finance(mba) 358

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A STUDY ON CASH FLOWS AND CASH

MANAGEMENT PRACTICES AT BAMUL

A dissertation report submitted in partial fulfillment of the requirements for

the award of the degree of

MASTER OF BUSINESS ADMINISTRATIONTo

BANGALORE UNIVERSITY

Submitted by

Vinay.H.Banakar

Reg no: 09ACCMA087

Under The Guidance Of

Prof M.B.Balasubramanyam

B.sc,C.A.I.I.B & PGDBM

(Senior faculty)

AL-AMEEN INSTITUTE OF MANAGEMENT STUDIESHosur Road, Near Lalbagh Main Gate, BANGALORE-560 0027

(AFFILIATED TO BANGALORE UNIVERSITY)

2010-11

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CONTENTS

CHAPTER TITEL PAGE NO

I INTRODUCTION 1-18

II RESEARCH DESIGN 19-21

III COMPANY PROFILE 22-52

IV ANALYSIS AND INTERPRETATION OF

DATA

53-70

V SUMMARY OF FINDINGS,

SUGGESTIONS

AND CONCLUSION

71-74

BIBLIOGRAPHY

LIST OF CHARTS

Chart No PARTICULARS Page No

1 NUMBER OF FUNCTIONAL DCS 26

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2TOTAL MILK PROCRUMENT AND WOMEN MEMBERSHIP

AT DCS27

3 AVERAGE MILK PROCUREMENT 28

4 TOTAL MILK SALES 29

5 FULL CREAM MILK SALES(AVG LTS/DAY) 31

6CURD SALES (Avg KGS/DAY) 33

7

YEAR WISE DETAILS OF SHARE CAPITAL

OF BAMUL42

8ANNUAL TURNOVER OF BAMUL 43

9 YEAR WISE DETAILS OF NET PROFIT OF BAMUL 43

LIST OF TABLES

TableNo

PARTICULARS Page No

3.1 ANIMAL HEALTH & OTHER ACTIVITIES 35

3.2 YEAR WISE DETILS OF AI 35

3.3 CATTLE FEED SALES 37

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4.1 Table showing the cash flow statement 55-56

4.2 CURRENT RATIO 58

4.3 CURRENT ASSET TURNOVER RATIO 60

4.4 QUICK RATIO 62

4.5 Current Assets to Total Assets Ratio 63

4.6 DETORS TURNOVER RATIO 65

4.7 AVERAGE COLLECTION PERIOD 67

4.8 CASH TURN OVER RATIO 69

LIST OF GRAPHS

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GraphNo

PARTICULARS PageNo

4.1Current assets and liabilities

58

4.2 CURRENT RATIO OF BAMUL 59

4.3 NET SALES AND CURRENT ASSET 60

4.4 CURRENT ASSET TURNOVER RATIO 61

4.5 QUICK RATIO 62

4.6 CURRENT ASSETS TO TOTAL ASSETS 64

4.7 DEBTORS TURNOVER RATIO 65

4.9 CASH TURNOVER RATIO 69

Chapter I

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INTRODUCTION

Introduction to finance

Introduction to cash management

Scope of cash flow statements

Introduction to BAMUL

INTRODUCTION TO FINANCE

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Finance can be defined as the provision of the money at the time when it

is required. Every enterprise, whether big, medium or small, needs finance to

carry on its operation and to achieve its targets. In fact, finance is so

indispensible today that it is rightly said to be lifeblood of an enterprise. Without

adequate finance, no enterprise can possibly accomplish its objectives

DEFINATION

According to J.F.Bradley, Financial Management is the area of business

management devoted to a judicious use of capital and a careful selection of

sources of capital in order to enable a business firm to move in the direction of

reaching its goals.

IMPORTANCE OF FINANCIAL MANAGEMENT

The importance of financial management can be expressed as follows:

1. Finance is the lifeblood of business and every business unit needs money

to make more money, but money will get more money only when it is

managed properly.

2. Financial management is absolutely necessary for every business unit,which is required to make more money.

3. In the words of Collins Brooks Bad production and sales management

slain hundreds but faulty finance slain thousands.

4. Financial management helps a firm in optimizing the output from given

input of funds.

5. Financial management helps a firm in monitoring the effective employment

of funds in fixed assets as well as in current assets.

6. Financial Management helps in profit planning, capital budgeting,

controlling inventories and account receivables.

OBJECTIVES OF FINANCIAL MANAGEMENT

Objectives of financial management can be classified in to two:

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I BASIC OBJECTIVES:

1) Maintenance of adequate liquid assets in a firm:

This objective implies that financial management should ensure that there

are always adequate cash in the hands of the firm to meet its obligations.

2) Profit Maximization:

Profit earning is the main aim of every economic activity. No business can

survive without earning profit. Profit is a measure of efficiency of business

enterprise. Profit also serves as a protection against risks which cannot be

ensured. The accumulated profit enables a business to face like fall in prices,

competition from other units adverse government policies etc. Thus profit

maximization is considered as the main objective of business.

3) Wealth Maximization:

Wealth maximization is an appropriate objective of an enterprise.

Financial theory asserts that wealth maximization is the single substitute for a

stock holders wealth, the individual stock holders can use this wealth to

maximizing the stock holders wealth, the firm is operating consistently towards

maximizing stock holders utility.

II OTHER OBJECTIVES:

a) Ensuring maximum operational efficiency through planning, directing and

controlling of the utilization of the funds i.e., through effective employment

of funds.

b) Enforcing financial decision in the organization while using financial

resources through co-ordination of the operations of the various decisions

of the organizations.

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c) Building up of adequate resources for financing growth and expansion and

ensuring fair returns to share holders.

CASH MANAGEMENTCash is the most important current assets for the operations of the

business. Cash is the basic input needed to keep the business running on a

continuous basis it is also the ultimate output expected to be realized by selling

the service or product manufactured by the firm. The firm should keep sufficient

cash neither more or less.

Cash shortage will disrupt the firm manufacturing operation while excessive cash

will remain idle without contributing anything towards the firms profitability this is

major function of the financial manager is to maintain a sound cash position.

Nature of cashFor some persons, cash means only money in the form of currency (cash

in hand). For other persons, cash means both cash in hand and cash in bank.

Some even include near cash assets in it. They take marketable securities too as

part of cash. There are the securities that can be easily being converted into

cash. These viewpoints reflect the degree of freedom of the persons using the

cash. Whether a persons wants to use it immediately or can wait for a time to use

it depends upon the needs of concerned persons.

Cash itself does not produce goods or services. It is used as a medium to

acquire other assets. The idle cash can be deposited in bank to earn interest. A

business has to keep required cash for meeting various needs. The assets

acquired by cash again help the business in producing cash. The goods

manufactured or services produced are sold to acquire cash. A firm will have to

maintain a critical level of cash. If at a time it does not have sufficient cash with it,

it will have to borrow from the market for reaching the required level.

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There remains a gap between cash inflows and cash outflows. Sometimes cash

receipts are more than the payments or it may be vice versa at another time. A

financial manager tries to synchronize the cash inflows and outflows. But this

situation is seldom found in the real world. Perfect synchronization of receipts

and payments of cash is only an ideal situation.

Need for cash/ motives of holding cash:

For any business, cash is an important and crucial asset. The various

motives which prompts business to hold ready cash in their hands is explained

below:

Transaction motive:

The cash is needed to make purchases, pay expenses, taxes, dividend

etc. The cash need arises due to the fact that there is not complete

synchronization between cash receipts and payments. Sometimes cash receipts

exceed cash payments or vice versa. The transaction needs of cash can be

anticipated because the expected payments in near do not happen as desired. If

more cash in needed for payments than receipts, it may be raised through bank

overdraft. On the other hand, if there are more cash receipts than payments, it

may be spend on marketable securities. The maturity of securities may be

adjusted to the payments in future such as interest payment, dividend payment

etc.

Precautionary Motive:

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A firm is required to keep cash for meeting various contingencies. Though

cash inflows and cash outflows are anticipated but there may be variations in

these estimates. For e.g. a debtor who has to pay after 7 days may inform of his

inability to pay, on the other hand, a supplier who used to give credit for 15 days

may not have the stock to supply or he may not have the stock to or he may not

be in a position to give credit at present. In this situations cash receipts will be

less than expected and cash payments will be more, as purchases may have to

be made for cash instead of credit. Such contingencies arise often in a business.

A firm should keep some cash for such contingencies or it should be in a position

to raise finances at a short period. The cash maintained for contingency needs is

not productive or it remains ideal. However, such cash may be invested in short

period or low risk marketable securities that may provide cash as and when

necessary.

