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SUMMER TRAINING PROJECT report ON A STUDY ON RATIO ANALYSIS OF TEVA API INDIA LTD.

GAJRAULA

Submitted for the partial fulfillment of the award Of

Master Of Business Administration Degree (session : 2011-2013)


Submitted By
*Mayur Kumar Goel* 1103270087

Under The Guidence Of


*Dr. Shobhika Tyagi* School Of The Management ABES ENGINEERING COLLEGE GHAZIABAD

AFFILIATED TO MAHAMAYA TECHNICAL UNIVERSITY

DECLARATION/CERTIFICATE
I MAYUR KUMAR GOEL hereby declare that the work which is being presented in this report entitled A STUDY ON RATIO ANALYSIS OF TEVA API INDIA LTD. GAJRAULA is an authentic record of my own work carried out under the supervision of Dr. SHOBHIKA TYAGI.

The matter embodied in this report has not been submitted by me for the award of any other degree.

Dated:

Name of the Student MAYUR KUMAR GOEL MBA Department

This is to certify that the above statement made by the candidate are correct to the best of my knowledge.

Prof. Rakesh Passi Head of Department Date :

Name of the Supervisor Dr. Shobhika Tyagi Asst. Prof. MBA Date:

ACKNOWLEDGEMENT

When I embarked this project, it appeared to me an onerous work. Slowly as I progressed, I did realize that I was not alone after all!! There were friends and well wishers, who with their magnanimous and generous help and support made it a relative easier affair.

I wish to express my gratitude to all that concerned persons who have extended their kind help, guidance and suggestions without which it could not have been possible for me to complete this project report.

I am deeply indebted to my guide Dr. shobhika tyagi, (Faculty of MBA), ABES ENGINEERING COLLEGE Ghaziabad, for not only his valuable and enlightened guidance but also for the freedom he rendered to me during this project work. My heart goes out to my parents who bear with all types of troubles I caused them with smile during the entire study period and beyond.

MAYUR KUMAR GOEL COURSE-MBA 2 YEAR

Contents PART I Chapter I


1. Introduction 2. Need of the study 3. Scope of the study 4. Objective of study

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6 9 12 13

PART II Chapter II
1. ResearchMethodology 2. Limitation

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15 16

Chapter III
1. Descriptive study of ratio analysis

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19

Chapter IV Chapter V

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23

1. Data analysis & Interpretation

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63

1. Conclusion & suggestion

Chapter VI

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66

1. Bibliography

Chapter VII
1. Appendices Balance sheet

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68 69

Profit & loss account

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PART 1 Chapter I
INTRODUCTION

TAPI is a division of Teva Pharmaceutical Industries Ltd., the global generic pharmaceutical leader and one of the worlds top 15 pharmaceutical companies.

Gajraula Site is located in Northern India. This manufacturing plant was acquired by TAPI in 2003. The plant specializes in the production of intermediates for the various APIs manufactured by the division and APIs for the US market and other regulated markets. Gajraula Site is a fast growing plant in terms of production and R&D. History of Strategic Acquisitions

TAPI is a unit of Teva Pharmaceutical Industries, the worlds largest generic drug manufacturer and one of the 15 largest pharmaceutical companies worldwide. The rich history of the TAPI Division dates back to 1935 with the founding of Assia, a company that specialized in the production of veterinary and pharmaceutical ingredients. TAPI has grown by acquiring and establishing top-rated manufacturing and development facilities around the world. The already high-quality standards of each acquired plant are fully synchronized with TAPI best practices through a comprehensive integration program. At the heart of TAPI lies the Israel-based Teva-Tech plant, a state-of the-art facility established in 1995 with numerous dedicated high-volume production areas. TAPI today operates 21 production plants and 7 research and development centers across the globe. Each facility contributes to our accumulated knowledge and ongoing excellence in R&D, production and customer service for the benefit of our demanding customer base. Major Growth Milestones

2011: acquisition of Theramex (Monaco) B 2008: acquisition of Archimica (Puerto Rico) acquisition of Bentley (Spain) acquisition of Barr-Pliva (Croatia)

2006: establishment of TAPI China 2005: acquisition of Ivax API (Czech Republic, Puerto Rico) 2004: acquisition of Sicor API (Italy, Mexico, Switzerland) 2003: establishment of TAPI India 7

2002: acquisition of PFC (Italy) 1996: acquisition of Biocraft (US) 1995: establishment of Teva-Tech (Israel) 1991: acquisition of Prosintex (Italy)

1988: acquisition of Abic (Israel) 1980: acquisition of Plantex (Israel) TAPI is a division of Teva Pharmaceutical Industries Ltd., the global generic pharmaceutical leader and one of the worlds top 15 pharmaceutical companies.

