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A Project report submitted to Vikram University, Ujjain (M.P.) In partial fulfillment of the degree of Master In Business Administration In Finance Session 2012-2013
Guided By Pro. Anand Trivedi Submited By Anjali Dalvi
SHRI YOGINDRA SAGAR INSTITUTE OF TECHNOLOGY & SCIENCE, RATLAM (M.P.)
This is to certify that the desertion entitled to study financial analysis of IPCA LABS Ltd Ratlam (M.P.) submitted to the Vikram University, Ujjain, by ANJALI DALVI during the academic year 2012-2013, is a record of his own work and is accepted in the partial fulfillment for the award of the degree of Master in Business Administration.
Internal Examiner Date External Examiner Date
I hereby declare that the following project report titled. “To study financial analysis of IPCA LABS LTD RATLAM” is an authentic work done by me. The project was undertaken as a part of the course curriculum of M.B.A. (FINANCE) program, Shri yogindra sagar institute of technology & science, Ratlam. ANJALI DALVI MBA 2ND YEAR
1. Preface. 2. Acknowledgement. A) INDUSTRY PROFILE. (Page 7 to Page 21) 1. 2. 3. 4. 5. 6. Introduction of IPCA laboratories. Board of Directors History of IPCA. Achievement of IPCA. Influence of IPCA in World. Product Profile.
Literature review. Assumptions/limitations. Plant location and administrative offices.LIMITED. Purpose and objective of study. Break up of pharmaceutical sales. 2. International sales. 8. Categories of Ratio. 2. 8. (Page 38 to Page 69) 1.Listing on stock exchange. 7. 12. Introduction. 9. 10. 8.Distribution on sales C) FINANCIAL ANLYISIS OF IPCA LAB LIMITED. Key Ratio 5. Interpretations. 3. 4. Executive Summary. (Page 22 to Page 37) 1. Definition of Ratio. 7. Financial Ratio. Balance Sheet Profit & Loss Account 10. Five years financial trends. Ratio formulae. (03) B) FINANCIAL PERFORMANCE OF IPCA LAB.Bibliography . 3.Conclusions and recommendations. Company’s philosophy. 6.7. Five years highlights.Suggestions 11. 5. Findings 9. 9. Financial performance and operations review. 4. 6. Financial Results. 11.
Ratlam (M. Internal audit dept. Excise dept. 2) ACKNOWLEDGEMENT I owe my special thanks to Mr. costing dept.P.P) during the period. .) for providing us a great opportunity to have our project work from an esteemed organization. R. I wish to express special thanks to Mr.) for his benevolent guidance. The profitability analysis of IPCA lab ltd. I gained on experience and made myself aware of working in various department like accounts dept.Manager .BHANDARI (AGM Account) IPCA LABS Ltd Ratlam (M.K.TQM). Ltd” The presented report is divided into three segments. B.ANJNE (Sr. C.P. IPCA LABS Ltd Ratlam (M. Ratlam (M. Financial performance. I’ve undertaken a major project report on “financial performance.(04) 1) PREFACE This report is concerning my summer training in IPCA lab.P. stores dept. profitability calculation by ratio analysis of IPCA lab. A. D.P) I did summer training in the accounts and finance department of IPCA lab. Ltd. Industry profile of IPCA ltd. purchase dept.
encouragement and keen interest in our dayto-day progress that helped us to undertake this work. Last but not the least all that came through due to blessing and grace of GOD.) who gave valuable guidance time to time. Thanks……… . I became the part of IPCA LABS Ltd Ratlam (M.).P. PANKAJ TIWARI (Training & Development). My thanks and regards goes to my parents because of their support. I am grateful to Mr. (05) I am grateful to MR. IPCA LABS Ltd Ratlam (M.P. I’m grateful to all the workers and staff member who gave their valuable time and suggestion for our project work.unhesitating co-operation.ANAND TRIVEDI (Lecturer) who gave me the valuable guidance time to time and helps me to complete my project on time.
India. Roche and Sanofi Aventis. most of whom we have been partnering over the years. GlaxoSmithKline. .(06) A) INDUSTRY PROFILE 1) INTRODUCTION OF IPCA LABORATRIES. It produces more than 150 formulations that include oral liquids. and active pharmaceutical ingredients (API). It is also one of the largest suppliers of these APIs and their intermediates world over. Ipca is a therapy leader in India for anti-materials with a market-share of over 34% with a fast expanding presence in the international market as well. Merck. tablets. drug intermediates. Ipca is a fully-integrated Indian pharmaceutical company manufacturing over 350 formulations and 80 APIs for various therapeutic segments. with 4 of our branded formulations being ranked among the Top-300 Indian brands by ORG-IMS. The main activities of company are to produce and market pharmaceuticals and drugs. We have leading brands in 5 therapeutic areas. The various products of the company include formulations. Our international client roster includes global pharmaceutical giants like AstraZeneca. Ipca Laboratories is an international pharmaceutical company based in Mumbai. We also lead in DMARDs (Disease Modifying Anti-Rheumatic Drugs) treatment for rheumatoid arthritis. dry powders. and capsules.
2) BOARD OF DIRECTORS (08) .
Godha. P.3) History of IPCA It was founded by group of businessmen and medical professionals in 1949. Jaya Bachchan.R. (09) . Chandurkar. Ajitabh Bachchan. In 1975. the management of the company was taken over by Amitabh Bachchan. M.C.
Reddy’s. Dr. (10) . Cipla.Brazil-Brazilian National Health Vigilance Agency (ANVISA) and Australia-Therapeutic Goods Administration (TGA). Merck. Forbes selected Ipca.4) Achievement of IPCA In 2004. UK-Medicines and Healthcare products Regulatory Agency (MHRA). for the second consecutive year as one among the first 200 ‘Best under a Billion Company’ in Asia. South Africa-Medicines Control Council (MCC). It also got certification from US Food and Drug Administration (FDA). Our Clients IPCA’S customers including like Pfizer. In 2003 the IPCA started new division termed as Hycare Division which is related with cardiology and dibetiology. Ranbaxy. Bayer India.
