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 M.B.A. Sem-1
 Prepared By:
 Steven Thomas
1. Introduction
2. Financial Statement
3. Financial Analysis
1. Horizontal Analysis
2. Ratio Analysis
1. Liquidity Ratio
2. Solvency Ratio
3. Turn Over Ratio (Stability Ratio)
4. Profitability Ratio
4. Conclusion
5. Calculation of Ratios
• Founded : 1935
• Founded By : Khwaja Abdul Hamied
• Headquarters : Mumbai, India
• Key people : Y. K. Hamied Chairman
• Industry : Pharmaceuticals
• Product : Low cost drugs to treat HIV +ve patients,
cardiovascular disease, arthritis, diabetes,
weight control, depression and many other
health conditions
• Market : 180+ Countries
• Revenue : ▲ Rs.37.6 billion (~939M USD) (2006)
• Net income : ▲ Rs. 9.1 billion (2006)
• Employees : 7,000+
• Website : www.cipla.com
1. Balance sheet of 2007,2008,2009
2. Profit & loss statements of 2007,2008,2009
Total Assets = Total Current Assets + Total Fixed Assets
Net Worth = Shared Capital + Reserves and Surplus
 Increased significantly over years with an average rate of 15.9%
200920082007
• Income statement, also referred as profit and loss statement
(P&L), earnings statement, operating statement or statement of
operations is a company's financial statement that indicates how the
revenue (money received from the sale of products and services
before expenses are taken out) is transformed into the net income
(the result after all revenues and expenses have been accounted for).
• It displays the revenues recognized for a specific period, and the cost
and expenses charged against these revenues, including write-offs
(e.g., depreciation and amortization of various assets) and taxes.
• The purpose of the income statement is to show managers and
investors whether the company made or lost money during the period
being reported.
Total Income has increased at an average rate of (22.3 %)
Total expenditure has increased at an average rate of ( 26.7 %)
Total operating profit has increased at an average by ( 9.5 %)
Total Income has increased at an average by ( 7.32 %)
• Financial analysis (also referred to as financial statement analysis
or accounting analysis) refers to an assessment of the viability,
stability and profitability of a business, sub-business or project.
• It is performed by professionals who prepare reports using ratios that
make use of information taken from financial statements and other
reports. These reports are usually presented to top management as
one of their bases in making business decisions.
• Types of Financial Analysis:
1. Horizontal Analysis
2. Ratio Analysis
• Financial analysts can also use percentage analysis which
involves reducing a series of figures as a percentage of some
base amount. When proportionate changes in the same figure
over given time period expressed as a percentage is know as
horizontal analysis.
• Factors considered while doing financial analysis:
1. Liquidity
2. Solvency
3. Stability (Turn Over Ratio)
4. Profitability
• Liquidity refers to a business's ability to meet its payment
obligations, in terms of possessing sufficient liquid assets.
• Money, or cash on hand, is the most liquid asset.
• Liquidity is measured using following ratios
I. Current Ratio
II. Quick Ratio
III. Working Capital
IV. Cash Ratio
• Liquidity (current ratio) had suddenly
fallen down to 2.9 in 2008 compared to
3.01 of 2007.
• However current ratio increased
significantly in 2009 to around 3.14
showing a good sign of liquidity and the
ability to meet current obligations
easily.
• Current ratio also satisfies the minimum
required ratio that is 2:1 for better safety
precautions.
• The current assets is almost 3 times
over current liabilities which is
sufficient to meet the current liabilities
in case of any risk arises to repay the
amount.
Current ratio =
current Asset / Current Liability
Company is having good Liquidity
compared to previous year.
• Absolute Liquidity (Quick ratio)
have significantly increased in
2009.
• It is a good sign of liquidity and the
ability to meet current obligations
easily.
• Quick ratio also satisfies the
minimum required ratio that is 1:1
for better safety precautions.
• It shows that company has
sufficient amount of immediate
funds to deal with its total
liabilities in case of any emergency.
