CHAPTER 1

INTRODUCTION

DEFINITION
Finance being an important part of business has extended its scope to wider
paradigms in the recent years. Due to its growing significance in today’s corporate
world, there has been introduction of scientific analysis of the financial
information. Financial` Management is surrounded by financial planning and
decision making either for long term or for short term and further to analyze the
implications of such decision on the firm. Any firm makes its financial planning on
the basis of its past records. The available data acts as a catalyst to make future
decisions. Using the past financial information any firm would know if it is able to
maintain the same trend or has its position deteriorated or improved over the years.

The rationale behind ratio analysis lies in the fact that it makes data
comparable. It is a systematic use of ratio to interpret the financial performance so
that the strengths and weaknesses of a firm as well as its historical performance and
current financial condition can be determined. The financial performance provides
a summarized view of the financial position and operations of the firm. A lot of
things can be learnt on analyzing the financial data and information regarding its
operations. The financial performance is considered as the performance reports of a
firm on the observation of which much can be understood.

The analysis of the financial performance is a process of evaluating the

relationship between component parts of financial performance to obtain a better
understanding of the firm’s position and performance. The financial performance
can be analyzed by calculating various ratios and interpret them in a proper
manner. Thus, ratio analysis is widely- used tool for financial analysis.

Ratios are relative figures reflecting the relationship between the variables. They
enable us to draw conclusions regarding financial operations. Comparison with
related facts is the basis of ratio analysis. Four types of comparison are involved:

1. Trend ratios: Trend ratios involve comparison of the ratios of the firm over
time, that is, present ratios are compared with past ratios of the same firm.
These indicate the direction of change in the performance of the firm.

2. Inter-firm comparison: These involve comparison of the ratios of the firm

with those of others in the same line of business or for the industry as a
whole reflects its performance in relation to its competitors.

3. Comparison of items within a single year’s financial statement of a firm:

These ratios involve the comparison of various items within the balance
sheet of the firm in order to understand how one variable in the balance
sheet can impact over the other.

4. Comparison with standards or plans: this kind of analysis helps in knowing

to what extent have the firm been able to achieve the set standards and
where have the firm been not able to commensurate with the planned action.

CLASSIFICATION OF RATIOS:

Liquidity Ratios:

The liquidity ratios measure the ability of the firm to meet its short-term
obligations and assess its small term solvency. While borrowing for short-term
these
liquidity ratios are of high importance as they are checked by the short-term lenders
before lending.

The following are the types of liquidity ratios:

Current Ratio

The current ratio is the total current assets to current liabilities. The current
assets of the firm, represents the assets which in the normal course of the business
can be converted into cash within a short span of time. The current liabilities are
liabilities of the firm which mature in a short span of time. These ratios measure
the short-term solvency, that is, its ability to meet short term obligations. The
current ratio is given by:

Quick Ratio

This ratio is also known as Acid-Test Ratio. It is a measure of liquidity

designed to convey the information regarding the composition of the current assets
of the firm. It is referred to as quick ratio because it is a measurement of the firm’s
ability to convert its current assets quickly into cash in order to meet its current
liabilities. The quick ratio is between the quick current assets and the current
liabilities. It is given by:

Net working capital ratio:

The difference between the current assets and current liabilities is called
as the net working capital of the firm. This is used as a measure of a firm’s
liquidity. It is considered that, the firm having greater working capital is more
liquid and is
able to meet its current obligations with higher efficiency. In the above ratio the net
working capital has been related to the net assets (capital employed).

Capital Structure/ Leverage Ratios

Another category of ratios which are extensively used to measure the

long-term solvency of the firm are the leverage or the capital structure ratios.

These ratios are useful in the analysis of the firm in terms of its long-term liquidity
in order to satiate the long-term creditors which prefer the assurance of periodic
and regular payment of the interest and also of the principal with the arrival of the
debt maturing date. Some of the Capital Structure Ratios are as follows-

 Debt-equity Ratio

 Total Liabilities-Total Assets Ratio

 Coverage Ratio

Interest coverage ratio

Dividend coverage ratio

Total coverage ratio.

Total cashflow coverage ratio.

Debt service coverage ratio.

Debt-Equity Ratio:

It reflects the level of debt indulged in the total capital structure. It

shows the relative claims of the creditors as against the owners’ funds.
Alternatively, it also
indicates the relative proportions of debt and equity in financing the assets of the
firm. This ratio acts as an indicator of the margin of safety to the creditors.

