SUMMER INTERNSHIP REPORT

ON
PROFITABILITY AND LIQUIDITY ANALYSIS
AT

Submitted in partial fulfillment of the requirements for

the degree of
Masters of Business Administration

IN

FINANCIAL SERVICES

(2016-2018)

SUBMITTED TO: SUBMITTED BY:

Avneet kaur Prabjeet kaur

2016MFB1003

UNIVERSITY BUSINESS SCHOOL

GURU NANAK DEV UNIVERSITY

AMRITSAR

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 DECLARATION
I hereby declare that the project work entitled “LIQUIDITY AND PROFITABILITY
ANALYSIS “submitted to the VERKA MILK PLANT, AMRITSAR in partial fulfillment of
the requirement for the award of the degree MBA in FINANCE is a record of project work
carried out by me under the guidance of MR. MANJIT SINGH.
I further declare that the work present herein is genuine work done originally by me and has not
submitted elsewhere for the requirement of degree.

Signature of the student

AMRITSAR Prabjeet kaur

DATE:

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 ACKNOWLEDGEMENT

I am using this opportunity to express my gratitude to everyone who supported me throughout

the course of this MBA project. I am thankful for their aspiring guidance, invaluably constructive
criticism and friendly advice during the project work. I am sincerely grateful to them for sharing
their truthful and illuminating views on a number of issues related to the project.

I express my warm thanks to Mr. MANJIT SINGH and Ms. MANGALI for their support and
guidance at VERKA MILK PLANT, AMRITSAR.

I would also like to thank my university “Guru Nanak Dev University, Amritsar” which
provided me with the facilities being required and conductive conditions for my MBA project.

Thank you,

PRABJEET KAUR

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 PREFACE
For management careers, it is very important to develop managerial skills. In order to achieve
positive and concrete results, along with theoretical concepts, the exposure of real life situation
existing in a corporate world is very much needed. Therefore, it becomes necessary to undergo
any project work. Practical supplement the theoretical studies i.e. it covers what is left uncovered
in classroom. It exposes a student to invaluable treasure experience.

I underwent summer training in VERKA MILK PLANT, located in Amritsar. It was my

fortune to get training in a very healthy company. I got great opportunity to view the overall
working of the organization. In the forthcoming pages, I have attempted to present a report
covering different aspects of my training.

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 TABLE OF CONTENTS
S.NO PARTICULARS PAGE NO.
1. CHAPTER 1 6-17
INTRODUCTION TO
PROJECT
2. CHAPTER 2
COMPANY
PROFILE 18-25
VERKA MILKFED
PLANT
3. CHAPTER 3 26-28
OUTLINE OF
STUDY
RESEARCH
METHODOLOGY
4. CHAPTER 4 29-34
LIQUIDITY AND
PROFITABILITY
ANALYSIS
5. CHAPTER 5 35-40
PRACTICAL DATA
ANALYSIS OF
COMPANY
6. CHAPTER 6 41- 43
FINDINGS
SUGGESTION

7. CONCLUSION 44-45
BIBILIOGRAPHY

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CHAPTER 1

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 INTRODUCTION
The dairy sector in the India has shown remarkable development in the past decade and India
has 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 co-operatives milk chilling centre operate
in the State.
With the increase in milk production, Maharashtra now regularly exports milk to neighboring
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.

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INDIAN DAIRY INDUSTRY

Dairy is a place where handling of milk and milk products is done and technology refers to the
application of scientific knowledge for practical purposes. Dairy technology has been defined as
that branch of dairy science, which deals with the processing of milk and the manufacture of
milk products on an industrial scale.
In developed dairying countries such as the U.S.A., the year 1850 is seen as the dividing
line between farm and factory-scale production. Various factors contributed to this change in
these countries, viz. concentration of population in cities where jobs were plentiful, rapid
industrialization, improvement of transportation facilities, development of machines, etc.
whereas the rural areas were identified for milk production, the urban 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 knowledg
e of the protection of milk during transportation, it became possible to locate dairies where land
wasless 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 in1956 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.

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 HISTORY OF INDIAN MARKET MILK INDUSTRY

Beginning in organized milk handling was made in India with the establishment of Military
Dairy Farms.
 Handling of milk in Co-operative Milk Unions established all over the country on a small
scale in the early stages.
 Long distance refrigerated rail-transport of milk from Anand to Bombay since 1945
Pasteurization and bottling of milk on a large scale for organized distribution was started at
Aarey (1950), Calcutta (Haringhata, 1959), Delhi (1959), Worli (1961), Madras (1963) etc.
Establishment of Milk Plants under the Five-Year Plans for Dairy Development all over India.
These were taken up with the dual object of increasing the national level of milk consumption
and ensuing better returns to the primary milk producer. Their main aim was to produce more,
better and cheaper milk.

