CHAPTER - 1

INTRODUCTION

1.1 INTRODUCTION ABOUT THE STUDY

The financial statement provides rich information about operational results of

business unit and much can be learnt from a careful examination of these statements.
Financial statements are prepared primarily for decision making. Financial analysis is the
process of determining in the significant operating and financial characteristics of a firm
from accounting data.

The profit and loss account and balance sheet are indicators of two significant
factors-profitability and financial soundness. Analysis of financial statement means such
as a treatment of the information contained in two statements as to afford a full diagnosis
of the profitability and financial position of the firm concerned.

Broadly, the term of financial analysis is applied to almost any kind of detailed
enquiry into financial data. A financial executive has to evaluate the past performance,
present financial position, liquidity situation, enquire into profitability of the firm and to
plan for future operation. For this entire have study the relationship among various
financial variables in a business as disclosed in various financial statements. The analysis
of financial statements in attempt to determine the significance and meaning of the
financial statements data so that forecast may be made of the future prospects for
earnings ability to pay interest and debt maturities and profitability.

The financial statements are mirror which reflect the financial position and
operating strength or weakness of the concern. The statement is highly useful to the
management, investors, creditors, bankers, workers, government and public at large.

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 The American institute of certified public accounts states the nature of financial
statements as,” financial statement prepared for the purpose of presenting a periodical
review of report on progress by the management and deal with status of investment in the
business and the results achieved during the period under view. They reflect a
combination of recorded facts, accounting principles and personal judgments.

1.2 INDUSTRY PROFILE

Indian Dairy Industry-A profile

Today, India is 'The Oyster' of the global dairy industry. It offers opportunities
galore to entrepreneurs worldwide, who wish to capitalize on one of the world's largest
and fastest growing markets for milk and milk products. A bagful of 'pearls' awaits the
international dairy processor in India. The Indian dairy industry is rapidly growing, trying
to keep pace with the galloping progress around the world. As he expands his overseas
operations to India many profitable options await him. He may transfer technology, sign
joint ventures or use India as a sourcing center for regional exports. The liberalization of
the Indian economy beckons to MNC's and foreign investors alike.

India’s dairy sector is expected to triple its production in the next 10 years in view of
expanding potential for export to Europe and the West. Moreover with WTO regulations
expected to come into force in coming years all the developed countries which are among
big exporters today would have to withdraw the support and subsidy to their domestic
milk products sector. Also India today is the lowest cost producer of per liter of milk in
the world, at 27 cents, compared with the U.S' 63 cents, and Japan’s $2.8 dollars. Also to
take advantage of this lowest cost of milk production and increasing production in the
country multinational companies are planning to expand their activities here. Some of
these milk producers have already obtained quality standard certificates from the
authorities. This will help them in marketing their products in foreign countries in
processed form.

2
The urban market for milk products is expected to grow at an accelerated pace of around
33% per annum to around Rs.83,500 crores by year 2010. This growth is going to come
from the greater emphasis on the processed foods sector and also by increase in the
conversion of milk into milk products. By 2010, the value of Indian dairy produce is
expected to be Rs 20,00,000 million. Presently the market is valued at around twelve
lakhs million rupees

Background

India with 134mn cows and 125mn buffaloes, has the largest population of cattle
in the world. Total cattle population in the country as on October'00 stood at 313mn.
More than fifty percent of the buffaloes and twenty percent of the cattle in the world are
found in India and most of these are milk cows and milk buffaloes.

Indian dairy sector contributes the large share in agricultural gross domestic products.
Presently there are around 70,000 village dairy cooperatives across the country. The co-
operative societies are federated into 170 district milk producers unions, which is turn has
22-state cooperative dairy federation. Milk production gives employment to more than
72mn dairy farmers. In terms of total production, India is the leading producer of milk in
the world followed by USA. The milk production in 2009-11 is estimated at 78mn MT as
compared to 74.5mn MT in the previous year. This production is expected to increase to
81mn MT by 2010-11. Of this total produce of 78mn cows' milk constitute 36mn MT
while rest is from other cattle.

While world milk production declined by 2 per cent in the last three years, according to
FAO estimates, Indian production has increased by 4 per cent. The milk production in
India accounts for more than 13% of the total world output and 57% of total Asia's
production. The top five milk producing nations in the world are India, USA, Russia,
Germany and France.

Although milk production has grown at a fast pace during the last three decades
(courtesy: Operation Flood), milk yield per animal is very low. The main reasons for the
low yield are

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 • Lack of use of scientific practices in milking.
• Inadequate availability of fodder in all seasons.
• Unavailability of veterinary health services.

Operation Flood

The transition of the Indian milk industry from a situation of net import to that of
surplus has been led by the efforts of National Dairy Development Board's Operation
Flood. program under the aegis of the former Chairman of the board Dr. Kurien.

Launched in 1970, Operation Flood has led to the modernization of India's dairy sector
and created a strong network for procurement processing and distribution of milk by the
co-operative sector. Per capita availability of milk has increased from 132 gm per day in
1950 to over 220 gm per day in 1998. The main thrust of Operation Flood was to
organize dairy cooperatives in the milk shed areas of the village, and to link them to the
four Metro cities, which are the main markets for milk. The efforts undertaken by NDDB
have not only led to enhanced production, improvement in methods of processing and
development of a strong marketing network, but have also led to the emergence of
dairying as an important source of employment and income generation in the rural areas.
It has also led to an improvement in yields, longer lactation periods, shorter calving
intervals, etc through the use of modern breeding techniques. Establishment of milk
collection centers, and chilling centers has enhanced life of raw milk and enabled
minimization of wastage due to spoilage of milk. Operation Flood has been one of the
world's largest dairy development program and looking at the success achieved in India
by adopting the co-operative route, a few other countries have also replicated the model
of India's White Revolution.