Speculative motive:

The speculative motive relates to holding cash for investing in profitable

opportunities as and when they arise. Such opportunities do not come in a

regular manner. These opportunities cannot be made about their occurrence. For

e.g. the prices of shares and securities may be low at a time with an expectation

that these will go shortly. The prices of raw materials may fall temporarily and a

firm may like to make purchases at these prices. Such opportunities can be

availed of if a firm as cash balances with it. These transactions are speculative

because prices may not move in a direction in which we suppose them to move.

The primary motive of a firm is not to indulge in speculative transactions but such

motive of a firm is not to indulge in speculative transactions but such investments

may be made at times.

Cash management has assumed importance because it is the most significant of

all the current assets. It is required to meet business obligation and it is

unproductive when not used.

Factors affecting cash availability in a business.

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The cash flow in a business is influenced by a number of factors:

Operating policies

Fixed assets

Management of receivables

Inventory

Payment policies

External factors

Monetary and Fiscal policies

Factors relevant to any industry

Cash management deals with the following

Cash inflow and outflow

Cash balances held by the firm at any point of time

Cash balances within the firm

Cash management needs strategies to deal with various facets of cash.

Following are some of its facets.

Cash Planning:

It is a technique to plan and control the use of cash. A projected cash flow

statement may be prepared, based on the present business operations and

anticipated future activities. The cash inflows from various sources may be

anticipated and cash outflows will determine the possible uses of cash.

Cash forecast and Budgeting:

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A cash budget is the most important device for the control of receipts and

payments of cash. A cash budget is an estimate of cash receipts and

disbursements during a future period of time. It is a forecast of expected cash

intake and outlay. The short term forecast cash is made with the help of cash

flow projections. The finance manager will make estimates of likely receipts in the

near future and the expected disbursements in that period. Though it is not

possible to make exact forecasts even though estimates of cash flows will enable

the planners to make arrangements for cash needs. It may so happen that

expected cash receipts may fall short or payments may exceed estimates. A

financial manager should keep in mind the sources from where he will meet

short-term needs. He should also plan for productive use of surplus cash for

short periods. The long-term cash forecasts are also essential for proper cash

planning. These estimates may be for 3-4 or more years. Long-term forecasts

indicate companys future financial needs for working capital, capital projects,

etc.

Short term and long term cash forecasts may be made with the help of following

methods:

Receipts and disbursements method: In this method, the receipts and

payments of cash are estimated. The cash receipts may be from cash sales,

collections from debtors, sale of fixed assets, receipt of dividend other

incomes of all the items; it is difficult to forecast the sales. The sales may be

on cash as well as credit basis. Cash sales will bring receipts at the time of

sale while credit sales will bring cash later on. The collections from debtors

will depend upon the credit policy of the firm. Any fluctuation in sales will

disturb the receipts of cash. Payments may be made of cash purchases, to

creditors for goods, purchase of fixed assets, for meeting operating expenses

such as wage bill, rent, taxes or other usual expenses, dividend to

shareholders etc.

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The receipts and disbursements are to be equaled over a short as well as

long periods. Any shortfall in receipts will have to be met from banks or other

sources. Similarly, surplus cash may be invested in risk free marketable

securities. It may be easy to make estimates for payments but cash receipts

may not be accurately made. The payments are to be made by outsiders, so

there may be some problem in finding out the exact receipts at particular

periods.

Adjusted Net Income Method: This method may also be known as sources

and uses approach. It generally has three sections. Sources of cash, uses of

cash and adjusted cash balances. The adjusted net income method helps in

projecting the companys need for cash at some future date and then it will

have to decide about the borrowing or issuing shares etc. in preparing its

statement the items like new income, depreciation, dividends, taxes, etc. can

easily be determine from companys annual operating budget. The estimation

of working capital movement becomes difficult because items like receivables

and inventories are influenced by factors such as fluctuations in raw material

cost, changing demand for companys products and likely delays in

collections. This method helps in keeping a control on working capital andanticipating financial requirements.

Managing cash flows

After estimating the cash flows, efforts should be made to adhere to the

estimates of receipts and payments of cash. Cash management will be

successful only if cash collections are accelerated and cash disbursement as far

as possible are delayed.

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Methods of accelerating cash Inflows

1. Prompt payment by customers: In order to accelerate cash inflows. The

collections from customers should be prompt. This will be possible by prompt

billing. The customers should be promptly informed abut the amount payable

and time by which it should be paid. It will be better if self-addressed

envelope is sent along with the bill and quick reply is requested. Another

method for prompting customers to pay earlier is to allow them a cash

discount. The availability of discount is a good saving for the customer and in

an anxiety to earn it they make quick payments.

2. Quick conversion of payment into cash: Improving the cash collecting

process can accelerate cash inflows. Once the customers write a cheque in

favor of the concern the collection can be quickened by its early collection.

There is a time gap between the cheque sent by the customers and the

amount collected against it. This is due to many factors like mailing time.

Time taken in processing the cheque within the organization and sending it to

bank and collection time within the bank.

3. Decentralized collection: A big firm operating over wide geographical area

can accelerate collections by using the system of decentralized collections. A

number of collecting center are opened in different collecting centers is to

reduce the mailing time from customers dispatch of cheque and its receipt in

the firm and then reducing the time in collecting these cheques.

4. Lock Box System: Lock Box System is another technique of reducing

mailing, processing and collecting time. Under this system, the firm selects

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some collecting centers at different places. The places are selected on the

basis of number of consumers and the remittances to be received from a

particular place. The firm hires a post box in a post office and the parties are

asked to send the cheques on that post box number. A local bank is

authorized to operate the post box. The bank will collect the post a number of

times in a day and start the collection process of cheques.

Methods of slowing cash outflows

1. Paying on last date: The disbursements can be delayed on making

payments on the last due date only, if the credit is for 10 days, then

payment should be made on the 10th day only. It can help in using the

money for short periods and the firm can make use of cash discounts also.

2. Payment through Drafts: Drafts is payable only on presentation to the

issuer. The receiver will give the draft to its bank for presenting it to the

buyers bank. It takes a number of days before it is actually paid. The

companies can economics large resources by using this method. The

funds so saved can be invested in highly liquid low risk securities to earn

income thereon.

3. Centralization of payments: The payments should be centralized and

payments should be made through drafts or cheques. When cheques are

issued from the main office, then it will take time for the cheques to be

cleared through post. The benefit of cheque collecting is availed.

4. Inter-Bank Transfer: An efficient use of cash is also possible by inter-

bank transfers. If the company has accounts with more than one bank

then amounts can be transferred to the bank where disbursements are to

be made. It will help in avoiding excess amount in one bank.

5. Making use of Float: Float is a difference between the balance shown in

the companys cashbook and balance in passbook of the bank. Whenever

a cheque is issued, the balance at bank in cashbook is reduced. The party

to whom the cheque is issued may not present it for payment immediately.

If the party is at some other station, then cheque will come through post

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and it may take a number of days before it is presented until the time. The

cheques are not presented to bank for payment there will be a balance in

the bank. The company can make use of this float if it able to estimate it

correctly.

Determining optimum cash balance

A firm has to maintain a minimum amount of cash for setting the dues in

time. The cash is needed to purchase raw materials, pay creditors, day-to-day

expenses, dividend etc. the test of liquidity of the firm it is able to meet various

obligations in time.

Some cash will be needed for transaction needs and amount may be kept as a

safety stock. An appropriate amount of cash balances to be maintained should

be determined on the basis of past experience and future expectations. If a firm

maintains less cash balances then its liquidity position will be weak. If higher the

cash balances are maintained, then an opportunity to earn is lost. Thus, a firm

should maintain an optimum cash balances, neither a small nor a large cash

balances. For this purpose, the transactions costs and risk of too small a balance

should be matched with the opportunity costs of too large a balance.

There are basically two approaches to determine an optimal cash balance

namely, minimizing cost models and preparing cash budget. Cash budget is the

most important tool in cash management.

CASH FLOW STATEMENT

Cash Flow Statements are the statements prepared by the firms, which

should report cash flow during the period classifieds by operating, investing and

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financing activities. Cash flow statements are usually disclosed in the annual

reports. According to Revised accounting standards of cash flow statements

issued by the Council of the institute of chartered account of India(1981) it is

mandatory requirement to prepare and disclose of cash flow statements in

annual reports.

