54023648-project-report-on-working-capital-120913002928-phpapp01.doc

8/9/2019 54023648-project-report-on-working-capital-120913002928-phpapp01.doc

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Project Report

On

STUDY OF WORKING CAPITAL

MANAGEMENT OF RANBAXY LAB LTD

A Comprt!"e An#$%!%

S&'m!tte( to)


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PREFACE

Businesses face ever increasing pressure on costs and growing Financingrequirements as a result of intensive competition in globalize markets. Many ofthem are therefore considering ways of making themselves more efficient. Inidentifying possible options it is important not to focus exclusively on incomeand expense items but also to take the balance sheet into account.

Improvements to the existing capital structure can free up valuable resourcesand bring increased efficiency. !ctive working capital management is anextremely effective way to increase enterprise value. "ptimizing working

capital results in a rapid release of liquid resources and contributes to animprovement in free cash flow and to a permanent reduction in inventory andcapital costs.

My pro#ect on *An#$%!% o+ Wor,!n- Cp!t# Mn-ement !n Rn'.$L'ortor!e% Lt(.$

%he attempt is aimed to analyze the various aspects of working capitalmanagement of &anbaxy and compare it with that of 'r &eddy(s and withindustry standards.

By adopting various calculation and analysis and then making interpretationwith the solution of specific problem best efforts on giving appropriatesuggestion to the company have been made.

%o this context various methods and techniques like ratio analysis 'u)ontanalysis statistical tool *orrelation analysis and working towards the optimallevel of working capital estimation of working capital and various ratios have

been used to draw an exact picture of company.

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TABLE OF CONTENTS

!bstract +,

Introduction +-Industry )rofile +&esearch and 'evelopment //"rganizational profile /01orking capital 23'efining the problem 245iterature review 0/Methodology 02

F!nnc!# per+ormnce o+ Rn'.$5iquidity &atios 0)rofitability &atios 6/5iquidity !nalysis 62&atio !nalysis ,25iquidity &anking -,*redit !nalysis 7 )olicies /

Conc#&%!on

5imitations 48ummary of findings 4+&ecommendations and 8uggestions 43&eferences 46

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ABSTRACT

! pro#ect work is a mandatory requirement for the Business Management)rogramme. %his type of study aims at exposing the young prospectiveexecutive to the actual business world.

%his pro#ect gives me knowledge about the working capital of the company.1orking capital refers to the funds required for day to day operations of theorganization. It is very effective way to #udge a company(s cash flow prospectsas cash is like blood life for any company.

%he report initially begins with the company profile followed by the detailedanalysis of company like businesses of the company products offered by thecompany financials of the company etc

%he report involves a lot of research to understand what exactly working capitalis why companies require working capital what are the ideal ratios for1orking *apital a *ompany should maintain etc/ T0e p&rpo%e !% to (e"e#opn ct!on p#n t0t crete% %&c0 1or,!n- cp!t# t0t 1!## &p-r(e% n(

%tn(r(!2e t0e 3&#!t$ o+ '&%!ne%% n#$%!%/

9arious tools including financial tools are used in this pro#ect to calculate andcompare the financial position of the company e.g. ratio analysis 'u)ontanalysis 81"% analysis etc.

INTRODUCTIONPage 4 of 94


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! firm is required to maintain a balance between liquidity and profitabilitywhile conducting its day to day operations. 5iquidity is a precondition to ensurethat firms are able to meet its short:term obligations and its continued flow can

be guaranteed from a profitable venture.

%he importance of cash as an indicator of continuing financial health should not be surprising in view of its crucial role within the business. %his requires that business must be run both efficiently and profitably. In the process an asset:liability mismatch may occur which may increase firm(s profitability in theshort run but at a risk of its insolvency.

%he purpose of this pro#ect is to examine the trends in working capital and itsimpact on firm(s performance. %he trend in working capital needs and

profitability of firm is examined to identify the causes for any significantdifferences.

%he rest of the report is organized as follows; It starts with the Industry profile7 then a detailed introduction of the company. %he following section of thereport looks briefly at the theoretical underpinnings and the relevant literaturewhich attempts to explain the link between poor performance and working

capital management.

!fter that the analysis part covers in depth analysis of working capital of&anbaxy. Finally the conclusion is made 7 it has been observed that the overallstructure of working capital of the co. is good and it is a growing concern. %hecompany uses various techniques to maintain its working capital. 8omesuggestions have been given on the basis of the conclusion.

INDUSTRY PROFILE

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Industry Definition

“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

%he In(!n P0rmce&t!c# In(&%tr$ today is in the front rank of India(s science:based

industries with wide ranging capabilities in the complex field of drug manufacture and

technology.

Facts about the &ole of )harmaceutical Industry in Indian ;

• Indian )harmaceutical Industry ranks fourth in the world pertaining to the volume of

sales.

• %he estimated worth of the Indian )harmaceutical Industry is US4 5 '!##!on.

• %he growth rate of the industry is about 678 per $er.

• !lmost most 9:8 of the domestic demand for bulk drugs is catered by the Indian

)harma Industry.

• %he )harma Industry in India produces around ;:8 to ;


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• %he manufacturing cost of pharmaceutical products in India is nearly 0#+ of the cost

incurred in ?8.

• %he cost of performing clinical trials in India is one tent0 of the cost incurred in ?8.

• %he cost of performing research in India is one e!-0t0 of the cost incurred in ?8.

Following the de:licensing of the pharmaceutical industry industrial licensing for most of the

drugs and pharmaceutical products has been done away with. Manufacturers are free to

produce any drug duly approved by the 'rug *ontrol !uthority. %echnologically strong and

totally self:reliant the pharmaceutical industry in India has low costs of production low

&7' costs innovative scientific manpower strength of national laboratories and an

increasing balance of trade. %he )harmaceutical Industry with its rich scientific talents and

research capabilities supported by Intellectual )roperty )rotection regime is well set to take

on the international market.

AD>ANTAGE IN INDIA

Competent 1or,+orce) India has a pool of personnel with high managerial and technical

competence as also skilled workforce. It has an educated work force and @nglish is

commonly used. )rofessional services are easily available.

Co%t?e++ect!"e c0em!c# %$nt0e%!%) Its track record of development particularly in the area

of improved cost:beneficial chemical synthesis for various drug molecules is excellent. It

provides a wide variety of bulk drugs and exports sophisticated bulk drugs.

Le-# @ F!nnc!# Frme1or,) India has a 62 year old democracy and hence has a solid

legal framework and strong financial markets. %here is already an established international

industry and business community.

In+ormt!on @ Tec0no#o-$) It has a good network of world:class educational institutions

and established strengths in Information %echnology.

G#o'#!2t!on) %he country is committed to a free market economy and globalization. !bove

all it has a -+ million middle class market which is continuously growing.

Con%o#!(t!on) For the first time in many years the international pharmaceutical industry is

finding great opportunities in India. %he process of consolidation which has become a

generalized phenomenon in the world pharmaceutical industry has started taking place in

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India.

TE GROWT SCENARIO

IndiaAs ?8 2./ billion pharmaceutical industry is growing at the rate of /0 percent per year.

It is one of the largest and most advanced among the developing countries.

"ver 3++++ registered pharmaceutical manufacturers exist in the country. %he domestic

pharmaceuticals industry output is expected to exceed &s3,+ billion in the financial year

3++3 which accounts for merely /.2C of the global pharmaceutical sector. "f this bulk

drugs will account for &s 60 bn =3/C> and formulations the remaining &s 3/+ bn =-4C>. In

financial year 3++/ imports were &s 3+ bn while exports were &s- bn.

%he above graph shows the percentage of pharmaceutical products export by variouscountries.=8"?&*@ *ompetitiveness of the Indian pharmaceutical industry in the new product patentregime a report by FI**I>

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RESEARCH AND DEVELOPMENT

Drug discovery is the process by which

potential drugs are discovered ordesigned. In the past most drugs havebeen discovered either by isolating theactive ingredient from traditionalremedies or by serendipitous discovery.

Modern biotechnology often focuses on understanding themetabolic pathways related to a disease state or pathogen,and manipulating these pathways using molecular biology orBiochemistry . A great deal of early-stage drug discovery hastraditionally been carried out by universities and researchinstitutions.

