KMF Project

KARNATAKA MILK FEDERATION, DHARWAD
Executive Summary
This project is carried out in Dharwad Milk Union, which is a part of Karnataka Milk
Federation (KMF). KMF is a co-operative apex body in the state of Karnataka representing
dairy farmer‟s organization and also implementing dairy development activities to achieve
the dairy objectives. KMF has 13 Milk unions and D.M.U. is one among the 13 unions. The
project helps to study the practice in working capital by D.M.U. in the past years and to
calculate management‟s performance in the past five years.
A working capital plays an important role in the successful operation of business

activities. The need for working capital is very necessary for any business house. Working
capital is a matter of top priority, as it has a light on liquidity, solvency and profitability.
This study is undertaken to analyse the firm‟s liquidity and to test firm‟s efficiency in
utilization of its current assets and resources.
Title of the Project:
“A Study to analyse the firm’s liquidity and to test firm’s efficiency in utilization
of its current assets and resources at Dharwad Milk Union”
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Objectives of the study:
 To examine the establishment, organization and operational dimensions of the D.M.U.

 To know the liquidity position of the firm.
 To examine the management performance in components of ratio analysis.
 To know how actually finance department works.
 To test firm‟s efficiency in utilization of its assets and resources.
Need of the study:
The study is undertaken to know the present liquidity position and working of the
Dharwad Milk Union, Dharwad. This project will throw light on firm‟s competitiveness with
other firms and on the financial position. It also helps to know whether D.M.U. has properly
utilized its resources and assets.
The scope of the study is limited to financial aspects of the “Dharwad Milk Union”.
Limitations of the Study:
1. As this an academic efforts, it is limited by time, cost and coverage.

2. This study covers only a part of Dharwad Milk Union.
3. The present study covers only 3 years financial data.
4. It covers only annual reports of the firm.
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Research Methodoly
Research methodology is nothing but systematic investigation and study of sources &
materials. It establishes facts and helps in making conclusions.
Measurement Techniques / Statistical Tools
 Accounting Ratios.
 Financial Statements of the Company.
Sources of Data:
The data has been collected from both primary sources as well as secondary sources.
Primary Sources:
Primary data are the data gathered at first hand. It is collected by direct interviews and
discussing the subject matter with the management, staff employees and academicians.
Secondary Sources:
Secondary data are the data that have been compiled or derived from other sources
meant for some other purpose. It is collected from book records maintained by administration
department, published books and also collected from the trading and profit and loss accounts
and balance sheets of last 3 years of D.M.U.
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Industry Profile
Dairy Industry In India
The dairy industry plays an important role in the socio-economic development of India.
The dairy industry in India is instrumental in providing cheap nutritional food to the vast
population of India and also generates huge employment opportunities for people in rural
places.
The Department of Animal Husbandry, Dairying, and Fisheries, which falls under the
central Ministry of Agriculture, is responsible for all the matters relating to dairy
development in the country. This department provides advice to the state governments and
Union Territories in formulating programmes and policies for dairy development. It also
looks after all the matters relating to production and preservation of livestock farms (cattle
and sheep). To keep focus on the dairy industry, a premier institution known as the National
Dairy Development Board was established. This institution is a statutory body that was
established in 1987. The main aim to set up the board was to accelerate the pace of dairy
development in the country and attract new investments.
India is a wonderland for investors looking for investment opportunities in the dairy
industry. The dairy industry of India holds great potential for investment and promises high
returns to the investors.
The reasons why the industry has huge potential for attracting new foreign
investment are:
 There is a basic raw material needed for the dairy industry; that is, milk is available in
abundance.
 India has a plentiful supply of technically skilled labourers.
 There is an easy availability of technological infrastructure.
 India has all the key elements required for a free market system.
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There are different sectors within the dairy industry that promise great business
investment opportunities:
Biotechnology:
The Indian cattle yield less milk as compared to their foreign counterparts. The Indian
cattle breeders are on the lookout for ways to improve their milk yield through cross-
breeding. Thus, there is a huge potential available for foreign investors to invest in dairy
cattle breeding of high-quality buffaloes with hybrid cows.
There is also great scope for investment in different dairy cultures, including dairy
biologics, enzymes, probiotics, and other coloring materials for food processing.
Producing biopreservative ingredients based on dairy fermentation, such as

pediococcin, aciophilin, bulgarican, and Nisin contained in dairy powder, also promise great
investment opportunity.
Dairy/Food Processing Equipment:
Great potential lies for foreign investment for manufacturing and marketing of cost-
effective, top-quality food processing machinery.
Food Packaging Instruments:
There is a tremendous investment opportunity for foreign investors in the

manufacturing of both machinery and packaging materials that aid the development of brand
loyalty and gives a clear edge in the marketing of dairy products.
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Retailing:
Retailing of dairy products also promises great investment opportunities for

standardization and upgrading dairy products in the main metropolitan cities.
Manufacture of Ingredients:
Several ingredients are involved in the making of different dairy products like ghee,
condensed milk, and cheese. Manufacturing of ingredients for these products offers a great
potential for foreign investment.
Finished Products:
There is a great scope for investment in the manufacturing of finished dairy products
such as cheese sauce and cheese powders.
Technically Advanced Manufacturing Units:
There is a great opportunity for foreign investors to invest in establishing

manufacturing units for dairy products. The investors can build world-class manufacturing
units and let them for hire. Building manufacturing units supports specialized dairy-related
activities, such as cheese slicing, cheese packaging, butter printing, and dicing lines, which
hold greater potential over other activities.
Thus, the dairy industry in India has huge investment opportunities in a variety of
sectors. The investors are all set to gain profitable returns on their investment.
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Industry Profile
HISTORY:
Development Of Dairy Industry In India
During the pre-independence era, there was no serious thought given to dairy industry.
In 1886, the department of defence of the British Government established the dairy farms for
the supply of milk to the British troops in Allahabad. Later, in 1920 a series of steps were
taken by Mr. William Smith, an expert in dairy forming to improve the milk production.
There was discrimination done to the Indians. Hence, this led to the rise of the first milk
union in India in Lucknow, in 1937, called “The Lucknow Milk Producer‟s Co-operative
Union Ltd”.
The diary and animal husbandry received attention after the independence. There were
lot of progressive steps taken by the government through five-year plans. Indian councils for
the agriculture research mostly drew up these plans.
Further, our late Prime Minister Lal Bahaddur Shastri felt the need for setting up co-
operative society throughout the country for the sake of rural development. This led to the
formation of “National Dairy Development Board” in 1965. This board was registered under
the Societies Registration Act and The Public Trust Act, having its office at Anand, Gujarat.
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National Dairy Development Board NDDB:
The NDDB was founded to replace exploitation with empowerment transition, with
modernity, with growth transforming dairy making an instrument for the development of
India‟s people.
The NDDB was established in 1965, the board registered under the Societies
Registration Act and the public trust Act fulfilling the desire of the Prime Minister of India,
the late Lal Bahaddur Shastri to extend the number of the Kaira Co-operative milk producers
union (AMUL) to other parts of India. Dr Vergese Kurien was the founder chairman. The
success combined the wisdom and energy of farmers with professional management to
successful capture of liquid milk and milk product markets while supporting farmer‟s
investment with inputs & services.
The Growth:
NDDB began its operations with the mission of making dairying a vehicle to a better
future for millions of gross tools milk producers. The mission has achieved to make India
become the world‟s largest milk producing country.
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Objectives of NDDB:
 To sponsor, promote, manage, acquire, construct or control any plant or work which
promotes projects of general public utility relation to dairying.
 To make information available on request to technical services to increase production
of milk.
 To prepare initial feasibility studies of dairying and other dairy related projects and
undertake subsequent designing planning and start up those projects.
 To undertake research and development programmes related to production and
marketing of milk and milk products.
 To provide assistance for exchange of information to other international agencies.
Services rendered by NDDB:
 Planning dairy and rural development projects.

