working capital management in dairy co-operative

7/28/2019 WORKING CAPITAL MANAGEMENT IN DAIRY CO-OPERATIVE

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A REPORT ON

WORKING CAPITAL MANAGEMENT IN DAIRYCO-OPERATIVE

SUBMITTED IN PARTIAL FULFILLMENT FOR THE

DEGREE OF

BACHELOR OF BUSINESS ADMINISTRATION

(BBA)

UNDER THE GUIDANCE OF: SUBMITTED BY:

MR.MANISH TIRKEY RAGVENDRA KUMAR

LECTURER 08BBAH028

JSBS

SHIATS,

ALLAHABAD

SAM HIGGINBOTTOM INSTITUTE OF AGRICULTURE, TECHNOLOGYAND SCIENCES, ALLAHABAD


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DECLARATION

I, RAGVENDRA KUMAR, hereby declared that the researchwork presented in this report entitled WORKING

CAPITAL MANAGEMENT IN DAIRY CO-OPERATIVE. for

the fulfillment of the award of Bachelor in Business

Administration (Hons.).

from SAM HIGGINBOTTOM INSTITUTE OF AGRICULTURE,TECHNOLOGY AND SCIENCES, ALLAHABAD is based

on my work during the summer training in the

LUCKNOW PRODUCERS CO-OPERATIVE MILK UNION

LTD. The project embodies the result of original work

and studies carried out by me and the contents of the

project do not form the basis for the award of any

other degree to me or to anybody else.


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ACKOWNLEDGEMENT

I am thankful to management to study the

WORKING CAPITAL MANAGEMENT IN DAIRY CO-

OPERATIVE for granting the permission,

corporation and valuable information for

competition of this project.No words are enough to thank Mr. Tapesh Yadav

(Finance Manager) and

Mr. Tripathi, LUCKNOW PRODUCERS CO-

OPERATIVE MILK UNION LTD

Who not only inspired me to work on this projectbut also accepted to guide me.

In spite of heavy responsibilities and busy

schedules, they always managed time to provide

Proper guidance.

Last but not the least, I would like to say that my

parents and friends for giving me their constant

support and encouragement in completion of my

project.


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INTRODUCTION

AN INTODUCTION OF FMCG INDUSTRY

The FMCG sector is a cornerstone of the Indian economy. This

sector can drive growth, enhance quality of life, create jobs, and

support penetration of technology. A vibrant FMCG sector can

boost agricultural product and export. It contributed to the

exchequer significantly, disperse technology across the value

chain and usher in the product innovation. This innovation can

improve Indian Health standards.

Fast Moving Consumer Good (FMCG) industry has a long history.

However, the Indian FMCG began to take shape only during the

last fifty-odd years Today, the Indian FMCG industry continues to

suffer from a definitional dilemma. In fact, the industry is yet to

Crystallize in terms of definition and market, size, among others.

The definitional confusion that has marked the Indian FMCG

industry is getting confounded. Some others call it the CPG

industry and some even call it the PMCG industry. The Indian

FMCG industry has suffered because of the confusion.

It is an industry which touches every aspect of human life from

looks to hygiene to palate.


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Perhaps defining as industry whose scope is so vast is not so

easy.

The government is at crossroads not knowing how and where to

slot the Indian FMCG industry and unsurprisingly, the manner in

which it has treated an industry which holds tremendous promise

as producer of goods that pervade everyday life has been only

callous. The facts that the FMCG industry is a noteworthy

employer and a major tax payer are being ignored.

The only thing that is cheering the industry are the reforms of the

nineties. Post reforms, the industries is excited about a

burgeoning rural population whose income are rising and which is

a willing to spend on goods designed to improve lifestyle. What is

needed now is a change in the mindset of the mandarins, FMCG

industry -friendly legislation are the needs of the hour. It does not

matter whether changes are being brought about by dawning

market realities or the ongoing economic reforms. One thing is

certain here: The Indian FMCG industry has a promising future to

look forward to.

