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EXECUTIVE SUMMARY
Cash flow analysis uses ratios that focus on cash flow and how solvent, liquid and
viable the company is. This study will focus on the application of the cash flow ratio
in evaluating the financial position of the Dr. Reddy’s Laboratories Ltd.
In 2001 Reddy’s completed its US initial public offering of $132.8 million, secured
by American Depositary Receipts. At that time the company also became listed on
the New York Stock Exchange. Funds raised from the initial public offering helped
Reddy’s move into international production and take over technology-based
companies.
Cash flow is the difference between the amount of cash flowing in and out a
company. Make sure to consistently include the different types of cash flows. It is
periodical statement as it covers a particular period of time, say month or year. It
shows moments of cash in between two balance sheet dates. It establishes the
relationship between net profit and changes in cash position of the firm. It does not
involve matching of cost against revenue.
It shows the sources and application of funds during particular period of time. Cash
flow analysis measures how much cash is generated and spent by the business during
a given period. It is the best measure of the company’s performance. Therefore, the
role played by cash flow statement in understanding the financial position of the
company is very much significant. Hence, we need to know how the cash flow helps
the organization in resolving its financial crisis. Therefore, the analysis of cash flow
statement is selected for the study.
The data can be collected and analyzed with the help of ratios, diagram and charts
which help in arriving to a conclusion.
TABLE OF CONTENTS
EXECUTIVE SUMMARY
INDUSTRY PROFILE
6 CHAPTER – 6 CONCLUSION
FINDINGS
SUGGESTION
CHAPTER – 1
INDUSTRY PROFILE
CHAPTER 1
INTRODUCTION:
Cash play a very important role in the economic life of the business. In fact, what
blood is to human body, cash is to a business enterprise. Thus, it is very essential for a
business to maintain an adequate balance of cash. Cash is the basic input needed to
keep the operations of the business going on a continuing basis, it is also the final
output expected to be realized by selling the product manufactured by manufacturing
unit. Cash is both the beginning and the end of the business operations.
Cash flow statement deals with flow of cash which includes cash equivalence as well
as cash. This statement is additional information to the users of financial statements.
The statement shows the incoming and outgoing of cash. Thus, cash flow statement
may be defined as a summary of receipts and disbursements of cash for a period. It
also explains reasons for the changes in cash position of the firm. The management of
cash also assumes importance because it is difficult predict cash inflows and outflows
accurately and there is no perfect coincidence between the inflows and outflows of
cash giving rise to either cash outflows exceeding inflows or cash inflows exceeding
outflows. Cash flow statement is one important tool of cash management because it
throws light on cash inflows and outflows of a period.
Cash flow analysis uses ratios that focus on cash flow and how solvent, liquid and
viable the company is. This study will focus on the application of the cash flow ratio
in evaluating the financial position of the Dr. Reddy’s Laboratories Ltd.
INDUSTRY PROFILE
Dr. Reddy's originally launched in 1984 producing active pharmaceutical ingredients.
In 1986, Reddy's started operations on branded formulations. Within a year Reddy's
had launched Norilet, the company's first recognized brand in India. Soon, Dr.
Reddy's obtained another success with Omez, its branded omeprazole ulcer and reflux
oesophagitis medication launched at half the price of other brands on the Indian
market at that time.
Within a year, Reddy's became the first Indian company to export the active
ingredients for pharmaceuticals to Europe. In 1987, Reddy's started to transform itself
from a supplier of pharmaceutical ingredients to other manufacturers into a
manufacturer of pharmaceutical products.
INTERNATIONAL EXPANSION:
The company's first international move took it to Russia in 1992. There, Dr. Reddy's
formed a joint venture with the country's biggest pharmaceuticals producer, Biomed.
They pulled out in 1995 amid accusations of scandal; involving "a significant material
loss due to the activities of Moscow's branch of Reddy's Labs with the help of
Biome’s chief executive”. eddy’s sold the joint venture to the Kremlin-friendly
Sistema group. In 1993, Reddy's entered into a joint venture in the Middle East and
created two formulation units there and in Russia. Reddy's exported bulk drugs to
these formulation units, which then converted them into finished products. In 1994,
Reddy's started targeting the US generic market by building state of art manufacturing
facility.
Reddy's path into new drug discovery involved targeting speciality generics products
in western markets to create a foundation for drug discovery. Development of
speciality generics was an important step for the company's growing interest in the
development of new chemical entities. The elements involved in creating a speciality
generic, such as innovation in the laboratory, developing the compound, and sending
the sales team to the market, are also stages in the development of a new specialty
drug. Starting with speciality generics allowed the company to gain experience with
those steps before moving on to creating brand-new drugs.
