CHAPTER-I
INTRODUCTION
1.1 General Background
Nepal is one of the least developed agricultural countries of the world more than 80% people are economically engaged into this sector. The contribution of agriculture sector is more than non-Agricultural sector into the gross Domestic product. But on the other hand living standard to the Nepalese people has been going backward per year. Poverty has stood as a serious challenge to the country. There has the problem of basic needs. The nation is not able to produce the national requirement of goods and services. In these circumstances it is realized that without industrial development there is impossible to economic and social development. The contributions of productive industrial sector in GDP remain around 10 to 15%.
Industrialization is the most essence element of rapid economic development for developing country like Nepal. Therefore this country should be well informed about the needs significant of industrialization. Industries have an important role to play in accelerating the rate of economic development. Industrialization is a major infrastructure for stable and reliable economic development. Another fact is that only the establishment of industry is not complete solution. The fundamental problem of the industry is the protection and crating environment for smoothly running in future. Industrialization measures the value-added components in agricultural products and helps to right the labour force from agricultural to industrialization.
As it is not possible to expand economic activities expeditiously only through the existing agro based economic structure there is a need to enhance the industrial sector in parallels with other sector of the country. Now these days the private sector is also establish different industries. Nepalese industries have produced some goods, which replace the import. On the other hand, some products of Nepalese industries have been export to the foreign country. The industrial development is slowly improved.
1.2 Introduction of DDC
Nepal is agricultural country where most of the people are growing agricultural products and improving living standard. The economy of the country depends upon the agricultural. In the past time, animals were kept by the farmers for the means of carrying goods & people means of drawing power fuel, manure and sources of nutritional substances. People did not use the animals which give the milk, primarily for commercial dairy purpose. Then, people started to keep animal for commercial use and sell the milk in the urban areas.
In spite of the important role of dairy product in the natural economy, the production of milk and its products is in adequate to fulfill the increasing demand and need of the people due to the population growth and increase in per capita income of the people un urban area. DDC was established by the government in third. Five year plan in 2006 B.S. Under the corporation Act, 2021. It was mainly incorporated to promote national development to increase the income of farmers and to provide the benefit to businessman and industrialist and to substitute the import of dairy product.
To carry out of the task of dairy development in wider scale in the country. Dairy Development Board was constituted in 2021 B.S eliminating Dairy Development Commission. World Food programme (WFP) has been supporting to DDC since 2030/31 B.S. New Zealand and Danish has provided financial assistance to install the processing plants. USAID, WFP Government of New Zealand and Danish government are major donors of this corporation till few years ago.
DDC produces pasteurized milk and other milk products collecting milk from dairy farmers and processes it into standard milk, cheese, butter, curd etc for the consumption 39 years; it has not conducted any attempts of research/ investigation to examine the real environment/ facts of CAP.
This brief research may be the platform to other researchers for further research work regarding CAP of any organization. It is assumed may be useful and provide a detail outline for the investigation regarding CAP Analysis. The researcher has tried to find out the types of customer of DDC, their contribution on overall profit of DDC, Profit based on customer groups and probable factor which are responsible and affecting to earn profit. No previous researchers have tried to conduct the research on CAP analysis DDC and calculate the profit/ loss according to the profit/ loss according to the types of customer of DDC and service they demand. So, this study probably becomes the milestone in the research work on CAP analysis of different organizations to other researchers.
Public enterprises defined by different authorities are as follows:
Public enterprise is generally owned and controlled by government and is usually autonomously organized with the government. Providing the initial capital and being responsible for a continuous overview of their activities.
By the above definition we can conclude the features of public enterprise as follows:
· Government ownership must be 51% or more.
· Control, direction and management by the government.
· Service oriented.
· Financing by the government.
· Legally independent entity.
Nepal is a developing country and Nepal adopts the mixed economy. Public enterprises in Nepal play a vital role for the socio- economic development of the country. Due to the various causes private sector are unable to invest sufficient capital for aggregate development of the country. So that public enterprises are the backbone for industrialization and developed of the country. They have been established in many sectors for the over all development of the country with different goals and objectives.
Nepal Bank Limited a commercial bank was established in 1994 BS, which is the first public enterprise to have a separate legal entity in Nepal. When Nepal started its planned economic development in 2032 BS, with the launching of 1st 5 year plan. Since then, the numbers of public enterprises have increased substantially in the various fields of national economy. The main objectives of public enterprises as follows:
· Economic growth
· Employment opportunities
· To achieve the objectives of national plan.
· To mobilization of funds for development plans.
· To produce and supply common or essential commodities.
