Final Project Report Omfed

Financial statement analysis

Industry analysis

The history of Indian Milk Products is perhaps as old as Indian civilisation itself. Even as our ancestors began to domesticate milch animals, they found innovative ways to convert highly perishable milk into more stable and longer lasting milk products. It is a part of Indian culture to revere cows, and Kings of yore often gifted cattle as rewards to their kinsmen. Therefore, it is not surprising that Indians have a deep rooted tradition of using milk and milk products. It Orissa state co-operative milk producer’s federation limited (OMFED) 1

Financial statement analysis is a customary practice to grace Indian ceremonies and functions with ghee, butter and sweets. From time immemorial, India's traditional foods with their extraordinary variety and richness have served people's needs for nutrition and sound health. Within this wide range, dairy products from different regions of the country have provided a wide array of sweets and other specialties that are a gourmet's delight. These also meet the needs for proteins and calcium in people's daily diet. The story of Indian mithais is literally of epic proportions.

From time immemorial, the foundation of our milk production has been in hands of the landless farmers in villages. At the same time, the processing of milk into dairy products has been handled by millions of village "halwais" and their street-corner counterparts in towns and cities. These two groups form the core of the traditional dairy sector, the largest and fastest growing sector of Indian dairying. The value of its products exceeds Rs. 50,000 crores per year. When we say 'Indian' milk products we tend to distinguish such products from Western milk produ products cts such such as cheese cheese,, yogurt yogurt,, ice-cre ice-creams ams,, sweeten sweetened ed conden condensed sed milk milk and butter butter oil. oil. However, we do have parallels for all such western products in the form of paneer, paneer, curd/lassi,

kulfi, rabri and ghee. Perhaps, the only major western milk product where it is difficult to draw comparisons is milk powder. In the days following Independence, we have generally concentrated our efforts in encouraging milk production through marketing of liquid milk, either as fresh milk or with the help of recombining milk powder and white butter. This was done for three reasons. Firstly, to encourage consumption of liquid milk since it provides nutrition in a more wholesome manner as compared to milk products. Secondly, as compared to value added milk products, liquid milk has always remained far more affordable. Thirdly, liquid milk has always been in demand for use as a whitener with tea and coffee. Traditional milk products represent the most prolific segment of our Indian Dairy Industry. Despite the immens immensity ity of volume volume of milk milk handle handled, d, prepar preparatio ation n and marketi marketing ng are confin confined ed to the unorga unorganiz nized ed sector sector.. Since Since most most of the wester western-t n-type ype dairy dairy produ products cts manufac manufacture tured d by the organized sector of the Dairy Industry are reaching near saturation level in the existing domestic and international markets, the entire range of Indian milk products represent the most promising venue for diversification. Furthermore, Dairying has played a prominent role in strengthening our rural economy. It has been recognized as an instrument to bring about socio-economic transformation by helping the landless and marginal farmers.

Orissa state co-operative milk producer’s federation limited (OMFED) 2

Financial statement analysis One weak link in the otherwise sound growth of dairying has been the general neglect that the traditi traditiona onall milk milk proces processin sing g method methodss has receive received d from from the modern modern sector sector.. Althou Although gh the processes of making sweets have undergone continuous change, the time has now come to integrate traditional methods with modern culinary technology to meet consumer demands for better better standa standardiz rdized ed quality quality,, longer longer shelf-l shelf-life ife and greate greaterr conven convenien ience. ce. A sociall socially y responsive approach and more purposeful application of scientific and industrial techniques is require required d to rebuil rebuild d our age-old age-old practic practices es to ensure ensure the manufa manufactu cture re of indige indigenou nouss milk milk products products of uniformly uniformly high quality quality. However, However, in the past three decades, considerable considerable R&D work has been done to bring about the much-needed value addition in the making of these age-old milk delicacies. Various R&D groups in different parts of the country have initiated steps to meet these needs. As a result, result, better processes, processes, equipment, equipment, packaging materials and systems have been developed. For sustaining further development, Nation's Dairy Industry would have to cope with the rapid transformations that are taking place in the world economies, consequent to the GATT Agreement. Agreement. International International trade is being strongly strongly regulated by the WTO guidelines. guidelines. Newer and stricter sanitary and phytosanitary standards are being formed for regulating quality param parameter eterss of the export export produ products cts.. Under Under these these newly newly emergi emerging ng circums circumstan tances ces,, qualit quality y standards for production and processing milk cannot remain at variance with the international standards. The superior quality of dairy products coupled with concerns for environment and product safety will require significant changes in the way milk products are produced and packaged. India would have to critically assess the changing global scenario if the Nation's Dairy Industry wishes to turn the opportunities in our favour. Over Over the years, years, effort effortss at expand expanding ing liquid milk milk availa availabili bility ty — throug through h increas increased ed milk milk production — has resulted in per capita availability of liquid milk growing from 107 grams per day in 1970 to a current level of more than 246 grams per day. The opportunity provided by increased availability of liquid milk can now be used for efficiently manufacturing and marketing Indian milk products with long shelf life. This will help in tapping the potential demand for Indian milk products in both the domestic and foreign markets. All these things could happen with a quality quality assurance of raw material material and technical technical human resource training at different levels. This can only be achieved by an appropriate appraisal and awareness to be brought on a very large scale since this is a highly dissipated industry and has its origin from tiny, cottage all the way to large scale industry. The Indian milk products also need to be addressed in terms of value addition and in terms of bringing the


Financial statement analysis tradition and processing itself and extension of shelf life for the ethnic tongue around the world.

It can easily assume assume that this is a very important important contribution contribution that we could do to the rest of the world through promoting the Indian milk products both from the taste angle as well as the health angle. In this context, we also require dedicated workers with emphasis on packaging with a clear mandate of once again the concepts of quality and safety engulfed into it. The Indian equipment manufacturers, many of them who are of international standards, could really make a difference in the overall impact of this industry through adaptable equipments.

As we know the market for the 80 million tonnes of milk in India, the figure of 100 million tonnes tonnes does not seem to be far away. away. We need to strategically strategically plan all this into food safety, safety, food security including nutrition to convert the dairy industry in the market into a very profitable sector, thus ensuring the industry stability on the one hand and the production stability on the other hand.

Time has come for the second phase of the White Revolution to focus on the traditional milk products by the application of modern technology for their large-scale production. One new revolution that India has embarked on is the industrial scale production of hitherto handmade traditional milk products. Recent innovations in technology tec hnology are having a wide-ranging impact on the growth of dairying. These technical advances are creating new economic opportunities par excellence for a range of agribusiness enterprises to expand avenues for enhanced income in India. Beneficiaries of these innovative technologies are India's 70 million milk producers, largely women, who look after cows, as they have done from time immemorial. This group includes a large number from non-farm sector who are landless and have limited livelihood options. Dairy industry in Orissa

The prospect of improving the dairy income in the state of Orissa, which is one of the poorest states in India, is highly vital for f or small-scale producers, which currently form the backbone of the dairy industry. a study has been developed by an International Farm Comparison Network (IFCN) which is based on the concept of Â‘typical farmsÂ’. Three broad farm types were selected to represent 'typical farms' in the state: farms stall feeding two dairy animals (buffalo or local cattle), representing the most common farm type found in the state, farms with six Orissa state co-operative milk producer’s federation limited (OMFED) 4

Financial statement analysis dairy animals, located in peri-urban areas benefiting from good market access, and rural farms practicing a form of pastoral production system in areas where communal grazing land is available. Each farm is described described in detail with assets, production production costs, costs, profits and other economic information presented both graphically and in the text. A comparison with similar farms in the state of Haryana is provided. The study finds that all farms cover the dairy cash costs but that on the smaller farms returns to family labour are below local wage rates. Howev However, er, the the smal smalll scal scalee dair dairyy farms farms will will pers persis istt as long long as alter alterna nati tive ve empl employ oymen mentt opportunities for family labour are scarce. It also appears that there is a large potential to reduce milk production costs of smallholder dairy farming and increase family farm income through milk production by better breed, feed and herd management. Although milk yields in Orissa are much lower than in Haryana, farmers in Orissa produce milk at competitive costs due to lower land costs and lower wage rates. The availability of grazing land in Orissa and cheaper feed also contributes to lowering the costs of milk production. Smallholders using buffalo for milk production in Orissa were found to be more cost competitive than similar farms in Haryana. Hence suitable strategies to promote such buffalo-based systems should have potential for improving the production and competitive position of dairying in Orissa.



