Solapur District Co-operative Milk CoUnion Ltd, Solapur

A co-operative Milk Union at coSolapur

 Project Report On
Balance Sheet Analysis & comparison of performance of Solapur District Co Operative Milk Union Solapur, Ltd Solapur

Internal Guide Prof. Sanjay Hanagandi

Prepared By Firoz . S.Shaikh MBA 4 th Sem A.S.P.Commerce College,Bijapur

Company Profile
Solapur Zilla Sahakari Dudh Utpadak Va Prakriya Sangh Ltd Solapur is a cooperative milk union in Maharastra ,situated at solapur. The company was registered on 10th December 1981 This Union Markets Their Milk & Milk products under brand name Dudhpandhari The Union has average daily milk procurement of 3.5 lacks liters . The union sells daily average 90000 liters of milk in packing. It has marketing of milk in solapur city ,Solapur District, Marathwada, Mumbai and in Karnataka. Company has production & marketing of milk products like Ghee, Shrikhand, Pedha ,Aamrakhand, Flavored milk, Sterilized milk,Icecram, Paneer & Lassi. Number of employees- 1700 employees Number of primary co-operative societies - 2711 co Main Raw material - Milk .

Organizational Structure
A systematic & well defined organizational structure plays a vital role & provides accurate information to top level management. An organizational structure defines clear-cut line of clearauthorities & responsibilities among the employees of Solapur District Co-operative Milk Producing & Milk CoProcessing Union, Ltd Solapur. The Organizational Structure of Dudha Pandhari is well defined & well Arranged Structure. At a glance, a person can come to know about the Organizational structure.

Organizational Structure

cont

The Solapur District Co-operative milk union has the Cofollowing departments Procurement Department Marketing Department Production Department Stores Department Transport Department Accounts Department Veterinary Department Recovery Department Animal Fodder Department Human Resources Department

Balance sheet
A balance sheet is a snapshot of the assets a company owns, the debts it owes, and how much it is worth. It is one of the tools management; lenders and investors use to assess a company's overall situation . A financial statement that lists the assets, liabilities and equity of a company at a specific point in time and is used to calculate the net worth of a business. An attempt is made by me, to compare the balance sheets of the company , of previous five years and to track the changes in Debt, Net Worth and the Business Condition over time, which will be useful in detecting the changes, , the reasons driving them. and taking any proactive action if possible to control that. A standard company balance sheet has three parts: assets, liabilities and ownership equity.

Balance Sheet

cont.

The balance sheet must balancethat's why it's called a balance sheet. In other balance words, the assets must equal the claims on assets. The concept of balancing relies on the accounting equation: Assets = Liability + Owners Equity The balance sheet is so-called because there is a debit entry and a credit entry sofor everything, so the total value of the assets is always the same value as the total of the liabilities.

The Balance sheet is important because it:it: Illustrates the effect of past decisions Keeps track of the business cash position liquidity Records what the Owners Equity position is at different time intervals Directly affected by the Cash Flow and Income Statements, which reflect the status of the companys operation Quickly shows the Condition of a Business

Objective of the Study

To study & compare the balance sheet of Solapur Ziila Dudha Utpadak Va Prakriya Sangh Maryadit Solapur , of Five years (2004(2004-2009), to compare the performance of the company over that period of time and find out health of company by considering financial ratios.

Limitation of Study
1. Time is the one constraint of the study. 2. Employees are reluctant to give detailed information regarding the financial aspects. But however attempt is made to collect the information

Data Interpretation and analysis.

1. Comparison of current Assets- The Current Assets Assetsrepresents the liquidity of the company, these assets can easily be converted to cash within one operating cycle -- the amount of time the company needs to sell a product and collect cash from that sale. The graph shows that the company has good amont of liquid cash and the current assets are increasing consistently which is a good sign.

2. Comparison of Profits Earned by the company

Profit is supposed as indicator of efficiency of company. The performance of the company can be compared or judged by looking at the profit earned by the company. After looking at the graph we can see a drastic fall in the profits earned Diesel & petrol, the sudden increase in the salary of employees and it is also due to increase in the raw material prices of animal fodder& introduction of new taxes by govt in 2005-06.But the company seems to be recovering from that 2005phase & consistently increasing .

Financial Ratios
Working Capital-One of the main advantages of looking at the working
capital position is being able to foresee any financial difficulties that may arise. Working capital = Current assets Current Liabilities = 43.5 21.5 = 22 Crores

o Working Capital per rupee of sales-To find the approximate amount of

working capital a company should have, you should look at "working capital per rupee of sales." In other words, we are going to have to compare the amount of working capital on the balance sheet to the total sales, which is found on the income statement, not the balance sheet statement, working capital per rupee of sales= Working Capital Total Sales = 22 199.8 = 0.11 or 11 % It is good or satisfactory considering they are into procurement & sales of milk.

Financial Ratios

cont.

The current ratio-The current ratio is another test of a company's

financial strength. It calculates how many rupees in assets are likely to be converted to cash within one year in order to pay debts that come due during the same year . Current ratio = Current Assets Current liability = 43.5 21.5 = 2.02 or 1: 2.02 This shows an ideal ratio and the liquidity position of the company is very favorable.