At TAPI, we nurture our core value of creativity by:


Encouraging our people to show initiative and cultivate bold ideas Challenging the status quo Creating open channels of communication and limiting bureaucracy Promoting cooperation and teamwork across functions and organizational lines Spurring innovation and creative thinking

Great Place to Work We make TAPI a great place of work by:


Creating a challenging and stimulating work environment Working as a team with mutual respect and trust Sharing knowledge among our peers and colleagues Respecting local customs while uniting around a global corporate culture 8

Recognizing and rewarding achievements and accomplishments

Need of the study


Financial ratio analysis is a fascinating topic to study because it can teach us so much about accounts and businesses. When we use ratio analysis we can work out how profitable a business is, we can tell if it has enough money to pay its bills and we can even tell whether its shareholders should be happy! Ratio analysis can also help us to check whether a business is doing better this year than it was last year; and it can tell us if our business is doing better or worse than other businesses doing and selling the same things. In addition to ratio analysis being part of an accounting and business studies, it is a very useful thing to know anyway! The overall layout of this section is as follows: It will begin by asking the question, what do we want ratio analysis to tell us? Then, what will we try to do with it? This is the most important

question, funnily enough! The answer to that question then means we need to make a list of all of the ratios we might use: we will list them and give the formula for each of them. Once we have discovered all of the ratios that we can use we need to know how to use them, who might use them and what for and how will it help them to answer the question we asked at the beginning? At this stage we will have an overall picture of what ratio analysis is, who uses it and the ratios they need to be able to use it. All that's left to do then is to use the ratios; and we will do that step- by-step, one by one. What do we want ratio analysis to tell us? The key question in ratio analysis isn't only to get the right answer: for example, to be able to say that a business's profit is 10% of turnover. We have to start working on ratio analysis with the following question in our heads: What are we trying to find out? Isn't this just blether, won't the exam just ask me to tell them that profit is 10% of turnover? Well, yes, but then they want to know that you are a good student who understands what it means to say that profit is 10% of turnover. We can use ratio analysis to try to tell us whether the business 1. 2. is profitable has enough money to pay its bills

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3. 4. 5. 6. 7.

could be paying its employees higher wages is paying its share of tax is using its assets efficiently has a gearing problem is a candidate for being bought by another company or investor

What do the Users of Accounts Need to Know? The users of accounts that we have listed will want to know the sorts of things we can see in the table below: this is not necessarily everything they will ever need to know, but it is a starting point for us to think about the different needs and questions of different users.

Investors

To help them determine whether they should buy shares in the business, hold on to the shares they already own or sell the shares they already own. They also want to assess the ability of the business to pay dividends.

Lenders Managers

To determine whether their loans and interest will be paid when due Might need segmental and total information to see how they fit into the overall picture

Employees

Information about the stability and profitability of their employers to assess the ability of the business to provide remuneration, retirement benefits and employment opportunities

Suppliers and other Businesses supplying goods and materials to other businesses will read trade creditors their accounts to see that they don't have problems: after all, any supplier wants to know if his customers are going to pay their bills! Customers The continuance of a business, especially when they have a long term

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involvement with, or are dependent on, the business Governments and their agencies The allocation of resources and, therefore, the activities of business. To regulate the activities of business, determine taxation policies and as the basis for national income and similar statistics

Local community

Financial statements may assist the public by providing information about the trends and recent developments in the prosperity of the business and the range of its activities as they affect their area

Financial analysts

They need to know, for example, the accounting concepts employed for inventories, depreciation, bad debts and so on

Environmental groups Researchers

Many organizations now publish reports specifically aimed at informing us about how they are working to keep their environment clean. Researchers' demands cover a very wide range of lines of enquiry ranging from detailed statistical analysis of the income statement and balance sheet data extending over many years to the qualitative analysis of the wording of the statements

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Scope of the study


In the left hand column there is a list of interest groups one by one. job is to complete the right hand column by giving two or three examples of ratios they might be interested in.

Interest Group Investors Lenders Managers Employees

Ratios to watch Return on Capital Employed Gearing ratios Profitability ratios Return on Capital Employed

Suppliers and other trade creditors Liquidity Customers Governments and their agencies Local Community Financial analysts Environmental groups Researchers Profitability Profitability This could be a long and interesting list Possibly all ratios Expenditure on anti-pollution measures Depends on the nature of their study

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Objective of Study
To study the financial position of company. To know the relationship between items of Balance sheet and Profit and Loss Account. To know the trend of company from last three years in terms of ratio. To Measure the profitability of organization To Judge the operational efficiency of the organization To Comparative analysis of the firm

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PART II Chapter II

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RESEARCH METHODOLOZY

Types of Research:
Research which is being done in this report is of DESCRIPTIVE type in which Researcher has no control on present things that have being studied.

