Financial Analysis of AMUL
Project Report on Financial Analysis of AMUL...
INTRODUCTION OF COMPANY India is a country connected with agricultural and cattle rearing from ancient time nearly more than 70 % on agriculture and cattle rearing. So dairy industry is the best suited forth growth of India.
The full form of AMUL is ANAND MILK UNION LIMITED that is the brand name of Kaira District Co-operative milk producers union Ltd. for its product range since 1955. AMUL is Asia‘s no. 1 and world‘s second number co-operative dairy. It has large market and dairy network in every state of India and across the India, like central Asian countries, Bangladesh, Thailand, Indonesia, Malaysia, Singapore, etc. It was started with 250 liters of milk and 2 societies and now, it produces 15 lakhs litters milk per day and has 1113 societies and more than 6 lakes farmer members. It produces milk and milk products. AMUL was started with little machinery and now all the production of AMUL are produced by latest and advanced Machineries. AMUL has completed 65nd year and entered in 66rd year on 14 December 2010.
It may be recalled that Amul had a humble beginning of two village dairy cooperative societies collecting 247 liters of milk in 1946 which has now grown to over14000 village dairy co-operative societies collecting more than 1 corer liters of milk per day. Similarly the tree plantation drive which had started with 18.9 lakhs sapling in 2007 has now grown into a mass tree plantation drive with plantation of 1 corer sapling in 2010 thereby leading the way for greening Gujarat for pestering-as per Amul‘s green revolution by Burhan pathan8 ―[20th august 2010 : Business Category: Times of India]‖
GLOBLE SCENARIO OF AMUL International market: USA, Nepal, South Africa, Kenya, Bhutan, Australia, Thailand, Bangladesh & gulf countries. Prospective markets: Russia, Japan, and Sri Lanka. Agreement with Wal-Mart: Wal-Mart agreed to sell Amul products on its shelves under brand Amul itself. Agreement with Glaxo: Glaxo & Amul will get together to produce baby food. Amul‘s growth rate in international market is around 34%. Based on milk processing handled by all players, the international farm comparison network, Germany, has ranked Amul 18th across the globe. GCMMF has registered compound annual growth rate (CAGR) of 23% during last four years. Amul is also being marketed in Hong Kong. Our export strategy is only to test market our branded products, but our real market is India. At all times our effort would be to remain market leaders in India and stave off competition, while testing our products globally," Vyas told IANS in an interview. The major supermarket and chain stores have been identified as the vehicle overseas to promote Amul dairy products ranging from milk powder, butter, ghee, cheese, butter, ice creams and tinned Indian sweets.
The figures could have been much higher but for shortage of milk supplies early last year leading to GCMMF dropping an export order to Iraq. R S Sodhi, Managing Director, Gujarat Cooperative Milk Marketing Federation (GCMMF) said that Amul's initiative of planting 8-9 million saplings by its 3 million members on a single day (August 15) in 15000 villages since last 4 years has been recognized by the consumers. The milk producers plant saplings on their own at preidentified locations like their farm, near their homes, on farm bunds etc. to help improve the forest cover. A total of 24 million saplings have been planted so far and another 10 million will be planted on August 15, 2011". The International Dairy Federation has also awarded Amul Green movement as the Best Environment Initiative in the "Sustainability category" in 2010. It has also been awarded Srishti's Good Green Governance Award for four consecutive years since 2007. The 2011 findings emphasize that brands must not only develop environmental strategies to address their environmental impact, but they must also connect with consumers in a compelling and relevant way on a market-by-market basis. Today, being only ecofriendly is not enough-brands should be both green and consumer-friendly, and only this can help them win big. The Amul model has demonstrated that it cares for the consumers, producers and also the environment on a sustainable basis.
HISTORY OF AMUL In the year 1946 the first milk union was established. This union was started with 250 liters of milk per day. In the year 1955 AMUL was established. In the year 1946 the union was known as KAIRA DISTRICT CO-OPERATIVE MILK PRODUCERS’UNION. This union selected the brand name AMUL in 1955. The brand name Amul means “AMULYA”. This word derived from the Sanskrit word “AMULYA” which means “PRICELESS”. A quality control expert in Anand had suggested the brand name ―AMUL‖. Amul products have been in use in millions of homes since 1946. Amul Butter, Amul Milk Powder, Amul Ghee, Amulspray, Amul Cheese, Amul Chocolates, Amul Shrikhand, Amul Ice cream, Nutramul, Amul Milk and Amulya have made Amul a leading food brand in India. (The total sale is Rs. 6 billion in 2005). Today Amul is a symbol of many things like of the high-quality products sold at reasonable prices, of the genesis of a vast co-operative network, of the triumph of indigenous technology, of the marketing savvy of a farmers' organization. And have a proven model for dairy development (Generally known as “ANAND PATTERN”). In the early 40‘s, the main sources of earning for the farmers of Kaira district were farming and selling of milk. That time there was high demand for milk in Bombay. The main supplier of the milk was Polson dairy limited, which was a privately owned company and held monopoly over the supply of milk at Bombay from the Kaira district. This system leads to exploitation of poor and illiterates‘ farmers by the private traders. The traders used to beside the prices of milk and the farmers were forced to accept it without uttering a single word. However, when the exploitation became intolerable, the farmers were frustrated. They collectively appealed to Sardar Vallabhbhai Patel, who was a leading activist in the freedom movement. Sardar Patel advised the farmers to sell the milk on their own by establishing a co-operative union, Instead of supplying milk to private traders. Sardar Patel sent the farmers to Shri Morarji Desai in order to gain his co-operation and help. Shri Desai held a meeting at Samarkha village near Anand, on 4th January 1946. He advised the farmers to form a society for collection of the milk.
