A Project Report On Estimation of Cost Volume Profit and Economic Value Added For Satish Sugars Limited Gokak.

ESTIMATION OF COST VOLUME PROFIT AND ECONOMIC VALUE ADDED FOR SATISH SUGARS LIMITED GOKAK.
Contents
Part 1 Exucutive summary Part 2 Tables and Charts Table no 1 Table no 2 Table no 3 Table no 4 Table no 5 Table no 6 Table no 7 Table no 8 Table no 9 Table no 10 Table no 11 Table no 12 Table no 13 Table no 14 Charts Charts no 1 Charts no 2 Charts no 3 Charts no 4 Charts no 5 Charts no 6 Income statement Profit volume ratio Break even sales Margin of safety Total NOPAT Total WACC Babasabpatilfreepptmba.com Income statement Profit volume ratio Break even sale Margin of safety Calcution of NOPAT 2007 Computtatio of WACC 2007 Calcution of NOPAT 2008 Computtatio of WACC 2008 Calcution of NOPAT 2009 Computtatio of WACC 2009 Total three years NOPAT Total three years WACC Total three years EVA
Page no 5
43 44 48 50 58 59 60 61 62 63 64 66 68
Consolidated statement of EVA & N/P 70
44 46 48 50 65 67
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ESTIMATION OF COST VOLUME PROFIT AND ECONOMIC VALUE ADDED FOR SATISH SUGARS LIMITED GOKAK. Charts no 7 Charts no 8 Part 2 Introduction Profile sugar industry Company profile Organisation structure Departmetwise study Swot analysis Part 3 Objectives & Reasearch designs Methodology of the study Part 4 Analysis & Interpretation Part 5 Findings Suggestions Part 6 Conclusion Part 7 Bibliography Part 8 Annexure 75 74 73 71 72 41-70 40 7-11 12-15 16-23 24 38-39 Total EVA Consolidated EVA & N/P statement of 70 68
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Exucutive summary
The group of SSL was established in rural area for improve of all communities. Satish Sugars Ltd. (SSL) established with the major objective of serving the society through economic development and the main motto being Growing with farmers. SSL has today grown to become a dynamic company that makes a fine case of youthful spirit and farsighted vision. The Company covered the path of success adopting innovative approach. Babasabpatilfreepptmba.com
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ESTIMATION OF COST VOLUME PROFIT AND ECONOMIC VALUE ADDED FOR SATISH SUGARS LIMITED GOKAK. This study showing the minimum level of sales to cover the cost,and effect on the company, flunctuation in profit volume ratio. And also helps to know the true value of the compny. The study also helps to get more information like increasing in sales every year, good profit of the company. Satish sugars economi value added showing negative in 2007 because the company has taken major expantion during the year with the help term loan financial institutions TITLE OF THE STUDY : ESTIMATION OF COST VOLUME PROFIT AND ECONOMIC VALUE ADDED FOR SATISH SUGARS LIMITED GOKAK. Financial statements provide summarized view of the financial position of the company. That include investors, creditors, lenders, suppliers etc. Many peoples are interested in financial statement analysis to know about the financial cost volume profit and economic value added focused on measuring the economic performance of the compay. The study will reveal on the financial performance of the company which enables the management to know their variation of cost and profit with sales.Economic reports are the diagnostic instruments, they indicate whether thecurrent strategies of the company is satisfactory or whether a decision should be made to do something about the business to expand it or to change its direction or to sell it. The economic analysis of an individual business unity may reveal that current plan for new strategies.
INDUSTRY PROFILE
The Historical Background Of The Indian Sugar Industry: The sugar industry is proud to be an industry, which spreads the taste of sweetness to the mankind. The history of origin of this industry is as old as the history of main him self. Sugar is generally made from sugarcane and beet. In India, sugar is produced mainly from sugarcane. India had introduced sugarcane all over the worlds and is a leading country in the making sugar from sugarcane. Saint Vishwamitra is known as the research person of the sugarcane in religious literature. We can find the example of sugarcane in Vedic literature also as well as sugarcane. We can also find the reference of sugar and the sugarcane in Patanjalis Mahabashya and the treaty on the grammar of Panini. Greek traveler Niyarchus and Chinese traveler Tai-Sung have mentioned in their travelogue that the people of India used to know the methods of making sugar and juice from sugarcane the great Emperor Alexander also carried sugarcane with him while returning to his country. Thus from different historical references and from some Puranas it can be concluded that method of making sugar from sugarcane was known To the people of Bihar. The historical evidences of sugar industry prospering in Babasabpatilfreepptmba.com
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ESTIMATION OF COST VOLUME PROFIT AND ECONOMIC VALUE ADDED FOR SATISH SUGARS LIMITED GOKAK. ancient India concrete and this has helped to develop and prosper the cooperative sugar movement in India. National Scenario Of Sugar Industry: The first sugar mill in the country was set up in 1903 in the United Provinces. There are 566 installed sugar mills, of which 453 were in operation in the year 2002-03 and utilized 194.4 million ton of sugarcane (69% of total cane production) to produce 20.14 million tons of sugar. About 5 lakh workmen are directly employed in the sugar. About 5 lakh workmen are directly employed in the sugar industry besides many in industries, which utilize byproducts of sugar industry as raw material. India is the largest consumer and second largest producer of sugar in the world. The Indian sugar industry is the second largest agro-industry located in the rural India. Indian sugar industry has been a focal point for socio-economic development in the rural areas. About 50 million sugarcane farmers and a large number of agricultural laborers are involved in sugarcane cultivation and ancillary activities, constituting 7.5% of the rural population. Besides, the industry provides employment to about 2 million skilled/semi skilled workers and others mostly from the rural areas. The industry not only generates power for its own requirement but surplus power for export to the grid based on byproductBagasse. It also produces ethyl alcohol, which is used for industrial and potable uses, and can be used to the manufacture Ethanol, an ecology friendly and renewable fuel for blending with petrol. The sugar industry in the country uses only sugarcane as input, hence sugar companies have been established in large sugarcane growing states like Uttar Pradesh, Maharashtra, Karnataka, Gujarat, Tamil Nadu, and Andhra Pradesh. In sugar year 2003-04,these six states contribute more than 85%of total sugar production in the country; Uttar Pradesh, Maharashtra, and Karnataka together contribute more than 65%of total production. The government of India licensed new units with an initial capacity of 1250 TCD up to the 1980s and with the revision in minimum economic size to 2500 TCD, the Government issued licenses for setting up of 2500 TCD plants Babasabpatilfreepptmba.com
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ESTIMATION OF COST VOLUME PROFIT AND ECONOMIC VALUE ADDED FOR SATISH SUGARS LIMITED GOKAK. thereafter. The government de-licensed sugar sector in the year of 11.September.1988. The entrepreneurs have been allowed to set up sugar factories of expand the existing sugar factories as per the techno-economic feasibility of the project. However, they are required to maintain a radial distance of 15 kms from the existing sugar factory. After de-licensing, a number of new sugar plants of varying capacities have been set up and the existing plants have substantially increased their capacity. There are 566 installed sugar mills in the country as on March 31 st 2005 , with a production capacity of 180 lack MTs of sugar, of which only 453 are working. These mills are located in 18 states of the country.
International Scenario of Sugar Industry: Sugar is produced in 110 countries. The leading sugarcane producing countries are Brazil, India, Australia, Thailand, China and Cuba. Sugar is extracted from two different raw materials, sugarcane and beet. Both produce identical refined sugar. Sugarcane is grown in semi-tropical regions, and accounts for around two-thirds of world accounts for the balance one third of world production. The Russian Federation, Ukraine and Europe account for around 80 per count of total beet sugar production. In addition to weather conditions, diseases, insects, and quality of soil, international trade agreements and domestic price support programmers affect production of sugarcane and beet.
International Sugar Industry: Demand- Supply:
ESTIMATION OF COST VOLUME PROFIT AND ECONOMIC VALUE ADDED FOR SATISH SUGARS LIMITED GOKAK. Brazil and India are the largest sugar producing countries followed by China, USA, Thailand, Australia, Mexico, Pakistan, France and Germany. Global sugar production increased from approximately 125.88 MMT in 1995-1996 to 149.4 MMT in 2002-2003 and then declined to 143.7 MMT in 2003-2004, whereas consumption increased steadily from 118.1 MMT in 1995-1996 to 142.8 MMT in 2003-2004 as shown in below given chart. The word consumption is projected to grow to 160.7 MMT by 2010 and 176.1 MMT by 2015.
The worlds largest consumers of sugar are India, China, Brazil, USA, Russia, Mexico, Pakistan, Indonesia, Germany and Egypt. According to USDA Foreign Agriculture Service, the consumption of sugar in Asian countries has increased at a faster rate, as a direct result of increasing population, increasing per capita income and increased availability.
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Contribution of Sugar Industry to Indian Economy: Sugar industry contributes about Rs.1650 crores to the Central Exchequer as excise duty and other taxes annually. In addition, about Rs.600 crores is realized by the State Governments annually through purchase tax and cess on cane. At the prevailing sugarcane price, the total sugar cane produced in the country value at about Rs.24000 crores per year.
World Sugar Trade: Word trade in raw sugar is typically around 22 MMT and white sugar around 16 MMT. Brazil is the largest importer, followed by EU, Thailand, Australia and Cuba. The largest importers are Russia, Indonesia, UK, South Korea, Japan, Malaysia, the Middle East, and North Africa.
Sugar Prices: Babasabpatilfreepptmba.com

