financial statment analysis - project(21!06!2013)
TRANSCRIPT
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CONTENTS
CHAPTER 1
INTRODUCTION
OBJECTIVE OF THE STUDY
NEED AND IMPORTANCE OF STUDY
SOURCE OF THE DATA
METHODOLOGY
SCOPE OF THE STUDYLIMITATIONS OF THE STUDY
CHAPTER 2
COMPANY PROFILE
CHAPTER 3
THEORETICAL FRAMEWORK OF
FINANCIAL STATEMENT ANALYSIS
CHAPTER 4
DATA ANALYSIS AND INTERPRETATION
CHAPTER 5
FINDINGS
CONCLUSION AND SUGGESTIONS
BIBILOGRAPHY
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INTRODUCTION
OBJECTIVE OF THE STUDY
NEED AND IMPORTANCE OF STUDY
SOURCE OF THE DATA
METHODOLOGY
SCOPE OF THE STUDY
LIMITATIONS OF THE STUDY
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Indicating the trend of achievements
Financial statements of the previous years can be compared and the trend regarding
various expenses, purchases, sales, gross profits and net profit etc can be ascertained. Value of
assets and liabilities can be compared and the future prospects of the business can be envisaged.
Assessing the growth potential of the business
The trend and other analysis of the business provide information indicating the
growth potential of the business.
Comparative position in relation to other firms
The purpose of financial statements analysis is to help the management to make a
comparative study of the profitability of various firms, engaged in similar businesses. Such
comparison also helps the management to study the position of their firm in respect of sales
expenses, profitability and utilising capital, etc.
Assess overall financial strength
The purpose of financial analysis is to assess the financial strength of the business.
Analysis also helps in taking decisions, whether funds required for the purchase of the new
machines and equipments are provided from internal sources of the business or not if yes, how
much? And also to assess how much funds have been received from external sources.
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OBJECTIVES OF THE STUDY:
To understand the theoretical framework of financial statement analysis and its tools.
To assess the performance of Reddys on the basis of earnings and also to evaluate the
solvency position of the company through ratio analysis.
To understand the funds movement at Dr.reddys Laboratories using funds flow
statement.
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NEED AND IMPORTANCE OF STUDY
Financial performance of an enterprise will affect other types of performance and also the
productivity of finances is good, the productivity of men and material would be good.
Moreover the study of non-economic and qualitative performance, which studies the
non economic factors like customer satisfaction, citizen satisfaction etc.
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RESEARCH & METHODOLOGY:
Research design or research methodology is the procedure of collecting, analyzing and
interpreting the data to diagnose the problem and react to the opportunity in such a way wherethe costs can be minimized and the desired level of accuracy can be achieved to arrive at a
particular conclusion.
The methodology used in the study for the completion of the project and the fulfillment
of the project objectives, is as follows:
Collection of Data:
1. Secondary data.
Secondary data:
Study has been taken from secondary sources i.e. published annual reports of the
company editing, classifying and tabulation of the financial data. For this purpose performance
data of DR.REDDYS LABORATORIES for the years 2007 -2008 to 2009-2010 has been used.
Methods of data analysis
The data collected were edited, classified and tabulated for analysis. The analytical tools used in
this study are:
ANALYTICAL TOOLS APPLIED:
The study employs the following analytical tools:
1. Comparative statement.
2. Trend Percentage.
3. Ratio Analysis.
4. Cash Flow Statement .
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SCOPE OF STUDY:
The scope and period of the study is being restricted to the following.
The scope is limited to the operations of the Reddys.
The information is obtained from the secondary data was limited to the Reddys.
The study is based on the profit and loss a/c, the balance sheets of the last four years.
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LIMITATIONS OF STUDY:
1. The study is confined to a period of last 4 years.
2. Not all tools of financial statement analysis are used.
3. The duration of the study was limited to period of 45 days. So that the extensive and deep
study could not be possible.
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INDUSTRY PROFILE
COMPANY PROFILE
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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 Drug Control Authority. Technologically strong and
totally self-reliant, the pharmaceutical industry in India has low costs of production, low R&D
costs, innovative scientific manpower, strength of national laboratories and an increasing balance
of trade.
The Pharmaceutical industry in India is the world's third-largest in terms of volume and
stands 14th in terms of value. According to Department of Pharmaceuticals, Ministry of
Chemicals and Fertilizers, the total turnover of India's pharmaceuticals industry between 2008
and September 2009 was US$21.04 billion .[2] While the domestic market was worth US$12.26
billion. Sale of all types of medicines in the country is expected to reach around US$19.22
billion by 2012. Exports of pharmaceuticals products from India increased from US$6.23 billion
in 2006-07 to US$8.7 billion in 2008-09 a combined annual growth rate of 21.25% .[2] According
to PricewaterhouseCoopers (PWC) in 2010, India joined among the league of top 10 global
pharmaceuticals markets in terms of sales by 2020 with value reaching US$50 billion.
The government started to encourage the growth of drug manufacturing by Indian
companies in the early 1960s, and with the Patents Act in 1970. However, economic
liberalization in 90s by the former Prime Minister P.V. Narasimha Rao and the then Finance
Minister, Dr. Manmohan Singh enabled the industry to become what it is today. This patent act
removed composition patents from food and drugs, and though it kept process patents, these
were shortened to a period of five to seven years.
http://en.wikipedia.org/wiki/Pharmaceutical_industryhttp://en.wikipedia.org/wiki/Pharmaceutical_industryhttp://en.wikipedia.org/wiki/Indiahttp://en.wikipedia.org/wiki/Indiahttp://en.wikipedia.org/wiki/Ministry_of_Chemicals_and_Fertilizers_%28India%29http://en.wikipedia.org/wiki/Ministry_of_Chemicals_and_Fertilizers_%28India%29http://en.wikipedia.org/wiki/Pharmaceutical_industry_in_India#cite_note-cci-1http://en.wikipedia.org/wiki/Pharmaceutical_industry_in_India#cite_note-cci-1http://en.wikipedia.org/wiki/Pharmaceutical_industry_in_India#cite_note-cci-1http://en.wikipedia.org/wiki/Pharmaceutical_industry_in_India#cite_note-cci-1http://en.wikipedia.org/wiki/Pharmaceutical_industry_in_India#cite_note-cci-1http://en.wikipedia.org/wiki/Pharmaceutical_industry_in_India#cite_note-cci-1http://en.wikipedia.org/wiki/PricewaterhouseCoopershttp://en.wikipedia.org/wiki/Government_of_Indiahttp://en.wikipedia.org/wiki/P.V._Narasimha_Raohttp://en.wikipedia.org/wiki/Financehttp://en.wikipedia.org/wiki/Minister_%28government%29http://en.wikipedia.org/wiki/Dr._Manmohan_Singhhttp://en.wikipedia.org/wiki/Patenthttp://en.wikipedia.org/wiki/Patenthttp://en.wikipedia.org/wiki/Dr._Manmohan_Singhhttp://en.wikipedia.org/wiki/Minister_%28government%29http://en.wikipedia.org/wiki/Financehttp://en.wikipedia.org/wiki/P.V._Narasimha_Raohttp://en.wikipedia.org/wiki/Government_of_Indiahttp://en.wikipedia.org/wiki/PricewaterhouseCoopershttp://en.wikipedia.org/wiki/Pharmaceutical_industry_in_India#cite_note-cci-1http://en.wikipedia.org/wiki/Pharmaceutical_industry_in_India#cite_note-cci-1http://en.wikipedia.org/wiki/Ministry_of_Chemicals_and_Fertilizers_%28India%29http://en.wikipedia.org/wiki/Ministry_of_Chemicals_and_Fertilizers_%28India%29http://en.wikipedia.org/wiki/Indiahttp://en.wikipedia.org/wiki/Pharmaceutical_industry -
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INTRODUCTION TO PHARMACEUTICAL INDUSTRY
The Indian Pharmaceutical industry has been witnessing phenomenal growth in recent
years, driven by rising consumption levels in the country and strong demand from export
markets. The pharmaceutical industry in India is estimated to be worth about US$ 10 bn,
growing at an annual rate of 9%. In world rankings, the domestic industry stands fourth in terms
of volume and 13th in value terms. The ranking in value terms may also be a reflection of the
low prices at which medicines are sold in the country.