Reddy's also invested heavily in establishing R&D labs and is the only Indian
company to have significant R&D being undertaken overseas. Dr. Reddy's Research
Foundation was established in 1992 and in order to do research in the area of new
drug discovery. At first, the foundation's drug research strategy revolved around
searching for analogues. Focus has since changed to innovative R&D, hiring new
scientists, especially Indian students studying abroad on doctoral and post-doctoral
courses. In 2000, the Foundation set up an American laboratory in Atlanta, dedicated
to discovery and design of novel therapeutics. The laboratory is called Reddy US
Therapeutics Inc (RUSTI) and its main aim is the discovery of next-generation drugs
using genomics and proteomics. Reddy's research thrust focused on large niche areas
in western markets anti-cancer, anti-diabetes, cardiovascular and anti-infection drugs.
Reddy’s started exploiting Para 4 filing as a strategy in bringing new drugs to the
market at a faster pace. In 1999 it submitted a Para 4 application for Omeprazole, the
drug that had been the cornerstone of its success in India. In December 2000, Reddy’s
had undertaken its first commercial launch of a generic product in the USA. and its
first product with market exclusivity was launched there in August 2001. The same
year, it also became the first non-Japanese pharmaceutical company from the Asia-
Pacific region to obtain a New York Stock Exchange listing, ground-breaking
achievements for the Indian pharmaceutical industry.
In 2001 Reddy’s became the first Indian company to launch the generic
drug, fluoxetine (a generic version of Eli Lilly and Company’s Prozac) with 180-day
market exclusivity in the USA. Prozac had sales in excess of $1 billion per year in the
late 1990s. Barr Laboratories of the U.S. obtained exclusivity for all of the approved
dosage forms (10 mg, 20 mg) except one (40 mg), which was obtained by Reddy’s.
Lilly had numerous other patents surrounding the drug compound and had already
enjoyed a long period of patent protection. The case to allow generic sales was heard
twice by the Federal Circuit Court, and Reddy’s won both hearings. Reddy’s
generated nearly $70 million in revenue during the initial six-month exclusivity
period. With such high returns at stake, Reddy’s was gambling on the success of the
litigation; failure to win the case could have cost them millions of dollars, depending
on the length of the trial.
The fluoxetine marketing success was followed by the American launch of Reddy's
house-branded ibuprofen tablets in 400, 600 and 800 mg strengths, in January
2003. Direct marketing under the Reddy’s brand name represented a significant step
in the company’s efforts to build a strong and sustainable US generic business. It was
the first step in building Reddy’s fully-fledged distribution network in the US market.
In 2015, Dr. Reddy's Laboratories bought the established brands of Belgian
drugmaker UCB SA in South Asia for 8 billion rupees ($128.38 million). [ Dr. Reddy's
Laboratories also signed a licensing pact with xenoPort for their experimental
treatment to treat plaque psoriasis. As per the agreement, Dr. Reddy’s will be granted
exclusive US rights to develop and commercialize XP23829 for all indications for an
upfront payment of $47.5 million.
In 2001 Reddy’s completed its US initial public offering of $132.8 million, secured
by American Depositary Receipts. At that time the company also became listed on
the New York Stock Exchange. Funds raised from the initial public offering helped
Reddy’s move into international production and take over technology-based
companies.
GLOBAL EXPANSION
The company elected to expand globally, and acquired other entities. In March 2002,
Dr. Reddy’s acquired BMS Laboratories, Beverley, and its wholly owned subsidiary
Meridian Healthcare, for 14.81 million Euros. These companies deal in oral solids,
liquids and packaging, with manufacturing facilities in London and Beverley in the
UK. Recently, Dr. Reddy’s entered into an R&D and commercialization agreement
with Argenta Discovery Ltd., a private drug development company based in the UK,
for the treatment of chronic obstructive pulmonary disease (COPD).
Dr. Reddy’s entered into a 10-year agreement with Rheoscience A/S of Denmark for
the joint development and commercialization of Balaglitazone (DRF-2593), a
molecule for the treatment of type-2 diabetes. Rheoscience holds this product’s
marketing rights for the European Union and China, while the rights for the US and
the rest of the world will be held by Dr. Reddy’s. Dr. Reddy’s conducted clinical trials
of its cardiovascular drug RUS 3108 in Belfast, Northern Ireland, in 2005. The trials
were conducted to study the safety and the pharmacokinetic profiles of the drug,
which is intended for the treatment of atherosclerosis, a major cause of cardiovascular
disorders.