Kenya. CIS. Acetylthiophene. Mauritius. EDQM-Europe.5) Influence of IPCA in World We are one of the world's largest manufacturers and suppliers of over a dozen APIs. Myanmar.Bromo Toluene and promotes over 36 countries of Asia. UK-MHRA. Nigeria. WHO-Geneva and many more. Russia. Tanzania. Sudan. Africa. The various kinds of drug intermediates that the company manufactures include Theo bromine. . Vietnam and Yemen. including Cambodia.Kazakhstan. Sri Lanka. Ukraine. and P. These are produced right from the basic stage at manufacturing facilities endorsed by the world's most discerning drug regulatory authorities like US-FDA. and South America. Oman.
(11) Key Ratios .
Canada. Furosemide (diuretic).Atenolol (anti-hypertensive). Europe and Australia account for 75% of our API exports. Merck. Ranbaxy. Hydroxychloroquine Sulphate (NSAID). Cipla. Dr. . Chloroquine Phosphate (antimalarial). Reddy's. both in the anti-malarial and anti-hypertensive therapeutic segments. We are the first manufacturer in India for APIs like Atenolol. Ipca has been playing a lead role in the Indian APIs market. Bayer. We are one of the world's largest manufacturers of APIs . Pfizer.(12) 6) Product Profile IPCA has emerged as one of India's top exporters of APIs with nearly 25% of the turnover coming from APIs. and Wockhardt. Pyrantel Pamoate and Zaltoprofen. Morantel Citrate.besides being one of the largest suppliers of these APIs worldwide. Metoprolol Tartrate (anti-hypertensive) and Pyrantel Salts (anthelmintic) . Hydroxycholoquine Sulphate. AstraZeneca. Metoprolol Succinate (anti-hypertensive). Our domestic pharmaceutical customers include pharmaceutical majors like Abbott. Regulated markets like the USA. For over 20 years.
(13) Product Profile Tablets 1. 17. . 150 mg 7. 200/400 mg 14. BLOCACID 20/40 mg 9. BRONCHOSOLVIN TAB. HCQS 20 MG 19. GLYCINORM 40/80 mg 18. CIMET TAB. ELTOCIN KID/DS (Erythromycin) 5. AMODIAQUINE TAB. LARIAGO (Chloroquine phosphate) 2. NORMAX (Norfioxacin) 16. . PACIMOL (Paracetamol 650 mg) 6.Prompt service. USP 200/400mg 13. LOMFLOX TAB.Ensuring security of our drugs from manufacturing to supply. CHLOROMON TAB. USP 12. . LARIBOX FORTE TAB. 250/500 mg 8. PERINORM (Metaclopromide) 3. AZIFAST TAB. . .Providing quality products. ROXEPTIN (Roxithromycin) 4. COTRIMOL TAB. 11.Product knowledge. BUTAFEN 200/400 mg 10. CINCHONA 300/600 mg 15.
. . .Ecology balance awareness to the workmen.Safe effluent treatment management.(14) Environment: Our objective is to reduce impact on the environment through a committed continual improvement projects for Environment Management systems. .Energy conservation.Rain water harvesting. .Water conservation. school and college students. .Tree plantations inside and outside manufacturing sites. Illustration: .
.Organization wide safety awareness drives to improve safety. . Employees: We will deliver a competitive and fair employment environment and the opportunity to develop and advance subject to personal performance and business opportunity. .A series of training sessions for safe working practices. Safety: We are committed to put our efforts to find out unsafe places and unsafe acts for improving safety of the people at workplace and road safety for general public. We will encourage our suppliers and contractors to adopt responsible business policies and practices for mutual benefit.(15) Suppliers: We regard suppliers as our partners and work with them to help us achieve our policy aspirations in the delivery of our products and services.Road safety campaign for general public. Illustration: .
Personal effectiveness programs. . (16) Customers: Our business and existence depend upon our customers.Health awareness programs. efficiency and honesty. Every employee is responsible for ensuring that any contact with our customers and the public at large reflects professionalism.Free Medicine distribution.Employee education and skill development programs. . Illustration: . We will constantly strive to provide high quality service.Blood donation by employees.Illustration: . products and good value for money. Illustration: . Areas of Operations Health: We are committed to implement a programmed of activities to achieve continuous improvement in health and safety performance of our employees and society at large.
Every section is managing the proper system for cleanliness & sterility where every required. 1984.Medical checkups. From a modest income of Rs. In greenish environment. away from Ratlam City. 2008 stood at Rs. this premise where Ipca started its operations. (17) 7) Plant location and administrative offices The operation of Ratlam Plant started in Jan. awarded Ipca as one of the “Best under a Billion” Forbes Global 200 Best Small Companies. a leading US business magazine.Doctor’s education etc. houses the Registered Office of the company.Medical camps. In & outside of every section there are emergency showers for bathing purpose if accidentally any of the working personnel’s has meet with those hazardous chemicals. .536 crores. Forbes. Key departments like International Marketing. 2007.. 2004 and 2005. R&D (Formulations) and Analytical Development Lab are located here.54 crores in 1975-76. IPCA Laboratory limited is situated 7 km. 0. Currently. The net profit for the year ending 3V March. In the past also we have been awarded by Forbes for 3 consecutive years in 2003.1085 crores in 2007-08 with exports accounting for Rs. the net income has soared to Rs. the industry building is well planned and maintained in a systematic manner. . .
Formulations constitute 71 percent of the total income for 2007-08. 1. Chioroquine Phosphate (Antimalarial). Comprehensive Cardiac Care divisions. Ipca is one of the biggest manufacturers in the world of APIs Atenolol (Antihypertensive). Iinnova . Today.e.141.12 crores. The IPCA has three divisions. Furosemide (Diuretic) and• Pyrantel Salts (Anthelmintic) right from the basic stage. Intima . It Has got lSO9002Certificate in 1999 and also the gold medal for manufacturing in 2000 from IDMA. Ipca is also one of the largest suppliers of these APIs and their intermediates world over. (18) In 1997 it launched 3 division i. Active .CMS Drugs 2.Rheumatology .Gynecology 3.
• Career growth for all employees. • Earn self-respect through self-discipline. sensitive & responsive to challenging market need. and take calculated risks. • Continue to aspire for growth work with speed & ability. manufacture & deliver quality goods & service. • Total quality control.(19) 8) Company’s philosophy • Value transparency. • Continuous training for development & learning newer skills to meet challenging needs. honesty& integrity in all action. service the customers diligently & sincerely thereby earning their goodwill. • Recognize employee’s efforts & contributions &reciprocate with rewards. .To be alert. • The corporate focus should be market-driven.
