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SUMMER TRAINING PROJECT ON

FINANCIAL ANALYSIS AND EVA ANALYSIS


FOR

RANBAXY LABORATORIES LTD.


GURGAON (HARYANA)

Submitted in partial fulfillment for the requirement for award of the degree of

Master of Business Administration (2010-12)

SUBMITTED TO

SUBMITTED BY AKHIL SOOD MBA-III SEM

BADDI UNIVERSITY OF EMERGING SCIENCE & TECHNOLOGY.

CONTENTS:

INCORPORATION OF COMPANY PEOPLE RESERCH & DEVELOPMENT COMPANY INFORMATION VISION CORE VALUES VALUES OF RANBAXY STRATEGY SOME OF RANABXYS DEFINING MOMENTS CAPITAL STRUCTURE OF RANABAXY OF 5 YEARS CHANGES IN CAPITAL STRUCTURE OVERVIEW OF FINANACE FUNCTION ROLE OF FINANCE FUCTION GLOBAL ACCOUNTING CENTER IN RANABAXY COST DEPARTMENT BOOK &BUDGET DEPARTMENT SALES DEPARTMENT PAYROLL DEPARTMENT SHARED SERVICE CENTER CASH SECTION ADMINISTRATION DEPARTMENT

ACKNOWLEDGEMENT
I express my sincere thanks to the Management of RANBAXY LABORATORIES, GURGAON, and R&D Unit 4 for giving me an opportunity to gain exposure on matter related to Project under the esteem guidance Of BISHWANATH JHA (SR. MANAGER). I hereby take this opportunity to put on records my sincere thanks to BISWANATH JHA under the light of whose able guidance I could complete this project in an effective and successful manner. I am also indebted to (Finance Manager) and RAJINDER K WADHWA (Sr. Accounts officer Books & budget), for their valuable information and inputs, which added dimensions and meaning to my project. I am also thankful to the rest of the staff of the SHARED SERVICE CENTER and CORPORATE OFFICE peoples for their valuable suggestion and cooperation to achieve the task

With sincere thanks, Mba 3rd sem AKHIL SOOD BADDI UNIVERSITY

DECLARATION

I hereby declare that the study entitled Ratio Analysis in the context of RANBAXY being submitted by me in the partial fulfillment of the requirement for the award of Master of Business Administration by Baddi University is a record of my own work. The study was conducted at finance department, RANBAXY, GURGAON. The matter embodied in this project report has not been submitted to any other university or institution for the award of degree.

PREFACE
As a part of my MBA programme, I was asked to undergo 45 working days summer training in any organization, to give the exposure to practical management and to get familiar with the various activities taking place in the organization. I got an opportunity to undergo my summer training in the reputed organization RANBAXY LABORATORIES where I was allowed to work on the project titled Financial Analysis at RANBAXY GURGAON. .In this project, an attempt has been made to study the performance of RANBAXY LABORATORIES .The salient feature of this report is the comprehensive coverage and latest information about the topic of the study.

INCORPORATION OF COMPANY
RANBAXY was incorporated in 1961 & went public in 1973 is one of Indias largest pharmaceutical company. The enterprise is an integrated, research based pioneer, and produces a wide range of quality, affordable generic medicines, trusted by health care professionals. The companys footprint extend across 23 of the top 25 pharmaceuticals market in the world, all together , RANBAXY operates in 46 countries, has 7 world class manufacturing facilities, serves customers in more than 125 countries.

RANBAXY
In June 2008 , RANBAXY entered into alliance with one of the largest Japanese innovator companies, Daiichi Sankyo Company Ltd., to create an innovator and generic pharmaceutical powerhouse. The combined entity now ranks among the top 20 pharmaceutical companies, globally. The transformational deal will place Ranbaxy in a higher growth trajectory and it will emerge stronger in terms of its global reach and in its capabilities in drug development and manufacturing.

PEOPLE
The Companys business philosophy based on delivering value to its stakeholders constantly inspires its people to innovate , achieve excellence and set new global benchmarks . Driven by the passion of its around 14,000 strong multicultural workforces comprising of over 50 nationalities, pharmaceuticals'. Ranbaxy continues to aggressively pursue its mission of 'Enriching lives globally , with quality y and affordable

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R&D

RANBAX

RANBAXY views its R&D capabilities as a vital component of its business strategy that will provide a sustainable , long-term competitive advantage. The Company has a pool of over 1,200 R&D personnel engaged in path-breaking research. RANBAXY is among the few Indian pharmaceutical companies in India to have started its research program in the late 70's, in support of its global ambitions. A first-of-its-kind world class R&D centre was commissioned in 1994. Today, the Company has multi-disciplinary R&D centers at Gurgaon , in India , with dedicated facilities for generics research and innovative research. The R&D environment reflects its commitment to be a leader in the generics space offering value added formulations and development of NDA /ANDAs , based on its Novel Drug Delivery syste System (NDDS) research capability. Ranbaxys first significant international success using the NDDS technology platform came in September 1999, when the Company out-licensed its first once-aday formulation to a multinational company.

RANBAX

Realigning the companys R&D structure, RANBAXYS new drug discovery research (NDDR), was transferred to DAIICHI SANKYO INDIA PHARMA PVT. LTD. This move will provide a sharper focus to our R&D efforts in our core area of generics and allow us to further explore complex & specialist areas. The hallmark of innovative research practice and a research mindset remain strongly embedded in a DNA of ranbaxy will be positively reflected in our future actions. The company made significant progress on the anti malaria molecule. During the year, 178 Abbreviated New Drug Application(ANDA) filings were made in various global markets with161 approvals . The company also filed 142 Drug master files(DMF) comprising 39 active pharmaceuticals ingredients across various countries. Ranbaxys manufacturing facility at the SEZ in mohali , India, commenced production of exhibit batches.

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FULL NAME
RANBAXY LABORATORIES LTD.

RANBA

STATUS
Listed

HEAD QUARTERS
12th floor, Devika tower, 6, Nehru place, New Delhi, 110099.

