
operational between the times periods chosen by studying the trends of each item we can
know the direction of changes. Under this method the trend percentage are calculated
for each item of the financial statements taking the figure of base year as 100. The
starting year is usually taken as base year. The trend percentages show the relationship of
each item with its preceding year’s percentages.

While calculating the trend percentages, the following precautions may be taken:

1) The accounting principles and practices must be followed constantly over the period
for which the analysis is made. This is necessary to maintain consistency and
comparability.

2) The base year selected should be normal and representative year.

3) Trend percentages should be calculated only for those items which have logical
relationship with one another.

4) Trend ratios of each item in other statement is calculated with reference to the same
item in the base statement by using following formula:
40
 Absolute value of item in the statement under study/ absolute value of the same item in
the base statement*100

5) Trend percentages should also be carefully studied after considering the absolute
figures on which these are based. Otherwise they may give misleading conclusions.

6) To make the comparison meaningful, trend percentage of current year should be

adjusted in the light of price level change as compared to base year.

Limitation of Trend Ratios

The following are the main limitation of the trend ratios:

1) Trend ratios become incomparable if the same accounting practices are not followed.

2) Trend ratios do not take into consideration the price level changes.

3) Trend ratios must always be read with absolute data on which they are based,
otherwise the conclusions may be misleading.

4) The trend ratios have to be interpreted in the light of certain non financial factors like
economic condition, government policies, change in income and its distribution etc.

3) Common Size Statement: Common size financial statements are those in which figures
reported are converted to some common base. Items in the financial statements are presented
as percentage or ratios to total of the items and a common base for comparison is provided.
Hence vertical analysis becomes possible. Each percentage shows the relation of the
individual item to its respective total. Common size statements may be used for balance sheet
as well as income statement. The short-comings in comparative statements and trend
percentages where changes in items could not be compared with totals have been covered up.
The analyst is able to assess the figures in relation to values.

1) Common Size Income Statement: In such a statement, sales figure is assumed to be

equal to 100 and all other figures of cost or expenses are expressed as percentage of
41
 sales. The increase in sales will certainly increase the selling expenses and administrative
or financial expenses. In case the volume of sales is increases to a certain extent,
administrative and financial expenses may go up. So, a relationship between sales and
other items in income statements. Comparative income statements for different periods
help to reveal the efficiency or otherwise of incurring any cost or expenses. If it is being
prepared for two firms, it shows the relative efficiency of cash cost items for the two
firms.

COMMON SIZE INCOME STATEMENT

As on 31.3.2011 and 31.3.2012

Items Amount %in relation to Amount %in relation to

sales sales
2011 (Rs.) 2012 (Rs.)

Net Sales(A) 74,01,02,002.42 100 72,09,89,597.53 100

(-) Cost of 747517361 101 709320585.6 98.38

Goods Sold(B)

(C)Gross
(7415358.60) (1.00) 11669011.9 1.62
Profit (A-B)

(-) Operating
Exp.(D)
20746016.01 2.80 21551515.65 2.99

Operating
(28161374.61) (3.81) (9882503.75) (1.37)
Profit(C-D)

42
(+)Non
Operating
35522847.76 4.80 175048.34 0.024
Profits

7361473.15 0.99 (9707455.41) (1.35)

Total Profit

- - - -
(-)Non
operating
Expenses

Net Profit
Before Tax 7361473.15 0.99 (9707455.41) (1.35)

2) Common Size Balance Sheet: In a common size balance sheet, total assets or total
liabilities are taken as 100 and all figures are expressed as percentage of total,
comparative common size balance sheet for different periods helps to highlight the trend
in different items. If it is prepared for different firms in an industry, it facilitates to judge
the relative soundness and helps in understand their financial strategy.

The common size balance sheet can be used to compare companies of

different sizes. The comparison of figures in different periods is not useful because total
figures may be affected by a numbers of factors. It is not possible to establish standard
norms for various assets. The trends of figures from year to year may not be studied and
even they may not give proper results.

43
 Common Size Balance Sheet as on 31.3.2011 and 31.3.2012

Particulars Amount Amount %age change in %age change

in 2012
2011 2012 2011
Assets

Fixed Assets 7,31,57,687.97 7,43,59,463.97 19.94 16.66

Investments 1,25,00,100 1,25,00,100 3.41 2.80

Current Assets 7,37,63,885.26 14,21,51,557.93 20.10 31.85

Profit and Loss a/c 207529797.06 217237252.65 56.56 48.68

(D)

Total Assets 366951470.29 446248374.55 100 100

Liabilities

Share Capital 12009600 12010605 3.27 2.69

Reserve and Surplus 59964 59964 0.016 0.013

Secured and Short 33462895.08 113550550.28 9.12 25.45

term loans

44
Current Liabilities & 260645936.59 258264140.80 71.03 57.87
Provision

Depreciation Reserve
60773074.62 62363114.80 16.56 13.97

Total Liabilities 106305533.70 187984234.10 100 100

4) Funds Flow Statement: This statement is prepared in order to reveal clearly the various
sources where from the funds are procured to finance the activities of a business concern
during the accounting period and also brings to highlights the uses to which these funds are
put during the period.