The industry has seen tremendous progress in terms of infrastructure development,
technology base and the wide range of products manufactured. Demand from the exports market
has been growing rapidly due to the capability of Indian players to produce cost-effective drugs
with world class manufacturing facilities. Bulk drugs of all major therapeutic groups, requiring
complicated manufacturing processes are now being produced in India. Pharma companies have
developed Good Manufacturing Practices (GMP) compliant facilities for the production of
different dosage forms.
Industry Trends
A highly fragmented industry, the Indian pharmaceutical industry is estimated to have
over 10,000 manufacturing units, as given by the Organization of Pharmaceutical Producers of
India. The organized sector accounts for just 5% of the industry with around 300 players, while a
huge 95% is in the unorganized sector. A large number of players in the unorganized segment
are small and medium enterprises and this segment contributes 35% of the in dustrys turnover.
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Bulk drug
The Bulk Drug Manufacturers Association (India) was formed in 1991 with Hyderabad
as its Head Quarters. This is an all India body representing all the Bulk Drug Manufacturers of
India. The Association works for the consolidation of gains of the industry and serves as a
catalyst between the government and the industry on the various issues for the growth of the
industry
Bulk drug manufacturing is largely concentrated in Andhra Pradesh, which accounts for
more than one-third of t he countrys total bulk drug production, followed by Gujarat. The Indian bulk drug industry has lately been gaining signify cant presence in the global market as foreign
and multinational companies are looking to sourcing APIs and intermediates from Indian
manufacturers. Factors favoring the industry are a vast resource of technical people, state of- the-
art manufacturing facilities, low cost and the advantage of the English language. As part of
governments support to increase exports, duty free zones have been set up and several
manufacturers of bulk drugs have been shifting their facilities to these areas. As a result, the
diverse spread has now started getting consolidated and concentrated in certain regions across
the country.
Key Drivers for the Pharmaceutical Industry
Growing orientation towards Research and Development (R&D)
The introduction of product patent in India has brought some fundamental changes in
strategies of Indian pharmaceutical companies, with focus shifting more towards R&D.The
original Indian patent law, which recognized only process patent, gave Indian companies the
opportunity to produce products under patent in overseas markets, particularly regulated markets,
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by adopting new processes. Consequently, companies were in advantageous position to produce
drugs through reverse engineering at relatively very low cost that helped the domestic industry to
grow faster during the initial stages of development. On the other hand, this discouraged
multinational companies from launching their new products in India, fearing duplication of their
new drug discovery through reverse engineering. As a result, MNCs market share declined from
70% prior to 1972 to 20% at present.
Growing exports
Exports have been the major growth enabler of the Indian pharmaceutical industry in
recent years. India exports pharmaceutical products, APIs and intermediates to more than 200
countries across the world. Traditionally, Russia, Germany, Nigeria and Indias neighboring
countries like Sri Lanka, Nepal, and the Middle East were the major markets for Indian
pharmaceutical exports. Most of these markets are not highly regulated and are considered to be
low-value markets.
Expanding presence in regulated market
Over the years, India has shown better regulatory awareness and superior technical skills,which has enabled Indian companies to penetrate the high-value markets like the US and EU.
Exports of pharmaceutical products (finished products as classified under heading 30 of ITC-HS
code) to the US grew by an impressive 33% to Rs 23 bn and by a whopping 62% to Rs 35 bn to
the EU during FY04-FY06. Regulated markets, though difficult to penetrate due to stringent
regulations, are known to give better value and margin to exporters
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FormulationsThe administration of a medicine is a common but important clinical procedure. It is the
manner in which a medicine is administered that will determine to some extent whether or not
the patient gains any clinical benefit, and whether they suffer any adverse effect from their medicines.
Routes of administration There are various routes of administration available, each of which has associated
advantages and disadvantages. All the routes of drug administration need to be understood in
terms of their implications for the effectiveness of the drug therapy and the patients experience
of drug treatment.Routes of administration
Oral: Tablets, capsules, powders are taken internally.
Topical: ointments, creams, liquids, aerosols that are applied on the skin
Parenteral Intravenous, intramuscular, subcutaneous
Others: such as eye-drops, pessaries, surgical dressings etc.
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COMPANY PROFILE:
Established in 1984, Dr. Reddy's Laboratories (NYSE: RDY) is an emerging global
pharmaceutical company. As a fully integrated pharmaceutical company, our purpose is to
provide affordable and innovative medicines through our three core businesses: Pharmaceutical
Services and Active Ingredients (PSAI), comprising our Active Pharmaceuticals and Custom
Pharmaceuticals businesses;
One of India's top drug makers, Dr. Reddy's Laboratories develops and manufactures
branded and unbranded generic drugs and bulk pharmaceutical ingredients. Its stable of products
includes ulcer medicines (branded product Omez is a leading seller), antibiotics, antidepressants
(generic version of Eli Lilly's Prozac), pain relievers, diabetes treatments, and cardiovascular
drugs. Dr. Reddy's Laboratories also makes generic biotech products. Its custom pharmaceutical
services unit provides contract discovery, development, and manufacturing services to other drug
makers. The firm sells its products in more than 100 countries through direct sales entities and
third-party distribution partners.
Global Generics, which includes branded and unbranded generics; and Proprietary
Products, which includes New Chemical Entities (NCEs), Differentiated Formulations, and
Generic Biopharmaceuticals. Our strong portfolio of businesses, geographies and products gives
us an edge in an increasingly competitive global market and allows us to provide affordable
medication to people across the world, regardless of geographic and socio-economic barriers.
Our products are marketed globally, with a focus on India, US, Europe and Russia. Dr.
Reddy's conducts NCE research in the areas of metabolic disorders, cardiovascular indications,
anti-infective and inflammation.
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We are:
Among the leading global pharmaceutical companies from India
5th largest branded generic player in Germany ,
Ranked 7th in the retail segment in Russia, the largest player from India
Among the Top Ten generic companies in India
Among the Top 3 Active Pharmaceutical players globally Top 3 Abbreviated New Drug
Application (ANDA) and Drug Master File (DMF) pipeline in the USA
Among the largest players in the Custom Pharmaceutical Services (CPS) segment
4th on Environment & Social Governance Index, India
Best Workplace in Pharma & Biotech - Great Place to Work 2008 and 2009
The fastest path to USD 1 billion in revenues amongst Indian Pharma companies
Dr. Reddys is an integrated global pharmaceutical company with strong brand presence
established through 28 years of history. Dr. Reddys is listed on the New York Stock Exchange,
headquartered in India, with annual sales of $1.7 billion and products marketed in more than 10
countries.
Dr. Reddy's is committed to the manufacture of premium quality products in compliance
with all regulatory requirements and customer expectations. We operate in accordance with
cGMP requirements and the USFDA and ICH guidelines & regulations. All our manufacturing
facilities are successfully inspected for several products by the USFDA and various other
Agencies.
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BOARD OF DIRECTORS
GV Prasad,
Chairman and Chief Executive Officer
Satish Reddy ,
Vice Chairman and Managing Director
Saumen Chakraborty ,
M anaging Dir ector & COO
Dr. Omkar Goswami,
I ndependent & Non Whole Time Dir ector
Ravi Bhoothalingam,
I ndependent & Non Whole Time Dir ector
Dr. Bruce LA Carter,
I ndependent & Non Whole Time Dir ector
Anupam Puri,
I ndependent & Non Whole Time Dir ector
Ms. Kalpana Morparia,
I ndependent & Non Whole Time Dir ector
JP Moreau,
I ndependent & Non Whole Time Dir ector
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CTO BUSINESS - MANUFACTURING FACILITIES
UNIT 1 Bollaram, Hyderabad.
UNIT 2 Bollaram, Hyderabad.
UNIT 3 Bollaram, Hyderabad.
UNIT 4 Jeedimetla, Hyderabad.
UNIT 5 Peddadevulapalli [-150 km from Hyderabad]
UNIT 6 pydibeemavaram, [-750 km from Hyderabad]
CTO BU-HEAD
MARKETINGSUPPLY CHAINMANAGEMENT
GLOBALREGULATORYAFFAIRS AND
COMPLIA
FINANCE HRM MANUFACTURING
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Market
Dr. Reddys - India today is more than a 200 million dollar venture with presence in almost all
major therapeutic areas. Our finished dosage business in India started in 1986 with launch of
Norilet (norfloxacin). Our market penetration through nearly 3000 sales force who connect to
more than 3,00,000 doctors on a regular basis has yielded us reaching all corners of the country
and providing affordable and innovative medicines in all major therapeutic areas like gastro-
intestinal, oncology, pain management, cardiovascular, dermatology, diabetes, etc. Eight of our
brands feature in the top-300 brands in India that include drugs like Stamlo, Reditux, Omez and
Ketorol.
