Fundamentals of Finance and

Accounting
Assignment

Financial Analysis of 3 Companies from

Pharmaceutical Sector. The companies
names are Cipla
Dr. reddy
Sun pharmaceuticals

FromANKUR SETHI
2013ABPS443H
RISHABH MUNDHADHA
2013ABPS555H
RAJAT SINGHIVI
2013A1PS796H

SHUBHAM AYUSH
2013A1PS380H
PARTH GUPTA
2013A4PS369H

DEV KARTHIK
2013ABPS890H

Activity Ratios and Operating Cycles

Inventory
Turnover
Ratio & No. of
days of
Inventory

Cipla

Sun Pharma

Dr. Reddy

no. of days
of receivable
Cipla

Trend Analysis

Comparative Analysis

Cipla's inventory turnover was

merely same during 2011-14
and then the decreased a bit
during 2015.It is important to
have a high inventory turnover.
Also no. of days of inventory is
merely constant till 2014 and
increased a bit during 2015,
which is not good for the
company because this would
result in a bigger cycle which
would affect the cash flow
Unlike Cipla, the ratio is both
increasing and decreasing in
different years. When
comparing the no. of days of
inventory, we see that it was
the greatest in 203 and lowest
in 2012.This ratio should be as
low as possible so that
inventory can easily be
converted into cash
Like Cipla, the inventory
turnover ratio is merely a
constant over these years. The
no. of days of inventory is also
constant, but it is very high.
This means the company is
finding it difficult to quickly sell
their their inventory

When we compare both

the ratios of these three
companies, especially the
no. of days of inventory
ratio, Dr. reddy is
nowhere near them. It
has almost double the no.
of days of inventory
which suggest the
company is finding it
difficult to sell their
products quickly. The
ratios of sun pharma and
cipla are almost the same
indicating their similar
position according to this
ratio.

Trend Analysis

Comparative Analysis

Ciplas ratio has

continuously decreased
over the years which is
good sign for the company
because the company is
collecting money from its
customers in less time

So, when we compare

the three companies,
surely Dr. Reddy is far
better than the rest of
the two companies due
to its less ratio which is
helping it to increase

Industry
Analysis
(90 days)

No. of days of
inventory is
almost the same
as industry
average.

No. of days of
inventory is
almost the same
as industry
average.

No. of days of
inventory is high
as compared to
industry
average. This
means cash flow
is less and cost
of managing the
inventory is
more.

Industry Analysis
(50)
Cipla is close to
industry average
but only in
2015.The cash flow
has improved.

than the previous year.

Sun Pharma

Dr. Reddy

For Sun pharma, the ratio

jumped very high in 2013
but subsequently
decreased thereafter which
is again a good sign for the
company.
Even for Dr. Reddy the
ratio has decreased over
the years and from the
past two years, the ratio
has been very less which is
a very good sign for the
company.

No. of days
of payables

Cipla

Sun Pharma

Dr. Reddy

Total Asset
Turnover
Cipla

Sun Pharma

Dr. Reddy

cash flow. Cipla and Sun

pharm are more or less
similar.

Sun pharma is
close to industry
average but only in
2015.The cash flow
has improved
Dr. Reddy is less
than industry
average from the
past 2 years which
is a very good sign
since the cash flow
is improving

Trend Analysis

Comparative Analysis

The no. of days of payable

were a constant from
2011-14 but it increased
thereafter which is not a
good sign since company
not be able to pay its
suppliers.
The ratio is almost the
same in all the years
except 2013 where it
increased significantly.
The ratio decreased
significantly from 2011 till
2013 but was a constant
thereafter.

Sun pharma has improved the

ratio after sudden increase in the
year 2013.Even for Dr reddy, the
ratio has improved significantly
after 2012.They are able to pay
their suppliers with more ease in
2015 than the previous years.
But for the case of cipla, the
ratio increase during 2015.