DAIRY INDUSTRY IN INDIA

More than 2445 million people economically active in agriculture in the world, probably 2/3 or
even more ¾ of them are wholly or partly dependent on livestock farming. India is endowed
with rich flora & fauna and 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 agriculture sector.
Contribution of live stock sector to gross domestic product (percentage contribution)

1950-1951 1990-1991
63.5 67.0
12.0 16.0
4.1 3.1
1.3 0.3
16.5 10.0

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Live stock population:

No. of animals in thousands:

sheep goats Pigs chickens cattle buffaloes horses mules camels

45000 119242 11780 435 194655 79500 990 1742 1520

Milk production

1950 1996 1997 2020(projected)

17 million tones 70.8 million tones 74.3 million tones 240 million tones

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 DAIRY PLANTS

India’s modern milk supply goes back to December 15, 1950, when the AAREY MILK PLANT
in Bombay launched the supply of pasteurized and bottled milk on large scale for the first time in
India. Subsequently, over the years, the share of the organized sector increased after the
launching of OPERATION FLOOD in 1970.

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

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 RESOURCES: DAIRY PLANTS

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 1997or 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
Rs450 crores.

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 Vigor, 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

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whole lot of different flavors 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 Plant shave 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 pasteurized,
homogenized 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 crores during the previous year. It should be noted that the state government
has recently announced a new project in which78 bulk milk coolers are to be installed by the
central government at the level of milk cooperatives in the districts of Roper, Ludhiana,
Gurdaspur and Patiala under a Centrally Sponsored Scheme.

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 MILKFED-PUNJAB

The Punjab State Cooperative Milk Producers‟ Federation Limited popularly known as
MILKFED Punjab came into existence in 1973 with a twin objective of providing remunerative
milk market to the Milk Producers in the State by value addition and marketing of produce on
one hand and to provide technical inputs to the milk producers for enhancement of milk
production on the other hand. Although the federation was registered much earlier, but it came to
real self in the year 1983 when all the milk plants of the erstwhile Punjab Dairy Development
Corporation Limited were handed over to Cooperative sector and the entire State was covered
under Operation Flood to give the farmers a better deal and our valued customers better products.
Today, when we look back, we think we have fulfilled the promise to some extent. The setup of
the 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.

Vision
To become the most admired brand in the dairy sector and vibrant cooperative institution in the
country facilitating inclusive growth.

Mission
Ensuring prosperity to the milk producers by ensuring milk procurement at remunerative prices
around the year coupled with providing quality extension services for enhancing milk production
as well as reducing costs. Ensuring quality processing of milk and production of milk products in
a clean, hygienic manner and making them available to the consumers at reasonable prices
through excellence in marketing.

Objective

a) To ensure quality milk procurement at remunerative price coupled with improved animal
productivity for reducing cost of milk production for sustainable growth of the milk
producers.

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 b) To provide quality extension services at the door steps of milk producers
c) To ensure Quality Assurance in procurement, processing & marketing and enhancing
efficiency in the entire value chain
d) To ensure acquisition, development and retention of competent manpower
e) To improve fiscal management by optimizing the returns on capital
f) To ensure continual modernization in the entire value chain through effective leveraging
of technology
g) To embrace innovation in the entire value chain for consumer delight
h) To ensure continual expansion of distribution
i) To enhance brand equity

ACHIEVEMENTS OF MILKFED :

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.

1. MILKFED is providing technical input services like animal healthcare, supply of quality
cattle feed, fodder seeds etc. at the door step of the dairy farmers under its Productivity
Enhancement Programme.
2. For producing quality technical services MILKFED has established its own two cattle
feed plants having capacity of three hundred metric ton per day.
3. During the last 3 years, 8 milk plants and 2 cattle feed factories of MILKFED, Punjab
were accredited with ISO9002 and IS-15000(HACCP) Certification.
4. In view of today’s interest of consumers in getting quality and safe products, MLIKFED
is manufacturing quality milk and milk products as per International Standards and also
exploring the possibility of manufacturing milk products of consumer’s choice.
5. MILKFED has launched its own interactive Website on Internet for its prospective
customers which can be accessed by clicking http//www.milkfed.nic.in
6. MILKFED introduced liquid milk in new design packing with Mnemonic Symbol of Co-
operative milk in all the Districts Milk Unions