These village societies would collect the milk themselves and would decide the prices at which they can sell the milk. The district union was also form to collect the milk from such village co-operative societies and to sell them. It was also resolved that the Government should be asked to buy milk from the union. However, the govt. did not seem to help farmers by any means. It gave the negative response by turning down the demand for the milk. To respond to this action of govt., the farmers of Kaira district went on a milk strike. For 15 whole days not a single drop of milk was sold to the traders. As a result the Bombay milk scheme was severely affected. The milk commissioner of Bombay then visited Anand to assess the situation. Having seemed the condition, he decided to fulfill the farmers demand. Thus their cooperative unions were forced at the village and district level to collect and sell milk on a cooperative basis, without the intervention of Government. Mr. Verghese Kurien showed main interest in establishing union who was supported by Shri Tribhuvandas Patel who lead the farmers in forming the Co-operative unions at the village level. The Kaira district milk producers union was thus established in ANAND and was registered formally on 14th December 1946. Since farmers sold all the milk in Anand through a co-operative union, it was commonly resolved to sell the milk under the brand name AMUL. At the initial stage only 250 liters of milk was collected every day. But with the growing awareness of the benefits of the cooperativeness, the collection of milk increased. Today Amul collect 11 lakhs liters of milk every day. Since milk was a perishable commodity it becomes difficult to preserve milk flora longer period. Besides when the milk was to be collected from the far places, there was a fear of spoiling of milk. To overcome this problem the union thought out to develop the chilling unit at various junctions, which would 5
collect the milk and could chill it, so as to preserve it for a longer period. Thus, today Amul has more than 150 chilling centers in various villages. Milk is collected from almost 1163 societies. With the financial help from UNICEF, assistance from the govt. of New Zealand under the Colombo plan, of Rs. 50 millions for factory to manufacture milk powder and butter was planned. Dr.Rajendra Prasad, the president of India laid the foundation on November 15, 1954. Shri Pandit Jawaharlal Nehru, the prime minister of India declared it open at Amul dairy on November 20, 1955.
MOTTO, VISION, AND QUALITY POLICY MOTTO:
The main motto of AMUL is to help farmers. Farmers were the foundation stone of AMUL. The system works only for farmers and for consumers, not for profit. The main aim of AMUL is to provide quality products to the consumers at minimum cost. The goal of AMUL is to provide maximum profit in terms of money to the farmers. The main Motto of Amul is to help farmer. Amul system works under objective of highest possible price to the milk producers and lowest possible price to consumer. Farmers are paid money in cash payment for the milk. Milk gives them money for daily necessities. Amul is the one who started using their profit for the milk producer common good.
Vision of AMUL is to provide and vanish the problems of farmers (milk producers). The AMUL apparition was to run the organization with the co-operation of four main parties, the farmers, the representatives, the marketers, and the consumers.
We the motivated and devoted work force of AMUL are committed to produce whole some and safe foods of excellent quality to remain market leader through deployment of quality management system, state-of-art technology innovation and ecofriendly operation delightment of customer and betterment of milk producers.
ORGANIZATION PROFILE NAME:
KAIRA DISTRICT CO-OPERATIVE MILK PRODUCERS UNION LIMITED widely known as AMUL.
Co-Operative sector registered under the co-operative Society Act.
Kaira District Co-Operative Milk Producers Ltd, Nr. Railway station Amul Dairy Road, Anand-388001 Gujarat.
14TH December 1946.
Kaira District Co-Operative Milk Producer Union Ltd. Anand 388001
Gujarat Co-operation Milk Marketing Federation, Anand.
ISO 9001:2000 ISO 2000:2005
On Large scale basis.
(1) SHRI TRIBHOVAN DAS PATEL (2) SHRI MORARJI DESAI (3) SHRI VALLABH BHAI PATEL (4) Dr. VARGHESE KURIEN (5) Dr. H.M.DALAYA.
1.Kaira District Co- Operative Bank. 2. Axis Bank 3. State Bank of India 4. Bank of Maharashtra 5. Corporation Bank 6. Bank of Baroda 7. Bank of Saurastra 8
Special Auditor (Milk), Milk Audit Office Anand
B. B. Bhabhor.
1st shift time: 08:30 A.M to 04:30 P.M
2nd shift time:
10:00 A.M to 06:00 P.M
3rd shift time:
04:30 P.M to 12:30 A.M
VILLAGE COOPERATIVE SOCIETIES:
10:00A.M TO 6:00P.M
BOARD OF DIRECTORS SHRI. RAMSINH PRABHATSINH PARMAR
SHRI. RAJENDRASINH DHIRSINH PARMAR
SHRI. BHAIJIBHAI AMARSINGH ZALA
SHRI. RAVJIBHAI TULSIBHAI PATEL
SMT. MADHUBEN DHARMSINGH PARMAR
SMT. SHARDABEN HARIBHAI PATEL
SHRI. GHELABHAI MANSINH ZALA
SHRI. PRAVINSINH FULSINH SOLANKI
SHRI. MANSINH KOHYABHAI CHAUHAN
SHRI. SHIVABHAI MAHIJIBHAI PARMAR
SHRI. RANJITBHAI KANTIBHAI PATEL
SHRI. CHANDUBHAI MADHABHAI PARMAR
SHRI. B. B. BHABHOR
LOGO OF THE AMUL
Logo of AMUL is a ring of four hands, which are co-coordinated each other. The actual meaning of this symbol is co-ordination of hand of different people by whom this union is now at top.
FIRST HAND: Is for farmers (producers), without whom the organization would not be existed. Farmers are the inspiration of the AMUL-taste of India.
SECOND HAND: Is for the representatives of processors by whom the raw milk processed in to different finished products.
THIRD HAND: Is for marketers without whom the products would not been able to reach to the customers.
