Project Guide: Faculty Guide:

Mr. P. A. Padmanabhan Prof. Abhishek Parikh

(Vice President Finance)
Submitted By:
Chirag Shah
V. M. Patel Institute of Management,
Ganpat University, Kherva.
 ACKNOWLEDGEMENT

Study of business management is all about gaining knowledge from the

experience one gets from the corporate world. Being a management study I am required
to gain knowledge from the eminent corporate to understand how do they manage & get
success in establishing their name on the best pharmaceutical companies: Cadila
Healthcare Limited, Zydus Cadila.

I am obliged to Cadila Healthcare Limited, Zydus Cadila for providing me an

opportunity to undergo training in their esteem organization. During my project I got a
tremendous co-operation form the whole Finance Department.

I am thankful to Mr. P. A. Padmanabhan (V. P. Finance) for giving me the

opportunity and valuable guidance to prepare my project report.

I am thankful to all those people also who have directly or indirectly helped me
during my training period. I own thanks to following persons who has provided First
Hand Information.

 Mr. Hetal Shah

 Mrs. Bhama Warrie
 Mr. J. P. Patel
 Mrs. Lavina D’ souza
 Mr. Manish Mehta
 Mr. Vishvesh Trivedi
 EXECUTIVE SUMMARY
This project is focused on “The Study of Working Capital Management at Zydus
Cadila”.

Working Capital Management involves managing the different components of the

Current Assets and also Current liabilities.

Among all the problems of financial management, the problems of working

capital management have probably been recognized as the most crucial one. It is because
of the fact that working capital always helps a business concern to gain vitality and life
strength. The objective of this study is to critically evaluate working capital management
as practiced in Zydus Cadila.

To achieve this goal the study also examines the policy and practices of cash
management, evaluate the principles, receivable management, procedures and techniques
of inventory management and cash management. And also have included the analysis of
Financial Ratios of Zydus Cadila and also compression with Ranbaxy & Sun Pharma.
 INDEX

Sr. No. Topic Pg. No.

1 Overview of Pharmaceutical Industry
1.1 The Global Overview
1.2 Indian Pharmaceutical Industry
2 SWOT Analysis
3 Company Profile
4 Working Capital Management
4.1 Operating Cycle
4.2 Receivable Management
4.3 Collection System
4.4 Inventory Management
5 Financial Analysis
5.1 Intra firm Analysis
5.2 Inter firm Analysis
6 Additional Learning
7 Conclusions
8 Bibliography
9 Annexure
 THE GLOBAL OVERVIEW

"The global pharmaceutical market grew to US$643 billion in 2006, growing at a

compound annual growth rate (CAGR) of 10.0% between 1999 and 2006. However,
year-on-year growth slowed to 6.8% in 2006, largely as a result of increased competition
from generic products and the effects of continued healthcare cost containment across
major markets."

Pharmaceutical Market Trends, 2007 - 2011: Key market forecasts & growth
opportunities present a detailed trend analysis of the global pharmaceutical market as at
the end of 2006 and forecasts until 2011.

The data and analysis contained within the report are comprehensive, consistent
and up-to-date in order to provide a single-point reference for understanding key
pharmaceutical market trends in 2007.
• The global pharmaceutical market is forecast to grow to US$897 billion in 2011,
an equivalent CAGR of 6.9% over the next five years.
• Strong growth in the 10 European markets that joined the European Union in
2004 will help to boost European sales over the next five years.
• In 2006 the leading therapy areas by sales were cardiovascular with 14.2% share
and CNS with 14.1%.
• Continued double-digit market growth in China will make it the seventh biggest
drug market by sales in 2010.
• The top 100 blockbuster drugs generated sales of US$232.2 billion accounting for
36% of the total pharma market.
• Total pharmaceutical sales from the top 10 companies accounted for more than
40% of the total market.
 INDIAN PHARMA INDUSTRY

“The Indian pharmaceutical industry is a success story providing employment for

millions and ensuring that essential drugs at affordable prices are available to the vast
population of this sub-continent.”
- Richard Gerster

The Indian pharmaceutical industry is well positioned for sustainable growth and
expansion and is expected to grow at a cumulative annual growth rate (CAGR) of 16 per
cent over 2007-11 according to Confederation of Indian Industry (CII) study.

The industry has grown at a CAGR of 13 per cent during 2002-07 and over the
last couple of years, the industry has grown at about 1.5-1.6 times the growth of the
economy. The rise in disposable income has a positive impact on healthcare spend and in
2005, 6.2 per cent of disposable income was spent on healthcare compared to 2.8 per cent
in 1995.

On the international front, Indian generic drug makers are playing an important
role in the global consolidation process and are augmenting their market presence across
regulated as well as semi regulated markets through organic and inorganic initiatives.

 GROWTH
India's US$ 3.1 billion pharmaceutical industry is growing at the rate of 14
percent per year. It is one of the largest and most advanced among the developing
countries.
Over 20,000 registered pharmaceutical manufacturers exist in the country. The
domestic pharmaceuticals industry output is expected to exceed Rs260 billion in the
financial year 2002, which accounts for merely 1.3% of the global pharmaceutical sector.
Of this, bulk drugs will account for Rs 54 bn (21%) and formulations, the remaining Rs
210 bn (79%). In financial year 2001, imports were Rs 20 bn while exports were Rs87
bn.
 Growth Drivers:
One report says that the contract research and manufacturing service (CRAMS) is
becoming one of the most promising opportunities for the Indian pharma industry and
India remains one of the most preferred outsourcing destinations. The report suggests the
following growth drivers for CRAMS.

 Contract Manufacturing- The global manufacturing outsourcing opportunity is

estimated at $20 billion and is expected to reach $31 billion by 2010.
 Contract Research- It offers significant opportunity to the Indian pharma industry
which is becoming a global R&D hot-spot for innovator pharma companies. The
global contract research opportunity was pegged at $14 billion in 2006 and is
expected to reach $24 billion by 2010. Declining R&D productivity, coupled with an
increasing number of products going off patent is expected to drive the growth of the
contract research segment.
 Clinical Research- At present, a majority of clinical trials conducted in India are for
Phase II and Phase III. The government is in the process of considering the
recommendation of the Drug Technical Advisory Board (DTAB) to allow Phase I
clinical trials for the drugs discovered abroad. If this happens, then it will enable the
Indian CRAMS industry to provide a wide range of drug discovery services.
 Government support- On the regulatory front, the government is also trying to
promote the growth of this industry by providing a tax exemption on all services
carried out by the contract research and clinical trials industry. In the product patent
regime, many Indian pharma companies have embarked on R&D activities to achieve
a sustainable long term advantage. These are now adopting innovative funding
models to advance their R&D activities. R&D investment today account for 7-9
percents of sales for leading pharma companies.
 Various joint ventures have been formed between Indian and multinational pharma
players to strengthen manufacturing capabilities, technology sharing and leveraging
on the partner’s experience in product filings, regulatory compliance and the like.
 SWOT Analysis
The SWOT analysis of the industry reveals the position of the Indian pharma industry
in respect to its internal and external environment.

 Strengths
1. Low cost of production.
2. Large pool of installed capacities
3. Efficient technologies for large number of Generics.
4. Large pool of skilled technical manpower.
5. Increasing liberalization of government policies.

 Opportunities
1. Aging of the world population.
2. Growing incomes.
3. Growing attention for health.
4. New diagnoses and new social diseases.
5. Spreading prophylactic approaches.
6. Saturation point of market is far away.
7. New therapy approaches.
8. New delivery systems.
9. Spreading attitude for soft medication (OTC drugs).
10. Spreading use of Generic Drugs.
11. Globalization
12. Easier international trading.
13. New markets are opening.

 Weakness
1. Fragmentation of installed capacities.
2. Low technology level of Capital Goods of this section.
3. Non-availability of major intermediaries for bulk drugs.
4. Lack of experience to exploit efficiently the new patent regime.
 5. Very low key R&D.
6. Low share of India in World Pharmaceutical Production (1.2% of world production
but having 16.1% of world’s population).
7. Very low level of Biotechnology in India and also for New Drug Discovery
Systems.
8. Lack of experience in International Trade.
9. Low level of strategic planning for future and also for technology forecasting.

 Threats
1. Containment of rising health-care cost.
2. High Cost of discovering new products and fewer discoveries.
3. Stricter registration procedures.
4. High entry cost in newer markets.
5. High cost of sales and marketing.
6. Competition, particularly from generic products.
7. More potential new drugs and more efficient therapies.
8. Switching over form process patent to product patent.
 COMPANY OVERVIEW

MISSION

We are dedicated to life…in all its dimensions. Our world is shaped by a passion for
innovation, commitment to partners and concern for people in an effort to create healthier
communities, globally.

VISION

Zydus shall be a leading global healthcare provider with a robust product pipeline and
sales of over $1 bn by 2010; we shall achieve sales of over $3 bn by 2015 and be a
research-based pharmaceutical company by 2020.
 FOUNDER OF ZYDUS CADILA

Ramanbhai B. Patel (19 August 1925 – 19 September 2001) was an Indian

chemist who founded the operation that eventually became the Ahmedabad-based
pharmaceutical company Cadila Healthcare.

Mr. Patel was born at Kathor in South Gujarat and studied chemistry at Gujarat
University's L.M. College of Pharmacy before becoming a lecturer there. With
Indravadan Modi he founded Cadila Laboratories in 1952.

In 1995, after a disagreement between Patel and Modi, Cadila Laboratories was
restructured with the business being split two ways. Cadila Healthcare was set up to take
the Patel's share of the business and Cadila Pharmaceutical took Modi’s share. Patel was
Chairman and Managing Director of Cadila Healthcare until his death. Cadila Healthcare
went public on the Bombay Stock Exchange in 2000.
 BOARD OF DIRECTORS

Pankaj Patel
Chairman, Managing Director, Chairman of Share Transfer Committee,
Member of Executive Committee, Member of Shareholders and
Investors Grievance Committee

Sharvil Patel
Deputy Managing Director and Director

Pranlal Bhogilal
Director

Mukesh Patel
Director

Apurva Diwanji
Director

Humayun Dhanrajgir
Director

H.K. Bilpodiwala
Director
 COMPANY PROFILE
Name of the Group : Zydus Cadila

Name of the Company : Cadila Healthcare Limited

Registered and Corporate Office : Zydus Tower,

Satellite Cross Roads,
Ahmedabad - 380
015, Gujarat,
India.

Phone : 91-079-68-68-100 (20 Lines)

Fax : 91-079-68-62-65/66

Website : http://www.zyduscadila.com

Zydus Research Center

 STRUCTURE OF ZYDUS CADILA

Zydus
Cadila

Cadila Healthcare Limited

Subsidiaries Joint Venture

Zydus Pharmaceutical Ltd. Zydus Nycomed Healthcare Pvt. Ltd.

