Financial Statement Analysis Omfed

8/19/2019 Financial Statement Analysis Omfed

1/65

Submitted By: Under Guidance of :

Saumya Ranjan Das Dr. Uma Chand Lal

6th year P.G. in Commerce !inance" #ead of $he De%artment

Colle&e Roll 'o.: ()*C))+ P.G. De%artment of Commerce

,-amination Roll 'o.: )PG)*//


2/65

CERTIFICATE

This is to certify that the candidate SAUMYA RANJAN DAS of 2009 adission

!atch is a !onafide st"dent of S#C#S# $AUT%N%M%US& C%''E(E) *URI# The +ro,ect entit-ed

.FINANCIA' STATEMENT ANA'YSIS %F %MFED/ is his oriina- +iece of 1or and to the

!est of o"r no1-ede) no other candidate has s"!itted the sae +ro,ect for the a1ard of

Master Deree in Coerce "nder S#C#S# $A& Co--ee) *"ri#

Sinat"re of the 3#%#D

Dr# Ua Chand 'a-#

*#(# De+artent of

Coerce


3/65

DEC'ARATI%N

I do here!y dec-are that this +ro,ect 1or has !een s"!itted !y e

in the *#(# De+artent of Coerce of S#C#S#$A& Co--ee) *"ri as +er the

+artia- f"-fi--ent for the Master Deree of Coerce 1ith the S+ecia-isation

in Finance# It is f"rther dec-ared that this +ro,ect 1or is e4c-"si5e-y the +rod"ct

of yse-f efforts and endea5o"r and has not !een co+ied fro any one or any

other that has !een s"!itted in any instit"te !y any candidate at any tie !efore#

SAUMYA RANJAN DAS

6 th Year *#(# in Coerce

S+ecia-isation in Finance

Co--ee Ro-- No7809C00

E4a# Ro-- No70:*(09;:;


4/65

AC


5/65

Contents

0. 1ndustry 2nalysis

3. 4r&anisation 2nalysis

. !inancial Statement 2nalysis

/. Com%arati5e Statement 2nalysis

(.

Common Sie Statement 2nalysis

6. !indin&s and Recommendation

7. Biblio&ra%hy


6/65

1ndustry 2nalysis


7/65

The history of Indian Milk Products is perhaps as old as Indian civilisation

itself. Even as our ancestors began to domesticate milch animals, they found innovative

ways to convert highly perishable milk into more stable and longer lasting milk products. It

is a part of Indian culture to revere cows, and Kings of yore often gifted cattle as rewards to

their kinsmen. Therefore, it is not surprising that Indians have a deep rooted tradition of

using milk and milk products. It is a customary practice to grace Indian ceremonies and

functions with hee, butter and sweets.

rom time immemorial, India!s traditional foods with their e"traordinary

variety and richness have served people!s needs for nutrition and sound health. #ithin this

wide range, dairy products from different regions of the country have provided a wide array

of sweets and other specialties that are a gourmet!s delight. These also meet the needs for proteins and calcium in people!s daily diet. The story of Indian mithais is literally of epic

proportions.

rom time immemorial, the foundation of our milk production has been in

hands of the landless farmers in villages. $t the same time, the processing of milk into dairy

products has been handled by millions of village %halwais% and their street&corner

counterparts in towns and cities. These two groups form the core of the traditional dairy

sector, the largest and fastest growing sector of Indian dairying. The value of its products

e"ceeds 's. (),))) crores per year.

#hen we say !Indian! milk products we tend to distinguish such products

from #estern milk products such as cheese, yogurt, ice&creams, sweetened condensed milk

and butter oil. *owever, we do have parallels for all such western products in the form

of paneer, curd/lassi, kulfi, rabri and ghee. Perhaps, the only ma+or western milk product

where it is difficult to draw comparisons is milk powder. In the days following

Independence, we have generally concentrated our efforts in encouraging milk production

through marketing of liuid milk, either as fresh milk or with the help of recombining milk

powder and white butter. This was done for three reasons. irstly, to encourage consumption

of liuid milk since it provides nutrition in a more wholesome manner as compared to milk


8/65

products. -econdly, as compared to value added milk products, liuid milk has always

remained far more affordable. Thirdly, liuid milk has always been in demand for use as a

whitener with tea and coffee. Traditional milk products represent the most prolific segment

of our Indian airy Industry. espite the immensity of volume of milk handled, preparation

and marketing are confined to the unorgani/ed sector. -ince most of the western&type dairy

products manufactured by the organi/ed sector of the airy Industry are reaching near

saturation level in the e"isting domestic and international markets, the entire range of Indian

milk products represent the most promising venue for diversification. urthermore, airying

has played a prominent role in strengthening our rural economy. It has been recogni/ed as

an instrument to bring about socio&economic transformation by helping the landless and

marginal farmers.

