A

Presentation
On
Analysis Of Working Capital Management
&
Ratio Analysis
For
AMUL

Kaira District Cooperative Milk Producers Union

Ltd.
(AMUL)
Presented by –
Dave Girija
Roll No. 13
Exam Seat No.
35
M.B.A.
Anand Institute Of Management
Semester II
Affiliated to Sardar Patel University
 DAIRY INDUSTRY
OVERVIEW
• White revolution program
• Operation Flood
• NDDB
• GCMMF
AMUL

INDIA’S POSITION
• second largest milk producer
• average annual growth = 7%
• per day milk procurement = 20 million liters
• total 1,14,300 co-operative societies
 AMUL …
• Kaira District Co-operative Milk Producer’s Union selected the brand
name ‘AMUL’ for its product range in 1955.
•1073 societies.
• At the beginning, AMUL collected only 250 liters of milk per day.
AMUL

• Now, AMUL collects 12 lakhs of liters of milk every day.

• AMUL products' mascot :
"AMUL baby" (a chubby butter girl
usually dressed in polka dotted dress)
 STRENGTHS OPPORTUNITIES

• Optimistic demand • Value addition

• Flexibility of product mix • Export opportunity
• Availability of raw material • Alternative use of Milk
AMUL

SWOT ANALYSIS
WEAKNESS THREATS

• Perishability of product • Milk vendors

• Problematic distribution • Global competition
• Logistics of procurement
• Competition
 PRODUCT RANGE
BUTTER
GHEE

MILK
AMUL

PIZZA CHEESE

GULAB JAMUN DAHI

NUTRAMUL

LASSI

BASUNDI
ICE CREAM
MILK SHAKE
 FUNCTIONAL DEPTS.
• Production department
• HR department
• Finance & Accounts department
• Marketing department
AMUL

• Purchase & Stores department

• Quality Assurance department
 OVERVIEW OF THE PROJECT
OBJECTIVES OF THE STUDY
• to study the working capital of the firm
• to know the financial condition of the organization
• to know the return of various investments
AMUL
 OPERATING CYCLE
Particulars 03-04 04-05 05-06 06-07 07-08

A Raw material 3 days 5 days 5 days 6 days 6 days

conversion period
B Work-in-progress 26 days 23 days 34 days 32 days 32 days
conversion period
C Finished goods 39 days 121 days 118 days 78 days 192 days
AMUL

conversion period
D Debtors conversion 36 days 50 days 37 days 28 days 30 days
period
GROSS OPERATING CYCLE

GOC = A+B+C+D 104 days 199 days 194 days 144 days 260 days

E Creditors conversion 44 days 39 days 35 days 34 days 29 days

period
NET OPERATING CYCLE

NOC = A+B+C+D-E 60 days 160 days 159 days 110 days 178 days
 OPERAT ING CYCLE

300 260
250 231
199 194 159
200 160 144

DAYS
GOC
150 110
104 NOC
100 60
50
0
2003-04 2004-05 2005-06 2006-07 2007-08
AMUL

INTERPRETATION

• Increase in capital w.i.p. conversion period

• Increase in finished goods conversion period
• Decrease in collection period (liberal credit policy)
• An increase in overall demand of dairy products in these 5 years period
 RISK RETURN TRADE OFF
YEAR LIQUIDITY PROFITABILITY
CA FA CA:FA NET NET PROFITABILITY
PROFIT SALES
2003-04 16106.2 9588.26 1.68 252.46 54088.29 0.47
2004-05 18596.49 6107.85 3.05 311.23 59459.07 0.52
AMUL

2005-06 18990.94 4968.66 3.82 323.74 70206.23 0.46

2006-07 19874.21 5371.69 3.70 411.5 81631.69 0.50
2007-08 28995.9 6122.97 4.74 451.51 107187.29 0.42

INTERPRETATION

• High CA/FA ratio indicate higher liquidity

• Minor fluctuations in profitability
• Conservative policy
 WORKING CAPITAL REQUIREMENT
Particulars 03-04 04-05 05-06 06-07 07-08
A CURRENT ASSETS
1. Stock 4588.81 7662.36 9671.26 9077.90 15737.88
2. Debtors 5366.06 8228.99 7130.26 6388.23 8863.31
3. Prepaid expenses & advance 443.29 768.89 793.72 679.97 1083.49
4. Cash and bank balance 5708.04 2219.70 1395.69 3728.11 3311.22
AMUL