German Remedies Ltd. Zydus Hospira Oncology Pvt. Ltd.
Dialforhealth India Ltd. Zydus BSV Pharma Pvt. Ltd.
Dialforhealth Unity Ltd. Zydus BSV R&D Pvt. Ltd.
Carnation Nutra Analogue Foods Ltd. Dialforhealth Green Cross Ltd.
Zydus Animal Health Ltd.
LIVE Healthcare Ltd.
Zydus International Pvt. Ltd. [Ireland]
Zydus Betherlands B.V. [Netherland]
Zydus France SAS [France]
Zydus Healthcare SA Pvt. Ltd. [S. Africa]
Zydus Healthcare (USA) LLC [USA]
Zydus Pharmaceutical USA Inc. [USA]
Zydus Healthcare Brazil LTDA [Brazil]
Quimical E Pharmaceutical Nikkho Do, Brazil Ltd.
[Brazil]
Zydus Pharmaceutical Inc. [Japan]
Nipon Universal Pharmaceutical Ltd. [Japan]
s
 ZYDUS TREE
BU 1 BU5 SSU 1
Alidac-Corza-Fortiza Germed Manufacturing-Changodar
Medica Manufacturing-Baddi
CnD Manufacturing-Goa
Presi. Office and Com.services Manufacturing-Agiolax
Liva healthcare Manufacturing-Sikkim
BU 2 BU6 SSU2
Pharma GCM Finance
Diagnostics PSM IT
Evona Business Development Company Affairs
Respicare Mergers & Acquisitions Management Audit
Corporate Corporate QA Other Expenses
PTC-US-France-Other EM
STDC
Legal
NPD
CMD Office
Liasion Office
CRO
PMO Office
Environment Management
BU 3 BU 7 SSU3
API-Ankleshwar 1 & 2 Cadila HR
API-Dabhasa Biogen HR OD Cell
Zyfine Neuroscience Corporate Communication
Synovia Administration
Nutriva Security
Zydus House
BU 4 ZRC
Asia Pacific Zydus Research Centre-Changodar
Africa Middle East
CIS
Brazil Supply
Consumer
US-Supply
France Supply
ED-EU Office
 KEY FACTS:
 Zydus Cadila is a global healthcare provider and one of the top five pharma
companies in India. The company was founded by Late Mr. Ramanbhai B. Patel in
1952 and went on to become the second largest pharma company in the early 1990’s.
 In 1995, the group restructured its operations and now operates as Cadila
Healthcare Ltd., under the aegis of the Zydus group. The company spearheaded by
Mr. Pankaj R. Patel, Chairman and Managing Director posted a turnover of over Rs.
2300 crores in 2007-08.
 The group has been listed as one of the ‘Best Under a Billion’ company from
amongst 200 companies in Asia by Forbes.
 Proven expertise in manufacturing and marketing different dosage forms such as
solid dosage forms, injectables, metered dose inhalers, dry powder inhalers,
transdermal patches, suppositories and oncology formulations.
 Wide therapy coverage through three multi-therapy divisions and eleven
speciality divisions – Zydus Cadila, Zydus Alidac, German Remedies, Zydus Medica,
Zydus CND, Zydus Biogen, Zydus Neurosciences, Evona, Respicare, Alidac Corza,
Alidac Fortiza, Zydus Nutriva, Zydus Synovia and Liva Healthcare Limited. The
divisions are spearheaded by some of the stalwarts in the field of pharma marketing.
 A dedicated field force of 3300 reaches out to super specialists, specialists,
surgeons, physicians and the rural markets.
 The group is a leader in cardiovascular, gastrointestinal and women’s healthcare
segments. Strong presence in the respiratory, pain management, CNS, anti-infectives,
oncology, neurosciences, dermatology and nephrology segments.
 Leading the way through new product introductions, the group was the first to
launch Nucoxia (Etoricoxib), Nupatch (Diclofenac Patch), Pantodac (Pantoprazole),
Mifegest (Mifepristone), Penegra (Sildenafil Citrate), Providac Techsules, Betaferon,
Fludara, Slimona (Rimonabant) and Novolizer in India.
 The group has several brands that feature amongst the top 300 pharmaceutical
brands in India.
 The group has a globally compliant manufacturing infrastructure comprising eight
state-of-the-art facilities which support product launches not just in India but also in
the regulated markets of U.S., Europe and Latin America.
 Three of the group’s facilities including the formulation manufacturing plant at
Moraiya, and API plants at Ankleshwar and Dabhasa near Vadodara are approved by
the USFDA.
 More than 500 professionals spearhead the group’s research programme.
 Over 230 scientists are working on new molecular entity research at the Zydus
Research Centre. The group has five INDs in various stages of clinical trials and two
more INDs are in pre-clinical evaluation.
 Zydus Cadila is a partner of choice for several global pharma majors such as
Boehringer Ingelheim, Schering AG, Madaus AG, Nycomed, Hospira, Zambon of
Italy, Bio Sidus of Argentina, Mallinckrodt of USA, to name a few.
 One of the most reputed pharma companies globally, Zydus Cadila aims to be a
leading global healthcare provider with a robust product pipeline and sales of over $1
billion by 2010. It plans to achieve sales of over $3 billion by 2015 and be a global
research-driven company by 2020.
 GROWTH & SUCCESS OF ZYDUS CADILA
Since 1995, Zydus Cadila has enjoyed wave after wave of growth in the
marketplace. From a turnover of Rs. 200 crores in 1995, today, the group’s turnover is
Rs. 1900 crores.

Here is a snapshot of the group’s growth story:

 From a domestic formulation focused business, today we are a global, integrated

company with strengths all along the pharmaceutical value chain.
 We are the 5th largest player in the domestic pharma market as compared to the
16th rank in 1995.
 We have built leadership positions in our key segments - Cardiovascular,
Gastrointestinal, Women’s Healthcare and have leading positions in other therapeutic
segments such as Respiratory, Pain Management and Anti-infective.
 We have a strong base in the regulated markets of U.S., Europe, Japan and high
profile markets of Latin America. We also have presence in 25 other emerging
markets worldwide.
 We have built world class manufacturing facilities comprising eight state-of-the-
art manufacturing plants for APIs and formulations, including novel dosage forms. Of
these, three facilities are US FDA approved.
 Leveraging this strength, we are now successfully tapping in-sourcing and
contract manufacturing opportunities.
 We have emerged as a Partner of Choice for research-driven pharma majors like
Nycomed, Hospira, Schering AG, Madaus AG, Boehringer Ingelheim, Mallinckrodt,
Zambon to name few, and these alliances are unlocking value for us.
 Nurturing our ambition to be an innovation driven company, we now have a
dedicated research team, spearheaded by 550 professionals with over 300 scientists
dedicated to NCE research alone.
 Our dedicated, state-of-the-art research centre, the Zydus Research Centre, spread
over 3,60,000 sq ft at Ahmedabad in Gujarat, has an integrated and proven
infrastructure to advance projects from concept to early stage clinical development.
 Making brisk progress on NME research, we now successfully have five INDs in
various stages of clinical trials and several more INDs are in pre-clinical evaluation.
 INTRODUCTION
Working Capital to a company is like the blood of human body. It is the most
vital ingredient of a business. Working Capital management if carried out effectively,
efficiently and consistently, will assure the health of the organization.

An executive function of finance is taking liquidity decisions. Signifies money

required for day-to-day operations of an organization. Business cannot run without
adequate working capital (WC). Requirements of WC may differ from organization to
organization.

There are two concepts of Working capital.

I. Gross Working Capital
II. Net Working Capital

Gross Working Capital refers to the firm’s investment in Current Assets. Current
assets are the assets which can be converted into cash within an accounting year and
include Cash, Short term securities, Debtors, Bills Receivables and Inventories.

Net Working Capital refers to the difference between current assets and current
liabilities. Current Liabilities are those claims of outsiders which are expected to
matured for Payments within an accounting year and include Creditors, Bills Payables,
and Outstanding Expenses.

 DEFINITION
Working capital is the difference between current assets and current liabilities.
Working capital can alternatively be defined as that part of current assets which are
financed with long tern funds.

Working Capital is the easiest of all the balance sheet calculations. Here’s the
formula:
 Current Assets – Current Liabilities = Working Capital

 FACTORS INFLUENCING WORKING CAPITAL

REQUIREMENTS
 NATURE OF BUSINESS
The working capital requirements of a firm are closely related to the nature of its
business. A service firm requires more working capital and on the other hand
manufacturing firm needs less working capital.
 SEASONALITY OF OPERATIONS
Firms which have marked seasonality in their operations usually have high
fluctuating working capital requirements. For example the sale of ceiling fans reaches a
pick during summers and drops during winter. The working capital requirement is high
during summer and low during winter.

 PRODUCTION POLICY
The firm marked by pronounced by seasonal fluctuation in its sales may pursue a
production policy which may reduce sharp variations in working capital requirements.

 MARKET CONDITION
The degree of competition prevailing in the market place has an important bearing
on working capital needs. The competition is keen, a larger inventory of finished goods
is required to meet the needs and thus high working capital is required. But if market is
strong and completion is week, small inventory of finished goods is required hence low
working capital.

 CONDITIONS OF SUPPLY
The inventory of raw materials, spares and stores, depends on the condition of
supply. If the supply is prompt and adequate the firm can manage with less working
capital, but if supply is unpredictable and scant the firm has to keep large amount of
working capital.
 WORKING CAPITAL IN CHL
The working capital requirements in Zydus Cadila are managed in three different
parts:
 CASH MANAGEMENT
 RECEVABLES MANAGEMENT
 INVENTORY MANAGEMENT

Each part of working capital in CHL plays a very important and crucial role in
determining working capital requirements in the company. Each part is explained in
detail in the later parts of the report.

Working Capital Trend for Cadila Healthcare Limited

Particulars 2002-03 2003-04 2004-05 2005-06 2006-07
Inventory 1943 1768 2221 2475 3896
Debtors 1595 2012 1235 1990 2784
Cash 103 442 612 438 990
Loans & Advances 783 647 924 1588 2201
Current assets (A) 4424 4869 4992 6491 9871
Current Liability 1839 1959 2060 2404 4588
Provisions 344 573 606 605 858
Current liabilities(B) 2183 2532 2666 3009 5446
Working Capital(A-B) 2241 2337 2326 3482 4425
 NET OPERATING CYCLE (CASH CYCLE)
The continuing flow from cash to suppliers, to inventory, to Debtor and back into
cash is what is called the net operating cycle.

In other words, the term cash cycle or net operating cycle refers to the length of
time necessary to complete the following cycle of events:

(i) Conversion of cash into raw materials;

(ii) Conversion of raw materials into work – in – progress;
(iii) Conversion of work – in – process into finished goods;
(iv) Conversion of finished goods into debtors and
(v) Conversion of Debtor into cash

In symbols, it can be expressed as follows:-

O=R+W+F+D–C
O = Time duration of operating cycle,
R = Raw Material and storage period,
W = Work – in – progress period,
F = Finished goods storage period,
D = Debtors collections period, and
C = Creditors payment period

If it were possible to quickly move the operating cycle, the firm would need no
current assets. But since a quick operating cycle is impossible, the firm must necessarily
invest funds in current assets. The firm needs cash to pay due as and when arise as well
as it needs cash to meet emergencies that may arise, firms carry inventory to ensure they
do not run out of stock which may hamper the production process, even firm has to
maintain finish good stock to meet exceptional large demand and firms sold goods on
credit for competitive reasons. An adequate level of current assets assures a smooth,
uninterrupted sales process, thus enhancing owner’s wealth.
 Debtors

Cash Finished Goods

Raw
Materials Work – in - Progress

Operating Cycle of a Manufacturing Firm

The operating cycle shown above relates to a manufacturing firm where cash is
needed to purchase raw materials and convert raw materials into work – in- process and
then, , work – in – process is converted into finished goods. Finished goods will be sold
for cash and credit and ultimately debtors will be realized.

The non – manufacturing business unit like retailer. Rather they will have the deal
with conversion of cash into stock of finished goods into debtors and then into cash. The
operating cycle of service firms may not have any inventory at all.

Receivables

Cash Cash Debtors

Inventory

Operating Cycle of a Operating Cycle of

Non – Manufacturing Firm Service and Financial Firms
Because of the circulating nature of current assets, Working capital is sometimes
called circulating capital.
Extract from Annual Report of 2006-07

Particulars Amount (mn) Amount (mn)

Opening Stock of Raw Material 592
Add: Purchase 4186
Less: Closing Stock of Raw Material (984)
Prime Cost 3794
Add: Opening Stock of WIP 383
Less: Closing Stock of WIP (831)
Works Cost 3346
Add: Salaries (50%) 811
Stores & Spare 209
Power & Fuel (50%) 174
Processing Charges 211
Insurance (50%) 35.5
Repairing to Plant & Machinery 41
Cost of Production 4827.5

Calculation of Net Operating Cycle:

1. Raw Material Period = (Raw Material Inventory) ÷ (Raw Material

Consumption / day)
= 984 ÷ (3794/360)
= 93 Days.
2. Work In Progress Period = (Work in Progress Inventory) ÷ (Cost of
Production/Day)
= 831 ÷ (4827.5/360)
= 62 Days.
3. Finish Goods Period = (Finish Goods Inventory) ÷ (Cost of Goods Sold /Day)
= 1675 ÷ (14961/360)
= 40 Days.
4. Accounts Receivable Period = (Account Receivables) ÷ (Credit Sales)
 = 2784 ÷ (17855/360)
= 56 Days.
5. Accounts Payable Period = (Account Payables) ÷ (Credit Purchase)
= 3844 ÷ (6372/360)
= 217 Days.

Net Operating Cycle = 93+62+40+56-217

= 34 Days.

Note: We have assumed that plant is working 360 days/year.

 INTRODUCTION:
Accounts receivable are simply extensions of credit to the firm’s customers,
allowing them a reasonable period of time in which to pay for the goods. Most firms treat
account receivable as a marketing tool to promote sales and profit. The financial officer
must analyze how much the firm should invest in account receivable, for there is always a
temptation to extend too much credit in an effort to boost sales beyond the point where
the return on investment in account receivable is no longer as attractive as the return on
other investment opportunities. It is the financial officer’s responsibility to guard against
over investment in account receivable.

 CHARACTERISTICS OF RECEIVABLE
MANAGEMENT:
1. Element Of Risk:
This should be carefully analyzed because cash sales are totally risk less but not the
credit sales as the cash payment is yet to be received.
2. Economic Value:
To, the buyer, the economic value in goods or services passes immediately at the time
of sale, while the seller expects an equivalent value to be received later on.
3. Futurity:
The buyer will make the cash payment for goods or services received by him in a
future period.

 CREDIT POLICY VARIABLES

• Credit Standards And Analysis:
Credit standards are the criteria which a firm follows in selecting customers for
the purpose of credit extension. The firm may have tight credit standards that are; it may
 sell mostly on cash basis, and may extend credit only to the most reliable and financially
strong customers.
Credit Analysis influences the quality of the firm’s customers. There are two
aspects of the quality of customers: 1) the time taken by customers to repay credit
obligation and 2) the default rate.

• Credit Terms:
The stipulation under which the firm sells on credit to customers is called credit
terms. This stipulation includes (1) the credit period, and (2) the cash discount.