Fresh Milk

Over 50% of the milk produced in India is buffalo milk, and 45% is cow milk.
The buffalo milk contribution to total milk produce is expected to be 54% in 2000.
Buffalo milk has 3.6% protein, 7.4% fat, 5.5% milk sugar, 0.8% ash and 82.7% water
whereas cow milk has 3.5% protein, 3.7% fat, 4.9% milk sugar, 0.7% ash and 87% water.

4
While presently (for the year 2000) the price of Buffalo milk is ruling at $261-313 per
MT that of cow is ruling at $170-267 per MT. Fresh pasteurized milk is available in
packaged form. However, a large part of milk consumed in India is not pasteurized, and
is sold in loose form by vendors. Sterilized milk is scarcely available in India.

Packaged milk can be divided according to fat content as follows,

 Whole (full cream) milk - 6% fat

 Standardized (toned) milk - 4.5% fat

 Doubled toned (low fat) milk - 3% fat

Market Size and Growth

Market size for milk (sold in loose/ packaged form) is estimated to be 36mn MT
valued at Rs470bn. The market is currently growing at round 4% pa in volume terms.
The milk surplus states in India are Uttar Pradesh, Punjab, Haryana, Rajasthan, Gujarat,
Maharashtra, Andhra Pradesh, Karnataka and Tamil Nadu. The manufacturing of milk
products is concentrated in these milk surplus States. The top 6 states viz. Uttar Pradesh,
Punjab, Madhya Pradesh, Rajasthan, Tamil Nadu and Gujarat together account for 58%
of national production.

Milk production grew by a mere 1% pa between 1947 and 1970. Since the early
70's, under Operation Flood, production growth increased significantly averaging over
5% pa.

About 75% of milk is consumed at the household level which is not a part of
commercial dairy industry. Loose milk has a larger market in India as it is perceived to be
fresh by most consumers. In reality however, it poses a higher risk of adulteration and
contamination.

5
 The production of milk products, i.e. milk products including infant milk food,
malted food, condensed milk & cheese stood at 3.07 lakh MT in 1999. Production of milk
powder including infant milk-food has risen to 2.25 lakh MT in 1999, whereas that of
malted food is at 65000 MT. Cheese and condensed milk production stands at 5000 and
11000 MT respectively in the same year.

Packaging Technology

Milk was initially sold door-to-door by the local milkman. When the dairy co-
operatives initially started marketing branded milk, it was sold in glass bottles sealed with
foil. Over the years, several developments in packaging media have taken place. In the
early 80's, plastic pouches replaced the bottles. Plastic pouches made transportation and
storage very convenient, besides reducing costs. Milk packed in plastic pouches/bottles
have a shelf life of just 1-2 days , that too only if refrigerated. In 1996, Tetra Packs were
introduced in India. Tetra Packs are aseptic laminate packs made of aluminum, paper,
board and plastic. Milk stored in tetra packs and treated under Ultra High Temperature
(UHT) technique can be stored for four months without refrigeration. Most of the dairy
co-operatives in Andhra Pradesh, Tamil Nadu, Punjab and Rajasthan sell milk in tetra
packs. However tetra packed milk is costlier by Rs5-7 compared to plastic pouches. In
1999-00 Nestle launched its UHT milk. Amul too re-launched its Amul Taaza brand of
UHT milk. The UHT milk market is expected to grow at a rate of more than 10-12% in
coming years.

1.3 COMPANY PROFILE

Profile of Aavin milk factory:

The Tirunelveli District Co-Operative Milk Producer’s Union has been
registered on 30.08.1982 and started functioning from 01.01.1983 .It has the area of
operation of both Tirunelveli and Tuticorin districts for procuring and selling milk.

6
As on date this union is enrolling 922 primary Co-operative societies as members with
the share capital amount of Rs.9,47,000 and the Government of Tamilnadu is also
member of this union with the share amount of Rs.3,16,76,0001.00.

The Board
The board consists of Managing Director and the Chairman namely the District
Collector

DAIRY
Processing Facility:

The Milk received at the chilling centers brought to the Diary and along with the
milk received at the Diary, milk is processed for keeping the quality. Types of milk such
as standardized milk, high fat, high protein milk are being prepared for the requirement of
the consumers. The surplus fat is converted into butter and into ghee. The whole milk
surplus is dispatched to Metro Diaries and Feeder Balancing Diaries viz Madurai, Erode
and Trivandrum. The High Fat and High Protein Milk are packed into 250ml and 500ml
sachets. In the Diary Milk Beda , Ghee, Ice cream, flavoured milk , Rose milk ,Butter
milk etc are being manufactured and marketed. The processing capacity of main Dairy,
Kovilpatti CC, , Valliyur CC ,Sankarankovil CC and Sathankulam CC are 1,00,000:
10,000; 20,000; 50,000; 10,000 LPD respectively.

Procurement:
The union milk procurement wise consists of both procurement and Animal Health
Coverage. The procurement activity of the union is collecting milk from 480 societies
through 23 milk collection routes in both Tirunelveli and Thootukudi District and 85000
LPD.

Procurement Activities:
No of Milk procurement Teams : 5
No of MPCS : 771

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 No of Milk Collection Routes : Main Diary 7; Sankarankovil CC 7;
Valliyur CC4; Kovilpatti CC 3;
Sathankulam CC 2.

Sale of Cattle Feed:

This union is purchasing cattle feed from Madurai and Erode cattle feed plants and
selling it to the Societies based on the requirements.