 Organization of farmer co-operative societies.
 Setting up dairy and cattle feed plants.
 Manpower planning and training.
 Applied research and development.
 Implementation of milk production enhancement programme.
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Introduction to Karnataka Milk Federation
The first diary in Karnataka was started in Kudige in Kodagu district in 1955.In 1975,
the World Bank aided dairy development was initiated. The present Karnataka Milk
Federation (KMF) came into existence in 1984 as a result of merging of Karnataka Dairy
Development Co-operation, small co-operatives and Karnataka Milk Producers Development
and loose vendors. The Karnataka Milk Federation is an apex body in the state of Karnataka
representing dairy organization and also implementing dairy development activities to
achieve the dairy objectives.
The KMF implements all the project activities. After all project activities are
accomplished, the Federation aims at formulating Marketing strategies in marketing the milk
and milk products.
The KMF performs the following functions:
 The foremost function of KMF is to co-ordinate the activities between the Unions and
also in making market available so that the production increases.
 The federation also manages to market milk and milk products outside the state.
 It manages surpluses and deficiencies of liquid milk among the milk unions and helps
in dispatching the milk and milk products at reasonable price.
 Training and development of senior managerial personnel, acquiring and applying all
recent technologies, prescribing quality guidelines and norms.
 Provides balanced cattle feed, mineral mixture, frozen semen straws and liquid
nitrogen reproduced.
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The Growth Process:
The growth over the years and activities undertaken by Karnataka Milk
Federation (KMF) is summarized briefly here :
Particulars Unit 1976 - 77 2009 - 10
Dairy Co-operatives Numbers 416 11520
Membership Numbers 37,000 20,19,265
Milk Procurement Kgs/Day 50,000 31,23,551/
72,460(DMU) per
day
Milk Sales Liters/Day 95,050 23,23,03,026
Cattle feed consumed Kgs/DCS 220 3160
Daily Payments to Farmers Rs in (Lakhs) 0.90 354
Turnover Rs in (Crs) Not Available 2,850
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Units of KMF:
I. Mother Dairy, Yelahanka, Bangalore.

II. Nandini Milk Products, KMF Complex, Bangalore.
III. Cattle Feed Plants at Rajanukunte/Gubbi/Dharwad/Hassan
IV. Nandini Sperm Station (formerly known as Bull Breeding Farm &
Frozen Semen Bank) at Hessaraghatta
V. Pouch Film Plant at Munnekolalu, Marathhalli
VI. Central Training Institute at KMF Complex, Bangalore.
VII. Quality Control Lab at KMF Complex, Bangalore
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Company Profile-DHARWAD MILK UNION
Dharwad Milk Union:
Dharwad Milk Union (DMU) came into existence on 3-3-1986 under co-operative Act.
Districts Dharwad, Gadag, Haveri, and Uttar Karnataka come under its operation.
Establishment:
The Dharwad Milk Union is a co-operative society among the 13 establishments under
KMF. The DMU is one of the most modern plants in the country. It is located in the specious
25 acres of land, located in Lakkammanahalli Industrial Area, adjacent to the National
Highway-4.
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History:
A group of experienced officers, appointed by the Karnataka Milk Federation surveyed

the whole of Dharwad district (includes two newly formed districts Gadag and Haveri) and
Uttar Karnataka. Further they found out the need for a Milk Dairy there. They travelled the
surrounding villages, educated the villagers about Milk and Milk products and the benefits
they would get from the Milk Dairy.
Seeing the response, untapped resources and the huge market, the Federation decided
to setup the Milk Union in 1984.
Company Profile:
Company Name Dharwad Co-operative Milk Producers Union Ltd,

Lakkammanahalli Industrial Area, P.B.Road, Dharwad-580004
Nature of Business Mfg / Service / Semi-agro based Co-operative Unit
Type of Ownership Co-operative Unit
Tel-No 0836-2467643, 2461876, 2468380.
Raw Material Milk 80,000 LPD,

Water 5 to 6 lack liters/day,
Coal 4 to 5 tone
Capacity of Plant 1,20,000 liters/day,

12 tons milk powder,
10 tons butter,
6 tons ghee
Finished Products Milk, Butter, Ghee, Gurtz, Pedha, Milk creams, Curd, Lassi,
Khova.
Total Investment Rs. 7 crore
Total Societies at Village Level 551 Societies
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DMU was Rs. 7crore project of which Government has Rs. 2crore of share capital and
authorized capital of DMU is Rs. 5crore.
DMU formed 551 milk producer‟s co-operative societies in Dharwad, Gadag, Haveri,
and Uttar Kannada districts.
DMU is collecting 80 thousand liters of milk per day from its societies and sells 70
thousand liters of milk per day and the remaining milk is used for producing milk products.
Functions Of DMU:
 The main function of DMU is to procure milk from villagers and pay them the right
price.
 To educate the villagers about milk and its quality.
 To make „Nandini‟ as a part of daily life.
Objectives of DMU:
 Providing hygienic and good quality milk to the consumers.

 To build the economic strength of the milk products in villages.
 To eliminate middlemen in the business so that milk products receive their
appropriate share of bread.
 To provide milk at reasonable rates to the consumers.
 To build bridge between masses of rural producers and millions of consumers.
 To ensure maximum returns to the milk producers.
 To facilitate rural development by providing opportunities for self-development at
village level.
 To build village level institutions in co-operative sector to manage the dairy activities.
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PRODUCTS PROFILE
Nandini Toned Fresh and Pure milk 500 ml Rs.8.50

containing 3.0% fat and 8.5% SNF. Available
in 500ml and 1litre packs.
Standard Milk
(500 ml) 9.50
Nandini Homogenized Milk is pure milk 500 ml Rs.8

which is homogenized and pasteurized.
Consistent right through, it gives you more
cups of tea or coffee and is easily digestible.
Full Cream milk. Containing 6% Fat and 9 %

SNF. Rich, creamier and tastier milk, Ideal for
preparing home-made sweets & savories.
Buffalo's milk, 100% pure pasteurized 500 ml Rs.10

processed and packed hygienically. This milk
has 5% fat and 9% SNF.
5 liter Rs.100
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1 kg Rs.195
A taste of purity. Nandini Ghee made from pure

butter. It is fresh and pure with a delicious flavor.
Hygienically manufactured and packed in a special 500 gm Rs.99.5
pack to retain the goodness of pure ghee. Shelf life
of 6 months at ambient temperatures. Available in
200ml, 500ml, 1000ml sachets, 5lts tins and 15.0 200 gm Rs.41
kg tins.
Rich, smooth and delicious. Nandini Butter is made 100 gm Rs.18

out of fresh pasteurized cream. Rich taste, smooth
texture and the rich purity of cow's milk makes any
preparation a delicious treat. Available in 100gms 500 gm Rs.85
(salted), 200gms and 500gms cartons both salted
and unsalted.
Nandini Curd made from pure milk. It's thick and 500 ml Rs.10
delicious. Giving you all the goodness of
homemade curds. Available in 200gms and
500gms sachet. 200 ml Rs.5
Great way to those soft and juicy jamoon treats at 200 gm Rs.32
home! Nandini Gulab Jamoon Mix is made from
Nandini skimmed milk powder, Maida, Soji and
Nandini Special Grade Ghee. Available in 100gms
and 200gms standy pouch with a five layer foil
lamination. Shelf life of 6 months.
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No matter what you are celebrating! Made from pure milk, 250 gm
Nandini Peda is a delicious treat for the family. Store at room Rs.35
temperature approximately 7 days Available in 250gms pack
containing 10 pieces each.
Sterilized flavored milk, a nutritious and healthy drink and an 200 gm

all-season wholesome drink available in five different flavors Rs.12
- pineapple, rose, badam, pista.
Nutritious, delicious creamy ice cream is manufactured at

ISO 9002/HACCP certified Mother Dairy modern plant. The
range includes Vanilla, Strawberry, Pineapple, Mango,
Chocolate, Butter scotch, Kesar Pista, Orange & Mango
Candies, Mango & Raspberry Dollies, Chocó bar and Ball
varieties Vanilla, Strawberry.
Nandini spiced Butter Milk is a refreshing health drink. It is Rs. 6

made from quality curds and is blended with fresh green
chilies, green coriander leaves, asafoetida and fresh ginger. Rs. 10
Nandini spiced butter promotes health and easy digestion. It Rs. 15
is available in 200 ml packs and is priced at most competitive
rates, so that it is affordable to all sections of people. Rs. 20 &
above
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Cow's pure milk, UHT processed bacteria free in a

tamper-proof tetra-fino pack which keeps this milk
fresh for 60 days without refrigeration until opened.
Available in 500ml Fino and in 200ml Bricks.
Fresh and tasty, Nandini Mysore Pak is made from 250 gm Rs.55
quality Bengal Gram, Nandini Ghee and Sugar. It's a
delicious way to relish a sweet moment.
Pure and tasty dishes with Nandini Paneer! A fresh, 200 gm Rs.26
nutritive product made by coagulating pure milk, it is
an excellent source of milk protein. Nandini paneer is
ideal for vegetarian dishes such as mutter paneer, sag
paneer and various other dishes.
A delicious beverage with hot or cold milk. It can be 200 gm Rs.42

