Analyzing Financial Performance

Of
SUDHA

A Project Report
Under the guideline of

Birendra Kr. (Asst. General

Manger)
Submitted by
Sweta Raj

In partial fulfilment of the requirement

For the award of the degree
Of
MBA
In
Finance

Acknowledgement
First I would like to thank the Almighty God with his blessing; I
have completed this report successfully. It was a big challenge
in completing this report as part of MBA program. I would also
like to thank my guardian, without whom this effort would have
been worth nothing. Their love, support and patience have
taught me about sacrifice, discipline and compromise.
I would like to express my gratitude to my respectable
supervisor Mr. Birendra kumar, Asst. General Manager (A/C)
COMPFED, Patna for his continuous support, inspiration and
greatly appreciation to prepare this internship report on
Analyzing Financial Performance of Sudha. Preparing
this report was a valuable experience for me. It acts as a
window to the real life practice.
This report is combined effort of all and without their
participation it would have been so difficult for me to complete
it in short time.
Finally, I would like to thank all others whose strong supports
make me able to complete this report.

Bonafide Certificate

Certified that this project report title

Analyzing Financial
Performance of Sudha
Is the bonafide work of
Sweta Raj
who carried out project work under my
supervision.

Signature

Signature

Head of the department

Factuality In charge

Executive Summary
The training at Bihar State Milk Co-operative Federation LTD
(SUDHA) In Patna helped me gain the practical experience and the study
conducted by mecenters around the importance and position of different dairy
industries.
A thriving dairy sector is of vital importance to every person specially farmers.
It provides milk, Ghee, Cheese other products to every person. It provides a
source of income to rural and urban enterprises and productive individuals and
also a way for the farmers to make their living standard high. During my
summer training in COMPFED (SUDHA)
, the basic focus of my training was on financial statement of SUDHA. Under
this project I had to find out the different players carrying on business of liquid
milk in Bihar and also their market share in the same region. After that we had
to make comparative analysis so that we can recommend suggestion to the
SUDHA to increase its share in the market in Bihar. The training was quite a
comprehensive one in itself; it helped us to have the knowledge in the
following

Table of Contents

Chapter
no.

Title
Introduction

1.

2.

3.

4.

5.

Page
no.

1.1 Background of study

1.2 Background of Company
1.3. Significance of the Report
1.4. Scope of the Report
1.5. Objectives of the Report
1.6. Methodology
1.7. Limitations
Literature review

7
8
9
9
9
10
12

2.1 Company Profile

2.2 Products
2.3 Marketing
2.4
Plants
2.5
Procurements
2.6
Sudha in India
2.7
Organisational Structure
2.8
Mission, vision, Objective
2.9
Corporate Focus
Theoretical Aspects

14
18
19
20
22
23
24
25
25

3.1
Financial Performance
Analysis
3.2
Balance Sheet
3.3
Income Statement
3.4
Ratio Analysis
3.5
Trend Analysis
Financial Analysis of Sudha

27

4.1
Quantitative Analysis of
Sudha
Major Findings

43

5.1
5.2
5.3

60
61
62

Findings on Sudha
Conclusion 6
Recommendations

27
28
28
41

1.0 Introduction:The student undertaking Master of Business Administration

(Executive) need to go for internship in an organization to
gather practical knowledge and experience. Internship is an
arrangement by which a student works in a company for a
limited period of time. It is required to submit an internship
report after completion of practical training three months.
This program helped to acquire knowledge about different
activities of the company as well as its financial
performance.

1.1 Background of study: 7

The Internship Study was conducted in COMPFED

(Sudha) from 16/12/2013 to 16/03/2014. The need to
undergo this Internship Study is to fulfil the requirement
of MBA degree course of Sikkim Manipal University. The
training was undertaken during 16th December 2013 to
16th March 2014 and the main purpose was to know
the practical implication and policies of the company,
the theoretical aspects that we study during our course
can be observed how exactly they are put into practice.
The main objective of undergoing this training is to get
the practical exposure of the functional departments of
the organization such as Marketing, HR, Finance,
Production departments and also to study the
inventory, cash and receivable at COMPFED (Sudha),
Patna. During training I studied how the theoretical
knowledge is practically applied in various departments.
The internship undergone by me has helped me in
getting practical exposure to the various departments
of COMPFED (Sudha). The report traces the growth and
development of the company and gives the selected
outline about the services adopted by the company. The
report also explains the values and gives a brief about
the quality and financial aspects of COMPFED. The
study is to prepare the report on the internship training
and submit the detailed and comprehensive report. This
will help the company to assess its strength,
procurement & marketing to take suitable action to
improve the future growth.

1.2 Background of Company:

Bihar state Co-operative Milk Producers federation

ltd (COMPFED) is the state level institution
registered in the year 1983 under Bihar
cooperative societies 1935 for impletion of
operation flood programme for strengthening the
process of procurement, production and marketing
of milk &milk products in the state of Bihar,
Jharkhand & Other State like U.P, Delhi & Other
State.
COMPFED and these Milk Unions were promoted
by State government for implementing the OFProgramme in Bihar and Jharkhand. All plants and
assets of BSDC where handled for implementation
OF- Programme over by the State government on
management basis. COMPFED had taken the
rigorous task of renovation of the plants as well as
establishment of new plants with financial and
technical assistance of NDDB and succeeded to
turn into viable unit and established the brand
image of SUDHA which is popular in the State of
Bihar, Jharkhand and other neighbouring State.

1.3. Significance of the Report

Education becomes more effective when there is a
combination of theory and practical knowledge.
Theoretical knowledge achieved perfection with the
application of practical knowledge. The internship
programme can combine theoretical knowledge with
practical situation. A practical orientation program is
really essential for a student as our educational system
is mostly text based.
Professional experience is very important to be
established. In this situation I got a bit of practical
experience by analyzing financial performance of
Sudha.
1.4. Scope of the Report
This report is about the financial performance of Sudha
for the period April 2010 to March 2013. The focus of
this report is mainly on the existing financial ratios of
the company to analyze the current financial position of
Sudha.
1.5. Objectives of the Report
1.5.1 General Objectives
The key objective of the report is to analyze the
financial performance of Sudha

10

1.5.2 Specific Objectives

There are some specific objectives also. These are as
follows: To analyze the financial statements of Sudha.
To calculate the different financial ratios.
To understand the implications by analyzing and
interpreting the financial ratios.
To identify the findings and raise possible
recommendations for Sudha.

1.6. Methodology
1.6.1 Type of Research
This report is descriptive in type that briefly reveals the
overall financial activities performed by Compfed.
Collection of primary and secondary data has been
required for the analysis. Annual reports of Sudha were
the source of secondary data in this regard. Ratio
analysis and Trend analysis have also been used as
major tools for the financial performance analysis of
Sudha.
1.6.2 Types of Data Used
In order to analyze the financial performance of Sudha
two types of data have been used. These are as
follows: Primary Data-data observed or collected from
firsthand experience.
Secondary Data-published data and the data
collected in the past or by other parties.