Feed and Fodder:

This union has a fodder plot around 4.0 acres in which CO2 grass has been cultivated and
fodder slips are being supplied to the required societies.
During the year 1999-2000 again Equipments like Milk Cans and Milk- Testers were
given to 22 societies at a total cost of Rs. 1,80,000- (80 cans and 2 milk- testers).
Again for the Year 2000-2001 it has been recommended to the Government to issue 100
Milk Cans and 4 Milk- Testers and one Auto milk collection center to 32 societies under
50% subsidy for a total sum of Rs. 4,45,000/- for the year 2001-2002 proposal has been
sent to the Government to issue 3 sets of Milk- Testers, 100 Trevices and 100 Milk Cans
under 100% subsidy.

Welfare Schemes:
During the year 1998-99 equipments like Milk Cans and Milk Testers were
supplied to 36 societies to a total cost of Rs. 2,24,000 under 100% sbsidy(140 Cans and
1 Milko -Testers).\

Marketing:
At present this union is marketing 36,000 LPD approximately in the Tirunelveli and
Thootukudi District through its Agents, Booths and Parlors.

No. of Agents : 86

Associates : 17

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 Private Institutions : 15

Government Institutions : 16

Societies : 08

Milk Booths : 12

Milk Parlors : 14

No. of Milk Distribution Routes : 14

By Products:
This union is marketing Agmark ghee and SMP to the wholesale dealers based on
the guidance given by the Federation at the prevailing rate. This union is also selling
Ghee and Milk Beda to the retailers at rate fixed by federation.
The other byproducts sold are mysorepa , milk cake ,flavored milk , Ice cream and rose
milk.

Cattle Population:
At present Aavin has total animal population of 51,524 out of which 41,224 are
as White cattle’s (cows) and 10,300 are as buffaloes.

PROMOTERS & DIRECTORS:

This union is a co-operative organization. The Tamilnadu Government
through the Diary development department controls it. There are 11 board of Directors
have elected from the member diary co-operative societies presidents. The chairman and
Vice-chairman are elected from the 11 directors. Under the Tamilnadu co-operative act
11 boards of directors are elected under communal allotment. Of the 11 directors 2
scheduled caste/ scheduled tribes, 3 women, 6 others. At present Tamilnaduu
Government have imposed a special ordinance and dissolved all co-operative board. Now
all co-operatives are administrated by Special officers. The concerned district collector as
special officer for all the district milk union. So the Tirunelveli collector is the special
officer for Tirunelveli district co-operative milk producer’s union.

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SHAREHOLDING PATTERN:

All the diary co-operative societies are under this union. The value of per share is Rs .
100/- and entrance fees is Rs .10/-. The government of Tamilnadu is also member of this
union. There are 467 diary co-operative societies are member of this union. The share
capital details are as below.

Diary co-operative societies : Rs.542700

Tamilnadu Government : Rs.2500000
Total : Rs.3042700

Milestones:
In 1983 this union has introduced toned milk (fat 3.0, SNF 8.5) and standardized
milk (fat 4.5, SNF 8.5) only. In 1985 this union has produced and marketed ghee also. In
1995 curd, butter milk and ice cream were produced and marketed. In 2003 homogenized
standardized milk (fat 4.5, SNF 8.5) and full ice cream (fat 6.0, SNF 9.0) were produced
and marketed. By the introduction of brand milk, this union’s milk marketing has
increased rapidly. In 2005 mysurepa and milk cake were produced marketed
.
Diary Co-operatives in India:
Early there were no medium or large privately owned diary forms in India and
milk production was entirely on de-centralized basis and collection of milk was done by
few marketing organizations like Keventers and Polsons who set up plants for
producing tabby butter in some areas and also started liquid milk to some institutions and
military establishments.
Due to the absence of a system diary based on commercial rural milk production,
collection , transportation, processing and marketing of milk and milk products to meet

10
the demand of growing urban population, the gap between and supply in cities continued
and shortage was felt in many areas . Private vendors took full advantage of such
shortages by large scale adulteration of milk and also charged higher of milk and also
charged high prices for poor quality milk.
On account of the general exploitation by the private vendors and as a measure of
counter-acting these acute shortages a few milk supply society were started during the
second and third decades of the country, but these societies were in variably consumer
oriented.

The first diary co-operative society was registered in 1913 at Allahabad in U.P and was
called “Kaira co-operative Diary Society”. Soon after a number of co-operative societies
were registered Baroda, Belgium, Dhulia, Bhagalpur, Hubli, Bagalkot and Kolkotta etc.

Diary Co-operatives in Tamil Nadu:

In Tamil Nadu Milk Co-operatives were organized by the state co-operatives
department in 1920. India’s first co-operative diary with processing and marketing
facilities was established at Ayyanavaram in Chennai city in 1927. This was followed by
the establishment of milk co-operatives at Coimbatore, Madurai, Trichy, Tanjore, Ooty,
Cuddalore and other parts of Tamil Nadu.
In 1958, the diary development co-operative was established. It embarked upon large
scale diary development activities with the aid form New Zealand and under Colombo
plan, in 1963 a cattle colony at Madhavaram and also a diary co-operative factory to
process Fifty Thousand Liters of milk per day was established. Later another diary co-
operative society to handle Fifty thousand Liters of milk was established at Madurai in
1967, with the assistant from United Nations Childer’s Fund(UNICEF). Further a large
number of chilling centers were also established and organized marketing of milk was
undertaken at Madras and Madurai cities.
In 1972, The Tamil Nadu diary development co-operation was setup and it took over
all the commercial activities of the state diary development. In 1978 as per the policy
decision taken by the Government of Tamil Nadu, a three tire co-operative structure was
evolved consequently an apex federation known as Tamil Nadu Co-operative Milk

11
Federation was formed on 1st february 1981.It took over the activities of the Tamil
Nadu Diary Development Co-operation. In later years the number of cooperative milk
producer’s society at the village level, co-operative milk producer’s union at District
level and co-operative milk federation’s at the state level organized. At present in Tamil
Nadu about sixteen Districts co-operative milk producer’s union is one of the sixteen
selected for this study.

