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SHRI YOGINDRA SAGAR INSTITUTE OF TECHNOLOGY & SCIENCE, RATLAM (M.P.

A Project report submitted to Vikram University, Ujjain (M.P.) In partial fulfillment of the degree of Master In Business Administration In Finance Session 2012-2013

Guided By Pro. Anand Trivedi Submited By Anjali Dalvi

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SHRI YOGINDRA SAGAR INSTITUTE OF TECHNOLOGY & SCIENCE, RATLAM (M.P.)

CERTIFICATE
This is to certify that the desertion entitled to study financial analysis of IPCA LABS Ltd Ratlam (M.P.) submitted to the Vikram University, Ujjain, by ANJALI DALVI during the academic year 2012-2013, is a record of his own work and is accepted in the partial fulfillment for the award of the degree of Master in Business Administration.

Internal Examiner Date External Examiner Date

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DECLARATION
I hereby declare that the following project report titled. To study financial analysis of IPCA LABS LTD RATLAM is an authentic work done by me. The project was undertaken as a part of the course curriculum of M.B.A. (FINANCE) program, Shri yogindra sagar institute of technology & science, Ratlam. ANJALI DALVI MBA 2ND YEAR

CONTENTS
1. Preface. 2. Acknowledgement. A) INDUSTRY PROFILE. (Page 7 to Page 21) 1. 2. 3. 4. 5. 6. Introduction of IPCA laboratories. Board of Directors History of IPCA. Achievement of IPCA. Influence of IPCA in World. Product Profile.

7. Plant location and administrative offices. 8. Companys philosophy. 9. Executive Summary. (03)

B) FINANCIAL PERFORMANCE OF IPCA LAB.LIMITED. (Page 22 to Page 37) 1. Introduction. 2. Purpose and objective of study. 3. Assumptions/limitations. 4. Literature review. 5. Financial Results. 6. Five years highlights. 7. Financial performance and operations review. 8. Break up of pharmaceutical sales. 9. International sales. 10.Listing on stock exchange. 11.Distribution on sales C) FINANCIAL ANLYISIS OF IPCA LAB LIMITED. (Page 38 to Page 69) 1. Definition of Ratio. 2. Categories of Ratio. 3. Ratio formulae. 4. Key Ratio 5. Financial Ratio. 6. Interpretations. 7. Five years financial trends. 8. Findings 9. Balance Sheet Profit & Loss Account 10.Suggestions 11.Conclusions and recommendations. 12.Bibliography

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1) PREFACE
This report is concerning my summer training in IPCA lab. Ratlam (M.P) I did summer training in the accounts and finance department of IPCA lab. Ltd. Ratlam (M.P) during the period, I gained on experience and made myself aware of working in various department like accounts dept, Internal audit dept, purchase dept, Excise dept, stores dept, costing dept. Ive undertaken a major project report on financial performance, profitability calculation by ratio analysis of IPCA lab. Ltd The presented report is divided into three segments. A. Industry profile of IPCA ltd. B. Financial performance. C. The profitability analysis of IPCA lab ltd.

2) ACKNOWLEDGEMENT
I owe my special thanks to Mr. D.P.ANJNE (Sr.Manager - TQM), IPCA LABS Ltd Ratlam (M.P.) for providing us a great opportunity to have our project work from an esteemed organization. I wish to express special thanks to Mr. R.K.BHANDARI (AGM Account) IPCA LABS Ltd Ratlam (M.P.) for his benevolent guidance,

unhesitating co-operation, encouragement and keen interest in our dayto-day progress that helped us to undertake this work. I am grateful to Mr. PANKAJ TIWARI (Training & Development), IPCA LABS Ltd Ratlam (M.P.) who gave valuable guidance time to time. (05)

I am grateful to MR.ANAND TRIVEDI (Lecturer) who gave me the valuable guidance time to time and helps me to complete my project on time. Im grateful to all the workers and staff member who gave their valuable time and suggestion for our project work. My thanks and regards goes to my parents because of their support. I became the part of IPCA LABS Ltd Ratlam (M.P.). Last but not the least all that came through due to blessing and grace of GOD. Thanks

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A) INDUSTRY PROFILE
1) INTRODUCTION OF IPCA LABORATRIES.
Ipca Laboratories is an international pharmaceutical company based in Mumbai, India. It is also one of the largest suppliers of these APIs and their intermediates world over. It produces more than 150 formulations that include oral liquids, tablets, dry powders, and capsules. The main activities of company are to produce and market pharmaceuticals and drugs. The various products of the company include formulations, drug intermediates, and active pharmaceutical ingredients (API). Ipca is a fully-integrated Indian pharmaceutical company manufacturing over 350 formulations and 80 APIs for various therapeutic segments. Ipca is a therapy leader in India for anti-materials with a market-share of over 34% with a fast expanding presence in the international market as well. We also lead in DMARDs (Disease Modifying Anti-Rheumatic Drugs) treatment for rheumatoid arthritis. We have leading brands in 5 therapeutic areas, with 4 of our branded formulations being ranked among the Top-300 Indian brands by ORG-IMS. Our international client roster includes global pharmaceutical giants like AstraZeneca, GlaxoSmithKline, Merck, Roche and Sanofi Aventis; most of whom we have been partnering over the years.

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2) BOARD OF DIRECTORS

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3) History of IPCA
It was founded by group of businessmen and medical professionals in 1949. In 1975, the management of the company was taken over by Amitabh Bachchan, Ajitabh Bachchan, Jaya Bachchan, M.R. Chandurkar, P.C. Godha.

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4) Achievement of IPCA
In 2004, Forbes selected Ipca, for the second consecutive year as one among the first 200 Best under a Billion Company in Asia.[9] It also got certification from US Food and Drug Administration (FDA), UK-Medicines and Healthcare products Regulatory Agency (MHRA), South Africa-Medicines Control Council (MCC),Brazil-Brazilian National Health Vigilance Agency (ANVISA) and Australia-Therapeutic Goods Administration (TGA).

Our Clients
IPCAS customers including like Pfizer, Cipla, Ranbaxy, Dr. Reddys, Merck, Bayer India. In 2003 the IPCA started new division termed as Hycare Division which is related with cardiology and dibetiology.

