Chapter 1

COMPANY PROFILE
1.1 HISTORY
Milk fed is not an unknown name for the people of Punjab. It is very popular among the
people. There is a very long history behind this popularity.
In 1959, a village named 'Verka' near Amritsar, Chief Minister of Punjab Sardar Partap
Singh Kairon established a Dairy Development Corporation for safeguards of farmers
and increase dairy business. After some times four more Milk Plants were established i.e.
in Chandigarh, Mohali, Ludhiana and Bathinda. There after it progressed and the number
of Milk Plants roses to 8 Plants upto 1980. Before 1981 it is fully under the control of
Punjab Govt. But after it in 1981 the Govt. has developed its name from Punjab State Cooperative Milk Producers Union Ltd. into MILKFED Punjab. All the plants were
controlled by Head Office which is established at Chandigarh. Only one balance sheet
was prepared for all plants in Punjab and Profit & Loss for all the plants was prepared
collectively. But in 1981 all plants started to make their own Balance Sheet and calculate
Profit & Loss for their own plant. The fully Co-operative Society System was adopted
and presently is in continue.

1.2 MILKFED-PUNJAB
1.2.1 Introduction
The Punjab State Cooperative Milk Producers Federation Limited popularly known as
MILKFED Punjab, came into existence in 1973 with a twin objective of providing
remunerative milk market to the Milk Producers in the State by value addition and
marketing of produce on one hand and to provide technical inputs to the milk producers
for enhancement of milk production on the other hand.

Although the federation was registered much earlier, but it came to real self in the year
1983 when all the milk plants of the Punjab Dairy Development Corporation Limited
were handed over to Cooperative sector and the entire State was covered under Operation
Flood to give the farmers a better deal and our valued customers better products. Today,
when we look back, we think we have fulfilled the promise to some extent. The setup of
the organization is a three tier system, Milk Producers Cooperative Societies at the
village level, Milk Unions at District level and Federation as an Apex Body at State level.
MILKFED Punjab has continuously advanced towards its coveted objectives well defined
in its byelaws.

1.2.2 Objectives of MILKFED

1. To provide remunerative prices to milk producers by value addition and marketing of
produce.
2. To provide technical inputs for enhancement of milk production on the other hand.
3. To carry out activities for promoting production, procurement processing and
marketing of milk and milk products for economic development of the farming
community;
4. To purchase and/or erect buildings, plants, machinery and other ancillary equipment to
carry out business;
5. To study problems of mutual interest related to production, procurement and marketing
of dairy and allied products;
6. To establish research and quality control laboratories;
7. To make necessary arrangements for transfer of milk allied milk products and
commodities;
8. To market its products under its own trade name/brand name with its Member Unions
trade mark/brand;

9. To promote the organization of primary societies and assist members in organization of

the Primary Societies.

1.2.3 Critical analysis of Milkfed

Corporate Focus

MILKFED is serving the cause of Milk producers of the state in collaboration with
National Dairy Development Board by increasing the number of functional MPCSs from
4642 in 1990-91 to 6248 in 2000-01 and their membership rose by 90000 from 2.63lac in
1991 to 3.53lac during the same period. This has resulted in increase of milk procurement
from 1438lac in 1991 to 3371lac liter in 2000-01. However, rehabilitation plan of sick
Milk unions has yet to reach the implementation stage.

Strength/Care Competency/Opportunities:

MILKFED earned a net profit of Rs.3.19crore in 2000-01. Its core competency in

marketing of Milk &Milk products by creating a marketing infrastructure is serving a
social purpose by providing income to land-less laborers small and marginal farmers
scheduled caste families and households headed by women having just one or two cattle
only as nearly 90% of the member of Milk producers Cooperative Societies belong to
these categories
(Annexure 20) Operation Flood programmed of dairy development is implemented by
it in the state.
MILK VISION 2004 to stabilize the gap between Milk procured during peak seasons and
lean season has been drawn by MILKFED to optimally utilize Milk plants for reducing
their losses. Moreover, Model diary farms in collaboration with Technology information
and Assessment Council (TIFAC) are being developed by it at a capital outlay of
Rs.2.00crore.

Restructuring/revival

Export Ropar and Ludhiana Milk unions the remaining 9 unions are incurring losses.
Their combined accumulated looses are Rs.76.33crore as on 31-03-2001. This way,
cooperative Milk unions structure of MILKFED is losing its commercial viability over
the last two years by restricting itself to the sale of Milk and Milk products only and not
exploiting its well developed procurement sale and supply distribution channels to market
fresh vegetables and fruits along with processing and procurement of oil seeds. To make
these plants viable and socially sustainable the introduction of latest technology in Milk;
plants and full exploitation of its marketing strength in procurement and marketing
network is the need of the hour. MILKFED is a vital mechanism for more them one
reason in the Punjab context. First and foremost it is engaged in raising the viability of
Agriculture of the small/marginal farmers. Landless labors, families with no male earners
and the scheduled castes. It is therefore of utmost importance that the Government of
Punjab make its due contribution for the purpose of leveraging finances or the National
Dairy Development Board and other cooperative institutions. Infect, If necessary
Government should get District Milk Union Cooperative so that hitherto slow extension
is intensified and the
Maximum potential for cost reduction is achieved. The other important reason for
Government to support this activity even by subsides to induce a shift out of the paddywheat rotation by encouraging the cultivation of better seeds vegetable, Fruits and
eventually oil seeds and meat products.

1.3

GENERAL FEATURES OF MILK PLANT LUDHIANA

NAME:

Verka Milk Plant.

ADDRESS:

Verka Milk Plant

Ferozpur Road, Ludhiana

RAW MATERIAL:
PRODUCTS:

Milk.
Ghee, Pasteurized milk,
Milk powder, Curd, Cheese,
Milk Cake, Sweet flavored Milk

WORKING HOURS:

24 hours (3 shifts)

TOTAL WORKERS:

200 Workers in the Three Shifts

CAPACITY:

One Lakh Ltrs per day.

1.4

PROFILE OF THE UNIT

1.4.1 Introduction
Initially the Union was registered vide registration No. 931 dated 24.03.1973. The change
of name of Union was further registered on 20.7.1988 as The Ludhiana Distt. Co-op.
Milk Producers Union Ltd., Ludhiana. The area of operation of the union is whole
Ludhiana Distt. The main object of the union is to promote the economic interest of the
Milk Producers. The union organized co-op Milk Producers through these societies to
achieve the object, but union has failed to achieve object of collecting milk as per
capacity of the plant, which is one lac litres daily & some proposed organized societies
not got registration after completions of 90 days. Although union renders technical and
veterinary facilities & arranges to distribute the cattle feed and fodder seeds to the
producers, but it is not appropriate. Milk products sold through consignee branches at the
rates fixed by Milkfed without keeping in view the cost of production and upward trend
of marketing. The attention of Management is drawn towards the sale price of products as
these rates are less than cost price, so the sale policy should be reviewed.

1.4.2 Financial Position

The financial position of the plant is very deteorating. The plant is in loss many years.
Accumulated losses of the plant are increased year by year. During the period under audit
the plant increased loss to the tune of Rs. 22524084.90. Total Losses of the plant
399656833.29. The main reason of the loss is due to low procurement of milk, which
resulting plant run under capacity. The other reason is interest burden on working capital
and loans from NDDB.

1.4.3 Capacity Utilization

Verka milk Plant, As per information made available to audit, the total production /
processing capacity of the plant is 2.25 lac ltr. Milk daily. ( 1.05 lacs processing plant and
1.20 lacs ltr powder plant) but handling capacity is about one lac liters daily.
The Three years comparative figures is as below:-

Items

Capacity
Per day

Capacity Utilized
2009-10

2010-11

2011-12

________________________________________________________________________
Milk
SMP
Ghee
Paneer
Curd

100000 Ltr
10000 Kg.
6000 Kg
200 Kg
600 Kg.

52449

59776

57975

(52%)

(60%)

(58%)

1101

1624

968

(11%)

(16%)

(10%)

996

1701

1362

(17%)

(28%)

(23%)

178

162

1218

(89%)

(81%)

(109%)

240

235

306

(40%)

(39%)

(51%)

Though the capacity utilization decreased in the current year as compare to the previous
year but under utilization of installed capacity of the plant is the main cause of loss of the
plant. The management is advised to take efforts for collection of milk, though the
capacity of the plant is fully utilized

1.4.4 Management
ORGANISATIONAL STRUCTURE OF THE UNIT

GENERAL MANAGER

Manager

Manager

Manager

Manager

Manager

Production

Marketing

Accounts

Procurement

Q. Control

Dy. Manager

Dy. Manager

Dy. Manager

Dy. Manager

Dy. Manager

Production

Marketing

Accounts

Procurement

Q. Control

Pack. Sup/Plant Op

FSR

Jr. Plant Op.