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CRITICAL ANALYSIS OF MILKFEED

Corporate focus

MILKFED is serving the cause of milk producers of the state in collaboration with
national dairy development board by increasing the number of functional MPCSs from 4643 in
19990-91 to 6248 in 2000-01 and their membership rose by 90000 from 2.62lac in 1991 to
3.53lac during the same period. This has resulted in increase of milk procurement from 14381lac
in 1991 to 3371lac liter in 2000-01. However, rehabilitation plan of sick milk unions has yet to
reach the implementation stage.

Strength/care competency/opportunities:

MILKFED earned a net profit of Rs.3.19crore in 2000-01. Its core competency in

marketing of milk and milk products by creating a marketing infrastructure is serving a social
purpose by providing income to land less laborers small and marginal farmers scheduled caste
families and households headed by women having just one or two cattle only as nearly 90% of
the member of Milk producer’s Cooperative Societies belong to these categories (Annexure 20)
“Operation Flood” programmed of dairy development is implemented by it in the state.

MILK VISION 2004 to stabilize the gap between Milk procured during peak season and
lean season has been drawn by MILKFED to optimally utilize Milk plants for reducing their
losses. Moreover, model dairy farms in collaboration with technology information and
assessment council (TIFAC) are being developed by it at a capacity outlay of Rs.2.00crore.

Restructuring/revival of MILKFED-

Export Ropar and Ludhiana Milk unions the remaining 9 unions are incurring losses.
Their combined accumulated losses are Rs.76.33crore as on 31-03-2001. This way, cooperative
Milk union’s structure of MILKFED is losing its commercial viability over last two years by
restricting itself to sale of milk and milk products only and exploiting it well developed
procurement sale and supply distribution channels to market fresh vegetables and fruits along
with processing and procurement of oil seeds. To make these plants viable and socially
sustainable the introduction of latest technology in milk plants and full exploitation of its
marketing strength in procurement and marketing network is need of the hour. MILKFED is a
vital mechanism for more than one reason in the Punjab context. First and foremost it is engaged
in raising the viability of agriculture of the small/marginal farmers. Landless labors, families
with no male earners and the scheduled castes. It is therefore pf utmost importance that the
Government of Punjab make its due contribution for the purpose of leveraging finances or the
national dairy development board and other cooperative institutions.

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Products

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

Verka products consist of following varieties:

1) Milk
2) Cheese
3) Drinks
4) Ghee and butter
5) Ice cream and sweets
6) Milk powder
7) Fresh products
8) Packing

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Chapter 2

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 VERKA MILK PLANT AMRITSAR

COMPANY PROFILE: HISTORY AND DEVELOPMENT

Verka Milk Plant, Amritsar was the first Milk Plant established in the Northern region. The
foundation stone of the plant was laid by the then Honorable Chief Minister of Punjab, S. Partap
Singh Kairon on 20th August, 1959. The plant was inaugurated by Dr A.M Thomas, then
Deputy Minister of Food & Agriculture, Government of India on 23rd March, 1963. The
equipment of the plant was gifted by the United State of America, thus assisting and providing
the Indian People with a more nutritious diet containing nature’s most perfect food.

In the beginning, the processing capacity of the plant was 60,000 LPD, with 5.0 MT per day
drying capacity & 10,000 liters Liquid Milk Supply under the control of Punjab Government.
This was the first Composite Milk Plant in Northern India and was established at the Verka
Village on the outskirts of Amritsar city. Therefore the brand name of all the products was
named as ‘VERKA’ which is internationally famous brand name for Milk Products.

In 1966, its control was transferred to the Punjab Dairy Development Corporation Limited and
then further transferred to Milkfed Punjab under Cooperative Sector in 1983. The Amritsar
District Coop. Milk Producers’ Union Limited was established and registered on 28.2.1979 and
started functioning on 01.07.1988. The product range includes Pouch Milk, Ghee, Skimmed
Milk Powder, Curd, Sweetened Flavored Milk (PIO), Paneer, Milk cake, Panjiri, Lassi & Kheer,
etc.