LEGAL FORM
Other non-liability ltd

LEGAL ADRESS
A-41, industrial area phase Viii a, Sahibzada Ajit Singh nagar, Mohali, Punjab, 160071

OPERATIONAL STATUS
Operational

ISIN CODE
INE015A01028

INCORPORATION DATE
June 16, 1961

RANBAXY
VISION

Ranbaxys mission is To become a Research based International Pharmaceutical Company. The Company is driven by its vision to Achieve significant business in proprietary prescription products by 2012 with a strong presence in developed markets.

CORE VALUES

RANBAXY

VALUES
Achieving customer satisfaction is fundamental to our business. Be a responsible corporate citizen.

Ensure profitable growth and enhance wealth of the share holders.

Provide product & services of highest quality. Manage our operations with high concern for safety and environment.

Practice dignity and equity relationship & provide opportunities for our people to realise their full potential. Foster mutually beneficial relation with all our business partners.

RANBAXY

BOARD OF DIRECTORS

DR. TSUTOMU UNE (CHAIRMAN) MR. TAKASHI SHODA DR. ANTHONY H. WILD MR.AKHIRO WACAN MR. PERCY K. SHROFF MR. RAJESH V. SHAH MR. ARUN SHAWNEY MANAGING DIRECTOR COMPANY SECRETARY MR. S.K PATAWARI

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STRATEGY
Ranbaxy is focused on increasing the momentum in the generics business in its key markets through organic and inorganic growth routes. Growth is well spread across geographies with focus on developed and emerging markets. It is the Companys constant Endeavour to provide a wide basket generic and innovator products , leveraging the unique Hybrid Business Model with Daiichi Sankyo . The Company will also increasingly focus in high growth potential segments like Vaccines and Biogenerics. These new areas will add significant depth to the existing product pipeline.

SOME OF RANBAXYS DEFINING MOMENTS


In 1961, incorporated as a private limited company.
In 1973, Initial public offering launched; attains Public limited company status (listed in Feb 1974). A multipurpose chemical plant set up for the manufacturing of APIs at mohali , Punjab, India. In 1987, Production at the modern API plant at Toansa (Punjab) , India ; makes Ranbaxy the countrys largest manufacturer of antibiotics /antibacterials.

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RANBA

In 1983, A modern pharmaceutical plant at dewas (Madhya Pradesh), India, goes on stream. In 1993, Enunciates Corporate Mission - To become a Research based International Pharmaceuticals Company. Initiates regional restructuring of international operations In 1995, Acquisition of Ohm Laboratories Inc., a manufacturing facility in USA. In 1997, Achieves sales turnover of Rs. 1,000 crores with exports over Rs. 500 crores. In 1998, Ist product under Ranbaxys label introduced in the US market, the worlds Biggest pharmaceutical market. In 1999, Ranbaxy out licenses Ciprofloxacin OD, its original NDDS research product, to Bayer AG, Germany.

RANBAXY
In 2005, Opens its third state-of-the-art R&D facility in Gurgaon, India World Health Organization, Geneva, includes Ranbaxys seven ARVs in its pre-qualification list. In 2006, Acquires leading Romanian pharma company Terapia for $324 million

Acquires Be-Tabs pharmaceuticals, the 5th largest generics company in South Africa for $70 million. Enters biogeneric segment with strategic alliance with Zenotech Laboratories Limited, India.

In 2007, Ranbaxys Drug Discovery Team achieves significant milestone in GSK research collaboration with the candidate selection of a compound for respiratory Inflammation.

Launches Pravastatin Sodium 80 mg tablets in USA... With 180 days exclusivity.

Acquire 13 brands from Bristol Myers Squibb to expand its presence in the US Dermatology Market. In 2000,

Ranbaxy enters Brazil, the largest pharmaceutical market in South America. Acquires Bayers Generics business, Basics, in Germany

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In 2008, Ranbaxy partners with Daiichi Sankyo Company Limited (DS) establishing a unique and powerful Hybrid Business Model; Daiichi Sankyo becomes a majority partner. Ranbaxy reaches settlement on worlds top two selling drugs Lipitor (with Pfizer) and Nexium (with Astra Zeneca). Acquires leading Romanian pharma company Terapia for $324 million.

In 2010, Project Viraat launched in India Aiming for the No. 1 position in the Indian Pharmaceutical market by 2012. Ranbaxy delivers Quarterly Sales of over $500 million for the first time Midterm Business Plan rolled out: Global Sales Target for 2012: $3 Bn. Ranbaxy enters its Golden Jubilee Year on 16th June 2010 50 Years of inspiring, pioneering and historic journey

RANBAXY
CAPITAL STRUCTURE for 5 years
PERIO D FROM 2010 2009 2008 2007 2006 TO 2010 2009 2008 2007 2006 EQUITY SHARE EQUITY SHARE EQUITY SHARE EQUITY SHARE EQUITY SHARE INSTRUMEN T AUTHORIZED CAPITAL RS (CR) 299 299 299 299 299 ISSUED CAPITAL RS (CR) 210.52 210.21 210.18 186.54 186.34 SHARES(NOS. ) 421040693 420417358 420369753 373070829 372686964 PAID UP FACE VALUE 5 5 5 5 5 CAPITAL 210.52 210.21 210.18 186.54 186.34

RANBAXY
CHANGES IN CAPITAL STRUCTURE
Allotment of shares on exercise of Employees Stock Options
During the year, the Company allotted Equity Shares (on pari-passu basis) pursuant to exercise of Stock Options by the eligible employees, as summarized below:

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OVERVIEW OF FINANCE FUNCTIONS


Role of finance function:Finance function is the backbone of any organization. The finance function plays a very critical role in the maximization of shareholders who provide the funds to the company. This objective is being achieved by the finance department, which provides the carious information on the financial parameters such as cash flows, profitability, cost and margin, assets , working capital and shareholder value for the purpose of efficient utilization of resources resulting in better profitability of the company . The importance of the finance functions cannot be undetermined in any organization as many companies have perished not due to bad production management but due to poor financial management function acts like radar of the ship, which guides the direction of the ship and saves it from the perils of the sea. In the same way finance department provides timely and relevant information to various levels of management for the purpose of decisionmaking .

