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Financial analysis of dairy companies in India A comparative study of selected

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 ISSN: 00845841
Volume 51, Issue 01, June, 2021

Financial analysis of dairy companies in India A

comparative study of selected companies
Mohammed Arshad Khan1*, Faiz Ahmad2, Khudsiya Zeeshan3, Syed Azhar4, Rashid Farooqi5

Accounting Department, College of Administration and Financial Science, Saudi Electronic University
Riyadh Kingdom of Saudi Arabia1
School of Management, Malla Reddy University, Hyderabad-500100, Telangana, India2
Koneru Lakshmaiah Education Foundation, Hyderabad-500075, India3
ICBM-SBE, Atttapur, Hyderabad-500048, India4
Department of Management and Commerce, Maulana Azad National Urdu University, Hyderabad-500032,
Telangana, India5

Keywords:
dairy industry, liquidity;
solvency; profitability.
ABSTRACT
The study has made an attempt to analyses the solvency and profitability
position of select Dairy companies in India. The select companies are
CDPL, Hatsun, Heritage, Parag and Prabhat. The solvency has been
explained by debt-to-equity ratio, interest coverage ratio, and proprietary
ratio; profitability has been explained by ratios such as return on total
assets, return on equity. It can be concluded that there is a significant
difference in terms of current ratio, debt to equity ratio, proprietary ratio,
debtors turnover ratio, creditors turnover ratio and total assets turnover
ratio of select dairy firms in India. It means that at least one of the means
of the sample is different. The test results also indicated that there is no
significant difference in terms of inventory turnover ratio, fixed assets
turnover ratio and interest coverage ratio.

This work is licensed under a Creative Commons Attribution Non-Commercial 4.0

International License.

1.1 INTRODUCTION
According to Food and Agriculture Organization of United Nations [3] report, the production of milk
worldwide in the last three decades grown approximately 60 percent from 1988 to 2018 from 530 million
tonnes to 843 million tonnes. India produces 22 percent of total global production and ranked number one
in the world in milk production followed by United States of America (USA) and China. As per the FAO
report, the contribution of developing countries in milk production have increased and mostly produced by
smallholders which contributes to their livelihoods, nutrition as well as food security. As the developing
nations milk production comes mostly from the small-scale dairy producers which exceeds 80 percent, so it
provides employment and income to millions of small-scale families. It is also considered as a regular
source of income, provides nutritious food, diversifies risks etc. due to which the dairy development is seen
as sustainable, equitable and powerful instrument for achieving economic growth, reduction in poverty and
food security etc. The dairy industry has played an important role and significant contribution to the
development of Indian economy. In the recent years rapid development has witnessed in the dairy industry.
It is considered as the one of the activities that could add to mitigating the poverty, the need of the people,

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unemployment especially in the drought prone and rain fed territories. The dairy development is seeing
consistent investment across various segments. According to the planning commission, dairying in India is
considered as secondary employment for about 69 percent of farming community. The dairying occupation
is contributing one-third of the gross income of rural households and half of the gross income of landless
rural households [5]. Indian dairy sector contributes 22% of the global milk production with an expected
CAGR of 6% for the period of 2021-2026 and expecting an overall investment of INR 100 billion by 2020-
2021 from new market entrants as well as existing competitor.

1.2 LITERATURE REVIEW

The study has reviewed few articles that are relevant to financial performance with reference to dairy
industry. [12] assessed the profitability of farm gross margin and cost benefit analysis is used, to
approximate the degree of effectiveness stochastic profit frontier model was used. [11] attempted to study
the effect of milk and feed value fluctuation on the financial circumstance of a dairy farm and further decide
the capacity to meet the cash necessity and diminish the variance of net income. To demonstrate the
simulates costs and decide how marketing plans impact a set of fiscal reports Monte Carlo simulation
procedures are used, the article likewise shows that the utilization of market risk management methods can
reduce the difference in the net farm income. The author suggested that on an average the present market
strategy of the month-to-month money milk pricing and month to month feed purchase delivers a solid
built. [8] attempted to examine the fiscal performance of Dharwad milk association under Karnataka milk
organization and determine the structure of current assets and profitability, liquidity, and risk. The analysis
was based on secondary data and it was gathered through a yearly report of the organization, balance sheet,
income statement and & company site. Statistical analysis was performed through Ratio analysis and co-
relation. Five-year financial statement has been taken to figure Ratio analysis. In a study it is found that the
development and liquidity position of DMU is positively co-related. It is additionally appeared recent years
position of the Dharwad milk association has better through using its benefits and resources appropriately.
[9] attempted to study about the liquidity management of the Rajasthan Dairy Federation limited just as the
issue in liquidity management of these units. It depends on secondary data working capital analysis was
done dependent on the liquidity and productivity of RCDF five units, the last five-year information 2009 to
2013 was taken over. Ratio analysis is utilized to quantify and analyse various units of working capital. A
questionnaire was filled by respondent to get the information from different departments and furthermore
data were gathered through direct interview. In a study it is found that Ajmer association has a high
liquidity position that isn't useful for association and Bhilwara association additionally have great liquidity
position however it was utilizing own funds rather than obtained reserves. Udaipur and Jaipur association is
improving its liquidity position; Alwar union had high debt exposure and doesn't ready to keep up good
liquidity that is bad for trend.

