Inventory_management Aavin Milk

CHAPTER – I

INTRODUCTION

1.1Meaning of Finance

Finance is regarded as the lifeblood of a business enterprise. This is because in the

modern money-oriented economy, finance is one of the basic foundations of all kinds of

economic activities. It is the matter key, which provides access to all sources for being

employed in manufacturing and merchandising activities. It has rightly been said that

business needs money to make more money. However, it is also true that money begets more

money, only when it is properly managed. Hence, efficient management of every business

enterprise is closely linked with efficient management of its finance.

1.2 Business Finance

Accounting is the process of identifying measuring and communicating economic to

permit informed judgments and decisions by users of the information. It involves recording,

classifying and summarizing various business transactions. The end products of business

transactions are the financial statements comprising primarily the position statement or the

Balance sheet and the income statement or profit and loss Account. These statements are the

outcome of summarizing process of accounting and are, therefore, the sources of information

on the basis of which conclusions are drawn about the profitability and the financial position

of a concern. Financial statements are the basis for decision making by the management as

well as all outsiders who are interested in the affairs of the firm such as investors, creditors,

customers, suppliers, financial institutions, employees, potential investors, resourcement and

general public the analysis and interpretation of financial statements depends on the nature

type of information available in these statements.

1

1.3 Importance of Finance

A financial statement is a collection of data organized according procedure. Its

purpose is to convey an understanding of some financial aspects of a business firm. It may

shoe a position at a moment in time, as in the case of a balance sheet, or may reveal a series

of activities over a given period of time, as in the case of income statement.

Thus, the term financial statements generally refers to the two statements:

(i) The position statement or balance sheet

(ii) The income statement or profit and loss account. These statements are used to

convey to management and other interested outsiders the profitability and

financial position of a firm.

Financial statements are the sources of information on the basis of which conclusions

are drawn about the profitability and financial position of a concern. They are the major

means employed by firms to present their financial situation of owners, creditors and the

general public. The primary objective of a financial statement is to assist in decision making.

Financial statements are prepared primarily for decision making. They play a

dominant role in setting the frame work of managerial decisions. But the information

provided in the financial statements is not an end in itself as no meaningful conclusions can

be drawn from these statements alone. However, the information provided in the financial

statements is to immense use in making decisions through analysis and interpretation of

financial statement. Financial analysis is the process of identifying the financial strengths

and weakness of the firm by properly establishing relationship between the items of balance

sheet and the profit and loss account. These are various methods or techniques used in

analyzing financial statements, such as comparative statements, trend analysis, common size

statements, schedule of changes in working capital, funds flow and cash flow analysis, cost-

volume profit analysis and ratio analysis.

Finance is the vital factor without which no economic utilization of all other factors of

production. Perpetual existence of the economic enterprise depends on effective procurement

and optimal utilization of finance. Management of finance to secure good working results

becomes inevitable in the modern business world. If it is managed systematically, a good

return in terms of profit can be expected. If nor, the very existence of the economic

enterprise will become questionable.

2

Financial management is the use of accounting knowledge, economic models,

mathematical rules and aspects of a system analysis and behavioural science for he specific

purpose of assisting management in its functions of financial planning and control. It

explains that financial management takes much of the materials found in other subjects and

uses as its tools. It also stress on financial planning and control.

The importance of financial management cannot be over emphasized. In every

organization, where the funds are involved, sound financial management is necessary. “Bad

production management and bad sales management have slain in hundreds, but faulty

financial management have slain in thousands”. Finance managers must realize that when a

firm makes a major decision, the effect of the action will be felt throughout the enterprise.

1.4 Objectives of financial statements:

To provide reliable financial information about economic resources and obligations of

a business firm.

To provide other needed information about change in such economic resources and

obligations.

To provide reliable information about changes in net resources (resources less

obligations arising out of business activities.)

To provide financial information that assists in estimating the earning potential of

business.

To disclose, to the extent possible, other information related to the financial

statements that is relevant to the needs of the users of these statements.

1.5 Limitations of Financial Statements:

The Financial Statements suffer from the following limitations:

Only Interim Reports:

These statements do not give a final picture of the concern. The data

given in these statements is only approximate. The actual position can

only be determined when the business is sold or liquidated.

3

Do not give Exact Position:

The Financial statements are expressed in monetary values, so they

appear to give final and accurate position. The concern is expected to

continue in the future. So fixed assets are shown at cost less

accumulated depreciation.

Historical Costs:

The Financial Statements are prepared on the bases of historical costs

or original costs. The value of assets decreases with passage of time

current price changes are not taken in to account.

Impact of Non-monetary Factors Ignored:

There are certain factors, which have a bearing on the financial

position an operating result of the business, but they do not become a

part of these statements because they cannot be measured in monetary

terms.

No Precision:

The precision of Financial Statements data is not possible because the

statements deal with matters, which cannot be precisely stated.

4

CHAPTER – II

PROFILEOF THE STUDY

2.1 INDUSTRY PROFILE

The Dairy Development Department was established in 1958 in Tamilnadu. The

administrative and statutory control over all the milk cooperatives in the State were

transferred to the Dairy Development Department on 1.8.1965. The Commissioner for Milk

Production and Dairy Development was made as the functional Registrar under the

Tamilnadu Cooperative Societies Act. With the adoption of 'Anand pattern' in the State of

Tamilnadu, Tamilnadu Co-operative Milk Producers' Federation Limited was registered in

the State on 1st February 1981.

The commercial activities of the Department such as Milk Procurement, Processing,

Chilling, packing and sale of milk to the consumers etc., hitherto dealt with by the Tamilnadu

Dairy Development Corporation Ltd., were transferred to the newly registered Tamilnadu

Co-operative Milk Producers' Federation Limited, popularly known as "Aavin".

In the wake of liberalization policy, private dairies have also entered into the field of

dairying. As per the directions of the Honorable Chief Minister of Tamilnadu high priority

has been given for improving the performance of milk Co-operatives by adopting a

systematic approach and proper strategy in Milk Co-operatives. Significant achievement has

been made by Milk Producers' Cooperative Societies, Unions and Federation in the State of

Tamilnadu.

The cattle population in India is approximately 15% of total cattle population in the

world. India stood no. 1 position in milk production. Tamilnadu is one of the leading state in

milk production. The milk production in Tamilnadu per day is 145.88 Lakh litres.

5

OBJECTIVES OF THE DAIRY DEVELOPMENT DEPARTMENT:

Assure a remunerative price for the milk produced by the member of the Milk

Producers' Co-operative Societies through a stable, steady and well organized

market support.

Distribution of quality milk and milk products to the consumers at reasonable

price.

Keeping these objectives in mind, a number of activities are undertaken by the

Dairy Development Department, viz., Provision of free veterinary health cover

to all animals owned by the members of milk cooperatives, implementation of

Artificial Insemination Programme, supply of balanced cattle feed and

inculcation of farmers with the modern animal husbandry methods and

practices.

All activities, which are essential for the up gradation of the milch animals and

improving their productivity in the long run, have been undertaken.

Provision of necessary infrastructure facilities for marketing milk and milk

products and supply of quality milk to the consumer has been made by way of

establishing new chilling centers, pasteurization plants and adoption of

modern processing system.

DEPARTMENTAL SET UP:

The Commissioner for Milk Production and Dairy Development is the Head of the

Dairy Development Department. He is the functional registrar in respect of Dairy Co-

operatives in the State. He is also the Ex-officio Managing Director of the Tamilnadu

Cooperative Milk Producers' Federation Limited. i.e. Aavin.

The Commissioner for Milk Production and Dairy Development exercises all the

statutory powers with regard to the registration of societies, supervision, inspection, inquiry,

disputes, liquidation of milk cooperatives including the District Cooperative Milk Producers'

Unions and Federation under the relevant provisions of the Tamilnadu Cooperative Societies

Act, 1983 and Tamilnadu Cooperative Societies Rules, 1988. While discharging the statutory

6

functions, the Commissioner for Milk Production and Dairy Development is assisted by the

Deputy Milk Commissioner (Co-operation) in the rank of Joint Registrar of Cooperative

Societies and a Deputy Registrar at the Headquarters besides 23 Deputy Registrars (Dairying)

at the District level by way of conferring the powers of the functional Registrar.

FUNCTIONS OF THE DAIRY DEVELOPMENT DEPARTMENT:

The main functions of the Dairy Development Department include Organization of

societies, registration of societies, supervision and control of primary milk cooperatives,

District Cooperative Milk Producers Unions and Tamilnadu Cooperative Milk Producers

Federation.

