A STUDY ON ANALYSIS FINANCIAL REPORTING AND CORPORATE GOVERNANCE OF AAVIN, CHENNAI By SUGANTHILEELA.S ROLL NO: 1008MBA0603 REG.

NO: 68610200293

A PROJECT REPORT Submitted to the FACULTY OF MANAGEMENT SCIENCES In partial fulfilment for the award of the degree Of MASTER OF BUSINESS ADMINISTRATION IN FINANCIAL SERVICE MANAGEMENT

CENTRE FOR DISTANCE EDUCATION ANNA UNIVERSITY CHENNAI CHENNAI 600 025 AUG 2012

BONAFIDE CERTIFICATE Certified that the Project report titled A STUDY ON ANALYSIS FINANCIAL REPORTING AND CORPORATE GOVERNANCE OF AAVIN is the bonafide work of Miss.SUGANTHILEELA.S who carried out the work under my supervision. Certified further that to the best of my knowledge the work reported herein does not form part of any other project report or dissertation on the basis of which a degree or award was conferred on an earlier occasion on this or any other candidate.

Signature of student Name: S.SUGANTHILEELA Roll No: 1008MBA00603 Reg. No: 68610200293

Signature of Guide Name: Prof.P.MURUGESAN Designation: LECTURER, Addresses: Dr.Ambedkar Govt College

Signature of Project-in-Charge Name: Designation: Address:

Certificate Viva-voce Examination This is to certify that Miss.SUGANTHILEELA.S (Roll No:1008MBA0603; Registration No: 68610200293) has been subjected to Viva-voce-Examination on _______________ (Date) at ___________ (time) at the Study Centre, College of Engineering Guindy, Anna University, Chennai- 600 025.

Internal Examiner Name: Designation: Address:

External Examiner Name: Designation: Address:

Co-ordinator Study Centre Name: Designation: Address:

Date:

ABSTRACT

Financial Analysis refers to the assessment of a business to deal with the planning, budgeting, monitoring, forecasting, and improving of all financial details within an organization. Financial analysis is the process of identifying the financial strengths and weakness of the firm by properly establishing the relations ship between the items of the balance sheet and profit loss account. Financial analysis can be undertaken by management of the firm, or by parties outside the firm, viz. owners, creditors, investors and others. Corporate governance is "the system by which companies are directed and controlled". It involves regulatory and market mechanisms, and the roles and relationships between a companys management, its board, its shareholders and other stakeholders, and the goals for which the corporation is governed The nature of analysis will differ depending on the purpose of analyst. Management, creditors, investors and others to form judgment about the operating performance and financial position of the firm use the information contained in these statements can get further insight about the financial strengths and weakness of the firm to make their best use and to be able to spot out financial weakness of the firm to take suitable corrective actions. Thus financial analysis is the starting point for making plans, before using any sophisticated forecasting and planning procedures. Understanding the past is a prerequisite for anticipating future and also indicates that corporate governance has significant impact on firm performance. However, not all the elements of governance are important. Board Responsibility and Board Structure sub-indices had only little significant effect on firm performance. But, Transparency and Disclosure sub-indices had no significant relationship with firm performance.

ACKNOWLEDGEMENT

First of all, I humbly thank the most beneficent and merciful God for showering his blessings upon me. I take this opportunity in acknowledging the Department of Management Studies, Anna

University, Chennai for providing me an opportunity to pursue this Course.

I express my sincere gratitude to my Guide Dr. P.MURUGESAN, Dr Ambedkar Govt

College. I am deeply indebted to him for

his

encouragement,

motivation,

valuable

suggestions, unstinted support, co-operation and sustained guidance.

I also take this opportunity to express my gratitude and thanks to ----------------------------------

--------------------------Chennai for the support, and encouragement right from choosing the

topic for study till completion of this project.

Finally, I take this opportunity to extend my deep appreciation to our family and friends, for

all their support and encouragement throughout the project.

SUGANTHILEELA.S

TABLE OF CONTENTS

S.No

CHAPTERS Title Page Bonafide Certificate Certificate Of Viva-Voce Examination Abstract Acknowledgement Table Of Contents List Of Tables List Of Figures CHAPTER -1: INTRODUCTION

Page No. i ii iii iv v vi viii xii

1.1 1.2 1.3 1.4 1.5 1.6 1.7

Introduction Industry Profile Company Profile Statement of the Problem Need for the Study Objectives of the Study Scope of the Study CHAPTER -2: LITERATURE SURVEY

2.1

Review of Literature CHAPTER -3: METHODOLOGY

3.1 3.2 3.3 3.4

Research Design Data Analysis Limitation of the Study Analysis of tools CHAPTER -4: DATA ANALYSIS AND INTERPRETATION CHAPTER -5: CORPORATE GOVERNANCE CHAPTER -6: FINDINGS, SUGGESTIONS & CONCLUSION

5.1 5.2 5.3

Findings Suggestions & Recommendations Conclusion

APPENDIX REFERNCES

LIST OF TABLES

S.NO 1 2 3 4 5 6 7 8 9 10 11 12 13 14 15 16

TABLES PROFITABILITY RATIO OPERATING PROFIT NET PROFIT RATIO TURN OVER RATIO CAPITAL TURNOVER RATIO FIXED ASSET TURNOVER RATIO CURRENT ASSET TURNOVER RATIO TOTAL ASSET TURNOVER RATIO

PAGE NO

INVENTORY TURNOVER RATIO TOTAL DEBT RATIO SHORT TERM SOLVENCY RATIOS LIQUID RATIO FIXED ASSET RATIO DEBT-EQUITY RATIO PBT TO SALES RETURN ON NET WORTH

LIST OF FIGURES

S.NO 1 2 3 4 5 6 7 8 9 10 11 12 13 14 15 16

TABLES PROFITABILITY RATIO

PAGE NO

OPERATING PROFIT NET PROFIT RATIO TURN OVER RATIO CAPITAL TURNOVER RATIO FIXED ASSET TURNOVER RATIO CURRENT ASSET TURNOVER RATIO TOTAL ASSET TURNOVER RATIO INVENTORY TURNOVER RATIO TOTAL DEBT RATIO SHORT TERM SOLVENCY RATIOS LIQUID RATIO FIXED ASSET RATIO DEBT-EQUITY RATIO PBT TO SALES RETURN ON NET WORTH

List of Abbreviations
Sl No 1 2 3 4 5 6 7 8 9 10 11 12 13 14 15 16 17 18 19 20 21 22 23 24 Abbreviation FMCG CA CAG JIT CL CWIP DPS EBIT NSE EPS FASB GAAP LTD MPS NW OI OPBDIT OPBDT OPBT PBDIT PBT RM ROA ROACE Expansion Fast moving Consumer Goods Current Assets Capital And Growth Just In Time Current Liabilities Current Work In Progress Dividend per Share Earnings Before Interest and Tax National Stock Exchange Earnings Per Share Financial Accounting Standards Board Generally Accepted Accounting Principles Long Term Debt Market Price per share Net Worth Order Intimation Operating Profit before Depreciation, Interest and Tax Operating Profit before Depreciation, and Tax Operating Profit before Tax Profit before Depreciation, Interest and Tax Profit before Tax Resource Management Return on Assets Return on Average Capital Employed

25 26 27 28

ROCE ROE RONW SBU

Return on Capital Employed Return on Equity Return on Net Worth Strategic Business Units

CHAPTER I INTRODUCTION
1.1 INTRODUCTION
Dairy sector has assumed much significance by generating income not only to the rural but also to the urban and semi-urban population in the state especially to women folk by providing self-employment opportunity. Milk and milk products provide essential nutrition to all walks of life. It provides livelihood to millions of small and marginal framers in the state. Tamil Nadu is an agriculture oriented state and majority of the farmers owns cattle. Dairying provides the main source of income next to agriculture. In a tropical country like India, agriculture may fail sometimes, due to monsoon failure but dairying never fails and gives them regular. Steady income.

The State Dairy Development Department was establishment in 1958. As per the policy decision taken by the government in 1978 and with a view to increase the milk production to ensure remunerative price to milk producers and provide regular supply to consumers a three tier structure of producers cooperative societies at village level, union of producers societies at district level and apex body of the district producers union at the state level have been set up on the Anand pattern followed in Gujarat State The administrative and statutory control over all the milk cooperatives in the state were transferred to the Dairy Development Department was made as the functional Registrar under the Tamil Nadu Cooperative Societies Act 53 of 1961 on 15-12-80 and the federation took over the activities of

Tamil Nadu Dairy Development Cooperation with effect from 1st February 1981. The commercial activities of department such as Milk Procurement, Processing, packing and sale of milk to the consumers etc. hitherto dealt with by the Tamil Nadu Dairy Development Co-operative Milk producers Federation Ltd.