Span of study :
3 years: 2010, 2011, 2012,

Sources of Data Collection:


Annual Reports Internet Quarterly Reports of company

Analytical tool:
Ratio Analysis

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Limitations
1) Time constraint :This project report is prepared within 40 is not sufficient for detail study which is the requirement of this topic.

2) Non Availability of Primary Data:This project report is based on Secondary Data. No Primary data is being used in this report. This data is collected by someone else so nothing can be said about its reliability. 3) Reliability:every ratio has it's variations, some people exclude things that others include. Use what you feel comfortable with, but be sure to have consistency when comparing against other companies. 4) Lack of Resources:Resources which available for doing the research are not sufficient. 5) Ignoring qualitative factors :Ratio analysis is a quantitative measurement of the performance of business. It ignores the qualitative aspect of the firm.

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Chapter III
Descriptive study of ratio analysis

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Ratio Analysis: INTRODUCTION


Ratio analysis is a technique of analysing financial statements. It helps in estimating financial soundness or weakness. Ratio is a quantitative relationship between two items for the purposes of comparison. The items presented in profit and loss account and balance sheet are related to each other. This relationship can be calculated with the help of ratios. For example, profit is related to capital invested in business and debtors are dependent on credit sales. Ratios help in drawing meaningful conclusions by establishing relationship between various facts. Absolute figures can be misleading unless these are compared with each other. If we are given some data relating to profit and loss account and balance sheet of a business, we cannot draw significant and meaningful conclusions from these unless mutual relationship is established among them. According to Hunt, William & Donaldson, Ratios are simply a means of highlighting in arithmetical terms the relationship between figures drawn from financial statements. Similarly, ratio analysis is a process whereby the financial statements are analyzed and interpreted through ratios. To calculate ratio one item is divided with the other. Because these ratios are based on financial accounts, therefore, they are also called accounting ratios.

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INTERPRETATION OF RATIOS

(1) Interpretation of individual Ratio: An individual may have its own significance. For example if the current ratio is 2:1, it can be interpreted that current assets are twice the current liabilities.

(2) Interpretation by referring to a group of Ratios: Sometimes, it is difficult to understand an individual ratio. In such circumstances, to conduct meaningful analysis, other related ratios should be calculated. For example, to study the liquidity position, besides the current ratio, debtors turnover ratio and stock turnover ratio should also be calculated.

(3) Interpretation of Ratios by trend : Under this method, a ratio or group of ratios for different periods should be calculated so that their trend can be studied. On the basis of increasing, decreasing or static trend, important conclusions can be drawn. Sometimes, average ratio for the various years is found out.

(4) Interpretation by inter-firm comparison: Under this method, the ratios of one firm are compared with those other firms.

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Type of Ratios :Ratios are used for the achievement of special objectives. The different parties interested in the business use only those ratios which help them in evaluating their interests. Short term creditors want to know whether the business has the capacity to pay their debts or not. Long term creditors and financial institutions are interested both in the long term solvency and profitability so that their loans and interests can be paid. Similarly management is interested to know whether the interests of all parties are safe and different assets are being used effectively or not. According to purpose, the ratios can be of following types:

Liquidity Ratios Profitability Ratios Turnover or Activity Ratios Leverage or Capital Structure Ratios.

These Liquidity, Leverage, Profitability, and Turnover Ratios allow the business owner to identify trends in a business and to compare its progress with the performance of others through data published by various sources. The owner may thus determine the business's relative strengths and weaknesses.

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Chapter IV
Data analysis & interpretation

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LIQUIDITY RATIOS:

Liquidity means ability of the firm to pay its short term debts in time. Liquidity ratios are calculated to measure the short term financial position or short term solvency of the firm. Commercial banks and short term creditors are interested in such type of analysis. Management can also make use of
these ratios to find out how efficiently the working capital is being used. To understand liquidity position

of the business, following ratios can be used:

Current Ratio Liquidity Ratio Absolute liquidity Ratio

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Current Ratio

With its help, the ability of the business to pay its short term liabilities is determined. It is also called working capital Ratio. It is calculated as

Current Ratio = Current Assets Current liabilities 2009 Current Assets


Sundry debtors Cash and bank balances Loans and advances 28,53,628 32,70,238 29,67,059 1,14,58,697 43,61,905 52,14,187 1,69,61,109 1,75,71,220 84,15,892

2010

2011

Total Current liability


Creditors Provisions Other liabilities

90,90,925
16,88,985 5,37,986

2,10,34,789
12,14,632 23,99,106 2,34,790

4,29,48,221
25,68,086 33,58,147 5,09,377

Total Current Ratio

22,26,971 4.08

38,48,528 5.46

64,35,610 6.67

Remarks: Standard ratio is 2:1 So, Current ratio is very good. In 2005 it is 6.67 because of high cash and bank balances which is 40% of Current Assets.

