Financial statement analysisIndustry analysis The history of Indian Milk Products is perhaps as old as Indian civilisation itself. Even as our ancestors began to domesticate milch animals, they found innovative ways to convert highly perishable milk into more stable and longer lasting milk products. It is a part of Indian culture to revere cows, and Kings of yore often gifted cattle as rewards to their kinsmen. Therefore, it is not surprising that Indians have a deep rooted tradition of using milk and milk products. It Orissa state co-operative milk producer’s federation limited (OMFED) 1 Financial statement analysis is a customary practice to grace Indian ceremonies and functions with ghee, butter and sweets. From time immemorial, India's traditional foods with their extraordinary variety and richness have served people's needs for nutrition and sound health. Within this wide range, dairy products from different regions of the country have provided a wide array of sweets and other specialties that are a gourmet's delight. These also meet the needs for proteins and calcium in people's daily diet. The story of Indian mithais is literally of epic proportions. From time immemorial, the foundation of our milk production has been in hands of the landless farmers in villages. At the same time, the processing of milk into dairy products has been handled by millions of village "halwais" and their street-corner counterparts in towns and cities. These two groups form the core of the traditional dairy sector, the largest and fastest growing sector of Indian dairying. The value of its products exceeds Rs. 50,000 crores per year. When we say 'Indian' milk products we tend to distinguish such products from Western milk products such as cheese, yogurt, ice-creams, sweetened condensed milk and butter oil. However, we do have parallels for all such western products in the form of paneer, curd/lassi, kulfi, rabri and ghee. Perhaps, the only major western milk product where it is difficult to draw comparisons is milk powder. In the days following Independence, we have generally concentrated our efforts in encouraging milk production through marketing of liquid milk, either as fresh milk or with the help of recombining milk powder and white butter. This was done for three reasons. Firstly, to encourage consumption of liquid milk since it provides nutrition in a more wholesome manner as compared to milk products. Secondly, as compared to value added milk products, liquid milk has always remained far more affordable. Thirdly, liquid milk has always been in demand for use as a whitener with tea and coffee. Traditional milk products represent the most prolific segment of our Indian Dairy Industry. Despite the immensity of volume of milk handled, preparation and marketing are confined to the unorganized sector. Since most of the western-type dairy products manufactured by the organized sector of the Dairy Industry are reaching near saturation level in the existing domestic and international markets, the entire range of Indian milk products represent the most promising venue for diversification. Furthermore, Dairying has played a prominent role in strengthening our rural economy. It has been recognized as an instrument to bring about socio-economic transformation by helping the landless and marginal farmers. Orissa state co-operative milk producer’s federation limited (OMFED) 2 Financial statement analysis One weak link in the otherwise sound growth of dairying has been the general neglect that the traditional milk processing methods has received from the modern sector. Although the processes of making sweets have undergone continuous change, the time has now come to integrate traditional methods with modern culinary technology to meet consumer demands for better standardized quality, longer shelf-life and greater convenience. A socially responsive approach and more purposeful application of scientific and industrial techniques is required to rebuild our age-old practices to ensure the manufacture of indigenous milk products of uniformly high quality. However, in the past three decades, considerable R&D work has been done to bring about the much-needed value addition in the making of these age-old milk delicacies. Various R&D groups in different parts of the country have initiated steps to meet these needs. As a result, better processes, equipment, packaging materials and systems have been developed. For sustaining further development, Nation's Dairy Industry would have to cope with the rapid transformations that are taking place in the world economies, consequent to the GATT Agreement. International trade is being strongly regulated by the WTO guidelines. Newer and stricter sanitary and phytosanitary standards are being formed for regulating quality parameters of the export products. Under these newly emerging circumstances, quality standards for production and processing milk cannot remain at variance with the international standards. The superior quality of dairy products coupled with concerns for environment and product safety will require significant changes in the way milk products are produced and packaged. India would have to critically assess the changing global scenario if the Nation's Dairy Industry wishes to turn the opportunities in our favour. Over the years, efforts at expanding liquid milk availability — through increased milk production — has resulted in per capita availability of liquid milk growing from 107 grams per day in 1970 to a current level of more than 246 grams per day. The opportunity provided by increased availability of liquid milk can now be used for efficiently manufacturing and marketing Indian milk products with long shelf life. This will help in tapping the potential demand for Indian milk products in both the domestic and foreign markets. All these things could happen with a quality assurance of raw material and technical human resource training at different levels. This can only be achieved by an appropriate appraisal and awareness to be brought on a very large scale since this is a highly dissipated industry and has its origin from tiny, cottage all the way to large scale industry. The Indian milk products also need to be addressed in terms of value addition and in terms of bringing the Orissa state co-operative milk producer’s federation limited (OMFED) 3 Financial statement analysis tradition and processing itself and extension of shelf life for the ethnic tongue around the world. It can easily assume that this is a very important contribution that we could do to the rest of the world through promoting the Indian milk products both from the taste angle as well as the health angle. In this context, we also require dedicated workers with emphasis on packaging with a clear mandate of once again the concepts of quality and safety engulfed into it. The Indian equipment manufacturers, many of them who are of international standards, could really make a difference in the overall impact of this industry through adaptable equipments. As we know the market for the 80 million tonnes of milk in India, the figure of 100 million tonnes does not seem to be far away. We need to strategically plan all this into food safety, food security including nutrition to convert the dairy industry in the market into a very profitable sector, thus ensuring the industry stability on the one hand and the production stability on the other hand. Time has come for the second phase of the White Revolution to focus on the traditional milk products by the application of modern technology for their large-scale production. One new revolution that India has embarked on is the industrial scale production of hitherto handmade traditional milk products. Recent innovations in technology are having a wide-ranging impact on the growth of dairying. These technical advances are creating new economic opportunities par excellence for a range of agribusiness enterprises to expand avenues for enhanced income in India. Beneficiaries of these innovative technologies are India's 70 million milk producers, largely women, who look after cows, as they have done from time immemorial. This group includes a large number from non-farm sector who are landless and have limited livelihood options. Dairy industry in Orissa The prospect of improving the dairy income in the state of Orissa, which is one of the poorest states in India, is highly vital for small-scale producers, which currently form the backbone of the dairy industry. a study has been developed by an International Farm Comparison Network (IFCN) which is based on the concept of ‘typical farmsÂ’. Three broad farm types were selected to represent 'typical farms' in the state: farms stall feeding two dairy animals (buffalo or local cattle), representing the most common farm type found in the state, farms with six Orissa state co-operative milk producer’s federation limited (OMFED) 4 Financial statement analysis dairy animals, located in peri-urban areas benefiting from good market access, and rural farms practicing a form of pastoral production system in areas where communal grazing land is available. Each farm is described in detail with assets, production costs, profits and other economic information presented both graphically and in the text. A comparison with similar farms in the state of Haryana is provided. The study finds that all farms cover the dairy cash costs but that on the smaller farms returns to family labour are below local wage rates. However, the small scale dairy farms will persist as long as alternative employment opportunities for family labour are scarce. It also appears that there is a large potential to reduce milk production costs of smallholder dairy farming and increase family farm income through milk production by better breed, feed and herd management. Although milk yields in Orissa are much lower than in Haryana, farmers in Orissa produce milk at competitive costs due to lower land costs and lower wage rates. The availability of grazing land in Orissa and cheaper feed also contributes to lowering the costs of milk production. Smallholders using buffalo for milk