In the wake of liberalization policy, private dairies have entered in the field of dairying. As per the direction of Honble Chief Minister of Tamil Nadu high priority has been given for improving the performance of Co-operative by adopting a systematic approach

and proper strategy implementation in Milk Co-operatives. Milk Producers Cooperative Societies, Unions and Federation in the State of Tamil Nadu have made significant achievement.

1.2 INDUSTRIAL PROFILE

Commissioner for Milk production and dairy development has been designated as the state Registering authority for the state of Tamil Nadu, under the provisions of milk products order92. All the dairy units including private dairies handling more than 10,000 LPD of milk or milk products containing milk solids in excess of 500 Metric tones per annum has to obtain registration certificate under the provision of Milk and Milk products order92. The commissioner for Milk production and Dairy development/ State Registering Authority has been conferred with powers to register the dairy units having handling capacity from 10,000 LPD to 2 lakhs LPD. The commissioner/State Registering Authority/ Deputy Milk Commissioner (Co- Operation)/ District collector and Deputy Registrar have been authorized to carry out supervision and periodic inspection of the dairies. PRIMARY DAIRY COOPERATIVES A minimum of 25 or more individuals competent to contract under section 11 of the Indian contract Act of 1872 owning milk animals can form a primary Dairy Cooperative Society, with one or more villages as its area of operation. Such person has to approach the Circle Deputy Registrar (Dairying) office functioning at the District for further guidance. The members of primary Cooperative milk society have to supply milk to the society, which will procure milk on quality basis, and they will receive milk cost once in 10 days/ 15 days from the society. Milk animals are provided with free veterinary health cover, artificial insemination and the supply of balanced cattle feed. Upgrading the milk animals and thereby improving their productivity in the long run for the benefit of the members aim at induction of farmers on modern animal husbandry practices.

FUNCTION OF DISTRICT COOPERATIVE MILK PRODUCERS UNIONS There are 17 District Cooperative Milk Producers Unions functioning in the state of Tamil Nadu covering 28 Districts. There are 16 Dairies in District Co-operative Milk Producers Unions with an installed processing capacity of 18.76 LLPD. There are 39 Chilling Centers in District Co-operative Milk Producers Union with installed chilling capacities of 11.64 LLPD respectively. Establishment of chilling centers Formation of new milk routes to collect the milk produced by the member societies Collection of milk from societies, process and pack in modern dairy plants by maintaining quality standards. Supply of quality milk to Chennai Metro under hygienic conditions. Fixation of procurement and selling price of milk Increase of liquid milk sales by introducing innovative sales promotional activities. Supply of inputs to the member societies obtained from unions. Render Veterinary Health Service and emergency service to the cattle of members of primaries. Impart training on first aid and on artificial insemination to the staff of member societies. Extending artificial insemination services to the cattle owned by the members of Milk cooperative societies. Providing milk cans, milk O testers and LN2 containers. Salem, Erode, Madurai and Dharmapuri Unions are acting as feeder balance dairies. Surplus milk in the District Unions, after meeting their local sales is Diverted to the nearest feeder balancing dairies for conversion into milk products, such as skim milk powder, butter and ghee. The three cattle feed plants at Madhavaram, Erode and Kappalur are run by the Kancheepuram-Tiruvallur Union, Erode Union, and Madurai Union respectively. The production capacity of these cattle feed plants is 100 MT per day each. The balanced cattle feed is produced in the form of pellets and mash are supplied to the members of the milk Cooperatives, live stock forms manned by the Animal husbandry Department and to various local bodies including the Corporation of Chennai.

FUNCTIONS OF FEDRATION: The Tamil Nadu Co-operative milk producers Federation limited is an apex body of 17 District cooperative milk producers unions. The federation has four dairy plants in Chennai, one at Ambattur with a capacity of 4.00 Lakh liters per day, another at Madhavaram with a capacity of 4.00 lakh liters per day. These dairies collect milk from District unions process and pack in sachets and send for sale to the consumers in and around Chennai city. The fourth dairy at Ayanavaram is engaged in the manufacture of milk products such as Yogurt, ice cream, Khova and Mysorpa. The three wings namely, 1. Carrying out the marketing of milk and milk products of the federation, Metro liquid milk marketing. 2. Metro milk product marketing. 3. Up county marketing. The product wing of the federation Located at Nadanam directly carries out marketing of the products in Chennai Metro and suburbs. The products are stored at the god won at Ambattur and distributed to the outlets. The sales of milk and milk products are being carried out through 36 parlours, 125 Franchise retail outlets (FROs), 8 wholesale dealers, 3000 retailers and 44 milk consumers Co-operative societies. Federation also caters to the needs for functions like marriages by booking special orders. Standardized milk is being sold through 217 Automatic Vending Machines and 178 FRPs to the city consumers. Milk products are also sold in certain AVMs unit. Recently, sachet milk sales are also introduced in AVMs unit. The Federation coordinates the activities of the district Union and provides technical expertise as and when required and also undertakes planning and erection, expansion and commissioning of Dairy Plants and chilling Centers of the unions on turkey basis. The Federation helps the unions in marketing there by products like skim milk powder, ghee, butter and cheese in Tamil Nadu and in other States.

ORGANISATION: The Tamil Nadu cooperative milk producers federation ltd. Constituted on the 1st February 1981 is handling the entire commercial activities of procurement, processing and marketing of milk and milk products. The federation had implemented the dairy development activities with the funds provided by the National Dairy Development Board under operation flood programmed in 24 districts and in non-operation flood. Districts Dairy Development activities are implemented by the dairy development department through budgetary support both under state/central plans. To facilitate, better administration and qualitative improvement of integrated dairy development, there are 17 districts cooperative milk producers unions covering all 28 revenue districts except Chennai. The districts covered under each cooperative milk producers union is furnished below. MILK PROCUREMENT BY UNION The normal activities of milk procurement and distribution are being attended to by the district unions However, for genetic improvement of milk animals, the federation through the two bull mother farms owned and managed by TCMPF carries out the production of frozen semen both for white cattle and black cattle. The federation also owns four dairies, One at Ambattur with a capacity of 4.00 lakh liters per day, One at Madhavaram with a capacity of 1.75 lakh liters per day, a third dairy at Sholinganallur with a capacity of 4.00 lakh liters per day. These dairies cater to the processing, packing and distribution of liquid milk in and around Chennai city. The fourth dairy, a product dairy art Ayanavaram with a capacity of 12,000 liters per day, is engaged in the manufacture of milk by- products such as Yoghurts, Ice Cream, Butter Milk and Khova. The Federation supervises and coordinates the activities of the District Unions and provides technical expertise as and when required and also undertakes planning and erection/expansion of Dairies and Chilling Centers of the unions on turnkey basis. The Federation helps the Unions in marketing their milk products like Skimmed milk powder, Ghee, Butter and Cheese both with and outside the state. TCMPF procured an average of 16.65 LLPD of milk during 1999-2000. During the current year (i.e. 2000-2001) up to December 2000 the average procurement of milk has increased to 17.00 LLPD. Keeping in view the increased cost of input and Technical Assistance needed for milk production and other expenses for maintenance of milk cattle by

the farmers, procurement price payable to milk producers was revised from 07.04.98 as follows 1.3 COMPANY PROFILE The first cooperative dairy was set up at Chennai city during the year 1927. The state dairy development department in the state was established in 1958. The first modern dairy plant with a capacity to handle 5000 liters per day of pasteurized milk was established in the year 1963 at Madhavaram near Chennai with the aid from New Zealand. A dairy to handle 50000 liters of milk per day was up at Madurai with the assistance of UNICEF in 1967. The state department for dairying started milk procurement through organized village cooperatives in the year 1962. The system consisted of supervised milking at the village level and transport of the raw milk in aluminum cans through hired transport vehicles to milk chilling plant or directly to the dairy. The farmers were paid on volume basis for the milk purchased with different price structure for cow milk and buffalo milk. The societies advanced loans to the farmers for purchase of milk animals under the five years plan of the state government a number of pasteurization plants were set up in the cooperative sector in major towns. The milk procurement during 1972 was around 0.60 LLPD against the present procurement of 15.56 LLPD. Make the organization has employed around 3300 employees, further the organization has also employed various welfare schemes in order to bring a safe and healthy environment for the employees. In addition the management also conducts yoga classes, computer training for the employees, technical training programs and recreational program in order to satisfy and they participate effectively in achieving the organizational objectives and policies. ABOUT THE DEPARTMENT Human resource starts when you know thyself which means when you know about yourself. Human Resource is which develops on usage unless like other resources. Human Resource Department is very young at TCMPF

