PROJECT REPORT

ON
“FINANCIAL ANALYSIS OF VERKA MILK
PLANT THROUGH RATIO ANALYSIS”
 CHAPTER-1
COMPANY PROFILE
VERKA:
Verka is a flagship brand of MILKFED and came into being in 1973
when MILKFED was mandated for milk procurement, quality
processing of milk & its products and marketing of these
products. A trusted brand, Verka has become a household name
and is loved by its customers for nutrition, quality and sheer
indulgence.
It has consolidated its brand strength by not only retaining the
high quality of existing products but also by innovating and
bringing new products to the tables of its diverse customers.
Verka stands apart, with its promise of purity in the milk testing
done by NABL(National Accreditation Board for Testing and
Calibration Laboratories).
MISSION, VISION AND OBJECTIVES OF VERKA:
MISSION:
Ensuring prosperity to the milk producers by ensuring milk procurement at
remunerative prices around the year coupled with providing quality extension
services for enhancing milk production as well as reducing cost.
VISION:
To become the most admired brand in the dairy sector and vibrant cooperative
institution in the country, facilitating inclusive growth.

OBJECTIVES:
1.To ensure quality milk procurement at remunerative price coupled with improved
animal productivity for reducing cost of milk production for sustainable growth of
the milk producers.
2.To provide quality extension services at the door steps of milk producers.
3.To enhance brand equity.
4.To ensure continual expansion of distribution.
 JALANDHAR MILK PLANT
THE DOABA COOPERATIVE MILK PRODUCERS UNION
LTD, JALANDHAR:
The Doaba Cooperative Milk Producers Union Ltd., Jalandhar was
set up in the year 1972 under Cooperative Sector with the
financial assistance provided by State Government and N.D.C.
The Doaba Milk Plant was established in the year 1976 with a
capital of Rs.110 lakhs.
The primary objectives of the union were to provide ready
market to the Milk Producers for sale of milk in the villages
through Cooperatives on the one hand and to provide
wholesome hygienic good quality processed milk and milk
products to the urban consumers at remunerative price on the
other hand.
 CHAPTER-2
RATIO ANALYSIS
 RATIO ANALYSIS
INTRODUCTION:
Meaning of Ratio: - It is an arithmetical expression of relationship between two
inter-related or related terms.

Meaning of Ratio Analysis: - Ratio analysis is a study of relationship among various

financial factors in a business. It is a process of determining and interpreting
relationships between the items of financial statements to provide a meaningful
understanding of the performance and financial position of an enterprise.

Expression of Ratio: - The Ratio can be expressed in any of the following forms:

Pure Percentage Times Fraction

2:1 25% 4 times ¾

 OBJECTIVES OF RATIO ANALYSIS:-

Financial ratios are the true test of profitability, efficiency and financial soundness of the firm.
These ratios have following objectives:

1. Measuring the Profitability: Profitability is the profit earning capacity of the business. This
can be measured by Gross Profit, Net Profit, Expenses and other Ratios. If these ratios fall we can
take corrective actions.
2. Measuring financial position: Short-term and long term financial position of the business
can be measured by calculating liquidity and solvency ratios. In case of unhealthy short or long
term position, corrective measures can be taken.
3. Facilitating Comparative Analysis: Present performance can be compared with past
performance to discover the plus and minus points. Comparison with the performance of other
competitive firms can also be made.
4. Indicating Overall efficiency: Profit and Loss Account shows the amount of net profit and
Balance Sheet shows the amount of various assets, liabilities and capital. But the profitability can
be known by calculating the financial ratios.
5. Budgeting and Forecasting: Ratio analysis is of much help in financial forecasting and
planning. Ratios calculated for a number of years work as a guide for the future. Meaningful
conclusions can be drawn for future from these ratios.
 TYPES OF FINANCIAL RATIOS
1.Liquidity Ratios:
Liquidity ratios measure the adequacy of current and liquid
assets and help evaluate the ability of the business to pay its
short-term debts. The ability of a business to pay its short-term
debts is frequently referred to as short-term solvency position or
liquidity position of the business.
Short-term creditors like suppliers of goods and commercial
banks use liquidity ratios to know whether the business has
adequate current and liquid assets to meet its current
obligations.
Three commonly used liquidity ratios are given below:
1. Current ratio or working capital ratio
2. Quick ratio or acid test ratio
2.Profitability ratios:
Profitability ratios measure the efficiency of management in the employment
of business resources to earn profits. These ratios indicate the success or
failure of a business enterprise for a particular period of time.
Profitability ratios are used by almost all the parties connected with the
business.
A strong profitability position ensures common stockholders a higher
dividend income and appreciation in the value of the common stock in future.
Creditors, financial institutions and preferred stockholders expect a prompt
payment of interest and fixed dividend income if the business has good
profitability position.
Management needs higher profits to pay dividends and reinvest a portion in
the business to increase the production capacity and strengthen the overall
financial position of the company.
3.Activity ratios:
Activity ratios (also known as turnover ratios) measure the
efficiency of a firm or company in generating revenues by
converting its production into cash or sales. Generally a fast
conversion increases revenues and profits.
Activity ratios show how frequently the assets are converted into
cash or sales and, therefore, are frequently used in conjunction
with liquidity ratios for a deep analysis of liquidity.
Some important activity ratios are:
1.Inventory turnover ratio
2. Asset turnover ratio
3. Working capital turnover ratio
4. Fixed assets turnover ratio
4.Solvency ratios:
Solvency ratios (also known as long-term solvency ratios)
measure the ability of a business to survive for a long period of
time. These ratios are very important for stockholders and
creditors.
Solvency ratios are normally used to analyze the capital structure
of the company and evaluate the ability of the company to pay
interest on long term borrowings
Some frequently used long-term solvency ratios are given below:
1. Proprietary ratio
2. Total assets to Debt ratio
 ADVANTAGES OF RATIO ANALYSIS

1. Forecasting and Planning:

The trend in costs, sales, profits and other facts can be known by computing
ratios of relevant accounting figures of last few years.
2. Budgeting:
Budget is an estimate of future activities on the basis of past experience.
Accounting ratios help to estimate budgeted figures.
3. Measurement of Operating Efficiency:
Ratio analysis indicates the degree of efficiency in the management and
utilisation of its assets. Different activity ratios indicate the operational
efficiency.
4. Communication:
Ratios are effective means of communication and play a vital role in informing
the position of and progress made by the business concern to the owners or
other parties
.
6. Inter-firm Comparison:
Comparison of performance of two or more firms reveals efficient and
inefficient firms, thereby enabling the inefficient firms to adopt suitable
measures for improving their efficiency.
7. Indication of Liquidity Position:
Ratio analysis helps to assess the liquidity position i.e., short-term debt
paying ability of a firms.
8. Indication of Long-term Solvency Position:
Ratio analysis is also used to assess the long-term debt-paying capacity of a
firm. Long-term solvency position of a borrower is a prime concern to the
long-term creditors, security analysts and the present and potential owners of
a business.
 LIMITATIONS OF RATIO ANALYSIS:
1. Limitations of Financial Statements:
Ratios are calculated from the information recorded in the financial
statements. But financial statements suffer from a number of limitations and
may, therefore, affect the quality of ratio analysis.
2. Historical Information:
Financial statements provide historical information. They do not reflect
current conditions. Hence, it is not useful in predicting the future.
3. Different Accounting Policies:
Different accounting policies regarding valuation of inventories, charging
depreciation etc. make the accounting data and accounting ratios of two
firms non-comparable.
4. Lack of Standard of Comparison:
No fixed standards can be laid down for ideal ratios. For example, current
ratio is said to be ideal if current assets are twice the current liabilities.
5. Quantitative Analysis:
Ratios are tools of quantitative analysis only and qualitative factors are
ignored while computing the ratios.
6. Window-Dressing:
The term ‘window-dressing’ means presenting the financial statements in
such a way to show a better position than what it actually is. If, for instance,
low rate of depreciation is charged, an item of revenue expense is treated as
capital expenditure etc.
 OBJECTIVES & SCOPE OF THE STUDY
OBJECTIVES
The primary objective of the project is to analyse the financial
strength of the VERKA.
1. To study and analyze the financial position of the company through
ratio analysis.
2. To analyze the profitability position of VERKA
3.To determine the long term solvency position of VERKA
4.To suggest the feasible solution to improve the overall efficiency of
the VERKA.

