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Transcript of Finance(MBA) 358
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A STUDY ON CASH FLOWS AND CASH
MANAGEMENT PRACTICES AT BAMUL
A dissertation report submitted in partial fulfillment of the requirements for
the award of the degree of
MASTER OF BUSINESS ADMINISTRATIONTo
BANGALORE UNIVERSITY
Submitted by
Vinay.H.Banakar
Reg no: 09ACCMA087
Under The Guidance Of
Prof M.B.Balasubramanyam
B.sc,C.A.I.I.B & PGDBM
(Senior faculty)
AL-AMEEN INSTITUTE OF MANAGEMENT STUDIESHosur Road, Near Lalbagh Main Gate, BANGALORE-560 0027
(AFFILIATED TO BANGALORE UNIVERSITY)
2010-11
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CONTENTS
CHAPTER TITEL PAGE NO
I INTRODUCTION 1-18
II RESEARCH DESIGN 19-21
III COMPANY PROFILE 22-52
IV ANALYSIS AND INTERPRETATION OF
DATA
53-70
V SUMMARY OF FINDINGS,
SUGGESTIONS
AND CONCLUSION
71-74
BIBLIOGRAPHY
LIST OF CHARTS
Chart No PARTICULARS Page No
1 NUMBER OF FUNCTIONAL DCS 26
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2TOTAL MILK PROCRUMENT AND WOMEN MEMBERSHIP
AT DCS27
3 AVERAGE MILK PROCUREMENT 28
4 TOTAL MILK SALES 29
5 FULL CREAM MILK SALES(AVG LTS/DAY) 31
6CURD SALES (Avg KGS/DAY) 33
7
YEAR WISE DETAILS OF SHARE CAPITAL
OF BAMUL42
8ANNUAL TURNOVER OF BAMUL 43
9 YEAR WISE DETAILS OF NET PROFIT OF BAMUL 43
LIST OF TABLES
TableNo
PARTICULARS Page No
3.1 ANIMAL HEALTH & OTHER ACTIVITIES 35
3.2 YEAR WISE DETILS OF AI 35
3.3 CATTLE FEED SALES 37
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4.1 Table showing the cash flow statement 55-56
4.2 CURRENT RATIO 58
4.3 CURRENT ASSET TURNOVER RATIO 60
4.4 QUICK RATIO 62
4.5 Current Assets to Total Assets Ratio 63
4.6 DETORS TURNOVER RATIO 65
4.7 AVERAGE COLLECTION PERIOD 67
4.8 CASH TURN OVER RATIO 69
LIST OF GRAPHS
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GraphNo
PARTICULARS PageNo
4.1Current assets and liabilities
58
4.2 CURRENT RATIO OF BAMUL 59
4.3 NET SALES AND CURRENT ASSET 60
4.4 CURRENT ASSET TURNOVER RATIO 61
4.5 QUICK RATIO 62
4.6 CURRENT ASSETS TO TOTAL ASSETS 64
4.7 DEBTORS TURNOVER RATIO 65
4.9 CASH TURNOVER RATIO 69
Chapter I
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INTRODUCTION
Introduction to finance
Introduction to cash management
Scope of cash flow statements
Introduction to BAMUL
INTRODUCTION TO FINANCE
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Finance can be defined as the provision of the money at the time when it
is required. Every enterprise, whether big, medium or small, needs finance to
carry on its operation and to achieve its targets. In fact, finance is so
indispensible today that it is rightly said to be lifeblood of an enterprise. Without
adequate finance, no enterprise can possibly accomplish its objectives
DEFINATION
According to J.F.Bradley, Financial Management is the area of business
management devoted to a judicious use of capital and a careful selection of
sources of capital in order to enable a business firm to move in the direction of
reaching its goals.
IMPORTANCE OF FINANCIAL MANAGEMENT
The importance of financial management can be expressed as follows:
1. Finance is the lifeblood of business and every business unit needs money
to make more money, but money will get more money only when it is
managed properly.
2. Financial management is absolutely necessary for every business unit,which is required to make more money.
3. In the words of Collins Brooks Bad production and sales management
slain hundreds but faulty finance slain thousands.
4. Financial management helps a firm in optimizing the output from given
input of funds.
5. Financial management helps a firm in monitoring the effective employment
of funds in fixed assets as well as in current assets.
6. Financial Management helps in profit planning, capital budgeting,
controlling inventories and account receivables.
OBJECTIVES OF FINANCIAL MANAGEMENT
Objectives of financial management can be classified in to two:
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I BASIC OBJECTIVES:
1) Maintenance of adequate liquid assets in a firm:
This objective implies that financial management should ensure that there
are always adequate cash in the hands of the firm to meet its obligations.
2) Profit Maximization:
Profit earning is the main aim of every economic activity. No business can
survive without earning profit. Profit is a measure of efficiency of business
enterprise. Profit also serves as a protection against risks which cannot be
ensured. The accumulated profit enables a business to face like fall in prices,
competition from other units adverse government policies etc. Thus profit
maximization is considered as the main objective of business.
3) Wealth Maximization:
Wealth maximization is an appropriate objective of an enterprise.
Financial theory asserts that wealth maximization is the single substitute for a
stock holders wealth, the individual stock holders can use this wealth to
maximizing the stock holders wealth, the firm is operating consistently towards
maximizing stock holders utility.
II OTHER OBJECTIVES:
a) Ensuring maximum operational efficiency through planning, directing and
controlling of the utilization of the funds i.e., through effective employment
of funds.
b) Enforcing financial decision in the organization while using financial
resources through co-ordination of the operations of the various decisions
of the organizations.
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c) Building up of adequate resources for financing growth and expansion and
ensuring fair returns to share holders.
CASH MANAGEMENTCash is the most important current assets for the operations of the
business. Cash is the basic input needed to keep the business running on a
continuous basis it is also the ultimate output expected to be realized by selling
the service or product manufactured by the firm. The firm should keep sufficient
cash neither more or less.
Cash shortage will disrupt the firm manufacturing operation while excessive cash
will remain idle without contributing anything towards the firms profitability this is
major function of the financial manager is to maintain a sound cash position.
Nature of cashFor some persons, cash means only money in the form of currency (cash
in hand). For other persons, cash means both cash in hand and cash in bank.
Some even include near cash assets in it. They take marketable securities too as
part of cash. There are the securities that can be easily being converted into
cash. These viewpoints reflect the degree of freedom of the persons using the
cash. Whether a persons wants to use it immediately or can wait for a time to use
it depends upon the needs of concerned persons.
Cash itself does not produce goods or services. It is used as a medium to
acquire other assets. The idle cash can be deposited in bank to earn interest. A
business has to keep required cash for meeting various needs. The assets
acquired by cash again help the business in producing cash. The goods
manufactured or services produced are sold to acquire cash. A firm will have to
maintain a critical level of cash. If at a time it does not have sufficient cash with it,
it will have to borrow from the market for reaching the required level.
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There remains a gap between cash inflows and cash outflows. Sometimes cash
receipts are more than the payments or it may be vice versa at another time. A
financial manager tries to synchronize the cash inflows and outflows. But this
situation is seldom found in the real world. Perfect synchronization of receipts
and payments of cash is only an ideal situation.
Need for cash/ motives of holding cash:
For any business, cash is an important and crucial asset. The various
motives which prompts business to hold ready cash in their hands is explained
below:
Transaction motive:
The cash is needed to make purchases, pay expenses, taxes, dividend
etc. The cash need arises due to the fact that there is not complete
synchronization between cash receipts and payments. Sometimes cash receipts
exceed cash payments or vice versa. The transaction needs of cash can be
anticipated because the expected payments in near do not happen as desired. If
more cash in needed for payments than receipts, it may be raised through bank
overdraft. On the other hand, if there are more cash receipts than payments, it
may be spend on marketable securities. The maturity of securities may be
adjusted to the payments in future such as interest payment, dividend payment
etc.
Precautionary Motive:
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A firm is required to keep cash for meeting various contingencies. Though
cash inflows and cash outflows are anticipated but there may be variations in
these estimates. For e.g. a debtor who has to pay after 7 days may inform of his
inability to pay, on the other hand, a supplier who used to give credit for 15 days
may not have the stock to supply or he may not have the stock to or he may not
be in a position to give credit at present. In this situations cash receipts will be
less than expected and cash payments will be more, as purchases may have to
be made for cash instead of credit. Such contingencies arise often in a business.
A firm should keep some cash for such contingencies or it should be in a position
to raise finances at a short period. The cash maintained for contingency needs is
not productive or it remains ideal. However, such cash may be invested in short
period or low risk marketable securities that may provide cash as and when
necessary.