Trend Analysis

Comparative Analysis

Continuous decrease over

the years, which indicates
company's efficiency has
fallen to productively use its
assets to generate revenues
Continuous decrease over
the years, which indicates
company's efficiency has
fallen to productively use its
assets to generate revenues
Continuous decrease over
the years, which indicates
company's efficiency has
fallen to productively use its
assets to generate revenues

Cipla relatively has fared

better compared to other two,
as it has been able to
generate more revenues over
the years followed by Dr.
Reddy and then by Sun
Pharma. Sun pharma's low
value (in 2015) indicated that
the company is having either
management or production
problems.

Fixed Asset
Turnover

Cipla

Sun Pharma

Dr. Reddy

Trend Analysis

Comparative Analysis

Continuous Increase over the

years, which indicates
amount of rupees received
for every fixed assets
invested has increase over
the years, giving a stable
performance.
High increase in the initial
year, and then after the fall,
pretty constant which
indicates not a stable
performance.
For the years 2012 - 2014,
ratio remained constant and
fell for the year 2015 only by
a very less margin.

Although the ratio remained

stable for cipla, but Dr. Reddy
which maintained more than 3
albeit dwindling, can generate
higher rupees for every fixed
assets invested than cipla and
sun pharma.

Liquidity Ratios
Cash Ratio

Cipla

Sun Pharma

Dr. Reddy

Current Ratio
= Current
Asset/Current
Liability

Trend Analysis
2011 - 13, Increase, 2014 -15
Decrease, Current Liabilities
has increased over the years,
but in the year 2013 due to
significant increase in current
investment (approx. 4 folds).
From 2011 - 15, has dropped
100x from an initial value of
4 to 0.04. Due to significant
decrees in the current
investments and cash and
banks and simultaneous
increase in the total current
liabilities.
Constant increase from 2011
- 2015, Current investment
has increased, with current
liability remaining same.

Trend Analysis

Comparative Analysis

Dr. Reddy has fared better than

the other two which implies its
potential to meets it liabilities
using the most liquid cash is
much better and quicker. Sun
Pharma will have to sell its fixed
assets to meets its obligation,
given its poor liquidity position,
since it doesnt have enough cash
equivalents and negative flow of
profits.

Comparative
Analysis

Industry Analysis
= (1.5 to 2)

Cipla

Sun Pharma

Dr. Reddy

Sudden Increase by 2 fold from

2011 to 2012 and then constantly
fallen till 2015. 2011-2012 The
decrease in current liabilities has
more than ousted the increase in
Inventory and account receivables
of 2012, because of which liquid
position has gone up but for the
next following years. From 20132015 there is a decrease in current
ratio, because of increase in
current liability which has
dominated more than the increase
in current assets which indicates
that its ability to meet short term
borrowing have decreased.
Current Ratio has continuously
decreased from its peak in 2011
(6) to 2015 (0.5). Its liquidity
position has fallen due to increase
in current liabilities over the years.
Has witnessed consistent increase
in current ratio from 2011 to 2015
which indicates increase in
meeting its short term liabilities.
Current Assets have seen constant
growth vs current liabilities which
have remained more or less the
same.

Dr Reddy
compared to
cipla and Sun
Pharma has
fared well, since
its current ratio
has been
continuously
increasing, well
within the
industry average
whereas in case
of sun pharma
its liquidation
(which is
different from
liquidity) has
increased and
cipla which has
fared better
than sun
pharma but not
as good as Dr.
Reddy.

Current ratio has

never been close to
industry average,
Either very much or
very less.

In all these years,

within the industrial
average.

Quick Ratio

Current Ratio
6

7
6

1
0
2015

In 2012 the ratio

overshoot to 4 and
then subsequently
decreased and
finally came under
the industrial
average.

2014

2013

cipla

2012

2011

0
2015

Dr reddy

Sun pharma

Quick Ratio
= (Current
AssetInventories
) / Current
Liability
Cipla

2014

2013

cipla

2012

2011

Dr reddy

Sun pharma

Trend Analysis

Comparative
Analysis

Industry Analysis =
(1)

Witnessed an increase
from 2011-12,
Continuously decreased
from 2013-15. This has
been mainly due to the
decrease in current
liability form 11 to 12
and increased during
2013-15.