production in Orissa were found to be more cost competitive than similar farms in Haryana. Hence suitable strategies to promote such buffalo-based systems should have potential for improving the production and competitive position of dairying in Orissa. Orissa state co-operative milk producer’s federation limited (OMFED) 5 The rich had the privilege of keeping cows for their own use and Orissa state co-operative milk producer’s federation limited (OMFED) 6 . diary and handloom in some parts of Orissa. They supported the family requirements only and the cast of Gauda traditionally sells the milk in the area. Poor irrigation facility made agriculture as a part time occupation for a majority of marginal farmers. The farmers use to travel to urban centres as daily wage earners and this practice made their life more miserable due to exploitation and addictions.Financial statement analysis Organisation analysis Being one of the poorest states. majority of the population are dependant on the traditional occupation like agriculture. There was a large concentration of cattle in the rural areas in the form of cows and buffalos. The process of industrialization has always been slow though the state enjoys a great variety of mineral resources. Financial statement analysis celebrations. Though the products were manufactured by the horticulture department. they were marketed as Omfed brands in the market. Omfed had an advantage through its vast network of milk booths to make the product available immediately to consumers.They are packaged in assortments for sale in the markets. The second advantage the brand quality assurance. Other than the different varieties of toned milk Omfed also markets various kinds of value added products like ghee. lemon squash . squash and pickles are traditionally concentrated in Orissa due to the availability of branded items like Kissan. table butter and butter milk. Omfed has emerged as the trusted milk man to all its stake holders.juices . The journey of Omfed has changed the life of many families in Orissa. The urban middleclass has a product which is safe and clean for their children and has a quality assurance on content and hygiene. The process itself pasteurizes the milk and kills the germs and bacteria. particularly in the coastal and western part of Orissa. These products have a high seasonal demand during summers and availability of these items in the milk booths made the customer go for an early trial with fewer expenses in promotion and advertising. The market for sauces. In the summers of 1998 Omfed experimented by test marketing horticulture products in the form of pickle . orange squash. Prior to this development Omfed was selling the value added milk products like ghee. Milk is served fresh every day twice to the urban consumers and shopkeepers in a fresh poly pack. Druck and Maggi. Omfed decided to break the restrictions of selling these products from the milk booths only and launched the items through the intermediaries’ . butter and the butter milk through retailers. There was literally no investment to market horticulture products as the customers saw them in the Omfed milk booths every time they visited the booth.tomato sauce. It was never thought of as a viable alternative of livelihood for many farmers till Omfed came in to existence. This milk is collected from different parts of the state and are brought to the chilling plant . sweet and plain curd milk.Dealers and distributors were appointed in different area and the product moved in to the grocery counters. mango and pine apple squash. These products were initially test marketed in the urban cities of Orissa and the results were very motivating for them to go for full scale launch in the subsequent period of time. The butter milk was a success in the market as Orissa state co-operative milk producer’s federation limited (OMFED) 7 . This is a Three Tier System. This is to collectively procure. ACTIVITIES The principal activities of Omfed can be divided into the following categories: 1. The sweet curd was also a success as housewives started buying them in the common grocery for their children and there was a liking of the product by kids. Procurement of milk 4. Organization of Anand pattern 2. Operation Flood program in Orissa 3. Milk Producers’ UnionLtd. Omfed Products 8. Technical inputs 5. the District Milk Union. This was significant for them as they have also to perform a social obligation in generating profitable employment to the rural poor through their cooperative society network so that more and more are brought above the poverty line. (Concerned Mainly with the primary producers and collection of milk). This success makes Omfed to look beyond their core strength of marketing milk and milk related products to other business area. Animal Health Care. process and Market their surplus milk.(AMUL). chilling and supply of technical inputs like Artificial Insemination. Training Anand Pattern The Anand Pattern is the successful formula first adopted by the Kaira District Coop.) And the Milk Federation looks after processing and marketing of Orissa state co-operative milk producer’s federation limited (OMFED) 8 . Processing and Marketing 7. Women’s diary Project 6. Supply of Balanced Cattle Feed & Fodder.the Village Society.Financial statement analysis people preferred it in summers to the soft drinks due to the humid conditions in the market. (looking after milk procurement. Training/Extension etc. He/she must undertake to sell surplus milk only to the Society after meeting his family's demand. Anand Pattern is a system that is collectively Owned. Society of primary producers is formed under the guidance of a Supervisor of the milk union. The society makes profit by selling the milk to the milk union and get bonus/price difference and milk union gets profit by selling to the federation and also gets price difference out of the federations’ profit.Anand Pattern Structure of Anand Pattern The basic unit under the Anand Pattern is a village cooperative society of milk producers. This comes from the profit of the society. A. A milk producer becomes a member by paying an entrance fee of Rs. for milk yield enhancement Of the animals of the milk Producers. Payment for milk is made on the basis of its quality and quantity. They employ a Secretary. The maximization of profit and production through cooperative effort is the hallmark of the . Managing Committee Members are honorary. Worker and Head Loader and so on to run the day-to-day business of the society. Central Technical Input activities etc. Orissa state co-operative milk producer’s federation limited (OMFED) 9 . Milk producers bring milk to the society every morning and evening.Financial statement analysis Milk & Milk Products. A village coop. The Milk Union carries this collected milk from the society by their hired transport vehicles to their milk chilling/processing plants. The members elect the Managing Committee of 9 members and the committee elects a Chairman out of themselves. the Anand Pattern means the utilization of resources in the most profitable manner at grass-root level. It ensures a fair price to the farmer and high quality milk and milk products to the consumers. I.1 and buying a share of Rs.10. The quantity of milk is measured. Milk Tester. In short. It is a voluntary association of rural milk producers wishing to market their milk collectively. A small sample of milk is taken from the milk for testing its quality. Operated and Controlled by the farmers. Financial statement analysis Milk Union A Board of Directors who get elected in the following manner manages the milk union: 12-are elected farmer representatives. 01. collector is the chairman of the Milk Union. where as the General Manager looks after the day-today operation under the guidance and direction of the board. technical & staff employees.General Manager of the Milk Union as the Ex-officio Secretary. 2. There is a continuous and concurrent audit of all the societies on a quality basis to ensure a clean milk business. Milk Federation The Federation is managed by a Board of Directors elected in the following manner: 1.A nominee of the Milk Federation (Omfed).Three are Government of Orissa nominees. At present. This Board frames milk union’s policies regarding milk procurement and supply. Orissa state co-operative milk producer’s federation limited (OMFED) 10 . General Manager is the Chief Business Officer of the Union who in turn appoints other managerial.One from the financing agency. 01. 01. 3.A nominee of the financing institution (NDDB). fund management etc. supervised and controlled by the union so that it remains efficient.The selected chairmen of the Affiliated Milk Unions The Chairman of the Federation is to be elected by the board of directors. Every society is continuously guided. strong and viable. The Federation looks after processing and marketing of the milk and milk products. Financial statement analysis Anand Pattern cooperative milk producers' organization (figure 2.1) Orissa state co-operative milk producer’s federation limited (OMFED) 11 . Operation Flood Program in Orissa Operation Flood II The Operation Flood II Program. of India launches “operation flood” project in 1970.. after Orissa state co-operative milk producer’s federation limited (OMFED) 12 . Tamilnadu. Improvement in Dairy Farming Standard.5. Bombay and Delhi are linked with rural milk producing pockets in the country. Development of long distance milk transportation and storage facilities. It was mainly aimed at developing the milk marketing system in the country. Dhenkanal. which was later increased to Rs. Keonjhar. The project had an initial outlay of Rs. 94. having 18th milk sheds i. Development of milk procurement system like Anand pattern. Haryana. The first phase of this program (operation flood 1) had five years duration from 1970-75. The funds for the implementation of operation flood program were generated by the sale of 127. As such major demand center like Delhi. initially covering four districts viz. Punjab. Rajasthan.1 The govt. Andhra Pradesh. 