Dr. Reddy’s Para 4 application strategy for generic business received a severe setback
when Reddy’s lost the patent challenge in the case of Pfizer’s
drug Norvasc (amlodipinemaleate), a drug indicated for the treatment
of hypertension and angina. The cost involved in patent litigation as well as the
unexpected loss of the patent challenge affected Reddy’s plans to start speciality
business in the US generic markets.
In March 2006, Dr. Reddy’s acquired Beta harm Arzneimittel GmbH from 3i for 480
million Euros. This is one of the largest-ever foreign acquisitions by an Indian
pharmaceutical company. Betapharm is Germany’s fourth-largest generics
pharmaceutical company, with a 3.5% market share, including 150 active
pharmaceutical ingredients.
Reddy’s has promoted India’s first integrated drug development company Pelican
Pharma Pvt Ltd together with ICICI ventures capital fund management company Ltd
and Citigroup Venture Capital International growth partnership Mauritius Ltd. The
Dr. Reddy's is presently licensed by Merck &Co. to sell an authorized generic version
of the popular drug simvastatin (Zocor) in the USA. Since Dr. Reddy's has a license
from Merck, it was not subject to the exclusivity period on generic simvastatin.
CHAPTER – 2
COMPANY PROFILE
Type Public
Traded as NSE: DRREDDY
BSE: 500124
NYSE: RDY
Industry Pharmaceuticals
Founded 1984
Founders Kallam Anji Reddy
Headquarters Hyderabad, Telangana, India
Key people G. V. Prasad (CEO)
Kallam Satish Reddy (Chairman)
Revenue ₹15,697.80 crore (US$2.4 billion) (2016)[1]
Net income ₹2,151.40 crore (US$330 million) (2016)[1]
Total assets ₹20,010.40 crore (US$3.1 billion) (2016)
Total equity ₹82.80 crore (US$13 million) (2016)
Number of employees 20,373 (April 2015)
Website www.drreddys.com
VISION:
MISSION:
To be INDIA’s first pharmaceutical that successfully takes its products from
discovery to commercial launch globally.
BOARD OF DIRECTORS:
NAME DESIGNATION
KEY PRODUCTS:
CHAPTER – 3
REVIEW OF LITERATURE
INTRODUCTION LITERATURE
Cash management is a broad term that refers to the collection, concentration and
disbursement of cash. It encompasses a company’s level of liquidity, its management
of cash balance and its short-term investment strategies. In some ways, managing cash
flow is the most important job of business managers.
-Tim Keller, Marc Goodhearted, David Wessels. 2005: About the cash analysis we
can say that it is the lifeblood of any business. In an organization we can see many
activities to get the cash from sales, debtors, sale of assets, investments etc. like this
the company spend also the cash in some areas- payment of salaries, rent dividend,
interest etc. lastly we can say that cash flow reveals the inflow and outflow of cash
during a particular period.
Cash flow is the difference between the amount of cash flowing in and out a
company. Make sure to consistently include the different types of cash flows.
-Keck, T, E. Levengood, and A. Longfield. 1998: The value of the equity can be
calculated by subtracting any outstanding debts from the total of all discounted cash
flows.
-Aswath Damodaran 2001 Investment Valuation: Calculating cash flows after the
forecast period is much more difficult as uncertainty and therefore the risk factor,
rises with each additional year into the future. The continuing value, or terminal
value, is a solution that represents the cash flow after the forecast period.
-Kubr, Marches, Ilar, Kienhuis. 1998. Starting up. McKinley & company: The
role played by cash flow statement in understanding the financial position of the
company is very much significant. Hence we need to know how the cash flow helps
the organization in resolving its financial crisis. Therefore, the analysis of cash flow
statement is selected for the study.
INTRODUCTION:
A statement which discloses the changes in position of cash and cash equivalents
between two periods .According to revised AS-3 issued by ICAI an organization
should prepare a cash flow statement and present it each period. Revised AS-3
DEALS with the provisions of information about changes in cash and cash
equivalents of an enterprise by means of cash flow statement.
MEANING:
Cash flow statement is a statement of changes in financial position of the firm on cash
basis.
It shows various sources (i.e. inflows) and applications (i.e. outflows) of cash during a
particular period and their net impact on the cash balance.
DEFINITIONS:
The institute of cost and works accountant of India defines cash flow statement as “a
statement setting out the flow cash under distinct heads of sources of funds and their
utilization to determine the requirements of cash during the given period and prepare
for its adequate provision”.
According to khan and Jain “cash flow statements are statements of changes in
financial position prepared on the bases of funds defined as cash or cash equivalents.