The Dairy Development Department exercises statutory function - like Inquiry,

Inspection, Surcharge and Super session, appointment of special officers, liquidation and

winding up of dormant Societies etc. The Commissioner for Milk Production and Dairy

Development, Deputy Milk Commissioner (Co-operation), and Circle Deputy Registrars

(Dairying) are vested with quasi-Judicial powers in respect of settlement of disputes, appeal,

revision and review under various provisions of Tamilnadu Cooperative Societies Act, 1983

& the Tamilnadu Cooperative societies Rules, 1988 made there under.The Commissioner for

Milk Production and Dairy Development has been designated as the State Registering

Authority for the state of Tamilnadu, under the provisions of Milk and Milk ProducOrder'92.

All the Dairy units including private Dairies handling more than 10,000 lpd of milk or Milk

Products containing milk solids in excess of 500 Metric tones per annum have to obtain

registration certificate under the provision of Milk and Milk Products Order'92. The

Commissioner for Milk Production and Dairy Development / State Registering Authority has

been conferred with powers to register the dairy units having handling capacity from 10,000

lpd to 2,00,000 lpd. The Commissioner / State Registering Authority, Deputy Milk

Commissioner (Co-operation) / District collectors and Deputy Registrars (Dairying) have

been authorized to carry out supervision and periodic inspection of the dairies.

PRIMARY DAIRY COOPERATIVES MILK SOCIETIES:

7

A minimum of 25 or more individuals competent to contract under section 11 of the

Indian Contract Act of 1872, owning Milch animals, can form a Primary Dairy Cooperative

Society, with one or more villages as its area of operation. Such persons have to approach the

Circle Deputy Registrar's (Dairying) office functioning at the District for further guidance.

The members of Primary Cooperative milk society have to supply milk to the Society which

will procure milk on quality basis and they will receive milk cost once in 10 days / 15 days

from the Society. Milch animals are provided with free veterinary health cover, artificial

insemination and the supply of balanced cattle feed.

WOMEN MILK PRODUCERS’ CO-OPERATIVE SOCIETIES:

In order to encourage the women members to contribute more to the dairy sector, they

are being called upon to organize women milk producers' cooperative societies in their

respective areas. There are 1210 women milk Producers’ cooperative societies functioning in

Tamilnadu.

Primary Milk Cooperative Societies and District cooperative Milk Producers Unions

and Federation were previously administered by elected Boards. As the terms of office of the

members of elected Board already expired and as they were continuing only on extended

term of office as per section 33(10)(aa) of Tamilnadu Cooperative Societies Act, 1983, the

Government issued orders terminating the extended term of office of members of Boards of

these societies and the Special Officers have been appointed under section 89(1) of

Tamilnadu Cooperative Societies Act, 1983. All the primary Milk Cooperative Societies are

now functioning under the Control of Special Officers since 26.5.2001. In respect of District

Cooperative Milk Producers Unions, the Collectors of respective Districts have been

appointed as Special Officers and for Tamilnadu Cooperative Milk Producers Federation

Ltd., the Managing Director of the Federation has been appointed as Special Officer.

Consequent on the bifurcation of the Dharmapuri District and creation of new District namely

Krishnagiri, the District Collector of Krishnagiri has been appointed as Special Officer of

Dharmapuri District Cooperative Milk Producers’ Unions Ltd., with effect from 27.2.

8

2.2 COMPANY PROFILE

INTRODUCTION:

Tamilnadu Co-Operative Milk Producers' Federation Limited was constituted on 1st

February 1981. Federation is Procuring, Processing and Marketing of Milk and Milk

Products. Federation has implemented the Dairy Development activities under Operation

Flood Programme with a financial and technical assistance of National Dairy Development

Board. Chennai Metro is having 4 Dairies. Milk Procurement, Processing and distribution are

being attended by the District Unions in the respective areas. Federation is carrying out

improvements of Milch animals.

Metro Dairies are,

1.Central Dairy, Madhavaram Milk Colony, Chennai – 600 051 with a capacity of 3.0 LLPD

2. Ambattur Dairy, Chennai – 600 098 with a capacity of 4.0 LLPD

3. Sholinganallur Dairy, Chennai – 600 119 with a capacity of 4.0 LLPD &

All the 4 Dairies are carrying out Processing, Packing and Distribution of Milk and Milk

Products as per HACCP, MMPO and NDDB Norms. Ambattur Dairy is Producing Sterilized

Flavored Milk in four different flavors. Products Dairy, Ambattur is Preparing the following

Milk Products, with a capacity of 12,000 Litres per day. Milk Khoa; Mysore Pa ; Gulab

Jamun; Khalakand; Butter Milk; Lassi; Curd Yoghurt; Ice-cream Varieties; Ice-cream

9

Varieties without sugar.

Federation supervises, co-ordinates and offers technical assistance to the District

Unions and Primary Co-operative Societies. It undertakes Planning, Procurement, Erection

and Expansion of Chilling Centers and Dairies to the District Unions on Turn-key

basis. Federation also implements clean Milk Production, Development of Milch animals

providing basic infrastructure development activities for the Primary Co-operative

Societies. Federation markets Milk and Milk Products to the Co-operative Federations in

India. Federation has taken steps to promote exports of Skimmed Milk Powder and Ghee to

Srilanka, Malaysia and Singapore.

Aavin welcomes you to a unique experience in gourmet eating. Here we have made

an effort to take you on an unforgettable culinary journey to delicious dairy recipe routes of

India, combined with exotic flavors and healthful preparations, to bring flavors into all walk

of your life. All recipes presented here are based on readily available ingredients and with

simple step-by-step instructions. So just select the category and look for your favorite recipe

and if you don't find one, let us know.

When it comes to milk products, there's something for everyone! The dairy industry

has developed a variety of great tasting, lower-fat products, milks, fermented milk, cream and

yogurt products. These web pages include lots of tantalizing recipes and great tips to help you

include Milk Products in your healthy eating plan. We plan to continually build the recipe site

each month, so look to us for interesting ideas. Enjoy! Delight cooking Recipes-

category

FUNCTIONS OF DISTRICT COOPERATIVE MILK PRODUCERS

UNIONS:

There are 17 District Cooperative Milk Producers' Unions functioning in the State of

Tamilnadu covering 30 Districts. There are 15 Dairies in District Co-operative Milk

Producers' Unions with an installed processing capacity of 19.42 llpd. There are 36 Chilling

Centres (Functional) in District Co-operative Milk Producers' Unions with installed chilling

capacities of 13.55 llpd.

Establishment of chilling centers:

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Formation of new milk routes to collect milk produced by the members of the

societies.

Collection of milk from societies, process and pack in modern dairy plants by

maintaining quality standards.

Supply of quality milk to Chennai Metro under hygienic conditions.

Fixation of procurement and selling price of Milk

Increase of liquid milk sales by introducing innovative sales promotional activities.

Supply of inputs to the members of the societies.

Extending Artificial insemination services to the cattle owned by the members of

Milk Cooperative Societies.

Providing milk cans, Milk 'O' testers and LN2 containers.

Salem, Erode, Madurai and Dharmapuri Unions are the Feeder Balancing Dairies.

Surplus milk in the District Unions, after meeting their local sales is diverted to the

nearest Feeder Balancing Dairies for conversion into milk products, such as Skim

Milk Powder, Butter and Ghee.

The three Cattle Feed Plants at Madhavaram, Erode and Kappalur are run by the

Kancheepuram - Tiruvallur Union, Erode Union, Madurai Union respectively. The

production capacity of these cattle feed plants is 100 MT per day each. The balanced

cattle feed produced in the form of pellets and mash are supplied to the members of

the Milk Co-operatives, livestock farms manned by the Animal Husbandry

Department and to various local bodies including the Corporation of Chennai.

FUNCTIONS OF FEDERATION (TCMPF):

The Tamilnadu Co-operative Milk Producers' Federation Limited is an apex body of

17 District Cooperative Milk Producers' Unions. The Federation has four dairy plants in

Chennai, one at Ambattur with a capacity of 4.00 lakh liters per day, another at Madhavaram

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with a capacity of 2.00 lakh liters per day and the third dairy at Sholinganallur with a capacity

of 4.00 lakh liters per day. These dairies collect milk from District Unions process and pack

in sachets and send for sale to the consumers in and around Chennai City. The fourth product

dairy at Ambattur is engaged in the manufacture of milk products such as Yogurt, ice cream,

Khova, Kulab jamoon, Buttermilk, Curd and Mysore pa.

MILK PROCUREMENT BY DCMPU’s:

Most of the rural people especially women make their livelihood by rearing Milch

animals and by supplying milk to the Co-operatives. Keeping this in view and to improve the

rural economy and to enhance the personal income of the stake holders in rural area,

Government of Tamilnadu directed the Tamilnadu Co-operative Milk Producers’ Federation

and District Co-operative Milk Producers’ Union to raise the procurement price of the cow's

milk from Rs.10.50 to Rs.12.00 per liter and that of the buffalo’s milk from Rs.12.50 to

Rs.14.00 with effect from 07.03.2007 and the milk cost as per the revised procurement price

is being disbursed to the Milk producers.

