Ratio Analysis

of
Sun Pharmaceuticals Industries Limited

Submitted by:

Rahul Rathod
050137
About Sun Pharma Industries:

Sun Pharmaceutical Industries Limited is an Indian multinational pharmaceutical

company headquartered in Mumbai, Maharashtra that manufactures and sells
pharmaceutical formulations and active pharmaceutical ingredients (APIs)
primarily in India and the United States. The company offers formulations in
various therapeutic areas, such as cardiology, psychiatry, neurology,
gastroenterology and diabetology. It also provides APIs such as warfarin,
carbamazepine, etodolac, and clorazepate, as well as anti-cancers, steroids,
peptides, sex hormones, and controlled substances.

Sun Pharmaceuticals was established by Mr. Dilip Shanghvi in 1983 in Vapi,

Gujarat with five products to treat psychiatry ailments. Cardiology products were
introduced in 1987 followed by gastroenterology products in 1989. Today, it is
the largest chronic prescription company in India and a market leader in
psychiatry, neurology, cardiology, orthopedics, ophthalmology, gastroenterology
and nephrology.

Standalone financials vs Consolidated financials

Standalone Financial Statement: Standalone financial statements show the

financial position of the company alone (and no other legal entity). The
standalone financials would not show any significant financials except the small
amounts of dividend or interest income that it might have earned from its
subsidiaries.

Consolidated Financial statements : Consolidated financial statements show

the financial position of the company itself along with its subsidiary companies,
associate companies and joint ventures. The consolidated financials will show
the complete financial position of all the subsidiaries whether these subsidiaries
have taken a lot of debt or have made a lot of investments, it will be reflected in
the consolidated financials.

For Sun pharmaceutical Industries Limited ,I have considered consolidated

financial statement of the company, because the consolidated financial
statements show the complete picture of the financial position and business
performance of any company.
Balance sheet of Sun Pharma as at 31st March,2019
Statement of Profit and Loss of Sun Pharma as at 31st March,2019
 Ratio Analysis

Liquidity Measurement Ratios:

1. Current Ratio: Current Assets /Current Liabilities

Current Ration indicates an ability to meet the short term obligations as & when
they fall due

Current Ratio: Current Assets (Cash and cash equivalents + Marketable

Securities + Accounts Receivable + Inventories)/Current Liabilities (Accounts
Payable + Short term loans + Accrued expenses)

Current Assets:

Particulars Amount (₹ in Millions)

Cash and Cash Equivalents 70,623
Investments 39,507
Trade Receivables 88,842
Inventories 78,859
Loans 3,093
Other financial assets 4,484
Bank balances 2,133
Total 287,541

Current Liabilities:

Current Liabilities: Current liabilities includes accounts payable, short term

notes payable, short-term loans, current maturities of long term debt, accrued
income taxes and other accrued expenses.

Borrowings +Trade payables+ Other financial liabilities + Current tax liabilities

(net)

Particulars Amount (₹ in Millions)

Trade payable 41,478
Short term loan (Borrowings) 83,707
Other financial liabilities 10,273
 Current tax liabilities 1,269
Total 136,727

Current Ratio: (287,541/1,36,727) = 2 1/9 ~ (2.10)

Analysis: Higher the ratio, the better it is, however but too high ratio reflects an
in-efficient use of resources; too low ratio leads to insolvency. The current ratio
of the company is considered to be more than ideal i.e. 2.10. Acceptable current
ratios vary from industry to industry. For most industrial companies, 1.5 may be
an acceptable current ratio. The current ratio is too high (much more than 2), the
company may not be using its current assets or its short-term financing facilities
efficiently. This indicate problems in working capital management.

