Ranbaxy final project

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Shree Agrasain College 2012
FINAL REPORT
Leverage Analysis in Financial Management
OF
RANBAXY LABORATORIES LIMITED
Submitted by-:
RAHUL RAI
Roll No: 434-BBA10M-0008
Reg No: 4341121003809
SHREE AGRASAIN
COLLEGE

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Leverage Analysis in Financial Management
OF
USING CAPITAL STRUCTURE & LEVERAGE
By
RAHUL KR. RAI
A Report Submitted in partial fulfillment
of the requirement for the Bachelor of Business Administration
(BBA) Program of
Under the guidance of
Mr. NIBIR GOSWAMI Mr.AMOD GUJRAL
College Guide Company Guide

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Acknowledgement
I am profoundly thankful to MR. Amod Gujral, HR. Manager, Ranbaxy
Laboratories Limited, for his cordial treatment and also for his expert guidance
and constant assistant given in the course of this project with a deep sense of
gratitude. It’s my real honor and pleasure, to be associated with Ranbaxy
Laboratories. I deeply express my gratitude to the company for giving me an
opportunity to work as winter trainee at their corporate office under Winter
Internship Program (WIP). Also special thanks to Sr. Prof Nibir Goswami For
special guidance and all the respected teachers of BBA(H) department. Our
also goes to the kind Co-operation of our college library from where we could
collect a vast treasure of knowledge. We would like to thanks the countless
number peoples especially who helped get this work out of door. While
developing this project we had to consult many people from different grounds
of activity. We would like to thank our parents without whom this project
would never have been completed. The kind and ready help and advice
extended by them is greatly acknowledged. We also express our whole hearted
thanks to our friends who criticized and motivated us during the tenure of the
study and to all my elders for the inspiration and encouragement through the
course.

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Topics Page No
1. Introduction 6
2. Objective 7
3. Importance 8
4. Methodology 9
5. Company Profile
a. Introduction to Ranbaxy Laboratories Ltd. 10
b. World Wide Operation 12
c. Company Products 13
i. Theoretical Background on Financial Analysis
a. Leverage 15
b. Capital Structure 17
c. CVP Analysis 19
d. EBIT/EPS Analysis 21
ii. Analysis &Interpretation 23
iii. 10 year at a glance 39
6. Recommendations 40
7. Advantages 43
8. Limitations 45
9. Conclusion 46
10. Bibliography 47
11. Attachments 48

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Every financial manager is involved in financial decision making and financial
planning in order to take right decision at right time, he should be equipped with
sufficient past and present information about the firm and its operations and how it
is changing overtime. Much of this information that is used by financial manager to
take various decisions and to plan for the future is derived from the financial
statements
For selecting a target debt –equity mix, the firm analyses a number of factors. One
such factor is leverage. The capital structure decision involves a choice between risk
and expected returns. The use of more and more debt capital raises the risk factor of
the firm’s earnings stream but it also tends to provide a higher expected rate of
return to the shareholders. In this chapter, we consider the various aspects of
leverage and risks in planning the capital structure of a firm.
Financial management has assumed greater importance today as the financial
strategies required to survive in the competitive environment have become very
important. In the financial markets also new instruments and concepts are coming
and one must say that a finance manager of today is operating in a more complex
environment. A study of theories and concepts of financial management has therefore
become a part of paramount importance for academics as well as for practitioners
but there are many concepts and theories about which controversies exist as no
unanimous opinion is reached as yet.
The project, Leverage Analysis in Financial Management. further aims at
discussing and understanding the concepts of financial management of Ranbaxy
Laboratories Limited.; the functions expect to be performed by the financial
management as well as the objectives of financial managements
INTRODUCTION

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It shows relation between variousa spects-
particularly Risk & Reward
Leverage is a relation of your
efforts and rewards
Some factors like fixed cost resources etc.
have impact on increase or decrease in
profit.
Objective

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Leverage is some tool to
help you accelerateyour
speed.
It increases your speed and
also your risk.
It improves returns on
equity.
IMPORTANCE

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Personal Interview
Printed and Digital Sources
Questionnaire
METHODOLOGY

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Ranbaxy Profile
About Ranbaxy
Profile
Ranbaxy Laboratories Limited (Ranbaxy), India's largest pharmaceutical company, is an integrated,
research based, international pharmaceutical company, producing a wide range of quality, affordable
generic medicines, trusted by healthcare professionals and patients across geographies. Ranbaxy today
has a presence in 23 of the top 25 pharmaceutical markets of the world. The Company has a global
footprint in 43 countries, world-class manufacturing facilities in 8 countries and serves customers in over
125 countries.
In June 2008, Ranbaxy entered into an 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.
Ranbaxy was incorporated in 1961 and went public in 1973.
Mission
Ranbaxy's mission is 'Enriching lives globally, with quality and affordable pharmaceuticals'.
Financials
For the year 2011, the Company recorded Global Sales of US $ 2.1 Bn. The Company has a balanced mix
of revenues from emerging and developed markets that contribute 47% and 46% respectively. In 2011,
North America, the Company's largest market contributed sales of US $ 791 Mn, Europe contributing US
$ 297 Mn and Asia clocking sales of US $ 503 Mn.