11

1.6.3. Source of Data: - The required information

where collected from the Primary and Secondary Data.
1.6.3.1. Primary Source:

Consultation with the different officials of COMPFED

Focus group discussion
Taken Expert opinion
Direct Observation
Informal Discussion

1.6.3.2. Secondary Source: Annual Report of COMPFED.

Different text books and journals.
Different kind of reports and articles related to
study.
Some of my course elements as related to this
report.
Web based support from the internet.
1.6.4. Data collection Procedure and
Instruments:1.6.4.1. Data collection procedure:Conducting this report the following procedures have
been used to collect data with the respective
instruments:
Collection of Primary Data:

12

All the relevant data and information were mainly

collected from the observation, Informal discussion,
group discussion, conversation and so on.
Collection of Secondary Data:
Secondary data are collected basically from Annual
Reports, Journals, Brochures, Paper, Magazines,
Publications, Books and others form of publications,
Official websites.
1.6.4.2. Instruments Used for Analysis
Quantitave data were collected and analyzed according
to acceptable standards of practice. Different tables
and graphs are used to make data more meaningful
and comparable. Qualitative data are analyzed
rationally. Important percentages and averages are
calculated. I have used two major tools to analyze the
financial performance of SUDHA. This are Ratio analysis
Trend Analysis
Ratio Analysis:
Ratio analysis is a widely used tool of financial analysis.
The term ratio refers to the numerical and quantitative
relationship between two variables. It is defined as the
systematic use of ratio to interpret the financial
statements so that the strengths and weaknesses of
the company as well as its historical performance and
current financial condition can be determined. Ratio can
be classified into four broad groups1) Liquidity Ratios
2) Activity Ratios
3) Debt Ratios
4) Profitability Ratios
Trend Analysis:
13

It is really important to analyze trends in ratios as well

as their absolute levels. This analysis informs us
whether a companys financial condition improving or
deteriorating.
Other Tools:
After collecting all the data they are coded and data are
processed, analyzed, and graphically represented using
MS excel and MS word.
1.7. Limitations
Time frame of this report was very limited. It was
really tough to know details about giant
company like-SUDHA (COMPFED) within a short
span of time. Sometimes I could not communicate
with the respective personnel of COMPFED Ltd.
properly as they are very busy.
Because of Strategic and comparative position of
the company, it could not disclose the confidential
information which might make the report more
worthy.
As I am not that much experienced to analyze
financial performance of a giant company, there
might have some short comings. But I tried
sincerely to submit a significant report.

14

2.0. COMPANY PROFILE

The Bihar State Milk Co-operative Federation Ltd.
(COMFED) was established in 1983 as the implementing
agency of OPERATION FLOOD Programme of dairy
development on Anand pattern in Bihar and
Jharkhand (erstwhile Bihar). COMFED is the state level
co-operative organization, having six district level
affiliated Milk unions in the state of Bihar. As on March
2011, COMFED had 9775 village dairy cooperatives
15

(DCS) federated into six milk unions located in the state

of Bihar and having average 11.03 lakh kgs of milk
every day. Approximately 5.53 lakh Farmers are
presently members of village dairy cooperatives.
2.1. Co-operative companies playing in Dairy
industry and its Brands:States
Andhra
Pradesh
Bihar

Gujarat

Haryana

Himachal
Pradesh
Karnataka
Kerala

Madhya
Pradesh
Orissa

Co-operative Unions
Andhra Pradesh Dairy
Development Co-operative
Federation Limited (APDDCF)
Bihar State Co-operative Milk
Producers Federation Limited
(COMPFED)
Gujarat Co-operative Milk
Marketing Federation Limited
(GCMMF)
Haryana Dairy Development Cooperative Federation Limited
(HDDCF)
Himachal Pradesh State Cooperative Milk Producer
Federation Limited (HPCMPF)
Karnataka Co-operative Milk
Producer Federation Limited (KMF)
Kerala State Co-operative Milk
Marketing Federation Limited
(KCMMF)
Madhya Pradesh State Cooperative Dairy Federation
Limited (MPCDF)
Orissa State Co-operative Milk
Producer Federation Limited
(OMFED)
16

Brands
Vijiya

Sudha

Amul, Sagar

Vita

Nandini
Milma

Sanchi ,
Shakti, Sneha
OMFED

Uttar
Pradesh
Punjab

Rajasthan
Tamil Nadu

West
Bengal
Goa
Jammu
Pondicherry
Sikkim
Tripura

Pradeshik Co-operative Dairy

Federation Limited (PCDF)
Punjab State Co-operative Milk
producer Federation limited
(MILKFED)
Rajasthan Co-operative Dairy
Federation limited (RCDF)
Tamil Nadu Co-operative Milk
Producer Federation Limited
(TCMPF)
West Bengal Co-operative Milk
producer Federation Limited
Goa State Co-operative Milk
Producer Union Limited
Jammu Co-operative Milk producer
Federation Limited
Pondicherry Co-operative Milk
Producer Union Limited
Sikkim Milk Producer Union
Limited
Tripura Co-operative Milk Producer
Union Limited

Parag
Verka

Saras
Aavin

Benmilk
Goadairy
Jamfed
Ponlait
Sikkimilk
Gomati

2.1.1. AFFILIATED MILK UNIONS AND AREAS OF

OPERATION Five district level Milk Producers Coop. Unions affiliated
to the Milk Federation were covering eighteen districts
until the end of OF program in March 1997 (end of
eighth Plan). One more milk union was organized
during 2008-09 and has been affiliated. Number of
17

districts being covered by unions at present has risen

to twenty-six. Different milk unions, which are
organizing the DCS network in these districts, are listed
below:-

Sl. No. Name of Milk

Unions
1.
Vaishal Patliputra
Milk Union
(VPMU)

Area of District Covered

2.

Barouni Begusarai,
Khagaria, Lakhisarai and
part of Patna District.

3.

Barauni Milk
Union,
Barauni (DRMU)
Tirhut Milk Union,
Muzaffarpur
(Timul)

Patna, Vaishali, Nalanda,

Saran , Sheikhpura

Muzaffarpur Muzaffarpur,
Sitamarhi, Sheohar, E.
Champaran, Siwan,
Gopalganj & West
Champaran districts.
Samastipur, Darbhanga &
Madhubani district.

4.

Mithila Milk
Union,
Samastipur

5.

Shahabad Milk
Union,
Ara

Bhojpur, Buxar, Kaimur and

Rohtas districts.

6.

Bhagalpur Milk
Union, Bhagalpur

Bhagalpur, Munger, Banka

and Jamui.

18

2.1.2. Details Compfed and its units and

affiliated Milk unions which it owns and
operates:1. Regd. Office: - Bihar State Co-operative Milk
Producers Federation Ltd., Dairy development
complex, P.O B.V College, Patna-800014
(Bihar).
2. Marketing Dairies and CF Plant : Jamshedpur Dairy, Jamshedpur
(Jharkhand)
Ranchi Dairy, Ranchi, Jharkhand
Cattle Feed Plant, Ranchi, Jharkhand
Bokaro Dairy, Bokaro, Jharkhand
Gaya Dairy, Gaya including Jahanabad CC
Kosi Dairy Project, Purnia ( Araria CC,
Katihar CC and Purnia)
One dairy Plant of 4 lakh litre /day
capacity at Bihar Sharif with 30 MT
powder productions and UHT milk
production facilities.
The districts of East and West Singhbhum, Ranchi,
Bokaro and Dhanbad now in Jharkhand are being
covered by the dairies directly under the control of Milk
Federation for the supply of milk and milk products to
19

the urban consumers in these cities. Procurement of

milk has been taken up in Ranchi district only.