STRUCTURE OF HR DEPARTMENT

Deputy General Manager (HR) Mr. Sivaguru

Asst. Manager (HR) Mr. Raja

Junior Asst. Mr. Arumairaj HR POLICY It is ensured that persons employed for performing the critical works, which are directly affecting the product and services quality like milk processing, packaging, purchasing and maintenance are knowledgeable, competent to carry out the job assigned and relevant records are maintained. CORE BELIEF Customs focus and an involved employee should be brought up. HR ACTIVITIES At TCMPF, the HR department mainly performs the maintenance of records relating to ISO, TQM, HACCP, and other related functions. TOTAL QUALITY MANAGEMENT TQM The elements as the name suggests are Total Quality

Management

TQM is an integrated organizational approach in delighting customer (both external and internal) by meeting their expectation on a continuous improvement in all products/process along with proper problem solving methodology. The quality management system works on eight principles. It is TQM principle applicable to ISO. They are C L I P S C F M Customer focus Leadership Involvement Process approach System approach to management Continual Improvement Factual Data Mutual beneficial supplier relationship

HACCP Hazard Analysis and critical control point: It is the food safety management system. A system, which identifies, evaluates and control hazard which are significant for food safety. PRINCIPLE OF HACCP IS: 1. Conduct a hazard analysis 2. Determine the critical control points (CCPs) 3. Establish critical limits 4. Establish monitoring procedure 5. Establish corrective actions 6. Establish verification procedures 7. Establish record keeping and documentation procedures. These documents and procedure are followed under the control of HR department.

1.3 PROBLEM STATEMENT

Financial Statement Analysis is the process of selection of information relevant to the decision under consideration from the total financial information and arranging them in a way to highlight significant relationships in order to interpret, draw inferences and conclusions. Improper management of finance affects the overall performance of the organization, even if others departments function properly. Board Responsibility and Board Structure sub-indices has only little significant effect on firm performance. But, Transparency and Disclosure subindices had no significant relationship with firm performance. Ratio analysis is one of the most useful and common method of financial statement analysis. It provides very useful conclusions about various aspects of the working of an enterprise. Ratios enable the mass of data to be summarized and simplified. Ratio analysis is an instrument for diagnosis of the financial health of an enterprise. An important theme of corporate governance is the nature and extent of accountability of people in the business, and mechanisms that try to decrease the principalagent problem and establish internal control. Every year, the Board of Directors shall conduct a self-review that the execution of duties by the Board of Directors is being applied in accordance with these Guidelines, and increase the effectiveness of the corporate governance.

1.5 NEED OF THE STUDY

1. Management of finance is more important in an organization because without which the organization cannot prosper. 2 It depicts the share holders wealth. Improper management of finance will affect the overall performance of the organization, even if others departments function properly. 3 It is essential to look at financial aspects with its own figures during the previous year and compare them to analyze for survey. 4 So this research is an effort to evaluate the financial performance of Aavin.

1.6

OBJECTIVES OF THE STUDY

Primary Objective: To study the financial performance of Aavin using various financial tools Secondary Objective: To understand the strategy of the organization To benchmark the companys performance to their competitors in order to asses a relative performance measure To predict the future performance and trends of the company To suggest the measures of the effective utilization of financial resources To analyze the profitability and solvency position of the company in the past years. To suggest to increase awareness among entrepreneurs about the various aspects of corporate governance like transparency, disclosure .etc.

1.7

SCOPE OF THE STUDY: Income and Expenditure relating to various heads are being recorded and analyzed. Revenues and expenses of five years are taken into consideration in order to record the variations occurred in those years. The various degrees of changes are being studied in depth and the possible reasons for those changes are given as interpretation

 Financial Statements such as Balance Sheet and Income statement were analyzed, comparative income statement was made. Ratios were also calculated and interpretations were made. Accountability of Board of Directors & their constituent responsibilities to the ultimate owners- the shareholders Transparency, i.e. right to information, timeliness & integrity of the information produced. Quality & competence of Directors and their track record. Checks & balances in the process of governance and Adherence to the rules, laws & spirit of codes.

CHAPTER II 2. LITERATURE SURVEY

2.1 REVIEW OF LITERATURE Citation 1: Philip Law, (2011) "Audit regulatory reform with a refined stakeholder model to enhance corporate governance: Hong Kong evidence", Corporate Governance. Description: Recent corporate scandals have resulted in a greater focus on business ethics and governance. The purpose of this study is to examine whether the existing audit regulatory framework adequately serves the legitimate interests of stakeholders. Citation 2: Zabihollah Rezaee, Kingsley O. Olibe, George Minmier, (2003) "Improving corporate governance: the role of audit committee disclosures", Managerial Auditing Journal. Description: An increasing number of earnings restatements along with many allegations of financial statement fraud committed by high profile companies (e.g. Enron, WorldCom, Global Crossing, Adelphia) has eroded the public confidence in corporate governance, the financial reporting process, and audit functions. Citation 3: Flora F. Niu, (2006) "Corporate governance and the quality of accounting earnings: a Canadian perspective", International Journal of Managerial Finance. Description: Quality of earnings is measured in two ways: the accounting-based measure of earnings management and the market-based measure of earnings in formativeness. Using firm-level corporate governance data for a sample of Canadian firms in the years 2001-2004, regression analysis explores the relation between corporate governance (including board

composition, management shareholding, shareholders' rights and the extent of disclosure of governance practices), and the quality of earnings. Citation 4: Grantley Taylor, Greg Tower, Mitchell Van Der Zahn, John Neilson, (2008) "Corporate governance determinants on Australian resource companies' financial instrument disclosure practices", Asian Review of Accounting Description: This paper seeks to investigate the corporate governance determinants of financial instrument disclosure (FID) practices of Australian listed resource firms in their annual reports for the 2005 financial year. This is an important time period to explain FID patterns for Australian resource companies leading up to formal adoption of the Australian equivalents to the International Financial Reporting Standards (IFRS). Citation 5: Joseph T. Kastantin, (2005) "Beyond earnings management: Using ratios to predict Enron's collapse", Managerial Finance Description: This paper proposes a revised analytical model for accounting professionals that can be used to evaluate the financial well being of innovative companies that rely on earnings management practices (EM) for their growth. Through an analysis of corporate governance, financial reporting standards, and ratio analysis this paper reaches the conclusion that Enron extended previously researched earnings management practices that could have been detected in early 2000. Citation 6: Allan Hodgson, Suntharee Lhaopadchan, Sitapa Buakes, (2011) "How informative is the Thai corporate governance index? A financial approach", International Journal of Accounting and Information Management

Description: Prior research, in mainly Western economies, suggests the level of corporate governance is financially important. As an emerging economy case study, the purpose of this paper is to investigate whether the Thai Institute of Directors (IOD) corporate governance index provides investors with financial information about fundamental value and arbitrage portfolio decisions, and if/how information content changes over time. Citation 7: ASLIHAN E BOZCUK, (2012) "Internet Financial Reporting: Turkish Companies Adapt to Change", Managerial Finance Description: The study finds that size, auditor and corporate governance effects, as measured by a multivariate regression analysis framework, affect the sophistication of internet financial reporting. However, in extending the analysis by running separate regressions for small and large firms, these effects prevail only for large firms. Evidence also supports the industry effect for both small and large firms. Citation 8: Lawrence P. Kalbers, (2009) "Fraudulent financial reporting, corporate governance and ethics: 1987-2007", Review of Accounting and Finance. Description: The purpose of this paper is to review, critique, and integrate certain trends, events, and research streams involving earnings management, fraudulent financial reporting, corporate governance and ethics. Citation 9: Dariusz Lesko, (2007) "Polish financial reporting principles in transition", Baltic Journal of Management,

Description: The purpose of this paper is to deal with the evolution of Polish financial reporting principles in its historical context, this providing the reader with basic understanding of what has been influencing the shape of Polish accounting rules and how they evolved from the communist times until the accession of Poland to the European Union. This in turn should help in understanding the way in which Polish corporate governance system has evolved. Citation 10: Ruth W. Epps, Tariq H. Ismail, (2009) "Board of directors' governance challenges and earnings management", Journal of Accounting & Organizational Change, Description: The purpose of this paper is to examine the relationship between corporate governance and earnings management in US context and provide further insights on the effects of board of directors' characteristics on earnings management. Researchers on Corporate governance issues often analyze one of two types of agency problems in the linkage between managers interests with shareholders interests. One type of agency problem arises when the interests of shareholders and the board of directors are aligned, but where managers interests are not aligned. That is, monitoring mechanisms, such as a commitment to timely accounting information, that is used by boards to mitigate managers incentives to act in ways that are detrimental to shareholders. The second type of agency problem arises when boards and managers interests are aligned with each other but are not completely aligned with the interests of shareholders. In these papers, management is typically believed to have substantial influence over the board of directors actions. Although there are a variety of mechanisms the firm can use to mitigate governance related agency conflicts, financial accounting system is the one which can help reduce these agency costs. In particular, we emphasize information asymmetries that exist between managers and both outside directors and shareholders. Thus, one potential role for the financial reporting system is to provide outside directors and/or shareholders with relevant and reliable information that aids in the monitoring of management and/or directors.