Dr&- (e"e#opment refers to activities undertaken after a compound is identified as a potential drug in order to establish its suitability as a medication. "b#ectives of drugdevelopment are to determine appropriate Formulation and 'osing as well as to establishsafety. &esearch in these areas generally includes a combination of in vitro studies in vivostudies and clinical trials. %he amount of capital required for late stage development hasmade it a historical strength of the larger pharmaceutical companies

"ften large multinational corporations exhibit vertical integration participating in a broad

range of drug discovery and development manufacturing and quality control marketingsales and distribution. 8maller organizations on the other hand often focus on a specificaspect such as discovering drug candidates or developing formulations. "ften collaborativeagreements between research organizations and large pharmaceutical companies are toexplore the potential of new drug substances formed

T0e co%t o+ !nno"t!on

'rug discovery and development is very expensiveD of all compounds investigated for use inhumans only a small fraction are eventually approved in most nations by governmentappointed medical institutions or boards who have to approve new drugs before they can be

marketed in those countries. @ach year only about 36 truly novel drugs = Eew chemicalentities> are approved for marketing. %his approval comes only after heavy investment in pre:clinical development and clinical trials as well as a commitment to ongoing safetymonitoring. 'rugs which fail part:way through this process often incur large costs whilegenerating no revenue in return. If the cost of these failed drugs is taken into account thecost of developing a successful new drug = Eew chemical entity or E*@> has been estimatedat about / billion ?8'.

! study by the consulting firm Bain 7 *ompany reported that the cost for discoveringdeveloping and launching =which factored in marketing and other business expenses> a new

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http://en.wikipedia.org/wiki/Medicationshttp://en.wikipedia.org/wiki/Serendipityhttp://en.wikipedia.org/wiki/Biotechnologyhttp://en.wikipedia.org/wiki/Metabolic_pathwayhttp://en.wikipedia.org/wiki/Diseasehttp://en.wikipedia.org/wiki/Pathogenhttp://en.wikipedia.org/wiki/Molecular_biologyhttp://en.wikipedia.org/wiki/Biochemistryhttp://en.wikipedia.org/wiki/Formulationhttp://en.wikipedia.org/wiki/Dosinghttp://en.wikipedia.org/wiki/Drug_safetyhttp://en.wikipedia.org/wiki/In_vitrohttp://en.wikipedia.org/wiki/In_vivohttp://en.wikipedia.org/wiki/Clinical_trialshttp://en.wikipedia.org/wiki/Vertical_integrationhttp://en.wikipedia.org/wiki/Approved_drugshttp://en.wikipedia.org/wiki/New_chemical_entitieshttp://en.wikipedia.org/wiki/New_chemical_entitieshttp://en.wikipedia.org/wiki/Pre-clinical_developmenthttp://en.wikipedia.org/wiki/Pre-clinical_developmenthttp://en.wikipedia.org/wiki/Clinical_trialhttp://en.wikipedia.org/wiki/Safety_monitoringhttp://en.wikipedia.org/wiki/Safety_monitoringhttp://en.wikipedia.org/wiki/New_chemical_entityhttp://en.wikipedia.org/wiki/Bain_&_Companyhttp://en.wikipedia.org/wiki/Medicationshttp://en.wikipedia.org/wiki/Serendipityhttp://en.wikipedia.org/wiki/Biotechnologyhttp://en.wikipedia.org/wiki/Metabolic_pathwayhttp://en.wikipedia.org/wiki/Diseasehttp://en.wikipedia.org/wiki/Pathogenhttp://en.wikipedia.org/wiki/Molecular_biologyhttp://en.wikipedia.org/wiki/Biochemistryhttp://en.wikipedia.org/wiki/Formulationhttp://en.wikipedia.org/wiki/Dosinghttp://en.wikipedia.org/wiki/Drug_safetyhttp://en.wikipedia.org/wiki/In_vitrohttp://en.wikipedia.org/wiki/In_vivohttp://en.wikipedia.org/wiki/Clinical_trialshttp://en.wikipedia.org/wiki/Vertical_integrationhttp://en.wikipedia.org/wiki/Approved_drugshttp://en.wikipedia.org/wiki/New_chemical_entitieshttp://en.wikipedia.org/wiki/New_chemical_entitieshttp://en.wikipedia.org/wiki/Pre-clinical_developmenthttp://en.wikipedia.org/wiki/Pre-clinical_developmenthttp://en.wikipedia.org/wiki/Clinical_trialhttp://en.wikipedia.org/wiki/Safety_monitoringhttp://en.wikipedia.org/wiki/Safety_monitoringhttp://en.wikipedia.org/wiki/New_chemical_entityhttp://en.wikipedia.org/wiki/Bain_&_Company


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drug =along with the prospective drugs that fail> rose over a five year period to nearly /.- billion in 3++2.

%hese estimates also take into account the opportunity cost of investing capital many years before revenues are realized =see %ime:value of money>. Because of the very long timeneeded for discovery development and approval of pharmaceuticals these costs can

accumulate to nearly half the total expense. 8ome approved drugs such as those based on re:formulation of an existing active ingredient =also referred to as 5ine:extensions> are muchless expensive to develop. %he consumer advocacy group )ublic *itizen suggests on its website that the actual cost is under 3++ million about 34C of which is spent on F'!:requiredclinical trials. For me:too:drugs and for generics the cost are even less.

*alculations and claims in this area are controversial because of the implications forregulation and subsidization of the industry through federally funded research grants.

Contro"er%$ 'o&t (r&- (e"e#opment n( te%t!n-

%here have been increasing accusations and findings that clinical trials conducted or funded by pharmaceutical companies are much more likely to report positive results for the preferredmedication.

In response to public outcry about specific cases in which unfavorable data from pharmaceutical company:sponsored research was suppressed the )harmaceutical &esearchand Manufacturers of !merica have published new guidelines urging companies to report allfindings and limit the financial involvement in drug companies of researchers. !s a result ofthis public outcry and )harma response the ?8 congress signed into law a bill which requires

phase II and phase III clinical trials to be registered by the sponsor on the EI website

'rug researchers not directly employed by pharmaceutical companies often look tocompanies for grants and companies often look to researchers for studies that will make their

products look favorable. 8ponsored researchers are rewarded by drug companies forexample with support for their conferenceGsymposium costs. 5ecture scripts and even #ournalarticles presented by academic researchers may actually be Aghost:writtenA by pharmaceuticalcompanies. 8ome researchers who have tried to reveal ethical issues with clinical trials orwho tried to publish papers that show harmful effects of new drugs or cheaper alternativeshave been threatened by drug companies with lawsuits.

Product approval in the US

In the ?nited 8tates new pharmaceutical products must be approved by the F'! as being both safe and effective. %his process generally involves submission of an Investigational newdrug filing with sufficient pre:clinical data to support proceeding with human trials.Following IE' approval three phases of progressively larger human clinical trials may beconducted. )hase I generally studies toxicity using healthy volunteers. )hase II can include)harmacokinetics and 'osing in patients and )hase III is a very large study of efficacy in theintended patient population.

! fourth phase of post:approval surveillance is also often required due to the fact that eventhe largest clinical trials cannot effectively predict the prevalence of rare side:effects. )ost:

marketing surveillance ensures that after marketing the safety of a drug is monitored closely.In certain instances its indication may need to be limited to particular patient groups and in

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http://en.wikipedia.org/wiki/Opportunity_costhttp://en.wikipedia.org/wiki/Time-value_of_moneyhttp://en.wikipedia.org/wiki/Active_ingredienthttp://en.wikipedia.org/w/index.php?title=Line-extension&action=edit&redlink=1http://en.wikipedia.org/wiki/Subsidizationhttp://en.wikipedia.org/wiki/Pharmaceutical_Research_and_Manufacturers_of_Americahttp://en.wikipedia.org/wiki/Pharmaceutical_Research_and_Manufacturers_of_Americahttp://en.wikipedia.org/wiki/United_Stateshttp://en.wikipedia.org/wiki/FDAhttp://en.wikipedia.org/wiki/INDhttp://en.wikipedia.org/wiki/INDhttp://en.wikipedia.org/wiki/Toxicityhttp://en.wikipedia.org/wiki/Pharmacokineticshttp://en.wikipedia.org/wiki/Dosinghttp://en.wikipedia.org/wiki/Opportunity_costhttp://en.wikipedia.org/wiki/Time-value_of_moneyhttp://en.wikipedia.org/wiki/Active_ingredienthttp://en.wikipedia.org/w/index.php?title=Line-extension&action=edit&redlink=1http://en.wikipedia.org/wiki/Subsidizationhttp://en.wikipedia.org/wiki/Pharmaceutical_Research_and_Manufacturers_of_Americahttp://en.wikipedia.org/wiki/Pharmaceutical_Research_and_Manufacturers_of_Americahttp://en.wikipedia.org/wiki/United_Stateshttp://en.wikipedia.org/wiki/FDAhttp://en.wikipedia.org/wiki/INDhttp://en.wikipedia.org/wiki/INDhttp://en.wikipedia.org/wiki/Toxicityhttp://en.wikipedia.org/wiki/Pharmacokineticshttp://en.wikipedia.org/wiki/Dosing


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others the substance is withdrawn from the market completely. Huestions continue to beraised regarding the standard of both the initial approval process and subsequent changes to

product labeling =it may take many months for a change identified in post:approvalsurveillance to be reflected in product labeling> and this is an area where congress is active.

