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Project Report on Study Of Financial Analysis At Verka Milk Plant Bathinda

Submitted To: Dr. Apar Singh

Submitted By: Akashdeep Kaur MBA- 2nd Roll No. 120426189



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.

For the completion of the MBA , 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 lifes 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 me an 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.

I hereby declare that the summer training report entitled submitted in the partial fulfillment of the requirement for degree of M.B.A. 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: Mr. A. K. Wadhwa

Name: Akashdeep kaur

Introduction Indian dairy industry Dairy Plants MILKFED- PUNJAB MILK PLANT BATHINDA MANAGEMENT BOARD OF DIRECTORS Objectives of the study Scope of the study Research methodology Limitations of the study An Introduction to Financial Analysis Objectives and procedure of Financial Analysis Types of Financial Analysis Goals of Financial Analysis Methods of Financial Analysis Limitations and interpretation Research and methodology Objectives of Research Limitations and suggestions Findings Conclusion Bibliography

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 lack liters per day. In addition to these processing plants and 45 cooperatives milk chilling centre operate in the State. 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.


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 centers 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 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.


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.


More than 2,445 million people economically active in agriculture in the world, probably 2/3 or even more 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 12.0 4.1 1.3 16.5 Live Number of stock animals (in 67.0 16.0 3.1 0.3 10.0 populations: thousands)

(Source: production yearbook 1995 /FAO statistics division) Sheeps 45000 Buffaloes Milk Production 79500 1950 17 million 1996 70.8 million tonnes

Goats Pigs Chickens Cattle 119242 11780 435 Horses Mules Camels 990 1742 1520 tonnes 194655

1997 74.3 mT (Projected) 2020 240 mT Sr. Constituents no 1 Moisture (gm) 2 Protein (gm) 3 Fat (gm) 4 Minerals (gm) 5 Carbohydrates (gm) 81.00 87.50 86.80 92.10 4.30 6.50 0.80 5.00 3.20 4.10 0.80 4.40 3.30 4.50 0.80 4.60 2.50 0.10 0.70 4.60 Buffalo Cow Goat Liquid skimmed milk Expected to reach220 to 250 mT 2020 India contributes to world milk

production rise from 12-15 % & it will increase up to 3035% (year 2020) Milk Composition

6 Energy calories (kcal) 117.00 67.00 72.00 29.00 7 Calcium (mg) 8 Phosphorus (mg) 9 Iron (mg) 210.00 120.00 170.00 120.00 130.00 90.00 120.00 90.00 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 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 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: Higher The average in birth male wt.(Indian buffaloes) low than 21 kg in High 41 kg



Average daily gain of 548 gm between 3-6 months404 gm between birth to 36 months Body weight at first calvingranges from

367kg(Dharwati)to531kg(NiliRavi) Higher growth rate in reverine breeds than swamp



Production performance of different breeds of Buffaloes: Age at 1st calving Lactation. (months) Buffalo Avg. Range Yield (kg) Avg. Range Avg. (Range) Lactation Length (days)

Murrah 43.0 39.9-54.5 1850 1476-2515 315(267-365) Nili Ravi 42.0 41.4-47.3 1765 1596-2808 2808 (09)

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 worlds 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 Indias 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.


In this section Dairy plants are listed alphabetically and region wise, 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 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 Vigor 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 Flavored 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 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 Milk food) 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 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.

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 organization is a three tier system, Milk Producers Cooperative Societies at the village level, Milk Unions at District level and Federation as an Apex Body at State level. MILKFED Punjab has continuously advanced towards its coveted objectives well defined in its byelaws. Home Organization Procurement Products Marketing Achievements Looking Beyond


Milkfed has formulated company specifications for its milk & milk products To provide standard and quality of products to consumers.

Milk Ghee & Butter Fresh Products

Cheese & Paneer Icecream & Sweets Packing

Drinks Milk Powder


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.

The annual turnover of Milkfed which was Rs.1250 crores in the year 2011 has hit the level of Rs.1438 crores in the year 2012.

turnover (in crores)

1600 1400 1200 1000 800 600 400 200 0 2009 2010 2011 2012

turnover (in crores)


The paid-up equity of Milkfed as on 31.3.2012 was to the tune of Rs.46.86 crores which comprises of Rs.28. crores from the cooperative members and balance Rs.17.93 crores from State Government. MILKFED GROWTH AT A GLANCE PARTICULARS FUNCTIONAL SOCIETIES MEMBERSHIP AVG. DAILY MILK PROC UNIT CUMMU.NOS. CUMMU.NOS IN LACS LKG SPD 2007-08 6445 2008-09 6104 2009-10 6101 2010-11 5989 2011-12 6155






7.45 10.04 323

7.81 11.64 341

7.82 11.37 388

7.78 11.54 433

8.21 12.39 504















4.97 30.32 10.54 9.17

5.27 35.85 12.20 10.23

5.67 42.49 16.89 12.18

5.81 41.92 19.16 15.61

6.16 61.11 29.51 17.68




698.17 585.00

1142.28 653.00

713.67 675.00

1140.35 760.00

1334.90 931.00


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 milkis procured from the milk producers twice aday through village level societies directly without the assistance of any middleman.