· To development of public infrastructure.
1.3 Financial position of Nepalese public Enterprises
In facts, PEs is established for rapid socio-economic development of the country. An analysis of financial performance of existing PEs shows that financial position of most PEs is far from satisfactory. But the public Enterprise condition in Nepal is not satisfactory. So, the investment in these PEs has been increased rapidly Almost PEs are not able to generate the revenue for their daily expenses and they are operated by the government subsidy. So, that almost of the PEs are the burden of national resources and they dump the national budget.
There are various causes of lower efficiency PEs are as follows:
· Lack of clear objectives.
· Lack of qualified & technical manpower
· Weak relationship between management and workers.
· Lack of insufficient market
· Problem of finance/ money.
1.4 Limitation of Study:
1. It contains more time & costly process.
2. The company doesn’t provide the data easily.
3. Conclusion and finding of this study cannot be generalized because it has been prepare by the study of any as organization in short time.
2.1 Introduction
Research Methodology adopted in this chapter is the set of various instrumental approaches used to achieve the predetermined objectives as stated in earlier chapter. It counts the resources and techniques a viable and their reliability and validity in this research. Research Methodology is the way to solve systematically about the research problems which helps to collect the data, present, examine, analyze and interpret various aspects of customers and customer profitability in this research. In manufacturing public enterprises there is no practice for the calculation of customer profitability. So, various statically techniques have been applied in this research to know. Profitability of different customer groups according to objectives of the study. Kothari (1984) state as “Research Methodology refers to the various sequential steps of each to be adopted by a researcher in studying a problem with certain objects in view”.
The research methodology has, primarily sought the evaluation of customer account profitability of DDC in Kathmandu. The research methodology adopted in this chapter follow some limited but crucial steps aimed to achieve the objectives of the research, Kothari (1990) states as “Research methodology is a way to systematically solve the research problem. It may be understood as a science of studying how researches had done significantly. It is necessary for the researcher to know not only the research method /techniques but also the methodology”
2.2. Research Design:
A true and complete research design is basically concerned with various steps to collect the data for analysis and draw a relevant conclusion. It allows the researchers to take an appropriate measure and direction towards the predetermined goals and objectives. This study is descriptive research based on qualitative and qualitative data.
The study is closely related with various areas and concerns of CAP qualitative & quantitative data and their presentation and analysis. Based on the collected data, presentation & analysis, seminary of study. Major finding recommendations & conclusion are drawn in this research which is the most significant achievement and information relating to financial analysis of DDC.
2.2.1 Types of data for Research methodology
Sources of data:
Data relating for to revenues from and losts on different customers groups are collected by two different sources according to the nature of data in this study. They are primary sources & secondary.
Primary sources:
Primary sources of data have been used collecting from concerned public enterprises to complete the research work. The necessary qualitative data and financial information have been collected through questionnaire including 27 questions unstructured dialogue & interviews with executives managing directors and other staffs of DDC. This research has been mainly based on primary data sources although secondary sources have been also used.
Secondary sources:
After collecting the data if the person or company may be published is known as secondary. In this study we can use generally secondary data.
2.3 Presentation of Data:
a) Financial Analysis
b) Statistical Analysis
pie chart
Line graph
Bar-diagram
The most valuable & Crucial tools to evaluate the true and Actual position of any organization can be appended from proper analysis of these data.
2.3.1 Financial Analysis
In order to make financial statement more meaning full analysis of financial statement is prepared. Analysis of financial statement means a study of relationship among the various financial factors. It is a process of classifying and arranging mass data of financial statement. For obtaining a better understanding of the position of a business and its performance, classifying and arranging are needed. The objective of this process is to understand the financial position, profitability, operational efficiency and growth potential of the business.
The types of Ratio Analysis are as follows:
1. Liquidity Ratio
2. Turnover Ratio
3. Profitability Ratio
2.4 Liquidity Ratio:
The ability of a firm to meet its short term obligation is known as liquidity. It reflects the short term financial strength of the business. These ratios are used to know the capacity of the concern tore pay? Short terms liability. It has two types.
a. Current Ratio
b. Current liabilities
3.2.2 Calculation of current assets.
Year
|
Current Assets
|
Current liabilities
|
Current ratio
|
(Source: .............)
The Industrial ratio of CA is 2:1. But the DDC doesn’t meet 2:1 Ratio
This ratio can be express in pie chart
The ratio can be converted in degree as follows:
2062/63 = 
360
= 80
360 = 80
2063/64 = 
360 = 97
360 = 97
2064/65 = 
360 = 91
360 = 91
2065/66 = 
360 = 92
360 = 92
2.3.3 Calculation of Quick Ratio
Year
|
Quick Assets
|
Current Liabilities
|
Quick Ratio
|
Source: Annual Report 2066
The Industrial ratio of Quick ratio is 1:1. But the above data doesn’t meet 1:1 Ratio.