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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 Company's constant endeavour to provide a wide basket of 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.
R&D
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 System (NDDS) research capability. Ranbaxy's first
significant international success using the NDDS technology platform came in September 1999, when
the Company out-licensed its first once-a-day formulation to a multinational company.
In July 2010, Ranbaxy's New Drug Discovery Research (NDDR) was transferred to Daiichi Sankyo India
Pharma Private Limited as part of the strategy to strengthen the global Research and Development
structure of the Daiichi Sankyo Group. NDDR is now an integral part of Daiichi Sankyo Life Science
Research Center in India, based in Gurgaon.
However, Ranbaxy continued to independently develop the anti-malarial new drug, arterolane maleate
+ piperaquine phosphate that has been approved by the Indian Drug Regulator, Drug Controller General
of India (DCGI) for manufacturing and marketing in India. In April 2012, Ranbaxy launched India's first
new drug, SynriamTM, for the treatment of uncomplicated Plasmodium falciparum malaria, in adults.
The company will also explore the further development of late stage programs developed by NDDR in
the last few years, including the development programs in the GSK collaboration. Within Ranbaxy, R&D
of Generics will now get a sharper focus, as the Company is increasingly working on more complex and
specialist areas

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Worldwide Operations
Global Pharma Companies are experiencing an ever changing landscape ripe with challenges and
opportunities. In this challenging environment Ranbaxy is enhancing its reach leveraging its
competitive advantages to become a top global player.
Driven by innovation and speed to market we focus on delivering world-class generics at an
affordable price. Our unwavering determination to achieve excellence leads us to new global
benchmarks. Our people have consistently risen above all challenges maximized opportunities and
positioned Ranbaxy as a leader in the global generics space.
Ranbaxy's global footprint extends to 43 countries embracing different locales and cultures to form
a family of 50 nationalities with an intellectual pool of some of the best minds in the world.
Africa Asia Pacific CIS
Europe Global API Global Consumer Healthcare
India Latin America Middle East and Sri Lanka
North America

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Products
Using the finest R&D and Manufacturing facilities, Ranbaxy Laboratories Limited manufacture and
markets generic pharmaceuticals, value added generic pharmaceuticals, branded generics, active
Pharmaceuticals (API) and intermediates.
The Company remains focused on ascending the value chain in the marketing of pharmaceutical
substances and is determined to bring in increased revenues from dosage forms sales.
Ranbaxy's diverse product basket of over 5,000 SKUs available in over 125 countries worldwide,
encompasses a wide therapeutic mix covering a majority of the chronic and acute segments. Healthcare
trends project that the chronic treatment segments will outpace the acute treatment segments, primarily
driven by a growing aging population and dominance of lifestyle diseases. Our robust performance in
Cardiovasculars, Central Nervous System, Respiratory, Dermatology, Orthopedics, Nutritionals and
Urology segments, clearly indicates that the Company has strengthened its presence in the fast-growing
chronic and lifestyle disease segments.
Top 10 Molecules (2010)
• Valacyclovir
• Simvastatin
• Donepezil
• Atorvastatin & Combinations
• Co-amoxyclav & Combinations
• Ciprofloxacin & Combinations
• Ketorolac Tromethamine
• Imipenem+Cilastatin
• Ginseng+Vitamins
• Loratadine & Combinations

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For selecting a target debt –equity mix, the firm analyses a number of factors. One such factor is leverage. The
capital structure decision involves a choice between risk and expected returns. The use of more and more debt
capital raises the risk factor of the firm’s earnings stream but it also tends to provide a higher expected rate of
return to the shareholders. In this chapter, we consider the various aspects of leverage and risks in planning the
capital structure of a firm.
The concept and nature of leverage:-
The term leverage is also used in business terminology. It describe the ability of a firm to used fixed cost
assets or funds to magnify the return to the shareholders, in other words, it implies that, other things
remaining, a relatively small changes in sales results in a large change in income(profit before interest & tax).it
may be mentioned that leverage may occur in a varying degrees. The higher the degree of leverage, the greater
is the risk. But at the same time, it also increased the possibility of higher rate of return to the shareholders.
The term “risk” implies the degree of uncertainty that the firm has to face in meeting fixed-payment obligation
(i.e. operating fixed costs and costs of pref. and debt capital).
Two types of leverage are used in business terminology viz.: (i) operating leverage arising out of fixed
operating cost, and (ii) financial leverage arising out of fixed financial charges. Operating leverage indicates the
degree of operating risk while financial leverage signifies the degree of financial risk of the firm. The combined
effect of operating and financial leverage provides a risk profile or the total risk of the firm. Before we take up
leverage for discussion it is important to discuss briefly various types of risk—business or operating risk and
financial risk.
Introduction