1. Credit Period: The length of time for which credit is extended to customers is
called credit period.
2. Cash Discount: A cash discount is a reduction in payment offered to customers
to induce them to repay credit obligations within a specified period of time, which will be
less than the normal credit period. Cash discount terms indicate the rate of discount and
the period for which it is available.

• Collection Policy:
A collection policy is needed because all customers do not pay the firm’s bills in
time. Some customers efforts should, therefore, aim at accelerating collections from
slow-payers and reducing bad debt losses. A collection policy should ensure prompt and
regular collection. Prompt collection is needed for fast turnover of working capital,
keeping collection costs and bad-debts within limits and maintaining collection
efficiency.

 BENEFITS OF RECEIVABLES:

 Increase in Sales: Except a few monopolistic firms, most of the firms are
required to sell goods on credit, either because of trade customers or other
conditions. The sales can further be increased by liberalizing the credit terms.
 This will attract more customers to the firm resulting in higher sales and growth
of the firm.
 Increase in Profits: Increase in sales will help the firm (i) to easily recover the
fixed expenses and attaining the break-even level, and (ii) increase the operating
profit of the firm. In a normal situation, there is a positive relation between the
sales volume and the profit.
 Extra Profit: Sometimes, the firms make the credit sales at a price which is
higher than the usual cash selling price. This brings an opportunity to the firm to
make extra profit over and above the normal profit.
 CREDIT CONTROL POLICY:
1. ORDER EXECUTION:

Order Entity

Order Placing

Allow Billing Disallow Billing

Area Business
Order Execution
Manager (ABM)

Preparation of
Regional Business
Manager (RBM)
Invoice

Head Office

(H.O.)

Finance
Department

Order Not
Order Execution
Execution
 Orders from outstation parties duly sealed and signed accompanied with blank
undated A/c Payee in the name of the company are eligible for execution.
 In case of local parties, billing should be done on receipt of signed and sealed
order. However, supply of goods should be made only on receipt of cheque from
the party.
 In case of new parties, order value exceeding Rs.50000/- should not be
entertained for first three orders. However, extra credit limits for more than
Rs.50000/- can be sanctioned by H.O.
 In case of supply of the goods against the receipt of the demand draft such supply
should be made only on physical receipt of the demand draft, which is to be
entered in the computer before execution of the order.
 Orders should be executed within 24 hours. Reasons for non-execution of orders
should be informed to RBM/ABM.
 If there is any addition/ alteration/ overwriting in the order and the same are not
counter signed by the stockiest, they should not be executed until due
confirmation from the stockiest is received.
 If the order is received with specific scheme and there is no scheme or different
scheme on particular product/s, order should not be entered. Party should be
consulted and entry should be made only after re-confirmation of order without
scheme or with the prevailing scheme is received in writing.
 If party has given cheque with remark i.e. “Not over Rs……..” then the order
should be executed only within the limit of cheque. C&S agent should take help
of ‘Maximum Invoice limit’ option available in order execution.
 Whenever any new product is launched, very small quantity should be supplied
to the stockiest if the extra cheque of the stockiest is available with C&S Agent.
C&S Agent can execute the order as per the allocation given by the field staff
within limit of Rs. 5000/- for initial supply. Separate invoice should be prepared
for this supply.
  Separate invoice should be prepared for Temperature Sensitive products, for
which the goods are to be supplied through courier in proper cold-chain.
 C&S Agent should check the order thoroughly for any apparent mistake as to
quantity/product/packing/strength etc. In case of any doubt on the stockiest’s
order with regard to these, C&S Agent should seek confirmation from stockiest
and dispatch goods only after getting his confirmation in writing.
 C&S Agents should ensure to stop supply of the stockiest, who had returned the
saleable unpaid goods of more than Rs. 5000/- C&S Agents should do this
manually. Supply to such stockiests will be done only on written approval from
H.O.
 In case of inter state sales from the C&S location; C&S Agent should collect the
required statutory forms from the stockiest at the end of the year. If the statutory
forms are not received within stipulated time, party should be put under hold.
 C&S Agents should ensure that cheque is drawn on Nationalized Bank only.
Cheques drawn on co-operative banks are strictly not acceptable.

2. DISPATCH OF GOODS:

 All dispatches should be completed within 48 hours from the date of execution.
 In case of local parties, all supplies to be made should strictly on “CHEQUE ON
DELIVERY” basis. If the stockiest does not give cheque, C&S agent should not
deliver the goods and bring back the goods and bring back the goods to his
godown and prepare a credit note for goods return.
 C&S agents should ensure that on 5th of every month, not a single claim is
pending for settlement with them for the goods received by them.
 C&S agents should not deliver the goods to the outstation parties directly from his
premises; it must go through transport channels only.
 Temperature sensitive products should be supplied through courier with proper
cold chain.
  C&S agent should collect the LR copy at the time of delivery of goods and
thoroughly verify the number of cartons, delivery address, etc. and ensure that the
LR is in the name of the party also.

3. PAYMENT ADVICE:

 On receipt of LR, C&S agents should prepare payment advice within 24 hours
and ensure the following.
 Make entry of LR No, LR date and transporters name through the option of
‘Payment Intimation’ and select the relevant invoice and adjust the credit notes and debt
notes.
 For local parties, payment advice should be prepared and dispatch in date should
be entered in the column of LR.
 C&S agent should mention the cheque number on payment intimation, which will
be used for depositing and collection of dues for the supply mentioned, so that party can
arrange funds on presentation of the cheque.
 C&S agent should sent payment intimation along with relevant documents like
invoice, credit notes, debit notes and lorry receipts to the stockiest within 24 hours from
the date of dispatch of goods.

4. COLLECTION:

 Collection should be credited only in the name of the party from whom payment
is received and in the concerned division.
 No collection entry should be done without physical receipt of cheque/ Demand
draft/ Pay order from the stockiest. Cheques/DDs should be deposited with the
bank without any delay. PIF should be computer generated and acknowledgement
of courier should be taken on PIF copy.
 In no case should PIFs be withheld from depositing once the credit entry is made
in the books. All the cheques should be deposited in bank as per the deposition
schedule.
  C&S agents should not collect any cash in lieu of cheque/ demand draft/ pay order
from any stockiest/ field staff.
 On the day of receipt of demand draft, PIF should be prepared and draft should be
deposited in the bank immediately.
 In case of advance cheque, C&S agent is requested to make cheque entry under
‘Advance Cheque Entry’ option is 10 days prior to the due date. In case of local
cheque, collection entry should be made under ‘Collection Entry’ option 2 days
prior to the due date, so that cheque can be lodged as per standard collection
system.
 Utmost care should be taken while making cheque entry in the system like cheque
no, date, amount. Cheque should be correctly filled up as per amount mentioned
in payment intimation advice and cheque amount written in the words and figures
should be tallied before giving to the bank for collection.
 In case of adhoc/advance payment received against the supply, cheque should be
entered by selecting ‘unmatch’ option and match the collection with correct
invoice by using ‘Party Apply’ option available in account module. C&S agent
should take utmost care and ensure that such adhoc receipt is adjusted in the
account of stockiest that has paid the amount.
 As all cheque return entries are made from H.O., C&S agent is requested to take
the print-out of dishonored cheque entry everyday and provided such instruction
to the party and concerned field managers for early recovery of the dues.
Necessary intimation to divisional heads in H.O. should also be sent.

5. CLAIMS: CLAIMS

SALEABLE NON-SALEABLE SCHEME / FREE REPLACEMENT

GOODS GOODS PRICE PRODUCT TO
SHORTAGES
RETURNED RETURNED DIFFERENCE REVERSE REPLACEMENT
EFFECT

FULLY RETURN VALUE BASED

PART RETURN & QUANTITY VALUE BASED
BASED CREDIT NOTE

VALUE BASED
CREDIT NOTE
  Value Based
In the value based credit note of the total goods are returned by the way of credit note
to the stockiest.
 Quantity Based
This type of settlement of claim quantity of goods is given against return of goods. At
present credit notes for goods returned is issued by C&S. the flow of the activity is as
under.

1. Credit Notes Of Saleable Goods:

 If any party returns saleable stock, C&S has to ask for the purchase invoice
number and date. C&S will mention the purchase details while entering the claim
while entering the claim. In absence of purchase details C&S will take the help of
invoice of given product, batch no. Available in Query Menu in Vision-21
software. This will help in issuing correct credit note to the party.
 If any party fails to give purchase details, C&F agent should deduct maximum
scheme given as per the circular during the last year.
 C&S will authorize the credit note. Once the credit note is authorized, stock will
updated by systems.
 Credit note should be adjusted with next supply of party.
 Credit note should not be issued after 25th of every month.
 There are two types of saleable goods:
• Full goods invoice.
• Part goods invoice.

2. Credit Notes Of Non-Saleable Goods:

 For non saleable goods, C&S check the goods, and prepare the GRN for goods
returned. C&S put one copy of GRN in Carton.
 In absence of purchase details C&S will take the help of invoice of given product,
batch number available in Query menu for getting the correct purchase details.
This will help in issuing the correct note to the party.
 Deduction of the skim as mentioned above if party had returned the goods in
Loose Pack.
 C&S issues the credit notes as per the GRN. C&S attached one copy of GRN with
copy of credit note and the same to finance department in binding from every
month.
 Credit note should be adjusted with next supply of party.
 Credit note should not be issued after 25th of every month.
 Once in a month C&S is sending such non saleable goods to distribution
department.
 There is value based credit note is made in the biogen division only.
 In the CADILA, ALIDAC, MEDICA, CND, INDON quantity based settlement is
done which is known as Replacement against Replacement.

3. Retail Price To Retail Price Free Replacement Of Goods:

 GRN is prepared on the receipt of the goods.

 The products of the company are bifurcated in following categories:
• Schedule products with scheme
• Schedule products without scheme
• Non Schedule products with scheme
• Non Schedule products without scheme

 Schedule Products:
The government decides the rate of the schedule products where the company has a
less margin.

 Non Schedule Products:

The Company fixes the rate itself and here the margin is more.
• The goods are entered in the loose quantity and not in the sale pack.
• The goods are replaced from the same group.
• Goods are replaced in exchanged of goods and know no monetary
replacement is allowed.
 • All the calculations are done at RP value and scheme, sales tax, discounts are
not considered.

4. Credit Notes For Schemes/Price Difference:

 Credit notes for the scheme/price difference are issued from HO Finance.
 Marketing person will take approval from Senior VP in advance for such scheme /
price difference claims.
 C&F agent should not issue any credit note for scheme/price diff. claim.
 Field staff takes approval from concern sales in charge in case of price/ scheme
diff. to be given to the party before executes of order. Marketing department
forward request in prescribed format in finance department for issuing the credit
note of price/ scheme diff. along with papers.
 Marketing dept. will inform the C&S for issuance of credit note. C&S will take
the print out of credit note and adjust the same with invoice.

 Scheme:
Two type of scheme are given:
1. On percentage base (%). E.g. 10% @ every 100Rs. Purchase.
2. On quantity base. E.g. 1 strips with purchase of every 10 strips.
• Every month scheme is added in Master if it is monthly-based
skill.
• If goods sold without scheme then credit note is issued for the
same.

Scheme is given as under:

If there is scheme of 10% on 100 Rs. then on the purchase of every Rs. 150, scheme is
given as under.
For 100 + 10 = 110Rs.
Now, 110 - 10Rs
So for 150 - (?)

• Deduction from total payment = (150 × 10) ÷ 110 = 13.64 Rs.

 So company is not giving directly 10% of 150, which is Rs. 15

5. Credit Note For Expiry, Spoilage And Breakage:

• C & S receive goods from the stockiest.

• On the receipt of the goods a manual GRN is prepared for the non-saleable
products.
• If the goods are returned within 6 months from the date of expiry 100% value is
allowed and after 6 months 0% value s allowed.
• The company deducts Scheme / Price difference allowed in the invoice while
issuing the Credit Note.
• Credit Note is issued on the same day on which GRN is prepared.
• After preparation of the Credit Note the company mentions the number, amount
and the reason on the Invoice copy.

 SETTLEMENT OF CLAIMS:

 Credit notes for return saleable goods should be prepared within 48 hours from
the date of receipt of goods.
 Credit Notes for Scheme/rate Difference should be prepared only after getting
H.O. approval.
 No manual Credit note shall be issued. If any Manual credit Notes for Octroi,
sales Tax, Freight or any other reasons are to be given, it should be prepared only after
getting the written H.O. approval.
 Non-saleable goods should be sent to the Head office after packing the same in
bigger shipper boxes on monthly basis. Non-saleable good should not be destroyed at
C&S premises.
 Under no circumstances short expiry stock should be converted into sample. Such
stocks should be returned to H.O. for necessary corrective action.
 C&S Agents are not permitted to do stamping/apply stickers on any product at
C&S location.
 C&S Agent should collect the goods returned by the stockiest from the transporter
within 48 hours from the date of receipt of Lorry Receipt.
 C&S Agent should check the quantity and condition of the goods received from
the party/transporter. If carton of the stockiest is found in damaged condition, C&S Agent
should take open delivery of the goods and if any shortage found, necessary shortage
certificate should be obtained from the transporter. Such shortage certificate should be
handed over to the party for claiming the same with the transporter. If any different is
observed between physical receipt of the goods and party’s delivery challan, such
difference should be brought to the party and field managers in writing.
 All replacement of goods under RP to RP replacement should be given along with
next supply to the stockiest.
 In case of return of Temperature Sensitive Products, C&S Agent should advise all
stockiests to return the goods under proper coid chain. If it is observed that goods return
by stockiest dose not have proper cold chain, no claim for such returned shall be settled.
For such claim the party shall be informed suitably.
 Non-saleable goods should be stored separately from the saleable good.