Organisation analysis

Being one of the poorest states, majority of the population are dependant on the traditional occupation like agriculture, diary and handloom in some parts of Orissa. The process of industrialization has always been slow though the state enjoys a great variety of mineral resources. Poor irrigation facility made agriculture as a part time occupation for a majority of marginal farmers. The farmers use to travel to urban centres as daily wage earners and this practice made their life more miserable due to exploitation and addictions.

There was a large concentration of cattle in the rural areas in the form of cows and buffalos. They supported the family requirements only and the cast of Gauda traditionally sells the milk in the area. The rich had the privilege of keeping cows for their own use and


Financial statement analysis celebrations. It was never thought of as a viable alternative of livelihood for many farmers till Omfed came in to existence. The journey of Omfed has changed the life of many families in Orissa, particularly in the coastal and western part of Orissa. Omfed has emerged as the trusted milk man to all its stake holders. The urban middleclass has a product which is safe and clean for their children and has a quality assurance on content and hygiene. The process itself pasteurizes the milk and kills the germs and bacteria. Milk is served fresh every day twice to the urban consumers and shopkeepers in a fresh poly pack. This milk is collected from different parts of the state and are brought to the chilling plant .They are packaged in assortments for sale in the markets. Other than the different varieties of toned milk Omfed also markets various kinds of value added products like ghee, sweet and plain curd milk, table butter and butter milk.

In the summers of 1998 Omfed experimented by test marketing horticulture products in the form of pickle ,tomato sauce, orange squash, lemon squash ,juices , mango and pine apple squash. These products were initially test marketed in the urban cities of Orissa and the results were very motivating for them to go for full scale launch in the subsequent period of time. Omfed had an advantage through its vast network of milk booths to make the product available immediately to consumers. There was literally no investment to market horticulture products as the customers saw them in the Omfed milk booths every time they visited the booth. The second advantage the brand quality assurance. Though the products were manufactured by the horticulture department, they were marketed as Omfed brands in the market. These products have a high seasonal demand during summers and availability of these items in the milk booths made the customer go for an early trial with fewer expenses in promotion and advertising. The market for sauces, squash and pickles are traditionally concentrated in Orissa due to the availability of branded items like Kissan, Druck and Maggi. Omfed decided to break the restrictions of selling these products from the milk booths only and launched the items through the intermediaries’ .Dealers and distributors were appointed in different area and the product moved in to the grocery counters.

Prior to this development Omfed was selling the value added milk products like ghee, butter and the butter milk through retailers. The butter milk was a success in the market as


Financial statement analysis people preferred it in summers to the soft drinks due to the humid conditions in the market. The sweet curd was also a success as housewives started buying them in the common grocery for their children and there was a liking of the product by kids.

This success makes Omfed to look beyond their core strength of marketing milk and milk related products to other business area. This was significant for them as they have also to perform a social obligation in generating profitable employment to the rural poor through their cooperative society network so that more and more are brought above the poverty line.

ACTIVITIES The principal activities of Omfed can be divided into the following categories: 1. Organization of Anand pattern 2. Operation Flood program in Orissa 3. Procurement of milk 4. Technical inputs 5. Women’s diary Project 6. Processing and Marketing 7. Omfed Products 8. Training

Anand Pattern The Anand Pattern is the successful formula first adopted by the Kaira District Coop. Milk Producers’ UnionLtd.(AMUL). This is to collectively procure, process and Market their surplus milk. This is a Three Tier System- the Village Society, (Concerned Mainly with the primary producers and collection of milk), the District Milk Union, (looking after milk procurement, chilling and supply of technical inputs like Artificial Insemination, Animal Health Care, Supply of Balanced Cattle Feed & Fodder, Training/Extension etc.) And the Milk Federation looks after processing and marketing of



Milk & Milk Products, Central Technical Input activities etc. for milk yield enhancement Of the animals of the milk Producers. Anand Pattern is a system that is collectively Owned, Operated and Controlled by the farmers. It ensures a fair price to the farmer and high quality milk and milk products to the consumers. In short, the Anand Pattern means the utilization of resources in the most profitable manner at grass-root level. The maximization of profit and production through cooperative effort is the hallmark of the .Anand Pattern

Structure of Anand Pattern The basic unit under the Anand Pattern is a village cooperative society of milk producers. It is a voluntary association of rural milk producers wishing to market their milk collectively. A village coop. Society of primary producers is formed under the guidance of a Supervisor of the milk union. A milk producer becomes a member by

paying an entrance fee of Rs.1 and buying a share of Rs.10. He/she must undertake to sell surplus milk only to the Society after meeting his family's demand. The members elect the Managing Committee of 9 members and the committee elects a Chairman out of themselves. Managing Committee Members are honorary. They employ a Secretary, Milk Tester, A. I. Worker and Head Loader and so on to run the day-to-day business of the society. Milk producers bring milk to the society every morning and evening. The quantity of milk is measured. A small sample of milk is taken from the milk for testing its quality. Payment for milk is made on the basis of its quality and quantity. The Milk Union carries this collected milk from the society by their hired transport vehicles to their milk chilling/processing plants. This comes from the profit of the society. The society makes profit by selling the milk to the milk union and get bonus/price difference and milk union gets profit by selling to the federation and also gets price difference out of the federations’ profit.


Financial statement analysis Milk Union A Board of Directors who get elected in the following manner manages the milk union: 12-are elected farmer representatives. 01- A nominee of the financing institution (NDDB). 01- A nominee of the Milk Federation (Omfed). 01- General Manager of the Milk Union as the Ex-officio Secretary. At present, collector is the chairman of the Milk Union. General Manager is the Chief Business Officer of the Union who in turn appoints other managerial, technical & staff employees. This Board frames milk union’s policies regarding milk procurement and supply, fund management etc. where as the General Manager looks after the day-today operation under the guidance and direction of the board. Every society is continuously guided, supervised and controlled by the union so that it remains efficient, strong and viable. There is a continuous and concurrent audit of all the societies on a quality basis to ensure a clean milk business.

Milk Federation The Federation is managed by a Board of Directors elected in the following manner: 1.Three are Government of Orissa nominees. 2.One from the financing agency. 3.The selected chairmen of the Affiliated Milk Unions The Chairman of the Federation is to be elected by the board of directors. The Federation looks after processing and marketing of the milk and milk products.



Anand Pattern cooperative milk producers' organization (figure 2.1)


Financial statement analysis OPERATION FLOOD- 1

The govt. of India launches “operation flood” project in 1970. It was aimed at creating flood of rurally produced milk in the urban consuming center. The first phase of this program (operation flood 1) had five years duration from 1970-75. It was started in 1970 covering ten states and one union territory, having 18 th milk sheds i.e. Andhra Pradesh, Bihar, Gujarat, Haryana, Maharashtra, Punjab, Rajasthan, Tamilnadu, Uttarpradesh, West Bengal and Delhi. The project had an initial outlay of Rs. 94.5, which was later increased to Rs. 116.40 crore. It was mainly aimed at developing the milk marketing system in the country. As such major demand center like Delhi, Kolkata, Bombay and Delhi are linked with rural milk producing pockets in the country. The funds for the implementation of operation flood program were generated by the sale of 127.517 tones of skim milk power and36, 696 tones to butter oil provided by world food programme. A total of 116.4 cores were generated for the implementation of this programme. Indian Dairy Corporation was specially set up by the central government for receiving these gift commodities and generating their funds by their sale for implementation of the project. OBJECTIVES The programme had following major co-operatives:-

Increase in the capacity of milk processing facilities. Change in the urban markets form traditional raw milk supplies to the modern dairies milk supplies. Resettlement of city based cattle in rural areas. Development of long distance milk transportation and storage facilities. Development of milk procurement system like Anand pattern. Improvement in Dairy Farming Standard.