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Various risks
Operating risks
This represents the variability in earnings before interest and taxes (EBIT) due to the risk inherent in the operation
of the firm. It is also called business risk. Variability in EBIT may be due in sales. Variability in sales depends on the
nature of the firm’s market, the industry and economy at large. Similarly, variability in EBIT also depends on the
variability of the operating cost of the firm. The various factors that contribute to the operating and business risk
are discussed below:-
(i) Variability in demand,
(ii) Variability in selling price,
(iii) Variability in input prices and firm’s capacity to adjust out prices accordingly,
(iv) Ability to develop new products,
(v) The extent of fixed costs in the total cost structure of the firm.
(vi) The asset structure of the firm.
Financial risk:-
Financial risk is associated with the financing decisions of the firm. This risk essentially refers to the use of debt
and prep, capital in the capital structure of the firm. Since the debt capital is usually cheaper than equity, the use
of debt increase the rate of return on equity as long as the rate of return on equity as long as the rate of return
exceeds the cost of debt capital. Financial risk an umbrella term for multiple types of risk associated with
financing, including financing transaction that include company loans in risk of default Risk is a term often
used to imply downside risk meaning the uncertainty of a return and the potential for financial loss. There are
various types of risk which are discussed below:-
(i) Asset-backed risk,
(ii) Credit risk,
(iii) Foreign investment risk,
(iv) Liquidity risk,
(v) Market risk,
(vi) Operational risks.’
Since financial risk is associated with debt or pref. capital, if no debt or pref. capital is used in the
capital structure of the firm, there is no financial risk. Thus, a firm that finances by equity only does not
face any financial risk.

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Capital structure
In finance, capital structure refers to the way a corporation finances its assets through some
combination of equity, debt, or hybrid securities. A firm's capital structure is then the composition or
'structure' of its liabilities. For example, a firm that sells 20 billion in equity and 80 billion in debt is said
to be 20% equity-financed and 80% debt-financed. The firm's ratio of debt to total financing, 80% in this
example, is referred to as the firm's leverage. In reality, capital structure may be highly complex and
include dozens of sources. Gearing Ratio is the proportion of the capital employed of the firm which
come from outside of the business finance, e.g. by taking a short term loan etc.
A mix of a company's long-term debt, specific short-term debt, common equity and preferred equity.
The capital structure is how a firm finances its overall operations and growth by using different
sources of funds.
Debt comes in the form of bond issues or long-term notes payable, while equity is classified as
common stock, preferred stock or retained earnings. Short-term debt such as working capital
requirements is also considered to be part of the capital structure.
The Modigliani-Miller theorem, proposed by Franco Modigliani and Merton Miller, forms the basis for
modern thinking on capital structure, though it is generally viewed as a purely theoretical result since it
disregards many important factors in the capital structure decision. The theorem states that, in a perfect
market, how a firm is financed is irrelevant to its value. This result provides the base with which to
examine real world reasons why capital structure is relevant, that is, a company's value is affected by
the capital structure it employs. Some other reasons include bankruptcy costs, agency costs, taxes, and
information asymmetry. This analysis can then be extended to look at whether there is in fact an optimal
capital structure: the one which maximizes the value of the firm.
4,4
6,4
2,2
2,12
capital structure
EQUITY
DEBT
PREFERENCE
OTHER

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Types of leverage
Operating leverage
Operating leverage is a measure of how sensitive net operating income is to percentage changes in sales.
Operating leverage acts as a multiplier. If operating leverage is high, a small percentage increase in sales can
produce a much larger percentage increase in net operating income. It is high near the breakeven point and
decreases as the sales and profit increase.
The degree of operating leverage (DOL) is a measure, at a given level of sales of how a percentage change in sales
volume will affect profits.
[Degree of operating leverage (DOL) = Contribution margin ÷ Net operating income]
This can also be computed as Total Contribution Margin over Operating Income:
Financial leverage
Financial leverage can be defined as the degree to which a company uses fixed-income securities, such as debt
and preferred equity. With a high degree of financial leverage come high interest payments. As a result, the
bottom-line earnings per share is negatively affected by interest payments. As interest payments increase as a
result of increased financial leverage, EPS is driven lower.
As mentioned previously, financial risk is the risk to the stockholders that is caused by an increase in debt and
preferred equities in a company's capital structure. As a company increases debt and preferred equities, interest
payments increase, reducing EPS. As a result, risk to stockholder return is increased. A company should keep its
optimal capital structure in mind when making financing decisions to ensure any increases in debt and preferred
equity increase the value of the company.
Degree of Financial Leverage
This measures the percentage change in earnings per share over the percentage change in EBIT. This is known as
"degree of financial leverage" (DFL). It is the measure of the sensitivity of EPS to changes in EBIT as a result of
changes in debt.
DFL =
𝑬𝑩𝑰𝑻
𝑬𝑩𝑰𝑻−𝑰𝒏𝒕𝒆𝒓𝒆𝒔𝒕
Or