 Cash Ratio- is the most conservative liquidity ratio. It excludes all current Ratioassets except the most liquid: cash and cash equivalents. The cash ratio is defined as follows: Cash ratio = cash current liabilities = 0.91 21.5 = 0.04 or 4 % The cash is sufficient to pay only 4 % debts.

Financial ratios

cont

 Quick Test or Acid test Ratio -The Quick Ratio is calculated by

Dividing a Companys Most Liquid Assets by Current Liabilities. Quick ratio= (Current Assets-Inventories) Current Liabilities Assets= (43.5(43.5-5.3) 21.5 = 1.77 which means for every liability of 1 Rs , there is 1.77 Rs in the form of cash & accounts receivable to pay that liabilities. Thus this shows very healthy & sound of the business.

Debt to Equity Ratio-The debt-to-Equity Ratio or Debt to net worth ratio is total Ratiodebt-toliabilities divided by net worth - the number of rupees in debt owed for every Rupee in net worth. Debt to Equity ratio = Total Debt Net Worth  = 21.7 15.1 = 1.63

Financial Ratios
Return on assets-Return on asset is a measure of how effectively the firm's assetsassets are being used to generate profits. It Measures the efficiency of Total Assets in generating Net Profit: The number of Rs in Net Profit produced for every Rs 1 invested in Total Assets . Return on Assets = Net profits before tax Total Assets = 1.48 62.6 = 0.02 or 2 % This is very serious and needs attention of management.

Interest Coverage Ratio-The times interest earned ratio indicates how well the Ratiofirm's earnings can cover the interest payments on its debt. Interest coverage ratio = = = EBIT 4.3 1.5 Interest Charges 2.8

This shows that about 2/3 part of the earning of the company goes towards paying the interest on the debts. This is the area of concern which should be looked carefully by the management.

FINDINGS
1. Company has abundant amount of current assets, which shows the liquidity of company, which is a good sign & shows the health of company. It shows the solvency of company. 2. The working capital of company is 22 Crores.From the study of working capital per rupee of sales, we find that, it is 11 % ,which is sufficient considering the fact that the company produces & sales milk and milk products. 3. The current ratio is 1:2, which shows that, the company is very solvent. It shows that for every 1 Rs of current liability ,there are 2 Rs in the form of current assets. This is very favorable situation. 4. The cash ratio of the company is 4%. The cash ratio is an indication of the firm's ability to pay off its current liabilities if for some reason immediate payment were demanded.That is by the present cash with the company , it can pay only 4 % current liability.

Findingscontd
5. The Quick ratio is = 1.77, which means for every liability of 1 Rs , there is 1.77 Rs in the form of cash & accounts receivable to pay that liabilities. Thus this shows very healthy & sound of the business. 6. The debt equity ratio of the company is 1.63.which is moderately good. 7. The company have debt ratio 0f 39 %, which means they have 1 Rs in the form of assets for every 0.39 Rs of debt. 8. The interest coverage ratio is 1.5 i.e 2/3 part of total income goes in paying debt.This is very serious issue to attend.

Findings..cont
9. The Gross profit margin ratio is 2.1 % ,which means company earn only 0.02 Rs from investment of Rs 1. This is another serious issue. 10. The return on asset is 0.02 or 2 % , which is fact which needs attention. 11. Return on Equity is 10 %. 12. The profit of the company has deteriorated from the figures of 2004-2005 in 2005-06.From thereon it is 20042005increasing slowly but not reached near to the figures of 20042004-05 .

SUGGESTIONS
1.Company should look for some other alternate source of financing with less interest rate . Because most of the earning i.e 2/3 part is going as an interest. 2.The finance or accounting department should create co-ordination cowith other departments rather than working as seprate,independent unit or entity. 3..The finance dept should clearly explain the financial effects of each activity to concerned dept.for eg- It should explain to marketing dept eghow the increasing of sales of milk & milk products is necessary for the company & what financial effects it will bringi.e the sales will cut down the fixed expenses such as transportation, administrative expenses after certain points of sales. 4.The financial department should play in parts in critical decisions like pricing, by explaining the effects of these decisions on financial positions of company. 5.The company should benchmark its cost accounting & cost saving methods with the best in industry and if appropriate, applying that in their firm. For this they can send their employees to other company ,best in their sector.

Suggessions.contd
6.They should try to cut down unnecessary expenses .for that they have to study which expenses are necessary and where we can cut down the expenses. 7. The financial statements of the company shows a large amount of account receivables The account receivables chart of the company shows more than 1 crore as marketing Outstanding, which is carried for years as it is. For this they can create a team which will first fix the responsibility of outstanding & then persuade for the recovery. 8. Company should undertake a deep look in the reasons for their declining sales & Profits over the period of 5 years. A thorough investigation should be made regarding the reasons and the problem areas will come out, on which they have to work out. 9.The investment the assets should be made only after examining the profitability of that asset. For this methods like IRR,ARR,Pay back Period, Profitability index etc are used .So that rate of return on asset can be used. 10.The storage of unnecessary inventory is avoided. As this will result in arresting or blocking of unnecessary funds. And this will obviously cut down the total costs

Conclusion
Balance sheet tells us what the company owns & what the company owes and the net worth of the company. But only balance sheet can not tell the exact position of the company. We have to study other financial statements like profit & loss statement and cash flow statement of the company. But the financial statement analysis along with financial ratio analysis makes us aware about the happening and trends in financial aspects.

Thank You