PROJECT REPORT ON STUDY

OF

WORKING CAPITAL MANAGEMENT

AT

VERKA MILK PLANT BATHINDA

Submitted To: Submitted By: -

Mr. Sandeep Kumar (lec.) Ranjeet Kaur

Roll No. 428

MBA(IC) 3rd

1
 UNIVERSITY SCHOOL OF BUSINESS STUDIES

GURU KASHI CAMPUS, TALWANDI SABO

ACKNOWLEDGEMENT

I am highly indebted to the management of Verka Milk Plant Bathinda to undertake

me as training in their organization. I would like to thank specially to Mr. S. K.
Sharma (General Manager) for providing me an opportunity to undertake training at
Verka Milk Plant Bathinda.

I wish to express my gratitude towards Mr. A. K. Wadhwa for permitting me to work

under his guidance and cooperation. I have no words to express my gratitude to the
profound interest taken by him at every stage of the project. His encouragement and
support made my target easily achievable. I would also like to thank other office and
marketing staff of Verka Milk Plant Bathinda for their cooperation and helpful
behaviour.

I also express my sincere thanks to my parents and friends who always have been
source of inspiration to me and supported me morally and financially in every activity
during the training.

Above all I would like to thank almighty for showering

his blessings to complete the project.

2
PREFACE

For the completion of the BBA ll it has been mandatory to obtain an Industrial
Training in Finance. This training session really help me in gathering knowledge of
market.

I have prepared this project on the topic “Financial Analysis of Verka Milk Plant
Bathinda” in which I have written about how an organization can manage its working
capital in its daily business operations.

This report is prepared during training is life’s greatest treasure as it is full of

experience, observation and knowledge. The training held was very gainful as it took
us close to real life. This period also provide a chance to give theoretical knowledge a
practical result.

This report is a result of 45 days training that I have taken at verka milk plant bti. It has
been very educative and fruitful experience for me for it has given mean insight into
some practical experience.

I wish this great organization success so it may flourish and serve the nation and have
to achieve many goals.

3
 STUDENT DECLARATION

I hereby declare that the summer training report entitled submitted in the partial
fulfillment of the requirement for degree of BBA-II

To verka milk plant Bathinda is my original work and not submitted for the award of
any other degree, diploma or any other similar title or price.

Project guide: Name:

Mr. A. K. Wadhwa Ranjeet kaur

4
 CONTENTS

THE PROFILE

 Introduction Indian dairy industry

 Dairy Plants

 MILKFED-PUNJAB

 MILK PLANT BATHINDA

 MANAGEMENT BOARD OF DIRECTORS

5
  OUTLINE OF THE STUDY

 Objectives of the Study

 Scope of the Study

 Research Methodology

 Limitations of the Study

 Introduction to working capital

 Objectives and types of working capital

 Importance of working capital

 MAJOR FINDINGS

 BIBLIOGRAPHY

Introduction

The dairy sector in the India has shown remarkable development in the past decade
and India has now become one of the largest producers of milk and value-added milk
products in the world. The dairy sector has developed through co-operatives in many
parts of the State. During 1997-98, the State had 60 milk processing plants with an
aggregate processing capacity of 6 million lac liters per day. In addition to these
processing plants and 45 co-operatives milk chilling centers operate in the State.
6
With the increase in milk production. Maharashtra now regularly exports milk to
neighbouring states. It has also initiated a free school feeding scheme, benefiting more
than three million school children from over 19,000 schools all over the State.

Indian dairy industry

Dairy is a place where handling of milk and milk products is done and technology
refers to the application of scientific knowledge for practical purposes. Dairy
technology has been defined as that branch of dairy science, which deals with the
processing of milk and the manufacture of milk products on an industrial scale.

In developed dairying countries such as the U.S.A., the year 1850 is seen as the
dividing line between farm and factory-scale production. Various factors contributed
to this change in these countries, viz. concentration of population in cities where jobs
were plentiful, rapid industrialization, improvement of transportation facilities,
development of machines, etc. whereas the rural areas were identified for milk
production, the urban centres were selected for the location of milk processing plants
and product manufacturing factories. These plants and factories were rapidly expanded
and modernized with improved machinery and equipment to secure the various
advantages of large-scale production. Nearly all the milk in the U.S.A. before 1900
was delivered as raw (natural) milk. Gradually farmers within easy driving distance
began delivering milk over regular routes in the cities. This was the beginning of the
fluid milk-sheds which surround the large cities of today. Prior to the 1850s most milk
was necessarily produced within a short distance of the place of consumption because
of lack of suitable means of transportation and refrigeration.

The Indian Dairy Industry has made rapid progress since Independence. A large
number of modern milk plants and product factories have since been established.
These organized dairies have been successfully engaged in the routine commercial
production of pasteurized bottled milk and various Western and Indian dairy products.
With modern knowledge of the protection of milk during transportation, it became
7
possible to locate dairies where land was less expensive and crops could be grown
more economically.

In India, the market milk technology may be considered to have commenced in 1950,
with the functioning of the Central Dairy of Aarey Milk Colony, and milk product
technology in 1956 with the establishment of AMUL Dairy, Anand. The industry is
still in its infancy and barely 10% of our total milk production under goes organized
handling.

History of Indian Market Milk Industry:

Beginning in organized milk handling was made in India with the establishment of
Military Dairy Farms.

• Handling of milk in Co-operative Milk Unions established all over the country
on a small scale in the early stages.
• Long distance refrigerated rail-transport of milk from Anand to Bombay since
1945

• Pasteurization and bottling of milk on a large scale for organized distribution

was started at Aarey (1950), Calcutta (Haringhata, 1959), Delhi (1959), Worli
(1961), Madras (1963) etc.

Establishment of Milk Plants under the Five-Year Plans for Dairy Development all
over India. These were taken up with the dual object of increasing the national
level of milk consumption and ensuing better returns to the primary milk
producer. Their main aim was to produce more, better and cheaper milk.

Dairy Industry in India

8
More than 2,445 million people economically active in agriculture in the world,
probably 2/3 or even more ¾ of them are wholly or partly dependent on livestock
farming. India is endowed with rich flora & Fauna & continues to be vital avenue for
employment and income generation, especially in rural areas. India, which has 66% of
economically active population, engaged in agriculture, derives 31% of Gross
Domestic Product GDP from agriculture. The share of livestock product is estimated at
21% of total agricultural sector

Contribution of live stock sector to gross domestic product

(Percentage contribution)

1950-51 1990-91

63.5 67.0

12.0 16.0

4.1 3.1

1.3 0.3

16.5 10.0

Live stock populations:

Number of animals (in thousand)
(Source: production yearbook 1995 /FAO statistics division)

Sheeps Goats Pigs Chickens Cattle

45000 119242 11780 435 194655

Buffaloes Horses Mules Camels

79500 990 1742 1520

9
Milk Production

1950 – 17 million tonnes

1996 – 70.8 million tonnes

1997 – 74.3 mT

(Projected) 2020 – 240 mT

Expected to reach- 220 to 250 mT – 2020

India contributes to world milk production rise from 12-15 % & it will increase upto
30-35% (year 2020)

Milk Composition

Sr. Constituents Buffalo Cow Goat Liquid skimmed milk

no

1 Moisture (gm) 81.00 87.50 86.80 92.10

10
 2 Protein (gm) 4.30 3.20 3.30 2.50

3 Fat (gm) 6.50 4.10 4.50 0.10

4 Minerals (gm) 0.80 0.80 0.80 0.70

5 Carbohydrates (gm) 5.00 4.40 4.60 4.60

6 Energy calories (kcal) 117.00 67.00 72.00 29.00

7 Calcium (mg) 210.00 120.00 170.00 120.00

8 Phosphorus (mg) 130.00 90.00 120.00 90.00

9 Iron (mg) 0.20 0.20 0.30 0.20

Indian Buffaloes: (Dairy business Directory 1996)

