Global Journal of Management and Business Studies.

ISSN 2248-9878 Volume 3, Number 10 (2013), pp. 1197-1204

© Research India Publications
http://www.ripublication.com/gjmbs.htm

Performance Appraisal of Co-operative and Private Sugar

Factory in Belgaum District- An Economic Analysis

N.N. Nadoni1, G.S. Ananth2, P.S. Dhananjaya Swamy3

and Manjunath S. Kerur4
1,2,3,4
Department of Agricultural Economics, University of Agricultural Sciences,
Bangalore (KA)-560065.

Abstract

The present investigation was aimed at studying the relative economics

of private and cooperative sugar factories in Belgaum district of
Karnataka State during the year 2011-2012. The study was based on
the primary data which was elicited from 120 sugarcane growers
through survey method using structured questionnaire. Statistical tools
like financial ratio, capacity utilization and unit cost of production
were used to assess the relative performance of factories. The results
revealed that the cooperative sugar factory performed better than
private sugar factory based on the overall averages such as solvency
ratios, turnover ratios and financial strength ratios. Whereas the overall
averages of liquidity ratios viz. current ratio, acid ratio and liquid
assets to total assets ratio except inventory ratio showed that Private
sugar factory performed better than Cooperative sugar factory. The
capacity utilization analysis revealed that Private sugar factory
(67.71%) was more efficient as compared to Cooperative sugar factory
(58.38%). It was found that the overall average of total cost of sugar
processing was higher in Private sugar factory (Rs.1650.65/quintal) as
against to Cooperative sugar factory (Rs. 1564.08 per quintal).

Keywords: Sugar factories, Co operative, private.

1. Introduction
India is the second largest sugar producer in the world (accounting 13% of the world’s
sugar production). There are 453 sugar mills in India out of which 252 were under Co-
1198 P.S. Dhananjaya Swamy et al

operative sector and 134 were under private sector, whereas only 67 were under public
sector. Karnataka is one of the early entrants in the country to establish a sugar factory.
Many Sugar units in the State have also increased their installed crushing
capacities. The annual crushing capacity was 250 lakh tonnes. The economic viability
of any sugar factory as an agribusiness unit depends on many factors like cane
productivity in the area, payment schedule to the sugarcane growers, sugar recovery in
the factory, milling efficiency, diversification for other products, marketing of the
sugar etc. With a view to compare these performance factors both in cooperative and
private sugar factories and to arrive at some policy implications, the Athani Farmers
Sugar Factory Ltd (private sugar factory) and Krishna Sahakari Sakkare Kharkane
Niyamit (cooperative sugar factory) in Athani taluk of Belgaum district of Karnataka
state were selected for the present study.

2. Materials and Methods

Ratio Analysis: The ratios relating to solvency, liquidity, profitability, turnover,
efficiency and strength of the factory were used for analysis. For this analysis the
secondary data is drawn from the audited annual statements of the balance sheet,
reports receipts and payment account, profit and loss account of the sugar factory for a
period of nine years from 2002-03 to 2010-11 were used. The financial ratios used for
the analysis are described below.

1. Test of Liquidity
a) Current Ratio: A ratio of more than one suggests that, the current assets of the
factory are enough to pay off all current liabilities.
b) Acid Test ratio: This ratio is also called as quick ratio, represents the ratio
between quick assets and current liabilities.
c) Liquid Assets to Total Assets Ratio: This ratio is used to show the degree of
liquidity preference adopted by the factory and reflects the changes in the
liquidity position of the sugar factory over the years.
d) Inventory Ratio: This ratio measures the extent to which the net working
capital financing the current assets, mainly the inventory.

2. Tests of Solvency
a) Total Liabilities to owned funds Ratio: Total liabilities to own funds ratio helps
to compare the amount institution owes to creditors within the amount of
money that is invested in the institution.
b) Fixed assets to owned funds Ratio: This ratio was computed by dividing
depreciated fixed assets by the owned funds of the sugar factory.
c) Debt - Equity Ratio: The debt to equity ratio shows the relation between
borrowings and the internal equities of a business organisation and could
measure the relative dependence of the organization on internal and external
funds.
Performance Appraisal of Co-operative and Private Sugar Factory in Belgaum 1199

3. Test of Turnover: The turnover ratios indicate the effectiveness with which
different assets were utilized in the business.

3. Financial strength ratios

a) Net Capital Ratio: This ratio would reflect the financial strength of a business
organization.
b) Equity Capital Ratio: This ratio would reflect the composition of owner equity
in the total capital base of the firm and was worked out as follows.
5. Cost of Processing: The cost of manufacturing sugar from cane was computed
by considering both fixed and variable costs.