CHAPTER III RESEARCH METHODLOGY 3.1 RESEARCH DESIGN

Research design is the preparation of design of the research project properly. The research design followed in this study is descriptive research design. Descriptive research studies are those studies which are concerned with describing the characteristics of a particular individual or a group. 3.2 DATA ANALYSIS Analysis of data is a process of inspecting, cleaning, transforming, and modeling data with the goal of highlighting useful information, suggesting conclusions, and supporting decision making. Data analysis has multiple facets and approaches, encompassing diverse techniques under a variety of names, in different business, science, and social science domains. 3.3 LIMITATION OF THE STUDY Only 5years financial data are taken into study. No primary data is used for the study. There are various different divisions under this organization under profitability statement each division could not be obtained as it is a tedious process. The ratio used for the study subject to bias, as they suffer from the difference of opinion in the concepts used for computation. The accuracy of the analysis depends on the data collected from the financial statements. Aavin has various diversified products and therefore inter firm comparison is not possible. The project period 45 days is insufficient as the operation of Aavin are numerous and complex, hence the various areas could not be fully covered.

3.4 ANALYSIS TOOLS Ratio Analysis Fund Flow Analysis Cash Flow Analysis

3.4.1 RATIO ANALYSIS Selection of relevant information: the first step in ratio analysis is to select relevant information from financial statements and calculate appropriate ratios required for decision under consideration. Comparison of Calculated Ratios: In order to assess the relative meaning, the ratios calculated are compared with the past ratios and industry ratios. Interpretation and Reporting: The third step in ratio analysis is to interpret the significance of various ratios, draw inferences and to write a report. The report may recommend specific action in the matter of the decision situation or may present alternatives with comparative merits or it may just state the facts and interpretation. Advantages of ratios analysis:

The information shown in financial statements does not signify anything individually because the facts shown are inter-related. Hence it is necessary to establish relationship between various items to reveal significant details and throw light on all notable financial and operational aspects. Ratio analysis caters to the needs of various parties interested in financial statements. The basic objective of ratio analysis is to help management in interpretation of financial statements to enable it to perform the managerial functions efficiently. The following are the advantages of ratio analysis. Forecasting: Ratios reveal the trends in costs, sales, profits and other interrelated facts, which will be helpful in forecasting future events. Managerial Control: Ratios can be used as instrument of control regarding sales, costs and profit. Facilitates Communication: Ratios facilities the communication function of management as ratios convey the information relating to the present and future quickly, forcefully and clearly.

 Measuring Efficiency: Ratios help to know operational efficiency by comparison of present ratios with those of the past working and also with those of other firms in the industry. Facilitating investment decisions: Ratios are helpful in computing return on investment. This helps the management in exercising effective decisions regarding profitable avenues of investment. Useful in measuring financial solvency: The financial statements disclose the assets and liabilities in a format. But they do not convey relationship of various assets and liabilities with each other, whereas ratios indicate the liquidity position of the company and the proportion of borrowed funds to total resources which reveal the short term and long term solvency position of a firm. Inter firm comparisons: The technique of inter-firm comparisons can be carried out successfully only with the help of ratio analysis. Otherwise no firm may come forward to disclose full information. Inter-firm comparisons help the management to compare its performance with an external bench-mark or standard. Profitability ratios:

Profit making is the main objective of business. Aim of every business concern is to earn maximum profits in absolute terms and also in relative terms i.e., profit is to be maximum in terms of risk undertaken and capital employed. Ability to make maximum profit from optimum utilization of resources by a business concern is termed as profitability. Profit is an absolute measure of earning capacity. Profitability depends on sales, costs and utilization of resources. Profitability analysis consists of different elements i.e., study of sales, cost of goods sold, analysis of gross margin on sales, analysis of operating expenses, operating profit and analysis of profit in relation to capital employed. The following are various ratios used to analyze profitability. Overall Profitability Ratio This ratio is called Return on Investment (R.O.I) or Return on capital employed. It measures the sufficiency or otherwise of profit in relation to capital employed' Operating Profit Ratio

It is the ratio of profit made from operating sources to the sales, usually shown as a percentage. It shows the operational efficiency of the firm and is a measure of the managements efficiency in running the routine operations of the firm. Net Profit Ratio This ratio is also called net profit to sales ratio. It is a measure of managements efficiency in operating the business successfully from the owners point of view. It indicates the return on shareholders investments. Higher the ratio better is the operational efficiency of the business concern. Turnover ratios: Working capital turnover ratio

Working capital ratio measures the effective utilization of working capital. It also measures the smooth running of business or otherwise. The ratio establishes relationship between cost of sales and working capital. Capital Turnover Ratio

Managerial efficiency is also calculated by establishing the relationship between cost of sales or sales with the amount of capital invested in the business. Solvency or financial ratios:

Solvency or financial ratios include all ratios which express financial position of the concern. Financial ratios are calculated on the basis of items of the Balance Sheet. Therefore, they are also called Balance Sheet ratios. Financial position may mean differently to different persons interested in the business concern. Creditors, banks, management, investors and auditors have different views about financial position. The term financial position generally refers to short-term and long-term solvency of the business concern, indicating safety of different interested parties. Financial ratios are also analyzed to find judicious use of funds. The significant financial ratios are classified as short-term solvency ratios and long term solvency ratios.

Overall solvency: It is a ratio which relates the total tangible assets with the total borrowed funds, in a sense it is the other side of the coin for proprietary ratio. Short- term solvency ratios: Current ratio: The ratio of current assets to current liabilities is called current ratio. In order to measure the short-term liquidity or solvency of a concern, comparison of current assets and current liabilities is inevitable. Current ratio indicates the ability of a concern to meet its current obligations as and when they are due for payment. Liquid ratio: This ratio is also called Quick; or Acid test ratio. It is calculated by comparing the quick assets with current liabilities. Long term solvency ratios Fixed assets ratio: The ratio establishes the relationship between fixed assets and long-term funds. The objective of calculating this ratio is to ascertain the proportion of long-term funds invested in fixed assets. Debt equity ratio:

This ratio is ascertained to determine long-term solvency position of a company

3.4.2 FUND FLOW ANALYSIS: Fund flow analysis is the analysis of flow of fund from current asset to fixed asset or current asset to long term liabilities or vice- versa. First of all, we make fund flow statement and then study its cause and effect deeply and try to find many important facts and information which can be used in business 3.4.3 CASH FLOW ANALYSIS:

Cash flow analysis involves examining the components of your business that affect cash flow, such as accounts receivable, inventory, accounts payable, and credit terms. By performing a cash flow analysis on these separate components, you'll be able to more easily identify cash flow problems and find ways to improve your cash flow.

CHAPTER-IV DATA ANALYSIS AND INTERPRETATION PROFITABILITY RATIO: Return on investment: Return on Investment = Operating Profit Capital Employed TABLE 1: Operating Profit Year 2006-07 2007-08 2008-09 2009-10 2010-11 (Rs. in Crores)
61.91 80.54 126.18 145.63 195.31

100

Capital Employed Ratio (Rs. in Crores)

333.64 395.3 448.19 532.1 655.85 18.55 20.4 28.15 27.4 29.78

CHART 1:

700 600 500 400 300 200 100 0 200607 200708 200809 200910 201011 Operating Profit Capital Employed Ratio

Interpretation: There has been a decrease in Return on Investment in the year 2009- 2010 and increase in the year 2010-2011 with the difference in ratio of 2.4%. OPERATING RATIO Formula: Operating Ratio = Operating Profit X Sales Table 2: Operating Profit Years ( Rs. in Crores ) 2006-07 2007-08 2008-09 2009-10 2010-11
61.91 80.54 126.18 145.63 195.31

100

Sales ( Rs. in Crores )

1086.57 1157.08 1450.55 1460.94 1615.04

Ratios
5.7 7.0 8.7 10.0 12.1

Chart 2:

1800 1600 1400 1200 1000 800 600 400 200 0 200607 200708 200809 200910 201011 Operating Profit Sales Ratios

Interpretation: The Operating ratios are increasing due to increase in Operating Profit.

