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A

Project Report On

“FINANCIAL ANALYSIS OF AMUL”


(working capital management)
(Business related results)
at

“KAIRA DISTRICT CO-OPERATIVE MILK”

A
M
U
L

SUBMITTED TO:
Kaira district co-operative milk producers union ltd.
(AMUL)

SUBMITTED BY:
Janvi Gohil (PGDBM-BE)
Punyashree Bhatt(BBA-ITM)
Preface

Practical Knowledge has sizeable importance in PGDM-BE programme. The theoretical or conceptual knowledge is not sufficient
for the over all development; gaining practical know-how is of more importance than the theories that we study at class room level. Practical
exposure helps us in implementing what all things that we have learnt theoretically.

Being an PGDM-BE student I have to undergo Practical Training Programme, which is in partial fulfillment of PGDM-BE
course. Concerning this, I pursued training at “Kaira District Co-operative Milk Producers’ Union Limited” popularly known as “Amul
Dairy” which is located at Anand in Gujarat state. A management student or entrepreneurship student is expected to have all round knowledge of
all factoids of business. Industrial training is the best option for gaining a glimpse of what business and industry is.

To learn more about the practical implications of Financial Management, I pursued training at Amul. The co-operative produces
all dairy products. It is the largest dairy of Asia and the second largest dairy in the world. It pasteurizes milk collected from about 1200 co-
operative societies, produces butter, ghee, cheese, paneer, flavored milk, milk shakes etc. It has varieties within each product category. The co-
operative society also exports a lot many products to as many as 100 countries around the world. Its major importers are the Gulf countries.
The financial year 2007-08 was very good for the firm, as it broke its own set records. It is a continuously flourishing organization.

The project report has been prepared from the information obtained from the firm. I have put all my efforts to prepare and present
the report. All the presented information and data in the report are true to the best of my knowledge.
Acknowledgement

As a student of PGDM-BE, I have to undergo a practical Training Programme, which is in partial fulfillment of the PGDM-BE
course. It was a unique experience of the field work outside the four walls of the class – room.

I am thankful to the management of “Kaira District Co-operative Milk Producers’ Union Limited” for permitting me to pursue my practical
training at an esteemed organization like Amul and for providing me all the required information for preparing the report. I am very much
grateful to Mr. Rajendra Parmar vice chairman, arranged all possible visits for me at AMUL.

I express a sense of gratitude to my Guide Prof. Satya Acharya sir for his help in preparing this report.I would also like to thank Mr. Rakesh
Shukla - Manager ACCOUNTS who assigned us with particular project and all other senior executives:

Mr. J.K.Joshi (HUMAN RESOURCE DEPARTMENT)

Mr. Sanjay Desai (PURCHASE SECTION)

Ms. Vinda (sr.officer PURCHASE SECTION)

Dr. Sudhakar Vaikai (Assistant Manager- ANIMAL HUSBANDRY)

Mr. Salman (COMMERCIAL DEPARTMENT)

Mr. Sanyam (MARKETING DEPARTMENT)

Mrs. Smita (HUMAN RESOURCE DEPARTMENT)

and executives of “Amul” who have helped me in successfully completing the project by providing all the required information. I also like to
thank Mr. Manoj Chauhan (CORDINATOR) of our working capital management project.
EXECUTIVE SUMMARY

Amul is a co-operative society where farmers from different places supply milk to Amul every morning as well as in the evening.
Milk is collected from nearly 1232 societies. 234 BMC (Bulk Milk Coolers) are installed by Amul at various societies. All co-operative societies
do not have BMC. Between 5 to 6 villages there is one BMC.

Amul produces different dairy products from the milk collected by it. During Flush season it collects nearly 15 lac liters of milk
per day while during the lean season it collects around 11 lac liters of milk per day. It manufactures it products using high technology
equipments meeting the ISO standards. There are various departments at Amul namely, Purchase, stores, production, finance, commercial, HR.
As the name suggests each department undertakes its respective functions. The Commercial department undertakes marketing activities at the
local level. Only about 2 % marketing is done by Amul the rest is done by GCMMF, the marketing wing of Amul.

I have chosen “Financial Statement Analysis” as a topic of my practical study on “The K.D.C.M.P.U. Ltd.,” [Amul Dairy].
Financial Management is an activity, which is concerned with the acquisition and conservation of capital funds in meeting financial needs and
overall objectives of a business enterprise.
.
Finally, the objective behind the Preparing the project report on “Financial Statement Analysis are to know how about the various
sides of finance Department. In addition, we can understand about the profitability, efficiency, liquidity and many more about the firm. The
financial statement analysis helps to takes the various financial decisions at the managerial level.
INTRODUCING
THE
COMPANY
History of the Organisation

During the fourth decade of the 19th century, the basic sources of income for farmers of the Kaira district was farming and selling
milk. At that time there was great demand of milk in Bombay. The biggest purchaser of milk was Polson Ltd. It was a privately owned dairy that
produced milk products and also supplied milk to various regions of the state. It enjoyed monopoly. All farmers of the Kaira district were at the
mercy of the milk traders who dictated the process; they had nowhere to turn to.

This unfair system spread widespread discontent amongst the farmers. Hence they all decided and appealed to Shri Sardar Patel, a
great leader of India’s freedom movement, for help. Shri Sardar Patel advised them to market milk through a co-operative society that was
operated by them individually. He sent his very trusted person, Shri Morarji Desai to organize the farmers. At a meeting held at Samarkha (a
village near Anand) on January 4, 1946, it was resolved that milk co-operative societies would be organized in each village of Kaira district to
collect milk from the producers and bring it to the district union. The government should be asked to buy milk from the union.

When the government turned down the demand, Kaira district’s farmers organized a milk strike for 15 days, not a single drop of
milk was sold to traders. The Bombay Milk Scheme was badly affected. The milk commissioner of Bombay visited Anand, assessed the
situation and decided to concede to the farmers’ demands.

Thus, KDCMPUL – Kaira District Co-operative Milk Producers’ Union Limited, came to existence. It was formally registered on
December 14, 1946.

During winter season, the quantity of milk received was very high. But the Bombay Milk Scheme did not accept the excess milk brought in
by the farmers. Hence, this forced the farmers to sell excess milk to traders, which gave them very nominal amount for this quantity. This led
to the decision to set up a plant to pasteurize milk. In the beginning there were only few farmers supplying about 250 liters of milk everyday.

With the financial help from UNICEF, assistance from the government of New Zealand under the Colombo plant, and technical
assistance provided by FAO for Rs. 5 million, planning for the factory to manufacture milk powder and butter was done.

Dr. Rajendra Prasad the then President of India laid the foundation on November 15, 1954. On October 31, 1955, Pandit
Jawaharlal Nehru, the then Prime Minister of India, declared the plant open. In 1958, the plant expanded. It produced sweetened condensed milk.
Two years later, Shri Morarji Desai, the then Finance Minister, inaugurated a new wing designed to manufacture 600 tons of cheese and 2500
tons of baby food per year. This was the first time in the world that cheese and baby food was processed and produced from buffalo’s milk on a
large and commercial scale.

A plant to manufacture balanced cattle feed, donated by OXYFAM, was formally commissioned on October 31, 1964, by Shri Lal
Bahadur Shastri the then Prime Minister of India, at Boriavi. KDCMPUL then set up a plant to manufacture high protein weaning food,
chocolate and malted drink at Mogar, about 8 kms south of Anand.

AMUL means "priceless" and it comes from the Sanskrit word “Amoolya. This brand name suggested by a quality control
expert in Anand. Variants, all meaning "priceless", are found in several Indian languages. Amul products have been in use in millions of homes
since 1946. Amul Butter, Amul Milk Powder, Amul Ghee, Amulspray, Amul Cheese, Amul Chocolates, Amul Shrikhand, Amul Ice cream,
Nutramul, Amul Milk and Amulya have made Amul a leading food brand in India. (Turnover: Rs. 42.78 billion in 2006-07). Today Amul is a
symbol of many things. Of high-quality products sold at reasonable prices, of the genesis of a vast co-operative network, of the triumph of
indigenous technology, of the marketing survey of a farmers' organisation. And have a proven model for dairy development.

Today there are twelve dairies producing products under the brand name of AMUL. AMUL is now Asia’s largest dairy brand and
it is the world’s second largest firm producing dairy products.
FOUNDER OF THE COMPANY

Mr. Verghese Kurien showed main interest in establishing union who was supported by Shri Tribhuvandas Patel who
lead the farmers in forming the Cooperative unions at the village level. The Kaira district milk
producers union was thus established in ANAND and was registered
formally on 14th December 1946.

Since farmers sold all the milk in Anand through a co-operative union, it was commonly resolved to sell the milk under the
brand name AMUL.
Stages of Development

Growth of Amul is not a one-night story. It took several decades to succeed in the present manner. Initially, Amul started with one
single society, now it has around 1231 societies in its net. It poured in 250 liters of milk per day initially, which has now reached up to 15 lac
liters per day in FLUSH (winter) season and about 8 lac to 9 lac liters of milk per day during LEAN (summer) season.
The main stages of development of Amul are as follows:

In 1954: UNICEF provided financial help worth Rs. 50 million to Amul. This financial help led Amul to establish fully automatic plant for
producing milk and milk powder.