Salesman

Workers

Workers

Accountant
Jr. Accountant
Clerk

MPS
MPA

Chemist
Lab Asstt.
Lab Attendant

DHCC

MANAGEMENT OF MILK PLANT BOARD OF DIRECTORS DESIGNATION

1.

Sh. Kewal krishan

GENERAL MANAGER

2.

Sr. Kushpal Singh

CHAIRMAN

3.

Sr. Nirmal Singh

DIRECTOR

4.

Sr. Gurminder Singh

DIRECTOR

5.

Sr. Naib Singh

DIRECTOR

6.

Sr. Navtej Singh

DIRECTOR

7.

Sr. Harjinder Singh

DIRECTOR

8.

Sr. Sukhjinder Singh

DIRECTOR

9.

Sr. Shamsher Singh

DIRECTOR

10.

Sr. Jarnail Singh

DIRECTOR

11.

Sr.Gurnam Singh

DIRECTOR

12.

Sr.Naginder Singh

DIRECTOR

1.4.5 MEMBERSHIP
Membership as on 31.3.12 is as under:Particulars

Membership Members admitted

Membership Membership

as on

during

cancelled

1.4.11

the year

during year

as on
31.03.12

M.P Societies 482

13

489

Pb. Govt.

---

-------

483

13

490

There is increase of thirteen members during the period under audit.

137 cancelled societies have been stand as members of the union. List of the cancelled
societies is annexed at page no. of the report. Although pointed out in previous
year reports for correction, but the management paid no attention in this respect.
Although the resolution of the board has been passed for correction, so management is
advised to correct the membership register.
I the undersigned auditor have audited the Balance Sheet, Profit & Loss Account for the
year ending 31st March 2011 and also examined account books for the said period subject
to the given remarks / comments in the succeeding paragraphs:-

1.4.6 LOCATION AND LAYOUT

In the milk plant there are hard receiving departments: Production and Engineering. The
location of the stores department is carefully planned out and it is housed in a position
which is very near to production department so that transportation charges are minimum.
It is also easily accessible to all other departments like engineering, boiling, refrigeration,
powder plant and workshop. The layouts of plants store are properly planned. There are
shelves, racks, admirals and handling devices for keeping the material and equipments
properly. The store is divided into racks which are further sub-Divided into small spaces
allocated. Special attention is paid to storage of material which is liable to leakage or
evaporation and deterioration.

1.5 MILK PROCUREMENT IN DIFFERENT SEASONS

Milk Plant Ludhiana procures milk in three seasons. First comes the lean season i.e. the
months of May. June, July and August. In this season milk is available in very low
quantity i.e. 25000 liters per day. The second season is mid-season i.e. the months of
March, April, September and October. In this season the procurement of milk is about
50000 liters per day. The most awaiting season is flush season i.e. the months of
November, December, January and February. In this season the procurement of milk is
maximum i.e. 65000 liters.

10

1.5.1 MILK PROCUREMENT IN LAST 7 YEARS:

Year saver age milk procurement per day (in liters) total milk handling.
2009- 85000 liters per/day
2010- 80000 liters per/day
2011- 70000 liters per/day
2012- 75000 liters per/day
2013- 70000 liters per/day
2014-65000 liters per/day
2015- 60000 liters per/day
2016- 62000 liters per day

1.5.2 MAIN CENTRES AND THEIR BRANCHES:

About 300 milk producing societies come under Milk Plant Ludhiana which is operating
in the whole Ludhiana district. All these are divided into six main centers which are as
under:
LOCAL LUDHIANA
MOGA
MULLANPUR

140
50
30

JAGROAN

30

SAHNEWAL

30
11

(A) MILK PROCUREMENT PER DAY

NAME OF THE SOCIETYMILK PER DAY (in liters)
Local Ludhiana

40000

Moga

8000

Jagroan

5000

Sahnewal

7000

(B) PRODUCTION
Production is the foundation on which every organization is built. Production is an
internal act of producing something in an organized manner. It is the fabrication of a
physical object through the use of men, Material and equipment. Thus the basis of
production is the transformation of inputs into goods and services. In milk plant Ludhiana
two different plants are established for the production of Ghee and SMP. These are called:
1.

Powder Plant.

2.

Production plant.

In powder plant Skimmed Milk Powder is prepared from spreta milk which comes from
production department. In production plant Ghee is prepared from cream after its
separation from milk. Here pasteurized milk is also prepared. Sometimes milk cake is
also prepared according to its requirement. In addition to it there are arrangements for
filling sweet milk bottles. Powder and Ghee are made only in flush season when milk is
available in large quantity. In lean season production fails because of non-availability of
milk. In months of May, June, August is done; sometimes glucose is made here on
contract basis.

12

(C) QUALITY CONTROL

Quality control includes techniques and systems for the achievement of the required
quality of the raw material as well as final products. Most often milk vendors adulterate
the milk in such a way that normally consumers are to be fooled. Consumers remain
obvious to the various ways and means adopted by milk vendors to adulterate milk. Here
are some eye openers:
1.

Urea, caustic soda and salt are added to thicken the milk.

2.

Milk powder is also used for thickening and usually the powder used is substandard.

3.

Synthetic milk is added to pure milk to increase the quantity.

4.

Sometimes pure milk is separated, the cream is removed and the skimmed milk
powder is added to it.

(D)

ACCOUNTING

Accounting is the art of recording, classifying and summarizing in a significant manner,

and in terms of money transactions and events which are in part at least of financial
character and interpreting the results thereof. In milk plant Sangrur this section performs
the functions of maintaining the accounts of stores material and milk products by union
and to make payments at right time. Like this to maintain the accounts of milk and milk
products sold by the union and to receive the payment for goods sold to consumers,
concerned sections and branches. The bills are prepared by accounts branch according to
10 days milk purchase from producers and societies. It is the duty of this section to
maintain the accounts according to rules and regulations mentioned by Registrar Cooperative Department and to follow the restrictions and suggestions imposed by auditor.

13

(E) MARKETING
Milkfed Punjab is serving nationwide consumers through its network of regional offices
and strong distribution channels. Milkfed markers a wide variety of products liquid milk,
skimmed milk powder and many more.

1.6 MARKETING STRATEGY OF MILKFED, PUNJAB

Milkfed is serving nationwide consumers through its network of Regional offices and
very strong Distribution channels. Milkfed markets a wide range variety of Verka
products which include liquid milk, skimmed milk powder, whole milk powder, infant
food, ghee, butter, cheese, lassi, SFM, Ice Cream, Malted food etc. The annual turnover
of milkfed has crossed Rs.931 crores. Verka is a brand leader in milk powders
particularly in northern eastern sectors and SMP marketed by MILKFED commands a
premium price over powders manufactured by competitors which include multi-national
as well as private trade and other Cooperative Federations. Now Verka is known for its
quality, freshness, purity and of course its homemade taste.

1.6.1 EXTENSION OF THE BRAND

After winning faith of innumerable consumers, Verka did not stop. Changing times
brought new trends, needs, tastes and hopes. Verka, dynamic as ever too acquired newer
forms of adding values to milk and milk products. Apart from introducing new variants of
UHT long shelf life milk and SFM in carry away bottles, Milkfed has a plan to add more
variety of flavours in SFM. VERKA Ice Cream in different flavours and packagings is
available in the market. Many new products are in pipe line. In true sense, milk had never
meant so much before.

14

1.7 MAJOR COMPETITORS OF MILKFED PUNJAB

AMUL
Amul was formally registered on Dec 14,1946. It was suggested by a quality control
expert in Anand. Some cite the origin as an arcronym to (Anand Milk Producers Union
Limited). The Amul revolution was started as awareness among the farmers. It grew and
matured into a protest movement that was channeled towards economic prosperity.
GUJRAT COOPERATIVE MILK MARKETING FEDERATION
In 1954, kaira District Co-op Milk Producers' Union built a plant to convert surplus milk
produced in the cold seasons into milk powder and butter. In 1958, a plant to manufacture
cheese and one to produce baby food were added. Subsequent years saw the addition of
more plants to produce different products. In 1973, the milk societies/district level unions
decided to set up a marketing agency to market their products. This agency was the
GCMMF. It was registered as a co-op society on 9 July 1973.
NESTLE
Nestle realtionship with India dates back to 1912, when it began trading as The Nestle
Anglo-Swiss Condensed Milk Company (Export) Limited, importing and selling finished
products in the Indian Market. Nestle has been a partner in India's growth for over nine
decades now and has built a very special relationship of trust and commitment with the
people of India. The company's activities in India have facilitated direct and indirect
employement and provides livelihood to about one million people including farmers,
suppliers of pacakaging materials, services and other goods.
MOTHER DAIRY
Since 1974 millions of consumers in Delhi have been walking up to the goodness and
freshness of mother dairy milk. Mother Dairy has established itself as an integral part of
their lives be it in terms of providing pure wholesome milk or rich, delicious milk
products. The drop logo, used by coopratives across the country is a symbol of purity.