The procurement price payable to milk producers was increased from 01.09.2009 as follows:

Milk Procurement price Table No. 2.2.1

Buffalo milk Cow milk

Price per Litre (in Rs.)

7.0%Fat and 8.8% SNF

Price per Litre (in Rs.)

4.5% Fat and 8.5% SNF

Before 7.3.2009 From 7.3.2009Before

7.3.2009From 7.3.2009

12

14.00 17.50 12.50 14.50

Average milk procurement in DCMPUs in lakh liters per day.

Average Milk Procurement Table no. 2.2.2

MARKETING:

The three wings are carrying out the marketing of milk and milk products of the Federation

namely:

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Year 2004-2005 17.49

Year 2005-2006 15.79

Year 2006-2007 17.26

Year 2007-2008 20.56

Year 2008-2009 21.59

Year 2009-2010 22.10

1. Metro Liquid milk marketing.

2. Metro Milk Product marketing.

3. Up country marketing.

The product wing of the Federation located at Nandanam directly carries of marketing

of the products in Chennai Metro and suburbs.

The sales of milk in sachets is being carried out through 24 zones, 516 Depots, 364

Distribution Points, 35 Whole Sale Milk Distributors, 89 Milk Retailers and 48 Milk

Consumers’ Co-operative Societies. The sale of milk product is being carried out through 42

parlours, 185 Franchise Retail Outlets (FROs), 12 Wholesale dealers, and 4824 Retailers.

Standardised milk, Buffalo milk and double toned milk are being sold through 218 Automatic

Vending Machines and 185 FRPs to the city consumers. Milk products are also sold in certain

AVM Units. Sachet milk sales are also carried out in AVM units.

MILK SELLING PRICE:

The selling price of Toned / Standardised / Full Cream milk in sachets and in AVM units are

as detailed below:

Sachet Milk:

Milk Tariff Table No. 2.2.3

New price chart (With Effect From 01-09-2009)AAVIN MILK: TARIFF STRUCTURE (in Rs) Variety Fat

(%) SNF *(%)

Monthly Card ** Maximum Retail Price Present rate Revised rate Present

rate Revised rate

Toned milk 1 lit

3 8.5 15.75 17.75 18.00 20.50

Tone milk 500 ml

3 8.5 7.90 8.90 9.00 10.25

Standardized milk 500 ml

4.5 8.5 9.50 11.00 11.00 13.00

Standardized milk 500 ml

4.5 8.5 9.25 10.75 10.00 12.00

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*** Full cream milk 500 ml

6.0 9.0 10.50 12.00 12.00 14.00

Double toned milk 500 ml

1.5 9.0 7.75 9.25 9.00 11.00

Standardized Milk Tariff Table No. 2.2.4

AVM units

Standardised Milk (Per litre)

4.5% / 8.5%

Card MRP

Rs. 15.50 Rs. 16.00

STRENGTHENING INFRASTRUCTURE FOR QUALITY AND CLEAN

MILK PRODUCTION:

Government of India sponsored a scheme called ‘Strengthening Infrastructure for

Quality and Clean Milk Production’ to strengthen infrastructure facilities and to ensure Clean

milk production at village level. The period of the scheme is two / three years.

Objective of the scheme is to train farmers on clean milk production activities, to

provide chemicals and utensils to pouring members, to strengthen district union dairies /

chilling centers laboratory and to install bulk milk coolers at societies to improve initial

quality of milk.

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Government of India will release the entire amount as full grant for training, provision

of antiseptic solutions, supply of stainless steel utensils and modernization of Quality Control

Labs at Dairies / Chilling Centers. Government of India will release 75 percent as grant for

installation of bulk milk coolers and the remaining 25 percent will be met by the concerned

beneficiary District Unions.

Government of India so far has sanctioned Rs.1224.21 lakhs to Vellore, Villupuram,

Trichy, Dharmapuri, Salem Kancheepuram-Tiruvallur, Erode, Nilgiris and Madurai milk

Unions for the implementation of the scheme.

Under these schemes, 48001 members will be benefited, 90 Bulk Milk Coolers will be

installed and the chilling capacity will be increased by another 3.71 lakhs LPD.

DISTRICT UNIONS OF FEDERATION :

There are 17 District Co-operative Milk Producers’ Unions functioning in Tamil Nadu,

covering 30 Districts. They are

1.Kancheepuram-Tiruvallur , 2.Villupuram , 3.Vellore , 4.Dharmapuri , 5.Salem ,

6.Erode , 7.Coimbatore , 8.Nilgiris , 9.Madurai , 10.Dindigul , 11.Trichy , 12.Thanjavur ,

13.Pudukkottai, 14.Sivagangai , 15.Virudhunagar ,16.Tirunelveli , 17.Kanyakumari

THE TAMILNADU CO-OPERATIVE MILK PRODUCERS’ FEDERATION LTD

NUCLEUS JERSEY AND STUD FARM

FINGER POST P.O., OOTACAMUND – 643 006, NILGIRIS DISTRICT, TAMIL NADU

PHONE: (0423) 2444059, FAX: (0423) 2400143, email: [email protected]

INCEPTION :

Started at Udhagamandalam on 29.03.1973 under the direct control of the Tamil Nadu Dairy

Development Corporation now Tamilnadu Co-operative Milk Producers’ Federation Limited.

LOCATION:

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Situated in 37.725 acres of land taken on lease from the Forest Department, adjacent to

the Gymkhana Club, Ooty.

Financial Assistance – The erstwhile Indian Dairy Corporation

Technical Guidance – National Dairy Development Board.

Divisions of the Farm -

(a) Bull Mother Farm

(b) Stud Farm

(c) Frozen Semen Bank

(d) Liquid Nitrogen Plant

(e) Fodder Farm

(f) Quality Control Laboratory

OBJECTIVES :

i) To maintain pedigreed Jersey cattle, to produce genetically superior Jersey

Breeding Bulls and Cows.

ii) To produce Frozen Semen Straws from genetically superior Jersey , Friesian and

Cross-bred Bulls and supply the same throughout Tamil Nadu for Artificial

Insemination of Cattle.

iii) To augment milk production in local cattle in the milk sheds of Tamil Nadu under

Operation Flood by Cross-breeding through Artificial Insemination using quality

Frozen Semen produced from high milk

yielding pure-bred and cross-bred bulls with superior germ plasm.

Animal Strength Table No. 2.2.5

ANIMAL STRENGTH AS ON 31-12-2009

DESCRIPTION JERSEY JERSEY

CROSS FRIESIAN

FRIESIAN

CROSS TOTAL

COWS 12 -- -- -- 12

17

FEMALES

CALVES:

HEIFERS

05

02

--

--

--

--

--

--

05

02

MALES:

CALVES

YOUNG BULLS

09

1

-- 01

02

10

03

BREEDING

BULLS 29 49 03 0 81

TOTAL 58 49 03 03 113

SEMEN DISTRIBUTION:

Frozen Semen Straws produced from this unit are distributed to all the District Co-operative

Milk Producers’ Unions in Tamil Nadu.

Our other Customers:

1. Chittoor District Co-operative Milk Producers’ Union, A.P.

2. Andhra Pradesh Livestock Development Agency, A.P.

3. Kerala Livestock Development Agency, Palakkad (on exchange basis)

4. National Dairy Research Institute, Kalyani

5. Department of Animal Husbandry, Haryana

6. Patna Animal Development (Pvt) Ltd., Bihar

7. Private practitioners.

8. Sikkim Livestock Development Board , Sikkim

9. Department of Animal Husbandry, Tamil Nadu.

10. Department of Animal Husbandry, Pondicherry .

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Metro Dairies are,

1.Central Dairy, Madhavaram Milk Colony, Chennai – 600 051 with a capacity of 3.0 LLPD

2. Ambattur Dairy, Chennai – 600 098 with a capacity of 4.0 LLPD

3. Sholinganallur Dairy, Chennai – 600 119 with a capacity of 4.0 LLPD &

Ambattur Dairy

Ambattur Dairy is situated in the SIDCO Industrial Estate at Plot No.29 & 30,

Industrial Estate, Ambattur, Chennai – 600 098. Ambattur Dairy was established on

16.04.1976 by Shri.Fakrudin Ali Ahemed the President of India under the Operation Flood

Programme of Government of India. The Dairy was constructed by the National Dairy

Development Board on Turn-key basis with a capacity of 2.0 Lakh Liters per day for Bulk

Vending dispatches. The Sachet production was added during 1980. Ambattur Dairy handles

3.4 Lakh Liters per day in sachets, 0.3 Lakh Liters for Bulk Vending dispatches and 0.1 Lakh

Liters per day processed chilled water to Products Dairy.