In 1958: Amul expands; it started producing sweetened condensed milk.

In 1960: Excess milk that was brought in by the farmers in the winter season and huge amount of profit made it possible the expansion of Amul.
Amul established producing cheese and baby food. This created history in the world dairy industry because, it was for the first time in the world
that cheese and baby food was processed from buffalo’s milk instead of cow’s milk.

In 1981: The new cattle feed plant at Kanjari was commissioned.

In 1992: For getting the benefits of excess supply of milk, Amul established another plant named Amul III. This plant has a capacity of
processing 14 lac liters of milk everyday.

In 1994: The new cheese plant was established at Khatraj. Together with it was established the Mogar plant to produce chocolates and malted
drink. Both of these plants were commenced with the help of NDDB.

In 2001: Amul launched its flavored milk variety. This was a major jump taken by Amul.

In 2003: For expanding the market share, Amul launched the ‘Snowball’ pizza and flavored lassi. These helped Amul to gain a major chuck of
market share.

In 2004: Amul keeps on achieving new heights in the competitive world. It has launched Chocozoo (chocolate) and Munchtime (crunchy snack).
Amul also started new satellite dairies at Pune and Kolkata. This will be a help in gaining larger portion of market share.
Organisation Profile

Name:
Kaira District Co-operative Milk Producers’ Union Limited

Address:
The KDCMPU Ltd.
Amul Dairy Road,
Anand – 388001
Gujarat [INDIA] E-MAIL: amuldairy@amuldairy.com

Date of Establishment:
14 December, 1946

Form of unit:
A Co-operative Society, registered under Co-operative Societies Act, 1912.

Bankers:
1. Kaira District Central Co-operative Bank Limited.
2. Axis Bank
3. Corporation Bank
4. State Bank of India
Plants:

1. Anand Plant

Anand plant is the main plant. Most of the raw-milk is procured here. Products being manufactured here are butter, flavored milk,
ghee, milk powder and baby food.

2.Mogar Plant

It is situated on Anand-Vadodara national highway no.8. It produces chocolates, nutramul, Amul lite and, Amul Bread and Amul
ganthia.

2. Kanjari Plant

Cattle feed is produced here.


3.Khatraj Plant

This plant is situated between Nadiad and Mhemdabad highway. Cheese, Paneer and Whey powder is produced here.

3. Satellite Dairies

Amul has got satellite dairies at Mumbai, Pune and Kolkata. It helps in handling operations of the organisation from a distant place.

INITIAL PROMOTERS
1). Shri Tribhuvandas Patel.
2). Shri Morarjibhai Desai.

BOARD OF DIRECTORS: [2007-08]

 Shri Ramsinh P. Parmar Chairman


 Shri Rajendrasinh D. Parmar Vice Chairman
 Shri Dhirubhai A. Chawda Member
 Shri Mansinh K. Chauhan Member
 Shri Maganbhai G. Zala Member
 Shri Sivabhai M. Parmar Member
 Shri Pravinsinh F. Solanki Member
 Shri Chadubhai M. Parmar Member
 Shri Bhaijibhai A. Zala Member
 Shri Bipinbhai M. Joshi Member
 Shri Madhuben D. Parmar Member
 Shri Saryuben B. Patel Member
 Shri Ranjitbhai K. Patel Individual Member
 Shri B. M. Vyas MD (GCMMF)
 Shri Rahulkumar Shrivastav MD (KDCMPU)
 Shri I M Purohit District Registrar

NUMBER OF EMPLOYEES
Approximately 1432

TOTAL NUMBER OF SOCIETY MEMBERS


Approximately 2.28 million.

TOTAL NUMBER OF SHIFTS

First Shift Time - 8:30 a.m. to 4:30 p.m.


Second Shift Time - 4:30 p.m. to 12:30 a.m.
Third Shift Time - 12:30 a.m. to 8:30 a.m.

WEB SITE
www.amul.com
www.amuldiary.com
PEOPLE POWER: AMUL'S SECRET OF SUCCESS
The system succeeded mainly because it provides an assured
market at remunerative prices for producers' milk besides acting as
a channel to market the production enhancement package. What's
more, it does not disturb the agro-system of the farmers. It also
enables the consumer an access to high quality milk and milk
products. Contrary to the traditional system, when the profit of the
business was cornered by the middlemen, the system ensured that
the profit goes to the participants for their socio-economic
upliftment and common good.
Looking back on the path traversed by Amul, the following features
make it a pattern and model for emulation elsewhere.
Amul has been able to:
· Produce an appropriate blend of the policy makers farmers
board of management and the professionals: each group
appreciating its rotes and limitations,
· Bring at the command of the rural milk producers the best of
the technology and harness its fruit for betterment.

· Provide a support system to the milk producers without


disturbing their agro-economic systems,
· Plough back the profits, by prudent use of men, material and
machines, in the rural sector for the common good and
betterment of the member producers and
· Even though, growing with time and on scale, it has remained
with the smallest producer members. In that sense. Amul is an
example par excellence, of an intervention for rural change.
The Union looks after policy formulation, processing and marketing
of milk, provision of technical inputs to enhance milk yield of
animals, the artificial insemination service, veterinary care, better
feeds and the like - all through the village societies. Basically the
union and cooperation of people brought Amul into fame i.e. AMUL
(ANAND MILK UNION LIMITED), a name which suggest THE
TASTE OF INDIA.
Management Profile

1). Administration Department:-

The main work of administration department in any company is to appoint right people at right time and then supervise them. In AMUL, there is
a combined administration and human resources development department. The administration department also performs all activities related to
human resources development.

2). Purchase Department:-

There is a centralized purchase system. Purchasing of all the Raw Materials except the cattle feed is done through this department. Main type of
materials are Engineering materials, packaging stationary, veterinary medicine, chemicals, raw material for production etc. After getting indent
from the stores department the purchase order is placed to different purchasing systems for obtaining different materials. For packaging material
and veterinary medicine, an RAL (Rate Approval Letter) is provided by GCMMF in which rate party; quantity, quality etc. are predefined by
GCMMF.

3). Commercial Department:-

All activities related to sales and marketing are carried out by the commercial department. Most of the Amul’s products are sold through
GCMMF. GCMMF works as a media for selling Amul’s product. Commercial department is a link between Amul and GCMMF. GCMMF is
also the largest buyer of Amul products. The second largest buyer of Amul’s products is the Indian Army. There is no intervention of federation
while dealing with the Army. Main products that are sold to the Indian Army are Ghee, White Milk Powder, Butter, Cheese, and Nutramul. The
byproducts are sold to Vadilal Ice-Cream. Amul also markets some products at small level by itself. Amul sells milk and buttermilk on its own.

4). Accounts Department:-

This is the main accounts department. The activities performed by this department are cash and bank related activities, societies’ accounts, taxes
related accounting, investment receipts and payments, milk cycle related activities and data entry. Different types of vouchers are processed
here. All final accounting is done in this department.

Salary Account:

This is a sub section of accounts department. All accounting related to salaries and wages, provident funds, pension insurance, gratuity etc. is
done in this department.

Purchase Bill Processing:-

This is again a sub-division of the accounts department. All accounting related to purchase and billing is done here. Vouchers for purchase are
prepared in this department and then sent to the accounts department for further clarification and final dispatch.

7). Societies Division:-

Societies’ division is a link between milk producers and Amul. Milk producers first contact the societies’ division for any queries. All the day
today transactions with the milk producers are done through this department.

8). Audit Department:-

There are two audit departments at Amul. One is the internal audit department and the other is the Statutory audit department. As the name
suggests statutory auditing is done by a Co. operative auditors. Internal audit work is given to an outside accountancy firm. Pre-auditing and Post
auditing of different vouchers has done in this department.

9). MIS Department:-

It is a sub-section of the Accounts department. It is called MIS (Management Information System). All the information systems that are required
in different departments are first developed in this department.

10). Stores Department:-

All the raw materials are stored in the store department. When requirement for any material arises, the store department gives the necessary
indent to the purchase department. This is done on a proactive basis so that no stock out situation arises. All the incoming materials are received
by this department and the quality check is done in the laboratories. Goods receipt notes are prepared through this department. The stores
department has divided into three main categories, which are (a).General (b).Engineering (c).Miscellaneous.

