FM Assignment - 2Anu’s Laboratories Ltd and Divi’s Laboratories Ltd.              SUBMITTED BY:              Iris Charu Go...
INTRODUCTIONOVERVIEW OF INDIAN PHARMACEUTICAL INDUSTRY          The Indian pharmaceutical industry currently tops the char...
response to owning a companys stock and also the cost of issuing stock.   Financial ratios allow for comparisons        b...
2009-10                 1434.68                        759.52                                                   1.892008-0...
The acid test ratio is the ratio between quick current assets and quick liabilities. It is also called asquick ratio.Year ...
The quick ratio of the company is better than the industrial average as well as than the previous threeyears average.3.Cas...
2010-11                      Average                               Industry0.41                         0.03              ...
2007-08            324.86 x 365                                                177.26                                     ...
644.47                                                                 3.162008-09            730.67                      ...
2010-11            2260.99                                                                3.03                   691.93200...
Fixed AssetsThe fixed asset turnover measures how effectively the firm uses its plant and equipment.Year           Calcula...
The higher the fixed asset turnover ratio the better it is. The company’s fixed asset turnover ratio isbetter than the ind...
Interpretation:-2010-11                     Average                               Industry1.09                        1.12...
488.33Average                                                             0.65Interpretation:-2009-10                     ...
2009-10            397.32                                           0.20                   397.32+1610.292008-09          ...
It measures debt relative to equity base in the capital structure.Year                Calculation of                      ...
The higher the ratio the better it is. The debt equity ratio has gone down when compared to theprevious years but it is be...
Interpretation:2010-11                      Average                                  Industry2.52                         ...
2007-08            9.71 + 0.09                                                  0.50                   19.36 + 0.09Average...
2009-10          130.26                                 2.63                  (99+0)/2 2008-09                            ...
2010-11                172.98 X 100                                        6.42%                                        26...
6.42%                      11%                                     26%The higher the net profit margin, the better it is. ...
2007-08              265.48                                               0.40                     668.93Average          ...
2007-08               9.71* 100                                          1%                      668.93Average            ...
2010-11               284.57*100                                          10.56%                      2694.142009-10      ...
This profitability ratio tells the relationship between net profits and assets. The return on investmentmay also be called...
The return on investment has gone down when compared with the previous three years and it is alsolower than the industry a...
2010-11                     Average                                 Industry10.68%                      20%               ...
Average                                                                    -0.06Interpretation:-2010-11                   ...
2007-08            54.90                                                        17.75                   30923650Average   ...
2008-09            185.65                                                        25.65                   7.242007-08      ...
2009-10            .10 X 100                                                    11%                   1.082008-09         ...
Year               Calculation of dividend yield ratio                         Dividend yield ratio2010-11            0 X ...
average is possible but if we can compare the average of the last three years with the industry averageand we see that it ...
Note: If the ratio shows a favourable change as compared to average performance of past three years,the score of that part...
Comparison of current year ratios with the industry average Ratio                                           2011          ...
DIVI’S LABORATORIES        Established in the year 1990, with Research & Development as its prime fundamental, DivisLabora...
2008-09                 74500.08                                         3.538963                        21051.392007-08  ...
2.Acid Test Ratio = Current Assets - InventoryCurrent LiabilitiesThe acid test ratio is the ratio between quick current as...
Average of 2009-10, =      1.18105 + 1.658291 + 1.439437594                  1.4262593672008-09 & 2007-08                 ...
2008-09              690.39+31551.47+0                                             1.531579                     21051.3920...
Net Sales/ 365This ratio measures the liquidity of the firm’s debtors and shows the time taken in days to convert thedebto...
110.4289191                  91.27863705                                    141.00Lower the debt collection period, the be...
2007-08            103318.5                                              4.822442                   21424.51       Average...
2008-09            92928.25                                                  1.93773                   47957.272007-08    ...
7. Fixed Assets Turnover Ratio =     Net Sales                                   Fixed AssetsThe fixed asset turnover meas...
2.213626065                             1.891447528                              2.54The higher the fixed asset turnover r...
Average of last 3 yrs. =                                             0.704446619Interpretation:-2010-2011                 ...
2008-09         31171.89                                     0.198105                157350.72007-08         32167.2      ...
Capitalization Ratio      Ratio                                             (in times)                   7795.76          ...
This ratio is good when it is high. The ratio has gone down when compared to the previous yearswhich show that the company...
2009-10                      Average                            Industry0.262623                     0.279481646          ...
2007-08            44424.7                                                        55.91318                   794.53Average...
2008-09           55271.66                                                    64.3397                  859.062007-08      ...
Year              Calculation of                                Cash Flow Adequacy                  Cash Flow Adequacy    ...
Higher the ratio the better it is. The current value ratio is much higher than industry average & higherthan the last thre...
0.394949636                  0.45273065                                  0.31Company gross profit ratio has decreased when...
Year                  Calculation of Net Profit Margin                       Net Profit MarginAverage of 2009-10, 2008-09 ...
2010-11               43556.61 X 100                                      33.3654%                      130543.862009-10  ...
This ratio tells that how much cash profit has been earned by the company by selling the goods. Thisratio is very importan...
19. Return on investment =           Net earnings                                        Total assetsThis profitability ra...
24.9692%                    24.9302%                                 15%The return on investment has gone up slightly when...
Interpretation:-2010-11                     Average                                Industry23.8269%                    32....
2007-08               30210.8                                             0.252671                      119565.8Average of...
2010-11            43556.61*100000                                              32.84933358                   132595110200...
performance of a firm. This ratio is popularly used by security analysts to assess a firm’s performanceas expected by the ...
EPSIt measures the relationship between the earnings belonging to the shareholder and dividend paid tothem. In other words...
Dividend Payout Ratio shows, how much percentage the company is paying on the basis of itsearning. The dividend payout rat...
2010-11                     Average                                 Industry1.479%                      0.9315%           ...
NET PROFIT MARGIN                               0.333655          0.356371772                 -1 CASH FLOW MARGIN         ...
NET PROFIT MARGIN                                 0.333655                    0.26           1 CASH FLOW MARGIN           ...
IF SOMEBODY HAS TO LEND, WHICH COMPANY WOULD HE LEND AND WHY? Results of comparison with previous years’                  ...
GOC(in days)          7.994412             11.72771              15.11399              9.966986NOC(in days)          7.174...