3. District Level Milk Unions: VP Milk Unions, Phulwari Sharif, Patna

DR Milk Unions, Barauni
Tirhut Milk Unions, Muzaffarpur
Mitila Milk Unions, Samastipur
Three Tier Systems
The entire milk operations one is being dealt through
three tier system.
State Level
District Level
Village Level
operative

COMFED
Milk Unions
Primary Milk CoSociety

Village Level Milk Co-operative Society is affiliated with

milk unions while unions are affiliated with COMPFED
and it is affiliated with National level institutions
namely National Dairy Development Board
2.2. Products
Our products are available in market under brand name
"Sudha". These Products are produced keeping in view
the taste and preferences of consumers. Our main
products are as follows:-

20

MILK:

Sudha
Sudha
Sudha
Sudha
Sudha

Gold
Shakti
Healthy
Smart
Lite

Milk Products:

Ghee
Ice-Cream
Lassi
Misthi Dahi
Peda
Kalakand

2.3. Marketing
In the initial years, the emphasis of Compfed was on
organising DCS and educating farmers. In the initial
years the milk sale moved at snail's speed from 100.55
thousand litres per day in 1987-88 to 106.54 thousand
litres per day (TLPD) in 1992-93. However, strategies
adopted in 1993-94, changed the trend completely.
Year 2003 was declared as "Market Development Year".
The daily average milk marketing has now reached a
21

level of about 863.61 TLPD during 2011-12 & during the

year 2012-13.

Milk Marketing
in '000 lts per day

Milk
Union/Unit

198788

199798

200304

200607

201112

2012-13

Patna

31.54

68.84

103.72

124.46

177.36

186.72

Jamshedpur

21.91

53.41

69.44

87.41

121.35

123.06

Ranchi

7.09

30.02

51.51

65.35

90.18

99.85

Bokaro

10.84

26.26

42.13

54.95

59.23

63.36

Muzaffarpur

22.91

27.49

51.87

55.79

88.40

102.51

3.88

6.78

14.19

15.56

32.32

38.64

3.75

6.83

8.48

20.63

23.67

2.47

6.85

41.33

48.55

66.78

81.91

Samastipur

21.55

54.43

56.84

100.22

110.51

Shahabad

0.04

16.02

14.72

34.19

37.36

Kosi
Delhi

25.87

31.46

Gaya
Vikramshila
Barauni

22

20.86

Total

100.55

245.02

451.46

532.11

816.53

919.89

2.4. Plants

Processing Capacities
Name of the
Plant

Capacity(TLPD)

Management

Patna

150.0

VPMU

Barauni

300.0

BMU

Muzaffarpur

150.0

TIMUL

Samastipur

250.0

MMU

Arrah

100.0

SMU

Jamshedpur

100.0

COMFED

Ranchi

100.0

COMFED

Bokaro

100.0

COMFED

Bhagalpur

60.0

VIMUL

Gaya

35.0

COMFED

Purnia

10.0

BMU

Kaimur

10.0

SMU

Gopalganj

10.0

TMU

Darbhanga

20.0

MMU

Biharsharif

400.0

VPMU

Total

1795.0

23

Milk Chilling Centres

Chilling centre

Capacity(TLPD)

Mgmt.

Hajipur

60.0

VPMU

Sitamarhi

20.0

TMU

Khagaria

40.0

BMU

Rosera

20.0

MMU

Kochas

10.0

SMU

Dumraon

10.0

SMU

Motihari

20.0

TMU

Total

180.0

Bulk Coolers
Mgmt.

Nos.

Capacity(TLPD
)

VP Milk Union

34

97.0

DR Milk Union

22

89.0

Mithila Milk Union

19

85.0

Vikramshila
Milk Union

17

57.0

Tirhut Milk Union

26

41.5

Shahabad Milk Unio

n

18

47.0

32.0

32.0

Magadh
Project

Dairy

Kosi Dairy Project

24

Total

151

480.5

Other Plants
Plant

Capacity

CFP, Patna

100 MTD

CFP, Ranchi

100 MTD

CFP, Kanti,Muz'pur

60 MTD

Ice-cream plant,Patna

3TLPD

2.5. Procurements
The milk procurement during 1994-95 averaged 114.32
thousand kgs. Per day which jumped more than five
times to around 608.38 TKPD in 2006-07 but the
devastating floods in July-Sept 2007 and also during
second half of 2008 had very severe effect on the
production of milk and its procurement by DCS. In
2008-09, it fell down to 415.36 TKPD but due to
sustained efforts it again picked up the momentum.
The daily average milk procurement during 2011-12
was 1074.92 TKPD.
Unit wise Milk Procurement

25

(in '000 Kgs per day)

Milk
Union/
Unit

198
7-88

1997
-98

2003
-04

2006
-07

201011

2011
-12

Barauni

20.5
7

65.93

135.0
0

173.6
9

333.0
8

314.1
2

Muzaffarp
ur

10.7
7

24.43

52.84

87.13

118.1
3

115.1
2

Samastip
ur

7.44

32.00

69.86

129.8
5

248.1
3

250.9
9

Patna

30.1
8

56.18

102.6
6

157.3
3

221.2
3

210.1
5

Shahabad

8.77

29.99

45.41

123.7
5

129.4
4

Vikramshi
la

1.41

2.81

3.27

7.78

35.05

35.73

Gaya

.68

.0.15

3.55

2.42

10.76

7.50

Kosi

6.29

7.13

Ranchi

5.35

6.06

4.78

4.95

4.74

71.0
5

213.1
9

403.0
0

608.3
8

1101.
38

1074

Total

26

100%
90%
80%
70%
60%

2011-12

50%

2010-11

40%

2006-07

30%

2003-04
1997-98

20%

1987-88

10%
0%

2.6. Sudha in India

A new organization Bihar State co-operative milk
producer federation limited came into existence to
implement the project and the actual field work was
taken up in 1983.the project originally to complete
within 3 years by the end of 1986 and was closed in
1988. After extending of the project period twice each
time by one year the project was implemented in 8
districts of Bihar namely Patna, Barouni (Begusarai),
Bokaro, Samastipur, Ranchi, Jamshedpur,Muzzafarpur
and Gaya. Sudha dairy is also approving by the
National Dairy Development board. Any dairy industry
has some important section as like:

Milk Reception Section

Processing and Packing Section
Store Keeping Section
Marketing Section
Administration Section
27

 Cleaning Section
Quality Control Section
2.7. Organisational Structure:COMPFED

COMPFED
Chairman (IAS)

Managing Director (IAS)

General Manager (Dairy Technologist)

Deputy General Manager

Manager

Deputy Manager
Assistant Manager

Technical Officer
&
Milk Procurement Officer

Fodder Development Officer

28

Processing
Employees

Marketing

2.8. MISSION, VISION AND OBJECTIVE OF SUDHA

Mission: To sustain market leadership in the production
and marketing of a variety of liquid milk and milk
products with assured quality at an affordable price,
covering all market segments and to maintain the
growth, prosperity and unity of all internal and external
customers.
Vision: With full dedication and team work, shall strive
to delight its internal and external customers through
quality products and services. Create an environment
where stake holders feel happy and system will be ecofriendly. Through innovation, continuous learning and
consistent improvement achieve sustained growth and
excellence.
2.9. Corporate Focus
The companys vision, its mission and objectives are to
emphasis on the quality of product, process and
services leading to the growth of the company with
good governance practices.