11). Time Keeping Office:-

Amul produces a large volume of different varieties of products and the manufacturing process for the products continues for 24 hours, 7 days a
week and 365 days a year. In Amul, the time keeping department has its own importance. This department handles the work of keeping
attendance and on basis of this record the monthly or yearly salaries and compensation wages, which are to be paid to the employees, is decided.
Product Profile
Bread spreads:

• Amul Butter
• Amul Lite Low Fat Bread spread
• Amul Cooking Butter

Cheese Range:
• Amul Pasteurized Processed Cheddar Cheese

• Amul Processed Cheese Spread


• Amul Pizza (Mozzarella) Cheese
• Amul Shredded Pizza Cheese
• Amul Emmental Cheese
• Amul Gouda Cheese
• Amul Malai Paneer (cottage cheese)
• Utterly Delicious Pizza

Mithaee Range (Ethnic sweets):


• Amul Shrikhand (Mango, Saffron, Almond Pistachio, Cardamom)
• Amul Amrakhand
• Amul Mithaee Gulabjamuns
• Amul Mithaee Gulabjamun Mix
• Amul Mithaee Kulfi Mix
• Avsar Ladoos

UHT Milk Range:


• Amul Shakti 3% fat Milk

• Amul Taaza 1.5% fat Milk


• Amul Gold 4.5% fat Milk
• Amul Lite Slim-n-Trim Milk 0% fat milk
• Amul Shakti Toned Milk
• Amul Fresh Cream
• Amul Snowcap Softy Mix
Pure Ghee:

• Amul Pure Ghee


• Sagar Pure Ghee
• Amul Cow Ghee

Infant Milk Range:


• Amul Infant Milk Formula 1 (0-6 months)
• Amul Infant Milk Formula 2 ( 6 months above)
• Amulspray Infant Milk Food

Milk Powders:
• Amul Full Cream Milk Powder
• Amulya Dairy Whitener
• Sagar Skimmed Milk Powder
• Sagar Tea and Coffee Whitener

Sweetened Condensed Milk:


• Amul Mithaimate Sweetened Condensed Milk

Fresh Milk:
• Amul Taaza Toned Milk 3% fat
• Amul Gold Full Cream Milk 6% fat
• Amul Shakti Standardised Milk 4.5% fat
• Amul Slim & Trim Double Toned Milk 1.5% fat
• Amul Saathi Skimmed Milk 0% fat
• Amul Cow Milk
Curd Products:
• Yogi Sweetened Flavored Dahi (Dessert)
• Amul Masti Dahi (fresh curd)
• Amul Masti Spiced Butter Milk
• Amul Lassee

Amul Ice creams:


• Royal Treat Range (Butterscotch, Rajbhog, Malai Kulfi)
• Nut-o-Mania Range (Kaju Draksh, Kesar Pista Royale, Fruit Bonanza, Roasted Almond)
• Nature's Treat (Alphanso Mango, Fresh Litchi, Shahi Anjir, Fresh Strawberry, Black Currant, Santra Mantra, Fresh Pineapple)
• Sundae Range (Mango, Black Currant, Sundae Magic, Double Sundae)
• Assorted Treat (Chocobar, Dollies, Frostik, Ice Candies, Tricone, Chococrunch, Megabite, Cassatta)
• Utterly Delicious (Vanilla, Strawberry, Chocolate, Chocochips, Cake Magic)

Chocolate & Confectionery:


• Amul Milk Chocolate
• Amul Fruit & Nut Chocolate

Brown Beverage:
• Nutramul Malted Milk Food

Milk Drink:
• Amul Kool Flavored Milk (Mango, Strawberry, Saffron, Cardamom, Rose, Chocolate)

• Amul Kool Cafe

Health Beverage:
• Amul Shakti White Milk Food

Bakery Products:

 Bread
 Bun
PURCHASE
DEPARTMENT
Purchase Department

Purchase Dept. plays a very important and crucial role in reaching to the organization’s goals and profit objective. It is the source
from where all sorts of raw material, ingredients, and packaging materials will be procured. Hence it does not only contribute towards making of
the product but also has its share in making the product attractive, regarding its outer cover and other packing material. It also helps in preserving
the product from the harshness of the outside atmosphere and other harmful environment.

Purchase dept. at Amul has been bifurcated into two major parts. One is the Cattle Feed Purchase dept. while the other is the
Central Purchase dept.

Cattle Feed Purchase Dept. deals with the procurement of various types of grains, pulses and other proteins and vitamins that
are then mixed according to a given formula arrived through scientific methods and cattle feed is prepared. The cattle feed plant is located at
Kanjari. The plant was set up back on 31st October 1962. Initially the production capacity was merely 50 metric tons per day. It aims at providing
quality and highly nutritious food for the cattle. The motive behind setting up this plant was to provide cattle feed to the farmers and other
members of all the co-operative societies of Amul so that the quality of milk that their cattle give can be of greater value. Previously they also
used to sell it commercially but since last few months they have decided to limit its sales only to the members of the co-operative societies.
Capacity of the plant is 750 metric tons of cattle feed per day.

Various raw materials that go into the production of cattle feed includes sesame, ground nut, mustard, cotton seeds, palm seeds and so on. While
other grains used are bajra, maize, jowar (sorghum), damaged wheat, sugar cane (molasses). The aim of using damaged wheat is that the wheat is
not fit for human consumption but it is still nutritious for cattle and it will also not cause undue shortage in the market. Molasses is mainly used
as a binder and also helps in sweetness. Other salt, vitamins, minerals and protein has added to the product. At Kanjari plant, they produce Amul
by-pass dan, super dan, josh dan, calf dan, etc.

Procedure for purchase of raw materials is as under:

Firstly inquiries regarding the various suppliers are made. Quotations are invited. Next, a comparison and study of the prices quoted by the
suppliers is done. If they fall into the parameters as decided by the officials here, then the suppliers are negotiated for the prices as quoted by
them. Major advantage that is earned by Amul is that, it has got brokers involved in their transactions. This helps in getting suppliers down to the
price as expected by Amul. Annual brokerage is paid to the brokers. Instant clearance of deals is possible only due to the brokers. As tender
system is followed, it is difficult to have a single price throughout the year. Brokers are contacted daily and a record of the transactions made is
maintained to avoid mal practice by the brokers.

The basic reason for keeping brokers in between each transaction of raw material purchase is that it becomes possible to negotiate and bargain
well with the suppliers of the materials. Since it is an agricultural product, having a constant price is impossible. Hence, bargaining is essential.
Almost all transactions are in the form of telephonic saudas. The Purchase Head has a Sauda Record Book with him wherein he maintains a
daily record of all the offers made by the brokers and the replies made by Amul. This helps when goods are delivered by the supplier. Again
since the prices fluctuate a lot, the Purchase Head has to constantly keep an eye over the movements of the market and negotiate prices
accordingly.
All suppliers are paid within 25 to 30 days.

Plant at Kanjari is run on loss, but only for the betterment of the farmers, production is done and goods are sold at cost. They are planning to
expand their production capacity, which they will be able to reach within two months.

Talking about the Central Purchase Unit at Anand, all the purchase related to acquiring other raw materials as well as packing materials is
undertaken at Anand.

Purchase Procedure at the Central Purchase unit can be explained as follows:

GCMMF, the marketing federation of Amul, annually sends a RAL (Rate Approval Letter) to Amul. GCMMF selects vendors for the supply of
various raw materials as well as packing materials as per the specifications framed by them. GCMMF also has maximum quantity that can be
bought from a single vendor.
Purchase dept. at Amul can make transactions only with these vendors.
Starting with the procedure, an indent is placed by the dept. that requires the product. The purchase dept. invites quotations from these vendors.
Then a cost comparison statement is prepared on the basis of the quotations sent by the vendors. After studying the statement the purchase dept.
negotiates with the vendors regarding prices and other conditions applied with that. The vendor that offers minimum prices is given the order.
For both, cattle feed purchase as well as for the central purchase unit, when goods are received at gate are first sent for quality approval test and
if they are found proper only then are sent for unloading or to further procedure.
MATERIAL HANDLING
&INVENTORY MANAGEMENT
Material Handling & Inventory Management

KDCMPU Ltd. follows the below explained procedure for indenting the goods required up till payment is made to the vendors.

A] Indenting
B] Purchasing
C] Materials receipt, store’s inventory management
D] Bill Processing and Payment

These steps can be briefly explained as under:

A] Indenting

A requisition or indent has to be made by any department or section that requires any material. The Purchase Department shall not
initiate its activities unless and until it has received the indent from the respective department or section. If requisition for the same product has
been requested by more than two departments at once, the purchase department shall combine the quantities of all such indents and then initiate
the procedure for purchase.

All the indents for Capital items will have to be submitted in the form of a ‘Proposal for Capital Items Purchase’. Only after the proposal has
been approved by the Board of Directors, it shall be initiated by the Purchase dept. to start the procedure for purchase. The AGM (Accts.) shall
verify the budgetary aspect for such capital expenditure.

GCMMF, the marketing wing of Amul, gives an indent for each product in the first week of every month. Productions heads at Amul make this
indent their production plan (they adjust their production in this manner). Hence all packaging items are ordered monthly. GCMMF also issues a
RAL (Rate Approval Letter) annually, which contains the list of vendors from whom the Purchase Officer at Amul has to select to whom to
order. Also the rate at which Amul has to buy the goods is also specified in the RAL.

Indent for engineering items and spare parts shall be made as and when they are required at the plant.
In case of Cattle Feed Purchase, no such indents are sent by the GCMMF, here the C.F.Purhcase Head has to have a close look at the production
activity and undertake purchase of various raw materials. In this case the GCMMF does not interfere in the matter of rates and the list of
vendors. Brokers are given annual contract for purchase of agricultural products. Since all the raw materials for cattle feed is agricultural in
nature, brokers are required in between.A Special facility of ICPO (INDENT CUM PURCHASE ORDER), is given to each production
department head so as to not to run out of stock. They can make purchase right at their department if the are in urgent need for goods.

B] Purchasing

On receipt of a duly approved indent, purchase dept. shall initiate enquiries for various items covered in an indent. The purchase dept.
shall endeavor to float such enquiries to maximum number of suppliers/vendors in order to get most competitive rates for each item.

