A project on analysis of working capital management

ANALYSIS OF WORKING CAPITAL MANAGEMENT

EXECUTIVE SUMMARY
Background of the Company:
This Project is carried out in Dharwad Milk Union, which is a part of Karnataka
Milk Federation (KMF). KMF is a co-operative apex body in the state of Karnataka
representing dairy farmer’s organization and also implementing dairy development
Karnataka activities to achieve the dairy objective. KMF has 13 milk unions and
Dharwad Milk Union is one among 13 unions. The project helps to study the practice in
Working Capital in DMU, in the past five years and to calculate finance management
performance in the past five years.
TITLE OF THE PROJECT:
“ANALYSIS OF WORKING CAPITAL MANAGEMENT” at Dharwad
Milk Union Ltd, Dharwad
Objectives of the Study
 To study the management of inventories, account receivables and cash in the
firm.
 To study the liquidity position of the firm .
 To Comparison of present and last four years Working capital.
 To know the current position Conclusion of the company.
Statement of the Problem:
The study has been taken in the organization for the purpose to know the
“Working Capital Management” of the company for five years.
Design of the Study:
The study is conducted at Dharwad Milk Union. The study was about the studying
the company profile, Annual Reports of last five years of the firm & operating cycle,
Need for the Study:
This study is undertaken to know the present liquidity position of the Dharwad
Milk Union, Dharwad. This project will throw light on firms competitiveness with other
firms and it also throw light on the financial position and adequate working capital,
which the firm possesses. This study carried out to know whether DMU has properly

Babasabpatilfreepptmba.com 1

utilized its resources and assets are not and also ascertain the liquidity position of the
firm.

Data Collection:
The present study is carried out working capital position of the Dharwad Milk
Union, which attempts to analyze and interpretation by using ratio analysis technique &
concepts of working capital. Tabular formats are also used wherever necessary to show
the data calculations with necessary theoretical explanations.
Sources of Data:
Sources of data are can be classified into two categories:
1. Primary Data
2. Secondary Data
Primary Data:
The information is collected from the personal interaction with the
financial managers of DMU.
Secondary Data:
This is been is collected through DMU Annual Reports of last five
years i.e. 2004-05 to 2008-09 & also through;
1. Information form the internet sources
2. Information from the materials provided by the concern magazine,
newspapers Brouchers.
Findings:
i Inventory Turnover Ratio of Dharwad Milk Union is better in the year 2008-
09 compared to last five years 18.51.
ii Creditors Payments Ratio is improving in the recent year compared to last
five years.
Suggestions:
i In the recent years, the debt turnover ratio of Dharwad Milk Union is decreases so,
it is suggested to increases the debt turnover it help to maintain the debt collection.
ii It is suggested that Dharwad Milk Union reduce its operating cycle, so that it can
maintain sufficient working capital in the liquid form.


Limitation of the study:
This study covers only a part of Dharwad Milk Union.
i )The study is done only on the Balance sheet and profit and Loss A/c
ii )Study is based on information provided by the company.



INDUSTRIAL PROFILE
Dairy Industry in India:
Dairy enterprise is an important occupation of farmer. In India nearly 70% of the people
depend on agriculture. It is the backbone of India. Dairy is linked with agriculture
industry to a large extent.
Animal husbandry in India is an essential part of agriculture. It is mainly a rural
occupation closely associated with agriculture.
Development of Dairy Industry in India:
During the Pre-independence year there was no serious stress given to dairy
industry. In 1886 the Department of Defense of the British Government established
the dairy farms for the supply of milk to the British troops in Allahabad.
Later, in 1920 serious steps were taken by Mr. William Smith, an expert in
dairy forming to improve the milk production There was discrimination done to the
Indians hence this led to the rise of the first milk union in India. In Lucknow in 1937
called the Lucknow milk producer’s Co-operative union Ltd.
In 1946 AMUL (Anand Milk Udyog Ltd) was started in Gujarat to bring up the
economic stability of villagers. When the farmer Prime Minister Lal Bahaddur Shastri
visited the functioning as it was rendering a social service to the society, which helped
the villagers to come in the national economic stream.
The dairy and Animal Husbandry received serious attention after the
independence. There were lots many of progressive steps taken by the government
through five year plans. This led to the formation of National Dairy Development
Board in 1965 & thus in 1970 he decided to Bring a “ White Revolution” through out
the country, Initially 10 states were selected were for this purpose excluding
Karnataka.


In Karnataka in 1974 an integrated project was launched to restructure and
reorganize the dairy industry on Co-operative principle of AMUL and to lay
foundation for new direction in dairy industry.

NATIONAL DARIY DEVELOMENT BOARD:
History:
The NDDB was founded to replace exploitation with empowerment, tradition
with Modernity, Stagnation with growth, transforming dairy into and instrument for
the development of Indian’s rural people.
The NDDB was established in 1965; the board is registered under the Societies
Registration Act and the public Trust Act, fulfilling the desire of the Prime Minister of
India – the late Lal Bahaddur Shastri to extend the success of the Kaira Co-operative
Milk producers union (AMUL) TO OTHER PARTS OF India. Dr Vergese Kurien
was the founder chairman. The success combined the wisdom & energy of farmers
with professional management to successful capture liquid milk and milk product
markets while supporting farmer’s investment with inputs and services.
The Growth:
NDDB began its operations with the mission of making dairying a vehicle to a
better future for millions of gross roots milk producers. The mission archived helped
to launce ‘’Operation Flood’’, a programmed extending over 26 years and with the
help of World Bank Loan India become the world’s largest milk producing country.
As per March 2001 India’s 96000 Dairy Co-operative are integrated thorough a three
Tier Cc-operative structure. The Anand pattern, which is owned by more than 10
million formers, procures an average of 1605 million liters of milk everyday. The milk
is processed and marketed by 170 milk producers’ co-operative unions which, in turn
own 15 state co-operative milk marketing federation. Since its establishment the dairy
development board has planned and spearheaded India’s Dairy programmer by placing
dairy development in the hands of milk producers and the professionals they employ


to manage their co-operatives. In addition, NDDB also promotes other commodity
based co-operative, allied industries and veterinary biologically on an intensive and
nation wide basis.
Objectives of NDDB:
 To sponsor, promote, manage, acquire, construct or control any plant or work,
which promote projects of general public utility relation to dairying.
 To make information available on request to technical services to increase
production of Milk.
 To prepare initial feasibility studies of dairying and other dairy related projects
and undertake subsequent designing planning and start up those projects.
 To undertake research and development programmed related to production and
marketing of milk and milk products.
 To provide assistance for exchange of information to other international
agencies.
Services rendered by NDDB:
• Planning dairy and rural development projects.
• Organization of farmer co-operative societies.
• Setting up of dairy and cattle feed plants.
• Manpower planning and training.
• Applied research and development.
• Implementation of milk production enchantment programmed.

KARNATAKA MILK FEDERATION:

The first dairy in Karnataka was started in Kudige in Kodagu district in 1955,
further in June 1974; an integrated project was launched in Karnataka to restructure
and reorganize the dairy industry on the co-operative principle and to lay foundation
for a new direction in dairy development.
In 1975, the World Bank aided dairy development was initiated. The present
Karnataka Milk Federation (KMF) came into existence in 1984-as a result of merging
of Karnataka Dairy Development Co-operation, small co-operatives and Karnataka
Milk Production Development and loose vendors.


At the end of the March 1998, the network of 8023 Diary Co-operative
Societies (DCS) have been established which are spread over 166 taluks of the total
175 taluks in all 27 districts of Karnataka. There are 13 Milk Unions and Dharwad
Milk Union (DMU) is one among them. There are 35 Chilling centers, 3 Farm coolers,
15 Liquid milk plants and 2 Product dairies for chilling, processing, conservation and
marketing of milk. To supply cattle feed there are 4 cattle feed plants.
To ensure supply of quality germ plasma Bull breeding farm and frozen semen
bank are also available.