IPCA lab. sales. There is a high degree of protection enjoyed by the creditors of the company. Company has utilized its assets both fixed and current and working capital efficiently. Company has an efficient degree trade credit management system. Overall profitability of the company is satisfactory. assets and exports. Company has a batter short-term solvency to provide protection to its short-term creditors. various financial ratios are analyzed on the basis of annual reports of last five years. Limited financial performance is sound & is profitable enough to give reasonable returns to its owners. . Limited.(20) 9) EXECUTIVE SUMMARY The presented summer training report concerns project on financial performance and profitability analysis of IPCA lab. For the study. Company has got tremendous growth financially in last five years is terms of income. In the first part of the project. comparative and common size balance sheet and profit and loss account are made &various financial ratios are found out. On the basis of the study following conclusions are made.
B) FINANCIAL PERFORMANCE & PROFITABILTY CALUCULATION BY RATIO ANAYLSIS 2) INTRODUCTION
The above topic is selected to analysis the financial performance & profitability of the company. This study is conducted to evaluate the performance & market standing of the company in order to give the better scopes to the investors, shareholders, creditors and the management themselves about company’s performance in the market. For the study, comparative & common size balance sheet & profit & loss accounts are made, various trends & different financial ratios are found& analyzed on the basis of annual reports of the company.
2) Purpose and objective of study
The purpose of doing this project is: • To make a through study of the working of IPCA lab. Limited with reference to financial management. • To access the company’s trends for last 5 years with regard to financial & operational performance. • To assess the market strength of the company.
• • • • • • • To know the financial position and progress of the company. To know the earning capacity of the company. To know the profitability of the company. To know the estimate about future prospectus of the company. To judge the solvency of the company. To help in making future plans. To know about the capacity of the company to pay principal and interest. • To examine the factors affecting financial and profitability position.
• The study is based solely on the last 5 years only. The current trend may be slightly affected due changes in the financial environment.
• The external factors such as fiscal policy, monetary policy, bank rate, govt.policies etc as applicable in the previous years are some for current year. • Due to changes in the price level of various materials during previous year, comparison of ratios of such years may not give correct conclusions. • The study is based on the financial statements of the company. Company may resort to window dressing to project a favorable financial picture. • In the absence if an underlying the theory. Financial statements analysis appears to be ago, informal and subjective, it is repeated with untested assertions about which should be used and what their proper level should be. • No benchmark is used in case of ratio analysis. (23)
4) LITERATURE REVIEW
The analysis financial statement of that company can do financial position & profitability anlalysis of Any Company. Financial transactions are recorded in books of original entries and then are posted in ledger. From ledger balance if various accounts & are transferred to financial statements. Finally all balance so if various accounts are places in some statements, which are termed as financial statements. They indicate earning capacity financial position of the concerned enterprise.
5) ANALYIS OF THE FINANCIAL STATEMENTS INCLUDES
(1) (2) (3) (4) Breaking financial statements into simpler ones. Interpretation includes analysis and criticism. Under these method amounts of two or more than years compared. Here absolute figures are compared. . 2. Interpretation is an art science of translating the figures there in such a manner as to reveal the financial strengths &weakness of the company. Under this method total of assets is treated as 100% & percentage of each item of assets is found with the total assests. their percentage is not made use of on the basis of comparison of current figures with figures. COMMON SIZE STATAMENTS ANALYSIS. Regrouping Rearranging the figure given in the statements Finding out ratios After analysis of financial statements. next step is the interpretation. COMPARATIVE STATEMENTS ANALYSIS. (24) TOOLS & ANALYSIS. and interpretation regarding progress or downfall can be made. In the same way total of liabilities side is treated as 100% & percentage of each item of liabilities is found out with the total of liabilities. METHODS OF FINANCIAL 4.
26 357.depreciation Tax 2006-07 484.87 410.51 134. TREND ANALYSIS OR HORIXONTAL ANALYSIS. When the intention to know changes in an item in a group of items in comprising to some years.45 274.48 116. fractions. proportions & decimal figures.58 2009-10 752. It is a widely used tool of financial 27nalysis.24 436. RATIO ANALYSIS. (25) 6) FIVE YEARS HIGHLIGHTS Total income Domestic income Export income Earning before interest .52 .78 484.48 2008-09 685.3.99 401.46 96. Formulae for finding out different ratios are as follow.39 128.31 278.82 350. then trend method of analysis is used.74 265.83 2010-12 921.32 206. This analysis because figures of many year are compared with each other on horizontal basis. 4.62 202. It is defined as the systematic use of ratios to interpret the financial statements so that the strengths & weakness of a firm as well as its historical performance & current financial position can be determined.01 2007-08 622. The relationship can be expressed as percentaged. Ratio analysis is a method through which numerical relationship is found out.
59 154.39 25.59 337.89 373.30 108.67 195.50 Reserve surplus Net worth 211.24 79.52 243.50 263.23 151.00 312.98 88.11 Dividend 90% Earning per share(Rs.Profit before tax 79.) 49.73 25.41 220.49 Book value per share(Rs.89 385.89 194.46 268.00 360.00 461.02 431.80 Net block 149.00 101.75 12.92 248.27 110% 63.03 Share capital 12.59 25.86 Cash profit 73.71 99.17 275.32 Net profit after tax 61.02 486.23 55% 48.39 151.52 55% 25.44 & 199.) 169.36 63.55 78.54 80.79 75% 48.41 (26) .88 Net current assets 210.25 93.36 122.59 322.48 319.59 154.
8 0 2 275.(27) NET WORTH(Rs crore) 500 400 NET WORTH(Rs crore) 300 200 100 0 0 1 211.59 385.02 Series5 Series4 Series3 Series2 Series1 0 4 0 5 0 6 7 .89 486.67 0 3 337.
36 194.41 Series4 Series3 Series2 Series1 7 8 .54 169.04 154.44 135.(28) BOOK VALUE PER SHARE 250 200 150 100 50 0 0 1 0 2 0 3 0 4 0 5 0 6 220.