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RANBA

The various activities undertaken by the finance department achieve the afore said objectives, may be summarized as follows

Maintenance of account books, cost records. Preparation of salary bills and other related payment to employees : PP, bonus, TA, departmental advances of PF accounts etc. Preparation of Profit & Loss a/c and Balance Sheet. Generation of various MIRs for management use: MIRs relating to turnover, profitability, cash requirements, inventory. Coordination with company auditors, Govt. auditors, cost auditors and tax auditors.

Decisions relating to purchase and sales.

Investment decisions: capital investment decisions and working capital management decisions . Financing decisions: decisions relating to financing-mix or capital structure or leverages.

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COST SECTION
Cost- section of the company is deals with the following functions: Determination of periodic profits including inventory valuation Determination of pricing policy of the company.

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Work related to capital expenditures of the company. Developing variance Management Information report for different parts of management for purpose of cost control and reduction.

Valuation of work in progress and finished goods. Interaction with management of top management link for achieving cost control and cost reduction and thereby improving bottom line of the company. Preparation of cost sheet of different product and their analysis for future planning.

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ADMINISTRATION SECTION

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This is the general administration section of the company which administrates the whole department and keep on viewing the troubles of the department and tales the measures to get rid of the problem. The main functions of Administration can be further sub-divided into following sections:

Personnel i.e H.R.: personnel section deals with recruitment, promotions, transfer, leave & other services matters of the core staff as well as deputationist and person who are appointed on contract basis.

. House keeping : Various subjects are handled as House keeping matters. It varies from maintenance of Corporations vehicles, their contract work, security, telephone, scrutiny and passing of bills of staff benefits, bills for hired cars, allotment of staff quarters etc.

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BOOKS AND BUDGET SECTION
This section deals mainly with the following:

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Preparation of operating budget for the company as a whole.

Co-ordination with various functions of organization with regard to generation and submission of important MIRs to corporate office.

Preparation of annual accounts of the company.

Coordination with company auditors with regard to company accounts.

Maintenance and accounting of fixed assets accounts.

Preparation of long term profit plans based on broad objectives of the company.

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CASH SECTION
This section helps the company in maintaining the cash and bank receipt ,to make the requisitions for receipt of funds whenever required to the corporate and to make payments. It records the daily receipt and release of the funds. The banks by which the transactions are made are SBI , HSBC , PNB , HDFC and others . And In RANBAXY HDFC, CITI & PUNJAB NATIONAL BANK are used for making transactions. The custom duty is paid by the company through Punjab national bank. Company make payments through cheques, drafts & in some cases cash payment is also made to the employees as well vendors .Company provides foreign currency to its employees during foreign tours .

RANBAXY
SALES SECTION
Sales accounts section will deal mainly with the following items :-

Scrutiny and vetting of estimates / quotation for sale of products / services, wherever financial concurrence is required. Scrutiny and vetting of agreements for sales of products and services. Invoicing for sale / advance or progressive payment / erection income and other. Maintenance of subsidiary records like sales journals / sales daybook, sundry debtors ledgers, advances from customer ledger etc. Payments, recovery and accounting of sales tax, excise duty.

Accounting of claims on carriers/ insurance companies for missing items / damages on outward consignments. Scrutiny, payments and accounting of bills of carriers and insurers and other miscellaneous claims relating to the outwards consignments.

Calculation and scrutiny of data for payments of royalties to the collaborators. Review and reconciliation as well as follow up of recovery of outstanding dues from the customers in coordination with the commercial department.

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INTERNAL AUDIT DEPARTMENT:
The company has its own internal audit section which facilitates the company in making the accounts relating to every thing of the company. The accounts which are prepared by internal audit section are 1. P & L A/C2. Cash flow statement. Internal audit department will check all the accounts of the company which is made by the companys employees of the finance department. The member of the internal audit department is the part of the organization; they are not outsiders of the company like external auditors. In ranbaxy the internal audit department is do their work in corporate office.They check all the accounts of the organization & analyze accounts are correctly made or not and accounts are accordingly to the standards of accounting or not. Internal auditing is an independent,

objective assurance and consulting activity designed to add value and improve an organization's operations. It helps an organization accomplish its objectives by bringing a systematic , disciplined approach to evaluate and improve the effectiveness of risk management, control, and governance processes.

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10 YEARS AT GLANCE
Results for the year Sales Index Exports Index Gross Profit Index 2001 2002 2003 2004 2005 2006 2007 2008

RANBA

2009

2010

20545.4 28197.9 35334.9 1.0 1.4 1.7

36143.4 35366.5 40587.1 41844.9 43083.6 1.8 1.7 2.0 2.0 2.1

45211.8 52514.9 2.2 2.6

10290.8 18502.9 24674.6 1.0 3924.1 1.0 1.8 7304.8 1.9 2.4 10061.4 2.6

24562.4 23371.1 27175.7 26411.2 28109.8 2.4 7211.7 1.8 2.3 3178.8 0.8 2.6 6081.7 1.5 2.6 9865.6 2.5 2.7 (5713.3) (1.5)

28377.5 34435.5 2.8 3.3

11002.7 17070.9 2.8 4.4

Profit before Tax Index Profit after Tax Index Equity Dividend Index Equity Dividend (%)

2777.7 1.0 2519.6 1.0 1158.9 1.0 100

7133.8 2.6 6235.8 2.5 2434.0 2.1 150 28.86

9563.7 3.4 7947.8 3.2 3156.3 2.7 170 42.61

6283.4 2.3 5284.7 2.1 3162.6 2.7 170 28.26

2013.6 0.7 2237.0 0.9 3166.7 2.7 170 5.68

4429.8 1.6 3805.4 1.5 3168.9 2.7 170 9.87

7744.1 2.8 6177.2 2.5 3171.5 2.7 170 11.31

(16190.8) (5.8) (10448.0) (4.1) 0.0 0.0 27.29

10619.2 15652.5 3.8 5719.8 2.3 0.0 0.0 10.74 5.6 11487.3 4.6 842.1 0.7 40 23.75

Earning per share (Rs.) 21.86

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YEARS END POSITION

RANBA

YEARS

2001 9278.2 1.0 6130.5 1.0 7454.5 1.0 16069.7 1.0 1158.9

2002

2003

2004

2005

2006

2007

2008

2009

2010

Gross Block+ Index Net Block Index Net Current Assets Index Net Worth Index Share Capital