Speculative motive:
The speculative motive relates to holding cash for investing in profitable
opportunities as and when they arise. Such opportunities do not come in a
regular manner. These opportunities cannot be made about their occurrence. For
e.g. the prices of shares and securities may be low at a time with an expectation
that these will go shortly. The prices of raw materials may fall temporarily and a
firm may like to make purchases at these prices. Such opportunities can be
availed of if a firm as cash balances with it. These transactions are speculative
because prices may not move in a direction in which we suppose them to move.
The primary motive of a firm is not to indulge in speculative transactions but such
motive of a firm is not to indulge in speculative transactions but such investments
may be made at times.
Cash management has assumed importance because it is the most significant of
all the current assets. It is required to meet business obligation and it is
unproductive when not used.
Factors affecting cash availability in a business.
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The cash flow in a business is influenced by a number of factors:
Operating policies
Fixed assets
Management of receivables
Inventory
Payment policies
External factors
Monetary and Fiscal policies
Factors relevant to any industry
Cash management deals with the following
Cash inflow and outflow
Cash balances held by the firm at any point of time
Cash balances within the firm
Cash management needs strategies to deal with various facets of cash.
Following are some of its facets.
Cash Planning:
It is a technique to plan and control the use of cash. A projected cash flow
statement may be prepared, based on the present business operations and
anticipated future activities. The cash inflows from various sources may be
anticipated and cash outflows will determine the possible uses of cash.
Cash forecast and Budgeting:
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A cash budget is the most important device for the control of receipts and
payments of cash. A cash budget is an estimate of cash receipts and
disbursements during a future period of time. It is a forecast of expected cash
intake and outlay. The short term forecast cash is made with the help of cash
flow projections. The finance manager will make estimates of likely receipts in the
near future and the expected disbursements in that period. Though it is not
possible to make exact forecasts even though estimates of cash flows will enable
the planners to make arrangements for cash needs. It may so happen that
expected cash receipts may fall short or payments may exceed estimates. A
financial manager should keep in mind the sources from where he will meet
short-term needs. He should also plan for productive use of surplus cash for
short periods. The long-term cash forecasts are also essential for proper cash
planning. These estimates may be for 3-4 or more years. Long-term forecasts
indicate companys future financial needs for working capital, capital projects,
etc.
Short term and long term cash forecasts may be made with the help of following
methods:
Receipts and disbursements method: In this method, the receipts and
payments of cash are estimated. The cash receipts may be from cash sales,
collections from debtors, sale of fixed assets, receipt of dividend other
incomes of all the items; it is difficult to forecast the sales. The sales may be
on cash as well as credit basis. Cash sales will bring receipts at the time of
sale while credit sales will bring cash later on. The collections from debtors
will depend upon the credit policy of the firm. Any fluctuation in sales will
disturb the receipts of cash. Payments may be made of cash purchases, to
creditors for goods, purchase of fixed assets, for meeting operating expenses
such as wage bill, rent, taxes or other usual expenses, dividend to
shareholders etc.
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The receipts and disbursements are to be equaled over a short as well as
long periods. Any shortfall in receipts will have to be met from banks or other
sources. Similarly, surplus cash may be invested in risk free marketable
securities. It may be easy to make estimates for payments but cash receipts
may not be accurately made. The payments are to be made by outsiders, so
there may be some problem in finding out the exact receipts at particular
periods.
Adjusted Net Income Method: This method may also be known as sources
and uses approach. It generally has three sections. Sources of cash, uses of
cash and adjusted cash balances. The adjusted net income method helps in
projecting the companys need for cash at some future date and then it will
have to decide about the borrowing or issuing shares etc. in preparing its
statement the items like new income, depreciation, dividends, taxes, etc. can
easily be determine from companys annual operating budget. The estimation
of working capital movement becomes difficult because items like receivables
and inventories are influenced by factors such as fluctuations in raw material
cost, changing demand for companys products and likely delays in
collections. This method helps in keeping a control on working capital andanticipating financial requirements.
Managing cash flows
After estimating the cash flows, efforts should be made to adhere to the
estimates of receipts and payments of cash. Cash management will be
successful only if cash collections are accelerated and cash disbursement as far
as possible are delayed.
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Methods of accelerating cash Inflows
1. Prompt payment by customers: In order to accelerate cash inflows. The
collections from customers should be prompt. This will be possible by prompt
billing. The customers should be promptly informed abut the amount payable
and time by which it should be paid. It will be better if self-addressed
envelope is sent along with the bill and quick reply is requested. Another
method for prompting customers to pay earlier is to allow them a cash
discount. The availability of discount is a good saving for the customer and in
an anxiety to earn it they make quick payments.
2. Quick conversion of payment into cash: Improving the cash collecting
process can accelerate cash inflows. Once the customers write a cheque in
favor of the concern the collection can be quickened by its early collection.
There is a time gap between the cheque sent by the customers and the
amount collected against it. This is due to many factors like mailing time.
Time taken in processing the cheque within the organization and sending it to
bank and collection time within the bank.
3. Decentralized collection: A big firm operating over wide geographical area
can accelerate collections by using the system of decentralized collections. A
number of collecting center are opened in different collecting centers is to
reduce the mailing time from customers dispatch of cheque and its receipt in
the firm and then reducing the time in collecting these cheques.
4. Lock Box System: Lock Box System is another technique of reducing
mailing, processing and collecting time. Under this system, the firm selects
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some collecting centers at different places. The places are selected on the
basis of number of consumers and the remittances to be received from a
particular place. The firm hires a post box in a post office and the parties are
asked to send the cheques on that post box number. A local bank is
authorized to operate the post box. The bank will collect the post a number of
times in a day and start the collection process of cheques.
Methods of slowing cash outflows
1. Paying on last date: The disbursements can be delayed on making
payments on the last due date only, if the credit is for 10 days, then
payment should be made on the 10th day only. It can help in using the
money for short periods and the firm can make use of cash discounts also.
2. Payment through Drafts: Drafts is payable only on presentation to the
issuer. The receiver will give the draft to its bank for presenting it to the
buyers bank. It takes a number of days before it is actually paid. The
companies can economics large resources by using this method. The
funds so saved can be invested in highly liquid low risk securities to earn
income thereon.
3. Centralization of payments: The payments should be centralized and
payments should be made through drafts or cheques. When cheques are
issued from the main office, then it will take time for the cheques to be
cleared through post. The benefit of cheque collecting is availed.
4. Inter-Bank Transfer: An efficient use of cash is also possible by inter-
bank transfers. If the company has accounts with more than one bank
then amounts can be transferred to the bank where disbursements are to
be made. It will help in avoiding excess amount in one bank.
5. Making use of Float: Float is a difference between the balance shown in
the companys cashbook and balance in passbook of the bank. Whenever
a cheque is issued, the balance at bank in cashbook is reduced. The party
to whom the cheque is issued may not present it for payment immediately.
If the party is at some other station, then cheque will come through post
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and it may take a number of days before it is presented until the time. The
cheques are not presented to bank for payment there will be a balance in
the bank. The company can make use of this float if it able to estimate it
correctly.
Determining optimum cash balance
A firm has to maintain a minimum amount of cash for setting the dues in
time. The cash is needed to purchase raw materials, pay creditors, day-to-day
expenses, dividend etc. the test of liquidity of the firm it is able to meet various
obligations in time.
Some cash will be needed for transaction needs and amount may be kept as a
safety stock. An appropriate amount of cash balances to be maintained should
be determined on the basis of past experience and future expectations. If a firm
maintains less cash balances then its liquidity position will be weak. If higher the
cash balances are maintained, then an opportunity to earn is lost. Thus, a firm
should maintain an optimum cash balances, neither a small nor a large cash
balances. For this purpose, the transactions costs and risk of too small a balance
should be matched with the opportunity costs of too large a balance.
There are basically two approaches to determine an optimal cash balance
namely, minimizing cost models and preparing cash budget. Cash budget is the
most important tool in cash management.
CASH FLOW STATEMENT
Cash Flow Statements are the statements prepared by the firms, which
should report cash flow during the period classifieds by operating, investing and
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financing activities. Cash flow statements are usually disclosed in the annual
reports. According to Revised accounting standards of cash flow statements
issued by the Council of the institute of chartered account of India(1981) it is
mandatory requirement to prepare and disclose of cash flow statements in
annual reports.