29

30

3.0. Theoretical Aspects

3.1. Financial Performance Analysis
Financial Performance is a subjective measure of how
well a firm can use assets from its primary mode of
business and generate revenues. This term is also used
as a general measure of a firm's overall financial health
over a given period of time, and can be used to
compare similar firms across the same industry or to
compare industries or sectors in aggregation. Financial
performance analysis refers to an assessment of the
viability, stability and profitability of a business, subbusiness or project. It is performed by professionals
who prepare reports using ratios that make use of
information taken from financial statements and other
reports. These reports are usually presented to top
management as one of their bases in making business
decisions. Based on these reports, management may:
Financial performance analysis is a vital to get a
financial overview about a company. It generally
consists of the interpretation of balance sheet and
income statement. Ratio analysis and trend analysis
can be done by using these two statements. These
analyses are the major tools for analyzing the
companys financial performance. An Analyst can
compare a present condition with the past for the
company to determine whether there is an
improvement or deterioration or no change.
3.2. Balance sheet
In financial accounting, a balance sheet or statement of
financial position is a summary of the financial balances
of a sole proprietorship, a business partnership or a
company. Assets, liabilities and ownership equity are
31

listed as of a specific date, such as the end of its

financial year. A balance sheet is often described as a
"snapshot of a company's financial condition". Of the
four basic financial statements, the balance sheet is the
only statement which applies to a single point in time of
a business' calendar year. A standard company balance
sheet has three parts: assets, liabilities and ownership
equity.
3.3. Income Statement
Income statement also referred as profit and loss
statement (P&L), earnings statement, operating
statement or statement of operations is a company's
financial statement that indicates how the revenue is
transformed into the net income. It displays the
revenues recognized for a specific period, and the cost
and expenses charged against these revenues,
including write-offs (e.g., depreciation and amortization
of various assets) and taxes. The purpose of the income
statement is to show managers and investors whether
the company made or lost money during the period
being reported.
3.4. Ratio Analysis
A tool used by individuals to conduct a quantitative
analysis of information in a companys financial
statements. Ratios are calculated from current year
numbers and are then compared to previous years,
other companies, the Industry, or even the economy to
judge the performance of the company. The basic
inputs to ratio analysis are the firms income statement
and balance sheet for the periods to be examined.
Ratio analysis is predominately used by proponents of
fundamental analysis.
In finance, a financial ratio or accounting ratio is a ratio
of two selected numerical values taken from an
32

enterprises financial statements. There are many

standard ratios used to try to evaluate the overall
financial condition of a corporation or other
organization. Financial ratios may be used by managers
within a firm, by current and potential shareholders
(owners) of a firm, and by a firms creditors. Security
analysts use financial ratios to compare the strengths
and weaknesses in various companies. If shares in a
company are traded in a financial market, the market
price of the shares is used in certain financial ratios.
In short, ratio analysis is essentially concerned with the
calculation of relationships which, after proper
identification and interpretation may provide
information about the operations and state of affairs of
a business enterprise. The analysis is used to provide
indicators of past performance in terms of critical
success factors of a business. This assistance in
decision-making reduces reliance on guesswork and
intuition and establishes a basis for sound judgement.
3.4.1. Significance of using ratios
The significance of a ratio can only truly be appreciated
when:
1. It is compared with other ratios in the same set of
financial statements.
2. It is compared with the same ratio in previous
financial statements (trend analysis).
3. It is compared with a standard of performance
(industry average).Such a standard may be either the
ratio which represents the typical performance of the
trade or industry, or the ratio which represents the
target set by management as desirable for the
business.
3.4.2 Types of ratio comparisons
Three types of ratio comparisons can be made:
33

1. Cross-sectional Analysis: Cross-sectional analysis

involves the comparison of different firms financial
ratios at the same point in time. The typical business is
interested in how well it has performed in relation to its
competitors.
2. Time- series Analysis: Time-series analysis is
applied when a financial analyst evaluates performance
over time. Comparison of current to past performance
utilizing ratio analysis allows the firm to determine
whether it is progressing as planned.
3. Combined Analysis: The most informative
approach to ratio analysis is one that combines crosssectional and time-series analyses.
3.4.3 Some Words of Caution
1. A single ratio does not generally provide sufficient
information from which to judge the overall
performance of the firm.
2. Be sure that the dates of the financial statements
being compared are the same.
3. It is preferable to use audited financial statements
for ratio analysis.
4. Be certain that the data being compared have been
developed in the same way.
3.4.4. Groups of Financial Ratios
Financial ratios can be divided into four basic groups or
categories:
A. Liquidity ratios
B. Activity ratios
C. Debt ratios and
D. Profitability ratios
34

Liquidity measures the ability to maintain positive cash

flow, while satisfying immediate obligations. Activity
ratio measures the speed with which accounts are
converted into sale or cash.
Debt ratio measures the amount of other peoples
money used in generating profit. Profitability measures
the ability to earn income and sustain growth in both
short-term and long-term. A company's degree of
profitability is usually based on the income statement,
which reports on the company's results of operations.

A. Analyzing Liquidity
Liquidity refers to the ability of a firm to meet its
short-term financial obligations when and as they
come due. It also refers to the solvency of the
firms overall financial position
The main concern of liquidity ratio is to measure
the ability of the firms to meet their short-term
maturing obligations. Failure to do this will result in
the total failure of the business, as it would be
forced into liquidation.
The three basic measures of liquidity are1. Net Working Capital: A measure of liquidity
calculated by subtracting total current assets by
current liabilities. Current assets normally include cash,
marketable securities, accounts receivable and
inventories. Current liabilities consist of accounts
35

payable, short term notes payable, short-term loans,

current maturities of long term debt, accrued income
taxes and other accrued expenses (wages).
Net Working Capital=Total Current Assets-Total
Current Liabilities
2. Current Ratio: The Current ratio expresses the
relationship between the firms current assets and its
current liabilities. A measure of liquidity calculated by
dividing the firms current assets by current liabilities.
Current Ratio=Current assets/Current liabilities