Karnataka co-operative Milk Producers’ Federation Limited (KMF)
KMF is the apex Body in Karnataka representing Dairy Cooperatives. It is the
third largest dairy co-operative amongst the dairy co-operatives in the country.
To impart training, institutes at Bangalore and regional training institutes at
Dharwad and Gulbarga are functioning. Three nitrogen plants (2 plants of 25 CPM
and 1 plant of 5 CPM) are been set-up to supply nitrogen, which is used for
Refrigeration purpose. Three diagnostic centers have been set-up for monitoring
diseases: three fodder farms at Rajkunte, Kuttanahalli and Kodagu have been set-up to
supply good quality of fodder and seed production farm at Shahpur has been set-up.
The federation giving details of the latest technology in dairy industry etc is published
‘’Ksheer Sagar’’ magazine monthly.
UNITS OF KMF:
KMF has the following Units functioning directly under its control:
 Mother Dairy, Yelahanka, Bangalore.
 Nandini Milk Products, KMF Complex, Bangalore.
 Cattle Feed Plants at Rajanukunte/Gubbi/Dharwad/Hassan.
 Nandini Sperm Station (formerly known as Bull Breeding Farm & Frozen Semen
Bank) at Hessaraghatta.
 Pouch Film Plant at Munnekolalu, Marathhalli.
 Central Training Institute at KMF Complex, Bangalore.
 Quality Control Lab at KMF Complex, Bangalore.



List of Co-operative Milk Producers’ Societies Unions:

KMF is a co-operative apex body in the state of Karnataka for representing dairy
organizations and also implementing dairy development activities to achieve the
following objectives.


• Providing assured and remunerative market for all the milk produced
by the farmer members.
• Providing hygienic milk to urban consumers.
• To build village level institutions in co-operative sector to manage the
dairy activities.
• To ensure provision of milk production inputs, processing facilities and
dissemination of know-how.
• To facilitate rural development by providing opportunities for self-
employment at village level, preventing migration to urban areas, etc.
FUNCTIONS OF KMF:
• Co-ordination of activities between the unions.
• Developing the markets for the increasing in milk production.
• To make the brand ‘’Nandini’’ as a house hold name.
• Excellence in quality is to be maintained to lay a solid foundation for
wide Spread acceptance of ‘’Nandini’’ products.
• To increase the market share of ‘’Nandini’’.

THE GROWTH PROCESS:
The growth over the years and activities undertaken by KMF is summarized
briefly hereunder:

1976-77 2008-2009
Dairy Co-operatives Nos 416 11063
Membership Nos 37000 1956163
Milk Procurement Kgs/day 50000 3025940
Milk Sales Lts/day 95050 2129790/curd:1.77LKPD
Cattle Feed Consumed Kgs/DCS 220 3010
Daily Payment to Farmers Rs.Lakhs 0.90 342
Turnover Rs.Crores 2707.00

SUPPORT TO TRAINING & EMPLOYMENT PROGRAMME
(STEP):


Karnataka Milk Federation is implementing a special program for overall
development of women folk in rural areas. This program is named as "Support to
Training and Employment Program for women" (STEP) launched during 1997 with
the financial assistance of Ministry of Human Resource Development, Department of
Women and

DHARWAD MILK UNION:

Dharwad District Co-operative Milk Producers' Societies' Union Ltd.

The Union was established in the year 1986 under the Operation Flood II & III.
The Union also later took over in 1988 the Milk Products Factory with a drying
capacity of 2.10 Lakh Litres per day, earlier established by the Karnataka Milk
Products Limited (GOK Undertaking).
The Union covers the districts of Dharwad, Karwar, Haveri & Gadag, and has
Chilling Centres at Gadag,Haveri, Sirsi, Ron, Nargund, Hirekerur & Kumta with
chilling capacity of 0.80 Lakh Litres Per Day.
The Union procures and sells on an average 0.68 Lakh Kgs per Day and 0.59
Lakh Litres Per Day respectively. There are 7 Bulk Milk Coolers in the Union.
Apart from selling milk, it sells pure buffalo milk & produces very thick 250
gm Curds in mud pots specially designed for this namely "KUDIKE MOSARU", the


famous Dharwad Peda, Butter in bulk as well as in retail packs and in 10 gm chip lets,
Ghee, Skimmed Milk Powder and Paneer.
Functions of Dharwad Milk Union:
• The main function of is to procure milk from villagers and pay
them the right price.
• To educate the villagers about milk and its quality.
• To make ’Nandini’ as a part of daily life.
• To provide good quality of cattle feed, fodder, veterinary properly
and in an efficient manner.
Objectives of Dharwad Milk Union:
• Providing hygienic and good quality of milk to the consumers.
• To build the economic strength of the milk products in villages.
• To eliminate middlemen’s in the business so that the milk products
receive there appropriate share of bread.
• To educate the villages about the adulteration of milk and its
harmful effect on the body.
• To see that every citizen becomes healthy by consuming good
quality of milk.
• To make villagers self-viable and build self image.

Process at Dharwad Milk Union:
The milk collected at DCS’s is brought to the center thought carries trucks etc.
the quality and quantity of milk bought is checked at the Reception center by a
supervisor. A sample of milk is taken and is tested in a laboratory for fat content, Solid
Not fat (SNF) acidity etc.
As the milk is at room temperature is to be brought down to 4 0 c to 50 c. so that
it may check the growth of bacteria. To ensure this milk is passed through a chilling
chamber where the milk is chilled. Its temperature is bought down and then the milk is
stored in a tank called as Raw Milk Tank.
From this tank milk is pumped to a pasteurizing cell where the milk is heated
up to 720 c and 15seconds, so that all the bacteria and microorganisms may be killed
and then the milk is simultaneously cooled to 4 0 C to 5o C and is store in a


‘Pasteurized Milk Tank’ From here the milk is separated according to the requirement
of production of different types of milk and the remaining milk is used for
manufacturing milk products.
Nature of business carried
One of the core functions is procurement of milk, processing it and marketing
milk and milk products. Dharwad Milk Union markets its products under the brand
name Nandini.

Mission Statement Dharwad Milk Union:
Dharwad Milk Union is commuted to provide maximum possible price for the
milk supplied by its members and provided necessary inputs for the milk production
while ensuring economic viability of the union and also committed to provide quality
milk products to consumer and image as one of the top most milk union of the co-
operative dairy industry in the country.
VISION DHARWAD MILK UNION:
• Total quality
• Honesty
• Discipline
• Cleanliness
• Transparency
• Sincerity and deduction
• Co-operative free of politics
• Sovereignty
• Respective each other opinion ideas and feelings

PRODUCT PROFILE;


• Nandini Toned: Fresh and Pure milk containing 3.0% fat and 8.5% SNF.
Available in 500ml and 1litre packs.

• Nandini Homogenized Milk: is pure milk which is
homogenized and pasteurized. Consistent right
through, it gives you more cups of tea or coffee and
is easily digestible.

• Full Cream milk: Containing 6% Fat and 9 %
SNF.A rich, creamier and tastier milk, Ideal for
preparing home-made sweets & savories.

• Cow's pure milk: UHT processed bacteria free in a
tamper-proof tetra-fino pack which keeps this milk
fresh for 60 days without refrigeration until opened.
Available in 500ml Fino and in 200ml Bricks

• Nandini Ghee: A taste of purity. Nandini Ghee,
made from pure butter. It is fresh and pure with a
delicious flavor. Hygienically manufactured and
packed in a special pack to retain the goodness of
pure ghee. Shelf life of 6 months at ambient
temperatures. Available in 200ml, 500ml, 1000ml
sachets, 5lts tins and 15.0 kg tins

• Nandini Curd: made from pure milk. It's thick and
delicious. Giving you all the goodness of homemade
curds. Available in 200gms and 500gms sachet.


• Nandini Peda: No matter what you are celebrating! Made from pure milk,
Nandini Peda is a delicious treat for the family. Store at room temperature
approximately 7 days Available in 250gms pack containing 10 pieces each.

• Nandini Gulab Jamoon Mix: Great way to those soft
and juicy jamoon treats at home! Nandini Gulab Jamoon
Mix is made from Nandini skimmed milk powder,
maida, soji and Nandini Special Grade Ghee. Available
in 100gms and 200gms standy pouch with a five layer
foil lamination. Shelf life of 6 months.

• Nandini spiced Butter Milk: is a refreshing health
drink. It is made from quality curds and is blended with
fresh green chilies, green coriander leaves, asafoetida
and fresh ginger. Nandini spiced butter promotes health
and easy digestion. It is available in 200 ml packs and is
priced at most competitive rates, so that it is affordable to all sections of
people.