Buffaloes are classified into two categories;

1) reverine (depending upon variation in their habitat & genome)

2) Swamp buffaloes: - 48 chromosomes

South East Asian countries

Stocky animals, marshy land habitat

River Buffaloes: - 50 chromosomes

- Massive in size and curled horns

- Prefer to enter clear water

India: leading most buffalo populated country 78 millions most of reverine

11
Milk production: About 95% of world buffalo milk (45.3 million tones) is produced
in Asia &Pacific, while 64.4% is produced in India (FAO.1992)

From 1950 to 1992 milk production in the world increased by 4.26%

The % of total bovines slaughtered;Total bovine slaughtered (%)

World 17.1 to 17.4% or - 1.6% per annum

India 15% per annum

Asia 6.6%

Increasing trend of buffalo population in most of the Asian countries in Brazil and
Italy

Production performance

Growth: The average birth wt.(Indian buffaloes) low 21 kg High 41 kg

Higher in male calves than in females
Average daily gain of 548 gm between 3-6 months404 gm between birth to 36 months
Body weight at first calving- ranges from
367kg(Dharwati)to531kg(NiliRavi)
Higher growth rate in reverine breeds than swamp

MILK PRODUCTION
Production performance of different breeds of Buffaloes:

Age at 1st calvingLactation. Lactation Length (days)

(months) Yield (kg)

Buffalo Avg. Range Avg. Range Avg (Range)

Murrah 43.0 39.9-54.5 1850 1476-2515 315(267-365)

12
 Nili Ravi 42.0 41.4-47.3 1765 1596-2808 2808 (09)

Dairy Plants:

India's modern milk supply goes back to December 15, 1950, when the Aarey Milk
Plant in Bombay launched the supply of pasteurized and bottled milk on large-scale for
the first time in India. Subsequently, over the years, the share of the organized sector
increased after the launching of Operation Flood in 1970.

From an insignificant 200,000 liters per day (lpd) milk processing in 1951, the
organized sector is presently handling over 20 million lpd in almost 500 dairy plants.
Already, one of the world’s largest liquid milk plants is located in Delhi, handling over
800,000 liters of milk per day (Mother Dairy, Delhi). India's first automated dairy
(capacity: 1 mlpd), Mother Dairy, Gandhinagar, was commissioned at Gandhinagar
near Ahmedabad, Gujarat, in Western India. It is owned by India’s biggest dairy
cooperative group, Gujarat Cooperative Milk Marketing Federation (GCMMF) in
Anand, with an annual turnover in excess of Rs 22 billion (US $500 million) in 1999.

Dairy Plants Update: India's first vertical dairy commissioned

Amul-III with its satellite dairies at Anand in Gujarat, with total installed capacity of
1.5 tone (capacity:400,000 lpd) has been commissioned at Noida, outside Delhi, in
1999. It is owned and managed by the Pradeshik Cooperative Dairy Federation
Limited, Lucknow in Uttar Pradesh.

Resources: Dairy Plants

In this section Dairy plants are listed alphabetically and regionwise, including liquid
milk plants and product manufacturers, both Western and indigenous, in the public,
cooperative and private sectors. The address, phone and fax numbers, list of products

13
manufactured and capacities and other details of these Plants can be obtained from
DAIRY INDIA 1997 or from us.

Verka - Punjab's leading milk brand

One of the leading dairy brands of North India, Verka, is yet another contribution from
the state of Punjab. The flagship brand of the Punjab State Cooperative Milk
Producers' Federation Ltd (Milkfed), Verka is today enjoying the patronage of
customers both within and outside the country. Milkfed's future programmes can never
be complete without Verka.

Verka is a brand leader in milk powders particularly in northern & eastern sectors. The
Milkfed brand commands a premium price over milk powders manufactured by
competitors, which include multinational as well as private trade and other cooperative
federations. Milkfed claims that Verka has carved a niche on the basis of the sheer
strength of its quality, freshness and purity.

Milkfed is serving nationwide consumers through its network of Regional offices and
strong distribution channels. Milkfed markets a wide variety of products, which
include liquid milk, skimmed milk powder, whole milk powder, infant food, ghee,
butter, cheese, lassi, SFM, ice cream, malted food and Verka Vigour etc. The annual
turnover of Milkfed has touched to Rs 450 crore.

Milkfed states that it has successfully leveraged on the brand equity of Verka to launch
new trends, needs, tastes and hopes. Verka brands included varied varieties of cheese
like the processed cheddar cheese, cheese spread, and cheese singles. There are also
milk powders like Dairy Whitener, Skimmed Milk Powder and Infant Milk Powder.

Health Drinks like Verka Vigour, Verka Lassi, Sweetened Flavoured Milk and a
mango drink called Raseela have also hit the markets. Milkfed has now come out with
Verka Curd and a whole lot of different flavours of ice creams. Milkfed has also made
14
a foray into the international markets. They say that it was the domestic competition
that drove them to alien destinations. However, Milkfed has already established its
ghee market in the Middle East. Verka ghee reaches all the Emirates and is available in
almost all super markets. In addition to ghee, SMP is also exported to Asian Countries
like Philippines, Bangladesh and Sri Lanka. Verka Malt Plus (Malted Milkfood) is
being exported to Bangladesh also.

With Technology Mission Programmes, ever widening markets and increasing exports,
Milkfed is preparing itself to take Verka to greater heights. The federation has planned
to introduce more value-added products like Tetra-Pack Plain Milk and low calorie
lassi. It has also sought technical assistance from the Israel Dairy Board to initiate
breed improvement and milk production enhancement programme in the state.

Milkfed not only provides assured market to milk producers but also carries inputs to
enhance milk to their doorsteps. The District Cooperative Milk Producer's Unions and
Milk Plants have attained self-sufficiency or are on the threshold of attaining it.
Milkfed has played a very vital role in providing a strong base for remunerative price
to the producer; they get more money for their milk and payments are timely. In
addition technical input services in feeding, breeding and management are easily
accessible. Value addition is one of Milkfed's thrust areas and the plants produce not
only pasturised, homogenised milk but also buttermilk, cream, cheese, ice cream,
butter and clarified butter-oil (ghee) and several other products. The Milk Unions have
marketed milk and milk products of the value of Rs 202.87 crore during the previous
year.

It should be noted that the state government has recently announced a new project in
which 78 bulk milk coolers are to be installed by the central government at the level of
milk cooperatives in the districts of Ropar, Ludhiana, Gurdaspur and Patiala under a
Centrally Sponsored Scheme. For this purpose, the Government of India has already
released an amount of Rs 143.15 lakh for the installation of 24 bulk milk coolers for
implementation of this programme in Ropar district. This move is expected to help the
15
farmers to produce quality milk and get better farm gate price and consumers shall get
quality milk. The budgetary outlay for the programme is Rs 1.41 crore. Milkfed is an
apex body at the state level. It has 11 Milk Unions at district level operating 10 milk
plants and more than 5,000 cooperative societies at village level with a total of 3 lakh
members.

Apart from the main arena of collecting more and more milk and enrolling more and
more milk producers, Milkfed and its units have a work force of about 5000
employees. Every morning and evening milk is lifted from the villages through private
vehicles - this means regular employment to about 600 transporters, most of whom are
self-employed. Some 10,000 workers man the milk procurement and technical input
operations.

MILKFED-PUNJAB

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 erstwhile 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 organisation 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. § Home § Organisation § Procurement §
Products § Marketing § Achievements § Looking Beyond.