Keeping in view the milk production in the milk shed area of Amritsar, the processing capacity
of the plant was expanded to 1.5 Lac (LPD) in 1998 and drying capacity 10.0 MT/day to
facilitate the producers and cope up with quality standard. The milk shed area of this union has
been covered with six established milk chilling centres namely MCC Mehta, Patti, Lopoke,
Bhathal Sehja Singh, Khadoor Sahib, Fatehgarh Churian & four in the hired locations namely
Bhikhiwind, Ajnala, Tahli Sahib and Kukrawala. In addition to this, Milk Union has also
installed 51 BMCs and 79 AMCs at different MPCS. Nowadays, 731 MPCS and 300
commercial dairy Farmers are pouring milk to this plant. Milk Union is providing A.I facilities to
452 milk producers’ cooperative societies through 125 cluster centres and 2 Single A.I centres.

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In addition to this, 29 cluster A.I centres have been established in the border area of District
Tarntaran and Amritsar covering 227 villages of eight blocks.

The plant is supplying Verka Milk and Fresh Milk Products to the following reputed Institutions
in Amritsar and around, namely Central Jail No. 1,2, & 3, Pingalwara Amritsar, Police Line
Amritsar, Central Chief Khalsa Diwan, Meri Peri Academy, Javahar Navodaya Vidyala Lapoke,
B.H.E.L Goindwal, SSP Police Line Daburji and many army camps of BSF.

BOARD OF DIRECTORS

Sr. No Zone Director Address

S. Ajaib Singh C/o MPCS Gagomahal,

1 Zone-1
S/O S. Mukhtiar Singh Distt. Amritsar

S. Ratan Singh C/o MPCS Bhagupur Uttar,

2 Zone-2
S/o S. Bawa Singh Distt. Amritsar

S. Narinder Singh C/o MPCS Salimpura

3 Zone-3
S/o S. Sukhdev Singh Distt. Amritsar

S. Joginder Singh C/0 MPCS Dudhala,

4 Zone-4 P.O.Talwandidasaunda Singh, Distt.
S/o S. Santokh Singh Amritsar

C/o MPCS
S. Navdeep Singh
5 Zone-5 Noorpur,P.OKhabeRajpootan,
S/o S. Sukhdev Singh
Distt. Amritsar

S. Milkha Singh C/o MPCS Chicha,

6 Zone-6
S/o S. Gurdip Singh Distt. Amritsar

S. Chanchal Singh C/o MPCS Bhalaipur Dogran,

7 Zone-7
S/o S. Ajit Singh Distt. Tarntaran

8 Zone-8 S Balbir Singh C/o MPCS Bath,

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 S/o S. Hera Singh Distt. Tarntaran

S. Yadwinder Singh C/o MPCS RoureAssal,

9 Zone-9
S/o S. Pargat Singh Distt. Tarntaran

S. Harjit Singh C/o MPCS Jagtpura, P.O SarhaliKalan,

10 Zone-10
S/o S. Maghar Singh Distt. Tarntaran

S. Palwinder Singh C/o MPCS Jodh Singh Vala,

11 Zone-11
S/o S. Kartar Singh Distt. Tarntaran

S. Gurbinderbir Singh C/o MPCS Pringri,

12 Zone-12
S/o S. Gurbachan Singh Distt. Tarntaran

S. Daljit Singh VPO Mattewal,

13 Zone-13
S/o S. Sardool Singh Distt. Amritsar

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ORGANIZATION STRUCTURE

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 MILK HANDLING AND PRODUCTION CAPACITIES

Sr. MILK HANDLING AND PRODUCT CAPACITIES - MILK UNION

No. AMRITSAR

1 City Supply 50000 Liters per day

2 Dahi 3 MT/day

3 Lassi 9 MT/day

4 Paneer 400 KGs per day

5 Kheer 600 KGs per day

6 Ghee 5 MT/day

7 Powder Plant 10 MT/day

8 Sweetened Flavored Milk 10000 Bottles/day

9 Panjiri (CDPO) 5 MT/day

10 Table Butter 1 MT/day

TOTAL MILK HANDLING 160000 Liters per day

CAPACITY

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GROWTH

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PRODUCTS

Product* Packing Variant Capacity

Full Cream
Pouch ½ ltr
Milk
Pouch Standard Milk ½ ltr
Milk
Pouch Toned Milk ½ ltr, 250 ml
Double toned
Pouch ½ ltr
milk
100 gm, 200 gm,
Cup Cup
400 gm
Dahi
Cup Raita 400 gm

Pouch Pouch lassi ½ ltr

Pouch Mithi lassi 200 ml
Lassi
Pouch Spiced lassi 250 ml

100 gm,200 gm,

Paneer Packed Paneer
5 kg

Kheer Cup Cup 125 gm,200 gm

½ ltr, 1 ltr, 2 ltr,5

Ghee Tin Tin
ltr, 15 kg tin

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CHAPTER 3

26 | P a g e
OUTLINE OF THE STUDY

Profitability and liquidity analysis 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 statements of the firm. The motive behind the study is developing an
understanding about accounts department and financial statement. It is also helpful in gaining the
knowledge about the accounts.

