CHAPTER III METHODOLOGY

Transcription

1 CHAPTER III METHODOLOGY This chapter deals with the methodology adopted for evaluation of the objectives under the study LOCATION AND SELECTION OF AREA The present study was confined to the Govardhan oil products private limited and Junagadh city of Junagadh district. Most of the groundnut oil mills and cotton oil refinery plant were situated in Junagadh district so it was a better location for study. Most of the people of Jnugadh city preferred groundnut oil so it also proved a better choice for survey. The present study was carried out during the year Govardhan oil products private limited plays a significant role in Junagadh city in production of groundnut oil, cotton oil and palm oil. This firm is situated near by Sabalpur chokdi, Junagadh. It is established in Earlier firm have only groundnut oil mill but gradually it enhance its business. In 2012, firm purchased cotton oil refinery plant and machineries used in this plant are of Alpha Multinational Company. Source: Anon., 2016f Fig. 3.1 Location of Govardhan oil products private limited 25

2 3.2. SAMPLING TECHNIQUES AND SAMPLE SIZE Simple Random Sampling was used for sampling technique. Total sample size was 150 consumers of groundnut oil of Junagadh city of Junagadh district TYPE OF DATA Primary data was collected by using well structured questionnaire which is given in annexure 1. Primary data included factors affecting consumer preference like health, past experience, availability, test, price and type of oil. It also included problems of oil producers like information of seasonal problems, electricity problems, administration problems, labour and raw material problems. This data was helpful to satisfy the objective like consumer preference of edible oil and problems of edible oil producers. Secondary data was collected from five years annual report of the company which included trading account, profit and loss account and balance-sheet. Secondary data included data related to working capital management and cost of processing of groundnut oil like data of total assets, total liabilities, current assets, current liabilities, stock of raw material, working capital, fixed cost, variable cost, rate of depreciation, method of depreciation, interest on capital, gross return, net return of the company. This data was helpful to satisfy objectives like efficiency of working capital management practices and processing cost of groundnut oil ANALYTICAL TOOLS Tabular analysis, ratio analysis, correlation and regression were used to satisfy efficiency of working capital management practices and processing cost of groundnut oil. Ranking method was used to fulfill the objective of consumer preference of edible oil users Ratio Analysis Ratio analysis is a tool brought into play by individuals to carry out an evaluative analysis of information in the financial statements of a company. These ratios are calculated from current year figures and then compared to past years, other companies, the industry, and also the company to assess the performance of the 26

3 company. Besides, ratio analysis is used predominantly by proponents of financial analysis. (Khan and Jain, 2012) Current Ratio: Liquidity ratio that measures the ability of a company to pay its current liabilities when they come due with only quick assets. Quick assets are current assets that can be converted to cash within 90 days or in the short-term. Cash, cash equivalents, short-term investments or marketable securities, and current accounts receivable are considered quick assets. Current Ratio = Current Assets Current Liabilities Liquid Ratio: Liquidity ratios analyze the ability of a company to pay off both its current liabilities as they become due as well as their long-term liabilities as they become current. Standard liquid ratio is 1:1. Higher quick ratios are more favorable for companies because it shows there are more quick assets than current liabilities. Liquid Ratio = Liquid Assets Liquid Laibilities Current Assets to Total Assets Ratio: It indicates the extent of total funds invested for the purpose of working capital and throws light on the importance of current assets of a firm. Current Assets to Total Assets Ratio = Current Assets Total Assets Current Liabilities to Total Assets Ratio: The current liabilities to total assets ratio is a solvency ratio that examines how much of a company's assets are made of liabilities. Current Liabilities to Total Assets Ratio = Current Liabilities Total Assets Debtor s Turnover Ratio: Debtor turnover ratio is the relationship between net sales and average debtors. It is also called account receivable turnover ratio. Debtor s Turnover Ratio = Debtors +Bills Receivables Total Credit Sales No. of working Days 27