16
 Milkfed has formulated company specifications for its milk & milk products

to provide standard and quality of products to consumers.

17
 Milk Cheese & Paneer Drinks

Ghee & Butter Icecream & Sweets Milk Powder

Fresh Products Packing

On the basis of quality with efficient administration, MILKFED has not only
established new mile stone of providing services to Dairy farmers but scaled new
heights in delighting esteemed customers also. This has resulted into tremendous
achievements in all fields.

18
 TURNOVER:

The annual turnover of Milkfed which was Rs.760 crores in the year 2007-08 has hit
the level of Rs.931 crores in the year 2008-09.

EQUITY PARTICIPATION:

The paid-up equity of Milkfed as on 31.3.2010 was to the tune of Rs.46.86 crores
which comprises of Rs.28.93 crores from the cooperative members and balance
Rs.17.93 crores from State Government.

MILKFED GROWTH AT A GLANCE

PARTICULARS UNIT 05-06 06-07 07-08 08-09 09-10

FUNCTIONAL
CUMMU.NOS. 6445 6104 6101 5989 6155
SOCIETIES

MEMBERSHIP CUMMU.NOS 3.76 3.56 3.63 3.60 3.65

19
 IN LACS

AVG. DAILY MILK

LKG SPD 7.45 7.81 7.82 7.78 8.21
PROC

PEAK MILK PROC LKG SPD 10.04 11.64 11.37 11.54 12.39

A.I. CLUSTER
COOMU.NOS. 323 341 388 433 504
SOCS.

FODDER SEED
M.Ts. 444.10 400.30 430.00 500.00 572.00
SUPPLIED

CATTLE FEED
M.Ts. 73724 66970 66750 73577 86174
SOLD

AVG..DAILY CITY
LLPD 4.97 5.27 5.67 5.81 6.16
SUPPLY

SALE OF SFM LAC PKTS/BTLS 30.32 35.85 42.49 41.92 61.11

SALE OF LASSI LAC PACKETS 10.54 12.20 16.89 19.16 29.51

SALE OF ICE-
LAC LITRES 9.17 10.23 12.18 15.61 17.68
CREAM

EXPORTS RS.IN LACS 698.17 1142.28 713.67 1140.35 1334.90

TURNOVER RS.IN CRORES 585.00 653.00 675.00 760.00 931.00

MILK PROCUREMENT NETWORK:

20
Working on "Anand Pattern" the process of organizing societies at village level started
in Punjab as early as 1978. Presently, there is strong Network of about 6155 ( as on
31.3.2008) Milk Producers Cooperative Societies
organized at village level. About 3.65 Lakh milk
producer members are attached to these societies.
Fresh milk is procured from the milk producers
twice a day through village level societies directly
without the assistance of any middleman.

INPUT SERVICES:

It is one of the fundamental objectives of MILKFED to carry out

activities for promoting milk production in the State. In view of
this, various technical input services like veterinary health care, artificial insemination
services, vaccination, supply of VERKA balanced cattle feed and quality fodder seed
etc. are provided for enhancing milk production and economic development of farming
community.

CLEAN MILK PRODUCTION PROGRAMME:

For improving quality of raw milk right from milk producer's level, q massive
programme called "CMP" has been launched under which 195 Bulk Milk Coolers have
been installed in the societies and many more in pipe line. Besides, more than 1000
Automatic Milk Collection Stations have been provided to the societies for bringing
efficiency and total transparency in the system. Traditional manual method of milk
testing at society level is being replaced with Electronic Milk Testers.

WOMEN DAIRY PROJECT:

21
Household level dairying is largely the domain of women especially in small and
marginal household families. In view of this fact, Milkfed has undertaken Women
Dairy Project in six Milk Unions namely Hoshiarpur, Ropar, Patiala, Jalandhar,
Ludhiana and Amritsar with an objective to empower rural women in the field of
dairy. This Programme is being implemented under Support to Training &
Employment Programme (STEP) with the assistance of Government of India. Under
this programme, 390 women societies with 19860 women beneficiary members will be
organized.

SETTING UP OF BIG COMMERCIAL DAIRY FARMS:

In order to enhance the milk production and making the dairy farming a profitable and
sustainable profession, Milkfed has planned to
establish at least ten progressive big dairy farms in
each Milk Union by arranging soft terms loans
from the banks.

PRODUCTIVITY ENHANCEMENT PROGRAMME:

With a view to enhance milk production so as to reduce average cost per Kg. of milk
produced, Milkfed and its affiliated Milk Unions are providing technical input services
like animal health care, artificial insemination services, vaccination, supply of
balanced cattle feed, supply of quality fodder seeds etc. to specific target group i.e.
Milk Producers Cooperative Members at their door steps.

22
 COMMUNITY BASED SILAGE MAKING IN KANDI AREAS:

Milkfed initiated community based silage making to fulfill shortage of green fodder in
Kandi area of Hoshiarpur & Gurdaspur. This will ensure avalability of green fodder in
the shape of Silage during scarcity period. This will help in improving milk
production. 50 Silo pits of capacity 150 M.T. each will be constructed during the year
2009-10. Rs.10.15 crore shall be given as capital grant for construction of Silo pits,
chaff cutters, weighing balance and training.

FODDER SEED MULTIPLICATION PROGRAMME:

23
Non availabilty of quality fodder seed was a major constraint. Milkfed established its
own automatic fodder seed production & processing unit at Bassi Pathana of capacity -
15 MT/Day. During the year, Milkfed produced 6228 quintals of quality fodder seed
and during the year more than 8000 quintals of seed will be produced.

PROVIDING MILKING MACHINES/MILKING PARLOURS:

To upgrade milking technology, Milkfed is providing milking machines/milking

parlours to dairy cooperative societies/progresseive dairy farmers at 50%/25% subsidy.
Till date 450 Milking Macines and 4 Milking Parlours have been provided against the
target of 800 milking machines for the year 2009-10. Rs.2.00 crore have been received
24
from Govt. of Punjab as financial assistance. This will improve Bacterological quality
of milk, hygenic conditions of teats of animals and reduce stress to animals/Milkers
and somatic cell counts.

MARKETING & EXPORT

MILKFED PUNJAB is serving nation wide consumers through its net work of
Regional Offices and strong Distribution channels. MILKFED markets a wide variety
of products, which include Liquid Milk, Skimmed Milk Powder, Whole Milk Powder,
Dairy Whitener, Ghee, Butter, Cheese, Lassi, Tetra Pack Sweetened Flavored Milk,
UHT milk in Tetra Pack, Ice Cream, Malted Food Verka Vigour, Khoa etc. etc.

VERKA is brand leader in milk powders particularly in northern eastern

sectors and Skimmed Milk Powder 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 has arrived on the sheer
strength of its quality, freshness and purity. And of course, it’s home made taste at the
most affordable price. To people today, Verka is the part of their daily lives.

25
Milkfed, Punjab, is making available pasteurised milk packed and processed under
hygienic conditions at the doorsteps of the consumers.Keeping in view the
modern days human stress, strains and undernourished persons, those do not
get adequate Vitamin A & D from other sources, Milkfed felt its moral
responsibility to take care of their health by enriching Verka milk with
Vitamin A & D.

With competition in national market zooming up efforts to enhance export of Milk

Products have been made. Milkfed has established its ghee market in Middle
East market. Verka ghee reaches all the emirates and is available almost in all
the super markets. The penetration is so deep that verka ghee is available in
far off labour camps.