In terms of growth potential, the Indian market is a great horse to

bet on. With a little help

and understanding from the government, the Indian FMCG can

realize its true potential.So far, it has been a checked graph for the MNCs operating in the

Indian FMCG industry. Domestic companies are only beginning to

make their presence felt in the industry. It has taken tremendous


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consumer insight and market savings for the FMCG players to

reach where they are today. But, the journey has only begun.

PROFILE OF THE

COMPANY

Name of the organization

LUCKNOW PROODUCERS CO-OPERATIVE

MILK UNION LTD

Address of the organization

22, Jopling Road, Lucknow

Established

In year 1938

Registration

23rd March 1938

First Dairy Inspector


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N.K. Bhargava

Place of Establishment Initialy at Charbagh, Shifted to

Ganesh ji, Presently

at 22, Jopling Road, Lucknow

Founder

Raj bahadur Gopal Lal Pandya

Board Of Directors

Mr. Gopal Pandya

Mr. N.C. Chaturvedi

Mr. Tej Shanker

Mr. Pushkar Nath Bhatt

Per Day Production Of Milk Initially 4000Ltr

Area of Distribution

Initially- Bakshi ka talab, Tewari Ganj

At Present- entire District


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ABOUT THE COMPANY

The common brand name of the company is PARAG the

meaning of PARAG is the pollen of flower the slogan in the logo is:

-

PURE NATURAL & GOOD HEALTH

Parag milk shed is situated in the Lucknow, the capital of Uttar

Pradesh since independence it has formed part of the traditional

supply line of agriculture products from the village to the big

cities rich in its milk potential the milk shed has, in the source of

last few decades been thoroughly exploited by small traders and

powerful contractors and well organized private dairies. Thus,

while such intermediaries were retaining large profits the rural

milk producers found their position deteriorating day by day.


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In 1950-a co-operative milk supply union was organized in

Lucknow , which started collecting milk from village and supplied

to Lucknow and local markets. This milk union continued function

for about a decade, in the mean time Lucknow milk scheme was

established by government of India in 1959-60 to ensure cheaper

milk to the local pollution of Lucknow. The scheme started

operating through 12 chilling centers in Eastern Uttar Pradesh.

These chilling centers were mainly coated in thither district of

Lucknow , Barabanki, Raebareli , Kanpur, Unnao, Sitapur etc . The

milk was mainly collected through contractors. 10 milk unionswere also found almost at the same time, around each chilling

center. These continued functioning in a rather lop-sided manner

till 1977.

DAIRY DEVELOPMENT IN UTTAR PRADESH(AT A GLANCE)U.P. is the highest milk producing State in India having a share of

18% of the total production

of the country. The per capita availability of milk has gone up to

224 grams.

Dairy development programme is being implemented in State

through the following sectors:-

Cooperative Sector

Private Sector

Cooperative Sector:-


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In the year1917 saw the advent of the First Co-operative Milk

Society at Katra,

LUCKNOW. It was unfortunate that no special efforts were made

in this direction for the

next two decades. It was then in the year 1938 LUCKNOW

PRODUCERS CO-

OPERATIVE MILK UNION was established. In the coming years

Lucknow, Varanasi, Kanpur, Haldwani, Nainital and Lucknow Milk

Unions saw the light of the day.

To accelerate the pace of Dairy Development in the State aState Level apex autonomous unit PRADESHIK CO-OPERATIVE

DAIRY FEDERATION LIMITED was established in the year 1962.

Initially the federation played the role of a Technical Advisor. As

years went by PCDF Ltd. became proficient and was given the

World Bank assisted Operation Flood Programme in the State.

Objectives of the O.F. Programme

(1) Capturing a dominant share of the urban milk market, hitherto

served by a multitude of small milk vendors.

(2) Creating a procurement network to link numerous cooperative

producer societies in different milk shed areas to the organized

urban dairy industry.

(3) Upgrading the milk production capacity of Indian bovine stock

through a

Programme of crossbreeding, veterinary services and auxiliary

activities.


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The Operation Flood Programme in the State was being

implemented by a three tier.