Since GCMMF issues RAL annually, the Purchase Dept. has to select from the list of vendors mentioned in that.

On receipt of quotations from the various suppliers, the dept. prepares a comparative statement of these vendors and gets it approved from the
person in authority.

The Purchase dept. then negotiates with the vendors in terms of rates and arrives at lowest possible rates. Order will be placed to the vendor with
minimum rate.

For items, which are regularly consumed like Bearings, V-Belts, O Rings, GI and MS Fittings etc. purchase department finalizes “Annul Rate
Contracts” (ARCs) for such items to save the time consumed in floating enquiries, receiving quotations, preparation of comparative statements,
taking approvals etc. However, ARC rates are first approved by an appropriate authority.

It is necessary that a proper purchase order is issued for rate-contracted items also in unions’ pre-printed stationary giving description of items as
per rate contract, quantity, rates, discounts, taxes, delivery terms etc. However, no purchase order can be issued on a date expired ARC.

It is the sole responsibility of the purchase department to follow-up with the suppliers for timely delivery of goods and as per the store’s
specifications. The indenting department will have to follow up with the purchase department, if the goods are not received within the stipulated
time. No other department needs to follow up with the suppliers.
C] Material Receipt, Storage and Issue of goods

Store shall receive copies of all the purchase orders placed on the suppliers for which the goods are to be received at the stores.

For all the goods received at the factory premises, an entry will be made at the Main Gate of the factory. This will help in getting basic
information about the goods entering the factory premises.
On receipt of the goods at the Stores, the stores shall thoroughly verify the documents and shall ensure that the goods have been received against
a valid P.O. (Purchase Order). Under normal circumstances, excess quantity up to 10 % is allowed in the stores.

If the goods are found to be as per store’s purchase order, stores department arranges for taking delivery of goods and stores it at
appropriate place. The stores department needs to prepare a “Goods Receipt Cum Test Report” (GR/TR). This can be either prepared manually
or generated through the system, if a computerized inventory management programme is in existence. The copies of this (GR/TR) should be
distributed as under:
(a). User/Indenting department: for their information about the arrival of goods.
(b). QA/Engineering department: Where goods are to be tested/inspected before being used.
(c). Purchase department: For their information to track the delivery of goods in case of partial delivery.
(d). Stores department: For their records.

Whenever any material which has been once rejected but later on accepted on rechecking/retesting or because of exigencies of
production, QA/ Engineering department/indenter submits a fresh report of acceptance, giving references of earlier GR/TR duly approved by the
departmental head. The stores carry out the necessary corrections in their records.
Gate Pass: No material can be taken out of the factory premises without a properly authorized gate pass. Stores/ concerned department
issues a gate pass.

D] Bill Processing and Payment

All the invoices from the suppliers are received in the Purchase bill section. The Purchase bill section enters all the invoices as and
when received in a computerized bill tracking system. The invoices, which are received in the Stores, KSD Khatraj, FCM Mogar, Pune,
Kolkatta, Mumbai and CFF Kanjari along with consignments, are also redirected to the Bill passing section.

The Purchase department can advise all the suppliers to mention purchase order nos. and date in their delivery documents, invoices
against which the goods are being supplied. This helps in easy tracking of invoices vis-à-vis purchase orders and GR etc.
The Stores sends “Goods Receipt Cum Test Reports” (GR/TR) to the Purchase billing section once the Testing/ Inspection formalities are
complete.

The Purchase billing section verifies the invoices with the corresponding Purchase orders, Goods Receipt Cum Test Reports and
processes the supplier’s invoices for payment.
It is the responsibility of the Purchase billing section to ensure that only correct payments are made to the suppliers. The advance payment if any
is also recovered/ adjusted fully so that no excess payment is ever madder to any party.

The Purchase billing section also ensures that timely payment is made to all the suppliers as per PO Terms and no payments are
delayed for reasons of delay in processing of payment documents etc.
PRODUCTION
DEPARTMENT
Production Department

Since Milk is the basic raw material that the organization procures, we shall first study the process flow chart for pasteurizing milk.

Process Flow Chart for Amul 3 is as follows:

Raw chilled milk (in tankers or cans)

Tested for acidity and temperature (Fat and SNF)

Filter

Chiller (temperature up to 2 degree Celsius)

Raw milk buffer tank

Milk clarifier

Raw milk silos

Balance tank of pasteurize

1st regeneration section of milk pasteurize

Cream separator (60-65 degree Celsius)

Cream separated

Sent to cream buffer tanks

Cream pasteurize (at 90 degree Celsius for no hold)

Cream balance tank

Sent to butter or ghee section


Explaining the process:

Milk from various villages is collected at chilling centers and from there milk is sent to the dairy in tankers. Still at some places
where a chilling center is not available, milk is collected in cans. From the milk collected at the Milk Reception Bay or the Raw Milk Receiving
Dock, samples are taken and sent for quality check at the laboratory. Various tests that are done to check the quality of the milk tests for fat, SNF
(Solid Non Fat), Bacterial count, etc. are done. Acidity and temperature of milk is recorded first because on this basis milk is accepted or
rejected.

Unloading of milk is done in a milk buffer tank. Milk stored there is cooled at 4 deg. Celsius and sent for clarification. Clarification is
a very important process wherein dust, dirt or any kind of other impurities are removed and milk is purified. From clarifiers milk is sent to the
raw milk silos and stored temporarily, from where milk is sent for pasteurization and then to further processes.

Pasteurization is a process whereby the germs and bacteria and pathogens are killed. In this process, milk is heated up to 76 deg.
Celsius and is held at that temperature for about 15 to seconds and then cooled up to 4 deg. Celsius. Simultaneously after heating cream is
separated from milk. Cream that is separated here is
used for standardization of milk and surplus cream is used for production of butter and ghee. Cream is added to milk as per the type of milk that
is low fat (skimmed) milk will have minimum fat, while ‘Amul Gold’ will have more percentage of fat.

Surplus of standardized milk is used for production of milk powder or for making flavored milk and sent to market for sale.

The separated cream is further pasteurized at 90 deg. Celsius to make it fit for human consumption. After that it is cooled and is
stored in cream tanks for ripening and then it is sent for butter manufacturing.

Reception of Milk

Raw milk collected at Amul 3 is received through cans and in tankers from Amul 2, where three reception lines unload milk tankers.

Each reception line is equipped with following –


1. Centrifugal pumps each of capacity of 30,000 liters per hour.
2. Deaerator tank to remove air from the milk.
3. Filters to filter out sludge and other impurities from milk.
4. One Pre-heat exchanger after each filter.
5. Raw milk silo for storing raw milk.

Milk pasteurizing has six sections:

1. Regeneration 1st – milk first enters in this section, here the heat of outgoing milk is utilized to heat the incoming chilled milk and
incoming chilled milk cools down the outgoing milk.
2. Pre-heating section – at this juncture milk is heated at 60 deg. Celsius.
3. Regeneration 2nd – now the standardized milk is further heated before going to heating section by milk coming from holding tubes.
4. Heating section – milk from the regeneration section 2nd is heated up to the pasteurization temperature by hot water.
5. Holding tubes – pasteurized milk is held in the holding tubes, which is 42 m long, and 72 mm wide in diameter.
6. Chilling section – milk is chilled here by chilled water.

CIP Process

Total lines – 9
Lye concentrate – 1.5% measured as millisem
Acid concentrate – 1%
Lines for process CIP are – 6
Lines for tankers CIP are – 3

Milk Pouch Packing Process


(Liquid Milk)

Raw Milk Receiving Dock or the Milk Reception Bay at Amul 2 receives milk twice a day. It receives cows, buffalo’s and mix milk
from different co-operative societies associated with Amul. They collect milk in the morning as well as in the evening. There are total 102 routes
and 1230 societies from where milk is collected and sent to Anand plant. Milk is then standardized to prepare flavored milk. It is homogenized
and then flavored milk is produced from it. Surplus milk is sent to Amul 3 where various other milk products are manufactured.

The farthest milk collection centre is at Balasinor while the nearest is at Anand.

Milk Reception

For reception of milk there are two reception lines. Cans are manually put on the conveyor. At first instance the cans are tested by the
person in charge of it by putting a plunger inside the can and smelling the milk whether it is good or sour. Sour milk and curd are dumped into
another tank. Milk is then put on the weighing tank and is along with weighing it, it is tested for fat and SNF. Then the valve of the weighing
tank is opened and milk flows into the raw milk storage tank and cans move to the can washer. On each line there is a can washer and each can
washer has a capacity of 20 cans per minute.

Process:

Unloading of cans

Chain conveyor

Removing lids of cans/ Opening up the tankers’ mouth

Physical inspection of grading of milk

Transfer of milk in tank Transferring curd


If quality is good to butter/ghee
Section

Filter Production of Butter or ghee

Weighing

Raw milk collecting tank

Pasteurizer and standardizations

Processed milk tanks

Sent for milk packing and production


Of various other milk product

Butter
Contents

• Milk Fat – 80%

• Moisture – 16%

• Salt – 2.5%

• Curd – 0.8%

Process

Cream for manufacturing butter in Amul 3 is to be received from following sources:


a) Cream from other dairies through tankers.
b) Cream produced in Amul 3 while standardization of milk.
c) Cream pumped from Amul 2.