Debt to Total Capital Ratio:

This ratio explains the proportion of total debt (long term liabilities) to the total
assets of the firm. One can understand that the debt to the total assets account for so
much. This signifies the stake of creditors in the total assets of the firm. Thus, the
debt to total capital (total assets) is calculated as follows:

Coverage Ratios:

The second category of leverage ratios are coverage ratios. These ratios are
computed from the information available in the profit and loss account. The
obligations of the firm are normally met out of the earnings or the operating profits
and not out of the permanent assets. Hence it is very important for the long-term
creditors to keep a check on the soundness of the firm to service their claims like
interest on loans, repayment of the installment of the loans, redemption of
preference capital on maturity, preference dividend, etc. This ability of the firm is
indicated by the coverage ratios. The coverage ratios measure the relationship
between what is normally available from the operations of the firms and the claims
of the outsiders. The important coverage ratios are interest coverage ratio, dividend
coverage ratio, total coverage ratio, total cashflow coverage ratio, debt service
coverage ratio.

Interest coverage ratio:

The interest coverage ratio or the times interest earned is used to test the firm’s
debt-servicing ability. The interest coverage ratio is computed by dividing earnings
before interest and taxes (EBIT) by interest charges.
Profitability Ratios:

Equally important with the short term and long-term solvency, is the
financial soundness of the firm which can be judged using the profitability ratios
which imply the profit earned by the firm through the sales. These ratios indicate
the operating efficiency of the firm as well as the ability of the firm to ensure
returns on the amounts invested by the shareholders by earning adequate profits.

Gross Profit Margin:

Gross profit is the measure of the relationship between profit and sales.
This ratio indicates the gross profit earned out of sales. It shows the profits
available for appropriations.

A higher ratio implies better management and indicates that the cost of
production is low; in contrast the lower margin is a danger sign for the firm. Thus,
gross profit margin indicates the health of the company.

Net Profit Margin:

This measure is an indicator of the management’s ability to operate the
business with sufficient success not only to recover from revenues of the period,
the cost of merchandise or services, the expenses of operating the business
(including depreciation) the cost of the borrowed funds, but also leave a margin of
reasonable compensation to the owners for providing their capital at risk. The ratio
of net profit (after interest and taxes) to sales essentially expresses the cost price
effectiveness of the operation. A higher margin would ensure adequate return to the
owners as well as enable a firm to withstand adverse economic conditions when
selling price is declining, cost of production is rising and demand for the product is
falling. The lower margin has the contrasting effect.
Expenses Ratio:

Expenses Ratios are also a measure of profitability. It can be obtained

by dividing expenses by sales. There are different kinds of variants of expenses
ratio. The expenses ratios are related to both gross and net margin. These act as a
measure of profitability. As a working proposition the firm should maintain a low
ratio. A high ratio is unfavorable as it leaves a small share of sales to meet
all other obligations like interest, taxes, etc. The different variants of expenses
ratio are illustrated below:

Return on Investments:

It would be unwise if only the profitability ratios are considered with

sales and no return on investments are considered; the return on investments act as
a parameter of knowing if the profits earned justify themselves. Any firm may earn
fairly good percent of profit of sales but when calculated on the total investment
the profit percent may seem low. This signifies the importance of the return-on-
investment calculation. The various types of return-on-investment ratios are:

Return on Assets

Return on Equity

Return on Capital Employed

Return on Total shareholders’ Equity

Earnings per share

Overall profitability
Return on Assets:

This ratio is one of the important ratios which assess the return on the
assets employed. Here the profitability is measured in terms of the relationship
between net profits and assets. The ROA measures the profitability of the total
funds/ investments of a firm.

The return on assets is calculated as follows:

Return on equity:

The ordinary shareholders are given their dividends out of the profits
after taxes. Therefore, a return on shareholders’ equity is calculated to see the
profitability on the owners’ investment. The return on equity is net profit after
taxes divided by shareholders’ equity. This ratio reflects the extent to which the
objective of earning a satisfactory margin on owners’ funds is accomplished.
Thus, this ratio is very important from the view point of the prospective
shareholders and also management of the firm who has the responsibility of
maximizing the shareholders’ wealth. The return on equity calculation can be done
using the formula below:

Return on Capital Employed:

ROCE is another type of ROI. It is similar to the ROA except in one respect. Here
the profits are related to the capital employed. The capital employed basis provides a
test of profitability related to the sources of long-term funds. A comparison of this
ratio with the industry average and over time would provide sufficient insight into
how efficiently the long-term funds of owners and creditors are being used.