TOP BRANDS AND PRODUCTS
Top Brands & Products
GERMANY INDIA RUSSIANORTH AMERICA
(Products)
SIMVAS NISE OMEZ Sumatriptan AG
ALENDR OMEZ CIPROLET Fexofenadine
OMEPRA STAMLO NISE Glimepiride
OXYCOD STAMLO BETA ENAM Oxaprozin
TRAMAD ATOCOR KETOROL Ondansetron
RAMHCT OMEZ-D EXIFINE Meprobamate
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IBUPRO RAZO CETRINE Divalproex Spr. Capsules
GABAPE ENAM Simvastatin
RAMIPR MINTOP Finasteride
BISOPR CLAMP Ciprofloxacin
Tizanadine
The Bulk Activities Division, Unit 5 has 14 departments viz.
1. Ranitidine
2. Naproxen
3. Famotidine
4. Maintenance
5. Quality control
6. Quality assurance
7. TSD - R&D
8. SHE
9. Warehouse
10. SCM
11. HRD
12. RA
13. Liaison
14. Documentation
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ABOUT PLANT
Having well equipped solvent recovery plant and recovery solvents are being used there
by reducing the inventory. Environmental care is being taken by using the incineration and scrubbing systems
arresting the liberated gases in to the atmosphere.
Automation system is provided so that when the incinerator is stopped the feeding stops
automatically. Stand by scrubbers are provided for the alternate arrangement to the
incinerator.
Having well equipped power charging, weighing and filling systems to reduce man
handling in the final stages.
Constantly striving to reduce the manufacturing cost of the products by reducing the
solvent losses and upgrading the systems.
COMPANY VISION, MISSION AND OBJECTIVE
VISION
A world class, innovation, Competitive and profitable Engineering Enterprise Providing total
business Solutions. To be a top 20 global pharmaceutical company by 2020
MISSION
To be the leading Engineering Enterprise providing Quality products System and services in
the field of Energy, Transportation, Industry, Infrastructure and other potential areas.
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VALUES
Meeting commitments made to External and internal customers.
Faster learning, Creativity and Speed of response.
Respect for Dignity and potential of individuals.
Loyalty and Pride in the Company
Zeal to Excel
Integrity and fairness in all matters.
OBJECTIVES
GROWTH:
To ensure a steady growth by enhancing the competitive edge of DR.REDDYS
LABORATORIES in exiting business, new areas and international operation so as to fulfil
national expectations from DR.REDDYS LABORATORIES.
PROFITABILITY:
To provide a reasonable and adequate return on capital employed, primarily through
improvements in operational efficiency, capacity utilization and productivity and generate
adequate internal resources to finance the company growth. Confidence in providing increased
value for this money through international standards of product, quality, performance and
superior customer services.
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TECHNOLOGY:
To achieve technology excellence in operations by development of indigenous
technologies to and efficient absorption and adaptation of imported technologies to suit business
needs and priorities and provide a competitive advantage of the company.
IMAGE:
To fulfil the expectation which stock holders like government as own employees,
customers and the country at large have from D R.REDDYS LABORATORIES.
SWOT ANALYSIS OF DR.REDDYS LABORATORIES
The strength, weakness, opportunities and threats which are being experienced by DR.REDDYS
LABORATORIES as a growing concern have been summarized up in the following lines.
STRENGTHS
1. Vast pool of trained man power.
2. Excellent state of art facilities.
3. Good working atmosphere
4. Rapport between management and union.
5. Product manufactured international quality
6. Low labour cost and low manufacturing cost.
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WEAKNESS
1. Excess man power
2. Slippage in delivery commitments
3. System implementation adequate
4. No financial package
5. Inadequate compensation package to employees.
OPPORTUNITIES
1. Growing power sector machinery
2. Liberalization has opened up the market
3. Dominant player in domestic market.
THREATS
1. Liberalization entry of MNCS or private sector -more competition.
2. MNCS taking away good employees with attractive packages.
3. Government taxation policy-against manufacturing sector.
4. Poor infrastructure.
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Best Team Awards for
Execution Excellence
Best Quality Driving Team Award
Best Innovation Team Award
Best Managed Team Award Operations
Best Managed Team Award Non-Operations
Best Business Development Deal Award
Best Team Awards for
Customer Delight
Best Team Award for External Customer Delight
Best Team Award for Internal Customer Delight
Best Team Awards for
Sustainability
Best Safety & Health improvement Initiative
Award
Best Environmental Initiative Award
Best Corporate Social Responsibility Initiative
Award
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REVIEW OF LITERATURE:
THEORETICAL FRAMEWORK OFFINANCIAL STATEMENT
ANALYSIS
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REVIEW OF LITERATURE:
INTRODUCTION TO FINANCE:
Financial statement is that managerial activity which is concerned with the
planning and controlling of the firm financial resources. Though it was a branch of economic till
1890 as a separate activity or discipline it is of recent origin. Still, as no unique body knowledge
of its own, and draws heavily on economics for its theoretical concepts even today.
The subject of financial management is of immense interest both academicians and
practising manager. It is of great interest to academicians because the subject is still developing.
And there are still certain areas where controversies exist for which no unanimous solutions have
been reached as yet. Practicing manager are interested in this subject because among the most
crucial decision of the firm are those which relate to finance and an understanding of the theory
of financial management provides them with conceptual and analytical insight to make those
decision skilfully.
SCOPE:
Firms create manufacturing capacities for production of good, some provide services
to customers. They sell their goods or services to earn profit. They fund to acquire manufacturing
and other facilities. Thus the three most important activities of a business firm are:
PRODUCTION
MARKETING
FINANCE
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FUNCTION:
The finance function form production, marketing and other functions. Yet the
function themselves can be readily identified. The function of raising funds, inverting them in
assets and distributing returns earned from assets to shareholder respectively. The finance
functions are:
Investment or long term asset mix decision
Financing or capital mix decision
Dividend or profit allocation decision
Liquidity or short term asset mix decision.
INDEPTH ANALYSIS OF FINANCIAL ANALYSIS:
(A)DEFINITIONS:
The term financial analysis is also known as analysis and interpretationof financial statements. It refers to the process of determining financial strengths and
weaknesses of the firm by establishing strategic relationships between the items of the balance
sheet, profit and loss account and other operative data.
ACCORDING TO Mr. HARRY GUTTMANN:
The first and most important functions o f financial statements are of course
to those who control and direct the business to the end of security the profits and maintaining
sound financial conditions.
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(B)NATURE OF FINANCIAL STATEMENTS:
The term financial statements refers to the balance sheet reflection the
financial position of the assets, liabilities a capital of a particular company during a certain
period and profit and loss account showing the operational results of the company during acertain period. Financial statements are plain statements of informed opinion uncompromising in
their truthfulness. It is meant that within the limits of accepted accounting principles and the very
human abilities of the persons preparing them they have to rely on judgements and estimated
divorced of prejudice.
(C)CONVENTIONS:
According to the American institute of certified public accounts, financialstatements reflect, a combination of recorded facts accounts conventions and personal
judgements and the judgements and the conventions applied affect them materially, this implies
that the exhibited in the financial statements are affected by recorded facts, accounting
conventions personal judgements.
(D) USES AND IMPORTANCE OF FINANCIAL STATEMENTS:
The financial statements are mirrors which reflect the financial position and operating
strengths or weaknesses of the concern. These statements are useful to management, investors,
creditors, bankers, workers, government and public at large. George O May points of the
following measure used of financial statements:
As a basis for taxation.
As a basis for price or rate regulation
As a guide to the value of investment already made
As a basis for granting credit.
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(E)LIMITATIONS OF FINANCIAL STATEMENTS:
Financial statements are essentially interim reports and hence cannot be final
because the actual gain or loss of a business can be determined only efface it
has put down its shutters.
They tend to give an appearance if finality and accuracy, because they are
expressed in exact money amount. Any value to the amounts presented in the
statement depends on the value standards of the person dealing with them.