used for kheer, kesaribath, desserts or ice cream. It's
the goodness of Badam mixed with almond, edible
starch, saffron, skimmed milk powder and cane sugar
to give you the ideal Badam delight.
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Work flow Model
Production process has the following workflow model.
DCS
Fresh Liquid Milk Sample Testing Fat and SNF
Chilling
Storing
Pasteurization
Separation
Homogenization
Storing
Packing
Dispatching
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Organization Structure of KMF
Presidents
Director Director Director
(Elected-8) (Ex-officer-5) (Nominated-3)
Managing Director
P&I Production Finance Admin Security Marketing
Deputy Deputy Deputy Deputy Senior Deputy
Manager Manager Manager Manager Supervisor Manager
Extension Q.C A/Cs Assistants Junior Assistant
Officer Officer Assistant Manager Supervisor
Helper Assistant Helper Helper Helper
Workers
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Products of DMU
Milk:
 Toned milk
 Double toned milk
 Standard milk
 Shubham milk
Milk products:
 Ghee
 Butter
 Ice-cream
 Mysore pak
 Nandini bite
 Paneer
 Lassi
 Jamoon mix
 Pedha
 Badam powder
 Curd
 Butter milk
 And few more
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Departments Of DMU:
1. Administration Department.
2. Purchase Department.
3. Marketing Department.
4. Procurement and Input Department.
5. Production Department.
6. Quality Control Department.
7. Human Resource Department
8. Finance Department.
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Administration Department
The administration department controls the overall functioning of the organization. The
department looks after administration functions such as payment of salaries, arrangement of
meetings, formation of policies etc.
The general functions of this department are as follows:
 Up-to-date maintenance of files, records etc. Collecting and presenting data in the
form of useful information from records.
 Implementing the organization systems, producers and policies in a co-ordinate
manner.
 Ensuring of smooth running of the office by interfacing with the external agencies as
required. For example, payment of telephone bills, electricity, water supply bills etc.
 Providing required facilities etc.
The administration department also handles following sub divisions:
 Canteen
 Time keeping machine
 Security
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Structure of administrative department:
DEPUTY MANAGER
ASSISTANT MANAGER(BOARD) ASSISTANT MANAGER (PERSONNEL)
ADMN SUPERINTENDENT ADMN SUPERINTENDENT
ADMN, ASSISTANT
TIME CANTEEN SECURITY
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Purchase Department
The main work of the purchase department is to make purchase of various materials
required by different departments. After ascertaining the stock position by stores department,
an indent is sent by different departments duly approved by the managing director. This
department then comes into picture to purchase those materials.
It also maintains records of all supplies, calls for tenders, quotations etc. Quotations for
lowest rate are sanctioned. Purchase department can make purchases upto Rs.50,000/- If the
purchase amount exceeds Rs.50,000/- , then the approval of the board member is must.
Structure of Purchase Department:
Purchase Officer
Purchase Superintendent
Assistant Purchase Officer
Helpers
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Marketing Department
This department manages the sale of milk, milk products and advertisements. It sells
the goods in four districts namely Dharwad, Gadag, Haveri and Uttar Kannada in the brand
name Nandini.
Marketing department performs the following functions:
 Marketing of milk and milk products through own network.

 Market development and sales promotion.
 Reconciliation of sales with all agents, outlets and milk parlours.
 Consumers‟ grievances.
 Need based marketing (pedha, ghee etc.).
 To take up suppliers.
Operating areas:
DMU‟s Nandini milk is marketed in Hubli-Dharwad, Karwar, Gadag, Haveri, Uttar

Karnataka, North Goa and 26 Taluks in Maharashtra. The milk is marketed through retailers.
Marketing department has the following objectives:
 To increase the market share of Nandini.

 To set up more marketing strategies.
 To be responsive to consumers and channel members.
 To promote more of Nandini milk and milk products through intense advertising.
Competitors:
The Nandini milk is facing lot of competition in the market. The prime competitors are
private brands like Bharat, Krishna, Dutta, Mysore, Gopal, Kazi, Arokya and loose vendors.
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Promotional Activities:
To overcome the neck-to-neck competition, different promotional activities are

followed with the help of KMF and IMDDB for building the brand image of Nandini and
enhancement of sale of milk and milk products.
 Advertisements in all available medias.

 Sponsoring events viz. cricket match, exhibitions etc.
 Participation in trade fairs.
Distribution Channels:
DMU has its own marketing channels. However, it follows two types of direct
channels:
1.Consumer Market:
DMU is selling directly to the consumers through its special vendors. It also distributes
to a total of 800 retailers and milk parlours which sell only KMF products. There is demand
of 85,000-90,000 ltrs of milk per day.
2.Instituitional Market:
There is demand for about 4,000 ltrs of milk per hour from various sources like
institutions, hospitals, jails, schools, hotels etc.
Strategies adopted by the department to enhance the sale of its products are:
 Conducting awareness programme of milk and homogenized processed milk.

 Attain daily complaints of consumers and retailers.
 Need for healthy promotional activities against competitors.
 Adopting differentiated marketing strategies in place of undifferentiated marketing
strategies.
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Marketing department has two sub-departments:
1. Stores department 2. Finished goods stores department
1.Stores Department:This department stores materials required for day-to-day consumption

required in the production process and for other purposes. The stores department in DMU
follows the Cordex System (Coded Control System). A card is maintained for each item and a
number is allotted. The card attached to each article consists of amount balance, date of issue,
purchase etc. This is later recorded in separate ledger book. The inventories are of different
kinds ranging from mechanical, spares, packing items to animal drugs and satisfactory and
veterinary drugs. There are at least 4,000 different inventories.
 It has to maintain the proper records of the stores.

 It has to control the storage costs and reduce it as much as possible.
 It has to send indent from stores to purchase section when there is storage of stock.
 It has to send stock report to finance department.
 It has to supply the necessary materials to the entire departments.
Structure of marketing department:
Manager
Deputy Manager
(Account/Audit)
Asst. Manager
(Tech. Officer)
Supervisor
Market Assistant
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2.Finished Goods Stores Department
This department works as interface between production department and marketing

department. It is mainly concerned with the maintenance of finished goods and its records.
The goods stored are mainly non-pre indent sent by marketing department. This department
uses the First In First Out (FIFO) method of inventory to manage the stock.
A separate ledger account is maintained for each item and it shows the receipt and
dispatch of goods. Before dispatching, approval of the goods by the quality department is
mandatory. A consolidated daily and monthly report is submitted to production and finance
department.
Structure of Finished Goods Stores Department:
Assistant Manager
Marketing Assistant Account Assistant
Daily Operators
Daily Workers
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Procurement and Input Department
Procurement and input department is concerned with procurement of milk and input
i.e. technical facilities. Once a milk society is established, the P & I department starts
functioning and makes other provisions.Milk procurement process done all the 365 days and
two times a day and DMU procuring milk routes will appear for the purpose of convenience
of transportation.
DMU fixes minimum of Rs.14.60 (Fat: 3.5 %, SNF: 8.5 %) for cow milk and Rs.18.60
(Fat: 6 %, SNF: 9 %) for buffalo milk. Sometimes prices vary with quality.Procurement of
milk varies season wise. During flash season i.e. from September to December, the milk
productivity will be high. During summer, it will come down.
Milk collected from the societies will be taken to the nearest chilling centre. Here the
quality i.e. fat and SNE content of milk will be checked and confirmed with that of the
checklist sent by the society.Then milk is loaded into tankers to be taken to the union. There
are nearly 6 chilling centres under the Dharwad Milk Union and about 600 milk societies.
Once milk is brought to the union, it is rechecked for the quality and freshness and then down
loaded and directed to the production department.
If the milk is spoiled, it is brought to the notice of the society immediately. But in case
of far away, the driver and the contractor will be held responsible for the loss, if milk by
tankers spoil due to the delay. As per the law of the society recommended by the union states
members should supply milk only to the union and other agency. The extension officers at
various chilling centres take care of this.
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To upgrade the functioning and expand the productive capacity of each society
the union provides many facilities:
 Remunerative price for the milk produced.
 Animal husbandry and veterinary health care programmed for the member animals.
 Cross breeding programmers.
 Supplying power seeds for animal development.
 Imparting training to all the members of co-operatives for smooth functioning of co-
operatives.
 Subsidized cattle feed to the members of the society.
 DMU has 13 doctors to provide door-to-door service.
 First aid centers in every co-operative society.
 Conducting animal health camp every 2 weeks.
 Procurement and input department structure.
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Procurement and Input Department Structure:
Manager
Procurement Manager Technical Wing
Deputy Manager Deputy Manager
Assistant Manager Assistant Manager
Extension Officer
Clerks Helpers
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Production Department
The main object of this department is to follow up production schedule as per plan and
maintain close and co-operative relationship with other departments and ensures to upgrade
the technical efficiency of production. Most of the production equipments are imported from
Sweden and Denmark. The entire production has procedure and at every stage of production,
proper care is taken to maintain the quality and freshness of milk and milk production.
Production Procedure:
When the milk is received from the cans and tankers, it is tested for quality. From these
tanks the milk is sent though steel pipes to undergo pasteurization, cooled to 4-5 degree C.
After pasteurization, the milk is taken to the cream separator machine (to get other milk
products) where the cream is separated according to the standard norms. This is called
skimmed milk. It is then directed towards standardization process to procure for variety of
milk by mixing with appropriate proportion of cream. These varieties of milk are then packed
in different packets and stored in cold storage for dispatch. Other milk production such as
butter, ghee, milk powder, curd, lassi, pedha are also produced and stored in cold storage.
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Structure of Production Department:
Manager (Dairy)
Deputy Manager Office Staff
Asst. Manager
Asst.(Accounts) Asst.( Stores)
)
Technical Officer Clerk Typist
Senior Supervisor
Junior Supervisor
Dairy Operators Dairy Technician Dairy Worker
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Quality Control Department
The main task of the quality control department is checking the quality of milk and
milk products in the plant. There are various tests conducted by the officers to meet this
requirement. If any product does not pass the quality standards then that would be rejected.
Even before dispatching the products, they undergo testing and they must get approved by the
quality department.
Tests conducted at quality department:
 Alcohol test
 Clot on boiling test( COB)
 Taste
 Flavour
 Acidity
 Corrected lactometer reading (CLR)
 Gender method for the test
 Milk tester method
 Moisture test
 Solid no test
 Solid not fat test (SNF)
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Human Resource Department
This department looks after the recruitment, selection and welfare of the employees. It
also conducts training and orientation programmes and facilitates the following for
employees:
 Transportation
 Medical
 Uniform
 Canteen
 Provident fund
 Gratuity
 Women‟s pregnancy allowance
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Finance Department
This department controls the financial activities such as preparation of annual report,
maintenance of accounts etc. This department is responsible for keeping all the inward and
outward flow of money of unions. It prepares budget every year and financial rules for
receipts and payments.
Functions:
 To prepare monthly accounts (Receipts & Payment A/c, Profit & Loss A/c, Balance
Sheet).
 To prepare quarterly financial statements.
 To prepare integrated business plans.
 To prepare year ending financial statement.
 To get accounts audited from statutory books of accounts.
DMU follows 2 types of auditing:
1. Pre-audit system: done by Finance and Account Department every year.