Return on total Shareholder’s Equity:

According to this ratio, profitability can be measured by dividing the net profits
after taxes (but before preference dividend) by the average total shareholders’
equity. The term total shareholders’ equity comprises of

Preference share capital

 Ordinary shareholders’ equity consisting of equity share c a p i t a l ,
share premium, reserves and surplus (excluding accumulated losses).

This ratio reveals how profitably the funds of the owners have been
utilized by the firm. As the equity shareholders or the ordinary shareholders are
supposed to bear all the risks of the business, they are called as real owners of the
business. Hence the ratio which emphasizes the return on ordinary shareholders’
equity is also termed as net worth. If the company does not have any preference
shareholders, so the ratio of return on total shareholders’ equity will be equal to the
net worth.

Return on total shareholders’ equity is given by:

Earnings per Share:

EPS measures the profit available to the equity shareholders on a per

share basis, that is, the amount that they can get on every share held. It is calculated
by dividing the profits available to the shareholders by the number of the
outstanding shares. The profits available to the ordinary shareholders are
represented by net profits after taxes and preference dividend. Thus, EPS is given
by
Overall Profitability:

The firm can assess its overall profitability by calculating the earning
power of the firm using total assets and the net profit after taxes. This is a central
measure of the overall profitability and the operational efficiency of the firm.
However, this can also be called as a product of the net profit margin and the
investments turnover ratio.

Activity Ratios:

Creditors and owners invest in the various assets of the company in

order to generate profits out of the business. Sales of the firm can be enhanced with
the proper management of the assets of the firm. Activity ratios are employed to
evaluate the efficiency of asset management and their utilization by the firm. These
are also called as turnover ratios as these indicate the speed with which these get
themselves converted into cash. These ratios measure the liquidity of the firm;
these like the current ratio determine how quickly certain current assets get
converted into cash. The relevant turnover ratios are-

Inventory Turnover Ratio:

Inventory turnover indicates the efficiency of the firm in producing and

selling its products. It is calculated by dividing the cost of goods sold by the
average inventory. From the following table we can calculate the inventory
turnover ratio for the five successive years. The inventory turnover ratio is given
by:

Debtors Turnover Ratio:

Firms also sell their goods on credit; this creates the debtors account in
the books of the firm. Debtors are included in the current assets as they are
convertible into cash. Thus, the liquidity position to a large extent depends on
the
quality of debtors as debtors forms a major part of the current assets. Debtors’
turnover ratio indicates the number of times debtors turnover each year. High ratio
implies that the firm has been able to collect its debts efficiently and the debtors
have good credibility. A lower ratio states the firm needs to revise its credit
policies and see to it that the debtors’ turnover is increased.

It is given by:

Assets Turnover Ratio:

It is also known as Investment Turnover Ratio. It measures the

efficiency of the firm in managing and utilizing its assets. There are several
variants in the ratio depending on the variants of the assets like total assets, fixed
assets, current assets, etc.,

Fixed Assets Turnover Ratio:

This ratio determines the extent to which the firm uses the fixed assets
efficiently in order to earn more sales and profits. A higher ratio implies that the
firm has been managing and utilizing its fixed assets. A lower ratio suggests more
scope for proper management of fixed assets.
1.2 COMPANY PROFILE

Welcome to the Hatsune world, India's largest private dairy. From a modest ice-
cream manufacturer to one of the leading names in India's dairy sector in just a span
of three decades, Hatsune now stands majestically as a hallmark of successful
entrepreneurship. Be it in the dedication to quality, in employing the world's latest
technology, innovative marketing strategies, or bringing prosperity to hundreds of
thousands of farmers in the south.

It started as a creamy dream in 1970: Arun Ice-cream, the rich, delicious brand
that has captured the hearts of millions of ice-cream lovers. With over 70
delightful varieties it is the No. 1 selling ice-cream in south India. Arun Ice-cream is
manufactured at the most modern plant of its kind in Chennai. From the ingredients,
to the packaging and distribution stringent quality control is maintained at every
stage which has made Arun Ice creams the first ice-cream brand in India to win the
9001 certifications for quality and world-class manufacturing facilities. Arun Ice-
creams reach the consumers through the
largest network of exclusive parlors in India. These and the many Arun mini-parlors
in the rural areas provide employment to thousands of people. When the vision is
clear and the dedication total, growth follows, and Hatsune expanded.