4. Results and Discussion

a) Ratio analysis: The ratio analysis is one of the most useful, simple and
common methods of analysing the financial statement. A comparison of
various ratios across portfolio and over time reflects the financial strength. The
overall averages of all financial ratios calculated are given Table I.

Table 1: Results of different ratios analyzed for both private and

cooperative sugar factories.

Ratios Private sugar Cooperative sugar

factory factory
A. Liquidity ratios (Average)
1. current ratio 3.20 2.59
2. Acid test ratio 0.66 0.42
3. Liquid assets to total assets 0.54 0.52
4. Inventory ratio 1.25 1.99
B. Solvency ratios (Average)
1. Total liabilities to owned 4.37 2.39
funds
2. Fixed assets to owned fund 1.86 1.58
3. Debt-Equity 0.68 0.78
C. Turnover ratios (Average)
1. Inventory turnover 1.27 2.14
2. Total assets turnover 0.53 0.70
3. working capital turnover 0.46 0.95
D. Financial strength ratios (Average)
1. Net capital 1.27 1.50
2. Equity capital 1.26 1.81
Source: financial statements of private and cooperative sugar factory
1200 P.S. Dhananjaya Swamy et al

(a) Liquidity ratios: The overall averages of liquidity ratios viz. current ratio, acid
test ratio and liquid assets to total assets in Private sugar factory were 3.20,
0.66 and 0.54 respectively. Whereas in case of cooperative sugar factory
current ratio, acid test ratio and liquid assets to total assets ratios were 2.59,
0.42, and 0.52 respectively. This indicated that private sugar factory performed
better as compared to Cooperative sugar factory.
(b) Solvency ratios: The overall averages of solvency ratios viz. total liabilities to
owned funds and fixed assets to owned fund ratio in Cooperative sugar factory
were 2.49 and 1.58 respectively, whereas in case of private sugar factory the
average ratio found were (4.37) and (1.86) respectively. This indicated that the
cooperative sugar factory was more solvent compared to private.
(c) Turnover ratio: The overall averages of turnover ratios viz. inventory turnover,
total assets turnover and working capital turnover ratios found in private sugar
factory were 1.27, 0.53 and 0.46 respectively, whereas in case of cooperative
sugar factory the ratios found were 2.14, 0.70 and 0.95 respectively. This
indicates that Cooperative sugar factory had efficiently managed total working
capital, total sale and inventories as compared to Cooperative sugar factory and
thus made greater profits.
(d) Financial strength ratio: The overall averages of financial strength ratios viz.
net capital and equity capital ratios in private sugar were 1.27 and 1.26
respectively, whereas in case of cooperative sugar factory the ratios were 1.50
and 1.81 respectively. This showed that cooperative sugar factory was more
financially stronger than Private sugar factory.
Cost of production of sugar: The increase in unit cost of production is due to
increased sugarcane price offered by both the sugar factories over the years. Table II
presents the details about various cost involved in production of sugar. The unit cost of
sugar production in Private sugar factory was high when compared to Cooperative
sugar factory in most of the years. The average cane cost in Private sugar factory and
Cooperative sugar factory were found to be ` 1150.65 (67.54% of total cost) per
quintal sugar produced and ` 1564.08 (66.69% of total cost) per quintal of sugar
produced respectively. The increase in share of cane expenses was attributed to
revision of minimum support price, state advised price, and purchase tax. The average
of other variable cost in Private sugar factory and Cooperative sugar factory were
found to be ` 212.22 (14.35% of total cost) per quintal and ` 239.33 (15.24% of total
cost) per quintal of sugar produced respectively. The average of fixed cost in Private
sugar factory and Cooperative sugar factory were found to be ` 287.77 per quintal of
sugar produced contributing 18.09 per cent of total cost and ` 274.50 per quintal of
sugar produced contributing 18.07 per cent of total cost respectively.
Performance Appraisal of Co-operative and Private Sugar Factory in Belgaum 1201