10448.8 12470.6 16669.4 1.1 6753.9 1.1 9564.4 1.3 1.3 8017.9 1.3 1.8 11417.4 1.9

22321.6 24354.5 25889.0 28155.1 30358.4 31878.2 2.4 2.6 2.8 3.0 3.3 3.4

16328.1 17359.1 17969.4 18854.4 20083.2 20423.0 2.7 2.8 2.9 3.1 3.3 3.3

13302.9 9466.8 1.8 1.3

11281.0 12630.0 12588.2 8493.6 1.5 1.7 1.7 1.1

12210.7 35463.7 1.6 4.8

18828.1 23217.8 25095.1 1.2 1854.5 1.4 1855.4 1.6 1858.9

23773.0 23500.1 25383.9 37167.7 41346.1 51323.9 1.5 1862.2 1.5 1863.4 1.6 1865.4 2.3 2101.9 2.6 3.2

2102.09 2105.2

Reserve & Surplus 14910.8 Book value per share (Rs.) 138.66

16973.6 21362.3 23236.2 101.52 125.13 135.00

21910.8 21636.7 23518.6 35065.8 39244.0 49218.7 63.84 63.05 68.04 88.42 98.35 121.90

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FINANCIAL ANALYSIS AND EVA ANALYSIS

RANBA

I discussed the project with my instructor and coordinator MR. BISWANATH JHA (SR. MANAGER) at RANBAXY LABORATORIES GURGAON. He approved the project. After that, a simple course of action has been followed for working on this project. Entire information and data were gathered from the respective annual report of RANBAXY. All

the figures are taken from their Balance Sheet of the respective years and the other internal documents , which were personally shown by the members of company in our interest.

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FINANCIAL ANALYSIS:
Financial analysis is the process of determining the operating and financial characteristics of a firm from accounting data and financial statement. The goal of such analysis is to determine efficiency and performance of the firm management, as reflected in the financial records and reports. Its main aim is to measure the firms liquidity, profitability and other indications that business is conducted in a

rational and orderly way .Here ratio analysis is taken as the primary tool for examining the firms financial position and EVA for performance of RANBAXY PHARMACEUTICALS. There are two views points in receiving and evaluating financial data: 1. EXTERNAL ANALYSIS 2. INTERNAL ANALYSIS

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EXTERNAL ANALYSIS This is performed by outsiders to the firm such as creditors, stock holders, or investments analysis. It makes use of existing financial statements and involves a limited access to confidential information on

a firm. External analysis is less detailed than the internal analysis. Creditors & stockholders make that analysis for their own convenience and take the results regarding their benefits. INTERNAL ANALYSIS This is performed by the corporate finance and accounting departments and is more detailed than external analysis. These departments have available more details and current information than is available to outsiders. They are able to prepare Performa, or future statements and are able to produce a more accurate and timely analysis of the firms strength and weaknesses.

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Financial statement contain a wealth of information which , if properly analysed and interpreted, can provide valuable insights in to firms performance and position. Financial statement analysis may be done for a variety of purpose,which may range from simple analysis of the short term liquidity position of the firm to comprehensive assessment of position of the firm & the strengths and weaknesses of the firm in various areas. The principle tool for financial statement analysis is Financial Ratio Analysis. A ratio is an arithmetical relationship between two figures. Financial ratio analysis is a study of ratios between various items or groups of items.

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TYPES OF FINANCIAL RATIOS

LIQUIDITY RATIO

PROFITABIL-ITY RATIO

FINANCIAL RATIOS

ACTIVITY RATIO

LIVERAGE RATIO

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LIQUIDITY RATIOS:
Liquidity refers to the ability of the firm to meet its obligations in the short run, usually one year. Liquidity ratios are generally based on the relationship between current assets and current liabilities (the sources for meeting short-term obligations). Short run period is usually one year or less then one year.

LEVERAGE RATIOS:
Financial leverage refers to the use of debt finance. While debt capital is a cheaper source of finance, it is also a riskier source of finance .Leverage ratios helps in assessing the risk arising from the use of debt capital.

ACTIVITY RATIOS:
They are also called Turnover ratios or Asset management ratios. They measures how efficiently the assets are employed by the firm. These ratios are based on the relationship between the level of activity and the level of various assets.

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PROFITABILITY RATIOS:
Profitability reflects the final result of business operations. There are two types of profitability ratio. Profit margin ratios and rate of return ratios. A profit margin ratio shows the relationships between profit and sales. Rate of return reflects the relationship between profit and investment.

These all ratio help company to know the liquidity position of the company & help company to know about the risk factor on regular use of debt in the company because debt is the cheaper source of finance . Profitability ratios help company to know about the returns on their investments. so we can say these all ratios are helpful for company to know the overall financial position.

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ADVANTAGES OF RATIOS:
The ratio analysis is one of the most powerful tools of financial analysis. It is use as advice to analysis and interpret the financial health of enterprise. Just like a doctor examines his patient by recording his body temperature, blood pressure etc. Before making his conclusion regarding the illness and before giving his treatment, a financial analyst analyses the financial statement with various tools of analysis before commenting upon the financial health or weaknesses of an enterprise. A ratio is known as a symptom like blood pressure, the pulse rate or the temperature of the individual. It is with help of ratios that the financial statements can be analysed and decision made from such analysis. 1. HELP IN DECISION MAKING: Financial statements are prepared primarily for decision making. But the information provided in financial statements is not an end in itself and no meaningful conclusions can be drawn from these statements alone. Ratio Analysis help in making decisions from the information provided in these financial statements.

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2. HELP IN FINANCIAL PLANNING AND FORECASTING:
Ratio analysis is of much help in financial forecasting and planning. Planning is looking ahead and the ratios calculated for a number of years work as a guide for the future. Meaningful conclusions can be drawn for future from these ratios. Thus, ratio analysis helps in forecasting and planning.

3. HELPS IN COMMUNICATING:
The financial strength and weaknesses of a firm are communicated in a more easy and understandable manner by the use of ratios the information contained in a financial statement is conveyed in a meaningful manner to the one for whom it is meant.Thus,ratios help in communication and enhance the value of financial statement.