15

1.8 THE PROMOTERS

The company is promoted by two young entrepreneurs Gagan Matta and Garry Matta
under the visionary guidance of their respected father Mr. Kulwant Singh Matta. Gagan
Matta migrated to Canada in the year 1996 and with the support of his brother Garry
Matta back in India established a successful company GLOBAL TRADERS engaged
in the distribution of all types of Grocery, Food Products, Fruits & Vegetable and Articles
of Daily use all across Canada . With a very strong dealer and distribution network Gagan
Matta presently is the sole distributor of the products of various internationally acclaimed
Companies and Brands like Brooke Bond Red Label, Lipton, Taj Mahal from
Unilever/Hindustan Lever, Bikano Namkeens and Sweets from Bikanervala, Sohna Saag
from Markfed Punjab, World Famous Tilda Rice and Golden Temple Atta, Biscuits from
Britannia, Verka Ghee & Paneer, Mazza Mango Juice from Parle, Chetak Cookware and
many more.
These two enterprising young men have also successfully promoted a famous brand
Mr. Orange. It has become a national brand in just two years of its launch in
Dec. 2004.
Now they are poised to launch a famous Indian Food Chain in North America.

16

1.9 ACHIEVEMENTS
Milk Procurement: Milk Plant SANGRUR procured about 55,000 Lt. of milk per day through 19 Milk routes
in the Flush Season.
Animal Health Care & Other Technical Inputs: In addition to Organizing the remunerative Milk market system Through milk producers
cooperative societies, Milk Plant is also providing regular health coverage by running 2
vet nary routes and 55 Artificial Insemination Service Stations at Society level.
Genetic Improvement of Milch Animals Under this, lay inseminators are trained who are
in-turn, doing Artificial Insemination at the door steps of Dairy Farmers.
Supply of Balanced Cattle Feed: Special attention has been paid to the supply of balanced cattle feed to the milk producers
so as to enhance the milk production. Four types of cattle feeds are being supplied i.e. ISI
Type, High Energy, Bye Pass Protein Feed & Buffalo super feed to meet the requirements
of Milk Producers.
Supply of Improved Varieties of Fodder Seeds: A cow does not produce ample milk without ample fodder. Through research and seedfarms, Milkfed has worked t provide the farmers high yielding forages at low cost.
Fodder Development activities initiated by Milkfed have created a good demand for
improved fodder seeds in Punjab. Milkfed established its own seed processing unit in
1985, the unit is automated and has the capacity to grade 16 million tons of fodder seed
per day.

17

 Quality Assurance Program:

Quality Assurance Program (QAP) which is a part and parcel of Dairy Plant
Improvement Program (DPIP) was taken up in Ludhiana Milk Union with the Technical
guidance from NDDB. The main objective of the program is to improve efficiency of
Plants coupled with loss management to bring down the cost of production, improve the
quality of milk and milk products manufactured to ameliorate the general hygienic and
house keeping standards and above all to enhance the profitability and financial viability
of the Milk Plants to enable milk producers to get better price for their produce.

1.10

MAIN PRODUCTS MANUFACTURED BY MILK

PLANT:
The main products which are manufactured by the milk plant Ludhiana are as under:
1.

Ghee.

2.

Pasteurized Milk.

3.

Milk Powder.

4.

Sweetened Flavored Milk (PIO).

5.

Milk Cake.

6.

Cheese.

7.

Curd.

8.

Panjiri

9.

Lassi Plan

18

10.

Paneer

1.10.1 DISTRIBUTION CHANNEL

MILKFED

COMPANY

WHOLESALER

RETAILER

CUSTOMER

19

1.10.2 PRODUCTS OF VERKA

Milkfed has formulated company specifications for its milk & milk products. .

Milk

Cheese

SFM(Pio)

Ghee

Ice cream & Sweets

Milk Powder

Curd, Kheer...

Table Butter

Rasella

Plan Lassi

Paneer

Panjiri

Milk Cake
Now Verka has arrived on the sheer strength of its quality, freshness and purity and of
course its home made taste and its products being of most affordable prices. To people
today, Verka is part of their daily life.
1. Liquid Milk Pasteurized Pouch Packed Milk:It is pouch packed milk. It may be used as such or for milk based preparations. It shall be
kept under refrigerated conditions. It is packed in half ltr. Pouch. Its length of shelf life is
48 hours under refrigerated conditions. It is sold in arid around Ludhiana, badowal,
Mullanpur , Kohara areas. Special distribution control is needed, under refrigerated

20

condition if transported to very long distance. Verka Milk Plant is preparing three types of
milk pouch:-

Standardized Milk

Full Cream Milk

Double Toned Milk

2. Milk Powder:Dried Milk or Milk Powder is product obtained by the removal of water from milk by
heat or other suitable means to produce a solid containing 5% or less moisture. Whole
milk, defatted or skim" milk may be used for drying. It comes in packing of 200 gms, 500
gms. etc. It can be stored for 1 year before use.
3. Ghee:Ghee may be defined as clarified butter fat prepared chiefly from cow or buffalo milk.
The product can be used on roti/pranthas or can be used as cooking other material for
food. It is preserved at ambient temperature for one year. It is packed on 500 gms, 2 Kgs.,
5 Kgs. & 15 Kgs. bulk pack in tin. It is sold anywhere in Punjab and abroad also. No
special distribution control is needed.
4. Butter: Butter may be defined as a fat concentrate which is obtaining by churning cream,
gathering the fat into a compact mass and then working it.
The product obtained from cow and buffalo milk or a combination thereof or from cream
or curd obtained from cow or buffalo milk or a combination thereof, with or without the

21

addition of common salt and colouring matter. It can be kept under refrigeration for three
months. This comes in packs of 10 gms. 100 gms. And 500 gms.
5. Lassi:Lassi, also called chhas refers to desi butter milk which is by product obtained when
churning curd led whole milk with curd indigenous devices for the production of desi
butter. Verka Lassi is very popular, especially in Punjab and it is also liked by the people
of other states. It comes in the 200 ml. tetra pack.

6. SFM:It is known as Sweetened flavoured milk or bottle milk. The product used in the form of
drinking sweet milk. It is preserved at ambient temperature. It is packed in 200 ml. bottle,
200 ml. tetra packs. The length of shelf life of product can be held far three months under
ambient temperature. It is sold in and around Punjab and upcountry market mainly Delhi.
7. Ice Cream:Ice Cream may be defined as a frozen dairy product made suitable blending and
processing of cream and other milk products, together with sugar and flavour, with or
without colour and with the incorporation of air during the freezing process. There are
mainly three types of Verka Kulfies i.e. Malai Kulfi, Choco bar and Mango bar. Malai
Kulfi made with milk, malai and
Crushed nuts. Choco bar contained chocolate and Mango bar kulfi contain mango
flavour.
22

8. Paneer:Paneer refers to the small sized soft cheese. The product can be consumed as such or can
be fried and consumed. It can also be used as an ingredient for making Indian Sweets and
paneer based dishes. It is preserved under refrigerated condition for 20 days from the date
of packing. The product is packed in poly film bags. The pack size is 200 gms. For
consumer pack and 5 Kg. Capacity in bulk pack as agreed by contracted buyer.

9. Curd/Dahi:Dahi or curd is the product obtained from boiled milk by souring, natural or otherwise, by
a harmless lactic acid or other bacterial culture. It should have the same percentage of fat
and solids - not - fat as the milk for which it is prepared.

10. Raseela:Raseela is a very popular product of Verka which was launched in 1995. It comes in two
flavours - i) Mango Raseela and ii) Pine apple Raseela. Mango Raseela is prepared from

23

mango pulp and Pineapple Raseela from pineapple pulp. These are coming in 200 ml.
tetra pack.

1.11 SWOT ANALYSIS OF THE PLANT

Strengths:1.

Good brand image of Verka products in the mind of people.

2.

Brand Loyalty among the people for Verka products.

3.

Faith on Verka products by the rural and urban population.

4.

Rural people satisfaction with quality, price, quantity and availability .

Weaknesses:1.