0ne weak link in the otherwise sound growth of dairying has been the

general neglect that the traditional milk processing methods has received from the modern

sector. $lthough the processes of making sweets have undergone continuous change, the

time has now come to integrate traditional methods with modern culinary technology to

meet consumer demands for better standardi/ed uality, longer shelf&life and greater

convenience. $ socially responsive approach and more purposeful application of scientific

and industrial techniues is reuired to rebuild our age&old practices to ensure the

manufacture of indigenous milk products of uniformly high uality. *owever, in the past

three decades, considerable '1 work has been done to bring about the much&needed value

addition in the making of these age&old milk delicacies. 2arious '1 groups in different

parts of the country have initiated steps to meet these needs. $s a result, better processes,

euipment, packaging materials and systems have been developed.

or sustaining further development, 3ation!s airy Industry would have to

cope with the rapid transformations that are taking place in the world economies,

conseuent to the 4$TT $greement. International trade is being strongly regulated by the

#T0 guidelines. 3ewer and stricter sanitary and phytosanitary standards are being formed

for regulating uality parameters of the e"port products. 5nder these newly emerging

circumstances, uality standards for production and processing milk cannot remain at


9/65

variance with the international standards. The superior uality of dairy products coupled

with concerns for environment and product safety will reuire significant changes in the

way milk products are produced and packaged. India would have to critically assess the

changing global scenario if the 3ation!s airy Industry wishes to turn the opportunities in

our favour.

0ver the years, efforts at e"panding liuid milk availability 6 through

increased milk production 6 has resulted in per capita availability of liuid milk growing

from 7)8 grams per day in 798) to a current level of more than :;< grams per day. The

opportunity provided by increased availability of liuid milk can now be used for efficiently

manufacturing and marketing Indian milk products with long shelf life. This will help in

tapping the potential demand for Indian milk products in both the domestic and foreignmarkets. $ll these things could happen with a uality assurance of raw material and

technical human resource training at different levels. This can only be achieved by an

appropriate appraisal and awareness to be brought on a very large scale since this is a highly

dissipated industry and has its origin from tiny, cottage all the way to large scale industry.

The Indian milk products also need to be addressed in terms of value addition and in terms

of bringing the tradition and processing itself and e"tension of shelf life for the ethnic

tongue around the world.

It can easily assume that this is a very important contribution that we could

do to the rest of the world through promoting the Indian milk products both from the taste

angle as well as the health angle. In this conte"t, we also reuire dedicated workers with

emphasis on packaging with a clear mandate of once again the concepts of uality and

safety engulfed into it. The Indian euipment manufacturers, many of them who are of

international standards, could really make a difference in the overall impact of this industry

through adaptable euipments.

$s we know the market for the =) million tonnes of milk in India, the figure

of 7)) million tonnes does not seem to be far away. #e need to strategically plan all this

into food safety, food security including nutrition to convert the dairy industry in the market


10/65


11/65

as alternative employment opportunities for family labour are scarce. It also appears that

there is a large potential to reduce milk production costs of smallholder dairy farming and

increase family farm income through milk production by better breed, feed and herd

management. $lthough milk yields in 0rissa are much lower than in *aryana, farmers in

0rissa produce milk at competitive costs due to lower land costs and lower wage rates. The

availability of gra/ing land in 0rissa and cheaper feed also contributes to lowering the costs

of milk production. -mallholders using buffalo for milk production in 0rissa were found to

be more cost competitive than similar farms in *aryana. *ence suitable strategies to

promote such buffalo&based systems should have potential for improving the production and

competitive position of dairying in 0rissa.


12/65

4r&anisation 2nalysis


13/65

>eing one of the poorest states, ma+ority of the population are dependent on

the traditional occupation like agriculture, diary and handloom in some parts of 0rissa. The

process of industriali/ation has always been slow though the state en+oys a great variety of

mineral resources. Poor irrigation facility made agriculture as a part time occupation for a

ma+ority of marginal farmers. The farmers use to travel to urban centres as daily wage

earners and this practice made their life more miserable due to e"ploitation and addictions.

There was a large concentration of cattle in the rural areas in the form of

cows and buffalos. They supported the family reuirements only and the cast of 4auda

traditionally sells the milk in the area. The rich had the privilege of keeping cows for their

own use and celebrations. It was never thought of as a viable alternative of livelihood for

many farmers till 0mfed came in to e"istence. The +ourney of 0mfed has changed the life of many families in 0rissa, particularly in the coastal and western part of 0rissa. 0mfed has

emerged as the trusted milk man to all its stake holders. The urban middleclass has a product

which is safe and clean for their children and has a uality assurance on content and

hygiene. The process itself pasteuri/es the milk and kills the germs and bacteria.

Milk is served fresh every day twice to the urban consumers and shopkeepers

in a fresh poly pack. This milk is collected from different parts of the state and are brought

to the chilling plant .They are packaged in assortments for sale in the markets. 0ther than

the different varieties of toned milk 0mfed also markets various kinds of value added

products like ghee, sweet and plain curd milk, table butter and butter milk.

In the summers of 799= 0mfed e"perimented by test marketing horticulture

products in the form of pickle ,tomato sauce, orange suash, lemon suash ,+uices , mango

and pine apple suash. These products were initially test marketed in the urban cities of

0rissa and the results were very motivating for them to go for full scale launch in the

subseuent period of time. 0mfed had an advantage through its vast network of milk booths

to make the product available immediately to consumers. There was literally no investment

to market horticulture products as the customers saw them in the 0mfed milk booths every

time they visited the booth. The second advantage the brand uality assurance. Though the


14/65

products were manufactured by the horticulture department, they were marketed as 0mfed

brands in the market.