%he F'! provides information about approved drugs at the "range Book site. In the ?J the

British Eational Formulary is the core guide for pharmacists and clinicians.

Orp0n (r&-%

%here are special rules for certain rare diseases =KorphandiseasesK> involving fewer than 3+++++ patients in the ?nited8tates or larger populations in certain circumstances. Becausemedical research and development of drugs to treat such diseases is financiallydisadvantageous companies that do so are rewarded with tax reductions fee waivers andmarket exclusivity on that drug for a limited time =seven years> regardless of whether the

drug is protected by patents.

Indutr! revenue

For the first time ever in 3++, global spending on prescription drugs topped ,02 billioneven as growth slowed somewhat in @urope and Eorth !merica. %he ?nited 8tates accountsfor almost half of the global pharmaceutical market with 34 billion in annual salesfollowed by the @? and Lapan. @merging markets such as *hina &ussia 8outh Jorea andMexico outpaced that market growing a huge / percent. ?8 profit growth was maintainedeven whilst other top industries saw slowed or no growth. 'espite this K..the pharmaceutical

industry is and has been for years the most profitable of all businesses in the ?.8. Inthe annual Fortune 6++ survey the pharmaceutical industry topped the list of the most profitable industries with a return of /-C on revenue.K

)fizerAs cholesterol pill 5ipitor remains the best:selling drug in the world for the fifth year ina row. Its annual sales were /3.4 billion more than twice as much as its closest competitors;)lavix the blood thinner from Bristol:Myers 8quibb and 8anofi:!ventisD Eexium theheartburn pill from !straNenecaD and !dvair the asthma inhaler from


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STEPS TO STRENGTEN TE INDUSTRY

Indian companies need to attain the right product:mix for sustained future growth. *ore

competencies will play an important role in determining the future of many Indian

pharmaceutical companies in the post product:patent regime after 3++6. Indian companies in

an effort to consolidate their position will have to increasingly look at merger and

acquisition options of either companies or products. %his would help them to offset loss of

new product options improve their &7' efforts and improve distribution to penetrate

markets.

&esearch and development has always taken the back seat amongst Indian pharmaceutical

companies. In order to stay competitive in the future Indian companies will have to refocus

and invest heavily in &7'.

%he Indian pharmaceutical industry also needs to take advantage of the recent advances in

biotechnology and information technology. %he future of the industry will be determined by

how well it markets its products to several regions and distributes risks its forward and

backward integration capabilities its &7' its consolidation through mergers and

acquisitions co:marketing and licensing agreements.

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INTRODUCTION TO RANBAXY

COMPANY PROFILE

*A co"pan! e"po#ered $! one "iion %to place itel& on the #orld "ap' Anenterprie propelled $! one &orce(that !ner)i*e it ener)ie to charter une+plored

"ar,et' Or)ani*ation &uelled $! one drea"(to tran&or" co"petition into opportunit!'-

&anbaxy 5aboratories 5td. was incorporated in Lune /4,/ in the name of MG8 5@)I%I%

&!EB!OP 5!B"&!%"&I@8 5%' and it commenced its business in M!&* /4,3 intechnical and financial collaboration with an international company named 5@)%I% 8)!MI5!E I%!5P.

&anbaxy 5aboratories )vt. 5td. merged with Q5eptit &anbaxy 5aboratories )vt. 5td.$ in /4,3&anbaxy and company also merged with this company in /4,,. %he collaborationarrangement with MG8 5@)%I% was terminated in /4,,D after which Indian nationalsacquired the entire share capital of the company.

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%herefore the word 5eptit was removed from the name of the company. %he name is knownas &!EB!OP 5!B"&!%"&I@8 5IMI%@'. In /4-2 the company issued shares to thegeneral public and became a full fledged )?B5I*5IMI%@' *"M)!EP.

%oday &anbaxy has emerged as a 5eading)harmaceutical *ompany on the Indian firmamentwith the second largest market share and en#oys anenviable reputation for its high standard of ethics andquality around its core strength of anti:infective it has

produced new brands in emerging therapeutic areaslike cardiovascular central nervous system andnutritional. 8upporting this expansion the company has invested in world classmanufacturing infrastructure that leverages India(s comparative cost!dvantage and skilled manpower while delivering international quality.

%he company(s drive for Internationalism is guided by the well planned brand strategy thatcovers some of the world emerging markets like *hina *entral @urope and 5atin !merica .Its position today is in league of the %op %en )harmaceutical companies of three world andecent ranking as the eleventh largest company in the international generics space is theresounding endorsement of its strategic mind.

It is clear that for a long time the dominant share of revenues of the company wouldcontinue to come from the ever expanding global generics market. ence the intent of&anbaxy mission is to achieve a sustained growth rate through the continuous pursuit ofinnovation phase one trials for pervasion a compound for treating prosthetic males have beencompleted. )hase / trials with clafrinast an asthma compound is an important step towards

research based value creation.

%his company also had success with *iplofloxacine an ingenious form created through thenovel drug delivery systems research. !s the demand of the bulk drugs inside the country andabroad was increasingly rapidly a new plant was set up at %oansa near &opar in /4-. %hiswas a higher capacity plant designed to cater to the present and future needs initiallyantibiotics like !mpicillin %rihydrate and 'oxycycline were manufactured.

5ater on the other drugs like *ephalexin monohydrate and &anitidine were also prepared.%he plant at %oansa was designed to meet the stringent standards set by the Food and 'rug

!dministration =F'!> of ?.8.!. %his plant has been approved by F'! and this will open up!merican and other newer markets for &anbaxy(s products

.

!t present &anbaxy have four plants for the manufacture of bulk drugs two at Mohali one at'ewas =M.)> !E' !nother at %oansa near &")!&. !t present &anbaxy is the second mostIndian company engaged in the manufacturing of )harmaceuticals Bulk 'rugs and Fine*hemicals.

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&!EB!OP(s vast range of highly pure laboratory reagent and chemicals en#oy a place of pride in the market. I% trends has rebuilt !s a step towards leveraging information for valuecreation using its information backbone around an @&) application along the focus onreengineering several business processes around the internet and has putting place businesssolutions that challenge existing ways of doing Business. %he undying spirit of thecompany(s human assets and their intensive competitive and entrepreneurial energy has

played a great part in transforming the company into a multicultural and multiracial team.%oday &anbaxy is the largest exporter accounting for /3C of the industry exports pharmaceutical substance and dosages forms to over 6+ countries with the internationalssales comprising of 06C of the total turnover .

>ISION GARUDA

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'uring the year 3++3 the company has evolved a /+:year vision till 3+/3 for

sustaining significant growth consistent with its mission to be an internationalresearch based )harmaceutical *ompany under the rubric R>!%!on Gr&((with increasing emphasis on No"e# Dr&- De#!"er$ S$%tem% Re%erc0 DDR.

In licensing and out licensing relationship with other important pharmaceuticalentities expansion of manufacturing facilities both in India and strategicoverseas locations revamping of organizational structures to cater to the widerand more dispersed span of operations and streamlining and standardizing the

business processes through out the global organization are other areas that

receive focus and attention of management on priority.