2. Statutory System: done by private Charted Accountants every year.
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Structure of Finance Department:
Deputy Manager
Assistant Manager
Assistant Account Officers
Assistant Accountants
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Financial Statement
A financial statement is an organized collection of data according to logical and

consistent accounting procedures. Its purpose is to convey understanding of some financial
aspects of business firm. It may show a position at a moment in time as in the case of b/s or
may reveal a series of activities over a given period of time as in case of income statement.
Financial statement are prepared for the management to deal with
a. Status of investments.
b. Results achieved during a given period under review.
A financial statement generally refers to the following;
1. Income Statement: The income statement also termed as (profit or loss account) is
generally considered to be the most useful of all financial statements. It explains what has
happened to a business as a result of operations between two balance sheet dates. It discloses
the revenue realized from the sale of goods and the costs incurred in the process of producing
the scheme. It tells the story of progress or decline over given period and why and how an
indicated result was achieved.
2. Balance Sheet: It is statement of financial position of a business at particular moment of

time and the claims of the owners and outside against those assets at that time.
3. Statement of Retained Earnings: The term retained earnings means the accumulated
excess of earnings over losses and dividends. The balance shown in income statement is
transferred to the balance through this statement after making necessary appropriations. It is
thus a connecting link between the balance sheet and the income statement. This statement is
also termed as profit and loss appropriation account in case of companies.
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Working Capital Management

Introduction:
Management of the working capital is nothing but the management of current assets.
The management of the current assets includes inventory, received, debtors, book debts,
short-term assets, cash and bank balances. The management of fixed and current assets,
however differs in three important ways.
1. In managing fixed assets time is a very important factor. Consequently, discounting

and compounding techniques play significant roles in capital budgeting and latter one in the
management of current assets.
2. The large holding of current assets, especially cash strengthens the firm‟s liquidity
position (reduces riskiness) but also reduces the overall profitability. Thus a risk returns trade
off is involved in holding current assets.
3. Level of fixed as well as current assets depends upon expected sales but it is only
current assets which can be adjusted with sales fluctuations in the short run. Thus the firm has
a greater degree of flexibility in managing current assets.
Working capital refers to the amount of capital which is readily available to an

organization. That is, working capital is the difference between resources in cash and readily
convertible into cash (current assets) and organizational commitments for which cash will
soon be required (current liabilities).
Thus working capital involves activities such as arranging the short-term finance,
negotiating favourable credit terms, controlling the movement of cash, administrating
accounts receivables and monitoring the investments also a great deal of time.
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Types of working capital:
A) On the basis of concepts: There are two concepts of working capital –
1. Gross Working Capital:
It refers to the firm‟s investment in current assets. Current assets are the assets which
can be converted into cash within an accounting year and include cash, short-term securities,
debtors, bills receivables and stock (inventory).
2. Net Working Capital:
It refers to the difference between current assets and current liabilities. Current
liabilities are those claims of outsiders which are expected to mature for payment within an
accounting year and include creditors, bills payable and outstanding expenses.
Net working capital can be positive or negative. A positive net working capital will
arise when current assets exceed current liabilities. A negative net working capital occurs
when current liabilities are in excess of current assets.
The gross working capital concept focuses attention on two aspects of current
assets management:
(a) How to optimise investment in current assets?
(b) How should current assets be financed?
The level of investment in current assets should avoid two danger points- excessive and
inadequate investment in current assets. Investment in current assets should be just adequate,
not more, not less, to the needs of the business firm. Excessive investment in current assets
should be avoided because it impairs firm‟s profitability as idle investment earns nothing. On
the other hand, inadequate amount of working capital can threaten solvency of the firm
because of its inability to meet its current obligations. The working capital needs of the firm
may be fluctuating with changing business activity.
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B) On the basis of time:
1. Permanent Working Capital:

Permanent Working Capital is permanently locked up in the circulation of current
assets. It covers the minimum amount required for maintaining the circulation of current
assets.
(a) Initial Working Capital:
At its inception and during the formative period of its operations, a company must have
enough cash fund to meet its obligations. The need for initial working capital is for every
company to consolidate its position.
(b) Regular Working Capital:
It refers to the minimum amount of liquid capital required to keep up the circulation of
the capital from the cash inventories to account receivable and from account receivables to
back again cash. It consists of adequate cash balance on hand and at bank, adequate stock of
raw materials and finished goods and amount of receivables.
2. Variable Working Capital:

It refers to the working capital that changes with the volume of business, it may be
divided into two classes.
(a) Seasonal Working Capital:
There are many lines of business where the volumes of operations are different in
different seasons and hence the amount of working capital varies with seasons. The capital
required to meet the seasonal needs of the enterprise knows as Seasonal Working Capital.
(b) Special Working Capital:

The capital required to meet any special operations such as experiments with new
products or new techniques of production and making interior advertising campaign etc is
also known as Special Working Capital.
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Needs of Working Capital:
The need for working capital to run the day-to-day business activities cannot be
overemphasized. We will hardly find a business firm which does not require any amount of
working capital. Indeed firms differ in their requirements of the working capital.
The firm‟s aim is maximizing the wealth of shareholders. Earning a steady amount of
profit requires successful sales activity. The firm has to invest enough funds in current assets
for generating sales activity. Current assets are needed because sales do not convert into cash
instantaneously. There is always an operating cycle involved in the conversion of sales into
cash.
Therefore working capital is required for:

 To meet the cost of inventories including total of raw materials, purchased parts,
operating supplies, work in progress, finished goods.
 To pay wages, salaries for indirect labor, clerical staff, managerial and supervision
staff.
 To meet overhead costs including those of maintenance service activities, fuel, power
charges, taxes and general expense administration.
 To bear the expansion (with regard to promotion of sales) e.g. expenses on packing,
advertisement, salesmanship, sales servicing, credit facilities, delivery services, etc.
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Importance of Working Capital Management:
Adequate working capital creates certainty, security and confidence in the minds of the
persons in the management as well as in the minds of creditors and workers.
 It creates a good credit standing for the firm because credit standing depends upon the
ability to pay promptly. A Company with adequate working capital is always able to
meet current liabilities.
 It ensures solvency and stability of the enterprises. It also ensures continuity in

production and sales.
 It enables the company to take advantage of cash discount offered by the suppliers of
raw materials or merchandise.
 It enhances the prestige of the company and moral of its workers because a company
with adequate working capital is always able to pay wages and salaries promptly and
regularly.
 It enables the company to procure loans from banks on easy and competitive terms.
Objectives of WC management:
 Deciding optimum level of investment in various WC assets.
 Decide optimal mix of short-term and long-term capital.
 Decide appropriate means of short term financing.
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Components of Working Capital:

There are two components of Working Capital
A. Current Assets.
B. Current Liabilities.
A) Current Assets:
Components of current assets are as follows:
1. Cash and bank balance
2. Stock of raw materials at cost- work in process and finished goods.
3. Advanced recoverable in cash or kind for value to be received.
4. Deposits under the company scheme.
5. Advanced payment of income takes credit certificates.
6. Outstanding debts for a period exceeding six months.
7. Balance with central excise authorities.
B) Current Liabilities:
Components of Current Liabilities are as follows:

1. Sundry Creditors for the goods and expenses.
2. Income tax deducted at sources from contractors.
3. Expenses Payable.
4. Unclaimed Dividend.
5. Security Deposits.
6. Liabilities for bills discounted.
7. Bank overdraft acceptance.
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Operating Cycle:
Operating cycle or working capital cycle indicates the length of time between a firm‟s
paying for raw materials entering into finished stock and receiving cash on the sales of such
finished stock.
This operating cycle differs from firm to firm. Longer the operating cycle greater will
be the amount of working capital required and vice versa. Thus it plays an important role in
determining the working capital needs of a firm.
Cash Raw Materials
Debtors
Milk & Milk Work In

Sales
Products Process
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Operating Cycle is the time duration required to convert sales, after the conversion of
resources into inventories, into cash. The operating cycle of a DMU involves three phases.
1. Acquisition of resources such as raw material, labor, power and fuel etc.
2. Manufacture of the product which includes conversion of raw material into work-
in- progress into finished goods.
3. Sales of the product either for cash or on credit.
In the Dharwad Milk Union (manufacturing concern), the working capital operating
cycle starts with the purchase of raw materials and ends with the realization of cash from the
sale of finished products. It is also called as cash conversion cycle. It involves the purchase
of raw materials and stores, fits into stocks of finished goods through the work-in-progress
with the progressive increment of labour and service costs, conversion of finished goods
(Milk & Milk Products) into sales, debtors and receivables and ultimately realization of cash
and this cycle continues again from cash to purchases of raw material and so on.
Length of operating cycle:

When raw materials remain in store pending for production for a less duration, when
raw materials gets converted into WIP in a short duration, when finished goods remain in
warehouse pending for sales for a short duration only and when cash realizations out of sales
are made quickly and finally when payment to creditors is made slowly, the operating cycle
would be smaller and consequently the working capital will also be reasonable. Thus shorter
duration of operating cycle indicates an efficient working capital management.
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Determinants of Working Capital:
The following is the description of factors which generally influence the working
capital requirements of Dharwad Milk Union :
1. Nature of Business:
This is one of the primary factors influencing the working capital requirements of a
firm. The DMU is a manufacturing firm having a longer operating cycle for manufacturing
the products and investing more funds in its current assets. Therefore it requires more
working capital.
2. Manufacturing Cycle:
It comprises of the purchase and use of raw materials and the production of finished
goods. Longer the manufacturing cycle, large will be the firm‟s working capital requirements.
3. Credit Policy:
The credit policy relating to sales and purchases also affects the working capital. The
credit policy influences the requirement of working capital in two ways:
1) Credit terms generated by the firm to its customers.

2) Credit terms available to the firm from its creditors.
4. Growth & Expansion:
As a firm grows, it is logical to expect that a large amount of working capital is

required. The growth in volume of the business effects the requirements of working capital. If
the firm goes on diversifying its activities, the working capital also increases.
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5. Price Level Changes:
Changes in the price level also affect the requirements of working capital. The rising
price levels will require a firm to maintain higher amount of working capital. Same level of
current assets will need increased investment when price are increasing.
6. Operating Efficiency & Performance:
The operating efficiency of the firm relates to the optimum utilization of resources at
minimum costs. The firm will be effectively contributing to its working capital if it is
efficient in controlling operating costs. The use of working capital is improved and pace of
cash cycle is accelerated with operating efficiency.
7. Level of Taxes:
Tax liability is the short-term liability. The amount of taxes to be paid in advance
creates the need for working capital. If the tax liability increases, it leads to an increase in the
requirement of working capital and vice versa. The need for working capital varies with the
tax rates and advance tax provisions.
8.Sales Growth:
The working capital needs of the firm increase as its sales grow. The growing firm
may need to invest funds in fixed assets in order to sustain its growing production and sales.
This will in turn increase investment in current assets to support enlarged scale of operations.
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Working Capital Management concerned with the following aspects:
1. Cash Management:
Cash is the important current asset for the operation 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 nor less.
Cash is the liquid form of an asset. It is the ready money available in the firm or with
the business essential for its operations. A firm needs the cash for the following three
purposes:(a) The Transaction Motive
(b) The Precautionary Motive
(c) The Speculative Motive
2. Receivables Management:
Receivable represents amounts owed to the firm as a result of sale of goods or services
on the ordinary course of business. These are claims of the firm against its customers and
form part of its current assets. These receivables are carried for the customers. The period of
credit and extent of receivables depends upon the credit policy followed by the firm. The
main purpose of maintaining or investing in receivables is to meet competitors, to increase
sales, and to maintain a cordial relationship with the clients.
3. Inventory management:
Every enterprise needs inventory for smooth running of its activities. It serves as a link
between production and distribution process. There is generally a time lag between the
recognition of a need and its fulfilment. The greater the time lag, the higher the requirements
for inventory. The unforeseen fluctuations in demand and supply of goods necessitate the
need for inventory. Moreover, it provides a cushion for future price fluctuations.
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Sources of Working Capital:
There are two type of sources for financing the working capital requirement .
1. Permanent/Long term sources
2. Temporary/ Short term sources
1. Permanent/Long term sources:
 Shares capital
 Debentures
 Public deposits
 Ploughing back of profits
 Loan from financial instituitions
2.Temporary/ Short term sources:
 Indigenous bankers are the short term source for financing the working capital
 Trade credits
 Instalment credits
 Income received in advance
 Customers‟ advance
 Bank loans which include cash credit and overdraft
 Commercial papers
 Purchasing and discounting of bills
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Analysis and Interpretation
Dharwad Milk Union (DMU) is one of the most reputed companies in the Karnataka.
Dharwad Milk Union (DMU), leading milk & milk products co-operative society, aims at
providing health and toned milk to its consumer at a better and reasonable price. Dharwad
Milk Union (DMU) is facing competition from various manufactures of milk&milk
products.The study is conducted in Dharwad Milk Union (DMU) to measure the working
capital management of the company. The working capital management is the most important
tool to measure the liquidity position of the company. Every company has to maintain good
management of working capital, so this study is undertaken to observe the management of
Working Capital through Ratio Analysis Technique, because ratio analysis is the important
tool to measure the working capital management. So I have taken the three years annual
reports to measure the working capital management.
Note: For calculating operating cycle and also to understand the liquidity position the
following ratios are used: 1. Current Ratio
2. Quick Ratio/ Liquidity Ratio/ Acid-Test Ratio
3. Inventory Turnover Ratio/Stock Turnover Ratio
4. Inventory Conversion Period
5. Debtors Turnover Ratio/Accounts Receivables Turnover Ratio
6. Debtors Collection Period
7. Creditors Turnover Ratio/Payable Turnover Ratio
8. Creditor‟s Payment Period
9. Working Capital Turnover Ratio
10. Current Assets Turnover Ratio
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1). Current Ratio:
The current ratio of a unit measures firm‟s short-term solvency. That is its ability to
meet short-term obligations. It is the ratio of total current assets to total current liabilities.The
current ratio measures the ability of the firm to meet its current liabilities. Current assets get
converted into cash in the operating cycle of the firm and provide the funds needed to pay
current liabilities.
It is calculated by dividing total current assets by total current liabilities:
CURRENT RATIO = CURRENT ASSETS
CURRENT LIBILITIES
Current Assets include: Closing Stock, Deposits (asset), Loans & Advances, Sundry
Debtors, Cash-in-hand, and Bank Accounts.
Current Liabilities include: GRANTS, O.S.L, Other Liabilities, Salary Recovers, Security
Deposit A/C, Unpaid Salary/ Wages A/C, Duties & Taxes, Sundry Creditors.
Table-1
The Table Showing Current Ratio
Year Current assets Current Liabilities Current Ratio
2007-08 8,62,29,464 5,37,36,056 1.60
2008-09 7,53,69,860 5,80,79,322 1.30
2009-10 9,85,39,092 7,56,55,623 1.30
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Chart: - 1
The Chart Showing Current Ratio
Current Ratio
1.8
1.6
1.4
1.2
1
0.8 Current Ratio
0.6
0.4
0.2
0
2007-08 2008-09 2009-10
Interpretation:
From this, we can understand that the company had held Rs.1.60 of current assets
to meet its current liabilities of Rs.1 for the year 2007-2008. Similarly 1.30:1 for the years
2008-2009 and 2009-2010. As a conventional rule, a current ratio of 2 to 1 is considered
satisfactory. The firm has a current ratio1.30:1, through which it may be interpreted to be
insufficiently liquid. However, an arbitrary standard of 2 to 1 should not be blindly followed.
Firms with less than 2 to 1 current ratio may be doing well and while firms with 2 to 1 or
even higher current ratios may be struggling to meet their obligations. However, current ratio
is the crude and quick measure of the firm‟s liquidity.
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2). Quick Ratio / Liquidity Ratio:
This ratio is also termed as Acid-test ratio. A Quick ratio is concerned with standard of
1:1 and the relationship between quick assets and current liabilities.
It is a measure of liquidity calculated dividing current assets minus inventory and