Profile Of The Case Study:

A detailed profile of Tirunelveli district co-operative milk producer’s union Ltd.
Is given in the following headings.

Registration:
The Tirunelveli district co-operative milk producer’s union was registered on 30th
August 1982 and it started functioning from 01.01.1983 with assets, liabilities transferred
as such from Tamilnadu co-operative milk producer’s Federation under Madurai unit.
Location:
The Tirunelveli district co-operative milk producer’s union Ltd. Established in
Reddiarpatti Road, it covers 17.19 acre i.e,(71.978 Square meter).

Employees:
At present in this Aavin 269 employees are working at various levels in various
section such as production& input, administration, dairying, marketing, finance and
Accounts.

Products:
The products includes milk, butter, ghee, flavored milk, curd, butter milk, milk
peda, cream, ice cream and skimmed milk powder and also purchased the product from
other Aavin and sell it. They are mysorepa, badam mix, flavored milk(Aavin), S.M.
(Tetra).

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Types Of Milk:
The following tables shows the different types of milk made by the Aavin.

Types of Milks

S.No PARTICUULARS FAT S.N.F

1. Special toned Milk 3.5% 8.5%

2. Standardized Milk 4.5% 4.5%

3. Homogenized Pasteurized Milk 6.0% 9.0%

1.4 PRODUCT PROFILE

This union is marketing agmark ghee and SMP to Whole sale dealers
based on the guidance given by the Federation at the prevailing rate.

This union is also selling ghee and Milk Beda to retailers at the rate fixed
by federation. the other by products sold are

 flavored milk

 standardized milk

 Butter milk

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  Pasteurized milk

1.5 STATEMENT OF THE PROBLEM

The pilot study of the financial details made the researcher evident that the firm is
increasing the loss. Even though Aavin is a service based organization which is not more
consider the profit, it essential to reduce the unwanted expenses and reducing the
affection of bad effects.

1.6 SCOPE OF THE STUDY

The study is performed by using the financial statement of AAVIN for the past
four years. The analysis was done using the tools like comparative Financial and balance
sheet, Ratio analysis. These calculations cover the major area like profit and loss, balance
sheet.

With the help these calculations, we:

♦ Interpret the profitability and efficiency of various business activities with the
help of profit and loss account.
♦ Measure the managerial efficiency.
♦ Measure the current financial position.

Information regarding the financial activities and financial position for a period of a
business concern is necessary for management in making financial decisions.

1.7 SIGNIFICANCE OF THE STUDY

♦ To analyze and evaluate the financial performance of Aavin.

♦ To examine the short-term financial solvency of the Aavin

14
 ♦ Increase the performance of the firm efficiency.
♦ It helps the effective utilization of resources.

1.8 OBJECTIVES OF THE STUDY

(a) Primary

 The main aim of this work is to study the financial performance of Aavin
unit for the past four years(2005-2009)
(B) Secondary

 To study the asset and liability position of Aavin

 To evaluate the performance of the Aavin in terms of production and
sale of milk &milk products.
 To compare the various assets and liabilities of Aavin
 To analysis the performance of the milk factory for the past four
financial years.
 To give suggestion on the basis of findings of the study.

1.9 LIMITATION OF THE STUDY

• The historical nature of account has its own limitation and measuring the
performance of the Aavin milk factory only in terms of monitory aspects.
• The project is based on the information from the company, schedule for revenue
and expense of Aavin
• The data was collected basically from the annual reports and records supplied by
the Aavin

1.10 CHAPTERISATION
• The first chapter deals with the introduction part of the study.
• The second chapter deals with the review of earlier literature on the same topic.

15
 • The third chapter deals with the research methodology.
• The fourth chapter deals with the analysis and interpretation of the study.
• The fifth chapter deals with suggestion, findings and summary of the study.

CHAPTER - 2

REVIEW OF LITERATURE

2.1 INTRODUCTION
Review of literature shows light on the earlier studies which will enhance the workers
to get a deep idea about the topic. A subjective measure of how well a firm can use assets
from its primary mode of business and generate revenues. This term is also used as
general measure of a firm overall financial health over a given period of time, and can be
used to compare industries or sectors in aggregation.

According to A.Vikeran, in 1995

“Generally financial performance of the financial institution has been measured

using the combination of financial ratio analysis, bench marking, measuring performance
against budget or the mix of these methodologies. The financial statement corporation in
Oman that published commonly contains variety of financial ratios designed give
indication of the corporate performance”.

According to Hempel G.Coleman, in 1986

Simply started much of the performance literature describe the objective of

financial organizations at that earnings acceptable return and minimizing the risk taken to
earn this return. There is generally accepted relationship between risk and return that is

16
high risk the high expected return. Therefore, traditional measures of performance have
measured both risk and return.

According to Spathis and Doumpos, in 2002

The increase competition in the national and international market the change over
towards monitory unions and new technology innovations herald major changes in the
environment. Investigated the effectiveness based the asset size. They used in their study
a multi criterion methodology to classify according to the return and operation factors,
and to show the difference of the profitability and efficiency between small and large.

