Ratio analysis

Undertaken by:-
•Abhishek Kaushik – H21122
•Akshit Mahajan – H21126
•Aparna Agnihotri – H21131
•Deepthi Nagoorkar – H21136
•Himanshu – H21141
Details of the assignment

Selected company – Cipla

Peer companies – Dr Reddys, Gland Pharma

Analysis conducted for the years – 2018-19, 2019-20, 2020-21

Also in the zip file –Excel sheet of calculations

Link to financial statements:

https://drive.google.com/drive/folders/1CtPT8P_weArFPv7nD4G45iV0-fHXqmBR?usp=sharing
Current ratio

•Cipla is consistently reducing the

current ratio, starting from above
industry average to much lower Year Cipla Peer company
than the peers. average
2018-19 4.00 3.63
•The current ratio that is lower
than the industry average may 2019-20 3.45 5.17
indicate a higher risk of distress
or default, though the current 2020-21 2.87 6.20
ratio of 2.87 is still in healthy
area.
Quick ratio

•Cipla is consistently reducing the

quick ratio, starting from above
industry average to much lower Year Cipla Peer company
than the peers.
average
•The quick ratio that is lower than 2018-19 2.71 2.43
the industry average may
indicate a higher risk of distress 2019-20 2.23 3.81
or default, though the current
ratio of 2.16 is still in healthy 2020-21 2.16 4.61
area.
Gross profit ratio

•Cipla has been consistent in

having gross profit margin of
almost 75% and has been Year Cipla Peer company
performing much better than average
the industry average.
2018-19 75% 54%
•Cipla can make a
reasonable profit on sales, as 2019-20 76% 56%
long as it keeps overhead costs 2020-21 74% 52%
in control.
Net profit ratio

•Cipla has been consistent

improving in having net profit
margin and has been Year Cipla Peer company
performing subpar than the average
industry average even when
the gross profit margin was 2018-19 15% 17%
much higher than the peers.
That means Cipla will have to 2019-20 19% 20%
work to reduce the overhead
and operating cost. 2020-21 19% 19%
Return on assets

•Cipla had consistently been

below industry average, that
suggests that the company is Year Cipla Peer company
not utilising its assets average
efficiently to generate profit. 
•Though Cipla has slightly 2018-19 10% 13%
improved with time on the
parameter 2019-20 11% 14%
2020-21 11% 14%
Return on equity

•Cipla has consistently performed

below Industry average on the
parameter of ROE  Year Cipla Peer company
average
•ROE is considered a gauge of a
corporation's profitability and 2018-19 12% 17%
how efficient it is in generating
profits, thus Cipla need to 2019-20 13% 17%
streamline its operations and
work efficiently in generating 2020-21 12% 17%
profit.
Return on capital employed

•Cipla has consistently performed

below Industry average on the
parameter of ROCE
Year Cipla Peer company
average
•ROCE is considered financial ratio
that measures a company’s
profitability in terms of all of its 2018-19 12% 15%
capital.
•Thus, Cipla need to streamline its 2019-20 13% 17%
operations and work efficiently in
generating profit. 2020-21 12% 14%
Earnings per share

•Cipla has consistently performed

much below Industry average on the
parameter of EPS
Year Cipla Peer company
average
•EPS is considered financial ratio that 2018-19 23.44 184.28
serves as an indicator of a company's
profitability.
•Thus, Cipla need to streamline its
2019-20 28.75 83.75
operations and work efficiently in
generating profit. 2020-21 30.61 83.51
Inventory turnover ratio

•Cipla has consistently performed

almost at par with Industry average on
the parameter of inventory turnover
ratio Year Cipla Peer company
average
•Inventory ratio measures how many
times has the inventory replaced by 2018-19 4.19 4.18
the company that it solved.
•A slow turnover implies weak sales 2019-20 4.20 4.40
and possibly excess inventory, while a
faster ratio implies either strong sales 2020-21 4.15 4.37
or insufficient inventory.
Average age of inventory (days)

•Cipla has consistently performed

almost at par with Industry average
on the parameter of average age of
inventory, furthermore it has Year Cipla Peer company
gradually improved with time. average

•The average age of inventory is the 2018-19 87.11 96.85

average number of days it takes for a
firm to sell off inventory. The metric 2019-20 86.87 90.19
suggest the efficiency of sales.
2020-21 88.04 87.78
Debtors turnover ratio

•Cipla has been dynamic with the debtors

turnover ratio with Cipla hovering below
and above industry average but pretty close
to the benchmark of industry average. Year Cipla Peer company
average
•Debtors turnover ratio measures how well
a company uses and manages the credit it
extends to customers and how quickly it is 2018-19 4.50 3.42
collected or is paid. A firm that is efficient
at collecting on its payments due will have
a higher accounts receivable turnover ratio. 2019-20 3.68 3.79
2020-21 4.30 4.25
Debt collection period(days)

•Cipla has consistently

performed better than
industry average in debt Year Cipla Peer company
collection period  average
•Thus depicting company has
highly effective accounts 2018-19 81.19 111.83
receivable management
praactice. 2019-20 99.24 102.74
2020-21 84.91 93.14
Operating cycle (days)

•Cipla has consistently performed

better than industry average in
operating cycle and has been
efficient in converting inventory Year Cipla Peer company
into cash. average
2018-19 168.30 208.68
•Operating cycle refers to number
of days a company takes in 2019-20 186.11 192.93
converting its inventories to
cash. 2020-21 172.95 180.91
Creditors turnover ratio