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 Operating leverage and C-V-P analysis
1. The cost-volume - profit (CVP) analysis is a device to study the behavior of profit in response to changes in
volume, costs and price.
1. The break-even analysis - a popular form of the CVP analysis indicates the level of sales at which
revenues equal costs. The equilibrium point is called the break-even point.
In the CVP analysis, costs are separated into fixed and variable costs. Variable costs changes in direct
proportion to change in volume while fixed costs remain constant. The different between sales (selling
price) and variable costs (variable cost per unit is called contribution (contribution per unit. ) A firm should
generate sufficient contributions from the sale of its products to recover fixed costs and leave a
reasonable amount of profit. As the break-even sales, profit is defined to be zero; therefore, contribution
will be equal to fixed cost. If contribution per unit (vie, selling price minus variable cost per unit) and fixed
costs are known, the break-even point in units can be computed as follows:
Break - even point (in units) = Fix cost / Contribution per unit
The contribution ratio, also called P/V ratio , is equal to contribution ( contribution per unit ) divided by
sales ( selling price ) , Using contribution ,or P/V ratio, the breakeven point in rupees can be found as
follows;
Break even point ( in units ) = Fixed costs / Contribution Unit
The excess of actual or budget sales over the break even sales is called the margin of safety. It indicates
the extent to which sales may fall before the firm suffers a loss. An important concept in context of the
CVP analysis is the operating advantage. Operating advantage refers to the use of fixed costs in the
operation of a firm. And it accentuates fluctuations (increasing or decreases) in the firm operating profit
due to changes in sales. Thus the degree of operating advantage DOL may be defined as the percentage
change in operating profit (earnings before interests and taxes EBIT) on account of a change in sales:
DOL = (EBIT - Sales)
Alternatively, DOL can be measured as follows:
DOL = Contribution / EBIT
2. The CVP analysis is a very useful technique to reflect the effect of changes in volumes, costs and prices on
profits. The break - even point will be lowered and profit increased whenever fixed costs and /or variable
costs decrease or selling price increase. Profit will also increase when volume increase and other factors
remain constant.

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The CVP analysis has the following advantages
(1) it is a simple device to understand accounting data.
(2) It is a useful diagnostic
(3) it provides basic information for further profit improvement studies.
(4) It is a useful method for considering the risk implication of alternative sections. It should be noted that the CVP
analysis is based on a number of assumptions that may not be realistic at times. Therefore, it should be used with
caution.
The use of the CVP analysis may be limited because of the following reasons
(1) it is difficult to separate costs into fixed and variable components.
(2) Fixed costs may not remain constant over the entire range of volume.
(3) Selling price and variable cost per unit may not remain constant.
(4) It is difficult to use the CVP analysis for a multi product firm.
(5) It is a short run concept.
(6) It is a static tool.
profit 40
Area 30 profit ( Rs. ‘000s)
Break even point 20
Sales(Rs. ‘000s) 10
50 100 150 200
TFC 20
(‘000) 30
40 Profit-Volume Graph
50
Loss area

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Breakeven chart
A breakeven chart is a strategic tool used to plot the financial revenue of a business unit against time or sales to
determine the point when sales output is equal to revenue generated. This is recognised as the breakeven point.
The information used to determine and analyze the breakeven point includes fixed, variable and total costs and
the associated sales revenues. They are defined as:
 Fixed costs: costs that do not vary in relation to the level of sales output, for example rent.
 Variable costs: costs that vary in proportion to the level of sales output, for example materials.
 Total costs: the sum of all costs, including fixed and variable.
 Associated sales revenues: the total revenue made by the company from sales. It can be derived by
multiplying price by output.
The analysis of a breakeven chart considers whether a venture runs at a profit or a loss. A sale above the
breakeven point indicates continued and profitable growth. The principle of break-even theory is that during the
early stages of a business venture, total costs, both fixed and variable, exceed sales. As output increases, sales
begin to rise faster than costs and, eventually, they become equal (breakeven point). If sales continue to rise and
exceed total costs, the business achieves profitability.
The tool assumes that all the goods which are produced will be sold and that costs, namely the price, will remain
constant. Likewise, it also relies on the capacity in terms of output to remain unchanged.
Breakeven charts are universally applied to simply and graphically illustrate and forecast a company's projected
revenue, and to calculate the time for profitability to be reached. It is used by financial and marketing strategists
to predict the effect that changes in price will have on the percentage change in sales over time. It is also a useful
tool to analyze the relationship between fixed and variable costs and to predict the effect on profitability of
changes to those costs.