Before initiating the butter making process the Continuous Butter Making Machine has to be rinsed with cold water for about 10
to 15 minutes.
The very first step in butter making is churning of cream. Cream is churned at a speed of 800 to 1200 rpm at 12 degree Celsius. Although the
speed for churning the cream depends upon the quality of cream and the type of product that is desired from the cream. The properties of cream
that influence and are required to be known before churning are viscosity (its thickness), ripening of cream and whether cream is sweet or sour in
taste.
The butter grains formed in the churning process enter the working cannon along with the buttermilk.
Process:

Raw cream

Pastuerisation (at 90 oC)

Cooled

Ripening (at 9 oC for 20 hours)

Cream balance tank

Heat exchanges (for temperature adjustment at


6 to 10 oC)

Churning

Unsalted Butter Salting

White Butter Grinding

Used for ghee manufacturing Brine and color


100 gm and 500 gm packs addition
FINANCE
DEPARTMENT
PARTICULARS 06-07 07-08 08-09

Opening stock of Raw Material 154.85 207.39 266.58

ADD: Purchase of raw material 64030.16 93690.87 114617.8

LESS: Closing stock of Raw material 207.39 266.58 415.92

COST OF RAW MATERIAL CONSUMED 63977.62 93631.68 114468.46

ADD: Labour expenses _ _ _

ADD: Opening stock of Work in Progress 1821.55 1902.08 2319.85

LESS: Closing stock of Work in Progress 1902.08 2319.85 2539.55

PRIME COST 63897.09 93213.91 114248.76

ADD: Manufacturing Expenses

1.Research and extension expenses 954.67 1182.12 910.43

2.Processing Expenses 711.64 1089.17 1581.04

3.Packaging Expenses 6438.42 8363.90 10477.66

4.Power and fuel expenses 2305.88 3046.28 4003.98

5.Salaries and wages 822.08 1006.18 1067.71

6.Staff provident fund, Gratuity and other amenities 282.21 288.06 343.15

7.Repairs and Maintenance expenses 682.36 850.84 1024.60

8.Insurance premium 67.76 48.41 36.08

9.Rent,rates and taxes 33.15 34.89 88.52

10.Depreciation 535.35 459.16 641.74

12833.55 16359.39 20174.93

FACTORY COST/COST OF PRODUCTION 76730.64 109573.3 134423.69

ADD: Administration expenses

1.Power and fuel expenses 576.48 761.58 1001

2.Salaries and wages 548.06 670.79 711.81

3.Repaires and maintenance 170.6 212.71 256.16

4.Insurance premium 16.95 12.11 9.03

5.Rent,rates and taxes 8.29 8.73 22.13

6.Depreciation 133.83 114.75 160.43

7.Postage,Telegram,Telephone,Printing 56.51 56.14 63.05

And stationary expenses

8.Audit fees 92.87 99.66 103.79

9.Adminstration expenses 133.51 166.77 198.96

10.Staff Provident fund, Gratuity and other amenities 188.14 192.04 228.76

1925.24 2295.28 2755.12

OFFICE COST 78655.88 111868.58 137178.81

ADD: Opening stock of finished goods 6013.22 4843.32 10890.43

LESS: Closing stock of finished goods 4843.32 10890.43 13379.03

COST OF GOODS SOLD 79825.788 105821.47 134690.21

ADD: Selling and distribution expenses

1.Freight and forwarding expenses 695.21 1015.17 1554.12

2.Marketing expenses 106.17 109.99 125.87

801.38 1125.16 1679.99

COST OF SALES 80627.16 106946.63 136370.20


ADD: PROFIT OR SALES 1004.522 240.65 842.144

SALES 81631.69 107187.29 137212.35

Finance Department

Finance is the art and science of managing money. Financial management is concerned with the duties of the financial managers
in the business firm. Financial managers actively manage the financial affairs of any type of business namely, financial and non- financial,
private and public, large and small, profit seeking or not-for-profit.

Scope of Financial Management


The approach to the scope of financial management is divided in to two broad categories,
1. Traditional Approach
2. Modern Approach

1. Traditional Approach

The traditional approach to the scope of finance function evolved during the 1920s and 1930s. As the name suggests, the concern
of corporate finance was with the financing of corporate activities. In the other words, the scope of the finance function was treated by the
traditional approach in the narrow sense of procurement of funds by corporate enterprise to meet their financial needs. The term ‘procurement’
was used in a broad sense so as to include the whole gamut of raising funds externally.

There are several weaknesses of this approach forcing us to discard this as an out-dated approach.

The first argument against the traditional approach was based on its emphasis on issues relating to the procurement of funds by corporate
enterprises. This approach ignored the views and opinions of those who are to use the funds inside the organisation. They considered the
outsider-in approach. The internal decision makers were ignored.

The second weakness was that focus was on financing problems of corporate enterprise. It did not consider non-corporate enterprises.

Finally, the traditional treatment was found to have a lacuna to the extent that the focus was on long-term financing. It believed that issues
pertaining to working capital management were not under the purview of financial management.

2. Modern Approach

The modern approach views the term financial management in a broad sense. According to it, the finance function covers both
acquisitions of funds as well as their allocations. Thus, apart from the issues involved in acquiring external funds, the main concern of financial
management is the efficient and wise allocation of funds to various uses.

The principal contents of modern approach to financial management can be said to be:
(i) How large should an enterprise be, and how fast should it grow?
(ii) In what form should it hold assets? And
(iii) What should be the composition of its liabilities?

The questions posed above cover major issues faced by any enterprise. The financial management is concerned with the solution of investment,
financing and dividend decisions.
Thus, financial management, in the modern sense of the firm, can be broken down into three major decisions as functions of finance:

(A) The Investment Decision,


(B) The Financing Decision, and
(C) The Dividend Decision.

(A) The Investment decision relates to the selection of assets in which funds will be invested by a firm. The assets which can be acquired can be
divided broadly into two groups: (i) long term assets which yield a return over a period of time in future, (ii) short term assets, defined as those
assets which in normal course of business can be converted into cash without diminution in value, usually within a year.
It normally includes decisions for capital budgeting and working capital management.

(B) The Financing decision is concern with the financing-mix or capital structure or leverage. The term capital structure refers to the proportion
of debt (fixed interest sources for financing) and equity (variable-dividend securities/source of funds). A capital structure with a reasonable
proportion of debt and equity capital is called the optimum capital structure. Thus, one dimension of the financing decision whether there is an
optimum capital structure and in what proportion should funds be raised to maximize the return to shareholders? The second aspect of the
financing decision is the determination of an appropriate capital structure given the facts and figures.

(C) The third major decision area of financial management is the decision relating to the Dividend policy. The dividend decision should be
analyzed in the relation to the financing decision of the firm. Two alternatives are available relating to the dividend decision: (i) they can be
distributed to the shareholders in the form of dividend or (ii) they can be retained in the business itself. The decision as to which course should
be followed depends largely upon the significant element in the dividend decision, the dividend payout ratio, that is, what proportion of net
profits should be paid out to the shareholders. The final decision will rest with the preference of the shareholders and investment opportunities
available within the firm. The second major aspect of the dividend decision is the factors determining dividend policy of a firm in practice.
Functions of Financial Management

1. Financial Forecasting

The financial management sees that an adequate supply of cash is available at the proper time for smooth flow of firm’s activities.
As cash inflow and outflow both are closely related to the volume of sales, it requires financial forecasting. The estimation of the prospective
cash inflow and cash outflow in the next quarter or year is necessary to maintain the liquidity in the funds.

2. Investment decision
The investment decision is the most important function of financial management. It involves the allocation of capital to various
investment proposals in order of their priority and profitability. As each investment decision involves risk a financial manager assists in
evaluating the various proposals in the processes of capital budgeting.

3. Management of Income

Management of income is a major function of financial executive. It includes the allocation of net earnings after payment to taxes
among shareholders and retaining earning for employers. The shareholders generally are interested in current cash dividends. In order to provide
for future contingencies, the top management (management) wants to retain earnings to the maximum possible extent. Deciding between these
two is very crucial.

4. Management of Cash

Estimating and controlling cash flows is an important function of financial management The cash must be managed for the benefit
of the owners. The financial manager tries two things: (i) how can managers choose the best among alternative uses of funds, and (ii) how can
they ascertain that this is a better use than stock-holders could find outside the company? The finance manager must choose most desirable
investment option.

5. Deciding about New Sources of Finance

A business firm is always in need of funds. Therefore, on the basis of forecast of the volume of operations the finance manager
should decide upon the needs and prepare the detailed financial plan both short term and long term for the procurement of funds.
6. Analysis and appraisal of Financial Performance

Proper analysis, checking and appraisal of financial performance are very essential to carry out finance function smoothly.
Various financial statements are prepared, analyzed and then necessary guidelines are set for the future.

Organization Chart of Finance Department

Managing Director

Manager
Dept. Manager

Asst. Manager

Senior Executive

Executive

Senior Officer

Senior Assistant

Junior Assistant
Accounting Policies

1. Method of Accounting

(a) The union follows accrual system of accounting in preparation of accounts.


(b) The financial statements are prepared on historical costs, convention and in accordance with the generally accepted
accounting principals.

