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 ADMINISTRATION

To 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 STUDIES

Hosur Road, Near Lalbagh Main Gate, BANGALORE-560 0027
(AFFILIATED TO BANGALORE UNIVERSITY)

2010-11

CONTENTS

CHAPTER

TITEL

PAGE NO

I II III IV

INTRODUCTION RESEARCH DESIGN COMPANY PROFILE ANALYSIS AND INTERPRETATION OF DATA

1-18 19-21 22-52 53-70

SUMMARY OF FINDINGS, SUGGESTIONS AND CONCLUSION BIBLIOGRAPHY

71-74

LIST OF CHARTS Chart No 1 PARTICULARS NUMBER OF FUNCTIONAL DCS Page No 26

2 3

TOTAL MILK PROCRUMENT AND WOMEN MEMBERSHIP AT DCS AVERAGE MILK PROCUREMENT

27 28

TOTAL MILK SALES

29

FULL CREAM MILK SALES(AVG LTS/DAY)

31

CURD SALES (Avg KGS/DAY) YEAR WISE DETAILS OF SHARE CAPITAL

33

OF BAMUL ANNUAL TURNOVER OF BAMUL

42

8 9

43

YEAR WISE DETAILS OF NET PROFIT OF BAMUL

43

LIST OF TABLES Table No 3.1 3.2 3.3 PARTICULARS Page No

ANIMAL HEALTH & OTHER ACTIVITIES YEAR WISE DETILS OF AI CATTLE FEED SALES

35 35 37

4.1 4.2 4.3 4.4 4.5 4.6 4.7 4.8

Table showing the cash flow statement CURRENT RATIO CURRENT ASSET TURNOVER RATIO QUICK RATIO Current Assets to Total Assets Ratio DETORS TURNOVER RATIO AVERAGE COLLECTION PERIOD CASH TURN OVER RATIO

55-56 58 60 62 63 65 67 69

LIST OF GRAPHS

Graph No 4.1 4.2 4.3 4.4 4.5 4.6 4.7 4.9

PARTICULARS

Page No 58 59 60 61 62 64 65 69

Current assets and liabilities

CURRENT RATIO OF BAMUL NET SALES AND CURRENT ASSET CURRENT ASSET TURNOVER RATIO QUICK RATIO CURRENT ASSETS TO TOTAL ASSETS DEBTORS TURNOVER RATIO CASH TURNOVER RATIO

Chapter I

INTRODUCTION
Introduction to finance Introduction to cash management Scope of cash flow statements Introduction to BAMUL

INTRODUCTION TO FINANCE

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:

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.

c) Building up of adequate resources for financing growth and expansion and ensuring fair returns to share holders.

CASH MANAGEMENT
Cash 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 cash
For 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.

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:

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.

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:

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.

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 and anticipating 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.

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

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 10 th 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 interbank 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

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

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.

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 cash to conduct there operations to pay there obligation, and to provide returns to the investors.

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.

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-sector alone 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

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 selfsufficient 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

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.

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 sector in 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.

Chapter II

RESEARCH DESIGN
Statement of problem Scope of study Limitation of study Research methodology

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.

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-incidence between 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

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 cash management 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

INTRODUCTION
The Bangalore Milk Union Ltd., (Bamul) was established during 1975 under Operation Flood II by keeping Amul as 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.

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 capacity to 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

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, by employing 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 cooperative 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.

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 the years to organize DCSs in more and more villages of the three districts in the milk-shed area.

Number of Functional DCS

2000 1800 1600 1400 1200 1000 800 600 400 200 0 19992000 200001 200102 200203 200304 200405 200506 200607 200708 200809 200910

1165

1266 1301

1761 1657 1708 1607 1483 1547 1386 1433

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.

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 & Wom en Mem bership at DCS

327176

350000 300000 250000 200000 1 50000 1 00000 50000 0

182279

185166

203831

275440

289095

297162

309597

321238

325854

31218

1 99899

1 9992000

32827

2001 02

38878

2002- 200303 04

72220

81344

2004- 200505 06

85849

91746

2006- 200707 08

96653

2008- 200909 1 0

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.