Net Profit Ratio: Formula: Net Profit Ratio = Net Profit after Tax Net Sales Table 3: Net Profit After Tax Year (Rs. In Crores) 2006-07 2007-08 2008-09 2009-10 2010-11
45.88 82.49 98.55 182.92 155.78

100

Net Sales Ratio (Rs. In Crores)

1086.57 1157.08 1450.55 1460.94 1615.04 4.22 7.13 6.8 12.52 9.65

Chart 3:

1800 1600 1400 1200 1000 800 600 400 200 0 2006- 2007- 2008- 2009- 201007 08 09 10 11 Net Profit After Tax Net Sales Ratio

Interpretation: This ratio has shown an upward trend hence the ratio is decreasing in the year 20102011 in which affects operational efficiency on the business concern. TURN OVER RATIO: Working capital turnover ratio: Formula: Working Capital Turnover Ratio = Net Sales Work Capital Table 4: Sales Year (Rs. In Crores) 2006-07 2007-08 2008-09 2009-10
1086.57 1157.08 1450.55 1460.94

Net Working Capital Ratio (Rs. In Crores)

149.96 142.3 185.06 163.34 7.245 8.13 7.84 8.94

2010-11

1615.04

203.46

7.94

Chart 4:

1800 1600 1400 1200 1000 800 600 400 200 0 2006- 2007- 2008- 2009- 201007 08 09 10 11 Sales Net Working Capital Ratio

Interpretation: The ratio is increasing and decreasing as it shows that there is instability in investment in Work Capital. Capital Turnover Ratio: Formula: Capital Turnover Ratio = Sales Capital Employed Table 5: Sales Years (Rs. In Crores) 2006-07 2007-08 2008-09
1086.57 1157.08 1450.55

Capital Employed Ratio (Rs. In Crores)

333.64 395.3 448.19 3.26 2.93 3.24

2009-10 2010-11

1460.94 1615.04

532.1 655.85

2.75 2.46

Chart 5

1800 1600 1400 1200 1000 800 600 400 200 0 200607 200708 200809 200910 201011 Sales Capital Employed Ratio

Interpretation: As this ratio has been increasing and decreasing alternatively it shows the effective and ineffective usage of capital. Fixed Asset Turnover Ratio: Formula: Fixed Asset Turnover Ratio = Cost of Sales Net Fixed Asset Table 6:

Cost of Sales Years (Rs. In Crores) 2006-07 2007-08 2008-09 2009-10 2010-11
1086.57 1157.08 1450.55 1460.94 1615.04

Net Fixed Asset Ratio (Rs. In Crores)

225.33 225.65 283.07 301.57 364.24 4.82 5.13 5.12 4.84 4.43

Chart 6:

1800 1600 1400 1200 1000 800 600 400 200 0 200607 200708 200809 200910 201011 Cost of Sales Net Fixed Asset Ratio

Interpretation: The Ratio shows a declining trend from 2006-2007; it signifies that the firm has an excessive investment in Fixed Asset. Current Asset Turnover Ratio: Formula: Current Asset Turnover Ratio = Net Sales Current Asset

Table 7: Net Sales Years (Rs. In Crores) 2006-07 2007-08 2008-09 2009-10 2010-11
1086.57 1157.08 1450.55 1460.94 1615.04

Current Assets Ratio (Rs. In Crores)

387.66 384.41 465.14 463.98 500.28 2.80 3.01 3.12 3.15 3.23

Chart 7:

1800 1600 1400 1200 1000 800 600 400 200 0 200607 200708 200809 200910 201011 Net Sales Current Assets Ratio

Interpretation: There has been an increase in current asset turnover because an absolute figure of Net Sales has gone up.

Total Asset Turnover Ratio: Formula:

Total Asset Turnover Ratio = Net Sales Total Assets

Table 8: Net Sales Years (Rs. In Crores) 2006-07 2007-08 2008-09 2009-10 2010-11
1086.57 1157.08 1450.55 1460.94 1615.04

Total Assets Ratio (Rs. In Crores)

612.96 610.06 748.21 765.55 864.52 1.77 1.9 1.94 1.91 1.87

Chart 8:
1800 1600 1400 1200 1000 800 600 400 200 0 2006-07 2007-08 2008-09 2009-10 2010-11 Net Sales Total Assets Ratio

Interpretation: The ratio has been increasing and decreasing, it shows that the firm has an excessive investment in Fixed Asset and Current Asset.

Inventory Turnover Ratio: Formula: Inventory Turnover Ratio = Net Sales

Inventory

Table 9: Net Sales Years (Rs. In Crores) 2006-07 2007-08 2008-09 2009-10 2010-11
1086.57 1157.08 1450.55 1460.94 1615.04

Inventory Ratio (Rs. In Crores)

97.11 105.47 149.8 165.72 205.8 11.19 10.97 9.7 8.82 7.85

Chart 9:
1800 1600 1400 1200 1000 800 600 400 200 0 2006-07 2007-08 2008-09 2009-10 2010-11 Net Sales Inventory Ratio

Interpretation: The Inventory Turnover Ratio is in decreasing trend, a high ratio is good around the viewpoint of liquidity.

SOLVENCY RATIO: Total Debt Ratio: Formula:

Total Debt Ratio =

Total Debt Total Tangible Asset

Table 10: Total Debt Years 2006-07 2007-08 2008-09 2009-10 2010-11 (Rs. In Crores)
262.19 215.64 229.66 244.3 206.45

Total Tangible Assets (Rs. In Crores)

387.66 384.41 465.14 463.98 500.28

Ratio
0.68 0.568 0.5 0.53 0.41

Chart 10:
600 500 400 300 200 100 0 2006- 2007- 2008- 2009- 201007 08 09 10 11 Total Debt Total Tangible Assets Ratio

Interpretation: Total Debt Ratio has been decreasing which indicates lower risk, because higher ratio indicates greater risk and lower safety to the owners.

Short Term Solvency Ratios:

Current Ratio: Formula: Current Ratio = Current Assets Current Liabilities

Table 11: Current Asset Years 2006-07 2007-08 2008-09 2009-10 2010-11 (Rs. In Crores)
387.66 384.41 465.14 463.98 500.28

Current Liabilities (Rs. In Crores)

237.7 242.11 280.08 300.64 296.82

Ratio
1.63 1.59 1.66 1.54 1.69

Chart 11:
600 500 400 300 200 100 0 200607 200708 200809 200910 201011 Current Asset Current Liabilities Ratio

Interpretation:

This ratio has been increasing and decreasing alternatively over the year. Internationally accepted ratio is 2:1. This ratio indicates that the concern is in good position.

Liquid Ratio: Formula: Liquid Ratio = Liquid Assets Current Liabilities

Table 12: Liquid Asset Years 2006-07 2007-08 2008-09 2009-10 2010-11 (Rs. In Crores)
290.55 278.94 315.34 298.26 294.48

Current Liabilities (Rs. In Crores)

237.7 242.11 280.08 300.64 296.82

Ratio
1.22 1.15 1.12 0.99 0.99

Chart 12:
350 300 250 200 150 100 50 0 200607 200708 200809 200910 201011 Liquid Asset Current Liabilities Ratio

Interpretation: Liquid Ratio is considered to represent a satisfactory current financial condition. It is an ideal ratio for the concern. Long-Term Solvency Ratios: Fixed Asset Ratio: Formula: Fixed Asset Ratio = Fixed Asset Long-Term Funds Table 13: Fixed Asset Years 2006-07 2007-08 2008-09 2009-10 2010-11 (Rs. In Crores)
225.33 225.65 283.07 301.57 364.24

Long Term Funds (Rs. In Crores)

333.64 395.3 448.19 532.1 655.85

Ratio
0.67 0.57 0.63 0.56 0.55

Chart 13:
700 600 500 400 300 200 100 0 200607 200708 200809 200910 201011 Fixed Asset Long Term Funds Ratio

Interpretation:

The ratio is less than 1. It indicates that a portion of Working Capital has been financed by long-term funds.