According to Richered , B.Molony,.J2003,Ruth F.,2001, And Lan Candy, in 2000

Many Researcher have been too much focus on assets and liability management,
some of the studies are however the literature concerning the assets and liability
management for strongly suggest the risk management issues and its implications must be
concentrated industries.(Jon R.Presely,1992), concluded from the study that there is a
need for the great risk management in relation to more effective portfolio management,
and this requires a greater risk emphasis upon the nature of risk and return in assets
structure, and greater diversification of assets in order spread and reduce the risks.

According to Azru Tectas and Gunay, in 2005,

Discussed assets and liability management in financial crisis. They argued that an
efficient assets and liability management requires maximizing profit as well as
controlling and lowering various risks, and their study how shifts in market perception
can create trouble during crisis.

17
According to English m.Warang. in1992

Generally, the concept of efficiency can be regarded at the relationship between

output of system and the corresponding inputs used their production with in a financial
efficiency literature, efficiency is treated as relative measures which reflect the deviations
from maximum attainable output given level of input. However there have been
numerous studies analyze the efficiency of financial institution

2.2 SUMMARY:
The above literature review helps to know about financial performance analysis in
a better way. Review of literature shows light on the earlier studies which will enhance
the workers to get a deep idea about the topic. The finance is backbone of the every
organization. It is very important that every organization should used the effective
utilization of financial resources.

18
 CHAPTER – 3
RESEARCH AND METHODOLOGY

3.1 INTRODUCTION
“Research methodology is a way to systematically solve the research problem”.
So the talk of research methods, but also consider the logic behind the methods that are
used in the context of research and why not others. So that research are capable of being
evaluated either by researcher himself are by others.
This study is comparative one. This study conducted to highlight the financial
position of Aavin Milk Company Ltd.

3.2 RESEARCH DESIGN:

A research is purely and simply the framework of plans of study that
guides the collection and analysis of data. Research design is analytical study which is
based on the existing facts and figures taken from the annual reports of Aavin Milk
Company Ltd.

3.3 DATA COLLECTION METHOD:

Secondary Data

The type of data collection are used in this study is secondary data collection; the
published annual report of the milk company was used.

19
 The other secondary data were collected from published works like books, Annual
reports, internet, article, etc

Execution of the project:

The collected data’s are tabulated with related ones and formulas are used to find
out the information in financial form.
3.4 TOOLS FOR ANALYSIS:

The following tools are used to the analysis.

1: Ratio Analysis
2: Trend Analysis
3: Common-size-statement Analysis

Ratio Analysis
Ratio analysis is one of the most powerful tools of financial analysis. It aims at
making use quantitative information for decision making. A ratio is an expression two
figures or two amounts. It is a yard stick which measures relationship between two
variables. Ratio is simply a means of highlighting in arithmetical terms to the relationship
between figures drawn from various financial statements.

According to Robert Antony defines a ratio as “simply one number expressed in

terms of another”. A great number of ratios can be computed from the financial statement
balance-sheet and profit and loss account. Ratio analysis is the most important method of
financial analysis.

Trend Analysis
In the comparative period of first year is taken as the base year and other are
compared with the base year and percentage is worked out. The trend Analysis denotes
the movement of variables from the base year to the tear compared.

20
.
Common size statement analysis
In common size analysis the items in the balance sheet are stated as percentage of
total asset and the items in the income statements are expressed as percentage to total
sales, such percentages are called common size statement analysis.

CHAPTER - 4

ANALYSIS AND INTERPRETATION

4.1 INTRODUCTION
The data after collection has to be processed and analyzed in accordance with the
outline laid down for the purpose at time of developing the research plan. This is essential
for scientific study and ensuring that we have all relevant data for many contemplated
comparisons and analysis .Technically processing implies editing, coding, classification,
tabulation of collected data so that they are amenable for analysis.

Analysis of data in a general way involves a number of closely related operations

that are performed with the purpose of summarizing the collected data and organizing
these in such a manner so they answer the research questions.

21
Table 4:1:1 Showing Milk production from 2004-05 to 2008-09 in terms of
liters

Statement on Analysis of production

Month 2004-05 2005-06 2006-07 2007-08 2008-09

Apr 57132 61198 75105 70272 60447

May 59693 70551 77360 71348 66326

Jun 51588 68107 729966 72038 67308

July 46945 58145 64172 70256 70778

Aug 44372 48594 57461 63366 64165

Sep 40214 42758 53709 61161 59640

Oct 44997 59048 55157 57703 58971

Nov 56174 61246 6692 53797 65583

Dec 60095 58186 64454 53260 59500

Jan 62339 55403 65464 53290 56332

Feb 65066 56048 61349 52262 51492

22
 Apr 59263 61995 64805 51808 53270

Total 647878 702279 455960 730561 733812

Source: computed from office records of Aavin

Figure 4:1:1 Showing Milk production from 2004-05 to 2008-09

800000
700000
600000
500000
400000
milk production in litres
300000
200000
100000
0
2004-05 2005-06 2006-07 2007-08 2008-09

Table 4:1:2 showing production performance during 2004-05 to 2008-09

S.No Year Total Increase Decrease Percentage of

increase and
decrease
1 2004-05 647878 - - -

2 2005-06 702279 54401 - 8.3967

3 2006-07 455960 - 246319 35.0742(-)

4 2007-08 730561 274601 - 60.2248

5 2008-09 733812 3251 - 0.4450

Source: computed from office records of Aavin

23
INFERENCE:
The milk production and its trend show varying results. However adequate quality
is available for sale. By my study I understand that during the festival period the adequate
milk is supply from surplus area to meet the demand... There is an effective co-ordinate
between the managers of Aavin in various centres. Aavin has its own vehicle and in case
of need they use the contact vehicle for the purpose of distribution.
Figure 4:1:2 showing production performance during 2004-05 to 2008-09