Private sector:

Presently 25 registered private dairy are functioning in different

districts of the State, with a total handling capacity of 46.64 lacs

liter per day.The Dairy Development Department is also running

some supportive programmes for dairy development in state of

Uttar Pradesh as : IMDP, WDP, RFWP, UPDASP, SCP, Shwet Kranti

Yojna.IMDP Intensive Mini Dairy Project:

The largest employment generation programme named a IMDP

under Deen Dayal Rojgar Yojna was initiated in the year 1991.

The programme was launched in 17 districts of the State in the

first phase. In due course of time the scheme at the Government

level was renamed as Vishes Rojgar Yojna. For the year 1999-

2000 the total number of mini dairy stands at 18, 5000 in 73

districts of the state.

WDP Women Dairy Project:

In its efforts to remove gender basis the state Government has

initiated WDP through Government of India, wherein part of the

programme is being funded under the STEP programme of theState Government. The progress as on date reflects 2096 women

societies with a membership of 80345.

RFWP Rural Family Welfare Programme :


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Under the aegis of SIFPSA a family welfare project is running at

present. It is an ideal programme for family welfare through dairy

cooperative society. It is currently operating in 13 districts.

Further 3 new districts will be added U.P.

UPDASP Uttar Pradesh Diversified Agriculture Support Project:

A World Bank assisted Project it is operative through the following

components:- PHAP - Public Health Awareness Programme.The

programme is operational in 15 districts of the State for a period

of MRCB Milk Recording & Conservation of Breed. The

programme is operational in 07 districts of the state for a period

of Special Achievements/Initiatives the highest ever Milk

Procurement in a single day that touched the magical 13.58 Kgs

Mark.Efforts are on to bring in our Major Dairies under the ISO

9002 fold, wherein Lucknow Dairy & Parag Dairy have already

been awarded the ISO 9002 Certification.

To fulfill the vision and the dream of strengthening the Federation

of that it is able to meet the ever increasing competition on all

fronts an Satat Sudhar Yojna has been initiated.

Total NMG supplies 3.20 lac liters/day.


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OBJECTIVES OF COMPANY

OBJECTIVES: -

PCDFS front-end objective was to see that there was enough milk

for everyone in town.

Marketing is simply the PCDFS tool to achieve their ultimate

objective and delivering the pure parag milk to every home.

PURPOSE:-

PCDFS aims to build a system to ensure that individual farmer

got a fair price for the milk he sold.

MISSION:-

PCDFS mission is to become the strongest marketingorganization by 2005.PCDFS came into existence in 23rd march

1938,with the simple intension of ensuring a fair return to the

producers. Which was implemented in UP is the year 1983-1984

provided the much needed impetus to co-operation. The mission

was to develop a product mix that would not only promote

sustained growth but also help member union to develop

adequate.

Production and processing facilities. It also aimed to offer quality

products at fair price, and to do so by achieving economies of


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scale and costs. And this mission gave birth to brands like parag

and Amul.

VISION:-

To increase its number of Parag milk customers and its turnover

to 50 crores by 2005 by product diversification.


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PRODUCT PROFILE1. Butter:-

It contains less than 80% milk fat and more than 15%

moisture and high acidity. It is prepared exclusively from milk

cream of curd of cow or buffalo milk without the addition of salt,

color or any preservative and is intended for cooking or for

preparation of Ghee.

2. Ghee:-

About 43% of total quantity of milk produced in India is

manufactured first into butter and then converted into Ghee. Bulk

of Ghee is derived from buffalo milk because it is richer in fat that

cow milk. In Parag surplus butter is mutted in steam jacket

kettles. Which are equipped with mechanical stirrers and heatedwith steam till the moisture is removed.

3. Paneer:-

In Parag, Paneer is produced by the traditional method in

which citric acid is added to the boiled milk and the milk

immediately gets adulterated and water is separated and paneer

is obtained. It contains less than 50% frat of more than 60%

moisture.

4. Others :-

Skimmed milk powder, cake and khoya are other products

produced by Parag.


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5. Future Products:-

Some new products like coffee powder, ready to make ice-cream

powder, baby food and other milk drinks are in the testing stages.