Table II: Unit cost of production in both private and cooperative sugar factory
(`Per quintal of sugar produced)
Years Cane cost Other variable Fixed costs Total costs
cost
Private Cooper Private Cooper Private Cooper Privat Cooperati
ative ative ative e ve
2002- 620.01 654.84 287.22 157.21 235.71 198.34 1142. 1010.37
03 (54.25) (64.81) (25.13) (15.56) (20.62) (19.63) 95
2003- 764.58 819.79 307.67 245.36 290.36 264.64 1362. 1329.85
04 (56.11) (61.65) (22.58) (18.45) (21.31) (19.90) 57
2004- 1050.22 959.54 188.82 272.90 281.25 287.03 1520. 1519.51
05 (69.08) (63.15) (12.42) (17.96) (18.50) (18.89) 26
2005- 980.62 944.88 138.03 131.57 216.25 237.90 1334. 1314.39
06 (73.46) (71.89) (10.34) (10.01) (16.20) (18.10) 90
2006- 812.53 709.11 186.62 142.61 238.35 208.56 1237. 1060.29
07 (65.66) (66.88) (15.08) (13.45) (19.26) (19.67) 52
2007- 672.47 744.62 202.25 180.17 220.31 214.11 1095. 1138.90
08 (61.41) (65.38) (18.47) (15.82) (20.12) (18.80) 00
2008- 1396.57 1363.86 139.70 346.67 326.34 357.84 1862. 2068.46
09 (74.98) (65.94) (7.50) (16.76) (17.52) (17.30) 69
2009- 2356.57 1686.42 233.71 373.45 460.71 363.52 3051. 2423.44
10 (77.24) (69.59) (7.66) (15.41) (15.10) (15.00) 07
2010- 1702.29 1568.89 226.02 304.09 320.69 338.59 2248. 2211.55
11 (75.69) (70.94) (10.05) (13.75) (14.26) (15.31) 91
Avera 1150.65 1050.22 212.22 239.33 287.77 274.50 1650. 1564.08
ge (67.54) (66.69) (14.35) (15.24) (18.09) (18.07) 65
Source: Financial statements of the factories
Note: Figures in the parentheses indicate the percentage to the total

The cost of and returns from per ton of sugarcane crushed: This was calculated in
order to know which of the factory was more efficient in sugar processing and the
results are presented in table III. It is evident from the table that cooperative sugar
factory managed to keep the total expenses (incurred in processing one ton of
sugarcane into sugar) low as compared to private sugar factory. The sugar revenue and
total by-products revenue generated from per ton of sugarcane crushed was highest in
private sugar factory. This was mainly due to large quantity of sugarcane crushed. The
profit/loss per ton of sugarcane crushed varied over the years in both the sugar
factories. This can be attributed to varying sugarcane purchase price and other
processing cost.
1202 P.S. Dhananjaya Swamy et al

Table III: Costs of and Returns from per ton of sugarcane crushed
(Per ton of sugarcane crushed)
Year By-products Sugar revenue Total revenue Total expenses Profit/Loss
revenue (B) (A+B) (Direct +
(A) Indirect costs)
Privat Coop Private Cooperati Private Cooper Private Cooper Priva Coope
e erativ ve ative ative te rative
e
2002- 82.76 30.03 1334.24 1134.86 1416.99 1164.89 1360.92 1130.51 56.08 34.38
03
2003- 99.00 132.8 1514.35 1548.95 1613.34 1681.82 1590.59 1634.37 22.75 47.45
04 7
2004- 115.19 140.4 1956.62 1465.20 2071.81 1605.60 1988.18 1532.16 83.63 73.44
05 0
2005- 128.00 75.92 1730.77 1757.76 1858.77 1833.69 1731.56 1685.40 127.2 148.29
06 1
2006- 117.24 74.98 1415.60 1113.61 1532.84 1188.59 1509.96 1194.37 22.88 -5.79
07
2007- 138.48 97.72 1696.97 1496.64 1835.45 1594.36 1789.74 1573.48 45.71 20.88
08
2008- 272.42 207.7 2889.33 2249.46 3161.75 2457.18 3056.26 2400.77 105.4 56.41
09 2 9
2009- 328.93 182.7 3437.81 3009.91 3766.75 3192.70 3698.10 3030.10 68.65 162.60
10 9
2010- 266.28 197.1 2815.28 2643.71 3081.56 2840.89 3014.16 2640.53 67.41 200.36
11 8
Avera 172.03 126.6 2087.89 1824.46 2259.92 1951.08 4347.80 3775.54 66.65 82.00
ge 2
Source: Financial statement of the factories

Revenue from sale of by-products: The details on by-products sales and revenue
accrued over the years are presented in table IV. The average sale of molasses by
Private sugar factory was ` 688.19 lakh, contributing 6.42 per cent to total sales. The
average sales of molasses by Cooperative sugar factory during the study period was
found to be ` 476.26 lakh, contributing 5.41 per cent to the total sales. The sale of
molasses in Private sugar factory was above the sales of Cooperative sugar factory
over all the years except 2009. This can be attributed to higher installed crushing
capacity and sugarcane crushed. Cogeneration (electricity generation) facility was not
installed in both the factories, and hence both the factories sold the surplus bagasse to
other electricity producing factories. In Private sugar factory the sale has increased
from ` 5.8 lakh (2003) to ` 16.4 lakh (2011) with an average of ` 9.61 lakh,
contributing 0.10 percent to the total sales. In case of Cooperative sugar factory the
sale of bagasse increased from ` 0.9 lakh (2003) to ` 23.29 lakh (2011) with an average
Performance Appraisal of Co-operative and Private Sugar Factory in Belgaum 1203

