14-03-2012, 05:02 PM
working capital and profitability analysis of sumul dairy
F. ANALYSIS.docx (Size: 124.35 KB / Downloads: 50)
CALCULATION OF OPERATING CYCLE OF COMPANY: -
As we know the operating cycle as the duration which the firm requires to manufacture and sell the product and collect cash. Thus larger is operating cycle, larger will be the investment in current assts. Here in Sumul dairy the operating cycle period for the 2010 is approximately 28 day which is reduced in 2011 by 4 days. The operating cycle period is very small in dairy firm because of milk is perishable product so that it is not stored for more than few days and it is regularly purchased by customer without any credit.
3 INVENTORY MANAGEMENT IN SUMUL DAIRY
A firm needs an inventory control system to effectively manage its inventory. There are several inventory control systems in vogue. The nature of business and size dictate the choice of an inventory control system.
In Sumul dairy inventory is managed by the first in first out (FIFO) method. Because as we know the milk is perishable product and freshness of product is very important. Second reason is milk collected by various cooperatives from the village of Suart district transported in factory daily. So that FIFO method is suitable for the dairy firm.
Ratio analysis has been used for making evaluation of Inventory management performance. The ratios for last two years have been worked out and compared. The various figures are given in the table.
CASH MANAGEMENT IN SUMUL DAIRY
Cashier will take cash from agents and enter related data in the register and issue a counter slip to the agent. Recovery dept. keep watch on cash flow for every agent and in Cash of credits more than the deposit of agent, milk supply will be stopped immediately with information. A detailed statement of account for the milk supply and cash deposits with Trade discount is being issued at the end of the month. Surplus cash are deposited in bank as call deposited. Any query regarding this statement is entertained within 8 days.
The following ratios have been used to evaluate different aspects of cash management.
1. Cash to Current Assets Ratio
2. Cash turnover Ration
3. Average age of Cash
The figures of cash and Bank Balance, total current assets and current liabilities for the year 2010 and 2011 are given in the table.
MANAGEMENT OF RECEIVABLE IN SUMUL DAIRY
When firm sell goods for cash, payments are received immediately and therefore no receivables are created. However when a firm sells goods or services on credit, payments are received only at a future date and receivables are created. It is an essential marketing tool in modern business trade. Credit creates receivables, which the firm is expected to collect in near future. A firm grants credit to its customers so that its sales are its customers so that its sales are not lost to competitors.
Account receivable constitutes a significant portion of the total current assets of the business after inventories. The receivables arising out of credit has three characteristics.
1. It involves an element of risk, which should be carefully analyzed.
2. It is based on economic value. To the buyer, the economic value goods or services pass immediately at the time of sale, white the seller expects an equivalent value to be received later on.
3. It implies futurity. The customers from whom receivables have to collected in future are called debtors and represents the firm’s claim or asset.