These products have a high seasonal demand during summers and

availability of these items in the milk booths made the customer go for an early trial with

fewer e"penses in promotion and advertising. The market for sauces, suash and pickles are

traditionally concentrated in 0rissa due to the availability of branded items like Kissan,

ruck and Maggi. 0mfed decided to break the restrictions of selling these products from the

milk booths only and launched the items through the intermediariesD .ealers and

distributors were appointed in different area and the product moved in to the grocery

counters.

Prior to this development 0mfed was selling the value added milk products

like ghee, butter and the butter milk through retailers. The butter milk was a success in the

market as people preferred it in summers to the soft drinks due to the humid conditions in

the market. The sweet curd was also a success as housewives started buying them in the

common grocery for their children and there was a liking of the product by kids.

This success makes 0mfed to look beyond their core strength of marketing

milk and milk related products to other business area. This was significant for them as they

have also to perform a social obligation in generating profitable employment to the rural

poor through their cooperative society network so that more and more are brought above the

poverty line.

2C$181$1,S

The principal activities of 0mfed can be divided into the following

categories

7. 0rgani/ation of $nand pattern

:. 0peration lood program in 0rissa

F. Procurement of milk

;. Technical inputs


15/65

(. #omenDs diary Pro+ect

alanced ?attle eed 1 odder,

TrainingHE"tension etc.A $nd the Milk ederation looks after processing and marketing of

Milk 1 Milk Products, ?entral Technical Input activities etc. for milk yield enhancement 0f

the animals of the milk Producers.

$nand Pattern is a system that is collectively 0wned, 0perated and

?ontrolled by the farmers. It ensures a fair price to the farmer and high uality milk and

milk products to the consumers. In short, the $nand Pattern means the utili/ation of resources in the most profitable manner at grass&root level. The ma"imi/ation of profit and

production through cooperative effort is the hallmark of the .$nand Pattern

Structure of 2nand Pattern

The basic unit under the $nand Pattern is a village cooperative society of

milk producers. It is a voluntary association of rural milk producers wishing to market their

milk collectively. $ village coop. -ociety of primary producers is formed under the guidanceof a -upervisor of the milk union. $ milk producer becomes a member by paying an

entrance fee of 's.7 and buying a share of 's.7). *eHshe must undertake to sell surplus milk

only to the -ociety after meeting his family!s demand. The members elect the Managing

?ommittee of 9 members and the committee elects a ?hairman out of themselves. Managing

?ommittee Members are honorary. They employ a -ecretary, Milk Tester, $. I. #orker and


16/65

*ead Goader and so on to run the day&to&day business of the society. Milk producers bring

milk to the society every morning and evening. The uantity of milk is measured. $ small

sample of milk is taken from the milk for testing its uality. Payment for milk is made on the

basis of its uality and uantity. The Milk 5nion carries this collected milk from the society

by their hired transport vehicles to their milk chillingHprocessing plants. This comes from

the profit of the society. The society makes profit by selling the milk to the milk union and

get bonusHprice difference and milk union gets profit by selling to the federation and also

gets price difference out of the federationsD profit.

9il Union

$ >oard of irectors who get elected in the following manner manages the

milk union7:&are elected farmer representatives.

)7& $ nominee of the financing institution @3>A.

)7& $ nominee of the Milk ederation @0mfedA.

)7& 4eneral Manager of the Milk 5nion as the E"&officio -ecretary.

$t present, collector is the chairman of the Milk 5nion. 4eneral Manager is

the ?hief >usiness 0fficer of the 5nion who in turn appoints other managerial, technical 1

staff employees. This >oard frames milk unionDs policies regarding milk procurement and

supply, fund management etc. where as the 4eneral Manager looks after the day&to&day

operation under the guidance and direction of the board.

Every society is continuously guided, supervised and controlled by the union

so that it remains efficient, strong and viable. There is a continuous and concurrent audit of

all the societies on a uality basis to ensure a clean milk business.

9il !ederation

The ederation is managed by a >oard of irectors elected in the following

manner

7. Three are 4overnment of 0rissa nominees.

:. 0ne from the financing agency.


17/65

F. The selected chairmen of the $ffiliated Milk 5nions

The ?hairman of the ederation is to be elected by the board of directors.

The ederation looks after processing and marketing of the milk and milk products.

2nand Pattern coo%erati5e mil %roducers; or&aniation fi&ure 3.0"


18/65

4P,R2$14' !L44D< 0

The govt. of India launches operation floodJ pro+ect in 798). It was aimed

at creating flood of rurally produced milk in the urban consuming center. The first phase of

this program @operation flood 7A had five years duration from 798)&8(. It was started in

798) covering ten states and one union territory, having 7=th milk sheds i.e. $ndhra

Pradesh, >ihar, 4u+arat, *aryana, Maharashtra, Pun+ab, 'a+asthan, Tamilnadu, 5ttarpradesh,

#est >engal and elhi.

The pro+ect had an initial outlay of 's. 9;.(, which was later increased to 's.