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.


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.


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.


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.


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.


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.


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.



To upgrade milking technology, Milkfed is providing milking machines/milking parlours to dairy cooperative societies/progressive dairy farmers at 50%/25% subsidy. Till date 450 Milking Machines and 4 Milking Parlors have been provided against the target of 800 milking machines for the year 2009-10. Rs.2.00 crore have been received from Govt. of Punjab as financial assistance. This will improve Bacteriological quality of milk, hygienic conditions of teats of animals and reduce stress to animals/Milkers and somatic cell counts.


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, its homemade taste at the most affordable price. To people today, Verka is the part of their daily lives. 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.

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 food grains 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. Modernization 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 utilization of Milk Plants, a detailed Action Plan, vision 2004 has been prepared jointly by Milkfed, District Milk Unions and Cooperative Department spelling out there in 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 utilize 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 lacks in March-2k to 4.75 lacks by the end of March2004. Similarly the average milk procurement will increase to 15.30 lack liters per day in the 2003-04 from 8.11 lack liters per day in 1999-2k. The detailed investment proposals have been submitted to National dairy Development Board for funding.



Milk Plant Bathinda was commissioned in September, 1974 with a total outlay of Rs. 1.6 Crores by The Punjab 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 supplies 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 Centers namely Rampura (15TLPD), Talwandi 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 as per the norms by pasteurizing the milk and others required process to fulfill the target/norms as per the market demand. Milk plan also got ISO9001:2000 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 Khoa S.F.M. Milk Cake Lassi Kheer Ice Cream


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 acquired 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.


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.



Sh. V.K.Singh (IAS) S. Sandhura Singh S.Bikermjit Singh S. Labh Singh S. Sukhpal Singh S. Jagsir Singh S. Surjit Singh S. Jawala Singh S. Balwinder Singh S. Amrik Singh Smt. Surinder P. Kaur S. Boota Singh Galib, S.H.S.Jatana S.Karnail Singh S.T.P.S.Walia Sh.M.D.Sharma Sh.R.K.Tiwari M.D.milk fed Punjab Chairman Vice Chairman Director Director Director Director Director Director Director Director J.R. Co-op.SOC.Ferozpur Dy.Reg.co-op.SOC.BTI Dy.Dir. Dairy Dev .BTI Milkfed Nominee N.D.D.B.Nominee G.M.Milk plant BTI


OUTLINE OF THE STUDY:Financial analysis of the statements is very important in company management so that the various important decisions can be taken at time. It is very helpful for the related parties who are interested in the financial position of the firm. The rationale behind the study is to develop an understanding about the accounts department & financial statements. It gives the practical knowledge in accounts. This study also helps in identifying the strengths & weaknesses of the organizations. The study gives the chance to look into the matter deeply.

Scope of the study

The study is conducted only at Verka Milk Plant Bathinda Punjab for the period of 6 weeks. The study is based on secondary data and all the information is available within the company itself in the form of records. I have also personally investigated the financial statements of the company. So the scope of the study is limited up to the availability of officials records and the information provided by the staff of accounts department. There may be window dressing.

1. The primary objective of taking up this project was to gain insight and have as much as practical knowledge in the financial statements prepare in the company. 2. To know the present financial position of the organization for the purpose of better understanding of the system. 3. To analyze the financial statements of the plant. 4. To find out whether the company has maintained the necessary records in proper manner. 5. To check any shortcomings in the existing system and suggest appropriate measures. 6. To check also the quality of the products of Verka Milk Plant Bathinda.


Limitations of the study

There are main limitations of the study. These are as follow. 1. It is very difficult to take financial statements from the company as no one gives its correct figures. 2. There may be window dressing of the statements also. 3. As it is government institution no one has sufficient time to attend the trainees properly. 4. Without the proper help of trainer there is difficulty in analyzing statement. 5. Because of the lack of sufficient staff there is always hotchpotch of work. Everyone is busy in his or her own work. 6. There is no separate training department.