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Ratio Analysis

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Ratio Analysis

  1. 1. FM Assignment - 2Anu’s Laboratories Ltd and Divi’s Laboratories Ltd. SUBMITTED BY: Iris Charu Gomes ( F11079) NeethuThresaJacob(F11096) Swarupa Rani Sahu(F11116) Divyanshi Gupta ( F11121)
  2. 2. INTRODUCTIONOVERVIEW OF INDIAN PHARMACEUTICAL INDUSTRY The Indian pharmaceutical industry currently tops the chart amongst Indias science-basedindustries with wide ranging capabilities in the complex field of drug manufacture and technology. Ahighly organized sector, the Indian pharmaceutical industry is estimated to be worth $ 4.5 billion,growing at about 8 to 9% annually. It ranks very high amongst all the third world countries, in termsof technology, quality and the vast range of medicines that are manufactured. It ranges from simpleheadache pills to sophisticated antibiotics and complex cardiac compounds; almost every type ofmedicine is now made in the Indian pharmaceutical industry. The Indian pharmaceutical sector ishighly fragmented with more than 20,000 registered units. It has expanded drastically in the last twodecades. The pharmaceutical and chemical industry in India is an extremely fragmented market withsevere price competition and government price control. The pharmaceutical industry in India meetsaround 70% of thecountrys demand for bulk drugs, drug intermediates, pharmaceutical formulations, chemicals, tablets,capsules, orals and injectibles. There are approximately 250 large units and about 8,000 Small ScaleUnits, which form the core of the pharmaceutical industry in India (including 5 Public SectorUnits). Financial ratio: A financial ratio (or accounting ratio) is a relative magnitude of two selected numerical values taken from an enterprises financial statements. Often used in accounting, there are many standard ratios used to try to evaluate the overall financial condition of a corporation or other organization. Financial ratios may be used by managers within a firm, by current and potential shareholders (owners) of a firm, and by a firms creditors. Security analysts use financial ratios to compare the strengths and weaknesses in various companies.If shares in a company are traded in a financial market, the market price of the shares is used in certain financial ratios. Financial ratios quantify many aspects of a business and are an integral part of the financial statement analysis. Financial ratios are categorized according to the financial aspect of the business which the ratio measures. Liquidity ratios measure the availability of cash to pay debt. Activity ratios measure how quickly a firm converts non-cash assets to cash assets. Debt ratios measure the firms ability to repay long-term debt. Profitability ratios measure the firms use of its assets and control of its expenses to generate an acceptable rate of return. Market ratios measure investor
  3. 3. response to owning a companys stock and also the cost of issuing stock. Financial ratios allow for comparisons  between companies  between industries  between different time periods for one company  between a single company and its industry average Ratios generally hold no meaning unless they are benchmarked against something else, likpastperformance or another company. Thus, the ratios of firms in different industries, whichface different risks, capital requirements, and competition are usually hard to compare. ANU’S LABORATORIES LIMITED Anu’s Laboratories Limited is a US $ 50 million public listed company established in 1996,and managed by experienced professionals engaged in manufacturing of Active Pharmaceutical ingredients and Drug intermediaries. Anu’sLaba is the market leader across the world with over 60% market share for three of its products in their addressable markets.For eight other products,Anu’s Labs has established itself as the prefferedsource.The company has two state-of-the-art manufacturing facilities located in Hyderabad,India. 1. Current Ratio: Current assets Current liabilities The current ratio indicates the extent to which current liabilities are covered by those assets expected to be converted to cash in the near future. Year Calculation of Current Ratio Current ratio 2010-11 1596.47 1.98 804.46
  4. 4. 2009-10 1434.68 759.52 1.892008-09 531.97 1.24 429.612007-08 529.11 1.98 267.29 Average 2.13Interpretation:-CURRENT RATIO (IN TIMES) FOR:2010-11 Average Industry1.98 2.13 1.50The current ratio of Anu’s for the year 2010-11 is better than the industrial average of 1.50. But theaverage of the current ratio for the previous three years was better than the present value. So thecurrent ratio has come down when compared to the previous years.2.Acid Test Ratio = Current Assets - InventoryCurrent Liabilities
  5. 5. The acid test ratio is the ratio between quick current assets and quick liabilities. It is also called asquick ratio.Year Calculation of Acid Test Ratio Acid Test Ratio2010-11 1596.47-691.93 1.12 804.462009-10 1434.68-744.95 0.91 759.522008-09 531.97 – 142.6 0.91 429.612007-08 529.11 – 168.96 1.35 267.29Average 1.09Interpretation:-ACID TEST RATIO FOR :2010-11 Average Industry01.12 1.09 0.90
  6. 6. The quick ratio of the company is better than the industrial average as well as than the previous threeyears average.3.Cash Liquidity Ratio = (Cash and Bank Balances + Marketable Securities) Current LiabilitiesThis ratio measures the relationship of a firm’s cash and other current assets to its current liabilities.Year Calculation of Cash Liquidity Ratio Cash Liquidity Ratio2010-11 67.97+284.57 0.44 804.46.2009-10 45.26+130.26 759.52 0.232008-09 7.52 + 3.06 - 20.22 -0.02 429.612007-08 12.76 + 3.06 - 62.13 -0.17 267.29Average of 2008-09, = 0.28 - 0.02 - 0.17 0.03 2007-08 & 2006-07 3Interpretation:-
  7. 7. 2010-11 Average Industry0.41 0.03 0.20The cash liquidity ratio is better than the industry average. It is also better than the previous threeyears. This shows that the company has more liquid cash in its hands than the previous three years.4.Average Collection Period = Accounts Receivable Net Sales/ 365This ratio measures the liquidity of the firm’s debtors and shows the time taken in days to convert thedebtors into cash.Year Calculation of Average Collection Period Average Collection Period (in days)2010-11 433.28 x 365 58.70 2694.142009-10 644.47x 365 115.41 2038.212008-09 352.66 x 365 176.17 730.67
  8. 8. 2007-08 324.86 x 365 177.26 668.93Interpretation:-AVERAGE COLLECTION PERIOD FOR:2010-11 Average Industry144.92 174.07 141.00Lower the debt collection period, the better it is. The debt collection period of Anu’s Laboratories Ltd.has decreased as compared to average past performance. This is a positive aspect. The industryaverage is less. The company takes a very long time to collect from the debtors. So the company hasto improve its average collection period.5.Accounts Receivables Turnover Ratio= Net sales Accounts ReceivablesThis ratio shows how quickly the receivables or debtors are converted into cash.Year Calculation of Accounts Receivables Turnover Accounts Receivables Turnover Ratio Ratio (in times)2010-11 2694.14 6.22 433.282009-10 2038.21