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ESTIMATION OF COST VOLUME PROFIT AND ECONOMIC VALUE ADDED FOR SATISH SUGARS LIMITED GOKAK. World sugar prices fell steadily from 1994-1995 till 1998-1999 and have been almost stable at those levels. The trend seems to have now reversed and refined sugar prices have increased by 30% in the last 5 quarters from 9.16 cents per pound in January, 2004 to 12.02 cents in March,2005 (Source: USDA Foreign Agriculture Services).
Sugarcane Availability: Table showing sugar cane availability in cultivated area:
Year 1980-81 1990-91 2000-01 2002-03 2003-04 2004-05
Cultivated area (%) 2.7 4.3 3.9 3.7
MMT 154 241 296 300 236
Sugarcane occupies about 2.7% of the total cultivated area and it is one of the most important cash crops in the country. The area under sugarcane gradually increased from 2.7 million hectares in 1980-81 to 4.3 million hectares in 200203, mainly because of much larger diversion of land from other crops to sugarcane by the farmers for economic reasons. The sugarcane area, however, declined in the year 2003-04 to 3.9 million hectares and to 3.7 million hectares in 2004-05, mainly due to drought and pest attacks. From a level of 154 MMT in 1980-1981, the sugarcane production increased to 241 MMT in 1990-1991 and further to 296 MMT in 2000-2001. Since then, it has been hovering around 300 MMT until last year. In the season 2003-2004, however, sugarcane production declined to 236 MMT mainly due to drought and pest attacks. Not only sugarcane acreage and sugarcane production has been increasing, even Babasabpatilfreepptmba.com
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ESTIMATION OF COST VOLUME PROFIT AND ECONOMIC VALUE ADDED FOR SATISH SUGARS LIMITED GOKAK. drawal of sugarcane by the sugar industry has also been increasing over the years. In India, sugarcane is utilized by sugar mills as well as by traditional sweeteners like guru and khandsari producers. However, the diversion of sugarcane to guru and khandsari is lower in states of Maharashtra and Karnataka, as compared to Northern states like UP.
SUGARCANE UTILIZATION
% Sugarcane utilization for Year 1980-1981 1990-1991 2000-2001 2001-2002 2002-2003 2003-2004 White Sugar 33.4 50.7 59.7 57.4 68.9 56.1 Guru and Seed, feed
Khandsari 54.8 37.4 28.8 31.5 20.1 32.5
and chewing 11.8 11.8 11.5 11.1 11.1 11.4
Sugar Production: Most of the sugar in India is manufactured and sold as White Crystal Sugar which is produced by Double Suspiration Process, while the norm in developed and emerging nations is refined sugar, which is produced by the Phosphoflotation Process. Most of the mills in India are not equipped to make refined sugar Mills which are designed to produce refined sugar can manufacture sugar not only from sugarcane but also from raw sugar which can be imported. Therefore, such Babasabpatilfreepptmba.com
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ESTIMATION OF COST VOLUME PROFIT AND ECONOMIC VALUE ADDED FOR SATISH SUGARS LIMITED GOKAK. mills can run their production all the year round, as opposed to single state mills, which are dependent upon the seasonal supply of sugarcane.
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Company Profile
INTODUCTION The group of SSL was established in rural area for improve of all communities. Satish Sugars Ltd. (SSL) established with the major objective of serving the society through economic development and the main motto being Growing with farmers. SSL has today grown to become a dynamic company that makes a fine case of youthful spirit and farsighted vision. The Company covered the path of success adopting innovative approach.
Mr. Satish.L.Jarkiholi, the man of the SSL, he established the SSL, he set the path of the Company to widespread economic activities with an unwavering commitment and conviction. Employment generation and community development were the primary goals behind the initiation to the activities of the Company. Today SSL provides employment to more than 1000 Babasabpatilfreepptmba.com
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ESTIMATION OF COST VOLUME PROFIT AND ECONOMIC VALUE ADDED FOR SATISH SUGARS LIMITED GOKAK. people and serving the more families in the region. Indirectly has helped farmer community to stand in the society with pride & self-respect and provide the financial facility for the farmers.
The journey of SSL spanning diverse activities such as sugar mill, agriculture research, organic farming and community development makes an impressive tale. For every major stride taken by the Company, the community has taken a corresponding progressive step. Inspired by its success so far, the SSL Company had more essential plans for the future. The plans are as, Electronic Media Division, Pilot training centre, super specialty Hospital and medical college, ayurvedic research centre, sports and cultural academy, medical and aromatic plant extraction unit and a super market.
Most of these future plans main aim to building the community centric in nature and have the objective of creating a social atmosphere in Gokak. It shows the SSL wants to improve the Gokak.
The Satish Sugars Ltd. is one of the sugar producers in the state of Karnataka. The Company was incorporated on 12th April, 2000 as Khandasari Sugar plant in the name of Gokak Power, Distilleries & Sugars (P) Ltd., and name was modified to Satish Sugars Ltd.
In the year of 2004-05, the unit adopted Vacuum Pan Technology keeping in view its economic value, efficiency and higher return on investment. The initial capacity of the reformed unit was 1250 TCD and in the trial season, the unit processed 51,406 tons of sugarcane in 2004-05 and registered a profit of Rs. 1.76 crores on a turnover of around Rs. 9.2 crores. SSL has set a target of two lakhs tones of cane crushing for the year 2005-06 with a turnover of Rs.20.00crore and a net profit of Rs.2.50 crore.
SSL has distributed seeds and fertilizers to needy farmers on a credit at low rate of interest. This way, it has developed more than
2,500acres of land in 2004-05 and is developing 5,000acres in 2005-06 under the Registered cane Area Program. The Babasabpatilfreepptmba.com
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ESTIMATION OF COST VOLUME PROFIT AND ECONOMIC VALUE ADDED FOR SATISH SUGARS LIMITED GOKAK. Company has set an ambitious target of achieving a processing capacity of 10 lakhs tones in the next five years. The future plans of the Company include generation of 45 MW power from by-products and setting up of a 75-Klpd distillery unit.
SSL is arduously working for the development of sugarcane cultivators. It regularly sponsors the visit of farmers to various States and National level agriculture fairs and organizes seminars and workshop on improved methods of sugarcane cultivation. Free training on scientific farming to children and encouragement to students with special talent in areas of education, culture and sports are other prominent community development activities undertaken by the company.
BOARD OF DIRECTORS Mr. Satish.L.Jarkiholli Smt. S. S. Jarkiholli Mr. Pradeep.M.Indi Mr. Vittal.R.Parasannavar Chairman & M.D Director Director Director
Auditors: Mr. B.B.Amanagi Babasabpatilfreepptmba.com