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Objectives of Cash flow

The cash flow statement identifies the sources of cash inflows, the items

on which cash was expended during the reporting period, and the cash balance

as at the reporting date. Information about the cash flows of an entity is useful in

providing users of financial statements with information for both accountability

and decision making purposes. Cash flow information allows users to ascertain

how a public sector entity raised the cash it required to fund its activities and the

manner in which that cash was used. In making and evaluating decisions about

the allocation of resources, such as the sustainability of the entitys activities,

users require an understanding of the timing and certainty of cash flows. The

objective of this Standard is to require the provision of information about the

historical changes in cash and cash equivalents of an entity by means of a cash

flow statement which classifies cash flows during the period from operating,

investing and financing activities.

Scope

An enterprise should prepare cash flow statements and should prepare it for

cash period for which financial statements are presented.

Users of enterprise financial statements are interested in how the enterprise

generates and losses cash and cash equivalents. This is the case regardless

of the nature of the enterprise activities and irrespective of whether cash can

be viewed, as the product of the enterprises may be the case with a financial

enterprise. Enterprises needs cash for essentially the same reasons, however

different there principle revenue producing activities might be, they need cashto conduct there operations to pay there obligation, and to provide returns to

the investors.

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BENEFITS OF CASH FLOW INFORMATION

Information about the cash flows of an entity is useful in assisting users to

predict the future cash requirements of the entity, its ability to generate cash

flows in the future and to fund changes in the scope and nature of its activities. A

cash flow statement also provides a means by which an entity can discharge its

accountability for cash inflows and cash outflows during the reporting period.

A cash flow statement, when used in conjunction with other financial statements,

provides information that enables users to evaluate the changes in net

assets/equity of an entity, its financial structure (including its liquidity and

solvency) and its ability to affect the amounts and timing of cash flows in order to

adapt to changing circumstances and opportunities. It also enhances the

comparability of the reporting of operating performance by different entities

because it eliminates the effects of using different accounting treatments for the

same transactions and other events.

Historical cash flow information is often used as an indicator of the amount,

timing and certainty of future cash flows. It is also useful in checking the accuracy

of past assessments of future cash flows.

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INTRODUCTION:

Dairy is a place where handling of milk and milk products is done and

technology refers to the application of scientific knowledge for practical purposes.

India has a rich tradition in dairying. Dairying has been inherent in Indian culture,

for centuries. Milk and milk products have always been an integral part of our

consumption habits. In the vast field of animal Husbandry, the contribution of

dairying has been most significant, in terms of employment, as well as income

generation. In India, dairying is the second important subsidiary Occupation in

rural areas, next to the main occupation of agriculture. Livestock sub-sectoralone contributed to 25 percent of the total value of agricultural GDP.

The development of Dairy industry in India is well known all over the world as

one of the most successful development program in the globe. Dairy farming is

visualized by the farmers in India as part of an integrated agricultural system

where dairy and agriculture complement each other. The milk production in India

was 17 million tones in 1950-51. This could meet only 25 per cent of the

domestic demand; the remaining 75 per cent of the demand was met by

importing the milk solids. The production was stagnant for two decades till 1970,

with annual growth rate of milk production of one per cent. Thanks to the vision

and foresight of Dr. Kurien, in 1970, under his guidance NDDB launched

Operation Flood Program with objective of ending milk famine in the country

and turning farmers co-operatives into powerful catalyst for transforming India

into major milk producer in the world. Further, by providing milk producers

remunerative prices round the year, milk production in India touched 74 million

tones since 1997. By the year 2000, India emerged as the largest milk producer

by surpassing the USA with an estimated production of 86 million tones.

The dairy sector in the India has shown remarkable development in the

past decade and India has now become one of the largest producers of milk and

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value-added milk products in the world. The dairy sector has developed through

co-operatives in many parts of the country.

More than 2,445 million people economically active in agriculture in the world,

probably 2/3 or even more of them are wholly or partly dependent on livestock

farming. India is endowed with rich flora & Fauna & continues to be vital avenue

for employment and income generation, especially in rural areas. India, which

has 66% of economically active population is engaged in agriculture, derives

31% of Gross Domestic Product GDP from agriculture.

It is beyond doubt to mention that the organized dairy industry has done a

splendid job by transforming itself from an impost dependent enterprise to a self-

sufficient industry and then embarking of export of various products. And, now it

is poised for another wave of expansion by undertaking large scale processing of

milk in the organized sector.

GROWTH AND DEVELOPMENT OF THE INDUSTRY:

Until the year 1940, there was very little published information on the

method of preparation and use of these products. The credit for the first

publication on the subject goes to Dr.W.B.Davis, the first director of Diary

research, Indian Diary research institution (now National); Bangalore, with in the

span of three or four decades since his book appeared, considerable research

has been conducted at the National Diary Research Institute and other places on

indigenous Diary products.

PRESENT STATUS OF THE INDUSTRY

The Indian Diary Industry is heading towards new century with an

accelerated and positive momentum, with unprecedented growth in milk

production by over half times in the last two decades to about 58.8 million tones

in 1992. India has emerged as the largest milk producer country in the world with

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annual milk production of 74 million tones. Food processing industry ranks the

fifth largest industry in the country. Tough the milk and milk product have 85%

business in unrecognized sector; it is having only 7% growth per year.

The quantum growth in milk production and per capital availability of milk from

107 gm per day to 109 gm per day in 1992, which is accepted to reach to about

220gm per day by 2000 A.D., can be attributed to the organized efforts in Dairy

development by the country since 1970.On the same year National Diary

Development Board (NDDB) with an aim to link dairy development with

marketing launched operation flood project.

The establishment of a co-operative structure as a ready and regular buyer of

milk produce gave a new turn to the rural economy. Today over 275 Diary plants

and 83 milk products factories in the co-operative, public and private sectors

handle an estimate 12-15% of the total milk produced. In most of the country in

the world, the proportion of milk delivered to the dairies is over 90%. The trends

are now changing fast in India too and it is accepted that the processing of the

milk on organized scale will increase sharply like in development countries.

CHANGING PATTERN OF THE INDUSTRY:

The demand for milk products is in rise. The increase in purchasing power

and pace of urbanization is leading to a change in the lifestyle and consumption

habits of the households. The domestic market for butter and ghee is growing at

a healthy rate of over 10% per annum but the same may not be true in case of an

international market. The production and export of butter has witnessed a major

decline in some of the developed countries. The situation is now alarming to the

industries which are having international market for this product. These

companies definitely have to think about other potential products that are gaining

steady growth all over the world.

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The production of dried milk and related products has become an increasingly

important segment of dairy industry. The concept was started to utilize the

sizeable part of the industry. Cheese, which is considered a main delicacy in the

breakfast in so many countries, hasnt been given its due status so far. About 2%

of the total milk productions into cheese preparation, the demand in India are

gathering momentum. The export potential of cheese has generated interest in

the private sectors in setting up larger units.

A major quantity of milk output is converted into varieties of traditional dairy

products catering to regional tastes. These products are produced in large

quantities but on a small scale by the organized sectors, by using the old process

that is empirical in nature. There are so many popular products but still those are

being prepared in house holds. Hardly, efforts have been made to capture and

capitalize in these areas. For example, the popularity of curd is very much

evident all over India in the daily diet. Still, there is no method to scientists,

technocrats and entrepreneurs.

White Revolution Karnataka stands sixth in milk production in the country and it

occupies third position with respect to milk production under co-operative sectorin the country. The milk production was around 45 lakh tones during the year

2001-02.

The KMF is covering 27 districts, with 7000 dairy co-operative societies; around

17000 villages involving 1.5 million farmers collects around 20 lakh liters of milk

daily. The processing industry consists of public, private and co-operative

sectors. In mixed economy like India from the performance point of them, many

public units have failed but private units have achieved some success.

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Chapter II

RESEARCH DESIGN Statement of problem

Scope of study

Limitation of study Research methodology

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STATEMENT OF THE PROBLEM:

The present study is undertaken to understand and evaluate the cash flows and

cash management practices at BAMUL Bangalore.

OBJECTIVE OF THE STUDY

To study the finance function of the organization and its nature.

To study the cash flow management in the organization.

To establish guidelines for overall cash management practiced by

professionals.

SCOPE OF STUDY:

The study and significance of the study are narrated below.

This includes study of cash management, cash flows and fund flows in the

specific capital-intensive industry.

The study is confined to analyzing the components of cash flows and `some

short term and long-term funds.

The findings and suggestions from this study is expected to help the industry

to frame a suitable financial strategy for the better operation of the

organization.

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SIGNIFICANCE OF THE STUDY:

Cash Management assumes more importance than other current assets

because cash is the most significant and least productive asset that a firm holds.

It is significant because it is used to pay the firms obligation however cash is

unproductive unlike fixed assets or inventories, it does not produce goods for

sale, therefore the aim of cash management is to maintain adequate control over

cash position to keep the firm sufficiently liquid and to use excess cash in some

profitable way.