 In case of saleable or non saleable goods return, the purchase invoice number is a
must. If no purchase details are provided, C&S Agent should deduct the highest scheme
of product while preparing the credit note.
 If invoice is unpaid against issued credit note, Agent should match the credit Note
with the same invoice. In case of paid invoice such credit notes must be adjusted in next
invoice.
 A copy of credit Notes/Debit notes with details of claim should be sent to RBM &
ABM.

APPOINTMENT OF STOCKIEST:

 The following are the policies for appointment of a new stockiest.

 Application should be in prescribed “format for Appointment of stockiest “along
with justification of appointment of the stockiest.
 Profile must be approved by marketing Head / SUB Head.

 Recommendation of C&S Agent is essential.

 Creditworthiness Certificate from party’s bank and the annual reports for last
three year should be enclosed with the application.
 NOC from the local association, if applicable, is must.

 The following further point will be checked before appointment:

(i) Numbers of defaulting parties in Head Quarter.
(ii) Outstanding, if any, in other division. If party’s past records are not up to
the mark, then appointment should not me made.
(iii) If there are overdue outstanding in that head Quarter, appointment should
not be made until recovery of overdue outstanding. Special cases if any
can be considered by H.O.
(iv) Credit limit of particular Head quarter including new party should not be
more than 2 times the head quarter target.
 First supply should be made only against advance Demand Draft and allow initial
credit limit up to Rs. 50000/-.
 No stockiest appointment will be made after 20th of the month without prior
approval of CFO.

6. CREDIT LIMIT:

 Criteria for fixing the credit Limit is two times on average collection received in
last two months. If request is received for increase in the credit limit, then the
following data should be checked.
 Necessary of increase Credit Limit (Any Pending Order, etc.).
 Head quarter Credit Limit is within the limit of 2 times of head quarter Target.
Credit limit should not be increase by exceeding this limit of that head quarter.
 Under no circumstances inter change of Credit Limit from one party to another
party allowed.
 In case of requirement of extra Credit Limit, credit limit up to 20% will be
increase by finance department, if party’s track record like cheque return, goods
return, unpaid interest debit notes and average business is satisfactory. If the
requirement of credit Limit exceeds by 50% of norms, head of the Marketing and
head of finance jointly approve such credit Limit. Request for increase in credit
limit in excess of 50% will be approved by CFO.
 For requirement of any extra Credit Limit, it is necessary that there should not be
any overdue outstanding in the concerned Head Quarter.
 If the party is opened for specific reason like credit Note purpose, no credit Limit
should be given to the party.
 If any outstanding is written off for any particular party, the same party will be
black listed for all divisions.

a) For Identification, Credit Limit has been fixed as under:

Rs. 2/- Supply on Advance Demand Draft.
Rs. 3/- Full & Final settlement of the stockiest.
Rs. 4/- Duplicate stockiest.
Rs. 5/- Legal and Bankrupt party.
Rs. 6/- Transfer the party in other location within the state.
Rs. 7/- Hold for default for one division.
Rs. 8/- Party is permanently on advance D.D.(Criminal filed, o/s. clear)
Rs. 9/- Party has not paid his dues till 35 days Hold in all division.
Rs.10/- Old Hold.
Rs.12/- Outstanding written-off.
Rs.13/- Hold due to pending C-Form
Rs.15/- Party for credit note purpose only.

7. CREDIT DAYS:

 Credit days is allowed as under:

Local Stockiest - 1 to 7 days as per the agreed norms.
Outstation party - 21 days.
Doctors / Institution supply - 21 days to 90 days on case to case basis as
approved by H.O.
  Debit note for Interest:
C&S Agent has to run the Interest Debit Note Generation Programmed once in a
month. Such Debit note should be adjusted with next supply. If stockiest do not
make the payment of interest debit note please hold next supply.

8. UNREALIZED CHEQUE:

Every month a report is to be received from the bank towards unrealized cheques.
If cheque is not realized even after 60 days, the party has to be put under hold and
marketing department to be informed collect bank certificate from party’s bank for
clearance of cheque in prescribed format. If party fails to give certificate till 90 days,
dishonor entry should be passed and marketing department should be informed
accordingly.

9. RESUMPTION OF SUPPLY IN CASE OF CHEQUE BOUNCED

PARTIES:

 In case of dishonors of the cheque by any party, the number of occasions will be
considered and not the number of instruments. In other words if any party has
bounced multiple cheques on a single day it will be treated as one bounce only.
 Marketing department will be informed by the finance department about the
cheque dishonor.
 If the cheque has been bounced for the first time by the party, his supply will be
resumed on cheque system, if party issues apology letter for the same. If cheque is
bounced because of some system error or because of the mistake of the bank, the
same shall not be treated as the default of the party.
 If any party bounces cheque for the second time, his supply will be suspended for
two months and the party will be required to purchase on advance demand draft
basis for two months. After expiry of this period, BU finance head will authorize
C&S to resume supply on receipt of promise ensuring cheque will be honored and
on review of original credit limit supply.
  If any party bounces the cheque in any division and the same party is working on
advance demand draft basis in any other division, his supply will be resumed only
against advance demand draft even if it is first bounce in that particular division.
 If any party bounces cheque for the third time, his supply will be suspended for
four months and party will be required to purchase on advance demand draft basis
for four months, after which supply will be resumed within the credit limit on
average of advance payment received in four months. Credit limit should be
reduced to Rs. 50,000/-
 If any party has not paid his dues even after thirty five days, finance department
will inform marketing department and put the party under hold in all divisions. If
any criminal action is to be taken, marketing department has to confirm within
three days. If no reply is received from marketing department, or if marketing
department confirm criminal action the same will be initiated by finance
department. Once the criminal action taken party will be black listed in all
division across the group. On receipt of the payment, supply to such parties will
be resumed on check system only after approval of CFO.

10.RETURN OF SALEABLE GOODS:

 In case of return of unpaid goods of more than Rs. 5000, party should be
kept under hold manually. Further supply will be made only after H.O. approval.
 Marketing Department will provide the reasons of goods return and
finance department will verify the same and recover the expense of C & S
commission and freight from the defaulter.

11.MIS REPORT:

Every C & S agent should send the MIS Report every month from Vision 21
software with remarks on each and every transaction. The following are the MIS
Reports to be sent by the C & S Agent on a Monthly Basis.
 Pending Interest Debit Note: As per our Policy, debit notes are to be added in
the subsequent supply of stockiest. If C&S agent has not added the same, then this
report will give the list of such pending debit notes along with the reasons why it
was not included in last invoice on Party.
 Payment Intimation Not Prepared: As per policy, Payment intimation is to be
prepared once the supply is over. This information/advice will help the stockiest
to know about the total payments to be made and likely date of presentation of
cheque and it also helps us in keeping our accounts neat and clean. This advice
will help us in monitoring the status of goods dispatch for the raised invoices.
 Unmatched Bank Transaction: this report will give the list of such unmatched
debit or credit transactions.
 Late Deposition of Cheque/DD: As per policy, cheques should be deposited on
the due date without giving any extra credit. This report will give a list such late
depositions. C & S Agent has to give explanation for each late deposition.
 Late Dispatch: Goods are to be dispatched within 48 hours. In this report system
will provide a list of the parties, where dispatches were delayed beyond our
norms. At the month end C & S Agent have to take print out of this report and
give their explanation for delay.
 Advances Cheque not entered: In this report, system will provide the list of
payment intimation for which the advance cheque entries have not made in the
system. C & S Agent will print this list and will complete pending advances
cheque entries to avoid the delay in deposition in Bank.
 Payment Not Received Against Cheque Bounced: if the cheque is bounced, it is
the duty of the stockiest to make payment through the demand draft. C & S agent
will make follow-ups with the stockiest for recovery of such dishonored cheques.
This report will give the list of such unreleased dishonored cheques. After
printing out this list C&S Agent has to put this remarks informing the current
status of recovery.
 Overdue Outstanding Report: This report will give the stockiest wise list of
overdue outstanding. C & S agent has to make rigorous follow-ups with each and
 every stockiest and recover the amount at the earliest. At the month end, C&S
agent has to give his feedback about follow-ups and findings.

12.STATUTORY REQUIREMENTS:

 The C&S Agent should comply with all Government and Statutory formalities,
such as Sales Tax and Drug Control Laws, on behalf of the COMPANY and will
prepare and maintain all records for legal compliance and assessments.
 Any changes in Sales Tax rates or procedures should be brought to the notice of
Head Office (Taxation Department).
 C&S agent should collect the C-form for inter state supplies and F-Form for
transfer the stocks from inter branch.
 The C&S agent should ensure that the sales tax payments and returns are made
within the due dates without any delay.
 In case of stockiest does not give C form or any other statutory forms even after
follow up, further supply will be stopped till receipt of C forms and resumption of
the supply will be made only after getting the written approval from the
management.
 Drug License: C&S agent should preserve the drug license very carefully and
frame and display in the godown. Drug License is to be renewed periodically
without fail.
 C&S agent is responsible for keeping the proper records for statutory books of
accounts and documents as per guideline given from H.O. time to time.

13. GENERAL:

 In case of any late payment, Debit note for interest should be raised on monthly
basis through system generated late retirement option. Such debit note should be
included in next invoice. If any party does not pay the interest amount, subsequent
supply should be suspended.
 In case of overdue outstanding of more than Rs.5000/-, system will not allow any
further billing after 41/35 days. However, extra precaution should be taken in case
of the parties, who are frequent defaulters. Supply of such irregular parties should
be stopped on 30th day. Fresh execution such parties should be made only after
getting confirmation of the payment of the previous outstanding or on the written
approval from the H.O.
 C&S agent should adjust the credit notes and debit notes with the relevant
invoices or next supply of the stockiest.
 If any party has sent part payment, the party should be cautioned not to make part
payment in future and their further supply will be made only after receipt of full
payment. If such part payment continues, the party should be put on advance DD
system and such cases should be reported to H.O.
 The C&S agent should not give any material or cash to any employee of Zydus
Group. Such transactions, if any, will be the sole responsibility of the C&S agent
and the company will not be responsible for the same.
 Normal trade discount should be allowed to the stockiest. However, in the
abnormal cases, if additional trade discount is required, it should be approved by
H.O. in writing.
 Full coverage of insurance of stocks stores in C & S premises will be provided by
company on annual stock levels.
 The C & S agent will maintain cordial relations with stockiest/customer and other
parties of business interest dealing with the company and will work in the interest
of the company for all operations under this agency.
 The C&S agent will not make any changes in the system generated records / data
without express written permission from relevant authority of the company.
 The C&S agent will strictly monitor the collection of dues from the stockiest and
the credit control policy conveyed to him. All norms regarding credit limits of the
party and stopping of execution to any stockiest should be strictly followed.
 The C&S agent should provide the proper storage facilities for temperature
sensitive products as per products as per norms of storage prescribe for these
goods from H.O.
 INTRODUCTION
“Cash Management refers to management of cash balance, the bank balance and also
includes the short term deposits.”

The cash is obviously the most important current assets, as it is the most liquid and
can be used to make immediate payments. The term cash may be used in two different
ways.
(i) It may include currency, cheques, drafts, demand deposits held by a firm.
(ii) In a broader sense it also includes near cash assets such as marketable securities
and short term deposits with banks.

In most of the firms, the financial manager who responsible for cash management
also controls the transactions that affect the firm’s investment in marketable securities.

For example, a judicious management of cash, near cash assets and marketable
securities allow the firm to hold the minimum amount of cash necessary to meet the
firm’s obligations as and when they arise. As a result, the firm is not only able to meet its
obligations, but also is in a position to take advantage of the opportunity of earning a
return and also increasing the profitability of the firm.

Cash management does not end here and the financial manager may also be
required to identify the sources from where cash may be produced on a short term basis
or the outlets where excess cash may be invested for a short term.
 MOTIVES OF CASH MANAGEMENT
Cash is the most liquid assets but it does not earn any substantial return for the
business. Nobody earns any income on the cash balance being maintained, however some
interest income may be earned on short term deposits. But still everybody and every firm
maintain some cash balance. There are four primary motives for holding the cash which
are as follows:
 Transaction Motive: Business firms as well as individuals keep cash because
they require it for meeting demand for cash flow arising out of day to day
transaction. To meet the obligation for cash flows arising in the business, every
firm has to maintain adequate cash balance. Interest on borrowing, taxes to
government and dividends to shareholders are also payable in cash. However the
inflows may not be equal to cash outflows. In case the expected outflows are
more than the expected inflows, then the deficiency together with some cash for
safety merging must be arranged. The necessity of keeping a minimum cash
balance to meet payment obligations arising out of expected transactions, is
known as transactions motive for holding cash.