3. Quick Ratio: Quick ratio measures assets that are

quickly converted into cash and they are compared
with current liabilities. This ratio realizes that some of
current assets are not easily convertible to cash likeinventories. The quick ratio, also referred to as acid test
ratio, examines the ability of the business to cover its
short-term obligations from its quick assets only. The
quick ratio is calculated as follows:
Quick (Acid-test) Ratio= (Current assetsInventory)/Current liabilities
B. Analyzing Activity:If a business does not use its assets effectively,
investors in the business would rather take their money
36

and place it somewhere else. In order for the assets to

be used effectively, the business needs a high turnover.
Unless the business continues to generate high
turnover, assets will be idle as it is impossible to buy
and sell fixed assets continuously as turnover changes.
Activity ratios are therefore used to assess how active
various assets are in the business. Activity ratios are
discussed next
1. Inventory Turnover: Ratio measures the stock in
relation to turnover in order to determine how often the
stock turns over the business. It indicates the efficiency
of the firm in selling its product. It is calculated by
dividing the cost of goods sold by the average
inventory.
Inventory Turnover = Cost of Goods Sold for the
Year / Average Inventory

Inventory Turnover shows efficiently the company is

managing its production, ware-housing, and distribution
of product, considering its volume of sales. Higher
ratios over six or seven times per year- are generally
thought to be better, although extremely high inventory
turnover may indicate a narrow selection and possible
lost sales. A low inventory turnover rate, on the other
hand, means that the company is paying to keep a
large inventory, and may be
Overstocking or carrying obsolete items.
2. Average Collection Period: The average collection
period measures the quality of debtors since it
indicates the speed of their collection.

37

 The shorter the average collection period, the

better the quality of debtors, as a short collection
period implies the prompt payment by debtors.
The average collection period should be compared
against the firms credit terms and policy to judge
its credit and collection efficiency.
An excessively long collection period implies a very
liberal and inefficient credit and collection
performance.
The delay in collection of cash impairs the firms
liquidity. On the other hand, too low a collection
period is not necessarily favourable, rather it may
indicate a very restrictive credit and collection
policy which may curtail sales and hence adversely
affect profit.
Average Collection Period=A/C receivable/
(Annual Sales/360)
3. Average Payment Period: The average payment
period is calculated in the same manner as the
collection period.
Average Payment Period=A/C payable/ (Annual
purchases/360)

4. Fixed Asset Turnover: The fixed assets turnover

ratio measures the efficiency with which the firm has
been using its fixed assets to generate sales. It is
calculated by dividing the firms sales by its net fixed
assets as follows:
38

 Generally, high fixed assets turnovers are preferred

since they indicate a better efficiency in fixed
assets utilization.
The ratios indicate the degree to which the
activities of a firm are supported by creditors
funds as opposed to owners.
The relationship of owners equity to borrowed
funds in an important indicator of financial
strength.
The debt requires fixed interest payments and
repayment of the loan and legal action can be
taken if any amounts due are not paid at the
appointed time. A relatively high proportion of
funds contributed by the owners indicate a cushion
(Surplus) which shields creditors against possible
losses from default in payment.
Note: The greater the proportion of equity funds, the
greater the degree of financial strength. Financial
leverage will be to the advantage of the ordinary
shareholders as long as the rate of earnings on capital
employed is greater than the rate payable on borrowed
funds. The following ratios can be used to identify the
financial strength and risk of business.
Fixed Asset Turnover=Sales/Net Fixed Asset

39

5. Total Asset Turnover: Total asset turnover is the

relationship between sales and assets.
The firm should manage its assets efficiently to
maximize sales.
The total asset turnover indicates the efficiency
with which the firm uses all its assets to generate
sales.
It is calculated by dividing the firms sales by its
total assets.
Generally, the higher the firms total asset
turnover, t he more efficiently its assets have been
utilized.
Total Asset Turnover=Sales/Total Asset
C. Analyzing Debt:
The debt position of the firm indicates the amount of
other peoples money being used in attempting to
generate profits. In general, the more debt a firm uses
in relation to its total assets, the greater its financial
leverage, a term used to describe the magnification of
risk and return introduced through the use of fixed-cost
financing such as debt and preferred stock.
There are two general types of debt measures of the
degree of indebtedness and measures of the ability to
service debts.
The degree of indebtedness:
The degree of indebtedness measures the amount of
debt against other significant balance-sheet amounts.
Two most commonly used measures are the debt ratio
and the debt-equity ratio.

40

1. Debt Ratio: This is the measure of financial

strength that reflects the proportion of capital which
has been funded by debt, including preference shares.
A debt ratio greater than 1.0 means the company has
negative net worth, and is technically bankrupt. This
ratio is calculated as follows:
Debt Ratio=Total liabilities/Total assets
With higher debt ratio (low equity ratio), a very small
cushion has developed thus not giving creditors the
security they require. The company would therefore
find it relatively difficult to raise additional financial
support from external sources if it wished to take that
route. The higher the debt ratio the more difficult it
becomes for the firm to raise debt.
2. Debt-equity Ratio: This ratio indicates the extent
to which debt is covered by shareholders funds. It
reflects the relative position of the equity holders and
the lenders and indicates the companys policy on the
mix of capital funds. The debt to equity ratio is
calculated as follows:
Debt-equity Ratio =Long term
debt/stockholders equity
The Ability to Service Debts: This is the second type
of debt measure, refers to the ability of a firm to meet
the contractual payments required on scheduled basis
41

over the life of a debt. The firms ability to meet certain

fixed charges is measured using coverage ratios.

1. Time Interest Earned Ratio: This ratio measure

the extent to which earnings can decline without
causing financial losses to the firm and creating an
inability to meet the interest cost.
The times interest earned shows how many limes
the business can pay its interest bills from profit
earned.
Present and prospective loan creditors such as
bondholders, are vitally interested to know how
adequate the interest payments on their loans are
covered by the earnings available for such
payments.
Owners, managers and directors are also
interested in the ability of the business to service
the fixed interest charges on outstanding debt. The
ratio is calculated as follows:
Time Interest Earned
Ratio=EBIT/Interest
D. Analyzing Profitability:
Profitability is the ability of a business to earn profit
over a period of time. Although the profit figure is the
starting point for any calculation of cash flow as already
pointed out profitable companies can still fail for lack of
cash.
Without profit, there is no cash and therefore
profitability must be seen as a critical success factors.
42

 A company should earn profits to survive and grow

over a long period of lime.
Profits are essential, but it would be wrong to
assume that every action initiated by management
of company should be aimed at maximizing profits,
irrespective of social consequences.
The ratios examined previously have tendered to
measure management efficiency and risk. Profitability
is a result of a larger number of policies and decisions,
'the profitability ratios show combined effects of
liquidity, asset management (activity) and debt
management (gearing) on operating results. The overall
measure of success of a business is the profitability
which results from the effective use of its resources.)
1. Gross Profit Margin:
Normally the gross profit has to rise
proportionately with sales.
It can also be useful to compare the gross profit
margin across similar businesses although there
will often be good reasons for any disparity
The ratio is calculated as follows:
Gross Profit Margin = (Sales-COGS)/Sales=Gross
Profit/Sales
2. Operating Profit Margin: The operating profit
margin represents what are often called the pure profits
earned on each sales dollar. A higher operating profit
margin is preferred. The operating profit margin is
calculated as follows:
43