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5) Influence of IPCA in World


We are one of the world's largest manufacturers and suppliers of over a dozen APIs. These are produced right from the basic stage at manufacturing facilities endorsed by the world's most discerning drug regulatory authorities like US-FDA, UK-MHRA, EDQM-Europe, WHO-Geneva and many more. The various kinds of drug intermediates that the company manufactures include Theo bromine, Acetylthiophene, and P- Bromo Toluene and promotes over 36 countries of Asia, Africa, CIS, and South America, including Cambodia,Kazakhstan, Kenya, Mauritius, Myanmar, Nigeria, Oman, Russia, Sri Lanka, Sudan, Tanzania, Ukraine, Vietnam and Yemen.

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Key Ratios

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6) Product Profile
IPCA has emerged as one of India's top exporters of APIs with nearly 25% of the turnover coming from APIs. Regulated markets like the USA, Canada, Europe and Australia account for 75% of our API exports. We are one of the world's largest manufacturers of APIs - Atenolol (anti-hypertensive), Chloroquine Phosphate (antimalarial), Furosemide (diuretic), Hydroxychloroquine Sulphate (NSAID), Metoprolol Succinate (anti-hypertensive), Metoprolol Tartrate (anti-hypertensive) and Pyrantel Salts (anthelmintic) - besides being one of the largest suppliers of these APIs worldwide. For over 20 years, Ipca has been playing a lead role in the Indian APIs market, both in the anti-malarial and anti-hypertensive therapeutic segments. We are the first manufacturer in India for APIs like Atenolol, Hydroxycholoquine Sulphate, Morantel Citrate, Pyrantel Pamoate and Zaltoprofen. Our domestic pharmaceutical customers include pharmaceutical majors like Abbott, AstraZeneca, Bayer, Cipla, Dr. Reddy's, Merck, Pfizer, Ranbaxy, and Wockhardt.

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Product Profile Tablets


1. LARIAGO (Chloroquine phosphate) 2. PERINORM (Metaclopromide) 3. ROXEPTIN (Roxithromycin) 4. ELTOCIN KID/DS (Erythromycin) 5. PACIMOL (Paracetamol 650 mg) 6. AMODIAQUINE TAB. 150 mg 7. AZIFAST TAB. 250/500 mg 8. BLOCACID 20/40 mg 9. BUTAFEN 200/400 mg 10. BRONCHOSOLVIN TAB. 11. CHLOROMON TAB. USP 12. CIMET TAB. USP 200/400mg 13. COTRIMOL TAB. 200/400 mg 14. CINCHONA 300/600 mg 15. NORMAX (Norfioxacin) 16. LARIBOX FORTE TAB. 17. GLYCINORM 40/80 mg 18. HCQS 20 MG 19. LOMFLOX TAB. - Product knowledge. - Ensuring security of our drugs from manufacturing to supply. - Providing quality products. - Prompt service.

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Environment:
Our objective is to reduce impact on the environment through a committed continual improvement projects for Environment Management systems.

Illustration:
- Tree plantations inside and outside manufacturing sites. - Safe effluent treatment management. - Rain water harvesting. - Ecology balance awareness to the workmen, school and college students. - Water conservation. - Energy conservation.

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Suppliers:
We regard suppliers as our partners and work with them to help us achieve our policy aspirations in the delivery of our products and services. We will encourage our suppliers and contractors to adopt responsible business policies and practices for mutual benefit.

Safety:
We are committed to put our efforts to find out unsafe places and unsafe acts for improving safety of the people at workplace and road safety for general public.

Illustration:
- Organization wide safety awareness drives to improve safety. - A series of training sessions for safe working practices. - Road safety campaign for general public.

Employees:
We will deliver a competitive and fair employment environment and the opportunity to develop and advance subject to personal performance and business opportunity.

Illustration: - Employee education and skill development programs, Personal effectiveness programs. (16)

Customers:
Our business and existence depend upon our customers. Every employee is responsible for ensuring that any contact with our customers and the public at large reflects professionalism, efficiency and honesty. We will constantly strive to provide high quality service, products and good value for money. Illustration: - Health awareness programs.

Areas of Operations Health:


We are committed to implement a programmed of activities to achieve continuous improvement in health and safety performance of our employees and society at large.

Illustration:
- Free Medicine distribution. - Blood donation by employees.

- Medical checkups. - Medical camps. - Doctors education etc.

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7) Plant location and administrative offices


The operation of Ratlam Plant started in Jan. 1984. IPCA Laboratory limited is situated 7 km. away from Ratlam City. In greenish environment, the industry building is well planned and maintained in a systematic manner. Every section is managing the proper system for cleanliness & sterility where every required. In & outside of every section there are emergency showers for bathing purpose if accidentally any of the working personnels has meet with those hazardous chemicals. Currently, this premise where Ipca started its operations, houses the Registered Office of the company. Key departments like International Marketing, R&D (Formulations) and Analytical Development Lab are located here. Forbes, a leading US business magazine, awarded Ipca as one of the Best under a Billion Forbes Global 200 Best Small Companies, 2007. In the past also we have been awarded by Forbes for 3 consecutive years in 2003, 2004 and 2005. From a modest income of Rs. 0.54 crores in 1975-76, the net income has soared to Rs.1085 crores in 2007-08 with exports accounting for Rs.536 crores. The net profit for the year ending 3V March, 2008 stood at Rs.

141.12 crores. Formulations constitute 71 percent of the total income for 2007-08. Today, Ipca is one of the biggest manufacturers in the world of APIs Atenolol (Antihypertensive), Chioroquine Phosphate (Antimalarial), Furosemide (Diuretic) and Pyrantel Salts (Anthelmintic) right from the basic stage. Ipca is also one of the largest suppliers of these APIs and their intermediates world over. (18)

In 1997 it launched 3 division i.e. Comprehensive Cardiac Care divisions; It Has got lSO9002Certificate in 1999 and also the gold medal for manufacturing in 2000 from IDMA. The IPCA has three divisions. 1. Iinnova - CMS Drugs 2. Intima - Gynecology 3. Active - Rheumatology

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8) Companys philosophy
Value transparency, honesty& integrity in all action. Earn self-respect through self-discipline. Recognize employees efforts & contributions &reciprocate with rewards. Continue to aspire for growth work with speed & ability, and take calculated risks. Continuous training for development & learning newer skills to meet challenging needs. Career growth for all employees. Total quality control, manufacture & deliver quality goods & service. The corporate focus should be market-driven.To be alert, sensitive & responsive to challenging market need, service the customers diligently & sincerely thereby earning their goodwill.