FOURTH HAND: Is for customers without whom the organization could not carry on because they are the people who consume the products. 12
PLANT OF AMUL AMUL PLANT
Milk, butter, ghee, milk powder, flavored milk and Buttermilk
Chocolates, nutramul, Amul Ganthia and Amullite
Milk and Curd
Milk, Flavored Milk, Ice-cream
PRODUCT PROFILE The amul two type of product for the selling purpose. The first one is consumer product and other one is an industrial product. Pasteurized milk
Amul milk powder
Amul baby food
Amul baby food
Amul cattle feed
Amul masti dahi (dahi)
Amul ice-cream 13
Amul flavored milk
Amul fresh cream
INDUSTRIAL PRODUCT: Coco butter Cream Coco powder
Product profile: MILK DRINK:
Amul Kool Milk Shaake Kool Koko
Amul Kool Cafe
Amul Kool Chocolate Milk
Amul Masti Spiced Buttermilk
Amul Kool Thandai
Nutramul Energy Drink
Amul Spray Infant Milk Food
Sagar Skimmed Milk Powder
Amul Instant Full Cream Milk Powder
Amul Shakti Health Food Drink Nutramul
Amul Pasteurised Processed Cheese
Amul Emmental Cheese
Amul Cheese Spreads
Amul Pizza Mozzarella
Amul / Sagar Pure Ghee
Amul Malai Paneer
Utterly Delicious Pizza
Mithai Mate MastiDahi
Amul Ice Creams
Amul Mithaee Gulab Amul Basundi
Amul Fresh Cream
Amul Taaza Double Toned milk
Amul Fresh Milk
Amul Fresh Cream
Amul Gold Milk
Amul Lite Slim and Trim Milk
GUJARAT CO-OPERATION MILK MARKETING FEDERATION Gujarat co-operation milk marketing federation (GCMMF) is India‘s largest food products marketing organization. GCMMF is performed all the marketing activity foamed. GCMMF was established in 1972 by Dr. Varghese Kurien. Till 1965 Amul marketed but due to progress & increasing demand many problems emerged. It was necessary to create separate department. It is state level apex body of milk co-operative in Gujarat which aims to provide remunerative returns to the farmers & also serve the interests of consumer by providing quality products which are good value for money. Members
:12 district co-operative milk producers‘ union
No. of producer members
No. of village societies
Total milk handling capacity
:15 lack liters per day
: 2.08 billion liters
Milk collection daily average
: 15 lack kgs
Milk drying capacity
: 100 metric tonnes per day
: 1100 mts per day.
Cattle feed manufacturing
SWOT ANALYSIS A] STRENGTH: CO-OPERATIVE CULTURE: All the co-operatives are work together to accomplish a particular task. BRAND STRENGTH: The strong brand equity of AMUL, which made it possible to become a market leader in milk and milk products. PRODUCT INNOVATION: Under its umbrella brand AMUL has added a wide range of milk products like- cheese, butter, Srikhand, flavored milk, Ice-Cream, Chocolate, Sugar-free Chocolate, Probiotic Ice-Cream etc. Recently AMUL launched Pizza and milkshakes. EXCELLENT PROMOTIONAL TOOLS: AMUL is promoting with the help of advertisement, personal selling, sale promotion etc. AMUL generally use hoarding for its promotion. Recently, AMUL is also sponsoring Star Channel for its programmed star Voice of India.
B] WEAKNESSES: Co-operative culture if not dealt properly can affect the organization. Animals are now taken as side business. This can affect the industry as the main raw material is milk which is provided by animals.
C] OPPORTUNITIES: AMUL is exporting its products in different countries like UAE, Singapore, Australia, U.S.A. and Gulf Countries. Being, Asia‘s largest milk brand AMUL has acquired significant position in the global market. Day by day increase in the collection of the milk, AMUL has wide opportunity to produce variety of products like Choco Flakes. Large demand in the market.
D] THREATS: With the advent of multinational companies in India the competition has intensified. Amul is facing a tough competition with the companies like Cadbury, Nestle, and Britannia etc. In the health drink segment for its ‗Stamina‘ Amul is facing competition with PepsiCo India, Parle Agro etc. Similarly in beverage section also it is having a lot of competitors. Animals are now taken as side business by the farmers. Their illiteracy poses a threat to change their mindset thereby affecting the organization.
Changes in government policies.
FINANCE MANAGEMENT Management of funds is a critical aspect of financial management. Management of funds acts as the foremost concern whether it is in a business undertaking or in an education institution. Financial management, which is simply meant dealing with management of money matters.
Financial management is that managerial activity which is concerned with the planning & controlling of the firm financial resources.
All the other departments of the organization strongly depend upon the finance department to carry on their departmental activity efficiently. Hence it is the responsibility of the finance functions with proper care, adequate financial availability in time in the organization would lead to organization success & the failure manager finance will lead to in efficiency.
Financial management was considered a branch of knowledge with focus on the procurement of funds. Instruments of financing, formation, merger & restricting of firms, legal & institutional frame work invaded therein occupied the prime place in this traditional approach.
ORGANIZATION STRUCTURE OF FINANCE DEPARTMENT Managing director
Assistant General Manager
OBJECTIVE OF FINANCIAL MANAGEMENT Efficient financial management requires the existence of some objectives, which are as follows: Profit maximization:
The objective of financial management is the same as the objective of a company which is to earn profit. But profit maximization alone cannot be the sole objective of a company. It is a limited objective. If profits are given undue important then problems may arise as discussed below: The term profit is vague & it involves much more contradictions. Profit maximization must be attempted with a realization of risks involved. A positive relationship exists between risk & profits. So both risk & profit objectives should be balanced. Profit maximization fails to take into account the time pattern of returns. Profit maximization does not take into account the social consideration. Wealth maximization:
It is commonly understood that the objective of a firm is to maximize value of a firm is represented by the market price of the company‘s stock. The market price of a firm‘s stock represents the assessment of all market particular firms. It takes into account present & prospective future earnings per share, the timing & risk of these earnings, the dividend policy of the firm & many other factors that bear upon the market price of the stock. Market price acts as the performance index or report card of the firm‘s progress & potential.