SCOPE OF THE STUDY

The study is conducted at “Verka Milk Plant Amritsar” Punjab for the period of 45 days. The
study is based on secondary data and all the information is available within the plant itself in the
forms of records. I have personally investigated the financial statements of the plant. So the
scope of study is limited up to the availability of officials’ record and the information provided
by the staff of accounts department.

OBJECTIVE

1) The primary objective of taking up the project was to gain insight and have as much as
practical knowledge in the financial statement prepare in the plant.
2) To know the present financial position of the plant through the analysis of liquidity and
profitability.
3) To find out whether the plant has maintained the necessary records in proper manner
4) To analyze the financial statements of the plant
5) To analyze the quality of products and their prices

LIMITATIONS OF THE STUDY

1) It is very difficult to get the financial statement from the plant as no one given its correct
figures.
2) As it is the government corporation, so nobody has sufficient time to attend trainees.
3) It is very difficult to analyze the financial statements without the help of the trainers.
4) There is no separate training department.

27 | P a g e
 5) Due to lack of staff there is no proper work cycle in plant.

METHODOLOGY
The information is collected through secondary sources during the project. That information was
utilized for calculating performance evaluation and based on that, interpretations were made.

SOURCES OF SECONDARY DATA:

1. Most of the calculations are made on the financial statements of the plant provided
statements.

2. Referring standard texts and referred books collected some of the information regarding
theoretical aspects.

28 | P a g e
CHAPTER 4

29 | P a g e
 PROFITABILITY AND LIQUIDITY ANALYSIS
Financial analysis is the process of identifying the financial strengths and weaknesses of the firm
and establishing relationship between the items of the balance sheet and profit & loss account.

Liquidity and profitability analysis is the calculation and comparison of ratios, which are derived
from the information in a company’s financial statements. The level and historical trends of these
ratios can be used to make inferences about a company’s financial condition, its operations and
attractiveness as an investment. The information in the statements is used by

 Trade creditors, to identify the firm’s ability to meet their claims i.e. liquidity position of
the company.

 Investors, to know about the present and future profitability of the company and its
financial structure.

 Management, in every aspect of the financial analysis. It is the responsibility of the

management to maintain sound financial condition in the company.

LIQUIDITY
The term liquidity is defined as the ability of a company to meet its financial obligations as they
come due. The liquidity ratio, then, is a computation that is used to measure a company's ability
to pay its short-term debts. There are three common calculations that fall under the category of
liquidity ratios which are

 Current ratio
 Quick ratio
 Cash ratio

These three ratios are often grouped together by financial analysts when attempting to accurately
measure the liquidity of a company.

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CURRENT RATIO

1) The current ratio is balance-sheet financial performance measure of company liquidity.

2) The current ratio indicates a company's ability to meet short-term debt obligations.
3) The current ratio measures whether or not a firm has enough resources to pay its debts
over the next 12 months.
4) The current ratio can also give a sense of the efficiency of a company's operating cycle or
its ability to turn its product into cash. The current ratio is also known as the working
capital ratio.
5) The current ratio is calculated by dividing current assets by current liabilities.
current ratio = Current Assets / Current Liabilities
6) The higher the ratio, the more liquid the company is. Commonly acceptable current ratio
is 2. Acceptable current ratios vary from industry to industry.
7) Low values for the current ratio (less than 1) indicate that a firm may have difficulty
meeting current obligations.
8) If the current ratio is too high (much more than 2), then the company may not be using its
current assets or its short-term financing facilities efficiently. This may also indicate
problems in working capital management.

QUICK RATIO
1) The purpose of this ratio is to measure how well a company can meet its short-term
obligations with its most liquid assets.
2) Liquid assets are those that can be quickly turned into cash. Most of the current assets are
highly liquid with the exception of inventory, which often takes a longer amount of time
to turn into cash.
3) The formula for calculating the acid ratio
Quick Ratio = (Current Assets – Inventory) / Current liabilities
4) If the value of the quick ratio is less than 1, then a company is not stable and may face
difficulty is paying off their debts.
5) The biggest advantage of acid-test ratio is that it helps the company in understanding the
end results very feasibly.