400000

300000

200000

100000
production
prformance
0
2004-05 2005-06 2006-07 2007-08 2008-09
-100000

-200000

-300000

Table 4:1:3 showing milk sales during 2004-05 to 2008-09

Month 2004-2005 2005-2006 2006-2007 2007-2008 2008-2009 2009-2010

April 26380 28964 40573 43800 47022 56263

May 26753 29415 42771 47878 51478 57350

June 27545 30065 44850 48688 52857 58985

July 27878 30645 45704 50929 54265 59923

August 29267 31771 43300 52914 56710 58999

September 28505 32627 44303 52126 57660 56087

24
 October 27357 32078 43899 51086 55862 55870

Nov 26693 33790 45056 51324 56132 55344

Dec 26587 35265 46021 51147 57776 56030

Jan 26793 36121 46819 47725 56786 57140

Feb 27387 37390 45983 43686 56144 58664

Mar 27050 38670 42110 44264 52342 -

Total 328195 396783 531389 585567 660034 -

Avg 27350 33065 44282 48797 55003 -

Table 4:1:4 showing sales performance during 2004-05 to 2008-09

Percentage Increase
Year Total Increase Decrease
Or Decrease

2004-2005 331809 - - -

2005-2006 396783 64974 - 19.5817

2006-2007 531389 134606 - 33.9243

2007-2008 585567 54174 - 10.1955

2008-2009 639745 54178 - 12.457

Source: Computed From Office Records of Aavin

INFERENCE:

25
 While analyzing the trend of sales performances there are positive growth in all
the year. So we conclude overall performance has been increasingly year after year due to
effective proper distribution and better services rendered by the vendors.

Table 4:1:5 showing sales average during the study period

S.NO Years Particulars

1 2004-2005 27770

2 2005-2006 27350

3 2006-2007 27651

4 2007-2008 33065

5 2008-2009 44282
Source: Aavin Office Data

INFERENCE:

In the above table we observe that 2004-2005 to 2008-2009 the average sales has
been stable and shows increasing trend has been noted in the last 3 years.

Figure 4:1:5: Showing sales average during the study period

26
 45000
40000
35000
30000
25000
20000 Average sales
15000
10000
5000
0
2004-05 2005-06 2006-07 2007-08 2008-09

Table 4:1:6: Showing the capital of four years.

Statement on Analysis of Capital

Financial Years Capital(Rs)

2005-2006 32438599

2006-2007 32438599

2007-2008 32378599
32378599
2008-2009
Source: computed from office records of Aavin

Figure 4:1:6: Showing the capital of four years

27
 32460000

32440000
32420000
Rupees

32400000 Capital
32380000

32360000
32340000
2005-06 2006-07 2007-08 2008-09
Year

RATIO ANALYSIS

CURRENT RATIO:

This is the ratio of current asset to current liability. It’s a widely used indicator of
company’s ability to pay its debts in the short term. It shows the amount of current asset a
company has as per rupee of current liabilities. For the purpose of calculating liquidity
ratio, current asset includes loans and advances, current liability includes provisions.

Current assets
Current ratio=
Current liabilities

TABLE: 4:1:7 SHOWING THE CURRENT RATIO FOR FOUR

YEARS ENDED

28
 Statement on Analysis of Current Ratio

Current Liability
Financial Year Current Asset(Rs) Ratio
(Rs)

2005-2006 159274007.6 138962635.2 1.146

2006-2007 152654399.5 138797026 1.0998

2007-2008 116658521.8 85025397 1.3720

2008-2009 165818490.8 111780763 1.4834

Source: computed from office records of Aavin

INFRRENCE
The Ratio is 1:1
The above table represent current ratio of the company is satisfactory in all financial year.
The highest current ratio is 1.48 in the year 2009 and lowest current ratio is 1.09 during
the year 2007

FIGURE: 4:1:7 SHOWING THE CURRENT RATIO FOR FOUR

YEARS ENDED

29
 180000000
160000000
140000000
120000000
100000000
rupees
80000000 current asset
60000000
current liability
40000000
20000000
0
2005-06 2006-07 2007-08 2008-09
years

QUICK RATIO

All current assets are not equally liquid, while cash is readily to make payment to
suppliers and debtors can be quickly converted into cash, inventories are two steps away
from conversion into cash (sale and collection). Thus, a large current ratio is not a
satisfactory measure of liquidity when inventories constitute a major part of the current
asset. Therefore the quick ratio or acid test ratio, is computed as a supplement to the
current ratio. The ratio relates highly liquid current asset, usually current asset
inventories, to current liabilities.

Quick Asset
Quick Ratio=
Current liabilities

TABLE: 4:1:8 SHOWING THE QUICK RATIO FOR FOUR YEARS

ENDED

Statement on Analysis of Quick Ratio

30
 Current
Financial Year Quick Asset(Rs) Ratio
Liabilities(Rs)
2005-2006 148348025.3 138973636 1.0674

2006-2007 144378240.9 138797026.3 1.0402

2007-2008 106787661.8 85025397.58 1.2560

2008-2009 157310760.8 111780763.1 1.407

Source: computed from office records of Aavin

INFRRENCE

The above table represent quick ratio of the company. The well running company
has 1:1 ratio of quick assets. The highest quick ratio is 1.407 in the year 2009. The lowest
quick ratio is 1.04 in the year 2007.
It represents liquidity of the company is higher than liabilities