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Certain assumption need to be made for the purpose of construction of a BEC. They are:
 Fixed costs tend to remain constant. In other word, there is no change in cost factor, such as,
change in property tax rate, insurance rate, salaries of staff, etc. or in management policy.
 Prices of variable costs factors, i.e. wage rates, price of materials, surplice, services, etc. remain
unchanged so that variable costs are truly variable.
 Semi- variable costs can be segregated into variable and fixed elements.
 Product specification and methods of manufacturing and selling do not undergo a change.
 Operating efficiency does not increase or decrease.
 There is no change in pricing policy due to change in volume, competition, etc.
 The number of units of sales coincides with this unit produced so that there is no closing or
opening stock. Alternatively, the change in opening and cl. Stock are insignificant and are valued
at the same prices, or variable costs.
 Product-mix remains unchanged.
The BEP can be determined from a BEC or can be calculated as follows :
(i) BEP (units) =total fixed costs / unit contribution
(ii) BEP (sales value) :
(a) TFC / unit contribution * sppu
(b) TFC / unit contribution * total sales value
EBIT/EPS Analysis
EBIT - Earnings before Interest and Taxes. Accountants like to use the term Net Operating Income for this income
statement item, but finance people usually refer to it as EBIT (pronounced as it is spelled - E, B, I, T). Either way,
on an income statement, it is the amount of income that a company has after subtracting operating expenses
from sales (hence the term net operating income). Another way of looking at it is that this is the income that the
company has before subtracting interest and taxes (hence, EBIT).
EAT - Earnings After Taxes. Accountants call this Net Income or Net Profit After Taxes, but finance people usually
refer to it as EAT (pronounced E, A, T).
EPS - Earnings per Share. This is the amount of income that the common stockholders are entitled to receive (per
share of stock owned). This income may be paid out in the form of dividends, retained and reinvested by the
company, or a combination of both. (It is pronounced E, P, and S).
I need to raise additional money by issuing either debt, preferred stock, or common stock. Which alternative will
allow me to have the highest earnings per share?

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This question calls for an EBIT/EPS analysis. The EBIT-EPS analysis, as a method to study the effect of leverage,
essentially involves the comparison of alternative methods of financing under various assumptions of EBIT. A firm
has the choice to raise funds for financing its investment proposals from different sources in different
proportions. For instance, it can (i) exclusively use equity capital (ii) exclusively use debt, (iii) exclusively use
preference capital, (iv) use a combination of (i) and (ii) in different proportions; (v) a combination of (i), (ii) and (iii)
in different proportions, (vi) a combination of (i) and (iii) in different proportions, and so on. The choice of the
combination of the various sources would be one which, given the level of earnings before interest and taxes,
would ensure the largest EPS
The graph showing highest EBIT &EPS under optimum combination of capitals.

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Capital structure
The data are extracted from the Standalone Balance Sheet Of the given
years
Ranbaxy Laboratories (Rupees in millions)
SOURCES OF
FUNDS
31 Dec
2011
31 Dec
2010
31 Dec
2009
31Dec
2008
31 Dec
2007
Share Sapital
Preference capital
Reserves and
surplus
Loan funds
-Secured Loans
-Unsecured Loans
2,110.00
Nil
38,242.71
3,373.41
41,533.88
2,105.20
Nil
53,876.00
2,369.38
40,978.67
2,102.09
Nil
39,573.29
2,186.62
34,108.60
2,101.85
Nil
39,104.03
2,109.35
41,005.04
1,865.35
Nil
26,156.77
4,102.55
37,313.17
Total 85260.00 99329.25 77970.6 84320.27 69437.84
In the above data it is seen that every year company increases it share capital capital
upto amounting 2110 million , reserve and surplus increases upto year 2010
amounting Rs. 53,876.00 million but in year 2011 its decreases to 38,242.71 million,
but in case of loan funds its increases and decreases as per companies needs. The
various chart and graph showing trends of capital structure:-

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Capital structure for the year 2011
above data are shown in percentage mix of capital funds .
From the above data, it is clearly seen that company has small percentage of equity share
capital and secured loan in its capital structure and company belief in large amount of
unsecured loan in its capital structure to finance the organisation but company has also
having a greater percentage of reserve & surplus which ultimately keeps company strong
in opting any financial decision regarding any investment which is made through its
internal funds.
Share Capital
Preference
Share
Reserve and
Surplus
Secured loan
Unsecured
loan
Capital structure for the year 2011 2,48% 0 44,85% 3,96% 48,71%
2,48%
0
44,85%
3,96%
48,71%
0,00%
10,00%
20,00%
30,00%
40,00%
50,00%
60,00%
Mixofcapitalstructure
Capital structure for the year 2011

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Chart showing flow of capital funds.
0,00
10000,00
20000,00
30000,00
40000,00
50000,00
60000,00
31-12-2007 31-12-2008 31-12-2009 31-12-2010 31-12-2011
Share Sapital
Preference capital
Reserves and surplus
Secured Loans
Unecured Loans