  9. 9. 644.47 3.162008-09 730.67 2.07 352.662007-08 668.93 2.06 324.86 Average 2.12Interpretation:-ACCOUNTS RECEIVABLES TURNOVER RATIO (IN TIMES) FOR:2010-11 Average Industry2.52 2.12 2.59The higher the accounts receivables turnover ratio, the better it is. There has been a significantincrease in the receivables turnover ratio indicating a higher conversion of debts into cash in the year2009-10 but the industry average is way too high. The company has to still improve its receivablesturnover ratio.6.Inventory Turnover Ratio = Cost of goods sold InventoriesThis ratio indicates the number of times inventory is replaced during the year. It measures therelationship between the cost of goods sold and the inventory level.Year Calculation of Inventory Turnover Ratio Inventories Turnover Ratio (in times)
  10. 10. 2010-11 2260.99 3.03 691.932009-10 1636.69 2.06 744.952008-09 661.99 4.64 142.602007-08 616.72 3.65 168.96 Average 3.33Interpretation:-INVENTORIES TURNOVER RATIO (IN TIMES) FOR:2010-11 Average Industry2.70 3.33 4.41The inventory turnover ratio, an indicator of frequency of converting the present inventory into cash,has decreased slightly from the previous three year’s average indicating low efficiency in selling ofinventories. The industry average is way too high and therefore they have to work towards moving theinventories as fast as they can.7.Fixed Assets Turnover Ratio = Net Sales
  11. 11. Fixed AssetsThe fixed asset turnover measures how effectively the firm uses its plant and equipment.Year Calculation of Fixed Assets Turnover Fixed Assets Turnover Ratio (in Ratio times)2010-11 2694.14 2.33 1158.02009-10 2038.21 2.51 812.142008-09 730.67 3.78 193.072007-08 668.93 5.28 126.74Average 3.87Interpretation:-FIXED ASSETS TURNOVER RATIO (IN TIMES) FOR:2010-11 Average Industry2.68 3.87 2.54
  12. 12. The higher the fixed asset turnover ratio the better it is. The company’s fixed asset turnover ratio isbetter than the industry ratio showing that the company is using the fixed assets in an efficient waybut the ratio has gone down when compared with the previous three years.8.Total Assets Turnover Ratio = Net sales Total assetsThis ratio measures the turnover of all the firm’s assets.Year Calculation of Total Assets Total Assets Turnover Ratio Turnover Ratio (in times)2010-11 1.00 2694.14 2303.7232009-10 2038.21 0.82 2472.9842008-09 730.67 1.10 663.092007-08 668.93 1.37 488.33Average 1.12
  13. 13. Interpretation:-2010-11 Average Industry1.09 1.12 0.57The total asset turnover indicates sales generated per rupee of asset employed in the company. Theratio has gone down when compared to the previous years and it is lower than the industry average.This is because of the low inventory turnover ratio. The company has to move its inventory in a fastermanner to improve the total asset turnover ratio.9.Debt Ratio = Total Liabilities ( Current Liabilities + Loan Funds) Total AssetsThis ratio shows the percentage of funds provided by creditors.Year Calculation of Debt Ratio Debt ratio2010-11 804.46+494.71 0.48 2303.7232009-10 759.52+397.32 0.53 2472.9842008-09 426.36 0.64 663.092007-08 300.43 0.62
  14. 14. 488.33Average 0.65Interpretation:-2009-10 Average Industry0.63 0.65 0.49The higher the debt ratio, the better it is. The debt ratio has gone down a little when compared to theaverage of the previous three years. This is evident from the decrease in current assets like cash asinterpreted from the previous ratios like current ratio and cash liquidity ratio.10.Long term debt to Total Capitalization Ratio = Long term debt Long term debt + shareholder’s equity This ratio measures the extent to which long term debt is used for financingYear Calculation of Long term debt to Total Long term debt to Total Capitalization Capitalization Ratio Ratio (in times)2010-11 494.71 0.23 494.71+1619.8
  15. 15. 2009-10 397.32 0.20 397.32+1610.292008-09 63.81 0.21 63.81 + 236.732007-08 31.81 0.16 31.81 + 187.90Average of 2008-09, = 0.34 + 0.21 + 0.16 0.24 2007-08 & 2006-07 3Interpretation:-2009-10 Average Industry0.33 0.24 NAThis ratio is good when it is high. The ratio has gone up when compared to the previous years whichshow that the company has utilized the long term debts efficiently in the year 2009-10.11.Debt Equity Ratio = Total liabilities Shareholder’s equity
  16. 16. It measures debt relative to equity base in the capital structure.Year Calculation of Debt-Equity Ratio Debt-Equity Ratio (in times)2010-11 1299.17 0.80 1619.82009-10 1156.84 0.81 1610.292008-09 426.36 1.80 236.732007-08 300.43 1.60 187.90Average of 2008-09, = 2.27 + 1.80 + 1.60 1.89 2007-08 & 2006-07 3Interpretation :-2009-10 Average Industry1.72 1.89 0.50
  17. 17. The higher the ratio the better it is. The debt equity ratio has gone down when compared to theprevious years but it is better than the industry average.12.Times interest earned = Operating profit Interest ExpenseIt measures how many times interest expense is covered by operating earnings.It is a measure of thefirm’s ability to meet its annual interest payment.Year Calculation of Times Interest Earned Times Interest Earned (in times)2010-11 416.59 2.52 165.032009-10 365.57 3.45 105.872008-09 12.52 0.46 27.422007-08 9.71 0.50 19.36Average 4.09
  18. 18. Interpretation:2010-11 Average Industry2.52 4.09 7.20Higher the ratio the better it is. The ratio is less than the previous three years and it is quite low whencompared to the industry average. The company’s TIE is less which shows that the company haslower returns when compared to the interest paid.13.Fixed Charge coverage = Operating profit + lease payments Interest Expense + lease paymentsIt measures coverage capability more broadly than times interest earned by including lease paymentsas a fixed expense.Year Calculation of Fixed Charge coverage Fixed Charge coverage (in times)2010-11 416.59+0 1.26 165.03+02009-10 365.57+0 1.73 105.87+02008-09 12.52 + 0.38 0.46 27.42 + 0.38
  19. 19. 2007-08 9.71 + 0.09 0.50 19.36 + 0.09Average 2.04Interpretation:2009-10 Average Industry1.26 2.04 144.02Higher the ratio the better it is. In this case, the ratio has decreased when compared to the previousyears. But it is very less when compared to the industry average..14. Cash Flow Adequacy = Cash Flow From Operating Activities Average Long Term Debt MaturitiesIt measures how many times average annual payments of long term are covered by operating debtcash flows. Year Calculation of Cash Flow Adequacy Cash Flow Adequacy (in times) 2010-11 284.57 3.52 (62.51+99)/2
  20. 20. 2009-10 130.26 2.63 (99+0)/2 2008-09 -Year Calculation of Net profit margin Net profit margin(%) - 2007-08 - Average 2.63Interpretation:2010-11 Average Industry3.52 2.63 0.76
  21. 21. 2010-11 172.98 X 100 6.42% 2694.142009-10 211.65 X 100 10.38% 2038.212008-09 67.20 X100 9% 730.672007-08 54.90 X 100 8% 668.93Average 11%Higher the ratio the better it is. The current value ratio is higher than the industry average as well asthe last three years’ average.15.Net Profit Margin= Net Profit X 100 Net SalesInterpretation:-2010-11 Average Industry