4 Inventory Turnover Ratio: The inventory turnover ratio is an efficiency ratio that shows how effectively inventory is managed by comparing cost of goods sold with average inventory for a period. This measures how many times average inventory is turned or sold during a period. Inventory Turnover Ratio = Cost of Goods Sold Average Stock Working Capital Turnover Ratio: The working capital turnover ratio is also referred to as net sales to working capital. It indicates a company's effectiveness in using its working capital. A ratio of 1 is usually considered the middle ground. It's not risky, but it is also not very safe. This means that the firm would have to sell all of its current assets in order to pay off its current liabilities. Working Capital Turnover Ratio = Sales Net Working Capital Return on Assets Ratio: The return on assets ratio, often called the return on total assets, is a profitability ratio that measures the net income produced by total assets during a period by comparing net income to the average total assets. ROA shows how efficiently a company can convert the money used to purchase assets into net income or profits. Return on Assets Ratio = Net Income Average Total Assets Correlation Correlation is a statistical technique used to determine the degree to which two variables are related to each other. It is also called Pearson's correlation or product moment correlation coefficient. It is useful to examine the efficiency of working capital management practices. Correlation coefficient is the degree of relation between two variables. Here, Karl Pearson s correlation will be used for correlation coefficient between return on assets and other independent variables. (Kothari, 1989) 28

5 r = (X X) (Y Y) ( X X) 2 ( Y Y) 2 Where, X = Mean of X Y = Mean of Y Y = Return on Assets X 1 = Current Ratio X 2 = Liquid Ratio X 3 = Current Asset to Total Assets Ratio X 4 = Current Liabilities to Total Assets Ratio X 5 = Debtors Turnover Ratio X 6 = Inventory Turnover Ratio X 7 = Working Capital Turnover Ratio Regression Regression is a measure of the relation between the mean value of one variable and corresponding value of other variables. It shows the level of significance between two variables. Here, it will be used to check the level of significance between return on assets and other independent variables. (Kothari, 1989) Y = α + β 1 X 1 + β 2 X 2 + β 3 X 3 + β 4 X 4 + β 5 X 5 + β 6 X 6 + β 7 X 7 + ϵ Where, Y = Return on Assets α = Constant β 1 to β 7 = Regression coefficients X 1 = Current Ratio X 2 = Liquid Ratio X 3 = Current Asset to Total Assets Ratio X 4 = Current Liabilities to Total Assets Ratio X 5 = Debtors Turnover Ratio X 6 = Inventory Turnover Ratio X 7 = Working Capital Turnover Ratio ϵ = Error term 29

6 Tabular and percentage analysis Tabular and percentage analysis used to examine the cost of processing of groundnut oil. Processing cost of Groundnut oil included initial investment, fixed cost and variable cost. Fixed cost included initial cost, salary of permanent staff, Interest on fixed capital, other expenses (license fee, insurance and other overhead charges) and depreciation on building and machinery. Variable cost included raw material required for processing activity, storage cost, cost of bags, power charges, transportation charges, wages for casual labours, fuel charges, repairs and maintenance, miscellaneous charges, interest on working capital and taxes. Table 3.1 Economics of processing: Groundnut oil Particulars Amount Percentage (A) Fixed cost Depreciation on building Depreciation on Machinery Salaries for permanent staff Interest on fixed capital Initial cost Other expenses like insurance and license fees Total Fixed Cost (B) Variable cost Raw material Storage cost Cost of bags Power charges Transportation charges Wages for casual labours Fuel charges Repairs and maintenance 30

7 Miscellaneous charges Interest on working capital Taxes Total Variable Cost Cost of Processing of Groundnut oil [TFC + TVC] Total processing cost (TPC- Cost of raw material) Gross return (GR) Net return (GR-TPC) Ranking Method Ranking is a relationship between a set of items such that, for any two items, the first is either ranked higher than, ranked lower than or ranked equal to the second. In mathematics, this is known as a weak order or total preorder of objects. It is not necessarily a total order of objects because two different objects can have the same ranking. (Anon, 2016g) Table 3.2: Factors of consumers preference of groundnut oil Sr. no. Factors Ranks Preference 1 Price 2 Availability 3 Past experience 4 Health 5 Taste 6 Type of oil Table 3.3: Problems faced by edible oil producers Sr. no. Problems Ranks Preference 1 Idle capacity of oil mill 2 Marketing problems 3 Competition of product s quality 4 Packaging problems 5 Problems of storage capacity 6 Labours disputes 31