Quick Ratio =
[ Current Asset – ( Inventory + pre
loans or advances) ]/ Current
Liability
Company is having good Liquidity
compared to previous year.
• Working capital has increased
with time showing that company
has more current assets (liquid)
over current liability and the
substantial amount have shown
improvement with company’s
progress.
Working Capital =
Current Asset – Current Liability
Company is having good Liquidity
compared to previous year.
• The cash in the company has gone
down indicating that company is
not in the proper state to hold and
make any hard core transactions
immediately. More has to be done
on credit basis.
Cash Ratio =
Cash / Current liabilities
Company is not susceptible to any
immediate hard core cash transactions.
• Solvency is the ability of an entity or individual to pay debts.
• Solvency is measured using following ratios
I. Debt Equity Ratio
II. Long Term Debt Equity Ratio
III. Interest Coverage Ratio
 Debt Equity Ratio =
Debt/ Net Worth
 Long Term Debt Equity Ratio =
Long Term Debt/ Net Worth
• The increase in debt Ratio shows that
the amount invested by the creditors in
the business is more than the owners.
• The company is more dependent on the
creditors than its own net worth.
• Company is liable to pay more debts
to creditors than before.
Company’s solvency has decreased than
previous years.
• The decrease in interest coverage
ratio shows that the earning
before tax, interest and
depreciation is sufficient to what
extent to meet the interest
demand. Company’s extent to pay
interest over earnings have
decreased with time.
Interest Coverage =
EBIDTA/ Interest
Company’s solvency has decreased
than previous years.
• Turnover is the name for a measure of how quickly inventory is
sold. A high turnover means that goods are sold quickly, while
a low turnover means that goods are sold more slowly.
• Turnover ratio is measured using following ratios
I. Debtor Turnover Ratio
II. Collective Ratio
III. Stock Turnover Ratio
IV. Days of Inventory Holding
• Higher the debtor turnover ratio
means better is the management of
credit. The graphs shows that
management of credit has depraved
indicating more credit risk.
• However collective ratio shows the
average number of days for which
debtors remain outstanding
.Lesser is the number of
outstanding days more less is the
credit risk. But graph shows that
outstanding have increased , means
more risk in credit management.
Debtors Turnover =
Net Sales/ Average debtors
Collective days =
365/ Debtors Turnover Ratio
The company is having more credit
risk and hence is less stable.
• Higher the Stock turnover ratio means
better is the management sales and cost
management. More is the ratio more is the
efficiency in production and selling.
• The graphs shows that management of
sales has fallen down in 2009 leading to
less sales over the average inventory.
• However Inventory Holding ratio shows
the average number of days for which
inventory remains outstanding in the
company.
• More is the number of outstanding days
more is the delay of conversion to liquid
and more less is the efficiency. But
inventory outstanding have increased in
2009 compared to 2008.
• The company is having less
efficiency in productions and sales.
Stock Turnover =
Net Sales/ Average Inventory
Average inventory =
( Opening Stock +Closing Stock) / 2
Days of Inventory Holding =
365/ Stock Turnover
• Profit generally is the making of gain in business activity for
the benefit of the owners of the business. The word comes from
Latin meaning "to make progress", and is defined in two
different ways, one for economics and one for accounting.
• Profitability is measured using following ratios:
I. Gross Profit Ratio
II. Net Profit ratio
III. Operating Profit ratio
IV. Return on Asset
V. Return on Equity
VI. Earning Per Share
• Gross profit increases consistently
from 2007 to 2009.
Gross Profit =
( sales – COGS )/ sales
Company is having more trading
income over the same sales value.
• Net profit decreases consistently
from 2007 to 2009 showing that
company is having less income over
the same sales value.
• Since the tax and differed tax have
increased in 2009 leading to less net
profit to previous year.
Net Profit = Profit After Tax/Sales
Profitability of the company has
degraded compared to previous year.
• Gross profit increases consistently
from 2007 to 2009.
Operating Profit =
( Sales – COGS – Operating
Expenses)/ sales
Company is having more operating
income over the same sales value.