2.3.4 The co-relation between current assets and Current liabilities can be given below.
Let x be current Assets and y be current liabilities.
 |  |  |  |  |
= 0.17
Interpretation: The value of r always lies in between -1 and +1 . So, r lies in perfect positive correlation between two variable. It means in case of increase in current ratio, then the current liabilities also increase.
The current Ratio & Quick Ratio can be express in multiple bar graph.
2.3.5 Leverage Ratio:
The second classification of the financial ratio is leverage Ratio. It is also termed as solvency ratio or capital structure ratio. The leverage ratio are calculated to judge the long term financial position of a firm. These ratio measure the enterprise ability to pay interest regularly and to repay the principle or maturity. The ratios are as follows:
a. Debt Equity Ratio
b. Debt to total capital Ratio
c. Interest Coverage Ratio
d. Fixed Coverage Ratio
a. Calculation of Debt Equity Ratio:
Year
|
Long Term debt
|
Share holder fund
|
Debt Equity Ratio
|
Source: Annual Report 2066
A high ratio shows the large share of financing by the creditors as compared to that of owners. It indicates the Margin of safety to the owners. The creditors prefer low debt –equity ratio. A low debt-equity ratio implies large margin for creditors. It can be express is Bar- diagram.
b. Debt to total capital:
Year
|
Long Term debt
|
Capital Employed
|
Debt to total capital Ratio
|
Source: Field Visit 2067
Interpretation: A low ratio represents security to creditors in extending credit on the contrary a high ratio represents a great risk to creditors as well as shareholders.
C. Interest Coverage Ratio:
2065/66
|
14702495
|
3614718
|
4.07
|
Source: Field Visit 2067
2.3.6 Activity Ratio/ Turnover Ratio
The relationship between sales and resource is indicated by Turnover Ratio. These ratios reflect how efficient the company is managing it resources. The ratios measure the degree of effectiveness in use of resources or funds by a firm. The common ratios are:
a. Inventory Turnover ratio.
b. Debtors Turnover ratio.
c. Average collection period.
d. Fixed Assets turnover
e. Total Assets Turnover Ratio
f. Capital Employed Turnover Ratio
a. Calculation of Inventory Turnover Ratio:
Year
|
Cogs/ Sales
|
Inventory
|
ITR
|
Source: Field Visit 2067
Interpretation: A high inventory turnover is indicative of efficient inventory management. A low inventory implies excessive inventory levels than warranted by production and sales activities with the help of this management can assets whether & stock has been more efficiency used or not.
b. Calculation of debtors Turnover ratio. (DTR)
Year
|
Sales/Credit sales
|
Debtor/ Average Debtors
|
DTR
|
335.79 Times
| |||
537 Times
| |||
116.45 Times
| |||
191.8 Times
|
Source: Field Visit 2067
Interpretation: The higher ratio is more efficient management on collecting debtors. A high ratio indicates that within a short period, the firm is collecting the cash from debtors. Allow ratio shows that the debt not being collected rapidly.
c. Calculation of ACP
Year
|
DTR
|
Month
|
ACP
|
2062/63
|
335.79
|
365
|
1.07 days
|
2063/64
|
537
|
365
|
0.68 days
|
2064/65
|
116.45
|
365
|
3.13 days
|
2065/66
|
191.8
|
365
|
1.90 days
|
Source: Field Visit 2067
Interpretation: The minimum time is preferable. The minimum days shows that the firm is efficient on collecting cash from debtors and it also reduces that change of bad debt. A higher average collection period shows the excessive blockage of fund with debtors which increase the changes of bad debt.
It can be express in line graph.
d. Fixed Assets Turnover ratio.
Year
|
Sales
|
Net fixed Assets
|
Fixed Ratio
|
2065/66
|
1680353679
|
260172342
|
6.46 Times
|
Source: Field Visit 2067
Interpretation: The higher ratio reflects better utilization of fixed Assets. A low ratio is indicative of the poor utilization of the existing plant capacity will result in reduction and increase in the cost of production.
e. Total Assets Turnover Ratio.
Year
|
Sales
|
Total Assets
|
Ratio
|
Source: Annual Report 2066
Interpretation: A higher ratio is preferable. A higher ratio implies better utilization & vice versa.