Operating Profit Margin=Operating Profit/Sales

3. Net Profit Margin: This is a widely used measure
of performance and is comparable across companies in
similar industries. The fact that a business works on a
very low margin need not cause alarm because there
are some sectors in the industry that work on a basis of
high turnover and low margins, for examples
supermarkets and motorcar dealers. What is more
important in any trend is the margin and whether it
compares well with similar businesses.
The net profit margin is calculated as follows:
Net Profit Margin=Net Profit after Tax/Sales
4. Return on Investment (ROI): Income is earned by
using the assets of a business productively. The more
efficient the production, the more profitable the
business. The rate of return on total assets indicates
the degree of efficiency with which management has
used the assets of the enterprise during an accounting
period. This is an important ratio for all readers of
financial statements. Income is earned by using the
assets of a business productively. The more efficient the
production, the more profitable the business. The rate
of return on total assets indicates the degree of
efficiency with which management has used the assets
of the enterprise during an accounting period. This is an
important ratio for all readers of financial statements.
The return on investment is calculated as follows:
Return on Investment=Net Profit after Tax/Total
Assets
5. Return on Equity (ROE): This ratio shows the
profit attributable to the amount invested by the
44

owners of the business. It also shows potential

investors into the business what they might hope to
receive as a return. The stockholders' equity includes
share capital, share premium, distributable and nondistributable reserves. The ratio is calculated as follows:
Return on Equity=Net Profit after
Tax/stockholder's equity

6. Earning per share (EPS): Whatever income

remains in the business after all prior claims, other than
owners claims (i.e. ordinary dividends) have been paid.
will belong to the ordinary shareholders who can then
make a decision as to how much of this income they
wish to remove from the business in the form of a
dividend, and how much they wish to retain in the
business, "the shareholders are particularly interested
in knowing how much has been earned during the
financial year on each of the shares held by them, for
this reason, an earning per share figure must be
calculated. Clearly then, the earning per share
calculation will be:
Earnings available for common
stockholders/Number of Shares of common stock
Outstanding

45

7. Price/earning Ratio: P/E ratio is a useful indicator

of what premium or discount investors are prepared to
pay or receive for the investment. The higher the price
in relation to earnings, the higher the P/E ratio which
indicates the higher the premium an investor is
prepared to pay for the share. This occurs because the
investor is extremely confident of the potential growth
and earnings of the share. High P/E generally reflects
lower risk and/ or higher growth prospects for earning.
The price-earning ratio is calculated as follows:
Price/Earning Ratio=Market price per share of
common stock/EPS

3.5 Trend Analysis

It is important to analyze trends in ratios as well as
their absolute levels. Trend analysis gives clues as
whether a firms financial condition is likely to improve
or to deteriorate. For trend analysis, a base year is
selected and the amounts appearing on the base years
financial statements are assigned a weight of
100%.Comparisons are then made to the base year by
expressing the other years amount as a percentage of
the base years amounts .Trend analysis are useful for
comparing financial statements over several years as
they disclose the changes occurring through time so
46

that the management can clearly see the result they

need

47

4.0. Financial Analysis of Sudha

4.1. Quantitative Analysis of Sudha
4.1.1. Ratio Analysis of Sudha
4.1.1.1. Analyzing Liquidity Ratio:
I. Authorized Capital and Paid up capital:
Year

Authorized
Capital

Paid-Up
Capital
48

Reserve &
Surplus

2013

1,50,000,000

1,25911408.40

2012

1,50,000,000

1,18747430.40

2011
2010
2009

1,50,000,000
1,50,000,000
1,50,000,000

112004754.40
106980085.40
106980085.40

12,54,838,018.
52
1089910457.55
926929400.98
800006508.80
168506808.36

Graphical Presentation:
1400000000
1200000000
1000000000
800000000

Authorized Capital
Paid-up Capital

600000000

Reserve & Surplus

400000000
200000000
0
2009

2010

2011

2012

2013

Interpretation:
The authorized capital is same every year but Paid up
Capital and Reserve & surplus is sufficiently increase
per year that is a positive sign for Sudha. From 2009 to
2013 it increase approximately six times and it can be
increase more by proper increasing paid up capital.
II. Current Ratio:
49

It is a measure of liquidity calculated by dividing the

firm's current assets by its current liabilities.
The higher the current ratio, the better the liquidity
position of the firm. It indicates the short term financial
solvency of the firm. This ratio also indicates the extent
to which current liabilities are covered by those assets
expected to be converted to cash in the near future.
Current Ratio= Current assets/Current liabilities
Year
2010
2011
2012
2013

Current Asset
541448278.91
726721698.13
812502793.39
1,139,511,695.82

Current liabilities
574574400.43
627098529.74
859032934.71
9,19,65,3470.97

Current Ratio
0.942
1.159
0.946
1.239

Graphical Presentation:

Current ratio
1.4
1.2
1
Current ratio

0.8
0.6
0.4
0.2
0
2010

2011

2012

2013

Interpretation:
The short-term financial solvency of Sudha is better position in last
four years, because the current ratio was in acceptable limit. The
company can increase its current assets and reduce its current
liabilities for more CR.
50

III. Net Working Capital:

The difference between the company's current assets and its current
liabilities can be positive or negative. When the current assets exceed
the current liabilities, the firm has positive net working capital. When
current assets are less than current liabilities, the firm has negative
networking capital. An enterprise should have sufficient networking
capital in order to be able to meet the claims of the creditors and the
day-to-day needs of business. The greater is the amount of networking
capital, the greater is the liquidity of the firm. Inadequate working
capital is the first sign of financial problems for a firm.
Net Working Capital=Total Current Assets-Total Current
Liabilities
Year
2010
2011
2012
2013

Current Asset
1466989113.92
1718384416.53
2229262056.35
2600424522.82

Current Liability
11014074.70
627098529.74
14867733.43
57942944.83

Net Working Capital

1455975039.22
1091285886.79
2214394322.92
2542481577.99

Net Working Capital

3000000000
2500000000
2000000000
Net Working Capital

1500000000
1000000000
500000000
0
2010

2011

2012

2013

Interpretation:
We know that acceptable of net working capital (NWC) is 1:1. The
net working capital of Sudha is extremely satisfactory over all the last
51

five years from 2012 to 2013, because it showed a positive

networking capital which indicates a huge liquidity of the company.
Sudha can increase its more current assets by enhancing the accounts
receivable, reduce its current liabilities and by reducing its bank
overdraft and short term loan.
4.1.1.2 Analyzing Activity Ratio:
I. Fixed Asset Turnover:
The fixed asset turnover ratio measures the effectiveness is generating
net sales revenue from investments in net property, plant and
equipment back into the company evaluates only the investments.
Fixed Asset Turnover=Sales/Net Fixed Asset
Year
2010
2011
2012
2103

Sales
2893786668.89
3375126124.83
4327487151.49
6414476264.40

Net Fixed Asset

78004866.87
86886654.63
95143443.71
17644661.92

Fixed Asset Turnover

37.098
38.845
45.483
363.536

Graphical Presentation:

Fixed Asset Turnover

2010
2011
2012
2013

Interpretation:
52

The acceptable of fixed asset turnover ratio for large organization is

generally four times but it varies industry to industry. The fixed asset
ratio of Sudha is 37.098 was in 2010, 38.845 in 2011 and 45.483 in
2012. The fixed asset of Sudha is increasing every year and a
tremendous increase in 2013 is seen. It should utilize its fixed assets
more efficiently to accelerate sales.
II. Total Asset Turnover:
The total turnover is similar to fixed asset turnover since both
measures a company's effectiveness in generating sales revenue from
investments back into the company. Total asset turnover evaluates the
efficiency of managing all of the company's assets.
Total Asset Turnover=Sales/Total Asset
Year
2010
2011
2012
2013