The balance sheet loses its functions as an index of current economic realities
due to the fact the financial statements are compiled on the basis of historical
costs while there is a market decline in the value of the monitoring unit and the
resultant rise in prices. The problem has become more important especially
during the war and the post war period.
They do not give effort to many factors, which have a hearing on financial
conditions and operating results because they cannot be stated in terms of
money and are qualitative in nature. Such factors are reputation and prestige of
the business with the public its credit rating the efficiency and loyalty of its
employees and integrity of the management.
Due to these limitations it is said that financial statements dont show the
financial conditions of the business rather they show, the position of financial
accounting for a business.
(F)PARTIES INTERESTED IN FINANCIAL STATEMENTS:
Now days the ownership of capital of many public companies has become truly
board based due to dispersal of shareholding, hence, the public in general evinces interest in the
financial statements. Apart from the shareholders there are other persons and bodies who are also
interested in financial results disclosed by the annual reports of the companies. As already
mentioned, such persons and bodies include:
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1. Potential investors
2. Creditors, potential suppliers or other doing business with the company.
3. Debenture holders
4. Credit institutions like bankers.
5. Employee customers who wish to make along standing contact with the company.
6. Economic and investment analysis
7. Members.
(G)ANALYSIS AND INTERPRETATION OF FINANCIAL STATEMENTS:
Analysis and interpretation of financial statements are and attempt to determine the
significance and meaning of the financial statement data as so that a forecast can be made of the
prospects for future earnings ability to pay interest, debt and maturities (current and long term)
and profitability of a sound dividend policy.
Financial analysis main function is pinpointing of the strengths and weaknesses
of a business concerns by regrouping and analysis of figure contained in financial statements by
making comparisons of various component and by examine their content. The financial manager
uses this as the basis to plan future financial requirements by means of forecasting and budgeting
procedures.
The analysis of and interpretation of financial statements represents the lost of the
four measure steps of accounting viz.
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Analysis of each transaction to determine the accounts to debited and credited and the
measurements and the valuation of each transactions to determine the amounts involved.
Recording of the information in the journals. Summarization in largest and preparation of
work sheet.
Preparation of financial statements.
Analysis and interpretation of financial statements results in the presentation of
information that assets business managers, creditors and investors. This requires a clear
understanding of monitoring item of the items.
The analysis must group that represents sound and unsound relationships reflected
by the financial statements. Those, the data is more maintain full and it is placed in better
perspective when it is provision and by means of measurement, its relationship with others is
established in terms of if relative significance and it is ranked in terms of its relative
significance. One can achieve this by comparisons made between related items in the statements
series of years.
(H)TYPES OF FINANCIAL STATEMENTS:
Financial statements primarily comprise two basic statements:
1. The position statements of the balance sheet.
2. The income statements or the profit and loss account.
Accounting principles specify that a complete set of financial statements must include:
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1. A balance sheet
2. An income statement
3. A statement of change in owners accounts.
4. A statement of changes in financial position.
BALANCE SHEET:
The balance sheet is one of the important statements depicting the financial
strength of concern. It shows the properties that are owned on one hand and on the other hand the
sources of the assets owned by the concern and all the liabilities and claims it owes to owners
and outsiders. The balance sheet is prepared on a particular date. The right hand shows properties
and assets and the left hand shows liabilities.
INCOME STATEMENT OR PROFIT AND LOSS ACCOUNT:
Income statement is prepared to determine the operation position of the concern. It is a
statement of revenues. The income statement may be prepared in the form of manufacturing
account to find out the cost of the production in the form of trading accounts to determine gross
profit or loss, in the form of profit and loss account to determine net profit or net loss.
STATEMENT OF CHANGES IN OWNERS EQUITY:
The term owners equity refers in the claims of the owners of the business against the
assets of the firm. It consists of two elements.
1. Paid up share capital i.e. the initial amount of funds invested by the shareholders.
2. Retained earnings/reserves and surplus representing undistributed profits.
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The statement of changes in owners equity simply shows the beginning
balance of each owners equity account, the reasons of increases and decreases in each,
and its ending balance. However, in most cases the owners equity account changes
significantly in retain earnings and hence the statement of changes in owners equity
becomes merely a statement of retained earnings.
STATEMENT OF CHANGES IN FINANCIAL POSITION:
The basic financial statement i.e. the balance sheet and profit and loss account and
income statement of a business reveals the net effect of various transactions on the operational
position of the company. But there are many transactions that do not operate through profit and
loss account. Those for a better understanding another statement of changes in financial position
has to be prepared to show the changes in assets and liabilities from the end of another point of
time. The statement of changes in financial position may take any of the two forms. They are:
Funds statements
Cash flow statements
TOOLS OF FINANCIAL ANALYSIS USED IN THE STUDY:
MEANING OF COMPARATIVE STATEMENT:
The comparative financial statements are the statements of the financial position
of different periods; the elements of financial positions are then in a comparative form to give
idea of financial position of two or more periods. The comparative statement may show:
Absolute figures
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Changes in absolute figures i.e. increase or decrease in absolute figures.
Absolute data in terms of percentage.
Increase or decrease in terms of percentage.
COMPARATIVE BALACE SHEET:
It is a statement of financial position of a business at a specific movement of time.
It represents all assets owned by the business at a particular movement of time and the claims of
the owners and outsiders against those assets at the time. It is a way they shape the financial
condition of the business at that time.
The important distinction between an income statement and balance sheet is that
the income statement is for a period where as balance sheet is on a particular date.
COMPARATIVE INCOME STATEMENT:
The comparative income statement gives the results of the operation of a business.
The comparative income statement gives an idea of the program of a business over a period of
time. The changes in absolute data in money values and percentages can be determined to
analyze the profitability of the business.
GUIDELINES FOR INTERPRETATION OF INCOME STATEMENT:
The analysis and interpretation of income statement will involve the following
steps:
1. The increase or decrease in sales should be compared with the increase or
decrease in cost of goods sold. An increase in sales will not always mean an
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increase in profit. The profitability will improve if increase in sales promotion and
the control of operating expenses.
2. The second step of analysis should be the study of operation profit. The operating
expenses such as office and administrative expenses. Selling and distribution
expenses should be deducted from gross profit to find out operating profit which
will result from the increase in sales position and control of operating expenses.
3. The increase or decrease in net profit give an idea about overall profitability of the
concern, non-operating expenses such as interest paid, loss from sale of assets,
writing off to deferred expenses or deducted from operational profit we get the
figure of operating profit.
4. An opinion should be formed about profitability of the concern and it should be
given at the end. This should be mentioned whether the overall profitability is
good or not.
COMMON SIZE STATEMENTS:
The common size statement, balance sheet and income statement are shown in
analytical percentages. The figures are shown as percentages of total assets, total liabilities and
total sales. The total assets are taken as of and different assets are expressed as a percentage of
the total.
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1. Common size balance sheet: A statement in which balance sheet items are expressed as
the ration of each asset to total assets and the ratio of each liability is expressed as a ratio
of total liabilities is called common sized balance sheet.
2. Common size income statement: The items in income statement can be shown as
percentage of sales to show the relation of each item to sales. A significant relationship
can be established between item of income statement and value of the sales. The increase
in sales will certainly increase selling expenses and not administrative are financial
expenses.
TREND ANALYSIS:
Trend percentages:
The method of trend percentages in useful analytical device for the
management since y substitution of percentage for large amounts, the clarity and readability are
achieved.
Trend percentages are immensely helpful in making comparative study of
the final statements for several years. The method of calculating trend percentages involves the
calculation of percentage relationship that each item bears to the same item in the base year. The
earliest year may be taken as base year. Each item of the base year is taken as 100 and on the
basis the percentage for each of the item of each year is calculated.
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Least Square Method:
This method is widely used in practised. It is a mathematical method and
with the help of a trend line fitted to the data in such a manner by using the actual figures of the
study period, we have to calculate the trend values for these periods. Based on this value we can
easily forecast the values of the future period. The method of least square may be used either to
fit a straight line trend or a parabolic trend. The straight line is represented by the equation Y(C)
=A+B(X).