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9) EXECUTIVE SUMMARY
The presented summer training report concerns project on financial performance and profitability analysis of IPCA lab. Limited. In the first part of the project, various financial ratios are analyzed on the basis of annual reports of last five years. For the study, comparative and common size balance sheet and profit and loss account are made &various financial ratios are found out. On the basis of the study following conclusions are made. IPCA lab. Limited financial performance is sound & is profitable enough to give reasonable returns to its owners. Company has a batter short-term solvency to provide protection to its short-term creditors. Company has got tremendous growth financially in last five years is terms of income, sales, assets and exports. Company has utilized its assets both fixed and current and working capital efficiently. There is a high degree of protection enjoyed by the creditors of the company. Company has an efficient degree trade credit management system. Overall profitability of the company is satisfactory.

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B) FINANCIAL PERFORMANCE & PROFITABILTY CALUCULATION BY RATIO ANAYLSIS 2) INTRODUCTION


The above topic is selected to analysis the financial performance & profitability of the company. This study is conducted to evaluate the performance & market standing of the company in order to give the better scopes to the investors, shareholders, creditors and the management themselves about companys performance in the market. For the study, comparative & common size balance sheet & profit & loss accounts are made, various trends & different financial ratios are found& analyzed on the basis of annual reports of the company.

2) Purpose and objective of study

The purpose of doing this project is: To make a through study of the working of IPCA lab. Limited with reference to financial management. To access the companys trends for last 5 years with regard to financial & operational performance. To assess the market strength of the company.

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OBJECTIVE
To know the financial position and progress of the company. To know the earning capacity of the company. To know the profitability of the company. To know the estimate about future prospectus of the company. To judge the solvency of the company. To help in making future plans. To know about the capacity of the company to pay principal and interest. To examine the factors affecting financial and profitability position.

3) ASSUMPTIONS/LIMITATIONS
The study is based solely on the last 5 years only. The current trend may be slightly affected due changes in the financial environment.

The external factors such as fiscal policy, monetary policy, bank rate, govt.policies etc as applicable in the previous years are some for current year. Due to changes in the price level of various materials during previous year, comparison of ratios of such years may not give correct conclusions. The study is based on the financial statements of the company. Company may resort to window dressing to project a favorable financial picture. In the absence if an underlying the theory. Financial statements analysis appears to be ago, informal and subjective, it is repeated with untested assertions about which should be used and what their proper level should be. No benchmark is used in case of ratio analysis. (23)

4) LITERATURE REVIEW
The analysis financial statement of that company can do financial position & profitability anlalysis of Any Company. Financial transactions are recorded in books of original entries and then are posted in ledger. From ledger balance if various accounts & are transferred to financial statements. Finally all balance so if various accounts are places in some statements, which are termed as financial statements. They indicate earning capacity financial position of the concerned enterprise.

5) ANALYIS OF THE FINANCIAL STATEMENTS INCLUDES

(1) (2) (3) (4)

Breaking financial statements into simpler ones. Regrouping Rearranging the figure given in the statements Finding out ratios

After analysis of financial statements, next step is the interpretation. Interpretation includes analysis and criticism. Interpretation is an art science of translating the figures there in such a manner as to reveal the financial strengths &weakness of the company.

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TOOLS & ANALYSIS.

METHODS

OF

FINANCIAL

4. COMPARATIVE STATEMENTS ANALYSIS. Under these method amounts of two or more than years compared. Here absolute figures are compared, their percentage is not made use of on the basis of comparison of current figures with figures, and interpretation regarding progress or downfall can be made. 2. COMMON SIZE STATAMENTS ANALYSIS. Under this method total of assets is treated as 100% & percentage of each item of assets is found with the total assests. In the same way total of liabilities side is treated as 100% & percentage of each item of liabilities is found out with the total of liabilities.

3. TREND ANALYSIS OR HORIXONTAL ANALYSIS. When the intention to know changes in an item in a group of items in comprising to some years, then trend method of analysis is used. This analysis because figures of many year are compared with each other on horizontal basis. 4. RATIO ANALYSIS. Ratio analysis is a method through which numerical relationship is found out. It is a widely used tool of financial 27nalysis. It is defined as the systematic use of ratios to interpret the financial statements so that the strengths & weakness of a firm as well as its historical performance & current financial position can be determined. The relationship can be expressed as percentaged, fractions, proportions & decimal figures. Formulae for finding out different ratios are as follow. (25)

6) FIVE YEARS HIGHLIGHTS


Total income Domestic income Export income Earning before interest ,depreciation Tax 2006-07 484.32 206.31 278.01 2007-08 622.74 265.26 357.48 2008-09 685.45 274.87 410.58 2009-10 752.82 350.99 401.83 2010-12 921.24 436.78 484.46

96.39

128.51

134.48

116.62

202.52

Profit before tax 79.32 Net profit after tax 61.86 Cash profit 73.03 Share capital 12.50 Reserve surplus Net worth 211.80 Net block 149.88 Net current assets 210.11 Dividend 90% Earning per share(Rs.) 49.49 Book value per share(Rs.) 169.44 & 199.30

108.00

101.55

78.39

151.24

79.25 93.75 12.50 263.17 275.67 195.92 248.27 110% 63.41 220.54

80.71 99.73 25.00 312.59 337.59 322.46 268.52 55% 25.59 154.36

63.98 88.59 25.00 360.89 385.89 373.52 243.23 55% 48.59 154.36

122.23 151.39 25.00 461.02 486.02 431.48 319.79 75% 48.89 194.41

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NET WORTH(Rs crore)


500 400 NET WORTH(Rs crore) 300 200 100 0 0 1 211.8 0 2 275.67 0 3 337.59 385.89 486.02 Series5 Series4 Series3 Series2 Series1 0 4 0 5 0 6 7

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BOOK VALUE PER SHARE

250 200 150 100 50 0 0 1 0 2 0 3 0 4 0 5 0 6 220.54 169.44 135.04 154.36 194.41 Series4 Series3 Series2 Series1

RESEARCH & DEVELOPMENT [R&D]


The R&D expenditure of company during the financial year under report was Rs.32.83 crores (3.61% of turnover) as against Rs.37.88 crores (5.03% of turnover) in the previous financial year.