The management of cash is also important because it is difficult to predict cash

flows accurately, particularly the inflows that arises no perfect co-incidencebetween the inflow and outflow of cash.

Cash management is also important because cash constitutes the small portion

of the total current assets; at management considerable time is devoted in

managing it.

LIMITATIONS:

Insufficiency in technical information and analysis.

Information relating to latest changes and current data.

The study is restricted only to recent past and therefore no long-term trend

analysis can be concerned.

METHODOLOGY:

Research Design

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The research design is the conceptual structure within which research is

conducted. It constitutes the blue print for the collection of measurement and

analysis of data.

Sources of data

Primary:

Suggestions from the finance personnel and other related department in BAMUL.

Secondary:

The secondary data is collected from the research done in the field, and past

three years data. By referring various articles on cash flows and cashmanagement published in India and from the annual reports.

Chapter III

COMPANY PROFILE

Organization profile of the company

Organization structure of the company

SWOT analysis of company

Finance department

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INTRODUCTION

The Bangalore Milk Union Ltd., (Bamul) was established during 1975

under Operation Flood II by keeping Amulas its Roll Model. At present Bamul

has Bangalore Urban, Bangalore Rural & Ramanagaram Districts of Karnataka

State as its area of operation for Milk Procurement and selling Milk in part of

Bruhath Bangalore Mahanagara Palika (BBMP) area. Since its inception the

Union is constantly striving further for dairy development and marketing activities

in its milk shed area.

OBJECTIVES

To organize Dairy Co-operative Societies at Village level and dissemination of

information like good dairy animal husbandry and breeding practices & Clean

Milk Production through Extension Services. To provide assured market & remunerative price for the milk produced by the

farmer members of the co-operative societies.

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To provide technical input services like veterinary services, artificial

insemination, supply of balanced cattle feed & Fodder seed materials etc., to

milk producers.

To facilitate rural development by providing opportunities for self-employment

at village level, thereby preventing migration to urban areas, introducing cash

economy & opportunity for steady income.

To provide quality Milk and milk products to urban consumers at competitive

prices.

BACKGROUND

On January 1st 1958 a pilot scheme to cater the Bangalore Milk Market,

Department of Animal Husbandry, Government of Karnataka was started Milk

processing facilities & Veterinary Hospitals at National Dairy Research Institute

(NDRI). Later in 1962, The Bangalore Milk Supply Scheme came into existence

as an independent body. With the great efforts by the then Honble Minister for

Revenue & Dairying, Government of Mysore Sri M V Krishnappa, A joint venture

of UNICEF, Government of India & Government of Mysore was dedicated

Bangalore Dairy to the people of Karnataka State on 23 rd January 1965 by the

then Honble Prime Minister Late Sri Lal Bahadhur Shastriji. The Bangalore

Dairy scattering over an area of 52 Acres of land, the Dairy had an initial capacityto process 50,000 liters of milk per day. Bangalore Dairy underwent a structural

change in December 1975, handed over to Karnataka Dairy Development

Corporation (KDDC). Rural Milk Scheme of Mysore, Hassan & Kudige Districts

was started under Operation Flood-II and then transferred to Karnataka Milk

Federation (KMF) in May 1984 as a successor of KDDC. To cater to the growing

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demand for milk by the consumers of Bangalore City, the capacity was increased

to 1.5 lakh liters per day under the Operation Flood-II during 1981 and later

increased to 3.5 lakh liters per day under Operation Flood-III during 1994.

As per the policies of the National Dairy Development Board (NDDB), Bangalore

Dairy was handed over to Bangalore Milk Union Ltd., (Bamul) on 1 st September

1988. The Union is capable of processing the entire milk procured, by timely

implementation of several infrastructure projects like commissioning of New

Mega Dairy state-of-the-art technology with a processing Capacity of 6.0 Lakh

liters per day, new chilling centers, renovation of product block etc.,

The milk shed area of Bamul comprises of 2611 revenue villages. As of now the

Union has organized 1803 Dairy Co-operative Societies (DCS) in 2,225 villages,

thereby covering 85 % of the total villages in these two districts. In these DCSs,

there are 3,31,544 milk producer members. Among them 105804 members are

women and 59,235 members belong to Schedule Caste and Schedule Tribes.

The philosophy of this co-operative milk producers organisation is to eliminate

middlemen and organise institutions owned and managed by milk producers, byemploying professionals. Achieve economies of scale of rural milk producers by

ensuring maximum returns and at the same time providing wholesome milk at

reasonable price to urban consumers. Ultimately, the complex network of co-

operative organisation should build a strong bridge between masses of rural

producers and millions of urban consumers & achieve a socio-economic

revolution in the village community.

Bamul has been registered under MMPO by Central Registration Authority.

Today, the Union has become the biggest Milk Co-operative Union in Southern

India. Bamul has been certified for ISO 22000:2005 & ISO 9001-2000 for quality

management and Food Safety Systems.

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In recognistion to these efforts and achievements, the National Productivity

Council (NPC) of Government of India has conferred Best Productivity

Award FIVE TIMES and Energy Conservation Award by Bureau of Energy

Efficiency (BEE) to the Union.

ORGANISATION STATUS

The member producers and their Dairy Co-operative Societies (DCS) are

the vital constituents of the Union and their progress is the judging yardstick on

the efficiency of the Unions operation. Hence the maximum importance has

been given to their development. The Union is making intensive efforts over theyears to organize DCSs in more and more villages of the three districts in the

milk-shed area.

Number of Functional DCS

11651266 1301

1386 14331483

15471607 1657

1708 1761

0

200

400

600

800

1000

1200

1400

1600

1800

2000

1999-

2000

2000-

01

2001-

02

2002-

03

2003-

04

2004-

05

2005-

06

2006-

07

2007-

08

2008-

09

2009-

10

FIG3.1

Importance has been given to enroll more and more milk producers in the villages as members of these DCSs. While

enrolling these members, more emphasis is being accorded to enroll more number of women members and to organize

more women managed DCSs under STEP (Support to Training and Employment Program for Women). It is heartening to

note that there is an active participation of women/ weaker sections of the society in all the dairy development activities of

the Union. They have become mainstay of all the developmental programs of the Union. This has resulted in the buildup

of economical benefits to the most vulnerable sections of the rural mass.

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As on March 2010 in these DCS , there are 3,31,544 milk producer members

are enrolled and out of which 1,05,804 are women and 43,184 members

belong to Schedule caste and 16,051 members belongs to schedule Tribes.

Total Milk Producers & Women Mem bership at DCS

182279

185166

203831

275440

289095

297162

309597

321238

327176

325854

331544

3121

8

3282

7

3887

8

722

20

81344

85

849

91

746

96

653

99

603

10

2842

105804

0

50000

100000150000

200000

250000

300000

350000

1998-

99

1999-

2000

2001-

02

2002-

03

2003-

04

2004-

05

2005-

06

2006-

07

2007-

08

2008-

09

2009-

10

FIG3.2

MILK PROCUREMENT

The Milk produced by 89789 farmers at village level will be collected

every day morning and Evening at DCS. Under Clean Milk Production

programme, to maintain the freshness & quality of the milk 85 Bulk Milk

Coolers covering 376 DCS of Total Capacity 1,45,000 Lts were installed at

DCS level. During the year the Unions daily average milk procurement is

8.29 Lakh Kgs, which works out to be 485 kgs per day per DCS. The milk

procurement has increased by 13.59 % when compared to the last year.

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532948 546940 557508594079

713047

805618

758021

710082729564

828684

2000-01 2001-02 2002-03 2003-04 2004-05 2005-06 2006-07 2007-08 2008-09 2009-10

Avg. Milk Procurement (Kgs Per Day)

FIG3.3

Bamul is offering the most remunerative milk procurement price to member

producers. The operational efficiency is reflected on procurement prices paid to

the member producers. The average milk procurement price paid during the year

was Rs. 14.24 for every Kg of Milk supplied to the Union. Which is 80% of total

cost of production.

Milk collected at DCS will be transported to Chilling Centers, through 94 Milk

Procurement Can Routes, by traveling 16,416 KMs every day. 23 Bulk Milk

Cooler (BMC) Routes are also in operation, which collects milk from 85 BMC

centers of 376 DCS directly transported to Bangalore Dairy through insulated

tankers.