PARAGS MILK PRODUCTS:-

Butter available in 20 gm., 100 gm., and 500 gm. packs.

Pure Ghee available Kg.

Paneer - vailable in 100 gm.

Skimmed milk powder - in 500 gm. cartons & 200 & 500 gm.

plastic bottles.


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OBJECTIVE OF THE STUDY

The purpose of this project is to diagnose the information

contained in financial statement as to judge the profitability and

current financial statement .

To estimate the working capital requirement of the firm . just like

a doctor examine his patient by recording his body temperature,

blood pressure , etc . Before making his conclusion regarding the

illness and before giving his treatment ,a financial analyst

analysis the with various tools and technique of analysis beforecommenting upon the financial affairs (positive and negative) &

working capital condition of an enterprise . the analysis and

interpretation of financial statement is essential to bring out the

mystery behind the figures ai financial statement is essential to

bring out the mystery behind the figures in financial statements .

the main objectives of the study are as related to the topic are as

under:

To find out the concept of working capital & cash flow

analysis.

To find out and analyse the group wise composition of

working capital in Parag dairy.

To study the different mechanism maintain proper working

capital in Parag dairy .

Estimation of working capital.


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Evaluating working capital requirement in the manufacturing

firm.

To find various alternatives of working capital .

To analyse the financial position of the Parag Dairy.

Scope and limitation of the

studyWorking capital is considered as central nervous system of firm.

The importance of working capital is reflected in fact that financial

managers spend most of their time in managing current assets

and liabilities. Adequate working needs to be maintained in order

to discharge day to day liabilities and protect the business from

adverse effects in times of calamities and emergencies. It aims at

protecting the power of assets and maximize the return on

investment. In other words , goal of working capital management

is to minimize the cost of working capital while maximising a

firms profits.

Scope


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Determining the total funds required to met the current

operations of the firm(i.e. determining the level pf

current assets ).

To decide the structure of current assets(i.e. the

proportion of long term and short term capital to

finance current assets).

To evolve suitable policies, procedures and reporting

systems for controlling the individual components of

current assets( mainly cash receivables and inventory ).

To determine the various sources of working capital.

To ensure optimum investment in current assets.

To strike balance between the twin objectives of

liquidity and profitability in the use of funds.

To ensure adequate flow of funds for of funds for

current operations.

To speed up the flow of funds or to minimize the

stagnation funds.

Limitation of study


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Unnecessary accumulation of inventories which

leads to mishandling of inventories, waste theft

and loses in increase..

Excessive of working capital is indication of

defective credit policy and slack in collection

period. These leads to higher bad debt losses that

reduce profits.

It makes management complacent which

degenerates in to managerial inefficiency.

Inadequate working capital stagnates growth.

It becomes difficult to implement operating plans

and achieve the firms target profits.

It leads to inefficient utilization of fixed assets.

Management of working

capital

1.INVENTORY


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It is time to review our inventory level and ensure

reduction as number of days of turnover. Sincere effort

should be made for liquidation of non / slow moving

inventory.

The inventory against AMAS need to be received &

reduced.

2.BOOK DEBTS

Units and business sector should continued with their

vigorous efforts to achieve minimum level of 180 days to

turn over at the company level.

The areas to be forced apart from the collectable

outstanding from the current bills are dues against

differed debts , bills under verification , turn over

recognized but not billed due to various reasons etc.

This dispatches, which only add to turn over , withoutimmediate billing and corresponding cash collections are

to be reviewed thoroughly and the billing schedule with

the customer may be reviewed for changes. The practices

of dispatching material which could not be billed


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immediately is not be encouraged head of the unit shall

personally reviewed goods dispatched but pending billing

for more than three on regular basis. A focused

presentation on this has to be made to the budget team

units must strive hard to control the increase in differed

debts and also old and held outstanding.