• Return on Asset has consistently
degraded from 2007 to 2009 showing
that company is having less income
over the same sales value of assets.
Operating Profit =
( Sales – COGS – Operating
Expenses)/ sales
Profitability of the company has
degraded compared to previous year.
• Return on Equity has consistently
degraded from 2007 to 2009 showing
that company is having less income
over the same value of equity.
Return On Equity =
Profit after Tax/ Total Equity
Profitability of the company has
degraded compared to previous year.
• EPS per share is more indicating that
Price Earning ratio is reduced .
• Profitability of the company has
decreased.
EPS =
Profit After Tax/Number of share
Outstanding
PER( Price Earning Ratio) =
Market Value per share/ EPS
• Though overall liquidity condition of company have improved but
solvency ratio has gone down in 2009.
• The credit risk has become a major issue.
• The company’s efficiency upon sale and production have
depraved and company seems to be less stable in replaying the
debts and having more productivity over cost.
• The profitability of company has also degraded.
• So as a whole we come to the conclusion that company’s financial
status is not that good in 2009 as it was suppose to be in 2007.
Liquidity Ratio 2007 2008 2009
Current Ratio 3.01 2.9 3.14
Quick Ratio 1.23 1.14 1.34
Cash Ratio 0.139 0.61 0.037
Solvency Ratio 2007 2008 2009
Debt Equity Ratio 0.038 0.143 0.216
Long Term Debt
Equity Ratio
0.035 0.14 0.215
Interest Coverage
Ratio
83.8 57.17 21.25
Turn Over Ratio 2007 2008 2009
Debt Turn Over
Ratio
27.9 7.4 5.27
Stock Turn Over
Ratio
3.51 3.56 3.54
Collective Days
Ratio
13 49 69
Profitability Ratio 2007 2008 2009
Gross Profit Ratio 3.77 4.18 4.71
Net Profit Ratio 0.194 0.175 0.156
Operating Profit
Ratio
3.72 4.11 4.48
Return on Assets
Ratio
0.198 0.163 0.146
Return on Equity
Ratio
0.206 0.186 0.178
ratio analysis cipla ltd

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ratio analysis cipla ltd

  • 1.  M.B.A. Sem-1  Prepared By:  Steven Thomas
  • 2.
  • 3. 1. Introduction 2. Financial Statement 3. Financial Analysis 1. Horizontal Analysis 2. Ratio Analysis 1. Liquidity Ratio 2. Solvency Ratio 3. Turn Over Ratio (Stability Ratio) 4. Profitability Ratio 4. Conclusion 5. Calculation of Ratios
  • 4. • Founded : 1935 • Founded By : Khwaja Abdul Hamied • Headquarters : Mumbai, India • Key people : Y. K. Hamied Chairman • Industry : Pharmaceuticals • Product : Low cost drugs to treat HIV +ve patients, cardiovascular disease, arthritis, diabetes, weight control, depression and many other health conditions • Market : 180+ Countries • Revenue : ▲ Rs.37.6 billion (~939M USD) (2006) • Net income : ▲ Rs. 9.1 billion (2006) • Employees : 7,000+ • Website : www.cipla.com
  • 5. 1. Balance sheet of 2007,2008,2009 2. Profit & loss statements of 2007,2008,2009
  • 6. Total Assets = Total Current Assets + Total Fixed Assets
  • 7. Net Worth = Shared Capital + Reserves and Surplus  Increased significantly over years with an average rate of 15.9%
  • 9. • Income statement, also referred as profit and loss statement (P&L), earnings statement, operating statement or statement of operations is a company's financial statement that indicates how the revenue (money received from the sale of products and services before expenses are taken out) is transformed into the net income (the result after all revenues and expenses have been accounted for). • It displays the revenues recognized for a specific period, and the cost and expenses charged against these revenues, including write-offs (e.g., depreciation and amortization of various assets) and taxes. • The purpose of the income statement is to show managers and investors whether the company made or lost money during the period being reported.