SCOPE OF THE STUDY

The scope of the study is limited to collecting financial data published
in the annual reports of the company every year. The analysis is done
to suggest the possible solutions. The study is carried out for 5 years.
The present study is confined to only VERKA Milk Plant Jalandhar.
 RESEARCH METHODOLOGY
The present study is carried out to carry out the ratio
analysis of the company.
Primary Data
It includes information collected from internal guide and
Finance manager.
Secondary Data
The data in respect to this report is collected from the
balance sheets and statement of profit & loss accounts.
Thus, Secondary data has been majorly used while
preparation of this project along with the internet
sources. Secondary data was very much helpful as it
provided minor details and ensured accuracy throughout
the project whereas primary data provided practicality
and ensured reliability.
 CHAPTER-3
DATA ANALYSIS AND
INTERPRETATION
1. CURRENT RATIO:
Meaning: Current ratio is a relationship of current assets to current liabilities
and is computed to assess the short term financial position of the enterprise.
It means current ratio is an indicator of the enterprise`s ability to meet its
short term financial obligations.
Current Ratio= Current assets
Current liabilities
COMPUTATION:

Year Current Current Current

Assets(cr) Liabilities(cr) Ratio(%)
March 2013 342 150 2.28%
March 2014 350 152 2.30%
March 2015 360 155 2.32%
March 2016 380 160 2.37%
March 2017 405 163 2.48%
 Current Ratio
2.5

2.45

2.4

2.35

2.3 Current Ratio

2.25

2.2

2.15
2013 2014 2015 2016 2017

INTERPRETATION:
Rule of thumb for Current Ratio is 2:1. The current ratio was low in 2013 that is
only 2.28. But has increased in 2017 from 2.28 to 2.48 significantly. In the last
five years the rate of growth of the company has increased. The objective of
calculating current ratio is to assess the ability of firm to pay its short term
liabilities.
2. QUICK RATIO/ ACID TEST RATIO
MEANING: Liquid ratio is a relationship of liquid assets with current liabilities
and is computed to
assess the short term liquidity of the enterprise. Liquid assets are the assets
which are either in the form of cash and cash equivalents or can
be converted into cash within a very short period. Thus, it does not include
inventories and prepaid expenses.
Quick ratio = Quick Assets
Current liabilities
COMPUTATION:
Year Quick Assets(cr) Current Ratio(%)
Liabilities(cr)
2013 250 150 1.66%
2014 260 152 1.71%
2015 285 155 1.83%
2016 295 160 1.84%
2017 305 163 1.87%
 Quick Ratio
1.9

1.85

1.8

1.75

Quick Ratio
1.7

1.65

1.6

1.55
2013 2014 2015 2016 2017

INTERPRETATION:
Rule of thumb for quick Ratio is 1:1. Quick ratio of 1:1 is an accepted
standard. The firms has a good capacity to pay of current liabilities.The ratio of
the firm in 2013 was 1.66% and afterwards it rises in the year 2017 from 1.66
to 1.87%.
3.TOTAL ASSETS TO DEBT RATIO
MEANING: Total assets to debt ratio establishes relationship between total
assets and total long term debts.it measures the margin available to the
lenders of long term debts i.e. the extent to which debt is covered by the
assets.