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ESTIMATION OF COST VOLUME PROFIT AND ECONOMIC VALUE ADDED FOR SATISH SUGARS LIMITED GOKAK. Chartered Accountants Belgaum
Bankers: Indian Bank
PRODUCT PROFILE SUGAR
The sugar produced in Satish Sugars Limited factory is both refined confirming to EC II grade with negligible sulphur content as well as plantation grade white sugar. The EC II grade sugar meets the European standards of refined sugar. Sugar is a sweet, white or brown, usually crystalline substance obtained mainly from sugar cane or sugar beets and used commonly in food products. Sugar means something sweet in form of taste.
BY- PRODUCTS OF SUGARCANE: The sugar mill produces many by-products along with sugar. A typical sugarcane complex of 3000 TCD capacity can produce 345 ton of sugar, 6000 Babasabpatilfreepptmba.com
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ESTIMATION OF COST VOLUME PROFIT AND ECONOMIC VALUE ADDED FOR SATISH SUGARS LIMITED GOKAK. liters alcohol, 3 ton of yeast, 15 ton of potash fertilizer, 25 ton of pulp, 15 ton of wax, 150 ton of press-mud fertilizer and 750KW of power from Bagasse.
MOLASSES Molasses is the final effluent obtained in the preparation of sugar by repeated crystallization. It is the product from a refining process carried out yield sugar. Sucrose and invert sugars constitute a major portion (40 to 60%) of molasses. The yield of molasses per ton of sugarcane varies in the range of 3.5% to 4.5%. . ii. BAGASSE Bagasse is a fibrous residue of cane stalk that is obtained after crushing and extraction of juice. It consists of water, fiber and relatively small quantities of soluble solids; the composition of Bagasse varies based on the variety of sugarcane, maturity of cane, method of harvesting and the efficiency of the
sugar mill.Bagasse is usually as a combustible in the furnaces to produce steam, which in turn used to generate power; it is also used as raw material for production of paper and as feedstock for cattle.
iii. ETHANOL The company produces alcohol from the molasses (Molasses is the brown colored residue after sugar has been extracted from the juice. Molasses still contains some quantity of sugar, but this sugar cannot be extracted by usual technology) left after the extraction of sugarcane juice, which can be used both for potable purpose as well as an Industrial chemical. Further, this alcohol can be purified to produce fuel grade ethanol that can be blended with petrol.
iv. BIO-FERTILIZERS
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ESTIMATION OF COST VOLUME PROFIT AND ECONOMIC VALUE ADDED FOR SATISH SUGARS LIMITED GOKAK. The residue product from distillery operations blended with chemicals is sold as bio-fertilizers
Production System
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Cetrifugation Sugar
A Molasses
Drying and Cooling
B Massecuite
Packed as plantation white Sugar
Centrifugation B Sugar used in a boiling as seed
B Molasses
C Massecuite
Centrifugation
C Sugar used in a
boiling
Final Molasses
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Security
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ESTIMATION OF COST VOLUME PROFIT AND ECONOMIC VALUE ADDED FOR SATISH SUGARS LIMITED GOKAK. The company has strict and discipline Security system. The SSL security maintenance of accounts after the record have closed, the records are keeping in the room of security department, it is opened only with permission of higher authority. If the visitors went to inter they have to take prior permission with the authority and after entering they are not suppose to go any dept other them the department from whom they took the permission. Also security maintained the vehicle inward and outward verification, the security working all 24 hours, SSL has 10 supervisors,1 security officer and 100 security guards.
STAFF The SSL workers are good and hard working citizens, they play essential role in the development of company. Employee is the responsible person of the company. Every employee invold in success of the company. They may be responsible for the success or failure of the company. In this company employee following the work is worship. The company has totally 650 workers are working is the company. They are categorized as following. 1) Permanent workers 2) Seasonal workers 3) Probationary worker 4) Daily wage worker 400 110 40 100
650 Company is paying salary of Rs. 25 lakhs per month to its workers.
VISION AND MISION
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ESTIMATION OF COST VOLUME PROFIT AND ECONOMIC VALUE ADDED FOR SATISH SUGARS LIMITED GOKAK. Mission
Satish Sugars Group has set the goal of becoming a vibrant dynamic and professionally managed group of companies having a turnover of over Rs.1000 crore with a net profit of 5% by 2015, 25% of the net profit will be spent on a board-spectrum of community development activities such as Education, Healthcare, Culture, Sports and Social Welfare. This is in line with the groups motto of placing community before self and Social services before self.
Vision
To become the most efficient processor of sugar & the largest marketer of sugar and compute globally.
FUNCTIONAL DEPARTMENTS
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STUDY OF FUNCTIONAL DEPARTMENTS
FINANCE DEPARTMENT ENGINEARING DEPARTMENT ACCOUNTS DEPARTMENT CANE DEPARTMENT PROCESS DEPARTMENT HRD DEPARTMENT MAINTENANCE DEPARTMENT PURCHASE DEPARTMENT STORE DEPARTMENT PERSONAL AND ADMINISTRATIVE DEPARTMENT
ACCOUNTS DEPARTMENT The SSL Gokak Sugar Companys growth in terms of turnover and profitability besides investment in the block of assets and working capital has been satisfactory over a period of time. Unless proper accounting of the various transitions of the companys taking place out systematically, the real control on the various functional areas of the company will be lost to the management. Babasabpatilfreepptmba.com
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ESTIMATION OF COST VOLUME PROFIT AND ECONOMIC VALUE ADDED FOR SATISH SUGARS LIMITED GOKAK. All the transactions of the company will be accounted on accrual basis only except where deviations are permitted by the management through its accounting policies.
Main Functions are as follows Registration and scrutiny of sale orders pertaining to equipment and spare parts. Preparation and submission of invoice to customers for payment. Receipt of cash, cheque and bank drafts etc and issue of official receipts for the same.. Operation of bank accounts. Maintenance of journal, expense ledger and balance sheet. Preparation of trail balance, profit and loss account and balance sheet.
ENGINEERING DEPARTMENT In SSL the engineering department looks after mechanical, civil construction, improving production method. Simplifying of work and power generation and also deals with good working condition maintains of go down, installation of machinery etc.
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CANE DEPARTMENT In SSL cane department deals with registration of Sugar Cane with growers, good quality maintains, developing high yields and also term loans and subsides to the farmers who are growing sugar cane for this company and now giving seeds of sugar cane to grow variety sugar cane and this department has consultant to consult sugar cane and I/P. SSL has some Developmental Programmes for Cane The unit is undertaking cane development programmes which will be a part of its activities are : Loans are provided to formers to take up new variety of cane activities. Subsides are provided to farmers.
MAINTENANCE DEPARTMENT Maintenance department is a Mechanical department in which all the machines of this firm are repaired. If there are any major problems the machines are repaired by General-Shift-Workers. General-shift-workers are fixed for only one major problem, the general shift workers and other workers work in shift wise.
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ESTIMATION OF COST VOLUME PROFIT AND ECONOMIC VALUE ADDED FOR SATISH SUGARS LIMITED GOKAK. FINANCE DEPARTMENT Finance department is very important in an organization. It is not just confined to raising funds, but extends beyond it to control the over utilization of funds and helps to monitor the utilization of funds raised. This function influences the operation of other essential functioning areas of the firm such as production, marketing and personal.
FUNCTIONS OF FINANCE DEPARTMENT: Passing of all payment bills Maintenance of sales ledger Maintenance of all subsidiary books under the co-operative societies Preparation of finance reports Preparation of annual budgets Budgetary control acts like cashbook, debtors, and salary register. Preparing of cost sheet Direction of internal auditing.
BRIEF OUT LOOK OF THE FINANCIAL STATUS