Lack of proper advertisements by the plant, such as posters, glow signs, etc.

2.

Lack of proper distribution system.

3.

Lack of proper marketing network in rural areas as like in urban areas.

4.

Very high rates of products such as sweet lassi Rs.10/100g only.

Opportunities:1.

Greatly improved expert potential for milk products of western as well as

traditional types.

2.

Proper utilization of available resources to decrease the per unit cost.

3.

By product utilization for import substitution.

4.

Growing demand for milk and milk products.

5.

Cost of procurement of raw milk could be decrease significantly.

24

Threats:1.

Introduction of foreign products in Indian market.

2.

Poor quality of raw milk.

3.

The liberalization of Dairy Industry is likely to be exploited by multi -nationals.

They will be interested in manufacturing milk products which yield high profits.
It will create milk shortage in the country adversely affecting the consumers.

5.

A large number of brands entering into dairy industry and there

increasing market share.

25

Chapter 2:
REVIEW OF LITERATURE
Review of literature is the most useful and simple method of formulating the research
problem. The researches done by previous researchers are reviewed and their usefulness
is evaluated to serve as basis for further research. Thus researcher reviews builds upon
the work of others. The reviews that are collected by the researcher should give an insight
into the field under study. The reviews must explain the need and scope of the study
under consideration. It is not necessary that the reviews are to be in accordance with the
objectives. Being a layman in the research field, I as a researcher have covered reviews
that are related to Credit Rating Agencies.

Ria Goel (2007):Ratio Analysis Milkfeed, Ratio Analysis is A tool used to conduct a quantitative analysis
of information in a company's financial statements. Ratios are calculated from current
year numbers and are then compared to previous years, other companies, the industry to
judge the performance of the company. Milkfeed, the leading independent Punjabs milk
house operator of more than 282stores, which has been voted the top rated brand by
consumers for the last six consecutive years. It had another year of solid progress, again
achieving revenue and profit growth. Its revenue gone up by 29% to 35 cr. where as in
year 2005 it was 29 Cr. Earnings before interest, tax , depreciation and amortization has
increased by 38% to 36 Cr. whereas it as 26 Cr. in year 2005. Operating profit (before
prior year goodwill write off) improved by 38% to 19 Cr.

26

Vadu Krishna(2008):Annual report analysis of Verka Milk Plant, Mohali, Financial statements provide an
overview of a business' financial condition in both short and long term. They help in
understanding the past performance of the company and making future predictions about
the company. It thus helps us to look beyond the profit figures. There are 3 basic financial
statements are used. They are income statement, balance sheet and cash flow statement,
the purpose of financial statements "The objective of financial statements is to provide
information about the financial position, performance and changes in financial position of
an enterprise that is useful to a wide range of users in making economic decisions."

Arunam Jain(2008):Ratio Analysis Of Verka Plant, Mohali, CURRENT RATIO. It is a liquidity ratio that
measures a company's ability to pay short-term obligations. Also known as "liquidity
ratio", "cash asset ratio" and "cash ratio". By putting to test a company's financial
strength, deduces company's ability to pay back its short-term liabilities (debt and
payables) with its short-term assets (cash, inventory, receivables).The higher the current
ratio, the more capable the company is of paying its obligations. An acceptable current
ratio varies by industry.

Generally, the more liquid the current assets, the smaller the

current ratio can be without cause for the concern.

Jitesh Chudasama(2009):Analysis Of Annual Report Of Milkfeed, Every limited company has to declare its
annual report at the end of every year.

It is compulsory for each and every limited

company to do so as per companys law.. The annual report of the company gives
financial position to the insiders and outsiders of the company. This project report gives
practical knowledge of financial analysis, which is prepared by me on financial analysis
of Milkfeed Ltd. for two years with interpretation. It covers financial Ratio Analysis,
Common Size statement and Comparative Analysis. This ratio is made in order to analyze
financial condition of MIlkfeed Ltd. including tables as and when required. The project to

27

prepare the financial analysis of an organization has bridged the gap between the
academics and the practical work.

Antonio C. David (2007):In this paper we attempt to analyze whether price-based controls on capital inflows are
successful in insulating economies against external shocks. We present results from
vector autoregressive (VAR) models, which indicate that Chile and Colombia, countries
that adopted controls on capital inflows, seem to have been relatively well insulated
against certain types of external disturbances. Subsequently, we use the autoregressive
distributive lag (ARDL) approach to co-integration in order to isolate the effects of the
capital controls on the pass-through of external disturbances to domestic interest rates in
those economies. We conclude that there is evidence that the capital controls have allowed
for greater policy autonomy.

Lilia Costabile(2004):A disequilibrium between saving and investment decisions determines a maladjustment
in production, the disruption of capital, and a downturn in economic activity, according to
the Austrian approach. By contrast, the Dynamists argue that it may lead to economic
growth, as disequilibrium may well be instrumental to capital accumulation. What
explains these different predictions in otherwise similar models? The key is in the
interplay between the analytical features and the ideological options underlying each of
these approaches: alternative lines of thought, entirely compatible with their analytical
models, were abandoned by some of these authors when they conflicted with their preanalytical views. This paper illustrates the argument by exploring the models of two
fathers, von Mises and Robertson.

28

Sasandifer(2009):Ratio Analysis Of Starbucks Vs Mcdonald's, McDonalds Corporation operates in the

food service industry. The company has its restaurants in more than 100 countries of the
world. McDonalds, the worlds largest food chain is headquartered in U.S. having an
employee population of 390000 (About McDonald's..., 2008), Starbucks Corporation,
Seattle based, Starbucks Corporation is the leading coffeehouse chain in the world. The
company has its operations in more than 44 countries. The main products offered by
Starbucks various kinds of drinks, snacks, coffee beans. The company also operates in the
field of marketing of music, books (The Company, 2008). Ratio Analysis.
Ratios Starbucks McDonalds
Current Ratio 0.79 0.80
Quick Ratio 0.30 0.67
Debt Equity Ratio 1.34 0.92
Proprietary Ratio 0.43 0.52
Solvency Ratio 0.57 0.48
Inventory Turnover Ratio 12.13 118.77
Gross Profit Ratio (%) 23.34 34.69
Net Profit Ratio (%) 7.15 15.67
Return on Proprietors' Funds (%) 29.45 15.67
Earning Per Share 0.91 2.06

29

Icarr (2006):Nike, Inc. Financial Ratio Analysis, In assessing the significance of various financial
data, experts engage in financial analysis, the process of determining and evaluating
financial ratios. A ratio is a relationship that indicates something about a company's
activities, such as the ratio between the company's current assets and current liabilities or
between its accounts receivable and its annual sales. The basic source for these ratios is
the company's financial statements that contain figures on assets, liabilities, profits, and
losses. Ratios are only meaningful when compared with other financial information.
Since compared with industry data, ratios help an individual understand a company's
performance relative to that of competitors, and used to trace performance over time
(Venture Line, 2005).

30

Chapter 3
OBJECTIVES OF THE STUDY
3.1 Objective
To learn the effective management of working capital.
To study the different components of working capital and its impact on the

performance of the firm.

To study the working capital management of Verka Milk Plant.
To study how Verka Milk Plant finances working capital requirements of the firms.
To study the operating cycle of the Verka Milk Plant.
To compare the working capital of the Verka Milk Plant, Ludhiana for five years.
To forecast the working capital required for next year
To study the financial position of plant through various ratios.

3.2

Need of the Study

This project increases the knowledge in the field of finance. This project helps in

analyzing the financial position of the company and helps in understanding the
companys strengths and weaknesses.

Chapter 4:

31

RESEARCH METHODOLOGY
4.1

Definition of Research

The word research is derived from the Latin word meaning to know. It is a systematic and
a replicable process which identifies and defines problems, within specified boundaries.
It employs well designed method to collect the data and analyses the results. It
disseminates the findings to contribute to generalize able knowledge.
The data used in this research was acquired from internet & web site of the firm.
The sample is based o the financial statement of the firm. In this research we have
provided two types of data analysis descriptive and quantitative.

4.2

Research design:

Research design is a blueprint or framework for conducting the research project. It

specifies the details of the procedures necessary for obtaining the information needed to
structure and solve research problems. The research design used in this study is
Descriptive research.
Primary Research: It is that type of research which is original in character.

4.3

Sampling Design:

Sampling design is defined as the section of some parts of an aggregate or totality on the
basis of which judgment or an inference about aggregate or totality is made .The steps
involved in sampling design are as follows:-

4.3.1 Universe:
Universe refers to the total of the units in field of inquiry. The universe for this
study is all the people living as well as working in and around Ludhiana.