When the market was ruled by unhygienic milk, Hatsune came up with Arokya- the
standardized, homogenized and bacteria clarified milk. Arokya milk is still
unsurpassed in purity, thickness and quality and has made it one of the most
preferred milk brands consumed by several hundred thousand households every day
and then came Hatsune Komatha. This product is Hatsune’s proud contribution of a
superior quality, lower fat milk which Hatsune calls 'Cow's milk'. Komatha is the
perfect symbolization of the values and attributes of the provider of fresh milk - the
cow. No wonder then Hatsune Komatha milk is
hailed as the most suitable milk for the whole family. Loved by kids and adults like
for its taste and freshness.

Hatsune handles a total 1.8 million liter a day. Hatsune’s quest for quality starts at
procurement, two times a day, 365 days of the year at over a thousand
collection centers, from more than a hundred thousand farmers. Hatsune sources its
milk with an ever-watchful eye, always keen on quality. It is an enthusiastic and
bustling activity when milk takes its first step in its journey to the consumers' homes.

THE LARGEST DAIRY IN THE LAND OF MILK

 India, the largest producer of milk in the world produces over 97 million
annually. For the past 4 years India has been a consistent exporter of
Dairy Ingredients to the world.
  The average growth rate of milk production in India is 4%. The
Northern & Western part of India is a major producer of Buffalo milk
and the South of India produces cow's milk.
 Hatsune, based in South India is the largest private sector dairy company
in India and hence has a distinct advantage of dealing in cow's milk.
 Hatsune Argo Product Limited is a public limited company that was
founded by Mr. R.G. Chandramohan, who is also the present Chairman &
Managing Director.
 In 1970, Hatsune began with the pioneering effort of producing Arun
ice-cream, which still continues to be the most popular ice-cream brand in
South India.
 Hatsune started marketing fresh milk in pouches from 1993 and
manufacturing dairy ingredients from 2003.
 Today, Hatsune is a USD 185 million company, listed in the Mumbai Stock
Exchange.

Dairy ingredients products:

Hatsune’s Range of Dairy Ingredients is made directly from Liquid Milk

and contains all the premium qualities and Nutritional benefits of Fresh
COW'S MILK.

Hatsune’s Procurement team ensures timely collection, testing of milk at

the point of collection, cattle feed sales, encouraging farmers to grow them
herd size, training farmers on a better animal management and clean milking.
Over 110 veterinary doctors under direct employment assist in artificial
insemination, feed management, breed management, vaccination program
and also render full-scale animal care.

Hatsun’s Dairy Ingredients are processed at the state-of-the-art

processing technology run by people with strong technological capabilities.
These, together with an innovative and flexible approach, enable us to
manufacture a range of high-quality products.

Hatsune has an annual production of 20,000 MT of Milk Powders and

11,000 MT of milk Fat at present.
Dairy Ingredients serves the Food & Nutrition Industry including the
Dairy, Bakery, Pharmaceutical, Confectionery, Snacks & Savory markets.

COMPANY PROFILE:
 Hatsun Argo Product Ltd (HAP) is a dairy product company. It carries
out the manufacturing, processing and marketing of dairy products such as milk, ice
creams, dairy whitener, curd, skimmed milk powder, ghee and paneer. It also offers
artificial insemination, animal husbandry, animal healthcare, feed and fodder and
balanced cattle food. HAP markets its products under the brand names Arun Ice-
creams, Arokya Milk, Hatsune, Abaco, Santosa and HAP Daily. The company has
manufacturing and distribution plants in Tamil Nadu, Karnataka, Goa, Telangana,
Maharashtra, Chhattisgarh, Odisha, Kerala, Gujarat, Goa and Andhra Pradesh. HAP
is headquartered in Chennai, Tamil Nadu, India.

Milk:

Arokya - Milk that suits children & adults alike!!!

Arokya has more nutrition and butterfat. Growing children can consume Arokya
because it's wholesome and nourishing. It fortifies the bones with calcium, proteins
and minerals. In case of adults, Arokya can be diluted with water & used.