2. Fixed Assets

Fixed assets are valued at cost. The cost of assets comprises of purchase price and any directly attributable cost on bringing the
assets to its present condition or intended use.

3. Depreciation

Depreciation on Fixed assets is provided on Written down Value Method at the applicable rates prescribed under the Income Tax
Act, 1961. Depreciation has been provided for the full year for the assets acquired and commissioned by September, and others acquired later are
subject to half-year depreciation. Where grant has been received against any assets the depreciation on the grant proportion has been adjusted
against the grant (except for the assets of Amul 1 & 2).

4. Inventories

(a) Raw material, Packing material, Semi-packed goods and finished goods are valued at FIFO basis.
(b) Store and spares are valued at cost on FIFO basis.
(c) Excise duty applicable on finished goods stock has been included in the valuation of finished goods.

5. Investment

Investments are primarily meant to be held on long-term basis at stated cost.

6. Retirement Benefits

Union’s contribution towards Gratuity and Super-annuation for its employees is funded with LIC of India.

7. Excise Duty

Provision has been made for the excise duty applicable on the finished goods stock in the excise expenses.

8. Income Tax

In view of the carry forward losses, there is no taxable income and hence no provision for income tax is required to be made under the
Income Tax act, 1961. The union has unabsorbed depreciation and carry forward losses under the income tax laws. In absence of virtual
certainty of sufficient future taxable income, net deferred tax assets has not been recognized by way of prudence in accordance with the
Accounting standard AS 22 – “Accounting for tax on income” issued by the ICAI.

9. Crate Accounting

Crates used in the milk distribution at Anand, Pune and Kolkata has been treated as deferred revenue expenditure and charged to
Profit and Loss A/c over a period of three years considering their life of usage

Inventory Management

Inventory is composed of assets that will be sold in future in the normal course of business operations. The assets which firms
store as inventory in anticipation of need are
(i) Raw materials
(ii) Work-in-progress (semi-finished goods)
(iii) Finished goods

The raw material inventory contains items that are purchased by the firm from others and are converted into finished goods through the
manufacturing process. The firm it-self might be producing the raw material.
The work-in-progress inventory consists of items currently being used in the production process. They are normally semi-finished goods that are
at various stages of production process in a multi-stage production process.
Finished goods represent final or completed products, which are available for sale. The inventory of such goods consists of items that have been
produced but are yet to be sold.

The views concerning the appropriate level of inventory would differ among the different functional areas. The job of the financial manager is to
reconcile the conflicting viewpoints of the various functional areas regarding the appropriate inventory levels in order to fulfill the overall
objective of maximizing the owners’ wealth.

Objectives of Inventory Management can be explained as follows:

The basic responsibility of the financial manager is to make sure the firm’s cash flows are managed efficiently. Efficient management of
inventory should ultimately result in the maximization of the owner’s wealth. In order to minimize cash requirements, inventory should be
turned over as quickly as possible, avoiding stock-outs that might result in closing down the production line or lead to a loss of sales. It implies
that while the management should try to pursue the financial objective of turning inventory as quickly as possible at the same time not affecting
its production activities.

Since the production runs 24x7 it is necessary to have enough stock on hand so as to not to adversely affect the production process.

Various costs involved in inventory management are:

(i) Ordering costs


(ii) Carrying costs

The term ordering cost is used in case of raw material and includes the entire costs of acquiring raw material. They include cost include in the
following activities:
Requisition purchase, ordering transporting, receiving inspecting, and storing. The ordering costs increase in proportion to the number of order
placed, thus the more frequently the inventory is acquired the higher the firm’s ordering cost. On the other hand, if the firm maintain large
inventory levels there will be few order placed and ordering cost will be relatively small. Thus the ordering cost decrease with increasing size of
inventory.

The term carrying cost means the costs which are incurred for holding the level of inventory. They include the opportunity cost of funds invested
in inventories, storage cost, insurance, taxes, and cost in the deterioration and obsolescence. Opportunity costs are the earning foregone on the
other best available investment opportunity.
The carrying costs move in direct proportion to inventory size. Higher the inventory sizes, higher the carrying cost and lower the inventory size,
lower the inventory costs.

Funds Flow Statement

To understand the importance of Funds Flow Statement (FFS) it is necessary to clearly understand the meaning of the word ‘fund’. For
a common layman, ‘fund’ means only cash i.e. liquid cash. But it is actually a wrong understanding. Fund is not affected by changes in cash
only; it also changes with any transaction that takes place. For example, when goods are sold on credit to any debtor then cash is not increased or
decreased but yes the funds would increase. Similarly, when we purchase goods and pay cash, our cash balance would definitely get reduced.
But when we avail credit from creditors we don’t have to pay immediately. Hence funds are affected in this case. Increase in creditors has thus
become a source of funds and in the same way increase in debtor would result into decrease in funds.

In short:

“When liabilities increase, it is a Source of Funds;


When assets increase, it is an Application of Funds.”

A summarized list of source and application of funds is given below:

A] Sources of Funds:

(i) Increase in capital (by way of issuing shares)


(ii) Borrowing or incurring any liability
(iii) Profit from operation of business
(iv) Sale of fixed assets or investments

B] Application of Funds:

(i) Purchase of fixed assets


(ii) Purchase of investments
(iii) Repayment of Capital (eg. Redemption of preference shares)
(iv) Repayment of loans or debentures
(v) Payment of cash dividends

The list reveals that funds would increase with any increase in assets or when there is any decrease in liability and vice versa.

WORKING CAPITAL MANAGEMENT:


THEORIES AND APPROACHES

INTRODUCTION
The operating efficiency of an organization is decided by the provision of optimum liquidity.
Working capital constitutes part of the important investments in the organization. it not only manages the current assets but also manages the
manages the current liability of the organization.
In simple language working capital can be explained as the capital which is required for the day to day expenses. Working capital can be viewed
as the amount of capital required for the smooth functioning of the normal business operation of en organization ranging from the procurement
of raw material , converting the same into finished products for sale and realizing cash along with profit from the accounts receivables that arises
from the sale of finished goods on credit.
Working capital is a qualitative concept. it indicates the liquidity position of the firm and suggest the extent to which the working capital needs
are to be financed through the help of permanent sources of finance. Current assets should be in excess of current liability for maturing the
obligation in normal operating cycle.
A weak working capital position poses a threat to the management and also shows a negative liquidity, and excessive working capital is also
bad for the organization. Therefore a timely action should be taken in an organization in order to manage and improve the liquidity position.

CONCEPTS OF WORKING CAPITAL

There are two concepts of working capital namely


• gross working capital

• Net working capital.

Gross working capital means the total of current assets.


Net working capital is the difference between current assets and liabilities. An alternate definition of net working capital is that position of
current asset which is financed with the long term funds.
NATURE
Working capital management is concerned with the problems that arise in attempting to manage the current asset, the current liabilities and the
interrelationship hat exist between them. The term current asset refers to those assets which in the ordinary course of business can be, or will be
converted into cash within one year without undergoing a diminution in value and without disrupting the operations of the firm. The current
liabilities are those liabilities which are intended , at their inception ,to be paid in the ordinary course of business, within a year out of current
asset or earnings. The main goal of working capital management is to manage the firms current asset and liability in a way as to maintain value
of the company in a satisfactory way. The current assets should be large enough to cover the current liability to maintain a margin of safety. In
order to maintain the liquidity position adequate amount of current assets are required.
NEED
To maximize the shareholders wealth it is necessary to generate adequate profit which in turn depends the magnitude of sales. As the sales may
not convert into cash immediately there is a need of working for working capital in the form of current assets to deal the problem arising out of
lack of realization of cash against goods hence sufficient working capital is required to maintain the level of activity

CONSTITUENTS OF WORKING CAPITAL

The main constituents of working capital are


• Current asset

• Current liability

The main components under current asset in AMUL ARE


• Stock

• Deposits

• Due from societies

• Advances

• Trade and sundry debtors

• Income tax deposits

• Cash and bank balances

The main components of current liabilities ARE


• Creditors

• Due to societies

• Outstanding against expenses and purchases

DETERMINANTS OF WORKING CAPITAL


• GENERAL NATURE OF BUSINESS

Working capital requirement of the firm are basically influenced by nature of the business. If the firm is a manufacturing industry they have to
maintain more of raw material and inventory, which means more of investments, and capital needs. if the business is a service based , then there
is less need of working capital. If sales are based on cash then there is less need of working capital and if the sale is based on credit then working
capital is needed more.
• PRODUCTION CYCLE

It covers the time- span between the procurement of raw material and the completion of the manufacturing process leading to the production of
finished goods. During such cycles the funds are locked up in the business. The longer the time span the larger will be the funds tied up and
therefore the larger is the working capital needed and vice verse.