FIGURE: 4:1:8 SHOWING THE QUICK RATIO FOR FOUR YEARS

ENDED

31
 160000000
140000000
120000000
100000000
Rupees 80000000
60000000 Quick Asset
40000000 Current Liabilities
20000000
0
2005-06 2006-07 2007-08 2008-09
Years

GROSS PROFIT RATIO

Gross profit ratio is the ratio of gross profit to net sale expressed as a percentage.
It expresses the relationship between gross profit and sales.
Gross profit
Gross Profit Ratio= x 100
Sales

TABLE: 4:1:9 SHOWING THE GROSS PROFIT RATIO FOR YEARS

ENDED

Statement on Analysis of Gross Profit Ratio

Financial Year Gross Profit(Rs) Sales(Rs) Ratio

2005-2006 14554803.55 301119285.7 4.83

2006-2007 34824411.66 313647266.4 11.10

2007-2008 46651599.45 357495015.8 13.05

2008-2009 71572012.96 438014097.7 16.3

Source: computed from office records of Aavin
INFRRENCE

32
From the above table the highest gross profit of the company is 16.3 and lowest gross
profit is 4.83. It represents the company running with very low profit, because the
company spent more money to promote the company.

The purchase of milk and trade expenses paid due is very high.

FIGURE: 4:1:9: SHOWING THE GROSS PROFIT RATIO FOR YEARS

ENDED

450000000
400000000
350000000
300000000
250000000
Rupees
200000000
150000000
100000000
50000000
0
2005-06 2006-07 2007-08 2008-09
Years

Gross Profit Sales

NET PROFIT RATIO

Net profit is the increase in owner’s equity from the operation of the business.
The owner’s equity of the business is affected by a number of transaction and event
including the further investment by, and distributors to, owners. Accountant generally
measure net profit as the excess of revenues over expenses. If expenses exceed revenues,
the difference is called the net loss.

Net Profit

33
 Net profit ratio= x100
Net sales

TABLE: 4:1:10: SHOWING THE NET PROFIT RATIO FOR FOUR

YEARS ENDED

Statement on Analysis of Net Profit Ratio

Financial Year Net Profit(Rs) Sales(Rs) Ratio

2005-2006 -21793638.65 301119285.7 -0.0724(loss)

2006-2007 -6817868.37 313647266.4 -0.0217(loss)

2007-2008 2670730.50 357495015.8 0.0074(profit)

2008-2009 14052077.26 438014097.7 0.0320(profit)

Source: computed from office records of Aavin

INFRRENCE

The above table described that the highest net profit ratio is 0.0320 and the
lowest net profit ratio is -0.0724. It represents that the company has net loss in the
last preceding previous years.

The interest paid on loan is very high makes net loss. (2005-07)

The high gross profit makes net profit. (2007-09)

FIGURE: 4:1:10: SHOWING THE NET PROFIT RATIO FOR FOUR

YEARS ENDED

34
 500000000
400000000
300000000
Rupees 200000000

100000000
0
-100000000
2005-06 2006-07 2007-08 2008-09
Years

Net Profit Sales

DEBTORS EQUITY RATIO

A Wise mix a debt and equity can increase the return on equity for two reasons.
One, debt finance is generally cheaper than equity. Two, interest payments are admissible
expenses for determining the taxable income of the company, whereas dividends are paid
from tax profits. The debt-to-equity ratio measures the relationship of the capital
provided from auditors to amount provided by the shareholder. Debt includes both short
term and long term.

Total debt
Debtors equity ratio=
Net worth

TABLE: 4:1:11: SHOWING THE DEBTORS EQUITY RATIO FOR FOUR

YEARS ENDED

Statement on Analysis of Debtors Equity Ratio

35
 Financial Year Debt(Rs) Equity(Rs) Ratio

2005-2006 34814424.62 32438599 1.0732

2006-2007 33551741.62 32378599 1.0362

2007-2008 36320949 32378599 1.1218

2008-2009 33564424.62 32378599 1.036

Source: computed from office records of Aavin

INFRRENCE

The above table represents ratio between debt and equity. The highest debt equity ratio is
1.1218 in the year 2008. It represents borrowing is higher than equity.
The firm has kept increasing the borrowing and the equities are stable for 3 years.

FIGURE: 4:1:11: SHOWING THE DEBTORS EQUITY RATIO FOR

FOUR YEARS ENDED

37000000
36000000
35000000
34000000
Rupees
33000000 Debt
32000000 Equity
31000000
30000000
2005-06 2006-07 2007-08 2008-09
Years

DEBT ASSET RATIO

36
 The debt asset ratio measures the extent to which borrowed funds support the
Firm’s assets. It is defined as,

Debt
Debt Asset Ratio=
Asset

The numerator of this ratio includes all debt, short term as well as long term, and the
denominator’s of this ratio is the total of all assets.

TABLE: 4:1:12: SHOWING THE DEBTORS ASSET RATIO FOR FOUR

YEARS ENDED

Statement on Analysis of Debtors Asset Ratio

Financial Year Debt(Rs) Asset(Rs) Ratio

2005-2006 34814424.62 315751859.76 0.11103

2006-2007 33551741.62 316238151.54 0.1061

2007-2008 36320949.62 274305879.79 0.1324

2008-2009 33564424.62 335207813.77 0.1001

INFRRENCE

The above table represent, that the highest ratio of the company is 0.1324 during the year
2008 and the lowest ratio of the company is 0.1001 in the year 2009.
The firm has higher debt than asset.
It indicates the unsafe debt to the firm.
The firm concentrates on purchasing of fixed asset.