 Precautionary Motive: The precautionary motive for holding cash is based on

the need to maintain sufficient cash to act as a cushion or buffer against
unexpected events. In spite of maintain best efforts, the future cash flows cannot
be ascertained with 100% accuracy. One never knows about the happening natural
calamities or sudden increase in the cost of raw material or any other factor such
as strike, lock out etc. such events may seriously interrupt even the best planned
financial plans and thus we temporarily make the cash budget ineffective and
nonexistent. Therefore a firm should maintain larger cash balance then required
for the day to day transactions in order to avoid any enforcing situation arising
because insufficient cash.

 Speculative Motive: Cash may be held for speculative motives in order to take
advantage of potential profit making situations. A firm may come across an
 unexpected opportunity to make profits, which are not usually available in normal
business, routine. Some cash balance may be kept to take advantage of these
windfalls. E.g. an opportunity to purchase raw materials at a heavy discount, if
paid in cash. The motive to keep cash balance for this purpose is obviously
speculative in nature. The firm desire to keep some cash balance to capitalize an
opportunity of making an unexpected profit is known as speculative motive. The
speculative motive provides a firm with sufficient liquidity to take advantage of
unexpected profitable opportunities that may suddenly appear.

 Compensating Motive: A commercial banks require that in every current

account, there should always be a minimum cash balance. Presently, this
minimum cash balance varies from Rs 3000 to Rs 5000. This amount remains as
per permanent balance with the bank so long as the current account is operating.
This minimum balance is generally not allowed by the bank to be used for
transaction purpose and therefore, it becomes a sought of investment by the firm
in the bank. In order to avail the convenience of current account, the minimum
cash balance must be maintained by the firm and this provides the compensation
motive for holding cash.

 OBJECTIVES OF CASH MANAGEMENT

Financial manager must know as to why the cash management is a necessity. The cash
management strategies are generally builds around two goals;
a) To provide cash needed to meet the obligation, and
b) To minimise the idle cash held by the firm.

The financial manager has to strike an acceptable balance between holding too
much cash and too little cash. A large cash investment minimises the chances of default
but penalises the profitability of the firm. A small cash balance may free the excess cash
balance for investment in marketable securities and thereby enhancing the profitability as
well as the value of the firm, but increases the chances of running out of cash. The risk
return trade off of any firm can be reduced to two prime objectives for the firms cash
management system, as follows;

 MEETING THE CASH OUT FLOWS: The primary objective of cash

management is to ensure cash outflows as and when required. The firm
should be able to make the payment at different point of time without any
liquidity problem, it means that the firm should have sufficient cash to
make the payment schedules and disbursement needs. It will help the firm
in;
• Avoiding the chance of default in meeting financial
obligations, otherwise the goodwill of firm is adversely effected,
• Availing the opportunities of getting cash discounts by making early or
prompt payments, and
• Meeting unexpected cash outflows without much problem.

• MINIMISING THE CASH BALANCE: This objective of cash

management is based on the idea that unused asset earns no income for the
firm. The funds locked up in cash balance are a dad investment and has no
earning. Therefore whatever cash balance is maintained, the firm is
foregoing interest income on that balance.
This objective of cash management seems to be contradictory in nature and hence
the financial manager has to achieve a trade of between them. He has to ensure that the
minimum cash balance being maintained by the firm is not affecting the payment
schedule and meeting all disbursement needs. The cash management strategies are
needed to reconcile these two goals wherever possible.

The ideal cash management system will depend on the firm’s products,
organization structure, competition, culture and options available in the firm. The task is
difficult, complex and decisions taken can affect important areas of the firm.
 COLLECTION SYSTEM
Every company or firm likes to make sale on cash basis, but why do companies
grant credit. There are three main reasons for this:
 To facilitate sales
 To survive in the competitive world
 Force of the customs prevalent in the industry

The credit period extended by business firms usually ranges from 15-60 days. A
firm’s inventory in accounts receivables depends on how much it sells on credit and how
long it tales to collect the receivables. Accounts receivables constitute the third most
important asset category for business firms after plant & equipment and inventories.
Hence, it induces a firm to manage its credit well.

The collection system of this firm is aimed at timely collection of the receivables.
It consists of the following major activities:
 Monitoring the status of receivables
 Dispatch of letter to customer whose due date is approaching, telegraphic and
telephonic advice to the customer around the due date & threat of legal actions to
overdue accounts
 Legal actions against the overdue accounts
 For collection of receivables from the outstation parties the company has
contracted with CITI Bank. The cheque is presented to CITI bank and the very
next day the amount is received by the company. It doesn’t matter whether the
bank has actually received it or not but it has to pay it to the company.
 For these services the company pays a service commission as 25 paisa to the
bank.
 OVERVIEW OF BANK DEALING WITH C&F, STOCKIST
AND THE COMPANY
CHL

Goods Deliver

C&F AGENT

Goods Del. & Sold

STOCKIST

Provide a Blank Cheque

C&F AGENT

Forward To

CHL

CITIBANK MUMBAI

 According to company policy, Cadila Healthcare Limited (CHL) delivers goods

to Clearing & Forwarding Agent (C&F Agent).
 Now C&F Agent receives the order of goods from stockiest and sends them
accordingly.
 Stockiest gives blank cheque to the C&F Agent. Then C&F Agent calculates
prices prevailing in the market and fills the same amount in the cheque and gives
it to CHL, means deposits it into CHL’s Citibank account and on next day
Citibank deposits the same amount in the account of CHL without clearance.
 Citibank charges commission of 0.01%.
  CHL uses this service because it saves the Interest Cost which is higher than total
commission charged by the Citibank.

 COLLECTION PROCEDURE

Collection System

Local Parties Outstation Parties

Fast Collection
System Cheque Collection System
System

7 Days
21 Days Credit

Cheque on Delivery Advance Cheque

Payment
System
 There Are Two Types of Collection Systems
1. F.C.S. (fast collection system)
The party makes payment on delivery, which is cheque on delivery (C.O.D.) for
local supply. The credit period incase of local parties is seven days from delivery.

2. C.C.S.(cheque collection system)

The party gives advance cheque to C&S agent and hence this system works on
ACS (advance cheque system). For outstation parties, credit period is 21 days
from the date of delivery.

 Collection Procedure Followed By CHL

 C&S agents get the sealed and signed Purchase order along with signed undated
blank cheques from stockiest and enter the sales order in the Vision.
 C&S prepares the sales invoice and Payment Advice in favor of the
stockiest after dispatch of goods and also enters the Lorry Receipt date in vision.
 C&S agents fill up the amount and date (7 days after the date of dispatch
of goods incase of local sales and 20 days after the date of Lorry Receipt incase of
outstation sales) in blank signed cheques as per Payment Advice & passes entry
for advance collections.
 C&S agent prints two copies of payment advice. Out of which one copy is
sent to stockiest along with invoice and the other one is to be filed by him.
 Pay-in-forms (PIF) statements are prepared and he writes PIF no. and
division at the back of the cheque to correlate incase of bounced cheque.
 Enter the PIF number against each payment received in vision and sort out
the local a’ bad outstation cheques, date wise separately.
 Incase of local cheques, the cheque date and PIF date should be the same.
Local clearing cheques are handed over to courier agencies a day in advance of
the cheque date. Citibank will credit on the date of cheque.
 Incase of outstation cheques, cheque date should be one day prior to the
date if PIF. Outstation cheques should be handed over to the courier agencies two
working days prior to the date of the cheque.
 One copy of the acknowledged PIF is sent to the HO at the end of the
month.
 Irrespective of the clearing of the cheques, Citibank will give credit to the
cash management account of the company on next day of the cheque.
 After getting the opening balance and expected collection for the day from
Citi Bank, the company transfers the amount leaving the balance of Rs. 1000 to
Bank of Baroda account from the Citibank account.
 Company gets the collection files from Citibank on daily basis. One
collection file shows the total expected collection for the day. This file is verified
with the collection figure taken from Citibank. Another file is PIF wise collection
file of the company. Division wise collection report showing collection for the
day and up to the day of the month is prepared. This is then compared with
percentage to find out the target of the month. The increase or decrease in
collection as compared to the same date of the previous month is analyzed.
 Outstanding cheques at the month end are supposed to be realized in the
first week of the next month. Hence, company takes the branch wise, PIF wise list
of all branches for the cheques deposited in the last week of the month and verify
them with PIF wise collection of the next month.
 Gets the statement from Citibank showing age wise cheques unrealized
under “Citi Anywhere System”. Inform to C&S agents by letter regarding the
cheques deposited under the above system, but unrealized for more than 60 days.
Then, such parties are kept on hold and this information is sent to the divisional
heads and the credit control department.
 After preparing debtors outstanding for more than 60 days, all divisional
heads take up the matter with their RBMs (regional business managers) and give
reasons for the outstanding cheques and the date by which the same would be
recovered.
  If cheques are outstanding for more than 90 days, then the cheque
dishonor entry is to be passed. Hence, the further prosecution of the order is
stopped. The same is informed to the divisional heads as well as to the credit
control department.
 Company gets the information from Citibank regarding the cheque
dishonored for the day based on the file pass entries for cheque dishonored. The
amount of the cheques dishonored along with the debtors will be debited and
deducted from the next payment.
 If the bounced cheque amount is up to Rs. 20000, then only legal notices
could be issued but criminal complaints cannot be filed.
 A notice will be issued to the debtors. If payment is not received even
after issuance of the legal notice, the company sends a note in this regard to all the
divisional heads for taking up the matter with the stockiests through the RBMs.
 Despite of such notice, if the payment is yet not received then a law
suit/criminal complaint is filed according to the company’s act. After filing the
law suit, the company verifies on a regular basis the accounts of all stockiests to
check whether the money has been recovered or not. If the outstanding amount is
received, then the company inform about it to the legal department to withdraw
the complaint, to divisional heads for information and to the credit control
department for initiating further supplies.

For the collection of cash Cadila collaborates with the Citi Bank. So the cheques
which are collected by company deposit them in the Citi bank. Some reasons for
choosing the Citi Bank are as follows. The bank gives this facility to the Cadila only.

• Collection of money timely from the parties

• No minimum amount required in account
• Less commission charged on cheques.
 DOMESTIC TRADE AND COLLECTION SYSTEM

CHL CITI BANK

MUMBAI

DIRECT INDIRECT
SELLING SELLING

C&F

LOCAL OUTSTATION
STOCKIST STOCKIST

FCS CCS

In the above chart it is mentioned that how the company selling it’s the goods to
the parties and also deposited the cash which is collected from the parties to the bank.
The company appoints the C & F agents. They are the medium between the company and
the parties.
 Cadila gets blank cheque from the stockists along with order.
  Cheque date is entered which is 21 days for outstation parties and 7 days for local
parties hence from the receipt date.
 Cheque is deposited in the bank two days before the due date of the cheque.
 Citi Bank credits it in Cadila’s account on the second day of depositing the
cheque.
 If party does not make payment to Citi Bank then following actions are taken:
• Citi Bank needs other bank’s advice before debiting the Cadila’s account.
• If money is not realized within 15 days, legal notice is sent to party under
section 138 of Negotiable Instrument Act.
• After 45 days of sending notice, the actions will be taken against the party.

 IN THE CASE OF UNREALIZED CHEQUES

In the case of unrealized cheques Citibank sends the statement of unrealized cheque
to Head Office at the end of each month. There are three possibilities in case of
unrealized cheques.
 If the cheque is outstanding between 30 to 60 days then the Head Office
sends the letter to C&S asking the status of unrealized cheque from the stockist.
 If the party’s cheque is outstanding for more than 60 days but less than 90
days then the credit control section keeps the party under hold and stops further
invoicing and transaction with the party.
 If the cheque is outstanding for more than 90 days but less than 180 days
then Head Office pass the dishonor entry and intimation is given to C&S about the
status of the cheque. Certificate of cheque clearance is obtained from Drawee’s
Bank and collection entry is passed in ‘Certificate A/C’. Original certificate along
with the covering letter is send to Citibank for follow up.
 Even if the cheque is not received till 180 days then Citibank reverse the
entry and debit the party’s A/C.

If party does not make payment to Citibank then following actions are taken:
OUTSTATION PARTIES
 An intimation of dishonor is received from CITI bank along with debit note of Rs.
100
 An intimation given to legal and marketing department and party is kept on hold
at head office and a notice is filed U/S 138 of Negotiable Instrument Act 1881 if
money is not received within 15 days.
 If the payment is not received party is kept on hold in all divisions and no further
transitions are carried out and all the documents along with bounced cheques are
given to legal department for initiating criminal complaint and even then also
payment is not received then criminal suit is filed.
 If the payment is received then information is given to legal and marketing
department along with credit control section and the original cheque is sent back
to C&S with covering letter.

