Ratio Analysis with special

reference to Bal Pharma Ltd.

By
Jyothi .P
1NH06MBA32
 Statement of problem
This study makes an attempt to critically
evaluate the financial performance of the
Bal Pharma Ltd.
 Objective of the study
• To highlight the organizational structure
especially the finance department of Bal Pharma
Ltd.
• To study the long term and short term solvency
of the company
• To study profitability of the firm
• To find out the turnover or utilization of various
resources.
• To provide suggestions to improve the financial
performance of the company.
 Methodology
• Data collection: Secondary data are used
in this report. Annual reports from 2002-
2003 to 2006-2007 are used for the
purpose.
• Data Analysis: Data analysis is done with
help of tools like ratio analysis,
comparative analysis, Du pont analysis,
Altman score
 Findings
• Company is using long term fund for other than acquiring fixed assets
• Company is using more loan funds which should not increase over a
particular limit.
• Short term position of the company is very safe
• Generally profitability ratios of the company for the five years are in
comfort zone
• Company is improving its position or efficiency every year
• Labor cost increases slightly with respect to sales whereas
administrative expenses remains the same. Selling and distribution is
another area where cost is increasing with respect to sales. But
employees cost as a whole is going up which is responsible for the
increasing proportion of cost in operating expenses.
• Book value of the company’s share increases over the period. This is
because of the growth of net worth of the company. This will attract
more investors and thereby the cost of raising funds may be lowered.
• Altman Z score of Bal Pharma Ltd is 3.23. This is mainly because of
proper utilization of working capital, retained earnings, market value of
equity shares and sales
 Conclusion
• Bal Pharma Ltd. is solvent in both short term and long
term.
• Profitability of the company is improving every year.
• By reducing inventory, company can bring down the cost
of inventory.
• More retained earnings will accelerate the growth and
thereby the long term investors are better protected.
• Pharma companies are looking forward for post product-
patent regime after 2005. Bal Pharma Ltd. also can reap
the benefit of this with proper planning.
• If company can maintain this growth in sales, it can
easily cross 1000 million turnover by 2007 and can
achieve the target.
 Suggestions
• Since the labor cost is increasing slightly with respect to
sales, some measures like performance appraisal,
performance linked pay, proper training etc for employees are
required.
• Selling and distribution expenses can be brought down by
improving efficiency of sales and distribution personnel.
• Low dividend payout of the company can be justified with
increase in share value. Company can use retained earnings
for more productive purposes.
• It is not favorable if the company’s loan fund increases
beyond certain limit. Share capital can be increased or
reserves and surplus can be improved.
• Investment in fixed assets can be increased.
 Suggestions
• All the financial decisions have a direct bearing on profit. So both
gross profit and net profit can be increased by using the resources
in an optimum manner and thereby the profitability of the company
can be enhanced.
• Inventory turn over can be increased by reducing the inventory level
of the company. On an average, inventory constitutes 50% of the
current asset. This can be brought down to increase the inventory
turnover. This will surely reduce the stock holding cost and thereby
the operating cost may be lowered. This is another way to improve
the profitability of the firm.
• Total asset turnover ratio may be improved by increasing the sales
for the given level of total assets.
• Working capital turnover ratio can be improved further by reducing
the level of inventory.