[4] attempted to investigate the financial position of dairy units in Andhra Pradesh. It is appearing over the
most recent three decades the development of dairy segment is amazing. Altman Z score model was used to
in the Andhra Pradesh. Elven cases have been considered
from the period of 2005 to 2011 using primary and secondary data. To assess organization, financial health
of four ratios (Liquidity, Leverage, Activity, and Profitability) are taken into consideration after that ratios
are combined into a single measure z-score for example Multi Discriminant Analysis (MDA). In study it is
discovered that a large portion of the sample units are so great and the general monetary soundness of the
dairy industry is in solid zone. [6] attempted to examine the financial productivity and working capital
management to decide the effectiveness of Tumkur co-operative milk producer in Karnataka. For
qualitative information secondary data are gathered from yearly reports and records of milk union.
Strategies used to gather information is ratio analysis and co-relation procedures. 10-year information was
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taken for ratio analysis to analyse the data. In a study it is found that the development and liquidity position
of the society is positively co-related, the financial efficiency of milk producers in Karnataka is satisfactory.
[10] have attempted to assess the of financial analysis using ratios and common size analysis. Further,
DuPont is used to distinguish the strength and shortcoming of the dairy industry. The study stated that
financial ratios cannot provide honest ideas regarding the organization and suggested that, further studies
can be carried out by identifying relations, the distinctions or variation is distinguished by comparing the
accomplished performance and certain business benchmarks. [1] attempted to examine and measure the
financial performance of significant worth added dairy ventures to provide observational evidence. It is
found in the investigation that policies should also cover intangible resources and core competencies to
make progress in the ventures. [14] studied the financial performance of districts co-operative milk
ons by using eleven ratios in Kanyakumari. The study found that the financial performance is
satisfactory and suggested managers to reduce the operational cost to boost profits.

[13] attempted to assess the financial health of dairy industry using Altman Z score model for the study
period of 1991 to 2010. The study found that dairy business is either in hazy area or almost in safe zone.
The author suggested that debt equity ratio and rescheduling of debt is an urgent necessity. [16] attempted
to compare the financial performance of Pennsylvania farms with three states by measuring three financial
indicators, namely profitability, solvency &liquidity whereas [7] attempted to study the financial
performance of dairy units in Maharashtra. By using financial ratios such as return on investment,
profitability, and turnover. The study stated that the ratio is not consistent in most cases and profitability
and working capital are also a concern for the firm. [2] attempted to study the presence of the significant
effect of capital structure on the financial performance of dairy co-operatives societies in the Nakuru North
Sub nation, Kenya and furthermore examined the capital structure impact on dairy co-operative societies.
The study reveals that there was a weak linear, non-significant relationship between capital structure and
return on assets. [15] attempted to study and analyse the relationship between farmers, dairy co- operative,
and industrial milk processor to assess and measure the performance. It is found in the analysis that research
provides essential bits of insights to the administration of dairy co-operatives in the context of dairy
planning development.

1.3 OBJECTIVE OF THE STUDY

To study the liquidity, solvency, and profitability position of select dairy companies in India.
To examine the relationship between financial performance and profitability of select dairy
companies in India.