77ombay and elhi are

linked with rural milk producing pockets in the country. The funds for the implementation of

operation flood program were generated by the sale of 7:8.(78 tones of skim milk power

andF


19/65

4%eration !lood Pro&ram in 4rissa

4%eration !lood 11

The 0peration lood II Program, which was launched under the aegis of

3ational airy evelopment >oard @3>A implemented in the state of 0rissa from 79=7,

initially covering four districts vi/., ?uttack, henkanal, Keon+har, and Puri. The 0rissa

-tate ?ooperative Milk ProducersD ederation came in to being from the year 79=)&=7, after

Taking over the Phulanakhara dairy and the functioning started form :oardA for implementation of 0peration lood Pro+ect II by the 4ovt. of

India, the -tate 4overnment, the Indian airy ?orporation, the 3ational airy evelopment

>oard and the Milk Producers ?ooperatives, with assistance from the international

evelopment $ssociation. This was later buttressed by a guaranteed deed dated )(.)9.=7

given by the then orest, isheries and $nimal *usbandry epartment on behalf of the state

4overnment, to the then Indian airy ?orporation for financial assistance to be received as

per the Goans&cum&4rants $greements by the 0rissa Milk ederation from the Indian airy?orporation. The 0peration lood II Program ended on F).)9.=8.

49!,D started functioning from its own corporative office building at '&:

-hahid 3agar =th$Pril 79=(. 0ne chilling plant of 7),))) GP was started at Tritol in une

79=( by ?uttack milk union and another one with :),))) GP capacities by Puri milk

union.

0ne airy Plant of hubaneswar national highway after the -tate 4ovt. handed over the land along with the


20/65

infrastructures e"isting there on a management basis. 5nder Production Enhancement

Program input facilities were provided to the producers through istrict Milk 5nions and

airy cooperative -ocieties under the technical and financial assistance of 3>.

4%eration !lood 111

The 0peration lood III Program is implemented in 0peration lood districts

of the state from 0ctoberD=8. 5nder this program the -ambalpur district is included from

$ugust 79=9. E"pansion of >hubaneswar airy from oard has been e"ecuted on )(.)(.9:.

The organi/ation was established with the following ob+ectives

To carry out activities for promoting production, procurement, processing

and marketing of milk 1 milk products for economic development of the rural farming

community.


21/65

evelopment and e"pansion of such allied activities as may be conductive

for the promotion of the dairy industry. Improvement and protection of milch animals and

economic betterment of those engaged in milk production. In particular and without

pre+udice to the generality of the forgoing ob+ective, the federation may

Purchase andHor erect building, plant machinery and other ancillary ob+ects to carry

out business

-tudy problems of mutual interest related to procurement, marketing of dairy and

allied products

Purchase commodities from the members of other sources without affecting the

Interest of the members, process, manufacture, distribute and sell them same, arrange to

manufacture H purchase and distribute balanced cattle feed and for the purpose to set up Milk

collection and chilling centres, Milk Processing Plants, Product factories Etc, in any of the

district covered under its area of operation

Provide veterinary aid and artificial insemination services and to undertake animal

husbandry activities so as to improve animal health care disease control facilities

$dvice, guide and assists the Milk 5nion in all respects of management,

supervision audit functions.

'ender technical, administrative, financial and other necessary assistance to the

member unions and enter in to collaboration agreement with someone, if the need arises

$dvise the member unions on price fi"ations, public relation and allied matters.

2 brief note on sambal%ur dairy

-ambalpur dairy a unit of 0ME @0rissa state co&op. Milk producers

federationA was commissioned on )7.)7.799) under operation flood programme @phase&iiiA

of 3> by an agreement with the government of orissa.


22/65


23/65

compressor )= $ir compressor ): )< MFH*r )9 .4 sets ): oilers @coal firedA ): F)) kgH hr 77 >ore well ): =)) GP* each

7: -ubstation )7 :)) K2$7F Effluent treatment plant )7 F)))) Gtrs

92'2G,9,'$:<

The orissa state co&operative milk producers federation Gtd. Is controlled by

a board of directors which consist of chairmen of affiliated milk unions. Three nominees of

the government of orissa, a nominee of the national dairy development board and managing

director of the federation @who is an e"&office memberA. The chairman of the board electedamongst the member of the board. The post of chairman of the federation is honorary.

!1'2'C,:<

The federation had received funds @loan 1 grantA from the Indian dairy

corporationH national dairy development board @3...>A for the implementation of

operation flood programme @0&ii, 0&iiiA in different districts for different activities such

as milk processing, technical input programme, support to dairy co&operatives, manpower

training etc. This federation also received funds towards cooperative development

programme from 3...> which has been successfully implemented in the different

districts and for the implementation of technology mission on dairy development @T.M..A

in the 0. districts. $part from 3...>. This federation is receiving financial assistance

from the government of 0rissa as grant&in aid and share capital for different activities such

as establishment of dairy infrastructures, technical input programmes, etc.

>esides this the federation also received financial assistance from

4overnment of India @ministry of human resources development 1 department of women

and child developmentA for the implementation of orissa women!s dairy pro+ects in the

undivided districts of orissa.


24/65

Procurement of 9il

The milk is collected from the village based milk producers through the

village airy cooperative -ocieties. The farmers of society villages bring their surplus milk

to the society, where it is tested, uantified and the value of the milk is being fi"ed. $gain

from the society level the milk being lifted to nearest chilling plant where it is chilled to ( c

and the same milk after chilling is transported to the nearest airy for processing, packing

and marketing. $fter marketing of milk and milk products, the reali/ation is financial

statement analysis routed back the producers once in 7) days in the same manner. This

organi/ation establishes linkage from producers to consumers.