of ` 9.39 lakh, contributing 0.10 per cent to the total sales. The share in both the
factories was small due to the reason that the factories sold only the surplus bagasse
left after using for boilers. (Ambi, 2011 and Ahmed, 2011). The overall share of sale of
pressmud in Private sugar factory (0.77%) was less than Cooperative sugar factory
(0.82%). This was mainly due to relatively greater expansion of installed crushing
capacity by Private sugar factory. The average total revenue by the sale of by products
in private sugar factory was found to be ` 780.75 lakh, contributing 7.29 per cent to the
total sales whereas in Cooperative sugar factory it was found to be ` 565.95 lakh,
contributing 3.59 per cent to total sales.

Table IV: Revenue from sale of by-products.

(In Lakh)
Year Molasses Press mud Bagasse Sale of sugar Total Sales Total sales
s of
byproducts
Priv Cooper Priv Cooper Priv Cooper Priva Cooper Priv Cooper Priva Cooper
ate ative ate ative ate ative te ative ate ative te ative
2002 337. 81.80 25.4 11.25 5.80 0.90 5937. 3550.01 368. 93.95 6305. 3643.96
-03 05 4 66 29 95
(5.3 (2.24) (0.4 (0.31) (0.09 (0.02) (94.1 (97.42) (5.8 (2.58)
4) 0) ) 6) 4)
2003 237. 248.45 19.2 20.66 5.40 3.45 4016. 3177.44 262. 272.56 4278. 3450.00
-04 89 6 28 55 83
(5.5 (7.20) (0.4 (0.60) (0.13 (0.10) (93.8 (92.10) (6.1 (7.90)
6) 5) ) 6) 4)
2004 280. 231.72 25.6 27.58 6.20 3.22 5312. 2739.63 312. 262.52 5624. 3002.15
-05 86 7 04 73 77
(4.9 (7.72) (0.4 (0.92) (0.11 (0.11) (94.4 (91.26) (5.5 (3.13)
9) 6) ) 4) 6)
2005 631. 304.32 101. 40.67 7.90 3.51 1001 8068.28 740. 348.50 1075 8416.78
-06 61 41 8.73 92 9.65
(5.8 (3.62) (0.9 (0.48) (0.07 (0.04) (93.1 (95.86) (6.8 (4.14)
7) 4) ) 1) 9)
2006 705. 428.39 98.1 76.16 10.2 13.84 9830. 7699.5 814. 518.39 1064 8217.89
-07 77 5 5 55 17 4.72
(6.6 (5.21) (0.9 (0.93) (0.10 (0.17) (92.3 (93.69) (7.6 (1.14)
3) 2) ) 5) 5)
2007 708. 444.25 111. 91.84 10.8 11.62 1018 8388.79 830. 547.71 1101 8936.50
-08 74 15 5 0.23 74 0.97
(6.4 (4.97) (1.0 (1.03) (0.10 (0.13) (92.4 (93.87) (7.5 (6.13)
4) 1) ) 6) 4)
2008 633. 694.10 92.5 112.86 10.1 10.85 7808. 8856.31 736. 817.81 8544. 9674.12
-09 56 5 0 32 21 53
1204 P.S. Dhananjaya Swamy et al

(7.4 (7.17) (1.0 (1.17) (0.12 (0.11) (91.3 (91.55) (8.6 (0.97)
1) 8) ) 8) 2)
2009 1060 895.45 132. 175.83 13.6 13.85 1261 17868.0 1206 1085.13 1381 18953.2
-10 .22 81 0 0.97 8 .63 7.60 1
(7.6 (4.72) (0.9 (0.93) (0.10 (0.07) (91.2 (94.27) (8.7 (5.73)
7) 6) ) 7) 3)
2010 1598 957.85 140. 165.84 16.4 23.29 1854 15377.9 1754 1146.98 2030 16524.9
-11 .04 10 0 9.89 6 .54 4.43 4
(7.8 (5.80) (0.6 (1.00) (0.08 (0.14) (91.3 (93.06) (8.6 (0.57)
7) 9) ) 6) 4)
Aver 688. 476.26 82.9 80.30 9.61 9.39 9362. 8414.00 780. 565.95 1014 8979.95
age 19 5 74 75 3.49
(6.4 (5.41) (0.7 (0.82) (0.10 (0.10) (92.7 (93.68) (7.2 (3.59)
2) 7) ) 1) 9)
CAG 14.7 22.21** 28.9 41.47N 14.6 69.04** 15.74 25.08** 23.4 32.48** 16.28 25.35**
R 7* 8** S 8** ** 6** **
Source: Financial statement of the factories
Note: The figures in the parentheses indicate the percentage to the total

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