1.4 METHODOLOGY AND MATERIALS

The study evaluated the financial analysis of dairy enterprise using financial indicators for managerial
decision-making. The study is descriptive and analytical in nature. It uses financial ratio to evaluate the
financial health five sample dairy units by measuring the liquidity, solvency and efficiency and profitability
position. It is based on secondary information collected through the annual financial statements of the dairy
units, Journals, published book, online portals for the period of five years data i.e., March 2015 to March
2019. These Statement has been examined by considering over their financial information. The variable was
explained by using different ratios. Liquidity is explained by using current ratio and liquid ratio; Turnover
ratio is explained by Inventory, debtor, fixed, assets, total assets turnover ratio; solvency ratio are explained
by equity, debt equity & interest coverage ratio and profitability ratio is explained by ROE. Statistical tools
such as mean, standard deviation and correlation are used to analyse the data. Excel and SPSS (Statistical
Package for Social Science) Software have been used in the study.

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1.5 ANALYSIS OF FINANCIAL PERFORMANCE

valuation date. The analysis of financial performance is an attempt made to help the preparation of the most
profitable design of promising alternatives and aid in selecting the best option. The financial performance
analysis looks at the projected as well as past performance. The ratio analysis is an instrument to find out
the financial health of the company.

1.5.1 Current Ratio

The short-term liquidity position of a firm can be understood with the help of current ratio. It compares the
company current assets to current liabilities and measures short-term liquidity of the firm. The current ratio
of firm can be calculated by dividing the total current assets by total current liabilities.

Table 1. Liquidity Ratios of Dairy Companies

Current Ratio Quick Ratio
COM CDPL HATS HERIT PAR PRAB CDP HATS HERIT PAR PRAB
PANY UN AGE AG HAT L UN AGE AG HAT
2015 1.20 0.60 0.65 0.89 1.19 0.19 0.39 0.50 0.53 0.96
2016 1.65 0.56 0.82 1.26 2.18 1.01 0.32 0.47 0.69 1.71
2017 1.06 0.42 0.58 1.45 1.66 0.20 0.38 0.35 0.7 1.32
2018 0.90 0.38 0.28 1.52 2.06 0.20 0.34 0.14 0.78 1.55
2019 0.80 0.52 0.36 1.69 2.14 0.16 0.29 0.23 0.83 2.14
Avg 1.12 0.50 0.54 1.36 1.84 0.35 0.34 0.34 0.71 1.53
S. D 0.33 0.09 0.22 0.30 0.42 0.37 0.04 0.15 0.11 0.43

The Table 1 shows the liquidity position using a current ratio of selective 5 dairy companies for the period
2015-19. The Ideal current ratio is 2:1. None of the companies have an average ratio of 2:1. The lowest and
highest average current ratio is 0.5 & 1.84 of Hatsun and Prabhat respectively. Hatsun and Heritage
liquidity is very low, indicating that these firms are not having adequate sum of working capital to run their
day-to-day business operations.

The standard deviation of Hatsun is low, indicating that it has failed to maintain liquidity during the study

standard deviation is high indicating that its liquidity is fluctuating to a large extent, but the current ratio is
closer to standard benchmark. Its liquidity position is good and will help retaining the confidence of
creditors.

1.5.2 Quick Ratio

Quick ratio is
be converted into cash immediately and it also indicates the capability of company to repay current
liabilities without depending upon inventory. It is calculated by dividing quick assets by the current
liabilities and ideal ratio is 1:1 is considered as satisfactory. The Table 1 shows that Prabhat has the highest
average quick ratio i.e. 1.53 with high standard deviation indicating that data are more spread out and the
company is inconsistent in managing liquidity. Such companies have ability to promptly pay their short-
term debt without much efforts. On the other hand, the companies namely CDPL, Hatsun and heritage &
Parag do not maintain liquidity level and further have low standard deviation indicating inconsistency in
managing absolute liquidity.
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1.5.3 Activity Ratio/ Turn Over Ratio

The turnover ratio is also termed as efficiency ratio or an activity ratio. It measures how efficiently assets
are employed by the firm. This ratio shows the speed at which the assets are being converted into sales. The
Table 2 shows the turnover ratios such as inventory turnover ratio. Debtors Turnover Ratio, Creditors
Turnover Ratio, Fixed Assets Turnover Ratio and Total Assets Turnover Ratio for the period of select five
companies during the period 2015-19.