$echnical 1n%ut Pro&ram

Procurement of Milk depends upon its production. If the production of milk

enhanced, the surplus of milk will be higher, and the procurement will be increased. The

production of milk depends upon the productivity of the milch animals and the productivity

of the animal depends upon its breeding, feeding, health care and maintenance. -o to

enhance milk procurement, different programs are being organi/ed in the society level and

the milk producers getting the facilities at their doorsteps, are called the Technical Input

Programs.

$rtificial Insemination The population of crossbred milch animals in our state is

very small. or better productivity good uality milch animals are essential. -o F() airy

?ooperative -ocieties provided with $rtificial Insemination facilities, out of which 7=

centers are cluster centers. The society secretaries have been trained as inseminators by

0ME. or this service, the Giuid 3itrogen, ro/en semen and all the accessories are

being supplied to the societies free of cost.

eed and odder Program In addition to the marketing support the farmers are

provided with the best uality of cattle feed at a reasonable price from the ?attle eed Plant,


25/65

which is owned and managed by 0ME. odder seeds and fodder slips are provided free

of cost to the farmers. 0ME sales around 7) KMT of cattle feeds annually to its farmer

members.

$nimal *ealth ?are or better yield H productivity, maintenance of milch animal is

important. The crossbreed animals need better care than the indigenous cows. -o facilities

like first aid medicines, travois are being provided to the societies free of cost. Infertility

camps, veterinary routes are being conducted by the e"perienced veterinarians of the Milk

5nions.

Training The ederation has established an Integrated Training and emonstration

?enter @0MT?A at agannathpur in the district of Khurdha. The Training ?enter has so far imparted training to society persons in society management, artificial insemination, first aid,

dairy animal management and management committee members. >esides these, other

training programs are also conducted in this Training ?enter. Training has a well&furnished

hostel accommodation for 7)) trainees. Interested institutions inside the state also use these

facilities on payment basis for various training programs.

Embryo Transfer Technology $ highly sophisticated Embryo Transfer Technology

Pro+ect has been implemented by the federation as a state pro+ect, since March 799:. This is

assisted by 3> to carry the most advanced technology from the laboratory to the field

for the benefit of farmers to increase the milk production.

Programs

3ational Technology mission on airy evelopment 3ational

Technology Mission was formulated by 3...>. and was implemented in ( 0peration

lood istricts. Its main aim was to co&ordinate among various functionaries who were

engaged in strengthening of rural farmers. 2eterinary ispensaries were euipped #ith

breeding facilities and these dispensaries became the nerve center of rural milk producers.


26/65

?ooperative evelopment Program The program is being formulated

by 3...>. Its main aim was to inculcate co&operative spirit in the rural milk armers to

manage their own business.

Indo -wiss Pro+ect Indo&-wiss pro+ect was a bilateral program

between 4ovt. of India and -wiss 4ovt. which is now under implementation in 4a+am 1

4a+apati district. Its main aim is to improve the productivity of animal and to provide round

the year marketing facilities at the door step of the farmer.

Aomens Diary Project

This pro+ect started in 799( in un&divided districts of ?uttack, henkanal,Puri, -ambalpur and Keon+har and is implemented through respective milk unions. The

0b+ectives of the program include

Improvement of Economic status of the rural women through efficient and modern

airy management and availability of assistance for dairy farming in shape of -ubsidi/ed

cattle feed, fodder, animal health care, cattle insurance and grouped Insurance coverage and

training programs.

Improvement of social status of rural women by formation of $nand Pattern all&

#omen dairy co&operative societies and establishing linkage with related organi/ation for

assistance on health, immuni/ation, nutrition, literacy mission, drinking water income

generation and women empowerment etc.

Enabling the women groups to take up employment&cum&income generation

programs through dairying.

Processin& and 9aretin&

The urban consumer is the last point of the Milk low -ystem of 0peration

lood Program. The first point is the rural milk producer, who produces milk. Thus


27/65

0mfed not only plays a vital role to link both the points through its activities but also

channeli/e crores of rupees from urban sector to rural sector in this system. 0ut of

the five lood istricts, only henkanal 1 Keon+har Milk 5nions market Milk

through their respective airies @henkanal 1 Keon+har airyA in the brand name of

%0mfed%. The henkanal Milk 5nion markets its milk, in towns like henkanal,

Talcher, 3alco 3agar, and $ngul etc. $nd Keon+har Milk 5nion markets milk in

towns Gike Keon+har, oda, >adbil, $nandpur etc. and supply surplus milk to

0mfed. 4enerally Milks are being marketed by 0mfed, from its dairies by its

authori/ed retailers in ifferent towns of the state.

igure :.:


28/65

0perational area @figure :.FA


29/65

9ana&in& Director

12S"

Personal

9ana&er

9aterial

9ana&er

91S

9ana&er

Plant mana&er

Sambal%ur unit"

!inance

9ana&er

9aretin&

9ana&er

Project

9ana&er

Assistant

manager

Assistant

manager

Superintendent

Plant

operator

Superintendent

Assistant

superintendent

Worker Junior

Assistant

$ffiliated milk unions @figure :.;A


30/65

0rganisation structure @figure :.(A


31/65

!inancial Statement

2nalysis

inancial statements as used in business houses refer to set of reports and

schedules which an account prepared at the end of a period of time for a business enterprise.