The sterilized flavored milk in bottles production at the rate of 2000 bottles is carried

out in four different flavours. Pista, Badam, Elachi and Pineapple in 200 ML. Bottles. The

marketing demands are met as per the needs. The distribution of Milk is spread from North

Chennai George Town to Chromepet on the South and upto Thiruvallur on the west.

The Dairy is equipped with adequate processing facilities. The latest Pasteurizer,

Homogenizer and Packing machines were added as per the needs. The Dairy is equipped with

an Effluent Treatment Plant with a capacity of 4.0 Lakh Liters per day. Effluent Treatment

Plant functions as per the norms of the Tamilnadu Pollution Control Board and the treated

trade Effluent is utilized for Agriculture purpose within the Dairy premises.

MADHAVARAM

Central Dairy is situated in North Chennai and Commissioned during January 1963

(20.01.1963) at a total outlay of Rs.44/- Lakhs to Process and Sell Milk to the city consumers. The

foundation was laid on 15.10.1959 by Shri.S.K.Patil, Minister for Food and Agriculture,

Government of India. The Plant and Machineries were gifted by the Government and the people

of New Zealand under Colombo plan. Central Dairy started the operations under the control of

19

Madras Milk Dairy Project which was converted as Dairy Development Department under the

control of Commissioner for Milk Production and Dairy Development Department. Commissioner

for Milk Production and Dairy Development is also the Registrar of Milk Co-operatives. The

Tamilnadu Dairy Development Corporation was formed under Companies Act on 01.07.1972 and

taken over the Dairy Units, Transport and other commercial activities of Dairy Development

Department. Madurai Dairy was taken over by Tamilnadu Dairy Development Corporation w.e.f.

01.07.1974. Tamilnadu Dairy Development Corporation has given birth to TCMPF Ltd. (The

Tamilnadu Co-Operative Milk Producers' Federation Limited) Act.,

The Amul Pattern consists of three tiers:

Village level Producers’ Co-operative Society

District Level Milk Co-operative Producers’ Union

State Level Apex Federation.

Central Dairy was erected to handled 1.0 Lakh Liters per day in bottles and later converted to

Production of sachets w.e.f. 1997. Present handling capacity is 3.0 Lakh Liters per day, dispatches

2.7 Lakh Liters per day in sachets, 0.2 Lakh Liters per day to Bulk Vending Units and 0.10 Lakh

Liters per day Pasteurized Chilled water to Products Dairy.

Dairy is equipped with latest Processing Plant, Homogenizer, CIP System and Packing

Machines. Dairy is having Solar panels to heat the feed water to the Boilers. The Dairy caters the

needs of North, Central and parts of South Chennai. The distributions spread from Ponneri to

Mylapore in Chennai City. The Dairy is equipped with latest Effluent Treatment Plant to handle

3.0 Lakh Liters per day. The Effluent Treatment Plant functions as per the norms of the

Tamilnadu Pollution Control Board and Treated Effluent Water is utilized for Agriculture and

Garden purpose within the Dairy and also to the Fodder Farm of the Dairy Development

Department.

Quality Policy

"TCMPF Ltd., is committed to supply milk, and milk products of quality at competitive price to

20

satisfaction of the customers and to strive for excellence and customer delighted.

SHOLINGANALLUR DAIRY

Dairy is situated at Sholinganallur on Old Mahabalipuram Road on the Information

Technology Corridor. Sholinganallur Dairy was established during May 1995 with a handling

capacity of 4.0 Lakh Liters per day, 3.0 Lakh Liters for Bulk Vending dispatches and 1.0 Lakh

Liters per day in sachets. The present handling is 3.4 Lakh Liters per day in sachets and 0.3 Lakh

Liters per day for Bulk Vending dispatches.

This is the first automatic Dairy having Reception, Quality check and Processing with

Programmed Logistics Control System. The dairy is equipped with Processing, Quality assurance,

CIP, Packing and Cold Storage facilities. Dairy is equipped with latest

Effluent Treatment Plant to handle 5.0 Lakh Liters per day. Effluent Treatment Plant

is operated as per the Tamilnadu Pollution Control Board norms and the treated trade effluent

water is used for agriculture purpose within the Dairy premises. This Dairy caters the needs

of South Chennai and Pheripheral areas upto Chengalpet, Kalpakkam in the South and upto

Kancheepuram on the West.

CHAPTER – III

DESIGN OF THE STUDY

3.1 OBJECTIVES OF THE STUDY:

3.1.1 Primary Objective:

To Study on Financial Analysis in Aavin

3.1.2 Secondary Objective:

1. To study the liquidity of AAVIN

2. To study the solvency of the Company.

21

2. To study the profitability of the Company.

3. To identify the problems of the Company in the areas of liquidity, solvency and

profitability and to offer concrete suggestions to tackle the problems.

3.2 SCOPE OF THE STUDY:

There are various methods of research study. Case study is one of the research

studies. In this study, the present researcher has analyzed the Financial performance of

AAVIN. The liquidity solvency and profitability was analyzed to know whether the company

is capable of generating profits and capable of meeting its obligations in time.

3.3 SIGNIFICANCE OF THE STUDY:

This study aims at creating an awareness among he management and share holders of

AAVIN regarding the importance of financial management through proper methods. The

present study will throw light on the finance performance of the Company in terms of

liquidity, solvency and profitability. The tools applied to find out the level of financial

performance will pinpoint the areas requiring improvement.

22

3.4 LIMITATIONS OF THE STUDY:

The limitations of the study are furnished below:

1. Financial account itself has its own limitations like personal

judgment of the accountant.

2. In this study, only selected ratios were used.

3. Since the study relates to AAVIN the findings and suggestions cannot be

generalized.

3.5 RESEARCH METHOLODOGY

Research methodology is the way to systematically solve the research

problem. This study on Inventory Management can be grouped under the analytical

research studies. The study can also be called as analytical studies because the facts

and information’s that is readily available are being used to make critical evaluations

of Inventory Management at AAVIN LTD, CHENNAI. The study can also be called

as a descriptive studies because the portrays accurately the characteristics of a

particular individual, situation or a group.

1.5.1. RESEARCH DESIGN

23

ANALYTICAL DESIGN

The researcher has to use facts or information already available and analyze

those facts to make a critical evaluation of the material.

1.5.2. DATA COLLECTION METHOD

Secondary Data

Apart from the primary data, the branch schedules, audited accounts and system

applications and data processing (SAP) package for the relevant period have also been

used extensively. The data from the reports have been analyzed using various tools

and techniques with the view to evaluate the performance in the management of

current assets.

1.5.3. INVENTORY CONTROL TECHNIQUES

A. ABC Analysis

B. XYZ Analysis

C. SED Analysis

D. FSND Analysis

1.5.4 FINANCIAL ANALYSIS

A. Ratio analysis

24

1.5.5 STATISTICAL TOOLS

A. Coefficient of Correlation

B. Index Numbers

C. Trend Analysis

PERIOD OF STUDY:

The study covers a period of five years from 2004 - 05 to 2008 - 09. The accounting

year of the company is 1st April to 31st March every year.

3.6 REVIEW OF LITERATURE

For every project literature review is quite essential as it reveals the synopsis,

reason behind the choice of particular area of study. It enables a person to get an idea

about the study being made and forms the base for further analysis.

Academic journals, books, published and unpublished bibliographies are the

primary sources are the review of earlier studies. Before choosing a project it is

essential that one should be thorough with the area of study and able to rephrase the

same in meaningful terms.

25

Inventories are the stock of products that the company manufactures for sale and

components that make up the products. The inventory of a manufacturing unit

includes raw materials, work in progress, finished goods and supplies.

Inventories constitute a significant part of the current assets of a 60% of current

assets in Indian Companies. Because of large size of inventories maintained by firms a

considerable amount of funds is required to be committed to them. It is therefore

absolutely imperative to manage inventories efficiently and effectively in order to

avoid unnecessary investment.

A firm neglecting the management of inventories will be jeopardizing its long

run profitability and may fail ultimately. It is possible for a company to reduce its

level of inventories to a considerable degree. E.g.10 to 20% without any adverse effect

on production and sales by using simple inventory planning and control techniques.

The reduction in excessive inventories caries a favorable impact on a company’s

profitability.

INVENTORY CONTROL TECHNIQUES

Every organization consumes several items of stores. All these items

don’t need equal importance. A high degree of control of inventories of each item is

neither practical nor worthwhile. Therefore, it becomes necessary to classify items in-

group depending upon their degree of importance.