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 Financial Analysis. Data Collection Methods: 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. According to needed of project I have pursued secondary data collection method. I have used Milkfed website, research book, financial statements of Verka and finance related books for secondary data collection method. The findings & suggestions are based on personal intellectual

Suggestions on the basis of financial analysis have given for better results. For analyzing the concept the techniques have been used: capital budgeting tools techniques Statement of changes in financial analysis



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


Financial statements are prepared primarily for decision making. They play a dominant role in setting the framework 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 of immense use in making decisions through analysis and interpretation of financial statements. Financial analysis is the process of identifying the strengths and weaknesses of the firm by properly establishing relationship between the items of balance sheet and profit & loss account.

Meaning of Financial Analysis

Analysis is the process of critically examining in detailing accounting information given in the financial statements. Analyzing financial statements is a process of evaluating relationship between component parts of financial statements to obtain a better understanding of firms position and performance. It is the process of determining financial strengths and weaknesses of the firm by establishing strategic relationship between the items of the balance sheet, profit & loss account and other operative data. The analysis of financial statements thus refers to the treatment of the information contained in the financial statements in a way so as to afford a full diagnosis of the profitability and financial position of the firm concerned. For


this purpose financial statements are classified methodically, analyzed and compared with the figures of previous years or other similar firms.

Definition of Financial Analysis

According to Kennedy and Memullar, The analysis and interpretation of financial statements are an attempt to determine the significance and meaning of the financial statements data so that a forecast may be made of the prospects for future earnings, ability to pay interest and debt maturities and profitability of a sound dividend policy.

Objectives of Financial Analysis

The primary objective of financial statement analysis is to understand and diagnose the information contained in the financial statement with a view to judge the profitability and financial soundness of the firm, and to make forecast about future prospects of the firm. These are the following objectives of analysis may be stated to bring out the significance of such analysis: To assess the earning capacity of the firm. To assess the operational efficiency and managerial effectiveness. To assess the short term as well as long term solvency position of the firm. To make inter firm comparison. To make forecasts about future prospects of the firm. To assess the progress of the firm over the period of time. To help in decision making and control. To guide or determine the dividend action. To provide important information for granting credit.


Parties Interested in Financial Analysis

The following parties are interested in the analysis of financial statements. 1. 2. 3. 4. 5. 6. 7. 8. 9. 10. Investors Management Creditors or suppliers Bankers and Financial institutions Employees Government Trade associations Stock exchanges Economists and researchers Taxation authorities

Procedure of Financial Analysis

Broadly speaking there are three steps involved in the analysis of financial statements. These are: 1) selection 2) classification 3) interpretation. The first involve selection of information relevant to the purpose of analysis of financial statements. The second step involved is the methodical classification of the data and the third step includes drawing of inferences and conclusions. The following procedure is adopted for the analysis and interpretation of financial statements: 1. The analyst should acquaint himself with the principles and postulates of accounting. He should know the plans and policies of the management so that he may be able to find out whether these plans are executed or not. 2. The extent of analysis should be determined so that the sphere of work may be decided. If the aim is to find out the earning capacity of the firm then analysis of income statement is to be undertaken. On the other hand

if financial position is to be studied then balance sheet analysis will be necessary. 3. The financial data given in the financial statements should be reorganized and re-arranged. It will involve the grouping of similar data under same heads, breaking down of individual components of statements according to nature. The data is reduced to a standard form. 4. A relationship is established among financial statements with the help of tools and techniques of analysis such as ratio, trends, common size etc. 5. The information is interpreted in a simple and understandable way. The significance and utility of financial data is explained for helping decision taking. 6. The conclusions drawn from interpretation are presented to the management in the form of report.

Types of Financial Analysis

We can classify various types of financial analysis into different categories depending upon 1) the material used 2) the method of operation followed in the analysis or the modus operandi of analysis. 1. On the basis of material used: According to material used, financial analysis can be of two types: a) external analysis b) internal analysis. a) External analysis: This analysis is done by outsiders who do not have the asses to detailed internal accounting records of the business firm. These outsiders include investors, potential investors, creditors, potential creditors, government agencies and general public. b) Internal Analysis: The analysis conducted by the persons who have the asses to the internal accounting records of a firm is known as internal analysis. Such as analysis can be performed by executives and employees of the organization as well as


government agencies which have statutory powers vested in them.

2. On the basis of modus operandi: according to the operation followed in the analysis, financial analysis can also be of two types: a) horizontal analysis and b) vertical analysis. a) Horizontal Analysis: Horizontal analysis refers to the comparison of financial data of a company for several years. The figures of various years are compared with standard year. A base year is year chosen as beginning point. This type of analysis is also called Dynamic Analysis. b) Vertical Analysis: Vertical analysis refers to the study of relationship of the various items in the financial statements of one accounting period.