75 crores and dividend tax amounting to Rs.03% of turnover) in the previous financial year.61% of turnover) as against Rs.per share (40%). 7) FINANCIAL PERFORMANCE AND OPREATION REVIEW Your company had another successful financial year with a net total income of Rest 921.83 crores (3.50 per share (35%) at the meeting of the Board of Directors of the company held on 18th October 2006.RESEARCH & DEVELOPMENT [R&D] The R&D expenditure of company during the financial year under report was Rs.37.24 crore as against Rs 752.50 per share (75%) for the financial year under project.82 crores in the previous year growth of 22%.88 crores (5.7. Directors are now pleased to recommend a final dividend of Rs.93 crores. will be appropriated out of the profits for the years. if approved at the ensuing Annual General Meeting. The dividend will be tax free in the hands of the shareholders.18. (29) The dividend (inclusive of interim dividend already paid) amounting to Rs. 4/. DIVIDEND Directors had declared an interim equity dividend of Rs 3.2. .32. making the total dividend recommended to Rs.
Directors are pleased to inform that the company formulation brand Zerodol which was launch in the financial year 2003-04 achieved a net sale of over Rs.A net profit of 63. south East Asia substantial improvement in generic formulation business in UK also contributed to the growth in the formulation business? The company further expanded coverage with introduction of new formulation both in domestic and export market especially in the fast growing life style the related segment such as cardio vascular. The company is aggressively promoting its brand in several countries of Africa and south East Asia The business operation have resulted in substantial improvement in net profit of Rs122.23 crore during the financial year under report as against . pain management.24 crore and increase of 25% over previous year formulation sale of rs .25 crore in the domestic market during the year under report. The overall increase in the formulation sale is mainly on account on aggressive brand building activities under taken by company in the promotional market of India.The company focus on formulation business into increase in overall formulation sale to 627. IS Africa. CNS and dermatology.29 crore.501. (30) 8) BREAK-UP OF PHARAMACEUTICAL SALES .98 crore in the previous year a growth of 91%.
83 crores in the previous year a growth of 21%.21 crores and export of Active pharmaceutical ingredients .05 11% GRO WTH 12% 8% 11% 9) INTERNATIONAL SALES The product of the company are now exported to over 110 countries across the global during the financial year under report the international business increase to Rs 484.85 401.68 22% EXPOR T 273.29 247.98 191.401.21 211.46 crores as against Rest.273.25 crores. (31) .83 -2% TOTA L 501.04 70.65 424.211.formulation export of company increase by 30% to Rest.90 21% GROWT H 25% 14% 21% DOMEST IC 291.An international market increased by 10% to Rest .91 347.31 55.91 909.46 21% TOTA L 627.2001011 201112 FORMULATIONS API&INTERNATI ONAL NET TOTAL SALES GROWTH DOMESTI C 354.24 281.22 30% EXPORT 209.25 484.76 749.
13 51.05 39.21 APIs 96.75 4.26 51. 85 TOTA L 174.60 209.05 273.37 1.14 1.89 69.75 49.67 62.17 191.84 66.40 10.4 1 11.29 4.83 % TO EXPOR T 43% 12% 14% 12% 16% 3% 100% FORMUL ATION EUROPE AMERICA NS CIS ASIA AFRICA AUSTRALI A TOTAL 119.75 10.19 60.2 7 52.5 7 7.89 7.25 56.09 16.99 62.5 4 1.90 9.15 4.98 API s 90.45 49.25 CONTINENTWISE EXPORT(PERCENTAGE) 1 0 14% 44% 14% 11% 15% 2% 2 3 4 5 6 7 8 DOMESTIC FORMULATION BUSINESS (32) .CONTINENT –WISE EXPORT 2010-11 201112 TOT AL 215.40 46.37 70.79 57.96 211.77 401.18 3.1 1 42.01 484.4 6 % TOEXPO RT 44% 11% 15% 14% 14% 2% 100% FORMU LATION S 84.
During the year under report.03 crores as against rs.291.3% and the overall domestic rank of company is currently at 23 with a market share of 1. the company introduce 7 new product in the domestic market . (33) .New products introduced during the last three financial year now constitute nearly 28% of the company’s domestic formulations sales.3%. During the financial year under report.31 crores in the previous years. company recorded a sales growth of 15.354.4% as against introductory growth of 14. As per MAT march ’12 ORG IMS. the domestic formulation business recorded the growth of 22%at rs.
IPCA LAB INE 571A01012 ISIN number NSDL&CDSL MARKET SHARE: PRICE OF THE COMPANY’S YEAR 2010 2011 MONTH April May June July August September October November December January February March HIGHEST (rs) 364 359 317 326 388 397 454 483 595 646 648 622 LOWEST (rs) 330 285 241 260 327 365 364 421 514 586 614 566 . Stock code-Physical: 524494 on BSE. The stock exchange of Mumbai (BSE) and the National Stock Exchange (NSE) have their listing fees been paid to both the stock Exchanges for the financial year 2011-12 in April 2011.9) LISTING ON STOCK EXCHANGES.
(35) IPCA SHARE PRICE 700 600 IPCA SHARE 500 400 300 200 100 0 1 2 3 4 5 6 7 8 9 10 11 12 13 14 Series2 Series1 .
No.59 % No.00 22.. shareholders.03 0.08 7. of shares 1868418 257323 224841 113778 83770 60033 257130 22116707 25000000 8632333 16367667 % 7. of equity shares held % Up to 501 1001 2001 3001 4001 5001 10001 to to to to to to to 500 1000 2000 3000 4000 5000 10000 above No. 22 1 39 155 343 13951 Of No. Of shareholders in physical mode No. 31.47 100.48 1.24 22.10 14511 25000000 100.24 1.82 Shareholding pattern as on March. 100.30 0.46 0.09 0. of shareholders in electronic Mode.(36) 10) DISTRIBUTION OF SHAREHOLDING No.41 6.90 0.47 Grand total.2012 are as followsCategory Indian promoters Banks & insurance UTI&mutual funds FIIs&NRIs Domestic companies Resident individuals No. Of shares 13059135 200 5520393 1852433 1542373 3025466 % Holding 52.33 0.38 2.26 0.17 12.97 0.00 34.16 0.10 88.53 65.00 . of shareholders 13840 328 140 44 23 13 37 86 14511 3219 11292 95.18 77.25 0.