102842

99603

105804

331544

Avg. Milk Procurement (Kgs Per Day)

805618 713047 532948 546940 557508 594079 758021 710082 729564

828684

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

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

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.

Total Milk Sales (Avg. Ltrs/Day)

0 7 5 0 2 6 4 1 7 6
2009-10

2002-03

6 1 3 4

2003-04

9 6 8 4

2004-05

0 7 8 4

2005-06

2 0 5

2006-07

0 1 3 5
2007-08

2008-09

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.

Types of Milk & Milk products marketing by Bamul:

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

nandini Toned Milk

Nandini Homogenised Milk is pure milk containing 3.5% Fat & 8.5% SNF. Which is homogenised and pasteurised. Consistent right through, it gives you more cups of tea or coffee and is easily digestible. Available in 500 ml packets.

nandini

Homogenised COW Milk

nandini Full Cream Milk

Nandini Full Cream Milk. Containing 6% Fat and 9 % SNF. A rich, creamier and tastier milk, Ideal for preparing home-made sweets & savouries. Available in 500ml and 1ltr packs. Apart from the Milk, the different Milk Products are Curds, Butter, Ghee, Peda, Paneer, Set Curds & Spiced Butter Milk are also sold.

Full Cream Milk Sales (Avg. Liters / Day)

181028 143855 106976 62943 48347 55821 81116 166873 165108 170823

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

FIG3.5

nandini Curd
Nandini Curd made from pure milk. It's thick and delicious. Giving you all the goodness of homemade curds. Available in 200 gms and 500 grms & 1 Kg packs. Nandini Butter 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, 200 gms and 500gms cartons both salted and unsalted.

nandini Ghee
A taste of purity. Nandini Ghee, made from pure butter. It is fresh and pure with a delicious flavour. Hygienically manufactured and packed in a special pack to retain the goodness of pure ghee. Shelf life of 6 months at ambient temperatures. Available in 200ml, 500ml, 1000ml sachets & 15.0 kg

nandini Butter
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 and 500gms cartons both salted and unsalted.

nandini Butter Milk

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.

nandini Peda
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.

Curd Sales (Avg. KG's / Day)

9 6 3 7 2 1 5 7 1 0 2 8
2008-09 2009-10

1998-99

5 6

1999-2000

0 2 8

2000-01

9 3 1

2001-02

0 9 4 1

2002-03

4 5 0 6 1

2003-04

5 8 2 3

2004-05

2 1 8 3

2005-06

5 6 2 9 4
2006-07

9 1 6
2007-08

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 growthoriented 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

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. Particulars MVR Cases Treated Health Camp cases Treated Emergency Cases Treated F& M Vaccination Rakshavac TABLE 3.1 2007-08 2008-09 149565 70735 430431 13395 166198 70420 373107 18094 2009-10 43761 118307 74773 352176 26227

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 crossbreeding 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 No. of Single AI Centers No. of AI Done No. of Cluster AI Centers No. of AI Done Total AI Done

2007-08 251 1,11,536 94 1,69,185 2,80,721

2008-09 259 1,12,740 96 1,92,207 3,04,947

2009-10 259 1,16,002 101 1,97,645 313647

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.

Cattle Feed Sales:

TABLE3.3 2007-08 2008-09 2009-10

Particulars 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 in Karnataka 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 The annual premium is Rs. 120/- per Bangalore Milk union has covered department, Members of Co-operative Societies and their family members are the beneficiaries of this scheme. beneficiary. All major hospitals are adopted for this scheme, all types of surgery will be covered under this health scheme. premium per beneficiary. 1.50 Lakh beneficiaries under this scheme by contributing Rs 30/- towards

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.

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. It wants 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 17 th December 2000 MMPO-1992 Registration No 42/R.MMPO/93

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 yearwise 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 1 st 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. i.

Anekal Chilling Center Anekal Chilling Center was started on 12 th September 1964 with a milk chilling capacity of 20,000 LPD.

ii.