DIVIDEND
Directors had declared an interim equity dividend of Rs 3.50 per share (35%) at the meeting of the Board of Directors of the company held on 18th October 2006. Directors are now pleased to recommend a final dividend of Rs. 4/- per share (40%), making the total dividend recommended to Rs.7.50 per share (75%) for the financial year under project. The dividend will be tax free in the hands of the shareholders. (29)

The dividend (inclusive of interim dividend already paid) amounting to Rs.18.75 crores and dividend tax amounting to Rs.2.93 crores, if approved at the ensuing Annual General Meeting, will be appropriated out of the profits for the years.

7) FINANCIAL PERFORMANCE AND OPREATION REVIEW


Your company had another successful financial year with a net total income of Rest 921.24 crore as against Rs 752.82 crores in the previous year growth of 22%.

The company focus on formulation business into increase in overall formulation sale to 627.24 crore and increase of 25% over previous year formulation sale of rs .501.29 crore. The overall increase in the formulation sale is mainly on account on aggressive brand building activities under taken by company in the promotional market of India. IS Africa, south East Asia substantial improvement in generic formulation business in UK also contributed to the growth in the formulation business? The company further expanded coverage with introduction of new formulation both in domestic and export market especially in the fast growing life style the related segment such as cardio vascular, pain management, CNS and dermatology. Directors are pleased to inform that the company formulation brand Zerodol which was launch in the financial year 2003-04 achieved a net sale of over Rs.25 crore in the domestic market during the year under report. The company is aggressively promoting its brand in several countries of Africa and south East Asia The business operation have resulted in substantial improvement in net profit of Rs122.23 crore during the financial year under report as against .A net profit of 63.98 crore in the previous year a growth of 91%.

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8) BREAK-UP OF PHARAMACEUTICAL SALES

2001011

201112

FORMULATIONS API&INTERNATI ONAL NET TOTAL SALES GROWTH

DOMESTI C 354.04 70.65 424.68 22%

EXPOR T 273.21 211.25 484.46 21%

TOTA L 627.24 281.91 909.90 21%

GROWT H 25% 14% 21%

DOMEST IC 291.31 55.91 347.22 30%

EXPORT 209.98 191.85 401.83 -2%

TOTA L 501.29 247.76 749.05 11%

GRO WTH 12% 8% 11%

9) INTERNATIONAL SALES
The product of the company are now exported to over 110 countries across the global during the financial year under report the international business increase to Rs 484.46 crores as against Rest.401.83 crores in the previous year a growth of 21%.formulation export of company increase by 30% to Rest.273.21 crores and export of Active pharmaceutical ingredients .An international market increased by 10% to Rest .211.25 crores.

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CONTINENT WISE EXPORT


2010-11 201112 TOT AL 215.2 7 52.37 70.84 66.89 69.90 9.01 484.4 6 % TOEXPO RT 44% 11% 15% 14% 14% 2% 100% FORMU LATION S 84.29 4.25 56.40 10.26 51.18 3.60 209.98 API s 90.1 1 42.5 4 1.05 39.4 1 11.5 7 7.17 191. 85 TOTA L 174.40 46.79 57.45 49.67 62.75 10.77 401.83 % TO EXPOR T 43% 12% 14% 12% 16% 3% 100%

FORMUL ATION EUROPE AMERICA NS CIS ASIA AFRICA AUSTRALI A TOTAL 119.14 1.19 60.09 16.99 62.75 4.05 273.21

APIs

96.13 51.37 1.75 49.89 7.15 4.96 211.25

CONTINENTWISE EXPORT(PERCENTAGE)
1 0 14% 44% 14% 11% 15% 2% 2 3 4 5 6 7 8

DOMESTIC FORMULATION BUSINESS


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During the year under report, the company introduce 7 new product in the domestic market .New products introduced during the last three financial year now constitute nearly 28% of the companys domestic formulations sales. During the financial year under report, the domestic formulation business recorded the growth of 22%at rs.354.03 crores as against rs.291.31 crores in the previous years. As per MAT march 12 ORG IMS, company recorded a sales growth of 15.4% as against introductory growth of 14.3% and the overall domestic rank of company is currently at 23 with a market share of 1.3%.

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9) LISTING ON STOCK EXCHANGES.


The stock exchange of Mumbai (BSE) and the National Stock Exchange (NSE) have their listing fees been paid to both the stock Exchanges for the financial year 2011-12 in April 2011. Stock code-Physical: 524494 on BSE, IPCA LAB INE 571A01012 ISIN number NSDL&CDSL

MARKET SHARE:

PRICE

OF

THE

COMPANYS

YEAR 2010

2011

MONTH April May June July August September October November December January February March

HIGHEST (rs) 364 359 317 326 388 397 454 483 595 646 648 622

LOWEST (rs) 330 285 241 260 327 365 364 421 514 586 614 566

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IPCA SHARE PRICE


700 600 IPCA SHARE 500 400 300 200 100 0 1 2 3 4 5 6 7 8 9 10 11 12 13 14 Series2 Series1

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10) DISTRIBUTION OF SHAREHOLDING

No. of equity shares held % Up to 501 1001 2001 3001 4001 5001 10001 to to to to to to to 500 1000 2000 3000 4000 5000 10000 above

No. of shareholders 13840 328 140 44 23 13 37 86 14511 3219 11292 95.38 2.26 0.97 0.30 0.16 0.09 0.25 0.59

No. of shares 1868418 257323 224841 113778 83770 60033 257130 22116707 25000000 8632333 16367667

% 7.48 1.03 0.90 0.46 0.33 0.24 1.10 88.47 100.00 34.53 65.47

Grand total. No. Of shareholders in physical mode No. of shareholders in electronic Mode.

100.00 22.18 77..82

Shareholding pattern as on March, 31,2012 are as followsCategory Indian promoters Banks & insurance UTI&mutual funds FIIs&NRIs Domestic companies Resident individuals No. shareholders. 22 1 39 155 343 13951 Of No. Of shares 13059135 200 5520393 1852433 1542373 3025466 % Holding 52.24 22.08 7.41 6.17 12.10

14511

25000000

100.00

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C) CALCULATION OF PROFITABILITY BY RATIO ANAYLISES

1) Definition
The study and interpretation of the relationships between various fmancial variables, by investors or lenders.