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Liquidity Ratio or Quick Ratio:

With the help of this ratio, the capacity of the firm to pay its current liabilities immediately is measured. This ratio is calculated as

Liquidity Ratio = Liquid Assets Current Liabilities = Current Assets-Inventory Current liabilities Current Assets Current liability Liquidity Ratio 2009 90,90,925 22,26,971 4.08 2010 2,10,34,789 38,48,528 5.46 2011 4,29,48,221 64,35,610 6.67

Remarks: Standard ratio is 1:1 .There is no difference in Liquid Assets and Current Assets because of absence of inventory.

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Absolute liquidity Ratio:

This ratio is also called super acid test or super quick ratio. Super liquid assets means cash and marketable securities. This ratio is calculated as

Absolute liquidity Ratio = Cash+Bank+Marketable Securities Current liabilities

2009 Absolute liquid Assets: Cash Bank


33,354 32,36,884

2010
10,283 43,51,622

2011
19,481 1,75,51,739

Total Absolute liquid 32,70,238 assets Current Liability 22,26,971

43,61,905 38,48,528 1.13

1,75,71,220 64,35,610 2.73

Absolute liquidity Ratio

1.47

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Remarks: Standard Ratio is 0.5:1. So, Absolute Liquidity Ratio is also very high because of high Cash and Bank balances. It means TEVA have cash and bank balance of Rs.1,75,71,220 to meet current liability of Rs. 64,35,610.

Table 1

LIQUIDITY RATIOS
2009 Current Ratio Liquidity Ratio Absolute liquidity Ratio 4.08 4.08 1.47 2010 5.46 5.46 1.13 2011 6.67 6.67 2.73

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LIQUIDITY RATIOS:
Current Assets should be at least two times of current liabilities. Here in 2009, 2010 & 2011 current ratio is 4.08,5.46 & 6.67 respectively. It shows that liquidity position is very good of company. In 2011 current ratio has been increased 22% because of increase in Current Assets is 104% and increase in current liabilities is 67%. Increase in Current Assets is due to increase in cash and bank balances which is 300%.Here both current Ratio and liquidity Ratio are same because of absence of Inventory. Absolute liquidity Ratio is also very good because of increase in cash and bank balances. It was 1.47, 1.13 & 2.73 in 2009, 2010 & 2011 respectively. It is decreased in 2010 by23% but increase in 2011 by141.6%.

So, Liquidity position of company is very good which will be beneficial for efficient working of company.

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TURNOVER RATIOS:
The efficiency of a firm depends on the fact how efficiently its assets are being used in business. Turnover ratios are measures of efficient management of various assets. The efficient utilization of these assets depends on the speed at which these assets are converted in sales. Higher velocity of their conversion in sales indicates that assets are being efficiently managed. Thus, turnover ratios measures the rate of change of assets in sales. These ratios are also known as Activity Ratios or performance Ratios. Following ratios are calculated under it:

3) Debtors Turnover Ratio 4) Working Capital Turnover Ratio

5) Fixed Assets Turnover Ratio

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Debtors Turnover Ratio

Debtors or receivables are current assets of business. The debtors turnover ratio measures how quickly the debtors or receivables of business are realized. It also indicates how efficiently the debtors of business are being realized. It is an indicator of the liquidity of debtors. This ratio establishes relationship between credit sales and average debtors.

Debtors Turnover Ratio =

Revenue Average Accounts Receivables

Avg Accounts = Opening (Debtors & B/R.)+closing (debtors &B/R) Receivables 2 2009 Revenue
Average Debtors 4,87,19,292 28,53,628

2010
8,57,39,628 71,56,162

2011
16,27,49,977 1,42,09,903

Debtor Turnover Ratio

17.07

11.98

11.45

Average Accounts Receivable

= = 21 days

365 Debtors turnover Ratio 30 days 32days

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Remarks: Debtors Turnover Ratio is decreasing because increase in debtors is more than increase in Revenue. This is reason of increasing collection period.

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Working Capital Turnover Ratio :This ratio indicates whether the working capital has been efficiently used to increase sales. It indicates that whether the firm has sufficient short term investment for meeting its liabilities on time. Working capital Turnover Ratio = Revenue Net Working capital

2009 Revenue Working capital


Current Assets (A) Current Liability (B) Working Capital (A-B) 4,87,19,292 90,90,924 22,26,971

2010
8,57,39,628 2,10,34,789 38,48,528

2011
1,62,74,99,77 4,29,48,221 64,35,610 3,65,12,611

68,63,953 7.10

1,71,86,261 5

Working Capital Turnover Ratio

4.46

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Remarks: Working Capital Turnover Ratio is decreasing but decreasing rate is less in 2005 than 2004.