Arokya is healthy and ready nourishment for growing children. Fortified with 4.5%
butterfat, Arokya helps in the growth of vital strengths of a child - both physical and
mental. It contains adequate quantities of calcium and phospholipids for
development of the bones and brain respectively.

Unlike toned milk where butterfat is removed to make it only 3%, Arokya has 4.5%
butterfat. Hence the catchy slogan attached to it: Nothing added. Nothing removed.
Nobody underscores the need for healthy foods more than the World Health

Organization (WHO). In fact, World Children's Fund (WCF)-a body recognized by

WHO- believes that milk with 4.5% butterfat is best for growing children.

It is very critical to give every child the right kind of food and nutrients, and to give
the child just when he needs them the most. If you are looking to make your child
skilled, agile and admired, switch to Arokya. And watch your child excel.

Hatsun Santosa FULL CREAM Milk

A relatively new product in Hatsune’s basket of offerings, Hatsune Santosa Full

Cream Milk is full cream milk that caters to niche commercial markets.
Specially designed for hoteliers and caterers: Hatsune Santosa Full Cream Milk is
well suited for Hotels and Catering needs as it is ideal for preparation of curd, lassi,
milk shakes, sweets, pajamas, tea and coffee. This is because it is thicker with 6%
butter fat and 9% SNF and is also homogenized. The aroma of tea and coffee is
greatly enhanced due to the higher SNF content and because of bacteria clarification,
the beverage also tastes fresher.

Pack sizes: 2000ml, 1000ml, 500ml & 150ml

Hatsun Komatha Toned Milk

Another fresh milk in the stable of Hatsune, Hatsune Komatha Toned Milk was
launched in the year 2000. A lighter milk than Arokya, Hatsune Komatha Toned
Milk comes with all the good processing technologies deployed by Hatsune, i.e.,
homogenization, pasteurization and bacteria clarification. This ensures that the high
quality and hygiene standards set by Hatsune for its products are met.
Distribution Stockiest / Agents. We reach our customers through our wide network
of 30 Distribution Stockiest and over 1500 Agents in Tamil Nadu / Bangalore.

Pack sizes: 5000ml, 500ml, 250ml, 200ml & 100ml

Hatsun Cooking Butter

Hatsun's all-natural high-quality Cooking Butter has something that makes it stand
out from the crowd - it has dollops of 'zeal' in it. Hatsun Pasteurized Cooking Butter
is made from the choicest of creams, churned from pure farm fresh milk. It is then
processed in a high-tech dairy plant where hygiene and quality are given utmost
importance. This ensures that sweets, savories and cakes have a great taste and
aroma.

Pack sizes: 200g and 500g

Hatsun Cow Ghee

At Hatsun, we decided that Hatsun would be different from other branded ghee’s that
Jostle for your attention. So, what makes Hatsun Ghee different? The nutty taste of
Hatsun Ghee - a special grade ghee, is perfect for Indian cuisine in general and sweet
making in
particular. Being made only from cow milk, all the freshness and uniqueness
associated with cow milk can be found in Hatsun Ghee. It has the distinct property of
carrying and enhancing the flavor of practically any dish that one briefly fries in
Hatsun Ghee. Hatsun Ghee comes with the 'Agmark' seal of quality.

Pet Jar: 200ml, 500ml & 1000ml

Standby Pouch: 100gms & 200gms
Sachet: 20ml & 40ml
Hatsun Butter Milk

Rich & tasty buttermilk made from farm-fresh milk

Available in easy-to-carry 200 ml pouch

Hatsun Curd

Hatsun Curd is a semi-solid fermented milk product, with excellent consistency. It

has a very low bacteria count making it extremely healthy in nature and delightfully
tasty in character.

Available in convenient packs

1. 125 gm cup
2. 160 gm, 400 gm pouches

Hatsun Paneer

 Made from farm-fresh milk.

 Higher milk solids make it tastier and helps in retaining texture & shape.
 Ideal to cook mouth-watering dishes.
 Available in 200 gm pack.

CHAPTER II
LITERATURE OF REVIEW

Idhayajothi, Latasri, Manjula and Banu (2014) the study throws light on overall
financial performance of the company. It reveals that the financial performance is fair.
It has been maintaining good financial performance and further it can improve if the
company concentrate on its operating, administrative and selling expenses and by
reducing expenses. The company should increase
sales volume as well as gross profit. Despite price drops in various products, the
company has been able to maintain and grow its market share to make strong margins
in market, contributing to the strong financial position of the company. The company
was able to meet its entire requirements for capital expenditures and higher level of
working capital commitment with higher volume of operations and from its operating
cash flows.