Debt-Equity Ratio: Formula: Debt-Equity Ratio = External Equities

Internal Equities Table 14:

External Equities Years 2006-07 2007-08 2008-09 2009-10 2010-11 (Rs. In Crores)
262.19 215.64 229.66 244.3 206.45

Internal Equities (Rs. In Crores)

333.64 395.3 448.19 532.1 655.85

Ratio
0.78 0.54 0.51 0.46 0.31

Chart 14:

700 600 500 400 300 200 100 0 200607 200708 200809 200910 201011 External Equities Internal Equities Ratio

Interpretation: It depicts the long-term solvency position of the company. The ideal debt equity ratio is 1. Return on Net worth: Formula: Return on Net worth = PAT

Net worth Table 16: PAT Years 2006-07 2007-08 2008-09 2009-10 2010-11 (Rs. In Crores)
45.88 82.49 98.55 182.93 155.78

Net Worth (Rs. In Crores)

333.65 395.3 448.19 532.1 655.85

Ratio
13.75 20.86 21.98 34.37 23.75

Chart 16:

700 600 500 400 300 200 100 0 2006-07 2007-08 2008-09 2009-10 2010-11 PAT Net Worth Ratio

Interpretation:

It shows the relationship between the share capital and profit after tax. It shows a decreasing profit in the year 2010-2011 and difference in the ratio is 10.63 . Comparative Income Statement for the year ended 2006 to 2011 Particulars Income Sales 1086.57 1157.08 26.98 1184.06 1450.55 18.17 1468.72 1460.94 34.07 1495.01 1615.04 66.74 1681.78 2006-07 2007-08 2008-09 2009-2010 2010-2011

Other Income 15.48 Total Expenditure Material Cost 657.15 Employee Cost 71 Other Cost Depreciation Interest Total Profit 268.63 28.17 15.19 1040.14 61.91 1102.05

727.62 86.15 247.66 29.6 12.49 1103.52 80.54

888.71 86.27 313.69 37.81 16.06 1342.54 126.18

888.92 97.31 301.41 48.56 13.18 1349.38 145.63

976.72 115.07 359 50.39 11.29 1512.47 169.31

2000 1500 1000 500 0 2006-07 2007-08 2008-09 2009-2010 2010-2011

Interpretation: The profit of the company has been increasing as the income is more than that of the expenditure. Comparative Income Statement for the year ended 2006-07

Particulars Income Sales Other Income Total Expenditure Material Cost Employee Cost Other Cost Depreciation Interest

2006

2007

Increase/Decrease

Percentage

1074.47 4.36 1078.83

1086.57 15.48 1102.05

12.1 11.12 23.22

1.12 255.0458716 2.152331693

537.12 75.03 368.14 27.8 15.38

657.15 71 268.63 28.17 15.19

120.03 -4.03 -99.51 0.37 -0.19

22.34696157 -5.371184859 -27.03047754 1.330935252 -1.235370611

Total Profit

1023.47 55.36

1040.14 61.91

16.67 6.55

1.628772705 11.8316474

Comparative Income Statement for the year ended 2006-07

1500 1000 500 0 Income Sales 2006 2007 Mater Expen Emplo Depre Other Other Interest Profit Total Total Increase/Decrease Percentage

Interpretation: In 2006-2007, there was an increase in profit due to decrease in expenses; there was a decrease other expense of 27.03% Comparative Income Statement for the year ended 2007-08

Particulars Income Sales Other Income Total Expenditure Material Cost Employee Cost

2007

2008

Increase/Decrease

Percentage

1086.57 15.48 1102.05

1157.08 26.98 1184.06

70.51 11.5 82.01

6.48 74.28 7.44

657.15 71

727.62 86.15

70.47 15.15

10.72 21.3

Other Cost Depreciation Interest Total Profit

268.63 28.17 15.19 1040.14 61.91

247.66 29.6 12.49 1103.52 80.54

-20.97 1.43 -2.7 63.38 18.63

-7.80 5.076 -17.77 6.09 30.09

Comparative Income Statement for the year ended 2007-08

1200 1000 800 600 400 200 0 Income Expenditure

2007 2008

Other Income

Material Cost

Employee Cost

Interest

Other Cost

Depreciation

Profit

Sales

Total

Total

Increase/Decrease Percentage

Interpretation: In 2007-2008 the profit has been increased due to increase in other income of about 74.29% and decrease in other expenses of about 7.81% Comparative Income Statement for the year ended 2008-09

Particulars Income Sales Other Income

2008

2009

Increase/Decrease

Percentage

1157.08 26.98

1450.55 18.17

293.47 -8.81

25.36 -32.65

Total Expenditure Material Cost Employee Cost Other Cost Depreciation Interest Total Profit

1184.06

1468.72

284.66

24.04

727.62 86.15 247.66 29.6 12.49 1103.52 80.54

888.71 86.27 313.69 37.81 16.06 1342.54 126.18

161.09 0.12 66.03 8.21 3.57 239.02 45.64

22.13 0.13 26.6 27.73 28.58 21.65 56.66

Comparative Income Statement for the year ended 2008-09

1500 1000 500 Employee 0 2008 2009

Income

Other Income

Material Cost

Expenditure

Other Cost

Interest

Depreciation

Profit

Sales

Total

Total

Increase/Decrease Percentage

Interpretation: In 2008-2009 the profit has been increased due to overall increase in sales of about 25.36% and decrease in the other income of 32.6% Comparative Income Statement for the year ended 2009-10

Particulars Income Sales Other Income Total Expenditure Material Cost Employee Cost Other Cost Depreciation Interest Total Profit

2008

2009

Increase/Decrease

Percentage

1157.08 26.98 1184.06

1450.55 18.17 1468.72

293.47 -8.81 284.66

25.36 -32.65 24.04

727.62 86.15 247.66 29.6 12.49 1103.52 80.54

888.71 86.27 313.69 37.81 16.06 1342.54 126.18

161.09 0.12 66.03 8.21 3.57 239.02 45.64

22.13 0.13 26.66 27.73 28.58 21.65 56.66

Comparative Income Statement for the year ended 2009-10

2000 1500 1000 500 0

2009 2010 Employee

Income

Expenditure

Material Cost

Other Income

Interest

Other Cost

Depreciation

Profit

Sales

Total

Total

Increase/Decrease Percentage

Interpretation:

In 2009-2010 there was an increase in profit due to huge increase in other income of about 87.86% Comparative Income Statement for the year ended 2010-11

Particulars Income Sales Other Income Total Expenditure Material Cost Employee Cost Other Cost Depreciation Interest Total Profit

2010

2011

Increase/Decrease

Percentage

1460.94 34.07 1495.01

1615.04 66.74 1681.78

154.1 32.67 186.77 0

10.54 95.89 12.49

888.92 97.31 301.41 48.56 13.18 1349.38 145.63

976.72 115.07 359 50.39 11.29 1512.47 169.31

87.8 17.76 57.59 1.83 -1.89 163.09 23.68

9.87 18.25 19.10 3.76 -14.33 12.08 16.26

Comparative Income Statement for the year ended 2010-11

2000 1500 1000 500 0

2010 2011 Employee

Income

Other Income

Material Cost

Expenditure

Interest

Other Cost

Depreciation

Profit

Sales

Total

Total

Increase/Decrease Percentage

Interpretation: In 2010-2011 there was a increase in profit due to increase in other income of about 95.9% and decrease in the interest of 14.3%. 4.2 FUND FLOW ANALYSIS Fund flow analysis is the analysis of flow of fund from current asset to fixed asset or current asset to long term liabilities or vise- versa. First of all, we make fund flow statement and then study its cause and effect deeply and try to find many important facts and information which can be used in business. It can also solve following problems.

Cash Debtors Stock Land Plant Furniture TOTAL ASSETS

$130,000 $100,000 $235,000 $540,000 $2,804,000 $210,000 $4,019,000

$40,000 $160,000 $255,000 $1,020,000 $3,544,000 $210,000 $5,229,000

Creditors Provision for Dividend Debentures Equity Capital Profit & Loss a/c TOTAL LIABILITIES AND OWNERS EQUITY

$319,000 -

$365,000 $200,000

$3,600,000 $100,000 $4,019,000

$535,000 $4,000,000 $129,000 $5,229,000

Solution:

Step 1: Statement of changes in working capital

Increase

Decrease

Cash

$130,000

$40,000

$90,000

Debtors

$100,000

$160,000

$60,000

Stock

$235,000

$255,000

$20,000

Total Current assets(A)

$465,000

$455,000

Creditors

$319,000

$365,000

$46,000

Total current liabilities(B)

$319,000

$365,000

Working capital(A)-(B)

$146,000

$90,000

Release/Decrease in WC

$56,000

$56,000

$146,000

$146,000

$136,000

$136,000

Step 2: Statement of Sources and Application of funds

Sources

Applications

Funds from Trading operations (incl.prov.for dividend)