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Fixed Assets Turnover Ratio :This ratio indicates how far the fixed assets of business have been utilized to increase sales

Fixed Assets Turnover Ratio = Revenue Fixed assets Fixed assets turnover ratio

Revenue Fixed Assets 2010 8,57,39,628


63,70,530

2009 4,87,19,292
51,32,868

2011
16,27,49,977 1,40,17,627

9.49

13.46

11.61

Remarks: Fixed Assets Turnover Ratio represents the revenue which is earning on every rupee invested in fixed assets. In 2004 it is increased by 41.83% but in 2005 it is decreased by 16%.

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Table 2

TURNOVER RATIOS
2009 2010 2011

Debtor Turnover Ratio Average Accounts Receivable Working Capital Ratio Fixed Assets Ratio

17.07 21days 7.10 9.49

11.98

11.45

32days 30days 5 13.46 4.46 11.61

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TURNOVER RATIOS:Debtors Turnover Ratio should be high. In 2009 it is 17.07 which decreased upto 11.98 in 2010 by 42 %. This is because of increase in debtors by 151 %. In 2005 it is decreased by 4.6 %. Debtors Turnover Ratio is decreasing thats why collection period is increasing. It was 21 days in 2003 but increased in 2010 upto 30 days and in 2005 upto 32 days. Working Capital Ratio is 7.10 in 2003 which is decreased in 2010 by 42% and in 2011 by 12%. Fixed Assets Ratio is 9.49 in 2009 which increased by 42% in 2010 because increase in revenue is more than increase in fixed assets. In 2010 it is 13.46 and in 2011 it is 11.61. It shows that in 2011 firm is earning 11.61 on every one rupee which is invested in fixed Assets.

So, it can be said that Turnover Ratios has been weakened in 2010 & 2011 in comparison to 2009.

6) LEVERAGE OR CAPITAL STRUCTURE RATIOS:

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Solvency of business is related to its debt paying capacity. With the help of liquidity ratios, short term solvency of business can be analysed. Under this head, long term solvency of business has been analysed. Normally the ordinary shareholders, debenture holders, financial institutions and other long term creditors are interested in these ratios. With the help of these ratios, long term creditors can analyse the capacity of business to pay interest and principal. Long term solvency of business means the ability to pay the long term debts and interest thereon regularly. Therefore, the long term solvency of business means its ability to pay the long term debts and interest thereon regularly. Following Ratios are calculated under it

7) Debt Equity Ratio 8) Proprietary Ratio 9) Fixed Assets to Proprietors fund Ratio 10) Current Assets to Proprietors fund Ratio 11) Fixed Assets Ratio

Debt-Equity Ratio :38

The necessary funds for the assets of business are provided by ordinary shareholders, preferential shareholders and creditors. In any business, there should by equitable balance between owned capital and debt capital because it affects long term solvency of business. If a business procures more funds from the owners of business, it will secure the interests of creditors. Debt-Equity Ratio = External Equities Internal Equities

2009 External Equities Current liability Total Internal Equities Share capital Share application money Reserve & Surplus Dr. balance of P&L a/c Total Debt Equity Ratio 22,26,971 22,26,971 53,63,320 13,330 1,27,19,700 (84,93,555) 96,02,795 0.23

2010 38,48,528 38,48,528 53,63,320 1,81,93,471

2011 64,35,610 64,35,610 53,63,320 4,51,66,918

2,35,556,791 0 .16

5,05,30,238 0.13

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Debt Equity Ratio =

0.23

0 .16

0.13

Remarks: High Ratio represents that company is in risk. TEVA has Net Worth of Rs. 1 for meeting the liabilities of 0.13. So it represents good position of company.

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Proprietary Ratio

This ratio is another form of debt equity ratio. It is also known as Net Worth

to Total

Assets Ratio. This ratio establishes relationship between shareholders funds and total assets of business. Its main objective is to find out how much funds have been provided by shareholders for investment in assets of business.