LIQUID MILK MARKETING

The Bangalore Milk Union is marketing milk and milk products in the brand name

of Nandini through 1090 retailers, 39 Franchisee Outlets, 25 Milk Parlors, 19

Whole sale Dealers, 14 Transporter Cum Distributors being served by 214

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distribution routes. The key success factor of Bamul in becoming a market

leader is the narrow price spread maintained between purchase & sales,

marketing higher volumes of milk. The volume of sales plays a critical role in

determining costs. Hence, the market strategy of Bangalore Milk Union is to

regard selling of market milk as its core marketing activity and to concentrate its

efforts in this direction to increase the volume of milk sales. The impressive

growth in the sale of milk by Bamul over the years is due to the persistent efforts

to maintain timely supply, maintaining quality and attending to the complaints of

consumers and agents with prompt follow-up action.

431663448689

484707502000

531000

570000

620000666714

2002-03 2003-04 2004-0 5 2005 -06 2006 -07 2007-0 8 2008-09 2009-10

Total Milk Sales (Avg. Ltrs/Day)

FIG3.4

Bamul is also organising Consumer Awareness Programme as a part of Market

Development to create awareness of Nandini Milk through personal contacts,

Door to Door campaigns, Organisational Meetings, School Children Mega Dairy

Plant visit etc., are conducting regularly.

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Types of Milk & Milk products marketingby Bamul:

nandini Toned Milk

nandini Homogenised COW Milk

nandini Full Cream Milk

NandiniFull Cream Milk. Containing 6% Fatand 9 % SNF. A rich, creamier and tastiermilk, Ideal for preparing home-made sweets& savouries. Available in 500ml and 1ltrpacks. Apart from the Milk, the different MilkProducts are Curds, Butter, Ghee, Peda,Paneer, Set Curds & Spiced Butter Milk arealso sold.

Nandini Homogenised Milk is pure milkcontaining 3.5% Fat & 8.5% SNF. Whichis homogenised and pasteurised.Consistent right through, it gives youmore cups of tea or coffee and is easilydigestible. Available in 500 ml packets.

Karnataka's most favorite milk, Nandini TonedMilk. Fresh and Pure milk containing 3.0% fatand 8.5% SNF. Available in 500ml and 1ltr & 6Ltr packs. Better to use within a day from thedate of pack.

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4834755821

62943

81116

106976

143855

181028166873 165108170823

2000-01 2001-02 2002-03 2003-04 2004-05 2005-06 2006-07 2007-08 2008-09 2009-10

Full Cream Milk Sales (Avg. Liters / Day)

FIG3.5

nandini Curd

nandini Ghee

Nandini Curd made from pure milk. It's thick anddelicious. Giving you all the goodness of homemadecurds. Available in 200 gms and 500 grms & 1 Kgpacks. Nandini Butter Rich, smooth and delicious.NandiniButter is made out of fresh pasturised cream.Rich taste, smooth texture and the rich purity of cow'smilk, makes any preparation a delicious treat.

Available in 100 gms, 200 gms and 500gms cartonsboth salted and unsalted.

A taste of purity. Nandini Ghee, madefrom pure butter. It is fresh andpure with a delicious flavour.Hygienically manufactured andpacked in a special pack to retainthe goodness of pure ghee. Shelflife of 6 months at ambienttemperatures. Available in 200ml,

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nandini Butter

nandini Butter Milk

nandini Peda

Rich, smooth and delicious. Nandini Butter is

made out of fresh pasturised cream. Rich taste,smooth texture and the rich purity of cow's milk,

makes any preparation a delicious treat.Available in 100 gms (salted), 200 gms and500gms cartons both salted and unsalted.

Nandini spiced Butter Milk is a

refreshing health drink. It is

made from quality curds and is

blended with fresh green chillies,

green coriander leaves,

asafoetida and fresh ginger.

Nandini spiced butter promotes

health and easy digestion. It is

available in 200ml packs and is

priced at most competitive rates,

so that it is affordable to all

sections of people.

6566 820811139

14490 16054

3282538312

49265

61696

73369

75127

1998-99 1999-2000 2000-01 2001-02 2002-03 2003-04 2004-05 2005-06 2006-07 2007-08 2008-09

Curd Sales (Avg. KG's / Day)

No matter what you are celebrating! Made

from pure milk, Nandini Peda is a

delicious treat for the family. Store at

room temperature approximately 7 days.

Available in 250gms pack containing 10

pieces each.

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FIG3.6

INFRASTRUCTURE DEVELOPMENT:

The strategy of Bangalore Milk Union is Procure More, Sell More & Serve

More and reaping the benefits of economies of scale. In order to realize this

strategy, the Union has implemented the following projects so that more and

more milk can be procured and processed. This will help us to serve our

producer members by passing on the maximum benefits, we are consciously

adopting the growth-

oriented strategy of

helping our producers

to grow by ourselves

growing constantly.

Mega Dairy with a

capacity to process 6

lakh litres of milk per

day expandable to 10 llpd has been built by investing Rs. 38.70 crores obtained

as term loan from National Dairy Development Board. The Mega Dairy, has

latest state-of-the-art technological facilities in dairy processing and the Union will

have the ability to manufacture milk and milk products to world class standards.

Although Bamul sets standards for its products for better serve to customers, it

was not possible to keep the standards stability due to manual operations. In

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designing mega dairy, Bamul looked towards an automated system that would

allow it to achieve consistent quality parameters for each product. Energy and

manpower would also be more effectively optimised and controlled and all plant

equipment would be integrated.

NEW Projects:

Bamul has planned to convert Hosakote Chilling Center into a 2.0.LLPD

Capacity Dairy with an investment of Rs.2427.00 Lakh and a New Product Block

at Bangalore Dairy Premises with an investment of Rs. 2033.00 Lakhs by the end

of 2010.

Bamul has SEVEN Chilling Centers geographically located around Bangalore

and 85 Bulk Milk Coolers at DCS Level. Milk Product Block within the campus to

manufacture Butter, Ghee, Peda, Flavoured Milk, Spiced Butter Milk, Paneer, Set

Curds etc.,

ANIMAL HEALTH AND OTHER ACTIVITIES

ANIMAL HEALTH

The Union is taking special care to promote the health of the cattle of

member milk producers. Veterinary facilities have been extended to all the DCS.

Mobile veterinary routes, emergency veterinary routes, Health camps,

vaccination against foot & mouth disease and thaileriosis diseases, etc., are

being regularly done. Regularly Deworming is also done for the cattle. There is

also a backup of First Aid Services to needy DCSs.

TABLE 3.1

Particulars 2007-08 2008-09 2009-10MVR Cases Treated 43761

Health Camp cases Treated 149565 166198 118307

Emergency Cases Treated 70735 70420 74773

F& M Vaccination 430431 373107 352176

Rakshavac 13395 18094 26227

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ARTIFICIAL INSEMINATION

Artificial Insemination (AI) has been the main functional tool in dictating

this upsurge of development of Dairying in Bamul. Farmers have taken up cross-

breeding from way back in 1962. The Union has surveyed and appropriately

located AI centers based on cattle population. It is also popularized the idea of

cluster AI centers and replace the Single AI centers in a phased manner. The

use of progeny tested semen from Nandini Sperm Station is also giving a

further boost to the breeding activities.

TABLE 3.2

Particulars 2007-08 2008-09 2009-10

No. of Single AI

Centers251 259 259

No. of AI Done 1,11,536 1,12,740 1,16,002

No. of Cluster AI

Centers94 96 101

No. of AI Done1,69,185 1,92,207 1,97,645

Total AI Done 2,80,721 3,04,947 313647

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To reduce infertility in cattle, a frontal attack has been continuously attempted by

conducting Special Infertility Camps under the expert guidance and by the use of

infertility connected drugs.

During 1999-2000, a Vertical Silo of 10,000 liter capacity for storing Liquid

Nitrogen has been installed under TMDD program in collaboration with National

Dairy Development Board and Karnataka Milk Federation. In addition this facility

is being used for supplying liquid nitrogen to neighboring Unions and also to

Department of Animal Husbandry. This has helped in protecting the quality of

semen straws, thereby considerably increasing the probability of conception

during artificial insemination of cattle.

CATTLE FEED & FODDER DEVELOPMNET

The Union is implementing several programs to increase milk production

and also to reduce the cost of milk production in the milk shed area. Balanced

cattle feed is being procured from the Cattle Feed Plants of KMF for distribution

among member producers.

Fodder seeds are distributed to member producers at subsidized rates. In

addition to this, technical advice, Silage Demonstrations, Azzolla Demonstrations

and Straw Treatment Demonstrations are also being conducted at DCS level.

Chaff Cutters are supplied at subsidized rates.

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Cattle Feed Sales:TABLE3.3

Particulars

2007-08 2008-09 2009-10

CF Sales (in

MTs) 33359 37691 40529

A Seed Processing plant was commissioned at Rajankunte by investing Rs. 41

lakhs. The Union is catering to the Seed production needs of many Unions inKarnataka and also of Southern India.