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Objectives of Cash flow
The cash flow statement identifies the sources of cash inflows, the items
on which cash was expended during the reporting period, and the cash balance
as at the reporting date. Information about the cash flows of an entity is useful in
providing users of financial statements with information for both accountability
and decision making purposes. Cash flow information allows users to ascertain
how a public sector entity raised the cash it required to fund its activities and the
manner in which that cash was used. In making and evaluating decisions about
the allocation of resources, such as the sustainability of the entitys activities,
users require an understanding of the timing and certainty of cash flows. The
objective of this Standard is to require the provision of information about the
historical changes in cash and cash equivalents of an entity by means of a cash
flow statement which classifies cash flows during the period from operating,
investing and financing activities.
Scope
An enterprise should prepare cash flow statements and should prepare it for
cash period for which financial statements are presented.
Users of enterprise financial statements are interested in how the enterprise
generates and losses cash and cash equivalents. This is the case regardless
of the nature of the enterprise activities and irrespective of whether cash can
be viewed, as the product of the enterprises may be the case with a financial
enterprise. Enterprises needs cash for essentially the same reasons, however
different there principle revenue producing activities might be, they need cashto conduct there operations to pay there obligation, and to provide returns to
the investors.
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BENEFITS OF CASH FLOW INFORMATION
Information about the cash flows of an entity is useful in assisting users to
predict the future cash requirements of the entity, its ability to generate cash
flows in the future and to fund changes in the scope and nature of its activities. A
cash flow statement also provides a means by which an entity can discharge its
accountability for cash inflows and cash outflows during the reporting period.
A cash flow statement, when used in conjunction with other financial statements,
provides information that enables users to evaluate the changes in net
assets/equity of an entity, its financial structure (including its liquidity and
solvency) and its ability to affect the amounts and timing of cash flows in order to
adapt to changing circumstances and opportunities. It also enhances the
comparability of the reporting of operating performance by different entities
because it eliminates the effects of using different accounting treatments for the
same transactions and other events.
Historical cash flow information is often used as an indicator of the amount,
timing and certainty of future cash flows. It is also useful in checking the accuracy
of past assessments of future cash flows.
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INTRODUCTION:
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.
India has a rich tradition in dairying. Dairying has been inherent in Indian culture,
for centuries. Milk and milk products have always been an integral part of our
consumption habits. In the vast field of animal Husbandry, the contribution of
dairying has been most significant, in terms of employment, as well as income
generation. In India, dairying is the second important subsidiary Occupation in
rural areas, next to the main occupation of agriculture. Livestock sub-sectoralone contributed to 25 percent of the total value of agricultural GDP.
The development of Dairy industry in India is well known all over the world as
one of the most successful development program in the globe. Dairy farming is
visualized by the farmers in India as part of an integrated agricultural system
where dairy and agriculture complement each other. The milk production in India
was 17 million tones in 1950-51. This could meet only 25 per cent of the
domestic demand; the remaining 75 per cent of the demand was met by
importing the milk solids. The production was stagnant for two decades till 1970,
with annual growth rate of milk production of one per cent. Thanks to the vision
and foresight of Dr. Kurien, in 1970, under his guidance NDDB launched
Operation Flood Program with objective of ending milk famine in the country
and turning farmers co-operatives into powerful catalyst for transforming India
into major milk producer in the world. Further, by providing milk producers
remunerative prices round the year, milk production in India touched 74 million
tones since 1997. By the year 2000, India emerged as the largest milk producer
by surpassing the USA with an estimated production of 86 million tones.
The dairy sector in the India has shown remarkable development in the
past decade and India has now become one of the largest producers of milk and
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value-added milk products in the world. The dairy sector has developed through
co-operatives in many parts of the country.
More than 2,445 million people economically active in agriculture in the world,
probably 2/3 or even more of them are wholly or partly dependent on livestock
farming. India is endowed with rich flora & Fauna & continues to be vital avenue
for employment and income generation, especially in rural areas. India, which
has 66% of economically active population is engaged in agriculture, derives
31% of Gross Domestic Product GDP from agriculture.
It is beyond doubt to mention that the organized dairy industry has done a
splendid job by transforming itself from an impost dependent enterprise to a self-
sufficient industry and then embarking of export of various products. And, now it
is poised for another wave of expansion by undertaking large scale processing of
milk in the organized sector.
GROWTH AND DEVELOPMENT OF THE INDUSTRY:
Until the year 1940, there was very little published information on the
method of preparation and use of these products. The credit for the first
publication on the subject goes to Dr.W.B.Davis, the first director of Diary
research, Indian Diary research institution (now National); Bangalore, with in the
span of three or four decades since his book appeared, considerable research
has been conducted at the National Diary Research Institute and other places on
indigenous Diary products.
PRESENT STATUS OF THE INDUSTRY
The Indian Diary Industry is heading towards new century with an
accelerated and positive momentum, with unprecedented growth in milk
production by over half times in the last two decades to about 58.8 million tones
in 1992. India has emerged as the largest milk producer country in the world with
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annual milk production of 74 million tones. Food processing industry ranks the
fifth largest industry in the country. Tough the milk and milk product have 85%
business in unrecognized sector; it is having only 7% growth per year.
The quantum growth in milk production and per capital availability of milk from
107 gm per day to 109 gm per day in 1992, which is accepted to reach to about
220gm per day by 2000 A.D., can be attributed to the organized efforts in Dairy
development by the country since 1970.On the same year National Diary
Development Board (NDDB) with an aim to link dairy development with
marketing launched operation flood project.
The establishment of a co-operative structure as a ready and regular buyer of
milk produce gave a new turn to the rural economy. Today over 275 Diary plants
and 83 milk products factories in the co-operative, public and private sectors
handle an estimate 12-15% of the total milk produced. In most of the country in
the world, the proportion of milk delivered to the dairies is over 90%. The trends
are now changing fast in India too and it is accepted that the processing of the
milk on organized scale will increase sharply like in development countries.
CHANGING PATTERN OF THE INDUSTRY:
The demand for milk products is in rise. The increase in purchasing power
and pace of urbanization is leading to a change in the lifestyle and consumption
habits of the households. The domestic market for butter and ghee is growing at
a healthy rate of over 10% per annum but the same may not be true in case of an
international market. The production and export of butter has witnessed a major
decline in some of the developed countries. The situation is now alarming to the
industries which are having international market for this product. These
companies definitely have to think about other potential products that are gaining
steady growth all over the world.
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The production of dried milk and related products has become an increasingly
important segment of dairy industry. The concept was started to utilize the
sizeable part of the industry. Cheese, which is considered a main delicacy in the
breakfast in so many countries, hasnt been given its due status so far. About 2%
of the total milk productions into cheese preparation, the demand in India are
gathering momentum. The export potential of cheese has generated interest in
the private sectors in setting up larger units.
A major quantity of milk output is converted into varieties of traditional dairy
products catering to regional tastes. These products are produced in large
quantities but on a small scale by the organized sectors, by using the old process
that is empirical in nature. There are so many popular products but still those are
being prepared in house holds. Hardly, efforts have been made to capture and
capitalize in these areas. For example, the popularity of curd is very much
evident all over India in the daily diet. Still, there is no method to scientists,
technocrats and entrepreneurs.
White Revolution Karnataka stands sixth in milk production in the country and it
occupies third position with respect to milk production under co-operative sectorin the country. The milk production was around 45 lakh tones during the year
2001-02.
The KMF is covering 27 districts, with 7000 dairy co-operative societies; around
17000 villages involving 1.5 million farmers collects around 20 lakh liters of milk
daily. The processing industry consists of public, private and co-operative
sectors. In mixed economy like India from the performance point of them, many
public units have failed but private units have achieved some success.
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Chapter II
RESEARCH DESIGN Statement of problem
Scope of study
Limitation of study Research methodology
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STATEMENT OF THE PROBLEM:
The present study is undertaken to understand and evaluate the cash flows and
cash management practices at BAMUL Bangalore.
OBJECTIVE OF THE STUDY
To study the finance function of the organization and its nature.
To study the cash flow management in the organization.
To establish guidelines for overall cash management practiced by
professionals.
SCOPE OF STUDY:
The study and significance of the study are narrated below.
This includes study of cash management, cash flows and fund flows in the
specific capital-intensive industry.
The study is confined to analyzing the components of cash flows and `some
short term and long-term funds.
The findings and suggestions from this study is expected to help the industry
to frame a suitable financial strategy for the better operation of the
organization.
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SIGNIFICANCE OF THE STUDY:
Cash Management assumes more importance than other current assets
because cash is the most significant and least productive asset that a firm holds.
It is significant because it is used to pay the firms obligation however cash is
unproductive unlike fixed assets or inventories, it does not produce goods for
sale, therefore the aim of cash management is to maintain adequate control over
cash position to keep the firm sufficiently liquid and to use excess cash in some
profitable way.