If used in conjunction with other methods. quantitative analysis can produce excellent results. Ratios look at the relationships between individual values and relate them to how a company has performed in the past. For example current assets alone don’t tell us a whole lot. but when we . or even the economy in general. by investors or lenders. Ratio analysis isn’t just comparing different numbers from the balance sheet.imber against previous years. other companies. It’s comparing the ri’. Ratio Analysis Introduction Fundamental Analysis has a very broad scope. the industry.(37) C) CALCULATION OF PROFITABILITY BY RATIO ANAYLISES 1) Definition The study and interpretation of the relationships between various fmancial variables. This means crunching and analyzing numbers from the financial statements. One aspect looks at the general (qualitative) factors of a company. The other side considers tangible and measurable factors (quantitative). and cash flow statement. and might perform in the future. income statement.
the “gross margin” is the gross profit from operations divided by the total sales or revenues of a company. let’s Sriefly discuss where you can find the data for each ratio. . If we know that this company’s competitors have profit margins of 10%. An overview of some of the categories of ratios is given below. In context. In isolation. Financial ratios are calculated from one or more pieces of information from a company’s financial statements. a financial ratio can give a financial analyst an excellent picture of a company’s situation and the trends that are developing. If we also know that the historical trend is upwards. a gross profit margin for a company of 25% is meaningless by itself. For example. Taking our example. however. this would also be a favorable sign that management is implementing effective business policies and strategies. for example has been increasing steadily for the last few years. a financial ratio is a useless piece of information. expressed in percentage terms. Financial ratio analysis groups the ratios into categories which tell us about different facets of a company’s finances and operations. we know that it is more profitable than its industry peers which are quite favorable. • Leverage Ratios which show the extent that debt is used in a company s capital structure. A ratio gains utility by comparison to other data and standards. • Liquidity Ratios which give a picture of a company’s short term financial situation or solvency. (38) Before we delve into the different ratios and how they work.divide them by current liabilites we are able to determine whether the company has enough money to cover short term debts.
and Working Capital. they are also important to financial managers who must meet obligations to suppliers of credit and various government agencies. 2) Categories of ratios Liquidity Ratios These ratios indicate the ease of turning assets into cash. Quick Ratio. Current Ratio – Current Assets* . A complete liquidity ratio analysis can help uncover weaknesses in the financial position of your business. They include the Current Ratio. • Solvency Ratios which give a picture of a company’s ability to generate cash flow and pay it financial obligation. While liquidity ratios are most helpful for short-term creditors/suppliers and bankers. • Profitability Ratios which use margin analysis and show the return • on sales and capital employed.(39) • Operational Ratios which use turnover measures to show how efficient a company is in its operations and use of assets.
this test of solvency balances your current assets against your current liabilities. Quick Ratio Cash + Marketable Securities ± Accounts Receivable (net) = Quick Ratio Current Liabilities Also known as the “acid test. The current ratio will disclose balance sheet changes that net working capital will not. *Cunent Assets = net of contingent liabilities on notes receivable *Current Liabilities = all debt due within one year of statement data Note: The current ratio reveals your business’s ability to meet its current obligations.” this ratio specifies whether your current assets that could be quickly converted into cash are sufficient to cover current liabilities. A firm that had additional sufficient quick assets available to creditors was believed to be in sound financial condition. .______________= Current Ratio (40) Current Liabilities: Popular since the turn of the century. however. a Current Ratio of 2:1 was considered standard. It should be supplemented with the other ratios listed below. Until recently.
Inventory Turnover Cost of Goods Sold ________________= Inventory Turnpver Ratio Average Inventory Rule of Thumb: Multiply your inventory turnover by your gross margin percentage. Receivables are one step closer to liquidity than inventory. If the result is 100 percent or greater. your average inventory is not too high. sales are not complete until the money is in hand. .Note: The Quick Ratio assumes that all assets are of equal liquidity. the Absolute Liquidity Ratio eliminates any unknowns surrounding receivables. Note: The Absolute Liquidity Ratio only tests short-term liquidity in terms of cash and marketable securities. (41) Absolute Liquidity Ratio Cash + Marketable Securities ________________________= Absolute Liquidity Ratio Current Liabilities A subsequent innOvation in ratio analysis. However.
Working Capital Ratio Use “Current Ratio” in the section on “Liquidity Ratios. Following are ratios you can use to evaluate your business’s net working capital. and net working capital. gross working capital. Working Capital Turnover . There are two types of working capital. they are correct. Often. which is current assets less current liabilities. you can correct it by lowering sales or by increasing current assets through either internal savings (retained earnings) or external savings (sale of stock). If you find that you have inadequate working capital. which is all current assets.(42) Working Capital Ratios Many believe increased sales can solve any business problem. sales must be built upon sound policies concerning other current assets and should be supported by sufficient working capital.. However. Moody’s Investors Service has listed net working capital since 1922.” This ratio is particularly valuable in deternilning your business’s ability to meet current liabilities.
Income Statement Ratio Analysis The following important State of Income Ratios measure profitability: Gross Margin Ratio This ratio is the percentage of sales dollars left after subtracting the cost of goods sold from net sales. ________________= Working Capital Turnover Ratio Net Working Capital (43) This ratio helps you ascertain whether your business is topheavy in fixed or slow assets. the higher this ratio. . and complements Net Sales to Tangible Net Worth (see “Income Ratios”). Leverage Ratio This Debt/Worth or Leverage Ratio indicates the extent to which the business is reliant on debt financing (creditor money versus owner’s equity): Debt/Worth Ratio = Total Liabilities / Net Worth Generally. A high ratio could signal overtrading. the more risky a creditor will perceive its exposure in your business.Net Sales . It measures the percentage of sales dollars remaining (after obtaining or manufacturing the goods sold) available to pay the overhead expenses of the company. making it correspondingly harder to obtain credit.
The Net Profit Margin Ratio is calculated as follows: Net Profit Margin Ratio = Net Profit Before Tax /. It is caLculated before income tax because tax rates and tax liabilities vary from company to company for a wide variety of reasons.Approved Materials Red .C.Rejected Materials. Color coding system of PM Store: Yellow .Comparison of your business ratios to those of similar businesses will reveal the relative strengths or weaknesses in your business.C. All in Labels & Show box are stored in Lock & Key System to prevent from misuse.Cost of Goods Sold (44) Net Profit Margin Ratio This ratio is the percentage of sales dollars left after subtracting the Cost of Goods sold and all expenses. It provides a good opportunity to compare your company’s “return on sales” with the • performance of other companies in your industry. making comparisons after taxes much more difficult. The Gross Margin Ratio is calculated as follows: Gross Margin Ratio = Gross Profit / Net Sales Reminder: Gross Profit = Net Sales .Under Test Materials Green . Tet of Packaging Material. Chemist under Laminar Air Flow in Sampling Area for Q.Net Sales. . except income taxes. Sampling is done by Q.