3. On the Basis of Entities Involved: on the basis of entities involved in the analysis, it can be of two types: a) cross sectional b) time series. a) Cross Sectional: Cross sectional analysis involves comparison of financial data of a firm with other firms averages for the same time period. b) Time Series: Time series analysis involves the study of the performance of the same firm over a period of time.

4. On the Basis of Time Horizon: On the basis of time horizon, financial analysis can be of two types: a) short term analysis and b) long term analysis. a) Short Term Analysis: Short term analysis measures the liquidity if the firm. b) Long Term Analysis: Long term analysis involves the study of firms ability to meet the interest costs and repayment schedules

of its long term obligations. The solvency, stability and profitability are measured under this type of analysis.

Financial analysts often assess the firm's: 1. Profitability -its ability to earn income and sustain growth in both short-term and longterm. A company's degree of profitability is usually based on the income statement, which reports on the company's results of operations; 2. Solvency - its ability to pay its obligation to creditors and other third parties in the longterm; 3. Liquidity - its ability to maintain positive cash flow, while satisfying immediate obligations; 4. Stability- the firm's ability to remain in business in the long run, without having to sustain significant losses in the conduct of its business. Assessing a company's stability requires the use of both the income statement and the balance sheet, as well as other financial and nonfinancial indicators.

Methods of Financial Analysis

A numbers of methods or devices are used to study the relationship between different statements. The following methods of analysis are generally used: 1) 2) 3) 4) 5) Comparative Statements Trend Analysis Common- Size Statements Funds Flow Analysis Cash Flow Analysis

6) 7)

Ratio Analysis Cost- Volume-Profit Analysis

1.Comparative Statements: The comparative financial statements are statements of the financial position of different period of time. The elements of financial position are shown in a comparative form so as to give an idea of financial position at two or more periods. The comparative statements may show: a. b. c. d. Absolute figures (rupee amounts) Changes in absolute figures Absolute data in terms of percentages Increase or decrease in terms of percentages

From practical point of view, generally, two financial statements are prepared in comparative form for financial analysis purpose. These are balance sheet and income statement. These show not only the comparison of figures of two periods but also are relationship between balance sheet and income statement enables an in depth study of financial position and operative surplus. a. Comparative Balance Sheet: The comparative balance sheet analysis is the study of the trend of the same items, and computed items in two or more balance sheets of the same business enterprise on different dates. The changes in periodic balance sheet items reflect the conduct of a business. The changes can be observed by comparison of balance sheet at the beginning and at the end of the period and these changes can help in forming an opinion about the progress of an enterprise.


Comparative Balance Sheet As on 31.3.2011 and 31.3.2012 2011 Assets Fixed Assets(A) Investments(B) Working Capital(C):Current Assets Less: Current Liabilities (C) = (186882051.20) (116112582.60) (70769468.6) 37.87 7,37,63,885.26 26,06,45,936.59 14,21,51,557.93 25,82,64,140.47 6,83,87,672.64 23,81,796.10 92.71 0,91 7,31,57,687.97 1,25,00,100 7,43,59,463.97 1,25,00,100 12,01,776 1.64 2012 Absolute change %age change

Profit and Loss a/c (D) 207529797.06 217237252.65 9707455.50 4.68

Total Assets = (A+B+C+D)







Share Capital Reserve and Surplus Secured term loans Depreciation Reserve and

12009600 59964

12010605 59964 113550550.28

1005 80087655.22

0.008 239.33

Short 33462895.08

60773074.62 Total Liabilities 106305533.70

62363114.80 187984234.10

1590040.18 81678700.20

2.62 76.83

1) Comparative balance sheet reveals that during 2012 there has been increased in fixed assets of Rs. 12,01,776 , i.e. 1.64% while the share capital has increased by Rs. 1005 and loans decreased by Rs. 80087655.22. 2) The current assets have been increased by Rs.6,83,876 i.e. 92.71%. The current liabilities have been decreased by Rs. 23,81,796. This depicts that the company has somewhat improved. 3)The overall financial position of the company is bad.

Advantages of Comparative Balance Sheet:

The following are the main advantages of the comparative balance sheet: The comparative balance sheet depicts the position of the firm on different dates and also the extent of the increase or decrease between these dates. The comparative balance sheet shows the position of the firm as well as it marks out travels over a period of time.