  22. 22. 6.42% 11% 26%The higher the net profit margin, the better it is. The net profit margin of the company is quite smallwhen compared to the industry and it has gone by a few notches when compared to the previous threeyears.16.Gross Profit Margin :-Gross Profit Net salesThis is also known as gross margin. This ratio is the result of the relationship between prices, salesvolume and costs.Year Calculation of Gross Profit Gross Profit Margin2010-11 251.56 0.09 2694.142009-10 259.90 0.13 2038.212008-09 233.03 0.32 730.67
  23. 23. 2007-08 265.48 0.40 668.93Average 0.16Interpretation:-2010-11 Average Industry.09 0.16 0.31Company gross profit ratio has shown a decrease in value when compared to the previous three yearsand it is much lower than the industrial average. So the company’s performance is poor in this respect.17. Operating Profit Ratio :-Operating Profit Net salesYear Calculation of Operating Profit Operating Profit %2010-11 416.59* 100 15% 2694.142009-10 365.57 *100 18% 2038.212008-09 12.52*100 2% 730.67
  24. 24. 2007-08 9.71* 100 1% 668.93Average 21 %Interpretation:-2010-11 Average Industry15% 21 % 36%The operating profit margin in the year 2010-11 has come down when compared to the previous threeyears and it is less than even half of the industry average.18. Cash Flow margin:-Cash flow from operating activitiesNet salesThis ratio tells that how much cash profit has been earned by the company by selling the goods. Thisratio is very important to know the short run liquidity and solvency position of the company.Year Calculation of Cash flow margin Cash flow margin %
  25. 25. 2010-11 284.57*100 10.56% 2694.142009-10 130.26*100 6.4% 2038.212008-09 -20.22*100 -3% 730.672007-08 -62.13*100 -9% 668.93Average -8.0%Interpretation2010-11 Average Industry10.56% -8.0% 8.0%The cash flow margin has gone up when compared to the previous three years. This is because thecompany has more liquid cash in the current year and this is evident from the cash liquidity ratio.Alsothe ratio has a higher value when compared with the industry average which shows that the companyhs more of liquid cash with it.19. Return on investment = Net earnings Total assets
  26. 26. This profitability ratio tells the relationship between net profits and assets. The return on investmentmay also be called profit-to-asset ratio. This ratio told that how much company is earning by investingthat much amount in assets.Year Calculation of Return on investment Return on investment2010-11 172.98*100 6.40% 2703.7232009-10 211.65*100 8.56% 2472.9842008-09 67.20*100 10% 663.092007-08 54.90*100 11% 488.33Average 10%Interpretation2010-11 Average Industry6.4% 10% 15%
  27. 27. The return on investment has gone down when compared with the previous three years and it is alsolower than the industry average. This is evident from the increase in the total asset turnover ratio ofthe company.20. Return on Stockholder’s equity:-Net earnings Stockholder equityThis ratio tells the profitability is measured by dividing the net profits after taxes by the shareholdersequity. This ratio reveals how profitably the owner’s funds have been utilized by the firm.Year Calculation of Return on equity Return on equity2010-11 172.98*100 10.68% 1619.82009-10 211.65*100 13.14% 1610.292008-09 67.20*100 28% 236.732007-08 54.90 *100 29% 187.90Average 20%Interpretation:-
  28. 28. 2010-11 Average Industry10.68% 20% 29%The return on equity has decreased when compared to the previous three years and also it is lowerthan the industry average. So, there is relatively lower return on the shareholder’s investments.21. Cash return on assets:-Cash flow from operating activitiesTotal assetsThis ratio explains that how much company has cash profit by having that much amount of totalassets. This ratio is very important for long run because it shows the cash position of the companywhich helps to interpret the solvency position in the long run.Year Calculation of Cash Return on asset Cash Return on asset2010-11 284.57 0.10 2703.7232009-10 130.26 0.06 2472.9842008-09 -20.22 -0.03 663.092007-08 -62.13 -0.13 488.33
  29. 29. Average -0.06Interpretation:-2010-11 Average Industry0.10 -0.06 4.26The higher the cash return on assets, the better it is. The company’s cash return on assets hasincreased when compared to the past three years and has become positive from a negative value22. Earnings per share:-Amount available for equity share holders Number of equity sharesThis is a widely used ratio. This ratio measures the profit available to equity shareholders on a pershare basis, that is, the amount that they can get on every share held. It is calculated by dividing theprofits available to the equity shareholder by the number of outstanding shares.Year Calculation of Earnings per share Earnings per share(Rs)2010-11 172980000 0.71 2444599832009-10 211.65 0.876 2415200002008-09 67.20 7.24 92861510
  30. 30. 2007-08 54.90 17.75 30923650Average 8.0Interpretation:-2010-11 Average Industry0.71 8.0 16.15Earnings per share are the ratio of profit available for equity share holder by the number of equityshares. Company’s EPS has drastically gone down when compared with the previous three years andis also very less when compared with the company average.23. Price to earnings:-Market price of the share EPSThis is closely related to the earnings yield/earnings ratio. It is actually the reciprocal of the latter.This ratio reflects the price currently being paid by the market for each rupee of currently reportedEPS. In other words, the P/E ratio measures investors expectations and the market appraisal of theperformance of a firm. This ratio is popularly used by security analysts to assess a firm’s performanceas expected by the investors.Year Calculation of price to earning Price to earning2010-11 3.10 4.37 0.712009-10 6.59 7.48 0.88
  31. 31. 2008-09 185.65 25.65 7.242007-08 366.75 20.66 17.75Average 5.95Interpretation:-2010-11 Average Industry4.37 5.95 30.72 Price earning ratio shows how much investors are willing to pay. It is the ratio of market priceby earning per share. The higher the ratio, the better it is. Here, there is a decrease in price earningsratio when compared to the previous years.And it is much below than the industry standard 0f 30.7224. Dividend Pay-out ratio =Dividend per share X 100 EPSIt measures the relationship between the earnings belonging to the shareholder and dividend paid tothem. In other words, the D/P ratio shows what percentage share of the net profits after taxes andpreference dividend is paid out as dividend to equity shareholders.Year Calculation of dividend pay-out ratio Dividend pay-out ratio2010-11 0 X 100 - .71
  32. 32. 2009-10 .10 X 100 11% 1.082008-09 1.5 X 100 21% 7.242007-08 1.5 X 100 8% 17.75Average 8%Interpretation:-2010-11 Average Industry- 8% 22%Dividend Payout Ratio shows, how much percentage the company is paying on the basis of itsearning. In our case the company did not give away any dividends in the year 2010-11 hence nocomparison with the industry average is possible but if we can compare the average of the last threeyears with the industry average and we see that it is quite less than the industry average.This can affect the loyalty of the shareholders towards the company.25. Dividend yield ratio = Dividend per share X 100 Market value per shareThis ratio is closely related to DPS. While the DPS are based on book value per share, the yield isexpressed in terms of market value per share.