Share capital Rs.4,167.43 lacks
Raw material consumed year Rs.6420.35 lacks Year sales Rs.9,308.96 lakhs The balance sheet and the profit and loss account of the firm for the
Profit for the year ended Rs.833.33 lacks
past few years are shown as below in the table.. From which we analyze the growth and development of the firm and also we obtain information regarding sources of funds and their allocation
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STORES DEPARTMENT In this department all types of materials are stored. The purchase department purchases the materials and these materials are sending to stores department. Storekeepers send the sample of material to the lab for testing purpose. If the material satisfies all the tests specifications then the material will be stored and the transactions, which are related to this, are done in this department. Otherwise the goods will be rejected and sent back. The explanation should be given for the rejection of goods.
HUMAN RESOURCE DEVELOPMENT DEPARTMENT
The activities carried out are planning for human resources, requirements, welfare, and safety, training and legal matters. It even helps in providing necessary manpower and skills towards successful implementation of quality system. It also organizes the training activities of the employees.
AREA OF FUNCTION OF SATISH SUGARS LTD Man power planning Recruitment and selection
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ESTIMATION OF COST VOLUME PROFIT AND ECONOMIC VALUE ADDED FOR SATISH SUGARS LIMITED GOKAK. Placement, training and development Wage and salary administration Health and safety measures Employees state insurance benefits
FUNCTIONS: 1. 2. 3. 4. 5. 6. 7. 8. Selection and recruitment of trainee workman, clerical staff . Induction of clerical supervisor staff. Issue and badli of workman. Issue of punching cards. Attendance recording. Leave Management. Wage administration. Bonus calculations and payments.
PERSONNEL AND ADMINISTRATION DEPARTMENT PERSONNEL DEPARTMENT: Objectives: It deals with appointments, job training to new employees. They deal with safety health measures of the employees. They provide necessary help or aid to the employees. Control over the day to day activities.
Workers get their week off but the staff gets holidays on Sunday. This department sanctions leaves to the employees. The employees get leave on national festival and so on.
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PURCHASE DEPARTMENT Purchasing procedure very considerably according to the needs of the organization and authority delegated to purchase managers the success of organization is based on effective inventory management system and UN interrupted production schedule. This is achieved with adequate purchasing function. OBJECTIVES To invite quotation from a number of suppliers. To make arrangements for the purchase of appropriate quantities at any given times. To ensure the purchase of the correct quality under trade or brand name by sample, description.
The purpose officer receives the order slip from the marketing officer and this order slip will be sent to store department to check the raw material essential; to fulfill the order for a particular product of produce it. Further the stock statement is sent to the purpose department, which contents the quantity that is the raw materials required for a particular product or produce it. From this the purpose officer will come to know that how much quantity is required. And whenever there is not much stock in stores department the store keeper will inform the purpose officer and in turn he will give instruction to purchase that particular material.
ADMINISTRATION DEPARTMENT
The Administration Department looks after the administration of the company. Administration Department has an aerial lockout over all the departments.
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ESTIMATION OF COST VOLUME PROFIT AND ECONOMIC VALUE ADDED FOR SATISH SUGARS LIMITED GOKAK. Progress of the entire department is sent to this department. So that the administration department prepares the progress sheet after the end of certain period. Administration function includes training of administrative staff. This department looks after the wages and salaries of the staff. This department has to answer for any Enquire done by the Govt. This department controls over the flow of funds along with the accounts department.
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STRENGTHS
SSL LTD is very integrated player in sugar industry. The company processes sugarcane into three co products viz. sugar, ethanol, power. The company has the control on the seasonal affect through producing sugar not only with sugarcane and also raw sugar. The company is having prominent marketing employees who have good knowledge of marketing. It has maintained excellent relationship with farmers.
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ESTIMATION OF COST VOLUME PROFIT AND ECONOMIC VALUE ADDED FOR SATISH SUGARS LIMITED GOKAK. WEAKNESSES
SSL is bearing extra cost of exporting the sugar to the foreign countries. Non availability of raw sugar in excess
OPPORTUNITY It is going to have a largest sugar refinery unit in India, which enables the co to enjoy better economic scale. The company has easy excess for importing raw sugar and exporting white crystal sugar for foreign countries. SSL is well equipped with superior technology.
THREATS
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ESTIMATION OF COST VOLUME PROFIT AND ECONOMIC VALUE ADDED FOR SATISH SUGARS LIMITED GOKAK. The company has to face the threat of competition from competitors from like Ugar sugar industry Ltd, Gdavari sugar Ltd, Shree Prabuligeshwar sugar works ltd. The sugar pricing policy of the government is also big threat to the company usually the levy prices fixed by the government are very low and fall below the cost of production.
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Objectives of the study. To ascertain the minimum level of sales to cover the cost and avoid the loss. To know the effect on income of the company. To know the fluctuation in profit volume ratio. To understand the concept and theory of EVA. To know the companies true profit. To ascertain the value of the organization. To identify the whether a SSL is earning more or less than the capital invested.
Methodology of information collected.
Primary sources. with
Primary sources include information collected through discussion the concerned department persons and our external guide.
Secondory sources.
The secondary data is collected for the three years i.e.2007, 2008 and 2009 ,this data is collected from annual report provided by the company. Assumption Babasabpatilfreepptmba.com
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The cost of debt and cost of equity constant in three years at the assume rate of 11% and 8% in satish sugars limited.
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COST VOLUME PROFIT ANALYSIS Introduction As the term itself indicates the cost volume profit analysis is the analysis variable that is cost, volume and profit. In CVP analysis an attempt is made to measure the variations of cost and profit with volume. Profit as a variable is the reflection of a number of internal and external conditions which exert influence on sales revenue and costs.
The cost volume profit analysis helps or assists the management in profit planning. In order to increase the profit, a concern must increase the output, when the output at maximum with in the installed capacity, it adds the contribution.
In the other words of heiser , the most significant factor is profit planning of profit.When volume of output increases, unit cost of output decreases, and vice versa; because the fixed cost remains unaffected .When the output increases, the fixed cost per unit decreases. Therefore, profit will be more, when sales price remains constant. Generally, costs may not change direct proportion to the volume. Thus, a small change in the volume will affect the profit. Cost volume profit analysis shows the relationship among the various ingredients of profit planning, namely unit sales price, variable cost, sales volume, sales mix and fixed cost. Essential of cost volume profit analysis: Total costs can be divided into a fixed component and a component that is variable with respect to the level of output. The analysis either covers a single product or assumes that The sales mix when multiple products are sold will remain Constant as the level of total units sold Babasabpatilfreepptmba.com
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ESTIMATION OF COST VOLUME PROFIT AND ECONOMIC VALUE ADDED FOR SATISH SUGARS LIMITED GOKAK. change.All revenues and costs can be added and compared without taking into account the time value of money.The unit selling price, unit variable costs and fixed costs are known and constant
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ESTIMATION OF COST VOLUME PROFIT AND ECONOMIC VALUE ADDED FOR SATISH SUGARS LIMITED GOKAK. Income statement Table no. 1 (in lack)
Particulars
2007
2008
2009
Sales % Increase in sales
5,340.94
9,281.24 42.45%
14,184.15 34.56%
Less:Variable Cost
577.59
1,196.14
968.23
Contribution
4,763.35
8,085.10
13,215.91
Less:Fixed Cost
4,236.95
6,408.88
10,087.89
EBIT % increase in EBIT
526.40
1,676.22 68.59%
3,128.01 46.41%
Less:Interest
200.50
733.78
1,433.77
EBT
325.90
942.44
1,694.24
Less:Provision Tax
38.72
10,909
113.30
Net Profit % increase in N/P
287,18 65.53%
833.35
1,580.94 47.28%
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ESTIMATION OF COST VOLUME PROFIT AND ECONOMIC VALUE ADDED FOR SATISH SUGARS LIMITED GOKAK. Chart 1
sale
netprofit 15000 10000 5000 0 Less:Pr Particul Less:Fi % % %
41
ebit
Interpretation
In the year 2007,08,09 shows that sales and EBIT is highest in the year 2009,the sales in the year 2007 is Rs. 5,340.94,in the year 2008 is Rs.9,281.24 and in the year 2009 is Rs.14,184.15. Similarly the corresponding EBIT were in the year 2007 is Rs.526.40, in the year 2008 is Rs.1,676.22 and in the year 2009 is Rs.3,128.01. And also sales increase in percent in 2008 is 42.45%, in 2009 34.56% and EBIT increase in percent in 2008 is 68.595,in 2009 is 46.41%,the net profit is increase in percent in the year 2008 is 65.53%, in the year 2009 is 47.28%.
Profit volume ratio
Profit volume ratio is popularly known as p\v ratio. it express the relationship between the contribution to sales . The ratio, expressed as a percentage, indicated the relative profitability of different products. Babasabpatilfreepptmba.com
ESTIMATION OF COST VOLUME PROFIT AND ECONOMIC VALUE ADDED FOR SATISH SUGARS LIMITED GOKAK. The profit of a business can be improved by improving the p/v ratio. A higher ratio shows a greater profitability and vice versa .To improve the p\v ratio following are to be adapted. By increasing sales price per unit By decreasing variable cost By increasing the production of products which is having a high p\v ratio and vice versa. Profit volume ratio can be calculated using following formula
Profit volume ratio = contribution / sales * 100
Table no. 2
(in lacks)
Year
Contribution
Sales
P/V Ration
2007
4,763.35
5,340.94
89%
2008
8,085.10
9,281.24
87%
2009
13,215.91
14,184.15.
93%
Chart 2
42
Profit volume ratio