FEFO method is used at the time of Dispensing of PM. It is important because the more times inventory can be turned in a given operating cycle. are also derived from Balance Sheet and Statement of Income information. The Inventory Turnover Ratio is calculated as follows: Inventory Turnover Ratio = Net Sales !Average Inventory Cost Accounts Receivable Turnover Ratio . often referred to as Management Ratios. Inventory Turnover Ratio This ratio reveals how well inventory is being managed. Purchase —----.Production Material Procurement Supply to Warehouse Receipt Under Quarantine (45) Q. Test Release Issue to Production Transfer to Finished goods at BSR (Bonded Store Room) Management Ratios Other important ratios. Marketing Generating Forecasting Planning Give plan on the base of forecasting. the greater the profit.C.
the . liquidity could be severely impaired. Getting the Accounts Receivable Turnover Ratio is a two step process and is calculated as follows: Daily Credit Sales = Net Credit Sales Per Year / 365 (Days) Accounts Receivable Turnover (in days) Accounts Receivable / Daily (46) Credit Sales Return on Assets Ratio This measures how efficiently profits are being generated from the assets employed in the business when compared with the ratios of finns in a similar business. If receivables are not collected reasonably in accordance with their terms. management should rethink its collection policy. A low ratio in comparison with industry averages indicates an inefficient use of business assets. If receivables are excessively slow in being converted to cash. risk.free investment such as a bank savings account. It is the percentage of return on finds invested in the business by its owners. If the ROT is less than the rate of return on an alternative.This ratio indicates how well accounts receivable is being collected. In short. this ratio tells the owner whether or not all the effort put into the business has been worthwhile. The Return on Assets Ratio is calculated as follows: Return on Assets = Net Profit Before Tax / Total Assets Return on Investment (1101) Ratio The ROl is perhaps the most important ratio of all.
owner may be wiser to sell the company. which shed light upon the overall effectiveness of management regarding the returns generated on sales and investment. put the money in such a savings instrument. Gross Profit on Net Sales Net Sales – Cost of Goods Sold = Gross Profit on Net Sales Ratio Net Sales Does your average markup on goods normally cover your expenses. Be on the lookout. something is wrong!. and therefore result in a profit? This ratio will tell you: If your gross profit rate is continually lower than your average margin. This is a sign of future problems for your bottom line. . and Management 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. (47) Profitability Ratios Closely linked with income ratios are profitability ratios. Profitability. for downward trends in your gross profit rate. and avoid the daily struggles of small business management. Leverage. The ROl is calculated as follows: Return on Investment = Net Profit before Tax I Net Worth These Liquidity. The owner may thus determine the business’s relative strengths and weaknesses.
(48) 3) RATIO FORMULAS A) LIQUIDITY RATIO: 1. PROFITABLITY RATIOS RELATED TO SALES A. Super quick ratio=Cash Marketable securities Current liabilities B) PROFITABLITY RATIO: 1. Profit margin=Gross profit*100 Sales i) Gross profit margin= Gross profit*100 . Current ratio=current assets . Quick ratio=Quick assets Current liabilities 3. Current liabilities 2.
Sales ii) Net profit margin=Net profit*100 Sales B. Expenses ratio: 1. Operating profit ratio = Earning before interest &tax Sales A. Return on shareholders’ equity=Net profit after tax*100 Shareholder’s equity C. Operating expenses ratio=Adm expenses + selling expenses*100 Net sales 3. Return on capital employed =Net profit after tax*100 Capital employed D. Return on assets=Net profit after tax*100 Total assets B. Cost of goods sold ratio = Cost of goods sold*100 Sales (49) 2. Financial expenses ratio=Financial expenses*100 Net sales 2. RELATED TO INVESTMENT A. Return on fixed assets=Net profit after tax*100 Fixed assets .
Debt-equity ratio=Total Debt Shareholder’s Equity 2. Proprietary ratio=Proprietary fund Total assets 6. Dividend payout ratio (%)=Total dividend to shareholders*100 Total net profit belonging to equity shareholders F.Fixed assets to Current assets ratio=Fixed assets Current assets 5.E. Solvency ratio=Total real assets Total external liabilities . Earning (overall profitability)=Net profit before tax*100 Total assets equity (50) C) CAPITAL STRUCTURE RATIOS (LEVERAGES RATIO) 1.Financial leverage=EBIT EBT 4.Interest coverage ratio=EBIT Interest 3.
Debtors turnover ratio=Total sales Sundry debtors 2. Price earnings ratio=Market value per share Earning per share 2. Average collection period=365(12 months) days Debtor’s turnover 3.D) ACTIVITY RATIO (TURNOVER RATIO) 1. Assets turnover ratio: Total assists turnover=Cost of goods sold Total assets Fixed assets turnover=Cost of goods sold Fixed assets (51) Capital turnover=Cost of goods sold Capital employed Current assets turnover=Cost of goods sold Current assets Working capital turnover=Cost of goods sold Working capital E) VALUATION RATIOS 4. Yield% .
Dividend yield=Dividend per share*100 Initial price B) Capital gains yield=Price change*100 Initial price 6. Market value to book value=market value per share Book value per share (52) .5.