4. HELPS IN CO-ORDINATION:
Ratios even help in coordination, which is utmost importance in effective business management. Better communication of efficiency and weakness of an enterprise results in better co-ordination in the enterprise.

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5. HELP IN CONTROL:
Ratio analysis even helps in making effective control of the business. Standard ratios can be based upon Performa financial statements and variance or deviations, if any, can be found by comparing the actual with the standards so as to take corrective action at the right time. The weaknesses or otherwise, if any, come to the knowledge of the management which helps in effective control of the business.

USES OF FINANCIAL STATEMENTS TO DIFFERENT PARTIES: The analysis and interpretation of financial statements is an important accounting activity. The end users of business statements are interested in these statements primarily as an aid to determine the financial position and the results of the operations .There are different parties interested in the financial analysis of their statements and their aims and their objectives also differ significantly.

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The following are the use of statement analysis to different parties:
1. TO THE FINANCIAL EXECUTIVES:

The first party Interested in the financial statement analysis is the finance department of the business concern itself to the financial managers such analysis provides a deep insight into the financial condition of the enterprises and the view of the past performance which helps in future decision making. The financial statements give vital information concerning the position of the enterprise as well the result of the operations.

2. TO THE TOP MANAGEMENT: The top management of the concern is also increased in the analysis of these statements because it helps them Performance appraisal of overall business reaching conclusions

regarding: Enquiry about current financial position and long term strategic activities. Queries concerning the relationships of earnings to trends in salesplanning. Queries concerning the relationships of earnings to investment.

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3. TO THE CREDITORS:
The analysis of These statements is very essential to the creditors . Also some aspects of enterprise operations are of interest to creditors in regard to liquidity of funds, soundness of financial structure, profitability of the operations, effectiveness of working capital management etc.

4. TO THE INVESTORS AND OTHERS:


Investors presents as well as prospects are also interested in the measurement of earning capacity of the securities. Investors have been increasingly concerned with the cash generation

capability of an enterprise, primarily in terms of the flexibility available to such enterprises to acquire other business and new assets on an advantage basis for this purpose. 5. TO THE GOVERNMENT: The analysis of these statements is also essential for thr government for different purposes. Government use that data to know the tax liability of the organization.

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PROBLEMS OF FINANCIAL STATEMENTS
There are certain problems and issues encountered in financial analysis which call forcare, circumspection and judgement in such exercise

1. DEVELOPMENT OF BENCHMARKS: Given the diversity of RANBAXY product lines, It is difficult to find suitable benchmarks for evaluating its financial performance and conditions. Hence even for such firm, the financial

analyst may run into difficulty. If information is available only about industry average or some other standard and not about the entire dispersion of ratios for various firms in the industry, it may not be possible to draw meaningful inferences. 2. WINDOW DRESSING: Firm may resort to window dressing to project a favorable financial picture. When window dressing is suspected, the financial analyst should look at the average data available as per resource.

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3. PRICE LEVEL CHANGES: In India financial accounting takes into consideration price level changes. As a result, balance sheet figures are distorted and profits are misreported. Hence financial statement analysis can be vitiated.

4. VARIATIONS IN ACCOUNTING POLICIES:

Business firms have some latitudes in accounting treatment like depreciation, valuation of stocks research and development expenses, foreign exchange transactions, installment sales, preliminary and preoperative expenses, provision of reserve and revaluation of assets. Due to diversity of accounting practices found in practice, comparative financial statement analysis may be vitiated.

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1. LIQUIDITY RATIOS A. CURRENT RATIO:

This ratio indicates the extent of the soundness of the current financial position of an undertaking and the degree of safety provided to the creditors. It is a measure of firms short term solvency. It indicates the availability of current assets in rupees for every one rupee of current liability. The higher the current ratio, the larger is the amount of rupee available per rupee of current liability, the more is the firms ability to meet current obligations and greater is the safety of funds of short term creditors. A ratio of greater than one means that the firm has more current assets than current claims against them.

CURRENT RATIO =

CURRENT ASSETS CURRENT LIABILITY

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of CA and CL in Rs in millions)

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The current ratios for last 5 years for RANBAXY, Gurgaon have been calculated as under. (Figures

2010 CURRENT ASSETS CURRENT LIABILITY CURRENT RATIO 76852.70 24910.82 3.09

2009 49159.64 26558.44 1.85

2008 51485.24 35679.74 1.44

2007 28300.82 8331.20 3.40

2006 25089.94 7233.30 3.47

INFERENCE: From the above ratios it can be seen that Current Ratio for year 2009-10 has increased by approx. 60 % from the previous year which indicates that short term solvency of the firm is good. If we see the over all ratio it is fluctuating. In 2006 & 2007 the current ratio is more than 3, this means for every one Re. of current liabilities there is Rs. 3 of current assets available to meet the short term obligation. If we see the ratio of 2008 & 2009 the ratio is low as compare to previous years ratios. But in a year 2010 it again high i.e 3.09. . So this indicates that the short-term liquidity position of the company is very good and short-term conditions are safe as far as payment is concerned, although, as a conventional rule, a current ratio of 2 to 1 is considered far better.

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B. QUICK RATIO

Quick Ratio (QR) Quick ratio is a more refined tool to measure the liquidity of an organization. It establishes relationship between quick, or liquid, assets and current liabilities. An asset is liquid if it can be converted into cash immediately or reasonably soon without a loss of value. Quick Ratio is a better test of financial strength than the current ratio, because it excludes very slow moving inventories and the items of current assets, which cannot be converted into cash easily. This ratio shows the extent of cushion of protection provided from the Quick assets to the current creditors. A Quick ratio of 1:1 is usually considered satisfactory.