The financial statements are the means with the help of which the accounting system

performs its main function of providing summarise information about the financial affairs of

the business. These statements comprise balance sheet and profit 1 loss account. In India

every company has to present its financial statements in the form and contents as prescribedunder section :77 of the companiesD act 79(s

Balance sheet


32/65

>alance sheet is a statement showing the nature and amount of a companies

asset on one side and liabilities and capital on the other. In other words balance sheet shows

the financial position on a particular date usually at the end of one period. >alance sheet

shows how the money has been made available to the business of the company and how the

money is employed in the business.

Profit and loss account

Earning profit is the principal ob+ective of all the business enterprise and

profit and loss account is the document which indicates the e"tent of success achieved by

the business in meeting this ob+ective. Profits are of primary importance to the board of director in evaluating the management of a business, to banks and other creditor in +udging

the loan repayment capabilities and ability of the business. It is prepared for a particular

period which is mentioned along with the title of these statements, which include the name

of the firm also.

4bjecti5e of financial statements

inancial statements analysis is highly essential for both internal and e"ternal

stake holders in addition to management and creditors.

7. The balance sheet lists the assets held by and the obligations @or liabilitiesA of the

enterprise. The balance sheet also summari/es the capital invested in the business.

:. The income statement provides a recap of the operating results by listing the

revenues and deducting the e"penses of the company to arrive at a net income or loss for the

period.

F. The statement of cash flows uantifies the cash inflows and outflows of the

business for the reporting period.


33/65

;. The e"planatory notes provide additional details to aid in understanding the

amounts reported in the financial statements and the basis under which the financial

statements have been prepared. 5sually, e"planatory notes are prepared only when the

financial statements will be provided to e"ternal users.

(. To provide financial information that assist in estimating the earning potential of a

business.

$ools

*ere we have taken the financial statement of five years those are :));&)(,

:))(&)


34/65

statements, these items found in financial statements have to be compared with one another.

'atio analysis, as a techniue or analysis of financial statement uses this method of

comparing the various items found in financial statements.

'atio analysis creates a relationship between figures or factors or variables.

This relationship helps to analyse and interpret the financial condition and performance

when applied to the financial data. The accounting ratio indicates a uantitave relationship

which is used for analysis and decision making.

1m%ortance of ratio analysis

There are various kinds of benefits arising from ratio analysis are as follows

7. 'atio analysis is a very important tool used for measuring performance of an

organisation.

:. It concentrates on the inter&relationship among the figures appearing in the

financial statement.

F. 'atio makes comparison easy. The said ratio is compared with the standard ratio

and this shows the efficiency utilisation of assets, etc.

;. 'atio analysis helps the management to analyse the past performance of the firm

and to make further pro+ections.

(. Position can be easily ascertained with the help of ratio analysis.


35/65

Classification of Ratios

$ccording to the reuirement of different ratios it has been classified into

four important categories.

Giuidity 'atios

$ctivity 'atios

Profitability 'atios

Trend 'atios

0. Liuidity Ratios

The liuidity ratios measure the liuidity of the firm and its ability to meet its

maturing short term obligations. Giuidities defined as the ability to realise value in money,

most liuid of assets.

Giuidity refers to the ability to pay in cash, the obligation that are due.

Giuidity has two dimensions uantitative and ualitative concepts. The uantitative aspect

includes the uantum, structure and utilisation of liuid assets. In ualitative aspect it is the

ability to meet all present and potential demands on cash from any source in a manner that

minimises cost and ma"imises the value of the firm. Thus liuidity is a vital factor in

business. E"cess liuidity, through a guarantor of solvency would reflect lower profitability,

and ineffective managerial efficiency, increased speculation and un+ustified e"pansion,

e"tension of too liberal credit policies. Too little liuidity then may lead to frustration,

reduced rate of return, missing of profitable business opportunities and weakening of morale. The important ratios in measuring short term solvency are as follows

a. ?urrent ratio

b. uick liuid ratio


36/65

c. $bsolute liuid ratio

d. -tock to working capital ratio

a. Current ratio

This ratio measures the solvency of the firm in the short term. The

constituents of the current ratio are as important as the current assets themselves for

evaluation of the company!s solvency position. The higher or lower current ratio will have

the adverse impact on the profitability of the organisation.

2d5anta&es of current ratio

7. This ratio indicates the e"tent of current assets available to meet the current

obligation.

:. This margin also leaves sufficient amount as working capital to carry out day to

day transactions.

F. This is useful in assessing the solvency and liuidity position of the company.

Current assets loans and ad5ances

Current Ratio E

Current liabilities and %ro5ision

@Table F.7.7A

@,2RS 3))/


37/65

?urrentratio

10.58 9.10 9.70 5.77 17.48

1nter%retation

$ current ratio :7 shows a highly solvent position. The current ratio of this

organisation is always higher than the recommended level, so it can meet its entire current

obligation effectively. The ratios in the year :));&)(, :))(&)


38/65


39/65

1nter%retation

The ideal absolute liuid ratio is taken as 7:. In all the respective year it hasgone up then the recommended level. It shows the over accumulation of cash at bank and in

hand.

d. Stoc to >orin& ca%ital ratio

*ere stock refers to inventory as the rupee value of raw materials. It may be

noted that stock is valued at cost price or market price whichever is lower. #orking capital

generally means net working capital.