2. Quick Ratio: (Current Assets - Inventories)/Current Liabilities

Quick Ratio indicates the ability to meet short term payments using the most
liquid assets. This ratio is more conservative than the current ratio because it
excludes inventory and other current assets, which are more difficult to turn into
cash

(Cash + Cash Equivalents + Short Term Investments + Accounts Receivables) /

Current Liabilities

Current Assets:

Particulars Amount (₹ in Millions)

Cash and Cash Equivalents 70,623
Investments 39,507
Trade Receivables 88,842
Inventories 78,859
Loans 3,093
Other financial assets 4,484
Bank balances 2,133
Total 287,541

Current Assets-Inventories: 287,541-78,859 =208,682

Current Liabilities:

Particulars Amount (₹ in Millions)

Trade payable 41,478
Short term loan (Borrowings) 83,707
Other financial liabilities 10,273
Current tax liabilities 1,269
Total 136,727

Quick Ratio: (208,682/136,727) = 1 ½ ~ (1.52)

Analysis: Indicates the ability to meet short term payments using the most
liquid assets. From the ratio, it can be clearly observed that the liquid assets of
the company is enough to meet the short term obligations of the company. A
quick ratio of 1 or above is considered good, here it is 1.5 would mean that the
company's quick assets are one and a half times its current liabilities. When the
ratio is at least 1, it means a company's quick assets are equal to its current
liabilities. This means the company should not have trouble paying short-term
debts. The higher the ratio, the better.

3. Debt Equity Ratio: Total Liabilities / Total Equity

Debt ratio is a solvency ratio that measures a firm’s total liabilities as a percentage
of its total assets. In a sense, the debt ratio shows a company’s ability to pay off
its liabilities with its assets. In other words, this shows how many assets the
company must sell in order to pay off all of its liabilities.

A lower debt ratio usually implies a more stable business with the potential
of longevity because a company with lower ratio also has lower overall debt.

Total Liabilities:

Particulars Amount (₹ in Millions)

Total non- current liabilities 26,315
Total current liabilities 173,396
Total Liabilities 199,712
Total Equity:

Particulars Amount (₹ in Millions)

Equity Share Capital 2,399
Other Equity 411,691
Total 414,090

Debt Equity Ratio: (199,712/414090) = ½ ~ (0.48)

Analysis: A good debt to equity ratio is around 1 to 1.5. However, the ideal
debt to equity ratio will vary depending on the industry because some industries
use more debt financing than others. Capital-intensive industries like the
financial and manufacturing industries often have higher ratios that can be
greater than 2.

This ratio indicates the extent to which debt is covered by shareholders’ funds.
A ratio of 1 indicates sufficient equity to cover the debts of the company. A debt
ratio of .5 is often considered to be less risky. This means that the company has
twice as many assets as liabilities. A high debt to equity ratio indicates a
business uses debt to finance its growth. If a debt to equity ratio is lower, closer
to zero, this often means the business hasn't relied on borrowing to finance
operations.

4. Capitalization Ratio: Short term Debt + Long Term Debt / (Short term
+Long Term Debt + Shareholder’s Equity)

This ratio measures the debt component of a company’s capital structure

to support a company’s operations and growth.

Long term Debt:

Particulars Amount (₹ in Millions)

Borrowings 15,226
Total 15,226

Shareholder’s Equity:
 Particulars Amount (₹ in Millions)
Equity Share Capital 2,399
Other Equity 411,691
Total 414,090

Capitalization Ratio: 15226/(15226+414090) = 0.035 ~ (3.5%)

Analysis: A low level of debt and a healthy proportion of equity in a company's

capital structure is an indication of financial fitness. Therefore, the company has
shown healthy levels of capital structure.

5. Fixed Assets Turnover Ratio: Sales/Net Fixed Assets

This ratio is a rough measure of the productivity of a company’s fixed assets

with respect to generating sales

Sales:

Particulars Amount (₹ in Millions)

Revenue from Operations 290,659
Total 290,659

Net Fixed Assets:

Particulars Amount (₹ in Millions)

Property, Plant and Equipment 100,274
Total 100,274

Fixed Assets Turnover Ratio: 290659/100274 = 2 8/9 ~ (2.89)

Analysis: This ratio is a rough measure of the productivity of a company's fixed

assets with respect to generating sales. The ratio of 2.89 is considered to be very
strong as it indicates efficient use of fixed assets in generating healthy turnover.