1.5.3.1 Inventory Turnover Ratio

The inventory turnover measures how speedily the inventory is converted and generating sales. It helps
business to make better decisions on pricing, manufacturing, marketing, and purchasing of new inventory.
The ideal stock turnover ratio is 8 times. Except Parag with ratio 5.29, all the other companies have more
than 8 ratios. It means all the other four companies i.e., Prabhat, Hatsun, heritage, CDPL are managing
efficient inventory turnover ratio, they have a ratio higher than 8 times. The inventory turnover ratio is
fluctuating throughout the period of study and the inventory turnover ratio of Prabhat is too high in 2019
because of a decrease in sales.

The standard deviation of CDPL is low which is showing the consistency, the company is consistent
throughout the study period this reflect efficient inventory.

Table 2. Turnover Ratios of Dairy Companies

COMPANY 2015 2016 2017 2018 2019 Avg. S. D

CDPL 8.63 8.4 9.68 8.25 7.30 8.45 0.85

Inventory Hatsun 11.36 9.95 14.18 11.18 11.80 11.69 1.55
Turnover Ratio Heritage 14.88 16.44 16.07 15.57 19.79 16.55 1.9
Parag 5.24 4.46 3.99 5.99 6.77 5.29 1.12
Prabhat 36.39 33 23.88 29.98 293.60 83.38 117.64
CDPL 283.42 206.75 193.47 171.55 130.55 197.15 56.21
Hatsun 169.91 250.16 150.27 178.62 622.14 274.22 198.12
Debtors Heritage 101.5 89.8 93.34 219.05 104.39 121.62 54.79
Turnover Ratio Parag 8.57 8.07 8.41 9.2 8.41 8.53 0.42
Prabhat 16.07 10.51 10.1 14.3 1.54 10.5 5.61
CDPL 23.95 24.1 23.31 26.97 27.83 25.23 2.02
Hatsun 21.73 19.34 19.45 18.13 18.73 19.48 1.37
Creditors Heritage 17.89 17.72 20.75 30.49 28.81 23.13 6.1
Turnover Ratio Parag 7.24 6.17 5.04 4.31 5.11 5.57 1.14
Prabhat 16.38 19.71 25.53 27.86 - 22.37 5.26
CDPL 9.75 10.15 6.99 2.87 4.78 6.91 3.14
Hatsun 2.95 3.11 3.89 3 2.9 3.17 0.41
Fixed Assets
Turnover Ratio Heritage 4.63 4.73 6.34 5.5 5.49 5.34 0.69
Parag 3.84 3.53 4.81 3.53 3.84 3.91 0.53
Prabhat 6.95 5.32 7.11 6.82 - 5.24 3.02
CDPL 4.29 3.82 3.29 3.14 2.86 3.48 0.57

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Hatsun 4.31 4.87 4.09 3.15 3.09 3.9 0.77

Total Assets
Turnover Ratio Heritage 6.22 7.13 2.57 2.34 2.49 4.15 2.33
Parag 2.52 2.29 2 1.97 2.27 2.21 0.23
Prabhat 2.34 1.63 1.57 2.09 0.12 1.55 0.86

1.5.3.2 Debtor Turnover Ratio

This ratio indicates the number of times average debtors have been converted into cash during a year. The
Table 2 shows the turnover ratio using a debtor turnover ratio of selective 5 companies that helps to
evaluate the effectiveness of company to collect its
12 times. In the above table 2 it shows that Hatsun, Heritage & CDPL with high debtor ratio reflects a short
lapse of time between sales & the collection of cash. Parag with less debtor ratio i.e., 8.41 indicating
receivables is being held longer and the risk of non - collection increases. The standard deviation of Parag is

deviation is very high indicating that its debtor turnover ratio is fluctuating to a large extent.

1.5.3.3 Creditors Turnover Ratio

The Table 2 illustrates the creditors turnover ratio, CDPL & Heritage have high creditors turnover ratio,
which shows payments are being paid more quickly. Parag has a low payable ratio, which signifies
company is delaying payments to its suppliers. The liquidity can be strengthened by delaying payments to
creditors. The standard deviation of the company Parag and CDPL is low which shows consistency in

1.5.3.4 Fixed Assets Turnover Ratio

This ratio evaluates the effectiveness with the help of which firm is able to utilize its investment in the fixed
assets. If the fixed asset turnover ratio is high, then it is understood that the firm is having a high degree of
effectiveness in utilization its assets and if this ratio is low then it indicates an inefficient utilization of
assets. The Table 2 shows the total assets turnover ratio of select sample companies. CDPL, Heritage,
Prabhat is higher than the required benchmark. It indicates the companies are utilizing the fixed assets to the
maximum. Hatsun and Parag have less than the ideal ratio, which means management are not using fixed
assets effectively. Company Hatsun and Parag can increase the efficiency of assets. The standard deviation
of Hatsun and Prabhat is less, it reflects consistency. They are maintaining consistency in utilizing the
assets effectively. CDPL with high standard deviation shows it is inconsistent in maintaining fixed assets in
a proper way.