prepaid expenses by current liabilities.
The Quick Ratio is the ratio between quick current assets and current liabilities.
It is calculated by dividing the Quick Current Assets by the Current Liabilities.
QUICK RATIO = QUICK CURRENT ASSETS
CURRENT LIBILITIES
Quick Current Assets = Current Assets – Inventory(Stock-in-hand)
Table: 2
The Table Showing Quick Ratio
Year Quick Assets Current Liabilities Quick Ratio
2007-08 5,60,85,341 5,37,36,056 1.04
2008-09 4,80,84,737 5,80,79,322 0.83
2009-10 7,73,45,341 7,56,55,623 1.02
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Chart: - 2:
The Chart Showing Quick Ratio
Quick Ratio
1.2
0.8
0.6
Quick Ratio
0.4
0.2
0
2007-08 2008-09 2009-10
Interpretation:
From this, we can understand that the company had held Rs.1.04 of quick assets to
meet Rs.1 current liability. Generally, a quick ratio of 1 to 1 is considered to represent a
satisfactory current financial condition. The company is having 1.04:1, 0.83:1, 1.02:1 for the
years 2007-2008, 2008-2009 and 2009-2010 respectively. Here we can notice that 1.04 and
1.02 are more than the satisfactory level. Although quick ratio is more penetrating test of
liquidity, yet it should be used cautiously. A quick ratio of 1 to 1 or more does not necessarily
imply sound liquidity position. It should be noted that all the debtors may not be liquid and
cash may be immediately needed to pay operating expenses. It should be noted that
inventories are not absolutely non-liquid. Thus company with a high value of quick ratio can
suffer from the shortage of funds if it has slow paying, doubtful and long-duration
outstanding debtors. On the other hand, a company with low value of quick ratio may really
be prospering and paying its current obligation in time if it has been turning over its
inventories efficiently. Nevertheless, the quick ratio remains an important index of firm‟s
liquidity.
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3). Inventory Turnover Ratio/Stock Turnover Ratio:
Every firm has to maintain a certain level of inventory of finished goods so as to meet
the requirements of the business. The inventory turnover reflects the efficiency of inventory
management. The higher the ratio, the more efficient the management of inventories & vice
versa.
This ratio establishes relationship between cost of goods sold during a given period of
time and average amount of inventory held during that period.
It can be ascertained by following formula:
INVENTORY TURNOVER RATIO = COST OF GOODS SOLD
AVERAGE INVENTORY
Cost of Goods Sold = Sales – Gross Profit
Average Inventory = Opening Stock + Closing Stock / 2
Table: - 3
The Table Showing Inventory Turnover Ratio
Year Cost of Goods Sold Average Inventory Inventory Turnover Ratio
2007-08 43,98,40,675 2,71,51,621 16.20
2008-09 49,50,39,504 2,87,14,623 17.24
2009-10 59,57,37,895 2,42,39,437 24.57
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Chart 3:The Chart Showing Inventory Turnover Ratio
Inventory Turnover Ratio

30
25
20
15
10
5
0
2007-08 2008-09 2009-10
Interpretation:
From this, we can understand that the inventory turnover of Dharwad Milk Union is
increasing. This shows that the firm‟s performance is better in selling its products. Inventory
turnover ratio measures the velocity of conversion of stock into sales. Usually a high
inventory turnover/stock velocity indicates efficient management of inventory because more
frequently the stocks are sold, the lesser amount of money is required to finance the
inventory. A low inventory turnover ratio indicates an inefficient management of inventory.
A low inventory turnover implies over-investment in inventories, dull business, poor quality
of goods, stock accumulation, accumulation of obsolete and slow moving goods and low
profits as compared to total investment. The inventory turnover ratio is also an index of
profitability, where a high ratio signifies more profit, a low ratio signifies low profit.
Sometimes, a high inventory turnover ratio may not be accompanied by relatively high
profits. Similarly a high turnover ratio may be due to under-investment in inventories.
It may also be mentioned here that there are no rule of thumb or standard for
interpreting the inventory turnover ratio. The norms may be different for different firms
depending upon the nature of industry and business conditions. However the study of the
comparative or trend analysis of inventory turnover is still useful for financial analysis.
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4). Inventory Conversion Period:
Inventory period is the time lag between the purchase of raw materials & sale of
finished goods. It includes:
 Raw Materials Conversion Period

 W-I-P Conversion Period
 Finished Goods Conversion Period
The Inventory Conversion Period can be ascertained by following formula:
INVENTORY = NO. OF DAYS IN A YEAR
CONVERSION PERIOD INVENTORY TURNOVER RATIO
No. of Days in a Year – 365 days
Table: - 4
The Table Showing Inventory Conversion Period
Year No. of Days in a Year I.T.R Inventory Conversion Period
2007-08 365 16.20 23
2008-09 365 17.24 21
2009-10 365 24.57 15
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Chart: - 4
The Chart Showing Inventory Conversion Period
Inventory Conversion Period

25
20
15
Inventory Conversion
10 Period
0
2007-08 2008-09 2009-10
Interpretation:
From this we get to know the number of days Dharwad Milk Union is taking to convert
raw materials into finished products. In last 3 years, the company has improved its conversion
period yearly. It indicates the faster conversion of inventory & the faster sale of its goods..
D.M.U has been maintaining better inventory conversion period.
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5). Debtors Turnover Ratio/Accounts Receivable Turnover Ratio:
Debtors Turnover Ratio is an important part of current assets; it is determined by

dividing the net credit sales by average debtors outstanding during the year.
The analysis of the debtor‟s turnover ratio supplements the information regarding the
liquidity of an item of current assets of the firm. The ratio measures how rapidly receivables
are collected.
It can be ascertained by the following formula:
DEBTORS TURNOVER RATIO = TOTAL SALES
DEBTORS
Total Sales includes: Sale of cattle feed, Sale of Milk, Sale of Milk Products, Sale of P & I,
Other Sales.
Debtors:Sundry Debtors
Table: - 5
The Table Showing Debtors Turnover Ratio
Year Total Sales Debtors Debtors Turnover Ratio
2007-08 51,18,17,606 1,72,44,418 29.68
2008-09 60,79,62,383 2,20,73,532 27.54
2009-10 73,76,99,820 2,41,79,465 30.51
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Chart: - 5
The Chart Showing Debtors Turnover Ratio
Debtors Turnover Ratio

31
30.5
30
29.5
29
28.5
28
27.5
27
26.5
26
2007-08 2008-09 2009-10
Interpretation:
From this we get to know the last 3 years debtors turnover ratio of Dharwad Milk
Union. In the year 2009-10, the debts are collected rapidly i.e. 30.50 compared to other 2
years. Accounts receivable turnover ratio or debtors turnover ratio indicates the number of
times the debtors are turned over a year. The higher the value of debtors turnover the more
efficient is the management of debtors or more liquid the debtors are. Similarly, low debtors
turnover ratio implies inefficient management of debtors or less liquid debtors. It is the
reliable measure of the time of cash flow from credit sales.
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6). Debtors Collection Period:
The Debtors/Receivable Turnover ratio when calculated in terms of days is known as