1n5entory

Stoc to >orin& ca%ital ratio E F 0))

Aorin& ca%ital

#orking capital Q current assets & current liabilities

@Table F.7.;A


40/65

1nter%retation

In :));&)( the stock level was :=.:FS which is uite beneficial for the

organisation but it start increasing in rest of the year and reach a peak of 8).:)S in :))8&)=.It reflects over accumulation of stock.

3. 2cti5ity Ratio

$ctivity ratio measures how effectively the firm employees its resources.

These ratios are also called !turn over or asset management ratio! which involve comparison

between the level of sales and investment in various accounts like inventories, debtors, fi"ed

assets, etc. $sset management ratios are used to measure the speed with which various

accounts are converted into sales or cash. The following activity ratios are calculated for

analysis. These ratios also analyse the use of resources and the utility of each component of

total assets.

a. Inventory turnover ratio.

b. Inventory ratio.

c. i"ed asset turnover ratio.

d. Total asset turnover ratio.

e. #orking capital turnover ratio.


41/65

f. -ales to capital employed ratio.

a. 1n5entory turno5er ratio

$ considerable amount of a company!s capital may be tied up in the financing

of raw materials, work in process and finished goods. It is important to ensure that the level

of stocks is kept as low as possible, consistent with the need to fulfill customerDs orders in

time.

The inventory turnover ratio measures how many times a company!s

inventory has been sold during the year. Gow liuidity turnover has impact on the liuidity

of the business.

Sales

1n5entory turno5er ratio E

25era&e in5entory

0pening stock R ?losing stock $verage inventory Q

:

@Table F.:.7A


42/65

1nter%retation

The inventory turnover ratio shows that there is a decrease in the ratio from

the year :));&)( to :))=&)9. This is due to the piling up of stock because the selling has

increased substantially.

b. 1n5entory ratio

The level of inventory in a company may be assessed by the use of the

inventory ratio, which measures how much has been tied up in the inventory.

1n5entory

1n5entory ratio E F 0)) Current assets

@Table F.:.:A

1nter%retation

In the year :));&)( the ratio was :


43/65

This ratio will be analysed further with ratios for each categories of assets

this is a difficult set of ratios to interpret. $s asset value are based on historic cost. $n

increase in the fi"ed asset figure may result from the replacement of an asset at an increased

price or the purchase of an additional asset intended to increase production capacity.

Sales

!i-ed assets turno5er ratio E

!i-ed asset

@Table F.:.FA

1nter%retation

It reflects that there is installation of plant machinery and building to increase

the productivity of the plant. The depreciation rate also shows the same. In the year :));&)(

it was


44/65

@Table F.:.;A

1nter%retation

It is showing that there is a good utilisation of total asset in every year but

again the rate goes down in the year :))


45/65

1nter%retation

In the year :));&)( the working capital that is turned over is only ut there is an improvement can be observed in utilising working capital effectively in rest

of the year. ThatDs why the ratio starts declining but the sale has gone up.

f. Sales to ca%ital em%loyed ratio

This ratio indicates efficiency in utilisation of capital employed in generating

revenue.

Sales

Sales to ca%ital em%loyed ratio E

Ca%ital em%loyed

@Table F.:.


46/65

1nter%retation

#e can observe a /ig/ag motion in sales to capital employed ratio. It was

;.(8 in the year :));&)(, it was increased up to (.7= then again decline up to F.9), again

mark an steep increase up to =.87 and in the year :))=&)9 it came to


47/65

1nter%retation

It shows that there is an increase and decrease prevails in this ratio it stands

around 7;S. It is due to the fluctuation in the price of raw material and other e"pensesrelated to production. #e can say that the efficiency in operation is following a trend.

'et %rofit ratio

3et profit ratio e"press net profit as a percentage of sales. This ratio indicates

the profitability and efficiency of the business.

'et %rofit

'et %rofit ratio E F 0))

'et sales

@Table F.F.:A

1nter%retation


48/65


49/65

This ratio is also fluctuating a little bit from its trend which is around 77S. It

is following the same path as the gross profit and net profit ratios are following. There is

seen an increase up 7F.(FS in the year :))=&)9 which is sowing a hike in earning cash

profit.

4%eratin& cost ratio

0perating cost ratio e"presses the relationship of cost of goods sold plus

operating e"pense to net sales. It may be e"pressed as

4%eratin& cost

4%eratin& cost ratio E F 0)) 'et sales

@Table F.F.;A

1nter%retation

The operating ratio following a trend of around =FS. It is showing the

operational efficiency of the organisation. In :))=&)9 the organisation is able to reduce the

operating cost so the net profit has increased.

,-%ense ratio


50/65

E"pense ratio shows the relationship between operating costs and e"penses

on the one hand and volume of sale on the other. In other words, these ratios e"press each

element of cost and e"penses as percentage of sales.

2d5anta&es:<

7. These ratios are useful in knowing the following aspects relating to profit

and help the management to know the position of profit. That is whether the profit is on the

increase or on the decrease.

i. *igher the e"pense ratio lowers the profit and vice&versa.

ii. *igher the non manufacturing e"penses ratio @marketing, administrationAlower the net profit.

,-%enses

,-%ense ratio E F0))

'et sales

@Table F.F.(A

1nter%retation

The e"pense ratio in terms of sale in the year :))(&)< was higher than any

other year which is 9:.ut the condition

starts improving in the respective year and reach up to =(.8: in the year :))=&)9.