ANALYSIS AND INTERPRETATION OF FINANCIAL STATEMENT:
An attempt has been made to analyze and interpret the financial statements
of DR.REDDYS LABORATORIES for the period of 2007-2010. These statements were
prepared on the basis of the data in the balance sheets and profit and loss accounts of the
DR.REDDYS LABORATORIES for the above period.
RATIO ANALYSIS:
A ratio is a simple mathematical expression. It is a number expressed in
terms of another number, expressing the quantitative relationship between the two, ratio analysis
is the technique of interpretation of financial statements with the help of various meaningful
ratios. Ratios do not add to any information that is already available, but they show the
relationship between two items in a more meaningful way.
Ratio analysis is a very important tool of financial analysis. It is the
process of establishing a significant relationship between the items of financial statements to
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provide a meaningful understanding of the performance and financial position of the firm. They
help us to draw certain conclusions. Comparison with related facts is the basis of ratio analysis.
Ratios may be used for comparison in any of the following ways.
1. Comparison of a firm with its own performance in the past.
2. Comparison of one firm with its own performance in the past.
3. Comparison of one firm with another firm in the industry.
4. Comparison of one firm with the industry as a whole.
5. Comparison of an achieved performance with pre-determined standards.
6. Comparison of one department of a concern with other departments.
TYPES OF RATIOS
Liquidity ratio
Capital structure/leverage ratio
Profitability ratio
Activity ratio.
LIQUIDITY RATIOS: it measures the short-term solvency of the firm. In a
short period of a firm should be able to meet all its short-term obligation i.e.
current liabilities and provisions. It is current assets that yield funds in the short
period. Current assets are those, which the firm can convert it into cash within one
year or short run. Current assets should not only yield sufficient funds to meet
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current liabilities as they fall due but also to enable the firm to carry on its day-to-
day activities.
The following are the important liquidity ratios:1. Current ratio
2. Acid test/quick ratio.
3. Cash ratio
4. Net working capital ratio
1. Current ratio: Current ratio is the ratio of current assets to current liabilities. Current
assets are the assets that are expected to be realized in cash or sold or consumed during the
normal operating cycle of the business or within one year, whichever is longer, they include cash
in hand and bank, bills receivable, net sundry debtors, stock of raw materials, finished goods and
working in progress, prepaid expenses, outstanding incomes, assured incomes and short term or
temporary investments. Current liabilities are the liabilities that are to be repaid within a period
of one year. They include bills payable, sundry creditors, bank overdrafts, outstanding expenses,
income receivable in advance, proposed dividend, provision for taxation, unclaimed dividends
and short term loans and advanced repayable within one year. Any instalment of long-term
liability payable within the next 12 months is also current liability.
CURRENT RATIO= CURRENT ASSETS/ CURRENT LIABILITIES
Generally 2 : 1 ratio is considered ideal for the company.
2. ACID TEST/QUICK RATIO : the acid test ratio is the ratio between quick current assets and
current liabilities and calculated by dividing the quick assets by current liabilities. Quick assets
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mean those which can be converted into cash immediately by exclusion of inventory and prepaid
expenses from current assets.
Acid test Ratio=Quick assets/Current liabilities.
Generally 1: 1 ratio is considered to be ideal for the company.
3. CASH RATIO : The cash ratio is the ratio of cash and bank balance; it is calculated dividing
cash and bank balance by current liabilities.
CASH RATIO= Cash and Bank balances/Current liabilities.
Generally 1: 2 ratios are considered to be ideal for a company.
4. NET WORKING CAPITAL RATIO: Working capital ratio refers to comparing current
assets to current liabilities and serve as the liquidity reserve avail. To satisfy contingencies and
uncertainties. It is calculated by dividing net working capital by capital employed.
Net Working Capital Ratio = net working capital/capital employed.
Generally higher ratio is considered ideal for a company.
CAPITAL STRUCTURE/LEVERAGE RATIO: These ratios indicate the relative
interests of owners and creditors in a business by showing long term financial solvency
and measure the enterprises ability to pay the interest regularly and to repay the principal
on maturity or in pre-determined instalments at due dates.
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The significant leverage ratios are:
1. Debt Equity Ratio
2.
Proprietary Ratio
3. Capital Gearing Ratio.
4. Fixed assets Ratio
5. Interest coverage Ratio
6. Dividend Coverage Ratio
7. Debt Service coverage Ratio.
1.Debt Equity Ratio : It reflects the relative claim of creditors and shareholders against the
assets of the business. Debt usually refers to long-term liability. Equity includes equity and
preference share capital and reserves.
Debt Equity Ratio=long term liabilities/share holders funds.
Ideal debt equity ratio is 2 : 1
2.Propreitary ratio: It expresses the relationship between the net worth and total assets. A high
proprietary ratio is indicative of strong financial position of business.
Proprietary ratio = Net worth/ Total Assets
Net worth = Equity share capital + fictitious Assets
Total assets= fixed assets + Current Assets
Generally higher the ratio the ideal it is.
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3. Capital Gearing Ratio: A company is said to be highly geared if it has a high capital gearing
ratio and lowly geared if the capital gearing ratio is low. The extent of gearing determined the
future financial structure of the business. A company that is highly geared will have to raise
funds by issuing fresh equity shares, whereas a lowly geared company would find it attractive to
raise funds by way of term loans and debentures.
Capital Gearing Ratio = funds bearing fixed interest and fixed dividend/equity
. share holde rs funds
Funds bearing fixed interest and capital=Debentures + term loans +preference .
. share capital.
Equity share holder funds=Equity share capital +reserves-fictitious funds.
4.Fixed Assets Ratio: This ratio indicates the mode of financial the fixed assets. It is calculated
as
Fixed assets Ratio= Fixed assets/capital employed
Capital employed= equity share capital + preference share capital +reserves + long term
Liabilities Fictitious Assets.
Generally a ratio of 0.67 : 1 is considered ideal for a company.
5.Interest Coverage Ratio: This ratio is called as debt service ratio. This ratio indicates
whether a business is earning sufficient profits to pay the interest charges. It is calculated as
Interest coverage ratio=PBIT/Fixed interest charges
PBIT=Profit before interest and taxes=PAT + Interest + Tax
Generally a ratio of around 6 is normally considered as ideal for a company.
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6.Dividend coverage ratio: It indicates the ability of a business to pay and maintain the fixed
preference dividend to preference shareholders.
Dividend coverage ratio=PAT/Fixed preference dividend.
PAT= Profit After Taxes
7.Debt service coverage Ratio: It indicates whether the business is earning sufficient profits to
pay not only the interest charges, but also the instalments due to the principal amount. It is
calculated as
Debt service Coverage Ratio =(PBIT/Interest + Periodic Loan Installation)/(1- Rate of income
Tax)
Generally greater the ratio, the better is the servicing ability of company.
PROFITABILITY RATIO: Profitability ratios measure the profitability of a company.
Generally they are calculated either in relation to sales or in relation to investments. The
various profitability ratios are discussed under the following heads.
(A) GENERAL PROFITABILITY RATIOS:
1.Gross Profit Ratio: Gross profit is one of the most commonly used ratios. It reveals the result
of trading operations of the business. In other words, it indicates to us the profitability of the
business. It is calculated as
Gross Profit Ratio=(Gross Profit/Net sales)*100
Gross Profit=net sales-cost of goods sold.
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Net Sales=Total Sales- Sales Returns
Cost of Goods Sold=Opening Stock + Purchases + Manufacturing expenses-closing Stock.
Generally the higher the ratio, the better will be the performance of the company.
2.NET PROFIT RATIO: It indicates the results of overall operations of the firm. While the
gross profit ratio indicates the extent of profitability of core operations. Net profit ratio tells us
about overall profitability. It is called as
Net Profit Ratio=(Net Profit after Tax/Net Sales)*100
Generally higher the ratio, the more profitable to the company.
3.OPERATING RATIO: It expresses the relationship between expenses incurred for running
the business, and the resultant net sales. It is calculated as
Operating Ratio=cost of goods sold + Office and Administrative expenses + selling and
distribution Expenses.
Generally lower the ratio, the better it is to the company.
4. OPERATING PROFIT RATIO: It establishes the relationship between operating profit and
sales. It is calculated as
Operating Profit Ratio=(Operating Profit/Net Sales)*100
Generally higher the ratio, the better it is to the company.