Operation Flood Program in Orissa Operation Flood II The Operation Flood II Program, which was launched under the aegis of National Dairy Development Board (NDDB) implemented in the state of Orissa from 1981, initially covering four districts viz., Cuttack, Dhenkanal, Keonjhar, and Puri. The Orissa State Cooperative Milk Producers’ Federation came in to being from the year 1980-81, after


Financial statement analysis Taking over the Phulanakhara dairy and the functioning started form 26th January 1981. This followed an agreement signed on the 30th May 1979 between the Govt. of Orissa and the then Indian Dairy Corporation (now amalgamated with the National Dairy Development Board) for implementation of Operation Flood Project II by the Govt. of India, the State Government, the Indian Dairy Corporation, the National Dairy Development Board and the Milk Producers Cooperatives, with assistance from the international Development Association. This was later buttressed by a guarantee d deed dated 05.09.81 given by the then Forest, Fisheries and Animal Husbandry Department on behalf of the state Government, to the then Indian Dairy Corporation for financial assistance to be received as per the Loans-cum-Grants Agreements by the Orissa Milk Federation from the Indian Dairy Corporation. The Operation Flood II Program ended on 30.09.87. OMFED started functioning from its own corporative office building at R-2 Shahid Nagar

8thAPril 1985. One chilling plant of 10,000 LPD was started at Tritol in June 1985 by Cuttack milk union and another one with 20,000 LPD capacities by Puri milk union. One Dairy Plant of 60,000 litres per day capacity was commissioned in December 1985. There are 10 nos. of chilling plants with a total capacity of 48,500 litres per day. Cattle feed plant of 100 MT capacity also started functioning from September 1985. A Training-cum-Demonstration center was organized at Jagannathpur, Puri near CuttackBhubaneswar national highway after the State Govt. handed over the land along with the infrastructures existing there on a management basis. Under Production Enhancement Program input facilities were provided to the producers through District Milk Unions and Dairy cooperative Societies under the technical and financial assistance of NDDB.


Financial statement analysis Operation Flood III The Operation Flood III Program is implemented in Operation Flood districts of the state from October’87. Under this program the Sambalpur district is included from August 1989. Expansion of Bhubaneswar Dairy from 60,000 LPD to 75,000 LPD; expansion of Tirtol Milk Chilling Center from 10,000 LPD to 20,000 LPD; a new chilling plant with a capacity of 20,000 LPD at Nimapara (Puri) in place of 4000 LPD Unit; strengthening of Cattle feed plant at Radhadamodarpur (Cuttack) are some of the major projects taken up under the Operation Flood III Program. For this purpose, a letter of understanding between the State Govt., represented by the then forest, Fisheries and Animal Husbandry Department (latter renamed as Fisheries and Animal Resources Development Department) and the National Dairy Development Board, as successor of the erstwhile Indian Dairy Corporation was signed on 27.08.1988, specifying the parameters for implementing the Operation Flood III Program. The Loancum-Grant Agreement between the National Dairy Development Board and the Orissa Milk Federation as well as the concerned District Milk Unions for the financial assistance under Operation Flood III has been executed. The state Govt. guarantee on behalf of the Orissa Milk Federation and the District Milk Unions as the letter of understanding to the National Dairy Development Board has been executed on 05.05.92. The organization was established with the following objectives To carry out activities for promoting production, procurement, processing and marketing of milk & milk products for economic development of the rural farming community. Development and expansion of such allied activities as may be conductive for the promotion of the dairy industry. Improvement and protection of milch animals and economic betterment of those engaged in milk production. In particular and without


Financial statement analysis prejudice to the generality of the forgoing objective, the federation may: • Purchase and/or erect building, plant machinery and other ancillary objects to carry out business •Study problems of mutual interest related to procurement, marketing of dairy and allied products •Purchase commodities from the members of other sources without affecting the Interest of the members, process, manufacture, distribute and sell them same, arrange to manufacture / purchase and distribute balanced cattle feed and for the purpose to set up Milk collection and chilling centres, Milk Processing Plants, Product factories Etc, in any of the district covered under its area of operation •Provide veterinary aid and artificial insemination services and to undertake animal husbandry activities so as to improve animal health care disease control facilities •Advice, guide and assists the Milk Union in all respects of management, supervision audit functions . •Render technical, administrative, financial and other necessary assistance to the member unions and enter in to collaboration agreement with someone, if the need arises •Advise the member unions on price fixations, public relation and allied matters .

A brief note on sambalpur dairy Sambalpur dairy a unit of OMFED (Orissa state co-op. Milk producers federation) was commissioned on 01.01.1990 under operation flood programme (phase-iii) of NDDB by an agreement with the government of orissa. The old chiplima chilling unit having a capacity of 2000 LPD (litre per day) at the state dairy farm established by the sambalpur districts milk union was closed and OMFED started its new 10,000 ltrs plant at an estimated project cost of Rs 66.80 lakh for the undivided sambalpur district near Goshala chhack in an area of 6.0 acres adjacent to N.H-6. On the first day, the unit collected only 2207 Kgs of raw milk from the nearby MPCS.


Financial statement analysis Recently the plant capacity has increased to 50,000 Ltrs at the capital cost of approx. 1.5 crores. After expansion the unit is not only catering pasteurised full cream milk & toned milk for the customer of sambalpur, bargarh, balangir burla, hirakud, deogarh, padampur etc. But also added new products like ghee, sweet curd, plain curd, butter milk etc. With in the present capacity.

SALIENT FEATURE OF OMFED DAIRY:INSTALLED CAPACITY- 50,000 LITRES PER DAY PROJECT EXECUTED BY-NATIONAL DAIRY DEVELOPMENT BOARD INITIAL PROJECT COST- 66.80 LAKH EXPANSION PROJECT COST- 1.5 CRORES TRIAL RUN STARTED ON -1ST JANUARY, 1990 MARKETING AREA- SAMBALPUR, BURLA, DEOGARH, RENGALI, REDHAKHOL, BARGARH, PADAMPUR, SONEPUR, TITILAGARH, NUAPADA MILK SHED AREA- DEOGARH, SAMBALPUR, BARGARH, BOLANGIR

Machineries available (table 2.1)

SL.NO

DESCRIPTION

QUANTITY

CAPACITY

01

S.S. Storage tanks

06

50,000 Lts

02

Pasteuriser

02

2,000 LPH each

03

Homogeniser

01

2,500 LPH

04

Tripurpose separator

02

2500 LPH, 2000 LPH

05

Reconstitution tank

01

1000 Ltrs

06

Packaging unit

04

7

Refrigeration compressor

05

30 Ton

08

Air compressor

02

06 M 3/Hr

09

D.G sets

02

63 KVA/ 50 KVA

10

Boilers (coal fired)

02

300 kg/ hr

11

Bore well

02

800 LPH each

12

Substation

01

200 KVA

13

Effluent treatment plant

01

30000 Ltrs

5000 Ltrs/ hr



MANAGEMENT:the orissa state co-operative milk producers federation Ltd. Is controlled by a board of directors which consist of chairmen of affiliated milk unions. Three nominees of the government of orissa, a nominee of the national dairy development board and managing director of the federation (who is an ex-office member). The chairman of the board elected amongst the member of the board. The post of chairman of the federation is honorary.

FINANCE:the federation had received funds (loan & grant) from the Indian dairy corporation/ national dairy development board (N.D.D.B) for the implementation of operation flood programme (OF-ii, OF-iii) in different districts for different activities such as milk processing, technical input programme, support to dairy co-operatives, manpower training etc. This federation also received funds towards cooperative development programme from N.D.D.B which has been successfully implimented in the different districts and for the implimentation of technology mission on dairy development (T.M.D.D) in the O.F districts. Apart from N.D.D.B. This federation is receiving financial assistance from the government of Orissa as grant-in aid and share capital for different activities such as establishment of dairy infrastructures, technical input programmes, etc. Besides this the federation also received financial assistance from Government of India (ministry of human resouces development & department of women and child development) for the implimentation of orissa women's dairy projects in the undivided districts of orissa.