Comparative balance sheet highlights the change as well as the position whereas in single balance sheet only position can be known. Comparative balance sheet bridges the Balance Sheet and Profit & Loss Account. It shows the effects of operations on the assets, liabilities and capital.

b. Comparative Income Statement: The comparative income statement gives the results of the operations of the business. The statement discloses the net profit or net loss resulting from the operation of the business. Such statements show the operating results for a number of accounting periods so that changes in absolute data from one period to another period may be stated in terms of absolute changes or in terms of percentages. This statement helps in deriving meaningful conclusion as it is very easy to ascertain the changes in sales volume, administrative expenses, selling and distribution expenses, cost of sales etc. COMPRATIVE INCOME STATEMENT as on 31.3.2011 and 31.3.2012 Items 2011 2012 Absolute 2012 Sales (-)Cost goods sold Gross Profit(A) (-)Operating Expenses(B): 20746016.01 21551515.65 805499.64 3.88 (74153586) 11669011.9 19084370.5 257.36 740102002.42 of 747517361 720989597.53 709320585.6 (191124049) (38196775.4) change in %age change (2.58) (5.11)

Operting. Profit(A-B)






(+)NonOperating Profits (-)Interest Paid Net Profit 7361473.15 (9707455.41) (17068928.56) (231.87) 35522847.76 175048.34 (3547799.42) (0.99)





Before Tax

2) Trend Analysis: This analysis is important tool of horizontal financial analysis. This analysis enables to know the changes in the changes in the financial function and operational between the times periods chosen by studying the trends of each item we can know the direction of changes. Under this method the trend percentage are calculated

for each item of the financial statements taking the figure of base year as 100. The starting year is usually taken as base year. The trend percentages show the relationship of each item with its preceding years percentages. While calculating the trend percentages, the following precautions may be taken: 1) The accounting principles and practices must be followed constantly over the period for which the analysis is made. This is necessary to maintain consistency and comparability. 2) The base year selected should be normal and representative year. 3) Trend percentages should be calculated only for those items which have logical relationship with one another. 4) Trend ratios of each item in other statement is calculated with reference to the same item in the base statement by using following formula:

Absolute value of item in the statement under study/ absolute value of the same item in the base statement*100 5) Trend percentages should also be carefully studied after considering the absolute figures on which these are based. Otherwise they may give misleading conclusions. 6) To make the comparison meaningful, trend percentage of current year should be adjusted in the light of price level change as compared to base year.

Limitation of Trend Ratios

The following are the main limitation of the trend ratios: 1) Trend ratios become incomparable if the same accounting practices are not followed. 2) Trend ratios do not take into consideration the price level changes. 3) Trend ratios must always be read with absolute data on which they are based, otherwise the conclusions may be misleading. 4) The trend ratios have to be interpreted in the light of certain non financial factors like economic condition, government policies, change in income and its distribution etc. 3) Common Size Statement: Common size financial statements are those in which figures

reported are converted to some common base. Items in the financial statements are presented as percentage or ratios to total of the items and a common base for comparison is provided. Hence vertical analysis becomes possible. Each percentage shows the relation of the individual item to its respective total. Common size statements may be used for balance sheet as well as income statement. The short-comings in comparative statements and trend percentages where changes in items could not be compared with totals have been covered up. The analyst is able to assess the figures in relation to values. 1) Common Size Income Statement: In such a statement, sales figure is assumed to be equal to 100 and all other figures of cost or expenses are expressed as percentage of

sales. The increase in sales will certainly increase the selling expenses and administrative or financial expenses. In case the volume of sales is increases to a certain extent, administrative and financial expenses may go up. So, a relationship between sales and other items in income statements. Comparative income statements for different periods help to reveal the efficiency or otherwise of incurring any cost or expenses. If it is being prepared for two firms, it shows the relative efficiency of cash cost items for the two firms. COMMON SIZE INCOME STATEMENT As on 31.3.2011 and 31.3.2012 Items Amount 2011 (Rs.) %in relation to sales 2012 (Rs.) Amount %in relation to sales

Net Sales(A) (-) Cost

74,01,02,002.42 of 747517361

100 101

72,09,89,597.53 709320585.6

100 98.38

Goods Sold(B) (C)Gross Profit (A-B) (7415358.60) (1.00) 11669011.9 1.62


Operating 20746016.01 2.80 21551515.65 2.99


Operating Profit(C-D)






(+)Non Operating Profits 35522847.76 4.80 175048.34 0.024

Total Profit (-)Non operating Expenses Net Profit

7361473.15 -

0.99 -

(9707455.41) -

(1.35) -

Before Tax





2) Common Size Balance Sheet: In a common size balance sheet, total assets or total liabilities are taken as 100 and all figures are expressed as percentage of total, comparative common size balance sheet for different periods helps to highlight the trend in different items. If it is prepared for different firms in an industry, it facilitates to judge the relative soundness and helps in understand their financial strategy. The common size balance sheet can be used to compare companies of different sizes. The comparison of figures in different periods is not useful because total figures may be affected by a numbers of factors. It is not possible to establish standard norms for various assets. The trends of figures from year to year may not be studied and even they may not give proper results.