5. EXPENSES RATIO: Expenses ratios are the ratios that supplement the information given by
the operating ratio. Each of the expense rations highlights the relationship given by the particular
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expense and net sales. For example, factory expenses ratio is of factory expenses to net sales any
expenditure can be shown as a ratio to sales. All such ratios fall under the broad head of
expenses ratios.
(B) OVERALL PROFITABILITY RATIOS:
1.RETURN ON CAPITAL EMPLOYED RATIO(ROCE) OR RETURN ON
INVESTMENT RATIO(ROD):
This ratio reveals the earning capacity of the capital employed in the business. In
other words, capital employed is permanent capital invested in the business. It is also called
capital and hence, the ratio is also known as return on invested capital
ROCE= (Profit before interest and taxes/capital employed) *100
2. RETURN ON NET WORTH(RONW): It indicates the return, which the shareholders are
earning on their resources invested in the business. It is calculated as
RONW=(Profit after Tax/Net Worth)*100
Generally higher the ratio, the better it is to the shareholders.
3. RETURN ON EQUITY CAPITAL : It expresses the return earned by the owners of the
business, after adjusting for debt and preference capital. It is calculated as
RETURN ON EQUITY= PAT- Preference dividend/equity shareholders funds.
Generally higher the ratio, the better it is to the company.
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4. RETURN ON ASSETS RATIO(ROA): Return on assets reflects the return earned by the
firm for the company for the shareholders of the business on the investment of all the financial
resources committed to the business. It is calculated as
ROA=PAT/TOTAL SALES
Generally higher the ratio, the better it is to the shareholders.
5. EARNINGS PER SHARE (EPS): It is the earning accruing to the equity shareholders on
every share held by them. It is calculated as
EPS= PAT-Preference dividend/number of equity shares.
Generally the ratio, the better is the performance of the company.
6. Dividends per share (DPS): It is the amount of dividend payable to the holder of one equity
share. It is calculated as
DPS=Dividend on equity share capital/number of equity shares
Generally from investors point of view, the higher the ratio, the happier the investor.
7. DIVIDEND PAY OUT RATIO: It is the ratio of dividend per share to earning per share. It is
calculated as
Dividend Pay Out Ratio=DPS/EPS
8. PRICE EARNING RATIO(P/E Ratio): It expresses the relationship between market price
of one share of a company and earnings per share of that company.
P/E Ratio=Market Price of Equity share/EPS
There is no ideal P/E ratio.
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2.DEBTORS TURN OVER RATIO: Debtors Turn over Ratio expresses the relationship
between debtors and net credit sales. It is calculated as
Debtors Turn Over ratio= Net Credit Sales/Average Debtors.
Generally the ratio between 10-12 an ideal value for the company.
3. CREDITORS TURN OVER RATIO: Creditors turnover ratio expresses the relationship
between creditors and net credit purchases. It is calculated as
Creditors Turn Over Ratio= Net Credit Purchases/Average Creditors.
Generally the ratio 12 is an ideal for the company.
4. WORKING CAPITAL TURNS OVER RATIO: This ratio is defined as Working CapitalTurn over Ratio= Cost of Goods Sold/Working Capital
Working Capital=Current Assets- Current Liabilities.
Generally higher ratio indicates efficient utilization of firms fu nds.
5. Fixed Assets Turn Over Ratio: It is defined as ratio of Net Sales to the Fixed Assets.
Generally the ratio of around 5 is considered ideal for the company.
6. TOTAL ASSETS TURN OVER RATIO: It is defined as ratio of Net Sales to the Total
Sales.
Generally higher the ratio, the greater is the ability of the firm to utilize the investments in the
business.
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Current Asset Liability Ratio
year current assets current liability Ratios
2001-02 155792 73129 2.13
2002-03 166669 74427 2.232003-04 155652 84990 1.83
2004-05 192697 116644 1.65
2005-06 235062 143200 1.64
2006-07 276062 208869 1.32
2007-08 310002 243220 1.27
2008-09 453597 376332 1.2
2009-10 580804 397574 1.46
2010-11 771519 502024 1.54
Interpretation The ideal ratio for the concern is 2:1 i.e. current assets doubled for the current
liabilities considered to be satisfactory. The current ratio of DR.REDDYS LABORATORIES is
less than! .Thus it has to maintain its efficient current assets.
0
100000
200000
300000
400000
500000
600000
700000
800000
2001-02
2002-03
2003-04
2004-05
2005-06
2006-07
2007-08
2008-09
2009-10
2010-11
Current asset liabilities ratio Current Asset
Current asset liabilities ratio CurrentLiability
Current Asset Liability Ratio
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Acid Test RatioYear Liquid assets Liquid liabilities Ratio2001-02 898 73129 0.0122002-03 1281 74427 0.0172003-04 472 84990 0.0052004-05 2094 116644 0.0182005-06 4643 143200 0.0322006-07 12 208869 0.000052007-08 14 243220 0.000032008-09 15 376332 0.000039862009-10 1475 397574 0.003712010-11 1415 502024 0.002818
Acid Test Ratio Current Assets Inventory / Current Liabilities
The ideal quick ratio is 1:1 which is considered satisfactory for the concern. The company is
maintaining the ratio above the standard norm, thus the management of DR.REDDYS
LABORATORIES is label to meet its current obligations.
0
100000
200000
300000
400000
500000
600000
2001-02
2002-03
2003-04
2004-05
2005-06
2006-07
2007-08
2008-09
2009-10
2010-11
Liquid Assets
Liquid LiabilitiesRatios
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Net working capital
year
Net working
capital
Capital
employed Ratios
2001-02 82663 90522 0.91312002-03 92242 99337 0.93
2003-04 70662 79114 0.8931
2004-05 76053 85026 0.894
2005-06 91862 102462 0.89
2006-07 67193 79459 0.84
2007-08 96410 107986 0.89
2008-09 77265 96894 0.797
2009-10 183230 207051 0.884
2010-11 269495 305907 0.881
NET WORKING CAPITAL = NET WORKING CAPITAL / CAPITALEMPLOYED
A higher networking capital ratio indicates efficient utilization of working capital.
Therefore the company should concentrate more on working capital management.
0
50000
100000
150000
200000
250000
300000
350000
2001-02
2002-03
2003-04
2004-05
2005-06
2006-07
2007-08
2008-09
2009-10
2010-11
Net working capital
Capital employed
Ratios
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Debt equity ratio:
year Total debt Equity Ratios
2001-02 497 3252 0.15
2002-03 573 3252 0.172003-04 386 3252 0.11
2004-05 513 3252 0.15
2005-06 1053 3252 0.32
2006-07 607 3252 0.18
2007-08 587 3252 0.18
2008-09 2566 3252 0.789
2009-10 2034 3252 0.62
2010-11 2265 3252 0.70
Debt Equity Ratio:
The debt equity ratio has been increasing over the years and it has been maintained at a level of
.62 for the financial year 2009-10
0
500
1000
1500
2000
2500
3000
3500
2001-02 2002-03 2003-04 2004-05 2005-06 2006-07 2007-08 2008-09 2009-10 2010-11
Total debt
Equity
Ratios
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Fixed assets ratio
year Fixed Assets
Capital
employed Ratios
2001-02 7859 90522 0.072002-03 7095 99337 0.08
2003-04 8360 79114 0.07
2004-05 8896 85026 0.1
2005-06 10600 102462 0.1
2006-07 12347 79459 0.15
2007-08 9909 107986 0.09
2008-09 17699 96894 0.18
2009-10 22595 207051 0.11
2010-11 31830 305907 0.10
Fixed Assets Ratio = Fixed Assets / Capital Employed
Generally financially well managed company will have its fixed assets financed by long term
funds. Therefore, the fixed assets ratio should never be more than!.A ratio of .67 is considered
ideal. The results for DR.REDDYS LABORATORIES is much less at 0.11
0
50000
100000
150000
200000
250000300000
350000
2001-02
2002-03
2003-04
2004-05
2005-06
2006-07
2007-08
2008-09
2009-10
2010-11
Fixed assets
Capital employed
Ratios`
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Interest coverage ratio
year PBIT Interest Ratios
2001-02 13500 3054 4.42
2002-03 13420 258 52.012003-04 15821 48 329.6
2004-05 33122 1105 29.97
2005-06 60867 682 89.24
2006-07 63290 2300 27.51
2007-08 68916 5870 11.74
2008-09 68478 6826 10.03
2009-10 86438 7101 12.17
2010-11 130330 8583 15.18
Interest Coverage Ratio.= PBIT/INTREST
Interest coverage ratio of DR.REDDYS LABORATORIES is not constant, from 2008-09 the
ratio is10 as in 2009 -10 the ratio is 12.17, There is a random fluctuation in the ratio
0
20000
40000
60000
80000
100000
120000
140000
2001-
02
2002-
03
2003-
04
2004-
05
2005-
06
2006-
07
2007-
08
2008-
09
2009-
10
2010-
11
PBIT
Interest
Ratio
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Gross profit
year Gross profit Net sales Ratios
2001-02 13500 153205 0.088
2002-03 13420 137838 0.0972003-04 15821 174490 0.07
2004-05 33122 174668 0.189
2005-06 60867 267217 0.227
2006-07 63290 289241 0.218
2007-08 68916 310235 0.2224
2008-09 68478 414816 0.165
2009-10 86483 500342 0.172
2010-11 130330 665323 0.196
Gross Profit = Gross /net sales
Generally the higher gross profit ratio, the better for the performance of the concern .In
DR.REDDYS LABORATORIES , the company has started to increase from the year on year
which is a very good sign for the company.
