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Analysis of the firms liquidity and to test
firms efficiency in utilization of its current
assets and resources at Dharwad Milk Union
UMESH .N. ALLANNAVARK.U.D Examination No. MBA10002083
Undertaken at
Dharwad Milk Union,
Dharwad
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Company Profile
Company Name Dharwad Co-operative Milk Producers Union Ltd,
Lakkammanahalli Industrial Area, P.B.Road, Dharwad-
580004
Nature of Business Mfg / Service / Semi-agro based Co-operative UnitType of Ownership Co-operative Unit
Raw Material Milk 80,000 LPD,
Water 5 to 6 lack liters/day,
Coal 4 to 5 tone
Capacity of Plant 1,20,000 liters/day,12 tons milk powder,
10 tons butter,6 tons ghee
Finished Products Milk, Butter, Ghee, Gurtz, Pedha, Milk creams, Curd,
Lassi, Khova etc.Total Investment Rs. 7 croreTotal Societies at Village Level 551 Societies
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Growth of KMF
Particulars Unit 1976 - 77 2009 - 10
Dairy Co-operatives Numbers 416 11520
Membership Numbers 37,000 20,19,265
Milk Procurement Kgs/Day 50,000 31,23,551/
72,460(DMU) per
day
Milk Sales Liters/Day 95,050 23,23,03,026
Daily Payments to Farmers Rs in (Lakhs) 0.90 354
Turnover Rs in (Crs) Not Available 2,850
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Title of the Project:
A Study to analyse the firms liquidity and to test firms efficiency in
utilization of its current assets and resources at Dharwad Milk Union
Objectives of the study:
To examine the establishment, organization and operational dimensions of the
D.M.U.
To know the practices of finance department in D.M.U.
To know the liquidity position of the firm.
To test firms efficiency in utilization of its assets and resources.
Limitations of the study:
1.This study covers only Dharwad Milk Union and not KMF as a whole.
2. The present study covers only 3 years financial data.
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Measurement Techniques / Statistical Tools
Accounting Ratios.
Financial Statements of the Company.
Sources of Data:
The data has been collected from both primary sources as well as
secondary sources.
Primary Sources:Primary data are the data gathered at first hand. It is collected by direct
interviews and discussing the subject matter with the management, staff
employees and academicians.
Secondary Sources:
Secondary data are the data that have been compiled or derived from
other sources meant for some other purpose. It is collected from book records
maintained by administration department, published books and also collected
from the trading and profit and loss accounts and balance sheets of last 3
years of D.M.U.
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Analysis
Sl.No Particulars Formulas 07-08 08-09 09-10
1 Current Ratio Current Assets 1.60 1.30 1.30Current Liabilities
2 Quick Ratio/ Liquidity Ratio Quick current assets 1.04 0.83 1.02Current Liabilities
3 Inventory Turnover Ratio Cost of goods sold 16.20 17.24 24.57Average inventory
4 Inventory Conversion Period No. of Days in a year 23 21 15Inventory Turnover Ratio
5 Debtors Turnover Ratio Total Sales 29.68 27.54 30.51Debtors
6 Debtors Collection Period No. of Days in a year 13 14 12Debtors Turnover Ratio
7 Creditors Turnover Period Net Purchase 48.21 39.36 62.07Average Creditors
8 Creditors Payment Period No. of Days in a year 8 10 6Creditors Turnover Ratio
9 Working Capital Turnover Ratio Cost of goods Sold 13.53 28.63 26.03Net Working Capital
10 Currents Assets Turnover Ratio Total Sales 5.93 8.07 7.48Current Assets
11
Gross Operating Cycle
Inventory Conversion Period + Debtors Collection Period
36
35
27
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Findings
1. The Current Ratio shows that for the year 2009-10, the liquidity position of the Dharwad
Milk Union is less i.e. 1.30. This ratios standard norm is 2:1. So it is struggling to recover thecurrent ratio of the firm.