QUICK RATIO = QUICK ASSTES CURRENT LIABILITY QUICK ASSETS = CURRENT ASSETS CURRENT LIABILITY

RANBAXY

Quick Ratios for last 5 years for RANBAXY, Gurgaon have been calculated as under. (Figures are in Rs/ million)

2010 QUICK 61953.64 ASSETS CURRENT 24910.82 LIABILITY QUICK 2.48 RATIO INFERENCE:

2009 36854.82 26558.44 1.39

2008 39500.05 35679.74 1.12

2007 18540.11 8331.20 2.23

2006 15540.82 7233.30 2.14

The liquid ratio of 1:1 is considered to be satisfactory in case of any organization whereas in case of RANBAXY, Gurgaon Liquidity Ratio is satisfied for approaching one; hence there is no liquidity problem in payment in time. Here payments to creditors are made in time because company has good cash availability. For every organization the mandatory quick ratio is 1 but here the ratio is more than 1 so we can say the firms paying ability is good.

XY

RANBA

2. ACTIVITY RATIOS A. Debtors Turnover Ratio (DTR)


Debtor Turnover Ratio measures whether the amount of resources tied up in debtors is reasonable and whether the company has been efficient in converting debtors into cash .It indicates the number of times debtors turnover each year. Generally, the higher the value of debtors turnover, the more efficient is the management of credit

DEBTOR TIRNOVER RATIO = NET CREDIT SALES AVERAGE DEBTORS


Average debtors is the average of opening and closing balances of inventory for each year.

RANBAXY

The Debtors Turnover Ratio for last 5 years for RANBAXY, Gurgaon have been calculated as under. (Figures are in Rs/ millions) 2010 NET SALES 56695.43 AVERAGE DEBTORS DEBTOR T/O RATIO 14136.4 4.01 2009 47802.86 12795.92 3.73 2008 44702.78 9537.21 4.68 2007 41358.71 9483.26 4.36

INFERENCE: This ratio indicates that how quick debtors are collected and higher ratio shows better position of the company. The ratio of the last 4 years it is clear that the debtors are collected quickly and efficiently as the Debtor Turnover Ratio is increasing year by year from 4.36 times in year 200607 to 4.68 times in year 2007-08. This indicates that average collection period is short and so there are less or say no bad debts for the company. In year 2008-09, the ratio was decreased but again in next year it will increased to 4.01 times.. Since the liquidity position of the firm depends on the quality of debtors to a great extent therefore an average of 4.21 shows that the liquidity position of the firm is good.

RANBAXY

B. Fixed Assets Turnover Ratio Fixed assets are used in the business for producing goods to be sold. The effective utilization of fixed assets will result in increased production and reduced cost. It also ensures whether investment in the assets have been judicious or not.

FIXED ASSETS TURNOVER RATIO=COST OF SALES NET FIXED ASSETS

The Fixed Assets Turnover Ratio for last 5 years for RANBAXY, Gurgaon have been calculated as follows.(the data is already we taken before)

YEARS

2010

2009

2008

2007

2006

F/A TURNOVER RATIO

2.08

1.92

1.94

1.91

2.08

RANBAXY
INFERENCE: The RATO TABLE above shows that the fixed assets turnover ratio was on a varying trend for past 5 years until 2007-08 where it faced a decline. The reason that could be attributed to such a decline is that the utilization of funds in the form of fixed assets has been significantly higher for the year 2007-08. As compared to previous years. Moreover, this hike is not in proportion to the increase in net sales. Thus, efficiency of the firm in utilizing its fixed assets has fall down from 2006 but in year 2009-2010 the ratio is increased from 1.92 to 2.08 . But an average figure of 2.01 indicates that the firm has been utilizing its fixed assets efficiently with respect to net sales.

C. Total Assets Turnover Ratio


This ratio shows the relationship between sales and total assets of the company and also compares total sales with total assets. It shows the firms ability in generating sales from all financial resources committed to total assets. Lower Total Assets Turnover Ratio indicates lack of proper utilization of invested assets and if it is higher then it means that company is utilizing its invested properties in an impressive manner.

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TOTAL ASSETS TURNOVER RATIO=NET SALE TOTAL ASSETS

RANBA

he Total Assets Turnover Ratio for last 5years for RANBAXY , Gurgaon have been calculated as under. (Figures are in Rs/ millions)

2010 Net sales 56695.43 Total assets 93931.07 T/A 0.60 turnover ratio

2009 47802.86 74829.85 0.63

2008 44702.78 74155.65 0.60

2007 41358.71 60414.20 0.68

2006 40302.90 55286.13 0.72

RANBAXY
INFERENCE: The total assets turn over ratio is the relationship between total assets and sales. As can be seen from the above table, the Total Assets Turnover Ratio at RANBAXY, Gurgaon is on an decreasing trend for last 5 years except for the year 2008-09 it faced a upfall of 0.03 points, although it was not well sufficient for the company .The average of TAT Ratio for last 5 years comes out to be 0.65 which implies that, on an average, ranbaxy , gurgaon generates a sale of Rs.0.65 for one rupee investment in fixed and current assets together.

3. LEVERAGE RATIO:

A. DEBT RATIO
Debt Ratios may be used to analyze the long term solvency of the firm. It would be of relevance to know the proportion of the interest-bearing debt (also called funded debt) in the capital structure of the firm. Thus, debt ratio can be computed by dividing total debt by capital employed or net assets. Total debt includes short and long term borrowings from

financial institutions, debentures/bonds, deferred payment arrangements for buying capital equipments, bank borrowings, public deposits and any other interest bearing loan.

RANBAXY
DEBT RATIO=TOTAL DEBT CAPITAL EMPLOYED
have been calculated as under. (Figures are in Rs/ millions)

The Debt Ratio for last 5 years for RANBAXY ,Gurgaon

2010 TOTAL DEBT 42607.15 CAPITAL 69020.25 EMPLOYED DEBT 0.62 RATIO

2009 33483.80 48271.41 0.69

2008 36987.99 38475.91 0.96

2007 35030.28 52083 0.67

2006 31786.00 48052.83 0.65

RANBAXY
INFERENCE: From the above TABLE , it can be seen that the debt ratio of RANBAXY, Gurgaon has steep inclination right from 2005-06 to 2007-08. The trend in middle years is rather fluctuating. A higher debt ratio implies that claims of creditors on the company are greater than those of owners. Moreover, all debt that has been raised by RANBAXY is in the form of unsecured loan. This tends to introduce inflexibility in the firms operations due to increasing interferences and pressures from creditors. However, besides facing a steep incline, this ratio is still very small which supports greater claim of owners than creditors.