• Flavored milk: Sterilized flavored milk, a nutritious and
healthy drink and an all-season wholesome drink
available in five different flavors - pineapple, rose,
badam, pista.



• Nandini Butter: Rich, smooth and delicious. Nandini
Butter is made out of fresh pasteurized cream. Rich taste,
smooth texture and the rich purity of cow's milk makes
any preparation a delicious treat. Available in 100gms
(salted), 200gms and 500gms cartons both salted and
unsalted,

ORGANIZATIONAL STRUCTURE



BOARD
BOARD

Directors
Directors Ex officers
Ex officers Govt nominees
Govt nominees
(8members)
(8members) (5members)
(5members)

Procurement
Procurement Product president
Product president Administrative
Administrative
Marketing dept
Marketing dept Finance dept
Finance dept Security dept
Security dept
Dept
Dept director
director dept
dept

Accounts &
Accounts &
Transport
Transport Quality control
Quality control F.G.S& stores
F.G.S& stores M.I.S
M.I.S purchase
purchase

DEPARTMENTS OF THE COMPANY:
• Production department
• Administration department
• Purchase department
• Procurement & input department
• Stores department
• Security department
• Processing department
• Quality control department
• Finance department
• Marketing department

• Distribution department

• Human Resource development



DHARWAD MILK UNION PROFILE:
Status A co-operative society registered under the
co-operative Act 1959.
Location Lakmanahalli, industrial area, Dharwad
Share capital 3 crores by members and 2 crores by
government of Karnataka
Plant capacity 2 lakh liters per day
Milk powder 12tons/day
Butter 6tons/day
Ghee 6tons/day
Milk chilling centers Gadag 20,000 ltrs/day
Haveri 20,000 ltrs/day
Hirekerur 20,000 ltrs/day
Naragund 8,000 ltrs/day
Ron 10,000 ltrs/day
Sirsi 20,000 ltrs/day
Presence value of Collection of Milk 80,000 ltrs/day
activity Sales of Milk 70,000 ltrs/day
Area of operation Dharwad, Haveri, Gadag, Uttar kannada
districts
Board of directors Elected members 8
Ex officers 3
By govt 5
Total workers 393 workers
Departments 9
Brand name NANDINI
Products Milk:
Toned Milk, full cream milk, standard
milk, shubham milk, homogenized milk.
Milk products:
Butter, ghee, curd, lassi, paneer, milk
powder, khova, peda, mysore pack etc……
Co-operative 460 socities


societies at village
level


PURCHASE DEPARTMENT:
It also maintains records of all the suppliers calls for Tenders, quotations etc.
Quotations with lowest rate are sanctioned. Purchase up to 50,000, then the approval of
Managing Director.

The structure of Purchase Department is as shown:

Purchase officer

Purchase superident

Assistant purchase officer

Helpers

PRODUCTION DEPARTMENT:
Production department is the main department wherein the raw material is
converted into finished into products. At DMU production department is well planned &
adequately equipped manufacturing set up where the entire necessary infrastructure is
available. The quality of the product is also dependant on the production procedure.
In DMU the raw milk is processed to form the good quality of milk. During the
processing the milk is differentiated depending on the contract of FAT & SNF (Solids Not
Fat)
The different types of milk different in quality are
TYPES OF MILK FAT SNF
Full Cream Milk 6% 9%
Toned Milk 3% 8.5%
Standardized milk 4.5% 8.5%
Full Cream Milk 6% 9%
Shubham milk 6% 9%
.


ORGANIZATION CHART OF PRODUCTION DEPARTMENT

MANAGER
MANAGER

Deputy manager
Deputy manager Office staff
Office staff

Assistant manager
Assistant manager Assistant (stores)
Assistant (stores) Assistant(account)
Assistant(account)

Technical officer
Technical officer Clerk
Clerk Typist
Typist

Senior supervisor
Senior supervisor

Junior supervisor
Junior supervisor

Dairy operation
Dairy operation

Dairy technician
Dairy technician

Dairy worker
Dairy worker

PRODUCTION PROCESS



DCS

Fresh liquid milk Sample testing Fat & SNF

Chilling

Storing

Pasteurization

Separation

Homogenization

Storing

Packaging

Dispatching


THE PRODUCTION PROCEDURE AT DMU IS DONE UNDER
DIFFERENT STAGES. THE STAGES ARE AS FOLLOWS:
COLLECTION OF MILK:
In this stage the milk is bought from the various district co-operative societies
(DSC) to the main dairy in a can of 40 litters capacity in tempo’s or in any other
vehicles. The cans marked with two different colors to differentiate between the cow
& the buffalo milk. One the milk is bought to the main dairy it undergoes into
following process.
UNLOADING:
The cans were unloaded is called as dock station. The cans are unloaded from
the vans manually.
ORGANOLEPTIC TEST
This test is carried out by a person manually without using any machines but
using his sense organs like nose & hence it is called as organoleptic test. This test is
conducted before the cans are weighed. In this test various sub-tests are conducted like
SMELLING (ODOUR) TEST:-
A man at dock station or platform checks the acidic nature of milk by smelling
or tasting the raw milk. If the tasted milk has bad odors then the dairy will pay lower
rate to such society members than the normal rate.
EXTRANEOUS-MATTER APPERANCES:-
In this test the raw milk is undergone into the test, which is conducted by the
chemist. The chemist checks for two aspects mainly whether the milk is contaminated
or not & the milk is in liquid form or curd form. He also checks for any extraneous
matters like dust, flies etc. which lead to spoilage of milk.
ACIDIC TEST
As the payment to the suppliers or DSC depends mainly on FAT & SNF
content of the raw milk. The supplier may add sugar to the milk so as to increase the
FAT & SNF content. Hence to avoid this adulteration sugar test is done.
Its procedure is 10ml of milk is shaken in a test tube & 1ml of hydrochloric
acid. Few crystals of resorcinol are mixed to it. The solution is shaken well & heated
for five minutes. If solution turns organ color it is demanded that sugar is mixed to it.



STORAGE OF CHILLED MILK:-
Once all the tests are over, the milk is allowed to store in the SILOS (Storage
tank). So as to maintain its cold level of 4 degree calicoes. The unions having 7 storage
tanks, 3 tanks are vertical with 30000 litters’ capacity each and the remaining 4 are
horizontal among which 2 are having the capacity of 10000 litters each and other 2 of
15000 litters each. After chilling the milk is passed through pasteurizer for pasteurization.
PASTEURIZATION:-
This step of production includes heating every partical of milk at 72 degree
celcious in 15 seconds and it cold in less then 4 degree celcious. When it is passing
through pasteurization the cream is removed depending on the quality of the milk
required (standardization).
PACKING:-
Once the pasteurization closed is conducted the next step is to pack the milk.
The packing is done by the machine of fluid goods and were as it is done manually in
case of solid goods like pheda. The machine packs the raw milk in two sizes that is
500ml and 1000ml pouches. These machines are automatic with a capacity of packing
10000 to 14000 pouches per hour. The speed can be even altered according to
suitability. These machines are used to pack all different types of milk in plastic bags.
These plastics are polythene bags required for packing milk is bought from Bangalore.
STORAGE:-
The last but not the process is the whole of production process is storage. The
milk packed in 500ml and 1000ml pouches are arranged in the crates. Each cater contain
10 litters of milk. This caters are stored in cold room which has a temperature of about 5
degree Celsius or below


ADIMINISTRATIONDEPARTMENT:

FUNCTOINS
 Maintenance of attendance.
 Establishment of billing.
 Maintenance of service records.
 Domestic enquiry.
 To maintain shifts timing.
 To look after recruitment process.


 Conducting training to the new employees and also to
the existing once.
RESPONSIBILITIES OF ADMINISTRATION DEPARTMENT
• To look after the overall administration of time office
management.
• Conducting training to the new employees and also to the
existing once.
• To look after over recruitment process.
• To maintain shifts timings.