PROCESS: In Financial Management, process following points is considered: Financial Analysis Financial Decision-Making Financial Planning Financial Control Finance department is that managerial activity concerned with the planning and controlling of the firm‘s financial resources. Among all the 5Ms, i.e. man, money, machine, material, and market, money plays a vital role in the organization. Finance is the lifeblood for the success of an organization. For the organization to grow and develop on an even basis, availability of finance on adequate basis is the prime requirement. FINANCE FUNCTION: The financial management involves critical decisions on which the very survival of the organization depends. The main financial decisions are as follows: Investment Decision Financing Decision Dividend Decision Financial decisions are thus very crucial and important decisions for the firm. The main function of finance department is to tackle the day-to-day financial requirement and other short term and long-term expenses, which an organization might quite often incur. All the other departments of the organization strongly depend upon the finance department to carry on their departmental activity efficiently. Hence, it is the responsibility of the finance manger to manage the finance function with proper care. Timely availability of finance in the organization would lead to organizational success and the failure to do accurately manage finance will lead to inefficiency.
IMPORTANCE: Proper finance is the real key to the success of any business enterprise. Without proper finance, a business can neither survive nor expand and modernize. It is the finance, which works like a lubricant, which keeps the organization dynamics running smoothly and efficiently. The following are the points, which highlight the importance of finance: Finance for business promotion Finance management for optimum use of the firm Useful in decision-making Determinant of business success Measurement of performance Basis of planning, co-operation and control Useful to shareholders and investors SOURCE OF CAPITAL: Source of Capital of AMUL are: All the products are sold and distributed by Gujarat Co-operative milk marketing federation (GCMMF). So federation gives them daily amount decided by union if selling of Amul products will be happened or not. Fix deposit of society is the major source of finance. Interest of fix deposit of bank like UTI, BOB, GEB Bond and Sardar Sarovar Bond etc. are one of the sources of finance. Share capital of Amul, which is not listed in market because it is not for public. It is only for the members of societies.
ACCOUNTING POLICIES: METHOD OF ACCOUNTING: 1) The union follows accrual system of accounting in the preparation of accounts. 2) The financial statements are prepared on the historical cost convention and in accordance with the generally accepted accounting principles. 25
Fixed assets are valued at cost. The cost of assets comprises purchase price and any directly attributable cost in bringing the assets to its present condition or intended use. DEPRECIATION:
Depreciation on fixed assets is provided on Written down Value Method at the applicable rates prescribed under the Income Tax Act, 1961. In the case of AMUL 3 Dairy and KHATRAJ Dairy depreciation has been charged on straight line method as per the rates prescribed under the companies Act, 1956. Depreciation has been provided for the full year for the assets acquired and commissioned by 30th September 2007 otherwise for the half year if commissioned between 1st October 2007 and 31st March 2008 where grant has been received against any assets, the depreciation on the grant portion has been adjusted against the grant (except AMUL 1 & 2 Assets). INVENTORIES:
1) Raw materials, packing materials, semi packed goods and goods in transit are valued at cost on FIFO basis. 2) Stores and Spares are valued at cost on FIFO basis. 3) Finished goods in case of Anand, KANJARI, MOGAR and KHATRAJ are valued at the Ex-factory price less 5% that is fair estimation of the direct Costs. 4) Excise duty is applicable on finished goods stock has been included in the valuation of finished goods. INVESTMENTS:
Investments are primarily meant to be held over a long term period as such are stated at cost. 26
RETIREMENT BENEFITS: Union‘s contribution towards Gratuity and Superannuating for its employees is funded with Life Insurance Corporation of India. Leave encashment is accounted for as and when due for payment. PYMENT OF BONUS:
Provision has been made for bonus due for the year 2007-08 which will be payable to employees in 2008-09. EXCISE DUTY:
The provision has been made for the excise duty applicable on the finished goods stock in the excise expense.
LITERATURE REVIEW Important study was conducted by Sorter and Becker (1964)1. They found that conservative corporations maintain higher liquidity and solvency ratios. This research would also prove to be a valuable addition to the empirical base of ratio analysis.
The other important development since the mid‐1960 is the beginning of a period of more rigorous scrutiny of the nature of financial ratios as such. First, the effects on ratios of different accounting practices were examined. George C. Holdren (1964)2 found that different types of Inventory valuation procedures changed inventory turnover ratios. Another important development in managerial usage of ratios occurred at about the same time. The DuPont Company began the most important comprehensive managerial usage of ratios such as profits/total assets, profits/sales and sales/total assets. This held promise for serving as the basis for a framework where ratios could be developed in a logical fashion. However, it went unnoticed until recent times. There is a significant overlap in the development paths of ratio analysis for creditor‘s purpose and managerial purposes. Credit analysis focused on the ability to pay and managerial analysis emphasized profitability. The development of ratio‘s for use in credit analysis dominated the general development of ratio‘s analysis, so one must look primarily to credit analysis to understand the evolution of ratio analysis. (2011)
An alternative view of accrual accounting is often express in the business process as illustrated in the institutional investor [Aug 1988, page no. 55] ―a growing number of portfolio managers & analyst insist that cash flow is a more meaningful measure of a company‘s value than reported earnings.
Sur & Rakshit (2005)5 conducted a study regarding the linkage between asset management and profitability in 25 selected companies in Indian industries. The study registered both positive and negative association between receivable turnover and profitability. However, L the combined provision weak evidence of an inverse association between the profitability and inventory turnover.