• BUSINESS CYCLE

Business fluctuations lead to cyclical and seasonal changes which, in turn cause a shift in the working capital position, particular for the
temporary working capital. The variations in business conditions may be in two direction (i)upward phase when boom condition prevail and (ii)
downward phase when economic activity is marked by a decline.
• CREDIT POLICY

The credit policy influences the requirement of working capital in two ways: (i) through credit terms granted by the firms to its customer of
goods. (ii) credit terms available to the firm from its creditors. The firm should be prompt in making collection. A high collection period will
mean tie up of funds in making collection.
• GROWTH AND EXPANSION

As a company grows in size we can imagine that there will naturally be an increase in the capital requirement. The composition of working
capital in a growing company also shifts with the economic circumstances and corporate practices.
• PROFIT LEVEL

The level of profit earned differs from enterprise. Manufacturing industries earn lesser profit if considering the scale of operation.
• LEVEL OF TAXES

The first appropriation out of profit is payment or provision of tax. The amount of taxes to be paid is determined by the prevailing tax
regulations. If the tax liability increases, it leads to an increase in the requirement of working capital and vice-verse.
• DIVIDEND POLICY

The payment of dividend consumes cash resources and thererby, affects working capital to that extent. If the firm does not pays dividend and
retains profits the working capital will increase.
• DEPRECIATION POLICY

The effect of depreciation policy on working capital is therefore ,indirect. Enhanced rates of depreciation will reduce the profit and tax liability
and therefore lowers the profit.

BALANCED WORKING CAPITAL POSITION

The firm should maintain a sound working capital position. It should have adequate working capital in order to run its business operation. Both
excessive as well as inadequate working capital position are dangerous from firms point of view. Excessive working capital means holding cost
and idle funds, which earns no profit to the firm.
The dangers of excessive working capital are:
• It is an indication of defective credit policy and slack collection policy. Consequently higher incidence of bad debts results, which
adversely affects the profit.
• It results in unnecessary accumulation of inventories .thus chances of inventory mishandling waste ,theft and loss increases.
• Excessive working capital makes management complacent ,which degenerates into management inefficiency.
• Tendency of accumulating inventories tend to make speculative profits grow.

Inadequate working capital is also bad these are the following dangers:

• It becomes difficult to implement operating plans and achieve the firms target.
• Operating inefficiencies creep in when it becomes difficult to meet day to day commitment.
• It stagnates growth, It becomes difficult for the firm to undertake profitable projects because of non-availability of working capital funds.
Therefore a firm should maintain the right amount of working capital on a continuous basis only then proper functioning of business operation is
ensured.

OPERATING CYCLE
This figure depicts the interdependence among the components of working capital. In Amul all the operation starts with the cash purchase of raw
material .in amul the main raw material is the raw milk which is collected from the 1100 societies. This raw milk is been converted into finished
good after undergoing the stage of work in process.

For this purpose the organization has to make payment towards wages, salaries, and the other manufacturing cost. Payment to suppliers is been
made on purchase in the case of cash purchase and on expiry of credit period in the case of credit purchase. Further the organization has to meet
other operating cost such as selling and distribution cost, and non operating cost described as financial cost.Here in amul the goods are sold on
credit basis.

it will pass through one stage that is account receivables and get back cash along with profit on the expiry of credit period. And once again the
cash will be used for the purchase of material or payment to suppliers and the whole cycle is termed as working capital cycle.

OPERATING CYCLE:
1. RAW-MATERIAL CONVERSION PERIOD:

=AVERAGE STOCK OF RAW-MATERIAL/PER DAY RAW-MATERIAL CONSUMPTION

• AVERAGE STOCK OF RAW-MATERIAL:

=OPENING STOCK OF RAW-MATERIAL + CLOSING STOCK OF RAW- MATERIAL/2

• PER DAY RAW-MATERIAL CONSUMPTION:

=RAW-MATERIAL CONSUMPTION/360

2. WORK-IN PROCESS CONVERSION PERIOD:

=WORK-IN PROCESS INVENTORY * 360/COST OF PRODUCTION

3. FINISHED GOODS INVENTORY CONVERSION PERIOD:

=FINISHED GOODS INVENTORY * 360/COST OF GOODS SOLD

4. DEBTORS CONVERSION PERIOD:

=DEBTORS * 360/CREDIT SALES

5. CREDITORS DEFERRAL PERIOD:

=CREDITORS * 360/CREDIT PURCHASES

RAW-MATERIAL STORAGE PERIOD (IN DAYS):

PARTICULARS 2007-08 2008-09 2009-10

RAW-MATERIAL 93631.68 114468.46 129967.85


CONSUMPTION

PER DAY RAW-MATERIAL 260.08 317.96 361.02


CONSUMPTION

AVERAGE STOCK OF RAW 236.985 341.85 471.85


MATERIAL

RAW-MATERIAL STORAGE 0.91 1.07 1.31


PERIOD

WORK-IN PROCESS CONVERSION PERIOD(IN DAYS)

PARTICULARS 2007-08 2008-09 2009-10


WORK-IN PROCESS 1902.08 2319.85 2539.55
INVENTORY

COST OF PRODUCTION 71441.49 91427.30 103972.69

WORK-IN PROCESS 10.64 9.57 10.82


INVENTORY
CONVERSION PERIOD

FINISHED GOODS INVENTORY CONVERSION PERIOD(IN DAYS)

PARTICULARS 2007-08 2008-09 2009-10

FINISHED GOODS 7866.88 12134.73 12252.00


INVENTORY

COST OF GOODS 71441.49 91427.30 103972.69


SOLD

FINISHED GOODS 39.64 47.78 42.42


INVENTORY
CONVERSION
PERIOD

DEBTORS CONVERSION PERIOD (IN DAYS)

PARTICULARS 2007-08 2008-09 2009-10

DEBTORS 7625.86 7437.28 5302.24

CREDIT SALES 107187.29 137212.35 169700.00

DEBTORS 25.61 19.51 42.42


CONVERSION
PERIOD

CREDITORS DEFERRAL PERIOD (IN DAYS)

PARTICULARS 2007-08 2008-09 2009-10

CREDITORS 12228.14 15322.54 19195.23

CREDIT PURCHASE 93690.87 114617.80 129967.85

CREDITORS 46.99 48.13 53.17


DEFERRAL PERIOD

OPERATING CYCLE (A+B+C+D-E)

PARTICULARS 2007-08 2008-09 2009-10


RAW-MATERIAL 0.91 1.07 1.31
CONVERSION
PERIOD(A)
WORK IN 10.64 9.57 10.82
PROCESS
INVENTORY
PERIOD(B)
FINISHED GOODS 39.64 47.78 42.42
INVENTORY(C)

DEBTORS 25.61 19.51 11.25


CONVERSION
PERIOD(D)
CREDITORS 46.99 48.13 53.17
DEFERRAL
PERIOD(E)
OPERATING CYCLE 29.82 29.81 12.63
(A)+(B)+(C)+(D)-(E) DAYS DAYS DAYS

RATIO ANALYSIS

[1] CURRENT RATIO

Current assets
Current Ratio = ________________

Current liabilities

YEAR CURRENT ASSETS CURRENT LIABILITIES RATIO=


CA/CL
06-07 19874.21 12106.54 1.64
07-08 28995.9 13892.41 2.08
08-09 28874.39 17798.69 1.62

[2] QUICK RATIO

Quick Ratio= Quick Assets


_____________
Quick Liabilities

YEAR QUICK ASSETS CURRENT RATIO


LIABILITY (Q.A/C.L)
06-07 10796.31 12106.54 0.89
07-08 13258.02 13892.41 .095
08-09 9433.42 17798.69 0.53

INTERPRETATION:
The quick ratio signifies more liquidity, and out of the three years, its was best in 2007-08.The ideal Quick Ratio is 1:1. . In AMUL the Quick
Ratio is less than 1 in all the three years. The reason is increase in the current liability.
[3] CASH RATIO

Cash Ratio= (Cash+Marketable securities)


_______________________________
Current Assets

YEAR CASH + BANK CURRENT ASSETS RATIO=


(CASH/CA)
06-07 224.93 19874.21 0.01
07-08 160.55 28995.9 0.005
08-09 584.65 28874.39 0.02

[4] DEBTORS TURNOVER RATIO

D.T.R= NET CREDIT SALES

AVERAGE ACCOUNTS RECEIVABLE


YEAR NET CREDIT SALES AAR RATIO=

NCS/AAR
06-07 81631.69 6759.24 12.07
07-08 107187.29 7625.77 14.06
137212.35 7437.28 18.45
08-09

INTERPRETATION:
From the above ratios we can say that AMUL’S Debtors remain outstanding for 12.07 days in 2006-07,14.05 in 2007-08,19.83 in 2008-09
respectively. The Collection period of Debtors is decreasing day by day. It is good sign for AMUL.