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 6) The only major issue with the quick-test ratio is its dependence of the accounts receivable
and current liabilities which can cause trouble.
7) A minor mistake in the calculation can just destroy and conclude misleading outcomes.

CASH RATIO

1) Cash ratio is the ratio of a company's cash and cash equivalent assets to its total
liabilities.
2) Cash ratio is a refinement of quick ratio and indicates the extent to which readily
available funds can pay off current liabilities.
3) Cash ratio is the most stringent and conservative of the three liquidity ratios (current,
quick and cash ratio). It only looks at the company's most liquid short-term assets – cash
and cash equivalents – which can be most easily used to pay off current obligations.
4) Cash ratio is calculated by dividing absolute liquid assets by current liabilities:
Cash ratio = Cash and cash equivalents / Current Liabilities

5) Cash ratio is not as popular in financial analysis as current or quick ratios, its usefulness
is limited. There is no common norm for cash ratio. In some countries a cash ratio of not
less than 0.2 is considered as acceptable.

PROFITABILITY

Profitability is the ability of a business to earn a profit. A profit is what is left of the revenue a
business generates after it pays all expenses directly related to the generation of the revenue,
such as producing a product, and other expenses related to the conduct of the business activities.

There are many different ways for you to analyze profitability. The method used to analyze the
profitability is profitability ratios, which are a measure of the business' ability to generate
revenue compared to the amount of expenses it incurs.

Profitability ratios are:

 Gross profit ratio

 Net profit ratio

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  Operating profit

 Return on investment

GROSS PROFIT RATIO

1) Gross profit margin (gross margin) is the ratio of gross profit (gross sales less cost of
sales) to sales revenue.
2) It is the percentage by which gross profits exceed production costs. Gross margins reveal
how much a company earns taking into consideration the costs that it incurs for
producing its products or services.
3) Gross margin is a good indication of how profitable a company is at the most
fundamental level, how efficiently a company uses its resources, materials, and labor.
4) It is usually expressed as a percentage, and indicates the profitability of a business before
overhead costs; it is a measure of how well a company controls its costs.
5) Gross margin measures a company's manufacturing and distribution efficiency during the
production process. The higher the percentage, the more the company retains on each
rupee of sale of goods and services.
6) Gross margin is calculated as gross profit divided by total sales (revenue).
Gross profit margin = Gross profit / Revenue

NET PROFIT RATIO

1) Net profit ratio is a ratio of profitability calculated as after-tax net income (net profits)
divided by sales (revenue).
2) Net profit ratio is displayed as a percentage. It shows the amount of each sales money left
over after all expenses have been paid.
3) Net profit ratio is a key ratio of profitability.
4) It is very useful when comparing companies in similar industries. A higher net profit ratio
means that a company is more efficient at converting sales into actual profit.
5) Net profit ratio can be calculated from following formula
Net profit ratio= Profit (after tax) / Revenue

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OPERATING RATIO
1) Operating profit is also known as EBIT and is found on the company's income statement.
EBIT is earnings before interest and taxes.
2) The operating profit margin looks at EBIT as a percentage of sales.
3) The operating profit margin ratio is a measure of overall operating efficiency,
incorporating all of the expenses of ordinary, daily business activity.
4) The calculation is: Cost of goods sold + Operating expenses / Net Sales

RETURN ON INVESTMENT
1) Return on investment (ROI) is performance measure used to evaluate the efficiency of
investment.
2) It compares the magnitude and timing of gains from investment directly to the magnitude
and timing of investment costs.
3) It is one of most commonly used approaches for evaluating the financial consequences of
business investments, decisions, or actions.
4) If an investment has a positive ROI and there are no other opportunities with a higher
ROI, then the investment should be undertaken. A higher ROI means that investment
gains compare favorably to investment costs.
5) To calculate return on investment, formula is
Return on Investment = Net profit after interest and tax / Total Assets

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CHAPTER 5

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 PRACTICAL DATA ANALYSIS OF COMPANY

Liquidity ratio
Liquidity refers to the ability if a firm to meet its current obligations as and when these become
due. The short term obligation are met by realizing amounts from current, floating or circulating
assets.