YASHASVINI HEALTH INSURANCE:

Yashasvini Health Insurance Scheme was muted by Government of Karnataka

during the year 2001-02. This scheme was implemented by Coperative

department, Members of Co-operative Societies and their family members are

the beneficiaries of this scheme. The annual premium is Rs. 120/- per

beneficiary. All major hospitals are adopted for this scheme, all types of surgery

will be covered under this health scheme. Bangalore Milk union has covered

1.50 Lakh beneficiaries under this scheme by contributing Rs 30/- towards

premium per beneficiary.

CATTLE INSURANCE:

Bangalore Milk Union is providing Insurance Coverage to the Dairy animals in

collaboration with United India Insurance Ltd., 40,238 animals are covered under

this Insurance. The annual premium is 2.22% of the value of the animal. 50% of

the annual premium of Rs. 122.99 Lakh was borne by bamul.

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IN THIS MILLENNIUM

We want to become not only the largest Union, but also become one

amongst the best-run milk unions in the country. The Union is aware of the

challenges of the new private entrants, who are mainly thriving on unfair trade

practices. They procure milk at least cost, without bothering about the welfare of

the producers and without extending any technical inputs for improving milk

production. They market milk by resorting to unhealthy and unethical practices

deceiving the unsuspecting consumers. The Union wants to counter this in a

positive manner by trying to improve its efficiency of operation and market

promotion. It wants to become well trenched in the market as market leader. Itwants to follow the strategy of cost-competitiveness, which is hard to match by

the competitors.

PROGRESS AND ACHIEVEMENT OF THE UNION SINCE ITS INCEPTION

1. Establishment of the Union:

Bangalore Co-operative Milk Producers Societies Union Ltd. was

established on 16th November 1976.

After the bifurcation of the above Union, into two separate union for

Bangalore Districts (Urban and Rural) and Kolar District, Bangalore Urban

and Rural District Co-operative Milk Producers Societies Union Ltd.

(BAMUL) on 23rd March 1987.

Bangalore Dairy was took over by BAMUL on 1st September 1988.

Bangalore Mega Dairy started functioning on 17th December 2000

MMPO-1992 Registration No 42/R.MMPO/93

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Bangalore Dairy ISO 22000-2005 & ISO 9001-2000 Certified by Standard

Australia International (SAI) Global Ltd., a reputed Australian based

company during 2006.

2. Infrastructure at the time of inception & subsequent expansion year-wise in terms of the following:

Capacity of the Dairy and Chilling Centers

a. Main Dairy

i. Milk Processing capacity was 60,000 Liters per day (LPD) at the time of

establishment of the dairy on 23rd January 1965.

ii. Milk Processing capacity was expanded to 1.5 lakh LPD on 1st February

1981.

iii. Milk Processing capacity was expanded to 3.5 lakh LPD during 1994.

iv. Milk Condensing plant 3 Metric Tons per day.

v. Spray Drying plant 5 Metric Tons per day.

vi. Milk Processing capacity of 6,00,000 Liters per day (LPD) fully automated

Mega Dairy started functioning from 17th December 2000.

vii. Converted the old building as a Product Block during 2002.

b. Anekal Chilling Center

i. Anekal Chilling Center was started on 12th September 1964 with a milk

chilling capacity of 20,000 LPD.

ii. Later the milk chilling capacity was expanded to 60,000 LPD on 28th

February 1999.

iii.

c. Byrapatna Chilling Center

i. Byrapatna Chilling Center was started on 19th May 1962 with a

milk chilling capacity of 20,000 LPD.

ii. Later the milk chilling capacity was expanded to 60,000 LPD

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d. Doddaballapur Chilling Center

i. Doddaballapur Chilling Center was started on 5th January 1967

with a milk chilling capacity of 20,000 LPD.

ii. Later the milk chilling capacity was expanded to 60,000 LPD

e. Vijayapura Chilling Center

Vijayapura CC was established on 1st February 1995 with a milk chilling

capacity of 1 lakh LPD.

f. Solur Chilling Center

Solur Chilling Center was established on 31st January 1999 with a milk

chilling capacity of 60,000 LPD.

g. Hoskote Chilling Center

Hoskote Chilling Center was commissioned on 29 th March 2000 with a

milk chilling capacity of 1.5 lakh LPD.

h. Kanakapura Chilling Center

Kanakapura Chilling Center was commissioned on 1st October 2004 with

milk chilling capacity of 60,000 LPD.

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SWOT ANALYSIS

STRENGTH

BAMUL is an existing profit making company with considerable reputation

for their competence and managerial ability to best sell the product.

Its one among the best-run milk unions in Karnataka state.

It has the advantage of covering maximum sales of milk and milk products

in Bangalore than any other company It offers different varieties of milk meeting different requirement of people.

It also offers milk products like peda, buttermilk, curd and so on.

WEAKNESS

The milk acquired has to be processed and dispatched within 24hours.

Lot of competition in the market.

Has not been able to capture rural market to a maximum extent.

OPPORTUNITIES

They can manufacture and market any product based on milk.

To become one amongst the best-run milk unions in the country.

To establish themselves strongly among other parts of India.

THREATS

Competition from other companies.

Small scale local companies popping up in small town and rural areas.

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Long life milk and their products being offered by other companies.

FINANCE DEPARTMENT

FINANCE:

The Union had an approximate turnover of Rs. 527.77 crores in the year

2009-10 as against Rs. 508.24 Crores for the year 2008-09. Union has earned a

approximate Net profit of Rs. 2.79 Crores for the year 2009-10 as against Rs.

1.59 Crores during 2008-09.

FIG3.7

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Annual Turn-over (in Lakh Rupees)

19776.2

0

22536.3

0

22072.9

3

23232.0

0

25323.4

3

27873.7

6

31345.89

380

20.6

37452.0

0

45205.0

0

50824.0

0

52776.1

3

1998-

99

1999-

2000

2000-

01

2001-

02

2002-

03

2003-

04

2004-

05

2005-

06

2006-

07

2007-

08

2008-

09

2009-

10

FIG3.8

177.31

237.58

73.9335.73

228.52

387.52

51.29

357.3327.48

574.83

343.79

159.00

279.32

998-991999-2000200 0-0 12001-022002-032003-042004-05200 5-0 6200 6-0 72006-07200 7-0 82008-092009-10

Net Profit (in Lakh Rupees)

FIG3.9

DEPARTMENTAL STRUCTURE(FINANCE)

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GENERAL MANAGER FINANACE

MANAGER FINANACE

Deputy Manager

Deputy

Manager

0 0

P & I

PAY

ROLL

Accts &

Comp. BILLS SALES

Asst.

Manager

Asst.

Manager

Asst.

Manager Asst. Manager Asst. Manager

M Narayana

Swamy 0 GJ Satheesh KV Venkataramanaiah

Mallikarjuna

Swamy

SV Marji

A/c's. OfficerA/c's.

Officer A/c's. Officer A/c's. Officer A/c's. Officer

Subhashini devi

A/c's. Supdt

A/c's.

Supdt A/c's. Supdt A/c's. Supdt A/c's.. Supdt

0 0HD Vasanth- Admin-

supdt NM Ramesh

V Shivalingamma-

Admin-Supdt L Manjunath

KN Vidyavathi

Admin-Supdt

KAS Ishwar

-Admin-Supdt

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A/c's. Asst

Gr -I

A/c's. Asst

Gr -I

A/c's. Asst

Gr -I A/c's. Asst Gr -I

A/c's. Asst Gr

I

MT Bettegowda

-Admin BS Geetha

V Raghavendra-

Admin-1 B Somashekar

V Ramachandra

rao

SR Jagadamba

Hemlatha -

Admin-1

A/c's. Asst

Gr -II

A/c's. Asst

Gr -II

A/c's.Asst Gr

-II A/c's. Asst Gr -II

A/c's. Asst Gr

II

0 KN Mohankumar Puttasiddaiah

NR Ramesh-

Admin HN Rajegowda M Munireddy

AR Ramesh-Admin

V Ashok Kumar-Admin-2 Umadevi

D Ganesh

BS Ragahavendra

Sandya Rani-Admin-2

Hemavathi

-Admin-2

A/c's. Asst

Gr -III

A/c's. Asst

Gr -III

A/c's. Asst

Gr -III A/c's. Asst Gr -III

A/c's. Asst Gr

III

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L Jayamma-

Admin-3 0 0 0

DO Gr-II DO Gr-II DO Gr-II DO Gr-II DO Gr-II

Bhuvaeshwari

0 0 0 0 Sushelamma

Helper Helper Helper Helper Helper

SChandrashekar Puttaiah 0

Doddahonnashetty

Nanjappa DG-4

Subbamma Rukmini

Parvathi

Indira

ACCOUNTS AND LEDGERS MAINTAINED AT BAMUL

The daily transactions are maintained through tally

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SIGNIFICANT ACCOUNTING POLICIES

METHOD OF ACCOUNTING

The method of accounting used is the double entry system

FIXED ASSETS AND DEPRECIATION

All fixed assets are valued at cost.