M!%%!on

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.To $eco"e a Reearch $aed International phar"aceutical co"pan!-

>!%!on?;:6;

Achieve i)ni&icant $uine in

Proprietar! precription product /! 0120

3ith a tron) preence in developed "ar,et

A%p!rt!on%?;:6;

Apire to $e a45 $illion co"pan! /eco"e a Top 5 )lo$al )eneric pla!er

Si)ni&icant inco"e &ro" Proprietar! product

OPERATING OINT >ENTURES AND

SUBSIDIARIES

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BRAIL ) Rn'.$ S/P/ Me(!cmento% Lt(/

CINA ) Rn'.$ G&n-20o& C0!n Lt(/

EGYPT ) Rn'.$ E-$pt Lt(/

GERMANY ) B%!c% Gm' /

ONG KONG ) Rn'.$ on- Kon- Lt(/

INDIA ) Re.ce# p0rmce&t!c#% Lt(/

So#&% p0rmce&t!c#% Lt(/

>!($&t Tr"e# Ser"!ce% #t(/

IRELAND ) Rn'.$ Ire#n( Lt(/

MALAYSIA ) Rn'.$ M#$%! S(n/ B0(/

NETERLANDS ) Rn'.$ P0rmce&t!c#% B/>/NIGERIA ) Rn'.$ N!-er! Lt(/

PANAMA ) Rn'.$ Pnm SA/

POLAND ) Rn'.$ Po#n( Sp/ o/

SOUT AFRICA ) Rn'.$ SA Pt$/ Lt(/

TAILAND ) Un!c0em p0rmce&t!c#% LTD/

Un!c0em D!%tr!'&tor% Lt(/ Prt

Rn'.$ Un!c0em CO/Lt(/

U/K ) Rn'.$ UK Lt(

USA ) Rn'.$ p0rmce&t!c#% Inc/O0m L'ortor!e% Inc/

Rn'.$ Sc0e!n P0rm LLC

>IETNAM ) Rn'.$ >!etnm Compn$ Lt(.

ALLIED BUSINESSES

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Rn'.$ An!m# e#t0

%he !nimal ealth division saw an encouraging growth despite the prevailing poor market conditions. %he division grew at twice the growth rate recorded in

the industry. "n the basis of having a vast dome satiated animal population thelivestock poultry business and pets business are among the fastest growingsectors in India. ! vast infrastructure of veterinary colleges agriculturalinstitutes technologists and researchers are helping farmers to source healthycost effective products. In con#unction with the present scenario the !*division of &anbaxy 5aboratories 5imited has introduced several latestgeneration products.

Rn'.$ F!ne C0em!c#% L!m!te( RFCL

%he division ranked 0th in theindustry and captured //C marketshare. &!EJ@M is established asa powerful brand &F*5As brandfor its range of &eagents is nowsynonymous with excellence inreagents and fine chemicals in thecountry. %he focus of business

remains on developing extensivecustomer relationsD enhancing service levels and enriching the product mix withthe help of a qualified and competent marketing and sales team

D!-no%t!c%

%he diagnostics division has aggressively focused on market expansionactivities based on strategy of reliability quality products and efficient service.Introduction of products in R)oint of *are( markets has expanded market

presence and over the next / S 3 years this segment will see considerableexpansion in line with world trends.

%he 'ade Behring segment has increased its installation base by ,+C in leadinghospitals and laboratories. )lans are afoot for the introduction of more

parameters for the R)oint of *are( market and the launch of 8pecial *hemistriesa range of drug assays plus an entry into automated microbiology in both theBase and 'ade Behring business areas.

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%he company has also witnessed significant milestones in the area of Eovel'rug 'elivery 8ystems =E''8>. %he company has entered into strategic

business arrangements with companies such as Bayer !


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>ALUES OF RANBAXY LABORATORIES

LIMITED

/. !chieving customer satisfaction is fundamental to their business.

3. )ractice dignity and equity in relationships and provide opportunities for people to realize their full potential.

2. @nsure profitable growth and enhance wealth of shareholders.0. Foster mutually beneficial relationships with all their business partners.6. Manage their operations with concern for safety and environment.,. Be a responsible corporate citizen.

OBECTI>ES OF RANBAXY LABORATORIES

LTD/

/. %o be a leader in the )harmaceutical industry.3. %o be a profitable company with a steady growth in earnings.2. %o set an example as a socially responsible company.0. %o diversify in health care related areas.6. %o strive for excellence and continuous improvement in all spheres.,. %o improve the quality of life of people by providing better services and

quality products.

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>ARIOUS DI>ISIONS OF RANBAXY

LABORATORIES LTD/

6/ C0em!c# D!"!%!on

;/ D!-no%t!c D!"!%!on7/ Stn cre D!"!%!on

ISIONS IN >ARIOUS GEOGRAPICAL

AREAS

6/ In(! n( M!((#e E%t

;/ E&rope CIS n( A+r!c7/ A%! Pc!+!c n( Lt!n Amer!c

ENTURE OF TE COMPANY/

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3+++ &anbaxy files IE' !pplication for !sthma Molecule:&Bx0,2 after successful completion of pre:clinicalstudies. &anbaxy acquires Bayer(s in


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In the chemical division various bulk drugs are manufactured. %he chemicaldivision had three units in )un#ab. "ne is located at %oansa two are located atMohali and one unit is located at 'ewas near Indore in Madhya )radesh where*iprofloxacine is manufactured. In the plant of the chemical division variousdrugs like !ntibiotics !nti:malarial !ntibacterial and !nti:ulcer aremanufactured. "ne of the older plants of &anbaxy was closed after the accidentin Lune 3++2.the second one is still working

%he /44/ the %oansa plant started functioning in /443 and the 'ewas plantstarted functioning in /444. 9arious plant heads independently manage all these

plants.In each unit separate facilities with respect to the manufacture of drugs alongwith their manufacturing areas have been provided. %his is required to reducethe chances of any cross contamination under the drug laws and to comply withgood manufacturing practices. !t Mohali plant separate blocks have been provided for the preparation of eachdrug .%he %oansa Mohali and 'ewas plants are planned in such a way that their system facilities manufacturing practices and standards meet the requirementsof F'!. Mohali )lant also mainly in the manufacturing of !ctive

)harmaceutical Ingredients =!)I>. %he )lant is divided into two plant areas !and !4

TE >ARIOUS DEPARTMENTS

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&mn Re%o&rce Deprtment

%he basic function of the human resource department in the modern corporateworld is knowledge management. %he & department strives to maintaincohesiveness among employees. It also ensures interdepartmental cooperation

in achieving targets. %he appraisal system is also taken care by this department.%he & department delves deep into the employee(s psyche to analyze the positives and negatives of each employee so that a proper system of delegationand G or empowerment can be evolved.

F!nnce Deprtment

%he finance department takes care of the regular financial needs of the companyit ensures proper allocation of funds and takes care of the working capitalrequirements. It verifies capital raised by different departments and sends themfor approval to the higher authorities.

Store% Deprtment

%he function of this department is to provide adequate and proper storage and preservation of various items to meet the demand of various other departments by proper issues and maintaining accounts of consumption. It also keeps a track of stock accumulation and abnormal consumption.

Erect!on n( F'r!ct!on Deprtment

!s the name suggests this department identifies new pro#ects and helps inerecting them. %his department also undertakes ma#or modifications ofequipment.

ERP Deprtment

@&) department helps to integrate the entire enterprise starting from the

supplier to the customer covering financial and human resources. %his willenable the enterprise to increase productivity by reducing costs. It also ensures asingle solution to the information needs of the whole organization.

Pro(&ct!on Deprtment

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!s a part of their on going commitment to produce hi:tech quality drugs and pharmaceuticals that take care of the specific needs of markets around theworld &anbaxy 5aboratories 5imited has increased the investment in the

production department. It is the most important department of the company andhas the following ob#ectives;

/. Improving volume of production.3. &educing re#ection rate.2. Maintaining rework rate.

En-!neer!n- Deprtment

%his department undertakes building construction and maintenance.Maintaining service facilities such as water gas heating ventilation airconditioning painting and plumbing are some of the other areas dealt by thisdepartment. %his department also helps in maintaining electrical equipmentssuch as generators transformers telephone system and electrical installation.

P&rc0%e Deprtment

%he purchase department provides material to the factory without which thewheels of machines cannot move. %he various functions performed by thisdepartment include; 8ecuring good vendor performance including promptdeliveries of supplies of acceptable qualities.

/. %o develop satisfactory sources of supply and maintaining goodrelationships with the suppliers.

3. %o pay reasonably low prices.

&#!t$ Contro#J&#!t$ A%%&rnce Deprtment

%he purpose of H* 7 H! departments is to ensure that the desired quality

standard is achieved. It also ensures that the processing or fabrication ofmaterial conforms to the specific characteristics selected to assure that theresulting product will in fact perform its intended function.

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PRODUCT RE>IEW

&anbaxy(s therapeutic width covers five of the top six categories including!nti:infective


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*epodem is currently available in three different countries outside India andwill be rolled out to /2 different countries in the near future.