116. Gujarat. Resettlement of city based cattle in rural areas. which was launched under the aegis of National Dairy Development Board (NDDB) implemented in the state of Orissa from 1981.e. Cuttack. Change in the urban markets form traditional raw milk supplies to the modern dairies milk supplies.4 cores were generated for the implementation of this programme. 696 tones to butter oil provided by world food programme. The Orissa State Cooperative Milk Producers’ Federation came in to being from the year 1980-81. Maharashtra. West Bengal and Delhi.40 crore. A total of 116. Uttarpradesh. Kolkata.Financial statement analysis OPERATION FLOOD. It was started in 1970 covering ten states and one union territory. and Puri. Bihar. Indian Dairy Corporation was specially set up by the central government for receiving these gift commodities and generating their funds by their sale for implementation of the project.517 tones of skim milk power and36. OBJECTIVES The programme had following major co-operatives:Increase in the capacity of milk processing facilities. It was aimed at creating flood of rurally produced milk in the urban consuming center. 500 litres per day. the Indian Dairy Corporation.09. Cattle feed plant of 100 MT capacity also started functioning from September 1985. Under Production Enhancement Program input facilities were provided to the producers through District Milk Unions and Dairy cooperative Societies under the technical and financial assistance of NDDB. One Dairy Plant of 60. There are 10 nos. handed over the land along with the infrastructures existing there on a management basis. This was later buttressed by a guaranteed deed dated 05. This followed an agreement signed on the 30th May 1979 between the Govt. to the then Indian Dairy Corporation for financial assistance to be received as per the Loans-cum-Grants Agreements by the Orissa Milk Federation from the Indian Dairy Corporation. the National Dairy Development Board and the Milk Producers Cooperatives. Orissa state co-operative milk producer’s federation limited (OMFED) 13 .Financial statement analysis Taking over the Phulanakhara dairy and the functioning started form 26th January 1981.000 LPD was started at Tritol in June 1985 by Cuttack milk union and another one with 20. One chilling plant of 10.87.09.000 litres per day capacity was commissioned in December 1985. A Training-cum-Demonstration center was organized at Jagannathpur.000 LPD capacities by Puri milk union. The Operation Flood II Program ended on 30. the State Government.81 given by the then Forest. with assistance from the international Development Association. Fisheries and Animal Husbandry Department on behalf of the state Government. OMFED started functioning from its own corporative office building at R-2 Shahid Nagar 8thAPril 1985. of India. of chilling plants with a total capacity of 48. Puri near CuttackBhubaneswar national highway after the State Govt. of Orissa and the then Indian Dairy Corporation (now amalgamated with the National Dairy Development Board) for implementation of Operation Flood Project II by the Govt. specifying the parameters for implementing the Operation Flood III Program. Under this program the Sambalpur district is included from August 1989.92. Expansion of Bhubaneswar Dairy from 60.05.000 LPD. The organization was established with the following objectives To carry out activities for promoting production. Development and expansion of such allied activities as may be conductive for the promotion of the dairy industry.Financial statement analysis Operation Flood III The Operation Flood III Program is implemented in Operation Flood districts of the state from October’87. strengthening of Cattle feed plant at Radhadamodarpur (Cuttack) are some of the major projects taken up under the Operation Flood III Program. as successor of the erstwhile Indian Dairy Corporation was signed on 27. The state Govt. The Loancum-Grant Agreement between the National Dairy Development Board and the Orissa Milk Federation as well as the concerned District Milk Unions for the financial assistance under Operation Flood III has been executed.08..1988.000 LPD.000 LPD to 75. Fisheries and Animal Husbandry Department (latter renamed as Fisheries and Animal Resources Development Department) and the National Dairy Development Board. expansion of Tirtol Milk Chilling Center from 10. Improvement and protection of milch animals and economic betterment of those engaged in milk production.000 LPD at Nimapara (Puri) in place of 4000 LPD Unit. guarantee on behalf of the Orissa Milk Federation and the District Milk Unions as the letter of understanding to the National Dairy Development Board has been executed on 05. In particular and without Orissa state co-operative milk producer’s federation limited (OMFED) 14 . represented by the then forest. processing and marketing of milk & milk products for economic development of the rural farming community. procurement.000 LPD to 20. a new chilling plant with a capacity of 20. For this purpose. a letter of understanding between the State Govt. H-6. financial and other necessary assistance to the member unions and enter in to collaboration agreement with someone. guide and assists the Milk Union in all respects of management. distribute and sell them same.0 acres adjacent to N. public relation and allied matters . process. if the need arises •Advise the member unions on price fixations.01. the unit collected only 2207 Kgs of raw milk from the nearby MPCS. arrange to manufacture / purchase and distribute balanced cattle feed and for the purpose to set up Milk collection and chilling centres. On the first day. The old chiplima chilling unit having a capacity of 2000 LPD (litre per day) at the state dairy farm established by the sambalpur districts milk union was closed and OMFED started its new 10. the federation may: • Purchase and/or erect building. •Render technical. manufacture. in any of the district covered under its area of operation •Provide veterinary aid and artificial insemination services and to undertake animal husbandry activities so as to improve animal health care disease control facilities •Advice.000 ltrs plant at an estimated project cost of Rs 66.80 lakh for the undivided sambalpur district near Goshala chhack in an area of 6. Product factories Etc. Orissa state co-operative milk producer’s federation limited (OMFED) 15 .1990 under operation flood programme (phase-iii) of NDDB by an agreement with the government of orissa. Milk producers federation) was commissioned on 01. supervision audit functions . plant machinery and other ancillary objects to carry out business •Study problems of mutual interest related to procurement. administrative.Financial statement analysis prejudice to the generality of the forgoing objective. marketing of dairy and allied products •Purchase commodities from the members of other sources without affecting the Interest of the members. A brief note on sambalpur dairy Sambalpur dairy a unit of OMFED (Orissa state co-op. Milk Processing Plants. padampur etc. SONEPUR. plain curd. After expansion the unit is not only catering pasteurised full cream milk & toned milk for the customer of sambalpur. NUAPADA MILK SHED AREA.000 LITRES PER DAY PROJECT EXECUTED BY-NATIONAL DAIRY DEVELOPMENT BOARD INITIAL PROJECT COST. Storage tanks Pasteuriser Homogeniser Tripurpose separator Reconstitution tank Packaging unit Refrigeration compressor Air compressor D. TITILAGARH. balangir burla. butter milk etc.80 LAKH EXPANSION PROJECT COST. BARGARH.Financial statement analysis Recently the plant capacity has increased to 50. But also added new products like ghee. PADAMPUR.50. hirakud.1.G sets Boilers (coal fired) Bore well Substation Effluent treatment plant QUANTITY 06 02 01 02 01 04 05 02 02 02 02 01 01 CAPACITY 50. DEOGARH. bargarh. RENGALI. SALIENT FEATURE OF OMFED DAIRY:INSTALLED CAPACITY. BURLA. SAMBALPUR.5 crores.500 LPH 2500 LPH. deogarh.SAMBALPUR. 1. 2000 LPH 1000 Ltrs 5000 Ltrs/ hr 30 Ton 06 M3/Hr 63 KVA/ 50 KVA 300 kg/ hr 800 LPH each 200 KVA 30000 Ltrs Orissa state co-operative milk producer’s federation limited (OMFED) 16 .S. REDHAKHOL. BOLANGIR Machineries available (table 2.5 CRORES TRIAL RUN STARTED ON -1ST JANUARY.NO 01 02 03 04 05 06 7 08 09 10 11 12 13 DESCRIPTION S.000 Ltrs at the capital cost of approx.000 Lts 2. 1990 MARKETING AREA. BARGARH. sweet curd.000 LPH each 2.1) SL.DEOGARH. With in the present capacity.66. The farmers of society villages bring their surplus milk to the society.D) in the O.D.D.B.Financial statement analysis MANAGEMENT:the orissa state co-operative milk producers federation Ltd. packing and marketing.D. Apart from N.B which has been successfully implimented in the different districts and for the implimentation of technology mission on dairy development (T.F districts.M.B) for the implementation of operation flood programme (OF-ii. support to dairy co-operatives. Three nominees of the government of orissa. where it is tested. This federation also received funds towards cooperative development programme from N. the realization is Orissa state co-operative milk producer’s federation limited (OMFED) 17 . The post of chairman of the federation is honorary. The chairman of the board elected amongst the member of the board. technical input programme. Procurement of Milk The milk is collected from the village based milk producers through the village Dairy cooperative Societies. manpower training etc. This federation is receiving financial assistance from the government of Orissa as grant-in aid and share capital for different activities such as establishment of dairy infrastructures. a nominee of the national dairy development board and managing director of the federation (who is an ex-office member). quantified and the value of the milk is being fixed. Besides this the federation also received financial assistance from Government of India (ministry of human resouces development & department of women and child development) for the implimentation of orissa women's dairy projects in the undivided districts of orissa. OF-iii) in different districts for different activities such as milk processing. Again from the society