Schedule of Change in Working Capital

Particulars 2011 2012 Effect on Effect on Working

Working Capital Capital

Increase Decrease
Current assets:

Cash and bank 4901831.09 1280413.12 - 3621417.89

balance

Inventory (store
57392269.46 112165359.6 54773090.14 -
+milk & milk
products)

45
Prepaid expense 84283.00 70273.00 - 14010.00

Dues 9779269.51 1316632.85 3337363.34 -

Others 1606232.20 11003601.60 9397369.40 -

Total c. assets 73763885.26 142151557.93

Current liabilities:

Sundry creditors 19074473.30 34555054.58 - 15480581.28

Outstanding exp. 2401727.00 2416597.00 - 14870.00

Expenses payable 15966881.49 11749785.44 4217096.05 -

Other liabilities 223202854.80 209542703.50 13660151.30 -

Total c. liabilities 260645936.59 258264140.47

W.C.(C.A.-C.L.) (186882051.20) (116112582.50) (70769468.70) -

Importance of funds flow statement: The importance of funds flow statement can be well
followed from its various uses given below:

a) It helps in the analysis of financial operations: The funds statements reveal the net
effect of various transactions on the operational and financial position of the concern. It
explain the causes for changes in the assets and liabilities between two different points of
time and also the effect of these changes on the liquidity position of the company.

46
 b) It helps in the formation of dividend policy: Sometimes a firm has sufficient profits
available for distribution as dividend but yet it may not be advisable to distribute
dividend for lack of liquid or cash resources. In such cases a fund flow statement helps in
the formation of a realistic dividend policy.

c) It helps in the proper allocation of resources: A projected funds flow statement

constructed for the future helps in making managerial decisions.

d) It helps as a future guide: A projected funds flow statement act as a guide for future to
the management. The management can come to know the various problems it is going to
face in near future for want of funds.

Limitations of Funds Flow Statement:

The funds flow statement has a number of uses; however, it has certain limitations also,
which are listed as below:

a) Funds flow statement is not a substitute of an income statement or balance sheet. It

provides only some additional information as regards changes in working capital.

b) It cannot reveal continuous changes.

c) It is not an original statement but simply are-arrangement of data given the financial
statements.

d) It is essentially historic in nature and projected funds flow statement cannot be

prepared with much accuracy.

e) Changes in cash are more important and relevant for financial management than the
working capital.

5) Cash Flow Statement: This statement is prepared to know clearly the various items
of inflow and outflow of cash. It is an essential tool for short term financial analysis and
is very helpful in the evaluation of current liquidity of business concern. It helps the
47
business executives of a business in the efficient cash management and internal financial
management.

Importance of Cash Flow Statement: It is an essential tool of financial analysis for short-
term planning. The chief advantages of cash flow statement are as follow:

a) Since a cash flow statement is based on the cash basis of accounting, it is very useful
in the evaluation of cash position of a firm.

b) A project cash flow statement can be prepared in order to know the future cash
position of a concern so as to enable a firm to plan.

c) A comparison of the historical and projected cash flow statements can be made so as
to find the variations and deficiency or otherwise in the performance so as to enable a
firm to take immediate and effective action.

d) Cash flow statement helps in planning the repayment of loans, replacement of fixed
assets and other similar term planning of cash.

e) It better explain the causes of poor cash position in spite of substantial profits in a firm
by throwing light on various applications of cash made by the firm.

Limitations of Cash Flow Statement:

Despite a number of uses, cash flow statement suffers from the following limitations:

a) As cash flow statement is based on cash basis of accounting, it ignores the basic
accounting concept of accrual basis.

b) Some people feel that as working capital is wider concept of funds, a funds flow
statement provides a more complete picture than cash flow statement.

c) Cash flow statement is not a substitute for judging the profitability of the firm as non-
cash charges are ignored while calculating cash flows from operating activities.

48
d) A cash flow statement is not a substitute of an income statement; it is complementary
to an income statement.