Cr(!o"%cr%

*ardiovascular is pro#ected to be the second:best category for &anbaxy. 8tatinshave been the key drivers for this segment. %he sale of 8imvastatin has grownsubstantially in the past few years a trend that is likely to continue in the future.In India 8imvotin =8imvastatin> is the market leader in the cholesterol reducer segment. !nother leading brand in this category is 8torvas =!torvastatin>.8torvas has been one of the fastest:ever to enter the top:2++ brands list of theIndian pharma industry. "ther global cardiovascular brands are *ovance=5osartan> and *aslot =*arvedilol>.

Centr# Ner"o&% S$%tem

%he *entral Eervous 8egment is one of the important focus areas identified by&anbaxy with 8erlift being the key brand. In India 8erlift is number / amongst8ertraline brands. Eew product introductions will be drivers of growth in thiscategory.

G%tro!nte%t!n#

*urrently gastrointestinal drugs are the second:largest category for &anbaxy.%he key brands in this category include istac and &omesac. %he currentannual sales of &anitidine are estimated to be around ?8 /, Mn and the

product is marketed in more than 3+ countries.

R0e&mto#o-!c#%

%he first generation *ox:3 inhibitors principally drive worldwide growth inrheumatology. %his category is estimated to grow exponentially for &anbaxywith brands like *elecoxib. %his year &ofibax =&ofecoxib> introduced in Indiahas established itself as a leader in the *ox:3 inhibitor category and hasovertaken all *elecoxib brands. It has been identified as a key


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Eutritionals have been a ma#or contributor to &anbaxy(s sales. %wo of theimportant products in this category are &evital and &iconia. 1ith annual salesestimated at about ?8 /+ Mn &evital contributes a significant share of totalsales. It is a leading brand in India and has done exceedingly well in some partsof the world as an "%* product.

Dermto#o-!c#%

%he dermatology category is mainly driven by India region and is likely toshow a good growth pattern in the future. 8ome of the key brands doing well inthis segment are Mobizox 8ilverex Moisturex etc.

WORKING CAPITAL MANAGEMENT

INTRODUCTION

!s levers of financial management go none bears more weight than working capital. %he

viability of every business activity rests on daily changes in receivables inventory and

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payables. It(s the lifeblood of the business and every manager(s primary task to keep itmoving and put shareholders capital to work efficiently and effectively.

1orking *apital is the capital used for the day:to:day operations in the organization. Itdenotes the money that circulates in the organization for smooth functioning of theorganization.

8trict working capital management leads to immense improvement in internal efficiencies.1orking *apital is the difference between resources in cash =current assets> andorganizational commitments for which cash would be soon required =*urrent 5iabilities>.*urrent !ssets are the resources which are in cash or will soon be converted into cash inQordinary course of business$. %he faster a business expands the more cash it will need forworking capital and investment.


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! well designed and implemented working capital management is expected to contribute positively to the creation of a firm(s value %he purpose of this pro#ect is to examine thetrends in working capital management and its impact on firms( performance.%his pro#ect would help &anbaxy in comparing its financial status with its competitors. %hein depth analysis might bring out some key issues that may be ignored but may provesignificant for the company. 9arious analyses conducted for analyzing the working capitalwill prove beneficial to the company.

Wor,!n- Cp!t#)

*Wor,!n- Cp!t# !nc#&(e% t0e c&rrent %%et% n( c&rrent #!'!#!t!e% re% o+ t0e '#nce

%0eet/ Wor,!n- Cp!t# cn 'e c##e( '$ !t% #ternt!"e nme ? Net C&rrent A%%et%/

1orking *apital Management is the process of planning and controlling the level and mix ofcurrent assets of the firm as well as financing these assets. It may be regarded as a life bloodof a businessD its effective provision can do much to ensure the success of a business whileits efficient management may lead not only to loss of profits but loss to ultimate downfall ina going concern. !nalysis of working capital is of ma#or importance to internal and externalanalysis because it is closely related to the current day:to:day operations.

WORKING CAPITAL INCLUDES FOUR

BALANCE SEET ITEMS

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• Stoc, : stocks of raw materials partly completed production and finished goods

awaiting sale.

• De'tor% : amounts owed to the company mainly from customers in respect of sales

made on credit.

• Cre(!tor% : amounts owed BP the company mainly to suppliers of raw materials

services =electricity water telephone rent etc.> but also possibly unpaid taxdemands unpaid dividends and other items.

• C%0 : bank balances cash holdings and short:term investments.

T0e t0ree mjor c0rcter!%t!c% o+ c&rrent %%et% re)

• %hey have a short life span.

• *ash balances are held only for a week or so.

• %hey are rapidly transformed into other assets form.

Some o+ t0e (ec!%!on% t,en !n 1or,!n- cp!t# mn-ement re)

• !n adequate supply of raw materials.

• *ash to meet the operational payments.

• %he ability to grant credit to customers.

• Investment in various current assets.

• !ppropriate sources of fund to finance current assets.

• )roportion of long term and short term funds to finance current assets.

O'ject!"e o+ Wor,!n- Cp!t# Mn-ement;

• %wo fold ob#ective of working capital management

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• Maintenance of working capital and

• !vailability of ample funds at the times of need.

U%e% o+ Wor,!n- Cp!t#)

• %he typical uses of working capital are as follows;• !d#usted net loss from operations

• )urchase of non:current assets;

• &epayment of long:term debt =debentures or bonds> and short:term debt =bank

borrowing>

• &edemption of redeemable preference shares

• )ayment of cash dividend.

AD>ANTAGES OF ADEUATE WORKING

CAPITAL

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• Increase in debt capacity and goodwill; !dequate working capital represents the

financial soundness of the company. If one company is financially sound it would beable to pay its creditors timely and properly. It will increase company(s goodwill.%hus a firm with adequate working capital can raise requisite funds from market

borrow short:term credit from banks and purchase inventories of raw materials etc.for the smooth operation of its business.

• Increase in production efficiency; 1ith adequate working capital the firm can

smoothly carryout research and development activities and thus adds to its productionefficiency.

• @xploitation of favorable opportunities; In the presence of adequate working capital a

company can avail the benefits of favorable opportunities. !dequate working capitalwill help the company to have bulk purchases seasonal storage of raw material etc.which would reduce the cost of production.

• Meeting contingencies and adverse changes; ! company can easily face certain

business and economic crises. ! company having adequate working capital cansuccessfully meet contingencies such as business oscillations financial crisis arisingfrom heavy losses etc.

• !vailable cash discount; Maintenance of adequate working capital enables a company

to avail the advantage of cash discount by making cash payments for to the suppliersof raw materials and merchandise.

• 8olvency and efficiency of fixed assets; It helps to maintain the solvency of the

company so that payments could be made in time as and when they fall due.

• !ttractive 'ividend to 8hareholders; It enables the company to offer attractive

dividend to the shareholders so that sense of security and confidence will increaseamong them. It also increases the market value of its shares.

DISAD>ANTAGE OF INADEUATE WORKING

CAPITAL

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• Lo%% o+ -oo(1!## n( cre(!t1ort0!ne%%) !s the firm fails to honor its current

liabilities it loses it goodwill and creditworthiness among its creditors.

• F!rm cnt m,e &%e o+ +"or'#e opport&n!t!e%; %he firm fails to undertake the

profitable pro#ects which not only prevent the firm from availing the benefits offavorable opportunities but also stagnate its growth.

• A("er%e e++ect% o+ cre(!t opport&n!t!e%) %he firm also fails to avail the attractive

credit opportunities but also stagnate its growth.

• Opert!on# !ne++!c!enc!e%) It leads the company to operating inefficiencies as day:

to:day commitments cannot be met.

• E++ect% on +!nnc!# cpc!t$) Inadequacy of working capital also weakens the

shock:absorbing capacity of the firm because it cannot meet the contingencies arisingfrom business oscillations financial losses due to shortage of working capital.

• Non?c0!e"ement o+ Pro+!t Tr-et) %he firm cannot implement operational plans

due to unavailability of fund which will lead to non:achievement of profit targets.

Dn-er% o+ Re(&n(nt 1or,!n- cp!t#

• 5ow rate of return on capital

• 'ecline in *apital and @fficiency

• 5oss of


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Businesses face ever increasing pressure on costs and growing Financingrequirements as a result of intensive competition in globalize markets. Many ofthem are therefore considering ways of making themselves more efficient. Inidentifying possible options it is important not to focus exclusively on incomeand expense items but also to take the balance sheet into account.

Improvements to the existing capital structure can free up valuable resourcesand bring increased efficiency. !ctive working capital management is anextremely effective way to increase enterprise value. "ptimizing workingcapital results in a rapid release of liquid resources and contributes to animprovement in free cash flow and to a permanent reduction in inventory andcapital costs.