Future Planning

Punjab is the State, which has pioneered the green revolution in the country. It is
because of the efforts of the Punjab farmers that India now occupies an enviable
position of self-reliance in respect of foodgrains on the World map. Consequent upon
intensification of agriculture, Punjab agriculture has now reached saturation level
beyond which further growth appears to be limited. This necessitates a fresh look at
the agricultural scenario prevailing in the State so that the Punjab farmer who is very
enterprising and is receptive to new technology continues to reaps the fruits of his
labour without permanent damaging his environment.

The programme aims at bringing a voluntary shift in cropping pattern, introduction of

income/employment generating/productivity oriented programmes directly benefiting
the farmer of Punjab. Under the programme following schemes are proposed for Dairy
Development concerning Milkfed, Punjab:-

• Milk Production and Hygienic Quality Improvement Assistance.

26
 • Modernisation of Milk Testing.

• Establishment of Method-cum-Result Demonstration Units.

In the field of dairy development, Commercialized Dairy Farming for producing more
milk round the year of high quality was felt the only solution for the viability of Dairy
Industry in the present National and International Dairy Scenario. It will help 70%
rural population of Punjab in increasing their income.

With the objective to accelerate the pace of Milk Production in the State of Punjab and
to improve the quality of milk right at the Society level and to increase the milk
procurement to have 100% capacity utilisation of Milk Plants, a detailed Action Plan,
vision 2004 has been prepared jointly by Milkfed, District Milk Unions and
Cooperative Department spelling out therein the various activities to be undertaken for
Dairy Development in the State of Punjab.

The broad objective of the Plan is to produce maximum milk of the best quality at the
least cost per liter, collect, store and transport it at least cost in an idle way to be of
best quality when received at Milk Plants dock to utilise it for high standard value
added products to earn maximum income and inturn paying remunerative price for raw
milk to the Milk Producers.

It is hoped that with the implementation of Vision-2004 plan the number of Milk
Producers Cooperative Societies will increase to 8000 from 5840 in March-2k and the
membership of these societies will increase from 3.38 lacs in March-2k to 4.75 lacs by
the end of March-2004. Similarly the average milk procurement will increase to 15.30
lac ltrs. per day in the 2003-04 from 8.11 lac ltrs. per day in 1999-2k. The detailed
investment proposals have been submitted to National dairy Development Board for
funding.

27
 Milk Plant Bathinda

Milk Plant Bathinda

was commissioned in
September, 1974
with a total outlay of
Rs. 1.6 Crores by
The Pb. Dairy Dev.
Corporation limited. It was one of the select co-operatives that were covered under the
Operation Flood-1 Programme. Subsequently on Ist March, 1980, it was handed over
by the State Govt. to The Punjab State Co-operatives milk Producers federation Ltd.
(MILKFED) which is an apex level organization of milk producers operative in the
State. Further to this development, the Milk Plant was handed over to The Bathinda
District Co-operative Milk Producers Union Ltd.( registered in the year 1978 under
Punjab co-operative Act.) on 1st January 1988. Milk Plant set up with a twin objective
of providing remunerative milk market to the milk producers in this area and also

28
supply good quality milk products to the consumers at reasonable rates and also
marketing of milk producers at village level.

The Union has a processing capacity of 100TLPD and drying capacity of 6.2 MTD.It
also owns four Milk Chilling Centres namely Rampura(15TLPD), Talwando
Sabo(10TLPD), Bhikhi (15TLPD) and sardulgarh (20TLPD). In addition the union has
hired ice factory Bhagta with a capacity of 20TLPD.

Milk and Milk products are prepared asper the norms by pasteurizing the milk and
others required process to fulfill the target/norms as per the market demand. Milk plan
also got ISO-9001:2000 with HACCP (as per IS: 15000: 98) and also approved by the
Export Inspection Agency New Delhi for export the milk products. Milk products
having standards norms of PFA/BIS/EGG MARK and our prescribed specification if
International Standards for export of ghee and Milk Powder to Dubai and Middle East
Countries.

Products : - (BRAND-VERKA)

• Milk
• Ghee
• Skimmed Milk Powder
• Whole Milk Powder
• Table Butter
• Paneer
29
 • Khoa
• S.F.M.
• Milk Cake
• Lassi
• Kheer
• Ice Cream

THE EXTENSION OF THE BRAND

After winning faith of innumerable consumers, Verka did not stop. For there was a
scope for more. Changing times brought new trends, needs, tastes and hopes.
Verka dynamic as ever,too ac-quired newer forms.By adding value to milk
to satisfy a quality - conscious society. And what success! for,consumers
could have their own pick as we came up with varied varieties of cheese like
the Processed Cheddar Cheese, Cheese Spread, and cheese Singles. And
there were milk powders like Dairy Whitener,Skimmed Milk Powder and
Infant Milk Powder. Health Drinks like Verka Vigour, Verka Lassi,
Sweetened Flavoured Milk and a mango drink called Raseela. Then there
were Verka Curd and a whole lot of different flavours of Ice Creams. Milk
had never meant so much before.

OBJECTIVES OF VERKA MILK PLANT

 The objective of milk plant is collected milk from different villages. It utilize in
proper way.
 It provides best quality of product.

 The verka milk plant is played main roll in increase the dairy form. People are
shown interest in dairy form.

 Its main purpose is made dairy business in rural area.

30
 MANAGEMENT BOARD OF DIRECTORS

Sh. V.K.Singh (IAS) M.D.milk fed Punjab

S.Sandhura Singh Chairman

S.Bikermjit Singh Vice Chairman

S. Labh Singh Director

S.Sukhpal Singh Director

S.Jagsir Singh Director

S.Surjit Singh Director

S.Jawala Singh Director

S.Balwinder Singh Director

S.Amrik Singh Director

Smt.Surinder P. Kaur Director

S.Boota Singh Galib J.R. Co-op.SOC.Ferozpur

S.H.S.Jatana Dy.Reg.co-op.SOC.BTI

S.Karnail Singh Dy.Dir. Dairy Dev .BTI

S.T.P.S.Walia Milkfed Nominee

Sh.M.D.Sharma N.D.D.B.Nominee

31
Sh.R.K.Tiwari G.M.Milk plant BTI

OUTLINE OF THE STUDY:-

The management of working capital is very important. It involves the study of day-to-
day affairs of the company. The motive behind the study is to develop an
understanding about the working capital management in the running business
organization and to help the company in developing the efficient working capital
management. So it helps in future planning and control decisions.

OBJECTIVES OF THE STUDY:-

• To learn and experience the practical functioning of the organization.

• To evaluate the composition of current assets and current liabilities.

• To ascertain the companies financial strength and weakness.

• To ascertain the company’s profitability position.

• To know the future need of working capital in the running organization.

• To find out how the working capital needs are fulfilled.

• To find out whether verka milk plant bti. is maintaining the satisfactory level of
working capital.

Also to study the following aspects of the working capital management:-

a. Cash management
b. Receivables management

c. Inventory management
32
 SCOPE OF THE STUDY:-

The study is conducted at verka milk plant bathinda for 6-8 weeks. The concept
of working capital i.e. both gross and net working capital is used. To get the proper
understanding of the concepts, balance sheet and profit and loss account have been
studied. The scope of the study is limited upto the availability of financial records and
information provided by employees. The study is related to period of last two years.

Research Methodology

Research Design :

A research design is the arrangement of conditions for collection and

analysis of data in a manner that aims to combine relevance to the research purpose
with economy in procedure .A research design is purely and simply the framework of
plan for a study that guides the collection and analysis of data. It is a blue print that is
followed in completing a study.

Keeping in view the objectives of the project. I opted for conclusive, statistical
research methods.

Statistical Techniques:

These techniques are used as they provide more accurate results.

The method eases to identify individual cases and focuses on classes, average,
percentages, measures of dispersion and others .As a result the research can make
much more accurate generalization than by any other method.