The management of cash is also important because it is difficult to predict cash
flows accurately, particularly the inflows that arises no perfect co-incidencebetween the inflow and outflow of cash.
Cash management is also important because cash constitutes the small portion
of the total current assets; at management considerable time is devoted in
managing it.
LIMITATIONS:
Insufficiency in technical information and analysis.
Information relating to latest changes and current data.
The study is restricted only to recent past and therefore no long-term trend
analysis can be concerned.
METHODOLOGY:
Research Design
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The research design is the conceptual structure within which research is
conducted. It constitutes the blue print for the collection of measurement and
analysis of data.
Sources of data
Primary:
Suggestions from the finance personnel and other related department in BAMUL.
Secondary:
The secondary data is collected from the research done in the field, and past
three years data. By referring various articles on cash flows and cashmanagement published in India and from the annual reports.
Chapter III
COMPANY PROFILE
Organization profile of the company
Organization structure of the company
SWOT analysis of company
Finance department
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INTRODUCTION
The Bangalore Milk Union Ltd., (Bamul) was established during 1975
under Operation Flood II by keeping Amulas its Roll Model. At present Bamul
has Bangalore Urban, Bangalore Rural & Ramanagaram Districts of Karnataka
State as its area of operation for Milk Procurement and selling Milk in part of
Bruhath Bangalore Mahanagara Palika (BBMP) area. Since its inception the
Union is constantly striving further for dairy development and marketing activities
in its milk shed area.
OBJECTIVES
To organize Dairy Co-operative Societies at Village level and dissemination of
information like good dairy animal husbandry and breeding practices & Clean
Milk Production through Extension Services. To provide assured market & remunerative price for the milk produced by the
farmer members of the co-operative societies.
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To provide technical input services like veterinary services, artificial
insemination, supply of balanced cattle feed & Fodder seed materials etc., to
milk producers.
To facilitate rural development by providing opportunities for self-employment
at village level, thereby preventing migration to urban areas, introducing cash
economy & opportunity for steady income.
To provide quality Milk and milk products to urban consumers at competitive
prices.
BACKGROUND
On January 1st 1958 a pilot scheme to cater the Bangalore Milk Market,
Department of Animal Husbandry, Government of Karnataka was started Milk
processing facilities & Veterinary Hospitals at National Dairy Research Institute
(NDRI). Later in 1962, The Bangalore Milk Supply Scheme came into existence
as an independent body. With the great efforts by the then Honble Minister for
Revenue & Dairying, Government of Mysore Sri M V Krishnappa, A joint venture
of UNICEF, Government of India & Government of Mysore was dedicated
Bangalore Dairy to the people of Karnataka State on 23 rd January 1965 by the
then Honble Prime Minister Late Sri Lal Bahadhur Shastriji. The Bangalore
Dairy scattering over an area of 52 Acres of land, the Dairy had an initial capacityto process 50,000 liters of milk per day. Bangalore Dairy underwent a structural
change in December 1975, handed over to Karnataka Dairy Development
Corporation (KDDC). Rural Milk Scheme of Mysore, Hassan & Kudige Districts
was started under Operation Flood-II and then transferred to Karnataka Milk
Federation (KMF) in May 1984 as a successor of KDDC. To cater to the growing
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demand for milk by the consumers of Bangalore City, the capacity was increased
to 1.5 lakh liters per day under the Operation Flood-II during 1981 and later
increased to 3.5 lakh liters per day under Operation Flood-III during 1994.
As per the policies of the National Dairy Development Board (NDDB), Bangalore
Dairy was handed over to Bangalore Milk Union Ltd., (Bamul) on 1 st September
1988. The Union is capable of processing the entire milk procured, by timely
implementation of several infrastructure projects like commissioning of New
Mega Dairy state-of-the-art technology with a processing Capacity of 6.0 Lakh
liters per day, new chilling centers, renovation of product block etc.,
The milk shed area of Bamul comprises of 2611 revenue villages. As of now the
Union has organized 1803 Dairy Co-operative Societies (DCS) in 2,225 villages,
thereby covering 85 % of the total villages in these two districts. In these DCSs,
there are 3,31,544 milk producer members. Among them 105804 members are
women and 59,235 members belong to Schedule Caste and Schedule Tribes.
The philosophy of this co-operative milk producers organisation is to eliminate
middlemen and organise institutions owned and managed by milk producers, byemploying professionals. Achieve economies of scale of rural milk producers by
ensuring maximum returns and at the same time providing wholesome milk at
reasonable price to urban consumers. Ultimately, the complex network of co-
operative organisation should build a strong bridge between masses of rural
producers and millions of urban consumers & achieve a socio-economic
revolution in the village community.
Bamul has been registered under MMPO by Central Registration Authority.
Today, the Union has become the biggest Milk Co-operative Union in Southern
India. Bamul has been certified for ISO 22000:2005 & ISO 9001-2000 for quality
management and Food Safety Systems.
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In recognistion to these efforts and achievements, the National Productivity
Council (NPC) of Government of India has conferred Best Productivity
Award FIVE TIMES and Energy Conservation Award by Bureau of Energy
Efficiency (BEE) to the Union.
ORGANISATION STATUS
The member producers and their Dairy Co-operative Societies (DCS) are
the vital constituents of the Union and their progress is the judging yardstick on
the efficiency of the Unions operation. Hence the maximum importance has
been given to their development. The Union is making intensive efforts over theyears to organize DCSs in more and more villages of the three districts in the
milk-shed area.
Number of Functional DCS
11651266 1301
1386 14331483
15471607 1657
1708 1761
0
200
400
600
800
1000
1200
1400
1600
1800
2000
1999-
2000
2000-
01
2001-
02
2002-
03
2003-
04
2004-
05
2005-
06
2006-
07
2007-
08
2008-
09
2009-
10
FIG3.1
Importance has been given to enroll more and more milk producers in the villages as members of these DCSs. While
enrolling these members, more emphasis is being accorded to enroll more number of women members and to organize
more women managed DCSs under STEP (Support to Training and Employment Program for Women). It is heartening to
note that there is an active participation of women/ weaker sections of the society in all the dairy development activities of
the Union. They have become mainstay of all the developmental programs of the Union. This has resulted in the buildup
of economical benefits to the most vulnerable sections of the rural mass.
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As on March 2010 in these DCS , there are 3,31,544 milk producer members
are enrolled and out of which 1,05,804 are women and 43,184 members
belong to Schedule caste and 16,051 members belongs to schedule Tribes.
Total Milk Producers & Women Mem bership at DCS
182279
185166
203831
275440
289095
297162
309597
321238
327176
325854
331544
3121
8
3282
7
3887
8
722
20
81344
85
849
91
746
96
653
99
603
10
2842
105804
0
50000
100000150000
200000
250000
300000
350000
1998-
99
1999-
2000
2001-
02
2002-
03
2003-
04
2004-
05
2005-
06
2006-
07
2007-
08
2008-
09
2009-
10
FIG3.2
MILK PROCUREMENT
The Milk produced by 89789 farmers at village level will be collected
every day morning and Evening at DCS. Under Clean Milk Production
programme, to maintain the freshness & quality of the milk 85 Bulk Milk
Coolers covering 376 DCS of Total Capacity 1,45,000 Lts were installed at
DCS level. During the year the Unions daily average milk procurement is
8.29 Lakh Kgs, which works out to be 485 kgs per day per DCS. The milk
procurement has increased by 13.59 % when compared to the last year.
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532948 546940 557508594079
713047
805618
758021
710082729564
828684
2000-01 2001-02 2002-03 2003-04 2004-05 2005-06 2006-07 2007-08 2008-09 2009-10
Avg. Milk Procurement (Kgs Per Day)
FIG3.3
Bamul is offering the most remunerative milk procurement price to member
producers. The operational efficiency is reflected on procurement prices paid to
the member producers. The average milk procurement price paid during the year
was Rs. 14.24 for every Kg of Milk supplied to the Union. Which is 80% of total
cost of production.
Milk collected at DCS will be transported to Chilling Centers, through 94 Milk
Procurement Can Routes, by traveling 16,416 KMs every day. 23 Bulk Milk
Cooler (BMC) Routes are also in operation, which collects milk from 85 BMC
centers of 376 DCS directly transported to Bangalore Dairy through insulated
tankers.