Ratio Analysis Introduction


Fundamental Analysis has a very broad scope. One aspect looks at the general (qualitative) factors of a company. The other side considers tangible and measurable factors (quantitative). This means crunching and analyzing numbers from the financial statements. If used in conjunction with other methods, quantitative analysis can produce excellent results. Ratio analysis isnt just comparing different numbers from the balance sheet, income statement, and cash flow statement. Its comparing the ri.imber against previous years, other companies, the industry, or even the economy in general. Ratios look at the relationships between individual values and relate them to how a company has performed in the past, and might perform in the future. For example current assets alone dont tell us a whole lot, but when we

divide them by current liabilites we are able to determine whether the company has enough money to cover short term debts. (38)

Before we delve into the different ratios and how they work, lets Sriefly discuss where you can find the data for each ratio. Financial ratios are calculated from one or more pieces of information from a companys financial statements. For example, the gross margin is the gross profit from operations divided by the total sales or revenues of a company, expressed in percentage terms. In isolation, a financial ratio is a useless piece of information. In context, however, a financial ratio can give a financial analyst an excellent picture of a companys situation and the trends that are developing. A ratio gains utility by comparison to other data and standards. Taking our example, a gross profit margin for a company of 25% is meaningless by itself. If we know that this companys competitors have profit margins of 10%, we know that it is more profitable than its industry peers which are quite favorable. If we also know that the historical trend is upwards, for example has been increasing steadily for the last few years, this would also be a favorable sign that management is implementing effective business policies and strategies. Financial ratio analysis groups the ratios into categories which tell us about different facets of a companys finances and operations. An overview of some of the categories of ratios is given below. Leverage Ratios which show the extent that debt is used in a company s capital structure. Liquidity Ratios which give a picture of a companys short term financial situation or solvency.

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Operational Ratios which use turnover measures to show how efficient a company is in its operations and use of assets. Profitability Ratios which use margin analysis and show the return on sales and capital employed. Solvency Ratios which give a picture of a companys ability to generate cash flow and pay it financial obligation.

2) Categories of ratios Liquidity Ratios


These ratios indicate the ease of turning assets into cash. They include the Current Ratio, Quick Ratio, and Working Capital. While liquidity ratios are most helpful for short-term creditors/suppliers and bankers, they are also important to financial managers who must meet obligations to suppliers of credit and various government agencies. A complete liquidity ratio analysis can help uncover weaknesses in the financial position of your business. Current Ratio Current Assets*

______________= Current Ratio (40)

Current Liabilities:
Popular since the turn of the century, this test of solvency balances your current assets against your current liabilities. The current ratio will disclose balance sheet changes that net working capital will not. *Cunent Assets = net of contingent liabilities on notes receivable *Current Liabilities = all debt due within one year of statement data Note: The current ratio reveals your businesss ability to meet its current obligations. It should be supplemented with the other ratios listed below, however.

Quick Ratio
Cash + Marketable Securities Accounts Receivable (net) = Quick Ratio Current Liabilities Also known as the acid test, this ratio specifies whether your current assets that could be quickly converted into cash are sufficient to cover current liabilities. Until recently, a Current Ratio of 2:1 was considered standard. A firm that had additional sufficient quick assets available to creditors was believed to be in sound financial condition.

Note: The Quick Ratio assumes that all assets are of equal liquidity. Receivables are one step closer to liquidity than inventory. However, sales are not complete until the money is in hand. (41)

Absolute Liquidity Ratio


Cash + Marketable Securities ________________________= Absolute Liquidity Ratio Current Liabilities A subsequent innOvation in ratio analysis, the Absolute Liquidity Ratio eliminates any unknowns surrounding receivables. Note: The Absolute Liquidity Ratio only tests short-term liquidity in terms of cash and marketable securities. Inventory Turnover Cost of Goods Sold ________________= Inventory Turnpver Ratio Average Inventory Rule of Thumb: Multiply your inventory turnover by your gross margin percentage. If the result is 100 percent or greater, your average inventory is not too high.

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Working Capital Ratios


Many believe increased sales can solve any business problem. Often, they are correct. However,, sales must be built upon sound policies concerning other current assets and should be supported by sufficient working capital. There are two types of working capital; gross working capital, which is all current assets, and net working capital, which is current assets less current liabilities. Moodys Investors Service has listed net working capital since 1922. If you find that you have inadequate working capital, you can correct it by lowering sales or by increasing current assets through either internal savings (retained earnings) or external savings (sale of stock). Following are ratios you can use to evaluate your businesss net working capital.

Working Capital Ratio


Use Current Ratio in the section on Liquidity Ratios. This ratio is particularly valuable in deternilning your businesss ability to meet current liabilities. Working Capital Turnover

Net Sales . ________________= Working Capital Turnover Ratio Net Working Capital (43)

This ratio helps you ascertain whether your business is topheavy in fixed or slow assets, and complements Net Sales to Tangible Net Worth (see Income Ratios). A high ratio could signal overtrading.

Leverage Ratio
This Debt/Worth or Leverage Ratio indicates the extent to which the business is reliant on debt financing (creditor money versus owners equity): Debt/Worth Ratio = Total Liabilities / Net Worth Generally, the higher this ratio, the more risky a creditor will perceive its exposure in your business, making it correspondingly harder to obtain credit.

Income Statement Ratio Analysis


The following important State of Income Ratios measure profitability:

Gross Margin Ratio


This ratio is the percentage of sales dollars left after subtracting the cost of goods sold from net sales. It measures the percentage of sales dollars remaining (after obtaining or manufacturing the goods sold) available to pay the overhead expenses of the company.