Common Size Balance Sheet as on 31.3.2011 and 31.3.2012 Particulars Amount 2011 Assets Fixed Assets Investments Current Assets 7,31,57,687.97 1,25,00,100 7,37,63,885.26 7,43,59,463.97 1,25,00,100 14,21,51,557.93 19.94 3.41 20.10 16.66 2.80 31.85 Amount 2012 %age change in 2011 %age change in 2012

Profit and Loss a/c 207529797.06 (D)




Total Assets





Liabilities Share Capital Reserve and Surplus Secured term loans and 12009600 59964 12010605 59964 113550550.28 3.27 0.016 9.12 2.69 0.013 25.45

Short 33462895.08


Current Liabilities & 260645936.59 Provision Depreciation Reserve 60773074.62







Total Liabilities





. 4) Funds Flow Statement: This statement is prepared in order to reveal clearly the various sources where from the funds are procured to finance the activities of a business concern during the accounting period and also brings to highlights the uses to which these funds are put during the period. Schedule of Change in Working Capital Particulars 2011 2012 Effect on Effect on Working Capital Decrease

Working Capital Increase Current assets: Cash balance Inventory +milk products) & (store milk 57392269.46 112165359.6 54773090.14 and bank 4901831.09 1280413.12 -



Prepaid expense Dues

84283.00 9779269.51

70273.00 1316632.85


14010.00 -





Total c. assets



Current liabilities: Sundry creditors Outstanding exp. Expenses payable Other liabilities Total c. liabilities W.C.(C.A.-C.L.) 19074473.30 2401727.00 15966881.49 223202854.80 260645936.59 (186882051.20) 34555054.58 2416597.00 11749785.44 209542703.50 258264140.47 (116112582.50) (70769468.70) 4217096.05 13660151.30 15480581.28 14870.00 -

Importance of funds flow statement: The importance of funds flow statement can be well followed from its various uses given below: a) It helps in the analysis of financial operations: The funds statements reveal the net effect of various transactions on the operational and financial position of the concern. It explain the causes for changes in the assets and liabilities between two different points of time and also the effect of these changes on the liquidity position of the company.

b) It helps in the formation of dividend policy: Sometimes a firm has sufficient profits available for distribution as dividend but yet it may not be advisable to distribute dividend for lack of liquid or cash resources. In such cases a fund flow statement helps in the formation of a realistic dividend policy. c) It helps in the proper allocation of resources: A projected funds flow statement constructed for the future helps in making managerial decisions. d) It helps as a future guide: A projected funds flow statement act as a guide for future to the management. The management can come to know the various problems it is going to face in near future for want of funds.

Limitations of Funds Flow Statement:

The funds flow statement has a number of uses; however, it has certain limitations also, which are listed as below: a) Funds flow statement is not a substitute of an income statement or balance sheet. It provides only some additional information as regards changes in working capital. b) It cannot reveal continuous changes. c) It is not an original statement but simply are-arrangement of data given the financial statements. d) It is essentially historic in nature and projected funds flow statement cannot be prepared with much accuracy. e) Changes in cash are more important and relevant for financial management than the working capital. 5) Cash Flow Statement: This statement is prepared to know clearly the various items of inflow and outflow of cash. It is an essential tool for short term financial analysis and is very helpful in the evaluation of current liquidity of business concern. It helps the

business executives of a business in the efficient cash management and internal financial management. Importance of Cash Flow Statement: It is an essential tool of financial analysis for shortterm planning. The chief advantages of cash flow statement are as follow: a) Since a cash flow statement is based on the cash basis of accounting, it is very useful in the evaluation of cash position of a firm. b) A project cash flow statement can be prepared in order to know the future cash position of a concern so as to enable a firm to plan. c) A comparison of the historical and projected cash flow statements can be made so as to find the variations and deficiency or otherwise in the performance so as to enable a firm to take immediate and effective action. d) Cash flow statement helps in planning the repayment of loans, replacement of fixed assets and other similar term planning of cash. e) It better explain the causes of poor cash position in spite of substantial profits in a firm by throwing light on various applications of cash made by the firm.