LIQUID MILK MARKETING
The Bangalore Milk Union is marketing milk and milk products in the brand name
of Nandini through 1090 retailers, 39 Franchisee Outlets, 25 Milk Parlors, 19
Whole sale Dealers, 14 Transporter Cum Distributors being served by 214
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distribution routes. The key success factor of Bamul in becoming a market
leader is the narrow price spread maintained between purchase & sales,
marketing higher volumes of milk. The volume of sales plays a critical role in
determining costs. Hence, the market strategy of Bangalore Milk Union is to
regard selling of market milk as its core marketing activity and to concentrate its
efforts in this direction to increase the volume of milk sales. The impressive
growth in the sale of milk by Bamul over the years is due to the persistent efforts
to maintain timely supply, maintaining quality and attending to the complaints of
consumers and agents with prompt follow-up action.
431663448689
484707502000
531000
570000
620000666714
2002-03 2003-04 2004-0 5 2005 -06 2006 -07 2007-0 8 2008-09 2009-10
Total Milk Sales (Avg. Ltrs/Day)
FIG3.4
Bamul is also organising Consumer Awareness Programme as a part of Market
Development to create awareness of Nandini Milk through personal contacts,
Door to Door campaigns, Organisational Meetings, School Children Mega Dairy
Plant visit etc., are conducting regularly.
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Types of Milk & Milk products marketingby Bamul:
nandini Toned Milk
nandini Homogenised COW Milk
nandini Full Cream Milk
NandiniFull Cream Milk. Containing 6% Fatand 9 % SNF. A rich, creamier and tastiermilk, Ideal for preparing home-made sweets& savouries. Available in 500ml and 1ltrpacks. Apart from the Milk, the different MilkProducts are Curds, Butter, Ghee, Peda,Paneer, Set Curds & Spiced Butter Milk arealso sold.
Nandini Homogenised Milk is pure milkcontaining 3.5% Fat & 8.5% SNF. Whichis homogenised and pasteurised.Consistent right through, it gives youmore cups of tea or coffee and is easilydigestible. Available in 500 ml packets.
Karnataka's most favorite milk, Nandini TonedMilk. Fresh and Pure milk containing 3.0% fatand 8.5% SNF. Available in 500ml and 1ltr & 6Ltr packs. Better to use within a day from thedate of pack.
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4834755821
62943
81116
106976
143855
181028166873 165108170823
2000-01 2001-02 2002-03 2003-04 2004-05 2005-06 2006-07 2007-08 2008-09 2009-10
Full Cream Milk Sales (Avg. Liters / Day)
FIG3.5
nandini Curd
nandini Ghee
Nandini Curd made from pure milk. It's thick anddelicious. Giving you all the goodness of homemadecurds. Available in 200 gms and 500 grms & 1 Kgpacks. Nandini Butter Rich, smooth and delicious.NandiniButter is made out of fresh pasturised cream.Rich taste, smooth texture and the rich purity of cow'smilk, makes any preparation a delicious treat.
Available in 100 gms, 200 gms and 500gms cartonsboth salted and unsalted.
A taste of purity. Nandini Ghee, madefrom pure butter. It is fresh andpure with a delicious flavour.Hygienically manufactured andpacked in a special pack to retainthe goodness of pure ghee. Shelflife of 6 months at ambienttemperatures. Available in 200ml,
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nandini Butter
nandini Butter Milk
nandini Peda
Rich, smooth and delicious. Nandini Butter is
made out of fresh pasturised cream. Rich taste,smooth texture and the rich purity of cow's milk,
makes any preparation a delicious treat.Available in 100 gms (salted), 200 gms and500gms cartons both salted and unsalted.
Nandini spiced Butter Milk is a
refreshing health drink. It is
made from quality curds and is
blended with fresh green chillies,
green coriander leaves,
asafoetida and fresh ginger.
Nandini spiced butter promotes
health and easy digestion. It is
available in 200ml packs and is
priced at most competitive rates,
so that it is affordable to all
sections of people.
6566 820811139
14490 16054
3282538312
49265
61696
73369
75127
1998-99 1999-2000 2000-01 2001-02 2002-03 2003-04 2004-05 2005-06 2006-07 2007-08 2008-09
Curd Sales (Avg. KG's / Day)
No matter what you are celebrating! Made
from pure milk, Nandini Peda is a
delicious treat for the family. Store at
room temperature approximately 7 days.
Available in 250gms pack containing 10
pieces each.
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FIG3.6
INFRASTRUCTURE DEVELOPMENT:
The strategy of Bangalore Milk Union is Procure More, Sell More & Serve
More and reaping the benefits of economies of scale. In order to realize this
strategy, the Union has implemented the following projects so that more and
more milk can be procured and processed. This will help us to serve our
producer members by passing on the maximum benefits, we are consciously
adopting the growth-
oriented strategy of
helping our producers
to grow by ourselves
growing constantly.
Mega Dairy with a
capacity to process 6
lakh litres of milk per
day expandable to 10 llpd has been built by investing Rs. 38.70 crores obtained
as term loan from National Dairy Development Board. The Mega Dairy, has
latest state-of-the-art technological facilities in dairy processing and the Union will
have the ability to manufacture milk and milk products to world class standards.
Although Bamul sets standards for its products for better serve to customers, it
was not possible to keep the standards stability due to manual operations. In
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designing mega dairy, Bamul looked towards an automated system that would
allow it to achieve consistent quality parameters for each product. Energy and
manpower would also be more effectively optimised and controlled and all plant
equipment would be integrated.
NEW Projects:
Bamul has planned to convert Hosakote Chilling Center into a 2.0.LLPD
Capacity Dairy with an investment of Rs.2427.00 Lakh and a New Product Block
at Bangalore Dairy Premises with an investment of Rs. 2033.00 Lakhs by the end
of 2010.
Bamul has SEVEN Chilling Centers geographically located around Bangalore
and 85 Bulk Milk Coolers at DCS Level. Milk Product Block within the campus to
manufacture Butter, Ghee, Peda, Flavoured Milk, Spiced Butter Milk, Paneer, Set
Curds etc.,
ANIMAL HEALTH AND OTHER ACTIVITIES
ANIMAL HEALTH
The Union is taking special care to promote the health of the cattle of
member milk producers. Veterinary facilities have been extended to all the DCS.
Mobile veterinary routes, emergency veterinary routes, Health camps,
vaccination against foot & mouth disease and thaileriosis diseases, etc., are
being regularly done. Regularly Deworming is also done for the cattle. There is
also a backup of First Aid Services to needy DCSs.
TABLE 3.1
Particulars 2007-08 2008-09 2009-10MVR Cases Treated 43761
Health Camp cases Treated 149565 166198 118307
Emergency Cases Treated 70735 70420 74773
F& M Vaccination 430431 373107 352176
Rakshavac 13395 18094 26227
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ARTIFICIAL INSEMINATION
Artificial Insemination (AI) has been the main functional tool in dictating
this upsurge of development of Dairying in Bamul. Farmers have taken up cross-
breeding from way back in 1962. The Union has surveyed and appropriately
located AI centers based on cattle population. It is also popularized the idea of
cluster AI centers and replace the Single AI centers in a phased manner. The
use of progeny tested semen from Nandini Sperm Station is also giving a
further boost to the breeding activities.
TABLE 3.2
Particulars 2007-08 2008-09 2009-10
No. of Single AI
Centers251 259 259
No. of AI Done 1,11,536 1,12,740 1,16,002
No. of Cluster AI
Centers94 96 101
No. of AI Done1,69,185 1,92,207 1,97,645
Total AI Done 2,80,721 3,04,947 313647
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To reduce infertility in cattle, a frontal attack has been continuously attempted by
conducting Special Infertility Camps under the expert guidance and by the use of
infertility connected drugs.
During 1999-2000, a Vertical Silo of 10,000 liter capacity for storing Liquid
Nitrogen has been installed under TMDD program in collaboration with National
Dairy Development Board and Karnataka Milk Federation. In addition this facility
is being used for supplying liquid nitrogen to neighboring Unions and also to
Department of Animal Husbandry. This has helped in protecting the quality of
semen straws, thereby considerably increasing the probability of conception
during artificial insemination of cattle.
CATTLE FEED & FODDER DEVELOPMNET
The Union is implementing several programs to increase milk production
and also to reduce the cost of milk production in the milk shed area. Balanced
cattle feed is being procured from the Cattle Feed Plants of KMF for distribution
among member producers.
Fodder seeds are distributed to member producers at subsidized rates. In
addition to this, technical advice, Silage Demonstrations, Azzolla Demonstrations
and Straw Treatment Demonstrations are also being conducted at DCS level.
Chaff Cutters are supplied at subsidized rates.
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Cattle Feed Sales:TABLE3.3
Particulars
2007-08 2008-09 2009-10
CF Sales (in
MTs) 33359 37691 40529
A Seed Processing plant was commissioned at Rajankunte by investing Rs. 41
lakhs. The Union is catering to the Seed production needs of many Unions inKarnataka and also of Southern India.