Total (A) 16106.2 18596.49 18990.94 19874.21 28995.9

B CURRENT LIABILITIES

1. Creditors 5800.8 4543.47 7588.45 9975.10 11980.68

2. Outstanding expenses 747.58 768.89 955.75 1076.90 1423.59
3. Deposits 230.08 163.81 347.39 380.71 168.24
Total (B) 6778.4 7933.20 8891.59 11432.71 13572.51
C NET WORKING CAPITAL (A-B) 9327.74 10663.29 10109.34 8441.50 15423.39
D ADD CONTINGENCY MARGIN 7.54 55.36 69.20 673.83 319.90
(PROVISION)
E TOTAL WORKING CAPITAL 9335.28 10718.65 10178.54 9115.33 15743.29
REQUIRED
 FINANCIAL RATIO SUMMARY
PARTICULARS 2003-04 2004-05 2005-06 2006-07 2007-08
LIQUIDITY RATIO
CURRENT RATIO 2.38 2.34 2.14 1.79 2.14
QUICK RATIO 1.7 1.37 1.05 0.95 0.98
CASH RATIO 0.842 0.280 0.176 0.326 0.244
NWC RATIO 0.976 1.078 1.254 1.493 1.162
LEVERAGE RATIO
DEBT EQUITY RATIO 6.87 6.09 4.03 1.86 4.95
CAPITAL EQUITY RATIO 7.87 7.09 5.03 2.86 5.95
AMUL

ACTIVITY RATIO
INVENTORY TURNOVER 5.47 5.71 5.38 6.00 6.10
DEBTORS TURNOVER RATIO 10.08 7.23 9.58 12.78 12.09
NA TURNOVER RATIO 5.64 9.73 14.13 15.20 17.51
CA TURNOVER RATIO 3.36 3.20 3.7 4.11 3.7
TA TURNOVER RATIO 2.05 2.35 2.85 3.17 2.99
WC TURNOVER RATIO 5.8 5.58 6.95 9.67 6.95
PROFITABILITY RATIO
GROSS PROFIT RATIO 39.16 41.87 38.41 37.25 35.46
NET PROFIT MARGIN 0.47 0.52 0.46 0.50 0.42
NOPAT MARGIN 2.5 1.95 1.63 1.39 1.2
ROE 7.89 9.01 8.62 9.75 9.83
ROTA 5.13 4.59 4.65 4.39 3.59
RONA 14.1 18.9 22.4 20.8 20.7
 EVALUATION OF AMUL’S
EARNING POWER
Particulars Formulae 2003-04 2004-05 2005-06 2006-07 2007-08
Net Asset turnover Sales 5.64 9.73 14.13 15.20 17.51
ratio NA
GP Margin GP * 100 39.16 41.87 38.41 37.25 35.46
Sales
Operating Leverage EBIT 0.0638 0.047 0.0413 0.037 0.033
GP
AMUL

NOPAT Margin EBIT 2.5 1.95 1.63 1.39 1.2

Sales
RONA EBIT * 100 14.1 18.9 22.4 20.8 20.7
NA
DFL PAT * 100 0.19 0.27 0.29 0.37 0.36
EBIT

Financial Leverage NA NW 3 1.77 1.32 1.27 1.33

ROE PAT * 100 7.89 9.01 8.62 9.75 9.83

NW
Retention RE 0.76 0.8 0.93 1.13 0.82
PAT
Equity Growth RE * 100 5.97 7.26 8.04 11.07 8.05
NW
AMUL

INTERPRETATION

• high return on their investments

• minor variation in return on equity
 FINDINGS
From working capital and operating cycle the following
conclusions can be drawn-

• working capital requirement of AMUL is financed through raising

AMUL

the cash credit loans and the short term loans

• conservative policy to finance its current assets
• a large operating cycle due to high w.i.p. conversion period, high
finished goods conversion period & lower payable deferral period.
 FINDINGS
From ratio analysis the following conclusions can be drawn-

• Current ratio is ideal (2:1). So AMUL is able to meet its short term
obligations
• Quick ratio is near to ideal (1:1); which indicates sound position of
AMUL

liquidity
• AMUL has sufficient net working capital in last year so it indicates
good position in order to meet company’s needs
• Debt burden has been reducing since 2003 to 2006 and it can be
noticed that lower leverage ratio in 2006-07 has been due to loan
repayment. Again in 2007-08, AMUL has taken a loan so the ratio has
risen.
• The speed of converting inventory to sales is increasing considerably.
• Profitability ratios do not show much variation.
• GP and NP Margin show minor fluctuations since 2003-04 to 2007-08.
 SUGGESTIONS
• increase its investment in current assets to improve its credit
standing
• reduce its conservation level by the use of long term source of
financing its working capital in order to increase its profitability
AMUL

• concentrate on inventory as its demand is higher, especially its

finished goods inventory
• increase its sales by different sales promotion schemes
• perform ABC analysis for its various raw materials and maintain
its raw material inventory
AMUL