Vishanani and Shah (2007)6 have studied the impact of working capital management policies on corporate performance of Indian consumer electronic industry by implementing simple correlation and regression models. They have found that there is no established relationship between liquidity and profitability for the industry as a whole; but various companies of the industry depict different types of relationship between liquidity and profitability. However, majority of the companies revealed positive association between liquidity and profitability. ―Sachiko Corporation: A case in International Financial Statement Analysis.‖ By,Mahindra R Gujarathi (2008). The author does a comparative study within an International context. Upon reviewing the financial statements and relevant foot‐notes of Sachiko corporation, a Japanese Company, and U.S.‐ based Radiance Inc., the author has used financial ratio analysis to compare and evaluate whether the revised ratio‘s are consistent with each company‘s strategy and business environment and subsequently, to recommend the better investment prospect. The article is useful for us to examine the role of environmental differences (cultural, institutional, business and financial reporting) in interpreting the risk and profitability ratios in an international context.‖
OBJECTIVES OF STUDY Primary objective:
The objective of financial statement is to know information about the financial position, performance & cash flows of an enterprise with the help of analytical tools. Secondary objectives: Based on this information, objective of analysing them is to evaluate: 1) The adequacy of the profits earned by the company 2) The adequacy of its financial strength 3) Its ability to generate enough cash & cash equivalents, timing & certainly of their Generation. 4) The future growth outlook of the company. 5) To know the financial performance evaluation of AMUL 6) To give suggestion on the basis of Liquidity, Profitability, Efficiency and Leverage analysis 7) To know the Market Position AMUL by taking Market Value Ratios 8) To know the trade off between Liquidity & Profitability. Objectives of trend analysis: 1) To find out the general pattern of a relationship between associated factors or variables. 2) To forecast the future direction of this pattern (for instance sales figure). Objectives of horizontal analysis: 1) To compare the figures of the current period with that of the past period. 2) To analyze the performance and find out areas of improvement.
Objectives of cash flow statement analysis: 1) To assess the quality of cash position of a company 2) To generate positive cash flows in future & aid to decision making 3) To know the impact of controversy on the treatments of dividend & interest paid on the assessment of cash flows. Objectives of ratio analysis: 1) To compare the actual ratios with the budgeted ratios. 2) To find out deviation in targeted and achieved results. 3) It helps in planning the future activities. 4) Comparison with Competitor Company helps in developing competitive strategy. 5) Comparison with Industry ratio, give picture about company‘s growth.
RESEARCH METHODOLOGY HYPOTHESIS TESTING: Since the objective of this study is to examine the relationship between Profitability & Liquidity, the study makes a Financial Performance through testable hypothesis. Hypothesis: H0: There is no positive relationship between the Liquidity & Profitability of AMUL. H1: There is positive relationship between the Liquidity & Profitability of AMUL.
SAMPLE & DATA: For trend analysis data has been taken from 2007-08 to 2011-12 that is six years data. For Horizontal analysis data has been taken from 2010-11 to 201-12 that is two years data. For cash flow statement analysis data has been taken from 2010-11 to 2011-12 that is two years data.
For Ratio analysis data has been taken from 2009-10 to 2011-12 that is ten years data.
DETAIL OF STUDY: Financial statement analysis seeks to evaluate the performance, financial strength, ability to generate enough cash & the growth outlook of a company. It determining the money needs in a business can be a tough task. The analyses of the accounts and the economic prospects of a firm require skilled and experienced professionals to carry out the task. But the returns are as beneficial and profitable as much as the effort involved.
Financial analysis is the process of identifying the financial strength & weaknesses of the firm by properly establishing relationship between the items of the balance sheet & profit & loss account. Financial analysis is the starting point for the making plans, before 32
using any sophisticated forecasting & planning procedures. A number of tools are available in the tool kit of the analyst for the purpose certain tools are: 1) Trend analysis 2) Horizontal analysis 3) Cash flow statement analysis 4) Ratio analysis
Trend analysis Trend analysis is an extension of horizontal analysis in that while the latter compares only two years‘ position, the former the same for more than two years. Again the methodology is very simple. The farther or the base year figure is taken as 100 or just 1 & all successive years‘ figures are accordingly restated, or indexed.
When to use: Trend analysis is valuable when one wants to use historical data to predict future values or to calculate expected values for comparison to actual current values. Trend analysis is also useful for identifying unexpected variances that may indicate strategic or operational changes or entity weaknesses worthy of additional exploration and analysis.
Advantages: Trend analysis can: 1) Reveal potentially fruitful areas of audit investigation 2) Detect significant variations over time 3) Be easily understood and communicated 4) Be readily accepted due to its widespread use
Horizontal analysis: Horizontal analysis is very simple tool. It facilitates a quick review of the current year‘s performance & financial position of a business over the previous year. The methodology is to work out increase or decrease in each item of the balance sheet & profit & loss account of the current year over those of the last year & to express this as a percentage of the last year‘s figure. The horizontal analysis is the financial statements of a company of successive years presented side-by-side. Advantages: 1) The first column gives the difference between the past period and the current period, while the percentage column shows what percentage of the past figure is the figure denoting the change. 2) It places the facts very simply in front of the shareholder and makes the job of analyzing the improvements or the lack of it very simple for the shareholder.
Cash flow statement analysis: An analysis of cash flow is useful for short-term planning and controlling. A firm needs sufficient cash to pay debts maturing in the near future, to pay interest and other expenses as well as to pay dividends to the shareholders. The firm can make projections of cash inflows and outflows for the near future to determine the availability of cash. This cash balance can be matched with the firm‘s need for cash during the period, and accordingly, arrangements can be made to meet the deficit or invest the surplus cash temporarily. Thus, a historical analysis of cash flow projections for the immediate future is very much necessary for the smooth and proper running of the firm. A cash flow statement is nothing but a statement of changes occurring in financial position of a company on basis of cash. It summarizes the causes of changes in cash position between dates of the two balance sheets. It also indicates the sources and uses of cash. The cash flow statement is similar to the funds flow statement except that it focuses attention on the cash instead of working capital or funds. Thus, this statement analysis changes in non current accounts as well as current accounts to determine the flow of cash. 34
Structure of the Cash flow statement: The cash flow statement is distinct from the income statement and balance sheet because it does not include the amount of future incoming and outgoing cash that has been recorded on credit. Therefore, cash is not the same as net income, which, on the income statement and balance sheet, includes cash sales and sales made on credit. Cash flow is determined by looking at three components by which cash enters and leaves a company - Core operations, investing and Financing. A] Cash from Operations: Cash from operations is cash generated from day-to-day business operations. B] Cash from Investments: Cash from investments is cash used for investing in assets, as well as the proceeds from the sale of other businesses, equipment or other long-term assets. C] Cash from Financing: Cash from financing is cash paid or received from issuing and borrowing of funds. This section also includes dividends paid (though sometimes such a thing is listed under cash from operations). Advantages: It is very useful in the evaluation of cash position of the firm. 1) A projected cash flow statement can be prepared in order to know the future cash position of the firm to plan and coordinate its financial operations properly. 2) A comparison of historical and projected cash flow statements can be done to find out various deficiencies and take immediate and effective action. 3) Cash flow statement helps in planning the repayments of loans, replacement of fixed assets and other similar long-term planning of cash. 4) A series of cash flow statements reveals whether the firm‘s liquidity is improving or deteriorating over a period of time and in comparison to other firms in the same industry or in a different industry. 5) It is useful for capital budgeting decisions and explains causes for poor cash positions.