YASHASVINI HEALTH INSURANCE:
Yashasvini Health Insurance Scheme was muted by Government of Karnataka
during the year 2001-02. This scheme was implemented by Coperative
department, Members of Co-operative Societies and their family members are
the beneficiaries of this scheme. The annual premium is Rs. 120/- per
beneficiary. All major hospitals are adopted for this scheme, all types of surgery
will be covered under this health scheme. Bangalore Milk union has covered
1.50 Lakh beneficiaries under this scheme by contributing Rs 30/- towards
premium per beneficiary.
CATTLE INSURANCE:
Bangalore Milk Union is providing Insurance Coverage to the Dairy animals in
collaboration with United India Insurance Ltd., 40,238 animals are covered under
this Insurance. The annual premium is 2.22% of the value of the animal. 50% of
the annual premium of Rs. 122.99 Lakh was borne by bamul.
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IN THIS MILLENNIUM
We want to become not only the largest Union, but also become one
amongst the best-run milk unions in the country. The Union is aware of the
challenges of the new private entrants, who are mainly thriving on unfair trade
practices. They procure milk at least cost, without bothering about the welfare of
the producers and without extending any technical inputs for improving milk
production. They market milk by resorting to unhealthy and unethical practices
deceiving the unsuspecting consumers. The Union wants to counter this in a
positive manner by trying to improve its efficiency of operation and market
promotion. It wants to become well trenched in the market as market leader. Itwants to follow the strategy of cost-competitiveness, which is hard to match by
the competitors.
PROGRESS AND ACHIEVEMENT OF THE UNION SINCE ITS INCEPTION
1. Establishment of the Union:
Bangalore Co-operative Milk Producers Societies Union Ltd. was
established on 16th November 1976.
After the bifurcation of the above Union, into two separate union for
Bangalore Districts (Urban and Rural) and Kolar District, Bangalore Urban
and Rural District Co-operative Milk Producers Societies Union Ltd.
(BAMUL) on 23rd March 1987.
Bangalore Dairy was took over by BAMUL on 1st September 1988.
Bangalore Mega Dairy started functioning on 17th December 2000
MMPO-1992 Registration No 42/R.MMPO/93
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Bangalore Dairy ISO 22000-2005 & ISO 9001-2000 Certified by Standard
Australia International (SAI) Global Ltd., a reputed Australian based
company during 2006.
2. Infrastructure at the time of inception & subsequent expansion year-wise in terms of the following:
Capacity of the Dairy and Chilling Centers
a. Main Dairy
i. Milk Processing capacity was 60,000 Liters per day (LPD) at the time of
establishment of the dairy on 23rd January 1965.
ii. Milk Processing capacity was expanded to 1.5 lakh LPD on 1st February
1981.
iii. Milk Processing capacity was expanded to 3.5 lakh LPD during 1994.
iv. Milk Condensing plant 3 Metric Tons per day.
v. Spray Drying plant 5 Metric Tons per day.
vi. Milk Processing capacity of 6,00,000 Liters per day (LPD) fully automated
Mega Dairy started functioning from 17th December 2000.
vii. Converted the old building as a Product Block during 2002.
b. Anekal Chilling Center
i. Anekal Chilling Center was started on 12th September 1964 with a milk
chilling capacity of 20,000 LPD.
ii. Later the milk chilling capacity was expanded to 60,000 LPD on 28th
February 1999.
iii.
c. Byrapatna Chilling Center
i. Byrapatna Chilling Center was started on 19th May 1962 with a
milk chilling capacity of 20,000 LPD.
ii. Later the milk chilling capacity was expanded to 60,000 LPD
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d. Doddaballapur Chilling Center
i. Doddaballapur Chilling Center was started on 5th January 1967
with a milk chilling capacity of 20,000 LPD.
ii. Later the milk chilling capacity was expanded to 60,000 LPD
e. Vijayapura Chilling Center
Vijayapura CC was established on 1st February 1995 with a milk chilling
capacity of 1 lakh LPD.
f. Solur Chilling Center
Solur Chilling Center was established on 31st January 1999 with a milk
chilling capacity of 60,000 LPD.
g. Hoskote Chilling Center
Hoskote Chilling Center was commissioned on 29 th March 2000 with a
milk chilling capacity of 1.5 lakh LPD.
h. Kanakapura Chilling Center
Kanakapura Chilling Center was commissioned on 1st October 2004 with
milk chilling capacity of 60,000 LPD.
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SWOT ANALYSIS
STRENGTH
BAMUL is an existing profit making company with considerable reputation
for their competence and managerial ability to best sell the product.
Its one among the best-run milk unions in Karnataka state.
It has the advantage of covering maximum sales of milk and milk products
in Bangalore than any other company It offers different varieties of milk meeting different requirement of people.
It also offers milk products like peda, buttermilk, curd and so on.
WEAKNESS
The milk acquired has to be processed and dispatched within 24hours.
Lot of competition in the market.
Has not been able to capture rural market to a maximum extent.
OPPORTUNITIES
They can manufacture and market any product based on milk.
To become one amongst the best-run milk unions in the country.
To establish themselves strongly among other parts of India.
THREATS
Competition from other companies.
Small scale local companies popping up in small town and rural areas.
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Long life milk and their products being offered by other companies.
FINANCE DEPARTMENT
FINANCE:
The Union had an approximate turnover of Rs. 527.77 crores in the year
2009-10 as against Rs. 508.24 Crores for the year 2008-09. Union has earned a
approximate Net profit of Rs. 2.79 Crores for the year 2009-10 as against Rs.
1.59 Crores during 2008-09.
FIG3.7
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Annual Turn-over (in Lakh Rupees)
19776.2
0
22536.3
0
22072.9
3
23232.0
0
25323.4
3
27873.7
6
31345.89
380
20.6
37452.0
0
45205.0
0
50824.0
0
52776.1
3
1998-
99
1999-
2000
2000-
01
2001-
02
2002-
03
2003-
04
2004-
05
2005-
06
2006-
07
2007-
08
2008-
09
2009-
10
FIG3.8
177.31
237.58
73.9335.73
228.52
387.52
51.29
357.3327.48
574.83
343.79
159.00
279.32
998-991999-2000200 0-0 12001-022002-032003-042004-05200 5-0 6200 6-0 72006-07200 7-0 82008-092009-10
Net Profit (in Lakh Rupees)
FIG3.9
DEPARTMENTAL STRUCTURE(FINANCE)
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GENERAL MANAGER FINANACE
MANAGER FINANACE
Deputy Manager
Deputy
Manager
0 0
P & I
PAY
ROLL
Accts &
Comp. BILLS SALES
Asst.
Manager
Asst.
Manager
Asst.
Manager Asst. Manager Asst. Manager
M Narayana
Swamy 0 GJ Satheesh KV Venkataramanaiah
Mallikarjuna
Swamy
SV Marji
A/c's. OfficerA/c's.
Officer A/c's. Officer A/c's. Officer A/c's. Officer
Subhashini devi
A/c's. Supdt
A/c's.
Supdt A/c's. Supdt A/c's. Supdt A/c's.. Supdt
0 0HD Vasanth- Admin-
supdt NM Ramesh
V Shivalingamma-
Admin-Supdt L Manjunath
KN Vidyavathi
Admin-Supdt
KAS Ishwar
-Admin-Supdt
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A/c's. Asst
Gr -I
A/c's. Asst
Gr -I
A/c's. Asst
Gr -I A/c's. Asst Gr -I
A/c's. Asst Gr
I
MT Bettegowda
-Admin BS Geetha
V Raghavendra-
Admin-1 B Somashekar
V Ramachandra
rao
SR Jagadamba
Hemlatha -
Admin-1
A/c's. Asst
Gr -II
A/c's. Asst
Gr -II
A/c's.Asst Gr
-II A/c's. Asst Gr -II
A/c's. Asst Gr
II
0 KN Mohankumar Puttasiddaiah
NR Ramesh-
Admin HN Rajegowda M Munireddy
AR Ramesh-Admin
V Ashok Kumar-Admin-2 Umadevi
D Ganesh
BS Ragahavendra
Sandya Rani-Admin-2
Hemavathi
-Admin-2
A/c's. Asst
Gr -III
A/c's. Asst
Gr -III
A/c's. Asst
Gr -III A/c's. Asst Gr -III
A/c's. Asst Gr
III
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L Jayamma-
Admin-3 0 0 0
DO Gr-II DO Gr-II DO Gr-II DO Gr-II DO Gr-II
Bhuvaeshwari
0 0 0 0 Sushelamma
Helper Helper Helper Helper Helper
SChandrashekar Puttaiah 0
Doddahonnashetty
Nanjappa DG-4
Subbamma Rukmini
Parvathi
Indira
ACCOUNTS AND LEDGERS MAINTAINED AT BAMUL
The daily transactions are maintained through tally
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SIGNIFICANT ACCOUNTING POLICIES
METHOD OF ACCOUNTING
The method of accounting used is the double entry system
FIXED ASSETS AND DEPRECIATION
All fixed assets are valued at cost.