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Trend of Total Fund in last five year
0
10000
20000
30000
40000
50000
60000
70000
80000
90000
100000
year 2007
year 2008
year 2009
year 2010
year 2011
69437,84
84320,27
77970,6
99329,25
85260
Títulodeleje
year 2007 year 2008 year 2009 year 2010 year 2011
Total Funds 69437,84 84320,27 77970,6 99329,25 85260
Total Funds

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Table Showing Profit before Tax for Last Five Years
Particulars 31 dec
2011
31 dec
2010
31 dec
2009
31 dec
2008
31 dec
2007
Sales
(Less) Variable Cost—Material
Contribution
(Less) Fixed Cost
Personnel Exp.
Operating & Other Exp.
Depreciation
EBIT
(Less) Interest
Profit before Exceptional Items
(Add/ Less) Exceptional Items
Profit before Tax / EBT
80363.82
23861.06
66738.84
21709.34
52381.87
20480.28
46817.70
18792.58
47783.22
17813.13
56502.76
8647.87
31842.33
2740.83
45029.5
7761.38
14712.20
2283.53
31901.59
7284.04
13614.82
1482.03
28025.12
4730.25
18743.73
1544.69
29970.09
4216.14
15888.32
1187.31
13271.73
6035.58
20272.39
541.94
9520.7
394.66
3006.45
1458.28
8678.32
934.26
7236.15
37722.85
19730.45
4078.00
9126.04
(1493.13)
1548.17
17738.98
7744.06
Nil
(30486.7) 15652.45 10619.17 (16190.81) 7744.06

29 | P a g e
Table showing DOL, DFL, & DCL of Last Five Years
Particulars 31-Dec
2011
31-Dec
2010
31-Dec
2009
31-Dec
2008
31-dec
2007
Contribution
EBIT
EBT
(millions)
56502.76
13271.73
(30486.7)
(millions)
45029.5
20272.39
15652.45
(millions)
31901.59
9520.7
10619.17
(millions)
28025.12
3006.45
(16190.81)
(millions)
29970.09
8678.32
7744.06
DOL =
𝑪𝑶𝑵𝑻𝑹𝑰𝑩𝑼𝑻𝑰𝑶𝑵
𝑬𝑩𝑰𝑻
DFL =
𝑬𝑩𝑰𝑻
𝑬𝑩𝑻
DCL =
𝑬𝑩𝑻
4.257
(0.435)
(1.853)
2.221
1.295
2.87
3.357
0.897
3.005
9.322
(0.186)
(1.731)
3.453
1.121
3.871

30 | P a g e
Graph showing trend of DOL, DFL & DCL
3,453
9,322
3,357
2,221
4,257
1,121
-0,186
0,897
1,295
-0,435
3,871
-1,731
3,005
2,87
-1,853
0
1
2
3
4
5
6
7
8
9
10
31-03-2007 31-03-2008 31-03-2009 31-03-2010 31-03-2011
DCL
DFL
DOL

31 | P a g e
SOURCES OF FUNDS
Particulars Rs. Amount
(in millions)
SOURCES OF FUNDS
Shareholders’ Funds
Share Capital
Reserves and Surplus
Loan Funds
Secured Loans
1,035.6
65,769.7
505.3
sources of funds (in millions)
Share Capital
Reserve & Surplus
Secured loans

32 | P a g e
Table showing EBIT & EBT
particulars Details Rs.
(in millions)
Amount Rs.
(in millions)
Sales
(less) Material Cost (variable)
Contribution
(less) Fixed Cost
Personnel Cost
Operating and Other Expenses
Operating and Other Expenses
Research and Development Expenditure
Depreciation / Amortisation / Impairment
EBIT
(Less) Interest
EBT
32,988.7
8,969.3
8,969.3
2,140.6
5,340.4
1,355.9
642.3
24019.4
18448.5
5570.9
5.9
5565
Sun Pharmaceutical Industries
DOL =
𝑬𝑩𝑰𝑻
DFL =
𝑬𝑩𝑰𝑻
𝑬𝑩𝑻
DCL =
𝑬𝑩𝑻
4.312
1.001
4.316

33 | P a g e
Comparison of DOL, DFL, & DCL of Ranbaxy Laboratories &
Sun Pharmaceutical Industries.
4,22
4,23
4,24
4,25
4,26
4,27
4,28
4,29
4,3
4,31
4,32
RANBAXY LABORATORIES
LTD
Sun Pharmaceutical
Industries Limited
4,257
4,312
DOL
RANBAXY LABORATORIES LTD
Sun Pharmaceutical Industries Limited

34 | P a g e
-0,6
-0,4
-0,2
0
0,2
0,4
0,6
0,8
1
1,2
RANBAXY LABORATORIES
LTD
Sun Pharmaceutical
Industries Limited
1,001
DFL
RANBAXY LABORATORIES LTD
-100% -50% 0% 50% 100%
Ranbaxy Laboratories Limited
Limited
-1,853
4,316
DCL
Ranbaxy Laboratories Limited