1.5.3.5 Total Assets Turnover Ratio

a given asset in a business. The
Table 2 shows the total assets turnover ratio of the company. The ideal total assets ratio is 2 times. The
higher the assets turnover ratio the more efficient a company. Except the company Prabhat, all the four
companies have ratios more than the ideal ratio i.e., 2. It means the company has improved over its past
performance, and they have utilized all of its assets to generate an ever-increasing level of sales. The
standard deviation of the company Parag and CDPL is less which shows consistency in maintaining the
total assets turnover ratio that will lead to which company is using assets more efficiently.

1.5.4 Solvency Ratio

The long-term solvency status of a firm can be evaluated with the help of leverage or solvency ratio. This

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ratio helps a firm to find out its ability to fulfil their long-term obligations. A higher ratio percentage results
indicate a company increased ability to cover its liabilities over the long term.

1.5.4.1 Proprietary Ratio

Proprietary ratio shows the contribution of total assets financed by owners with respect to total assets. The
Table 3 shows the solvency ratio using a proprietary ratio of selected five companies over a period of five
fund and the total assets. Generally,
the Ideal ratio is 0.5:1. Higher the ratio better the long-term financial position of the company. This ratio
indicates the extent to which the assets of the company can be lost without affecting the interest of the
cr
and CDPL calculated ratio is more than ideal ratio it indicates financial strength of the firm and a larger
safety margin for creditors. It shows the shareholders fund is having ability to meet the outside liabilities.
Hatsun with low proprietary ratio shows a greater risk to creditors. The standard deviation of the company
CDPL is low which shows the consistent performance, indicates the greater share
borrowed funds are lesser. Therefore, the solvency position of the company is safe because it need not to
pay more to the outsiders. Prabhat has a high ratio compared to other company, but it is not consistent.

Table 3. Solvency Ratios

COMPANIES 2015 2016 2017 2018 2019 Avg S. D
CDPL 0.43 0.56 0.58 0.49 0.51 0.51 0.06
Hatsun 0.21 0.2 0.22 0.17 0.36 0.23 0.07
Proprietary Ratio Heritage 0.37 0.42 0.61 0.46 0.5 0.47 0.09
Parag 0.14 0.38 0.49 0.52 0.58 0.42 0.17
Prabhat 0.5 0.78 0.67 0.71 0.44 0.62 0.15
CDPL 0.26 0.12 0.12 0.09 0.16 0.15 0.07
DE
Hatsun 2.14 2.25 1.98 2.76 0.92 2.01 0.68
Heritage 0.74 0.44 0.23 0.31 0.31 0.41 0.2
Parag 3.21 0.95 0.34 0.37 0.25 1.02 1.25
Prabhat 0.59 0.18 0.3 0.21 0 0.26 0.22
CDPL 3.54 10.87 9.64 6.09 10.79 8.19 3.24
Hatsun 1.75 2.98 3.45 2.35 2.88 2.68 0.65
ICR Heritage 3.46 6.65 34.57 6.05 7.22 11.59 12.93
Parag 1.71 2.45 1.34 4.06 4.86 2.88 1.52
Prabhat 1.37 1.82 3.05 2.25 0 1.7 1.13

1.5.4.2 Debt-Equity Ratio

The debt equity ratio shows the comparison between funds provided by the creditors in proportion to

other companies were having debt equity ratio of less than 2. Most of the sample companies are depended
on equity rather than outsider funds. The standard deviation of CDPL & Prabhat is low which shows
consistent performance.