15000 10000 5000 0 Year 2007 2008 2009
Interpretation
We can see a slight variation in the P/V Ratio of 2009 higher, the P/V Ratio higher will be the scope for the high profit. We can see that it has increased in the year 2009 and the table clearly shows that required amount of sales is available to cover the fixed cost and to provide operations income to the firm.
Break even sales Babasabpatilfreepptmba.com

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ESTIMATION OF COST VOLUME PROFIT AND ECONOMIC VALUE ADDED FOR SATISH SUGARS LIMITED GOKAK. Break even analysis is also known as cost volume profit analysis. The analysis is a tool of financial analysis where by the impact on profit of the changes in the volume, price, costs and mix can be estimated with reasonable accuracy. Break even point is a point where the total sales are equal to total cost. In this point there is no profit or loss in the volume of sales. A break even analysis is concerned with the study of revenues and costs in relation to sales volume and particularly, the determination of that volume of sales at which the firms revenue and total cost will be exactly equal. Thus break even point may be defined as point at which the firms total revenue is exactly equal to total cost, yielding zero income. The no profit, no loss point is a break even point or a point at which loss cease and profit begins.
Assumption of break even analysis All costs can be segregated in to fixed cost and variable components. Variable cost per unit remains constant and total variable cost changes in direct proportion to the volume of production. Selling price doesnt change as volume changes Cost and revenue are influenced only by volume Stocks are valued at marginal cost.
The formula to calculate break even point is:
B.E.Sales = Fixed Cost P/V Ratio
Table no. 3
(in thousands)
Year
Fixed Cost
P/V Ratio
B.E.Sales
2007
4,236.95
89%
3,770.88
44
2008
6,408.88
87%
5,575.72
2009
10,087.89
93%
9,381.74
Chart 3
Break even sales