FIGURE: 4:1:12: SHOWING THE DEBTORS ASSET RATIO FOR FOUR

YEARS ENDED

37
 350000000
300000000
250000000
200000000
Rupees
150000000 Debt
100000000 Asset
50000000
0
2005-06 2006-07 2007-08 2008-09
Years

INTEREST COVERAGE RATIO

This is a measure of protection available to creditors for payment of interest
charges by the company. The ratio shows whether the company has sufficient income to
cover its interest requirements by a wide margin. The interest coverage ratio is computed
by dividing profit before interest and tax by the interest. A high ratio implies adequate
safety for payment of interest even if there were to be a drop in the company’s earnings.

EBIT
Interest Coverage Ratio =
Interest

TABLE: 4.1.13: SHOWING THE INTEREST COVERAGE RATIO FOR

FOUR YEARS ENDED

Statement on Analysis of Interest Coverage Ratio

38
 Financial Year EBIT(Rs) Interest(Rs) Ratio

2005-2006 -21793638 334223 -5.439

2006-2007 -9853522.37 3035654 -3.245

2007-2008 2491382 179348 15.8913

2008-2009 10871292.26 3180785 3.417

INFRRENCE

From the above table, that the Interest Coverage Ratio is very low in the year 2007. It
represent that the company paid high interest amount for borrowings. The highest ratio of
the company is 15.8913 in the year 2008. It shows, the company paid low interest amount
for debts.

FIGURE: 4.1.13: SHOWING THE INTEREST COVERAGE RATIO FOR

FOUR YEARS ENDED

15000000

10000000
5000000
EBIT
Rupees 0
Interest
2005- 2006- 2007- 2008-
-5000000
06 07 08 09
-10000000

-15000000
Years

4.2 SUMMARY:

39
 The above analysis provides a clear cut idea about the financial performance of
Aavin milk factory Tirunelveli. This analysis reveals that the firm has in the loss and
the running performance of the firm in the hand of government.

CHAPTER - 5

FINDINGS, SUGGESTIONS AND CONCLUSION

5.1 INTRODUCTION:
In this chapter the researcher to present the information about which is find out
from this study as well as the suitable suggestion to overcome the problem of this study.

5.2 FINDINGS

40
  There is the effective co-ordination between the managers of Aavin in various
branches.

 Aavin has its own vehicles and in case of need they used the contract vehicles
for the purpose of distribution.

 Over all sales performance has been increasingly year after year due to the
effective proper distribution and better services render by vendor.

 The current ratio of the company is satisfactory on past two years.

 Liquidity of the company is higher than liabilities.

 While analyzing Gross profit ratio, the company running with very low profit.
Because the company spent more money to promote the company.

 The interest paid on loan is very high makes net loss on (2005-07).The
high gross profit makes net profit on (2007-09).

 While analyzing debt equity ratio, the firm has kept increasing the borrowing
and the equities are stable for 3 years

 From Debtors asset ratio, the firm has higher debt than asset.
It indicates the unsafe debt to the firm

5.3 SUGGESTIONS

 The government should take necessary action for manage the gap between the
current asset and current liabilities.

41
 Aavin need an advertisement to increase the sales volume.

 Unwanted expenditure should be controlled by management.

 There is no budget for controlling the expenditure.

 The state government gives loan with low interest to prevent the high interest
borrowing.

 The current ratio indicates financial stability of the firm. The ratio has improved in
the current financial year. The current ratio give better result of the company and it
will increased by well performance of the company.

 Quick ratio indicates the firm having efficient liquidity. It represents the liquidity of
the company is higher then liabilities.

 Gross profit ratio represents the company has very low gross profit and it spends
more money on the expenses. They have to concentrate on reduce the expenses.

 Net profit ratio represents the company has net loss in the previous years. The
company has to reduce indirect expenses, the lower level in gross profit will leads to
net loss to the company. So the company has increased the sale. The salary of the
workers is greater than other industry and the working hours is also less.

 The company purchase lot of machines land and buildings this also indicates the
debtor asset ratio and it safe to the fund of the company. The company has to
concentrate on utilizing the fixed assets.

 . The company is controlled by the state government and the government gives loan
to the company with low interest

42
5.4 CONCLUSION:

Financial statement can be providing valuable insight of a firm’s performance.

Analysis of financial statement is monitoring the interest of (short term as well as long
term) investors, security analysis, management and others. Financial statement analysis
may be done for a variety of purposes which may range from simple analysis of the short
term liquidity position of the firm to a comprehensive assessment of the strengths and
weakness of a firm in various areas.

43
 Aavin (Tirunelveli district co-operative milk producers) is a non trading
operational firm and it is a service based firm. The main objective of the firm is to give
encouraging the production of milk and provide better service to customer. They fix the
price of milk products at government policy and the running performance of the company
is in the hand of government. The government should use the new strategies to overcome
the loss and increase the effective performance of the firm.

APPENDIX
BIBLIOGRAPHY

BOOKS:

• I.M .Pandey; Financial Management IX edition, Tata Mc Graw Hill (1995).

44
 • R.Narayanaswamy; Financial Accounting II Edition, Prentice-Hall-India.

• P.V. Kuldarni, and B.G. Sathyaprasad, financial management, Ninth edition,

Himalaya publishing House, NEW Delhi, 2001.
• Prasanna Chandra; Financial Mangemnt, VII Edition, Tata Mc Graw Hill (1998).

• M.Y.Khan and P.K.Jain; Management Accounting, III Edition, Tata Mc Graw

Hill (2000).

• C.R.Kothari; Reserch Methodology, II Edition, prentice-Hall-India.

• R.panneer Selvam; Reserch Methodology, prentice-Hall-India (2002).

WEBSITES:

 WWW.AAVIN.COM

 WWW.GOOGLE.COM

 WWW.WIKIPEDIA.COM

45