3.CONTRACT CLOSING ISSUES

Miner supply from units to settle outstanding commercial

disputes in respect of project completed in the part of

contract were of contract and realisation of large overdue

outstanding an amount of Rs. 3.6 cr. Is outstanding

against final payment which could be realised by the

solving to the contract closing issues. This will also enable

to withdraw huge amount of provision created for

contractual obligation. Units shall make focused

presentation on their action plan to the budget team.

4.CASH FLOWS

Units should ensure positive net flows through the year.

Allocation of funds to units with negative balance at any


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point of time will be done only with my approval. The units

also generate free cash flow from their operations. The

free cash flow for R.E- 2006 B.E-2007-08 should be

presented to directors.

5.CAPITAL EMPLOYED

In 2007-08, the capital employed has increased to Rs.

451,51 cr. From Rs. 447,49 cr. In 2006-07. Increase in

capital employed due to the recent investment in

modernization scheme should also give the return

commitment in the project report.

Better working capital management will help

us to reduce the capital employed.

6.DIVERSTMENT OF UNPROFITABLE PRODUCT

LINE

As part of budget exercise the unit shall have a retailed

review of the market share in the constitution with

business sectors and develop strategies.


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COST OF PRODUCTION

[1]- Cost of buying milk from cooperative or other sources.

[2]- Logistic cost of manufacturing units.

[3]- Cost of transportation to carry the milk to manufacturing unit.

[4]- Processing cost-


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[a]- Depreciation.

[b]- Labour cost.

[c]- Electricity/ water.

[d]- Maintenance cost.

[e]- Managerial cost.

[f]- Infrastructural cost.

[5]- Storage cost.

[6]- Transportation cost .

[7]- Variable cost-

[a]- Additives.

[b]- Power & feul.

[c]- Raw material.

[d]- conversion changes.

[e]- distribution changes.

[f]- cash handling changes.

[g]- C & C inward

[8]- FIXED COST

(a)- Factory and general administrative cost .

(b)- Employees cost.

(c)-Consumables.

(d) Repair and maintenances.


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(e) Telephones.

(f) Rent, rates & taxes.

(g) Insurances

(h) Professional fees

(i) Apportionment of QC cost

(j) Apportionment of administrative cost

(k) General expenses.

PRODUCTION PLANNING AND

IMPLEMENTATION

While any dairy project is implemented we look forward in the

following pattern for its project implementation.


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Various steps of project implementation are:-

1. Investment Opportunities:- Project planning; Financial

Analysis; Project Cost Estimates; Product Yields.

2. Plan for Product Manufacturing:- Technological Aspects;

Mass Balance Process Flow Diagrams; Engineering Aspects

with Building Plan Layout and Equipment List; Liquid milk

Handling products.

3. Development of Plant Layout:- Production Block; Building

Plan; Special Features; Hygiene Features; Factory Location;

Brief Specifications of Key Equipment.

4. Cleaning and Sanitation:- Cleaning Cycle; CIP; Time and

Temperature schedule; Chemical Sanitizers with the growing

consumer awareness towards health and nutrition,

appropriate packing and nutritional labeling have become

important.

This trend has been further accelerated by the changing

dietary habits and lifestyle of the ever-increasing number of

nuclear families.

They are demanding convenient, easy to cook, ready to eat

foodstuffs in appropriate that retains freshness, flavor andtaste, preserves nutrition and has a long shelf life.


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This is borne out by marked increase in expenditure on meals

away from home as well as on packaged foods, purchased

during regular grocery shopping.

5. Packaging:- While packaging any of the dairy product we

take care of the following things:

Packaging Materials:- Tin Containers, Aluminium

foil/Containers, Paper Carton Boards, Glass, Corrugated

Board, Plastic Materials specifications.

Packaging Techniques:- Vacuum Packaging, modified

atmosphere packaging, oxygen absorbers/scavengers,

poly clip system, aseptic packaging, computer-aided

designing, edible packaging, disposal of packages,

recycling, recommended packaging and storage.

Packaging Machines:- Tin can filling machine, seaming

machine, form-fill seal(FFS) machine, cup thermo-fill and

sealing machine, pre-formed cup filling, sealing and

cartoning machine, multi-fill machine, vacuum and gas

machine, shrink wrapping machine.