  • 10. Total Income has increased at an average rate of (22.3 %)
  • 11. Total expenditure has increased at an average rate of ( 26.7 %)
  • 12. Total operating profit has increased at an average by ( 9.5 %)
  • 13. Total Income has increased at an average by ( 7.32 %)
  • 14. • Financial analysis (also referred to as financial statement analysis or accounting analysis) refers to an assessment of the viability, stability and profitability of a business, sub-business or project. • It is performed by professionals who prepare reports using ratios that make use of information taken from financial statements and other reports. These reports are usually presented to top management as one of their bases in making business decisions. • Types of Financial Analysis: 1. Horizontal Analysis 2. Ratio Analysis
  • 15. • Financial analysts can also use percentage analysis which involves reducing a series of figures as a percentage of some base amount. When proportionate changes in the same figure over given time period expressed as a percentage is know as horizontal analysis.
  • 16. • Factors considered while doing financial analysis: 1. Liquidity 2. Solvency 3. Stability (Turn Over Ratio) 4. Profitability
  • 17. • Liquidity refers to a business's ability to meet its payment obligations, in terms of possessing sufficient liquid assets. • Money, or cash on hand, is the most liquid asset. • Liquidity is measured using following ratios I. Current Ratio II. Quick Ratio III. Working Capital IV. Cash Ratio
  • 18. • Liquidity (current ratio) had suddenly fallen down to 2.9 in 2008 compared to 3.01 of 2007. • However current ratio increased significantly in 2009 to around 3.14 showing a good sign of liquidity and the ability to meet current obligations easily. • Current ratio also satisfies the minimum required ratio that is 2:1 for better safety precautions. • The current assets is almost 3 times over current liabilities which is sufficient to meet the current liabilities in case of any risk arises to repay the amount. Current ratio = current Asset / Current Liability Company is having good Liquidity compared to previous year.
  • 19. • Absolute Liquidity (Quick ratio) have significantly increased in 2009. • It is a good sign of liquidity and the ability to meet current obligations easily. • Quick ratio also satisfies the minimum required ratio that is 1:1 for better safety precautions. • It shows that company has sufficient amount of immediate funds to deal with its total liabilities in case of any emergency. Quick Ratio = [ Current Asset – ( Inventory + pre loans or advances) ]/ Current Liability Company is having good Liquidity compared to previous year.
  • 20. • Working capital has increased with time showing that company has more current assets (liquid) over current liability and the substantial amount have shown improvement with company’s progress. Working Capital = Current Asset – Current Liability Company is having good Liquidity compared to previous year.
  • 21. • The cash in the company has gone down indicating that company is not in the proper state to hold and make any hard core transactions immediately. More has to be done on credit basis. Cash Ratio = Cash / Current liabilities Company is not susceptible to any immediate hard core cash transactions.
  • 22. • Solvency is the ability of an entity or individual to pay debts. • Solvency is measured using following ratios I. Debt Equity Ratio II. Long Term Debt Equity Ratio III. Interest Coverage Ratio
  • 23.  Debt Equity Ratio = Debt/ Net Worth  Long Term Debt Equity Ratio = Long Term Debt/ Net Worth • The increase in debt Ratio shows that the amount invested by the creditors in the business is more than the owners. • The company is more dependent on the creditors than its own net worth. • Company is liable to pay more debts to creditors than before. Company’s solvency has decreased than previous years.
  • 24. • The decrease in interest coverage ratio shows that the earning before tax, interest and depreciation is sufficient to what extent to meet the interest demand. Company’s extent to pay interest over earnings have decreased with time. Interest Coverage = EBIDTA/ Interest Company’s solvency has decreased than previous years.
  • 25. • Turnover is the name for a measure of how quickly inventory is sold. A high turnover means that goods are sold quickly, while a low turnover means that goods are sold more slowly. • Turnover ratio is measured using following ratios I. Debtor Turnover Ratio II. Collective Ratio III. Stock Turnover Ratio IV. Days of Inventory Holding
  • 26. • Higher the debtor turnover ratio means better is the management of credit. The graphs shows that management of credit has depraved indicating more credit risk. • However collective ratio shows the average number of days for which debtors remain outstanding .Lesser is the number of outstanding days more less is the credit risk. But graph shows that outstanding have increased , means more risk in credit management. Debtors Turnover = Net Sales/ Average debtors Collective days = 365/ Debtors Turnover Ratio The company is having more credit risk and hence is less stable.