Warrad and Rania (2015) stated the impact of total asset turnover ratio and fixed
asset turnover ratio on return on assets among Jordanian industrial sectors. Simple
linear regression used to test a period 2008 - 2011 in order to conclude the extent of
the impact of activity turnover ratios on company’s performance among Jordanian
industrial sectors. The study showed there is significant impact of total asset turnover
ratio on Jordanian industrial sectors return on asset, thus changes in return on asset
have described by total asset turnover ratio. Also, there is significant impact of fixed
asset turnover ratio on Jordanian industrial sectors return on asset, thus changes in
return on asset have described by fixed assets turnover ratio, finally, there is
significant impact of activity turnover ratios on Jordanian industrial sectors
performance. The study also concluded that the textiles, letters and clothing sector
have the lowest total asset turnover ratio and the tobacco and cigarettes sector has
the highest and paper and cardboard Industries sector at the lowest fixed assets
turnover tobacco and cigarettes has the highest, on the other hand that the glass and
ceramic industries sector has the lowest return on assets and the mining extraction
sector has the highest.

Sink (2015) undertook a study on the impact of liquidity management on

profitability performance of SAIL based on secondary data during 2000-01 to 2009-
10 by using financial & statistical techniques such as profitability ratios, Karl
Pearson correlation & Student t-test to assesses the relationship between liquidity
and profitability. The study revealed that the current ratio was having the most
significant influence on the profitability of SAIL. The researcher in study
emphasized on liquid assets to be maintained in a proper way.

Aheswari (2014) made a study on the working capital efficiency with the data taken
from Indian Steel companies for the period 2008-2013; according to her, working
capital was the most crucial factor of liquidity & performance of any organization.
Every company requires an adequate amount of working capital
irrespective of its size, nature and for continued survival and performance of any
organization. Her research study employed various financial ratios and statistical
tools to assess objectives. The study concluded that there were insignificant
differences between the ratios of selected Indian companies.

Madhavi (2014) undertook a comparative study on working capital management of

two paper mills i.e., Andhra Pradesh Paper Mills Ltd. and Seshasayee Paper & Board
Ltd. The study covered the period of 2002- 2011, consisting of primary and
secondary data to explore the adequacy of working capital and its impact on firms’
profitability and net worth. The financial data of both the paper mills were analyzed
with ratio analysis tool and concluded that current assets in the Andhra Pradesh
paper mill must be utilized in a more efficient way to pay off short-term liabilities.
The study also suggested that cash and bank balance should have been effectively
utilized.

M.Y. Khan & P.K. Jain.” Management accounting” in (2007) “Financial

performance is the process of selection, relation and evaluation the focus of financial
position. The financial statement is significant relationship that exists
between them. The analysis of financial statement is a process of evaluating the
relationship between component parts of financial statement to obtain a better
understanding of the firm’s position and performance.

The study of Laitinen (2006) presents a framework for the public financial
statements of the partner firm’s financial statement analysis, a network of small and
medium sized enterprises. The proportion of income and balance sheet
statement items are traced by a simple estimation to the resources used by the
network and identified by each firm. The virtual network income and balance sheet
statements are made up of the allocated size.
Gangadevi (2008) studied the financial leverage and financing decision for the
selected 30 electronic companies analysed for the five years period (1998 to 2003),
In his study he found that the company has an inverse relationship standard
like high operating leverage should kept low financial leverage and vice-versa. So, it
is desirable that a company has low operating leverage and a high financial leverage.

Noel Capon et al (1994) studied the Strategic Planning impact on financial

performance by meta-analysis which has omitted a major study on corporate
planning in the fortune five hundred manufacturing firms. He concluded that
there is a small but positive relationship between the strategic planning and the
performance exists.