The fixed assets ration & total assets turnover ration can be express in line graph.
2.3.7 Maximization of profit
Maximization of profit is the main objective of each and every business concern. It is very necessary to earn maximum profit for the successful business. According to lord teques “. Profit is the engine that drives the business enterprises”. The profitability rational.
a. Gross Profit margin.
b. Net Profit margin.
c. Return on Assets.
d. Return on common Equity shareholder.
a. Calculation of Net profit Margin:
Year
|
Sales
|
Net profit
|
Net profit Ratio
|
2062/63
|
1548239961
|
227756810
|
14.7%
|
Source: Field Visit 2067
Interpretation:
A higher ratio is an indication of the higher overall efficiency of the business and better utilization of total resources. Poor financial planning and low efficiency is the indication of lower ratio.
b. Calculation of Return on Assets:
Year
|
Total Assets
|
Net Profit
|
Ratio
|
2065/66
|
558331546
|
14702495
|
2.63%
|
Source: Field Visit 2067
Interpretation: This ratio measures the profitability of all financial resources in the firms area. Hence higher ratio implies that the a viable resources and tools are employed efficiently.
C. Calculation of common Share holder Equity.
Year
|
Net Profit
|
Capital employed
|
Ratio
|
Source: Annual Report 2066
Interpretation:
This ratio shows the efficiency of the firm on the utilization of total capital. A higher ratio is an indication of the better utilization of capital employed. Hence higher ratio is preferable for the company.
Trend/ Analysis of Sales
Year
|
Sales (XY)
|
x-(x-61.5)×2
|
X2
|
xy
|
Yc
|
2062/63
|
1548239961
|
-3
|
9
|
-13934159649
|
1396753131.9
|
2063/64
|
1535810462
|
-1
|
1
|
-1535810462
|
151570848830
|
2064/65
|
1536340564
|
1
|
1
|
1536340564
|
16346638447
|
2065/66
|
1680353679
|
3
|
9
|
15123183111
|
1783619201.10
|
N=4
| 
6300744666
|  | 
1189553564
|
Yc= a+bx
a = 
Calculation
x = 2(60-).5) = -3
x = 2(61-61.5) = -1
x = 2(62-61.5) = 1
x = 2(63-61.5) = 3
Then Estimation for year 2062/63
Y = a+bx
= 157186166.5 + 594776782Í(-3)
= 1396753131.9
For year 2063/64
yc = a+bx
= 1575186166.5+59477678.2Í(-1)
= 1515708488.30
For year 2064/65
yc = a+bx
= 1575186166.5+59477678.2Í1
= 1634663844.7
For year 2065/66
yc = a+bx
= 1575186166.5+3Í59477678.2
= 1753619201.10
CHAPTER- III
SUMMARY, CONCLUSIONS AND RECOMMENDATIONS
3.1 Summary:
Nepal is a developing country. Nepal has not been able to establish a lot of public Enterprise. The financial conditions of all public enterprises are not good. Nepal is agriculture country in the word. Due to this reason all the public enterprises as well as other industries are dependent on Agricultural. So, DDC is a kind of public enterprises in Nepal. It collected milk from farmer & distributed Urban areas people.
The main point of finding the financial position of any organization is micro financial Analysis of firm or organization. For detail financial Analysis of this DDC It have been calculated different types of ratio. But the ratios are not completely good.
In Nepal, public enterprises have been established in order to provide basic services to produce the required goods, to increase government the export items to create opportunity for employment to increase government revenue develop the country as whole. From the above objectives . Nepalese Enterprises play crucial role in rapid growth of economic & industrial activities.
But the performance of almost public enterprises in not in satisfactory. They provided some goods & services but they earn less profit every year. The main causes of decreasing losses are ambiguous goals and objectives, inadequate knowledge and use of profit planning, lack of co-ordination, government intervention indecision etc. Now days, the public enterprises are becoming the burden for country economy.
DDC is a public enterprise which was established in 2060 BS and its main objective is to produce milk and milky product to Urban consumers provide a market to the farmer with fair price. It is totally owned by government.
The study has four chapters consist of introduction, Research methodology, data presentation & summary, conclusion and recommendation. In study mainly secondary data are used. Statistical tools like, Bar graph, line bar graph, correlation. Trend analysis; & pie chart have been used to analyzed the data. Similarly financial tools like ratio i.e. liquidity ratio, leverage ratio, profitability ratio are used.
3.2 Conclusions:
On the basis of the different analysis observation and informal discussion the following conclusion have been drawn.
· The Nepalese public Enterprise objective have not been cleared.