Later the milk chilling capacity was expanded to 60,000 LPD on 28 th February 1999.

iii. c. i. Byrapatna Chilling Center Byrapatna Chilling Center was started on 19 th May 1962 with a milk chilling capacity of 20,000 LPD. ii. Later the milk chilling capacity was expanded to 60,000 LPD

d. i.

Doddaballapur Chilling Center Doddaballapur Chilling Center was started on 5 th 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 31 st 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 1 st October 2004 with milk chilling capacity of 60,000 LPD.

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.

 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

22536.30

199899

19776.20

19992000

200001

22072.93

200102

23232.00

200203

25323.43

200304

27873.76

200405

31345.89

200506

200607

37452.00

38020.6

200708

45205.00

200809

50824.00 9 7 . 4 3

200910

FIG3.8

Net Profit (in Lakh Rupees)

3 8 . 4 7 5

2 5 . 7 8 3

. 7 5 3

8 4 . 7 2 3

52776.13 0 . 9 5 1 3 . 9 7 2

Annual Turn-over (in Lakh Rupees)

8 5 . 7 3 2

3 . 7 1

9 . 3 7

5 . 8 2

1998-99 1999-2000 2000-01 2001-02 2002-03 2003-04 2004-05 2005-06 2006-07 2006-07 2007-08 2008-09 2009-10

7 . 5 3

FIG3.9

DEPARTMENTAL STRUCTURE (FINANCE)

9 2 . 1 5

GENERAL MANAGER FINANACE MANAGER Deputy Manager 0 PAY ROLL Asst. Manager Accts & Comp. Asst. Manager FINANACE Deputy Manager

P&I Asst. Manager

M Narayana Swamy

BILLS Asst. Manager

SALES Asst. Manager

Mallikarjuna Swamy

GJ Satheesh

KV Venkataramanaiah

SV Marji

A/c's. Officer

A/c's. Officer

A/c's. Officer

A/c's. Officer

A/c's. Officer

Subhashini devi

A/c's. Supdt 0

A/c's. Supdt 0

A/c's. Supdt

A/c's. Supdt
HD Vasanth- Adminsupdt V ShivalingammaAdmin-Supdt KN Vidyavathi Admin-Supdt

A/c's.. Supdt

NM Ramesh

L Manjunath KAS Ishwar -Admin-Supdt

A/c's. Asst Gr -I
MT Bettegowda -Admin

A/c's. Asst Gr -I

A/c's. Asst Gr -I
V RaghavendraAdmin-1

A/c's. Asst Gr -I

A/c's. Asst Gr I
V Ramachandra rao Hemlatha Admin-1

BS Geetha

B Somashekar

SR Jagadamba

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 NR RameshAdmin AR RameshAdmin

KN Mohankumar

Puttasiddaiah

HN Rajegowda V Ashok KumarAdmin-2

M Munireddy

Umadevi

D Ganesh

BS Ragahavendra Sandya RaniAdmin-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

L JayammaAdmin-3

0 DO Gr-II

0 DO Gr-II DO Gr-II

0 DO Gr-II

DO Gr-II

Bhuvaeshwari

0 Helper
S Chandrashek ar

0 Helper

0 Helper

0 Helper
Doddahonnashett y

Sushelamma

Helper
Nanjappa DG4

Puttaiah

Subbamma

Rukmini

Parvathi

Indira

ACCOUNTS AND LEDGERS MAINTAINED AT BAMUL The daily transactions are maintained through tally

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,

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

 Cash management technique Liquidity analysis profitable deployment of surplus funds Economical borrowings

LIQUIDITY ANALYSIS

DEPLOYMENT OF FUNDS

FACETS OF CASH MANAGEMENT

CASH FORECASTING
ECONOMICAL BORROWING

CASH MANAGEMENT TECHNIQUE

CASH FORECASTING
Forecasting is forewarning and forewarned is forearmed. Despite the uncertainty future and number of other facts which affect accuracy of forecasted

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 they are buying the material from the nearest distributers to match the supply

CASH BUDGET
As 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.