2. The Quick Ratio of the Dharwad Milk Union for the year 2009-10 is 1.02.This ratios
standard norm is 1:1. So DMU seems to have maintained good quick ratio in its financial
activities.
3. The Inventory Turnover Ratio of the Dharwad Milk Union has shown a considerable
increase over the years and shows 24.57 for the year 2009-10. To substantiate this, we can also
see that the company has improved its inventory conversion period from year to year and
shows 15 days for the year 2009-10. It indicates the fast conversion of inventories & the faster
sale of its goods.
4. In the year 2009-10, the debts turnover ratio is 30.50 and it is higher compared to other 2
years. To substantiate this, we can also see that for the year 2009-10, the debts collection
period seems to have decreased by 2 days. This shows prompt payment made by the customers
compared to the previous years and the more efficient management of debtors or more liquid
the debtors are.
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5. Though there have been ups & downs in the credit turnover ratio, for the year 2009-10, it
has increased to 62.07.To substantiate this we can also see that for the year 2009-10
creditors payment period has been decreased by 4 days compared to last year. It indicates
that D.M.U has been paying credit properly.
6. There are ups and downs in the working capital and current assets turnover ratio and has
decreased for the year 2009-10. This calls for a focus on utilisation of working capital and
current assets.
7. The gross and net operating cycles have improved over the years and have shown better
performance.
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Suggestions
1. It is suggested that the Dharwad Milk Union (DMU) has to increase its current ratio and has
to also maintain stability in its quick ratio.
These ratios are affected by the piling up of inventory, inefficiency in collection of debtors, highbalances in cash and bank accounts without proper investment. So these ratios which are
indicators of liquidity position can be improved by taking care of the above mentioned factors
and by efficient performances in the above areas.
2. The firms performance is better in selling its products. So it is suggested that the Dharwad
Milk Union (DMU) has to maintain the same stability in managing its inventory turnover ratio
and conversion period and improve still better if possible.
It can do so by adopting other inventory management methods such as ABC analysis method,
Just-In-Time method along with the existing FIFO ( First In First Out ) method which is being
practiced there as DMU has at least 4,000 different inventories of different kinds ranging from
mechanical, spares, packing items to animal drugs and satisfactory and veterinary drugs.
3.The higher debtors turnover ratio and the shorter debt collection period shows the more
efficient management of debtors or conveys more liquid the debtors are . For the recent year, the
firm has shown better debtors turnover ratio and debt collection period which shows prompt
payment by debtors.
So firm has to maintain that stability and improve over time which can happen by having credit
policy which is neither too liberal nor too restrictive and by having efficient collection efforts .
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4.A high creditors turnover ratio or a lower credit period ratio signifies that the creditors are
being paid promptly. This situation enhances the credit worthiness of the company. It seems
that the firm has maintained high creditors turnover ratio and lower credit period for the recentyear accordingly.
So along with managing the credit worthiness of the company, firm has to also make efficient
usage of credit policy offered by the suppliers as the operation of the company are being
financed interest free by suppliers of funds.
5.For the recent year, there has been a decrease in the working capital turnover ratio comparedto last year. This may be remedied by increasing sales or by disposing of certain assets or both.
DMU can increase its sales by undertaking sales promotion measures like free home delivery to
urban consumers. This also helps to increase the market share through increased sales.
6. Dharwad Milk Union (DMU) should have to appoint skilled and qualified employees and
also new technology in machineries. It increases efficiency and quality of the firm.
7. DMU should have to computerize all the departments in order to increase efficiency and
productivity of employees
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Conclusion
The study on Liquidity position and utilisation of current assets and
resources in DMU was satisfactory. The study of the last three years liquidity
position of the company is better. In the last three years, company has faced
several ups and downs in finance, marketing & promotional activities. D.M.U
has suffered losses due to less quantity of milk supply and increased competition
in the previous years but in the recent year it sounds to be in better position. Itshows that D.M.U has been improving its financial conditions and also has been
utilizing its assets and resources properly. If D.M.U continues the same
performance in the current financial year, it can earn more profits.
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Thank You