B. Debt Equity Ratio (DER)


This ratio indicates the relationship between loan fund and net worth of the company, which is known as gearing. If the proportion of debt to equity is low a company is said to be low-geared and vice versa. A debt equity ratio of 2:1 is the norm accepted by financial institutions for financing projects. The higher the gearing, more volatile is the return to the shareholders.

RANBAXY

DEBT EQUITY RATIO= TOTAL DEBT NET WORTH

The Debt Equity Ratio for last 5 years for RANBAXY , Gurgaon has been calculated as under. (Figures are in Rs/ MILLIONS) 2010 TOTAL DEBT 42607.15 NET WORTH 51323.92 DEBT EQUITY RATIO 0.83 0.94 1.05 1.39 1.36 41346.05 37167.66 25383.92 23500.13 33483.80 36987.99 35030.28 31786.00 2009 2008 2007 2006

RANBAXY
INFERENCE: The Debt Equity Ratio describes the lenders contribution for each rupee of owners contribution. The Debt Equity Ratio of RANBAXY ,Gurgaon for last 5 years forms a decreasing trend with 1.36% in the year 2005-06 to 0.83% in year 2009-10. An average DE Ratio of these 5 years is 1.11 which implies that lenders have contributed Rs. 1.11 for each rupee contributed by owners. This generates a greater claim of owners than creditors which is a satisfactory situation from creditors point of view, since, a high proportion of equity provides greater margin of safety for them.

C. Proprietor Ratio
It is assumed that larger the proportion of the shareholders equity, the stronger is the financial position of the firm. This ratio will supplement the debt-equity ratio. In this ratio a relationship established between the shareholders fund and the total assets. A reduction in shareholders equity signally the over dependence on outside source for long term financial needs and this carries the risk of higher level of gearing. This ratio indicates the degree to which unsecured creditors are protected against loss in the event of liquidation

XY
PROPRIETOR RATIO =NET WORTH TOTAL ASSETS

RANBA

The Proprietor Ratio for last 5 years for RANBAXY, Gurgaon has been calculated as under. (Figures are in Rs/ Millions)

2010

2009

2008

2007

2006

NET WORTH

51323.92

41346.05

37167.66

25383.92

23500.13

TOTAL 93931.07 ASSETS PROPRIETOR 0.54 RATIO

74829.85
0.55

74155.65
0.50

60414.20
0.42

55286.13
0.43

INFERENCE: There is increase in shareholders fund but there is no fresh investment in FA is made and this may affect future profitability of the company.

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D. Fixed Assets to Net worth Ratio

RANBA

This ratio shows that how efficiently the fixed assets are utilized by the company. This also shows that what portion of net worth is invested in the fixed assets.

FIXED ASSETS TO NET WORTH=FIXED ASSETS NET WORTH

The FA to NW Ratio for last 5 years for RANBAXY, Gurgaon have been calculated as under. (Figures are in Rs/ millions)

2010 FIXED ASSETS NET WORTH RATIO 17121.18 51323.92 0.33

2009 15934.05 41346.05 0.38

2008 14566.78 37167.66 0.39

2007 14695.21 25383.92 0.57

2006 14340.31 23500.13 0.61

XY

RANBA

INFERENCE: Here this ratio is going on decreasing and the average comes out to be 0.45 which means for every Re. 1 of Proprietor Fund there are Rs. 0.45 of Fixed Assets indicating that Fixed Assets are utilized properly but there are no fresh investments made in Fixed Assets which may effect the future profitability of the company.

E. Fixed Assets Ratio:


This ratio indicates the proportion of long funds deployed in fixed assets. Fixed assets minus depreciation provided on this till the date of calculation. The higher the ratio indicates the safer the funds available in case of liquidation. It also indicates the portion of long-term fund that is invested in the working capital.

FIXED ASSETS RATIO =CAPITAL EMPLOYED NET FIXED ASSETS

XY

RANBA

The Fixed Assets Ratio for last 5 years for RANBAXY, Gurgaon have been calculated as under. (Figures are in Rs/ millions)

2010 CAPITAL EMPLOYED NET FIXED ASSETS RATIO 69020.25 17121.18 4.03

2009 48271.41 15934.05 3.02

2008 38475.91 14566.78 2.64

2007 52083 14695.21 3.54

2006 48052.83 14340.31 3.35

INFERENCE: This ratio indicates that proportion of long funds deployed in fixed assets here the fixed assets ratio is increasing.. But there is continuous increasing in the fixed assets ratio, which may helpful for future profitability of the company. Here higher ratio indicates the safer the funds available in case of liquidation.

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4. PROFITABILITY RATIOS A. Gross Profit Ratio (GPR)

RANBA

This ratio measures the gross profit margin on the total net sales made by the company. The ratio measures the efficiency of the companys operation and this can also be compared with the previous years results to ascertain the efficiency partners with respect to the previous year. When every thing is normal the gross profit margin should remain unchanged, irrespective of the level of production and sales, since it is based on the assumption that all

costs deducted when computing gross profit, which are directly variable with sales. A stable gross profit margin is therefore the norm.

GROSS PROFIT RATIO= GROSS PROFIT NET SALES

RANBA XY
The Gross Profit Ratio for last 5 years for RANBAXY, Gurgaon have been calculated as under. (Figures are in Rs/ million)

2010 GROSS PROFIT 17882.03

2009 12055.89

2008

2007

2006 5424.77

- 14537.34 8821.74

NET SALES RATIO 56695.43 31.54 47802.86 25.22 44702.78 -32.52 41358.37 40302.90 21.33 13.46

INFERENCE: Gross Profit Ratio is increasing year by year. It has come to 31.54% in 2009-10 from 13.46% in 2005-06. For improving the more profitability of the company, company should take in plans relating to cost reduction and cost control. Efforts should also be made to take up contracts having greater margins such as renovation / retrofitting etc. In addition to regular contracts which has very less margin.