35 | P a g e
Particulars Ranbaxy
Laboratories
Sun
Pharmaceutical
Industries
Sales
EBIT
Capital Employed
80363.82
13271.73
80,753.65
32988.7
5570.9
68,595.7
Return on capital employed =
𝑬𝑩𝑰𝑻
𝑪𝒂𝒑𝒊𝒕𝒂𝒍 𝑬𝒎𝒑𝒍𝒐𝒚𝒆𝒅
× 𝟏𝟎𝟎 = 16.43% 8.12%
………………………………………………………………………………………
Profit Margin =
𝑬𝑩𝑰𝑻
𝑺𝒂𝒍𝒆𝒔
× 𝟏𝟎𝟎 16.51% 16.88%
……………………………………………………………………………………………
Assets Leverage =
𝑺𝒂𝒍𝒆𝒔
𝑪𝒂𝒑𝒊𝒕𝒂𝒍 𝑬𝒎𝒑𝒍𝒐𝒚𝒆𝒅
0.995 0.481

36 | P a g e
Comparison of EPS of Ranbaxy Laboratories &
Years EPS EPS
2011
2010
2009
2008
2007
2006
2005
2004
2003
2002
-72.32
27.28
13.61
-24.85
16.56
10.21
5.69
28.38
42.84
33.62
13.36
43.39
61.09
48.96
32.52
24.83
16.48
25.84
24.83
36.33

37 | P a g e
Graph showing trend of EPS in last 10 years
Ranbaxy Laboratories & Sun Pharmaceutical
Industries
-80
-60
-40
-20
0
20
40
60
80
2002 2003 2004 2005 2006 2007 2008 2009 2010 2011
Ranbaxy Laboratories

38 | P a g e
Graph showing trend of Sales of Ranbaxy Laboratories:
0
10000
20000
30000
40000
50000
60000
70000
80000
2002 2003 2004 2005 2006 2007 2008 2009 2010 2011
Sales (in millions)
2002
2003
2004
2005
2006
2007
2008
2009
2010
2011

39 | P a g e

40 | P a g e
Recomrere
 Regarding Capital Structure :
As we can easily see that company RANBAXY LABORATORIES , has huge capital funds
available but these fund are available for operating business is mainly acquired from
loan funds i.e. from unsecured loan from external world as compared to Equity capital
and secured loan. Company also has huge amount of reserve & surplus. Having huge
amount of Unsecured loan in capital funds reflects high much burden of fixed financial
charges i.e. Interest. From the above given data’s, it is clearly seen that company has
small percentage of equity share capital and secured loan in its capital structure and
company belief in large amount of unsecured loan in its capital structure to finance the
organisation but company has also having a greater percentage of reserve & surplus
which ultimately keeps company strong in opting any financial decision regarding any
investment which is made through its internal funds.
Here the mix of capital funds is not Adequate, and company doesn’t have any
preference share capital which may can affect the Earning Per Share (EPS) of RANBAXY
LABORATORIES.
The company should go for better mix of capital funds. Company should raise its capital
funds and cut down its Unsecured loan funds but its not need to raise preference share
capital being of non-tax advantage.
Recommendation

41 | P a g e
Need to Raise Funds
(Capital budgeting decision)
Capital Structure Decisions
Debt-Equity mix
Financial Risk Trade off NEDC Risk
Market value of firm’s

42 | P a g e
Regarding Leverage:
In the income statement of RANBAXY LABORATORIES, company has low lavel of
variable costs but company has greater Fixed Cost which ultimately turns to high
Operating Leverage
As shown above. High much fixed costs reflects high level of Break Even Point which
means company have to sale more units of products.
In the income statement of company there is an exceptional item which may reduce
the Profit before Tax ultimately reduce the financial leverage.
As a matter of prudent financial policy, a low operating leverage followed by a high
financial leverage is considered to be an Ideal situation for the maximization of the
company’s profit with minimum risk but RANBAXY LABORATORIES is running on inverse
situation having low profit with greater risks.

43 | P a g e
As Eugene F. Brigham explained in Fundamentals of Financial Management, "The optimal capital
structure is the one that strikes a balance between risk and return and thereby maximizes the price of
the stock and simultaneously minimizes the cost of capital."
The primary advantage of debt financing is that it allows the founders to retain ownership and control
of the company. In contrast to equity financing, the entrepreneurs are able to make key strategic
decisions and also to keep and reinvest more company profits. Another advantage of debt financing is
that it provides small business owners with a greater degree of financial freedom than equity financing.
Debt obligations are limited to the loan repayment period, after which the lender has no further claim
on the business, whereas equity investors' claim does not end until their stock is sold. Debt financing is
also easy to administer, as it generally lacks the complex reporting requirements that accompany some
forms of equity financing. Finally, debt financing tends to be less expensive for small businesses over the
long term, though more expensive over the short term, than equity financing.
The main advantage of equity financing for small businesses, which are likely to struggle with cash flow
initially, is that there is no obligation to repay the money. Equity financing is also more likely to be
available to concept and early stage businesses than debt financing. Equity investors primarily seek
growth opportunities, so they are often willing to take a chance on a good idea. But debt financiers
primarily seek security, so they usually require the business to have some sort of track record before
they will consider making a loan. Another advantage of equity financing is that investors often prove to
be good sources of advice and contacts for small business owners.
Leverage is both one of the biggest advantages and disadvantages in Forex. Depending on the broker
you’re using, leverage can be up to 200:1 or even 400:1. A 400:1 leverage means that you can trade up
to 400 times the money you have on your account. So, for each Rs. 1000 you have on your account, you
can trade up to Rs. 400.000.
ADVANTAGE