level the milk being lifted to nearest chilling plant where it is chilled to 5 c and the same milk after chilling is transported to the nearest Dairy for processing.D. technical input programmes. Is controlled by a board of directors which consist of chairmen of affiliated milk unions. FINANCE:the federation had received funds (loan & grant) from the Indian dairy corporation/ national dairy development board (N. After marketing of milk and milk products.D.D.D. etc. Technical Input Program Procurement of Milk depends upon its production.Financial statement analysis routed back the producers once in 10 days in the same manner. veterinary routes are being conducted by the experienced Orissa state co-operative milk producer’s federation limited (OMFED) 18 . Infertility camps. For better productivity good quality milch animals are essential. health care and maintenance. • Artificial Insemination: The population of crossbred milch animals in our state is very small. For this service. Frozen semen and all the accessories are being supplied to the societies free of cost. So 350 Dairy Cooperative Societies provided with Artificial Insemination facilities. the surplus of milk will be higher. So facilities like first aid medicines. which is owned and managed by OMFED. feeding. So to enhance milk procurement. different programs are being organized in the society level and the milk producers getting the facilities at their doorsteps. If the production of milk enhanced. Fodder seeds and fodder slips are provided free of cost to the farmers. the Liquid Nitrogen. maintenance of milch animal is important. • Animal Health Care: For better yield / productivity. The crossbreed animals need better care than the indigenous cows. are called the Technical Input Programs. OMFED sales around 10 KMT of cattle feeds annually to its farmer members. travois are being provided to the societies free of cost. • Feed and Fodder Program: In addition to the marketing support the farmers are provided with the best quality of cattle feed at a reasonable price from the Cattle Feed Plant. and the procurement will be increased. This organization establishes linkage from producers to consumers. The production of milk depends upon the productivity of the milch animals and the productivity of the animal depends upon its breeding. out of which 18 centres are cluster centres. The society secretaries have been trained as inseminators by OMFED. D.D.B. • Training: The Federation has established an Integrated Training and Demonstration Center (OMTDC) at Jagannathpur in the district of Khurdha. first aid.D. other training programs are also conducted in this Training Center. artificial insemination. Interested institutions inside the state also use these facilities on payment basis for Various training programs. • Embryo Transfer Technology: A highly sophisticated Embryo Transfer Technology Project has been implemented by the federation as a state project. Its main aim was to inculcate co-operative spirit in the rural milk Farmers to manage their own business.B. The Training Center has so far imparted training to society persons in society management.Financial statement analysis veterinarians of the Milk Unions. Cooperative Development Program: The program is being formulated by N. Training has a well-furnished hostel accommodation for 100 trainees. and was implemented in 5 Operation Flood Districts. Besides these. of Orissa state co-operative milk producer’s federation limited (OMFED) 19 . dairy animal management and management committee members.D. • Programs: National Technology mission on Dairy Development: National Technology Mission was formulated by N. Its main aim was to co-ordinate among various functionaries who were engaged in strengthening of rural farmers. since March 1992. Indo Swiss Project: Indo-Swiss project was a bilateral program between Govt. This is assisted by NDDB to carry the most advanced technology from the laboratory to the field for the benefit of farmers to increase the milk production. Veterinary Dispensaries were equipped With breeding facilities and these dispensaries became the nerve center of rural milk producers. who produces milk. Sambalpur and Keonjhar and is implemented through respective milk unions. Dhenkanal. only Dhenkanal & Keonjhar Milk Unions market Orissa state co-operative milk producer’s federation limited (OMFED) 20 . literacy mission. Puri.Financial statement analysis India and Swiss Govt. •Improvement of social status of rural women by formation of Anand Pattern allWomen dairy co-operative societies and establishing linkage with related organization for assistance on health. animal health care. drinking water income generation and women empowerment etc. Its main aim is to improve the productivity of animal and to provide round the year marketing facilities at the door step of the farmer. Out of the five Flood Districts. cattle insurance and grouped Insurance coverage and training programs. Women’s Diary Project This project started in 1995 in un-divided districts of Cuttack. The Objectives of the program include •Improvement of Economic status of the rural women through efficient and modern Dairy management and availability of assistance for dairy farming in shape of Subsidized cattle feed. • Enabling the women groups to take up employment-cum-income generation programs through dairying. Thus Omfed not only plays a vital role to link both the points through its activities but also Channelize crores of rupees from urban sector to rural sector in this system. The first point is the rural milk producer. fodder. nutrition. Processing and Marketing . immunization. The urban consumer is the last point of the Milk Flow System of Operation Flood Program. which is now under implementation in Gajam & Gajapati district. Anandpur etc. Nalco Nagar.Financial statement analysis Milk through their respective Dairies (Dhenkanal & Keonjhar Dairy) in the brand name of "Omfed". Figure 2.2 Orissa state co-operative milk producer’s federation limited (OMFED) 21 . Generally Milks are being marketed by Omfed. in towns like Dhenkanal. Talcher. from its dairies by it's authorized retailers in Different towns of the state. And Keonjhar Milk Union markets milk in towns Like Keonjhar. Badbil. and Angul etc. and supply surplus milk to Omfed. The Dhenkanal Milk Union markets its milk. Joda. Financial statement analysis Operational area (figure 2.3) Orissa state co-operative milk producer’s federation limited (OMFED) 22 . Financial statement analysis Affiliated milk unions (figure 2.4) Orissa state co-operative milk producer’s federation limited (OMFED) 23 . Financial statement analysis Managing Director (IAS) Personal manager Material manager MIS manager Finance manager Marketing manager Project manager Plant manager (Sambalpur unit) Assistant manager Assistant manager Superintendent Superintendent Plant operator Assistant superintendent Worker Junior Assistant Organisation structure (figure 2.5) Orissa state co-operative milk producer’s federation limited (OMFED) 24 . Financial statement analysis Financial statement analysis Orissa state co-operative milk producer’s federation limited (OMFED) 25 . Financial statement analysis FINANCIAL STATEMENT ANALYSIS Financial statements as used in business houses refer to set of reports and schedules which an account prepared at the end of a period of time for a business enterprise. to banks and other creditor in judging the loan repayment capabilities and ability of the business. 1. It is prepared for a particular period which is mentioned along with the title of these statements. The significance of these statements is as follows Balance sheet Balance sheet is a statement showing the nature and amount of a companies asset on one side and liabilities and capital on the other. The income statement provides a recap of the operating results by listing the revenues Orissa state co-operative milk producer’s federation limited (OMFED) 26 . which include the name of the firm also. 2. Objective of financial statements Financial statements analysis is highly essential for both internal and external stake holders in addition to management and creditors. These statements comprise balance sheet and profit & loss account. Profits are of primary importance to the board of director in evaluating the management of a business. The balance sheet also summarizes the capital invested in the business. Profit and loss account Earning profit is the principal objective of all the business enterprise and profit and loss account is the document which indicates the extent of success achieved by the business in meeting this objective. In other words balance sheet shows the financial position on a particular date usually at the end of one period. The balance sheet lists the assets held by and the obligations (or liabilities) of the enterprise. The financial statements are the means with the help of which the accounting system performs its main function of providing summarise information about the financial affairs of the business. Balance sheet shows how the money has been made available to the business of the company and how the money is employed in the business. In India every company has to present its financial statements in the form and contents as prescribed under section 211 of the companies act 1956. 4. explanatory notes are prepared only when the financial statements will be provided to external users. Financial statements contain much information relating to profit or loss and financial position of the business. 5. Common size statement analysis 4. Ratio analysis 2. 200607. Tools Here we have taken the financial statement of five years those are 2004-05.Financial statement analysis and deducting the expenses of the company to arrive at a net income or loss for the period. To provide financial information that assist in estimating the earning potential of a business. The accounting ratio indicates a quantitave relationship which is Orissa state co-operative milk producer’s federation limited (OMFED) 27 . Trend analysis 3. The statement of cash flows quantifies the cash inflows and outflows of the business for the reporting period. To make a meaningful reading of financial statements. as a technique or analysis of financial statement uses this method of comparing the various items found in financial statements. Usually. profit and loss account of an organisation. If these items in financial statements are considered independently it will not be of much use. The explanatory notes provide additional details to aid in understanding the amounts reported in the financial statements and the basis under which the financial statements have been prepared. 