Following are the ratios which can help to assess the ability of a firm to its current liabilities.

a) Current ratio
b) Acid/quick/liquidity ratio
c) Absolute liquid ratio

a) Current ratio
It is a ratio which expresses the relationship between the total current assets and current
liabilities. It measures the firm’s ability to meet its current liabilities. It indicates the
availability of current assets in rupees for every one rupee of current liabilities. A ratio of
greater than one means the firm has more current assets than current liabilities claims against
them. A standard ratio between them is 2:1.

CURRENT RATIO =CURRENT ASSET/CURRENT LIABILITIES

Year Current assets Current liabilities Current ratio

2011-2012 191047797.86 249445569.73 0.76
2012-2013 233682561.32 281125304.00 0.83
2013-2014 323039369.01 213737081.46 1.511
2014-2015 303484582.15 302196762.91 1.004
2015-2016 342084205.87 330350572.39 1.035

Interpretation:

It is seen from the above data that company’s current ratio in the year 2012 is 0.76 and in year
2013 is 0.83, in year 2014 is 1.51, in year 2015 is 1.004 and in year 2016 is 1.035. So it is
understood that company is improving its ability to pay off its liabilities. As the current ratio is
increasing year by year. Only in year 2015 it has shown a decline but it again recovered in year
2016 by improvement in current ratio.

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 b) Acid ratio/ quick ratio:
Thus ratio establishes a relationship between quick/liquid assets and current liabilities. It
measures the firm’s capacity to pay off current obligations quickly. An asset is liquid if it can be
converted in to cash immediately without a loss of value. Inventories are considered to be less
liquid. Because inventories normally require some time for realizing into cash. The ratio is also
known as acid test ratio. The standard quick ratio is 1:1 is considered satisfactory.

Quick ratio = Quick assets (current assets - inventory)

Current liabilities

Year Current assets Inventory Quick assets Current Quick ratio

liabilities
2011-2012 191047797.86 173938054.93 17109742.93 249445569.73 0.068
2012-2013 233682561.32 198627818.35 35054742.97 281125304.00 0.124
2013-2014 323039369.01 178080860.22 144958508.79 213737081.46 0.67
2014-2015 303484582.15 221169607.91 82314974.24 302196762.91 0.27
2015-2016 342084205.87 259232232.03 82851973.84 330350572.39 0.25

Interpretation:

During the year 2011-2012 quick ratio was 0.068 and in year 2012-2013 it increased to
0.124 and again in further years it increased. But in year 2014-2015 it showed a slight decrease
with 0.27 and in 2015-2016 again it decreased with 0.25. This shows that companies liquidity
position is not adequate and it need to improved.

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 c) Absolute liquid ratio:
It may be defined as relationship between Absolute liquid assets and Current liabilities. Absolute
liquid assets include cash in hand and cash at bank. The standard ratio is 0.5:1.

Absolute liquid ratio= Cash and bank balance

Current liabilities

Year Cash and Bank Current liabilities Absolute liquidity

balance ratio
2011-2012 3320061.42 249445569.73 0.013
2012-2013 3340417.53 281125304.00 0.011
2013-2014 97458327.23 213737081.46 0.455
2014-2015 41257190.38 302196762.91 0.136
2015-2016 38574447.81 330350572.39 0.116

Interpretation:

It is seen from the above information that in year 2011-2012 the company has absolute
ratio of 0.013 but it got decreased in year 2012-2013 to 0.011. In year 2013-2014 the absolute
ratio was appropriate but again it decreased in next year’s i.e., 2014-2016. So it can be concluded
that company needs to improve its absolute ratio so as to pay off its liabilities timely.

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Current Asset to Fixed Asset Ratio:

The level of current assets can be measured by relating current assets to fixed assets. Assuming a
constant fixed asset level, a higher CA/FA ratio indicates conservative current assets policy and a
lower CA/FA ratio mean aggressive current assets policy assuming other factors to be constant.
Higher CA/FA ratio indicates greater liquidity and lower risk while an aggressive policy
indicates higher risk and poor liquidity. Usually, the current asset policy of firm may fall
between these two extreme policies. The following diagram

CA/FA Ratio of Milk Plant Verka

2012 = CA/FA = 56387943/26572323 = 2.122

2013 = CA/FA = 76839077/32630787 = 2.35

2014 = CA/FA = 46135091/35076019 = 1.31

2015 = CA/FA = 80857102/59491574 = 1.35

2016= CA/FA = 303509758/149946992 = 2.02

The CA/FA ratio is high in 12,13,16 but in 14,15 this has decreased this means that firm is
following conservatives policy in 12,13 but has changed its policy to aggressive in 14,15. This
means the portion of fixed assets is financed by current assets in 14, 15.