Organization chart of procurement and input department

Manager
Manager

Procurement wing
Procurement wing Technical input wing
Technical input wing

Deputy Manager
Deputy Manager Deputy Manager
Deputy Manager

Assistant manager
Assistant manager
Assistant manager
Assistant manager

Extension officers Clerks
Clerks
Extension officers

Clerks
Clerks

Helpers
Helpers

The union carries procurement by setting up co-operative societies at village
level. Later milk is collected in the chilling center, milk collected from the milk center, is
first tested, there are milk testing equipments for this purpose. Then a survey on
availability of transportation facilitates and productive capacities of villages are
conducted. If the marketable surplus is more than 150 litters per day, a society is formed;


further 10 promoters selected from village and are given responsibility of collecting the
capital for society selling shares. Procurement is done twice a day and payment is made
on the basis of percentage of the content Fat and SNF in the milk
After this milk is sent to unions chilling center, whichever is near. At the chilling
center, milk is chilled up to 4 degree Celsius. Letter this chilled milk is to sent to union
insulated tankers for further processing. The main function of this department is to
procure milk from different areas throughout the year

STORES DEPARTMENT:
The stores Department in DMU follows the Codex system (Coded Control
System). A card is maintained for each item and a number is allotted. The card attached
to each article consists of amount balance, date of issue, purchase etc. this is later
recorded in separated ledger book. The inventories are of different types ranging from
mechanical, shares, packing items to animal drugs, and stationary and veterinary drugs,
there are at least 4000 different inventories.
This department has the following services:
• It tries to maintain maximum and minimum level of inventory so as to avoid
blockage of capital and storage.
• Ordinary and local available commodities are maintained at minimum possible
level.
• Items of urgent and not easily available are stored sufficiently for further
demand.
The structure of this department is as shown below:



FINISHED GOODS STORES:
This Department acts as an interface between production and Marketing
Department . it is concerned with maintenance of finishes goods connected records. it
received all the finished goods and issues the stock to marketing department as per
indents. It ensures that the goods are maintained properly with respect to quality.

Accounts are maintained and daily and daily and daily and monthly report is
submitted to the production. Marketing finance Departments. As the products. As
finishable first in-first out method of inventory is followed.
Times FGS Department has the following Structure:

QUALITY CONTROL DEPARTMENT:
The Quality Control department has the following structure



In DMU, at every stage, care is taken to ensure that the customer gets the product,
which has a very high quality. Hence there is separate department called Quality
Department, where the quality testing is done. Quality control is very essential as to
maintain the freshness of the milk. All the containers, pipes and other equipments are
washed with hot water before starting off with new production. There are many tests
conducted here. The packed milk, we get will have undergone 3 quality tests. First test
is done on raw milk, which we get from chilling center. Next before standardization and
the last test before packing

TEST REASON



Temperature
Should be below 5 degrees

Clot on Boiling If mill curdles soon after
billing milk is rejected

Acidity Test To test the extent of acidity

Alcohol Test
To check the heat stability of
milk
Lactometer To check the density of milk
Fat Test Percentage of fat determined

SNF Percentage of SNF
determined for pricing
SNF=CLR+FAT/4

FINANCE DEPARTMENT:
This department is responsible for keeping all the inward and outward flow of money
of union. It prepares budget every year and financial rules for receipts all payments are
framed. The functions of these departments. Are:
 To prepare monthly accounts (Receipts and payment P & I Account and Balance
sheet).
 To prepare quarterly financial statement
 To prepare integrated business plan.
 To prepare year ending financial statements.
 To get accounts audited from statutory books of accounts.
DMU Follows to types of auditing:
1. Pre-Audit System-done by Finance and Account Department every Year.
2. Statutory System-Done by Private charted accounts every year.


SECURITY DEPARTMENT:
Dharwad Milk occupies 25 acres of land the whole premise is been guarded by
the security personnel. The security people work in three shifts. All the vehicles are
checked before entering the premise. The departments is also maintains separate
registers like store-in Register, Attendance register etc.

Channels of distribution system:
I. DMU --- Transportation Vehicles --- Dealers
Door delivery boys -- Consumers
II. DMU ----Transportation Vehicles --- Institutions.
(institutions :hospitals, hotels , hostels etc.)
III. DMU ----Transportation Vehicles --- Parlours -- Consumers.

IV. DMU ----Transportation Vehicles---- Day Counters --Consumers.

Price list of milk and milk products.
SL. Products’ name Net Amt Commission MRP
1 Tonned milk/ltr 16.40 0.60 17.00
2 Standard milk/ltr 18.00 1.00 19.00
3 Double tonne milk/ltr 15.00 1.00 16.00
4 Homogenized std 17.00 1.00 18.00
milk/ltr
5 Curds 18.00 2.00 20.00
6 Butter milk 11.40 1.60 13.00
7 Peda/kg 116.00 12.00 128.00
8 200ml Ghee 186.36 18.64 205.00
9 500 ml Ghee 180.90 18.10 199.00


10 1000ml Ghee 177.27 17.73 195.00
11 S.F.M/bottle 10.48 1.52 12.00
12 Jamoon mix/200gm 27.83 4.17 32.00
pack
14 Mysore pack/kg 196.40 23.60 220.00
15 Paneer 115.00 10.00 125.00
16 Butter 500gm 151.79 18.21 170.00

The structure of finance Department is as shown:
Deputy Manager:



MARKETING:
A social and managerial process whereby individuals and groups obtain
what through creating and exchanging products and value with others.

Marketing more than any other business function deals with customers, building
customer relationship based on customer value and satisfaction is at the very heart
of modern marketing.

MARKETING IN DMU:

Marketing is an important segment of Dharwad Milk Union. Marketing
activities are extended to many other districts:

For Example
Dharwad


Haveri
Gadag
Dharwad Milk Union comprises of two dairies and more No. of Six chilling centres.
Its present capacity of production is 2,50,000liters of milk per day.This 2,50,000
litres milk is distributed as detailed below:
• 80,000 litres is supplied to the local consumers
• 10,000 litres is supplied to dynamic milk dairy
• 20,000 litres is supplied to other states
• Remaining 50,000 litres is utilized for making powdeMARK
THE MARKETING DEPARTMENT HAS THE FOLLOWING
STRUCTURE

Marketing
Marketing
Manager
Manager

Deputy Manager
Deputy Manager Technical Officers
Technical Officers

Marketing Development
Development
Marketing Officer
Superintendent
Superintendent Officer

Development Vanshroffs
Vanshroffs
Development
Officer
Officer

Marketing
Marketing
Vanshroffs
Vanshroffs Assistant
Assistant

Marketing
Marketing
Assistant
Assistant

PRICING STRATERGY


Pricing decisions are subject to an incredibly complex arry of environmental
and competitive forces. A Company sets not a single price but rather a pricing
structure that covers different items in its line.this pricing structure changes over
time as products move through their life cycle. The company adjusts product prices
to reflect changes in costs and demand and to account for variations in buyers and
situations. As the competitive environment changes, the company considers when to
initiate price changes and when to respond to them.
DMU’s PRICING STRATERGY
D.M.U produces different milk products to cater efficiently the variety milk
needs of the urban and semi urban consumers of the jurisdiction covering many
district Viz., Dharwad, Gadag, Haveri, Dhavanageri etc.
Diferent prices are changed to different types of milk on the basis of content of
FAT and SNF (Solid not FAT)
Sl. SELLING PRICE(in
No. TYPE OF MILK FAT &SNF Rs.)
Double Toned 1.5% FAT 9.0%
1 Milk SNF 11
3.0%FAT 8.5%
2 Toned Milk SNF 13

Standardised 4.5% FAT 8.5%
3 Milk SNF 14.5

6.0% FAT
4 Full Cream Milk 9.0%SNF 18

MILK PRODUCER CO-OPERATIVE SOCIETY’s
PRICING:



Sl.
No. TYPE OF MILK FAT &SNF SELLING PRICE(in Rs.)

1 Cross Breed Cows 3.0%FAT 8.5% SNF 8.6

2 Local Breed Cows 4 to 5% FAT 8.5% SNF 9.5

3 Local Buffaloes 6% FAT 9%SNF 10 to 10.50

4 Cross Breed Buffaloes 8 to 10%FAT 9 to 10% SNF 11 to 12.00

MARKETING DEVELOPMENT PROGRAMS BY DMU
Dharwad milk union has been catering efficiency to the quality milk needs of the
urban and semi urban consumers by supplying fresh districts of Dharwad, Gadag, Haveri,
Dhavanageri etc.