Ratio analysis: The most important task of a financial manager is to interpret the financial information in such a manner, that it can be well understood by the people, who are not well versed in financial information figures. The technique, by which it is to be calculated, is known as ‗Ratio Analysis‘. 1) Percentage 2) Rate 3) Proportion Ratio Analysis is an important technique of financial analysis. It depicts the efficiency or shortfall of the organization in the form of trend Analysis. Different ratio appeal to different people managements, having the task of running business efficiency, will interest in all ratios. A Supplier of goods on credit will be partially interested in liquidity ratios, which indicate the ability of the business to pay its bills. Existing and future shareholders will indicate
The ability of business to purchase. Existing and future shareholders will interest in investment ratios, which indicate the level of return that can be expected on an investment in business. Major customers, intent on having a continuing source of supply, will be interested in the financial stability, as reveled by the capital structure, liquidity and profitability ratios. Debenture and loan stock holders will be interested in ability of a business will be interested in the ability of a business to pay interest, and ultimately to repay capital. A banker, gibing only short-term loans, will be interested mainly in the liquidity of the business, and its ability to repay those loans. STEPS IN RATIO ANALYSIS: 1) Collection of information, which are relevant from the financial statements and then to Calculate different ratios accordingly. 2) Comparison of computed ratios of the same organization or with the industry ratios. 3) Interpretation, drawing of the inference and report-writing. Advantages: 1) Inter-firm comparison, because absolute figure comparison will lead to nowhere. 2) Intra-firm comparison for the same reason. 36
3) Comparison against industry benchmarks. 4) Analysis of chronological performance over a long period. 5) Cannot depend on only one ratio
ANALYTICAL RESULTS A] TREND ANALYSIS: Particular
RESULT FOR THE YEAR: Sales & other Income
QUNTITATIVE DETAILS: Sales
POSITION AT THE YEAR END Gross block Index Net Block Index Net current assets Index Net worth
Index Share Capital
Index Reserve & surplus Book value
Chart for Result for the year is as below:
sales & other income
1.37 1.34 1.28
2.28 2.24 1.96
1.92 1.77 1.57
INTERPRITATION: Consistent rise in sales that shows overall growth in sales of their products in dairy Consumption. PBDT always growth higher than on sales, on the all the year for the compare current year, but PBDT lower than PAT on the year 2009-10, or current year shows heavy pressure on margin on the both PBDT and PAT. PAT on 2008-09 lower than 2009-10, but 2010-11 higher than 2011-12.
Chart for Quantitative Details is as below:
Consistent rise in sales that shows overall growth in sales.
It shows positive volume – value growth in all the years. There is a no pressure on margins.
Chart for Position at year end is as below: 3 2.5
2.29 2 1.68 1.5
1.12 1.06 1.03
gross block net block net current assets
Interpretation: Growth in gross block & sales neck to neck that shows high fixed assets efficiency & its utilization of uses are more. Net current asset shot up to year 2008-09 but increasing compared 2009-10 and further made compared to 2009-10 decreasing & raising current year 1.68 compared to based year. Growth in net worth is neck to neck that shows high leverage & high dividend Distribution around 75% to their consistent farmers
B] HORIZONTAL ANALYSIS: Table for Profit & Loss Horizontal Analysis is as below: Particulars
Gross Sales less: Excise duty Net Sales
Add: Closing Stock
less: Material Cost:
less: Manufacturing Expenses: Research & Extension
17835.68 Gross Profit
less: Factory Expenses: Power & Fuel Expenses
Salaries & Wages
Staff Provident Fund, Gratuity Repair & Maintenance Expenses Freight & Forwarding Expenses
less: Administrative, Selling & Distribution Expenses: Postage & Telegram Expenses Insurance Premium Audit Fess Rent, Rate & Taxes Administrative Expenses Marketing Expenses
Add: Operating Income: Interest Income
Prior Period Income PBDIT
less: Interest EBT less: Tax Provision PAT
less: Other Provision: Bed-Debt Provision Leave Encashment Provision Provision For Gratuity Prior Period Expenses Net Profit
C) Table For Balance Sheet Horizontal Analysis Is As Below: Increase/Decrease particular
SOURCES OF FUNDS Shareholders' Funds: Capital Reserve & Surplus
Loan Funds: Secured Loans Unsecured Loans
APPLICATION OF FUNDS Fixed Assets: Gross Block
Depreciation Net Block Capital Work-
Current Assets, Loan & Advances Advances & Debt
Cash & Bank
less: Current Liabilities & Provisions: Current Liabilities
Liabilities Net Current Assets Deferred Revenue Expenses
D] CASH FLOW STATEMENT ANALYSIS: Table For cash flow statement Analysis is as below:
(Amt in lac)
(Amt in lac)
Change in %
Operating activity Net Profit before tax & extra-ordinary items
Adjustments for: Non-cash & non-operating activities Depreciation
provision for gratuity
Profit on sale of Assets
Provision For Income Tax
Provision For Leave Encashment
Decrease in Deferred Revenue Expenditure
Operating Profit before Working Capital Changes
Add: Increase in Current Liabilities & Decrease in Current Asset (less): Decrease in Current Liabilities & Increase in Current Asset Increase/decrease in stock
Increase in advance and
debtors ( excluding income
Direct tax paid (net refund )
tax deposit) Increase in current liability Cash generated from
Net cash flow from operating activities
CASH FLOW FROM INVESTING ACTIVITIES: Plus: increase in liability and decrease in assets (less) decrease in liability and increase in assets
Purchase of Fixed Assets
Sales of Assets Increase in Capital Work in Progress Increase in Investment
(b) Net Cash flow from Investing activities
CASH FLOW FROM FINANCING ACTIVITIES: Plus: increase in liability and decrease in assets (less) decrease in liability and increase in assets Increase in Share Capital
Increase in BMC Project loan -
Increase in fixed deposit
Decrease in NCDC BMC Project loan
Decrease in HDFC bank short term loan Increase long term loan Repayment of long term loan
Contribution to charity fund Contribution to bad debt reserve fund