Recognition of information:

This step is the recognition of various types of information

which are necessary for the study of working capital.

33
Data Collection Methods:

Structured and non-disguised questionnaire has been used to achieve the

objectives of this report .This proved to be a cost effective, accurate, and speedy way
of achieving the desired objectives. The greatest advantage being its versatility. It
opened a broad way of enticing the knowledge and opinions of the sample.

Another important reason for choosing the method was its unbiasedness. No
bias of the researcher can creep in and it’s easy to tabulate and interpret.

Understanding of reports being prepared by the units:

For understanding the various types of reports being sent to finance department
by different section, personal interviews have been conducted with the concerned
persons with prior permission from concerned department head.

Suggestions:

Suggestions on the basis of working capital have given for better results.

For analyzing the concept the techniques have been used:-

• Ratio analysis
• Common size statement

• Statement of changes in working capital

• Operating cycle

LIMITATIONS OF THE STUDY:-

• They do not prepare cash statement separately. Cash floe statement is prepared
collectively for whole of the units.
• Time period for the study is limited.
34
 • As the receipts from debtors is directed to the corporate office and hence not
much information regarding the receivable management could be obtained.

• Investment o funds are also made by corporate office, so it becomes difficult to

know that how much investment is made in different ways for continuous
availability of funds.

An Introduction To Working Capital Management

“Working capital means the part of the total assets of the business that change from
one form to another form in the ordinary course of business operations.”

Concept of working capital:-

The word working capital is made of two words 1.Working and 2. Capital

The word working means day to day operation of the business, whereas the word
capital means monetary value of all assets of the business.

Working capital

Working capital may be regarded as the life blood of business. Working capital is of
major importance to internal and external analysis because of its close relationship
with the current day to- day operations of a business. Every business needs funds for
two purposes.

* Long term funds are required to create production facilities through purchase of
fixed assets such as plants, machineries, lands, buildings & etc.

* Short term funds are required for the purchase of raw materials, payment of wages,
and other day-to-day expenses. It is other wise known as revolving or circulating
capital.

It is nothing but the difference between current assets and current liabilities. i.e.
35
Working Capital = Current Asset – Current Liability.

Businesses use capital for construction, renovation, furniture, software, equipment, or

machinery. It is also commonly used to purchase inventory, or to make payroll. Capital
is also used often by businesses to put a down payment down on a piece of commercial
real estate. Working capital is essential for any business to succeed. It is becoming
increasingly important to have access to more working capital when we need it.

Concept of working capital:-

· Gross Working Capital = Total of Current Asset

· Net Working Capital = Excess of Current Asset over Current Liability.

Current Assets Current Liabilities

• Cash In hand/ at Bank • Bills Payable

• Bills Receivable • Sundry Creditors
• Sundry Debtors • Outstanding Expenses
• Short Term Loans • Accrued expenses
• Investments/ stock
• Bank overdraft
• Temporary Investment
• Prepaid Expenses
• Accrued Incomes

Working capital in terms of five components:

1. Cash and equivalents: - This most liquid form of working capital requires constant
supervision. A good cash budgeting and forecasting system provides answers to key
questions such as: Is the cash level adequate to meet current expenses as they come
due? What is the timing relationship between cash inflow and outflow? When will

36
peak cash needs occur? When and how much bank borrowing will be needed to meet
any cash shortfalls? When will repayment be expected and will the cash flow cover it?

2. Accounts receivable: - Many businesses extend credit to their customers. If you do,
is theamount of accounts receivable reasonable relative to sales? How rapidly are
receivables being collected? Which customers are slow to pay and what should be
done about them?

3. Inventory: - Inventory is often as much as 50 percent of a firm's current assets, so

naturally it requires continual scrutiny. Is the inventory level reasonable compared
with sales and the nature of your business? What's the rate of inventory turnover
compared with other companies in your type of business?

4. Accounts payable: - Financing by suppliers is common in small business; it is one of

the major sources of funds for entrepreneurs. Is the amount of money owed suppliers
reasonable relative to what you purchase? What is your firm's payment policy doing to
enhance or detract from your credit rating?

5. Accrued expenses and taxes payable: - These are obligations of your company at
any given time and represent a future outflow of cash..9vrrf

Management of Cash

It is the duty of the Finance Manager to provider adequate cash to all segments of the
organization. He has also to ensure that no funds are blocked in idle cash this will
involve cost in terms of interest to the business. A sound cash management scheme,
therefore, maintains the balance between the twin objectives of liquidity and cost.

Meaning of Cash

37
jhe term “cash” with reference to cash management is used in two senses. In a
narrower sense it includes coins, currency notes, cheques, bank drafts held by a firm
with it and the demand deposits held by it in banks. In a broader sense it also includes
“near cash assets” such as marketable securities and time deposits with banks. Such
securities or deposits can immediately be sold or converted into cash if/ the
circumstances require. The term cash management is generally used for management
of both cash and near cash assets.

MANAGEMENT OF INVENTORIES

Inventories are goods held for eventual sale by a firm. Inventories are thus one
of the major elements that help the firm in obtaining the desired level of sales.

Kinds of inventories

Inventories can be classified into three categories:

• Raw Material: These are goods, which have not yet been committed to
production in a manufacturing firm. They may consist of basic raw materials or
finished components.
• Work-in-process: This includes those materials, which have been committed to
production process but have not yet been completed.

• Finished goods: These are completed products awaiting sales. They are the
final output of the production process in a manufacturing firm. In case of
wholesalers and retailers, they are generally referred to as a merchandise
inventory.

The levels of the above three kinds of inventories differ depending upon the nature of
business. For example, a manufacturer will have levels of all the three kinds of
inventories. While a retailer or a wholesaler will have a high level of inventories of
finished goods but will have no inventories of raw materials or work-in-progress.

38
Moreover, depending upon the nature of the business, inventories may be durable or
non-durable, valuable or inexpensive, perishable or non-perishable, etc.

Management of Inventory

Invento`ries often constitute a major element of total working capital and hence it has
been correctly observed, “Good inventory management is good financial
management”. Inventory management covers a large number of issues including
fixation of minimum and maximum levels; determining the size of the inventory to be
carried; deciding about the issue price policy; setting up receipt and inspection
procedure; determining the economic order quantity; providing proper storage
facilities; keeping check on obsolescence and setting up effective information system
with regards to the inventories. However, management of inventories involves two
basic problems:

• Maintaining a sufficiently large size of inventory for efficient and smooth

production and sales operations.
• Maintaining a minimum investment in inventories to minimum the direct-
indirect costs associated with the holding inventories to maximize the
profitability.

Inventories should neither be excessive nor inadequate. If inventories are kept at a high
level, higher interest and storage costs would be incurred. On the other hand, a low
level of inventories may result in frequent interruption in the production schedule
resulting in underutilization of capacity and lower sales. The objective of inventory
management is, therefore, to determine and maintain the optimum level of investment
in inventories, which helps in achieving the following objectives:

Ensuring a continuous supply of materials to production department facilitating

uninterrupted production.

• Maintaining sufficient stock of raw material in a period of short supply.

39
 • Maintaining sufficient stock of finished goods for smooth sales operations.

• Minimizing the carrying cost.

MANAGEMENT OF ACCOUNTS RECEIVABLES

Accounts receivable (also popularly termed as receivables) constitute a significant

portion of the total current assets of the business next after inventories. They are a
direct consequence of “trade credit’ which has become an essential marketing tool in
modern business. When a firm sells goods for cash, payments are received
immediately and, therefore, no receivables are created. However, when a firm sells
goods or services on credit, the payments are postponed to future dates and receivables
are created. Usually, the credit sales are made on open account which means that no
formal acknowledgements of debt obligations are taken from buyers. The only
documents evidencing the same are a purchase order, shipping invoice or even a
billing statement. The policy of open account sales facilities business transactions and
reduces to a great extent the paper work required in connection with credit sales.