My pro#ect on *An#$%!% o+ Wor,!n- Cp!t# Mn-ement !n Rn'.$L'ortor!e% Lt(.$

%he attempt is aimed to analyze the various aspects of working capitalmanagement of &anbaxy and compare it with that of 'r &eddy(sotherscompetitors and with industry standards.

By adopting various calculation and analysis and then making interpretationwith the solution of specific problem best efforts on giving appropriatesuggestion to the company have been made.

'@FIEIE< %@ )&"B5@M

!reas of working capital has different problems and these are discussed separately in thefollowing sections;

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6/ Stoc, contro#

Pro'#em

If too much stock is held the organisation wastes money through a variety offactors;

• Money is tied up in stock when it could be put to better use.• %here are superfluous warehousing and storage costs.• 8tock may deteriorate.• %here is a potentially greater risk of theft.

"n the other hand too little stock can lead to stock:outs which can;

• alt activity• 5ose income• *ause discomfort or distress to clients

owever finding the correct level of stock for any one particular item iscomplex. %his is because there are many influencing factors including theanticipated demand for the items and the cost:efficient use of the organisationAsresources. %he aim is to find the right balance.

;/ De'tor Contro#

Pro'#em

*It !% 'etter to 0"e c%0 !n $o&r 'n, cco&nt

t0n !n $o&r c&%tomer%

*ommercial organisations normally give credit to their customers inorder to encourage sales. In the case of charities it is less likely that you

are encouraging additional sales by giving credit and more likely thatyour clients will want credit and will wish to dictate the terms on whichthey will pay. %herefore for voluntary organisations management ismore about dealing with credit than deciding on a control policy.

• If you get the money in quickly you can use it for other purposes which

will advance the organisationAs ob#ectives.

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•


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/> target levels for each category of current operating assets and liabilities and

3> how current assets will be financed.

is considered to beone in which holdings of cash securities inventories fixed assets and accounts payables are

minimized. %he level of accounts receivables should be used as a means of stimulating salesand other income. )revious literature on working capital management has found a negativeassociation overall between level of working capital and operating performance asmeasured by operating returns and operating margins =)eterson and &a#an /44->. ?nderconditions of certainty =i.e. sales costs lead times payment periods and so on are known>firms have little reason to hold more working capital than a minimum level. 5arger amountswould increase the level of operating assets increase the need for external funding resultingin lower return on assets and a lower return on equity without any increase in profit.

owever the picture changes when uncertainty =i.e. uncertain growth> is introduced=Brigham and ouston 3+++>. 5arger amounts of cash securities accounts receivables

marketable securities inventories and fixed assets will be needed to support increased sales&equired levels will be based on expected sales levels and expected order lead times.!dditional holdings may be needed to enable the firm to deal with departures from theexpected values. Further firms will also attempt to increase their accounts payable balancesas a means of financing increased levels of current operating assets. Firms which are in highgrowth stages will face the challenge of maintaining the necessary level of operating assets tosupport subsequent growth while at the same time attempting to maintain adequate

performance indicators.

%his study focuses on understanding how I)" companies manage their working capital andother balance sheet items to support subsequent growth. %his study supports the existing

literature on working capital and contributes to the existing literature by examining a sampleof firms =i.e. recent I)" firms> which have a wider range of growth levels than non:I)"firms. "ur study examines the impact of working capital management on the operating

performance and growth of new public companies. %he study also examines theserelationships under three categories of growth =i.e. negative growth moderate growth andhigh growth>. %he study also examines other selected firm characteristics in light of workingcapital management; firm operating and financial risk amount of debt firm size andindustry.

!n underlying theme of this study is that high growth certainly does not ensure highoperating performance. *onsistent with prior research =)eterson and &a#an /44-> this study

provides further evidence that good working capital management is positively associatedwith better operating performance. igher levels of accounts receivable are associated withhigher operating performance in all three of the growth rate categories. %he study also findsthat maintaining control over levels of cash securities inventory fixed assets and accounts

payables is associated with higher operating performance. 1e find that firms which areexperiencing very high growth will hold higher levels of cash securities inventory fixedassets and accounts payable to support the high growth. %he study suggests that these firmsare sacrificing operating performance =accepting lower operating returns> to support the highgrowth. %his in turn increases financial and operating risk for these firms. )erhaps I)"firms should stay more focused on their operating performance while maintaining more

moderate growth levels

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!nother aspect of this study is that it fills a void in the initial public offerings literature.&ecent literature finds that new public companies underperform the market after going

public. &itter in his /44/ paper reports substantially lower stock returns for I)" firms between /4-6 and /40 than for a size:and:industry:matched sample of seasoned firms.8ince then there is a growing literature explaining I)" underperformance as related toagency cost =8mith /44+> institutional holdings =Field /446> venture capital =Lain and

market timing of I)" =Benninga 3++0> and earningsmanagement =%eho et al. /44D !hmad:zaluki et al. 3++>. owever there is no studylinking the working capital management and post:I)" performance. "ur paper tries to fill thevoid. %he findings of this study would be interesting to investors and creditors of new publiccompanies.

METODOLOGY

! study by analyzing the trends of working capital of the firm and to examine the possiblecauses for any significant differences. %he data has been collected from the financial

statements. For the purpose of this study profitability is measured by &eturn on %otal !ssets=&"%!> which is defined as profit before interest and tax divided by total assets.

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! comprehensive measure of profitability is best captured '$ comp&t!n- t0e ret&rn on tot#%%et% 10!c0 !% e3&# to t0e tot# #!'!#!t!e% o+ t0e +!rm% m(e &p m!n#$ o+ e3&!t$ cp!t#

n( c&rrent #!'!#!t!e%/

!ll important ratios have been calculated to know the financial health of the company withthe help of past trends mainly profitability 7 return ratios considered in section I of analysis

part. It also covers the 'u)ont analysis and correlation analysis of working capital 7 itsimpact on profitability of the company. 8ection II consists of in depth analysis of everycomponent of working capital.

!ll important components of working capital have been analyzed in detail i.e Inventory*ash and )ayables etc

T0e met0o(o#o-$ to 'e (opte( !% % +o##o1%)

• *ollection of financial data of &!EB!OP and 'r &eddy from annual reports and

company(s internal resources.

• *omputation of various financial ratios and comparing them with standards and with

each others.

• !nalyzing the trends of working capital of the firm and to examine the possible

causes for any significant differences.

• 9arious tools of analysis like correlation analysis 'u)ont analysis &atio analysis etc

to be applied.

•

!ll important components of working capital to be analyzed in detail i.e. &eceivablesInventory *ash )ayables and "perating cycle.

• Making comparison of the above computations with that of 'r &eddys.and industry

standards.

• !nalysis of results drawing conclusions and giving recommendations.

FINANCIAL PERFORMANCE OF RANBAXY

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Pro+!t +ter T. PAT ? R% !n M!##!on

S#e% R% !n M!##!on%

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%hough the 8ales of the company had been on a constant increase over the last /+ years

there was a sudden fall in the )rofit !fter %ax =)!%:)rofit available to the @quity holders andthe organization itself> in 3++6 3++, and 3++. %he key reason for the sudden fall in )!% can

be attributed to the sudden hike in the &7' expenditure in 3++6.

In 3++ there was an unprecedented economic downturn across all markets globally and the

fluctuating financial and Forex environment created a substantial negative impact on

profitability. Further prohibition on drugs by the ?8 Food and 'rug !dministration and

pricing stress has acted as a wet blanket in the periodical figures of the company. %he trend

line shows the reason behind the fall in profitability.

SELLING AND ADMINISTRATION COSTS

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Compr!%on 1!t0 t0e In(&%tr$ Stn(r(%

%he following financial comparison has been made keeping in view the scale of operations of

the company and the Industry 8tandards. %he Industry standards have been taken from

*entre for Monitoring Indian @conomy =*MI@> March 3++4.

%he following is the list of *ompany taken for *omparison;

/. *ipla

3. 8un )harmaceuticals

2. 'r &eddy(s 5aboratories

0. 5upin

6. &anbaxy 5aboratories 5td.

For any company functioning in the free market its important how best it operates but this is

equally important =if not more> that how it performs viz:a:viz its rivals i.e. other similar

companies in the market. ere to find out about &anbaxy a comparison has been made with

6 other companies operating on comparable size to see whether &anbaxy is following

industry norms or not or whether &anbaxy is doing better =or worse> compared to its rivals.Its liquidity position has been compared by considering 1orking *apital %urnover &atio

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*urrent &atio and Huick &atio and further )rofitability of &anbaxy viz:a:viz other

companies have been compared by considering &eturn on *apital @mployed and @arnings

per share.