15000 10000 5000 0
20 08 20 09 20 07 Ye ar
fixed cost
year
Interpretation There is increasing in B.E.S. position, because of increased in fixed cost over the years but has affected the profit and MOS, the total sales, profits and MOS are proportionately increasing in the year 2007,2008,and 2009..
MARGIN OF SAFETY
Margin of safety means total sales minus break even sales at break even point. In other words, sales over and above break even sales are known as margin of safety. Higher the margin of safety indicates the soundness of the business. Small margin of safety indicates the weak position of the business because a small decrease in the sales and production leads to less profit of the business.
45
ESTIMATION OF COST VOLUME PROFIT AND ECONOMIC VALUE ADDED FOR SATISH SUGARS LIMITED GOKAK. When the marginal of safety is not satisfactory, the following steps may be taken to improve it: Increase the volume of sales Increase the selling price Reduce fixed cost Reduce variable cost.
Margin of safety can be calculated by using the formula Margin of safety = Actual sales Break even sales
Table no.4
(in lacks)
Year
Actual Sales
B.E.Sales
M.O.S.
2007
5,340.94
3,770.88
1,570.05
2008
9,281.24
5,575.72
3,705.51
2009
14,184.15
9,381.74
4,802.40
46
Chart 4
mos
15000 10000 5000 0
20 08 20 09 20 07 Y ea r
sale
year
Interpretation MOS is very high because of high and increasing in fixed cost in all three years studied, it indicates that profits are made until there is high level of activity to fixed cost.
Economic Value Added
Introduction The discussion in this report is focused on measuring the economic performance of business. Economic reports are the diagnostic instruments, they indicate whether the current strategies of the business are satisfactory or whether a decision should be made to do something about the business expand it, shrink it, changes its direction, or sell it. The economic analysis of an individual business unity may reveal that current plan for new strategies. Even though each separate decision seamed at the time it was made. Traditional Approach to measuring the Share holders value creation have used parameters such as earning capitalization, market capitalization and present Babasabpatilfreepptmba.com
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ESTIMATION OF COST VOLUME PROFIT AND ECONOMIC VALUE ADDED FOR SATISH SUGARS LIMITED GOKAK. value of estimated future cash flows. But today extensive equity research has now established that it is not EPS, which is important. A new measure called Economic Value Added (EVA) is increasing being applied to understand and evaluate financial performance. EVA is a residual income after charging the cost of capital for the company provided by lenders and shareholders. Its represents the value added to shareholders by generating operating profit in excess of the cost of capital employed in the business.
Literature Review The EVA method is based on the past performance of the corporate enterprise. The economic principles are determine whether the firm is earning a higher rate of return on the entire invest funds than the cost of such funds (Measured in terms of WACC), if the answer is positive, the firm management is adding to the shareholder value by earning extra for them. On the contrary, if the WACC is higher than the corporate earning rate, the firms operations have eroded the existing wealth of its equity shareholders. In operational terms the method attempts to measure EVA for equity shareholders by firm operations in a given year.
WACC take care of financial costs of all sources of provides of invested funds in a corporate enterprise it is imperative that operating profit after taxes should be considered to measure EVA. The accounting profit after taxes, as reported by the income statement, need adjustment for interest cost. The profit should be the net operating profit after tax and cost of funds will be product of the total capital supplied (including Retained Earnings) and WACC.
EVA = (Net Operating Profit after Tax (Total Capital * WACC))
The EVA method measure economic value added for equity owners by the firms operations in a given year, though the MVA and EVA are two different approaches, the MVA of the firm can be conceived as the present value of all the EVA profit that the firm is expected to generate in the future year. The Main Theory behind EVA
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ESTIMATION OF COST VOLUME PROFIT AND ECONOMIC VALUE ADDED FOR SATISH SUGARS LIMITED GOKAK. EVA measures whether the operating profit is enough compared to the total costs of capital employed. Stewart defined EVA as Net operating profit after taxes (NOPAT) subtracted with a capital charge:
EVA = NOPAT CAPITAL COST
EVA = NOPAT COST OF CAPITAL x CAPITAL EMPLOYED (1)
Or equivalently, if rate or return is defined as NOPAT/CAPITAL, this turns into a perhaps more revealing formula:
EVA = (RATE OF RETURN COST OF CAPITAL) x CAPITAL (2) Where: Rate of return = NOPAT/Capital Capital = Total balance sheet minus non-interest bearing debt in the beginning of the year Cost of capital = Cost of Equity x Proportion of equity from capital + Cost of debt x Proportion of debt from capital x (1-tax rate). Cost of capital or weighted average cost of capital (WACC) is the average cost of both equity capital and interest bearing debt. Cost of equity capital is the opportunity return from an investment with same risk as the company has. Cost of equity is usually defined with Capital asset pricing model (CAPM). The estimation of cost of debt is naturally more straightforward, since its cost is explicit. Cost of debt includes also the tax shield due to tax allowance on interest expenses. The idea behind EVA is that shareholders must earn a return that compensates the risk taken. In other words equity capital has to earn at least same return as similarly risky investments at equity markets. If that is not the case, then there is no real profit made and actually the company operates at a loss from the viewpoint of shareholders. On the other hand if EVA is zero, this should be treated as a sufficient achievement because the shareholders have earned a return that compensates the risk. This approach - using average risk-adjusted market return as a minimum requirement - is justified since that average return Babasabpatilfreepptmba.com
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ESTIMATION OF COST VOLUME PROFIT AND ECONOMIC VALUE ADDED FOR SATISH SUGARS LIMITED GOKAK. is easily obtained from diversified long-term investments on stock markets. Average long-term stock market return reflects the average return that the public companies generate from their operations. EVA is based on the common accounting based items like interest bearing debt, equity capital and net operating profit. It differs from the traditional measures mainly by including the cost of equity. Mathematically EVA gives exactly the same results in valuations as discounted cash flow (DCF) or Net present value (NPV) which are long since widely acknowledged as theoretically best analysis tools from the Shareholders perspective .These both measures include the opportunity cost of equity, they take into account the time value of money and they do not suffer from any kind of accounting distortions. However, NPV and DCF do not suit in performance evaluation because they are based exclusively on cash flows. EVA in turn suits particularly well in performance measuring. Yet, it should be emphasized that the equivalence with EVA and NPV/DCF holds only in special circumstances (in valuations) and thus this equivalence does not have anything to do with performance measurement. The Background of EVA EVA is not a new discovery. An accounting performance measure called residual income is defined to be operating profit subtracted with capital charge. EVA is thus one variation of residual income with adjustments to how one calculates income and capital. According to Wallace one of the earliest to mention the residual income concept was Alfred Marshall in 1890. Marshall defined economic profit as total net gains less the interest on invested capital at the current rate. According to Dodd the idea of residual income appeared first in accounting theory literature early in this century by e.g. Church in 1917 and by Scovell in 1924 and appeared in management accounting literature in the 1960s. Also Finnish academics and financial press discussed the concept as early as in the 1970s. The EVA-concept is often called Economic Profit (EP) in order to avoid problems caused by the trade marking. On the other hand the name "EVA" is so popular and well known that often all residual income concepts are often called EVA although they do not include even the main elements defined by Stern Stewart & Co. For example, hardly any of those Finish companies that have adopted EVA calculate rate of return based on the beginning capital as Stewart has defined it, because average capital is in practice a better estimate of the capital employed. So they do not actually use EVA but other residual Babasabpatilfreepptmba.com
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ESTIMATION OF COST VOLUME PROFIT AND ECONOMIC VALUE ADDED FOR SATISH SUGARS LIMITED GOKAK. income measure. This insignificance detail is ignored later on in order to avoid more serious misconceptions. In the 1970s or earlier residual income did not got wide publicity and it did not end up to be the prime performance measure in great deal of companies. However EVA, practically the same concept with a different name, has done it in the recent years. Furthermore the spreading of EVA and other residual income measures does not look to be on a weakening trend. On the contrary the number of companies adopting EVA is increasing rapidly. We can only guess why residual income did never gain a popularity of this scale. One of the possible reasons is that Economic value added (EVA) was marketed with a concept of Market value added (MVA) and it did offer a theoretically sound link to market valuations. In the times when investors demand focus on Shareholder value issues this was a good bite. EVA or economic rent is widely recognized tool that is used to measure the efficiency with which a company has used its resources. In other words EVA is the difference between return achieved on resources invested and the cost of resources. Higher the EVA betters the level of resources unitization. EVA was developed by a New York consulting firm, stern steward and company in 1982 to promote value-maximizing behavior in corporate managers. It is a single, value based measure that was intended to evaluate business strategies, capital projects and to maximize long-term shareholders wealth. Value that has been created by the firm during the period can be measured by comparing profit with the cost of capital used to produce them. Therefore, managers can decide to with draw value destructive activities and invest in the market value of the company. However, activates that do not increase shareholders value might be critical to customers satisfaction or social responsibility. For ex, acquiring expensive technology to ensure that the environment is not polluted might not be of high value from shareholders perspective. Focusing solely on shareholders wealth might jeopardize a firm reputation and profitability in the long run. EVA sets managerial performance target and links it to reward systems. The single goal of maximizing shareholders value helps to overcome the traditional measure problem. Where different measure are used for different purposes with inconsistent standard and goal. Rewards will be given to managers who are able to turn investor money and capital into profit efficiency. Researchers have found that managers are more likely to respond to EVA incentives when making financial, operational and investing decision allowing them to be motivated to behave like owners. However this behavior might lead to some managers pursing their own goal and shareholders value at the expenses of customers satisfaction. Babasabpatilfreepptmba.com
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ESTIMATION OF COST VOLUME PROFIT AND ECONOMIC VALUE ADDED FOR SATISH SUGARS LIMITED GOKAK. Unlike simple traditional budgeting, EVA focuses on ends and not means as it does not state how manager can increase companys value as long as the shareholder wealth are maximized. This allows managers to have discretion and free range creativity, avoiding any potential dysfunctional short-term behavior. Rewards such as bonuses from the attainment of EVA target level are usually paid fully at the end of 3 years. This is because workers performance is monitored and will only be rewarded when this target is maintained consistently. Hence, leading to long-term shareholders wealth, EVA should help us identify the best investments, which are the companies that generate more wealth than their rivals. All other things being equal, Firm with high Evas should over time outperform others with lower or negative Evas. EVA is a financial measure based on accounting data and is therefore historical in nature. It has the same limitations as other traditional accounting measure and cannot adequately replace all measure within the company especially the nonfinancial ones. Due to the historical nature of EVA, manager can benefit in terms of reward or be punished by the past history of the organization. (Otley, David performance management 1999), Dodd J and Johns J see the balanced scorecard as one approach to overcome the potential problem of using a single financial measure such as EVA. The following are the important point of EVA. A value based financial performance measure. A measure reflecting the absolute amount of shareholders value created or destroyed during each year. A useful tool for choosing the most promising financial investments. An effective protection against shareholders value destruction. A tool suitable to control operations. A measure that can be maximized EVA has not steering failures like ROI and EPS (Maximizing these measures might lead to not optimal outcome; not max, shareholder value). An estimator for companys true economic value creation, unlike the traditional measure has focus on shareholders value creation. A good basis for management compensation systems to motivate managers to create shareholder value. A tool for useful than ROI in controlling and steering day-to-day operation. Babasabpatilfreepptmba.com
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ESTIMATION OF COST VOLUME PROFIT AND ECONOMIC VALUE ADDED FOR SATISH SUGARS LIMITED GOKAK. A concept practically the same as Economic Profit (EP), Residual Income (RI), and Economic Value Management (EVM). A registered trademark owned by Stern Steward & Co, supporting more than 250 large companies around the world.
Why EVA?
EVA Basic Premise Managers are obliged to create value for their investors investors invest money in a company because they expect returns. There is a minimum level of profitability expected from investors called capital charge. Capital charge is the average equity return on equity markets; investors can achieve this return easily with diversified, long-term equity market investment. Thus, creating less return (in the long run) than the capital charge is economically not acceptable (Especially from shareholders perspective).Investors can also take their money away from the firm they have other investment alternatives.
Economic Value Added (EVA) Now that you've viewed economic profit in action, you've likely observed that most of its perceived complexity results from two types of adjustments that convert accounting earnings into net operating profit after taxes (NOPAT). The goal of these adjustments is to translate an accounting profit into an economic profit that more accurately reflects cash invested and cash generated. The illustration below recaps the process.
To make the conversion, we can start with any income statement line, but it is easiest to start with earnings before interest and taxes (EBIT). Then we make Babasabpatilfreepptmba.com
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ESTIMATION OF COST VOLUME PROFIT AND ECONOMIC VALUE ADDED FOR SATISH SUGARS LIMITED GOKAK. two types of adjustments in order to convert EBIT into NOPAT. First, we reverse accruals to capture cash flows, and second, we capitalize expenses that ought to be treated like investments. Once we have NOPAT, we need only to subtract the capital charge, which is equal to total invested capital - which we find by making appropriate adjustments to invested book capital, found on the balance sheet - multiplied by the weighted average cost of capital (WACC).
Earning Before Interest (EBIT) Less : Interest Profit Before Tax Less : Tax Rate Profit After Tax Add : Interest Net Operating Profit After Tax (NOPAT)
526.40 200.50 325.90 38.72 287.18 200.50 486.78
1. In the year 2006-07
1) Calculation of NOPAT
Table no.5
(Rs.In lacks)
54
2) Computation of Weighted Average Cost of Capital (WACC)
Table no.6
(Rs. In lacks)
Source
Total Capital
Cost(%)
Total Cost
Debt
4,425.96
0.11
486.85
Equity
3,218.36
0.08
257.46.
Total Cost
7,644.32
744.32
WACC
744.32/ 7,644.32
0.0973*100
9.73%
Now we Calculate Economic Value Added
EVA = NOPAT (Total Capital * WACC) EVA = 487.68 (7,644.32 * 9.73%) Babasabpatilfreepptmba.com
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ESTIMATION OF COST VOLUME PROFIT AND ECONOMIC VALUE ADDED FOR SATISH SUGARS LIMITED GOKAK. EVA = 487.68 743.79 EVA = -256.11 So, in the 2006-07 Economic Value Added is Rs. -256.11
2) In the year 20007-08
EVA = NOPAT (Total Capital * WACC)
Working Notes:
1.Calculation of NOPAT Table no.7
(Rs.In lacks)
56
Earning Before Interest (EBIT)
1,676.22
Less : Interest
733.78
Profit Before Tax
942.44
Less : Tax Rate
109.09
Profit After Tax
833.35
Add : Interest
733.78
Net Operating Profit After Tax (NOPAT)
1,567.13
57
2) Computation of Weighted Average Cost of Capital (WACC)
Table no.8
(Rs. In lacks)
Source
Total Capital
Cost(%)
Total Cost
Debt
9,242.32
0.11
1,016.65
Equity
4,413.70
0.08
353.09
Total Cost
13,656.02
1,369.75
WACC
1,369.75/ 13,656.02
0.1003*100
10.03%
EVA = NOPAT (Total Capital * WACC) EVA = 1,567.13 ( 13,656.02* 10.03%) EVA = 1,567.13 (1,369.69 ) EVA = 197.43
So, in the 2007-08 Economic Value Added is Rs. 197.43. Babasabpatilfreepptmba.com