0
100000
200000
300000
400000
500000
600000
700000
2001-02
2002-03
2003-04
2004-05
2005-06
2006-07
2007-08
2008-09
2009-10
2010-11
Gross profit
Net sales
Ratio
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Operating ratio
year Operating cost Net sales Ratios
2001-02 131006 153205 0.85
2002-03 116708 137838 0.842003-04 149823 174490 0.85
2004-05 136630 174668 0.78
2005-06 201962 267217 0.75
2006-07 221227 289491 0.76
2007-08 234677 310235 0.76
2008-09 338382 414816 0.81
2009-10 404647 500342 0.8
2010-11 524531 665323 0.79
Operating Ratio: Operating Cost / Net Sales
Generally the lower the Operating Cost, the better for the concern. The ratio should be below1
which is satisfactory for the concern.
0
100000
200000
300000
400000
500000
600000
700000
2001-02 2002-03 2003-04 2004-05 2005-06 2006-07 2007-08 2008-09 2009-10 2010-11
Operating cos t
Net sales
Ratios
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Return on capital employed
year PBIT
Capital
employed Ratios
2001-02 13500 90522 0.1492002-03 13420 99337 0.135
2003-04 15821 79114 0.199
2004-05 33122 85026 0.389
2005-06 60867 102462 0.594
2006-07 63290 79459 0.796
2007-08 68916 107986 0.638
2008-09 68478 96894 0.706
2009-10 86438 207051 0.417
2010-11 130330 305907 0.426
Return on Capital Employed = PBIT/Capital Employed
The higher the ROCE ratio, the better for the concern. The company has been keeping up the
good performance is increasing at the rapid phase which in turn is a good sign for the company.
0
50000
100000
150000
200000
250000
300000
350000
2001-02
2002-03
2003-04
2004-05
2005-06
2006-07
2007-08
2008-09
2009-10
2010-11
PBIT
Capital employed
Ratios
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Debtors turnover ratio
year Net credit sales
Average
debtors Ratios
2001-02 153205 85001 1.82002-03 137838 81237 1.69
2003-04 174490 82829 2.1
2004-05 174668 112238 1.55
2005-06 267217 135322 1.97
2006-07 289491 177301 1.63
2007-08 310235 215291 1.44
2008-09 414816 287414 1.44
2009-10 500342 328201 1.53
2010-11 665323 537364 1.24
Debtors Turnover Ratio = Net Credit Sales / Average Debtors
The DR.REDDYS LABORATORIES `s debtor turnover ratio was below 2 .Its has bee
increasing since 2008-09 from 1.44 to 1.53 in 2009-10, the increasing trend Implies the efficient
management of Debtor and credit sales
0
100000
200000
300000
400000
500000
600000
700000
2001-02
2002-03
2003-04
2004-05
2005-06
2006-07
2007-08
2008-09
2009-10
2010-11
Net credit sales
Average debtors
Ratio
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Creditors turnover ratio
year
Net credit
purchases
Average
creditors Ratios
2001-02 12060 29738 0.42002-03 16646 27610 0.6
2003-04 16350 20467 0.79
2004-05 16727 24225 0.81
2005-06 19656 39495 0.49
2006-07 21772 46452 0.48
2007-08 25459 54586 0.4664
2008-09 31900 58078 0.54926
2009-10 60293 88228 0.68
2010-11 65700 103305 0.64
Creditors Turnover Ratio: Net Credit Purchases /Average Creditors
Interpretation: The DR.REDDYS LABORATORIES `s creditors Turn Over Ratio is at 0.68 ,
it has been on the increasing trend since past two financial years. The management should try to
reduce this by adopting proper payment policies.
0
20000
40000
60000
80000
100000
120000
2001-02
2002-03
2003-04
2004-05
2005-06
2006-07
2007-08
2008-09
2009-10
2010-11
Net credit purchases
Average credito rs
Ratio
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Fixed asset turnover ratio
year Net sales Fixed assets Ratios
2001-02 153205 7859 19.49
2002-03 137838 7095 19.422003-04 174490 8360 20.87
2004-05 174668 8896 19.63
2005-06 267217 10600 25.2
2006-07 289491 12247 23.63
2007-08 310235 9909 31.3
2008-09 414816 17699 23.43
2009-10 500342 22595 22.14
2010-11 665323 31830 20.90
Fixed Assets Turnover Ratio. = Net Sales / Fixed AssetsAt high fixed assets turnover ratio indicates better utilization of the firms fixed assets. A ratio
around 5 is considered ideal for the concern .In DR.REDDYS LABORATORIES it is more than
22.This is a very good sign for the company.
0
100000
200000
300000
400000
500000
600000
700000
2001-02 2002-03 2003-04 2004-05 2005-06 2006-07 2007-08 2008-09 2009-10 2010-11
Net sales
Fixed assets
Ratio
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Total asset turnover ratio
year Total debt Equity Ratios
2001-02 497 3252 0.15
2002-03 573 3252 0.172003-04 386 3252 0.11
2004-05 513 3252 0.15
2005-06 1054 3252 0.32
2006-07 607 3252 0.18
2007-08 587 3252 0.18
2008-09 2566 3252 0.78
2009-10 2034 3252 0.62
2010-11 2265 3252 0.70
Total Assets Turnover Ratio: Net Sales / Total Assets
The Total Assets turnover ratio of the DR.REDDYS LABORATORIES is below
1 . This shows greater ability of the firm to utilize the investment in the business
0
500
1000
15002000
2500
3000
3500
2001-02
2002-03
2003-04
2004-05
2005-06
2006-07
2007-08
2008-09
2009-10
2010-11
Total debt
Equity
Ratio
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Comparative income statement 2009-2010 and 2010-11
DESCRIPTION
2009-10 2010-11 increase/decrease increase/decrease
TURNOVER- DR.REDDYS
LABORATORIES1106 400
-706 -63.83%
- NON-
DR.REDDYS
LABORATORIES
499236 664923
165687 33.19%
TOTAL TURNOVER 500342 665323 164981 32.97%
CHANGES IN WIP 49447 -25439 -74886 -151.45%
CHANGES IN FG -9622 -9622
EXPORT INCENTIVES 690 669 -422 -21.00%
GROSS TURNOVER 540857 640553 99696 18.43%
EXCISE DUTY 16859 33288 16429 97.44%
GTO LESS ED 523998 607265 83267 15.89%
DIRECT MATERIALS 340315 342167 1852 0.544%
SUB-CONTRACT PAYMENT 1356 1682 378 24.04%
POWER AND FUEL 1746 1693 -53 -3.04%
TRANSFER IN SERVICE 806 681 -125 -15.51%
TOTAL OF `C' 344223 346223 2000 0.58%
VALUE ADDED 179775 261042 81267 42.20%
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PERSONNEL PAYMENTS 62236 69941 7795 12.38%
INDIRECT MATERIALS 3902 5861 2059 52.76%
OTHER EXPENSES -
DR.REDDYS
LABORATORIES
7101 8583
1482 20.87%
OTHER EXPENSES - NON
DR.REDDYS
LABORATORIES
26301 27410
1109 4.22%
PROVISIONS -226 38565 %
PROV.EXCH.VAR. 894 -1523 %
LESS:MISC.INCOME 11522 23356 11834 102.71%
TOTAL OF `E' 88686 125481 36795 41.49%
GROSS MARGIN (PBIDT) 91089 135561 44472 48.82%
DEPRECIATION 4606 5231 625 13.57%
DRE ON VRS 0
GROSS PROFIT (PBIT) 86483 130330 43847 50.70%
INTEREST -7101 -2905 -10006 -140.91%
PROFIT BEFORE TAX 93584 133235 39651 42.37%
GTO LESS ED 523998 607265 83267 15.90%
0
OPERATING COST 404647 524531 119884
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Comparative income statement 2008-09 & 2009-10