  33. 33. Year Calculation of dividend yield ratio Dividend yield ratio2010-11 0 X 100 - 3.102009-10 0.1 X 100 2.0% 6.592008-09 1.5 X 100 1% 185.652007-08 1.5 X 100 0% 366.75Average 4%Interpretation:-2010-11 Average Industry- 4% 10%Dividend Yield Ratio shows, how much percentage of dividend per share the company is paying incomparison to its market price. The higher the percentage, better it is for the investors.In our case thecompany did not give away any dividends in the year 2010-11 hence no comparison with the industry
  34. 34. average is possible but if we can compare the average of the last three years with the industry averageand we see that it is quite less than the industry average.COMPARATIVE ANALYSISComparison of current year ratios with Industrial averages. Ratio 2011 Industry Average Score Current Ratio 1.98 1.50 1 Acid test 1.12 0.90 1 Cash Flow Liquidity 0.44 0.20 1 Average Collection Period 58.7 141 1 Average Receivable turnover 6.22 2.59 -1 Fixed Assets turnover 2.33 2.54 -1 Total Assets Turnover 1.00 0.57 1 Debt Ratio 0.48 0.49 1 Long term Debt to total capitalization 0.23 0.53 -1 Debt to equity 0.80 0.50 1 Times interest earned 2.52 7.20 -1 Fixed charge changeover 1.26 144.02 -1 Cash flow adequacy 3.52 0.76 -1 Gross profit margin 0.09 0.31 -1 Operating profit margin 0.15 0.36 -1 Net profit margin 0.06 0.26 -1 Cash Flow Margin 0.11 0.08 1 Return on Investment 0.06 0.15 -1 Return on Equity 0.11 0.29 -1 Cash return on assets 0.11 4.26 -1 Earnings per share 0.71 16.15 -1 Price to earnings 4.38 30.72 -1 Dividend payout - 0.22 - Dividend yield - 0.01 - Inventory Turnover 3.03 4.41 -1 Net Score -7
  35. 35. Note: If the ratio shows a favourable change as compared to average performance of past three years,the score of that particular ratio is +1. If the change is unfavourable, the ratio gets a -1.
  36. 36. Comparison of current year ratios with the industry average Ratio 2011 Industry Average Score Current Ratio 1.98 1.50 -1 Acid test 1.12 0.90 1 Cash Flow Liquidity 0.44 0.20 1 Average Collection Period 58.7 141 1 Average Receivable turnover 6.22 2.59 1 Fixed Assets turnover 2.33 2.54 -1 Total Assets Turnover 1.00 0.57 1 Debt Ratio 0.48 0.49 1 Long term Debt to total capitalization 0.23 0.53 1 Debt to equity 0.80 0.50 -1 Times interest earned 2.52 7.20 -1 Fixed charge changeover 1.26 144.02 -1 Cash flow adequacy 3.52 0.76 1 Gross profit margin 0.09 0.31 -1 Operating profit margin 0.15 0.36 -1 Net profit margin 0.06 0.26 -1 Cash Flow Margin 0.11 0.08 1 Return on Investment 0.06 0.15 -1 Return on Equity 0.11 0.29 -1 Cash return on assets 0.11 4.26 1 Earnings per share 0.71 16.15 -1 Price to earnings 4.38 30.72 -1 Dividend payout - 0.22 - Dividend yield - 0.01 - Inventory Turnover 3.03 4.41 1 Net Score -2Note: If the ratio shows a favourable change as compared to industry average, the score of thatparticular ratio is +1. If the change is unfavourable, the ratio gets a -1.
  37. 37. DIVI’S LABORATORIES Established in the year 1990, with Research & Development as its prime fundamental, DivisLaboratories focussed on developing new processes for the production of Active Pharma Ingredients(APIs) & Intermediates. The company in a matter of short time expanded its breadth of operations toprovide complete turnkey solutions to the domestic Indian pharmaceutical industry.With five years of experience, expertise and a proven track-record of helping many companies withits turn-key and consulting strengths, Divis Laboratories established its first manufacturing facility in1995.RATIO ANALYSIS 1. Current Ratio: Current assets Current liabilitiesThe current ratio indicates the extent to which current liabilities are covered by those assets expectedto be converted to cash in the near futureYear Calculation of Current Ratio Current ratio2010-11 99621.76 2.477356 40212.932009-10 78625.04 25966.54 3.027937
  38. 38. 2008-09 74500.08 3.538963 21051.392007-08 55532.91 2.858192593 19429.38Average of previous 3 years = 2.858192593+3.538963+3.0279373 3.141697275Interpretation:-CURRENT RATIO (IN TIMES) FOR:2010-11 Average Industry2.477356 3.141697275 1.50The current ratio of Divi’s Labs Ltd for the year 2010-11 is better than the industrial average of 1.50.But the average of the current ratio for the previous three years was better than the present value. Sothe current ratio has come down when compared to the previous years.
  39. 39. 2.Acid Test Ratio = Current Assets - InventoryCurrent LiabilitiesThe acid test ratio is the ratio between quick current assets and quick liabilities. It is also called asquick ratio.Year Calculation of Acid Test Ratio Acid Test Ratio2010-11 99621.76-54306.55 1.126882 40212.932009-10 78625.04-47957.27 1.18105 25966.542008-09 74500.08-21051.39 1.658291 39590.752007-08 55532.91-27565.53 1.439437594 19429.38
  40. 40. Average of 2009-10, = 1.18105 + 1.658291 + 1.439437594 1.4262593672008-09 & 2007-08 3Interpretation:-ACID TEST RATIO FOR :2010-2011 Average Industry1.126882 1.426259367 0.90The quick ratio of the company is better than the industrial average. But, the quick ratio has comedown to some extent when compared to the previous three years.3.Cash Liquidity Ratio = (Cash and Bank Balances + Marketable Securities) Current LiabilitiesThis ratio measures the relationship of a firm’s cash and other current assets to its current liabilities.Year Calculation of Cash Liquidity Ratio Cash Liquidity Ratio2010-11 960.47+32595.79+0 0.834464437 40212.932009-10 979.87+36767.08+0 1.453676539 25966.54
  41. 41. 2008-09 690.39+31551.47+0 1.531579 21051.392007-08 1.584828 581.43+30210.8+0 19429.38Average of 2009-10, = 1.584828 +1.531579 +1.453676539 3 1.5233611492008-09 & 2007-08Interpretation:-2010-11 Average Industry0.834464 1.523361149 0.20The cash liquidity ratio is better than the industry average. But it has decreased than the previous threeyears. This shows that the company has less liquid cash in its hands than the previous three years.4.Average Collection Period = Accounts Receivable
  42. 42. Net Sales/ 365This ratio measures the liquidity of the firm’s debtors and shows the time taken in days to convert thedebtors into cash.Year Calculation of Average Collection Period Average Collection Period (in days)2010-11 39495.39 x 365 110.4289191 130543.86 23444.15 x 3652009-10 92928.25 92.083029112008-09 28349.95 x 365 86.91481 1190562007-08 21424.51 x 365 75.68779 103318.5Interpretation:-AVERAGE COLLECTION PERIOD FOR:2010-11 Average Industry
  43. 43. 110.4289191 91.27863705 141.00Lower the debt collection period, the better it is. The debt collection period of Divi’s Labs Ltd. hasincreased as compared to average past performance. This is a negative aspect. The industry average ismore. The company takes a very less time to collect from the debtors. So the company has betterperformance its average collection period compared to the industry.5.Accounts Receivables Turnover Ratio= Net sales Accounts ReceivablesThis ratio shows how quickly the receivables or debtors are converted into cash.Year Calculation of Accounts Receivables Turnover Accounts Receivables Turnover Ratio Ratio (in times)2010-11 130543.86 3.305293605 39495.392009-10 92928.25 3.963814001 23444.152008-09 119056 4.199514 28349.95
  44. 44. 2007-08 103318.5 4.822442 21424.51 Average of last 3 yrs. = 4.328590144Interpretation:-ACCOUNTS RECEIVABLES TURNOVER RATIO (IN TIMES) FOR:2010-11 Average Industry3.305293605 4.328590144 2.59The higher the accounts receivables turnover ratio, the better it is. There has been a significantdecrease in the receivables turnover ratio indicating a lower conversion of debts into cash in the year2010-11 but the industry average is way too low. The company performs better in receivablesturnover ratio as compared to the industry.6.Inventory Turnover Ratio = Sales InventoriesThis ratio indicates the number of times inventory is replaced during the year. It measures therelationship between the cost of goods sold and the inventory level.Year Calculation of Inventory Turnover Ratio Inventories Turnover Ratio (in times) 130543.862009-10 54306.55 2.403833
  45. 45. 2008-09 92928.25 1.93773 47957.272007-08 119056 3.007168 39590.752007-08 103318.5 3.748103519 27565.53 Average of last 3 yrs. = 2.897667098Interpretation:-INVENTORIES TURNOVER RATIO (IN TIMES) FOR:2010-11 Average Industry2.403833 2.897667098 4.41The inventory turnover ratio, an indicator of frequency of converting the present inventory into cash,has decreased slightly from the previous three year’s average indicating low efficiency in selling ofinventories. The industry average is way too high and therefore they have to work towards moving theinventories as fast as they can.