Meaning of Receivables

Receivables are assets accounts representing amounts owed to the firm as a result of
sales of goods or services in the ordinary course of business. They, therefore,
represents the claims of a firm against its customers and are carried to the “assets side’
of the balance sheet under titles such as accounts receivables , trade receivables,
customers receivables or book debts. They are, stated earlier, the results of extension
of credit facility to the customers .The objectives of such a facility is to allow the
customers a reasonable period of time in which they can pay for the goods purchased
by them.

Meaning of Receivable Management

40
Receivables are a direct result of credit sales. Credit sale is resorted by a firm to push
up its sales that ultimately result in pushing up the profits earned by the firm. At the
same time, selling goods on credit results in blocking of funds in accounts receivables.
Additional funds are, therefore, required for the operational needs of the business that
involve extra costs in terms of interest. Moreover, increase in receivables also
increases chances of bad debts. Thus, creation of accounts receivables is beneficial as
well as dangerous. The finance manager has to follow the policy, which uses the cash
funds as economically as possible in extending receivables without adversely the
chances of increasing sales and making more profits. Management of accounts
receivables may, therefore be defined as the process of making decisions relating to the
investment of funds in this assets that will result in maximizing the overall return on
the investment of the firm.

Thus, “the objective of receivables management is to promote sales and profits until
that point is reached where the return on investment in further of receivables is less
than the cost of funds raised to finance that additional credit ( i.e. cost of capital)”.

Policies for Managing Receivables

A firm should established receivables policies after carefully considering both benefits
and costs of different policies. These policies relate to:

• Credit Standards.
• Credit Terms.

• Collection Procedures.

Each of these has been explained below:

The term credit standard represents the basic criteria for expansion of credit to the
customers. The levels of sales and receivables are likely to be high if the credit
standards are relatively loose, as compared to a situation when they relatively tight.

41
The five “Cs” generally determines the firm’s credit standards: Character, Capacity,
Capital, Collateral and Condition. Character denotes the integrity of the customer, i.e.,
his willingness to pay for the goods purchases. Capacity denotes his ability to mange
the business. Capital denotes his financial soundness. Collateral refers to the assets,
which the customer can offer by way of security. Conditions refer to the impact of
general economic trends on the firm or to special development in certain areas as of
economy that may affect the customer’s ability to meet his obligations. Information
about the five “Cs” can be collected both from internal as well as external sources.
Internal sources include the firm’s previous experiences with the customer
supplemented by its own well developed information system. External resources
include customer’s developed information system. External resources include
customer’s references, trade associations and credit rating organizations such as Don &
Brad Street Inc. of USA. This organization has more than hundred years experience in
the field of credit reporting. It publishes a reference book six times year containing
information about important business firms region wise. It also supplies credit reports
about different firms on request.

An individual firm can translate its credit information into risk classes or groups
according to the probability of loss associated with each class. On the basis of this
information, the firm can decide whether it will be advisable for it to extend credit to a
particular class of customers.

Two different concepts of working capital are:-

Balance sheet or Traditional concept

Operating cycle concept.

Balance sheet or Traditional concept:- It shows the position of the firm at certain point
of time. It is calculated in the basis of balance sheet prepared at a specific date. In this
method there are two type of working capital:-
• Gross working capital
42
 • Net working capital

Gross working capital:- It refers to the firm’s investment in current assets. The sum of
the current assets is the working capital of the business. The sum of the current assets
is a quantitative aspect of working capital. Which emphasizes more on quantity than its
quality, but it fails to reveal the true financial position of the firm because every
increase in current liabilities will decrease the gross working capital.

Net working capital:- It is the difference between current assets and current liabilities
or the excess of total current assets over total current liabilities.

Working capital = current assets - current liabilities.

Net working capital: - It is also can defined as that part of a firm’s current assets which
is financed with long term funds. It may be either positive or negative. When the
current assets exceed the current liability, the working capital is positive and vice
versa.

Operating cycle concept: - The duration or time required to complete the sequence of
events right from purchase of raw material for cash to the realization of sales in cash is
cycle or working capital cycle.

43
 SIGNIFICANCE OF WORKING CAPITAL

PAYMENT
TO
SUPPLIER
S
DIVIDEND
EASY DISTRIBUTI
LOAN 0N
FROM
BANKS

SIGNIFICAN
CE OF
WORKING
CAPITAL
INCREAS INCREAS
E E DEBT
EFFECIE CAPACIT
NCY Y

INCREAS
E IN FIX
ASSETS

Factors requiring consideration while estimating working capital.

 The average credit period expected to be allowed by suppliers.

44
 Total costs incurred on material, wages.

 The length of time for which raw material are to remain in stores before they
are issued for production.

 The length of the production cycle (or) work in process.

 The length of sales cycle during which finished goods are to be kept waiting
for sales.

 The average period of credit allowed to customers.

 The amount of cash required to make advance payment.

45
 Types of Working Capital:-

Types Of
Working
Capital

On The Basis On The Basis

Of B/S Of Time
Concept

Gross Working Net Working Regular Temporary

Capital Capital Working Working Capital
Capital

Seasonal
Working
Capital

Specific
Working
Capital

46
Importance of Working Capital Ratios

Ratio analysis can be used by financial executives to check upon the efficiency with
which working capital is being used in the enterprise. The following are the important
ratios to measure the efficiency of working capital. The following, easily calculated,
ratios are important measures of working capital utilization.

ANALYSIS OF WORKING CAPITAL FROM DIFFERENT ASPECTS ON THE

BASIS OF THE HISTORICAL DATA:-

There are the number of devices to analyze working capital like Ratio Analysis,
Common Size Statement, etc. We will discuss them one by one as follows :-

1. Ratio Analysis:-
Ratio analysis is a technique of analysis and interpretation of
financial statements. It is the process of establishing and interpreting various
ratios for helping in making decisions. The main ratios related with the working
capital are as follows:-

a) Liquidity Ratios:-
Liquidity refers to the ability of a concern to meet its current
obligations as and when these becomes due. It measures short term solvency of
the firm. To measure the liquidity of a firm, the following ratios can be
calculated.

1.CURRENT RATIO:

47
The current ratio is the relationship between current assets and current liabilities. It is
also known as working capital ratio because it is a measure of general liquidity and is
most widely used to make the analysis of short-term financial position.

It is calculated by dividing total of current assets by current liabilities.

The current assets of a firm represents those assets which can be converted into cash
within a short period of time normally one year. The current liabilities are those
obligations which are payable within a short period of generally, one year.

COMPONENTS OF CURRENT RATIO:-

Current Assets Current Liabilities

1. Cash in Hand
1.Outstanding expenses
2. Cash at Bank
2.Bills Payable
3. Marketable Securities
3.Sundry Creditors
4. Short-term Investments
4.Short-term Advances
5. Bills receivables
5.Income Tax Payable
6. Sundry debtors
6.DividendsPayable
7. Inventories
7.Bank Overdraft(if not permanent)

48
 8. Work-in-progress

9. Prepaid expenses

Bank overdraft can be taken as short term arrangement as well as

permanent or long term arrangement with a bank. But when it is taken as long term, it
should be excluded.