Procurement of Milk The milk is collected from the village based milk producers through the village Dairy cooperative Societies. The farmers of society villages bring their surplus milk to the society, where it is tested, quantified and the value of the milk is being fixed. Again from the society level the milk being lifted to nearest chilling plant where it is chilled to 5 c and the same milk after chilling is transported to the nearest Dairy for processing, packing and marketing. After marketing of milk and milk products, the realization is


Financial statement analysis routed back the producers once in 10 days in the same manner. This organization establishes linkage from producers to consumers.

Technical Input Program Procurement of Milk depends upon its production. If the production of milk enhanced, the surplus of milk will be higher, and the procurement will be increased. The production of milk depends upon the productivity of the milch animals and the productivity of the animal depends upon its breeding, feeding, health care and maintenance. So to enhance milk procurement, different programs are being organized in the society level and the milk producers getting the facilities at their doorsteps, are called the Technical Input Programs. • Artificial Insemination: The population of crossbred milch animals in our state is very small. For better productivity good quality milch animals are essential. So 350 Dairy Cooperative Societies provided with Artificial Insemination facilities, out of which 18 centres are cluster centres. The society secretaries have been trained as inseminators by OMFED. For this service, the Liquid Nitrogen, Frozen semen and all the accessories are being supplied to the societies free of cost. • Feed and Fodder Program: In addition to the marketing support the farmers are provided with the best quality of cattle feed at a reasonable price from the Cattle Feed Plant, which is owned and managed by OMFED. Fodder seeds and fodder slips are provided free of cost to the farmers. OMFED sales around 10 KMT of cattle feeds annually to its farmer members. • Animal Health Care: For better yield / productivity, maintenance of milch animal is important. The crossbreed animals need better care than the indigenous cows. So facilities like first aid medicines, travois are being provided to the societies free of cost. Infertility camps, veterinary routes are being conducted by the experienced



veterinarians of the Milk Unions. • Training: The Federation has established an Integrated Training and Demonstration Center (OMTDC) at Jagannathpur in the district of Khurdha. The Training Center has so far imparted training to society persons in society management, artificial insemination, first aid, dairy animal management and management committee members. Besides these, other training programs are also conducted in this Training Center. Training has a well-furnished hostel accommodation for 100 trainees. Interested institutions inside the state also use these facilities on payment basis for Various training programs. • Embryo Transfer Technology: A highly sophisticated Embryo Transfer Technology Project has been implemented by the federation as a state project, since March 1992. This is assisted by NDDB to carry the most advanced technology from the laboratory to the field for the benefit of farmers to increase the milk production. • Programs: National Technology mission on Dairy Development: National Technology Mission was formulated by N.D.D.B. and was implemented in 5 Operation Flood Districts. Its main aim was to co-ordinate among various functionaries who were engaged in strengthening of rural farmers. Veterinary Dispensaries were equipped With breeding facilities and these dispensaries became the nerve center of rural milk producers. Cooperative Development Program: The program is being formulated by N.D.D.B. Its main aim was to inculcate co-operative spirit in the rural milk Farmers to manage their own business.

Indo Swiss Project: Indo-Swiss project was a bilateral program between Govt. of


Financial statement analysis India and Swiss Govt. which is now under implementation in Gajam & Gajapati district. Its main aim is to improve the productivity of animal and to provide round the year marketing facilities at the door step of the farmer.

Women’s Diary Project This project started in 1995 in un-divided districts of Cuttack, Dhenkanal, Puri, Sambalpur and Keonjhar and is implemented through respective milk unions. The Objectives of the program include •Improvement of Economic status of the rural women through efficient and modern Dairy management and availability of assistance for dairy farming in shape of Subsidized cattle feed, fodder, animal health care, cattle insurance and grouped Insurance coverage and training programs. •Improvement of social status of rural women by formation of Anand Pattern allWomen dairy co-operative societies and establishing linkage with related organization for assistance on health, immunization, nutrition, literacy mission, drinking water income generation and women empowerment etc. •

Enabling the women groups to take up employment-cum-income generation

programs through dairying.

Processing and Marketing . The urban consumer is the last point of the Milk Flow System of Operation Flood Program. The first point is the rural milk producer, who produces milk. Thus Omfed not only plays a vital role to link both the points through its activities but also Channelize crores of rupees from urban sector to rural sector in this system. Out of the five Flood Districts, only Dhenkanal & Keonjhar Milk Unions market



Milk through their respective Dairies (Dhenkanal & Keonjhar Dairy) in the brand name of "Omfed". The Dhenkanal Milk Union markets its milk, in towns like Dhenkanal, Talcher, Nalco Nagar, and Angul etc. And Keonjhar Milk Union markets milk in towns Like Keonjhar, Joda, Badbil, Anandpur etc. and supply surplus milk to Omfed. Generally Milks are being marketed by Omfed, from its dairies by it's authorized retailers in Different towns of the state.

Figure 2.2



Operational area (figure 2.3)



Affiliated milk unions (figure 2.4)



Managing Director (IAS)

Personal manager

Material manager

MIS manager

Finance manager

Marketing manager

Plant manager (Sambalpur unit)

Assistant manager

Superintendent

Plant operator

Worker

Assistant manager

Superintendent

Assistant superintendent

Junior Assistant

Organisation structure (figure 2.5)


Project manager





FINANCIAL STATEMENT ANALYSIS Financial statements as used in business houses refer to set of reports and schedules which an account prepared at the end of a period of time for a business enterprise. The financial statements are the means with the help of which the accounting system performs its main function of providing summarise information about the financial affairs of the business. These statements comprise balance sheet and profit & loss account. In India every company has to present its financial statements in the form and contents as prescribed under section 211 of the companies act 1956.

The significance of these statements is as follows

Balance sheet Balance sheet is a statement showing the nature and amount of a companies asset on one side and liabilities and capital on the other. In other words balance sheet shows the financial position on a particular date usually at the end of one period. Balance sheet shows how the money has been made available to the business of the company and how the money is employed in the business.

Profit and loss account Earning profit is the principal objective of all the business enterprise and profit and loss account is the document which indicates the extent of success achieved by the business in meeting this objective. Profits are of primary importance to the board of director in evaluating the management of a business, to banks and other creditor in judging the loan repayment capabilities and ability of the business. It is prepared for a particular period which is mentioned along with the title of these statements, which include the name of the firm also.

Objective of financial statements Financial statements analysis is highly essential for both internal and external stake holders in addition to management and creditors. 1. The balance sheet lists the assets held by and the obligations (or liabilities) of the enterprise. The balance sheet also summarizes the capital invested in the business. 2. The income statement provides a recap of the operating results by listing the revenues


Financial statement analysis and deducting the expenses of the company to arrive at a net income or loss for the period. 3. The statement of cash flows quantifies the cash inflows and outflows of the business for the reporting period. 4. The explanatory notes provide additional details to aid in understanding the amounts reported in the financial statements and the basis under which the financial statements have been prepared. Usually, explanatory notes are prepared only when the financial statements will be provided to external users. 5. To provide financial information that assist in estimating the earning potential of a business.

Tools Here we have taken the financial statement of five years those are 2004-05, 2005-06, 200607, 2007-08 and 2008-09. The tools we have taken to analyse the financial statement are as follows 1. Ratio analysis 2. Trend analysis 3. Common size statement analysis 4. Comparative analysis

RATIO ANALYSIS Introduction The term ratio is used to describe significant relationships which exist between figures shown in a balance sheet, profit and loss account of an organisation. Financial statements contain much information relating to profit or loss and financial position of the business. If these items in financial statements are considered independently it will not be of much use. To make a meaningful reading of financial statements, these items found in financial statements have to be compared with one another. Ratio analysis, as a technique or analysis of financial statement uses this method of comparing the various items found in financial statements. Ratio analysis creates a relationship between figures or factors or variables. This relationship helps to analyse and interpret the financial condition and performance when applied to the financial data. The accounting ratio indicates a quantitave relationship which is


Financial statement analysis used for analysis and decision making.

Importance of ratio analysis There are various kinds of benefits arising from ratio analysis are as follows:

1. Ratio analysis is a very important tool used for measuring performance of an organisation. 2. It concentrates on the inter-relationship among the figures appearing in the financial statement. 3. Ratio makes comparison easy. The said ratio is compared with the standard ratio and this shows the efficiency utilisation of assets, etc. 4. Ratio analysis helps the management to analyse the past performance of the firm and to make further projections.