  46. 46. 7. Fixed Assets Turnover Ratio = Net Sales Fixed AssetsThe fixed asset turnover measures how effectively the firm uses its plant and equipment.Year Calculation of Fixed Assets Turnover Fixed Assets Turnover Ratio (in Ratio times)2010-11 130543.86 2.213626065 58972.862009-10 92928.25 1.57593173 58967.182008-09 119056 2.019026 58967.072007-08 103318.5 2.079385 49687.02Average of last 3 yrs. = 1.891447528Interpretation:-FIXED ASSETS TURNOVER RATIO (IN TIMES) FOR:2010-11 Average Industry
  47. 47. 2.213626065 1.891447528 2.54The higher the fixed asset turnover ratio the better it is. The company’s fixed asset turnover ratio islower than the industry ratio showing that the company is not using the fixed assets in an efficientway but the ratio has gone up when compared with the previous three years.8. Total Assets Turnover Ratio = Net sales Total assetsThis ratio measures the turnover of all the firm’s assets.Year Calculation of Total Assets Total Assets Turnover Ratio Turnover Ratio (in times) 130543.86 0.5655822010-11 230813.242009-10 92928.25 0.492598 188649.442008-09 119056 0.756629 157350.72007-08 103318.5 0.864113602 119565.8
  48. 48. Average of last 3 yrs. = 0.704446619Interpretation:-2010-2011 Average Industry0.565582 0.704446619 0.57The total asset turnover indicates sales generated per rupee of asset employed in the company. Theratio has gone down when compared to the previous years and it is lower than the industry average.This is because of the low inventory turnover ratio. The company has to move its inventory in a fastermanner to improve the total asset turnover ratio.9. Debt Ratio = Total Liabilities ( Current Liabilities + Loan Funds) Total AssetsThis ratio shows the percentage of funds provided by creditors.Year Calculation of Debt Ratio Debt ratio 48008.692010-11 230813.24 0.207998 34441.932009-10 188649.44 0.182571
  49. 49. 2008-09 31171.89 0.198105 157350.72007-08 32167.2 0.269033385 119565.8Average of 3 yrs. = 0.21656969Interpretation:-2010-11 Average Industry0.207998 0.21656969 0.49The higher the debt ratio, the better it is. The debt ratio has gone down a little when compared to theaverage of the previous three years. This is evident from the decrease in current assets like cash asinterpreted from the previous ratios like current ratio and cash liquidity ratio.10. Long term debt to Total Capitalization Ratio = Long term debt Long term debt + shareholder’s equity This ratio measures the extent to which long term debt is used for financingYear Calculation of Long term debt to Total Long term debt to Total Capitalization
  50. 50. Capitalization Ratio Ratio (in times) 7795.76 0.7461722010-11 7795.76 +2651.91 8475.392009-10 8475.39+2642.88 0.762294 10120.52008-09 10120.5+1295.16 0.886545 12737.822007-08 12737.82+1291.14 0.907966093Average of last 3 yrs. = 0.852268457Interpretation:-2010-11 Average Industry0.746172 0.852268457 0.53
  51. 51. This ratio is good when it is high. The ratio has gone down when compared to the previous yearswhich show that the company has not utilized the long term debts efficiently in the year 2010-11.11. Debt Equity Ratio = Total liabilities Shareholder’s equityIt measures debt relative to equity base in the capital structure.Year Calculation of Debt-Equity Ratio Debt-Equity Ratio (in times) 48008.692010-11 182804.55 0.2626232009-10 34441.93 0.223348 154207.51 0.2470452008-09 31171.89 126178.82007-08 32167.2 0.368051536 87398.63Average of last 3 yrs. = 0.279481646Interpretation :-
  52. 52. 2009-10 Average Industry0.262623 0.279481646 0.50The higher the ratio the better it is. The debt equity ratio has gone down when compared to theprevious years but it is lower than the industry average.12.Times interest earned = Operating profit Interest ExpenseIt measures how many times interest expense is covered by operating earnings.It is a measure of thefirm’s ability to meet its annual interest payment.Year Calculation of Times Interest Earned Times Interest Earned (in times)2010-11 50735.73 376.7971036 134.652009-10 40970.03 165.9444692 246.892008-09 55230.3 67.54348 817.7
  53. 53. 2007-08 44424.7 55.91318 794.53Average of 2009-10, 2008-09&2007-08 96.46704206Interpretation:2010-11 Average Industry376.7971036 96.46704206 7.20Higher the ratio the better it is. The ratio is better than the previous three years as well as the industryaverage. This shows that the company has higher returns when compared to the interest paid.13.Fixed Charge coverage = Operating profit + lease payments Interest Expense + lease paymentsIt measures coverage capability more broadly than times interest earned by including lease paymentsas a fixed expense.Year Calculation of Fixed Charge coverage Fixed Charge coverage2010-11 50789.73 269.2272992 188.652009-10 41021.46 137.5082462 298.32
  54. 54. 2008-09 55271.66 64.3397 859.062007-08 44455.49 53.85814 825.42Average of 2009-10, 2008-09 & 2007-08 85.23536267Interpretation:2010-11 Average Industry0.58 269.2272992 144.02Higher the ratio the better it is. In this case, the ratio has increased when compared to the previousyears as well as the industry average.14. Cash Flow Adequacy = Cash Flow From Operating Activities Average Long Term Debt MaturitiesIt measures how many times average annual payments of long term are covered by operating debtcash flows.