LOCAL PARTIES
 In case of a local cheque the cheque is received back from the CITI bank by the
C&S.
 Then intimation is given the party and if it is ready to pay then the dishonored
cheque is re-deposited back into the bank.
 If the party is not ready to pay then an entry of dishonor is passed and a notice is
issued U/S 138 of Negotiable Instrument Act.1881.
 INTRODUCTION:
Inventories represent the second largest asset category for manufacturing
companies, next only to plant and equipment. The proportion of inventories to total assets
generally varies between 15 and 30 percent.

The concept of inventory management has been one of the many analytical
aspects of management. It involves optimization of resources available for holding stock
for various materials. Lack of inventory can lead to stock-outs, causing stoppage of
production, but very high inventory on the other hand can result in increased cost of
production due to high cost of carrying inventory.

 TYPES OF INVENTORY:
The various forms of inventories exist in a manufacturing company are as follows:
• Raw material
• Work in progress
• Finished goods
Raw materials:
 Raw materials are those basic inputs that are converted into finished product
through manufacturing process.
 They are the most important part of the manufacturing process and hence they
should be monitored efficiently.
 At Zydus two types of raw materials used (1) Active pharmaceutical ingredient
(API) (2) Excipients.
 The API is the substance in a drug that is pharmaceutically active and hence it is
essential for the production process. At Zydus the APIs are managed using the
Reorder Order Point method.
  The excipient is an inactive substance used as a carrier for the active ingredients.
It is needed often but in smaller quantity and hence managed using the Minimum
Order Quantity method.
 At Zydus the raw materials are valued by the FIFO method.
Work in progress:
 Work in progress inventories are semi-manufactured products.
 They represent products that need more work before they become finished
products for sale.
Finished goods:
 Finished goods inventories are those completely manufactured products which are
ready for sale.
 Finished goods are also valued by the FIFO method.

 TYPES OF INVENTORY COSTS:

A. Ordering Cost is the cost of placing an Order. These costs depend on the number
of orders placed.
B. Carrying Cost is the cost incurred for holding and maintaining a given level of
inventory. They include storage, interest, insurance, taxes, deterioration, and
obsolescence.
C. Stock-Out Cost is incurred by the company when it can’t satisfy the demand. In
simple language you can say that Demand is greater than Inventories.
 At Zydus to save the cost of ordering and carrying the ROBUST
INDENTING PROCESS is used.
 In this process the raw materials that are not needed at other
formulation plants are transferred to the plant where they are needed.
And thus the ordering cost is saved.

 NEED TO HOLD INVENTORIES:

  Inventories are maintained to widen the latitude in planning and scheduling
successive operations.
 Raw material inventory enables a firm to decouple its purchasing and production
activities to some extent. It also provides flexibility in purchasing and production.
 In process inventory provides flexibility in production scheduling so that an
efficient schedule and high utilization of capacity may be attained. Without in
process inventory, a bottleneck at any stage in the production process renders idle
the machines and facilities at subsequent stages.
 Finished good inventory enables a firm to decouple its production programme and
marketing activities so that desirable results can be achieved on both the fronts. If
adequate finished goods inventory is available, the marketing department can
meet the needs of customers promptly, irrespective of the quantity and
composition of goods flowing out of the production line currently.

 OBJECTIVES OF INVENTORY MANAGEMENT:

There are two objectives of inventory management:

 To maintain a large size of inventories of raw materials and work in progress for
efficient and smooth production and of finished goods for uninterrupted sales
operations.
 To maintain minimum investment in inventories to maximize profitability.

Both excessive and inadequate inventories are not desirable and hence the firm
should always maintain optimal inventory level.
The major dangers of over investments are,
a. Unnecessary tie up of firm’s fund and loss of profit.
b. Excessive carrying cost.
c. Risk of liquidity.
The major dangers of under investments are,
a. Production hold ups
b. Failure to meet delivery commitment.
 PROCESS OF INVENTORY PLANNING AND CONTROL
AT ZYDUS CADILA

Forecasting

PPMC Department

Purchase Department

Factory Premises (Warehouse)

Batch Production

Testing

Quality Assurance

Quality Control

Bond Room

1. Forecasting
The Process of inventory planning starts with the demand forecast of the product.
The effectiveness of inventory planning depends on accuracy of the forecast. To keep a
check on the forecast, monitoring cell is being developed. Product wise or division wise
sales plan for month 1, 2 and 3, is received from division head. This is termed as Rolling
Sales Plan.
2. Production Planning and Material Control (PPMC) Department
The opening stock of month 1 is compared with rolling sales plan. The status is
then analyzed and each plan is distributed into: (1) Priority (2) Adequate (3) Excess.
1. Priority if stock is less than 40 days sale of month 1.
2. Adequate if stock is more than 40 days but less than 60 days of sale of month 1.
3. Excess if stock is more than 60 days sale of month 1.
 By monitoring the inventory the forecasting for the following months can be done
accurately. And also the checking can be done on a regular basis. For example, if
the marketing division has forecasted the demand of three months 1, 2 and 3. The
forecast of month 2 and 3 can be done accurately when actual sales of month 1 are
known at the end of the month.
 Then assign production quantity based on above distribution to take care of month
2 sales and enough stock availability of month 3.
 To arrive at likely opening stock for month 2 and assign production for month 2
on the same line shown above.

3. Purchase Department
Purchase department purchases raw materials according to forecast. At Zydus the
suppliers which are reliable, i.e. which provide timely delivery of raw materials are given
first preference.
Purchase department follows the following pattern:
Planning

Indenting

Purchase order

Delivery

Payment

3.1. Planning:
 Purchase department procures the raw material according to the forecast done by
the marketing department. In planning the decisions related to the Raw materials, Packing
Materials, New Product development and capital purchase are taken.
3.2. Indenting:
An indent is a document showing all specifications regarding material required,
delivery schedule, name of suggested supplier, stock status etc.
A list of persons of various departments authorized to approve indents must be
available with materials department. This will avoid unauthorized indents processed by
materials department. Indent must be in a standard format. For budgetary controls,
necessary concurrence must be obtained prior to incurring expenditure. Purchase of
capital items must have prior approval of Directors and manner of financing must have
been cleared by Finance Department before materials department initiates action on it.
3.3. Purchase Order:
Purchase Order must be placed to approve vendor on the basis of quotation
analysis sheet. Purchase order must contain detailed specifications related to materials to
avoid rejection. Reference of quotation No. & date must be mentioned in purchase order
released. All terms and conditions must be clearly mentioned. For emergency purchases
also, all terms and conditions must be confirmed and approved before dispatch of
material. For all verbal orders, formal purchase order must be placed on the same day or
the subsequent day.
3.4. Delivery & Payment:
Delivery of the materials is taken on receipt of the LR/RR (Lorry Receipt/Railway
Receipt) from supplier.
If advance payment is to be made as per purchase order items, finance department
must be requested in specific format to release it. Proper records must be maintained for
such advance to avoid duplication of payment and also to follow up for materials not
received against such advance.
Invoice [Duplicate copy for Transport] must be forwarded to Bond Room through
stores.
On receipt of rejection/shortage/complain memo from stores, materials
department should inform the supplier and ensure replacement. On getting their
 compliance, necessary instructions are to be given to stores department as well as finance
department.
The process from Purchase Order to Payment is repeated every month as per the
planning.

4. Factory Premises (Warehouse) and Raw Material Testing.

• After procuring Raw Materials they check the weight of Raw Materials.
• They take the sample of each Raw Material and check them in Laboratory.
• If Raw materials are of desired Quality then they put GREEN LABEL, otherwise
they will reject the Raw Materials and puts the RED LABEL and immediately
discard the goods from factory premises and gives notice to respective suppliers.
• The goods under testing are marked with YELLOW LABEL.

5. Production Process
 The production at Zydus is done through (1) Loan License (2) Principle to
Principle (P to P) methods.
 In the first method the materials are provided by the outer party and
manufacturing takes place at Zydus. And in the other method everything, from
material procurement to manufacturing, is done by outer party and the final
product is sold under the brand of Zydus.
 The production of month 1 and month 2 is then considered for calculating raw
materials, process materials requirement. This is done through bill of material
(BOM) explosion.
 The BOM exploded requirement is then compared with available Raw material,
Process Material stop to work out net storage. This is called RM-PM indent.
 Purchase department then procures RM-PM based on the “Priority” set by
production. This is to ensure all priority production is delivered to bond room
before 16th of specified month.
 The process is repeated every month. This will help in inventory management in
case of any deviation in sales.
6. Testing process at Zydus Cadila
Zydus is following Batch Production Process. They assign the batch number and
lot number so that if any problem accrues while it is consumed, they can detect the fault.
There are two types of testing process that Zydus follows (1) Quality assurance and (2)
Quality control.
 Quality Assurance
The quality of the product is monitored while it is produced to avoid the defects.
The employees themselves are given the responsibility that the products are not defective.
And if any defect or fault occurs then the production process is stopped at that time only,
which will eventually reduce the chances of defects and wastage of raw materials.
In all, the units are checked seven to eight times from procuring Raw
Material to Packaging.
 Quality Control
Quality control is done after the production is over. Then the product is compared
with the standard specification and if it meets the specification, depending on the product
and characteristic of the product, then the quality control gives the clearance. If the
quality control does not give the clearance the product can not be packed.
Steps of Quality Control
• After production the finish goods are passed through a detection machine, where
the defective units are detected and automatically removed from the lot.
• The produced units are also checked manually to verify whether the packaging is
proper or not.
• The units which meet the specifications sent for documentation and the rejected
units are recycled.
7. Bond Room
If the goods match the standard specification then they are shifted to the Bond
Room. Bond Room is the store house where nothing has to be paid to store goods, but to
execute the goods from the Bond Room we need to pay the Excise Duty.

 ABC analysis

At Zydus ABC analysis is used which is mentioned here.

In materials management and inventory control management the company

uses the technique called ABC analysis, which is used to classify the items in store based
on the demand of the stock.
There may be variety of items that need to be purchased and stocked in advanced
for issuing the same to various production departments. One has to continuously monitor
the stock according to the demand pattern of each item and issue the replenishment order.
If the stock on hand of a particular item becomes less than or equal to its reorder level,
immediately an order is to be placed for its economical quantity. It will be very difficult
to continuously monitor the stock level of each item and place order. Hence, it is highly
essential to classify the items of the stores into different categories. Then it will be easy
to apply tight control on selected categories.
ABC analysis is one such technique which classifies the items into A, B and C
class items.
10% of the items accounts for 70% of the annual consumption value of the items.
20% of the items accounts for 20% of the annual consumption value of the items and
70% of the items accounts for 10% of the annual consumption value of the items. These
combinations are only ideal. In reality, it is very difficult to fix percentages
simultaneously on number of items and annual consumption of items. Mainly, the
percentages on the annual consumption of items will be used as a criterion for classifying
the items into A, B and C classes.
The steps of ABC Analysis are presented below:
 Input the following.
• Total number of items.
• Item code, Annual consumption in terms of units and unit price for each of the
items.
 For each item, compute annual consumption value in term of rupees by
multiplying its annual consumption units with its unit price.

 Arrange the items and their details in descending order of the annual consumption
values computed in step 2.
 Compute cumulative values of the annual consumption values.
 Group the items into A, B and C classes by dividing the items into 70%, 20% and
10% of the annual consumption values, respectively from top to bottom in sort list of
step 3.
 TYPES OF RATIOS

 Liquidity Ratio: It measures the ability of the firm to meet its current
obligations. In fact, analysis of liquidity needs the preparation of cash budgets and
cash and fund flow statements; but liquidity ratios, by establishing a relationship
between cash and other current assets to current obligations, provide a quick
measure of liquidity. A firm should ensure that it does not suffer from lack of
liquidity, and also that it does not have excess liquidity.
 Leverage Ratio: The short- term creditors, like bankers and suppliers of raw
material, are more concerned with the firm’s current debt-paying ability. On the
other hand, long-term creditors, like debenture holders, financial institutions etc.
are more concerned with the firm’s long term financial strength. In fact, a firm
should have a strong short as well as long term financial position. To judge, the
long term financial position of the firm, financial leverage, or capital structure
ratios are calculated. These ratios indicate mix of funds provided by owners and
lenders. As a general rule, there should be an approximate mix of debt and owners
equity in financing the firm’s assets.
 Activity Ratio: Activity ratios are employed to evaluate the efficiency with
which the firm manages and utilizes its assets. These ratios are also called
turnover ratios because they indicate the speed with which assets are being
converted into sales. A proper balance between sales and assets are managed well.
Several efficiency ratios can be calculated to judge the effectiveness of asset
utilization.
 Profitability ratio: A company should earn profits to survive and grow over a
long period of time. Profit is the difference between revenues and expenses over a
period of time. Profit is the ultimate ‘output’ of a company, and it will have no
future if it fails to make sufficient profits. Therefore, the financial manager should
continuously evaluate the efficiency of the company in terms of profit. The
 profitability ratios are calculated to measure the operating efficiency of the
company.