Contribution to education fund
interest paid Decrease in redeemable debenture
(c) Net Cash Flow Financing Activities
Net increase/(decrease) in cash & cash equivalents [A+B+C]
Add: Opening cash & cash equivalents as at 01/04/2011
Closing cash & cash equivalents (as on 31-32012)
Actual Closing cash & cash equivalents
E] RATIO ANALYSIS: The most important task of a financial manager is to interpret the financial information in such a manner, that it can be well understood by the people, who are not well versed in financial information figures. The technique, by which it is to be calculated, is known as ‗Ratio Analysis‘. 1) Percentage
Ratio Analysis is an important technique of financial analysis. It depicts the efficiency or shortfall of the organization in the form of trend Analysis. Different ratio appeal to different people managements, having the task of running business efficiency, will interest in all ratios. A ratio analysis is powerful tools of financial analyses. A ratio is defined as ―the indicted quotient of two mathematical expressions‖ and as ―the relationship between two or more things‖. In financial analyses, a ratio is used as benchmark for evaluating the financial position and performance of the firm.
Types of Ratios: Liquidity Ratios Leverage Ratios Activity Ratios Profitability Ratios Equity Ratios
1 Liquidity Ratios Liquidity ratios measure the firm‘s ability to make current obligations. The most common ratios which indicate the extent of liquidity or lack of it are, Current Ratio Quick Ratio Liquid Ratio 2 Leverage Ratios Leverage ratio shows the proportions of debt and equity in financing the firm‘s assets. The short term creditors like bankers and suppliers of raw materials are more concerned with the firm‘s the current debts paying ability. The leverage ratios are as Debt ratio Debt equity Ratio
3. Profitability ratios Profitability measure overall performance and effectiveness of the firm. They are as:
Gross Profit ratio Net Profit ratio Operating ratio Operating Exp. ratio
4 Activity Ratios Activity ratio is employed to evaluate the efficiency with which the firm‘s manages and utilizes its assets. This ratio is also called turnover ratio assets because they indicate the speed with which assets are being converted or turn over in to sales. The activity ratios are as
Assets turn over Net turn over Inventory turnover Debtor‘s turnover Collection Period Creditor turnover Payment Period Profitability Ratio 52
5 Equity Ratios
Dividend per share Earnings per share Book value per share Payout ratio Dividend yield ratio Earning yield ratio
Importance of ratio analysis The ratio analyses are the most important tool of the analyses. The various groups of people having different investors are interested in analyzing the financial information. The importance of the ratio can be summarized for the various groups vested with diversified interest as follow
For short term creditors For long term creditors For management For Investor
Steps in ratio analysis
Collection of information, which are relevant from the financial statements and then to calculate different ratios accordingly.
Comparison of computed ratios of the same organization or with the industry ratios.
Interpretation, drawing of the inference and report-writing
Limitation of the ratio analysis The major limitation of the ratio analyses are summarized as follows Only quantities analysis and not qualitative analyses Historical analyses Only symptoms not cure
Ratio analysis at amul: 1) Liquid Ratio: a) Current Ratio:
Current ratio is calculated by dividing current assets by current liabilities. Current assets include cash and those assets that can be converted into cash within a year, such as marketable securities, debtors and inventories. Current liabilities include creditors, bills payable, accrued expenses, short-term bank loan, income tax liability and long term debt maturing in the current year. The current ratio is a measure of the firm‘s short-term solvency. It indicates the availability of current assets in rupees for every one rupee of current liability. A ratio is greater than one means that the firm has more current assets than current claims against them.
Current Ratio =
Current Assent Current Liability
Current Assent Current Liability Result
2009-2010 40524.27 30422.64 1.33
2010-2011 37290.61 34862.69 1.069
2011-2012 48815.85 42823.93 1.1399
Current ratio 1.33
1 Current ratio 0.5 0 2009-10
INTERPRETATION: A current ratio of 2:1 considered to be a satisfactory ratio. On the basis of these traditional rules, if the current ratio is 2 or more, it means that the firms is adequately liquid and has the ability to meet its currents obligation but if the current ratio is less than 2 it means that the firm has difficulty in meeting in its current obligations. Higher the ratio, greater the margin of safety for short term creditors and vice a versa In the Amul, the current ratio of the year 2009-10 is 1.332, 2010-11 is 1.069 and 201112 is 1.1399. The ratio is Decreasing 2010-11 then increasing in 2011-12 in every financial year but it is less than the ideal ratio.
B) Liquid Ratio Liquidity Ratio is a relationship of liquid assets with current liabilities and is computed to assess the short- term liquidity of the enterprise in its correct form. A variant of current ratio is the liquid ratio which is designed to show the amount of cash available to meet immediate payment. If the liquid assets are equal to or more than liquid liability the condition may be considered as satisfactory. Liquid Ratio = Liquid Assets / Liquid Liabilities Liquid Assets = Current Assets – Stock Liabilities = Current Liabilities
Particular Liquid Assent Liquid Liability result
Liquid Ratio =
Liquid Assent Liquid Liability
2009-10 22138.47 30422.64 0.728
2010-11 20828.23 34862.89 0.597
2011-12 23091.99 42823.93 0.539
Liquid Ratio 0.728 0.8
0.2 0 2009-10
INTERPRETATION: For satisfactory position Liquid ratio is 1:1. In the Amul, the Liquid ratio of the year 2009-10 is 0.728, 2010-11 is 0.597and 2011-12 is 0.539 in every financial year but it is less than the ideal ratio.
c) Quick Ratio: Quick ratio, also called Acid test ratio, establishes a relationship between quick or liquid assets and current liabilities. An asset is liquid if it can be converted into cash immediately or reasonably soon without a loss of value.