Comparison of your business ratios to those of similar businesses will reveal the relative strengths or weaknesses in your business. The Gross Margin Ratio is calculated as follows: Gross Margin Ratio = Gross Profit / Net Sales Reminder: Gross Profit = Net Sales - Cost of Goods Sold (44)

Net Profit Margin Ratio


This ratio is the percentage of sales dollars left after subtracting the Cost of Goods sold and all expenses, except income taxes. It provides a good opportunity to compare your companys return on sales with the performance of other companies in your industry. It is caLculated before income tax because tax rates and tax liabilities vary from company to company for a wide variety of reasons, making comparisons after taxes much more difficult. The Net Profit Margin Ratio is calculated as follows: Net Profit Margin Ratio = Net Profit Before Tax /.Net Sales. Sampling is done by Q.C. Chemist under Laminar Air Flow in Sampling Area for Q.C. Tet of Packaging Material. All in Labels & Show box are stored in Lock & Key System to prevent from misuse. Color coding system of PM Store: Yellow - Under Test Materials Green - Approved Materials Red - Rejected Materials.

FEFO method is used at the time of Dispensing of PM. Marketing Generating Forecasting Planning Give plan on the base of forecasting. Purchase ----- Production Material Procurement Supply to Warehouse Receipt Under Quarantine (45)

Q.C. Test Release Issue to Production Transfer to Finished goods at BSR (Bonded Store Room)

Management Ratios
Other important ratios, often referred to as Management Ratios, are also derived from Balance Sheet and Statement of Income information.

Inventory Turnover Ratio


This ratio reveals how well inventory is being managed. It is important because the more times inventory can be turned in a given operating cycle, the greater the profit. The Inventory Turnover Ratio is calculated as follows: Inventory Turnover Ratio = Net Sales !Average Inventory Cost

Accounts Receivable Turnover Ratio

This ratio indicates how well accounts receivable is being collected. If receivables are not collected reasonably in accordance with their terms, management should rethink its collection policy. If receivables are excessively slow in being converted to cash, liquidity could be severely impaired. Getting the Accounts Receivable Turnover Ratio is a two step process and is calculated as follows: Daily Credit Sales = Net Credit Sales Per Year / 365 (Days) Accounts Receivable Turnover (in days) Accounts Receivable / Daily (46)

Credit Sales Return on Assets Ratio


This measures how efficiently profits are being generated from the assets employed in the business when compared with the ratios of finns in a similar business. A low ratio in comparison with industry averages indicates an inefficient use of business assets. The Return on Assets Ratio is calculated as follows: Return on Assets = Net Profit Before Tax / Total Assets

Return on Investment (1101) Ratio


The ROl is perhaps the most important ratio of all. It is the percentage of return on finds invested in the business by its owners. In short, this ratio tells the owner whether or not all the effort put into the business has been worthwhile. If the ROT is less than the rate of return on an alternative, risk- free investment such as a bank savings account, the

owner may be wiser to sell the company, put the money in such a savings instrument, and avoid the daily struggles of small business management. The ROl is calculated as follows: Return on Investment = Net Profit before Tax I Net Worth These Liquidity, Leverage, Profitability, and Management Ratios allow the business owner to identify trends in a business and to compare its progress with the performance of others through data published by various sources. The owner may thus determine the businesss relative strengths and weaknesses. (47)

Profitability Ratios
Closely linked with income ratios are profitability ratios, which shed light upon the overall effectiveness of management regarding the returns generated on sales and investment. Gross Profit on Net Sales Net Sales Cost of Goods Sold = Gross Profit on Net Sales Ratio Net Sales Does your average markup on goods normally cover your expenses, and therefore result in a profit? This ratio will tell you: If your gross profit rate is continually lower than your average margin, something is wrong!. Be on the lookout, for downward trends in your gross profit rate. This is a sign of future problems for your bottom line.

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3) RATIO FORMULAS
A) LIQUIDITY RATIO: 1. Current ratio=current assets . Current liabilities 2. Quick ratio=Quick assets Current liabilities 3. Super quick ratio=Cash Marketable securities Current liabilities B) PROFITABLITY RATIO: 1. PROFITABLITY RATIOS RELATED TO SALES A. Profit margin=Gross profit*100 Sales i) Gross profit margin= Gross profit*100

Sales ii) Net profit margin=Net profit*100 Sales

B. Operating profit ratio = Earning before interest &tax Sales A. Expenses ratio: 1. Cost of goods sold ratio = Cost of goods sold*100 Sales (49)

2. Operating expenses ratio=Adm expenses + selling expenses*100 Net sales 3. Financial expenses ratio=Financial expenses*100 Net sales 2. RELATED TO INVESTMENT A. Return on assets=Net profit after tax*100 Total assets B. Return on shareholders equity=Net profit after tax*100 Shareholders equity C. Return on capital employed =Net profit after tax*100 Capital employed D. Return on fixed assets=Net profit after tax*100 Fixed assets

E. Dividend payout ratio (%)=Total dividend to shareholders*100 Total net profit belonging to equity shareholders F. Earning (overall profitability)=Net profit before tax*100 Total assets

equity

(50)

C) CAPITAL STRUCTURE RATIOS (LEVERAGES RATIO)


1.Debt-equity ratio=Total Debt Shareholders Equity 2.Interest coverage ratio=EBIT Interest 3.Financial leverage=EBIT EBT 4.Fixed assets to Current assets ratio=Fixed assets Current assets 5. Proprietary ratio=Proprietary fund Total assets 6. Solvency ratio=Total real assets Total external liabilities

D) ACTIVITY RATIO (TURNOVER RATIO)


1. Debtors turnover ratio=Total sales Sundry debtors 2. Average collection period=365(12 months) days Debtors turnover 3. Assets turnover ratio: Total assists turnover=Cost of goods sold Total assets Fixed assets turnover=Cost of goods sold Fixed assets (51)

Capital turnover=Cost of goods sold Capital employed Current assets turnover=Cost of goods sold Current assets Working capital turnover=Cost of goods sold Working capital

E) VALUATION RATIOS
4. Price earnings ratio=Market value per share Earning per share 2. Yield%

5. Dividend yield=Dividend per share*100 Initial price B) Capital gains yield=Price change*100 Initial price 6. Market value to book value=market value per share Book value per share

(52)

5) FINANCIAL RATIO
A) LIQUID RATIO Current ratio-Fluctuating and deteriorating every year. Quick ratio- deteriorating every year. Super quick ratio- deteriorating every year. B) PROFITABLITY RATIO PROFIT MARGIN-gross profit and net profit margin values both increases into 2003-04,but deteriorating there on. OPERATING PROFIT RATIO-increasing up to 2003-04 but deteriorating there on COGS RATIO-increasing every year. FINANCIAL EXPENSES RATIO-decreasing up to 2003-04, increasing after wards. ROA-appreciating 3 years in succession and than deteriorating at end the year. ROCE- appreciating 3 years in succession and than deteriorating at end the year ROCE- deteriorating 3 years in succession and then increasing in the year 2002-03. ROFA- deteriorating every year steadily. DIVDIEND PAYOUT RATIO-Increase in the year 2005-06 otherwise decreasing down the year. EARNING POWER-Appreciating up to 2003-04 and deteriorating theyre on.