GROS P S ROF AREA IT


4 0 31 4 .5 2 2 5.2 3 0 2 .3 1 3 2 0 1 .4 3 6 1 0 0 -1 20 -1 00 920 7 82 0 0 09 02 8-0 0 -0 0 6-0720 5-0 0 6 -2 0 -3 0 -3 .5 2 2 -4 0

R ATIOS

GR SPR IT R OS OF ATIO

The Gross Profit Ratio for last 5 years for RANBAXY, Gurgaon have been shown in a graph.

XY

RANBA

B. Net Profit Margin


This ratio established relationship between net profit and net sales. Net profit ratio shows the operational efficiency of the managerial inefficiency and excessive selling and distribution expenses. In the same way, increase shows better performance. Increase or decrease in the ratio is determined in comparison to pervious years performance.

NET PROFIT MARGIN=NET PROFIT NET SALES

The Net Profit Margin for last 5 years for RANBAXY , Gurgaon have been calculated as under. (Figures are in Rs/ millions)

2010 NET PROFIT 11452.48 NET SALES 56695.43 MARGIN 20.20

2009 5698.10 47802.86 11.92

2008 10371.04 44702.78 -23.20

2007 6104.49

2006 3756.17

41358.37 40302.90 14.76 9.32

XY

RANBA

INFERENCE: Net profit of last 5 years is continuously increasing indicating a good operating efficiency of the company. In 2005-06 the margin is 9.32 but it increases in 2009-10 to 20.20 . and this is a satisfactory position for the company and also indicates that Managerial skills are efficient. The companys performance is good. The Net Profit Margin for last 5 years for RANBAXY , Gurgaon have been shown in a graph.

NE P OF MAR T R IT GIN
25 20 15 10 5 0 -5 -10 -15 -20 -25 20.2 11.92 14.7 6 9.32 NET PR IT MAR OF GIN

-23.2

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C. Net Profit To Fixed Assets Ratio

RANBA

This ratio shows relationship of net profit to fixed assets and also indicates, whether fixed assets are being properly used or not. It will be in the favor of the business, if this ratio higher.

N/P TO FIXED ASSET=NET PROFIT FIXED ASSETS

The Net Profit to Fixed Assets Ratio for last 5 years for RANBAXY ,(GURGAON) have been calculated as under. (Figures are in Rs/ MILLIONS) 2010 2009 2008 2007 2006

NET PROFIT
FIXED ASSETS RATIO

11452.48 17121.18
0.67

5698.10 15934.05
0.36

10371.04 14566.78
0.71

6104.49 14695.21
0.42

3756.17 14340.31
0.26

XY

RANBA

The Net Profit to Fixed Assets Ratio for last 5 years for RANBAXY ,(GURGAON) have been SHOWN IN A GRAPH

NET PR IT TO F EDAS ETS OF IX S

R ATIOS

0.67

0.6 7 0 .36

0 .71 0.42 0.2 6 N/P TO F /A

0 20 09-10 2008-0 9 2 007-0 8 Y EAR 2006 -07 2005-06

RATIO YEARS INFERENCE: Here this ratio is going on increasing however in 2005-06 to 2007-08. it increased from 0.26 in year to .71 but after that it was going decreased in year 200809, indicating that the fixed assets of the company is being used effectively. But there is no fresh investment made in Fixed Assets during these years and can affect future profitability of the company. The earning capacity of the company from utilization of Fixed Assets is improving year by year.

RANBAXY
D.

Return On Investment (ROI )

Return on investment ratio measures, how effectively the capital employed in the business is used. It shows the earning capacity of the net assets of the business. The ratio judges the performance of the business. It can be used for comparing the performance of even dissimilar business or different department of the same business.

RETURN ON INVEST MENT=PROFIT AFTER TAX SHAREHOLDER FUND


The Return on Investment for last 7 years for HEEP, Hardwar have been calculated as under 2010 2009 2008 2007 2006

PROFIT AFTER TAX

11487.26

5719.84 41346.05
14

-10448.02 37167.66
-28.11

SHAREHOLDER FUNDS 51323.92 RATIO 22.38

6177.20 25383.92
24.3

3805.43 23500.13
16.19

RANBAXY
RATIO YEARS INFERENCE: Return on investment is increasing year by year that is 16.19 in year 2005-06 and it increased to 24.3 in year 2006-07. it is indicating that the capital employed in the business is used effectively and the performance of the company is increasing hence, company should not invest in the fixed assets and R & D expenditures. But in year 2008 the ratio is negative means company has a loss.they made more more exp. On r&d.

LIMITATIONS OF STUDY
The conclusion given regarding BHEL is based on the present economic condition. All the data collected was from the secondary sources and I had to rely on the data collected by them. It took a lot of time in collection of data as the data available in RANBAXY ,gurgaon is so wide and covers great deal of extensive information.

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CONCLUSIONS AND SUGGESTIONS

RANBA

During my Summer Training at ranbaxy, gurgaon on the project Financial Analysis and EVA, I have observed some weak and strong points of the company, which are following: As it is not only the analysis which makes the decision, furthermore good judgments and interpretation depends upon the intelligence and ability of the analyst.

On seeing the performance over EVA it can be said that company is doing good in their core field. And growth of the EVA shows the units strong position in their business. This growth is also shows a good sign from shareholders point .

On seeing the profitability of the RANBAXY its overall performance is very good. A continuous increase in the values & results, investors feel safe to invest money in RANBAXY.

On seeing turnover, fixed assets and current assets turnover of company goes on increasing which is a good indicator as it brings commensurate gain and also the average collection goes on decreasing but management should take more efficient steps to reduce it.

XY

RANBA

On seeing the leverage position of THE RANBAXY, I conclude that it is very good as the stake of owners in company is continuously increasing and its long term debt continuously decreasing it means that company is paying its debt promptly and creditors will not face any risk in investing in Ranbaxy and also Ranbaxy is giving assured ROI.

On seeing the liquidity position of Ranbaxy . I conclude that it is not very good as the current assets are in the form of inventories and debtors. The debt collection period is high and inventories are least liquid current assets. So maintaining the inventories are relatively costly affair for the company and the management must have to investigate properly. It is very necessary so that fund should not be blocked unreasonably. Efficient inventory management is required in Ranbaxy.

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