CHAPTER III
RESEARCH METHODOLOGY

3.1 RESEARCH PROBLEM

The current, quick and net working capital ratios enumerate that the
company is in a favorable short term liquidity position, which is of utmost
importance to the short-term creditors as they commensurate with the standards.
The company’s long-term liquidity is beyond satisfaction. The company on the
outset has a risk averting nature that is why full utilization of debts is not done. The
gross profit margin was fluctuating throughout the period of 5 years. GPM & NPM
were below satisfaction owing to the high operating expenses and other costs;
however, the GPM & NPM gradually rose in the later years. ROI ratios are
maintained at adequate level. The activity ratios have shown that the current assets
are better managed whether it is inventory or the debtors. Fixed assets require more
attention.

Objectives of the Study:

The main aim of this project report is as follows
 To the partial fulfillment of the requirement of the B.B.M Degree.
 To know the consumers behavior towards HATSUN MILK, ARUN ICE
CREAMS AND MILK PRODUCTS.
 To know the sales values of the HATSUN PRODUCTS, ARUN ICE
CREAMS AND MILK PRODUCTS in Shimoga City.
 To know the contribution of the HATSUN milk products and ARUN
ICECREAMS for healthiness of people in Shimoga City.
 To give suggestions for improvement of marketing strategy of HATSUN
MILK, ARUN ICE CREAMS and MILK PRODUCT.

3.3 RESEARCH METHODOLOGY

In view of the objects of the study listed above an exploratory research,
design has been adopted. Exploratory research is one which is largely interprets
and already available information and it lays particular emphasis on analysis
and interpretation of the existing and available information.
 • To know the financial status of the company.
• To know the credit worthiness of the company.
• To offer suggestions based on research finding.

RESEARCH DESIGN
Research design is the arrangement of conditions for collections and analysis
of data in manner that image to combine relevance of the research design in the
conceptual structure within which research is conducted. It constitutes the blueprint
for the collection, measurement and analysis of data.

Scope of the Study:

The scope of this study is restricted to the study of consumer behavior towards
HATSUN MILK, ARUN ICE CREAMS AND MILK PRODUCTS. The area of the
study has been restricted to Shimoga City only. The survey has been conducted on
the people of Shimoga.

Methodology:
Following are the methods adopted for the collection of required data relating
to the project report.
1) Fieldwork method: Visited various dealers & householders to gather views
towards the product.
2) Survey method: An exhausted survey was conducted about the sales
performance of Arun ice creams & assesses the marketing strategy adopted by
Sudeer ice-cream parlor.
3) Questionnaire method: An appropriate questionnaire was designed
separately for selected Arun ice creams dealers & consumers with a view to
ascertain their attitude & opinion of the consumer preferences towards various
brands of ice cream, in general & particular by Sudeer ice-cream parlor.
 For the purpose of this project report the data has been collected from both
primary and secondary sources.

 The primary data has been collected from field survey with the help of
interview schedules. This has been collected through questionnaires.
 The Secondary data has been collected through, published sources,
unpublished sources, records etc.
 Sources of Data

1. Primary data have been collected through

a) Interview with the partners of Sudeer ice-cream parlor, Shimoga for getting
information about history, turnover, staff pattern, area of distribution of firm etc.,
b) Within the framework of objectives, a survey was conducted to gather the
opinions of consumers of chocolates by formulating questionnaire. Besides this, a
survey of dealer’s opinions towards marketing of ice cream was also conducted
through questionnaire method. Most of the respondents were personally
interviewed to get reliable response from them.

2. Secondary data have been collected through

a) Journals
b) Newspapers
c) Encyclopedias
d) Text Books
e) Company’s website
f) Company annual report

Limitations of the Study:

 The limitations of the study are as follows:
 Limitation of time.
 Lack of co-operation of consumers
 Only few members were surveyed. Large number of consumers is spread
over wide area.
 Consumers were hesitated to give real information.
 Only 75% of the accuracy has been achieved.
 There are many chances of consumers justifying his purchase whether it is
wrong or right. This creates a bias in response.
 This study has carried out under time constant, due to this we have drawn
our interface with whatever little response we get. Thus, cent percent
accuracy cannot be expected by this report. However, we feel that us
conclusions are practical and realistic.