A. ABC ANALYSIS OF INVENTORY CONTROL

26

ABC analysis is a basic analytical management tool, popularly known as

“Always Better Control”, has universal applications in many are as of human

endeavor. This technique tries to analyze the distribution of any characteristic by

money value of importance in order to determine priority. In materials management,

this technique has been applied in areas needing selective control, such as inventory,

criticality of items, obsolete stocks, purchasing order, inspections etc.

A= 5-10% of top number of items account for 70% total consumption. value

B= 15-20% of the number of items account for 20% of total consumption value

C= 70-80% of the number of items account for 15% of total consumption value.

B. XYZ ANALYSIS :

While the ABC classification of inventories has consumption value as basis,

the XYZ analysis has the closing inventory value as the basis for classification of

inventories.

X- Items with high inventory value

Y- Items with moderate inventory value.

Z- Items with low inventory value

The XYZ analysis, done once in a year, helps to identify the items that are being

stocked extensively. A combination of ABC & XYZ analysis will help the firm to

have better inventory control.

C. SED ANALYSIS

SED Analysis helps firm to classify its materials based on their

availability in the market. This will have an impact on the decision for fixing lead-

time for any time.

27

Longer the lead-time indicates the criticality of the item. The classification runs like

this:

S= Scarce Items

E= Easy (not difficult to get) Items

D= Difficult (to procure) Items

The items needed to manufacture the relays; control panel and medium

voltage are grouped as local and foreign supplies. RMC1, RMC2 are the item classes

that indicates local purchase. RMC3, RMC4 represents the imported items. RMC4

category exists only for the Relays being produced. AREVA considers the RMC4

items as scarce items(S items).

The local suppliers being prompt and reliable for RMC1, RMC2 are

considered as items that are always available (E items). The RMC3 & RMC4 items,

through available in the market, are considered as trading items and are grouped under

those items which are available in the market with difficulty (D items).

D.FSND ANALYSIS

All the items are not required with the same frequency in any

organization. Some are required regularly, some occasionally and some once in a

while

F S N D Analysis places the items in four categories:

F= Fast Moving Items

S= Slow Moving Items

N= Non-Moving Items

D= Dead Items

28

Inventory policies and models for these groups are different. Theoretical

models have validity for F items with regular consumption. Spares are slow moving

(s) and require special management. Disposal policies are designed to control dead

stock. This analysis is useful mainly to combat obsolete items. Cut-off points are

usually based on the number of issues in the past 2-3 years.

FSND IN TCMPF LTD, CHENNAI:

The products manufactured inAAVIN LTD, CHENNAI based on the

customer’s demand for the same over a period of time. In AAVIN LTD, CHENNAI,

the products for which demand is regular over the entire year including peak demands

are considered as fast moving & the items used to produce those products are labeled

as ‘F’ items

The demand doesn’t remain in the peak all the time. When the demand

for a product reduces, the items used to make that product remains in stores and

moves slowly. They are termed as “S” items. There are products, which are

demanded, in a particular season.

The demand for these items is more when electric supply fluctuations are

more. For rest of the period, these items are considered as non-moving and are stored

as the stocks.

Dead items are those items, which constitute to make a product, which has

become obsolete due to change in design of a product demanded. E.g., the Air circuit

breakers, which were produced, based on the expectation that its demand will

continue, become obsolete due to change in requirement pattern of the product.

The items forming part of such products are considered as dead items.

AAVIN LTD, CHENNAI takes due care that the items stored especially the Dead and

29

a Non-moving item doesn’t affect its cost constitution to a major extent. The

inventory policy is designed with the base to avoid unnecessary cost on inventory.

FINANCIAL ANALYSIS

A. RATIO ANALYSIS

RATIO

A ratio is a mathematical relationship between two items expressed in

quantitative form. Ratio can be defined as

“Relationships expressed in quantitative items between figures which have

cause and effect relationships or which are connected with each other in some

manner or the other”

1. PROFITABILITY RATIO

Ability to make maximum profit from optimum utilization of resources by a

business concern is termed as “profitability”. Profit is an absolute measure of

earning capacity. It depends on sales, cost and utilization of resources.

Operating ratio:

This ratio indicates the relationship between total operating expenses and sales.

Operating Ratio = Cost of sales + operating expenses X 100

Net Sales

Total Operating expenses include cost of goods sold + Administrative, Selling and

distributing expenses

Net Sales = Total Sales – Sales Returns

Operating ratios measures the amount of expenditure incurred in production, sales and

distribution of output.

30

It indicates operational efficiency of the firm. Lower the ratio more is the efficiency.

It should provide fair return to shareholders and other investors.

2. ACTIVITY RATIOS

These ratios are also called as performance or turnover ratios. The term operational

efficiency, highlighted by activity ratios, refers to effective, profitable and rational use

of resources available to the concern. To examine the judicious utilization of

resources, wisdom and farsightedness in observing the financial policies lay down &

these ratios are computed.

INVENTORY TURNOVER RATIO:

It is also called as stock turnover ratio or stock velocity ratio. This ratio is

calculated to ascertain the efficiency of inventory management in terms of capital

investment. It shows the relationship between the cost of goods sold and the amount

of average inventory. This ratio helps to evaluate and review the inventory policy of

the firm. It indicates the number of times the inventory is turned over during a

particular accounting period.

Stock turnover ratio = Cost of goods sold

Average inventory

Where, average inventories = Opening stock + closing stock

2

WORKING CAPITAL TURNOVER RATIO:

31

Working capital ratio measures the effective utilization of working capital. The ratio

establishes relationship between cost of sales and working capital.

Sales (or) cost of sales

Working capital turnover ratio =

Net working Capital

Where, Net working capital = Current Assets – Current liabilities

Higher sales in comparison to working capital indicate overtrading and longer sales in

comparison to Working capital indicate undertaking. A higher ratio is the indication of

lower investment of working capital and more profit.

3. SOLVENCY OR FINANCIAL RATIOS

Current Ratio:

= Current Assets / Current Liabilities.

Current Ratio: In the operating cycle of the firm the current assets are

converted into cash to provide funds for the payment of current liabilities. So higher

the current ratio, higher the short term liquidity, But care should be taken regarding

the composition of current assets. A firm that has large amount of cash and accounts

receivable is more liquid than a firm having large amount of inventories in its current

assets.

Quick Ratio :

This is a more stringent measure of liquidity because inventories, which are least

liquid of current assets, are excluded. This is because inventories have to go through a

two-step process of first being sold and converted into receivables and secondly

32

collected. Quick ratio indicates the ability of the firm to meet its liabilities without

relying on the sale and recovery of its inventories

It is calculated by comparing the quick assets with the current liabilities

Quick asset

Quick ratio = Current liability

Where, quick asset refers to assets, which are quickly convertible to cash. Current

asset other than stock and prepaid expenses are considered as quick assets. The ideal

liquid ratio is “1”.

CURRENT ASSET INTENSITY RATIO:

Inventory constitutes an important item of current assets. Inventories are

considered as a part of current asset wherein more concentration is needed especially

in a manufacturing unit. The current asset intensiveness indicates the high degree of

relationship that exits in between the two variables viz., inventory and current assets.

Inventory

Current Asset Intensity Ratio = -------------------------------- X 100

Current Asset

PROPORTION OF INVENTORY TO NETWORING CAPITAL:

Net working capital is the excess of current asset over Current liabilities. It

refers to that part of Current asset, which remains after the current obligations are

being met out of Current asset. Inventory also forms part of Current Asset and hence

33

can be included to discharge the current obligation. The inventory to Net working

capital table below helps to find the ability of AAVIN LTD, CHENNAI., works to

pay off its Current Liabilities. The ration is arrived as under.

Inventory

Inventory to Net Working Capital =

Net working Capital

WORK -IN- PROGRESS TO INVENTORIES:

The ratio helps to analyze the position of work-in-progress in total inventory.

It shows clearly how funds are locked up in work-in-progress. The table indicates

the proportion of work-in-progress to the inventories in AAVIN LTD, CHENNAI

FINISHED GOODS TO INVENTORIES:

This ratio shows the constitution of finished goods in the overall inventories at

AAVIN LTD, CHENNAI. The exact relationship among the two variables viz.,

inventories and finished goods are found with the help of this ratio. This ratio is

calculated as

Finished goods

Finished Goods to Inventories = ---------------------

Inventory

This ratio measures the efficiency of the manufacturing function in scheduling

the production and the efficiency of the marketing function in disposal of outputs of

an enterprise by constantly feeding the distribution channels. This ratio also indicates

the presence of unresolved conflicts between the marketing management and the

34

financial management; the former trying to keep its distribution channel overstocked

for fear of stock outs and the latter trying to keep it low for fear of high interest cost

involved in carrying these inventories low ratio not only indicated the presence of

unresolved conflicts but also indicate that the products of the enterprise are losing

markets due to price competition or general recession. A higher value of this ratio

indicates that the firm’s products are being sold fast.