5. Position can be easily ascertained with the help of ratio analysis. 6. Effective use of ratio can provide the details of the growth or decline of an enterprise so that future action can be taken. 7. The appraisal of the ratios will make proper analysis about the strengths and weakness of the firms operations.

Classification of ratios According to the requirement of different ratios it has been classified into four important categories. Liquidity ratios leverage ratios activity ratios profitability ratios

1. Liquidity ratios The liquidity ratios measure the liquidity of the firm and its ability to meet its maturing short term obligations. Liquidities defined as the ability to realise value in money, most liquid of assets. Liquidity refers to the ability to pay in cash, the obligation that are due. liquidity


Financial statement analysis has two dimensions quantitative and qualitative concepts. The quantitative aspect includes the quantum, structure and utilisation of liquid assets. In qualitative aspect it is the ability to meet all present and potential demands on cash from any source in a manner that minimises cost and maximises the value of the firm. Thus liquidity is a vital factor in business. Excess liquidity, through a guarantor of solvency would reflect lower profitability, and ineffective managerial efficiency, increased speculation and unjustified expansion, extension of too liberal credit policies. Too little liquidity then may lead to frustration, reduced rate of return, missing of profitable business opportunities and weakening of morale. The important ratios in measuring short term solvency are as follows: a. current ratio b. quick liquid ratio c. absolute liquid ratio d. Stock to working capital ratio

a. Current ratio This ratio measures the solvency of the firm in the short term. The constituents of the current ratio are as important as the current assets themselves for evaluation of the company's solvency position. The higher or lower current ratio will have the adverse impact on the profitability of the organisation. Advantages of current ratio 1. This ratio indicates the extent of current assets available to meet the current obligation. 2. This margin also leaves sufficient amount as working capital to carry out day to day transactions. 3. This is useful in assessing the solvency and liquidity position of the company.

Current ratio=

Current assets, loans and advances Current liabilities and provision



YEARS Current

2004-05 788154.50

(Table 3.1.1) 2005-06 2006-07 10030349.75 14614717.55

2007-08 12162818.48

2008-09 19933030.16

744756.36

1101126.47

1505636.56

2107718.47

1139982.97

10.58

9.10

9.70

5.77

17.48

assets, loans and advances Current liabilities and provision Current ratio

Interpretation A current ratio 2:1 shows a highly solvent position. The current ratio of this organisation is always higher than the recommended level, so it can meet its entire current obligation effectively. the ratios in the year 2004-05, 2005-06, 2006-07 shows high liquidity position which is around 10. It is not a good sign of using current asset effectively. In the year 200708 the solvency position has improved

but still it is higher then the recommended level. In

the year 2008-09 the ratio goes up to 17.48 which is very high than the recommended one. It is due to the piling up of inventory and idle cash level.

b. Quick liquid ratio Quick ratio is used as a measure of the company's ability to meet its current obligations since bank overdraft is secured by the inventories, the other current assets must be sufficient to meet other current liabilities. This ratio serves as a supplement to the current ratio in analysing liquidity. Advantages of the quick ratio This ratio is very useful in cross checking the performance in other areas of economic management of an enterprise. This ratio focuses on the inventory accumulation. and on certain aspects of inventory management which will be pointed out later. 1. It is an improved variant of the current ratio in arriving at a liquidity index for an enterprise.



Quick liquid ratio=

current assets, loans and advances - inventories Current liabilities and provisions - bank overdraft (Table 3.1.2)

YEARS current assets, loans and advances - inventories

2004-05 5859671.10

2005-06 691146.49

2006-07 7507781.29

2007-08 5865755.70

2008-09 7329857.33

744756.36

1101126.47

1505636.56

2107718.47

1139982.97

6.27

4.98

2.78

6.42

Current liabilities and provisions bank overdraft Quick liquid 7.86 ratio

Interpretation A recommended ratio of acid test ratio is 1:1 but all the year starting from 2004-05 to 200809 shows much higher than this recommended level. In the year 2007-08 it came nearer to the recommended level. This higher level indicates a high solvency state of the organisation.

c. Absolute liquid ratio

Absolute liquid ratio=

absolute liquid assets Current liabilities

Absolute liquid assets = cash in hand + cash at bank + short term investments

(Table 3.1.3) YEARS

2004-05

2005-06

2006-07

2007-08

2008-09


Financial statement analysis absolute

5759806.08

5636638.80

6737981.23

4327624.22

6313411.63

liquid assets Current liabilities

608024.11

771652.72

1004547.26

1671330.17

701932.67

Absolute

9.47

7.30

6.70

2.58

8.98

liquid ratio

Interpretation The ideal absolute liquid ratio is taken as 1:2. In all the respective year it has gone up then the recommended level. It shows the over accumulation of cash at bank and in hand.

d. Stock to working capital ratio Here stock refers to inventory as the rupee value of raw materials. It may be noted that stock is valued at cost price or market price which ever is lower. Working capital generally means net working capital.

Working capital= current assets - current liabilities

stock to working capital ratio =

Inventory Working capital

x 100

(Table 3.1.4) YEARS Inventory

2004-05 2028483.40

2005-06 3119203.26

2006-07 7106936.26

2007-08 6297062.78

2008-09 12603172.83

Working capital

7791203.80

9205540.33

13382748.79

8957775.75

18402353.59

stock to

26.03

33.88

53.10

70.2

68.48

working capital ratio

Interpretation In 2004-05 the stock level was 28.23% which is quite beneficial for the organisation but it start increasing in rest of the year and reach a peak of 70.20% in 2007-08. It reflects over


Financial statement analysis accumulation of stock.

Activity ratio Activity ratio measures how effectively the firm employees its resources. These ratios are also called 'turn over or asset management ratio' which involve comparison between the level of sales and investment in various accounts like inventories, debtors, fixed assets, etc. Asset management ratios are used to measure the speed with which various accounts are converted into sales or cash. The following activity ratios are calculated for analysis. These ratios also analyse the use of resources and the utility of each component of total assets.

a. Inventory turn over ratio. b. Inventory ratio c.

Fixed asset turn over ratio.

d. Total asset turn over ratio. e.

Working capital turn over ratio.

f.

Sales to capital employed ratio

a. Inventory turnover ratio a considerable amount of a company's capital may be tied up in the financing of raw materials, work in process and finished goods. It is important to ensure that the level of stocks is kept as low as possible, consistent with the need to fulfil customer’s orders in time.

The inventory turnover ratio measures how many times a company's inventory has been sold during the year. Low liquidity turnover has impact on the liquidity of the business.

Inventory turn over ratio=

Sales Average inventory

Average inventory = opening stock + closing stock 2

YEARS Sales

2004-05 116423937.66

(Table 3.2.1) 2005-06 2006-07 131212359.47 157091720.33

2007-08 208711920.52

2008-09 262757676.68



Average inventory

2017156.13

2573843.33

5113069.76

6701999.51

9450117.79

Inv entory turn over ratio

57.71

50.17

30.72

31.14

27.80

Interpretation The inventory turnover ratio shows that there is a decrease in the ratio from the year 2004-05 to 2008-09. This is due to the piling up of stock because the selling has increased substantially.

b. Inventory ratio The level of inventory in a company may be assessed by the use of the inventory ratio, which measures how much has been tied up in the inventory.

Inventory ratio=

Inventory x 100 Current assets

(Table 3.2.2) YEARS Inventory

2004-05 2028483.40

2005-06 3119203.26

2006-07 7106936.26

2007-08 6297062.78

2008-09 12603172.83

Current

7791203.80

9977193.05

7480359.79

10629105.92

19104286.26

26.03

31.26

95.00

59.24

65.97

assets inventory ratio

Interpretation In the year 2004-05 the ratio was 26.03 which increased up to 95.00 in the year 2006-07 it shows that the how much inventory is tied up in current assets. Then it was reduced up to 59.24 in 2007-08 and again marks an increase up to 65.97 in the year 2008-09.



c. Fixed assets turnover ratio This ratio will be analysed further with ratios for each categories of assets this is a difficult set of ratios to interpret. As asset value are based on historic cost. An increase in the fixed asset figure may result from the replacement of an asset at an increased price or the purchase of an additional asset intended to increase production capacity.