Total assets to debt ratio = Total assets

Debt
COMPUTATION:

Year Total Assets(cr) Debt(cr) Ratio(%)

2013 870 450 1.93%
2014 883 350 2.52%
2015 900 400 2.25%
2016 950 380 2.5%
2017 995 383 2.51%
 Total Assets to Debt Ratio
3

2.5

1.5
Total Assets to Debt Ratio

0.5

0
2013 2014 2015 2016 2017

INTERPRETATION:
The total assets to debt ratio is repetitively higher in all the years (1.93 in 2013,
and 2.51 in 2017) .Though it has fluctuated a bit but has remained high. This
higher ratio means higher safety for lenders to the business. Thus, VERKA
ensures complete safety to its lenders as it measures the margin available to the
lenders of long term debts.
4. PROPRIETARY RATIO
MEANING: Proprietary ratio establishes the relationship between proprietors`
funds and total assets. The objective of this ratio is to measure the proportion of
total assets financed by the Proprietors` funds. The ratio is important as it shows
financial strength of the company.
Proprietary ratio = Proprietors` funds OR Shareholders` funds
Total assets
COMPUTATION:

Year Proprietors Total Assets(cr) Ratio(%)

fund(cr)
2013 700 870 0.80%
2014 750 883 0.84%
2015 753 900 0.83%
2016 800 950 0.84%
2017 861 995 0.86%
 Proprietory Ratio
0.87
0.86
0.85
0.84
0.83
0.82
Proprietory Ratio
0.81
0.8
0.79
0.78
0.77
2013 2014 2015 2016 2017

INTERPRETATION:
This ratio has remained quite low in all the years and not shown any major
changes. It was 0.8 in 2013 and 0.86 in 2017 approximately and did not
show any significant change. This means lower or inadequate safety for the
creditors. 50% is supposed to be satisfactory proprietory ratio for the
creditors.
5. INVENTORY OR STOCK TURNOVER RATIO
MEANING: Stock turnover ratio establishes relationship between Cost of
revenue from operations, i.e. cost of goods sold and the average inventory
carried during that period. It denotes how many times a rupee invested in
inventories carried during that period.

Inventory turnover ratio = Cost of goods sold

Average inventory
COMPUTATION:

Year Cost of goods Average Inventory(cr) Ratio(%)

sold(cr)
2013 400 20 20%
2014 500 25 20%
2015 650 30 21.6%
2016 890 40 22.25%
2017 950 42 22.6%
 Stock turnover ratio
23
22.5
22
21.5
21
20.5 Stock turnover ratio

20
19.5
19
18.5
2013 2014 2015 2016 2017

INTERPRETATION:
Ideal stock turnover ratio is 8 times. It ascertains whether the investment in
stock is adequate. A high ratio shows that more sales are being produced by a
rupee of investment in inventories. In 2013 the ratio was low which is 20%. In
2016 ratio increased and again showed an increasing trend in 2017.
6. TOTAL ASSETS TURNOVER RATIO
MEANING: This ratio establishes a relationship between revenue from
operations i.e. sales and total assets. The Asset Turnover ratio can often be
used as an indicator of the efficiency with which a company is deploying its
assets in generating revenue.

Total asset turnover ratio= Sales

Total asset
COMPUTATION:

Year Sales(cr) Total assets(cr) Ratio(%)

2013 400 870 0.4%
2014 500 883 0.56%
2015 650 900 0.72%
2016 890 950 0.93%
2017 950 995 0.95%
 Asset turnover ratio
1
0.9
0.8
0.7
0.6
0.5
Asset turnover ratio
0.4
0.3
0.2
0.1
0
2013 2014 2015 2016 2017

INTERPRETATION:
Ideal assets turnover ratio is 2 times. The higher the asset turnover ratio, the
better the company is performing, since higher ratios imply that the company
is generating more revenue per Rupee of assets. Thus the ratio is increasing
slowly but in 2017 it has increased from 0.4 to 0.9.
7. FIXED ASSET TURNOVER RATIO
MEANING: Fixed-asset turnover establishes a relationship between the sales
and value of fixed assets .It indicates how well the business is using its fixed
assets to generate sales. Fixed assets are assets which are purchased for long-
term use.