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3) In the year 20008-09
EVA = NOPAT (Total Capital * WACC) Working Notes:-
1. Calculation of NOPAT Table no.9
(Rs. Lacks)
Earning Before Interest (EBIT)
3,128.01
Less : Interest
1,433.77
Profit Before Tax
1,694.24
Less : Tax Rate
113.30
Profit After Tax
1,580.94
Add : Interest
1,433.77
Net Operating Profit After Tax (NOPAT)
3,014.71
59
2) Computation of Weighted Average Cost of Capital (WACC) Table no.10 (Rs.in lacks)
Source
Total Capital
Cost(%)
Total Cost
Debt
21,132.50
0.11
2,324.57
Equity
6,010.64
0.08
480.85
Total Cost
27,143.15
2,805.42
WACC
2,805.42/ 27,143.15
0.1033*100
10.33%
EVA = NOPAT (Total Capital * WACC) EVA = 3,014.71 ( 27,143.15.* 10.33%) EVA = 3,014.71 (2,803.88 ) EVA = 210.82 So, in the 2008-09 Economic Value Added is Rs. 210.82.
1. Net Operating Profit after Tax (NOPAT) NOPAT is derived by deducting cash operating expenses and depreciation from sales. An interest expense is excluded because it is considered as a financing charge. Adjustments which are referred to as equity equivalent adjustment are Babasabpatilfreepptmba.com
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ESTIMATION OF COST VOLUME PROFIT AND ECONOMIC VALUE ADDED FOR SATISH SUGARS LIMITED GOKAK. designed to reflect economic reality and move income and capital to a more economically based value. These adjustments are considered with cash taxes deducted to arrive at NOPAT.
Table no.11 (Rs.in lacks)
YEAR
NOPAT
2006-07
487.68
2007-08
1,567.13
2008-09
3,014.71
Chart 5
61
n o p at
4000 3000 2000 1000 0
YE AR 20 06 -0 7 20 07 -0 8 20 08 -0 9
ye a r
Interpretation In the year 2006-07 the NOPAT is Rs.487.68. In the year 2007-08 NOPAT is Rs.156.71. In the year 2008-09 we have seen that NOPAT has increased by Rs.3,014.71. compared to last year of interest and profits have increased in current compared year to last year.
2. Weighted Average Cost of Capital (WACC) WACC is the expected average future cost of fund over the long run found by weighting the cost of each specific type of capital by its proportion in the firms capital structure. Babasabpatilfreepptmba.com
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ESTIMATION OF COST VOLUME PROFIT AND ECONOMIC VALUE ADDED FOR SATISH SUGARS LIMITED GOKAK. Table no.12 Year 2006-07 2007-08 2008-09 WACC 9.73% 10.03% 10.33%
Chart 6
63
wacc
0.15 0.1 0.05 0 Year 200 6-07 year 200 7-08 200 8-09
Interpretation
In the year 2006-07 WACC is 9.73%, it has increased 10.03% in 2007-08 and also increased in 2008-2009 is 10.33%. because of the company is maintaining specific source of capital fund which is proportions to capital structure.
5. Economic Value Added (EVA) The EVA method is based on the past performance of the corporate enterprise. The economic principles are determine whether the firm is earning a higher rate Babasabpatilfreepptmba.com
64
ESTIMATION OF COST VOLUME PROFIT AND ECONOMIC VALUE ADDED FOR SATISH SUGARS LIMITED GOKAK. of return on the entire invest funds than the cost of such funds (Measured in terms of WACC), if the answer is positive, the firm management is adding to the shareholder value by earning extra for them.
Table no.13 (Rs.in lacks)
Year
EVA
2006-07
-256.11
2007-08
197.43
2008-09
210.82
Chart 7
65
eva
400 200 0 -200 -400 Year 200 6-07 year 200 7-08 200 8-09
Interpretation In the year 2006-07 the EVA is Rs. -256.11 and in the year 2007-08 the EVA is Rs. 197.43 and in the year 2008-09 the EVA is Rs.210.82. It indicated that higher the negative in 2007 because the company has taken major expantion during the year 2007 with the help term loan financial institutions at the rate of 11% and the revenue from paid expantion will be expected in future year. Interest cost is charge to the p&l a/c so it shows negative. In both 2 year 2008,2009 it indicate that higher positive EVA higher the profit of the company. So, the shareholder can invest higher amount in the company.
Consolidated statement of EVA and Net Profit Babasabpatilfreepptmba.com