1.5.4.3 Interest Coverage Ratio

It is also known as debt service or time interest earned ratio. It is calculated by dividing the earnings before

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interest and tax by interest expenses. It is used to determine how easily a company can pay their interest
expense on outstanding debt. The ideal ratio of 2 indicates that the firm is having consistent revenues.
Except, Prabhat all other companies have more than ideal ratio. Prabhat is not able to meet its current
interest payment obligation. Prabhat must decrease its operating expense and borrowing amount. The
standard deviation of Prabhat and Hatsun is low which shows consistency, predictability, and quality.

1.5.4.4 Return on Equity (ROE)

The Profitability ratio measures the profitability of the firm by dividing net income by shareholder equity.

Table 4. Return on Equity

COMPANIES CDPL HATSUN HERITAGE PARAG PRABHAT
2015 0.10 0.18 0.15 0.08 0.02
2016 0.17 0.26 0.23 0.08 0.02
2017 0.13 0.39 0.46 0.00 0.05
2018 0.05 0.25 0.08 0.11 0.03
2019 0.06 0.14 0.10 0.14 0.01
Avg 0.10 0.24 0.20 0.08 0.03
S. D 0.05 0.09 0.16 0.05 0.02

The Table 4 illustrates the ROE; it measures the ability of a firm to generate profits from its
investment in the company. 15-20 % is generally considered good. Hatsun and heritage have more than
20% equity; this is a good indicator in terms of financial performance. Hatsun and heritage have high ratios
which show company earned a profit in comparison to the amount of shareholders equity. The standard
deviation of the company Prabhat and CDPL is low which shows consistency in ROE. It also proposes that
a company is increasing its ability to generate profit without needing much capital.

Table 5. One-Way ANOVA

Hypothesis F P-value F crit Results

H1: There is a significant difference between

18.60 1.61736E-06 2.86 Accepted
the management of liquidity.

H2: There is a significant difference between

18.16 1.94211E-06 2.86 Accepted
the management of absolute liquidity.

H3: There is a significant difference between Not

1.94 0.141384309 2.86
the management of Inventory Turnover Ratio. Accepted

H4: There is a significant difference between

7.44 0.000766048 2.86 Accepted
the management of Debtors Turnover Ratio.

H5: There is a significant difference between

8.87 0.000272287 2.86 Accepted
the management of Creditors Turnover Ratio.

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H6: There is a significant difference between

Not
the management of Fixed Assets Turnover 2.61 0.066168487 2.86
Accepted
Ratio.

H7: There is a significant difference between

4.44 0.009849931 2.86 Accepted
management of Total Assets Turnover Ratio.

H8: There is a significant difference between

7.5 0.000734003 2.86 Accepted
the management of Proprietary Ratio.

H9: There is a significant difference between

7.03 0.001050213 2.86 Accepted
the management of Debt Equity Ratio.

H10: There is a significant difference between Not

2.52 0.072714995 2.86
the management of Interest Coverage Ratio. Accepted

H11: There is a significant difference between

5.27 0.00458 2.86 Accepted
the management of Return on Equity.

The one-factor ANOVA have been conducted to analyse if there is difference in terms of liquidity,
solvency, and profitability of select dairy firms in India. To know if there is significant difference exists in
terms of the performance of select dairy firms, ten hypotheses have been framed. From the Table 5, H 1, H2,
H4, H5, H7, H8, H9 and H11 are found to be significant since the calculated value (i.e., F) is greater than the
tabulated value (i.e., F Crit). It can be concluded that there is significant difference in terms of managing
short term and absolute short-term liquidity position, managing debtors and creditors turnover ratio, total
assets turnover ratio, proprietary ratio, and debt equity ratio. It is also observed that H 3, H6 and H10 are
found to be insignificant since the calculated value (i.e., F) is lesser than the tabulated value (i.e., F Crit). It
can be concluded that there is no difference in terms of managing inventory turnover ratio, fixed assets
turnover ratio and interest coverage ratio.

1.5.5 Relationship Between Financial Indicators and Profitability

The study attempts to identify the relationship between the profitability & financial performance of the
select dairy companies for the financial year 2014-15 to 2018-19. The relationship is measured by using
1 inferring positive values
denote positive linear correlation and the closer the value is to 1 or 1, the stronger the linear correlation.
The study shows the relationship between financial indicators and return on equity. The liquidity ratios and
profitability show a negative relationship inferring that increase in liquidity will lead to decrease in
profitability of the company. It is observed that quick ratio and Return on equity is negatively highly
correlated, but only current ratio shows a significant relationship whereas the quick ratio shows
insignificant relationship. The study management efficiency ratios show an insignificant negative

ratio; Total Assets turnover ratio

positive relationship whereas inventory turnover is having negative relationship with profitability.