L!3&!(!t$ Rt!o%

%he liquidity refers to the availability of cash and cash convertible assets with an

organization to meet its short:term obligations i.e. creditors and other *urrent 5iabilities.

!ny companyAs liquidity may vary due to seasonality the timing of sales and the state of the

economy. But liquidity ratios can provide small business owners with useful limits to help

them regulate borrowing and spending. 8ome of the best:known measures of a companyAs

liquidity include;

6/ Wor,!n- Cp!t# T&rno"er Rt!o

It is a measurement comparing the depletion of working capital to the generation of sales

over a given period. %his provides some useful information as to how effectively a company

is using its working capital to generate sales.

! company uses working capital to fund operations and purchase inventory . %hese

operations and inventory are then converted into sales revenue for the company . %he

working capital turnover ratio is used to analyze the relationship between the money used to

fund operations and the sales generated from these operations. In a general sense the higher

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the working capital turnover the better it is because it means that the company is generating

a great degree of sales as compared to the money it utilizes.

From the Industry comparison it is apparent that &anbaxy is way above the Industry

standards in 3++ which implies that the sales generated by &anbaxy 5aboratories has always

been much higher than the cost incurred to generate those sa les as compared to other

)harmaceutical giants in the Industry.

;/ C&rrent Rt!o

%he current ratio of &anbaxy has been compared with the %op five )harmaceutical organizations

for the year 3++. ! *urrent ratio measures the ability of an entity to pay its near:term

obligations. %hough the ideal current ratio depends to some extent on the type of business a

general rule of thumb is that it should be at least 3;/. %he higher the current ratio the greater the

KcushionK between current obligations and a firmAs ability to pay them. ! lower current ratio

means that the company may not be able to pay its bills on time while

a higher ratio means that the company has money in cash or safe investments that could be put to

better use in the business.

%he ideal *urrent ratio to be maintained by the pharmaceutical cannot be accurately assessed

because the scale of operations and the inventory size has been different for all the concerns in

the Industry. !ccording to *MI@ Industry 8tandards the current ratio for 3++ is /.626.

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!s per the above graph the *urrent ratio maintained by &anbaxy in 3++ is way below the

normal industry standards. %he reason for a lower *urrent &atio is the heavy amount of

*urrent liabilities incurred mainly due to huge loss on derivative valuations. Ban in ?.8

market for more than 2+ generic drugs and depreciation in several currencies were other

factors for &anbaxy(s dismal performance in 3++.

7/ &!c, Rt!o

Huick &atio also known as U!cid %est &atio‟ is an even conservative measure of liquidity.

%he ratio expresses the degree to which a companyAs current liabilities are covered by the

most liquid current assets. ere Huick assets include all current assets except inventories.

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! high ratio indicates under stocking and low ratio indicates over stocking. 8tock is excluded

because it may take time to be converted into cash. Huick ratio measures those assets which

are immediately converted into cash without much loss. %hough there is no way to measure

an ideal Huick ratio but as a rule of thumb it should be at least /;/.

From the above comparison it can be inferred that a &anbaxy(s *urrent liabilities were much

more as compared to other companies. %his is because although the Huick &atio maintained

by &anbaxy is very near a said ideal ratio of /;/ but that way below the Industry standards of

/./4 of the year 3++. Moreover it can be clearly viewed from the Balance 8heet that a

decent component of the *urrent liabilities includes fair valuation loss on derivatives.

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Pro+!t'!#!t$ Rt!o%

)rofit is the difference between revenue and expenses over a period of time. %he profitability

ratios are calculated to measure the operating efficiency of the company.

6/ Ret&rn on Cp!t# Emp#o$e(

! return on capital employed also called earning power is a measure of business

performance which is not affected by interest charges and tax:burden. It abstracts away the

effect of capital structure and tax factor and focuses on operating performance. ence it is

eminently suited for inter: firm so internally consistent.

Ret&rn on Cp!t# emp#o$e( Pro+!t Be+ore T. J Tot# A%%et%

!s compared to other )harmaceutical rivals in the Industry &anbaxy has a negative return on

*apital employed and way below the Industry standards of .+,C for the year 3++. %his

means that the )rofit before %ax =)B%> of the company is heavier on the %otal !ssets which

is dragging down the &eturn on *apital @mployed. %his is mainly because of the forex

decline due to global economic downturn and ban on generic products in the ?.8 market.

;/ Ern!n-% per S0reEPS

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@)8 states a corporationAs profits on a per share basis. It can be helpful in further comparison

to the market price of the stock. It is an index of profitability from shareholder(s point of

view. %he higher the earning per share the more attractive will be the investment plan.

Ern!n-% per %0re Pro+!t +ter t. J N&m'er o+ e3&!t$ %0re%

From the Industry comparison it is clear that the earnings per share for the @quity

8hareholders of &anbaxy are negative. %he main reason for the figure of @)8 being negative

is the drastically low )rofits it has incurred in the year 3++.

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LIUIDITY ANALYSIS OF

RANBAXY LABORATORIES LIMITED

5iquidity of any company is the indicator as to how the company is placed with reference to

its capacity to meet its current financial obligation. %his means that here we have to consider

the current assets which can be easily converted into cash to meet its immediate financial

obligations or dues. 5iquidity position of &anbaxy 5aboratories 5imited has been analyzed in

the following paragraphs based on different measures.

C&rrent A%%et%

&anbaxy has a growth of around 2/.32C in current assets over the period of ten years. From

&s /32/+.30 Million in /44:44 %he *ompany has increased its current assets to &s

6/06.30 Million. *oefficient of variation for this period has been 04.// which indicate that

the growth of current assets during the period under consideration has been sustainable

except for the year 3++-:+ which shows a sharp increase in current assets which is largely

due to increase in cash and bank balances which has increased more than ten times as

compared to 3++-.

L!3&!( A%%et%

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*ompany has also witnessed significant increase in liquid assets. From &s 23.33 M in

/44:44 to &s 246++.+6 M in 3++-:+ there has been a growth of 2-/.30C in ten years. !s

it is clear from the above mentioned data liquid assets growth has been slightly more than

the growth of current assets. 8tandard deviation and coefficient of variation for this period

has been &s 4+-4.2 M and 6-./C respectively.

C&rrent L!'!#!t!e%

From /44:44 to 3++-:+ current liabilities for &anbaxy 5aboratories have increased from

&s 0/63.- M to &s 03-36.4- M with average current liabilities over this period being &s

/2+,-.0- M. !s we see here growth rate for current liabilities in this period has been

43.6C which is much higher than the growth for current and liquid assets which shows

that current liabilities have increased at a higher pace than its corresponding assets. Further

coefficient of variation for this period is 0.4/ which also reflect more flexibility in current

liabilities during this time. *urrent liabilities increased more than four times from 3++- to

3++ primarily because of huge loss on derivative valuations. Ban in ?.8 market for more

than 2+ generic drugs and deprecation in several currencies were another factors for

&anbaxy(s dismal performance in 3++.

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Wor,!n- Cp!t#

Eet working capital is an important measure which itself indicate margin of safety or cushion

of protection provided to the creditors. !s the following diagram shows the company has all

over positive net working capital. %he greater the amount of net work ing capital the greater

the liquidity of the firm. E1* of the company increased from &s /6-.0, M to &s -64.3-

M i.e. overall growth of -.2C only. *oefficient of variation for the E1* is also 3+.44C

which is also less as compared to current assets or current liabilities. %here is a decrease in

Eet working capital in the year 3++.@ven though there is an increase in current asset and

current liabilities however increase in current liabilities is much more which has let to decline

in Eet working capital. %here is a decrease in Eet working capital in the year 3++.@ven

though there is an increase in current asset and current liabilities however increase in current

liabilities is much more which has let to decline in Eet working capital.

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Gro1t0 In(e. o+ Net Wor,!n- Cp!t#

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Wor,!n- Cp!t# &!c,

owever the measure of Eet 1orking *apital does not indicate the true ability to pay current

debts when they become due. %he reason being the E1* being access of current assets overcurrent liabilities and since these current assets comprises of illiquid inventory the measure

of Huick Eet 1orking *apital has been adopted. %his is nothing but liquid or quick assets

less the current liabilities. Huick assets refer to current assets less inventory. Following

diagram shows that even though HE1* of the company has all along been positive during

3++2:+0 it has been substantially low. Further in 3++-:+ it was negative because of

exceptional increase in current liabilities.