6) Ratio Analysis: It is done to develop meaningful relationship between individual items

or group of items usually shown in the periodical financial statements published by the
concern. An accounting ratio shows the relationship between the two inter related
accounting figures as gross profit to sales, current liabilities, loaned capital to owned
capital etc.

The ratios are of different types. These are as follow:

 Liquidity Ratios
 Profitability Ratios
 Activity/Turnover or performance ratios
 Stability Ratios

From above four types of ratios the most important ones are liquidity and profitability
ratios. The description of these is as follow:

Liquidity Ratios:

Liquidity refers to the ability of a concern to meet its current obligations as and when
these become due. If current assets can pay off current liabilities, then liquidity position
will be satisfactory. The bankers, suppliers of goods and other short term creditors are
interested in the liquidity of the concern. They will extend credit only if they are sure
that current assets are enough to pay out the obligations. To ensure the liquidity of the
firm, the following ratio of can be calculated:

 Current Ratio:
Current ratio may be defined as the relationship between current assets and
current liabilities. This ratio, also known as working capital ratio, is a measure of
general liquidity and is most widely used to make the analysis of a short term
financial position of the firm.
49
 Current ratio= current Assets/Current Liabilities

Current ratio=142151557.93/258264140.47

=0.554

Profitability Ratios: The primary objective of a business undertaking is to earn profits.

Profits are a useful measure of overall efficiency of a business. Profits are the test of
efficiency to the management and a measurement of control. Generally, profitability
ratios are calculated in relation to sales or in relation to investment. The various
profitability ratios are discussed below:

Gross Profit Ratio:

Gross profit ratio measures the relationship of gross profit to net sales and usually
represented as a percentage. Thus, it is calculated by dividing the gross profit by sales:

Gross Profit Ratio=Gross Profit/Net Sales*100

=11669011.72/720989597.53*100 =1.618

Net Profit Ratio:

Net profit ratio establishes a relationship between profit and sales, and indicates the
efficiency of the management in firm. This ratio is the overall measure of firm’s
profitability and is calculated as:

Net profit ratio= net profit after tax/net sales*100

= -9707455.59/720989597.53*100

= -1.346

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Return on Investment:

Return on investment, popularly known as ROI is the relationship between the net profits
and the proprietor’s funds. As the primary objective of the business is to maximize its
earnings, this ratio indicates the extent to which this primary objective of business is being
achieved. The inter-firm comparison of this ratio determines whether the investment in the
firm are attractive or not as the investors would like to invest in only where the return is
higher.

ROI= Net profit/shareholder’s funds

= -9707455.59/12010605*100

= -80.82

8) Cost-Volume-Profit Analysis:
9) Cost-volume-profit analysis is a technique for studying the relationship between cost,
volume and profit. Profits of an undertaking depend upon a large number of factors.
But the most important of these factors are the cost of manufacture, volume of sales
and the selling prices of products. The three factors of CVP analysis i.e. costs, volume
and profit are interconnected and dependent on one another. For example, profits
depend upon sales, selling price to a large extent depends upon cost and cost depends
upon volume of productions it is only the variable cost that varies directly with
production, whereas fixed cost remains fixed regardless of the volume produced. In
cost-volume-profit analysis an attempt is made to analyze the relationship between
variations in cost with variations in volume.

Break-Even Analysis:

The study of cost-volume-profit analysis is often referred to as ‘break even analysis’. The
term break even analysis is used in two senses- narrow sense and broad sense. In its broad
sense, break even analysis refers to the study of relationship between costs, volume and profit
at different levels of sales or production. In its narrow sense, it refers to a technique of
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determining that levels of operations where total revenues equal total expenses, i.e. the point
of no profit, no loss.

Terms used in break even analysis

Break Even Point:

The breakeven point may be defined as that point of sales at which total revenue is equal to
total expenses. It refers to that level of output which evenly breaks the costs and revenues. It
is also called ‘critical point’ or ‘equilibrium point’.

Contribution:

Contribution is the difference between sales and variable cost or marginal cost of sales. It
may also be defined as the excess of selling price over variable cost per unit. Contribution
can be represented as:

Contribution= sales – variable cost

Or contribution = selling price – variable cost per unit

Or contribution= fixed cost + profit (-loss)

Margin of Safety:

The excess of actual or budgeted cost over the break-even sales is known as the margin of
safety. It is the difference between the actual sales minus the sales at break-even point. As at
break-even point there is no profit, no loss, sales beyond the break-even point represent
margin of safety because any sales above the break-even point will give some profit.

Margin of safety= total sales- sales at break-even point

Assumptions of Break Analysis

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 1. All elements of cost, i.e. production, administration, selling and distribution can
be segregated into fixed and variable components.