3.7 STATISTIC TOOL USED IN THE STUDY

• Ration Analysis

Current Ratio
This ratio indicates the rupees of current assets available for each rupee of
current Liability. By this ratio we can see the stability of the firm or short-term
financial position of the firm. The ratio is calculated as fallows;
Current ratio= current assets/current liabilities

Quick /Liquid/Acid Test Ratio:

It shows the relationship between quick assets & quick liabilities.
It shows the business solvency or strength of liquidity. That is calculated as

Quick ratio= Quick assets/ Current liabilities

NET WORKING CAPITAL RATIO
Net working capital ratio shows how much of a company’s current
liability can be met with the company’s current assets. The net working capital
ratio is the measure of a company’s capability in meeting the obligations that must
be paid within the foreseeable future. Therefore, it shows the liquidity that is
available with the company to meet the liabilities

NET WORKING CAPITAL RATIO = Net Working Capital/Net Assets

Activity Ratios
The ratio is calculated by dividing the net sales by the working capital.
The ratio helps you figure out the net annual sales generated by the average
amount of working capital during a year.

Asset Turnover Ratio = Revenue ÷ Average Total Assets.

Debtors Turnover Ratio:

This ratio indicates the extent to which the debts have been collected in time.
It gives the average debt collection period. The higher is the turnover ratio and
shorter is the average collection period the better is the trade credit management
and the better is the liquidity of debtors, as short collection period and high
turnover ratio imply prompt payment on the part of debtors that is calculated as
follows:

Debtors’ collection period=no of days in a year/debtor’s turnover ratio

Assets Turnover Ratio

This ratio measures the efficiency and profit earning capacity of the organization.
Higher ratio indicates intensive utilization of fixed asset. Lower ratio indicates
under
utilization of assets.
 Fixed Asset – Turnover Ratio: Cost Of sales/Fixed asset

Current Assets Turnover Ratio:

It indicates the percentage of owner’s fund invested in fixed asset. if ratio is
greater than 1, it means that creditors obligation has been used to acquire a part of
the fixed assets.

Current Assets=Fixed asset/Shareholders funds

Total Assets Turnover Ratio

It indicates the percentage of owner’s fund invested in fixed asset. if ratio is

greater than 1, it means that creditors obligation has been used to acquire a part of

the fixed assets.

Total Asset to Proprietor’s Ratio=Fixed asset/Shareholders funds

Capital Turnover Ratio

Working capital turnover ratio can be calculated by dividing the net
sales done by a business during an accounting period by the working capital.
Capital Turnover = Total Sales / Shareholder's Equity

Debt-Equity Ratio
The debt-to-equity ratio (D/E ratio) shows how much debt a company
has compared to its assets. It is found by dividing a company's total debt by total
shareholder equity. A higher D/E ratio means the company may have a harder time
covering its liabilities.
Debt/equity = Total debt/ total shareholder's equity
SOLVENCY RATIOS

Debt to Total Capital Ratio

This ratio indicates the extent to which the debts have been collected in time.
It gives the average debt collection period. The higher is the turnover ratio and
shorter is the average collection period the better is the trade credit management
and the better is the liquidity of debtors, as short collection period and high
turnover ratio imply prompt payment on the part of debtors.

That is calculated as follows:

Debtors’ collection period=no of days in a year/debtor’s turnover ratio

Interest coverage ratio

The interest coverage ratio is used to measure how well a firm can pay the
interest due on outstanding debt. The interest coverage ratio is calculated by
dividing a company's earnings before interest and taxes (EBIT) by its interest
expense during a given period.

Interest Coverage Ratio (ICR) = EBIT / Interest Expense

Net Profit Margin

This ratio is also known as net margin. This measures the relationship
between net profit and sales of a firm. Depending on the concept of net profit
employed, it is calculated as follows

Net profit ratio=Net Profit/net sales *100

NET PROFIT RATIO

This ratio is also known as net margin. This measures the relationship
between net profit and sales of a firm. Depending on the concept of net profit
employed, it is calculated as follows

Net profit ratio=Net Profit/net sales *100

LIMITTIONS OF THE STUDY:

The present study has the following limitations:

1. The difficulty in comparing data of one year with another due to changes in the
circumstances and conditions in two different years.

2. The impact of inflation also acts as a serious limitation for the trend ratio
analysis.
3. Heavy working schedule of the staff proved to be a communication barrier at
several points.
4. Confidential nature of the financial data hindered it’s in- detail availability and
also analysis of the same.
 CHAPTER-IV

ANALYSIS AND INTERPRETATION OF DATA

4.1 LIQUIDITY RATIOS:

Table No: 4.1

Year Current asset Current liability ratio

2018-19 77976.06 1302102.55 5.988
2019-20
2020-21
2021-22
2022-23