 LIQUIDITY RATIO
1. Current Ratio
INDICATION:
The current ratio of a firm measures its short-term solvency, that is, its ability to
meet short-term obligation. Conventionally, a current ratio of 2:1 is considered
satisfactory. It is important to note that a very high ratio of current ratio may be
indication of slack management practices, as it might signal excessive inventories for the
current requirements and poor credit management in terms of overextended accounts.
(Rs. In Millions)

Current Ratio = Current Assets / Current Liabilities

2004-05 2005-2006 2006-07
Current Assets 4992 6491 9871
Current Liabilities 2060 2404 4588
Ratio (Times) 2.42 2.70 2.15

INTERPRETATION:
 From the calculation we can see that, in the year 2004-05 the ratio is 2.42 which
have increased to 2.7 in the year 2005-06 and we can see that in the year 2006-07 it
decreased to 2.15. The reason for increment is current assets increased by 0.52 times in
current assets as compare to 0.80 times in current liabilities.
2. Quick Ratio
INDICATION:
A rupee of cash is more readily available to meet its current obligation than a
rupee of, say, inventory. This impairs the usefulness of the current ratio. The acid test
ratio is a measure of liquidity designed to overcome this defect of the current ratio. It is
often referred as to quick ratio because it is measurement of a firm’s ability to convert its
current assets quickly into cash in order to meets its current liability. Thus, it is a measure
of quick or acid liquidity. The acid test ratio is the ratio between quick current assets and
current liabilities.
(Rs. In Millions)
Quick Ratio = Current Assets - Inventory / Current Liabilities
2004-05 2005-06 2006-07
Current Assets - Inventory 2771 4016 5975
Current Liabilities 2060 2404 4588
Ratio (Times) 1.35 1.67 1.30

INTERPRETATION:
The standard norm for this ratio is 1:1 the company is near to the stated norm.
There is an increase in the inventory therefore; funds are blocked in the inventory. In
year 2006-07, current assets-inventory is increased by 0.48 times and current liabilities as
0.91 times.
3. Cash Ratio
INDICATION:
Cash ratio is the most conservative ratio. It excludes all current assets except the
most liquid cash and cash equivalent. The cash ratio is an indication of firms ability to
pay its current liabilities, if for some reason immediate payment is required.
(Rs. In Millions)
Cash Ratio = Cash / Current Liabilities
2004-05 2005-06 2006-2007
Cash 612 438 990
Current Liabilities 2060 2404 4588
Ratio (Times) 0.30 0.18 0.22

INTERPRETATION:
From the calculation we can see that in the year 2004-05 the ratio is 0.30 than in
the year 2005-06 it declines and reaches to 0.18 which is due to more increase in current
liabilities than the cash, while in the year 2006-07 the ratio again increases to 0.22 which
is due to increase in cash balance and current liabilities but as compare the c.l. has
increased more than cash balance so the ratio inc by 0.04 times
 LEVERAGE RATIO
1. Debt Equity Ratio
INDICATION:
The relationship between borrowed funds and owner’s capital is a popular of the
long-term financial solvency of the firm. The relationship is shown by the debt- equity
ratio. The ratio reflects the relative claims of creditors and shareholders against the assets
of the firm. Alternatively, this ratio indicates the relative proportion of debt and equity in
financing the assets of the firm. The relationship between outsiders claims and owner’s
capital can be shown in different ways and accordingly, there are many variants of the
debt equity ratio.
(Rs. In Millions)
Debt Equity Ratio = Total Debt / Net Worth
2004-05 2005-06 2006-07
Total Debt 3834 4622 4934
Net worth 5933 6989 8655
Ratio (Times) 0.65 0.66 0.57

INTERPRETATION:
Debt equity ratio of the year 2004-05 is 0.65 which is low as compared to the
ratio of 2005-06 which is 0.66 because short term loans are paid and reserves and surplus
has been increased. It has decreased more in the year 2006-07 to 0.57 because secured
loans has increased more as compared to reserve and surplus.
2. Debt Ratio
INDICATION:
Several debt ratios may be used to analyze the long term solvency of a firm. The
firm may be interested in knowing the proposition of the interest bearing debt in the
capital structure.
(Rs. In Millions)
Debt Ratio = Total Debt / Total Debt + Net Worth
2004-05 2005-06 2006-07
Total Debt 3834 4622 4934
Capital Employed 9767 11611 13589
Ratio (Times) 0.36 0.35 0.36

INTERPRETATION:
Debt ratio of the year 2004-05 is 0.36 which got decreased in the year 2005-06 to
0.35 because there was increase in unsecured loan. In the year 2006-07 the ratio increased
to 0.36 because there was increase in secured loans by 501 million.
3. Capital Employed Ratio
INDICATION:
There is another alternative way of expressing the basic relationship between debt
and equity.
(Rs. In Millions)
Capital Employed Ratio = Capital Employed / Net Worth
2004-05 2005-06 2006-07
Capital Employed 10777 12525 14469
Net Worth 5933 6989 8665
Ratio (Times) 1.82 1.79 1.67

INTERPRETATION:
In the year 2004-05 the capital employed ratio was 1.82 which is more as
compared to 2005-06 because there was increase in the borrowed funds, whereas in the
year 2006-07 the ratio got decreased to 1.67 because the use of owners fund was
increased to 0.24 times.
 PROFITABILITY RATIO
1. Gross Margin Ratio
INDICATION:
The gross profit margin reflects the efficiency with which management produces
each unit of product. This ratio indicates the average spread between cost of goods sold
and sales value. A high gross profit margin ratio is a sign of good management. A low
gross profit margin may reflect higher cost of goods sold due to firms in ability to
purchase raw material at a favorable terms, inefficient utilization of plant and machinery,
resulting in higher cost of production.
(Rs. In Millions)
Gross Profit Margin = Gross Profit / Sales*100
2004-05 2005-06 2006-07
Gross Profit 2457 2913 3785
Sales 12430 14453 17855
Ratio (Percent) 19.77 20.15 21.20

INTERPRETATION:
In the year 2004-05 the gross profit margin is low i.e. 0.16 which reflects higher
cost of goods sold due to firms inability to purchase raw material or over investment.
Whereas, in the year 2005-06 and 2006-07 the contribution of the company increases and
gross profit margin ratio is 0.17 which is just a small increase but it is good for the
company.
2. Net Profit Margin
INDICATION:
Net profit margin ratios establish a relationship between net profit and sales and
indicate management’s efficiency in manufacturing, administering and selling the
products. This ratio is overall measure of the firm’s ability to turn each rupee sales into
net profit. If the net profit in inadequate, the firm will fail to achieve the satisfactory
return on shareholder’s funds.
(Rs. In Millions)
N. P. Margin = N.P. / Sales*100
2004-05 2005-06 2006-07
N. P. 1215 1524 2338
Sales 12430 14453 17855
Ratio (Percent) 9.77 10.54 13.09

INTERPRETATION:
In the year 2004-05 the net profit margin is 0.093 which is low as compared to the
years 2005-06 and 2006-07. The net profit margin ratio is increasing which is
advantageous for the company to survive in the face of falling prices or declining demand
for the product. The net profit of the company increases by selling of assets by 224mn as
compared to previous year.
3. Return on Investment
INDICATION:
The term investment refers to total assets or net assets. The firms employed in net
assets are known as capital employed. The conventional approach of calculating return on
investment is to divide PAT by investment. Investment represents pull of funds supplied
by shareholders and lenders, while PAT represents residue income of shareholders.

(Rs. In Millions)
Return on Investment = PAT / Total Assets*100
2004-05 2005-06 2006-07
PAT 1179 1525 2415
Total Assets 13365 15534 19915
Ratio (Percent) 8.82 9.82 12.13

INTERPRETATION:
From the calculation we can see that in the year 2004-05 the ratio was 0.09 which
got slightly increased to 0.10 in the year 2005-06 and reached to 0.12 in the year 2006-
07. We say that the company’s return has increased compared to previous years because
the company has purchased a new fixed assets by 866mn and also the company transfers
funds to capital work in progress by 563mn.
4. Return on Equity
INDICATION:
Common or ordinary shareholders are entitling to the residual profits. The rate of
dividends is not fixed. The earnings may be distributed to shareholders or retained in the
business. A return on shareholders equity is calculated to see the profitability of owners
investment.
(Rs. In Millions)
Return on Equity = PAT / Net Worth*100
2004-05 2005-06 2006-07
PAT 1179 1525 2415
Net Worth 5364 6989 8655
Ratio (Percent) 21.98 21.82 27.90

INTERPRETATION:
From the calculation we can see that in the year 2004-05 the ratio was 0.2 which
has increased to 0.22 in the year 2005-06 and has reached up to 0.28 which is good for
the company because it reflects the interest of the present as well as the prospective
shareholders of the company.
5. Earning Per Share
INDICATION:
EPS calculation made over years indicates whether or not the firm’s earnings
power on per share bases has changed over that period. The EPS of the company should
be compared with the industry average and earnings per share of other firms.

(Rs. In Millions)
EPS = PAT / No. of equity Shares
2004-05 2005-06 2006-07
PAT 1179 1525 2415
No. of Equity Shares 62.806854 62.806854 125.613708
Ratio 18.77 24.28 19.23

INTERPRETATION:
In the year 2004-05 we can see that earning per share was 18.77 which are low. In
2005-06 the earning per share has increased to 24.28 which show the good performance
of the company. Whereas, in the year 2006-07 the earning per share was 19.23 which was
less than the previous years because the company has declared 1:1 bonus shares. So, the
number of equity shares increases.
6. Dividend Payout Ratio
INDICATION:
The dividend payout ratio is DPS divided by the EPS. It is shows the percentage
of Profit Company pays as a dividend from the distributable profit.

(Rs. In Millions)
Dividend Payout Ratio = Dividend / PAT*100
2004-05 2005-06 2006-07
Dividend 377 377 386
PAT 1179 1525 2415
Ratio (Percent) 31.98 24.72 15.98

INTERPRETATION:
In the year 2004-05 the dividend payout ratio was 0.319 which got decreased to
0.247 in 2005-06 which further got reduced to 0.155 in the year 2006-07 which shows the
good effect on the mind of shareholder because the company has declared bonus as well
as dividend in the same year. So, by declaring bonus the number of equity shares
increases. Therefore, the dividend payout ratio decreases.
 ACTIVITY RATIO
1. Inventory Turnover Ratio
INDICATION:
Inventory turnover indicates the efficiency of the firm in producing and selling its
product.

(Rs. In Millions)
Inventory Turnover Ratio = Cost of Goods Sold / Inventory
2004-05 2005-06 2006-07
Cost of Goods Sold 10594 10262 14962
Inventory 2221 2475 3896
Ratio (Times) 4.77 4.15 3.84

INTERPRETATION:
The inventory turnover ratio is decreasing in the current year i.e. in 2006-07
which indicates that its performance in terms of generating cash flow is decreasing in this
year because the companies’ cash flow has blocked in inventories. However, in 2005-06
the ratio increased by a point% which is a positive sign. But overall, the turnover is
downward.
 2. Debtors Turnover Ratio
INDICATION:
Debtors turnover indicates the number of times debtors turnover each year.
Generally, the higher the value of debtor’s turnover, the more efficient is the management
of credit.
(Rs. In Millions)
Debtors Turnover Ratio = Credit Sales / Debtors
2004-05 2005-06 2006-07
Credit sales 12430 14453 17855
Debtors 1235 1990 2784
Ratio (Times) 1.06 7.26 6.41

NTERPRETATION:
The debtor turnover ratio is declining year by year. In 2004-05 it was 10.56 but it
went down to 7.57 in 2005-06 and then in 2006-07 it again decreased and reached to
6.73. This indicates that credit management team’s efficiency of the company is
reducing. The reason behind this is the company is following a strict collection or credit
policy because as compared to increase in sales, the increase in debtors is low.
 3. Total Assets Turnover Ratio
INDICATION:
Some analyst likes to compute the total asset turnover in addition to or
instead of net asset turnover.
(Rs. In Millions)
Total Assets Turnover Ratio = Sales / Total Assets
2004-05 2005-06 2006-07
Sales 12430 14453 17855
Total Assets 13365 15534 19915
Ratio (Times) 0.93 0.93 0.90

INTERPRETATION:
The ratio is constantly decreasing from their relatively previous year. In 2006-07,
it went down to 0.94 from 0.97 of 2005-06. This was due to heavy investment in fixed
assets in 2006-07.
 4. Fixed Assets Turnover Ratio
INDICATION:
The firm may wish to know its efficiency of utilizing fixed assets and current
assets separately.
(Rs. In Millions)
Fixed Assets Turnover Ratio = Sales / Net Fixed Assets
2004-05 2005-06 2006-07
Sales 12430 14453 17855
Net Fixed Assets 7906 8329 9783
Ratio (Times) 1.57 1.74 1.83

INTERPRETATION:
In 2006-07 and 2005-06 the efficiency of the fixed assets in
generating output increased. This is clearly evident in the above graph. The ratio
increased from 1.74 to 1.83 because the capital work in progress has increased in huge
amount.
 5. Current Assets Turnover Ratio
INDICATION:

(Rs. In Millions)
Current Assets Turnover Ratio = Sales / Current Assets
2004-05 2005-06 2006-07
Sales 12430 14453 17855
Current Assets 4992 6491 9871
Ratio (Times) 2.49 2.23 1.81

INTERPRETATION:
The current assets ratio is decreasing constantly. From 2.32, the ratio
came down to 1.89 which is a negative trend. This indicates that there is less liquidity in
the business as compared to the last year because the current assets as well as the sales
approximately increase in the same amount.
 Inter Firms Ratio Analysis

Ratio analysis shows the financial position of the firm but a future more step helps
in knowing relative position vis-à-vis its major competitors and the industry group. A
single figure of a particular ratio is meaningless unless it is related to some standards or
norms. It should be reasonably accepted that the performance of the firm should be in
board conformity with that of an industry to which it belongs. If the results are at
variance the firm can see the probable reason for it and take remedial if necessary.