$229,000

Purchase of land

$480,000

Issue of equity capital

$400,000

Purchase of plant $740,000

Issue of debentures

$535,000

Decrease in Working capital

$56,000

$1,220,000

$1,220,000

4.3 CASHFLOW ANALYSIS Cash flow analysis involves examining the components of your business that affect cash flow, such as accounts receivable, inventory, accounts payable, and credit terms. By performing a cash flow analysis on these separate components, you'll be able to more easily identify cash flow problems and find ways to improve your cash flow

Values Used Update Default in model 1 2 3 Price Per CWT CWT Per Cow Herd Size Dairy Sample Data PER INCOME 4 5 Milk Total Income EXPENSES Default Values Feed Update Per cow 6 Hay 780,000 0.49 130 3.48 $130 AMOUNT $22,407,600 $22,407,600 CWT $14.20 $14.20 PER COW PERCENT $3,735 $3,735 100.00 100.00 14.20 263.00 6,000.00 14.20 263.00 6,000.00

7 8 9 10

Silage DDG - Gluten SBM - Soybest Grain Other Feed -

2,352,000 588,000 852,000 858,000

1.49 0.37 0.54 0.54

392 98 142 143

10.50 2.62 3.80 3.83

$392 $98 $142 $143

11

Supplements Total Feed

1,452,000

0.92

242

6.48

$242

12

Expenses Herd Replacement Cost Depreciation - Dairy

$6,882,000

$4.36

$1,147

30.71

13 14

Cows Other Costs Total Herd

1,398,000 648,000

0.89 0.41

233 108

6.24 2.89

$233 $108

15

Replacement Cost Other Operating Expenses

$2,046,000

$1.30

$341

9.13

16 17 18 19 20 21

Interest and Rent Labor plus Benefits Depreciation Other Milk Hauling Industry Assessments Supplies Repair and

1,248,000 1,925,000 918,000 402,000 252,000 1,002,000

0.79 1.22 0.58 0.25 0.16 0.63

208 321 153 67 42 167

5.57 8.59 4.10 1.79 1.12 4.47

$208 $321 $153 $67 $42 $167

22

Maintenance

870,000

0.55

145

3.88

$145

23 24 25 26

Utilities Taxes and Licences Insurance Fuel and Oil Legal and

348,000 264,000 258,000 303,500

0.22 0.17 0.16 0.19

58 44 43 51

1.55 1.18 1.15 1.35

$58 $44 $43 $51

27

Accounting Veterinary and

144,000

0.09

24

0.64

$24

28

Breeding Testing and

516,000

0.33

86

2.30

$86

29 30 31

Trimming Hauling Livestock Miscellaneous Total Other

156,000 36,000 72,000

0.10 0.02 0.05

26 6 12

0.70 0.16 0.32

$26 $6 $12

32 33 34

Expenses Total Expenses NET INCOME Value Added Depreciation - Dairy

$8,714,500 $17,642,500 $4,765,100

$5.52 $11.18 $3.02

$1,452 $2,940 $794

38.89 78.73 21.27

35 36 37 38 39

Cows Labor plus Benefits Depreciation - Other Taxes and Licences Total Net Income

1,398,000 1,925,000 918,000 264,000 9,270,100

6.24 8.59 4.10 1.18 41.37

CHAPTER V CORPORATE GOVERNANCE Corporate governance is the set of processes, customs, policies, laws, and institutions affecting the way a corporation (or company) is directed, administered or controlled. Corporate governance also includes the relationships among the many stakeholders involved and the goals for which the corporation is governed. In simpler terms it means the extent to which companies are run in an open & honest manner Corporate governance has three key constituents namely: the Shareholders, the Board of Directors & the Management. Other stakeholders include employees, customers, creditors, suppliers, regulators, and the community at large. The concept of corporate governance identifies their roles & responsibilities as well as their rights in the context of the company. It emphasizes accountability, transparency & fairness in the management of a company by its Board, so as to achieve sustained prosperity for all the stakeholders Good corporate governance is integral to the very existence of a company. It is important for the following reasons: Shareholders Meetings: The Shareholders Meeting is the supreme decision-making body, which consisted of shareholders with voting rights, and must appropriately reflect their views. The Company shall determine the date and venue of Shareholders Meetings so that more of the shareholders will be able to attend and reflect the views of all shareholders. In order to develop a relationship of trust with shareholders, Directors and Executive Officers shall provide sufficient explanations and a question and answer session at Shareholders Meetings Shareholders Voting Rights As the exercise of voting rights in the Shareholder Meetings is the right of all shareholders, the Company will endeavor to enable all shareholders to exercise their voting rights appropriately. In order to enable shareholders to execute their voting rights appropriately, the Company shall promptly send the notice of the resolutions of the Shareholders Meeting, the reference materials, etc., and ensure that there is sufficient time to consider such content.

 The Company will facilitate circumstances where not only the shareholders who attend the Shareholder Meetings but all shareholders are able to exercise their voting rights appropriately. Shareholders Protection: In order to protect shareholders' rights, the Company will appropriately disclose to shareholders the information related to the allocation of new shares to particular third parties, etc., or changes to the Company's shareholder composition or actions for the purpose of such changes in the future appropriately. Returns to Shareholders: As the right to receive distribution of profits is a right of the shareholders, the Company will decide on and announce the basic policy related to the shareholder returns including dividends. Dividends will be resolved upon at the Board of Directors Meetings in accordance with the Articles of Incorporation, and such dividends are to be carried out flexibly.

Relations with Stakeholders The Company will endeavor to respect and maintain favorable and smooth relations with important stakeholders described in the Articles of Incorporation including patients, customers, shareholders and employees, with the view to enhance long-term corporate value. Ensuring Shareholder Equality: The Company will treat each shareholder with equality based on equity stake. The Company will not provide any special benefits including property benefits to any particular shareholder

Employees Protection: The Company's corporate Philosophy is to give first thought to Employees and their families, and to increase their benefits that health care provides. Under this Philosophy, the Company endeavors to become a Dairy Development company The Company's mission is the enhancement of Employees satisfaction. The Company believes that revenues and earnings will be generated as a consequence of the fulfillment of the mission. The Company places importance on this positive sequence of the mission and the ensuing results.

The Company's principal stakeholders are employees, customers, shareholders .The Company endeavors to develop a good relationship with stakeholders and to enhance their value through making the following efforts: (1)Satisfying unmet needs, ensuring stable supply of high quality products, and providing useful information of safety and efficiency. (2)Timely disclosure of corporate management information, enhancement of corporate value, and proactive return to shareholders. (3)Ensuring stable employment, offering challenging and fulfilling duties, and providing full opportunities for the development and enhancement of employees' capabilities. Internal Control: The fulfillment of internal control of the whole Company group is an important element in obtaining the trust of shareholders. Based on the Companies Act, the Board of Directors shall determine the rules related to the necessary items for the execution of the Audit Committee's duties and the rules related to the maintenance of a system to ensure that the execution of the duties of the Executive Officers conforms to the laws and the Articles of Incorporation and a system necessary to ensure the appropriateness of other business. Based on the resolutions of the Board of Directors related to internal control, the Executive Officers shall maintain a system necessary for compliance with laws and ethics, the efficacy and efficiency of business and the reliability of financial reports, and make such a system effectively work.

Accounting Auditors: The Accounting Auditors shall ensure the reliability of financial statements and they have an important role in realizing the better corporate governance. The independence of the Accounting Auditors from the Company shall be ensured. The Accounting Auditors shall conduct systematic management for the quality control of auditing. The Audit Committee shall confirm ensuring of the Accounting Auditors' independence, and the systematic management for the quality control of auditing.

Disclosure and Transparency: The Company will actively, timely and in an appropriate manner disclose to shareholders important information related to management, regardless of whether the content is positive or negative. The Company will determine the disclosure policy for important information related to management, etc., and facilitate such system. The company shall disclose information intelligibly and through a variety of methods which enable shareholders to access easily. The Company will develop a relationship of trust and enhance communications with shareholders by establishing a enquiries contact point, etc.

Field Performance: Field Performance-Recording Programme is being implemented by the Federation with the financial assistance of Government of India through the Tamilnadu Livestock Development Agency, for production of crossbred bulls required for breeding of milk animals belonging to Milk Producers. Under this Programmed, high yielding cows are identified and screened for diseases. Then a set of cows free from diseases are selected and impregnated by way of Artificial Insemination and on calving their milk yield is recorded. Among them, the high yielding cows based on the milk recording are selected as Bull Mothers for production of cross bred bulls. Primary Society: For registering a Primary Milk Producers' Cooperative Society, at least 25 persons residing in the area of operation of the proposed society who own at least one milch animal each and agree to sell milk to society may join together and apply to Deputy Registrar (Dairying) of the District. The proposed society complies with the requirements of sound business. The proposed bye-law is in accordance with 1983 Tamilnadu Cooperative Societies Act and 1988 Tamilnadu Cooperative Societies Rules.