5) FINANCIAL RATIO A) LIQUID RATIO • Current ratio-Fluctuating and deteriorating every year.deteriorating every year steadily. • EARNING POWER-Appreciating up to 2003-04 and deteriorating they’re on.deteriorating 3 years in succession and then increasing in the year 2002-03. • OPERATING PROFIT RATIO-increasing up to 2003-04 but deteriorating there on • COGS RATIO-increasing every year.deteriorating every year. • ROCE. • DIVDIEND PAYOUT RATIO-Increase in the year 2005-06 otherwise decreasing down the year. .but deteriorating there on. • ROFA. • Quick ratio. • ROA-appreciating 3 years in succession and than deteriorating at end the year. • Super quick ratio.deteriorating every year.appreciating 3 years in succession and than deteriorating at end the year • ROCE. • FINANCIAL EXPENSES RATIO-decreasing up to 2003-04. B) PROFITABLITY RATIO • PROFIT MARGIN-gross profit and net profit margin values both increases into 2003-04. increasing after wards.
increasing every year • WORKING CAPITAL TURNOVER.more or less same • CURRENT ASSETS TURN OVER.increasing every year .(54) • CAPITAL STRUCTURE (LEVERAGE RATIO) • P/E RATIO-Fluctuating • INTERSET COVERAGE RATIO-increasing up to year 200304and decreasing there on • FINNANCAIL LEVERAGE –appreciating every year • F/A RATIO-increasing every year • PROFITIBILTY RATIO-increasing every year • SOLVENCY RATIO-increasing every year • ACTIVITY (TURNOVER) RATIO • DEBTORS TURNOVER RATIO-increasing every year • • • • AVERAGE COLLECTION PERIOD-decreasing every year TOTAL ASSETS COLLECTION PERIOD-decreasing every year TOTAL ASSETS TURN OVER-more or less stable FIXED ASSETS TURN OVER-increasing up to year 2003-04 there on decreasing • CAPITAL TURNOVER.
BALANCESHEET & PROFIT &LOSS ACCOUNTS • On analyzing last six years balance sheet& profit &loss accounts by preparing comparative common size ones. which is mainly on account of exchange fluctuation. following interpretations can be made. company has got phenomenal financial growth.(55) 6) INTERPRATATIONS FINANCIAL TRENDS On analyzing financial trends of the company IPCA lab ltd. input cost increases consequently to spiraling international petroleum prices and higher excise duty incidence due to introduction of MRP based duty structure But the company has achieved the growth in net profit and turnover in the year 2006-07. amount of current assets as a part of total assets in the last six years is decreasing. in the year there was a decline in profit of the company. Financial trends clearly show better financial positions of the company . . following interpretations can be made. Both fixed and current assets have recorded a phenomenal growth. • Com • Company has increased level of inventories and value is appreciating every year. • In the last six years. company has enlarged its assets. Although.in comparison with the base year 2000-01.
Company has almost doubled its sales in last six years. It has more than enough funds to meet its short-term obligations. • Company has maintained a good level og cash and bank balances to meet its current obligations. In the year 2004-05 and company has doubled its share capital. mainly personal cost and manufacturing expenses are increasing. Company allows good amount of credit sales. • Company has got impressive and massive growth in terms of sales in the last six years. company is more relying on shareholder’s fund or equity than on a loan funds or debt. (56) • As we see value of shareholder’s fund loan funds in last six years it is seen that. • Value of profit before and after tax has recorded a phenomenal growth on last six years but there is a decline in the year 2005069. Although inventories for.net profit shows a similar trend. • Tax liability of the company is increasing every year in account of its increased profit level. • Cost of production is increasing every year that leads to decline in profit. quick ratio which are fairly and most stringent . almost half of the current assets.• Company’s sundry debtors are increasing every year. • Company has a good amount of balances to be carried forward. FINANCIAL RATIOS On the analysis of various financial ratios company following interpretation can be made- A) LIQUIDITY RATIOS Company has sufficient liquidity.
measures of liquidity respectively. cost increase in international petroleum prices and higher excise duty due to introduction of MRP based duty structure. though deteriorating after year 2003-04 • Company is overall profitable enough though profitability is deteriorating after year 2003-04 . • Company’s financial expenses are increasing every year to meet interest obligations and bank charges. depreciation and amortization. show that company has enough funds that can be converted into cash immediately to meet any urgent short term obligations. • Return on capital employed by the company’s fair through declining slightly after year 2003-04 • Equity funds invested I the company is profitable enough though profitability declining after year 2002-03. • Profit margin both gross and net is declining after year 2003-04 on account of increasing input cost.Equty funds invested is productive enough. (57) C) PROFITABLITY RATIO • Company is proved profitable enough last six years. selling and distribution expenses. • Return on fixed assets are acquired by the company is fairly enough. • Company is spending more and more every year to run its operations. introduction of VAT. This includes general administrative expenses. Although there is a decline in the year 2005-06 on a account of exchange fluctuations. Operating profit also suffers decline after year 2003-04 on an account of similar reasons. exchange fluctuations and higher excises duty.
There is more protection of the interest of creditors. • Properties fund is almost half of the total assets in last six years. though turnover is declining after the year2003-04. Owners of the company have relatively contributed more than creditors. . Which signifies efficiently of credit management? Yet 70 days or 2. there is high degree of efficiency in asset utilization. • Company can easily meet its interest burden even if profit before interest and taxes suffers a considerable decline. D) ACTIVITY (TURNOVER) RATIO • Appreciation in debtor’s turnover ratio clearly shows that company is more efficient in credit management.(58) C) CAPITAL STRUCTURE (LEVERAGE) RATIO • Debt –equity ratio is declining down the year.3 month. though there is a decline in interest coverage after year 2003-04. • Average collection period is decreasing year by year to 70 days or 2.3 month is a sufficient time provided by the company to its creditors to clear their debts. • Fixed assets are efficiently employed. which clearly shows that there is a high degree of protection enjoyed by the creditors of the company.
80 for every rupees invested in it.company has created a wealth of rs.1. (59) 7) Five Years Financial Trends .• Current assets and Net current assets (working capital) so efficiently employed utilizes and by the company in the last six years. • Company has a major contribution to the wealth of society. In the year 2005-06.