Over the years the union had been taking many steps to meet the charging consumers
needs, availability of milk variants and milk products to meet the of the consumers areas for
imeplementation during year 2009-10
Priority areas for the development of liquid milk market in the union area are
identified
And necessary action plans have been drawn for implementation during the year 2008-
09. the key strategies planned for 2008-09 is given below

1) INCREASING THE AVAILABILITY OF NANDINI MILK IN THE MARKET
2) CONSUMER AWARENESS PROGRAMME
3) MOTIVATING CHANNEL MEMBERS
4) CONSTITUTING EFFECTIVE REPLACEMENT/ LEAKAGE POLICY
5) SYSTEM OF CONSUMERS/RETAILERS GRIEVANCE REDRESSAL
6) STREAMING TEAM CONCEPT FOR MARKET VISIT


7) CONSTITUTING A CORE GROUP CONSISTING QUALITY,
PLANT AND MARKETING STAFF FOR SOLVING DAY TO
DAYPROBLEMS

Marketing Development programs by DMU
Increasing the availability of Nandini milk in the market
a) by expanding the retail market in the Union Area
1)Introduction of an adhoc milk distribution route to Dharwad city from morning 8.00
A.M. to 6.00 P.M.at regular intervals to cater to
the retailers needs after normal vending hours.
2) Introduction of afternoon milk distribution route to other roots and towns so as
to make Nandina milk available throughout the day in many towns.
b)Strengthening existing milk parlours, depots and day counters:

Dharwa
d Gadag haveri total

Milk 8 5 7 20

Day Conterrs 3 4 5 16

Depots 6 7 5 18

There are totally 20 milk parlours, 16 day counters and 18 depots
operating in he union area. It is decided to strengthen these existing outlets
through building up of cold chain facilities ‘and exended hours of supply of milk.

c)Introduction of one liter sachet standardized homogenized milk to me market
during august 2005 during day time .
d)Introduction of lassi/flavoured milk during January 2008.



CHAPTER III
STUDY DESIGN


TITLE OF THE STUDY
SYSTEM
The stores Department in DMU follow the Codex system (Coded Control system).
A card is maintained for each item and a number is allotted. The card is attached to each
article consists of amount balance, date of issue, purchase etc. this is later recorded in
separate ledger book. The inventories are of different kind ranging from mechanical,
spares, packing items to animal drugs etc.
THIS DEPARTMENT HAS THE FOLLOWING SERVICES:
1. It tries to maintain maximum and minimum level of inventory
2. Ordinary and locally available commodities are maintained at minimum
possible level.
STAFFING
The staff deals with the various personnel policies followed by the organization.
Below are given the personnel policies followed by the organization.
Personnel policies:
There are around 240 employees working. There are various policies followed.
The Administrative department forms the policies.
RECRUITMENT AND SELECTION:
Due to registration, termination, retirement and transfers the concerned
department head will give the manpower requirements along with the job description.
The manpower sourcing is done through advertisement, manpower consultant, and
employment exchanges and personnel reference.
PROMOTION:
Promotion is on the basis of seniority
INTRDUCTION:
After an employee is employed in DMU, he she has to make familiar to the union
and also to know the objective, value, functions and the operations. This helps the
employees to interact with senior staff members from various departments.
SALARIES AND EMPLOYEE BENEFITS:GROSS SALARY:
A regular staff member in the union will have a gross salary consisting of basic
salary, dearness allowance, cca, house rent allowance and conveyance allowance.



Other facilities:
• Shift allowance
• Canteen facility

SKILLS
These are the distinctive competencies that are present in the organization it is the
design and development of products quality and service or viability of product. The
employees in this organization also have all the distinctive skills that are required for the
undertakings of research and development activities. The DMU is improving the
employee’s skills and techniques through motivating them and giving proper training to
them also through giving proper working condition.
STYLE
DMU has top to bottom or top down style system.The style of organization is
authoritarian. It means management cadre follows authoritative.
The indicators of the style are:

• Follows rules and orders
• Reliable and dependable

DECISION MAKING PARAMETER FOR DAY-TO-DAY
OPERATION:
Top manager will tell marketing manager to collect information regarding daily
requi9rementsw of the sale of milk and milk products based on demand. Then this
information will provided to production department indicating production activities

SHARED VALUES
The core or fundamental values that are widely share in the organization and serve
as guidelines that are important, these values have great meaning because they focus
attention and provide broader since of purpose.
The values of the organizations are
1) Customer Satisfaction
2) Commitment to total quality
3) Cost and time consciousness
4) Innovative and creative


5) Trust and team spirit
6) Respect for individually



WORKING CAPITAL MANAGEMENT
INTRODUCTION:
Management of the working capital is nothing but the management of current assets.
The management of the current assets includes Inventory, Received, Debtors, Book debts,
Short-term assets cash and bank balances. The management of fixed and current assets,
however differs in three important ways.
1. In managing fixed assets time is a very important factor, consequently, discounting and
compounding techniques play a significant role in capital budgeting and minor one in the
management of current assets.
2. The large holding of current assets, especially cash, strengthens, the firm’s liquidity
position (reduces riskiness), but also reduces the overall profitability. Thus a risk returns
trade off is involved in holding current assets,
3. Level of fixed as well as current assets depends upon expected sales, but it is only current
assets, which can be adjusted with sales fluctuations in the short run. Thus the firm has a
greater degree of flexibility in managing current assets.
Working Capital refers to the amount of capital which is readily available to an
organization that is, working capital is the difference between resources in cash and readily
convertible into cash (current assets) and organizational commitments for which cash will
soon be required (current liabilities).
Thus, working capital involves activities such as arranging the short-term finance,
negotiating favorable credit terms, controlling the movement of cash, administrating accounts
receivables and monitoring the investments also a great deal of time.
TYPES OF WORKING CAPITAL:
A) On the Bases of Concepts:
There are two concepts of working capital –

1. Gross Working Capital:
It refers to the firm’s investment in current assets. Current assets are the assets which
can be converted into cash within an accounting year and include cash, short-term securities,
debtors, bills receivables and stock (inventory).



2. Net Working Capital:
It refers to the difference between current assets and current liabilities. Current
liabilities are those claims of outsiders which are expected to mature for payment within an
accounting year and include creditors, bills payable, and outstanding expenses.
Net working capital can be positive or negative. A positive net working capital will
arise when current assets exceed current liabilities. A negative net working capital occurs
when current liabilities are in excess of current assets.
The gross working capital concept focuses attention on two aspects of current assets
management:
(a) How to optimum investment in current assets.
(b) How should be current assets financed.
The level of investment in current assets should avoid two danger points-
excessive and inadequate investment in current assets. Investment in current assets should
be just adequate, not more, not less, to the needs of the business firm. Excessive
investment in current assets should be avoided because it impairs firm’s profitability, as
idle investment earns nothing. On the other hand, inadequate amount of working capital
can threaten solvency of the firm because of its inability to meet its current obligations.
The working capital needs of the firm may be fluctuating with changing business activity.
B) On the Basis of Time:
1. Permanent Working Capital:
Permanent Working Capital is permanently locked up in the circulation of current
assets.
It covers the minimum amount requested for maintaining the circulation of current assets.
(a) Initial Working Capital:
At its inception and during the formative period of its operations a company must have
enough cash fund to meet its obligations. The need for initial working capital is for every
company to consolidate its position.
(b) Regular Working Capital:


It refers to the minimum amount of liquid capital required to keep up the circulation
of the capital from the cash inventories to account receivable and from account receivables to
back again cash. It consists of adequate cash balance on hand and at bank, adequate stock of
raw materials and finished goods and amount of receivables.