In the case of land, cost includes acquisition cost and expenditure on

rehabilitation and development.

In respect of fixed assets sold, no depreciation is claimed during the year

of sale.

Plant and machinery and scientific instruments individually are

depreciated at 100% in the year they are put to use.

INDIRECT EXPENSES

Indirect establishment expenses, general expenses, receipts relating to

common units and depreciation on service assets are appropriated between

capital and revenue on the basis of budget/departmental estimates.

CASH MANAGEMENT PRACTICES AT BAMUL

Cash is an omnipresent phenomenon in a business. It is the Life Blood of

any business. Like blood in a human body, it circulates to all the segments of a

business activity. Every business activity has direct or indirect effect on finance,

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and anything done financially affects cash eventually. It is the most liquid assets;

in fact liquidity of other assets is measured in terms to their convertibility into

cash. It is also the most crucial asset responsible for the successful running of a

business. But if not managed skillfully, it is equally responsible in running the

business. Even a profitable business becomes bankrupt when it runs out cash.

Effective and efficient cash management thus aims at ensuring ready cash

available at all times to cater to the operating, investing and financing

requirements of a business, not too much but never too little.

Cash management in a business is like a two-way traffic. It keeps on moving in

and out of business. The inflow and outflow of cash never coincides. The factor

influencing demand of cash, i.e. the motives for holding cash and also the factors

influencing availability of cash in the business, have already been discussed in

the introduction to the topic of cash management. Effective control of these

constitutes two important aspects, which is unique to cash management, is time

dimension associated with the movement of cash, because there is no synchrony

of cash inflow and outflow, the inflow may be more than the outflow or the outflow

may be more than the inflow at a particular time. This needs regulation, left to it

cash flow is apt to flow monotonic pattern, and showers of cash may be heavy,

scanty or just normal. Hence there is a dire need to control its movement through

skill full cash management. The primary aim of cash management is to ensure,

timely an advocate availability of cash for the firm. Thus, it is crucial to develop a

cash management program aims at evolving strategies for dealing with various

facets of cash management.

These facets include:

Optimum utilization of operating cash flow

Cash forecasting

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Cash management technique

Liquidity analysis profitable deployment of surplus funds

Economical borrowings

CASH FORECASTING

Forecasting is forewarning and forewarned is forearmed. Despite the

uncertainty future and number of other facts which affect accuracy of forecasted

FACETS OF CASH

MANAGEMENT

LIQUIDITY ANALYSISDEPLOYMENT

OF FUNDS

CASH FORECASTING

CASH

MANAGEMENT TECHNIQUE

ECONOMICAL BORROWING

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figures, the fact remains that if the business is successful in drawing reasonably

dependable forecast it can get sufficiently reliable signpost to indicate where,

when and what type of actions should be taken to salvage the situation. Thus

forecasting is a planning tool. It is used for projecting future operational result of

various activities.

In brief the following are benefits of cash forecasting:

Cash flow requirements

Cash deficit

Cash surplus

Pooling of cash

Long term cash requirements

Avoidance of bankruptcy

The method of Integrated Business Plan(IBP) is being used by the BAMUL to

forecast the budget for the year and the requirements is bifurcated on monthly

basis the requirements are submitted by the concern department and on the

basis of requirements the material is supplied and when there is shortage theyare buying the material from the nearest distributers to match the supply

CASH BUDGETAs stated above, forecasting helps in determining the anticipated cash

receipts and payments of a future period. Cash forecasting is essential for cash

budgeting. In order to make forecast an effective instrument of control in the

mechanics of cash management, it has to be converted into a cash budget.

A cash budget is: Statement containing forecast figures.

Forecasts are made for a predetermined period known as budget period.

It is designed and presented in an orderly format.

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Proper formatting of cash budget is very important. It ensures prompt, regular,

accurate assimilation and comprehensive display of data yearly. It also enhances

comparability of budgeted figures with the actual.

ROLE PLAYED BY BANKS IN CASH MANAGEMENT

For many practices of cash management to be effective in any business, it

requires perfect co-ordination between 3 parties.

Organization Customer

Bank

In many organizations, banks play a commanding role in the contemporary cash

management strategies and most of the cash management techniques are under

the control of banks.

Most of the techniques require a fully developed automated banking

infrastructure. Banks as a matter of fact play a commanding role in the

contemporary cash management strategies and many steps involved in these

techniques are under the control of banks. The developed countries have very

advanced banking system. Many of the techniques, which are applicable in these

countries, are not prevalent in developing countries like India.

In BAMUL the bank plays a important role as the deposits and payments of the

people who supply milk is look after by it.

MANAGEMENT OF INVENTORY

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The inventory of BAMUL is milk. To supply milk through Bangalore the

BAMUL has to get the milk from surrounding of Bangalore Anakel, Byrapatna,

Dodabalapur, Vijayapur, Solur Hoskote, Kanakpur where they have chilling

centers there they are storing the milk which they are getting from milk lenders

and they also collect the milk they get in the morning and the milk is chilled to

4degree centigrade and brought to main dairy .The processing capacity of main

dairy is 6laks liters per day.

Chapter IV

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ANALYSIS AND INTERPRETATION OF DATA

LIQUIDITY AND EFFICIENT USE OF CASH

RATIO ANALYSIS

LIQUIDITY AND EFFICIENT USE OF CASH

Liquidity can be defined as the ability of business to convert its

assets into cash incurring minimum cost and time. Every business

strives to convert its current assets into cash at the first available

opportunity so that cash so acquired can be used for acquisition of

new assets such as for quick conversion into cash again. A business

often encounters liquidity problems and the management should be

cautious enough to take quick and accurate decision to save the

business from collapsing.

A common symptom of liquidity problem is inability of a business to make

payments to its creditors, if a business fails to release payments within the

stipulated period it losses, first the opportunity to avail cash discount, and

secondly its own creditability. Another symptom is excessive borrowing, yet

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another symptom of looming liquidity crises is existence of relatively low or in

some cases negative working capital. Finally, over-trading is also responsible for

liquidity crisis.

MEASUREMENT OF LIQUIDITY

Ratios play an important role in determining the financial position of the

business to the outside world. They indicate several aspects, which can be

ascertained through the final account of the company, namely the balance sheet

and the P&L account. The following ratios are commonly adopted to measure the

liquidity strength of a business.

CURRENT RATIO

QUICK RATIO

DEBTORS TURN OVER RATIO

Showing the cash flow statement for the year ended 31st March 2010

CASH FLOW STATEMENT FOR THE YEAR ENDED 31ST MARCH 2010

Table4.1 (Amt in Rs)

A) CASHFLOW FROM

OPERATING ACTIVITY 2008-2009 2009-2010

Net profit before tax 18526743 27932255

Depreciation 43588053 44692570

Interest and banking 17616928 19540066

Sale of scrap 5196426 5671374

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Profit/Loss on sale of

assets

- 63100

Donations - 622337

Income for investments 6616360 3892284

Interest receivables 481667 395293

Operating profit before

working capital changes

456131057 545566605

Change in inventory 14385344 35407948

Change in sundry

Debtors

34291309 (7394465)

Change in loans and

advances

7349453 3060356

Change in current

liabilities provision

(95712535) 135213482

(Amt in Rs)

Change in provision 576645 284259

Cash generated from

operations

5720582038 5147013018

Direct tax paid 2840694 2782736

Net cash from operating

activities (A)

6202546204 5875768804

B) CASH FLOW FROM

INVESTMENT

4093362465 4497332183

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ACTIVITIES

C) CASH FLOW FROM

FINANCING ACTIVITIES

Change in loans (46852266) (50526300)

Net cash used in

financing activities (c)

(46852266) (50526300)

Net increase /decrease

in cash and cash

equivalents (A+B+C)

10249056403 10322574687

Cash and cash

equivalents(opening)

293242434 165607914

Cash and cash

equivalents (closing )

165607914 301776956

Data analysis with comparative statement method for 2009 and

2010

1. Net profit before Tax

N.P. for 2010 = 27932255

N.P. for 2009 = 18526743=100/27932255x18526743

=66.32%

Net profit before tax for the year 2009-2010 is 66.32% over 2008-09

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2. Finance Charges

2010=19540066

2009=17616928

=100/19540066x17616928

=90.14%

The finance charges have been 90.14%

3. Sundry Debtors

Sundry debtors have been increased to the extent of 26896844 as

compared to the last year.