2dministrati5e cost of sales ratio


51/65

2dministrati5e cost of sales

2dministrati5e cost of sales ratioE F 0))

Sales

1nter%retation

The administrative cost is increased heavily in the year :))(&)< due toincrease in e"penses of different items and usage of the items which was


52/65

1nter%retation

The selling and distribution cost was F.:( in the year :));&)( it increase

slowly and reach up to ;.79 in the year :))


53/65


54/65

/. $rend Ratios

Trend ratio can be defined as inde" numbers of the movements of the various

financial items in the financial statements for a number of periods. It is a statistical device

applied in the analysis of financial statements to reveal the trend of the items with the

passage of time. Trend ratio shows the nature and rate of movements in various financial

factors. Trend ratio can be graphically presented for better understanding by the

management. They are very useful in predicting the behaviour of the various financial

factors in future. Trends of related items should be carefully studied, before drawing any

final conclusion. -ince trends are sometime significantly affected by e"ternalities e.g

government policies, economic conditions etc.

Limitations of trend ratios

Trend ratios are not calculated for all the items. They are only calculated for

the logically connected items enabling a meaningful analysis.

$. if the accounting practices have not been followed consistently year after year,

these ratios become incomparable and misleading.

>. the trend ratios have to be interpreted in the light of certain non&financial factors

like economic conditions, government policies and management policies etc.

1nter%retation

The sale is following a trend that is going upward. $s the sales are going

upward the purchase of trade goods has been goes up accordingly. The rate of increase in

purchase of goods is uite lower than the increase in sales. It shows the operational

efficiency. The manufacturing e"penses and distribution e"penses are also increasing

according to increase in production and sale but it is less than the increase in the rate of sale.


55/65


56/65

Com%arati5e

Statement 2nalysis

These financial systems are so designed as to provide time perspective to the

various elements of financial position contained therein. These statements give the data for

all the periods stated so as to show.

$. absolute money values of each item separately for each of the periods stated.

>. increase and decrease in absolute data in terms of money values.

?. increase and decrease in terms of percentage.


57/65

. comparison e"pressed in ratios.

E. percentage of totals.

-uch comparative statements are necessary for the study of trends and

direction of movements in the financial position and operating results. This call for a

consistency in the practice of preparing these statements, otherwise comparability may be

distorted.

?omparative profit and loss account shows the operating results for a number

of accounting period and changes in the data significantly. In absolute period and changes in

the dan significantly in absolute money terms as well as relative percentage.

?omparative balance sheet shows the balance of account of asset and liability

in different dates and also the e"tent of their increase and decrease between these dates

showing light on the trends and direction of changes over the period.

1nter%retation

-tudy of income statement reveals that there has been an increase of 's


58/65

business rather than other miscellaneous activity. There has been an increase in selling

e"penses in absolute term which is 's.:


59/65

The current asset has been increased by


60/65

Common Sie

Statement 2nalysis

?ommon si/e financial statements are those in which figures reported are

converted into percentages to some common base. or this, items in the financial statement

are presented as percentages or ratios to total of the item and a common base for the

comparison is provided. Each percentage shows the relation of the individual item to its

respective total. In a common si/e income statement the sales figure is assumed to be eual

to 7)) and all other figures of cost or e"penses are e"pressed as percentage of sales. $

common si/e income statement for different periods helps to reveal the efficiency or


61/65


62/65

!indin&s

and

Recommendation

The financial statement of 0ME -ambalpur unit has given a broad idea

about the organi/ation. The tools that we used to analyse the financial statement reveals

many vital information regarding the organisationDs financial strength. The findings of this

analysis show that the financial strength of this organi/ation is very healthy. It is earning

profit at a higher rate. The accounts of reserve and surplus, share holders fund is very high.

$s the organi/ation is enhancing the livelihood, socio economic condition of poor people so

government is providing huge grants to it.


63/65

The labour cost in this area is very lowL availability of raw material in this

area is more. There persists a technological, product, raw material transfer among the

different unit of 0ME.

The entire above factor helping the organi/ation to grow at a faster rate. #e

have found out a small weak link in the organi/ation. espite of huge asset possessed by the

organi/ation the investment opportunity is very thin. The liuidity ratio shows that asset

remain idle without any proper investment. -o we would like to add that if sophisticated

machinery will be installed or the capacity of the plant will be enhanced and maintaining a

high level of distribution channel would hike the uality of the product and easy availability

of product to the customer. -o it will lead to increase in the profitability up to many folds.The financial statement also shows that the e"penditure on sales promotion and advertising

is very depressing as compared to the sales. Nes it is very elouent that the rate of sales is

very high but there is a huge potential for increase the sales in dairy product. This can only

be achieved by sales promotion. Inventory management is not satisfactory as it is seen on

the balance sheet that inventory is piling up heavily.

'est we can say that the organi/ation is developing since inception. It has

also gained a momentum of incurring profit. They are moving from the stage of ma"imum

utili/ation of resource to optimum utili/ation of resource which is very important for the

organi/ation.


64/65


65/65

Financial Management-By I.M. Pandey

Financial Management-By Khan and Jain

Financial tatement !nalysis" - By #upta

and Mehra.

Financial Management" - Byudhindra

Bhat

$$$.%mfed.%rg

$$$.g%%gle.c%.in

Financial Statement Analysis Omfed

Documents

Transcript of Financial Statement Analysis Omfed