2007-08 and 2008-09. This relationship helps to analyse and interpret the financial condition and performance when applied to the financial data. 3. these items found in financial statements have to be compared with one another. Ratio analysis. Comparative analysis RATIO ANALYSIS Introduction The term ratio is used to describe significant relationships which exist between figures shown in a balance sheet. The tools we have taken to analyse the financial statement are as follows 1. Ratio analysis creates a relationship between figures or factors or variables. 2005-06. Ratio analysis is a very important tool used for measuring performance of an organisation. 3. 4. Liquidity refers to the ability to pay in cash. Liquidities defined as the ability to realise value in money. 7. It concentrates on the inter-relationship among the figures appearing in the financial statement. The appraisal of the ratios will make proper analysis about the strengths and weakness of the firms operations. 6. liquidity Orissa state co-operative milk producer’s federation limited (OMFED) 28 . The said ratio is compared with the standard ratio and this shows the efficiency utilisation of assets. Ratio analysis helps the management to analyse the past performance of the firm and to make further projections. Ratio makes comparison easy. Importance of ratio analysis There are various kinds of benefits arising from ratio analysis are as follows: 1. Liquidity ratios The liquidity ratios measure the liquidity of the firm and its ability to meet its maturing short term obligations.Financial statement analysis used for analysis and decision making. Effective use of ratio can provide the details of the growth or decline of an enterprise so that future action can be taken. Position can be easily ascertained with the help of ratio analysis. Classification of ratios According to the requirement of different ratios it has been classified into four important categories. Liquidity ratios leverage ratios activity ratios profitability ratios 1. most liquid of assets. etc. 2. the obligation that are due. 5. Excess liquidity. absolute liquid ratio d. Stock to working capital ratio a. The constituents of the current ratio are as important as the current assets themselves for evaluation of the company's solvency position. current ratio b. Too little liquidity then may lead to frustration. quick liquid ratio c. and ineffective managerial efficiency. 3. The important ratios in measuring short term solvency are as follows: a.Financial statement analysis has two dimensions quantitative and qualitative concepts. Current ratio= Current assets. In qualitative aspect it is the ability to meet all present and potential demands on cash from any source in a manner that minimises cost and maximises the value of the firm. This is useful in assessing the solvency and liquidity position of the company. reduced rate of return. Current ratio This ratio measures the solvency of the firm in the short term. structure and utilisation of liquid assets. extension of too liberal credit policies. The quantitative aspect includes the quantum. Thus liquidity is a vital factor in business. Advantages of current ratio 1. increased speculation and unjustified expansion. The higher or lower current ratio will have the adverse impact on the profitability of the organisation. missing of profitable business opportunities and weakening of morale. This margin also leaves sufficient amount as working capital to carry out day to day transactions. loans and advances Current liabilities and provision Orissa state co-operative milk producer’s federation limited (OMFED) 29 . through a guarantor of solvency would reflect lower profitability. This ratio indicates the extent of current assets available to meet the current obligation. 2. and on certain aspects of inventory management which will be pointed out later. The current ratio of this organisation is always higher than the recommended level. Orissa state co-operative milk producer’s federation limited (OMFED) 30 . It is due to the piling up of inventory and idle cash level. 2006-07 shows high liquidity position which is around 10.56 2107718.48 which is very high than the recommended one.48 Interpretation A current ratio 2:1 shows a highly solvent position.97 10.47 1505636. Quick liquid ratio Quick ratio is used as a measure of the company's ability to meet its current obligations since bank overdraft is secured by the inventories. In the year 200708 the solvency position has improved but still it is higher then the recommended level. In the year 2008-09 the ratio goes up to 17. This ratio focuses on the inventory accumulation. the other current assets must be sufficient to meet other current liabilities. It is an improved variant of the current ratio in arriving at a liquidity index for an enterprise. This ratio serves as a supplement to the current ratio in analysing liquidity.10 9.70 5. so it can meet its entire current obligation effectively.55 YEARS Current assets.48 2008-09 19933030. b. Advantages of the quick ratio This ratio is very useful in cross checking the performance in other areas of economic management of an enterprise.50 2007-08 12162818.1) 2005-06 2006-07 10030349. 1.75 14614717.1.Financial statement analysis (Table 3. It is not a good sign of using current asset effectively.77 17. the ratios in the year 2004-05.16 744756.36 1101126.47 1139982. 2005-06.58 Current ratio 9. loans and advances Current liabilities and provision 2004-05 788154. 97 6. Absolute liquid ratio Absolute liquid ratio= absolute liquid assets Current liabilities Absolute liquid assets = cash in hand + cash at bank + short term investments (Table 3.78 6.bank overdraft (Table 3. c.49 2006-07 7507781.29 2007-08 5865755.1.33 1101126.inventories 744756.Financial statement analysis Quick liquid ratio= current assets. loans and advances .42 Interpretation A recommended ratio of acid test ratio is 1:1 but all the year starting from 2004-05 to 200809 shows much higher than this recommended level.inventories Current liabilities and provisions . In the year 2007-08 it came nearer to the recommended level.10 assets.98 2. This higher level indicates a high solvency state of the organisation.1.70 2008-09 7329857.3) YEARS 2004-05 2005-06 2006-07 2007-08 2008-09 Orissa state co-operative milk producer’s federation limited (OMFED) 31 .47 1139982.47 1505636.56 2107718.2) YEARS 2004-05 current 5859671.27 4.86 ratio 2005-06 691146. loans and advances .36 Current liabilities and provisions bank overdraft Quick liquid 7. 98 Interpretation The ideal absolute liquid ratio is taken as 1:2.48 Interpretation In 2004-05 the stock level was 28. Working capital generally means net working capital.17 2.59 x 100 26.2 68.47 5636638.03 33.Financial statement analysis absolute liquid assets Current liabilities Absolute liquid ratio 5759806. In all the respective year it has gone up then the recommended level.80 2005-06 3119203. It reflects over Orissa state co-operative milk producer’s federation limited (OMFED) 32 .67 8. Working capital= current assets .75 2008-09 12603172.79 2007-08 6297062.08 608024.26 13382748. Stock to working capital ratio Here stock refers to inventory as the rupee value of raw materials.11 9. d.26 9205540.22 1671330.83 18402353.63 701932.26 6.88 53.72 7.1.current liabilities stock to working capital ratio = Inventory Working capital (Table 3.40 7791203.30 6737981.4) YEARS Inventory Working capital stock to working capital ratio 2004-05 2028483.10 70.23% which is quite beneficial for the organisation but it start increasing in rest of the year and reach a peak of 70. It shows the over accumulation of cash at bank and in hand.78 8957775.20% in 2007-08.33 2006-07 7106936.23 1004547.80 771652.70 4327624.58 6313411. It may be noted that stock is valued at cost price or market price which ever is lower. 33 208711920. work in process and finished goods. f. Inventory turn over ratio. e. d. Activity ratio Activity ratio measures how effectively the firm employees its resources. These ratios also analyse the use of resources and the utility of each component of total assets.Financial statement analysis accumulation of stock. Inventory turnover ratio a considerable amount of a company's capital may be tied up in the financing of raw materials.52 262757676.1) 2004-05 2005-06 2006-07 2007-08 2008-09 116423937. Sales to capital employed ratio a. The inventory turnover ratio measures how many times a company's inventory has been sold during the year. a. Inventory turn over ratio= Sales Average inventory Average inventory = opening stock + closing stock 2 YEARS Sales (Table 3. Working capital turn over ratio. The following activity ratios are calculated for analysis. Total asset turn over ratio. It is important to ensure that the level of stocks is kept as low as possible. Low liquidity turnover has impact on the liquidity of the business.2. Asset management ratios are used to measure the speed with which various accounts are converted into sales or cash. consistent with the need to fulfil customer’s orders in time. Inventory ratio c. etc.66 131212359. These ratios are also called 'turn over or asset management ratio' which involve comparison between the level of sales and investment in various accounts like inventories. fixed assets.47 157091720. b.68 Orissa state co-operative milk producer’s federation limited (OMFED) 33 . debtors. Fixed asset turn over ratio. b. Inventory ratio= Inventory x 100 Current assets (Table 3. This is due to the piling up of stock because the selling has increased substantially. Orissa state co-operative milk producer’s federation limited (OMFED) 34 . which measures how much has been tied up in the inventory.33 50. Then it was reduced up to 59.24 65.72 6701999.79 27.Financial statement analysis Average inventory Inv entory turn over ratio 2017156.03 which increased up to 95.80 Interpretation The inventory turnover ratio shows that there is a decrease in the ratio from the year 2004-05 to 2008-09.13 57.97 in the year 2008-09.71 2573843.00 59.78 10629105.26 Interpretation In the year 2004-05 the ratio was 26.05 2006-07 7106936.00 in the year 2006-07 it shows that the how much inventory is tied up in current assets.2.26 95.40 Current assets inventory ratio 26.51 31.2) YEARS 2004-05 Inventory 2028483.97 7791203.26 9977193.79 2007-08 6297062.80 2005-06 3119203.83 19104286.14 9450117.24 in 2007-08 and again marks an increase up to 65.03 31.17 5113069.92 2008-09 12603172. Inventory ratio The level of inventory in a company may be assessed by the use of the inventory ratio.26 7480359.76 30. 