Sun pharma's
figures shows a
bad sign for
investors and
creditors, it the
company faces a
situation where it
has to sell all its
liquid cash to pay

The quick ratio has been

more than the average
for 2011 - 2014. A quick
ratio that is greater than
industry average may
suggest that the
company is investing
too many resources in
the working capital of

Sun
Pharma

Dr. Reddy

Drastic and Continuous

decrease from 2011 15. Substantial increase
in current liability as
compared to current
assets. The more
uncertain the business
environment, higher the
quick ratios as indicated
for the year 2011, 12
and 13.
Increase in ratio for the
consecutive years.
Unlike the other two
companies, the increase
in the ratio can be
explained due to the
increase in current
assets vs current liability
which has remained
fairly constant.

back, the
obligations,
because there isn't
any . Long term
assets which are
used to generate
revenues would
have to be sold off,
if it happens since
the company is not
able to generate
enough profits,
which it is. Dr.
Reddy has fared
good and well
prepared to face a
crisis if it has to.
Cipla on the other
hand is in between
both, since the
falling figure
reveals slight poor
capacity to
maintain its
obligation, by using
the cash
equivalents.

the business which may

more profitably be used
elsewhere.

2011 - 2014 - far above

the average. 2015 - Far
below the average. For
the year 2015, Acid test
ratio remained lower
than the industry
average may suggest
that the company was
taking too much risk by
not maintaining an
appropriate buffer of
liquid resources.
Above the industry
average for the years
2013-2015

Solvency and Coverage Ratios

Interest
Coverage
Ratio
Cipla

Sun Pharma

Dr. Reddy

Trend Analysis

Comparative Analysis

Cipla's ratio has constantly

fallen by leaps and bounds,
which indicates its credit
worthiness among creditors
have fallen.
Sun Pharma's ratio has fallen
by leaps and bounds, which
indicates its credit
worthiness among creditors
have fallen and it's close to
bankruptcy since the ratio
has become negative.
Dr. Reddy ratio has
constantly fallen by leaps
and bounds, which indicates

Sun Pharma is close to

bankruptcy and cannot be
trusted among its creditors
(which barely is able to pay its
amount). Dr. Reddy fairs well as
compared to cipla and the
indication is that it is able to pay
bills better than the other two
without sacrificing its profits.

its credit worthiness among

creditors have fallen.

Fixed Charge
Covera
ge
Ratio
Cipla

Sun Pharma

Dr. Reddy

Cash flow to
debt ratio

Cipla

Sun Pharma

Dr. Reddy

Trend Analysis

Comparative Analysis

Cipla's ratio has constantly

fallen by leaps and bounds,
which indicates its credit
worthiness among creditors
have fallen.
Sun Pharma's ratio has fallen
by leaps and bounds, which
indicates its credit
worthiness among creditors
have fallen and it's close to
bankruptcy since the ratio
has become negative.
Dr. Reddy ratio has
constantly fallen by leaps
and bounds, which indicates
its credit worthiness among
creditors have fallen.

Sun Pharma is close to

bankruptcy and cannot be
trusted among its creditors
(which barely is able to pay its
amount). Dr. Reddy fairs well as
compared to cipla and the
indication is that it is able to pay
its fixed costs before interest and
taxes well than the other two.

Trend Analysis

Comparative Analysis

Has decreased over the

years. Was at is peak during
2012, indicating company
generated much more cash
to through operating
compared to debt
Huge decrease in the
percentage indicating
distrust among creditors.
Poor credit worthiness.
Has remained below 100%,
indicating more cash from
debt was used than
operating. Credit worthiness
is not good

Cipla has fared relatively well. It

had been able to use more cash
from operating activities as
compared to debt i.e. cipla's
lineage towards debt is less
compared to the other two,
though it has shown a fall. Sun Pharma, on the other hand, has
shown a continuous decline.
Future creditors might not lend
to Pharma.

Debt to
equity
Ratio

Trend Analysis

Cipla

Unstable, varying. More

money is financed via
creditors compared to the
investors.