1% as compared to the previous year yet whopping 130% more than in base year • NET PROFIT.55% more as compared to the previous year. • BOOK VALUE PER SHARE-is found much higher as compared to the base year except in base year 2001-02 &2004- .is found higher in each year as compared to the base year and is increasing every year expect in the latest year.(61) 8) FINDINGS FINANCIAL TRENDS • TOTAL INCOME –of the company is found much higher in each year as compared to the base year 2001-02& is appreciating every year.9% as compared to the previous year at 36. But in the latest year 2005-06 it is deteriorating by 8. • EXPORTS-are found much higher in each year as compared to the base year and Whopping every year but in the latest year 2005-06 it is minutely deteriorating by 2.90%more than that of base year. It is 21.256%more than that of previous year 2004-05 • WORKING CAPITAL-is found much higher in each year as compared to the base year and is appreciating every year. In the latest 2005-06 it is 90.
it is 14. EARNING PER SHARE-is deteriorating steadily down the trend line NET WORTH-is improving steadily every year .e 9.3% more as compares to the previous year i.• • • • 05>in the latest year 2005-06. . (62) 9) BALANCESHEET & PROFIT & LOSS ACCOUNT • FIXED ASESTS-are increasing every year with a steady rate.in the latest year 2005-06 there is an increment of 14.8%. • INVESTMENT-are fluctuating down the line and does not give a proper trend • CURRENT ASSESTS-are improving every year.80 PROFIT BEFORE AND AFTER TAX-is improving every year as we seen the trend line but deteriorating in the latest year200506.5% more as compared to the previous year 2004-05 and 90. in the latest year 2005-06 PBT is 22% less as compared to the value to the previous year.5%more as we compared with it the value in the year 2001-02.3% more as compared to the previous year. But there is a decrease in the latest year when compared to previous year • INVENTORY-are appreciating every year substantially as a production increases every year • SUNDRY DEBTORS-are increasing every year yet it is decreasing in the latest year as compared to the previous year • CASH AND BALANCE-they are more or less same down line. • TOTAL ASEST-whopping every year in the latest year 2005-06 its value is 7. In the last year 2005-06 it is 14. As we see the value of previous year NET BLOCK-is whopping every year. • LOAN AND ADVANCES-are increasing up to the year 2003-04 but then on decreasing yet value in the latest year 2005-06 is greater than the previous year.
• VALUE OF FIXED ASSETS –as a part of total assets increasing every year .IN the latest year its value is almost half of the total assets. • COST OF PRODUCATION-is increasing every year as the production level of the company is raised every year. financial cost.it became more than 50%of the total liabilities. depreciation. VALUE OF PBT &PAT-as a part of net sales is increasing up to year 2003-04 and their on decreasing value of net [profit as a part of net sales is increasing into year2003-04 their on decreasing . In the year 2005-06 there is a increment of almost 11% as we see the value in the previous year.as a part of total assets is decreasing every year. • VALUE OF CURRENT ASSESTS. • LOAN AND FUND-are increasing every year but there is decreasing every year 2005-06 • TAX LIALBLITY-of the company is increasing every year so that’s why company is increasing provision for it. (63) • NET PROFIT-increase up to year 2003-04 and there on decreasing in the latest year 2005-06 it is 21% less than that if in the previous year. • CURRENT LIABLITY-are increasing every year • SALES –of the company is improving impressively every year. • PBT&PAT-increase up to year 2003-04 and there on decreasing in the latest year 2005-06 PBT is 23% less than that if in the previous year. amortization is increasing every year. • VALUE OF COST-as a part of net sales is fluctuating between 89% to 90% personal cost. In the year 2005-06.• SHAREHOLDERS FUND-is appreciating every year doubling in every year 2003-04 reserve and surpluses is increasing every year steadily. • VALUE OF SHAREHOLDERS FUND-as a part of total liabilities is increasing every year.
though turnover is declining after the year2003-04.3 month is a sufficient time provided by the company to its creditors to clear their debts. • Company has a major contribution to the wealth of society. In the year 2005-06. • Current assets and Net current assets (working capital) so efficiently employed utilizes and by the company in the last six years.company has created a wealth of rs. (64) D) ACTIVITY (TURNOVER) RATIO • Appreciation in debtor’s turnover ratio clearly shows that company is more efficient in credit management. Owners of the company have relatively contributed more than creditors.Dividend: company has given 7.1.80 for every rupees invested in it. • Fixed assets are efficiently employed. Properties fund is almost half of the total assets in last six years. C) CAPITAL STRUCTURE (LEVERAGE) RATIO Debt –equity ratio is declining down the year. Which signifies efficiently of credit management? Yet 70 days or 2. though there is a decline in interest coverage after year 2003-04. • Average collection period is decreasing year by year to 70 days or 2. . there is high degree of efficiency in asset utilization.50 dividend to their shareholders.3 month. which clearly shows that there is a high degree of protection enjoyed by the creditors of the company. There is more protection of the interest of creditors. Company can easily meet its interest burden even if profit before interest and taxes suffers a considerable decline.
• Company is overall profitable enough though profitability is deteriorating after year 2003-04 (65) .
10) SUGGESTION THE INDIAN COMPANIES ARE TODAY FOCUSING ON GLOBAL BUSINESS AND INCREASING FOCUS ON R&D ACTIVITIES SO COMPANY SHOULD BE FOCUS ON THERE EXPORT AND THERE SALES IN WORLD MARKET. (67) . THE WAY TO GET THAT POINT LIKE: BETTER MARKETING STRATEGY IN WORLD MARKET. AND MORE FOCUS ON DOMESTIC MARKET COMPETITION. DEVELOP THERE FUTURE PLANS.
Company got phenomenal growth in profit in the last five years. increasing wealth of the society. 11. 13.Overall profitability it satisfactory. IPCA lab ltd financial performance is sound and it profitable enough to give reasonable returns to its owner company is a profitable organization. The company efficiently utilizes fixed assets and current assets. 10. It has sufficient liquidity. .Cost of production it relatives higher. assets that can be converted easily in to cash to meet its obligations. Higher degree of protection enjoyed by the creditors of the company. Company provides adequate coverage for interest obligation and operating expenses.Company it more relying on shareholders fund an equates than on loan fund or debt. 2. 4. Company has better solvency. 5.11) CONCLUSIONS 1. scenarios of India’s pharmaceutical are having conductive future. Company it efficient in trade credit on receivable management. Now today. 9. 6. Other domestic rival pharmaceutical company are growing well and IPCA is one of the big players of them.Company it operational efficient. But average collection period needs a reduction 8. 7. 14. 15. 12. Company has got tremendous growing financially.Working capital it efficiently utilized by the company. It has contributed well. 3.Equity funds invested in the company are profitability and productive enough. Return on capital employed is fair enough.
Prasanna Chandra .answers.M.ipcalabs.com www.Kishore Financial management -Khan and Jain Management accounting -Khan and Jain Financial management .com www.com www.(68) 12) BIBLIOGRAPHY (A) Webliography • • • • www.accountingcoach.com (B) Bibliography Financial Management – Ravi.google.
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