CASH FLOWS:
‘Cash Flows’ implies movement of cash in and out due to some non-cash items.
Receipt of cash from a non-cash item is termed as cash inflow while cash payment in
respect of such items as cash outflow. For example, purchase of machinery by paying
cash is cash outflow while sale proceeds received from sale of machinery is cash
inflow. Other examples of cash flows include collection of cash from trade
receivables, payment to trade payables, payment to employees, receipt of dividend,
interest payments, etc. Cash management includes the investment of excess cash in
cash equivalent Hence, purchase of marketable securities or short-term investment
which constitutes cash equivalents is not considered while preparing cash flow
statement.
Operating Activities
Investing Activities
Financing Activities.
So as to show separately the cash flow generated or used by in these activities. This
helps users of cash flow statement to assess the impact of these activities on the
financial position of an enterprise and also on its cash and cash equivalents.
Operating activities are the activities that constitute the primary or main activities of
an enterprise. For example, for a company manufacturing garments, operating
activities are procurement of raw material, incurrence of manufacturing expenses, sale
of garments, etc. These are the principal revenue generating activities (or the main
activities) of the enterprise and these activities are not investing or financing
activities. The amount of cash from operations’ indicates the internal solvency level
of the company, and is regarded as the key indicator of the extent to which the
operations of the enterprise have generated sufficient cash flows to maintain the
operating capability of the enterprise, paying dividends, making of new investments
and repaying of loans without recourse to external source of financing. Cash flows
from operating activities are primarily derived from the main activities of the
Enterprise. They generally result from the transactions and other events that enter
into the determination of net profit or loss. Examples of cash flows from operating
activities.
The operating cash flow ratio is a measure of how well current liabilities are
covered by the cash flow generated from a company's operations. The operating cash
flow ratio can gauge a company's liquidity in the short term. Using cash flow as
opposed to income is considered a cleaner, or more accurate, measure since earnings
can be manipulated.
Operating cash flow ratio = Net cash flow from operating activities
Net sales
Long term debt coverage ratio= Net cash flow from operating activities
Long term debt
The interest coverage ratio is a debt ratio or profitability ratio used to determine how
easily a company can pay interest on outstanding debt. The interest coverage ratio
may be calculated by dividing a company's earning before interest and
tax(EBIT) during a given period by the amount a company must pay in interest on its
debts during the same period.
This ratio compares the cash flow from financing activities with cash from operation
to show how dependent the company is on financing. The higher the number, the
more dependent the business is on external money.
CHAPTER – 4
CHAPTERZATION
LIMITATIONS
Cash flow analysis measures how much cash is generated and spent by the business
during a given period. It is the best measure of the company’s performance.
Therefore, the role played by cash flow statement in understanding the financial
position of the company is very much significant. Hence, we need to know how the
cash flow helps the organization in resolving its financial crisis. Therefore, the
analysis of cash flow statement is selected for the study.
Familiar with methodology for preparation of cash flow statement and different
components of cash flow statement.
To find out the liquidity position of the company.
To understand the types of transactions that result in cash flows from operating,
investing and financing activities.
Methodology is the general research strategy that outlines the way in which the
research is to be undertaken and among other things identifies the methods to be used
in it.
The data can be collected and analyzed with the help of ratios, diagram and charts
which help in arriving to a conclusion.
LIMITATIONS:
CHAPTER – 5
DATA ANALYSIS:
Data analysis is the process of inspecting, cleaning, transforming, and modeling data
with a goal highlighting useful information, suggesting conclusion, and supporting
decision making. Data Analysis involves converting a series of recorded observations
into descriptive statements and inferences about relationships. The types of analysis
that can be conducted depend on the nature of the measurement instrument and the
data collected method.
DATA INTERPRETATION:
Interpretation:
Table 1 shows that net operating cash flow in the year 2017 is higher (i.e. Rupees
27982) is lower in the year 2014 (i.e. Rupees 2888). The trend is increasing year by
year except in the year 2014 and 2015.
Interpretation:
Net sale of the company is highest in the year 2017 is Rupees 99218, and lowest in
the year 2013 was Rupees 66038. Net sales of the company is exhibiting an increasing
trend from 2013-2017.
Interpretation:
Total assets of the company highest in the year 2017 was Rupees 175576, and lowest
in 2013 was Rupees 103406. Hence total assets of the company in the past 5 years
reflects an upward trend.
TABLE: - 4.4
COMPUTATION OF OPERATING CASHFLOW RATIO
CFO/Net sales
Interpretation:
The operating cash flow ratio is highest in the year 2017 i.e. 0.281481, lowest in the
year 2014 i.e. .035757. From 2014 to 2015 operating cash flow ratio decreasing trend,
but in the year 2017 there is sudden increase to 0.281481.