Sun
Pharma

Highly Unstable,
Substantial increase,
indicates more debt is

Comparative
Analysis

Industry
Analysis - 1

Although none of the

companies ratio fall
even close to the
industrial average,
cipla in this respect,
has performed well,
relatively, and is a
more investor friendly.
Sun pharma is highly

Nowhere close
to the
average.
Possess Risk
for creditor to
invest.
Nowhere close
to the
average.

used to expand the

business than investors
money

Dr. Reddy

Highly Unstable, Increase

by leaps and bounds.
Highly poor managed.
Creditor risk

Debt to
assets
Ratio

Trend Analysis

Cipla

Cipla is more trusted

among the creditors, and
its ability to pay liabilities
using assets over the
years has remained 3-4 X

Sun
Pharma

Dr. Reddy

unlikely to be trusted
by the creditors.

Comparative
Analysis

Dwindling ratio, has

increased over the years
indicating its capacity to
pay using assets has
decreased from 8 X to 2.5
X
Has fairly remained
constant, Debt paying
capacity is roughly same,
about 2.5 X its assets

Cipla is more stable in

these terms. The
number shows its
ability to pay the
obligations using all its
assets in the future is
much stable compared
to the other two. SunPharma's performance
has been constantly
declining and will
continue to do so, its
ability shooting beyond
the industry average,
given poor interest to
coverage ratio.

Debt to asset ratio

15
10
5
2014

2013

cipla
Sun pharma

2012
Dr reddy

Industry
Analysis 50%
Always less
than the
average,
continuous
increase over
the years,
stable
Not stable,
but still less
than the
industry
average
Lower than
industry
average, Fairly
constant

Debt to equity Ratio

20

0
2015

Riskier for
creditor to
invest.
Nowhere close
to the
average.
Riskiest for
creditor to
invest.

2011

40
35
30
25
20
15
10
5
0
2015

2014

2013

cipla
Sun pharma

2012
Dr reddy

2011

Cash flow to debt ratio %

4000
3500
3000
2500
2000
1500
1000
500
0
2015
-500

Fixed charge coverage ratio

100
80
60
40
20

2014

2013

cipla

2012

2011

0
2015
-20

Dr reddy

2014

2013

cipla

2012
Dr reddy

Sun pharma

Sun pharma

Profitability-Ratios
Operating
profit margin
cipla

Dr Reddy

Sun Pharma

Net profit
margin

cipla

Dr Reddy

Sun Pharma

Trend Analysis

Comparative Analysis

Operating profit margin

fluctuated during the years
with net sales being steady
and operating profit
changing.
Operating profit margin
increased from 2011 to 2014
and then saw a sudden drop
in the year 2015 due to
decrease in operating profit.
It saw a drastic profit margin
change from +43% to a -8%
which may be due to a
sudden increase in factory
overheads and other
expenses.

Sun pharma had the highest

operating profit for 20112012, then it decreased
exponentially .whereas cipla
and Dr. Reddy has a
relatively steadier operating
profit margin..

Trend Analysis

Comparative Analysis

Net profit margin fluctuated

on a small range for 2011
-2015 with peak in 2013 due
to significant increase profit
after tax.
Net profit margin fluctuated
on a small range for 2011
-2015 with peak in 2014 due
to significant increase profit
after tax.
net profit margin fall
drastically from year 2011 to
2014 i.e. from 44 % to -99.9
% due a huge increase in
expenses about 2875 crores,
indicating that company lost
its bargaining power over its
suppliers..

Sun pharma had the highest

net profit margin for 20112012, then it decreased
exponentially .whereas cipla
and Dr. Reddy has a
relatively steadier net profit
margin.

2011

Pre-tax profit
margin
cipla

Dr Reddy

Sun Pharma

Return on
assets
cipla

Dr Reddy

Sun Pharma

Return on
Net
Worth/Return
on equity
cipla

Dr Reddy

Sun Pharma

Return On

Trend Analysis

Comparative Analysis

Pre-tax profit margin

fluctuated on a small range
for 2011 -2015 with peak in
2013 due to significant
increase profit before tax.
Pre-tax profit margin
fluctuated on a small range
for 2011 -2015 with peak in
2014 due to significant
increase profit before tax.
pre-tax profit margin fall
drastically from year 2011 to
2014 i.e. from 46 % to -99 %
due a huge increase in
expenses about 2875 crores,
indicating that company lost
its bargaining power over its
suppliers..