66
Table no.14 Year 2006-07 2007-08 2008-09 EVA -256.11 197.43 210.82
(Rs.in lacks) Net Profit 287.18 833.35 1,580.94
Chart 8
netprofit
2000 year 1000 0 -1000 2006-07 2007-08 2008-09 eva EVA Net Profit
Interpretation. We can see a slight changes in EVA compare to netprofit.In 2007 net profit is positive and EVA is negative,in 2008 it increase Rs.197.43 and 2009 increse Rs.210.82 compare to last year and also net profit may be increased in three year. PART 5
Findings
67
The sales is increasing every year from 2007 to 2009 and similarly total cost increasing every year. EBIT is showing increasing trend in past three years, the rate of change in EBIT getting double in every compare to past year. So it shows that positive sign of the company. Net Operating Profit After Tax of the company has been increasing year by year. EVA indicates negative in 2007 because the company has taken major expantion during the year with the help term loan financial institutions and the revenue from paid expantion will be expected in future year. Interest cost is charge to the p&l a/c so it shows negative.
The P\v ratio fluctuates from 2007 to 2009.The lowest p\v ratio is 87% in 2008 and highest is 93% in 2009, because of high sales and high contribution.
WACC has increased last three years,it shows the cost of capital is maintained properly because the company has taken major expantion.
Suggestion
1) The fixed cost is found to be very very high it is 80 % of the total cost therefore to production should be enhanced. So that per unit cost is reduced.
68
ESTIMATION OF COST VOLUME PROFIT AND ECONOMIC VALUE ADDED FOR SATISH SUGARS LIMITED GOKAK. 2) Economic Value Added should be included in the balance sheet as it is the true indicator of the organizations health.
PART 6
Conclusion This study helps to know that the company operating in significant manner and the sales of the company increased from year to year and Babasabpatilfreepptmba.com
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ESTIMATION OF COST VOLUME PROFIT AND ECONOMIC VALUE ADDED FOR SATISH SUGARS LIMITED GOKAK. considerably profit also increased and some year the fixed cost is more so it needs to reduce its fixed cost. Economic Value Added can be every companys most useful metric and decision guide in the new economy. It is equally useful for the management of the people and the machines, the labour and the capital. EVA is a new tool in analyzing the companys financial performance, companies financial performance can be better understood with the help of EVA. As per my study the company is positive Economic Value Added for the past two year. So, company should satisfy and also shareholders can invest his money in this company.
PART 7
Bibliography
70
ESTIMATION OF COST VOLUME PROFIT AND ECONOMIC VALUE ADDED FOR SATISH SUGARS LIMITED GOKAK. Financial Management by books used from which I have taken help for the theory part of the study:
M.V. Khan & P.K. Jain
www.satishsugars.co.org
www.google.co.in
PART 8
Annexury Profit and Loss Account 2007-08
PARTICULARS
YEAR 2007 Babasabpatilfreepptmba.com
YEAR 2008
71
SALES EXPENDITURE COST OF RAW MATERIAL MANUFAFACTURE EXP. PROFIT BEFORE INTEREST INTEREST DEPRICIATION PROFIT BEFORE TAX TAXATION PROFIT AFTER TAX ADD PROFIT FORWARD EARLIAR YEAR PROFIT AVAILABLE FOR APPRPPRITION
5,340.97
9,281.24
4,143.67 577.59 619.70 200.50 93.28 325.90 38.72 287.18 14.99 302.17
6,089.77 1,196.14 1995.32 733.78 319.11 942.42 109.09 833.33 302.17 1135.51
BALNCE SHEET 2007-08
PARTICULAR SHARE HOLDERS FUNDS a) Share Capital b) Share Application Money c) Reserves and Money Total
YEAR2007
YEAR2008
2871.39 44.80 302.17 3218.36
2871.39 406.80 1135.51 4413.71

72
ESTIMATION OF COST VOLUME PROFIT AND ECONOMIC VALUE ADDED FOR SATISH SUGARS LIMITED GOKAK. Loans nad Funds a) Secured Loans b) Unsecured Loans Total Total Funds APPLICATION FUNDS 1) Fixed Assets a) Gross Block b) Less Depreciation c) Net Block d) Work In Progress Total 2) Investments 5632.90 180.06 5452.84 00 5452.84 3.17 9514.47 499.17 9015.29 224.31 9239.61 53.75 4405.86 20.10 4425.96 7644.33 8291.64 950.67 9242.32 13656.03
CURRENT ASSETS LOANS ADVANCES A) Inventaries B) Sendry Debtors C) Cash and Bank Balance D) Other current Assets E) Loans and Advances Total Less Current Liabilities and Provisions a) Current Liabilities b) Provisions Total 2443.44 37.09 2480.53 3671.46 155.82 3827.28 3334.40 338.44 263.59 147.75 510.36 4594.56 6114.67 402.69 882.96 129.23 530.45 8060.02
Net Current Assets
2114.02 Babasabpatilfreepptmba.com
4232.73
73
4)MISC. ASSETS
74.28
129.93
5) TOTAL ASSETS
7644.33
13656.03
74

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ESTIMATION OF COST VOLUME PROFIT AND ECONOMIC VALUE ADDED FOR SATISH SUGARS LIMITED GOKAK.

Consolidated statement of EVA & N/P 70

International Sugar Industry: Demand- Supply:

Sugar Prices: Babasabpatilfreepptmba.com

Sugarcane Availability: Table showing sugar cane availability in cultivated area:

Year 1980-81 1990-91 2000-01 2002-03 2003-04 2004-05

Cultivated area (%) 2.7 4.3 3.9 3.7

MMT 154 241 296 300 236

Khandsari 54.8 37.4 28.8 31.5 20.1 32.5

and chewing 11.8 11.8 11.5 11.1 11.1 11.4

Auditors: Mr. B.B.Amanagi Babasabpatilfreepptmba.com

Bankers: Indian Bank

PRODUCT PROFILE SUGAR

Drying and Cooling

Packed as plantation white Sugar

Centrifugation B Sugar used in a boiling as seed

VISION AND MISION

STUDY OF FUNCTIONAL DEPARTMENTS

BRIEF OUT LOOK OF THE FINANCIAL STATUS

Profit for the year ended Rs.833.33 lacks

HUMAN RESOURCE DEVELOPMENT DEPARTMENT

Methodology of information collected.

Primary sources. with

Sales % Increase in sales

EBIT % increase in EBIT

Net Profit % increase in N/P

Profit volume ratio

Profit volume ratio = contribution / sales * 100

Profit volume ratio

Break even sales Babasabpatilfreepptmba.com

The formula to calculate break even point is:

B.E.Sales = Fixed Cost P/V Ratio

Break even sales

Economic Value Added

EVA = (Net Operating Profit after Tax (Total Capital * WACC))

EVA = NOPAT CAPITAL COST

EVA = NOPAT COST OF CAPITAL x CAPITAL EMPLOYED (1)

526.40 200.50 325.90 38.72 287.18 200.50 486.78

1. In the year 2006-07

2) Computation of Weighted Average Cost of Capital (WACC)

Now we Calculate Economic Value Added

2) In the year 20007-08

EVA = NOPAT (Total Capital * WACC)

1.Calculation of NOPAT Table no.7

Earning Before Interest (EBIT)

Profit Before Tax

Less : Tax Rate

Profit After Tax

Net Operating Profit After Tax (NOPAT)

2) Computation of Weighted Average Cost of Capital (WACC)

Now we Calculate Economic Value Added

So, in the 2007-08 Economic Value Added is Rs. 197.43. Babasabpatilfreepptmba.com

3) In the year 20008-09

EVA = NOPAT (Total Capital * WACC) Working Notes:-

1. Calculation of NOPAT Table no.9

Earning Before Interest (EBIT)

Profit Before Tax

Less : Tax Rate

Profit After Tax