Proprietary Ratio = Shareholders Funds Total Assets

2009 Shareholders fund Share capital Share Application money Reserves & Surplus Dr. balance of P&L A/c Total Total Assets Fixed Assets Current Assets Total 53,63,320 13,330 1,27,19,700 (84,93,555) 96,02,795 27,38,841 90,90,924 1,18,29,765 0.81

2010 53,63,320 1,81,93,471 2,35,56,791 63,70,530 2,10,34,789 2,74,05,319 0.86

2011 53,63,320 4,51,66,918 5,05,30,238 1,40,17,627 4,29,48,221 56965,848 0.89

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Remarks: Higher the ratio, the more profitable it is for the creditors and the less management will have to depend on external debt. It is showing that in 2005, 89% of Total Assets is being invested by Shareholders.

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Fixed Assets to proprietors Funds Ratio :This ratio establishes relationship between fixed assets and proprietors funds. The main objective of this ratio is to find out what proportion of owners funds are invested in fixed assets.

Fixed Assets to proprietors Fund Ratio = Fixed Assets Proprietors funds

Fixed Assets Proprietors fund Ratio

2009 27,38,841 96,02,795 0.28

2010 63,70,530 2,35,56,791 0.27

2011 1,40,17,627 5,05,30,238 0.27

Remarks: The standard ratio is 65%. It shows that 28% in 2003 and 27% in 2004 and 2005 is being invested by shareholders in fixed Assets.

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Current Assets to proprietors funds Ratio :This ratio establishes relationship between current assets and proprietors funds. The main objective of this ratio is to find out what proportion of proprietors funds has been invested in current assets.

Current Assets to proprietors funds Ratio = Current Assets Proprietors funds

Current Assets Proprietors fund Ratio

2009 90,90,924 96,02,795 0.95

2010 2,10,34,789 2,35,56,791 0.89

2011 4,29,48,221 5,05,30,238 0.85

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Remarks:

There is no rule of thumb regarding it. It is showing that 95% in 2003 and 85% in

2005 of proprietors fund is being invested in Current Assets.

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Fixed Assets to current Assets Ratio :With the help of this ratio, it is determined whether the investments in current assets are more or less as compared to fixed assets.

Fixed Assets to current Assets Ratio = Fixed Assets Current Assets

Fixed Assets Current Assets: Ratio =

2009 27,38,841 90,90,924 0.30

2010 63,70,530 2,10,34,789 0.30

2011 1,40,17,627 4,29,48,221 0.33

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Remarks: It shows that Fixed Assets are one third of Current Assets.

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Table 3

LEVERAGE RATIOS
2009 Debt Equity Ratio Proprietary Ratio Fixed Asset to current Asset Ratio Fixed Assets to proprietors fund Ratio Current Assets to proprietors fund Ratio 0.23 0.81 0.30 0.28 0.95 2010 0.16 0.86 0.30 0.27 0.89 2011 0.13 0.89 0.33 0.27 0.85

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LEVERAGE RATIOS:
Debt Equity Ratio is 0.23, 0.16 & 0.13 in 2009, 2010 &2011 respectively. It shows that debt burden is very less which represents the security of creditors. Proprietary Ratio is 0.81 in 2009. In 2010,2011 it is 0.86 &0.89 respectively which is more than standard ratio i.e. 67 %.Fixed Assets to Current Assets Ratio says that fixed Assets are one third of Current Assets. Fixed Assets to proprietors fund is 0.28, 0.27 & 0.27 in 2003, 2004 & 2005 respectively. There is no rule of thumb for it. Actually it depends upon the nature of business. Current Assets to proprietors fund is 0.95, 0.89 & 0.89. It shows that most part of shareholders fund is sunk in current Assets.

So, it can be said that long term solvency position is satisfactory.

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12) PROFITABILITY RATIOS : -

Profitability is a measure of efficiency and control. Earning of more and more profit with the optimum use of available resources of business is called profitability. All parties are interested in profitability of business. The owners of the business or shareholders invest their money in the expectation of earning reasonable return on their investment. Profits also help to pay interest and provide funds to discharge debts. Necessary funds for the expansion and growth of business can be managed out of profits. Profitability is the basis of liquidity and solvency of business. Following Ratios are included under it 13) Net Profit Ratio 14) Operating Ratio 15) Return on Total shareholders fund 16) Return on Equity shareholders fund 17) Dividend per share 18) Earnings per share 19) Dividend Payout Ratio

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Net Profit Ratio :Net profit is used to measure the overall profitability of business. Net profit is considered an indicator of success of management to operate the margin business

successfully. Net Profit Ratio = Net Profit Revenue 2009 84,20,545 4,87,19,292 0.17 2010 1,39,67,326 8,57,39,628 0.163 2011 2,69,73,447 16,27,49,997 0.16

Net profit Revenue Ratio

Remarks: The greater the ratio, the more profitable the business will be. In 2004 it is decreased by only 5%.

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Operating Ratio :-

This ratio is complimentary to Net Operating Profit Ratio.