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PROFITABILITY ANALYSIS

Return on Total Assets in Milk Plan:

(Net Profit/Total Assets)

2012 = -1404399(LOSS)/121648196 = 0.01

2013 = 1508436/144813049*100 = 1.041

2014 = -4079389/128732768 = 0.03

2015 = -4079389/190187420 = 0.02

2016 = 19037236.98/759035546.87 = 0.02

So, net profit is only in 2013. Investment in Current assets and fixed assets is high. But
investment in current assets is more than fixed assets and return is less. This means that
investment is stock in hand is lying idle and investment in fixed assets is very high giving less
returns.

100% Liquidity Low Risk No Earning

More Earning High Risk No Liquidity

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CHAPTER 6

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 PERFORMANCE OF PLANT

Plant has rated capacity of 60,000 litres of milk per days which was raised to 100000 litres per
day from 11/98 onwards which is shown:

VERKA DAIRY, AMRITSAR (Rs. IN LACS)

YEAR 2010-11 2011-12 2012-13 2013-14 2014-15 2015-16 2016-17

Sales of
milk and
milk 8,946.48 10,761.45 12,031.37 12,933.97 14,343.05 16,015.28 18,210.96
products

Profits
& losses 97.93 18.38 26.90 45.25 51.02 190.37 211.84

REASON OF LOSS:

1) Union has suffered loss due to coal shortage.

2) Bad and doubtful debts amounting to Rs.12130.80 has been assessed during 96-97.
3) Union has provided depreciation on furniture and fixture and other stock at book value.
4) Previous year there was loss of Rs.2578865 but increased by Rs. 150524 as compared to
last year due to increase in consumption expenditure on fuel, packing, material, steam
coal, power, building’s repair and maintenance, plant and machinery’s repair and
maintenance, salary and wages. Profitability of the union has been directly affected due
to the burden of heavy expenditure incurred under above heads.

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OBSERVATIONS

There are many things which can be observed. Apart from the main topic there were many other
aspects related to FINANCE in the Verka plant which came into light not only through my topic
but also through a small interaction with workers. The main observations are:

1) Workers are promoted on the basis of experience.

2) Mostly employees are satisfied with policies related to welfare.
3) Jobs because of promotion and salary policies.
4) Workers in Verka are very punctual.
5) Cooperation can be seen from upper level to lower level.
6) No specific qualification is required to work as a workmen or an operator in the plant.
7) Experience of working come by working under somebody else’s supervision and initially
no formal training is provided to any worker.
8) FINANCE department is less active.

LIMITATIONS

Following are the limitations of various departments:

1. Excess work load on managers who handle more than one department.
2. No proper working conditions are there for workers. In one room there are 9 to 12
persons who sit and work. This creates lot of disturbances, lack of concentration on work
and ultimately inefficiency.
3. No workers participation in management.
4. No proper white wash is there, lack of furniture and improper sitting arrangement.
5. The food supplied to workers in canteen is not of good quality.
6. Unit’s gross profits are not sufficient to cover all other indirect expenses and thus it has
led to net losses.
7. The record keeping system is very bad. Most of the records are lying improperly in racks
and almirahs full covered with dusts.

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SUGGESTIONS

1) Better working conditions should be created in order to increase the efficiency of

workers.
2) Work should be assigned to worker as per their qualifications.
3) Management should avoid the useless expenditure and losses due to strikes or other
reasons so that profits can be maximized.
4) Workers are to be allowed to give their advice on the matters which affect them.
5) There should be proper coordination among different departments so that efficiently work
can be done.
6) Food quality in the canteen should be improved and better working conditions should be
provided.
7) Proper check on attendance of workers should be there.

SUMMARY OF FINDINGS AND CONCLUSIONS

I observed that this plant provides the milk products to citizen of Amritsar city and overall to
Indians. All sections have their personal steno typist for issuing any kind of statement to other
sections or Milkfed office Chandigarh. There are co-ordinal relationship between workers and
officers. All the sections are playing a good role in their activities.

The financial status of the company Verka is not much good it is satisfactory. On the
whole the company has shown little improvement in recent years and needs to continue with the
improvement

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BIBILIOGRAPHY

 Companies financial reports.

 Finance manager assistance.
 Magazine of Verka Milkfed plant.

Websites
 www.readyratios.com
 www.study.com
 globaljournals.org

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