  55. 55. Year Calculation of Cash Flow Adequacy Cash Flow Adequacy (in times)2010-11 32595.79 15.99463669 2037.922009-10 36767.08 18.41290859 1996.812008-09 31551.47 15.26106 2067.452007-08 30210.8 22.11884 1365.84Average of 2009-10, 2008-09 & 2007-08 18.59760237Interpretation:2010-11 Average Industry15.99463669 18.59760237 0.76
  56. 56. Higher the ratio the better it is. The current value ratio is much higher than industry average & higherthan the last three years’ average15.Gross Profit Margin :-Gross Profit Net salesThis is also known as gross margin. This ratio is the result of the relationship between prices, salesvolume and costs.Year Calculation of Gross Profit Gross Profit Margin2010-11 51558.25 0.394949636 130543.862009-10 41712.86 0.448871683 92928.252008-09 56118.73 0.471364 1190562007-08 45248.96 0.437956 103318.5Average of 2009-10, 2008-09 & 2007-08 0.45273065Interpretation:-2010-11 Average Industry
  57. 57. 0.394949636 0.45273065 0.31Company gross profit ratio has decreased when compared to the previous three years. So the companyhas not performed very well this year. But comparing with the industry average company’16. Operating Profit Ratio :-Operating Profit Net salesIt measures the profit generated after consideration of cost of products sold.Year Calculation of Operating Profit Operating Profit %2010-11 50735.73 0.388646 130543.862009-10 40970.03 0.440878 92928.252008-09 55230.3 0.463902 1190562007-08 44424.75 0.429979 103318.5
  58. 58. Year Calculation of Net Profit Margin Net Profit MarginAverage of 2009-10, 2008-09 & 2007-08 0.444919568Interpretation:-2010-11 Average Industry0.388646 0.444919568 0.36The operating profit margin in the year 2010-11 has gone down when compared to the previous threeyears but it is quite high when compared with the industry average.17.Net Profit Margin= Net Profit X 100 Net SalesIt measures profit generated after consideration of all expenses and revenues.
  59. 59. 2010-11 43556.61 X 100 33.3654% 130543.862009-10 34420.46 X 100 37.0398% 92928.252008-09 42445.57 X100 35.6518% 1190562007-08 35355.52 X 100 34.219% 103318.5Average of 2009-10,2008-09 & 2007-08 35.6371%Interpretation:-2010-11 Average Industry33.3654% 35.6371% 26%The higher the net profit margin, the better it is. The net profit margin of the company is higher thanthe industry but it has gone down a little when compared to the previous three years.18. Cash Flow margin:-Cash flow from operating activitiesNet sales
  60. 60. This ratio tells that how much cash profit has been earned by the company by selling the goods. Thisratio is very important to know the short run liquidity and solvency position of the company.Year Calculation of Cash flow margin Cash flow margin %2010-11 32595.79 *100 24.96922% 130543.862009-10 36767.08*100 39.56501% 92928.252008-09 31551.47*100 26.5014% 1190562007-08 30210.8*100 29.2405% 103318.5Average of 2009-10,2008-09&2007-08 31.76895%Interpretation2010-11 Average Industry24.96922% 31.76895% 8%The cash flow margin has gone down when compared to the previous three years. This is because thecompany has less liquid cash in the current year and this is evident from the cash liquidity ratio.
  61. 61. 19. Return on investment = Net earnings Total assetsThis profitability ratio tells the relationship between net profits and assets. The return on investmentmay also be called profit-to-asset ratio. This ratio told that how much company is earning by investingthat much amount in assets.Year Calculation of Return on investment Return on investment2010-11 43556.61*100 24.9692% 230813.242009-10 34420.46*100 39.565% 188649.442008-09 42445.57*100 26.5014% 157350.72007-08 35355.52*100 29.5699% 119565.8Average of 2009-10, 2008-09&2007-08 24.9302%Interpretation2010-11 Average Industry
  62. 62. 24.9692% 24.9302% 15%The return on investment has gone up slightly when compared with the previous three years and it isalso higher than the industry average.20. Return on Stockholder’s equity:-Net earnings Stockholder equityThis ratio tells the profitability is measured by dividing the net profits after taxes by the shareholdersequity. This ratio reveals how profitably the owner’s funds have been utilized by the firm.Year Calculation of Return on equity Return on equity2010-11 43556.61*100 23.8269% 48008.692009-10 34420.46*100 22.3209% 34441.932008-09 42445.57*100 33.639% 31171.892007-08 35355.52*100 40.45317% 32167.2Average of 2009-10, 2008-09&2007-08 32.1377%
  63. 63. Interpretation:-2010-11 Average Industry23.8269% 32.1377% 29%The return on equity has decreased when compared to the previous three years and it is also lowerthan the industry average. There is low return on the shareholder’s investments.21. Cash return on assets:-Cash flow from operating activitiesTotal assetsThis ratio explains that how much company has cash profit by having that much amount of totalassets. This ratio is very important for long run because it shows the cash position of the companywhich helps to interpret the solvency position in the long run.Year Calculation of Cash Return on asset Cash Return on asset2010-11 32595.79 0.141221491 230818.242009-10 36767.08 0.194896311 188649.442008-09 31551.47 0.200517 157530.7
  64. 64. 2007-08 30210.8 0.252671 119565.8Average of 2007-08,2008-09&2009-10 0.216028Interpretation:-2010-11 Average Industry0.141221491 0.216028 4.26The higher the cash return on assets, the better it is. The company’s cash return on assets hasdecreased when compared to the past three years.22. Earnings per share:-Amount available for equity share holders Number of equity sharesThis is a widely used ratio. This ratio measures the profit available to equity shareholders on a pershare basis, that is, the amount that they can get on every share held. It is calculated by dividing theprofits available to the equity shareholder by the number of outstanding shares.Year Calculation of Earnings per share Earnings per share(Rs)
  65. 65. 2010-11 43556.61*100000 32.84933358 1325951102009-10 34420.56*100000 26.04766182 1321441452008-09 42445.57*100000 65.30088 650000002007-08 35355.52*100000 54.39311 65000000Average of 2009-10, 2008-09&2007-078 48.58054881Interpretation:-2010-11 Average Industry32.84933358 48.58054881 16.15Earnings per share are the ratio of profit available for equity share holder by the number of equityshares. Company’s EPS has gone down when compared with the previous three years and is highcomparedto the company average.23. Price to earnings:-Market price of the share EPSThis is closely related to the earnings yield/earnings ratio. It is actually the reciprocal of the latter.This ratio reflects the price currently being paid by the market for each rupee of currently reportedEPS. In other words, the P/E ratio measures investors’ expectations and the market appraisal of the