05 11. As asset value are based on historic cost.41 5. Fixed assets turnover ratio= Sales Fixed asset YEARS Sales Fixed asset fixed assets turnover ratio (Table 3.33 208711920. This also helps in the increase in production which reflects in terms of increase in sales. An increase in the fixed asset figure may result from the replacement of an asset at an increased price or the purchase of an additional asset intended to increase production capacity.3) 2004-05 2005-06 2006-07 2007-08 2008-09 116423937.28 6. Fixed assets turnover ratio This ratio will be analysed further with ratios for each categories of assets this is a difficult set of ratios to interpret.28 23794369. The depreciation rate also shows the same. In the year 2004-05 it was 6.59 and starts decreasing up to 5.04 Interpretation It reflects that there is installation of plant machinery and building to increase the productivity of the plant.68 17644666.90 23061271.52 262757676.59 6.17 26896351.04 in 2008-09.66 131212359.84 in the year 2006-07 and again starts increasing and reaches up to 11.01 20440688.47 157091720. Total assets turnover ratio The ratio indicates the number of times total assets are being turned over in a year.84 9. Total assets turnover ratio= Sales Total assets Orissa state co-operative milk producer’s federation limited (OMFED) 35 .Financial statement analysis c.2. d. Financial statement analysis (Table 3.47 157091720.60 5.06 Interpretation It is showing that there is a good utilisation of total asset in every year but again the rate goes down in the year 2006-07 and again goes up to 6.5) YEARS Sales Working capital 2004-05 2005-06 2006-07 2007-08 2008-09 116423937.66 131212359.04 37279488.68 27402592.35 40782798.33 208711920.04 43566468.2.4) YEARS Sales Total assets 4.44 in 2008-09 which indicates a good sign for the organisation.75 18402353.33 13382748. Working capital turnover ratio This ratio indicates the extent of working capital turned over in achieving sales of the firm.59 6. Working capital turnover ratio= Sales Working capital (Table 3.52 262757676.47 157091720.04 3.80 9205540.29 32442753.59 Orissa state co-operative milk producer’s federation limited (OMFED) 36 . e.68 7791203.24 Total assets turnover ratio 4.2.66 131212359.79 8957775.33 208711920.44 2004-05 2005-06 2006-07 2007-08 2008-09 116423937.52 262757676. It was 4.71 42196722.87 6.49 but the next year it goes up to 26.22 Interpretation We can observe a zigzag motion in sales to capital employed ratio.25 5. That’s why the ratio starts declining but the sale has gone up.73 23.71 and in the year 2008-09 it came to 6.03 8.66 131212359.47 157091720.2. But there is an improvement can be observed in utilising working capital effectively in rest of the year. again mark an steep increase up to 8. it was increased up to 5. Sales to capital employed ratio This ratio indicates efficiency in utilisation of capital employed in generating revenue.97 11.52 262757676.6) 2004-05 2005-06 2006-07 2007-08 2008-09 116423937.18 then again decline up to 3.57 in the year 2004-05.33 208711920.27 Interpretation In the year 2004-05 the working capital that is turned over is only 6.69 3.90 23957047.22. f. Sales to capital employed ratio= Sales Capital employed YEARS Sales Capital employed Sales to capital employed ratio (Table 3. Profitability ratios These ratios are to help assessing the adequacy of profits earned by the company and also to discover whether profitability in increasing or declining the profitability of the firm is the net result of a large number of policies and decisions.68 25435869.18 40279100.97 it shows excess use of working capital to meet the sales.49 26.90.57 25305674.80 4. It shows that the efficiency in using capital is improving to generate higher revenue.Financial statement analysis Working capital turnover ratio 6.29 14. The profitability ratios show the Orissa state co-operative milk producer’s federation limited (OMFED) 37 . suppliers.66 131212359. Profitability ratios are measured with the reference to sales. government organisation.3. employees. It act as an index of the mobility of an enterprise to meet different expenses. creditors. Gross profit margin The gross profit represents the excess of sales proceeds during the period under observation over their cost. Net profit ratio Net profit ratio express net profit as a percentage of sales. We can say that the efficiency in operation is following a trend. before taking into account administration.04 12.32 20241173.33 208711920.57 2007-08 29096271. This ratio also shows the gap between revenue and expenses at a point after which an enterprise has to meet the expenses related to non manufacturing activities. Gross profit margin= Gross profit Sales x 100 YEARS Gross profit Sales Gross profit margin 2004-05 17967174.43 16.52 262757676. These ratios are very important from the point of view of different set of people who are interested in the business organisation like owners.68 15.38 116423937.10 (Table 3.47 157091720.67 Interpretation It shows that there is an increase and decrease prevails in this ratio it stands around 14%.1) 2005-06 2006-07 21055028.94 16.67 2008-09 43820261. selling and distribution and financing charges. It is due to the fluctuation in the price of raw material and other expenses related to production.Financial statement analysis combined effects of liquidity. This ratio indicates the Orissa state co-operative milk producer’s federation limited (OMFED) 38 . capital employed total assets employed etc. asset management and debt management on operating results. The ratio measures the efficiency of the companies operations and this can also be compared with the previous year's result to ascertain efficiency.88 13. 71 10.72 116423937.52 262757676.81 2007-08 22247548. Net profit ratio = Net profit x 100 Net sales YEARS Net profit 2004-05 10350896.89 9.63 Interpretation It is showing the efficiency of the organisation in earning profit.52 262757676. It stand around 9% but in the year 2008-09 it goes up to 11.69 7.33 208711920.72 116423937.63% it reflects that the organisation is growing in an apt manner in earning profit.33 208711920.00 13692108.56 2007-08 18435097.66 131212359.13 2008-09 35574501.13 11.20 (Table 3.68 Net sales Net profit ratio 8.65 13.3) 2005-06 2006-07 15052165.53 Orissa state co-operative milk producer’s federation limited (OMFED) 39 .26 8.68 11.91 2008-09 30574501. before tax and net profit from year to year owing to differences in depreciation charged.83 11. Cash profit ratio Cash profit ratio measure the cash generation in the business as a result of the operation.Financial statement analysis profitability and efficiency of the business.47 8.47 157091720.70 11411004.3.66 131212359.95 (Table 3.47 157091720.3.2) 2005-06 2006-07 12724976. This ratio is more reliable indicator of performance where there are sharp volatility in the profit Cash profit ratio = Cash profit x 100 Sales Cash profit= net profit + depreciation YEARS Cash profit Sales Cash profit ratio 2004-05 12962363. 19 85.4) 2005-06 2006-07 2007-08 2008-09 109159181.99 116423937.33 134111568. In other words.67 Interpretation The operating ratio following a trend of around 83%.37 85.32 83.Financial statement analysis Interpretation This ratio is also fluctuating a little bit from its trend which is around 11%.23 178914326. Expense ratio Expense ratio shows the relationship between operating costs and expenses on the one hand and volume of sale on the other. Advantages:1. These ratios are useful in knowing the following aspects relating to profit and help the Orissa state co-operative milk producer’s federation limited (OMFED) 40 . these ratios express each element of cost and expenses as percentage of sales.66 131212359.33 208711920.72 82.3.68 Net sales Operating cost ratio 84. In 2008-09 the organisation is able to reduce the operating cost so the net profit has increased. It may be expressed as Operating cost ratio= operating cost x 100 Net sales (Table 3.43 217233461. Operating cost ratio Operating cost ratio expresses the relationship of cost of goods sold plus operating expense to net sales. It is showing the operational efficiency of the organisation. It is following the same path as the gross profit and net profit ratios are following.52 262757676.47 157091720.63 YEARS operating cost 2004-05 98177801.53% in the year 2008-09 which is sowing a hike in earning cash profit. There is seen an increase up 13. 47 157091720.20 cost 116423937.Financial statement analysis management to know the position of profit. ii.20 208711920.52 262757676.66 131212359.65.65 85. Administrative cost of sales ratio Administrative cost of sales ratio= Administrative cost of sales x 100 Sales YEARS 2004-05 Administrative 863204. Higher the expense ratio lowers the profit and vice-versa. administration) lower the net profit.3 3 0. It is showing the reduced in the profit level.66 Sales Administrative 0.10 2005-06 2006-07 2007-08 2008-09 121578161. i. That is whether the profit is on the increase or on the decrease.37 225243525.3. But the condition starts improving in the respective year and reach up to 85.72 Interpretation The expense ratio in terms of sale in the year 2005-06 was higher than any other year which is 92.67 85.58 92.68 Net sales Expense ratio 84.42 131212359.71 0.74 cost of sales 2005-06 8289130.68 2.4 7 6.65 89.10 157091720.52 262757676.66 178805775. Expense ratio = Expenses x100 Net sales (Table 3.79 2008-09 1583528.60 Orissa state co-operative milk producer’s federation limited (OMFED) 41 .72 in the year 2008-09.31 2006-07 1118133.35 116423937.06 140838279.5) YEARS Expense 2004-05 98479418.33 208711920. Higher the non manufacturing expenses ratio (marketing.71 2007-08 5664158. 