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CAPITAL STRUCTURE (LEVERAGE RATIO)


P/E RATIO-Fluctuating INTERSET COVERAGE RATIO-increasing up to year 200304and decreasing there on FINNANCAIL LEVERAGE appreciating every year F/A RATIO-increasing every year PROFITIBILTY RATIO-increasing every year SOLVENCY RATIO-increasing every year

ACTIVITY (TURNOVER) RATIO


DEBTORS TURNOVER RATIO-increasing every year AVERAGE COLLECTION PERIOD-decreasing every year TOTAL ASSETS COLLECTION PERIOD-decreasing every year TOTAL ASSETS TURN OVER-more or less stable FIXED ASSETS TURN OVER-increasing up to year 2003-04 there on decreasing CAPITAL TURNOVER- more or less same CURRENT ASSETS TURN OVER- increasing every year WORKING CAPITAL TURNOVER- increasing every year

(55)

6) INTERPRATATIONS FINANCIAL TRENDS


On analyzing financial trends of the company IPCA lab ltd, following interpretations can be made. Financial trends clearly show better financial positions of the company .in comparison with the base year 2000-01; company has got phenomenal financial growth. Although, in the year there was a decline in profit of the company, which is mainly on account of exchange fluctuation, input cost increases consequently to spiraling international petroleum prices and higher excise duty incidence due to introduction of MRP based duty structure But the company has achieved the growth in net profit and turnover in the year 2006-07.

BALANCESHEET & PROFIT &LOSS ACCOUNTS


On analyzing last six years balance sheet& profit &loss accounts by preparing comparative common size ones, following interpretations can be made. In the last six years, company has enlarged its assets. Both fixed and current assets have recorded a phenomenal growth, amount of current assets as a part of total assets in the last six years is decreasing. Com Company has increased level of inventories and value is appreciating every year.

Companys sundry debtors are increasing every year. Company allows good amount of credit sales. Company has maintained a good level og cash and bank balances to meet its current obligations. (56)

As we see value of shareholders fund loan funds in last six years it is seen that, company is more relying on shareholders fund or equity than on a loan funds or debt. In the year 2004-05 and company has doubled its share capital. Tax liability of the company is increasing every year in account of its increased profit level. Company has got impressive and massive growth in terms of sales in the last six years. Company has almost doubled its sales in last six years. Cost of production is increasing every year that leads to decline in profit, mainly personal cost and manufacturing expenses are increasing. Value of profit before and after tax has recorded a phenomenal growth on last six years but there is a decline in the year 2005069,net profit shows a similar trend. Company has a good amount of balances to be carried forward.

FINANCIAL RATIOS
On the analysis of various financial ratios company following interpretation can be made-

A) LIQUIDITY RATIOS
Company has sufficient liquidity. It has more than enough funds to meet its short-term obligations. Although inventories for, almost half of the current assets, quick ratio which are fairly and most stringent

measures of liquidity respectively, show that company has enough funds that can be converted into cash immediately to meet any urgent short term obligations.

(57)

C) PROFITABLITY RATIO
Company is proved profitable enough last six years. Although there is a decline in the year 2005-06 on a account of exchange fluctuations, cost increase in international petroleum prices and higher excise duty due to introduction of MRP based duty structure. Profit margin both gross and net is declining after year 2003-04 on account of increasing input cost, introduction of VAT, exchange fluctuations and higher excises duty. Operating profit also suffers decline after year 2003-04 on an account of similar reasons. Company is spending more and more every year to run its operations. This includes general administrative expenses, selling and distribution expenses, depreciation and amortization. Companys financial expenses are increasing every year to meet interest obligations and bank charges. Return on capital employed by the companys fair through declining slightly after year 2003-04 Equity funds invested I the company is profitable enough though profitability declining after year 2002-03.Equty funds invested is productive enough. Return on fixed assets are acquired by the company is fairly enough, though deteriorating after year 2003-04 Company is overall profitable enough though profitability is deteriorating after year 2003-04

(58)

C) CAPITAL STRUCTURE (LEVERAGE) RATIO


Debt equity ratio is declining down the year, which clearly shows that there is a high degree of protection enjoyed by the creditors of the company. Owners of the company have relatively contributed more than creditors. There is more protection of the interest of creditors. Company can easily meet its interest burden even if profit before interest and taxes suffers a considerable decline, though there is a decline in interest coverage after year 2003-04. Properties fund is almost half of the total assets in last six years.

D) ACTIVITY (TURNOVER) RATIO


Appreciation in debtors turnover ratio clearly shows that company is more efficient in credit management. Average collection period is decreasing year by year to 70 days or 2.3 month. Which signifies efficiently of credit management? Yet 70 days or 2.3 month is a sufficient time provided by the company to its creditors to clear their debts. Fixed assets are efficiently employed, there is high degree of efficiency in asset utilization, though turnover is declining after the year2003-04.

Current assets and Net current assets (working capital) so efficiently employed utilizes and by the company in the last six years. Company has a major contribution to the wealth of society. In the year 2005-06,company has created a wealth of rs.1.80 for every rupees invested in it.