4. Loans and advances

Loans and advances have decreased in the year 2009-10, which means

that the company is in good position comparing to previous year.

Current Ratio

= Current Assets / Current Liabilities

TABLE4.2 (In Crores)

Particulars 2007-08 2008-09 2009-10

Current Assets 52.06 37.89 52.86Current Liabilities 40.92 31.35 44.87Ratio 1.27 1.20 1.17

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0

10

20

30

40

50

60

2007-08 2008-09 2009-10

Current Assets

Current Liabilities

Ratio

GRAPH 4.1

Graphical Representation of current assets and liabilities

Graphical representation of current ratio

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1.12

1.14

1.16

1.18

1.2

1.22

1.24

1.26

1.28

Ratio

GRAPH 4.2

Analysis and interpretation

The current ratio or the working capital ratio reveals the liquidity position of the

firm. This ratio is used to judge the companys ability to meet short-term

obligation to remain solvent in the event of adversities. Here it is at satisfactory

level

The conventional current ratio is held to be 1.17. But from table it can be seen

that in BAMUL the Current Ratio is close to standard level.

The current ratio is high in the year 2008 i.e. 1.27 and it has gradually come

down viz. 1.20 in 2009 and 1.17 in 2010. However, this is considered quite crude,

as it does not take into account the liquidity of a company having current assets

composed primarily of cash and debtors is generally considered to be more liquid

than a firm where current assets consist of primarily of inventories. Therefore in

order to evaluate the liquidity of the firm a more refined ratio may be used called

the Acid Test Ratio or Liquidity Ratio.

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Current Asset Turnover Ratio

= Net sales / Current assets


Particulars 2007-08 2008-09 2009-10

Net Sales 452.06 509.35 566.33

Current Assets 52.06 37.89 52.86

Ratio 8.68 13.44 10.71

Source Annual Report, BAMUL

Graphical representation of Net sales and Current Assets

GRAPH 4.3

0

100

200

300

400

500

600

2007-08 2008-09 2009-10

Net Sales

Current Assets

Ratio

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0

2

4

6

8

10

12

14

Ratio

GRAPH 4.4

GRAPHICAL REPRESENTATION OF CURRENT ASSET TURNOVER

RATIO

Analysis and interpretation

The current assets turnover ratio reveals the number of times the current assets

of the company are utilized in trading the transaction; it also tells us the relative

efficiency with which the firm utilizes its current assets to generate output.

In BAMUL the current assets turnover ratio have decreased from 8.68 in 2007-08

to 13.44 in 2008-09 and decreased to 10.71 in 2009-10

.

This ratio there reveals that the current assets utilization has been efficient. This

can be inferred from the fact that, the employment of more of current assets has

achieved in generating the proportionate net sales i.e. with the increase in

current assets there has been a proportionate increase in sales.

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Quick Ratio

= Quick Assets / Current liabilities

Quick Assets = Current Asset Stock & prepaid expenses.

Quick Ratio (QR) is the ratio between quick current assets (QA) and current

liabilities (CL). QA refers to those current assets that can be converted into cash

immediately without any value dilution. QA includes cash and bank balances,

short-term marketable securities, and sundry debtors. Inventory and prepaid

expenses are excluded since these cannot be turned into cash as and when

required.TABLE4.4 (In

Crores)

Particulars 2007-08 2008-09 2009-10

Quick Assets 41.54 28.01 45.72

Current Liabilities 40.92 31.35 44.87Ratio 1.01 0.89 1.02

Source: Annual Report BAMUL

Graphical representation of quick ratio

0.8

0.85

0.9

0.95

1

1.05

2007-08 2008-09 2009-10

Ratio

GRAPH 4.5

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Analysis and Interpretation.

QR indicates the extent to which a company can pay its current liabilities without

relying on the sale of inventory. This is a fairly stringent measure of liquidity

because it is based on those current assets which are highly liquid. Inventories

are excluded from the numerator of this ratio because they are deemed to be the

least liquid component of current assets.

Generally, a quick ratio of 1:1 is considered good. If this is taken as a norm, the

liquidity position of BAMUL may be taken as less satisfactory in 2008-09.

From the above Analysis, the companys quick ratio was decreased from 1.01 to

0.89 in 2008-09 and again increased to 1.02 this is mainly because of effective

realization of sundry debtors and decrease in quick assets increase in the cash

and bank balance and increase in the current liabilities.

Current Assets to Total Assets Ratio=

Current assets/ Total assets

Total Assets = Fixed assets, Investments, Current Assets


Particulars 2007-08 2008-09 2009-10

Current Assets 52.06 37.89 52.86

Total assets 110.31 94.68 106.84

Ratio 0.47 0.40 0.49

Source: Annual report BAMUL

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Graphical representation of current assets to total assets ratio

0%

20%

40%

60%

80%

100%

2007-08 2008-09 2009-10

Ratio

Total assets

Current Assets

GRAPH 4.6

Analysis & Interpretation

From the above analysis the companys current assets to total assets ratio is

satisfactory. This is because there was a proper and continuous increase in

current assets. But there was an increase in total assets that is because ofeffective realization of sundry debtors. The companys current assets to total

assets ratio was 0.47 in 2007-08 and 0.40 in 2008-09 and 0.49 in last year.

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Debtors Turnover Ratio:

Net Credit Annual Sales/Average Trade Debtors

TABLE 4.6 (In Crores)

Particulars 2007-08 2008-09 2009-10

Net Credit Annual Sales 426.87 477.24 527.76

Average Trade Debtors 8.59 7.52 8.86

Times 49.69 63.46 59.56


Graphical representation Debtors Turnover Ratio

GRAPH 4.7

0

100

200

300

400

500

600

2007-08 2008-09 2009-10

Net Credit AnnualSales

Average TradeDebtors

Times


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Credit is used as a marketing tool by number of companies. When the

firm extends credits to its customers, debtors are created in the firms accounts.

Debtors are expected to be converted into cash over a short period and,

therefore, are included in current assets. The liquidity position of the firm

depends on the quality of debtors to a great extent. A debtor turnover indicates

the number of times debtors each year. Generally, the higher the value of

debtors turnover, the more efficient is the management of credit. Here the

debtors turnover ratio in 2007-08 was 49.69 then it increased to 63.46 in the next

year and the last year it decreased to 59.56.

Average Collection Period =

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Average No of working days/Debtors Turnover Ratio

Average number of working days is assumed to be 365 days.TABLE 4.7



The Average Collection period ratio represents the average number of

days for which a firm has to wait before its receivable is converted into cash. It

measures the quality of debtors. Generally, the shorter the average collection

period the better is the quality of debtors as a short collection period implies

quick payment by debtors. Similarly, a higher collection period implies as

inefficient collection performance which in turn adversely affected by liquidity or

short term paying capacity of a firm out of its current liabilities. Moreover longer

the average collection period larger the chance of bad debts. But precaution is

needed while interpreting a very short collection period because a very low

collection period may imply a firms conservative policy to sell on credit of its

inability to allow credit to its customers and thereby losing sales and profits.

There is no rule of thumb of standard which may be used as a norm while

interpreting this ratio as the ratio may be different from firm to firm depending

upon its credit policy, nature and business condition.

This gives an indication of the average time taken for the collection of the debtors

of the company during the year.

Particulars 2007-08 2008-09 2009-10

Average No of Working Days 365 365 365

Debtors Turnover Ratio 49.69 63.46 59.56

Average collection period 7.34 days 5.75 days 6.12 days

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From the above analysis companys decreased average collection period of

debtors, From 7.34 days to 5.75 days 2008-09 and again increased to 6.12 days

in the year 2009-10.here the collection period is good.

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CASH TURNOVER RATIO=

Sales/Cash balances and Bank balances

TABLE 4.8 (In Crores)Particulars 2007-08 2008-09 2009-10

Net Credit Annual Sales 426.87 477.24 527.76

Cash and Bank balance 29.32 16.56 30.17

Ratio14.55 28.81 17.49


Graphical representation of Cash Turnover Ratio

0

100

200

300

400

500

600

2007-08 2008-09 2009-10

Net Credit Annual Sales

Cash and Bank balance

Ratio

GRAPH 4.8

Interpretation

Cash turnover ratio measures the cash usage as a ratio of sales in a period to

the ca

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