Fixed assets turnover ratio=

YEARS Sales

Fixed asset

2004-05 116423937.66

17644666.01

fixed assets turnover ratio

(Table 3.2.3) 2005-06 2006-07 131212359.47 157091720.33

20440688.17

6.59

6.41

Sales Fixed asset

2007-08 208711920.52

2008-09 262757676.68

26896351.90

23061271.28

23794369.28

5.84

9.05

11.04

Interpretation It reflects that there is installation of plant machinery and building to increase the productivity of the plant. The depreciation rate also shows the same. In the year 2004-05 it was 6.59 and starts decreasing up to 5.84 in the year 2006-07 and again starts increasing and reaches up to 11.04 in 2008-09. This also helps in the incre ase in production which reflects in terms of increase in sales.

d. Total assets turnover ratio The ratio indicates the number of times total assets are being turned over in a year.

Total assets turnover ratio=

Sales Total assets



(Table 3.2.4) YEARS Sales

2004-05 116423937.66

2005-06 131212359.47

2006-07 157091720.33

2007-08 208711920.52

2008-09 262757676.68

27402592.29

32442753.04

43566468.04

37279488.35

40782798.06

4.24

4.04

3.60

5.59

6.44

Total assets

Total assets turnover ratio

Interpretation It is showing that there is a good utilisation of total asset in every year but again the rate goes down in the year 2006-07 and again goes up to 6.44 in 2008-09 which indicates a good sign for the organisation.

e. Working capital turnover ratio This ratio indicates the extent of working capital turned over in achieving sales of the firm.

Working capital turnover ratio=

Sales Working capital

(Table 3.2.5) YEARS Sales

2004-05 116423937.66

2005-06 131212359.47

2006-07 157091720.33

2007-08 208711920.52

2008-09 262757676.68

Working capital

7791203.80

9205540.33

13382748.79

8957775.75

18402353.59


Financial statement analysis Working capital turnover ratio

6.49

26.97

11.73

23.29

14.27

Interpretation In the year 2004-05 the working capital that is turned over is only 6.49 but the next year it goes up to 26.97 it shows excess use of working capital to meet the sales. But there is an improvement can be observed in utilising working capital effectively in rest of the year. That’s why the ratio starts declining but the sale has gone up.

f. Sales to capital employed ratio This ratio indicates efficiency in utilisation of capital employed in generating revenue.

Sales to capital employed ratio=

Sales Capital employed

YEARS Sales

2004-05 116423937.66

(Table 3.2.6) 2005-06 2006-07 131212359.47 157091720.33

Capital employed

25435869.80

25305674.25

40279100.69

23957047.03

42196722.87

Sales to capital employed ratio

4.57

5.18

3.90

8.71

6.22

2007-08 208711920.52

2008-09 262757676.68

Interpretation We can observe a zigzag motion in sales to capital employed ratio. It was 4.57 in the year 2004-05, it was increased up to 5.18 then again decline up to 3.90, again mark an steep increase up to 8.71 and in the year 2008-09 it came to 6.22. It shows that the efficiency in using capital is improving to generate higher revenue.

Profitability ratios These ratios are to help assessing the adequacy of profits earned by the company and also to discover whether profitability in increasing or declining the profitability of the firm is the net result of a large number of policies and decisions. The profitability ratios show the


Financial statement analysis combined effects of liquidity, asset management and debt management on operating results. Profitability ratios are measured with the reference to sales, capital employed total assets employed etc. These ratios are very important from the point of view of different set of people who are interested in the business organisation like owners, creditors, employees, suppliers, government organisation.

Gross profit margin The gross profit represents the excess of sales proceeds during the period under observation over their cost, before taking into account administration, selling and distribution and financing charges. The ratio measures the efficiency of the companies operations and this can also be compared with the previous year's result to ascertain efficiency. This ratio also shows the gap between revenue and expenses at a point after which an enterprise has to meet the expenses related to non manufacturing activities. It act as an index of the mobility of an enterprise to meet different expenses.

Gross profit margin=

Gross profit Sales

x 100

YEARS Gross profit

2004-05 17967174.10

(Table 3.3.1) 2005-06 2006-07 21055028.32 20241173.57

Sales

116423937.66

131212359.47

157091720.33

208711920.52

262757676.68

Gross profit margin

15.43

16.04

12.88

13.94

16.67

2007-08 29096271.67

2008-09 43820261.38

Interpretation It shows that there is an increase and decrease prevails in this ratio it stands around 14%. It is due to the fluctuation in the price of raw material and other expenses related to production. We can say that the efficiency in operation is following a trend.

Net profit ratio Net profit ratio express net profit as a percentage of sales. This ratio indicates the


Financial statement analysis profitability and efficiency of the business. Net profit ratio =

YEARS Net profit

Net profit x 100 Net sales

2004-05 10350896.20

(Table 3.3.2) 2005-06 2006-07 12724976.70 11411004.56

116423937.66

131212359.47

157091720.33 208711920.52

262757676.68

8.89

9.69

7.26

11.63

2007-08 18435097.91

2008-09 30574501.72

Net sales Net profit ratio

8.83

Interpretation It is showing the efficiency of the organisation in earning profit. It stand around 9% but in the year 2008-09 it goes up to 11.63% it reflects that the organisation is growing in an apt manner in earning profit.

Cash profit ratio Cash profit ratio measure the cash generation in the business as a result of the operation. before tax and net profit from year to year owing to differences in depreciation charged. This ratio is more reliable indicator of performance where there are sharp volatility in the profit Cash profit ratio =

Cash profit x 100 Sales

Cash profit= net profit + depreciation

YEARS Cash profit Sales

2004-05 12962363.95

(Table 3.3.3) 2005-06 2006-07 15052165.00 13692108.81

116423937.66

131212359.47

157091720.33

208711920.52

262757676.68

Cash profit ratio

11.13

11.47

8.71

10.65

13.53

2007-08 22247548.13

2008-09 35574501.72



Interpretation This ratio is also fluctuating a little bit from its trend which is around 11%. It is following the same path as the gross profit and net profit ratios are following. There is seen an increase up 13.53% in the year 2008-09 which is sowing a hike in earning cash profit.

Operating cost ratio Operating cost ratio expresses the relationship of cost of goods sold plus operating expense to net sales. It may be expressed as

Operating cost ratio=

YEARS operating

operating cost x 100 Net sales

2004-05 98177801.99

(Table 3.3.4) 2005-06 2006-07 109159181.33 134111568.23

2007-08 2008-09 178914326.43 217233461.63

116423937.66

131212359.47

157091720.33

208711920.52

262757676.68

84.32

83.19

85.37

85.72

82.67

cost

Net sales Operating cost ratio

Interpretation The operating ratio following a trend of around 83%. It is showing the operational efficiency of the organisation. In 2008-09 the organisation is able to reduce the operating cost so the net profit has increased.

Expense ratio Expense ratio shows the relationship between operating costs and expenses on the one hand and volume of sale on the other. In other words, these ratios express each element of cost and expenses as percentage of sales. Advantages:1. These ratios are useful in knowing the following aspects relating to profit and help the


Financial statement analysis management to know the position of profit. That is whether the profit is on the increase or on the decrease. i. Higher the expense ratio lowers the profit and vice-versa. ii. Higher the non manufacturing expenses ratio (marketing, administration) lower the net profit.

Expense ratio =

Expenses x100 Net sales

(Table 3.3.5) YEARS Expense

2004-05 98479418.10

2005-06 121578161.06

2006-07 140838279.66

2007-08 178805775.37

2008-09 225243525.35

116423937.66 131212359.47

157091720.33 208711920.52

262757676.68

84.58

89.65

85.72

Net sales Expense ratio

92.65

85.67

Interpretation The expense ratio in terms of sale in the year 2005-06 was higher than any other year which is 92.65. It is showing the reduced in the profit level. But the condition starts improving in the respective year and reach up to 85.72 in the year 2008-09.