INTERPRETATION OF CURRENT RATIO:-

A ratio equal or near to the rule of thumb of 2:1 i.e.

current assets double the current liability is considered to be satisfactory.This means to
provide for delays and losses in the realisation of current assets. However, the rule of
2:1 should not be blindly followed while making interpretation of the ratio, because
firms having less than 2:1 ratio may be having a better liquidity than even firms having
more than 2:1 ratio. This is so because the current ratio measures only the quantity of
current assets and not quality of current assets.

CURRENT RATIO OF VERKA MILK PLANT FOR THE YEAR 2008- 2009& 2009-
2010 (IN RUPEES)

Particulars Year(2009-2010) Year (2008-2009)

Cash in Hand 289996.51 300168.98

Cash at Bank 1031160 1469523.22

Inventories 92944930.01 90884789.70

Current Assets (a) 95586243.1 92654481.9

Sundry Creditors 31493836.97 23521950.10

Advances From Customers 9680158.61 9102096.30

Other Liabilities 54550099.60 16517539.32

Current Liabilities (b) 95724095.8 49141585.72

49
 1.88545975
Current Ratio (a/b) 0.9985599

As of march 31, 2010, with amounts expressed in rupees, VERKA MILK PLANT’s
current assets amounted to Rs. 95586243.1 (balance sheet), which is the numerator;
while current liabilities amounted to Rs. 95724095.1 (balance sheet), which is the
denominator. By dividing, the equation gives us a current ratio of 0.9985599.
As of march 31, 2009, with amounts expressed in rupees, VERKA MILK
PLANT’s current assets amounted to Rs. 92654481.9 (balance sheet), which is the
numerator; while current liabilities amounted to Rs. 49141585.72 (balance sheet),
which is the denominator. By dividing, the equation gives us a current ratio of
1.88545975.

OBSERVATION:-

The analysis shows that the current ratio of VERKA MILK PLANT is lower than the
rule of thumb i.e. 1.88 in year 2008-2009. The lower ratio is primarily due to the
reason that huge amount of sundry creditors and the cash at is comprising in the
current assets. But the current ratio decreases in the year 2009-2010 and lower than the
accepted rule of thumb. The decrease in the ratio is attributable to increase in Sundry
creditors which is to finance the inventory. As the current ration in both the years
under observation is not fairly .

The current ratio is used extensively in financial reporting and is relied upon by the
bankers and financial institutions while extending short term finance. However, while
easy to understand, it can be misleading in both a positive and negative sense - i.e., a
high current ratio is not always necessarily good, and a low current ratio is not
necessarily bad.

50
Analysis through Chart

year-2010,
0.9985599
year-2009
year-2010
year-2009,
1.88545975

2. Quick Ratio

The quick ratio is also known as quick assets ratio or acid-test ratio. The
quick ratio is the relationship between quick assets and current liabilities. An asset is
said to be liquid if it can be converted into cash within a short period without loss of
value. So we can say that the cash in hand and cash at bank are the most liquid assets.
Other quick assets are bills receivables sundry debtors marketable securities. The quick
ratio is more conservative than the current ratio because it excludes inventory and
other current assets, which are relatively more difficult to turn into cash within a given
period of time. Therefore, a higher ratio means a more liquid current position.

Quick Ratio = Quick/Liquid Assets

Current Liabilities
Liquid Assets = current assets – (inventories + prepaid expenses)

51
COMPONENTS OF QUICK /LIQUID RATIO:-

Quick/ Liquid Assets Current Liabilities

1. Cash In Hand
1.Outstanding Expenses
2. Cash at Bank
2.Bills Payable
3. Bills Receivables
3.Sundry Creditors
4. Sundry Debtors
4.Short Term Advances
5. Marketable Securities 5.Income Tax Payable

6. Temporary Investments
6.Dividend Payable

7.Bank Overdraft

The basics and use of this ratio are similar to the current ratio in that it gives users an
idea of the ability of a company to meet its short-term liabilities with its short-term
assets. Another beneficial use is to compare the quick ratio with the current ratio. If the
current ratio is significantly higher, it is a clear indication that the company's current
assets are dependent on inventory.

INTERPRETATION OF QUICK RATIO:-

Usually, a high acid test ratio is an indication that the firm is liquid and has the ability
to meet its current or liquid liabilities in time and on the other hand a low quick ratio
represents that the firm’s liquidity position is not good.

As a rule of thumb of the acid test ratio is 1:1 is considered satisfactory. It is generally
thought that if quick assets are equal to current liabilities than the concern may be able
52
to meet its short term obligations. A quick ratio of 1:1 does not necessarily means
satisfactory liquidity position if all the debtors can not be realized and cash is needed
immediately to meet the current obligations. In the same manner, a low quick ratio
does not necessarily means a bad liquidity position as inventories are not absolutely
non liquid. Hence, a firm having a high quick ratio may not have a satisfactory
liquidity position if it has a slow paying debtors. On the other hand, firm having a low
quick ratio may have a good liquidity position if it has fast moving inventories.

QUICK RATIO OF VERKA MILK PLANT FOR THE YEAR 2008- 2009 & 2009-
20010 (IN RUPEES)

Particulars Year 2009-2010 Year 2008-2009

Cash In Hand 289996.51 300168.98

Cash At Bank 1031160 1469523.22

Quick Assets (a) 1060159.5 1769692.20

Sundry creditors 31493836.97 23521950.10

Advances from customers 9680158.61 9102096.30

Other liabilities 54550099.60 16517539.32

Current Liabilities (b) 95724095.8 49141585.72

Quick Ratio (a/b) 0.011075158 0.03601211

As of march 31, 2010, with amounts expressed in rupees, VERKA MILK PLANT.’s
quick assets amounted to Rs.1060159.5 (balance sheet); while current liabilities
amounted to Rs. 95724095.8 (balance sheet). By dividing, the equation gives us a
quick ratio of 0.011075158.

53
As of march 31, 2009,, with amounts expressed in rupees, VERKA MILK PLANT’s
quick assets amounted to Rs. 1769692.20 (balance sheet); while current liabilities
amounted to Rs. 49141585.72 (balance sheet). By dividing, the equation gives us a
quick ratio of 0.03601211.
OBSERVATION:-
As previously mentioned, the quick ratio is a more conservative measure of liquidity
than the current ratio as it removes inventory from the current assets used in the ratio's
formula. By excluding inventory, the quick ratio focuses on the more-liquid assets of a
company.
The quick ratio of the year 2009-2010 and 2008-2009 is much
lower than the rule of thumb. Therefore, we can easily say that the short term liquidity
position of the verka milk plant is not moving towards more acceptable situation.

Analysis through Chart

year-2010,
0.011075158
year-2009
year-2010
year-2009,
0.03601211

3.CASH RATIO
The cash ratio, which is most conservative of the current ratios, is calculated in
conjunction with the current ratio and the quick ratio by taking into account only of
cash, cash equivalents and invested funds out of current assets to cover current
liabilities.
54
 Cash ratio = Cash & Bank + Short-term Securities
Current Liabilities

COMPONENTS OF CASH/ ABSOLUTE RATIO:-

Quick/ Liquid Assets Current Liabilities

1. Cash In Hand
1.Outstanding Expenses
2. Cash at Bank
2.Bills Payable
3. Marketable Securities
3.Sundry Creditors
4. Temporary Investments
4.Short Term Advances

5.Income Tax Payable

6.Dividend Payable

7.Bank Overdraft

Cash ratio is also known as absolute liquid ratio. It includes cash in hand and cash at
bank and marketable securities or temporary investments. The acceptable norm for this
ratio is 1:2 or 0.5:1 or 50%.