Limitations of Cash Flow Statement:

Despite a number of uses, cash flow statement suffers from the following limitations: a) As cash flow statement is based on cash basis of accounting, it ignores the basic accounting concept of accrual basis. b) Some people feel that as working capital is wider concept of funds, a funds flow statement provides a more complete picture than cash flow statement. c) Cash flow statement is not a substitute for judging the profitability of the firm as noncash charges are ignored while calculating cash flows from operating activities.

d) A cash flow statement is not a substitute of an income statement; it is complementary to an income statement. 6) Ratio Analysis: It is done to develop meaningful relationship between individual items or group of items usually shown in the periodical financial statements published by the concern. An accounting ratio shows the relationship between the two inter related accounting figures as gross profit to sales, current liabilities, loaned capital to owned capital etc. The ratios are of different types. These are as follow: Liquidity Ratios Profitability Ratios Activity/Turnover or performance ratios Stability Ratios

From above four types of ratios the most important ones are liquidity and profitability ratios. The description of these is as follow:

Liquidity Ratios:
Liquidity refers to the ability of a concern to meet its current obligations as and when these become due. If current assets can pay off current liabilities, then liquidity position will be satisfactory. The bankers, suppliers of goods and other short term creditors are interested in the liquidity of the concern. They will extend credit only if they are sure that current assets are enough to pay out the obligations. To ensure the liquidity of the firm, the following ratio of can be calculated: Current Ratio:

Current ratio may be defined as the relationship between current assets and current liabilities. This ratio, also known as working capital ratio, is a measure of general liquidity and is most widely used to make the analysis of a short term financial position of the firm.

Current ratio= current Assets/Current Liabilities Current ratio=142151557.93/258264140.47 =0.554 Profitability Ratios: The primary objective of a business undertaking is to earn profits. Profits are a useful measure of overall efficiency of a business. Profits are the test of efficiency to the management and a measurement of control. Generally, profitability ratios are calculated in relation to sales or in relation to investment. The various profitability ratios are discussed below:

Gross Profit Ratio:

Gross profit ratio measures the relationship of gross profit to net sales and usually represented as a percentage. Thus, it is calculated by dividing the gross profit by sales: Gross Profit Ratio=Gross Profit/Net Sales*100 =11669011.72/720989597.53*100 =1.618

Net Profit Ratio:

Net profit ratio establishes a relationship between profit and sales, and indicates the efficiency of the management in firm. This ratio is the overall measure of firms profitability and is calculated as:

Net profit ratio= net profit after tax/net sales*100 = -9707455.59/720989597.53*100 = -1.346

Return on Investment:
Return on investment, popularly known as ROI is the relationship between the net profits and the proprietors funds. As the primary objective of the business is to maximize its earnings, this ratio indicates the extent to which this primary objective of business is being achieved. The inter-firm comparison of this ratio determines whether the investment in the firm are attractive or not as the investors would like to invest in only where the return is higher. ROI= Net profit/shareholders funds = -9707455.59/12010605*100 = -80.82 8) Cost-Volume-Profit Analysis: 9) Cost-volume-profit analysis is a technique for studying the relationship between cost, volume and profit. Profits of an undertaking depend upon a large number of factors. But the most important of these factors are the cost of manufacture, volume of sales and the selling prices of products. The three factors of CVP analysis i.e. costs, volume and profit are interconnected and dependent on one another. For example, profits depend upon sales, selling price to a large extent depends upon cost and cost depends upon volume of productions it is only the variable cost that varies directly with production, whereas fixed cost remains fixed regardless of the volume produced. In cost-volume-profit analysis an attempt is made to analyze the relationship between variations in cost with variations in volume.

Break-Even Analysis:
The study of cost-volume-profit analysis is often referred to as break even analysis. The term break even analysis is used in two senses- narrow sense and broad sense. In its broad sense, break even analysis refers to the study of relationship between costs, volume and profit at different levels of sales or production. In its narrow sense, it refers to a technique of

determining that levels of operations where total revenues equal total expenses, i.e. the point of no profit, no loss. Terms used in break even analysis Break Even Point: The breakeven point may be defined as that point of sales at which total revenue is equal to total expenses. It refers to that level of output which evenly breaks the costs and revenues. It is also called critical point or equilibrium point. Contribution: Contribution is the difference between sales and variable cost or marginal cost of sales. It may also be defined as the excess of selling price over variable cost per unit. Contribution can be represented as: Contribution= sales variable cost Or contribution = selling price variable cost per unit Or contribution= fixed cost + profit (-loss) Margin of Safety: The excess of actual or budgeted cost over the break-even sales is known as the margin of safety. It is the difference between the actual sales minus the sales at break-even point. As at break-even point there is no profit, no loss, sales beyond the break-even point represent margin of safety because any sales above the break-even point will give some profit. Margin of safety= total sales- sales at break-even point Assumptions of Break Analysis


1. 2. 3. 4. 5. 6. 7. 8.