2. Variable Working Capital:
It refers to the past of the Working Capital that changes with the volume of
business, it may be divided into two classes.
(a) Seasonal Working Capital:
There is many line of business where the volumes of operations are different and
hence the amount of working capital varies with seasons. The capital required to meet the
seasonal needs of the enterprise knows as Seasonal Working Capital.
(b) Special Working Capital:
The capital required to meet any special operations such as experiments
with new products or new techniques of production and making interior advertising
campaign etc, is also know as Special Working Capital.
Needs of Working Capital:
The need for working capital to run the day-to-day business activities cannot be
overemphasized. We will hardly find a business firm which does not required any amount
of working capital. Indeed, firms differ in their requirements of the working capital.
The firm’s aim is that maximizing the wealth of shareholders. Earning a steady
amount of profit requires successful sales activity. The firm has to invest enough funds in
current assets for generating of sales activity. Current assets are needed because sales do not
convert into cash instantaneously. There is always an operating cycle involved in the
conversion of sales into cash. Therefore Working Capital required for:

1) To meet the cost of inventories including total of raw materials purchased parts,
operating
Supplies, work in progress, finished goods.
2) To pay wages, salaries, for indirect labor, clerical staff, managerial and supervision
staff.
3) To meet overhead costs, including those of maintenance services activities, fuel, power
charges, taxes and general expense administration.


4) To bear the expansion (with regard to promotion of sales) e.g. expenses on packing,
advertisement, salesmanship, Sales Servicing, After requires, Credit Facilities, Delivery
Services, etc.

IMPORTANCE OF WORKING CAPITAL MANAGEMENT:
Adequate working capital created certainty, security and confidence in the minds of
the persons in the management as well as in the minds of creditors and workers.

1) It creates a good credit standing for the firm because credit standing depends upon the
ability to pay promptly. A Company with adequate working capital is always able to
meet current liabilities.
2) It ensures solvency and stability of the enterprises. It also ensures continuity in
production and sales.
3) It enables the company to take advantage of cash discount offered by the suppliers of
raw materials or merchandise.
4) It enhances the prestige of the company and moral of its workers because a company
with adequate working capital is always able to pay wages and salaries promptly and
regularly.
5) It enables the company to procure loans from banks on easy and competitive terms.
OBJECTIVES OF WORKING CAPITAL MANAGEMENT:
The objectives of Working Capital Management are as follows:

1) It is in terms of profitability and risk, the aggressive financing strategy and the
conservative financing strategy for total-permanent and seasonal-fund requirements.
2) The need for working capital as related to operating/cash cycle, permanent and
temporary working capital.
3) In general terms the factors having a bearing on the total quantum of working capital
required.
4) The computation of working capital, using both the cash cost approach and the
operating cycle approach.

Components of Working Capital


There are two components of Working Capital
A. Current Assets
B. Current Liabilities

A) Current Assets:
Components of Current Assets are as follows:
1. Cash & Bank Balance
2. Stock of Raw Material at cost- work in process and Finished Goods.
3. Advanced Recoverable in Cash or kind or kind or for value to be received.
4. Deposits under the company scheme.
5. Advanced payment of income takes credit certificates..
6. Outstanding debts for a period exceeding six months.
7. Balance with central excise authorities.
B) Current Liabilities:
Components of Current Liabilities are as follows:
1. Sundry Creditors for the goods and expenses.
2. Income tax deducted at sources from contractors.
3. Expenses Payable.
4. Unclaimed Dividend.
5. Security Deposits.
6. Liabilities for bills discounted.
7. Bank Overdraft Acceptance.
OPERATING CYCLE:
Operating Cycle or Working Capital Cycle indicates the length of time between affirms
paying for raw materials entering into finished stock and receiving cash on the sales of such
Finished Stock.


This operating cycle differs from firm to firm. Longer the operating cycle greater will be
the amount of Working Capital required and vice versa. Thus it plays an important role in
determining the Working Capital needs of a firm.

Cash Raw Materials

Debtors

Sales Milk & Milk Work In
Products Process

Operating Cycle is the time duration required to convert sales, after the conversion of
resources into inventories, into cash. The operating cycle of a DMU involves three phases.
1. Acquisition of resources such as raw material, labour, power and fuel etc.
2. Manufacture of the product which includes conversion of raw material into work-
In- progress into finished goods.
3. Sales of the product either for cash or on credit. Credit sales creates book Debts for
collection.

In the Dharwad Milk Union (manufacturing concern), the working capital operating
cycle starts with the purchase of raw materials and ends with the realization of cash from the
sale of finished products. It is also called as cash conversion cycle, production cycle etc. It
involves the purchase of raw materials and stores, its into stocks of finished goods through
the work-in-Progress with the progressive increment of labor and service costs, conversion of
finished goods (Milk & Milk Products) into sales, Debtors and receivables and ultimately
realization of cash and this cycle continuous again from cash to purchases of raw material
and so on.



DETERMINANTS OF WORKING CAPITAL:
The following is the description of factors which generally influence the working
capital requirements of Dharwad Milk Union –
1. Nature of Business:
This is one of the primary factors influencing the working capital requirements of a
firm. The DMU is a manufacturing firm, has a longer operating cycle for manufacturing the
products, and investing more funds in its current assets. Therefore, it requires much more
working capital.
2. Manufacturing Cycle:
It comprises of the purchase and use of raw materials and the production of
finished goods. Longer the manufacturing cycle, large will be the firm’s working capital
requirements.
3. Credit Policy:
The credit policy relating to sales and purchases also affects the working capital.
The credit policy influences the requirement of working capital in two ways:
i Credit terms generated by the firm to its customers.
ii Credit terms available to the firm from its creditors.
4. Growth & Expansion:
As a firm grows, it is logical to expect that a large amount of working capital is
required. The growth in volume of the business effects the requirements of working capital. If
the firm goes on diversifying its activities, the working capital is also increases.
5. Price Level Changes:
Changes in the price level also affect the requirements of working capital. The rising
price levels will require a firm to maintain higher amount of working capital. Same level of
current assets will need increased investment when price are increasing.
6. Operating Efficiency & Performance:
The operating efficiency of the firm relates to the optimum utilization of resources at
minimum costs. The firm will be effectively contributing to its working capital if it is


efficient in controlling operating costs. The use of working capital is improved and pace of
cash cycle is accelerated with operating efficiency.

7. Level of Taxes:
Tax liability is the short-term liability day able in cash. The amount of taxes to be
paid in advance creates the need for working capital. If the tax liability increases, it leads to
an increase in the requirement of working capital and vice versa. The need for working
capital varies with the tax rates and advance tax provisions.
8. Sales Growth:
The working capital needs of the firm increase as it sales grow. The growing firm may
need to invest funds in fixed assets in order to sustain its growing production and sales. This
will in turn, increase investment in current assets to support enlarged scale of operations.
WORKING CAPITAL MANAGEMENT CONCERNED WITH THE
FOLLOWING ASPECTS:
1. Cash Management:
Cash is the important current asset for the operation of the business. cash is the
basic input needed to keep the business running on a continuous basis; it is also the ultimate
output expected to be realized by selling the service or product manufactured by the firm.
The firm should keep sufficient cash, neither more nor less.
Cash is the liquid form of an asset. It is the ready money available in the firm or
with the business, essential for its operations. A firm needs the cash for the following three
purposes:
(a) The Transaction Motive:
(b) The Precautionary Motive:
(c) The Speculative Motive:

2. Receivables Management:
Receivable represents amounts owed to the firm as a result of sale of goods
or services on the ordinary course of business. These are claims of the firm against its
customers and form part of its current assets. These receivables are carried for the


customers. The period of credit and extent of receivables depends upon the credit
policy followed by the firm. The main purpose of maintaining or investing in
receivables is to meet competitors, to increase sales, and to maintain a cordial
relationship with the clients.

3. Inventory management:
Every enterprise needs inventory for smooth running of its activities. It serves
as a link between production and distribution process. There is, generally a time lag
between the recognition of a need and its fulfillment. The greater the time lag, the higher
the requirements for inventory. The unforeseen fluctuations in demand and supply of
goods necessitate the need for inventory. Moreover, it provides a cushion for future price
fluctuations.

.