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FINANCIAL ASPECTS IN RUNNING OFMILK PLANT

To meet the growing demand of milk in pouches, it was envisaged

to set up in house poly pack capacity of 6 lack liters at dairy in the

adjoining plot of dairy.

However initially on experimental basis in the existing premises

poly pack operation of 50,000L/day was made operational using

existing available services with minimum investment.

The packing capacity was further expanded to 1 lack liters.

However by further adding 2 no packing machines the total

packing facility from existing premises has been increased to 1.5

lack liters per day.

Looking into space constraint further expansion in the existing

premise is not possible.


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Mean while sale of milk in pouches is increasing day by day and

average growth per year is more than 15%. There is no surplus

packing capacity available with existing co-packers.

In view of the above to take care of the next five years

requirement of additional milk in pouches, vendor development

group has recommended setting up of 6 lack liters per day of milk

packaging facility in the adjoining plot and also increasing

existing milk processing facility from 6 LLPD to 10 LLPD at dairy.

It is also necessary to have some percentage of own packing

facility from strategic point of view.

OBJECTIVE:-

1. The facility can be setup at dairy in minimum time due to

availability of required land.

2. The main input for setting up many dairy is availability of

good quality fresh water. The water quality and quantity of

underground tube wells at dairy is very good due to near the

river Gomti.

3. It is necessary to create a production facility to meet the

market demand to keep edge over the competitors in the

field.


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4. To set up and run the facility at dairy will be very cost

effective due to availability of infrastructure at dairy, which

can be in actually shared, based on need.

5. The proposed packing plant will be a role model for other co-

packers to adopt in their plants from layout of plant to

delivering final milk quality in pouches and dispatch.

Capital budgeting

techniques

1-Payback period

YEAR CASH FLOW2007 -139000002008 1279092009 358333.5


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2010 5583012011 5583012012 5493012013 549301

2014 5493012015 5493012016 549301

PBP= YEAR BEFORE RECOVERY + UNCOVERED

COST AT START OF YEAR/ CASH FLOW DURINGYEAR

= 3 + 2128445/5583010

= 3.381 Yr.

Note:

(a). Payback period is the period of time required for thecumulative expected cash flow from an investment project to

equal the initial cash flow.

(b). If the payback period calculated is less than sum maximumexpectable payback period, the proposal is expected, if not, it is

rejected .

(c).The required payback period were 3 year , our project would

be accepted.

2- Discounted Payback Period

K = Interest Rate 12.75% according to SBI.


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( 1+ K)n = 1.12 n = 10

Discount net cash flow = FV ( PVIFi, n) - ICO

YEARS(n)

1- 1279090*.88 1131994.65

2- 35333350*.72 805751.30

3- 5583010*.69 3869025.93

4- 5583010*.54 3031574.43

5- 5583010*. 61 3422385.13

6- 5493010*. 48 2636644.80

7- 5493010*. 42 2334529.25

8- 5493010*. 37 2065371.76

9- 5484005*. 33 1826173.66

10- 5484005*.29 2627782.47

3 + 2270842.99/3031574.13 = 3.7496

Note :

The discounted payback period which is similar to regular

payback excepted cash flow are discounted by the project

cost of capital.

3. Net Present Value


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CF1/(1+K)1 + CF2/(1+K)2 + ________+ CFn/(1+K)n-

ICO = K = 12.75

YEARS(n)

1- 1279090*.88 1131994.65

2- 35333350*.72 805751.30

3- 5583010*.69 3869025.93

4- 5583010*.54 3031574.43

5- 5583010*. 61 3422385.13

6- 5493010*. 48 2636644.80

7- 5493010*. 42 2334529.25

8- 5493010*. 37 2065371.76

9- 5484005*. 33 1826173.66

10- 5484005*.29 2627782.47

3 + 2270842.99/3031574.13 = 3.7496

TOTAL 24741232.38

MINUS (ICO) - 13900000.00

NET TOTAL 10840232.38

3 + 2270842.99/3031574.13 = 3.7496

NOTE:


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(a) The present value is the value of an investment

projects net cash flow minus the project initial cash outflow.