Administrative cost of sales ratio Administrative cost of sales ratio= Administrative cost of sales x 100 Sales

YEARS 2004-05 2005-06 Administrative 863204.20 8289130.42 cost 116423937.66 131212359.4 Sales 7

2006-07 1118133.10

2007-08 5664158.79

157091720.3 3

208711920.52 262757676.68

Administrative 0.74 cost of sales

0.71

2.71

6.31


2008-09 1583528.20

0.60

Financial statement analysis ratio

Interpretation The administrative cost is increased heavily in the year 2005-06 due to increase in expenses of different items and usage of the items which was 6.31. Again it goes down to 0.71 and again goes up to 2.71 and finally reaches to 0.60 in 2008-09 which was lower than all the respective year.

Selling and distribution cost to sales ratio

Selling and distribution cost to sales ratio = Selling and distribution cost x 100 Sales (Table 3.3.6) 2005-06 2006-07 5139544.72 6596742.93

YEARS 2004-05 Selling and 3790646.03 distribution cost 116423937.66 131212359.4 Sales 7 Selling and 3.25 distribution cost to sales ratio

3.91

2007-08 4908238.63

2008-09 7174298.03

157091720.3 3

208711920.52 262757676.68

4.19

2.35

2.63

Interpretation the selling and distribution cost was 3.25 in the year 2004-05 it increase slowly and reach up to 4.19 in the year 2006-07 and then decrease up to 2.63 in the year 2008-09. It is due to the effective distribution channel. It also helps in the rate of selling of products.

Cost of good sold to net sale ratio Cost of good sold to net sale ratio = Cost of good sold x 100 Net Sales (Table 3.3.7) YEARS Cost of good sold

2004-05 94666117.53

2005-06 105017786.43

2006-07 130253803.73

2007-08 174707410.22

2008-09 211763117.27

116423937.66

131212359.47

157091720.33

208711920.52

262757676.68

Net sales



Cost of good sold to net sale ratio

81.31

80.03

82.91

83.70

80.59

Interpretation It is following a trend of around 81%. It is not deviating more from its trend but it has been decreased down to 80.59 in 2008-09 which increase in profit level.

Return on capital employed The rate of return on investment is determined by dividing net profit by the capital employed. It consists of two components that is profit margin and investment turnover.

Advantages: It helps in measuring the profitability of the firm. 1. It indicates how effectively the operating assets are used in earning return. 2. It focuses the attention on efficiency of management in managing the investments made into the business.

Return on capital employed ratio = net profit x100 Capital employed (Table 3.3.8) YEARS Net profit

2004-05 10350896.20

2005-06 12724976.70

2006-07 11411004.56

2007-08 18435097.91

2008-09 30574501.72

Capital employed

25435869.80

25305674.25

40279100.69

23957047.03

42196722.87

Return on capital employed ratio

40.69

50.28

28.32

76.95

72.45

Interpretation In the year 2004-05 the return on capital employed was 40.69. By following a zigzag motion


Financial statement analysis it goes up to 50.28. In 2006-07 it was reduced to 28.32 it is due to increase in amount of work in progress and other fixed assets. But again it gained momentum and the return reach up to 72.45 in the year 2008-09.

TREND RATIOS trend ratio can be defined as index numbers of the movements of the various financial items in the financial statements for a number of periods. It is a statistical device applied in the analysis of financial statements to reveal the trend of the items with the passage of time. Trend ratio shows the nature and rate of movements in various financial factors. Trend ratio can be graphically presented for better understanding by the management. They are very useful in predicting the behaviour of the various financial factors in future. Trends of related items should be carefully studied, before drawing any final conclusion. Since trends are sometime significantly affected by externalities e.g government policies, economic conditions etc.

Limitations of trend ratios


Financial statement analysis Trend ratios are not calculated for all the items. They are only calculated for the logically connected items enabling a meaningful analysis. a. if the accounting practices have not been followed consistently year after year, these ratios become incomparable and misleading. b. the trend ratios have to be interpreted in the light of certain non-financial factors like economic conditions, government policies and management policies etc.

Interpretation The sale is following a trend that is going upward. As the sales are going upward the purchase of trade goods has been goes up accordingly. The rate of increase in purchase of goods is quite lower then the increase in sales. It shows the operational efficiency. The manufacturing expenses and distribution expenses are also increasing according to increase in production and sale but it is less then the increase in the rate of sale. It is showing the efficiency in operating and distribution activity of the management. The rate of increase in other expenses is increased higher then the rate of increase in other income and also then the rate of sales. The share holders fund, reserve and surplus have been increasing gradually but the trend is increasing in higher rate. Application of fund is increasing but the rate is very low, still this is favourable for the organisation. The rate of receiving grant has been reduced but attains a constant position from the year 2006-07 to 2008-09. The rate of increase in inventory is similar and logical with increase in sale but the rate sky rocketed in the year 2008-09 by 202.27 %. The trend is following a zigzag motion in case of bank balances and cash at hands. The loan and advances is quite lower in the year 2004-05 to 2006-07 but increase soaringly to 279.17% in the next year but again it come down to 150.85%. The rate of increase in current liability follows first four year but it again start decreasing up to 86.37% in the year 2008-09 which shows a good financial health of the organisation.



COMPARATIVE STATEMENT ANALYSIS These financial systems are so designed as to provide time perspective to the various elements of financial position contained therein. These statements give the data for all the periods stated so as to show. a. absolute money values of each item separately for each of the periods stated. b. increase and decrease in absolute data in terms of money values. c. increase and decrease in terms of percentage. d. comparison expressed in ratios. e. percentage of totals. Such comparative statements are necessary for the study of trends and direction of


Financial statement analysis movements in the financial position and operating results. This call for a consistency in the practise of preparing these statements, otherwise comparability may be distorted. Comparative profit and loss account shows the operating results for a number of accounting period and changes in the data significantly. In absolute period and changes in the dan significantly in absolute money terms as well as relative percentage. Comparative balance sheet shows the balance of account of asset and liability in different dates and also the extent of their increase and decrease between these dates showing light on the trends and direction of changes over the period.

Interpretation Study of income statement reveals that there has been an increase of Rs 65223435.09 in sales, but at the same time cost of goods sold has also increased by Rs.37055707.05. In relative term sales increased by 34.88% while cost of good sold 21.21%. It means due to the operational efficiency the rate of increase in cost of good sold is lesser then the rate of increase in sales. The rate of advertising is 27.18% which is lower then the rate of increase in sales and also in absolute term it is only increased 6411, which is quite negligible as compared to sales volume. Processing expense has been increased Rs.1263428 but in relative term the rate of increase in processing expense is quite nearer to the rate of increase in sales. There has been a substantial decrease in other incomes both in relative term and absolute term. It reflects that the management is giving more emphasis on its core business rather than other miscellaneous activity. There has been an increase in selling expenses in absolute term which is Rs.2696835.87 and it helps in the increase in sales up to Rs.65223435. in relative term the rate is much higher then the rate of increase in sales. It is due to the increase in the rate of expense in marketing expense and purchase of crate for distribution at a rate of 583% and 805.78% respectively. There is a 50.60% increase in gross profit which is due to the less increase in the rate of cost of goods sold and processing expenses which is 21.21% and 30.03% respectively. The depreciation rate is increase up to 1187549.79 in absolute terms and 31.15% in relative term which indicates that improved plant machinery has been installed which helps I the increase of the productivity, and the productivity reflects in the sales volume. Insurance charges have been increased 58.94% in the relative term which will impart a secure operational function. Printing and stationary is increased up to Rs. 48464.15 which is 203.12% then the previous year. It indicates that there must be wastage or improper handling