53 2005-06 2006-07 2007-08 2008-09 105017786.6) 2005-06 2006-07 5139544.27 116423937.52 262757676.72 6596742.93 157091720.3.43 130253803.Financial statement analysis ratio Interpretation The administrative cost is increased heavily in the year 2005-06 due to increase in expenses of different items and usage of the items which was 6.35 2.4 Sales 7 Selling and 3.33 208711920.66 131212359. Cost of good sold to net sale ratio Cost of good sold to net sale ratio = Cost of good sold x 100 Net Sales (Table 3. Again it goes down to 0.71 and again goes up to 2.91 (Table 3.25 distribution cost to sales ratio 3.03 208711920.19 2007-08 4908238.31.25 in the year 2004-05 it increase slowly and reach up to 4.68 .47 157091720.60 in 2008-09 which was lower than all the respective year. It is due to the effective distribution channel. Selling and distribution cost to sales ratio Selling and distribution cost to sales ratio = Selling and distribution cost x 100 Sales YEARS 2004-05 Selling and 3790646.63 in the year 2008-09.19 in the year 2006-07 and then decrease up to 2.73 174707410.3 3 4.22 211763117.63 Interpretation the selling and distribution cost was 3.52 262757676.68 2. It also helps in the rate of selling of products.7) YEARS Cost of good sold Net sales Orissa state co-operative milk producer’s federation limited (OMFED) 42 2004-05 94666117.3.71 and finally reaches to 0.66 131212359.63 2008-09 7174298.03 distribution cost 116423937. 2.59 Interpretation It is following a trend of around 81%.Financial statement analysis Cost of 81.69.8) YEARS Net profit Capital employed Return on capital employed ratio 2004-05 10350896.3. It focuses the attention on efficiency of management in managing the investments made into the business.28 2006-07 11411004.91 23957047.20 25435869. 1.91 83.32 2007-08 18435097.70 80.25 50.72 42196722.03 76.70 25305674. It consists of two components that is profit margin and investment turnover. By following a zigzag motion Orissa state co-operative milk producer’s federation limited (OMFED) 43 .80 40.56 40279100. It is not deviating more from its trend but it has been decreased down to 80. Advantages: It helps in measuring the profitability of the firm. Return on capital employed ratio = net profit x100 Capital employed (Table 3.95 2008-09 30574501. Return on capital employed The rate of return on investment is determined by dividing net profit by the capital employed.45 Interpretation In the year 2004-05 the return on capital employed was 40.69 28. It indicates how effectively the operating assets are used in earning return.87 72.03 82.59 in 2008-09 which increase in profit level.31 good sold to net sale ratio 80.69 2005-06 12724976. 32 it is due to increase in amount of work in progress and other fixed assets.g government policies.Financial statement analysis it goes up to 50. Trend ratio can be graphically presented for better understanding by the management.28. Since trends are sometime significantly affected by externalities e. It is a statistical device applied in the analysis of financial statements to reveal the trend of the items with the passage of time. They are very useful in predicting the behaviour of the various financial factors in future. before drawing any final conclusion. In 2006-07 it was reduced to 28. TREND RATIOS trend ratio can be defined as index numbers of the movements of the various financial items in the financial statements for a number of periods. Trend ratio shows the nature and rate of movements in various financial factors. economic conditions etc.45 in the year 2008-09. But again it gained momentum and the return reach up to 72. Trends of related items should be carefully studied. Limitations of trend ratios Orissa state co-operative milk producer’s federation limited (OMFED) 44 . It shows the operational efficiency. The trend is following a zigzag motion in case of bank balances and cash at hands. a. these ratios become incomparable and misleading. the trend ratios have to be interpreted in the light of certain non-financial factors like economic conditions. The rate of increase in purchase of goods is quite lower then the increase in sales.27 %. Orissa state co-operative milk producer’s federation limited (OMFED) 45 . The manufacturing expenses and distribution expenses are also increasing according to increase in production and sale but it is less then the increase in the rate of sale. The rate of receiving grant has been reduced but attains a constant position from the year 2006-07 to 2008-09. still this is favourable for the organisation.37% in the year 2008-09 which shows a good financial health of the organisation. if the accounting practices have not been followed consistently year after year. They are only calculated for the logically connected items enabling a meaningful analysis. As the sales are going upward the purchase of trade goods has been goes up accordingly. Application of fund is increasing but the rate is very low. It is showing the efficiency in operating and distribution activity of the management. b.17% in the next year but again it come down to 150. The loan and advances is quite lower in the year 2004-05 to 2006-07 but increase soaringly to 279. The rate of increase in other expenses is increased higher then the rate of increase in other income and also then the rate of sales. Interpretation The sale is following a trend that is going upward. The rate of increase in current liability follows first four year but it again start decreasing up to 86. The rate of increase in inventory is similar and logical with increase in sale but the rate sky rocketed in the year 2008-09 by 202. reserve and surplus have been increasing gradually but the trend is increasing in higher rate.85%. The share holders fund.Financial statement analysis Trend ratios are not calculated for all the items. government policies and management policies etc. Financial statement analysis COMPARATIVE STATEMENT ANALYSIS These financial systems are so designed as to provide time perspective to the various elements of financial position contained therein. increase and decrease in terms of percentage. e. c. comparison expressed in ratios. increase and decrease in absolute data in terms of money values. These statements give the data for all the periods stated so as to show. b. absolute money values of each item separately for each of the periods stated. d. percentage of totals. Such comparative statements are necessary for the study of trends and direction of Orissa state co-operative milk producer’s federation limited (OMFED) 46 . a. 15 which is 203.12% then the previous year.88% while cost of good sold 21. in relative term the rate is much higher then the rate of increase in sales. There is a 50. but at the same time cost of goods sold has also increased by Rs.2696835. and the productivity reflects in the sales volume. which is quite negligible as compared to sales volume. Insurance charges have been increased 58. Processing expense has been increased Rs.87 and it helps in the increase in sales up to Rs. Printing and stationary is increased up to Rs.03% respectively. The rate of advertising is 27.37055707.94% in the relative term which will impart a secure operational function.79 in absolute terms and 31.65223435. Comparative profit and loss account shows the operating results for a number of accounting period and changes in the data significantly.21%. It indicates that there must be wastage or improper handling Orissa state co-operative milk producer’s federation limited (OMFED) 47 . There has been a substantial decrease in other incomes both in relative term and absolute term. In absolute period and changes in the dan significantly in absolute money terms as well as relative percentage. It reflects that the management is giving more emphasis on its core business rather than other miscellaneous activity. Comparative balance sheet shows the balance of account of asset and liability in different dates and also the extent of their increase and decrease between these dates showing light on the trends and direction of changes over the period.Financial statement analysis movements in the financial position and operating results. Interpretation Study of income statement reveals that there has been an increase of Rs 65223435.1263428 but in relative term the rate of increase in processing expense is quite nearer to the rate of increase in sales. This call for a consistency in the practise of preparing these statements. There has been an increase in selling expenses in absolute term which is Rs.18% which is lower then the rate of increase in sales and also in absolute term it is only increased 6411. In relative term sales increased by 34. 48464.05.78% respectively.21% and 30. otherwise comparability may be distorted.09 in sales.15% in relative term which indicates that improved plant machinery has been installed which helps I the increase of the productivity. The depreciation rate is increase up to 1187549. It is due to the increase in the rate of expense in marketing expense and purchase of crate for distribution at a rate of 583% and 805.60% increase in gross profit which is due to the less increase in the rate of cost of goods sold and processing expenses which is 21. It means due to the operational efficiency the rate of increase in cost of good sold is lesser then the rate of increase in sales. 