Sales
2893786668.89
3375126124.83
4327487151.49
6,414,476,264.40

Total Asset
831737146.44
1037626798.87
1047186766.11
1505017882.37

Total Asset Turnover

3.479
3.253
4.134
4.262

Graphical Presentation:

Total Asset Turnover

4.5
4
3.5
3
Total Asset Turnover

2.5
2
1.5
1
0.5
0
2010

2011

2012

2013

53

Interpretation:
The acceptable of total asset turnover for large organization is two
times. The total asset turnover ratio of Sudha indicates that total assets
are efficiently used to generate sales throughout the period from 2010
to 2013. This ratio was 3.479 in 2010, 3.253 in 2011which show the
decreasing pattern and 4.134 in 2012. So the ratio showed an
increasing trend. Companys management should be more efficient in
utilizing the companys total assets to generate more sales.
4.1.1.3 Analyzing Debt Ratio:
I. Debt Ratio:
The Debt ratio measures, the proportion of total assets
provides by the firms creditors. This ratio indicates the
amount of other peoples money being used to
generate profits. The higher the ratio, the greater the
firms degree of indebtedness and the more financial
leverage it has.
Debt Ratio=Total liabilities/Total assets
Year
2010
2011
2012
2013

Total Liabilities
2374003604.41
2519226377.38
2850187416.92
2899812757.83

Total Asset
831737146.44
1037626798.87
1047186766.11
1505017882.37

Graphical Presentation:

54

Debt Ratio
2.854
2.428
2.722
1.927

Debt Ratio
3
2.5
2
Debt Ratio
1.5
1
0.5
0
2010

2011

2012

2013

Interpretation:
The debt ratio of Sudha indicates greater indebtedness and high
degree of financial leverage, to generate profits during 2010 to 2013.
In 2010 it was 2.854, in 2011- 2.428 and in 2012 -2.722 and decrease
it in 2013. As its financial leverage is high, it holds lower financial
risks. Sudha can achieve optimum capital structure by reducing debt
capital as well as by increasing equity capital to finance its total
assets.

II. Debt-Equity Ratio:

The debt-equity ratio indicates the relationship
between the long term funds provided by the creditors
and these by the firms owners. A high ratio shows a
large share of financing by the creditors of the firm; a
low ratio implies a smaller claim of creditors. The debt55

equity ratio indicates the margin of safety to the

creditors.
Debt-equity Ratio =Long -term
debt/stockholders equity
Year
2010
2011
2012
2103

Long-term Debt
135210938.18
112866776.71
235249696.12
169883114.95

Stockholders Equity
906986594.2
9381304155.38
1101785197.95
1380749426.92

Debt-equity ratio
14.91%
1.203%
21.35%
12.30%

Graphical Presentation:

Debt-Equity Ratio
25.00%
20.00%
15.00%

Debt-Equity Ratio

10.00%
5.00%
0.00%
2010

2011

2012

2013

Interpretation:
The debt-equity ratio of Sudha is pleasing, as its debt is fluctuating
during 2010 to 2013. In 2011 the trend shows the lowest number of
creditor which really indicates a better condition in this regard but in
2012 it increases to 21.35% which is not a good sign.

4.1.1.4. Analyzing Profitability Ratio:

I. Gross Profit Margin:
56

The gross profit margin measures the percentage of each sales dollar
remaining after the firm has paid for its goods. The higher the gross
profit margin is the better. A high ratio of gross profits to sales is a
sign of good management of cost of goods sold.
Gross Profit= (Sales-COGS); Gross Margin=Gross Profit X
100/Sales
Year
2010
2011
2012
2013

Gross Profit
320568794.02
291675092.98
411920293.02
482429628.69

Sales
2893786668.89
3375126124.83
4327487151.49
6414476264.40

Gross Profit Margin

11.08%
8.642%
9.519%
7.521%

Graphical Presentation:

Gross Profit margin

12.00%
10.00%
8.00%
Gross Profit margin
6.00%
4.00%
2.00%
0.00%
2010

2011

2012

Interpretation:
57

2013

We know that the acceptable limit of gross profit margin is 20% to

30% and Sudha achieved the acceptable limit. The cost of goods sold
is efficiently managed by Sudha as it produced a satisfactory gross
profit margin ratio. That means, it success to achieve adequate
coverage for operating expenses and better return to the owners of the
business. The company can increase its more sales and manage its
cost of goods sold more efficiently.

II. Operating Profit Margin:

The operating profit margin measures the percentage of each sales
dollar remaining after all costs and expenses other than interest, taxes
are deducted. This profit is called pure profit because they measure
only the profits earned on operations. A high operating profit margin
is preferred.
Operating Profit Margin=Operating Profit X 100/Sales
Year
2010
2011
2012
2013

Operating profit
320568794.02
291675092.98
411920293.02
482429628.69

Sales
2893786668.89
3375126124.83
4327487151.49
6414476264.40

Graphical Presentation:
58

Operating Profit Margin

11.08%
8.642%
9.519%
7.521%

Operating Profit Margin

12.00%
10.00%
8.00%
Operating Profit Margin
6.00%
4.00%
2.00%
0.00%
2010

2011

2012

2013

Interpretation:
We know that the acceptable of operating profit margin is 20%.The
operating profit margin ratio indicates the cost price effectiveness of
the operation. Here Sudha was in better condition regarding the
operating efficiency in 2010 but it was poor in 2013 as it has
produced the sufficient operating profit margin 11.08% in 2010,
8.64% in 2011, 9.52% in 2012 and 7.52% in 2013. The company
should enhance its sales by managing the operating cost efficiently.
III. Net Profit Margin
The net profit margin measures the percentage of each sales dollar
remaining after all costs and expenses, including interest and taxes
have been deducted. The higher the firms net profit margin, the better.
Net Profit Margin=Net Profit after Tax/Sales X 100

59

Year
2010
2011
2012
2013

Net profit after tax

170787511.59
128057336.18
160480997.13
161587726.97

Sales
2893786668.89
3375126124.83
4327487151.49
6414476264.40

Net Profit Margin

5.90%
3.79%
3.71%
2.52%

Graphical Presentation:

Net Profit Margin

7.00%
6.00%
5.00%
Net Profit Margin

4.00%
3.00%
2.00%
1.00%
0.00%
2010

2011

2012

2013

Interpretation:

We know that the acceptable limit of net profit margin is 5% to 10%.