ANALYSIS AND INTERPRETATION
D.M.U is one of the most reputed companies in the Karnataka. D.M.U, leading milk
& milk products co-operative society, aims at providing health and toned milk to its
consumer at a better and reasonable price. D.M.U is facing competition from various
manufactures of milk & milk products.
The study is conducted in D.M.U to measure the working capital
management of the company. The working capital management is the most important tool of
measure the liquidity position of the company. Every company as to maintain good
management of working capital, so the working capital of a D.M.U since its establishment is
cause of worry, as it has fails to produce desired results. The D.M.U, instead of generating
trading surplus for economic uplift of milk producers has become a loosing venture. So, this
study is undertaken to observe the management of Working Capital through Ratio Analysis
Technique, because ratio analysis is the important tool to measure the working capital
management. So I had taken the five years annual reports to measure the working capital
management.
Note: we have used the ratio analysis in this project in order to substantiate the managing of
working capital. For this, we used some of the ratios to get the required output.
The present study ascertained with the help of following ratios:
1. Current Ratio
2. Quick Ratio
3. Inventory Turnover Ratio
4. Debtors Turnover Ratio
5. Creditors Turnover Ratio
6. Working Capital Turnover Ratio


7. Current Assets Turnover Ratio
8. Working Capital to Sales Ratio

Current Ratio:
The current ratio of a unit measures firm’s short-term solvency, that is, its ability to
meet short-term obligations. It is the ratio of total current assets to total current liabilities.
The current ratio measures the ability of the firm to meet its current liabilities-
current assets get converted into cash in the operating cycle of the firm and provide the funds
needed to pay current liabilities.

It is calculated by dividing total current assets by total current liabilities:

Current Ratio = Current Assets
Current Liabilities

Current Assets include – Closing Stock, Deposits (asset), Loans & Advances, Sundry
Debtors, Cash-in-hand, and Bank Accounts.

Current Liabilities include – GRANTS, O.S.L, Other Liabilities, Salary Recoveres, Security

Deposit A/C, Unpaid Salary/ Wages A/C, Duties & Taxes, Sundry Creditors.



Table:-01
The Table Showing Current Ratio
Year Current Assets Current Liabilities Current Ratio
2004-05 6,07,17,987 3,26,52,240 1.85
2005-06 7,11,81,059 4,35,76,692 1.63
2006-07 6,36,58,413 3,59,78,861 1.76
2007-08 9,25,79,781 5,15,95,821 1.79
2008-09 7,21,28,952.41 5,07,41,016.54 1.42

Chart:-1
The Chart Showing Current Ratio

2

1.5

1
current ratio
0.5

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

Interpretation:


The Table 1 revels that the Liquidity position of Dharwad Milk Union is Satisfactory
even though the ratio of all five years less than the conventional norm i.e 2.because the
Dharwad Milk Union is a Public Utility firm, as for the conventional rule concerned the
Public Utility firm’s liquidity position is satisfactory even though the current ratio is less than
the conventional norm. There for the liquidity position of Dharwad Milk Union is
Satisfactory.

Quick Ratio / Liquidity Ratio:
This ratio is also termed as Acid-test ratio. A Quick ratio is concerned with, the
relationship between quick assets and current liabilities.
It is a measure of liquidity calculated dividing current assets minus inventory and prepaid
expenses by current liabilities.
The Quick Ratio is the ratio between quick current assets and current liabilities.
It is calculated by dividing the Quick Current Assets by the Current Liabilities.

Quick Ratio = Quick Current Assets
Current Liabilities

Quick Current Assets = Current Assets – Inventory



Table:-02
The Table Showing Quick Ratio
Year Quick Assets Current Liabilities Quick Ratio
2004-05 3,09,21,237 3,26,52,240 0.95
2005-06 4,94,41,661 4,35,76,692 1.13
2006-07 3,94,99,292 3,59,78,861 1.09
2007-08 6,24,35,658 5,15,95,821 1.21
2008-09 48710020.15 50741016.64 0.96

Chart:-02
The Chart Showing Quick Ratio

1.5

1

Queck ratio
0.5

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

Interpretation:
It may be inferred from Table 2 the liquidity ratio of Dharwad Milk Union is good in the
three years i.e. 2005-06, 2006-07& 2007-08 respectively but in the years 2003-04, 2004-05
& 2008-09 the liquidity ratio is less than standard norm i.e 0.71, 0.95& 0.96 respectively. It


indicates that liquidity ratio of D.M.U is not good. But in 2005-06 to 2007-08 the liquidity
ratio is more than the standard norm. There for it indicates that company is able to pay its
current liabilities with quick assets. The D.M.U is able to utilize its current assets properly &
the Inventory movement is quicker and debt payment is also faster.

Inventory Turnover Ratio:

Every firm has to maintain certain level of Inventory of finished goods, so as to be
meeting the requirements of the business. The Inventory Turnover reflects the efficiency of
inventory management. The higher the ratio reflects the more efficient the management of
inventories & vice versa.

This ratio establishes relationship between cost of goods sold during a given period
of time and average amount of inventory held during that period.

It can be ascertained by following formula:

Inventory Turnover Ratio = Cost of Goods Sold
Average Inventory

Cost of Goods Sold = Sales – Gross Profit


Average Inventory = Opening Stock + Closing Stock / 2

Table:-03
The Table Showing Inventory Turnover Ratio
Year Cost of Goods Sold Average Inventory Ratio

2004-05 346684070 57588517 6.02
2005-06 446321775 51536148 8.66
2006-07 397561561 45898519 8.66
2007-08 440936818 54303244 8.11
2008-09 49,5708694.15 26788827.39 18.51

Chart:-03
The Chart Showing Inventory Turnover Ratio

20

15

10
Inventory Turnover ratio
5

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

Interpretation:
It may be found from Table 3 the Inventory turnover of Dharwad Milk Union is
increasing & decreasing trend. The D.M.U is increases its efficiency of selling the products.
In 2004-05 decreases its inventory turnover i.e 7.19 to 6.02.But in 2005-06 to 2008-09 years


the firm performance is better to selling its products. The D.M.U is maintain this way he sells
the Inventory very fast & the efficiency of the firm in selling its product is better.

Inventory Conversion Period:
Inventory period is the time lag between the purchase of raw materials & sale of finished
goods.
It includes:
• Raw Materials Conversion Period
• W-I-P Conversion Period
• Finished Goods Conversion Period

The Inventory Conversion Period can be ascertained by following formula:

Inventory Conversion Period = No. of Days in a Year
Inventory Turnover Ratio

No. of Days in a Year – 365 days



Table:-04
The Table Showing Inventory Conversion Period
Year No. of Days in a Year I.T.R I.C.P

2004-05 365 6.02 61
2005-06 365 8.66 42
2006-07 365 8.66 42
2007-08 365 8.11 45
2008-09 365 18.51 20

Chart:-04
The Chart Showing Inventory Conversion Period

70
60
50
40
Inventory Conversion
30
ratio
20
10
0
2004-05 2005-06 2006-07 2007-08 2008-09

Interpretation:
The Table 4 depicts that the Dharwad Milk Union is taking how many days to convert
the Raw Materials into finished products. In last five years the company is improved its


conversion period yearly. In the year 2003-04 & 2004-05 the D.M.U has taken more days to
convert inventory. But in 2005-06 to 2008-09 the D.M.U is taken less days to convert
inventory. It indicates that fast to conversion of inventory & sells the goods fast. There for
the D.M.U is maintain better Inventory conversion period.

Debtors Turnover Ratio:
Debtors Turnover Ratio is an important part of current assets; it is determined by
dividing the net credit sales by average debtors outstanding during the year.
The analysis of the debtor’s turnover ratio supplements the information regarding the
liquidity of one item of current assets of the firm. The ratio measures how rapidly receivables
are collected. A high ratio is indicative of shorter time-lag between credit sales and cash
collection. A low ratio shows that debts are not being collected rapidly.


Debtors Turnover Ratio = Total Sales
Debtors

Total Sales includes – Sale-cattle feed, Sale of Milk, Sale of Milk Products, Sale of P & I,
Other Sales.

Debtors – Sundry Debtors



Table:-05
The Table Showing Debtors Turnover Ratio
Year Total Sales Debtors Ratio

2004-05 39,05,65,568 1,25,55,600 31.10
2005-06 48,90,14,708 1,85,99,457 26.29
2006-07 46,82,83,461 1,09,67,229 42.69
2007-08 51,18,17,364 2,05,58,529 24.89
2008-09 573720167.78 21607761.25 26.55

Chart:-05
The Chart Showing Debtors Turnover Ratio

50

40

30

20 Debtors Turnover ratio

10

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


Interpretation:

The Table 5 shows that the in last five years Debtors turnover ratio of Dharwad Milk
Union. In 2003-04 to 2005-06 the debts are not collected rapidly. But in the year 2006-07 the
debts are collected rapidly i.e 42.69. In 2007-08 again the debts turnover ratio is decreases
42.69 to 24.89.in 2008-09 the debts turnover Ratio is in increases 24.89 to 26.55. There for
the D.M.U is maintaining better sales but managing its debts collection is not efficiently.