Average Collection Period or Debtors Collection Period Ratio.
The average collection period ratio represents the average number of days for which a
firm has to wait before its debtors are converted into cash.
It can be ascertained by following formula:
DEBTORS COLLECTION PERIOD = NO. OF DAYS IN AYEAR
DEBTORS TURNOVER RATIO
Table: - 6
The Table Showing Debtors Collection Period
Year No. of Days in a Year Debtors Turnover Ratio Debtors Collection Period
2007-08 365 29.68 13
2008-09 365 27.54 14
2009-10 365 30.51 12
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Chart: - 6
The Chart Showing Debtors Collection Period
Debtors Collection Period

14.5
14
13.5
13
12.5 Debtors Collection Period
12
11.5
11
2007-08 2008-09 2009-10
Interpretation:
From this, we get to know the debts collection period of Dharwad Milk Union. From
2007-08 to 2008-09 the debts collection period shows an increasing trend which shows
customers have not made payment promptly. But in the year 2009-10 the debts collection
period seems to have decreased by 2 days and shows prompt payment made by the customers
compared to the previous years.
This ratio measures the quality of debtors. A short collection period implies prompt
payment by debtors. It reduces the chances of bad debts. Similarly, a longer collection period
implies too liberal and inefficient credit collection performance. It is difficult to provide a
standard collection period of debtors.
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7). Creditor’s Turnover Ratio:
This ratio shows the rapidity of debt payment by the firm. It expresses the relationship
between creditors and purchase.
This ratio is similar to the debtors turnover ratio. It compares creditors with the total
credit purchases.
It signifies the credit period enjoyed by the firm in paying creditors. Accounts payable
include both sundry creditors and bills payable. Same as debtors turnover ratio, creditors
turnover ratio can be calculated in two forms, creditors turnover ratio and average payment
period.
It is ratio between net credit purchase & the average amount of creditors outstanding
during the year.
It is calculated by following formula:
CREDIT TURNOVER RATIO = NET PURCHASE
AVERAGE CREDITORS
Table: - 7
The Table Showing Creditors Turnover Ratio
Year Net Purchase Average Creditors Creditors Turnover Ratio
2007-08 38,30,26,045 79,44,451 48.21
2008-09 42,55,91,913 1,08,12,931 39.36
2009-10 51,56,87,484 83,08,177 62.07
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Chart: - 7
The Chart Showing Creditors Turnover Ratio
Creditors Turnover Ratio

70
60
50
40
30 Creditors Turnover Ratio
20
10
0
2007-08 2008-09 2009-10
Interpretation:
From this, we understand that there are ups & downs in the ratio of credit turnover. But
in 2009-10, the credit payment of D.M.U has increased to 62.07. It indicates that D.M.U has
been paying credit properly.
The average payment period ratio represents the number of days by the firm to pay its
creditors. A high creditors turnover ratio or a lower credit period ratio signifies that the
creditors are being paid promptly. This situation enhances the credit worthiness of the
company. However a very favorable ratio to this effect also shows that the business is not
taking the full advantage of credit facilities allowed by the creditors.
68 | P a g e
8). Creditor’s Payment Period:
The Creditors Payment Period Ratio represents the average number of days taken by
the firm to pay the creditors.
CREDITOR’S PAYMENT PERIOD = NO. OF DAYS IN AYEAR
CREDITORS TURNOVER RATIO
Table: - 8
The Table Showing Creditors Payment Period
Year No. of Days in a Year Creditors Turnover Ratio Creditor's Payment Period
2007-08 365 48.21 8
2008-09 365 39.36 10
2009-10 365 62.07 6
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Chart: - 8
The Chart Showing Creditors Payment Period
Creditor's Payment Period

12
10
6
Creditor's Payment Period
4
0
2007-08 2008-09 2009-10
Interpretation:
It may be found that there are ups & downs in credit payment period of Dharwad Milk
Union. But in the year 2009-10 the credit payment period is high i.e. 6 days. It indicates that
the D.M.U has made its payment regularly.
70 | P a g e
9). Working Capital Turnover Ratio:
This ratio indicates whether the working capital has been properly utilized in making
sales or not. This ratio measures the efficiency with the working capital.
It is taken as one of the primary indicators of the short-term solvency of the business. It
establishes the relationship with the net sales. This ratio represents the number of times the
working capital is turned over in course of a year i.e. it measures the efficiency with which
the working capital is being used by the firm.
WORKING CAPITAL TURNOVER RATIO = COST OF GOODS SOLD
NET WORKING CAPITAL
Cost of Goods Sold = Sales – Gross Profit
Net Working Capital = Current Assets – Current Liabilities
Table: - 9
The Table Showing Working Capital Turnover Ratio
Year Cost of Goods Sold Net Working Capital Working Capital Turnover Ratio
2007-08 43,98,40,675 3,24,93,408 13.53
2008-09 49,50,39,504 1,72,90,538 28.63
2009-10 59,57,37,895 2,28,83,469 26.03
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Chart: - 9
The Chart Showing Working Capital Turnover Ratio
Working Capital Turnover Ratio

35
30
25
20
Working Capital Turnover
15 Ratio
10
0
2007-08 2008-09 2009-10
Interpretation:
We see that though there are ups and downs in the working capital turnover ratio over
the years, there is a considerable increase in the ratio from 2007-08 to 2008-09. This shows
an efficient utilisation of working capital. But again in the 2009-10 there seems to be a low
trend in the ratio indicating inefficiency compared to its previous year.
The working capital turnover ratio measure the efficiency with which the working
capital is being used by a firm. A high ratio indicates efficient utilization of working capital
and a low ratio indicates otherwise. But a very high working capital turnover ratio may also
mean lack of sufficient working capital which is not a good situation.
72 | P a g e
10). Current Assets Turnover Ratio:
This ratio reveals the relationship between cost of goods sold and current assets.
The higher the ratio, the better is the firm in utilizing its current assets. The lower ratio
indicates that investment in current assets has not brought commensurate gain to the firm.
CURRENT ASSETS TURNOVER RATIO = TOTAL SALES
CURRENT ASSETS
Table: - 10
The Table Showing Current Assets Turnover Ratio
Year Total Sales Current assets Current Assets Turnover Ratio

2007-08 51,18,17,606 8,62,29,464 5.93
2008-09 60,79,62,383 7,53,69,860 8.07
2009-10 73,76,99,820 9,85,39,092 7.48
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Chart: - 10
The Chart Showing Current Assets Turnover Ratio
Current Assets Turnover Ratio

9
8
7
6
5
Current Assets Turnover
4 Ratio
3
2
1
0
2007-08 2008-09 2009-10
Interpretation:
This helps us know how Dharwad Milk Union has utilized its current assets. From the
year of 2007-08 to 2008-09 the ratio has increased and indicates that D.M.U has utilized its
current assets more efficiently in that year. It reflects the good current assets management.
But it has got decreased for the year 2009-10 which shows inefficient usage of current assets
compared to its previous year.
74 | P a g e
11). Gross Operating Cycle:
The time lag between the purchase of raw materials & collection of cash for sale is
Gross Operating Cycle. It refers to the sum of inventory period and debtor‟s collection
period.
GROSS OPERATING CYCLE = Inventory Conversion Period + Debtors Collection Period
Table: - 11
The Table Showing Gross Operating Cycle
Year Inventory Conversion Period Debtors Collection Period Gross Operating Cycle
2007-08 23 13 36
2008-09 21 14 35
2009-10 15 12 27
75 | P a g e
Chart: - 11
The Chart Showing Gross Operating Cycle
Gross Operating Cycle

40
35
30
25
20
Gross Operating Cycle
15
10
5
0
2007-08 2008-09 2009-10
Interpretation:
From this we can understand that gross operating cycle has improved over the years
and has shown better performance.
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12). Net Operating Cycle:
Net Operating Cycle is the time length between the payment for raw material purchases
& the Collection of cash for sale. It is difference between gross operating cycle & creditors
conversion period.
NET OPERATING CYCLE = Gross Operating Cycle - Creditors Payment Period
Table: - 12
The Table Showing Net Operating Cycle
Year Gross Operating Cycle Creditor's Payment Period Net Operating Cycle
2007-08 36 8 28
2008-09 35 10 25
2009-10 27 6 21
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Chart: - 12
The Chart Showing Net Operating Cycle
Net Operating Cycle

30
25
20
15
Net Operating Cycle
10
0
2007-08 2008-09 2009-10
Interpretation:
From this we can understand that net operating cycle has improved over the years and
has shown better performance.
78 | P a g e
Ratio’s Table
Sl.No Particulars Formulas Y’1 Y’2 Y’3
1 Current Ratio Current Assets 1.60 1.30 1.30