Compliance Report: Clause 49 of the listing agreement: SEBI revise Clause 49 of the Listing Agreement pertaining to corporate governance vide circular date October 29th, 2004, which superseded all other earlier circulars issued by SEBI on this subject. All existing listed companies were required to comply with the provisions of the new clause by 31st December 2005 Annual Compliance Report on Corporate Governance:
Name of the Company: AAVIN Particulars Clause of Listing Agreement 49I 49I(A) Compliance Status Yes/No Remarks

1. Board of Directors (A) Composition of Board

No

(B) Non-Executive Directors Compensation & disclosures

49I(B)

N.A

CMD, 3 functional directors, 2 official part-time directors(independent directors)remained on the board during entire year. Five more vacancies of independent Directors to be filled, considering the post of director (operations) also to be filled which is presently vacant. AAVIN, being a Govt .company within the meaning of section 617 of the companies act, 1956, the power to the appoint functional/Official Part-time Directors/non official parttime Directors independent directors vests with the president of India. The details of such appointment will be informed accordingly. The Non-Executive Independent Directors are paid sitting fees. The sitting fees paid is within the limits prescribed under the companies Act, 1956.

(C) Other provisions as to Board and Committees (D) Code of Conduct

II. Audit Committee

49I(C) 49I(D) 49II 49II(A)

Yes Yes

(A) Qualified & Indpendent Audit Committee

(B) Meeting of Audit Committee (C) Powers of Audit Committee (D) Roles of Audit Committee

49II(B) 49II(C) 49II(D) Director(Finance ) /CFO are appointed by the Administrative through public enterprise selection Board.

(E) Review of Information by Audit committee

III. Subsidiary Companies

49II(E) 49III N.A As on Date , AAVIN has many subsidiary companies wholly owned as:

1. AAVIN Madavaram 2. AAVIN Sholinganallur 3. AAVIN Ambathur

IV. Disclosures 49IV 49IV(A) 49IV(B) 49IV(C)

(A) Basis of related party transactions (B) Disclosure of Accounting Treatment (C) Board Disclosures

Yes Yes Yes

Contractual provisions for timely execution of the projects / Schemes are in place To ensure the timely completion of the projects necessary steps are discussed at project review meeting and at higher levels and implemented. The Enterprise risk management frame work and internal control framework for CFO certification in Compliance with Clause 49 of the listing agreement.

(D) Proceeds from public issues,rights,issues,preferential issues etc. (E) Remuneration of Directors (F) Management (G) Shareholders
V. CEO/CFO Certification

49IV(D)

Yes

49IV(E) 49IV(F) 49IV(G) 49V

Yes Yes Yes Yes

For the financial Year 2010-

2011 VI Report on Corporate Governance VII Compliance 49VI 49VII Yes Yes

For and On behalf of AAVIN Date: April 2011

CHAPTER VI FINDINGS, SUGGESTIONS AND CONCLUSION 5.1 FINDINGS: Company sales figures indicating regular increase from the financial year 2006 to 2011. This shows that the company had the growth rate in the long run. Net profit was satisfactory there is a increase in the profit from the financial year 2006 to 2011 The interest rate has been decreasing in the financial year from 2007 to 2011 which is a positive sign. In 2007 to 2008 there was a greater increase in profit when compare to the 2006 to 2007 There has been an efficient utilization of current assets which is well known from the current assets turnover ratio The current Ratio of the company is almost near to 2%, so that the creditors will be able to get their dues in full. The Customer complaints was redressed within 24 hours Consumer Care & Support Cell located at 2, Pasumpon Muthuramalingam Road , Nandanam and also through its 24 Zonal Marketing Offices in different parts of the city. The complaints was registered in Consumer Care & Support Cell at the toll free telephone number 1800 4253300. Aavin is strictly enforcing Quality Assurance in milk and milk products starting from primary level and product upto consumer level with well developed ISO and HACCP system procedure.

 The Federation expects the customers to bring to the notice of the following office/officers on any irregularity taking place, discourteous service of employees of the Federation in the distribution system

5.2 SUGGESTIONS Working capital management is not up to expected level. It needs to be improved by effective utilization and control of current assets. Concentration in realization of revenues will generate more internal funds which will enable the company to have more working capital. The company should take steps to increase its reserve & surplus in order to must demand on funds during the emergency period. Incentive schemes and other motivating factors need to be introduced to steep the moral of the management personnel. There must be an effective utilization of fixed assets to achieve better profitability. To provide the corporates desired level of comfort in compliance with the code, principles and requirements of corporate governance; as well as provide relevant information to all stakeholders regarding the performance, policies and procedures of the company in a transparent manner. There should be proper financial and nonfinancial disclosures by the companies, such as, about remuneration package, financial reporting, auditing, internal controls, etc. Governance must mitigate the agency cost and other expenses. Large Investors and legal protection should appear to be necessary when there is an decrease in the profit. Establish internal control and recognize the rights of the Stakeholders Responsibility of Financial Reporting should be be duly endorsed by CEO and CFO and Secretarial compliance certificate should be provided with annual return.

5.3 CONCLUSION It is concluded from the above study done on Aavin, its financial position is satisfactory but in financial year 2009 the profit has been decreased a little, other than that the profit has been increasing when compared to the previous years. The company shall definitely do better if they consider the findings and suggestions accordingly necessitate taking into accounts the stakeholders interest in every business decision. . As finance is the life blood of any organization, it is of vital importance that immediate attention has to be given and necessary actions to be taken care.

APPENDIX BALANCE SHEET: Balance Sheet as at March 31, 2006-2007

Sources of Funds

Sch No.

Rupees in Crores As at 31.03.2006

Shareholder's Funds Share Capital Reserve & Surplus Net Profit Loan & Funds Secured 3 490.69 932.12 Application of Funds Fixed Assets Gross Block Less : Depreciation 5 225.30 27.80 1 2 333.64 61.91 45.88

Net Book Value Current Assets, Loans & Advances Inventory 7

197.53

97.11 387.66

Others Total debts 262.19 746.96 Current Liabilities & Provisions Liabilities Net Current Assets 11 237.70 509.26 ---------932.12 ----------

Balance Sheet as at March 31, 2007-2008

Sources of Funds

Sch No.

Rupees in Crores. As at 31.03.2007

Shareholder's Funds Share Capital Reserve & Surplus Net Profit Loan & Funds Secured 3 100.13 658.46 Application of Funds Fixed Assets Gross Block Less : Depreciation 5 225.65 29.60 1 2 395.30 80.54 82.49

Net Book Value Current Assets, Loans & Advances Inventory 7

195.05

105.47

Others Total debts

384.41 215.64 705.52

Current Liabilities & Provisions Liabilities Net Current Assets 11 242.11 463.41 658.46

Balance Sheet as at March 31, 2008-2009

Sources of Funds

Sch No.

Rupees in Crores. As at 31.03.2008

Shareholder's Funds Share Capital Reserve & Surplus Net Profit Loan & Funds Secured 3 136.87 809.78 1 2 448.19 126.18 98.55

Application of Funds Fixed Assets Gross Block Less : Depreciation 5 283.07 37.81

Net Book Value Current Assets, Loans & Advances Inventory 7

245.26

149.80

Others Total debts

465.14 229.66 844.60

Current Liabilities & Provisions Liabilities Net Current Assets 11 280.08 564.52

809.78

Balance Sheet as at March 31, 2009-2010

Sources of Funds

Sch No.

Rupees in Crores. As at 31.03.2009

Shareholder's Funds

Share Capital Reserve & Surplus Net Profit

1 2

532.10 245.63 182.92 977.24

Application of Funds Fixed Assets Gross Block Less : Depreciation 5 301.57 48.56

Net Book Value Current Assets, Loans & Advances Inventory 7

253.01

165.72

Others Total debts

463.98 244.30

874.00 Current Liabilities & Provisions Liabilities Net Current Assets Miscellaneous 11 300.64 573.36 150.87 977.24

Balance Sheet as at March 31, 2010-2011

Sources of Funds

Sch No.

Rupees in Crores. As at 31.03.2009

Shareholder's Funds Share Capital Reserve & Surplus Net Profit 1 2 655.85 195.31 155.78 1006.94

Application of Funds Fixed Assets Gross Block Less : Depreciation 5 364.24 50.35

Net Book Value Current Assets, Loans & Advances Inventory 7

313.89

205.80

Others Total debts

500.28 206.45 912.53

Current Liabilities & Provisions

Liabilities Net Current Assets Miscellaneous

11

296.82 615.71 77.34 1006.94

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