(59)

7) Five Years Financial Trends

(60)

(61)

8) FINDINGS FINANCIAL TRENDS


TOTAL INCOME of the company is found much higher in each year as compared to the base year 2001-02& is appreciating every year. In the latest 2005-06 it is 90.55% more as compared to the previous year. EXPORTS-are found much higher in each year as compared to the base year and Whopping every year but in the latest year 2005-06 it is minutely deteriorating by 2.1% as compared to the previous year yet whopping 130% more than in base year NET PROFIT- is found higher in each year as compared to the base year and is increasing every year expect in the latest year. It is 21.256%more than that of previous year 2004-05 WORKING CAPITAL-is found much higher in each year as compared to the base year and is appreciating every year. But in the latest year 2005-06 it is deteriorating by 8.9% as compared to the previous year at 36.90%more than that of base year. BOOK VALUE PER SHARE-is found much higher as compared to the base year except in base year 2001-02 &2004-

05>in the latest year 2005-06,it is 14.3% more as compares to the previous year i.e 9.80 PROFIT BEFORE AND AFTER TAX-is improving every year as we seen the trend line but deteriorating in the latest year200506, in the latest year 2005-06 PBT is 22% less as compared to the value to the previous year. EARNING PER SHARE-is deteriorating steadily down the trend line NET WORTH-is improving steadily every year .in the latest year 2005-06 there is an increment of 14.8%. As we see the value of previous year NET BLOCK-is whopping every year. In the last year 2005-06 it is 14.3% more as compared to the previous year. (62)

9) BALANCESHEET & PROFIT & LOSS ACCOUNT


FIXED ASESTS-are increasing every year with a steady rate. INVESTMENT-are fluctuating down the line and does not give a proper trend CURRENT ASSESTS-are improving every year. But there is a decrease in the latest year when compared to previous year INVENTORY-are appreciating every year substantially as a production increases every year SUNDRY DEBTORS-are increasing every year yet it is decreasing in the latest year as compared to the previous year CASH AND BALANCE-they are more or less same down line. LOAN AND ADVANCES-are increasing up to the year 2003-04 but then on decreasing yet value in the latest year 2005-06 is greater than the previous year. TOTAL ASEST-whopping every year in the latest year 2005-06 its value is 7.5% more as compared to the previous year 2004-05 and 90.5%more as we compared with it the value in the year 2001-02.

SHAREHOLDERS FUND-is appreciating every year doubling in every year 2003-04 reserve and surpluses is increasing every year steadily. LOAN AND FUND-are increasing every year but there is decreasing every year 2005-06 TAX LIALBLITY-of the company is increasing every year so thats why company is increasing provision for it. CURRENT LIABLITY-are increasing every year SALES of the company is improving impressively every year. In the year 2005-06 there is a increment of almost 11% as we see the value in the previous year. COST OF PRODUCATION-is increasing every year as the production level of the company is raised every year. PBT&PAT-increase up to year 2003-04 and there on decreasing in the latest year 2005-06 PBT is 23% less than that if in the previous year. (63)

NET PROFIT-increase up to year 2003-04 and there on decreasing in the latest year 2005-06 it is 21% less than that if in the previous year. VALUE OF FIXED ASSETS as a part of total assets increasing every year .IN the latest year its value is almost half of the total assets. VALUE OF CURRENT ASSESTS- as a part of total assets is decreasing every year. VALUE OF SHAREHOLDERS FUND-as a part of total liabilities is increasing every year. In the year 2005-06,it became more than 50%of the total liabilities. VALUE OF COST-as a part of net sales is fluctuating between 89% to 90% personal cost, financial cost, depreciation, amortization is increasing every year. VALUE OF PBT &PAT-as a part of net sales is increasing up to year 2003-04 and their on decreasing value of net [profit as a part of net sales is increasing into year2003-04 their on decreasing

Dividend: company has given 7.50 dividend to their shareholders. C) CAPITAL STRUCTURE (LEVERAGE) RATIO Debt equity ratio is declining down the year, which clearly shows that there is a high degree of protection enjoyed by the creditors of the company. Owners of the company have relatively contributed more than creditors. There is more protection of the interest of creditors. Company can easily meet its interest burden even if profit before interest and taxes suffers a considerable decline, though there is a decline in interest coverage after year 2003-04. Properties fund is almost half of the total assets in last six years. (64)

D) ACTIVITY (TURNOVER) RATIO Appreciation in debtors turnover ratio clearly shows that company is more efficient in credit management. Average collection period is decreasing year by year to 70 days or 2.3 month. Which signifies efficiently of credit management? Yet 70 days or 2.3 month is a sufficient time provided by the company to its creditors to clear their debts. Fixed assets are efficiently employed, there is high degree of efficiency in asset utilization, though turnover is declining after the year2003-04. Current assets and Net current assets (working capital) so efficiently employed utilizes and by the company in the last six years. Company has a major contribution to the wealth of society. In the year 2005-06,company has created a wealth of rs.1.80 for every rupees invested in it.

Company is overall profitable enough though profitability is deteriorating after year 2003-04

(65)

10) SUGGESTION
THE INDIAN COMPANIES ARE TODAY FOCUSING ON GLOBAL BUSINESS AND INCREASING FOCUS ON R&D ACTIVITIES SO COMPANY SHOULD BE FOCUS ON THERE EXPORT AND THERE SALES IN WORLD MARKET. THE WAY TO GET THAT POINT LIKE: BETTER MARKETING STRATEGY IN WORLD MARKET. DEVELOP THERE FUTURE PLANS. AND MORE FOCUS ON DOMESTIC MARKET COMPETITION.

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11) CONCLUSIONS
1. IPCA lab ltd financial performance is sound and it profitable enough to give reasonable returns to its owner company is a profitable organization. It has contributed well, increasing wealth of the society. 2. Company has got tremendous growing financially. 3. The company efficiently utilizes fixed assets and current assets. 4. Company has better solvency. It has sufficient liquidity, assets that can be converted easily in to cash to meet its obligations. 5. Return on capital employed is fair enough. 6. Higher degree of protection enjoyed by the creditors of the company. 7. Company it efficient in trade credit on receivable management. But average collection period needs a reduction 8. Company provides adequate coverage for interest obligation and operating expenses. 9. Company got phenomenal growth in profit in the last five years. 10.Company it more relying on shareholders fund an equates than on loan fund or debt. 11.Cost of production it relatives higher. 12.Equity funds invested in the company are profitability and productive enough. 13.Company it operational efficient. 14.Overall profitability it satisfactory. 15.Working capital it efficiently utilized by the company. Now today, scenarios of Indias pharmaceutical are having conductive future. Other domestic rival pharmaceutical company are growing well and IPCA is one of the big players of them.

(68)

12) BIBLIOGRAPHY (A) Webliography www.google.com www.ipcalabs.com www.accountingcoach.com www.answers.com

(B) Bibliography Financial Management Ravi.M.Kishore Financial management -Khan and Jain Management accounting -Khan and Jain Financial management - Prasanna Chandra

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