· It doesn’t reach maximum profit due to decrease in profit.
· It has directly face to competition to private dairy organization.
· They doesn’t used new technology.
· There is no effective manpower.
· The liquidity ration of DDC is goods.
· The activity and profitability ratio is not good not bad.
3.3 Recommendations:
On the basis of the study of financial Analysis in Dairy Development Corporation it seems necessary to develop implement and improve the performance of their daily activities.
It is hoped that these recommendations will prove to be useful to the management of the corporation and other concern offices institutions and individuals.
· The current ratio shows the minimum position, which is not much satisfactory and quick ratio trend is not much satisfactory to meet its current obligation management should be concerned about it and try to maintain good liquidity ratio in future.
· The profitability Ratio of DDC has been decreasing every year. So the manager of DDC should try to maintain the profit increase in day by day.
· The ROE is hight in 2062/63 & declared in 2063/64 and increase in 2064/65 but decrease in 2065/66.
· The branch of DDC also established in overall distract of Nepal.
3.3.1 Objectives of DDC
1. Provide a guarantee market for milk to the rural farmers with fair price.
2. Supply pasteurized milks & milk products to urban customers.
3. Developed organized milk collection system to meet increasing demand for pasteurized milks & milk products.
4. Develop an organized Marketing system for milk & milk products in Urban areas.
3.3.1.1 Product Introduction
A brief introduction of the dairy product presently supplied by DDC are as follows:
(1) Curd:
Curd is one of the best-known and most popular fermented milk products consumed by large sections of the population through out of the country. DDC produce two kinds of Curd is ordinary.& Special:
a) Ordinary Curd:- It contains 3% fat. 8% solids. Not fat & 4% additional sugar.
b) Special Curd:- It contains not less than 5% fat, 3% SNF & 4% additional sugar.
(2) Pasteurized Milk:
Milk collected from rural areas is standardized to contain 3% fat and 8% STD and pasteurized by a HIST pasteurizer. Milk is heated to 73 degree centigrade for 15 seconds and promptly cooled to 4-5 degree centigrade. DDC also supplies pasteurized whole milk containing 5% fat and 8% SNF.
(3) Ghee:
Ghee is the pure clarified fat derived solely from cow or buffalo milk without color is added. It contains not more than 0.5% moisture and moisture and not less than 99.5% fat.
(4) Skim Milk Powder:
DDC is also Manufacture skim milk powder in Biratnager. Milk is dried to powder by evaporating its water content in spray drier. The skim milk powder contains 3 to 4 % moisture while remaining part is solid not fat. At present skim milk powder is not sold in market but only used for recon situation to meet the demand for liquid milk during lean season when collected in low.
(5) Buffalo Cheese:
It is also rennet coagulated hard variety of cheese obtained from buffalo milk. It is manufactured in Nagarkot. Cheese factory and occasionally in Pokhara milk supply scheme of DDC.
(6) Ice-Cream:
It is a frozen dairy product having rich source of calcium, phosphorus and other minerals. Its cream contains permitted foods colours edible lavers and permitted stabilizers and emulsifiers not exceeding 0.5 % by weight. It contains 10% milk fat B.S? Protein and 36% total solids.
(7) Panir:
Panir is one of the indigenous varieties of milk product obtained from fresh buffalo milk.
(8) Yak Cheese:
Yak cheese is a product of high altitude of alpine region of Nepal obtained from yak milk. It contains not more that 43% moisture and 2-5% of edible salt. It should not contain less than 45%milk fat on dry matter basis, It is considered a special variety of cheese in Nepal.
3.2.2 Financial Analysis of DDC
Financial Analysis is required to every organization and company. To find out their actual financial position. We have done financial Analysis. Due to financial Analysis. We find different types of its financial Actual report & we give the suggestion to the company. In financial VC have calculated different types of financial ration which shows the real figure of the company.
The objectives of description of financial Analysis of DDC as follows:
· To find out their liquidity position.
· To find out their current profitability ratio.
· To understand their general procedure of the company.
· To find out their position of sales & consumption.
· To find out their Return on Assets value.
3.3.3 Procedure of Study:
· 1st to Tate date we can received their commendation letter from the campus.
· To collected secondary data from DDC.
· To use different types of Ration & station tools.
· To find out result put into the graph.
3.3.4 over all Description
This study has been derided into 4 main parts. In 1st topic it contains introduction where included their definition. Historical back ground, & exploitation of their products.
In 2nd part contents its Research methodology. In 3rd chapter it contains presentation & Analysis of data.
In 3rd parts it contains its summary conclusion along with recommendation.
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