Finished goods inventory turnover ratio helps credit manager to decide on the

length of the credit he might allow to the applicant firm.

If the firm is a manufacturing firm, and the vendor firm supplies material-

inputs, then maximum number of day’s credit that may be allowed will be calculated

by extending the chain backward to include turnover of the raw material and work-in-

process inventories.

COST OF GOODS SOLD RATIO

A firm may decompose the operating expenses as cost of goods sold ratio and

other operating expenses ratio, the ratio below portrays the cost of goods sold ratio

for AAVIN LTD, CHENNAI.

Cost of goods sold

Cost of goods sold ratio = -----------------------------------

Sales

STATISTICAL ANALYSIS

A.COEFFICIENT OF CORRELATION

35

The Co-efficient of correlation measures the relationship between two sets of

variables. According to L.C. CORNER

‘‘If two or more quantities vary in sympathy, so that movements in one ten to

be Compared by corresponding movements in the other, then they are said to be

correlated.’’ The relative measure forms base for ascertaining the degree of

correlation and it is denoted as ‘r’. The value of ‘r’ is within the range of 1 to -1.

B.INDEX NUMBER

Index number is a summary measure, which states a relation between groups

of related items. It is a statistical device for comparing the general level of magnitude

of a group of distinct but related variables in two or more situations. The chain –

based index number is used only when comparison is desired from year to year. The

relatives for each year are worked out on the basis of prices of the preceding year. The

base year always changes. So, it is also referred as “shifting base system”. The index

number constructed on chain base system indicates short – term fluctuations.

Formula for chain based index numbers

Current year L.X.R Previous year P.R

Chain based index =

100

Where, L.R. Indicates Link Relatives and P.R indicates the Price Relatives.

Price relative for the current year

Link relative =

Price relative for the previous year

36

Price relative for any year = the price relative of the previous year X the link relative

of the current year.

C.TREND ANALYSIS

The general tendency of the series to increase or decrease over the period of

time is called the Trend of series. No Short – range oscillations are included. It is a set

of observation taken at specified time interval, usually at ‘equal intervals’ from a

sufficiently long period of time. They help in making estimates of futures. The

estimate made for the future period are the forecasting and are approximate.

CHAPTER - IV

DATA ANALYSIS AND INTERPERTATION

37

2.1INVENTORY CONTROL TECHNIQUES

A. ABC ANALYSIS OF INVENTORY CONTROL

2.1.1 ABC ANALYSIS FOR CONTROL PANELS

TABLE 2.1.1

year 2005-2006 2006-2007 2007-2008 2008-2009 2009-2010

A Value

(Rs)

27955081 52908923 23966703 28389139 24909112

B Value

(Rs)

7987166 15116835 6847629 8111182 7116889

C Value

(Rs)

3993585 7558417 3423815 4055591 3558444

2.1.2 ABC ANALYSIS THE PERIOD FOR RELAYS

38

TABLE 2.1.2

YEAR 2005-2006 2006-2007 2007-2008 2008-2009 2009-2010

A Value 66563657 51305726 83118691 50758641 56033396

B Value 19018188 14658779 23748198 14502469 16009542

C Value 9509094 7329390 11874098 7251233 8004770

2.1.2 CHART SHOWING ABC ANALYSIS FOR RELAYS

2.1.3 XYZ ANALYSIS AT AAVIN

39

TABLE 2.1.3

YEAR RELAYS (RS) CONTROL PANELS

(RS)

2005-2006 95090939 39935830

2006-2007 73293895 75584175

2007-2008 118740987 34238147

2008-2009 72512343 40555912

2009-2010 80047708 35584445

Source: Audited Annual Reports

INTERPRETATION & INFERENCE:

The above table shows the XYZ analysis for the company for a period of 5 years.

The relay products which have high inventory value are grouped as “X” items. The control

panels which have moderate inventory values are grouped as “Y” items. The manufacturing

and service panels which require only fewer inventories are grouped under the “Z” category.

Relays are stocked extensively to meet the growing demand for products.

FINANCIAL ANALYSIS

A. RATIO ANALYSIS

40

1. PROFITABILITY RATIOS

1.OPERATING RATIO

Operating Ratio = Cost of sales + operating expenses X 100

Net Sales

2.2.1 OPERATING RATIO

TABLE 1.1

YEAROPERATING

EXPENSESNET SALES

OPERATING

RATIO (%)

2005-2006 4000953 3952423 101.22

2006-2007 3775629 3809250 99.12

2007-2008 4475309 4559573 98.15

2008-2009 5443039 5554969 97.98

2009-2010 7336429 7746628 94.70


INFERENCE:

A higher operating expense ratio is unfavorable since it will leave a small amount

of operating income to meet interests, dividends etc. Hence lower the ratio more is the

efficiency. From the above table it can be inferred that in the initial years i.e. in 2006 and

2007 the operating expenses ratio was high, but subsequently in the following years has

reduced its operating ratios to 98.15, 97.9 and 94.70 in the years 2008, 2009, and 2010

respectively.

2.2.1 CHART SHOWING OPERATING RATIO

41

2. ACTIVITY RATIO

2.2.2 INVENTORY TURNOVER RATIO:

42

Stock turnover ratio = Cost of goods sold

Average inventory

Where, average inventories = Opening stock + closing stock

2

2.2.2 INVENTORY TURNOVER RATIO

TABLE 2.2.2

YEAR C.G.S AVG.

INVENTORY

INVENTORY

T/O RATIO

STOCK

PERIOD

(DAYS)

STOCK

PERIOD

(MONTHS)

2005-2006 2527329 77789905 3.25 112.30 3.69

2006-2007 2799979 778063.5 3.59 101.6 3.34

2007-2008 3522745 793998 4.44 52.20 2.10

2008-2009 4316484 775811 5.56 65.64 2.15

2009-2010 5580484 979958 5.69 64.14 2.10


INFERENCE:

The ratio indicates the efficiency of the firm in selling its products.

Generally a high turnover is indicative of good inventory management. It can be understood

from the table that the company has steadily increased its inventory ratio 2001 and

considerably decreased to 3.34, 2.70, 2.15 & 2.10 in the subsequent years respectively. Even

though it averages up to 3.5 it has to redesign some method. thereby indicating efficiency.

The stock period is calculated at 3.69 months for the year

2.2.2 CHART SHOWING INVENTORY TURNOVER RATIO

43

2.2.2(ii) STOCK PERIOD (DAYS)

YEAR STOCK PERIOD

44

2005-2006 112.30

2006-2007 101.60

2007-2008 82.20

2008-2009 65.64

2009-2010 64.14

INTERPRETATION:

From the above table it can be seen that the stock period in days for

the year 2000-2001 is 112.30, for 2001-2002 101.60, for 2002-2003 it is 82.20, for the year

2003-2004 it is 65.64 and for the year 2004-2005 it is 64.14

2.2.2(iii) STOCK PERIOD (MONTHS)

YEAR MONTHS

2005-2006 3.69

2006-2007 3.34

2007-2008 2.70

2008-2009 2.15

2009-2010 2.10

INTERPRETATION

From the above table it can be seen that the stock period in months

for the year 2000-2001 is 3.69, for the year 2001-2002 is 3.34, for the year 2002-2003 is 2.70,

for the year 2003-2004 is 2.15 and for the year 2004-2005 is 2.10.

2.2.2(ii) CHART SHOWING STOCK PERIOD IN DAYS

45

2.2.2(iii) CHART SHOWING STOCK PERIOD IN MONTHS

2.2.3 WORKING CAPITAL TURNOVER RATIO:

46

Sales (or) cost of sales

Working capital turnover ratio =

Net working Capital

Where, Net working capital = Current Assets – Current liabilities

TABLE 2.2.3

YEARNETSALES NETWORKING

CAPITAL

WORKING

CAPITAL RATIO

2005-2006 3952423 1077682 3.67

2006-2007 3809250 1185942 3.21

2007-2008 4559573 1092643 4.17

2008-2009 5554969 1159214 4.79

2009-2010 7746628 1174592 6.59


INFERENCE

Working Capital Ratio measures the effective utilization of working

capital. A higher ratio indicates lower investment and higher profits. From the above it can be

understood that in the year 2001 the working capital turnover ratio was 3.67%, considerably

it went down to3.21 in 2001-2002, but in the following 3 years i.e. from 2003 to 2005 it has

shown an increasing trend.

2.2.3 CHART SHOWING WORKING CAPITAL TURNOVER RATIO

47

3. SOLVENCY OR FINANCIAL RATIOS:

48

2.2.4 CURRENT RATIO

Current Ratio = Current Assets/ Current Liabilities

TABLE 2.2.4

YEARCURRENT

ASSET

CURRENT

LIABILITIESCURRENT RATIO

2005-2006 2670980 1593298 1.67

2006-2007 2984325 1798383 1.65

2007-2008 2989189 1896546 1.57

2008-2009 3552120 2392906 1.48

2009-2010 4805813 3631221 1.32


INFERENCE:

This ratio shows the relationship between current assets and current liabilities.