The Table 6 shows insignificant relationship between Proprietary ratio, debt equity and interest coverage
ratio on return on equity. The proprietary ratio & Return on Equity is negatively correlated whereas debt-

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equity ratio & return on equity is moderately correlated and interest coverage ratio & average of Return on
Equity is low correlated.

Table 6. Relationship between financial performance and profitability

Pearson Correlation Sign (2 tailed) (p)
Current Ratio -0.981 0.003
Quick Ratio -0.791 0.111
Inventory Turnover Ratio -0.591 0.294
Debtor Turnover Ratio 0.773 0.125
Creditors Turnover Ratio 0.161 0.796
Fixed Asset Turnover Ratio -0.401 0.503
Total Assets Turnover Ratio 0.9 0.037
Proprietary Ratio -0.804 0.101
Debt Equity Ratio 0.623 0.262
Interest Coverage Ratio 0.378 0.530

1.6. FINDINGS
The study found that Liquidity position of select dairy companies is below the ideal current ratio at 2:1. The
study found that quick ratio is lower than the standard norms, but companies namely Hatsun & Parag found
to be adequate liquidity position, thus they are in a position to fulfil their short-term obligations in an
effective manner. The study found that Inventory turnover ratio is maintained by the companies namely
Heritage and CDPL but Hatsun, Parag and Prabhat is not able to manage their inventory as well. The study
found that high the Debtors turnover ratio is a good sign for the company, it shows collection of debt with
short span of time. Companies namely CDPL & Parag are able to maintain their debtor collection well. The
study found that the fixed assets turnover ratio is not satisfactory for CDPL and Prabhat is low. Hatsun &
The study also
revealed that except Hatsun, the other firms are not able to meet the debt-to-equity (DE) ratio of 2:1. All the
other companies are failing to uphold the ideal ratio. Since the other firms are failed to maintain DE ratio
which indicates that these firms have either not used or used a little of debt portion in capital structure. The
study found that proprietary ratios indicate greater stockholders' fund than borrowed funds so companies
namely CDPL & Heritage is in a safe position. The study found that the companies, namely Prabhat and
Heritage are not able to meet its current Interest Payment obligations. The study found that profitability of
the selected companies namely Hatsun and CDPL has found to be adequate for the present study period.
The present profitability trend must be retained for smooth running of business. The study found that there
has been a strong positive relationship between total assets turnover ratio, debtor turnover ratio, debt equity
ratio & interest coverage ratio with return on equity (ROE) of the company.

1.7 DISCUSSION AND CONCLUSION

The current and quick ratio of the studied firms can be improvised by having an increase in the current and
quick assets or by having a decrease in the current liabilities. It is suggested that the firms must retained the
liquidity position near about the suggested standard level. It is also advised to enhance the overall financial
stability situation of the Heritage & CDPL to take essential measures to strengthen the liquidity position by
enhancing current assets. The companies may borrow the short-term funds to operate the business from
outsiders to its maximum utilization so that it can maintain the prescribed standard ratio of debt equalization
ratio which is at 1:1.
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CDPL & Prabhat may also be suggested to take appropriate actions to strengthen their fixed assets with the
help of modernization. It is advised to enhance operational effectiveness if they manage to implement the
correct measures on time to utilize its funds in a better manner. For optimum investment in inventory,
various appropriate inventory management and control techniques should be incorporated so that the
administrative lead time can be reduced. Financial Performance Analysis is a scientific evaluation of
profitability, efficiency, and soundness of any business concern. In this study it reveals that there is positive
relationship between turnover and solvency with profitability ratio. For this study five years financial
statement, i.e., Balance Sheet and Profit & Loss account, Cash flow statement have been taken for
calculating ratio analysis to check the financial performance of the company. All the dairy companies are
utilizing its assets and resources properly, hence generating more income. Quite importantly, Overall
performance of Hatsun is at top, followed by CDPL, Parag, Heritage and Prabhat. It can be concluded that
the overall financial health of the dairy industry is in the healthy zone. Most of the sample units found is in
the healthy zone.

Funding: This research not received any funding.

Conflict of interest: There is not any conflict of interest.

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