  • 27. • Higher the Stock turnover ratio means better is the management sales and cost management. More is the ratio more is the efficiency in production and selling. • The graphs shows that management of sales has fallen down in 2009 leading to less sales over the average inventory. • However Inventory Holding ratio shows the average number of days for which inventory remains outstanding in the company. • More is the number of outstanding days more is the delay of conversion to liquid and more less is the efficiency. But inventory outstanding have increased in 2009 compared to 2008. • The company is having less efficiency in productions and sales. Stock Turnover = Net Sales/ Average Inventory Average inventory = ( Opening Stock +Closing Stock) / 2 Days of Inventory Holding = 365/ Stock Turnover
  • 28. • Profit generally is the making of gain in business activity for the benefit of the owners of the business. The word comes from Latin meaning "to make progress", and is defined in two different ways, one for economics and one for accounting. • Profitability is measured using following ratios: I. Gross Profit Ratio II. Net Profit ratio III. Operating Profit ratio IV. Return on Asset V. Return on Equity VI. Earning Per Share
  • 29. • Gross profit increases consistently from 2007 to 2009. Gross Profit = ( sales – COGS )/ sales Company is having more trading income over the same sales value.
  • 30. • Net profit decreases consistently from 2007 to 2009 showing that company is having less income over the same sales value. • Since the tax and differed tax have increased in 2009 leading to less net profit to previous year. Net Profit = Profit After Tax/Sales Profitability of the company has degraded compared to previous year.
  • 31. • Gross profit increases consistently from 2007 to 2009. Operating Profit = ( Sales – COGS – Operating Expenses)/ sales Company is having more operating income over the same sales value.
  • 32. • Return on Asset has consistently degraded from 2007 to 2009 showing that company is having less income over the same sales value of assets. Operating Profit = ( Sales – COGS – Operating Expenses)/ sales Profitability of the company has degraded compared to previous year.
  • 33. • Return on Equity has consistently degraded from 2007 to 2009 showing that company is having less income over the same value of equity. Return On Equity = Profit after Tax/ Total Equity Profitability of the company has degraded compared to previous year.
  • 34. • EPS per share is more indicating that Price Earning ratio is reduced . • Profitability of the company has decreased. EPS = Profit After Tax/Number of share Outstanding PER( Price Earning Ratio) = Market Value per share/ EPS
  • 35. • Though overall liquidity condition of company have improved but solvency ratio has gone down in 2009. • The credit risk has become a major issue. • The company’s efficiency upon sale and production have depraved and company seems to be less stable in replaying the debts and having more productivity over cost. • The profitability of company has also degraded. • So as a whole we come to the conclusion that company’s financial status is not that good in 2009 as it was suppose to be in 2007.
  • 36. Liquidity Ratio 2007 2008 2009 Current Ratio 3.01 2.9 3.14 Quick Ratio 1.23 1.14 1.34 Cash Ratio 0.139 0.61 0.037
  • 37. Solvency Ratio 2007 2008 2009 Debt Equity Ratio 0.038 0.143 0.216 Long Term Debt Equity Ratio 0.035 0.14 0.215 Interest Coverage Ratio 83.8 57.17 21.25
  • 38. Turn Over Ratio 2007 2008 2009 Debt Turn Over Ratio 27.9 7.4 5.27 Stock Turn Over Ratio 3.51 3.56 3.54 Collective Days Ratio 13 49 69
  • 39. Profitability Ratio 2007 2008 2009 Gross Profit Ratio 3.77 4.18 4.71 Net Profit Ratio 0.194 0.175 0.156 Operating Profit Ratio 3.72 4.11 4.48 Return on Assets Ratio 0.198 0.163 0.146 Return on Equity Ratio 0.206 0.186 0.178