4.3.2

Population:

Population of this study is investors of the Ludhiana.

32

4.3.3

Sample size:

Sample size is the total number of units which we covered in our study. The
sample size is 100.
4.3.4

Sample technique:

Sample technique of this study is random sampling technique.

4.4

Data Collections:
4.4.1 Primary Data:
Primary data are those, which are collected a fresh and first time, and thus happen
to be original in character .It is the backbone of any study.

4.4.2 Secondary data:

Secondary data are those which have already been collected by someone else and
which have already been passed through the statistical process.

4.4.3 Source of data:

Source of this research is both primary and secondary data. Primary data us
obtained from respondent with the help of widely used and well known method of
survey through a well-structured questionnaire and the secondary data is collected
from the internet, magazines, journals and newspapers.

4.5

Tolls and analysis:

The results of the analysis have been presented with the following:

4.6

Percentage
Table

Limitations of the research:

Even if I tried my level best to complete my project with no flaws but I faced certain
Limitations and some of those limitations are as follows:

33

 Respondents may have given bias information.

With respect to actual population the sample size was too small. This might be
effect the final result.
As non-probability sampling technique is used in the research so there will be
biasness.
Lack of adequate time.
Also it was difficult to collect data regarding the competitors.

34

Chapter 5:
WORKING CAPITAL MANAGEMENT
5.1

MEANING OF WORKING CAPITAL

Capital required for a business can be classified under two main categories via,
1)

Fixed Capital

2)

Working Capital

Every business needs funds for two purposes for its establishment and to carry out its
day- to-day operations. Long terms funds are required to create production facilities
through purchase of fixed assets such as p&m, land, building, furniture, etc. Investments
in these assets represent that part of firms capital which is blocked on permanent or fixed
basis and is called fixed capital. Funds are also needed for short-term purposes for the
purchase of raw material, payment of wages and other day to- day expenses etc.
These funds are known as working capital. In simple words, working capital refers to that
part of the firms capital which is required for financing short- term or current assets such
as cash, marketable securities, debtors & inventories. Funds, thus, invested in current
assts keep revolving fast and are being constantly converted in to cash and this cash flows
out again in exchange for other current assets. Hence, it is also known as revolving or
circulating capital or short term capital.

5.2 CONCEPT OF WORKING CAPITAL

There are two concepts of working capital:
1.

Gross working capital

2.

Net working capital

35

The gross working capital is the capital invested in the total current assets of the
enterprises current assets are those Assets which can convert in to cash within a short
period normally one accounting year. In a narrow sense, the term working capital refers
to the net working. Net working capital is the excess of current assets over current
liability, or, say:
NET WORKING CAPITAL = CURRENT ASSETS CURRENT LIABILITIES.
Net working capital can be positive or negative. When the current assets exceeds the
current liabilities are more than the current assets. Current liabilities are those liabilities,
which are intended to be paid in the ordinary course of business within a short period of
normally one accounting year out of the current assts or the income business.
The gross working capital concept is financial or going concern concept whereas net
working capital is an accounting concept of working capital. Both the concepts have their
own merits.
The gross concept is sometimes preferred to the concept of working capital for the
following reasons:
1.

It enables the enterprise to provide correct amount of working capital at correct time.

2.

Every management is more interested in total current assets with which it has to

operate then the source from where it is made available.

3.

It take into consideration of the fact every increase in the funds of the enterprise

would increase its working capital.

4.

This concept is also useful in determining the rate of return on investments in

working capital. The net working capital concept, however, is also important for
following reasons:

36

5.3 CLASSIFICATION OF WORKING CAPITAL

Working capital may be classified in two ways:

On the basis of concept.

On the basis of time.

On the basis of concept working capital can be classified as gross working capital and net
working capital. On the basis of time, working capital may be classified as:
1. Permanent or fixed working capital.
2. Temporary or variable working capital

5.3.1 PERMANENT OR FIXED WORKING CAPITAL

Permanent or fixed working capital is minimum amount which is required to ensure
effective utilization of fixed facilities and for maintaining the circulation of current assets.
Every firm has to maintain a minimum level of raw material, work- in-process, finished
goods and cash balance. This minimum level of current assts is called permanent or fixed
working capital as this part of working is permanently blocked in current assets. As the
business grow the requirements of working capital also increases due to increase in
current assets.

5.3.2 TEMPORARY OR VARIABLE WORKING CAPITAL

Temporary or variable working capital is the amount of working capital which is required
to meet the seasonal demands and some special exigencies. Variable working capital can
further be classified as seasonal working capital and special working capital. The capital
required to meet the seasonal need of the enterprise is called seasonal working capital.
Special working capital is that part of working capital which is required to meet special
exigencies such as launching of extensive marketing for conducting research, etc.

37

5.4 IMPORTANCE OR ADVANTAGE OF ADEQUATE WORKING CAPITAL

SOLVENCY OF THE BUSINESS: Adequate working capital helps in maintaining

the solvency of the business by providing uninterrupted of production.

Goodwill: Sufficient amount of working capital enables a firm to make prompt

payments and makes and maintain the goodwill.

Easy loans: Adequate working capital leads to high solvency and credit standing

can arrange loans from banks and other on easy and favorable terms.

Cash Discounts: Adequate working capital also enables a concern to avail cash

discounts on the purchases and hence reduces cost.

Regular Supply of Raw Material: Sufficient working capital ensures regular supply

of raw material and continuous production.

Regular Payment Of Salaries, Wages And Other Day TO Day Commitments: It

leads to the satisfaction of the employees and raises the morale of its employees,
increases their efficiency, reduces wastage and costs and enhances production and profits.

Exploitation Of Favorable Market Conditions: If a firm is having adequate working

capital then it can exploit the favorable market conditions such as purchasing its
requirements in bulk when the prices are lower and holdings its inventories for higher
prices.

Ability To Face Crises: A concern can face the situation during the depression.

Quick And Regular Return On Investments: Sufficient working capital enables a

concern to pay quick and regular of dividends to its investors and gains confidence of the
investors and can raise more funds in future.

High Morale: Adequate working capital brings an environment of securities,

confidence, high morale which results in overall efficiency in a business.

38

5.4.1 DISADVANTAGES OF INADEQUATE WORKING CAPITAL

Every business needs some amounts of working capital. The need for working capital
arises due to the time gap between production and realization of cash from sales. There is
an operating cycle involved in sales and realization of cash. There are time gaps in
purchase of raw material and production; production and sales; and realization of cash.
Thus working capital is needed for the following purposes:

For the purpose of raw material, components and spares.

To pay wages and salaries

To incur day-to-day expenses and overload costs such as office expenses.

To meet the selling costs as packing, advertising, etc.

To provide credit facilities to the customer.

To maintain the inventories of the raw material, work-in-progress, stores and

spares and finished stock.

5.5 EXCESS OR INADEQUATE WORKING CAPITAL

Every business concern should have adequate amount of working capital to run its
business operations. It should have neither redundant or excess working capital nor
inadequate nor shortages of working capital. Both excess as well as short working capital
positions are bad for any business. However, it is the inadequate working capital which is
more dangerous from the point of view of the firm.

39

5.5.1

DISADVANTAGES

OF

REDUNDANT

OR

EXCESSIVE

WORKING CAPITAL
1.

Excessive working capital means ideal funds which earn no profit for the firm and

business cannot earn the required rate of return on its investments.

2.

Redundant working capital leads to unnecessary purchasing and accumulation of

inventories.
3.

Excessive working capital implies excessive debtors and defective credit policy

which causes higher incidence of bad debts.

4.

It may reduce the overall efficiency of the business.

5.

If a firm is having excessive working capital then the relations with banks and other

financial institution may not be maintained.

6.

Due to lower rate of return n investments, the values of shares may also fall.

7.

The redundant working capital gives rise to speculative transactions

For studying the need of working capital in a business, one has to study the business
under varying circumstances such as a new concern requires a lot of funds to meet its
initial requirements such as promotion and formation etc. These expenses are called
preliminary expenses and are capitalized. The amount needed for working capital
depends upon the size of the company and ambitions of its promoters. Greater the size of
the business unit, generally larger will be the requirements of the working capital.
The requirement of the working capital goes on increasing with the growth and expensing
of the business till it gains maturity. At maturity the amount of working capital required is
called normal working capital.

40

There are others factors also influence the need of working capital in a business.