CASH RATIO OF VERKA MILK PLANT FOR THE YEAR 2008- 2009 & 2009-
2010 (IN RUPEES)

Particulars Year 2009-2010 Year 2008-2009

Cash in hand 289996.51 300168.98

Cash at bank 1031160 1469523.22

Marketable securities 0 0

Absolute Liquid Assets 1060159.5 1769692.20

(a)

Sundry creditors 31493836.97 23521950.10

55
Advances from customers 9680158.61 9102096.30

Other liabilities 54550099.60 16517539.32

Current liabilities (b) 95724095.8 49141585.72

Cash ratio 0.011075158 0.03601211

(a/b)

As of march 31, 2010, with amounts expressed in rupees, VERKA MILK PLANT’s
cash assets amounted to Rs. 1060159.5 (balance sheet); while current liabilities
amounted to Rs. 95724095.8 (balance sheet). By dividing, the equation gives us a
cash ratio of 0.011075158.
As of march 31, 2009, with amounts expressed in rupees, VERKA MILK
PLANT’s cash assets amounted to Rs. 1769692.20 (balance sheet); while current
liabilities amounted 4914158(balance sheet). By dividing, the equation gives us a cash
ratio.

Observation:-

The cash ratio is the most stringent and conservative of the three short-term liquidity
ratios (current, quick and cash). It only looks at the most liquid short-term assets of the
company, which are those that can be most easily used to pay off current obligations. It
also ignores inventory and receivables, as there are no assurances that these two
accounts can be converted to cash in a timely matter to meet current liabilities.
The analysis shows that both in the year 2008-2009 and year 2009-2010, the cash ratio
is not satisfactory on the parameters of rule of thumb. This is because cash in hand and
bank are less than the current liabilities.

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Analysis through Chart

year-2010,
0.011075158

year-2009
year-2010
year-2009,
0.03601211

4. WORKING CAPITAL TURNOVER RATIO:

Working capital turnover ratio indicates the velocity of the utilization of the net
working capital. 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 vice- versa. This ratio can be calculated by dividing cost of sales by average
working capital.

Working capital turnover ratio = Cost of sales(cost of goods sold)/ Average working
capital

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WORKING CAPITAL TURNOVER RATIO OF VERKA MILK PLANT FOR THE

YEAR 2008- 2009 & 2009-2010 (IN RUPEES)

Particulars Years 2009-2010 Year 2008-2009

Sales 548731881.33 459368367.35

(a)

Gross Profit 16079751.40 15720225.

(b)

Cost of Goods Sold 532652129.9 443648142.3

(c=a-b)

Average working capital 466284835.7 413087436.1

(d)

Working capital turnover ratio 1.142332088 1.073981205

(c/d)

As of march 31, 2010, with amounts expressed in rupees,VERKA MILK PLANT ’s

Cost of Sales amounted to Rs.535652129.9 (balance sheet); while average working
capital amounted to Rs. 466284835.7 (balance sheet). By dividing, the equation gives
us a working capital turnover ratio of 1.142 times.

As of march 31, 2009, with amounts expressed in rupees, VERKA MILK PLANT’s
Cost of Sales amounted to Rs. 443648142.3 (balance sheet); while average working

58
capital amounted to Rs. 413087436.1 (balance sheet). By dividing, the equation gives
us a working capital turnover ratio of 1.073

Observation:-

The analysis shows that the working capital turnover ratio of verka milk
plant is slightly higher than the previous year. Generally, the higher the working
capital turnover, the more efficient is the management of working capital. Meaning
thereby, that there is proper utilization of working capital and the span between
deployment of resources and realization thereof by way of sales is less, which will
ultimately result in less cost of capital.

Analysis through Chart

year-2009,
year-2009
1.073981205
year-2010, year-2010
1.142332088

B) COMMON SIZE STATEMENT ANALYSIS:-

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 This analysis is mainly to see the composition of working capital.

COMMON SIZE STATEMENT

Particulars Years 2009- Year 2008-

2010 2009

AMOUNT PERCENTAGE AMOUNT PERCENTAGE

CURRENT
ASSETS

Inventories 92944938.01 28.88 90884789.78 22.58

Cash & Bank 1321156.51 0.41 1469523.22 0.36

Balances

Loans & 227506679.32 70.70 310047769.31 77.04

Advances

TOTAL 321772773.8 100 402402082.1 100

CURRENT
LIABILI
TIES

Sundry 31493836.97 32.90 23521950.10 47.86

Creditors

Advances 9680158.61 10.11 9102096.30 18.52

Other 54550099.60 56.98 16517539.32 33.61

Liabilities

TOTAL 95724095.18 100 49141585.72 100

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ANALYSIS of 2008-09 &2009-10:-

A big portion of current assets are involved in inventories is near about 28% in the
year of 2009-10 and22.58% in 2008-09. The share of loans and advances are
decreased by 6.34%. although the share of cash and bank balances has increased
with the figures about 0.5%. On the other hand sundry creditors are 32.90% in
year 2009-10 and 47.86% in year 2008-09 and other liabilities are increase at
23.37 % from the major portion of current liabilities.

So altogether we may say that in 2008-2009, current assets have increased due to
increase in inventories, cash & bank balances as compared to previous year.

While on a side of current liabilities though this has also increased due to increase in
other liabilities as compared to previous year .

Schedule of Changes in Working Capital (2009-2010)

Particulars OPENING CLOSING EFFECT OF WORKING

CAPITAL

INCREASE DECREASE

CURRENT ASSETS

Inventories 90884789.78 92944938.01 2060140.78

Cash & Bank 1469523.22 1321156.51 148366.71

Balances

Loans & Advances 310047769.3 227506679.3 82541090

1 2

TOTAL 402402082.1 321772773.8

CURRENT
LIABILITIES
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Sundry Creditors 23521950.10 31493836.97 7971886.87

Advances 9102096.30 9680158.61 578062.31

Other Liabilities 16517539.32 54550099.60 38032560.2

8

TOTAL 49141585.72 95724095.18

Working 353260496.4 226048678.6

Capital(C.A.-
C.L.)

Net decrease in 127211817.8 1272111817.8

Working
Capital

TOTAL 353260496.4 353260496.4 48642650.2 1354801274

4

Analysis of changes of working capital in 2009-10 :-

The most important part of current assets the inventories are increase in the closing but
the cash and bank balance and loans and advances are decrease in the closing of the
year.

On the other hand in the liabilities the sundry creditors and the advances and the other
liabilities are increase in the closing of the year.

So the result of the increase of the liabilities the working capital is be decrease. So the
over all performance of working capital is not good.

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CONCLUSION

After doing the analysis of The Verka Milk Plant, it is observed that

 A satisfactory level of working Capital is not maintained in the

company.
 Current Assets of the company are decreased every year. Verka milk
plant is doing everything to further increase current assets in future.
 Sales of the verka milk plant increased every year this means the
company growing its share in the market and giving though competition to its
competitors.
 Almost all the ratios of the verka milk plant, are decreasing and ,the
ratios are not at satisfactory level. It is due to heavy amount expended on expenditure.
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This means the company policies are not working effectively and position of company
is not so good.

 MAJOR FINDINGS
1. VERKA MILK PLANT sales is increasing day by day from last two years.

2. Overall all ratios of the verka milk plant are not good and company need to
work with more efficiency.

3. Lack of advertisement can be said as weak point the VERKA MILK PLANT.

4. Membership of the verka milk plant is increasing. Now its total members are
26833.

5. Its achievements in the current year are positive.

6. Milk is the main raw material for production in the verka milk plant.

BIBLIOGRAPHY

BOOK AUTHOR

(1) Management Accounting R.K. Sharma

(2) Financial Management Shashi k. Gupta

WEBSITES

www.google.com
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www.milkfed .nic.in

OTHER SOURCE OF INFORMATION

Annual Reports of VERKA MILK PLANT.

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