Operating Ratio = Operating costs Revenue

Operating cost Revenue Operating Ratio

2009 3,95,23,717 4,87,19,292 0.81

2010 6,99,73,678 8,57,39,628 0.82

2011 13,22,22,627 16,27,49,977 0.81

Remarks: Operating Ratio is near 80% in all three years. It is due of high employees costs. 52

Return on Total Shareholders funds :With the help of this ratio it can be ascertained how effectively the funds of the shareholders are being utilized. Shareholders funds are also known as Net Worth.

Return on Total Shareholders Equity= Net profit after tax Total shareholders Equity

2009
Net profit before tax Less: current tax Add: Reversal of deferred tax Net profit after tax Shareholders funds: 88,22,799 (4,02,254)

2010
1,46,25,684 ( 5,98,440) 59918 1,39,67,326 2,35,56,791

2011
27155281 (2,41,752) 59918 2,69,73,447 5,05,30,238

84,20,545 96,02,795

Ratio =

0.88

0.59

0.53

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Remarks: TEVA earns 88% in 2003 on capital invested by total shareholders. In 2004 it is being decreased by 33% and in 2005 it is being decreased by 10%.

Return on Equity Shareholders funds :-

Equity shareholders are the actual owners of the business because they bear all risks. They participate in management.

Return on Equity Shareholders fund = Net profit after tax and preference dividend Equity shareholders funds

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Net profit Shareholders fund Ratio

2009 84,20,545 96,02,795 0.88

2010 1,39,67,326 2,35,56,791 0.59

2011 2,69,73,447 5,05,30,238 0.53

Remarks: Return on Total shareholders fund and Return on Equity Shareholders fund are same because there is only Equity Shares.

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Earnings per share or EPS :-

This ratio measures the earnings per share available to ordinary shareholders.

EPS= Net profit after Tax and preference Dividend Number of Equity Shares

Net profit Number of equity shares Ratio

2009 84,20,545 5,36,332 15.70

2010 1,39,67,326 5,36,332 26.04

2011 2,69,73,447 5,36,332 50.29

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Remarks: Earning per share is increased by 66% in 2004 and by 93% in 2005.

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Dividend Per Share :All the profits after tax and preference dividend available for equity shareholders are not distributed among them as dividend. Rather, a part of it is retained in business. DPS = Profit distributed to Equity Shareholders Number of Equity Sharess 2009 for 84,20,545 5,36,332 15.70 2010 1,39,67,326 5,36,332 26.04 2011 2,69,73,447 5,36,332 50.29

Profits shareholders Equity shares Ratio

Remarks: Earnings per share and Dividend Per share are same because there is only equity shares so neither dividend is paid to preference shareholders nor earnings are retained.

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Dividend payout Ratio :It explains what percentage of profit after tax and preference dividend has been paid to equity shareholders as dividend.

D/P Ratio = Total Dividend paid to Equity Shareholders Total Net profit belonging to Equity Shareholders OR DPS EPS

DPS EPS RATIO

2009 15.70 15.70 1%

2010 26.04 26.04 1%

2011 50.29 50.29 1%

2009 DPS EPS Ratio 15.70 15.70 1%

2010 26.04 26.04 1%

2011 50.29 50.29 1%

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Remarks: Dividend payout Ratio is 100% because all earnings are paid as dividend to equity shareholders.

Analysis of Profitability Ratio:-:


Net profit Ratio is 0.17, 0.16 & 0.16 in 2009, 2010& 2011. respectively. Net profit helps to handle out adverse conditions. Higher the ratio, more it will be beneficial. There is slight decrease in 2010 & 2011. Operating ratio is 0.81, 0.82 &0.81 in 2009, 2010 &2011 respectively. There is very less changes in operating expenses in 2010 & 2011. Operating expenses are high because of employees costs which represent 45%, 44% & 44% of total operating expenses in 2009, 2010 & 2011 respectively. There is adverse relationship between operating expenses ratio and operating profit ratio. Operating Ratio is 0.19, 0.18 & 0.19 in 2009, 2010 & 2011 respectively. Return to Total shareholders funds are 0.46, 0.59 & 0.53. In 60

2010 it is being increased by 28 % and in 2011 it is being decreased by 11.3 %. Return on Total shareholders and Return on equity shareholder funds are same because only equity share are being issued by company. Earnings per share have been increased because of increase in earnings by 66 % in 2010 and by 93 % in 2011. Dividend per share and Earnings per share are same because whole earnings are distributed as dividend nothing is being kept in business. Thats why dividend payout ratio is 100 %.

So, Profitability position is sound.