Financial statement analysis of this material. Sales promotion has been decreased by 25.56% which is not a goods sign for the organisation. As the sales promotion is an inevitable part of a good business. The sales have been increased and the sales promotion should also increase accordingly. A staff welfare and canteen expense has been increased by Rs.34572.25 which is 26.13% higher then the previous year. It is helpful in motivating the staff. The entertainment expense has been increased by Rs.10963 from its previous year. In absolute term it is less but in relative term the increase is 174.85% which is not a favourable condition. Liveries and safety materials are used and maintained properly so the expenses have been reduced by 3.92% which is contributing towards organisational profit. Building and gardening cost has been increasing soaringly which is 850.83% higher then the previous year and rupees 45919 in absolute terms which is due to the development and maintenance of the infrastructure. Bonus is hike up to 66.43% then the last year which indicates the profitability and transparency of the organisation which leads to organisational efficiency. Other expense has been increased by Rs 105402.21 in absolute term and 24.67% in relative term then the previous year. The current asset has been increased by 67.38% and the current liability has been decreased drastically by -45.01% which is showing over solvency of the organisation. It is severely affecting the current ratio by increasing it to a very high level then the recommended one. Cash in hand and bank, inventories has been increased which is due to the improper investment of the funds. Loans and advances have been decreased by 45.96% in relative term and Rs. 704986.65 in absolute term which is a good sign for the organisation. There is a soaring hike can be seen in case of sundry debtors which is 183274.88 in absolute term and 4147.50 % I relative term. It is showing the inefficient use of current assets. Government and other grants have been increased by 12720788.12 in absolute term and 2488.49% in relative term which is enhancing the strength of the organisation. The computer expenses are increased by Rs. 88850.00 due to installation of new computers and printers. All these increase in fixed asset is reflecting in the provision for depreciation which is increased 2944601.41 and 143.26% in relative term. The share holders fund, reserve & surplus have been increased by 42.90% and Rs. 30638760.05 in absolute term which is showing high financial viability of the organisation.



COMMON SIZE STATEMENT ANALYSIS Common size financial statements are those in which figures reported are converted into percentages to some common base. For this, items in the financial statement are presented as percentages or ratios to total of the item and a common base for the comparison is provided. Each percentage shows the relation of the individual item to its respective total. In a common size income statement the sales figure is assumed to be equal to 100 and all other figures of cost or expenses are expressed as percentage of sales. A common size income statement for different periods helps to reveal the efficiency or otherwise of incurring any cost or expense. In a common size balance sheet total of assets and liability are taken as 100 and all the


Financial statement analysis respected figures are expressed as the percentage of total. Comparative common size balance sheet for different period helps to highlight the trends in different items.

Interpretation

The cost of good sold has been decreased from 93.43% to 83.96% in the year 2008-09. Which increase in the gross profit level up to 17.37% which was previously 15.56% in 200708. Other expense like selling expenses is increased. It is due to the increase in sale but effective use of funds as the increase in relative term then the previous year is very little. Despite of increase in sales the processing expenses was less then the previous year it is indicating the operational efficiency of the firm. Other income has been declined as the firm is concentrating only upon its core activity. Omfed appears to be a traditionally financed with share holders fund and reserve & surplus. It doesn’t have any long term liability. In the year 2008-09, 50% of the reserve and surplus and shareholders fund has been invested which was 97.13 % in the year 2007-08. Total liability also constitutes of 50% of total liability and capital which is very high then the previous year 2007-08. Out of total assets, fixed asset constitute the major part which is 63.66^ in 2007-08 and 64.20% in the year 2008-09. It shows the fixed productive asset of the firm. Piling up of inventories increased up to 22.17%. Cash in hand and bank was reduced to 11.85% which shows investment of funds. Loans and advances also decreased which is 1.46% in 2008-09 then 4.58 % in 2007-08 which shows healthy financia l system of OMFED.



Findings and Recommendation

The financial statement of OMFED Sambalpur unit has given a broad idea about the organization. The tools that we used to analyse the financial statement reveals many vital information regarding the organisation’s financial strength. The findings of this analysis show that the financial strength of this organization is very healthy. It is earning profit at a higher rate. The accounts of reserve and surplus, share holders fund is very high. As the organization is enhancing the livelihood, socio economic condition of poor people so government is providing huge grants to it. The labour cost in this area is very low, availability of raw material in this area is more. There persists a technological, product, raw material transfer among the different unit of Orissa state co-operative milk producer’s federation limited (OMFED) 51

Financial statement analysis OMFED. All the above factor helping the organization to grow at a faster rate. We have found out a small weak link in the organization. Despite of huge asset possessed by the organization the investment opportunity is very thin. The liquidity ratio shows that asset remain idle with out any proper investment. So we would like to add that if sophisticated machinery will be installed or the capacity of the plant will be enhanced and maintaining a high level of distribution channel would hike the quality of the product and easy availability of product to the customer. So it will lead to increase in the profitability up to many folds. The financial statement also shows that the expenditure on sales promotion and advertising is very depressing as compared to the sales. Yes it is very eloquent that the rate of sales is very high but there is a huge potential for increase the sales in dairy product. Which can only be achieved by sales promotion. Inventory management is not satisfactory as it is seen on the balance sheet that inventory is piling up heavily. Rest we can say that the organization is developing since inception. It has also gained a momentum of incurring profit. They are moving from the stage of maximum utilization of resource to optimum utilization of resource which is very important for the organization.

Appendix Liquidity ratio 18 16 14 12 ratio

10

Current ratio

8

Acid test ratio

6

Absolute liquid r

4 2 0 Orissa state co-operative milk producer’s federation limited (OMFED) 2004-05 2005-06 2006-07 52 2007-08 2008-09 year


stock to working capital ratio 80 70 60 50

ratio 40 30

stock to working capital r

20 10 0 200405

200506

200607

200708

200809

year

Inventory ratio

100 90 80 70 60

ratio

60

50

Activity ratio

50 40

Inventory r

30 20 10 0 2004-05

2005-06

2006-07

2007-08

2008-09

year

40

ratio 30

Inventory turn over rati Fixed asset turn over Total asset turn over r

20

10

0

Orissa state co-operative milk producer’s federation limited (OMFED) 53 2004-05

2005-06

2006-07 year

2007-08

2008-09


Activity ratio 30

25

20

ratio 15

Working capital turn over r Sales to capital employed

10

5

0 2004-05

2005-06

2006-07 year

2007-08

2008-09

Profitability ratio

18 16 14 12 10 ratio

Gross profit 8

Net profit rati

6

Cash profit r

4 2 0

Orissa state co-operative milk producer’s federation limited (OMFED) 54 2004-05

2005-06

2006-07 year

2007-08

2008-09


Profitability ratio 90 80 70 60 Admin. Cost to sale ratio

50 ratio 40

selling & distribution cost to ratio

30

Cost of good sold to sale rat

20 10 0 2004-05 2005-06 2006-07 2007-08 2008-09 year

profitability ratio 100 90 80 70 Return on capital emplo ratio

60 ratio

50

operating cost ratio

40 30

Expense ratio

20 10 0

Orissa state co-operative milk producer’s federation limited (OMFED) 2005-06 2006-07 2007-08 2008-09 55

2004-05

year


Trend rati 140 120 100 e u l a v

Net block

80

Capital work in pro 60

Grants

40 20 0 2004-05

2005-06

2006-07

2007-08

2008-09

year

Trend ratio 300 250 e u l a v

200

Bank balances

150

Cash at hand

100

Loan & advanc

50 0 2004- 2005- 2006- 2007- 200806 milk 07 08federation 09 limited (OMFED) Orissa state05 co-operative producer’s year 56


trend ratio 250.00 200.00 e u l a v

150.00

Inventories total current as

100.00 50.00 0.00 200405

200506

200607

200708

200809

year

Trend ratio 180 160 140 120 e u 100 l a 80 v 60 40 20 0

Current liabilitie provision Total current ass

200405

200506

200607

200708

200809

year Orissa state co-operative milk producer’s federation limited (OMFED) 57


Trend ratio 200.00 180.00 160.00 140.00 e 120.00 u l 100.00 a v 80.00 60.00 40.00 20.00 0.00

sales Purchase o trade goods Manufacturi expenses Distribution expenses 2004- 2005- 2006- 2007- 200805 06 07 08 09 ear Bibliography

Financial Management-By I.M. Pandey Financial Management-By Khan and Jain Financial Statement Analysis:- By Gupta and Mehra. Financial Management:- By Sudhindra Bhat


Final Project Report Omfed

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