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

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

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

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 31 st March 2010 CASH FLOW STATEMENT FOR THE YEAR ENDED 31ST MARCH 2010 Table4.1 A) CASHFLOW FROM OPERATING ACTIVITY Net profit before tax Depreciation Interest and banking Sale of scrap 2008-2009
18526743 43588053 17616928

(Amt in Rs) 2009-2010

27932255 44692570 19540066

5196426

5671374

Profit/Loss on sale of assets Donations

63100

622337

Income for investments Interest receivables Operating profit before working capital changes Change in inventory

6616360

3892284

481667

395293

456131057

545566605

14385344

35407948

Change in sundry Debtors Change in loans and advances Change in current liabilities provision

34291309

(7394465)

7349453

3060356

(95712535)

135213482

(Amt in Rs)

Change in provision Cash generated from operations Direct tax paid

576645 5720582038

284259 5147013018

2840694

2782736

Net cash from operating activities (A) B) CASH FLOW FROM INVESTMENT

6202546204

5875768804

4093362465

4497332183

ACTIVITIES

C) CASH FLOW FROM FINANCING ACTIVITIES Change in loans

(46852266) (50526300)

Net cash used in financing activities (c) Net increase /decrease in cash and cash equivalents (A+B+C) Cash and cash equivalents(opening) Cash and cash equivalents (closing )

(46852266)

(50526300)

10249056403

10322574687

293242434

165607914

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

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 Particulars Current Assets Current Liabilities Ratio 2007-08 52.06 40.92 1.27 2008-09 37.89 31.35 1.20 (In Crores) 2009-10 52.86 44.87 1.17

60 50 40 30 20 10 0 20 07-08 200 8-0 9 200 9-10 C urrent As s ets C urrent L iabilities R atio

GRAPH 4.1 Graphical Representation of current assets and liabilities

Graphical representation of current ratio

1.28 1.26 1.24 1.22 1.2 1.18 1.16 1.14 1.12 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. R atio

Current Asset Turnover Ratio = Net sales / Current assets

TABLE4.3 Particulars Net Sales Current Assets Ratio Source Annual Report, BAMUL 2007-08
452.06 52.06

(In Crores) 2008-09

509.35 37.89

2009-10
566.33 52.86

8.68

13.44

10.71

Graphical representation of Net sales and Current Assets

GRAPH 4.3 600 500 400 300 200 100 0 Net S ales C urrent As s ets R atio

2007 -08

2 008-0 9

200 9-10

14 12 10 8 6 4 2 0 R atio

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.

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 Crores) Particulars Quick Assets Current Liabilities Ratio Source: Annual Report BAMUL 2007-08 41.54 40.92 1.01 2008-09 28.01 31.35 0.89 2009-10 45.72 44.87 1.02 (In

Graphical representation of quick ratio

1.05 1 0.95 0.9 0.85 0.8 R a tio

2007-08

2008-09

2009-10

GRAPH 4.5

Analysis and Interpretation. QR indicates the extent to which a company can pay its current liabilities without relying on the sale of inventory. This is a fairly stringent measure of liquidity because it is based on those current assets which are highly liquid. Inventories are excluded from the numerator of this ratio because they are deemed to be the least liquid component of current assets. Generally, a quick ratio of 1:1 is considered good. If this is taken as a norm, the liquidity position of BAMUL may be taken as less satisfactory in 2008-09.

From the above Analysis, the companys quick ratio was decreased from 1.01 to 0.89 in 2008-09 and again increased to 1.02 this is mainly because of effective realization of sundry debtors and decrease in quick assets increase in the cash and bank balance and increase in the current liabilities.

Current Assets to Total Assets Ratio= Current assets/ Total assets Total Assets = Fixed assets, Investments, Current Assets TABLE4.5 (In Crores) 2008-09
37.89 94.68 0.40

Particulars
Current Assets Total assets Ratio Source: Annual report BAMUL

2007-08
52.06 110.31 0.47

2009-10
52.86 106.84 0.49

Graphical representation of current assets to total assets ratio

10 0% 80% 60% 40% 20% 0 % 2007-08 2008-09 2 009-10 R atio Total as s ets C urrent As s ets

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 of effective 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.