Since our project is included financial ratio analysis that’s why I am comparing
those ratios with the other firms, which are important for our project.

There are some limitations while doing inter-firm comparison, which is as follow:

 Difference in valuation of inventory

 Difference depreciation method
 Estimated working life of assets
 Amortization of deferred revenue expenditure
 Impact of inflation (price level changes)
 Conceptual diversity (different schools of thoughts)
 LIQUIDITY RATIO
1. Current Ratio
(Rs. in millions)
Current Ratio = Current Assets / Current Liabilities
ZYDUS RANBAXY SUN
CADILA PHARMA
Current Assets 9871 44759.77 27624.4
Current Liabilities 4588 13624.23 2965.5
Ratio (Times) 2.15 3.29 9.315

Interpretation:
In terms of the current ratio Sun Parma is the highest, which means that its
capacity to meet the short-term liabilities is the highest it may also be so that a lot of
funds are kept idle. Zydus is at the third rank. A ratio of 3.29 signifies that assets of 3.29
rupee are available for 1 rupee of liability. The sun pharma is at the top position because
the current assets of the sun pharma are 3 times than us and the current liability of the sun
pharma is not a 50% then us.
 2. Quick Ratio
(Rs. in millions)
Quick Ratio = Current Assets - Inventory / Current Liabilities
ZYDUS RANBAXY SUN
CADILA PHARMA
Current Assets - Inventory 5975 28351.17 20979.7
Current Liabilities 4588 13624.23 2965.5
Ratio (Times) 1.30 2.08 7.07

Interpretation:
From the above figures it can be inferred that the quick ratio of the Sun Pharma is
the highest while that of the Zydus is the lowest and most nearer to the set norm. A high
ratio is not beneficial as this signifies that they have slow paying, doubtful and long
duration debtors. While that of Zydus is low as that is good as it can pay its current
liabilities in time.
 3. Cash Ratio
(Rs. in millions)

Cash Ratio = Cash / Current Liabilities

ZYDUS RANBAXY SUN
CADILA PHARMA
Cash 990 4378.93 13802.1
Current Liabilities 4588 13624.23 2965.5
Ratio (Times) 0.22 0.32 4.65

Interpretation:
This ratio gives the margin of safety for the liabilities. The cash ratio of the Sun
Pharma is the highest while that of Zydus is the lowest. For Sun Pharma a lot of funds are
kept idle, as these super liquid assets are the most unproductive assets of any firm. The
set norm for the industry is 1:2.
LEVERAGE RATIO
1. Debt Equity Ratio
(Rs. in millions)
Debt Equity Ratio = Total Debt / Net Worth
ZYDUS RANBAXY SUN
CADILA PHARMA
Total Debt 4934 41415.72 11143.3
Net worth 8655 28022.12 27727.9
Ratio (Times) 0.57 1.98 0.40

2.5
2
1.5
1
0.5
0
ZYDUS CADILA RANBAXY SUN PHARMA

Interpretation:
The debt equity ratio of the Ranbaxy is highest. The ratio of 0.57 signifies that the
firm has employed long term debts of to the extend of 0.75 times that of shareholders
funds.
2. Debt Ratio
(Rs. in millions)
Debt Ratio = Total Debt / Total Debt + Net Worth
ZYDUS RANBAXY SUN
CADILA PHARMA
Total Debt 4934 41415.72 11143.3
Capital Employed 13589 69437.84 38871.2
Ratio (Times) 0.36 0.59 0.29

Interpretation:

From the following calculation we can see that debt ratio is higher in Ranbaxy as
compared to both the companies. In case of Cadila the ratio is 0.36 which is lower than
Ranbaxy and higher than Sun Pharma. As the total debt of the co. is not so much as that
of the Ranbaxy so the debt ratio of the co. is good than that of Ranbaxy
3. Capital Employed Ratio
(Rs. in millions)
Capital Employed Ratio = Capital Employed / Net Worth
ZYDUS RANBAXY SUN
CADILA PHARMA
Capital Employed 14469 69437.84 38872.2
Net Worth 8655 28022.12 27727.9
Ratio (Times) 1.67 2.48 1.40

Interpretation:
The ratio of the Ranbaxy is the highest, which signifies that the company is using
more of owner’s fund. While that of Sun Pharma is the lowest this means that the
company is relying more on borrowed funds.
 PROFITABILITY RATIO
1. Gross Margin Ratio
(Rs. in millions)
Gross Profit Margin = Gross Profit / Sales* 100
ZYDUS RANBAXY SUN
CADILA PHARMA
Gross Profit 3785 13580.66 9148
Sales 17855 70269.39 22372.8
Ratio (Percent) 21.20 19.32 40.89

Interpretation:
This ratio shows the amount of gross profit the company is getting in making a
sale. The GP Margin of the Sun Pharma is the highest while that of Zydus and Ranbaxy is
almost similar. As the sale of the co is comparatively good than that of another co. So the
contribution is also good because the contribution depends only on sales.
2. Net Profit Margin
(Rs. in millions)
N. P. Margin = N.P. / Sales* 100
ZYDUS RANBAXY SUN
CADILA PHARMA
N. P. 2338 7866.49 8401.5
Sales 17855 69822.46 21320.5
Ratio (Percent) 13.09 11.27 39.41

Interpretation:
This ratio shows how much amount is left for the owners after excluding all the
expenses. The NP margin of the Sun Pharma is the highest as its GP margin was also the
highest and the amount of expenses are not as high as compared to that of other firms.
3. Return on Investment
(Rs. in millions)
Return on Investment = PAT / Total Assets*100
ZYDUS RANBAXY SUN
CADILA PHARMA
PAT 2415 7866.49 8401.5
Total Assets 19915 92781.94 42553.5
Ratio (Percent) 12.13 8.98 19.74

Interpretation:
The ROI establishes the profit generated from the total assets of a particular firm.
The ROI is highest of the Sun Pharma this signifies that the assets are efficiently
employed by the firm. The ROI of Zydus is 12.13%, which is satisfactory.
4. Return on Equity
(Rs. in millions)
Return on Equity = PAT / Net Worth*100
ZYDUS RANBAXY SUN
CADILA PHARMA
PAT 2415 7866.49 8401.5
Net Worth 8655 28022.12 27727.9
Ratio (Percent) 27.90 28.07 30.30

Interpretation:
This ratio shows how much return the company is able to generate on owners’
funds. The ROE of all the three companies is approximately similar. The profit generated
from the investment of the owners’ fund is highest in case of Sun Pharma.
5. Earning Per Share
(Rs. in millions)
EPS = PAT / No. of equity Shares
ZYDUS RANBAXY SUN
CADILA PHARMA
PAT 2415 7866.49 8401.5
No. of Equity Shares 125.613708 373.070829 201.612940
Ratio 19.23 21.09 41.67

Interpretation:
This shows the profitability in terms of the total funds and explains the return as a
percentage of the funds. The EPS of Sun Pharma is the highest and that of Zydus is the
lowest, this can be basically because the firm has issued bonus shares on 1:1 bases in the
year 2006-07.
6. Dividend Payout Ratio
(Rs. in millions)
Dividend Payout Ratio = Dividend / PAT*100
ZYDUS RANBAXY SUN
CADILA PHARMA
Dividend 386 3171.55 1300.1
PAT 2415 7866.49 8401.5
Ratio (Percent) 15.98 40.30 15.47

Interpretation
This ratio shows the amount of profit distributed to the shareholders in form of
dividends. The DP Ratio of Ranbaxy is the highest as compared to the other two firms.
The DP Ratio of Sun Pharma is the lowest while its EPS was the highest this shows that
the large amount profits are not distributed to the shareholders in the form of dividends.
As compare to the sun pharma the shareholder satisfactory is high then the sun pharma as
the co gives higher dividend as compare to there PAT.
 ACTIVITY RATIO
1. Inventory Turnover Ratio
(Rs. in millions)
Inventory Turnover Ratio = Cost of Goods Sold / Inventory
ZYDUS RANBAXY SUN
CADILA PHARMA
Cost of Goods Sold 14962 47853.40 7220.2
Inventory 3896 16115.52 5117.4
Ratio (Times) 3.84 2.96 1.41

Interpretation:
This ratio shows how fast the inventory is converted into sales the higher the ratio
the better for the company. The inventory turn over ratio is the highest for Zydus as
compared to the other two firms it shows the efficiency of the management in converting
the inventory into sales, which generates the revenue for the firm.
 2. Debtors Turnover Ratio
(Rs. in millions)
Debtors Turnover Ratio = Credit Sales / Debtors
ZYDUS RANBAXY SUN
CADILA PHARMA
Credit sales 17855 69822.46 21320.5
Debtors 2784 14930.6 6788.8
Ratio (Times) 6.41 4.68 3.14

Interpretation:
This ratio indicates the debtors turn over each year. A higher ratio signifies an
efficient credit management and thus that of Zydus is the highest as compared to that of
the other two. Ranbaxy stands at the second position and Sun Pharma at the last. It
indicates that the co has adopted a liberal credit policy then the other co.
 3. Total Assets Turnover Ratio
(Rs. in millions)
Total Assets Turnover Ratio = Sales / Total Assets
ZYDUS RANBAXY SUN
CADILA PHARMA
Sales 17855 69822.46 21320.5
Total Assets 19915 82952.96 39402.8
Ratio (Percent) 0.90 0.84 0.54

Interpretation:
The total assets ratio of the Zydus is the highest, which shows that the assets are
employed efficiently in generating sales for the company. In Sun Pharma they as compare
to Zydus the assets do not as efficiently employ Sun Pharma.
 4. Fixed Assets Turnover Ratio
(Rs. in millions)
Fixed Assets Turnover Ratio = Sales / Net Fixed Assets
ZYDUS RANBAXY SUN
CADILA PHARMA
Sales 17855 69822.46 21320.5
Net Fixed Assets 9783 42045.11 10121.9
Ratio (Times) 1.83 1.66 2.11

Interpretation:
This ratio shows how efficiently the company is using its fixed assets to generate
sales for the company. The ratio for the Sun Pharma is the highest in comparison of the
other two firms. For Zydus it can be inferred that revenue of 1.83 is generated against an
investment of 1 rupee in the fixed assets.
 5. Current Assets Turnover Ratio
(Rs. in millions)
Current Assets Turnover Ratio = Sales / Current Assets
ZYDUS RANBAXY SUN
CADILA PHARMA
Sales 17855 69822.46 21320.5
Current Assets 9871 37333.96 29888.5
Ratio (Times) 1.81 1.87 0.71

Interpretation:
This ratio signifies the amount of sales generated from the current assets. The
ratio of Ranbaxy is the highest but Zydus is also very nearer to it, this shows that the
current assets are efficiently used to generate sales. The current assets turnover ratio of
the Sun Pharma is the lowest.
 CONCLUSION

Good management of working capital is part of good financial management.

Effective use of working capital will contribute to the operational efficiency of a
department; optimum use will help to generate maximum returns.
From a small pharmaceutical company to today’s leading company, Cadila has
shown consistent growth. Our analysis of the past three years leads us to conclude that
Cadila is emerging as globally recognized company. Recently, in top 5 gainers Cadila got
2nd rank in Gujarat.
After analyzing the company’s working capital management we conclude
following points:
 In receivable Management Company has improved its control over debtors in last
three years.
 Company has Vision 21 software which efficiently controls the credit policy of
the company by issuing correct credit note to the party.
 The C&F agents are ranked based on their performance and hence they get
motivation from this ranking system. It also provides efficient performance
measure for company.
 The Company is managing the cash through Citi Bank which eventually minimize
the need of liquidity.
 We had gone through inventory management system and found out that it is
effective inventory goes through a proper check before entering into final product.
 Inventory turn over ratio shows efficiency of the management in converting the
inventory to sales which generates the revenue for the company. In case of Zydus
the ratio is high compared to other pharma companies in INDIA.
 The company has stringent credit control policy due to which the company has
minimal bad debts and through Citibank company has managed to minimize its
liquidity Crunches. Collection system is so strong therefore there are hardly any
bad debts.