TABLE:-4.5
COMPUTATION OF ASSET EFFICIANCY RATIO
CFO/Total Assets
Interpretation:
Asset efficiency ratio in the year 2013 is lowest i.e. .024089, and is highest in the
year 2017 i.e. .159065. Compared to 2013 there is increasing trend in 2014, 2016 and
2017 respectively.
TABLE:- 4.6
CURRENT LIABLITY COVERAGE RATIO
YEAR 2017 2016 2015 2014 2013
CF from Net
Operating (CFO) 27928 17861 9055 2888 14030
Dividend Paid 4076 3574 2979 2708 2216
Current Liabilities 47987 46986 41142 40731 30623
CFO - Dividend
Paid 23852 14287 6076 180 11814
CFO-Dividend Paid/Current Liability
Current Liability
Coverage Ratio 0.497051 0.304069 0.147684 0.004419 0.385788
Source: Annual Report -www.drreddys.com)
Interpretation:
Current liability coverage ratio is highest in the year 2017 i.e. 0.497051, lowest in the
year 2014 i.e. 0.004419.it depicts that current liability coverage ratio is increasing
from 2015 to 2017.
TABLE :– 4.7
COMPUTATION OF LONGTERM DEBT COVERAGE RATIO
YEAR 2017 2016 2015 2014 2013
CF from Net
Operating(CFO) 27928 17861 9055 2888 14030
CFO-Dividend/LT Debt
INTERPRETATION:
Long term debt coverage ratio is highest in the year 2017 i.e. 2.398632, lowset in the
year 2015 i.e. 0.673988. long term debt coverage ratio is fluctuating in past 5 years.
Interpretation:
As we know that ideal current ratio of any firm is 2:1, It we see the current ratio of
the company is incresed during the five years period. the current ratio of the
company is more than the ideal ratio this depicts that the company’s liquidity position
is sound. Its current assets are more than current liablities.
TABLE: -4.9
COMPUTATION OF EXTERNAL FINANCING INDEX RATIO
Interpretation:
External efficiency ratio is highset in the year 2013(i.e.0 .525623), lowest in the year
2015 (i.e. .031143). External efficiency ratio fluctuating year by year in past 5 years.
2017 -6937
2016 1894
2015 282
2014 1518
2013 -1949
(Source: Annual Report -www.drreddys.com)
Interpretation:
Cashflow from financing activties of the company in the year 2013 rupees -1949. In
the year 2014 it increases to rupees 1518, in the year 2014 it decreases to rupees 282.
In the year 2016 it increses to rupees 1894, in the year 2017 it decreses to -6937. This
shows that cash from financing activities of the company is nagative in the year 2017
and 2013.
Long Term Debt Coverage Ratio 2.398632 1.52135 0.673988 2.857143 2.302924
Interpretation:
The overall ratios of the company are showed in the chart and the company is
achieving growth year by year.
CHAPTER – 6
CONCLUSION
FINDINGS
SUGGESTIONS
CONCLUSION
LIMITED includes the analysis of cash flow ratios and such as current liability
coverage ratio, operating cash flow ratio, asset efficiency ratio, etc. which determine
the company’s financial position. It shows that Analysis of cash flow of the company
is achieving growth year by year. They are managing cash flow of the company in
FINDINGS:
The current ratio has shown increasing trend as 1.607844, 1.626599, 2.16513,
and 2.214128 during 2013, 2014, 2015 and 2016 respectively but in the year
2017 slight decrease to 2.103674.
Total assets of the company are increased from 2013 to 2017.
Net sales of the company is also in increasing trend from 2013 to 2017,
Rupees 103406, 119891, 145081, 164560and 175576.
Asset efficiency ratio is fluctuating year by year from 0.108535 to 0.281481 in
2016 and 2017.
Current liabilities coverage ratio is decreased in 2014 to .004419 and
remaining year it is increasing constantly.
Cash flow from financing activities is negative in 2017 and 2013, is Rupees -
6937 and -1949 respectively. In other years it is rupees
Operating cash flow ratio is fluctuating year by year from 2013 to 2017.
SUGGESTIONS
The company must lower the external financing index ratio to minimize the
Current liability coverage ratio of the company below 1 for the past years. So
The company has to use its assets to generate more cash flow.
Cash flow from net operating is increasing from past 5 years, except in the
yearly basis.
Long term debt coverage ratio is high in some of the year, higher the number
the more cash from operation is required to pay off debt. So it is advised to