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Component% o+ Gro%% Wor,!n- Cp!t#


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In"entor$ to Gro%% Wor,!n- Cp!t#

Eext ma#or component after sundry debtors is the inventory which decreased from 2/.4/C in

/44:44 to 32.3C in 3++-:+ with the highest contribution in 3++0:3++6 that of 24.22C.

"ver the period of time on an average inventory has contributed 22.02C to the working

capital. owever in these ten years there have not been substantial changes as far as

inventory percentage is concerned as also evident from the diagram below.

C%0 @ Bn, to Gro%% Wor,!n- Cp!t#

*ash and Bank balances have contributed the least to the gross working capital. It varied

from 0.+4C in /44:44 to 2-.6C in 3++-:+ with lowest of /.//C in /444:++ and highest

of 2-.6C in 3++-:+. "n an average in this period cash and bank balance has contributed

-.2+C only to the working capital. @ven the average of -.2+C is because of high percentage

in 3++-:+ in all other financial years this component has contributed very little to 1orking

*apital. In a business which is comfortable financed cash and bank balance should not run

less than 6 to /+C of the current assets. Further as the current liabilities are not expected to

exceed half of the current assets the cash percentage should not run under /+ to 3+C. %his

data indicates that the company had not maintained sufficient cash and bank balance and this

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definitely affects the profitability of the company except for the year 3++ which was high

due to increase in deposit accounts of scheduled banks.

Lon @ A("nce% to Gro%% Wor,!n- Cp!t#

5oan and advances even though constituted one of the most important component of net

working capital in /44:44 =i.e. 36.+3C> declined over the period of time as percentage of

working capital. "ver these ten years approximately 3,C working capital has been

contributed from loans and advances with a highest of 02.+4C in 3++3:3++2.

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Rt!o An#$%!%

@ven though above analysis based on composition provide some indicator to the liquidity

position of the company these do not show the extent of margin of safety provided for

current creditors. For this ratio analysis has been done as follows;

C&rrent Rt!o

&elationship between current assets and current liabilities is shown by current ratio. It

basically measures company‟s ability to meet its short term obligation out of its short term

resources. igher the current ratio the greater is the assurance of the ability to pay the

current liabilities and vice versa. owever even though a higher value of current ratio is

good for the creditors against their credit it may not be good for the management as it will

indicate poor financial planning and over capitalization. In normal circumstances

hypothetical norm of 3;/ is supposed to be a good current ratio and if the current ratio for the

company is less than that the solvency or liquidity of the company becomes questionable.

!s it is evident from the following table and the graph the company had an average current

ratio of /.- over the period of seven years from 3++3 to 3++. owever as it is clear from

the data that it varied from 3./4 to /.3/ which shows a variation over the years. Further acurrent ratio of less than 3 is normally not supposed to be good as such it can be considered

the company passed through a difficult phase of liquidity in 3++0 and 3++.

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owever over all for this period the company was sound as far as its liquidity was

concerned and it had liquidity facilities available for the creditors. %he performance standards

of the Indian )harmaceutical Industry for 3++3:3++ as published by *entre for Monitoring

Indian @conomy =*MI@> are /.6/ to /.60.%he current ratios are always above the standards

during the study period indicating a comfortable liquidity position for the company except

for 3++. %he average was also higher than the standard set by the *MI@. owever currentratio considers the quantity of current assets only and not its quality. 8o a more in:depth

analysis is required for definite inference to be drawn for the company(s liquidity.

&!c, Rt!o or Ac!( Te%t Rt!o

*urrent assets sometime also include a high amount of slow moving inventory or which may

not move at all which means that even though current ratio of a company is very high even

though it may not be in a position to meet its immediate liabilities. For that an analysis of

quick ratio is also needed which shows the extent of cushion provided from the quick assets

to the current creditors. %his ratio excludes the inventory and bank overdraft which are

normally difficult to realize at short notice. Huick ratio is defined as the ratio of quick assets

to quick liabilities. ?nder normal circumstance an ideal quick ratio of /;/ is supposed to be

good enough which will reflect a satisfactory current financial condition.

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!bove data for &anbaxy 5aboratories indicates that !cid %est &atio for the period under

study has consistently been above / except for 3++ where it was lowest of +.43 and an

average of /.32. It shows that the company has a healthy liquidity position in this period. !s

per the set standards according to Indian )harmaceutical Industry norm for !cid %est &atio is

/.+- to /./4 and as such considering the above data it can be said that company(s immediate

payment position was satisfactory and its liquid assets were adequate to meet its short term

obligations.

A'%o#&te L!3&!(!t$ Rt!o or C%0 Po%!t!on Rt!o

@ven more rigorous than the quick ratio is the absolute liquidity ratio which is calculated even

excluding receivables from the current assets. It does away with the doubts about the realizationof receivables and debtors. !bsolute liquidity ratio or cash position ratio is calculated by dividing

cash including bank balances and marketable securities by the amount of current liabilities.

Basically it shows that how much cash is available for immediate payment for the current

obligations. ! high cash position ratio is good from the creditors‟ point of view but from the

management point of view it indicates poor investment policy. Eormally a ratio of +.6;/ or say

/;3 is considered to be acceptable.

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!bove data indicates that absolute liquidity ratio of cash position ratio of the company has

been consistently very low compared to the industry norm except for the year 3++-: 3++

where it rose to +.06. It varied from a lowest of +.+2 to highest of +.06. "ver the period of

time its average has been only +./0. %his shows that company has followed a policy of not

maintaining a high cash position ratio and rather focused more on utilization of cash

resources. owever from a creditors point of view cash position ratio for the company was

not acceptable for the said duration. !s compared to Industry standards of *MI@ the average

was much lower than the acceptable norm.

In"entor$ to S#e% Rt!o or In"entor$ T&rno"er Rt!o

&elationship between the sales and average stock kept by the company is normally reflected

by the Inventory to 8ales &atio which is also called as Inventory %urnover &atio. %his is also

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an indicator for the liquidity of the concern as it will reflect the rate at which inventories are

being converted into sales and subsequently cash. ! higher inventory to sales ratio will show

higher efficiency on the part of the management and vice versa.

Following table shows that Inventory 8ales &atio varied from 2.- in 3++/:+3 to 0.2 in3++-:+. "n an average the value of Inventory 8ales &atio remained 2.3 for this period.

Further it is also evident from the table and the graph that from 3++/:+3 efficiency of

management has improved as far as conversion of inventory into sales was concerned. !s per

the industry norm normally an inventory sales ratio of more than 3 to 3.6 is considered

acceptable. !s during this time average of inventory turnover ratio in &anbaxy was higher

than the Industry standard of *MI@ the inventory management of the company can be said

to be satisfactory from 3++/:+3 to 3++-:+.

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De'tor% to S#e% Rt!o or De'tor% T&rno"er Rt!o

! company adopts a policy for credit and collection and this is important to find out how the

debtors are performing over the year. 'ebtors to 8ales &atio or 'ebtors %urnover &atio is the

indicator of number of times the debtors are turned over during the year. 8ince debtors

constitute a ma#or element of current assets the credit and collection policy of a concern

must be under continuous watch. %he liquidity of a firm depends upon the quality of debtors

to a great extent. 'ebtors %urnover &atio measures the rapidity or slowness of debtors‟

collectability.


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Wor,!n- Cp!t# T&rno"er Rt!o

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%here is a close relationship between sales and the working capital and the working capital

turnover ratio is an indicator of that. %his ratio is computed by dividing the net sales by the

net working capital. It basically helps to understand the efficiency with which net working

capital is being utilized. %he higher the turnover the greater is the efficiency and the larger is

the rate of profit earned. owever a very high working capital turnover ratio is also

indicative of over trading and lack of working capital. In other words if the working capital

turnover ratio is very less it means that working capital has not been efficiently utilized.

In the table below &anbaxy has successfully improved its performance with reference to

relationship between working capital and sales as is evident from the fact that 1orking

*apital %urnover &atio has improved from 3.46 in 3++/:+3 to 6./3 in 3++-:+. For the

duration of seven years average ratio has been 2.0,. It also means that for generating a sale

of &s / the company invested &s +.34. %his shows that the management was active to take

assume risk and tended to reduce the size of working capital in relation to sales volume over

the period of time. %he average of working capital turnover ratio for the company was higher

than the standard set by *MI@.

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C&rrent A%%et% to S#e% Rt!o

*urrent !ssets %urnover &atio or *urrent assets to sales ratio is applied to measure the

turnover and profitability of the total current assets employed to conduct the operations of a

firm. %his is calculated by dividing t

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