Current Liabilities
2 Quick Ratio/ Liquidity Ratio Quick current assets 1.04 0.83 1.02
Current Liabilities
3 Inventory Turnover Ratio Cost of goods sold 16.20 17.24 24.57
Average inventory
4 Inventory Conversion Period No. of Days in a year 23 21 15
5 Debtors Turnover Ratio Total Sales 29.68 27.54 30.51
Debtors
6 Debtors Collection Period No. of Days in a year 13 14 12
7 Creditors Turnover Period Net Purchase 48.21 39.36 62.07
Average Creditors
8 Creditors Payment Period No. of Days in a year 8 10 6
Creditors Turnover Ratio
9 Working Capital Turnover Cost of goods Sold 13.53 28.63 26.03
Ratio Net Working Capital
10 Currents Assets Turnover Total Sales 5.93 8.07 7.48
Ratio Current Assets
11 Gross Operating Cycle Inventory Conversion 36 35 27
Period + Debtors
Collection Period
12 Net operating Cycle Gross Operating Cycle – 28 25 21
Creditors payment Period
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Findings
1) The Current Ratio shows that for the year 2009-10, the liquidity position of the Dharwad
Milk Union is less i.e. 1.30. This ratio‟s standard norm is 2:1. So it is struggling to
recover the current ratio of the firm.
2) The Quick Ratio of the Dharwad Milk Union for the year 2009-10 is 1.02.This ratio‟s
standard norm is 1:1. So the DMU seems to have maintained good quick ratio in its
financial activities.
3) The Inventory Turnover Ratio of the Dharwad Milk Union has shown a considerable
increase over the years and shows 24.57 for the year 2009-10. This shows that the firm‟s
performance is better in selling its products.
4) In last 3 years, the company has improved its conversion period from year to year and
shows 15 for the year 2009-10. It indicates the fast conversion of inventory & the faster
sale of its goods. D.M.U has been maintaining better inventory conversion period.
5) In the year 2009-10, the debts are collected rapidly i.e. 30.50 and it is higher compared to
other 2 years. So the higher the debtors turnover ratio, the more efficient is the
management of debtors or more liquid the debtors are.
6) From 2007-08 to 2008-09 the debts collection period shows an increasing trend which
shows customers have not made payment promptly. But in the year 2009-10 the debts
collection period seems to have decreased by 2 days and shows prompt payment made by
the customers compared to the previous years.
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7) From this, we understand that there are ups & downs in the ratio of credit turnover. But in
2009-10, the credit payment of D.M.U has increased to 62.07. It indicates that D.M.U has
been paying credit properly.
8) Credit payment period of Dharwad Milk Union for the year of 2009-10 is in decreasing
trend with 6 days. It indicates the company is maintaining credit payment properly.
9) There are ups and downs in the working capital turnover ratio and has decreased for the
year 2009-10. It shows the D.M.U has not properly utilized the working capital for
making the sales.
10) There are ups and downs in Dharwad Milk Union in utilising its current assets and has
decreased for the year 2009-10. It indicates that D.M.U has not utilised its current assets
more efficiently compared to previous years.
11) The gross operating cycle has improved over the years and has shown better performance.
12) The net operating cycle has improved over the years and has shown better performance.
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Suggestions:
1.It is suggested that the Dharwad Milk Union (DMU) has to increase its current ratio.
2. It is also suggested that DMU has to maintain stability in its quick ratio.
3. The firm‟s performance is better in selling its products. So it is suggested that the Dharwad
Milk Union (DMU) has to maintain the same stability in managing its inventory and improve
still better if possible and firm is also maintaining good inventory conversion period.
4. The higher the debtors turnover ratio, the more efficient is the management of debtors or
more liquid the debtors are. For the recent year the firm has shown better debtors turnover
ratio. So the firm has to maintain that stability and improve over time.
.
5. For the recent year, debt collection period has decreased which shows prompt payment by
debtors. So firm has to manage the same conditions and still improve over time.
6. A high creditors turnover ratio or a lower credit period ratio signifies that the creditors are
being paid promptly. This situation enhances the credit worthiness of the company. It seems
that the firm has maintained high creditors turnover ratio and lower credit period for the
recent year accordingly. So firm has to manage the same conditions and still improve over
time.
7. D.M.U has not properly utilized the working capital for making the sales as there have
been ups and downs in its utilization and has shown decreased value for the recent year. So it
is advised to make efficient use of working capital.
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8. It is advised to adopt scientific inventory management to improve “working capital”.
9. It is suggested that Dharwad Milk Union (DMU) should continue to show better
performance in its gross and net operating cycles as it has been showing over the financial
years.
10. Dharwad Milk Union (DMU) should have to appoint skilled and qualified employees and
also new technology in machineries. It increases efficiency and quality of the firm.
11. DMU should have to computerize all the departments in order to increase efficiency and
productivity of employees.
13.DMU should have to take sales promotion measures like free home delivery to urban
consumers. This helps to increase the market share through increased sales.
83 | P a g e
Conclusion:
The study of “Working Capital Management” in DMU is satisfactory. I got more

information on working capital management of the D.M.U. The study of the last three years
liquidity position of the company is better. In the last three years company is facing several
problems in finance & marketing & promotional activities. D.M.U has suffered losses due to
financial problems & less quantity of milk supply in the previous years but in the recent year,
it is in better position. It shows that D.M.U is improving its financial conditions & also
utilizing its assets & resources properly. If D.M.U continues the same performance as in the
current financial year, it can earn more profits.
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Bibliography
Text Books:
 I.M. Pandey – Financial Management. Vikas Publishing House Pvt. Ltd.

 M.Y. Khan and P. K. Jain – Financial Management.
Web Site: http://www.kmfnandini.co
85 | P a g e

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KARNATAKA MILK FEDERATION, DHARWAD

A working capital plays an important role in the successful operation of business

Title of the Project:

Objectives of the study:

 To examine the establishment, organization and operational dimensions of the D.M.U.

Need of the study:

Limitations of the Study:

1. As this an academic efforts, it is limited by time, cost and coverage.

Measurement Techniques / Statistical Tools

Dairy Industry In India

Producing biopreservative ingredients based on dairy fermentation, such as

Dairy/Food Processing Equipment:

Food Packaging Instruments:

There is a tremendous investment opportunity for foreign investors in the

Retailing of dairy products also promises great investment opportunities for

Technically Advanced Manufacturing Units:

There is a great opportunity for foreign investors to invest in establishing

Development Of Dairy Industry In India

National Dairy Development Board NDDB:

Services rendered by NDDB:

 Planning dairy and rural development projects.

Introduction to Karnataka Milk Federation

The KMF performs the following functions:

The Growth Process:

Particulars Unit 1976 - 77 2009 - 10

Dairy Co-operatives Numbers 416 11520

Membership Numbers 37,000 20,19,265

Milk Procurement Kgs/Day 50,000 31,23,551/

Cattle feed consumed Kgs/DCS 220 3160

Daily Payments to Farmers Rs in (Lakhs) 0.90 354

Turnover Rs in (Crs) Not Available 2,850

I. Mother Dairy, Yelahanka, Bangalore.

Company Profile-DHARWAD MILK UNION

Dharwad Milk Union:

A group of experienced officers, appointed by the Karnataka Milk Federation surveyed

Company Name Dharwad Co-operative Milk Producers Union Ltd,

Nature of Business Mfg / Service / Semi-agro based Co-operative Unit

Type of Ownership Co-operative Unit

Tel-No 0836-2467643, 2461876, 2468380.

Raw Material Milk 80,000 LPD,

Capacity of Plant 1,20,000 liters/day,

Total Investment Rs. 7 crore

Total Societies at Village Level 551 Societies

 Providing hygienic and good quality milk to the consumers.

Nandini Toned Fresh and Pure milk 500 ml Rs.8.50

Nandini Homogenized Milk is pure milk 500 ml Rs.8

Full Cream milk. Containing 6% Fat and 9 %

Buffalo's milk, 100% pure pasteurized 500 ml Rs.10

A taste of purity. Nandini Ghee made from pure

Rich, smooth and delicious. Nandini Butter is made 100 gm Rs.18

Sterilized flavored milk, a nutritious and healthy drink and an 200 gm

Nutritious, delicious creamy ice cream is manufactured at

Nandini spiced Butter Milk is a refreshing health drink. It is Rs. 6

Cow's pure milk, UHT processed bacteria free in a

A delicious beverage with hot or cold milk. It can be 200 gm Rs.42

Work flow Model

Production process has the following workflow model.

Fresh Liquid Milk Sample Testing Fat and SNF

Organization Structure of KMF

Director Director Director

(Elected-8) (Ex-officer-5) (Nominated-3)

P&I Production Finance Admin Security Marketing

Deputy Deputy Deputy Deputy Senior Deputy