The ideal ratio is 2:1. From the above table it is understood that the company’s current ratio

was better in the years 00-01 and 01-02 with 1.67 & 1.65 respectively. But after that a

considerable decrease can be seen reaching almost the lowest in 04-05 with 1.32. This

position is unfavorable for the company as it has lesser stock of Current Assets. Hence the

Company should take measure to either increase current assets or decrease current liabilities

to achieve short-term financial stability.

49

2.2.4 CHART SHOWING CURRENT RATIO

50

2.2.5 ACID TEST RATIO

It is calculated by comparing the quick assets with the current liabilities

Quick asset

Acid Test Ratio = Current liability

TABLE 2.2.5

YEAR QUICK ASSETSCURRENT

LIABILITIES

QUICK

RATIO

2005-2006 1603984 1593298 1.00

2006-2007 1799206 1798383 1.00

2007-2008 1887586 1896456 0.99

2008-2009 2374101 2392906 0.99

2009-2010 3097916 3631221 0.85

INFERENCE:

This ratio establishes a relationship between quick or liquid assets and current

liabilities. Generally a quick ratio of 1:1 is considered to represent a satisfactory current

financial condition. It can be seen that the company has maintained the required ratio for the

years 00-01 & 01-02.It was standard in the years 02-03 and 03-04 with 0.99. It slightly went

down to 0.85 in 04-05. But it has maintained a standard position either way.

2.2.5 CHART SHOWING ACID TEST RATIO

51

52

2.2.6 CURRENT ASSET INTENSITY RATIO

Inventory

Current Asset Intensity = -------------------------------- X 100

Current Asset

TABLE 2.2.6

YEAR INVENTORY

(Rs)

CURRENT ASSET

(Rs)

CURRENT ASSET

INTENSITY

RATIO (%)

2005-2006 752618 2670980 28.18

2006-2007 803509 2984325 26.92

2007-2008 784487 2989189 26.25

2008-2009 767135 3552120 21.59

2009-2010 1192781 4805813 24.81

INFERENCE:

This ratio shows the relationship between inventory and Current Assets.

From the table it can be inferred that the Company has maintained a standard ratio from the

year 2001 with 28.17%. It only slightly went down in the year 2004 to 21.59. But it was

increased to 24.81 in 2005 higher the ratio, higher the investment in inventories.

2.2.6 CHART SHOWING CURRENT INTENSITY RATIO

53

2.2.7 PROPORTION OF INVENTORY TO NETWORING CAPITAL:

54

Inventory

Inventory to Net Working Capital =

Net working Capital

TABLE 2.2.7

YEARINVENTORY

NETWORKING

CAPITAL

INVENTORY TO

NETWORKING

CAPITAL (%)

2005-2006 752618 1077682 69.84

2006-2007 803509 1185942 67.75

2007-2008 784487 1092643 71.79

2008-2009 767135 1159214 66.18

2009-2010 1192781 1174572 101.55


INFERENCE:

This ratio shows the ability of the company to pay its Current Liabilities. In the

years 00-01 and 01-02 the average is 68.8% i.e. Inventories constitute 68.8% of Net working

Capital. In the following years there has been a considerable increase reaching an all time

high in 2005 with 101.5%.

55

2.2.7 CHART SHOWING PROPORTION OF INVENTORY TO NETWORKING

CAPITAL

56

2.2.8 WORK -IN- PROGRESS TO INVENTORIES:

TABLE 2.2.8

YEARINVENTORY WORK-IN-

PROGRESS

WORK-IN-

PROGRESS TO

INVENTORY (%)

2005-2006 752618 316968 2.37

2006-2007 803509 357136 2.24

2007-2008 784487 311517 2.51

2008-2009 767135 301212 2.54

2009-2010 1192781 581232 2.05


INFERENCE:

The Company’s work-in-progress to Inventories ratio was 2.37 in 00-01.

Henceforth it has steadily declined reaching an all time low in 04-05 with 2.05%. This

position is favorable since the company has to concentrate more on finished goods.

57

2.2.8 CHART SHOWING PROPORTION OF WORK-IN-PROGRESS TO

INVENTORIES

58

2.2.9 FINISHED GOODS TO INVENTORIES:

TABLE 2.2.9

YEAR FINISHED GOODSINVENTORY

FINISHED GOODS

TO INVENTORY

(%)

2005-2006 133243 752618 17.70

2006-2007 100756 803509 12.54

2007-2008 82078 784487 10.46

2008-2009 66870 767135 8.72

2009-2010 57004 1192781 4.78


INFERENCE:

The company had high finished goods to Inventory turnover in 00-01

with 17.70%. But it has decreased in subsequent years reaching 4.77% by 04-05. Such a

position is favorable for the company as work-in-progress is not blocked and therefore

bringing about an increase in Inventory turnover ratio.

59

2.2.9 CHART SHOWING PROPORTION OF FINISHED GOODS TO

INVENTORIES

60

2.2.10 COST OF GOODS SOLD RATIO

TABLE 2.2.10

YEARCOST OF GOODS

SOLD

SALES RATIO

(%)

2005-2006 2527329 3952423 63.94

2006-2007 2799979 3809250 73.50

2007-2008 3522745 4559573 77.26

2008-2009 4316484 5554969 77.70

2009-2010 5580484 7746628 72.03


INFERENCE

Cost of goods Sold Ratio depicts the other operating and selling expenses incurred. From the

table it can be seen that the company’s Cost of Goods Sold ratio has been steadily increasing

77.70% in 03-04. Such a situation is unfavorable for the company as it decreases the gross

profit. Hence the company has to take suitable measures to reduce cost of goods sold.

61

2.2.10 CHART SHOWING RATIO OF COST OF GOODS SOLD

62

2.3. STATISTICAL ANALYSIS

A.COEFFICIENT OF CORRELATION

2.3.1 COEFFICIENT OF CORRELATION BETWEEN INVENTORY AND

DEBTORS

TABLE 2.3.1

INVENTORY(X) DEBTORS(Y) X2 Y2 XY

75.26 139.77 5664.07 19535.65 10519.09

80.35 163.25 6456.12 26650.56 13117.13

78.45 174.38 6154.40 30408.38 13680.11

76.71 216.25 5884.42 46764.06 16588.53

119.27 282.68 14225.33 79907.98 33715.24

430.04 976.33 38384.34 203266.63 876201


Where X = value of inventories Y = value of debtors

√XY

r =

√∑X2. √∑Y2

r = 0.01

INFERENCE:

The above calculations reveal that debtors and inventories are positively

related in AAVIN. It indicates that when the value of inventories increase, the debtors do

increase and vice-versa.

63

2.3.2 COEFFICIENT OF CORRELATION BETWEEN INVENTORY AND

CREDITORS

TABLE 2.3.2

INVENTORY

(X)

CREDITORS

(Y)X2 Y2 XY

75.26 130.10 5664.06 16926.01 9791.32

80.35 137.31 6456.12 18854.03 11032.85

78.45 147.48 6152.40 21750.35 11569.80

76.71 169.25 5884.42 28645.56 12983.16

119.27 234.14 14225.32 54821.53 27925.84

38384033 140997.48 73303


Where, X= value of inventories Y= value of purchase

√XY

r =

√∑X2. √∑X2

r = 0.003

INFERENCE

The inventories and creditors are positively (Directly) related to one another. It

shows that when there is an increase or decrease in inventories there will be an increase or

decrease in creditors. The raise or falls of inventories depends on the demand and production

of products of AAVIN.

64

2.3.3 COEFFICIENT OF CORRELATION BETWEEN INVENTORY AND SALES

TABLE 2.3.3

INVENTORY

(X)

SALES (Y) X2 Y2 XY

75.26 395024 5664.06 156214.56 29745.76

80.35 380.92 6456.12 145100.04 30606.92

78.45 455.95 6152.40 207890.40 35769.27

76.71 555.95 5884.42 308569.14 42611.63

119.27 774.66 14225.32 600098.11 92393.69

38384.33 1417872.25 231127.27


Where, X= value of inventories Y= value of purchase

√XY

r =

√∑X2. √∑X2

r = 0.002

INFERENCE

The Sales in AAVIN, related to inventories shows a positive correlation. Hence

it indicates increase in Sales will result in increase in inventories and vice – versa.