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Chapter V
Conclusion & suggestion

62

SUGGESTIONS
1) Debtors Turnover Ratio is decreasing because increase in debtors is more than increase in Revenue.
In 2011 debtors represent 40% of total Current Assets that is quiet high. So Company should make efforts for reducing their debtors.

2) Operating Expenses are high which 95% of total expenses are in 2011. In Operating Expenses
employee costs are high which 42% of total operating expenses is. So if company will make some efforts to reduce these expenses its profits can be increased.

3) Cash and Bank Balance is 42% in 2011 of total current Assets which is high. But this is because
company was planning to take the building on lease for which Rs. 5 crores were deposit as security.

4) Return on Shareholders funds are decreased because increase is net profit is less than increase in
shareholders funds.

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CONCLUSION
Ratio Analysis explains the relationship between items in Balance Sheet and Profit and loss Account. Ratio Analysis is a tool of analyzing financial Statements. Four types of Ratios are calculated for studying the financial situation. Firstly, Liquidity Ratios are calculated which

represent short term solvency situation Because these ratios are related with those assets which can be converted into cash within one year and those liabilities which have to paid in one year. For efficient working of business it is necessary that short term solvency situation should be better. In exchanging short term solvency situation is very good. Secondly, Turnover Ratios are calculated which represents that how quickly assets can be converted in sales. Here Share of debtors in Current Assets are very high that is 31%, 55% and 40%. So company has to make efforts to collect funds from debtors. Remaining turnover ratios are satisfactory. Next type is Long term solvency Ratio. For long term success, these ratios are very important. Here Proprietary Ratio of all three years is near 90%. It shows that debt burden is very less on company. It shows security of creditors. Mostly funds are invested by shareholders in current Assets. Lastly, there is Profitability Ratios. Company is earning 0.46, 0.59 and 0.53 in 2009, 2010 and 2011 respectively on every rupee invested by shareholders. Shareholders are getting Rs. 50.29 on every share in 2011. Whole Profits are being distributed in shareholders. Dividend payout Ratio is 100%.

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Chapter VI
Bibliography

65

BIBLIOGRAPHY
BOOKS 1. Khan M Y, Jain P K Financial Management Tata McGraw Hill, 2004

Websites
1. www.answers.com 2. www.tevaapiindia.com

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Chapter VII
Appendices

67

Balance Sheet For the year ending

2009

2010

2011

SOURCES OF FUNDS Shareholdersfund Share capital Advance against share capital Reserve & Surplus Deferred Tax

53,63,320 13,330 1,27,19,700 1,80,96,350 180,96,350

53,63,320 1,81,93,471 2,35,56,791 59,918 2,36,16,709

53,63,320 4,51,66,918 5 ,05,30,238 5,05,30,238

APPLICATION OF FUNDS FIXED ASSETS Gross Block Less : Accumulated Depreciation Net Block Add.Capital work in progress CURRENT ASSETS(Including loans and Advances Sundry Debtors Cash and bank balances Loans and advances Less : Current liabilities and provisions Net Current Asset Balance in the profit & loss Account

78,71,709 51,32,868 27,38,841 27,38,841

1,07,58,129 43,87,599 63,70,530 63,70,530

2,00,36,550 72,48,523 1,27,88,027 12,29,600 1,40,17,627

28,53,628 32,70,238 29,67,059 90,90,925 22,26,971 68,63,954 84,93,555 1,80,96,350

1,14,58,697 43,61,905 52,14,187 2,10,34,789 37,88,610 1,72,46,179 2,36,16,709

1,69,61,109 1,75,71,220 84,15,892 4,29,48,221 64,35,610 3,65,12,611 5,05,30,238

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PROFIT AND LOSS ACCOUNT For the year ending


31-3-2003 31-3-2004 31-3-2005

REVENUE OTHER INCOME EXPENDITURES

4,87,19,292 13,30,907 5,00,50,199

8,57,39,628 3,70,028 8,61,09,656 6,99,73,677 14,67,158 43,137 7,14,83,972 1,46,25,684

16,27,49,977 1,18,959 16,28,68,936 13,22,22,627 34,00,756 90,272 13,57,13,655 2,71,55,281

Operating Expenses Depreciation Finance charges

3,95,23,717 16,57,578 46,105 4,12,27,400

PROFIT/(LOSS) Before tax

88,22,799

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Provision for tax Current Tax Deferred Tax/Reversal of Deferred Tax Net profit/loss for the year
PROFIT AND LOSS ACCOUNT, Beginning PROFIT AND LOSS ACCOUNT, end

(4,02,254)

(5,98,440) -59,918

(2,41,752) 59,918 2,69,73,447 54,73,771 3,24,47,218

84,20,545 (1,69,14,100) (84,93,555)

1,39,67,326 (84,93,555) 54,73,771

70