In the case of land, cost includes acquisition cost and expenditure on
rehabilitation and development.
In respect of fixed assets sold, no depreciation is claimed during the year
of sale.
Plant and machinery and scientific instruments individually are
depreciated at 100% in the year they are put to use.
INDIRECT EXPENSES
Indirect establishment expenses, general expenses, receipts relating to
common units and depreciation on service assets are appropriated between
capital and revenue on the basis of budget/departmental estimates.
CASH MANAGEMENT PRACTICES AT BAMUL
Cash is an omnipresent phenomenon in a business. It is the Life Blood of
any business. Like blood in a human body, it circulates to all the segments of a
business activity. Every business activity has direct or indirect effect on finance,
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and anything done financially affects cash eventually. It is the most liquid assets;
in fact liquidity of other assets is measured in terms to their convertibility into
cash. It is also the most crucial asset responsible for the successful running of a
business. But if not managed skillfully, it is equally responsible in running the
business. Even a profitable business becomes bankrupt when it runs out cash.
Effective and efficient cash management thus aims at ensuring ready cash
available at all times to cater to the operating, investing and financing
requirements of a business, not too much but never too little.
Cash management in a business is like a two-way traffic. It keeps on moving in
and out of business. The inflow and outflow of cash never coincides. The factor
influencing demand of cash, i.e. the motives for holding cash and also the factors
influencing availability of cash in the business, have already been discussed in
the introduction to the topic of cash management. Effective control of these
constitutes two important aspects, which is unique to cash management, is time
dimension associated with the movement of cash, because there is no synchrony
of cash inflow and outflow, the inflow may be more than the outflow or the outflow
may be more than the inflow at a particular time. This needs regulation, left to it
cash flow is apt to flow monotonic pattern, and showers of cash may be heavy,
scanty or just normal. Hence there is a dire need to control its movement through
skill full cash management. The primary aim of cash management is to ensure,
timely an advocate availability of cash for the firm. Thus, it is crucial to develop a
cash management program aims at evolving strategies for dealing with various
facets of cash management.
These facets include:
Optimum utilization of operating cash flow
Cash forecasting
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Cash management technique
Liquidity analysis profitable deployment of surplus funds
Economical borrowings
CASH FORECASTING
Forecasting is forewarning and forewarned is forearmed. Despite the
uncertainty future and number of other facts which affect accuracy of forecasted
FACETS OF CASH
MANAGEMENT
LIQUIDITY ANALYSISDEPLOYMENT
OF FUNDS
CASH FORECASTING
CASH
MANAGEMENT TECHNIQUE
ECONOMICAL BORROWING
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figures, the fact remains that if the business is successful in drawing reasonably
dependable forecast it can get sufficiently reliable signpost to indicate where,
when and what type of actions should be taken to salvage the situation. Thus
forecasting is a planning tool. It is used for projecting future operational result of
various activities.
In brief the following are benefits of cash forecasting:
Cash flow requirements
Cash deficit
Cash surplus
Pooling of cash
Long term cash requirements
Avoidance of bankruptcy
The method of Integrated Business Plan(IBP) is being used by the BAMUL to
forecast the budget for the year and the requirements is bifurcated on monthly
basis the requirements are submitted by the concern department and on the
basis of requirements the material is supplied and when there is shortage theyare buying the material from the nearest distributers to match the supply
CASH BUDGETAs stated above, forecasting helps in determining the anticipated cash
receipts and payments of a future period. Cash forecasting is essential for cash
budgeting. In order to make forecast an effective instrument of control in the
mechanics of cash management, it has to be converted into a cash budget.
A cash budget is: Statement containing forecast figures.
Forecasts are made for a predetermined period known as budget period.
It is designed and presented in an orderly format.
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Proper formatting of cash budget is very important. It ensures prompt, regular,
accurate assimilation and comprehensive display of data yearly. It also enhances
comparability of budgeted figures with the actual.
ROLE PLAYED BY BANKS IN CASH MANAGEMENT
For many practices of cash management to be effective in any business, it
requires perfect co-ordination between 3 parties.
Organization Customer
Bank
In many organizations, banks play a commanding role in the contemporary cash
management strategies and most of the cash management techniques are under
the control of banks.
Most of the techniques require a fully developed automated banking
infrastructure. Banks as a matter of fact play a commanding role in the
contemporary cash management strategies and many steps involved in these
techniques are under the control of banks. The developed countries have very
advanced banking system. Many of the techniques, which are applicable in these
countries, are not prevalent in developing countries like India.
In BAMUL the bank plays a important role as the deposits and payments of the
people who supply milk is look after by it.
MANAGEMENT OF INVENTORY
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The inventory of BAMUL is milk. To supply milk through Bangalore the
BAMUL has to get the milk from surrounding of Bangalore Anakel, Byrapatna,
Dodabalapur, Vijayapur, Solur Hoskote, Kanakpur where they have chilling
centers there they are storing the milk which they are getting from milk lenders
and they also collect the milk they get in the morning and the milk is chilled to
4degree centigrade and brought to main dairy .The processing capacity of main
dairy is 6laks liters per day.
Chapter IV
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ANALYSIS AND INTERPRETATION OF DATA
LIQUIDITY AND EFFICIENT USE OF CASH
RATIO ANALYSIS
LIQUIDITY AND EFFICIENT USE OF CASH
Liquidity can be defined as the ability of business to convert its
assets into cash incurring minimum cost and time. Every business
strives to convert its current assets into cash at the first available
opportunity so that cash so acquired can be used for acquisition of
new assets such as for quick conversion into cash again. A business
often encounters liquidity problems and the management should be
cautious enough to take quick and accurate decision to save the
business from collapsing.
A common symptom of liquidity problem is inability of a business to make
payments to its creditors, if a business fails to release payments within the
stipulated period it losses, first the opportunity to avail cash discount, and
secondly its own creditability. Another symptom is excessive borrowing, yet
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another symptom of looming liquidity crises is existence of relatively low or in
some cases negative working capital. Finally, over-trading is also responsible for
liquidity crisis.
MEASUREMENT OF LIQUIDITY
Ratios play an important role in determining the financial position of the
business to the outside world. They indicate several aspects, which can be
ascertained through the final account of the company, namely the balance sheet
and the P&L account. The following ratios are commonly adopted to measure the
liquidity strength of a business.
CURRENT RATIO
QUICK RATIO
DEBTORS TURN OVER RATIO
Showing the cash flow statement for the year ended 31st March 2010
CASH FLOW STATEMENT FOR THE YEAR ENDED 31ST MARCH 2010
Table4.1 (Amt in Rs)
A) CASHFLOW FROM
OPERATING ACTIVITY 2008-2009 2009-2010
Net profit before tax 18526743 27932255
Depreciation 43588053 44692570
Interest and banking 17616928 19540066
Sale of scrap 5196426 5671374
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Profit/Loss on sale of
assets
- 63100
Donations - 622337
Income for investments 6616360 3892284
Interest receivables 481667 395293
Operating profit before
working capital changes
456131057 545566605
Change in inventory 14385344 35407948
Change in sundry
Debtors
34291309 (7394465)
Change in loans and
advances
7349453 3060356
Change in current
liabilities provision
(95712535) 135213482
(Amt in Rs)
Change in provision 576645 284259
Cash generated from
operations
5720582038 5147013018
Direct tax paid 2840694 2782736
Net cash from operating
activities (A)
6202546204 5875768804
B) CASH FLOW FROM
INVESTMENT
4093362465 4497332183
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ACTIVITIES
C) CASH FLOW FROM
FINANCING ACTIVITIES
Change in loans (46852266) (50526300)
Net cash used in
financing activities (c)
(46852266) (50526300)
Net increase /decrease
in cash and cash
equivalents (A+B+C)
10249056403 10322574687
Cash and cash
equivalents(opening)
293242434 165607914
Cash and cash
equivalents (closing )
165607914 301776956
Data analysis with comparative statement method for 2009 and
2010
1. Net profit before Tax
N.P. for 2010 = 27932255
N.P. for 2009 = 18526743=100/27932255x18526743
=66.32%
Net profit before tax for the year 2009-2010 is 66.32% over 2008-09
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2. Finance Charges
2010=19540066
2009=17616928
=100/19540066x17616928
=90.14%
The finance charges have been 90.14%
3. Sundry Debtors
Sundry debtors have been increased to the extent of 26896844 as
compared to the last year.