44 | P a g e
Advantages:
Considering you can trade up to 200 times or even 400 times your money, one of the advantages is that
you can make huge profits even if you don’t have much money on your account. Considering for
example the maximum 400:1 leverage, with just 0.25% of movement in your direction, you can double
your account.
So, when you’re right about a trade, leverage really pays off. No other market in the world offers so
much leverage, and that’s why Forex has been attracting many traders
you're probably all too familiar with how leverage works and the benefits it can have on your trading
success. Prolific traders across the world are using leverage to gear up their potential winnings, and to
boost their incomes beyond capital restraints, maximising their trading advantage with the help of their
brokers and financing partners. Indeed, high-risk investment funds are leveraging billions in principal
capital to deliver a return for investors, and with careful and rigorous management of risk leverage can
add significant value to your trading endeavours.

45 | P a g e
Very much complex data: The data in Annual Report of RANBAXY LABORATORIES
is very much complex which raise various difficulties in making projects.
Lack of adequate data: data in the annual report is lack of some data which
reflects inadequate info:
Comparative study required : leverage are useful in judging the efficiency of the
business only when they are compared with past results of the business. However,
such a comparison only provide glimpse of the past performance and forecasts for
future may not prove correct since several other factors like market conditions,
management policies, etc. may affect the future operations.
Personal bias: leverage are only means of financial analysis and not an end in itself.
leverage have to interpret and different people may interpret the same ratio in
different way.
Incomparable: Not only industries differ in their nature, but also the firms of
the similar business widely differ in their size and accounting procedures etc.
It makes comparison of ratios difficult and misleading.
LIMITATION

46 | P a g e
In order to survive in the long run, every company needs to plan about capital structure and very
decide the combination of sources of funds after observing the factors affecting capital
structures. With the help of strong capital structure planning, companies can strengthen their
balance sheets. If you select the right capital structure then it will also increase your company’s
power to face the losses and changes in financial market. Effective capital structure also helps
companies to reduce the overall risk of the companies.
Before making capital structure, companies ‘managers must analyze their profitability position and
find out that either the demand of debt investor is high then the expectation of shareholders
regarding dividend or not. Proper planning of capital structure also helps companies to enlarge their
area for getting funds as well as creates the mobility of sources of the funds. Companies should also
include the different and maximum alternatives in their capital structure.
Concepts of financial and operating leverages are important for evaluating business and financial
risk of a firm. Operating leverage refers to the use of fixed costs in operations and it is related to the
firm's production processes. The greater the operat-ing leverage the higher is the risk in operations.
At the same time, a high degree of operating leverage causes profits to rise rapidly after the break-
even point is reached. Financial leverage refers to the use of debt in financing non-current assets. If
the return on assets exceeds the cost of debt, the leverage is successful i.e., it improves returns on
equity. While this being so, a high financial leverage magnifies financial risk. At some degree of
financial leverage the cost of debt rises because of increased risk with the higher fixed charges.
When this happens, riskiness of the firm also increases in the eyes of equity investors who start
expecting a higher return to compensate for the increased risk burden. Financial leverage and
operating leverage are related with each other. Both have similar effects on profits. A greater use of
either i.e., operating or financial leverage leads to following results:
a) The break-even point is raised
b) The impact of change in the level of sales on profits is magnified
The impact of change in the level of sales on profits is magnified. Operating and financial leverages
have reinforcing effects. Operating, or first-stage leverage affects earnings before interest and taxes
(i.e., net operating income) while financial, or second-stage leverage affects earnings after interest
and taxes (i.e., net income available to equity shareholders).
Conclusion

47 | P a g e
Web Sites
www.Google.Com
www.wikipedia.com
www.moneycontrol.com
www.NSEINDIA.com
www.indiabulls.com
book references
Financial Policy and Management Accounting by B. Banarjee
An Introduction to Financial Management by Majumdar-Ali-Nisha
Financial Management by Robi M kishore
From College:
Prof. Lal Saheb Verma
Prof. Nibir Goswami
S.P
A. S
Bibliography

48 | P a g e

49 | P a g e

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