Quick Ratio = quick Assent Liquid Liability
Quick Assent Liquid Liability result
2009-10 7952.09 30422.64 0.261
2010-11 14484.14 34862.69 0.415
2011-12 4205.59 42823.93 0.098
Quick Ratio 0.5
INTERPRETATION: A quick ratio of 1:1 is usually considered favorable, since for every rupee of current liabilities, there is a rupee of current assets. A high liquidity ratio compared to current ratio may indicate under stocking while a low liquidity ratio while a low liquidity ratio indicated overstocking. In the Amul, the quick ratio for the year 2009-10 is 0.261 2010-11 is 0.415 and 2011-12 is 0.098. The quick ratio is very near to the ideal ratio.
2) Leverage Ratio Debt - Equity Ratio It is clear that from the total debt ratio that lenders have contributed more fund than owners, these is relationship describing the lenders‘ contribution from each rupees of the owners‘ contributed is called debt equity ratio. Debt equity ratio is directly computed by dividing total debt by net worth.
Debt-Equity Ratio = All long term fund borrowed Equity fund
All long term fund borrowed Equity fund Total
2009-10 12659.36 3638.38 3.48
2010-11 12220.64 4146.8 2.95
2011-12 20595.43 4220.33 4.88
Debt-Equiy Ratio 4.88 5 4
3 2 1
INTERPRETATION: This ratio is significant to access the soundness of long –term financial position. It also indicates the extent to which firm depends upon outsiders for its existence. It portrays the proportion of total funds acquired by a firm by way of loans. In the Amul, the debt-equity ratio for the year 2009-10 is 3.48 2010-11 is 2.95 and 2011-12 is 4.88 The debt-equity ratio is very near to the ideal ratio.
3) Profitability ratio: a) Net profit ratio: Essentially the net profit ratio tells us about how the company's profits relate to their sales. Different industries have fundamentally different net profit ratios. The net profit ratio can tell us about the nature of the industry the company is operating in as well as serving to compare past performances of a company. Net profit ratio=
Net profit ratio Net profit sales result
𝑵𝒆𝒕 𝑷𝒓𝒐𝒇𝒊𝒕 𝑠𝑎𝑙𝑒𝑠
2009-10 735.750 168938.96 0.436
2010-11 926.650 210642.68 0.440
2011-12 1070.29 246634.70 0.433
Net profit ratio 0.44 0.44
Net profit ratio
b) Gross profit ratio: The gross profit ratio tells us how the company's gross profits relate to their sales. Different industries have fundamentally different gross profit ratios. The gross profit ratio can tell us about the nature of the industry the company is operating in as well as serving to compare past performances of a company.
Gross profit ratio =
Gross profit ratio Gross profit Sales result
𝑔𝑟𝑜𝑠𝑠 𝑝𝑟𝑜𝑓𝑖𝑡 𝑠𝑎𝑙𝑒𝑠
2009-10 14314.020 168938.730 8.473
2010-11 16342.740 210642.680 7.759
Gross profit ratio 15 10
10.502 7.759 Gross profit ratio
2011-12 25903.61 246634.70 10.502
CONCLUSION AND FINDINGS CONCLUSION OF TREND ANALASIS:
1) Margin not under pressure, High fixed Assets efficiency. 2) Large amounts locked up in working capital due to higher net current assets growth. 3) High Dividend only due to small capital base & no bonus issue. 4) Production & Sales both are consistently rising throughout the year.
CONCLUSION OF HORIZONTAL ANALYSIS: 1) PAT growth is higher than sales growth. It shows margins are under control. 2) Need to contain material cost. 3) Very efficient fixed asset utilization. 4) Investment higher than the net worth, which means operations are being funded by Current liabilities & some loans. 5 )Extremely strong financial position.
CONCLUSION OF CASH FLOW STSTEMENT ANALYSIS: 1) Operating activities indicates a very strong cash position. 2) It also indicates an efficient management of working capital. 3) Investment activities are an indication of an expanding business. 4) Financing activities indicates that the management has aggressive growth plans.
CONCLUSION OF RATIO ANALYSIS: 1) By analyzing the results we conclude that the AMUL is able to reduce the liquidity, then the AMUL is efficient in managing their profitability. 2) We found Moderate negative relationship between the measure the liquidity with Corporate profitability. 3) AMUL is maintaining 30 to 40 percentage liquidity from other sources not from profit. 4) The Liquidity & Profitability have ―Moderate Negative Correlation‖ that means liquidity is dependent on Profitability. 5) So here, we conclude that ―There is significance relationship between the Liquidity & Profitability of AMUL‖
LIMITATION OF STUDY: 1) As data provide to us, has been taken from the secondary source, it is not sure that collected data is perfectly accurate. 2) Companywide factors.—only use of numerical or accounting information [avoid best human resource, automation in production such a non-account factors are ignored.] 3) Study based on historical data & records. 4) Fail to indicate what the entity‘s normal or benchmark position is 5) Be heavily influenced by the choice of the base fiscal period 6) Cash flow statement is based on cash basis of accounting; it ignores the basic accounting concept of accrual basis.
BIBLIOGRAPHY 1) I M Pandey: ―Financial Management‖ Published by Vikas publishing house-2009 2) Annual reports of AMUL. 3) http://www.amul.com/ 4) http://www.wikipedia.com 5) National Dairy Development Board - http://nddb.org/