10963 from its previous year. All these increase in fixed asset is reflecting in the provision for depreciation which is increased 2944601. inventories has been increased which is due to the improper investment of the funds. Liveries and safety materials are used and maintained properly so the expenses have been reduced by 3. Orissa state co-operative milk producer’s federation limited (OMFED) 48 .65 in absolute term which is a good sign for the organisation. In absolute term it is less but in relative term the increase is 174.21 in absolute term and 24. There is a soaring hike can be seen in case of sundry debtors which is 183274. Building and gardening cost has been increasing soaringly which is 850. It is showing the inefficient use of current assets. Sales promotion has been decreased by 25.41 and 143.26% in relative term.96% in relative term and Rs.05 in absolute term which is showing high financial viability of the organisation. A staff welfare and canteen expense has been increased by Rs.56% which is not a goods sign for the organisation.43% then the last year which indicates the profitability and transparency of the organisation which leads to organisational efficiency.01% which is showing over solvency of the organisation.83% higher then the previous year and rupees 45919 in absolute terms which is due to the development and maintenance of the infrastructure.00 due to installation of new computers and printers.38% and the current liability has been decreased drastically by -45.50 % I relative term. Loans and advances have been decreased by 45. The entertainment expense has been increased by Rs. It is severely affecting the current ratio by increasing it to a very high level then the recommended one. The share holders fund.88 in absolute term and 4147. The computer expenses are increased by Rs. 88850. 704986.49% in relative term which is enhancing the strength of the organisation. reserve & surplus have been increased by 42.13% higher then the previous year.85% which is not a favourable condition. 30638760.Financial statement analysis of this material. Bonus is hike up to 66.90% and Rs.25 which is 26.34572.12 in absolute term and 2488.67% in relative term then the previous year.92% which is contributing towards organisational profit. The sales have been increased and the sales promotion should also increase accordingly. Government and other grants have been increased by 12720788. As the sales promotion is an inevitable part of a good business. The current asset has been increased by 67. It is helpful in motivating the staff. Other expense has been increased by Rs 105402. Cash in hand and bank. A common size income statement for different periods helps to reveal the efficiency or otherwise of incurring any cost or expense.Financial statement analysis COMMON SIZE STATEMENT ANALYSIS Common size financial statements are those in which figures reported are converted into percentages to some common base. Each percentage shows the relation of the individual item to its respective total. For this. In a common size income statement the sales figure is assumed to be equal to 100 and all other figures of cost or expenses are expressed as percentage of sales. In a common size balance sheet total of assets and liability are taken as 100 and all the Orissa state co-operative milk producer’s federation limited (OMFED) 49 . items in the financial statement are presented as percentages or ratios to total of the item and a common base for the comparison is provided. 85% which shows investment of funds. In the year 2008-09. Comparative common size balance sheet for different period helps to highlight the trends in different items. Omfed appears to be a traditionally financed with share holders fund and reserve & surplus. 50% of the reserve and surplus and shareholders fund has been invested which was 97. Piling up of inventories increased up to 22.Financial statement analysis respected figures are expressed as the percentage of total.46% in 2008-09 then 4. Loans and advances also decreased which is 1. Total liability also constitutes of 50% of total liability and capital which is very high then the previous year 2007-08.66^ in 2007-08 and 64. Out of total assets.17%. Other income has been declined as the firm is concentrating only upon its core activity. It doesn’t have any long term liability.13 % in the year 2007-08.56% in 200708.58 % in 2007-08 which shows healthy financial system of OMFED.20% in the year 2008-09. It is due to the increase in sale but effective use of funds as the increase in relative term then the previous year is very little. Despite of increase in sales the processing expenses was less then the previous year it is indicating the operational efficiency of the firm.96% in the year 2008-09.37% which was previously 15. Orissa state co-operative milk producer’s federation limited (OMFED) 50 . Other expense like selling expenses is increased. It shows the fixed productive asset of the firm. Which increase in the gross profit level up to 17. Interpretation The cost of good sold has been decreased from 93. Cash in hand and bank was reduced to 11.43% to 83. fixed asset constitute the major part which is 63. The labour cost in this area is very low. The accounts of reserve and surplus. The findings of this analysis show that the financial strength of this organization is very healthy. The tools that we used to analyse the financial statement reveals many vital information regarding the organisation’s financial strength. socio economic condition of poor people so government is providing huge grants to it. raw material transfer among the different unit of Orissa state co-operative milk producer’s federation limited (OMFED) 51 . share holders fund is very high. availability of raw material in this area is more. As the organization is enhancing the livelihood. There persists a technological. product. It is earning profit at a higher rate.Financial statement analysis Findings and Recommendation The financial statement of OMFED Sambalpur unit has given a broad idea about the organization. So it will lead to increase in the profitability up to many folds. Yes it is very eloquent that the rate of sales is very high but there is a huge potential for increase the sales in dairy product. So we would like to add that if sophisticated machinery will be installed or the capacity of the plant will be enhanced and maintaining a high level of distribution channel would hike the quality of the product and easy availability of product to the customer. Appendix Liquidity ratio 18 16 14 12 ratio 10 8 6 4 2 0 Orissa state co-operative milk producer’s federation limited (OMFED) 2004-05 2005-06 2006-07 2007-08 2008-09 52 year Current ratio Acid test ratio Absolute liquid ratio . The liquidity ratio shows that asset remain idle with out any proper investment. Which can only be achieved by sales promotion. All the above factor helping the organization to grow at a faster rate. It has also gained a momentum of incurring profit. Rest we can say that the organization is developing since inception. They are moving from the stage of maximum utilization of resource to optimum utilization of resource which is very important for the organization.Financial statement analysis OMFED. Despite of huge asset possessed by the organization the investment opportunity is very thin. Inventory management is not satisfactory as it is seen on the balance sheet that inventory is piling up heavily. The financial statement also shows that the expenditure on sales promotion and advertising is very depressing as compared to the sales. We have found out a small weak link in the organization. Financial statement analysis stock to working capital ratio 80 70 60 50 ratio 40 30 20 10 0 200405 200506 200607 year 200708 200809 stock to working capital ratio Inventory ratio 100 90 80 70 60 ratio 50 40 60 30 20 10 0 Activity ratio Inventory ratio 50 2004-05 2005-06 2006-07 year 2007-08 2008-09 40 ratio 30 Inventory turn over ratio Fixed asset turn over ratio Total asset turn over ratio 20 10 0 Orissa state co-operative milk producer’s federation limited (OMFED) 53 2004-05 2005-06 2006-07 2007-08 2008-09 year . Financial statement analysis Activity ratio 30 25 20 ratio 15 10 5 Working capital turn over ratio Sales to capital employed ratio 0 2004-05 2005-06 2006-07 year 18 16 14 12 ratio 10 8 6 4 2 0 Gross profit ratio Net profit ratio Cash profit ratio Profitability ratio 2007-08 2008-09 Orissa state co-operative milk producer’s federation limited (OMFED) 54 2004-05 2005-06 2006-07 2007-08 2008-09 year . Cost to sale ratio selling & distribution cost to sale ratio Cost of good sold to sale ratio profitability ratio 100 90 80 70 60 ratio 50 40 30 20 10 0 2004-05 Return on capital employed ratio operating cost ratio Expense ratio Orissa state co-operative milk producer’s federation limited (OMFED) 2005-06 2006-07 2007-08 2008-09 55 year .Financial statement analysis Profitability ratio 90 80 70 60 ratio 50 40 30 20 10 0 2004-05 2005-06 2006-07 2007-08 2008-09 year Admin. 2005.2007.2006.Financial statement analysis Trend ratio 140 120 100 value 80 60 40 20 0 2004-05 2005-06 2006-07 ye a r 2007-08 2008-09 Net block Capital work in progress Grants Trend ratio 300 250 200 value 150 100 50 0 2004.200805 06 08 09 Orissa state co-operative milk 07 producer’s federation limited (OMFED) year56 Bank balances Cash at hand Loan & advances . 00 100.00 value 150.00 200.00 0.00 200405 200506 200607 year 200708 200809 Inventories total current asset Trend ratio 180 160 140 120 100 80 60 40 20 0 200405 200506 200607 year 200708 200809 Current liabilities & provision Total current asset value Orissa state co-operative milk producer’s federation limited (OMFED) 57 .00 50.Financial statement analysis trend ratio 250. 00 160.00 20.2006.By Sudhindra Bhat sales Purchase oe trade goods Manufacturing expenses Distribution expenses value Orissa state co-operative milk producer’s federation limited (OMFED) 58 .00 40. Pandey Financial Management-By Khan and Jain Financial Statement Analysis:.M.By Gupta and Mehra.00 0.00 80.00 180.Financial statement analysis Trend ratio 200.00 140.00 60.200805 06 07 08 09 year Bibliography Financial Management-By I.2005.00 120.2007.00 2004.00 100. Financial Management:. co.org www.google.in Orissa state co-operative milk producer’s federation limited (OMFED) 59 .Financial statement analysis www.omfed.