2. Variable cost remains constant per unit of output irrespective of the output and
thus fluctuates directly in proportion to changes in the volume of output.

3. Fixed cost remains constant at all volumes of output.

4. Selling price per unit remains unchanged at all levels of output.

5. Volume of the production is the only factor that influences cost.

6. There will be no change in the general price level.

7. There is only one product or in case of multi-products, the sales mix remains
unchanged.

8. There is synchronization between production and sales.

Computation of break-even point: The breakeven point can be calculated by the following
methods:

Algebraic Formula Method: The breakeven point can be computed in terms of: a) units of
sales volume.

Break-Even Point= fixed cost/selling price-variable cost

Or= fixed cost/contribution per unit

b) In terms of money value

Break-Even Sales= fixed cost/p/v ratio

c) As a percentage of estimated capacity

BEP= fixed cost/total contribution

Limitations of Break-Even Analysis:

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 1. The technique is based upon a number of assumptions which may not hold well
under all circumstances.

2. All costs are not divisible into fixed and variable. There are certain costs which
are semi variable in nature.

3. Variable costs do not remain constant and do not always vary in direct proportion
to volume of output because of law of diminishing returns.

4. Selling price does not remain constant forever and for all levels of output due to
competition, discounts for bulk orders etc.

5. Fixed cost does not remain constant after a certain level of activity.

Interpretation of the Analysis

From the whole analysis we can interpret that the company is going worse. As the liabilities
of the firm are more than its assets. The other expenses of the firm are increasing day-by-day.
But the sill firm is going on. The main reason behind this is social welfare. The firm is
recovering its position through the rehabilitation scheme of National Diary Development
Board (NDDB). This board has provided Rs. 13.60 crores this year for the recovery. The rest
will be recovered by selling land which as deal of Rs. 15-20 crores. Here in this study we
cannot do CVP analysis, the reason for it is that this firm is not fulfilling the main
assumptions. By the entire study the conclusion is that the firm is facing worst position from
the last very 8 years.

Limitations of financial analysis:

Financial analysis is a powerful mechanism of determining financial strengths and

weaknesses of a firm. But, the analysis is based on the information available in the financial
statements. Thus, the financial analysis suffers from serious inherent limitations. Some of the
limitations are summed up as below:

1. It is only a study of interim reports.

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 2. Financial analysis is based only upon monetary information and monetary factors
are ignored.

3. It does not consider changes in price levels.

4. As the financial statements are prepared on the basis of a going concern, it does
not give exact position. Thus accounting concepts and conventions cause a
serious limitation to financial analysis.

5. Changes in accounting procedure by a firm may be often make financial analysis

misleading.

6. Analysis is only a mean and not an end in itself. The analyst has o make an
interpretation and draw his own conclusions. Different people may interpret the
same thing in different ways.

Suggestions

1. As the unit running at loss the general manager should take the initiative to
recover its loss either through the diversification or through increasing the
sales.
2. There should be proper training cell for the employees as well as trainees.
3. The performance of the unit can be improved upon by insuring less wastage.
4. There should be check on the dealers of the units so they cannot be corrupt.
5. New recruitments should be there so as to maintain proper sufficient staff.
6. Marketing department should try to increase its sales by giving knowledge &
awareness of Verka’s quality of products.

Findings

 There is proper system of maintaining the records and books of accounts.

 All the payments are made in time.
 The production in Verka Milk Plant is on demand so there is no much wastage.

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  Special audit inspector is there to audit the financial statements elected by
government.
 The records of last year’s are maintained. These can be used to establish a trend
analysis. Shortcomings of organization and changes in demand can be estimated
through the comparison of last years records.
 The plant has its motive of social welfare and profit earning.
 Verka Milk Plant Bathinda is the firm which is strengthening the dairy sector by
providing remunerative prices for the milk.
 The plant is running on loss from last 8 years. There are many reasons for that.

Conclusion

From the analysis of financial statements of Verka Milk Plant Bathinda we can conclude at
the end that the unit is running at the loss. There are many reasons for this loss. The main are
the hike in prices of milk, low rates of product, low commission to dealers lead to less sale of
Verka products, rise in salaries, increasing variable expenses per year and also because of
lack of awareness among customers. The other main reason of loss is that Verka’s main aim
is social welfare and not profit earning. Verka is brand known for its quality and welfare.
This has improved the structure of Punjab dairy sector.

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 BIBLIOGRAPHY

AUTHOR BOOK

Khan & Jain Management Accounting

Gupta, Shashi.k Financial Management

Websites:

www.google.com

www.milkfed.nic.in

OTHER SOURCE OF INFORMATION

Annual Reports of VERKA MILK PLANT.

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