Fixed asset turnover ratio = Sales or revenue

Fixed assets

COMPUTATION:

Year Sales(cr) Fixed Assets(cr) Ratio(%)

2013 400 528 0.75%
2014 500 533 0.93%
2015 650 540 1.20%
2016 890 570 1.56%
2017 950 590 1.61%
 Fixed asset turnover ratio
1.8

1.6

1.4

1.2

0.8 Fixed asset turnover ratio

0.6

0.4

0.2

0
2013 2014 2015 2016 2017

INTERPRETATION:
Ideal fixed assets turnover ratio is 5 times. The higher the ratio, the better,
because a high ratio indicates the business has less money tied up in fixed assets
for each unit of currency of sales revenue. Thus VERKA is continuously improving
its fixed asset turnover ratio which was low in 2013 i.e. 0.75% only but in 2017 it
showed a significant change and rise to 1.61%.
8. WORKING CAPITAL TURNOVER RATIO
MEANING: This ratio shows the relationship between working capital and net
sales. It shows the number of times a unit of rupee invested in working capital
produces sales. This ratio is considered better than stock turnover as it shows the
efficiency in the use of entire working capital, not merely a part.

Working capital turnover ratio = Revenue from operations (Net sales)

Working capital
COMPUTATION:

Year Sales(cr) Working Ratio(%)

Capital(cr)
2013 400 192 2.08%
2014 500 198 2.52%
2015 650 205 3.17%
2016 890 220 4.04%
2017 950 230 4.13%
 Working capital turnover ratio
4.5

3.5

2.5

2 Working capital turnover ratio

1.5

0.5

0
2013 2014 2015 2016 2017

INTERPRETATION:
The objective of computing this ratio is to ascertain whether or not working
capital has been effectively used in making sales. Higher the ratio, better it is
but a very high ratio indicates overtrading. Thus in 2013 the ratio was much
low (2.08), in 2017 it increased significantly (4.13). This ratio must be normal,
excessive ratio shows overtrading.
9. GROSS PROFIT RATIO
MEANING: Gross profit ratio establishes a relationship of gross profit and Net
sales of an enterprise. This ratio is calculated and presented in percentage. This
ratio is a reliable guide for fixing selling prices and efficiency of trading
activities and is to be compared with ratio of last years.
Gross profit ratio = Gross profit
Net sales
COMPUTATION:

Year Gross Profit(cr) Net Sales(cr) Ratio(%)

2013 300 400 0.75%
2014 320 500 0.64%
2015 450 650 0.69%
2016 650 890 0.73%
2017 780 950 0.82%
 Gross Profit Ratio
0.9

0.8

0.7

0.6

0.5

0.4 Gross Profit Ratio

0.3

0.2

0.1

0
2013 2014 2015 2016 2017

INTERPRETATION:
The main objective of this ratio is to determine the efficiency. Higher gross
profit ratio is better as it leaves higher margin to meet operating expenses
and creation of reserves. In the case of above concern, the ratio is0.75 % in
2013, but later increased to 0.82% in 2017.
 FINDINGS OF THE STUDY
1) The liquidity position of the company is good as Current ratio is more
than the standard norm ie. 2:1, where as Quick ratio is also fulfilling
the standard norm ie. 1:1. It shows that company has sufficient funds
to meet the short term obligations of creditors.
2) Profits are increasing every year which shows that company is using its
resources efficiently.
3) The asset turnover ratio of the company is not upto the mark which
shows that company is not using its assets fully or efficiently, which
shows underutilization of the assets.
4) As stock turnover ratio is high which means that the concernis
efficient and hence it sells its goods quickly.
 CONCLUSION:
By studying the different ratios, we can conclude that the company is
performing well and is in good position. The profits are increasing
continuously and are focusing on all the areas to achieve its goals. It has also
been concluded that Verka has never compromised on quality for profits as
customer’s health is the major area of concern for the company.
It is sincerely making efforts to increase its market share and is giving its best
to spread its roots not only in Punjab but other states too.
Verka is very much successful in facing the competition given by international
brands like Amul, Mother dairy and others.
Talking about financial performance of the company, it is brilliantly heading
towards the high scale production and profitability along with efficiency and
effectiveness.
Overall, Verka is a very important brand of pouch milk in Punjab and will
continue with its goodness and services for many more decades.