(b) If an investment project NPV is zero or more the

project is accepted, if not it is rejected.

RESEARCH METHODOLOGY

Research is an endeavour to discover answers to intellectual

and practical problems through the application of scientific

method.

Research is a systematized effort to gain new knowledge.

-Redman and Mory.

Research is the systematic process of collecting and

analyzing information (data) in order to increase our

understanding of the phenomenon about which we are

concerned or interested.

OBJECTIVES OF RESEARCH METHODOLOGY

The purpose of research is to discover answers through the

application of scientific procedures.

The objectives are:

To gain familiarity with a phenomenon or to achieve new

insights into it Exploratory or Formulative Research.


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To portray accurately the characteristics of a particular

individual, situation or a group Descriptive Research.

To determine the frequency with which something occurs or

with which it is associated with something else Diagnostic

Research.

To test a hypothesis of a causal relationship between

variables Hypothesis-Testing Research.

CHARACTERISTICS OF RESEARCH

Research is directed towards the solution of a problem.

Research is based upon observable experience or empirical

evidence.

Research demands accurate observation and description.

Research involves gathering new data from primary sources

or using existing data for a new purpose.

Research activities are characterized by carefully designed

procedures.

Research requires expertise i.e., skill necessary to carryout

investigation, search the related literature and to understand

and analyze the data gathered.

Research is objective and logical applying every possible

test to validate the data collected and conclusions reached.


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Research involves the quest for answers to unsolved

problems.

Research requires courage.

Research is characterized by patient and unhurried activity.

Research is carefully recorded and reported.

METHODOLOGY;

The following information about the PPM plant installation:-

1- Maximum plant capacity = 6,00,000L/Day

2- Actual production of plant = 1,00,000L/Day (1yrs)

3,00,000L/Day (2yrs)

4,00,000L/Day (3yrs)

6,00,000L/Day (4yrs)

3- Working days = 365 days

4- Total projected investment = 800 lacs

INITIAL INVESTMENT:-

1yrs- civil investment = 225 lacs

Building investment = 255 lacs

2yrs- civil investment = 100 lacs


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Civil investment = 80 lacs


Depreciation building = 15%

Civil = 10%

Cost of capital = 8.5%

MRP = 18.5 avg Rs P/L

Trade margin = 1%

VARIABLE COST:-

Raw material = 16 Rs/L

Wages = .80paisa/L

General expenses = 1 Rs/L

Fixed Cost = 100 Lacs

RETURN ON INVESTMENT:-

= EBIT (1-T)/TOTAL ASSETS

Years return on investment

1yrs -.09

2yrs .20

3yrs .55

4yrs 1.412


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5yrs 1.438

NOTE:-

1. Return On Investment is negative in first year by -.09.

2. Return On Investment become positive in 2nd and 3rd year

and reaches to .55.

3. In fourth year, company has attain full capacity of

production, due to which Return On Investment has shut up

to 1.412 ( which is near about thrice the before amount ) and

reached to 1.438 in fifth year.

DEBT SERVICE COVERAGE RATIO:-

= total cost + interest + depreciation/ interest + loan repayment/

(1-T)

Years Debt Service Coverage Ratio

1yrs 60.32

2yrs 130.98

3yrs 152.88

4yrs 300.45

5yrs 316.66


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Note :-

1. Debt Service Coverage Ratio is 60.32 in first year and

reaches to 130.98 in second year and third year.

2. It has just increases 5 fold in fourth year that is 500%.

3. This calculation shows that company can easily meet the

uncertain dept repayment requirement in the following

years.

BREAK EVEN POINT:-

B.E.P. is the intersection point of the variable cost and revenue

earned.

But in this installation case. There is profit earned from 1 yrs itself

and hence we are able to cover.