DESCRIPTION2008-09 2009-10 Increase/Decrease Increase/Decrease%
TURNOVER- DR.REDDYS
LABORATORIES779 1106
327 41.98%
- NON-
DR.REDDYS
LABORATORIES414037 499236
85199 20.58%
TOTAL TURNOVER 414816 500342 85526 20.62%
CHANGES IN WIP 10637 49447 38810 364.86%
CHANGES IN FG 4938 -9622 %
EXPORT INCENTIVES 1112 690 -422 -37.95%
GROSS TURNOVER 431503 540857 109354 25.34%
EXCISE DUTY 24537 16859 -7678 -31.29%
GTO LESS ED 406966 523998 117032 28.76%
DIRECT MATERIALS 259592 340315 86723 33.41%
SUB-CONTRACT
PAYMENT978 1356
378 38.65%
POWER AND FUEL 1925 1746 -169 -8.78%
TRANSFER IN SERVICE 1347 806 -541 -40.16%
TOTAL OF `C' 263842 344223 80381 30.46%
VALUE ADDED 143124 179775 36651 25.61%
PERSONNEL PAYMENTS 58365 62236 3871 6.63%
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INDIRECT MATERIALS 4560 3902 -658 -14.43%
OTHER EXPENSES -
DR.REDDYS
LABORATORIES
6436 7101
665 10.33%OTHER EXPENSES - NON
DR.REDDYS
LABORATORIES
15402 26301
10899 70.76%
PROVISIONS 142 -226
PROV.EXCH.VAR. -324 894
LESS:MISC.INCOME 13913 11522 -2391 -17.18%TOTAL OF `E' 70668 88686 18018 25.50%
GROSS MARGIN (PBIDT) 72456 91089 18633 25.72%
DEPRECIATION 3978 4606 628 15.79%
DRE ON VRS 0
GROSS PROFIT (PBIT) 68478 86483 18005 26.29%
INTEREST -6826 -7101
PROFIT BEFORE TAX 75304 93584 18280 24.27%
GTO LESS ED 406966 523998 117032 28.76%
0
OPERATING COST 338382 404647 66265
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Comparative income statement 2007-2008 and 2008-09
comparative income statement
DESCRIPTION
2007-
082008-09
Increase /
Decrease
Increase /
decrease %
TURNOVER- DR.REDDYS
LABORATORIES667 779
112 16.79%
- NON-
DR.REDDYS
LABORATORIES
309568 414037
104469 33.74%
TOTAL TURNOVER 310235 414816 104581 33.71%
CHANGES IN WIP 17781 10637 -7108 -39.97%
CHANGES IN FG 4591 4938 347 7.56%
EXPORT INCENTIVES 2283 1112 -1171 -51.29%
GROSS TURNOVER 334890 431503 96613 28.85%EXCISE DUTY 27236 24537 -2699 -9.91%
GTO LESS ED 307654 406966 99312 32.28%
DIRECT MATERIALS 183845 259592 75747 41.20%
SUB-CONTRACT
PAYMENT790 978
188 23.80%
POWER AND FUEL 1840 1925 85 4.62%TRANSFER IN SERVICE 1394 1347 -47 -11.93%
TOTAL OF `C' 187869 263842 75973 40.44%
VALUE ADDED 119785 143124 23339 19.48%
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PERSONNEL PAYMENTS 36001 58365 22364 62.12%
INDIRECT MATERIALS 4039 4560 521 12.90%
OTHER EXPENSES -
DR.REDDYS
LABORATORIES
6125 6436311 5.08%
OTHER EXPENSES - NON
DR.REDDYS
LABORATORIES
12848 15402
2554 19.88%
PROVISIONS 1805 142 -1663 -92.13%
PROV.EXCH.VAR. -1524 -324 %LESS:MISC.INCOME 11746 13913 2227 18.96%
TOTAL OF `E' 47548 70668 23120 48.63%
GROSS MARGIN (PBIDT) 72237 72456 219 0.303%
DEPRECIATION 3321 3978 657 19.78%
DRE ON VRS 0
GROSS PROFIT (PBIT) 68916 68478 -438 -0.64%
INTEREST -5870 -6826 %
PROFIT BEFORE TAX 74786 75304 518 0.69%
GTO LESS ED 307654 406966 99312 32.28%
0
OPERATING COST 234677 338382 103705 44.19%
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FINDINGS
1. The net working capital was Rs 91021 lacs in 2000 -2001. This decreased to Rs 82663
lacs in the year 2001 -2002. In the year 2006-2007 the net working capital is Rs 67193lacs.
2. The current ratio of DR.REDDYS LABORATORIES was 2.41 in the year 2000-2001.
There was decrease in the ratio up to the year 2007-2008. The ratio is decreasing year by
year. But the DR.REDDYS LABORATORIES is maintaining current ratio more than
the standard norms of 2.
3. The organization is able to maintain both current ratio and quick ratio above the standard
norms. i.e. the ideal current ratio for the concern is 2:1 and the quick ratio is 1:1 but the
cash ratio is fluctuating.
4. The quick ratio of the organization is in decreasing trend year by year.
5. Investment in current assets has been increasing from Rs 155302 lacs in 2000-2001 to Rs
310002 in 2007-2008.
6. The inventory turnover ratio of DR.REDDYS LABORATORIES is fluctuating i.e.,
showing decreasing trend during the years 2000-2001 to 2003-2004. But there onwards it
has slowly increased till the financial year.
7. The debtors turnover ratio has decreased from the year 2001-2002 to 2002-2003. It was
2.10 in the year 2003-2004. There was decrease in debtors turnover ratio till the financial
year.
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CONCLUSIONS AND SUGGESTIONS:
1. The current ratio of DR.REDDYS LABORATORIES is decreasing year by year. In the
year 2000-2001 it was 2.41 and during the year 2008-2009 it has gone down to 1.2 later in the next financial year 2009-2010 it has gone up to 1.46, so the company should
concentrate effectively on the management of Current Assets and Current Liabilities.
2. The Net Working Capital of DR.REDDYS LABORATORIES is good for almost in
range for each and every year. It is always in the ideal ratio for every organization.
3. The DR.REDDYS LABORATORIES is using the moving average method in valuation
of stock.
4. The debtors constitute nearly 50% of the Total Current Assets. For the Company it is
difficult to manage the accounts receivables. The company should collect debts as
quickly as possible.
5. The company has to exercise cost of control and cost of reduction techniques to increase
its profitability.
6. The debtors turnover ratio in 2005-2006 is 1.97. The ratio has increased than previous
years except for 2003-2004, which had 2.10. The decreasing ratio shows the inefficient
management. They should concentrate more on the collection of the debts.
7. The return on investment ratio of the DR.REDDYS LABORATORIES is 59.40 in 2005-
2006. It has increased when compared to previous years ratios. It is beneficial to
investors who are interested to know the profits earned by the company.
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8. The investment in loans and advances should be minimized to possible extent.
9. Effective internal control system should be established. So that it can have control over
all aspects of the company.
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BIBILOGRAPHY:
http://www.Dr.Reddys Laboratoriescom/financialinformation/index.p
hp http://www.studyfinance.com/lessons/workcap
www.bizsearchpapers.com
http://www.antiessays.com/free-essays/9076.html
http://www. Dr.Reddys Laboratories hyderabad.com/ Dr.Reddys
Laboratories _hyderabad_unit.htm
http://en.wikipedia.org/wiki/Bharat_Heavy_Electricals_Limited
Financial Management I M Pandey.
Accounting for Managers-Jelsy Joseph Kuppapally.
Financial statement analysis - Gokul Sinha.