Sun pharma had the highest

pre-tax profit margin for
2011-2012, then it
decreased exponentially
.whereas cipla and Dr.
Reddy has a relatively
steadier pre-tax profit
margin.

Trend Analysis

Comparative Analysis

return on assets fluctuated

on a relative big range for
2011 -2015 with peak in
2013
return on assets fluctuated
on a relative big range for
2011 -2015 with peak in
2014
Return on assets fall
drastically from year 2011 to
2015 i.e. from 23% to -3%
due to increase in debt over
the years.

On a relative comparison Dr.

Reddy is better at
converting its investment
into profit than cipla
whereas Sun pharma is
finding it very hard to
convert the money it has to
invest into net income

Trend Analysis

Comparative Analysis

return on equity fluctuated

on a relative big range for
2011 -2015 with peak in
2013
return on equity fluctuated
on a relative big range for
2011 -2015 with peak in
2014
Return on equity was high
for 2011 -2012 then it fall
drastically for next 3 years to
-9% at the end.

Dr reddy and cipla has

been generating steady
profit with the money
shareholders have
invested while Sun pharma
is fluctuating drastically
with a negative return at
present

Trend Analysis

Comparative Analysis

Sales
cipla
Dr Reddy

Sun Pharma

return on sales fluctuated on

a relative big range for 2011
-2015 with peak in 2013
return on sales fluctuated on
a relative big range for 2011
-2015 with peak in 2014
return on sales was high for
2011 -2012 then it fall
drastically in 2014 to
-99% ,presently at -18%

Dr reddy has an increasing

ROS indicating the
company is growing more
efficiently, Cipla is having
its ups and down while Sun
pharma has a decreasing
ROS signalling looming
financial troubles

Trend analysis

Comparative analysis

Net sales for the company is

increasing continuously over
the years .Raw material
decreased for 2012 ,leading
to increase in the percentage
of sales available for
expenses and profit and then
it increased in proportion
with net sales keeping gross
profit margin steady .
Net sales saw a significant
increment for years 2011 to
2015 (almost twice), raw
material consumed
increased from 2011 to 2013
then became steady for the
2013-2015.Gross profit
margin increased by 11%
over these years.
Net sales shot up for 2015
from 2011, raw materials
consumed have almost
tripled over these years. The
gross profit margin
decreased significantly over
the years.

Sun Pharma made the

highest profit for 2011 to
2012 and then Dr reddy
increased its profit over
Sun pharma for next three
years i.e. from 2013 to
2015.

Gross Profit
margin

cipla

Dr Reddy

Sun Pharma

Operting profit margin

50
40
30
20
10
0
2015
-10
-20

Net profit margin

100
50
0
2015
-50

2014

2013

2012

2011

2014

2013

2012

-100
-150

cipla
Sun pharma

Dr reddy

cipla
Sun pharma

Dr reddy

2011

Gross profit Margin

return on assets

80
60
40
20
0
2015

2014

2013

2012

cipla

2011

30
25
20
15
10
5
0
2015
-5
-10

Dr reddy

2014

2013

cipla

Sun pharma

Dr reddy

Sun pharma

Return on net worth

40
20
0
2015
-20

2014

2013

2012

2011

-40
-60
cipla

Dr reddy

Sun pharma

Return on sales
100
50
0
2015
-50
-100
-150

2014

2013

cipla
Sun pharma

2012

Dr reddy

2012

2011

2011

Pretax profit margin

60
40
20
0
2015
-20
-40
-60
-80
-100
-120

2014

2013

cipla

2012

2011

Dr reddy

Sun pharma

Cash Ratio
5
4
3
2
1
0
2015

2014
cipla

2013
Dr reddy

X-X-X-X-X

2012
Sun pharma

2011