4. Loans and advances
Loans and advances have decreased in the year 2009-10, which means
that the company is in good position comparing to previous year.
Current Ratio
= Current Assets / Current Liabilities
TABLE4.2 (In Crores)
Particulars 2007-08 2008-09 2009-10
Current Assets 52.06 37.89 52.86Current Liabilities 40.92 31.35 44.87Ratio 1.27 1.20 1.17
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0
10
20
30
40
50
60
2007-08 2008-09 2009-10
Current Assets
Current Liabilities
Ratio
GRAPH 4.1
Graphical Representation of current assets and liabilities
Graphical representation of current ratio
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1.12
1.14
1.16
1.18
1.2
1.22
1.24
1.26
1.28
Ratio
GRAPH 4.2
Analysis and interpretation
The current ratio or the working capital ratio reveals the liquidity position of the
firm. This ratio is used to judge the companys ability to meet short-term
obligation to remain solvent in the event of adversities. Here it is at satisfactory
level
The conventional current ratio is held to be 1.17. But from table it can be seen
that in BAMUL the Current Ratio is close to standard level.
The current ratio is high in the year 2008 i.e. 1.27 and it has gradually come
down viz. 1.20 in 2009 and 1.17 in 2010. However, this is considered quite crude,
as it does not take into account the liquidity of a company having current assets
composed primarily of cash and debtors is generally considered to be more liquid
than a firm where current assets consist of primarily of inventories. Therefore in
order to evaluate the liquidity of the firm a more refined ratio may be used called
the Acid Test Ratio or Liquidity Ratio.
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Current Asset Turnover Ratio
= Net sales / Current assets
TABLE4.3 (In Crores)
Particulars 2007-08 2008-09 2009-10
Net Sales 452.06 509.35 566.33
Current Assets 52.06 37.89 52.86
Ratio 8.68 13.44 10.71
Source Annual Report, BAMUL
Graphical representation of Net sales and Current Assets
GRAPH 4.3
0
100
200
300
400
500
600
2007-08 2008-09 2009-10
Net Sales
Current Assets
Ratio
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0
2
4
6
8
10
12
14
Ratio
GRAPH 4.4
GRAPHICAL REPRESENTATION OF CURRENT ASSET TURNOVER
RATIO
Analysis and interpretation
The current assets turnover ratio reveals the number of times the current assets
of the company are utilized in trading the transaction; it also tells us the relative
efficiency with which the firm utilizes its current assets to generate output.
In BAMUL the current assets turnover ratio have decreased from 8.68 in 2007-08
to 13.44 in 2008-09 and decreased to 10.71 in 2009-10
.
This ratio there reveals that the current assets utilization has been efficient. This
can be inferred from the fact that, the employment of more of current assets has
achieved in generating the proportionate net sales i.e. with the increase in
current assets there has been a proportionate increase in sales.
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Quick Ratio
= Quick Assets / Current liabilities
Quick Assets = Current Asset Stock & prepaid expenses.
Quick Ratio (QR) is the ratio between quick current assets (QA) and current
liabilities (CL). QA refers to those current assets that can be converted into cash
immediately without any value dilution. QA includes cash and bank balances,
short-term marketable securities, and sundry debtors. Inventory and prepaid
expenses are excluded since these cannot be turned into cash as and when
required.TABLE4.4 (In
Crores)
Particulars 2007-08 2008-09 2009-10
Quick Assets 41.54 28.01 45.72
Current Liabilities 40.92 31.35 44.87Ratio 1.01 0.89 1.02
Source: Annual Report BAMUL
Graphical representation of quick ratio
0.8
0.85
0.9
0.95
1
1.05
2007-08 2008-09 2009-10
Ratio
GRAPH 4.5
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Analysis and Interpretation.
QR indicates the extent to which a company can pay its current liabilities without
relying on the sale of inventory. This is a fairly stringent measure of liquidity
because it is based on those current assets which are highly liquid. Inventories
are excluded from the numerator of this ratio because they are deemed to be the
least liquid component of current assets.
Generally, a quick ratio of 1:1 is considered good. If this is taken as a norm, the
liquidity position of BAMUL may be taken as less satisfactory in 2008-09.
From the above Analysis, the companys quick ratio was decreased from 1.01 to
0.89 in 2008-09 and again increased to 1.02 this is mainly because of effective
realization of sundry debtors and decrease in quick assets increase in the cash
and bank balance and increase in the current liabilities.
Current Assets to Total Assets Ratio=
Current assets/ Total assets
Total Assets = Fixed assets, Investments, Current Assets
TABLE4.5 (In Crores)
Particulars 2007-08 2008-09 2009-10
Current Assets 52.06 37.89 52.86
Total assets 110.31 94.68 106.84
Ratio 0.47 0.40 0.49
Source: Annual report BAMUL
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Graphical representation of current assets to total assets ratio
0%
20%
40%
60%
80%
100%
2007-08 2008-09 2009-10
Ratio
Total assets
Current Assets
GRAPH 4.6
Analysis & Interpretation
From the above analysis the companys current assets to total assets ratio is
satisfactory. This is because there was a proper and continuous increase in
current assets. But there was an increase in total assets that is because ofeffective realization of sundry debtors. The companys current assets to total
assets ratio was 0.47 in 2007-08 and 0.40 in 2008-09 and 0.49 in last year.
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Debtors Turnover Ratio:
Net Credit Annual Sales/Average Trade Debtors
TABLE 4.6 (In Crores)
Particulars 2007-08 2008-09 2009-10
Net Credit Annual Sales 426.87 477.24 527.76
Average Trade Debtors 8.59 7.52 8.86
Times 49.69 63.46 59.56
Source: Annual report BAMUL
Graphical representation Debtors Turnover Ratio
GRAPH 4.7
0
100
200
300
400
500
600
2007-08 2008-09 2009-10
Net Credit AnnualSales
Average TradeDebtors
Times
Analysis & Interpretation
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Credit is used as a marketing tool by number of companies. When the
firm extends credits to its customers, debtors are created in the firms accounts.
Debtors are expected to be converted into cash over a short period and,
therefore, are included in current assets. The liquidity position of the firm
depends on the quality of debtors to a great extent. A debtor turnover indicates
the number of times debtors each year. Generally, the higher the value of
debtors turnover, the more efficient is the management of credit. Here the
debtors turnover ratio in 2007-08 was 49.69 then it increased to 63.46 in the next
year and the last year it decreased to 59.56.
Average Collection Period =
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Average No of working days/Debtors Turnover Ratio
Average number of working days is assumed to be 365 days.TABLE 4.7
Source: Annual report BAMUL
Analysis & Interpretation
The Average Collection period ratio represents the average number of
days for which a firm has to wait before its receivable is converted into cash. It
measures the quality of debtors. Generally, the shorter the average collection
period the better is the quality of debtors as a short collection period implies
quick payment by debtors. Similarly, a higher collection period implies as
inefficient collection performance which in turn adversely affected by liquidity or
short term paying capacity of a firm out of its current liabilities. Moreover longer
the average collection period larger the chance of bad debts. But precaution is
needed while interpreting a very short collection period because a very low
collection period may imply a firms conservative policy to sell on credit of its
inability to allow credit to its customers and thereby losing sales and profits.
There is no rule of thumb of standard which may be used as a norm while
interpreting this ratio as the ratio may be different from firm to firm depending
upon its credit policy, nature and business condition.
This gives an indication of the average time taken for the collection of the debtors
of the company during the year.
Particulars 2007-08 2008-09 2009-10
Average No of Working Days 365 365 365
Debtors Turnover Ratio 49.69 63.46 59.56
Average collection period 7.34 days 5.75 days 6.12 days
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From the above analysis companys decreased average collection period of
debtors, From 7.34 days to 5.75 days 2008-09 and again increased to 6.12 days
in the year 2009-10.here the collection period is good.
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CASH TURNOVER RATIO=
Sales/Cash balances and Bank balances
TABLE 4.8 (In Crores)Particulars 2007-08 2008-09 2009-10
Net Credit Annual Sales 426.87 477.24 527.76
Cash and Bank balance 29.32 16.56 30.17
Ratio14.55 28.81 17.49
Source: Annual report BAMUL
Graphical representation of Cash Turnover Ratio
0
100
200
300
400
500
600
2007-08 2008-09 2009-10
Net Credit Annual Sales
Cash and Bank balance
Ratio
GRAPH 4.8
Interpretation
Cash turnover ratio measures the cash usage as a ratio of sales in a period to
the ca