Sudha was highly efficient in sales performance during 2010 .Net
profit margin was positive than acceptable in 2010 to 2013, but except
it was poor in 2013. Sudha can increase its managements ability to
operate the business by enhancing sales with the cost effectiveness of
the operation.
IV. Return On Investment:

The return on total assets (ROA) often called the return on investment
(ROI) measures the overall effectiveness of management in
generating profit with its available assets. The higher the firms return
on total assets is better.
Return on Investment=Net Profit after Tax/Total Assets X 100

60

Year
2010
2011
2012
2013

Net Profit After Tax

170787511.59
128057336.18
160480997.13
161587726.97

Total Asset
831737146.44
1037626798.87
1047186766.11
1505017882.37

Return on Investment
20.53%
12.34%
15.32%
10.74%

Graphical Presentation:

Return on Investment
25.00%
20.00%
15.00%

Return on Investment

10.00%
5.00%
0.00%
2010

2011

2012

2013

Interpretation:
Sudha has achieved a scanty and highly satisfying return on
investment in 2010 to 2013 which indicates the effective management
in generating profits with its available assets during this period and its
ROI was better in 2010 and increasing sign is positive for Sudha. The
company can increase more its efficiency by utilizing the firms assets
to generate adequate profitability.

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V. Return on Asset/Capital Employed (ROCE):

In the ROCE the profits are related to the total capital employed. The
term Capital employed refers to long-term funds supplied by the
creditors and owners of the firm. The amount of Capital employed is
equal to non-current liabilities+ owners equity. This ratio provides
sufficient insight into how efficiently the long-term funds of the
owners and creditors are being used. The higher the ratio, the more
efficient is the use of capital employed to generate profit.
ROCE= Net profit after taxes/ Total capital employed X100
Year
2010
2011
2012
2013

Net Profit After Tax

170787511.59
128057336.18
160480997.13
161587726.97

Total Capital Employed

1029415768.92
915600737.15
1006443335.55
111816629.44

Return On Asset
16.59%
13.99%
15.95%
144.51%

Graphical Presentation:

Return on Asset

2010
2011
2012
2013

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Interpretation:
Sudha achieved satisfying return on asset in 2013 which indicates the
effective management in generating profits with its total asset during
2010 to 2013 and its ROA was better and increasing during from
2012to 2013 which expose a positive sign of this company. The
company can increase more its efficiency by utilizing the firms
capital to generate adequate profitability.
VI. Return On Equity:
The Return on common equity (ROE) measures the return earned on
the common stockholders investment in the firm. Generally, the
higher this return, the better off is the owners.
Return on Equity=Net Profit after Tax/stockholder's equity X 100
Year
2010
2011
2012
2013

Net profit After Tax

170787511.59
128057336.18
160480997.13
161587726.97

Stockholders Equity
906986594.2
9381304155.38
1101785197.95
1380749426.92

Return on Equity
18.83%
1.365%
14.57%
11.70%

Graphical Presentation:

Return on equity
20.00%
18.00%
16.00%
14.00%
12.00%
10.00%
8.00%
6.00%
4.00%
2.00%
0.00%

Return on equity

2010

2011

2012

63

2013

Interpretation:
The earnings ability of Sudha or the common stockholders was good
condition in 2010 but gradually decrease in 2011.Specially in 20010 it
achieved a moderate level of ROE and sufficient level. The company
should achieve the best use of equity capital to enhance the earning
per share (EPS) and stockholders return.

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5.0. Major Findings

5.1. Findings on Sudha
5.1.1. From Quantitative Analysis
5.1.1.1. Ratio Analysis:
I. Liquidity Ratios:
The net working capital (NWC) of Sudha is satisfactory position
all the last five years from 2010 to 2013, because it showed a
positive networking capital which indicates a huge liquidity
reserve of the company.
The short-term financial solvency of Sudha is strong.
II. Activity Ratios:
The capital turnover ratio of SUDHA indicates that total capital
was not efficiently managed and utilized throughout the period
from 2010 to 2013.
The average collection period is shorter which may discourage
the credit sales.
The fixed assets of SUDHA are efficiently used to generate
sales.
The total asset turnover ratio of SUDHA indicates that, total
assets are efficiently used to generate sales throughout the
period from 2010 to 2013, as they are acceptable limit.
III. Debt Ratios:
The debt ratio of SUDHA indicates a little indebtedness and
lower degree of financial risk, to generate profits during 2010 to
2013.
SUDHA has adequate earnings to pay its interest charges.

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IV. Profitability Ratios:

The cost of goods sold is righty managed by SUDHA as it
produced a sufficient gross profit margin ratio.
The company should enhance its sales by managing the
operating cost efficiently for better conditions regarding
operating efficiency.
The management have to increase the ability to operate business
as the Net Profit Margin is keep on decreasing every year by
enhancing sales with cost effectiveness of operation.
SUDHA has achieved an enough return on investment, which
indicates the effective management in generating profits with its
available assets.
SUDHA achieved a highly satisfying return on capital employed
which indicates the effective management in generating profits
with its total capital employed during 2010-2013.
5.2. Conclusion
Compfed and the milk unions' journey has been very inspiring as they
have worked relentlessly even in adverse situations. Now when they
have got conducive atmosphere, their productivity has increased
manifold. The state government is ready to provide them further
financial assistance and all the cooperative societies follow the
Compfed model for their prosperity." The company is always trying
for better environment friendly energy solution. Keeping that in mind
the company is expanding its operation in different cities which is the
largest means for great achievement. This is a demand of time, being
successful in this project will open a new window to save currency.
State government aims at doubling the milk collection of 18 lakh per
litre a day now by setting up new dairy plants, but also get a
veterinary university this year to boost research in this field

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5.3. Recommendations
SUDHA can take the following recommendations for consideration:
SUDHA can increase its current assets more by enhancing the
accounts receivable and can decrease its current liabilities by
reducing its bank overdraft and short term loan.
The company can try to increase its quick assets like-cash,
accounts receivable and marketable securities.
It also can reduce inventory to improve its inventory turnover
ratio.
Companys management should be more efficient in utilizing
the companys capital to generate sales.
SUDHA is supposed to offer attractive credit policy to its
customers by extending credit period from 60 days to 90 days.
The company should try to utilize its fixed assets more
efficiently to accelerate sales.
The companys management should be more efficient in
utilizing the companys total assets to generate sales.
It should aim to achieve optimum capital structure by reducing
debt capital as well as by increasing equity capital to finance its
total assets.

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 The company ought to enhance its earnings by accelerating its

sales as well as by minimizing its operating costs in order to get
adequate earnings.
SUDHA should make an effort to increase its sales and manage
its cost of goods sold efficiently.
The company can enhance its sales by managing the operating
cost efficiently.
It should amplify its managements ability to operate the
business by enhancing sales with the cost price effectiveness of
the operation.
The company should try hard to intensify its efficiency in
utilizing the firms assets to generate adequate profitability.
The company should increase its efficiency in utilizing the
firms capital to generate adequate profitability.
It is supposed to achieve the best use of equity capital to
enhance the earning per share (EPS) and stockholders return.
SUDHA should increase its net profit after taxes available only
for common shareholders which can improve the EPS. In this
regard the firm should achieve the favourable effect of financial
leverage.

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70

5.4 Bibliography:
Books:
1. Lawrence J. Gitman Principal of Managerial Finance.
Pearson edition
Website:
1. www.sudha.coop
2. www.patnadairy.org
Annual Report:
1. SUDAH, 2010
2. SUDHA, 2012
3. SUDHA, 2013

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