65

A. INDEX NUMBERS

2.3.4 CHAIN BASE INDEX NUMBER FOR STEEL

TABLE 2.3.4

YEAR PRICE LINK RELATIVES CHAIN INDICES

2005-2006 28.99 100 100

2006-2007 29.15 29.15/28.99*100=100.55 100.55/100*100=100.55

2007-2008 31.44 31.44/29.15*100=107.85 107.85/100.55*100=107.26

2008-2009 40.31 40.31/31.44*100=128.21 128.21/107.85*100=118.87

2009-2010 50.51 50.51/40.31*100=125.30 125.30/128.21*100=97.73


INFERENCE:

The above table shows the short-term variation in price for steel. The base year is

always assumed as 100. There is a gradual increase in steel price by 18.87%, during the year

03-04 as compared to the base year. There is a decrease in steel price during the year 2004-

2005. The change in price depends upon the changes in demand for the product, agreement

made with the suppliers, quantity of products to be manufactured.

66

2.3.5 CHAIN BASE INDEX NUMBER FOR COPPER

TABLE 2.3.5


2005-2006 146 100 100

2006-2007 139 139/146*100=95.20 95.20/100*100=95.20

2007-2008 139 139/139*100=100 100/95.20*100=105.04

2008-2009 149 149/139*100=107.19 107.19/100*100=107.19

2009-2010 195 195/149*100=130.87 130.87/107.19*100=122.09


INFERENCE:

The base year is always assumed ad 100. The table shows the changes in the price of the

copper during the last five years. There is a gradual increase in the prices for every year. The

changes in price depends upon the demand for the items, production quantity variation, and

duties imposed on the item etc,

67

2.3.6 CHAIN BASE INDEX NUMBER FOR ALUMINIUM

TABLE 2.3.6


2005-2006 95.21 100 100

2006-2007 96.70 96.70/95.21*100=101.56 101.56/100*100=101.56

2007-2008 110.16 110.16/96.70*100=113.91 113.91/101.56*100=112.16

2008-2009 102.21 102.21/110.16*100=92.78 92.78/113.91*100=81.45

2009-2010 108.78 108.78/102.21*100=106.42 106.42/92.78*100=114.70


INFERENCE:

The above table shows that the price of Aluminum has undergone a wide fluctuation over the

past five years. The price index of the first year is always assumed as 100. The table shows

that the price of Aluminum has been raised in the year 04-05. The change in the price is

related to the change in the quantity demanded, quantity produced, contract price with the

suppliers, management decisions, fluctuations in the market price.

68

C.TREND ANALYSIS

2.3.7 ESTIMATION OF INVENTORIES FOR THE YEAR 2006-2007

YEARS

(X)

INVENTORIES

(Y)

U = x-X UY U2

2005-2006 752618 -2 -1505236 4

2006-2007 803509 -1 -803509 1

2007-2008 784487 0 0 0

2008-2009 767135 1 767135 1

2009-2010 1192781 2 2385562 4

TOTAL ∑Y=4300530 ∑UY=843952 ∑ U2= 10


The equation of straight line is:

Y= a + b X where, a = ∑Y / N ; b = ∑UY / U2 ;

The normal equations are

∑Y = n a + b ∑ X

∑ XY = a ∑X + b ∑ X2

Y = a + b (X-2003) = Rs 1197686

INFERENCE

When other factors remain the same, the value of inventories in AAVIN, is estimated

to be Rs.1197686 for the year 2007. The trend shows the increase in the inventory values,

which indicates the decrease in the cost of inventories.

69

2.3.7 CHART SHOWING THE ESTIMATION OF INVENTORIES FOR THE YEAR

2007

Estimation of Inventories

70

TREND ANALYSIS FOR SALES

TABLE 2.3.8

ESTIMATION OF SALES FOR THE YEAR 2007

YEARS

(X)

NETSALES

(Rs)

(Y)

U =x-X UY U2

2005-2006 3952423 -2 -7904846 4

2006-2007 3809250 -1 -3809250 1

2007-2008 4559573 0 0 0

2008-2009 5554969 1 5554969 1

2009-2010 7746628 2 15493256 4

TOTAL ∑Y=25622843 ∑ UY=9334129 ∑ U2= 10

The equation of straight line is:

Y= a + b X where, a = ∑Y / N ; b = ∑UY / U2 ;

The normal equations are

∑Y = n a + b ∑ X

∑ XY = a ∑X + b ∑ X2

Y = a + b (X-2003) = Rs8858221

INFERENCE

The estimated sales for the year 2007 is Rs 8858221

For AAVIN, when other thing remain the same.

71

2.3.8 CHART SHOWING ESTIMATION OF SALES FOR THE YEAR 2007

72

CHAPTER – V

FINDINGS, SUGGESTIONS AND CONCLUSION

FINDINGS

The major findings of the analysis on inventories in AAVIN are:

Relays, Control Panel forms the major part of finished goods inventory in AAVIN.

The codification of raw materials and components (based on the locality of supplier)

are RMC 1, RMC 2, RMC 3 and RMC 4. RMC 1 & 2 indicates local supplier, RMC 3

& 4 represents the imported stock.

Operating Ratio in the initial years i.e. in 2001 and 2002 was high, but subsequently

in the following years has reduced its operating ratios to 98.15, 97.9 and 94.70 in the

years 2003, 2004, and 2005 respectively.

The stock period is calculated at 3.69 months for the year 2001 and considerably

decreased to 3.34, 2.70, 2.15 & 2.10 in the subsequent years respectively. Even

though it averages up to 3.5 it has to redesign some method.

Working Capital ratio the year 2001 was 3.67%, considerably it went down to3.21 in

2001-2002, but in the following 3 years i.e. from 2003 to 2005 it has shown an

increasing trend.

Current ratio was better in the years 00-01 and 01-02 with 1.67 & 1.65 respectively.

But after that a considerable decrease can be seen reaching almost the lowest in 04-05

with 1.32.

Acid test ratio for the years 00-01 & 01-02.It was standard in the years 02-03 and 03-

04 with 0.99. It slightly went down to 0.85 in 04-05.

73

Current asset intensiveness ratio for the year 2001 with 28.17%. It only slightly went

down in the year 2004 to 21.59. But it was increased to 24.81 in 2005 higher the ratio,

Higher the investment in inventories.

In the years 00-01 and 01-02 the average is 68.8% i.e. Inventories constitute 68.8%

of Net working Capital. In the following years there has been a considerable increase

reaching an all time high in 2005 with 101.5%.

The company had high finished goods to Inventory turnover in 00-01 with 17.70%.

But it has decreased in subsequent years reaching 4.77% by 04-05.

The Company’s work-in-progress to Inventories ratio was 2.37 in 00-01. Henceforth

it has steadily declined reaching an all time law in 04-05 with 2.05%

The Company’s Cost of Goods Sold ratio has been steadily increasing 77.70% in 03-

04

Copper, steel, and aluminum are the major raw materials in the firm. There is a short-

term oscillation in the unit price of these items during the period of study concerned

74

SUGGESTIONS AND RECOMMENDATIONS

The Inventory turnover ratio can be increased by quickening the production process

and sales to earn more profit, to increase the productivity of the firm.

The local suppliers (85-90%) are prompt in their supplier. It will be better if AAVIN.

follows just-in-time (JIT) system for its local items being purchased. This will enable

the firm to reduce its cost on inventories and to avoid unnecessary storage of

materials. JIT also increases the productivity of labour, reduces the production lot

sizes, and enables to meet the customers’ requirements of quality, cost and delivery

time. It shows an effective system of manufacturing. It is referred as “Zero

Inventory System”. Conducting pilot programmers at initial stage will be a good

beginning to more about this system.

Adopting the combination of carious inventory control techniques like ABC, XYZ,

SED, FSND, etc., will enable the firm to frame a more efficient inventory policy.

Quickening the production process and sales to earn more profit, to increase the

productivity of the firm, can increase the inventory turnover ratio.

The inventory on an average should be some percentage of total assets as per norms.

The AAVIN has more than the norms specified for inventory to total assets. Though

the firm has reduced it in recent past 2 years, further reduction will enable the firm to

reduce the cost and increase the profit.

On the basis of changes in price, contracted price with supplier, product’s demand and

production, economic changes, international market fluctuations, wages hike in other

service costs etc., the storage level of copper, steel and aluminum must be decided.

75

CONCLUSION

Based on the project it is concluded that even though the present inventory control

management is implemented efficiently, the JIT and KANBAN system has also to be

implemented for the further reduction in inventory. Hypothetically more aptitude measures

have to be worked out to reduce the storage time of the components which are expensive.

76

REFERENCES

BOOKS REFERRED:

AAVIN Annual reports (2001 – 2005) for five years.

I.M. Pandey, financial management. 9th edition Viveks Publishing House Private Ltd,

New Delhi , 2002

Prasanna Chandra, Financial Management-Theory and Practices, 4th ed. New Delhi: Tata

Mc Graw Hill Publishing Company Ltd, 2002.

77

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