5.6 FACTORS DETERMINING THE WORKING CAPITAL

REQUIREMENTS
1. NATURE OF BUSINESS: The requirements of working is very limited in public
utility undertakings such as electricity, water supply and railways because they offer cash
sale only and supply services not products, and no funds are tied up in inventories and
receivables. On the other hand the trading and financial firms requires less investment in
fixed assets but have to invest large amt. of working capital along with fixed investments.
2. SIZE OF THE BUSINESS: Greater the size of the business, greater is the
requirement of working capital.

3. PRODUCTION POLICY: If the policy is to keep production steady by

accumulating inventories it will require higher working capital.

4. LENTH OF PRODUCTION CYCLE: The longer the manufacturing time the raw
material and other supplies have to be carried for a longer in the process with progressive
increment of labor and service costs before the final product is obtained. So working
capital is directly proportional to the length of the manufacturing process.

5. SEASONALS VARIATIONS: Generally, during the busy season, a firm requires

larger working capital than in slack season.

6. WORKING CAPITAL CYCLE: The speed with which the working cycle completes
one cycle determines the requirements of working capital. Longer the cycle larger is the
requirement of working capital.

41

Operating cycle

7.

RATE OF STOCK TURNOVER : There is an inverse co-relationship between the

question of working capital and the velocity or speed with which the sales are affected. A
firm having a high rate of stock turnover wuill needs lower amt. of working capital as
compared to a firm having a low rate of turnover.

8.

CREDIT POLICY: A concern that purchases its requirements on credit and sales

its product / services on cash requires lesser amt. of working capital and vice-versa.

9.

BUSINESS CYCLE: In period of boom, when the business is prosperous, there is

need for larger amt. of working capital due to rise in sales, rise in prices, optimistic
expansion of business, etc. On the contrary in time of depression, the business contracts,
sales decline, difficulties are faced in collection from debtor and the firm may have a
large amt. of working capital.

10. RATE OF GROWTH OF BUSINESS: In faster growing concern, we shall require

large amt. of working capital.

11. EARNING CAPACITY AND DIVIDEND POLICY: Some firms have more
earning capacity than other due to quality of their products, monopoly conditions, etc.

42

Such firms may generate cash profits from operations and contribute to their working
capital. The dividend policy also affects the requirement of working capital. A firm
maintaining a steady high rate of cash dividend irrespective of its profits needs working
capital than the firm that retains larger part of its profits and does not pay so high rate of
cash dividend.

12. PRICE LEVEL CHANGES: Changes in the price level also affect the working
capital requirements. Generally rise in prices leads to increase in working capital.

5.7 MANAGEMENT OF WORKING CAPITAL

Management of working capital is concerned with the problem that arises in attempting
to manage the current assets, current liabilities. The basic goal of working capital
management is to manage the current assets and current liabilities of a firm in such a way
that a satisfactory level of working capital is maintained, i.e. it is neither adequate nor
excessive as both the situations are bad for any firm. There should be no shortage of
funds and also no working capital should be ideal. WORKING CAPITAL
MANAGEMENT POLICES of a firm has a great on its probability, liquidity and
structural health of the organization. So working capital management is three dimensional
in nature as
1.

It concerned with the formulation of policies with regard to profitability, liquidity

and risk.
2.

It is concerned with the decision about the composition and level of current assets.

3.

It is concerned with the decision about the composition and level of current

liabilities.

43

5.8 WORKING CAPITAL ANALYSIS

As we know working capital is the life blood and the centre of a business. Adequate
amount of working capital is very much essential for the smooth running of the business.
And the most important part is the efficient management of working capital in right time.
The liquidity position of the firm is totally effected by the management of working
capital. So, a study of changes in the uses and sources of working capital is necessary to
evaluate the efficiency with which the working capital is employed in a business. This
involves the need of working capital analysis.
The analysis of working capital can be conducted through a number of devices, such as:
1.

Ratio analysis.

2.

Fund flow analysis.

3.

Budgeting.

5.8.1

RATIO ANALYSIS

A ratio is a simple arithmetical expression one number to another. The technique of ratio
analysis can be employed for measuring short-term liquidity or working capital position
of a firm. The following ratios can be calculated for these purposes:
1. Current ratio.
2. Quick ratio
3. Absolute liquid ratio
4. Inventory turnover.
5. Receivables turnover.

44

6. Payable turnover ratio.

7. Working capital turnover ratio.
8. Working capital leverage
9. Ratio of current liabilities to tangible net worth.

5.8.2

FUND FLOW ANALYSIS

Fund flow analysis is a technical device designated to the study the source from which
additional funds were derived and the use to which these sources were put. The fund flow
analysis consists of:
a.

Preparing schedule of changes of working capital

b.

Statement of sources and application of funds.

It is an effective management tool to study the changes in financial position (working

capital) business enterprise between beginning and ending of the financial dates.

5.8.3 WORKING CAPITAL BUDGET

A budget is a financial and / or quantitative expression of business plans and polices to be
pursued in the future period time. Working capital budget as a part of the total budge ting
process of a business is prepared estimating future long term and short term working
capital needs and sources to finance them, and then comparing the budgeted figures with
actual performance for calculating the variances, if any, so that corrective actions may be
taken in future. He objective working capital budget is to ensure availability of funds as
and needed, and to ensure effective utilization of these resources. The successful
implementation of working capital budget involves the preparing of separate budget for
each element of working capital, such as, cash, inventories and receivables etc.

45

5.9 ANALYSIS OF SHORT TERM FINANCIAL POSITION

OR TEST OF LIQUIDITY
The short term creditors of a company such as suppliers of goods of credit and
commercial banks short-term loans are primarily interested to know the ability of a firm
to meet its obligations in time. The short term obligations of a firm can be met in time
only when it is having sufficient liquid assets. So to with the confidence of investors,
creditors, the smooth functioning of the firm and the efficient use of fixed assets the
liquid position of the firm must be strong. But a very high degree of liquidity of the firm
being tied up in current assets. Therefore, it is important proper balance in regard to the
liquidity of the firm. Two types of ratios can be calculated for measuring short-term
financial position or short-term solvency position of the firm.
1.

Liquidity ratio.

2.

Current assets movements ratios.

5.9.1 LIQUIDITY RATIOS

Liquidity refers to the ability of a firm to meet its current obligations as and when these
become due. The short-term obligations are met by realizing amounts from current,
floating or circulating assts. The current assets should either be liquid or near about
liquidity. These should be convertible in cash for paying obligations of short-term nature.
The sufficiency or insufficiency of current assets should be assessed by comparing them
with short-term liabilities. If current assets can pay off the current liabilities then the
liquidity position is satisfactory. On the other hand, if the current liabilities cannot be met
out of the current assets then the liquidity position is bad. To measure the liquidity of a
firm, the following ratios can be calculated:

46

1.

CURRENT RATIO

2.

QUICK RATIO

3.

ABSOLUTE LIQUID RATIO

1. CURRENT RATIO
Current Ratio, also known as working capital ratio is a measure of general liquidity and
its most widely used to make the analysis of short-term financial position or liquidity of a
firm. It is defined as the relation between current assets and current liabilities. Thus,
CURRENT RATIO = CURRENT ASSETS
CURRENT LIABILITES
The two components of this ratio are:
1)

CURRENT ASSETS

2)

CURRENT LIABILITES

Current assets include cash, marketable securities, bill receivables, sundry debtors,
inventories and work-in-progresses. Current liabilities include outstanding expenses, bill
payable, dividend payable etc. A relatively high current ratio is an indication that the firm
is liquid and has the ability to pay its current obligations in time. On the hand a low
current ratio represents that the liquidity position of the firm is not good and the firm
shall not be able to pay its current liabilities in time. A ratio equal or near to the rule of
thumb of 2:1 i.e. current assets double the current liabilities is considered to be
satisfactory.

47

2. QUICK RATIO
Either with current ratio and acid test ratio so as to exclude even receivables from the
current assets and find out the absolute liquid assets. Absolute Liquid Assets includes :
ABSOLUTE LIQUID RATIO =

ABSOLUTE LIQUID ASSETS

CURRENT LIABILITES

ABSOLUTE LIQUID ASSETS = CASH & BANK BALANCES.

5.9.2 CURRENT ASSETS MOVEMENT RATIOS

Funds are invested in various assets in business to make sales and earn profits. The
efficiency with which assets are managed directly affects the volume of sales. The better
the management of assets, large is the amount of sales and profits. Current assets
movement ratios measure the efficiency with which a firm manages its resources. These
ratios are called turnover ratios because they indicate the speed with which assets are
converted or turned over into sales. Depending upon the purpose, a number of turnover
ratios can be calculated. These are :
1.

Inventory Turnover Ratio

2.

Debtors Turnover Ratio

3.

Creditors Turnover Ratio

4.