All elements of cost, i.e. production, administration, selling and distribution can be segregated into fixed and variable components. Variable cost remains constant per unit of output irrespective of the output and thus fluctuates directly in proportion to changes in the volume of output. Fixed cost remains constant at all volumes of output. Selling price per unit remains unchanged at all levels of output. Volume of the production is the only factor that influences cost. There will be no change in the general price level. There is only one product or in case of multi-products, the sales mix remains unchanged. There is synchronization between production and sales.

Computation of break-even point: The breakeven point can be calculated by the following methods: Algebraic Formula Method: The breakeven point can be computed in terms of: a) units of sales volume. Break-Even Point= fixed cost/selling price-variable cost Or= fixed cost/contribution per unit b) In terms of money value Break-Even Sales= fixed cost/p/v ratio c) As a percentage of estimated capacity BEP= fixed cost/total contribution Limitations of Break-Even Analysis:


1. 2. 3. 4. 5.

The technique is based upon a number of assumptions which may not hold well under all circumstances. All costs are not divisible into fixed and variable. There are certain costs which are semi variable in nature. Variable costs do not remain constant and do not always vary in direct proportion to volume of output because of law of diminishing returns. Selling price does not remain constant forever and for all levels of output due to competition, discounts for bulk orders etc. Fixed cost does not remain constant after a certain level of activity.

Interpretation of the Analysis

From the whole analysis we can interpret that the company is going worse. As the liabilities of the firm are more than its assets. The other expenses of the firm are increasing day-by-day. But the sill firm is going on. The main reason behind this is social welfare. The firm is recovering its position through the rehabilitation scheme of National Diary Development Board (NDDB). This board has provided Rs. 13.60 crores this year for the recovery. The rest will be recovered by selling land which as deal of Rs. 15-20 crores. Here in this study we cannot do CVP analysis, the reason for it is that this firm is not fulfilling the main assumptions. By the entire study the conclusion is that the firm is facing worst position from the last very 8 years.

Limitations of financial analysis:

Financial analysis is a powerful mechanism of determining financial strengths and weaknesses of a firm. But, the analysis is based on the information available in the financial statements. Thus, the financial analysis suffers from serious inherent limitations. Some of the limitations are summed up as below:


It is only a study of interim reports.


2. 3. 4.

Financial analysis is based only upon monetary information and monetary factors are ignored. It does not consider changes in price levels. As the financial statements are prepared on the basis of a going concern, it does not give exact position. Thus accounting concepts and conventions cause a serious limitation to financial analysis.

5. 6.

Changes in accounting procedure by a firm may be often make financial analysis misleading. Analysis is only a mean and not an end in itself. The analyst has o make an interpretation and draw his own conclusions. Different people may interpret the same thing in different ways.


1. As the unit running at loss the general manager should take the initiative to recover its loss either through the diversification or through increasing the sales. 2. There should be proper training cell for the employees as well as trainees. 3. The performance of the unit can be improved upon by insuring less wastage. 4. There should be check on the dealers of the units so they cannot be corrupt. 5. New recruitments should be there so as to maintain proper sufficient staff. 6. Marketing department should try to increase its sales by giving knowledge & awareness of Verkas quality of products.

There is proper system of maintaining the records and books of accounts. All the payments are made in time. The production in Verka Milk Plant is on demand so there is no much wastage.

Special audit inspector is there to audit the financial statements elected by government. The records of last years are maintained. These can be used to establish a trend analysis. Shortcomings of organization and changes in demand can be estimated through the comparison of last years records.

The plant has its motive of social welfare and profit earning. Verka Milk Plant Bathinda is the firm which is strengthening the dairy sector by providing remunerative prices for the milk. The plant is running on loss from last 8 years. There are many reasons for that.

From the analysis of financial statements of Verka Milk Plant Bathinda we can conclude at the end that the unit is running at the loss. There are many reasons for this loss. The main are the hike in prices of milk, low rates of product, low commission to dealers lead to less sale of Verka products, rise in salaries, increasing variable expenses per year and also because of lack of awareness among customers. The other main reason of loss is that Verkas main aim is social welfare and not profit earning. Verka is brand known for its quality and welfare. This has improved the structure of Punjab dairy sector.



AUTHOR Khan & Jain Gupta, Shashi.k

BOOK Management Accounting Financial Management

Websites: www.google.com www.milkfed.nic.in