Debtors Collection Period:

Debtors Collection Period is the time required to collect the outstanding amount from
the customers. It means the quality of debtors, since it indicates the speed of their collection.


Debtors Collection Period = No. of Days in a Year
Debtors Turnover Ratio



Table:-06
The Table Showing Debtors Collection Period
Year No. of Days in a Year D.T.R D.C.P

2004-05 365 31.10 12
2005-06 365 26.29 14
2006-07 365 42.69 9
2007-08 365 24.89 15
2008-09 365 26.55 14

Chart:-06
The Chart Showing Debtors Collection Period

15

10

Debtors Collection Period
5

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

Interpretation:
The Table 1 revels that the debts collection period of Dharwad Milk Union. In 2003-
04 to 2005-06 the debts collection period increasing trend. It indicates that the customers are
not made payment promptly. but in the year 2006-07 the debts collection period decreased to


9 days. It indicates that the customers had made the payment in time in the year. But in the
year 2007-08 again the collection period is increasing 9 to 15 days.but in the year 2008-09
the debts collection period decreased 15 days to 13 days. This continues it is effects to
liquidity position of the company.

Creditor’s Turnover Ratio:

This ratio shows the velocity of debt payment by the firm. It expresses the relationship
between creditors and purchase.

A low turnover ratio reflects liberal credit terms granted by suppliers, while a high ratio
shows that accounts are to be settled rapidly. The creditor’s turnover ratio is an important tool
of analysis as a firm can reduce its requirement of current assets by relying of supplier’s
credit.

It is ratio between net credit purchase & the average amount of creditors outstanding
during the year.

It is calculated by following formula:

Creditors Turnover Ratio = Net Purchase
Average Creditors



Table:-07
The Table Showing Creditors Turnover Ratio
Year Net Purchase Average Creditors Ratio

2004-05 30,37,70,823 84,52,411 35.93
2005-06 37,12,88,997 1,19,87,131 30.97
2006-07 34,09,07,386 1,25,74,396 27.11
2007-08 38,39,44,340 87,28,998 43.98
2008-09 422383354.32 5624981.38 75.09

Chart:-07
The Chart Showing Creditors Turnover Ratio

80
70
60
50
40 Creditors Turnover
30 ratio
20
10
0
2004-05 2005-06 2006-07 2007-08 2008-09

Interpretation:

It may be inferred from Table 7 there is ups & downs in the ratio of credit turnover. The
ratio is low in 2003-04 it indicates that the Dharwad Milk Union credit payment is not good


i.e 22.19. It is not good to point of liquidity position but in 2007-08 & 2008-09 the credit
payment of D.M.U is increasing i.e 43.98 & 75.09 respectively. it indicates that D.M.U has
paying credit properly.

Creditor’s Payment Period:

The Creditors Payment Period Ratio represents the average number of days taken by
the firm to pay the creditors.


Creditors Payment Period = No. of Days in a Year
Creditors Turnover Ratio



Table:-08
The Table Showing Creditors Payment Period
Year No. of Days in a Year C.T.R C.P.P

2004-05 365 35.93 10
2005-06 365 30.97 12
2006-07 365 27.11 13
2007-08 365 43.98 8
2008-09 365 75.09 5

Chart:-08
The Chart Showing Creditors Payment Period

15

10

5 Creditors Paym ent Period

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

Interpretation:

It may be found from Table 8 there is ups & downs in a credit payment period of
Dharwad Milk Union. In the year 2003-04 the credit payment period of D.M.U is high i.e 16
days. It indicates the company is not maintaining credit payment properly. But in the year
2007-08 & 2008-09 the credit payment period is low ie 8 days & 5 days. It indicates that the


D.M.U has taken less credit facility & paying the credit in time. It is good sign of company to
utilizing the credit facility properly.

Working Capital Turnover Ratio:

This ratio indicates whether the working capital has been properly utilized in making
sales or not. This ratio measures the efficiency with the working capital.

It is taken as one of the primary indicators of the short-term solvency of the business.
It establishes the relationship with the net sales. This ratio represents the number of times the
working capital is turned over in course of a year i.e. it measures the efficiency with which
the working capital is being used by the firm.


Working Capital Turnover Ratio = Cost of Goods Sold
Net Working Capital

Cost of Goods Sold = Sales – Gross Profit

Net Working Capital = Current Assets – Current Liabilities



Table:-09
The Table Showing Working Capital Turnover Ratio
Year Cost of Goods Sold Net Working Capital Ratio

2004-05 34,66,84,070 2,80,65,747 12.35
2005-06 44,63,21,775 2,76,04,367 16.16
2006-07 39,75,61,561 2,76,79,552 14.36
2007-08 44,09,36,818 4,09,83,960 10.75
2008-09 495708694.15 21387935.87 23.18

Chart:-09
The Chart Showing Working Capital Turnover Ratio

25

20

15
Working Capital Turnover
10 ratio

5

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

Interpretatio
The Table 9 depicts of Working capital turnover ratio is decreasing trend. In the
year 2003-04 & 2005-06 the ratio is high i.e 18.38 & 16.16 it shows the D.M.U is properly
utilized the working capital for making the sales. It reflects the working capital management


is efficient. But in the year 2007-08 the working capital turnover ratio is low compared the
first four years i.e 10.75. It indicates the D.M.U is not properly utilized the working capital. It
is not good to company; it affects the sales of the company.but in the year 2008-09 again
increased i.e 23.18.

Current Assets Turnover Ratio:

This ratio reveals the relationship between cost of goods sold and current assets. The
higher ratio, the better is the condition of a firm in utilizing its current assets.

The higher the ratio, the better is the firm in utilizing its current assets. The lower the
ratio indicates that investment in current assets has not brought commensurate gain to the
firm.


Current Assets Turnover Ratio = Total Sales
Current Assets



Table:-10
The Table Showing Current Assets Turnover Ratio
Year Total Sales Current Assets Ratio

2004-05 39,05,65,568 6,07,17,987 6.43
2005-06 48,90,14,708 7,11,81,059 6.87
2006-07 46,82,83,461 6,36,58,413 7.36
2007-08 51,18,17,364 9,25,79,781 5.53
2008-09 573720167.78 72128952.41 7.95

Chart:-10
The Chart Showing Current Assets Turnover Ratio

8

6

4 Current Assets
Turnover ratio
2

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

Interpretation:

The Table 10 shows that how the Dharwad Milk Union is utilized its Current Assets.
In the year 2003-04 to 2006-07 the ratio is increasing 6.05 to 7.36 it indicates that D.M.U is
utilizing its current assets more efficiently. It reflects the good current assets management.
But in the year 2007-08 the ratio is decreases 7.36 to 5.53. it indicates that the D.M.U is


decreasing its current assets utilization. There for the D.M.U is inefficiently manage its
current assets. But in the year 2008-09 the ratio is increases 5.53 to 7.95. it reflects the good
current assets management.

Gross Operating Cycle:

The time lag between the Purchase of Raw Materials & Collection of cash for sale is
Gross Operating Cycle. It refers to the sum of inventory period and debtor’s collection
period.


Gross Operating Cycle = Inventory Conversion Period + Debtors Collection Period



Table:-11
The Table Showing Gross Operating Cycle
Year I.C.P D.C.P G.O.C

2004-05 61 12 73
2005-06 42 14 56
2006-07 42 9 51
2007-08 45 15 60
2008-09 19.72 13.75 33

Chart:-11
The Chart Showing Gross Operating Cycle

80

60

40
Grass Operating Cycle
20

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

Interpretation:
The Table 11 revels that the Dharwad Milk Union is taking more days in 2004-05 i.e 73
days comparing to five years to convert the raw materials into finished products & the
collection of debts. In 2006-07 the D.M.U has taken less day’s i.e 51 days to inventory
conversion & debts collection. For seeing last five years the gross operating cycle of D.M.U


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