•Cipla has consistently underperformed

as compared to the industry average
and is taking time pay off debts.
Year Cipla Peer company
•Creditors turnover ratio is a measure average
of how often a particular company
pays off its debts to suppliers within a 2018-19 0.82 1.59
given accounting period. A higher ratio
is a good sign, as it means a business is 2019-20 0.88 1.43
paying off its debts more quickly.
2020-21 1.19 3.11
Debt payment period(days)

•Cipla has consistently

underperformed as compared to
the industry average and is taking
time pay off debts. Year Cipla Peer company
average
•Debt payment period is a
measure of in how many days a
particular company pays off its 2018-19 443.69 297.49
debts to suppliers A lower ratio is 2019-20 414.17 304.23
a good sign, as it means a
business is paying off its debts 2020-21 306.92 223.07
more quickly.
Cash Cycle

•The cash cycle is a metric that expresses the time

(measured in days) it takes for a company to Year Cipla Peer company
convert its investments in inventory and other
resources into cash flows from sales.
average

•Cipla has consistently taken less time to 2018- -275.39 -88.80

complete the cash cycle as compared to industry
average 19
•A negative cash cycle implies that the company
requires less time to sell its inventory and receive
2019- -228.06 -111.30
cash than it does to pay their inventory suppliers. 20
2020- -133.96 -42.15
21
Assets turnover ratio

•The asset turnover ratio measures

the value of a company's sales
relative to the value of assets. The
asset turnover ratio can be used as Year Cipla Peer company
an indicator of the efficiency with average
which a company is using its assets
to generate revenue. 2018-19 0.67 0.62
•Cipla has gradually moved from 2019-20 0.61 0.77
overperforming to under performing
category over time compared to 2020-21 0.55 0.71
industry average
Debt to equity ratio

•It is a measure of the degree to which a

company is financing its operations through
debt versus wholly owned funds. More
specifically, it reflects the ability of
shareholder equity to cover all outstanding
Year Cipla Peer company
debts in the event of a business downturn average
•Cipla has a constant Debt to equity ratio of 2018-19 0.02 0.04
0.02 across years irrespective of industry
and is currently using debt as financing tool
more compared to peers. 2019-20 0.02 0.01
2020-21 0.02 0.01
Long term Debt to equity ratio

•A higher ratio result means that

a company is more highly
leveraged, which carries a higher Year Cipla Peer company
risk of insolvency.
average
2018-19 0.00 0.01
•Cipla has a constant long term
debt to equity ratio of 0.00 across 2019-20 0.00 0.00
years irrespective of industry 
2020-21 0.00 0.00
Interest coverage ratio

•The interest coverage ratio is

used to measure whether a firm
can pay the interest due on
outstanding debt. Year Cipla Peer company
average
•After 2019-2020 CIpla has 2018-19 145.90 110.37
underperformed on the interest
coverage ratio with respect to 2019-20 81.23 97.16
industry standards.
2020-21 73.34 227.39
Price to earning ratio

•The price-to-earnings (P/E) ratio

correlates share price to its earnings
per share.
Year Cipla Peer company
•High P/E ratio could mean that a average
company's stock is overvalued,
or investors are expecting high growth 2018-19 22.58 22.28
rates in the future and vice versa.
2019-20 14.71 38.11
•Cipla P/E ratio stock has been
consistently undervalued as compared 2020-21 26.63 41.37
to the industry
Price to sales ratio

•The price-to-sales (P/S) ratio

shows how much investors are
willing to pay per dollar of Year Cipla Peer company
sales for a stock. average

•After 2018-2019 cipla has 2018-19 3.45 3.11

constantly been undervalued
due to low P/S ratio comapred 2019-20 2.76 8.78
to peer company average 2020-21 5.19 6.87
Price to cash flow

•The price-to-cash flow (P/CF)

ratio is a multiple that compares a
company's market value to its Year Cipla Peer company
operating cash flow or its stock
price per share to operating cash average
flow per share.
2018-19 29.05 18.71
•After 2018-2019 Cipla has been 2019-20 16.89 41.49
constatntly undervalued due to
low P/CF ratio compared to 2020-21 19.00 23.53
industry standards
Price to book ratio

•The P/B ratio measures the

market's valuation of a
company relative to its book Year Cipla Peer company
value. average

•After 2018-2019 Cipla has 2018-19 2.70 2.49

been constatntly undervalued
due to low P/B ratio compared 2019-20 1.96 7.11
to industry standards 2020-21 3.30 5.74
Return on research ratio

•The return on research capital is

the amount of profit earned for
each dollar spent on research and Year Cipla Peer company
development within a given
period (usually a year) average
2018-19 10.72 38.68
•Over the years Cipla has
constantly underperformed 2019-20 9.25 49.41
compared to peer company
average 2020-21 9.63 58.92
Overall analysis

In an overall scenario, we have noticed that Cipla’s performance is experiencing a dip since 2018-
2019, period as compared to its peers.

While the company was at par/overperforming as compared to its peer companies in most of the
areas in the year 2018-19, the performance of the company declined, as it failed to match the peer
group averages based on our calculations.

Moreover, it can be concluded with sufficient assurance, that the peer companies in Cipla’s industry
(pharmaceutical) have exceeded their performance metrics of previous years, with the onset of
Covid 19. On the other hand, Cipla has somewhat failed to create a similar impact of its own with
the ratio analysis indicating a continuous fall in performance.
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