Debtors Turnover Ratio: Net Credit Annual Sales/Average Trade Debtors TABLE 4.6 Particulars Net Credit Annual Sales Average Trade Debtors Times Source: Annual report BAMUL 2007-08
426.87

(In Crores) 2008-09

477.24

2009-10
527.76

8.59 49.69

7.52 63.46

8.86 59.56

Graphical representation Debtors Turnover Ratio GRAPH 4.7

600 500 400 300 200 100 0 2007-08 2008-09 2009-10 Net Credit Annual S ales Averag eT ra de Debtors T im es

Analysis & Interpretation

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 number of times debtors each year. The liquidity position of the firm Generally, the higher the value of depends on the quality of debtors to a great extent. A debtor turnover indicates 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 =

Average No of working days/Debtors Turnover Ratio Average number of working days is assumed to be 365 days. TABLE 4.7 Source: Annual report BAMUL

Particulars Average No of Working Days Debtors Turnover Ratio Average collection period Analysis & Interpretation

2007-08 365 49.69 7.34 days

2008-09 365 63.46 5.75 days

2009-10 365 59.56 6.12 days

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.

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.

CASH TURNOVER RATIO=

Sales/Cash balances and Bank balances

TABLE 4.8 2007-08
426.87

Particulars Net Credit Annual Sales Cash and Bank balance Ratio Source: Annual report BAMUL

(In Crores) 2008-09 2009-10

477.24 527.76

29.32 14.55

16.56 28.81

30.17 17.49

Graphical representation of Cash Turnover Ratio

600 500 400 300 200 100 0 2007-08 2008-09 2009-10 Net Credit Annua lS a les Ca s ha nd B a nkba la nc e R a tio

GRAPH 4.8 Interpretation Cash turnover ratio measures the cash usage as a ratio of sales in a period to the cash balance of that period. This ratio measures the velocity of cash balance in terms of sales.

From the above analysis the cash turnover ratio is increased from 14.55 to 28.81 in 2008-09 and further decreased to 17.49 in 2009-10, this due to increase in sales. Higher the sales higher will be the ratio vice versa.

Chapter V

SUMMARY OF FINDINGS, SUGGESTIONS AND CONCLUSIONS

SUMMARY OF FINDINGS
From the study conducted at BAMUL, the following findings were made: The organization has been successful in todays competitive world. Organization has glorious historical back up and goodwill. The techniques followed for financing planning are satisfactory. The procedures are scientific and the system followed is computerized and information system followed is systematic and solution oriented. The organization has well set objectives and growth rate is satisfactory. Cash management is found effective. New projects are coming up very soon and are sanctioned by the top officials very easily. Current ratio is not to the standard of 2:1 Based on this, the liquidity position of the corporation can be termed as not satisfactory. 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, and in2008-09 and 2009-10 it good.

SUGGESTIONS AND RECOMMENDATION

On the basis of analysis the recommendation to further improve the functional practices, which would level the company to greater heights BAMUL should develop a strong credit management policy. The current ratio for the study period is less than standard; therefore the company should take necessary steps to increase the volume of current assets. BAMUL has to take care of collection period which has come down comparing to previous year

CONCLUSIONS
Cash flow management is a tool for rigorous evaluation of cash management. The cash flow statement for the year ended 31 st March 2010 indicated the following: Thus from the study of this project, the overall financial performance of the company is satisfactory. In certain areas BAMUL has to concentrate and should try to overcome such hurdles especially in the areas of the provisions & debts. In todays world it is very hard to survive without being enough to meet the customer satisfaction & applying the latest techniques but the BAMUL has survived in meeting the customers satisfaction.

BIBLIOGRAPHY

BIBLIOGRAPHY
Financial Management Financial Management - Shashi.K.Gupta. - R.K.Sharma

www.kmf.com/www.bamul.com www.google.com