VARIABLE COST + FIXED COST + PROFIT MARGIN

We can say that BEP = variable cost

The variable cost of various years is:-

YEARS VARIABLES COST


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1yrs 64, 97, 00,000

2yrs 1,94,91,00,000

3yrs 2,59,88,00,000

4yrs 38, 98, 20,000

5yrs 38, 98, 20,000

NET PRESENT VALUE:-

= cash inflow (PVIF n, I) cash outflow

=4,80,00,000 1,80,00,000 (PVIF 1, 0.9) 1,40,00,000 (PVIF 2,

0.09) + 6,69,85,50,00 (PVIF 1, 0.09) + 26,22,15,70,63 (PVIF 3,

0.09) + 39,24,32,02,278(PVIF 4, 0.09) + 39,22,72,60,99(PVIF 5,

0.09) = 95,44,22,7875.

Note:-

1. The present value is the present value of an investment

projects net cash flow minus the project initial cash out flow.

2. If an investment project NPV is zero or more the project is

accepted, if not it is rejected.

PAY BACK PERIOD:-

Our revenue of first year is 66,83,15,000/- and our 1yrs profit is

66,35,15,000/- so are initial investment will be recovered in 1

year.

Pay Back Period

Years 2007, 2008, 2009, 2010, 2011

( PBP = Year before full recovery+ uncovered cost at start of

year/cash flow during year)


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= 0+ 61,55,15,000/66,35,15,000

=0.93 yr=1 year

Note :-

1. Pay back period is the period required for the cumulative

expected cash flow from an investment project to equal the

initial cash flow.

2. If the payback calculated is less than sum maximum

expectable payback period, the proposal is expected, if not,

it is rejected if.

3. The required payback period were 1 year, our project would

be accepted.

PROFITABILITY INDEX:-

=PV of Cash Inflows/ Initial Cash Outlay

=PV (Ct)/Co

=sigma Ct/(1+K) t/Co

Note:-


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1. Profitability index is the ratio of the present value of the

projects future net cash flow to the projects initial cash out

flow.

2. As long as PI is 1 or greater, the investment proposal isexpectable because our profitability index is greater than

one implies that our project PV is greater that its initial cash

outflow, which in turn implies that NPV is greater than zero.

SWOT ANALYSIS OF PARAG DAIRY

STRENGTH

The major strength of the traditional dairy product sector is the

mass appeal enjoyed by the wide variety of products. The market

for these products far exceeds that for western dairy products like

milk powder, table butter and cheese. Their operating margins


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are also much higher than the western dairy products. The

increasing demand for these products presents a great

opportunity for the organization.

WEAKNESS

The major weakness of this sector is the practice of inadequate

hygiene in the preparation and handling of these products and

their relatively short shelf life. The preparation and marketing of

these products is generally done by halwais and that limits

development in the sector.

OPPURTUNITY

The expanding business prospects provided by these products

and their accompanying value addition, call for a thorough study

of this sector. It would facilitate an increase in the production and

marketing of hygienically prepared and products to the demand

of a growing population as has been demonstrated at the NDDBsSugam dairy.

FINDINGS AND CONCLUSION

There is a need to maintain a balance working capital for

maximization profits or minimization of working capital cost

or to maintain balance between liquidity and profitability in

PARAG DAIRY.


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The dangerous excessive working capital of PARAG are

unnecessary accumulation of inventories, indication of

defective credit policy and stack collection period,

degeneration in to managerial inefficiency and speculative

profit grow.

The danger of inadequate working capital are- stagnated

growth, difficult to implement operating plans, difficult even

to meet day to day commitments, inefficient utilization of

fixed assets.

Working capital management goal is maintain a satisfactory

level of working capital.

Gross working capital concept of PARAG DAIRY focuses

attention on the two aspects of current assets management.

These two are- Optimum investment on current assets and

financing of current assets.

The operating cycle concept pattern to the heart of working

capital management in PARAG in a more dynamic form. The

time that elapses to convert raw materials into cash is

known as operating cycle.

Working capital requirement in PARAG DAIRY is determinedby a wide variety of factors, they are- size of business,

production cycle of process, production policy, credit policy,

availability of credit, close co-ordination between production

policy, credit policy of RBI and so on.


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working capital management in dairy co-operative

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