[4A] AVERAGE COLLECTION PERIOD

ACP=(AAR*365)/NCS

YEAR AAR*365 NCS RATIO=

AAR*365/NCS
06-07 6759.24*365 81631.69 30.22
07-08 7625.77*365 107187.29 25.96
08-09 6916.46*365 137212.35 18.39
[5] CREDITORS TURNOVER RATIO

CTR = NET CREDIT PURCHASE

______________________________

AVERAGE ACCOUNTS PAYMENT

YEAR NCP AAP RATIO=NCP/AAP


06-07 52312.16 387.93 134.84
07-08 93690.87 12228.14 7.66
08-09 114617.80 15322.54 7.48

INTERPRETATION:
From the above we can say that the payment of Creditors is outstanding by AMUL.134.84 days in 2006-07,195.84 days in 2007-08,237.01 days
in 2008-09. The payment period to Creditor remain same in every year. It is good for AMUL.
[5A] AVERAGE PAYMENT PERIOD

AAP= AVERAGE PAYMENT PERIOD*365

_____________________________________

NET CREDIT PERIOD

YEAR AAP*365 NCP RATIO=

AAP*365/NCP
06-07 387.935*365 52312.16 2.71
07-08 398.1*365 77965.56 1.86
08-09 397.81*365 94284.94 1.54

[6]CAPITAL TURNOVER RATIO

CTR= NET SALES


______________

CAPITAL EMPLOYED

YEAR NET SALES CAPITAL RATIO=NS/CE


EMPLOYED
06-07 81631.69 13572.19 6.01
07-08 107187.29 12367.04 8.66
08-09 137212.35 13499.5 10.16

INTERPRETATION:

It will be good if capital turnover ratio is increasing year by year,and it shows how efficiently AMUL has invested in
capital.

[7] TOTAL ASSETS TURNOVER

RATIO= NET SALES

_____________

TOTAL ASSETS

YEAR NET SALES TOTAL ASSETS RATIO=NS/TA


06-07 81631.69 25678.73 3.17
07-08 107187.29 35759.45 2.99
08-09 137212.35 36298.19 3.78

INTERPRETATION
From the above data we can say that in AMUL Total Asset Turnover is recovered 3.17 times in 06-07,2.99 times in 07-08,3.78 times in 08-09.
But in 2007-08 the Total Assets is increasing by 40% from 2006-07. So the turnover ratio is declining in that year.
[8] FIXED ASSETS TURNOVER

RATIO= NET SALES

_______________

FIXED ASSETS TURNOVER

YEAR NET SALES FIXED ASSETS NS/FAT


TURNOVER
06-07 81631.69 5371.69 15.19
07-08 107187.29 6122.97 17.50
08-09 137212.35 6888.25 19.91
INTERPRETATION
From the above ratio we can say that in AMUL Fixed Assets is recovered in 15.19 times in 06-07,17.50 times in 07-08,19.91 times in 08-09
respectively. We can say that the total Fixed Assets Turnover is increasing day by day. It is good sign for AMUL.

[9] CURRENT ASSETS TURNOVER

RATIO= NET SALES

______________
CURRENT ASSETS

YEAR NET SALES CURRENT RATIO=NS/CA


ASSETS
06-07 81631.69 19874.21 4.10
07-08 107187.29 28995.9 3.69
08-09 137212.35 28874.39 4.75

[10] NET WORKING CAPITAL TURNOVER

RATIO= NET SALES

__________________

NET WORKING CAPITAL

YEAR NET SALES NWC RATIO=

NS/NWC
06-07 81631.69 7767.67 10.50
07-08 107187.29 15103.49 7.096
08-09 137212.35 11075.7 12.3

INTERPRETATION
From the above we can say that AMUL is able to recover its Working Capital 10.50 times in 06-07,7.096 times in 07-08,12.3 times in 08-09
respectively. If working capital turnover ratio increases, it is good for AMUL as it can generate more and more sales.

[11] OWNER’S EQUITY TO TOTAL EQUITY

RATIO= OWNER’S EQUITY

_____________________

TOTAL EQUITY

YEAR OWNER’S TOTAL EQUITY RATIO=


EQUITY
OWNER’S/TOTAL
06-07 6208.48 13572.19 0.45
07-08 6492.09 12367.04 0.52
08-09 6698.98

[12] DEBT EQUITY RATIO

RATIO= LONG TERM DEBT

_________________________

SHAREHOLDERS EQUITY
YEAR LONG SHAREHOLDERS RATIO=
TERM
LTD/SHAREHOLDERS
DEBT
06-07 7363.71 6208.48 1.18
07-08 14873.32 6492.09 2.29
08-09 6800.52 6698.98 1.01

[12A] DEBT RATIO

DEBT RATIO= TOTAL DEBT

_________________

CAPITAL EMPLOYED

YEAR TOTAL DEBT CAPITAL RATIO=


EMPLOYED
TD/CE
06-07 7363.71 13572.19 0.54
07-08 14873.32 12367.04 1.20
08-09 6800.52 13499.5 0.50

[13]CAPITAL GEARING RATIO

RATIO= FIXED INCOME-BEARING FUNDS

_____________________________________

EQUITY

YEAR FIXED INCOME EQUITY RATIO=

FI/EQUITY
06-07 7363.71 6208.48 1.18
07-08 14873.32 6492.09 2.29
08-09 6800.52 6698.98 1.01

[14] FIXED ASSETS TO LONG TERM FUND

RATIO= FIXED ASSETS

____________________

LONG TERM FUND

YEAR FIXED ASSETS LONG TERM FUND RATIO=


FA/LTF
06-07 5371.69 7363.71 0.72
07-08 6122.97 14873.32 0.41
08-09 9888.25 6800.5 1.01

[15] INTEREST COVERAGE RATIO

RATIO= EBIT

____________

INTEREST

YEAR EBIT INTEREST RATIO=

EBIT/INTEREST
06-07 1131.64 705.14 1.60
07-08 1275.3 814.81 1.57
08-09 1802.6 1122.07 1.60

[16] RETURN ON CAPITAL EMPLOYED

RATIO= (RETURN*100)

__________________

CAPITAL EMPLOYED

YEAR RETURN*100 CAPITAL EMPLOYED RATIO=

RETURN*100/CE
06-07 1131.64*100 9500 8.33
07-08 1840.09*100 12367.04 14.87
08-09 1802.6*100 13499.5 13.35

INTERPRETATION

From the above data we can say that Return on Capital Employed,if the recover Ratio of Capital Employed in the business is increasing it is
good sign for AMUL.

[17] RETURN ON EQUITY

RATIO= (PAT-PREF.DIVIDEND)

________________________________

SHAREHOLDERS’ EQUITY
YEAR PAT-PREF.DIVIDEND SHAREHOLDERS’ RATIO=
EQUITY PAT/SHAREHOLDER

06-07 411.50 6208.48 0.066


07-08 451.51 6492.09 0.069
08-09 575.53 6698.98 0.085

[18] EARNING PER SHARE(EPS)

RATIO= NET PROFIT AVAILABLE TO EQUITY SHAREHOLDERS

_________________________________________________________

NO. OF EQUITY SHARES OUTSTANDING

YEAR NET PROFIT EQUITY SHARES RATIO=

NP/EQUITY
06-07 411.50 19800000 20.78
07-08 451.51 2229180 20.25
08-09 575.53 2265990 25.39
[19] DIVEDEND PER SHARE(DPS)

RATIO= PROFIT DISTRIBUTED TO EQUITY SHAREHOLDERS

_______________________________________________________

NO. EQUITY SHARES OUTSTANDING

YEAR PROFIT NO.EQUITY SHARES RATIO=

PROFIT/NO.EQUITY
SHARES
06-07 287.10 1980000 14.50
07-08 325.50 2229180 14.60
08-09 337.15 2265990 14.87

[20] DIVEDEND PAYOUT RATIO

RATIO= DIVEDEND PER SHARE

__________________________

EARNINGS PER SHARE

YEAR DPS EPS RATIO=


DPS/EPS
06-07 14.5 20.78 0.006
07-08 14.60 20.25 0.72
08-09 14.87 25.39 0.58
SUGGESTIONS
&
RECOMMENDATIONS
Suggestions & Recommendations

♦ The first and foremost recommendation to be made is to have a proper and well defined inventory management procedure and process.
♦ There is lot of undue wastage of raw materials as well as packing materials, which can be minimized if proper supervision and control is
there.

♦ Proper ABC classification would help in reducing the cash expenses also sufficient goods would be bought under each category.

♦ On the other hand, the required storage facility can be set up for different materials as required by them.

♦ A minimum stock level should be set up so that the firm does not run out of stock or do not have to handle the surplus stock.

♦ Since Amul’s chocolates are good in taste and also with high nutrition value, due to lack of marketing people get diverted to the
competitors’ brands rather than buying Amul’s chocolates.

♦ Lots of packing materials are wasted and no account of such looses is maintained, this makes people working there to resort to undue use
and hence wasting the materials.
Conclusion

Amul has developed itself to a great extent since its establishment. Still it has been trying hard to expand its activities and also to
diversify itself. There are very good opportunities lying ahead for Amul not only at the domestic level but also at the international front. Since
India is the largest producer of milk it can export its milk and dairy products to other countries and can help them nurture their nation with more
nutritious food.

There are certain points where the firm needs to take steps to check undue activities and wastages made by its employees.

Its working capital management is not as efficient as it should be. They have no well defined principles and policies through which they can
manage their working capital, so they can have policies for inventory management like ABC classification, EOQ level, Miller & Orr Model for
cash management. They can co-ordinate their receivables’ and payables’ standards so as to efficiently utilize cash and hence save interest paid
on Cash Credit taken form various banks. There are loopholes where the organization itself can get stuck up if not taken care of. But since last 60
years it has been working making profits all the way.

The year 2007-08, Amul has out performed in terms of milk receipts, sales turn over and profits. I expect the same trend would continue
for years to come. And this project would help Amul a lot.

In all, my experience at Amul was very good. I have learnt many practical things at Amul and how actually real time people work in
organizations.

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