Working Capital Turnover Ratio

The current ratio and quick ratio give misleading results if current assets include high
amount of debtors due to slow credit collections and moreover if the assets include high
amount of slow moving inventories. As both the ratios ignore the movement of current
assets, it is important to calculate the turnover ratio.
48

1. INVENTORY TURNOVER OR STOCK TURNOVER RATIO :

Every firm has to maintain a certain amount of inventory of finished goods so as to meet
the requirements of the business. But the level of inventory should neither be too high nor
too low. Because it is harmful to hold more inventory as some amount of capital is
blocked in it and some cost is involved in it. It will therefore be advisable to dispose the
inventory as soon as possible.
INVENTORY TURNOVER RATIO =

COST OF GOOD SOLD

AVERAGE INVENTORY
Inventory turnover ratio measures the speed with which the stock is converted into sales.
Usually a high inventory ratio indicates an efficient management of inventory because
more frequently the stocks are sold ; the lesser amount of money is required to finance
the inventory. Where as low inventory turnover ratio indicates the inefficient management
of inventory. A low inventory turnover implies over investment in inventories, dull
business, poor quality of goods, stock accumulations and slow moving goods and low
profits as compared to total investment.
AVERAGE STOCK = OPENING STOCK + CLOSING STOCK
2
2. DEBTORS TURNOVER RATIO :
A concern may sell its goods on cash as well as on credit to increase its sales and a liberal
credit policy may result in tying up substantial funds of a firm in the form of trade
debtors. Trade debtors are expected to be converted into cash within a short period and
are included in current assets. So liquidity position of a concern also depends upon the
quality of trade debtors. Two types of ratio can be calculated to evaluate the quality of
debtors.
a)

Debtors Turnover Ratio

b)

Average Collection Period

49

DEBTORS TURNOVER RATIO = TOTAL SALES (CREDIT)

AVERAGE DEBTORS
Debtors velocity indicates the number of times the debtors are turned over during a year.
Generally higher the value of debtors turnover ratio the more efficient is the
management of debtors/sales or more liquid are the debtors. Whereas a low debtors
turnover ratio indicates poor management of debtors/sales and less liquid debtors. This
ratio should be compared with ratios of other firms doing the same business and a trend
may be found to make a better interpretation of the ratio.
AVERAGE DEBTORS= OPENING DEBTOR+CLOSING DEBTOR
2

AVERAGE COLLECTION PERIOD :

Average Collection Period = No. of Working Days
Debtors Turnover Ratio
The average collection period ratio represents the average number of days for which a
firm has to wait before its receivables are converted into cash. It measures the quality of
debtors. Generally, shorter the average collection period the better is the quality of
debtors as a short collection period implies quick payment by debtors and vice-versa.
Average Collection Period = 365 (Net Working Days)
Debtors Turnover Ratio

50

3. WORKING CAPITAL TURNOVER RATIO :

Working capital turnover ratio indicates the velocity of utilization of net working capital.
This ratio indicates the number of times the working capital is turned over in the course
of the year. This ratio measures the efficiency with which the working capital is used by
the firm. A higher ratio indicates efficient utilization of working capital and a low ratio
indicates otherwise. But a very high working capital turnover is not a good situation for
any firm.
Working Capital Turnover Ratio =

Cost of Sales
Net Working Capital

Working Capital Turnover

Sales
Networking Capital

5.10

FORECAST/ESTIMATION OF WORKING CAPITAL

REQUIREMENTS
Working capital is the life-blood and controlling nerve centre of a business. No business
can be successfully run without an adequate amount of working capital. To avoid the
shortage of working capital at once, an estimate of working capital requirements should
be made in advance so that arrangements can be made to procure adequate working
capital.

51

5.10.1

METHODS

OF

ESTIMATING

WORKING

CAPITAL

REQUIREMENTS:
The following methods are usually followed in forecasting working capital requirements
of a firm

Percentage of sales method

Regression analysis method
Operating cycle method
Projected balance sheet method

PERCENTAGE OF SALES METHOD

This method of estimating working capital requirements is based on the assumption that
the level of working capital for any firm is directly related to its sale value. If past
experience indicates a stable relationship between the amount of sales and working
capital, then this basis can be used to determine the requirements of working capital for
future period. The individual items of current assets and current liabilities are also being
estimated on the basis of the past experience as a percentage of sales. This method is
simple to understand and easy to operate.
CALCULATION OF WORKING CAPITAL
The sales are estimated to be Rs.300 crores in 2010-11 for Verka milk Plant Ludhiana.
So the calculations of working capital will be as follow

52

ESTIMATION OF WORKING CAPITAL REQUIREMENTS

Actual 2010-11
(Rs. In Crores)

Percentage to sales Estimate 2011-12

2010-11
(Rs. In crores)

283

100

300

Inventories

40.5

14.3

42.9

Debtors

0.74

0.3

0.9

Bank & Cash

4.7

1.7

5.1

Loan & Advance

3.2

1.1

3.3

Total (CA)
Current
Liabilities(CL)

49.14

17.4

52.2

Total (CL)
WC (CA-CL)

21.1
18.04

7.5
6.4

22.5
29.7

Sales
Current Assets (CA)

INTREPRETATION
Thus, when estimated sales for 2009-10 are Rs.300 crores, the amount of estimated
working capital shall be Rs. 29.7 crores.

REGRESSION ANALYSIS METHOD (AVERAGE RELATIONSHIP

BETWEEN SALES AND WORKING CAPITAL)
This method of forecasting working capital requirements is based upon the statistical
technique of estimating or predicting the unknown value of a dependent variable from the
known value of an independent variable. It is the measure of the average relationship
between two or more variables, i.e.; sales and working capital, in terms of the original
units of the data. The relationship between sales and working capital is represented by the
equation:
y=a+bx
Where, y= Working Capital (dependent variable)

53

a= Intercept of the least square

b= Slope of the regression line
x= Sales (independent variable)

OPERATING CYCLE METHOD

This method of estimating requirements is based upon the operating cycle concept of
working capital. The cycle starts with the raw material and other resources and ends with
the realization of the cash from the sale of finished goods. It involves purchase of raw
material and stores, its conversation into finished goods through work-in-process with
possessive increment in labour and service cost, conversion of finished stock into sales,
debtors and receivables, realization of cash and this cycle continues again from cash to
purchase of raw material and so on. The speed/time duration is required to complete one
cycle determines the requirement of working capital-longer the period of cycle, larger is
the requirement of working capital and vice-versa. The requirements of working capital
can be estimated as follows:
WORKING CAPITAL REQUIRED = COST OF GOODS SOLD *
OPERATING CYCLE (DAYS) / 365 DAYS + DESIRED CASH BALANCE

54

Chapter 6
DATA ANALYIS AND INTERPRETATION
CURRENT RATIO
Current Ratio may be defined as the relationship between current assets and current
liabilities. This ratio, also known as WORKING CAPITAL RATIO, is a measure of
general liquidity and is most widely used to make the analysis of short-term financial
position or liquidity of a firm. It is calculated by dividing the total of current assets by
total of the current liabilities.

CURRENT RATIO= CURRENT ASSETS/CURRENT LIABILTIES

Or CURRENT ASSETS: CURRENT LIABILTIES

YEAR

CURRENT ASSETS

CURRENT LIABILITIES

RATIO

2007-08

415426071.8

187074238.6

2.2

2008-09

437726389.4

209210246.9

2.1

2009-10

534484380.4

282521884.7

1.9

55

2010-11

489063838.4

189116321.3

2.6

2011-12

491346821.5

210738106.9

2.3

CURRENT RATIO GRAPH

INTERPRETATION
The current ratio is declining because the percentage increase in current liabilities is more
than the percentage increase in current assets. The liquidity position of the plant is
satisfactory as the ratio is higher than earlier years.

56

STOCK TURNOVER RATIO

Every firm has to maintain a certain level of inventory of finished goods so as to be able
to meet the requirements of the business. But the level of the inventory should neither be
too high nor too low.
It will therefore, be advisable to dispose of inventory as early as possible. On the other
hand, too low inventory may mean loss of business opportunities. Thus, it is very
essential to keep sufficient stocks in business.

STOCK TURNOVER RATIO= NET SALES/AVERAGE STOCK

AVERAGE STOCK= OPENING STOCK + CLOSING STOCK / 2

YEAR

NET SALES

AVERAGE STOCK

RATIO

2007-08

1892743815.6

225516918.5

8.4

2008-09

1979002580.2

235981784.1

8.4

2009-10

2327258993.8

311303615.3

7.5

2010-11

2768099090.6

350610904.8

7.9

2011-12
2832610376.4
350340464.7
STOCK TURNOVER RATIO GRAPH

8.1

57

INTERPRETATION
The Stock Turnover Ratio is increasing which means stocks are sold frequently. Thus, the
lesser amount of money is required to finance the inventory, which resulted in less
amount of working capital required in stock.

WORKING CAPITAL TURNOVER RATIO

Working Capital of a concern is directly related to sales, the current assets like debtors,
bills receivables, cash, and stock etc. change with the increase or decrease in sales.
Working Capital Turnover Ratio indicates the velocity of the utilization of the net
working capital. This ratio indicates the number of times the working capital is turned
over in the course of year. This ratio measures the efficiency with which the working
capital is being used by a firm. A higher ratio indicates efficient utilization of working
capital and a low ratio indicates otherwise. But a very high working capital turnover ratio
is not a good situation for any firm and hence care must be taken while interpreting the
ratio.

58

WORKING CAPITAL TURNOVER RATIO = NET SALES/NET WORKING

CAPITAL
NET WORKING CAPITAL = CURRENT ASSETS CURRENT LIABILTIES

YEAR

NET SALES

NET WORKING CAPITAL

RATIO

2007-08

1892743815.6

228351833.2

8.3

2008-09

1979002580.2

228516142.5

8.7

2009-10

2327258993.8

251962495.7

9.2

2010-11

2768099090.6

299947517.1

9.2

2011-12

2832610376.4

280608714.6

10.1

59

WORKING CAPITAL TURNOVER RATIO GRAPH

INTERPRETATION
The Working Capital Turnover Ratio is increasing from past five years which indicates
efficient utilization of working capital. For 2011-2012 ratio is 10.1. Thus financial
position of the plant is satisfactory.

60

BALANCE SHEET CONCEPT OF WORKING CAPITAL OF

VERKA MILK PLANT

NET WORKING

YEAR

CURRENT ASSETS

CURRENT LIABILITIES

2007-08

415426071.8

187074238.6

228351833.2

2008-09

437726389.4

209210246.9

228516142.5

2009-10

534484380.4

282521884.7

251962495.7

2010-11

489063838.4

189116321.3

299947517.1

2011-12

491346821.5

210738106.9

280608714.6

CAPITAL

61

NET WORKING CAPITAL LINE

INTERPRETATION
Hence it can be depicted from above graph that the financial position of Verka milk plant
in 2011-2012 is declining, But it has remain very much satisfactory for the past five
years.

OPERATING CYCLE OR CIRCULAR FLOW CONCEPT

The circular flow concept of working capital is based upon the Operating or working
capital cycle of a firm. The cycle starts with the purchase of raw material and other
resources and ends with the realization of cash from the sale of finished goods. It
involves purchase of raw material and stores, its conversion into sales, debtors and
receivables and ultimately realization of cash and the cycle continues again from cash to
purchase of raw material and so on. The speed/time duration required to complete one
cycle determines the requirements of working capital. Longer the period of cycle, larger
is the requirement of working capital.

62

Years

2007-08

2008-09

2009-10

2010-11

2011-12

Raw Material
Conversion Period

1 Day

1 Day

1 Day

1 Day

1 Day

Work-in-Progress
Conversion Period

2 Days

2 Days

2 Days

2 Days

2 Days

Finished Goods
Conversion Period

41 Days

44 Days

49 Days

47 Days

46 Days

Receivable Collection
Period

21 Days

19 Days

14 Days

7 Days

3 Days

Gross Operating Cycle

Period

65 Days

66 Days

66 Days

57 Days

52 Days

Credit Payment Period

22 Days

22 Days

26 Days

24 Days

21 Days

Net Operating Cycle

Period

43 Days

44 Days

40 Days

33 Days

31 Days

GRAPH

INTERPRETATION

63

Hence, it is depicted from the graph that Operating Cycle is decreasing from last five
years. It means funds invested in current assets are quickly converted into cash. Thus, the
plant has less requirement of working capital.

64

Chapter 7:
FINDINGS AND SUGGESTIONS OF THE STUDY
7.1

FINDINGS:

Working Capital Management is an important aspect of Financial Management.

The study of Working Capital Management of Verka Milk Plant has revealed that
Working Capital has decreased this year, But it has remain very much satisfactory
for the past five years.
Operating Cycle is decreasing from last five years. It means funds invested in
current assets are quickly converted into cash. Thus, the plant has less
requirement of working capital. It shows satisfactory liquidity position of the
plant.
Operating cycle period has decreased because Debtor Collection Period has
reduced considerably.
Estimated required working capital for next year is almost same as plant is
currently maintaining.
Current Ratio of the plant is decreasing because of percentage increase in current
liabilities is more than the percentage increase in current assets, But The liquidity
position of the plant is satisfactory as the ratio is higher than earlier years.
Stock Turnover Ratio is almost same for past five years.
The Working Capital Turnover Ratio is increasing from past five years which
indicates efficient utilization of working capital. Thus financial position of the
plant is satisfactory.

7.2 SUGGESTIONS:

65

Though the survey revealed that rural people like Verka's products to a great extent and
there is more demand of Verka brand but then also some people want a change in its
price, quality, quantity and some in availability. Therefore, to make its customers fully
satisfied, some measures should be taken which will also add to its sales and improve its
position in the rural market. So, there were some suggestions given by the people which
are summed up as follows:a)

Increase in profit margin:- Generally, shopkeepers are not satisfied with the

prices of 'Verka products'. They feel the products are bit expensive & provide a very little
profit margin. Some other dairy brand like Baba milk, Today milk give big share of
M.R.P. as profit margin compare to verka thus we should try to increase the profit margin.
So that market share of verka may increase and we could dominate the market.
b)

Distribution System should be improved:- Shopkeepers of large area are not

satisfied with the distribution system. So, distribution system should be improved and
verka should maintain its access even to small shopkeepers.
c)

Lack of Advertisement:- Significant no of shopkeepers have also complained

about the advertisement of the brand Verka. It should be made popular through more and
more advertisements and schemes so as to attract people of all age groups. More
hoardings should be put in villages and with the help of word of mouth more awareness
about products should be given
d)

Availability :- The products of Verka should be easily available in societies.

There are some area where Verka products are not available easily in societies. Therefore,
Verka should expand its market in rural area, so that products are available easily. More
variety of products should be send to the societies.
e)

Communication and soft skill training:- Some dealers complaint about the

behavior of delivery boys. They are the face of the company need to provide proper
training that who to deal with the shopkeepers and get work done.

7.3 RECOMMENDATIONS:

66

 Health consciousness among people is increasing day by day and thus there is
huge market for pro-biotic milk and milk products. So it should advertise its
product to capture that market.
Verka should sell its cattle feed to not only to society members but to other
dairy farmers as well.
Proper training should be given to all the employees.
Current ratio is more than the ideal ratio i.e. 2:1, it signifies Companys funds
are remaining idle & company should invest them. .
Plant should take control on Finished Goods Conversion Period which is on
higher side.
Plant has to take control on cash balance because cash is non earning asset and
increasing cost of funds.

7.4 LEARNINGS:
I came to know that Networking is an essential part of the job search process.
I gained valuable contacts and references.
I have been able to relate concepts and theories with practice.
I gained a broader perspective about working capital and its importance for
any firm.
I came to know about the method followed by Verka Milk Plant, Ludhiana for
computation of working capital requirement.
I came to know about the various ratios which help in determining the
performance of the company and help in taking better decision for the future.

67

Chapter 8:
CONCLUSION
While testing the short-term liquidity position, Current Ratio (Current Ratio, Absolute
Liquid ratio, Liquid ratio) and Efficiency Ratios (Inventory turnover ratio, Creditor
turnover ratio, Debtors turnover ratio and Working Capital turnover ratio) are not near to
the rule of thumb, it can be said that verka has not good short-term financial position.
While testing it profitability ratio is not good. However, gross profit ratio is fair.
Overall conclusion of the study is that the Financial Position of Verka is not good. The
short-term financial position is bad because current ratio, quick ratio and absolute ratio is
not satisfied.

Chapter 9
68

BIBLIOGRAPHY
1. BOOKS
BOOK
Management Accounting and Business Finance
Financial Management

AUTHOR
Shashi K. Gupta
I.M.Pandey

2. BROCHER/BOOKLET/MAGAZINE OF VERKA MILK PLANT

3. SEARCH ENGINES
*

www.milkfedpunjab.com

www.businessstandard.com

www.24/7.com

www.verka.com
www.milkfed.nic.in
-

www.milffed.org

www.indiaagronet.com/indiaagronet/Dairy.htm

www.punjabgovt.govt.in/government/milkfed.htm

69