  66. 66. performance of a firm. This ratio is popularly used by security analysts to assess a firm’s performanceas expected by the investors.Year Calculation of price to earning Price to earning2010-11 675.9 20.575 32.84932009-10 662.45 25.4322 26.0472008-09 476.8 7.30158 65.30082007-08 634.5 11.66508 54.393Average of 2009-10, 2007-08 & 2008-09 14.799Interpretation:-2010-11 Average Industry20.575 14.799 30.72 Price earning ratio shows how much investors are willing to pay. It is the ratio of market priceby earning per share. The higher the ratio, the better it is. Here, there is a increase in price earningsratio when compared to the previous years. But compared to the industry average it is low.24. Dividend Pay-out ratio =Dividend per shareX 100
  67. 67. EPSIt measures the relationship between the earnings belonging to the shareholder and dividend paid tothem. In other words, the D/P ratio shows what percentage share of the net profits after taxes andpreference dividend is paid out as dividend to equity shareholders.Year Calculation of dividend pay-out ratio Dividend pay-out ratio2010-11 10 X 100 30.442% 32.84932009-10 6 X 100 26.047 23.03%2008-09 6 X 100 9.18% 65.30082007-08 4 X 100 7.35% 54.39311Average of 2008-09,2009-10&2007-08 13.19%Interpretation:-2010-11 Average Industry30.442% 13.19% 22%
  68. 68. Dividend Payout Ratio shows, how much percentage the company is paying on the basis of itsearning. The dividend payout ratio of the company is very high when compared with the industryaverage and is also better than the past three years. This will lead to the better loyalty of theshareholders but the company has to consider using these funds for the reinvestments.25. Dividend yield ratio = Dividend per share X 100 Market value per shareThis ratio is closely related to DPS. While the DPS are based on book value per share, the yield isexpressed in terms of market value per share.Year Calculation of dividend yield ratio Dividend yield ratio2010-11 10 X 100 1.479% 675.92009-10 6 X 100 0.9057% 662.452008-09 6 X 100 1.258% 476.82007-08 4 X 100 0.6304% 634.5Average of 2009-10, 2008-09&2007-08 0.9315%Interpretation:-
  69. 69. 2010-11 Average Industry1.479% 0.9315% 1%Dividend Yield Ratio shows, how much percentage of dividend per share the company is paying incomparison to its market price. The higher the percentage, better it is for the investors. The percentagehas increased compared to the average of the previous three years. Also it is quite high with respect tothe industry.COMPARATIVE ANALYSISComparison of current year ratios with average performance of previous three years Ratio 2011 Average of last 3 years Score CURRENT RATIO 2.477356 3.141697275 -1 QUICK RATIO 1.126882 1.426259367 1 CASH FLOW LIQUIDITY 0.834464 1.523361149 -1 AVERAGE COLLECTION PERIOD 110.4289 84.8952116 -1 ACCOUNTS RECIEVABLE TURNOVER 3.305294 4.328590144 -1 INVENTORY TURNOVER 2.403833 2.897667098 -1 FIXED ASSET TURNOVER 2.213626 1.891447528 1 TOTAL ASSETS TURNOVER RATIO 0.565582 0.704446619 -1 DEBT RATIO 0.207998 0.21656969 1 LONG TERM DEBT TO TOTAL CAPITALIZATION 0.746172 0.852268457 1 DEBT TO EQUITY 0.262623 0.279481646 1 TIMES INTEREST EARNED 376.7971 96.46704206 1 FIXED CHARGE COVERAGE 269.2273 85.23536267 1 CASH FLOW ADEQUACY 15.99464 18.59760237 -1 GROSS PROFIT MARGIN 0.39495 0.45273065 -1 OPERATING PROFIT MARGIN 0.388649 0.444919568 -1
  70. 70. NET PROFIT MARGIN 0.333655 0.356371772 -1 CASH FLOW MARGIN 0.249692 0.317689502 1 ROI 0.188709 0.249302645 -1 ROE 0.238269 0.321377603 -1 CASH RETURN ON ASSETS 0.141221 0.216028032 -1 EARNINGS PER COMMON SHARE 32.84933 48.58054881 -1 PRICE TO EARNINGS 20.57576 14.79963083 1 DIVIDEND PAYOUT 0.30442 0.131922693 1 DIVIDEND YIELD 0.014795 0.009315119 1 Net score -3Note: If the ratio shows a favorable change as compared to average performance of past three years,the score of that particular ratio is +1. If the change is unfavorable, the ratio gets a -1.Comparison of current year ratios with the industry average Ratio 2011 Industry average Score CURRENT RATIO 2.477356 1.50 1 QUICK RATIO 1.126882 0.90 1 CASH FLOW LIQUIDITY 0.834464 0.20 1 AVERAGE COLLECTION PERIOD 110.4289 141.00 1 ACCOUNTS RECIEVABLE TURNOVER 3.305294 2.59 1 INVENTORY TURNOVER 2.403833 4.41 -1 FIXED ASSET TURNOVER 2.213626 2.54 -1 TOTAL ASSETS TURNOVER RATIO 0.565582 0.57 -1 DEBT RATIO 0.207998 0.49 1 LONG TERM DEBT TO TOTAL CAPITALIZATION 0.746172 0.53 -1 DEBT TO EQUITY 0.262623 0.50 -1 TIMES INTEREST EARNED 376.7971 7.20 1 FIXED CHARGE COVERAGE 269.2273 144.02 1 CASH FLOW ADEQUACY 15.99464 0.76 1 GROSS PROFIT MARGIN 0.39495 0.31 1 OPERATING PROFIT MARGIN 0.388649 0.36 1
  71. 71. NET PROFIT MARGIN 0.333655 0.26 1 CASH FLOW MARGIN 0.249692 0.08 1 ROI 0.188709 0.15 1 ROE 0.238269 0.29 -1 CASH RETURN ON ASSETS 0.141221 4.26 -1 EARNINGS PER COMMON SHARE 32.84933 16.15 1 PRICE TO EARNINGS 20.57576 30.72 1 DIVIDEND PAYOUT 0.30442 0.22 1 DIVIDEND YIELD 0.014795 0.01 1 Net score 9Note: If the ratio shows a favourable change as compared to industry average, the score of thatparticular ratio is +1. If the change is unfavourable, the ratio gets a -1.IF SOMEBODY HAS TO INVEST, WHICH COMPANY AND WHY? Results of comparison with industry averages Divi’s Anu’s laboratories laboratories Return on Investment 1 -1 Return on Equity -1 -1 Dividend payout Ratio 1 - Earnings per common share 1 -1We infer from the above table that Divi’s laboratories is performing well compared to Anu’slaboratories hence it would be advisable to invest only in Divi’s laboratories. Although the return onequity is low compared to the industry average, as seen the company is performing well regard toother ratios we can expect that the company’s return on equity may improve in future. As shownclearly the performance of Anu’s laboratories is poor in all ratios it is not advisable to invest in thecompany
  72. 72. IF SOMEBODY HAS TO LEND, WHICH COMPANY WOULD HE LEND AND WHY? Results of comparison with previous years’ Divi’s Anu’s laboratories laboratories Debt to Equity 1 1 Times interest earned 1 -1 Fixed charge coverage 1 -1 Cash flow adequacy -1 -1The debt-equity ratio is favorable in both the companies but when comparing the ratiosDivi’slaboratories has better performance when compared to Anu’s laboratories, it would influence thelender to lend the loan to Divi’s laboratories, rather than Anu’s laboratories.ANALYSIS OF GOC AND NOCDivi’s laboratoriesYEARS 2010-11 2009-10 2008-09 2007-08GOC(in days) 40.44462 27.63752 24.76941 14.58577NOC(in days) 35.83315 23.05418 21.6295 11.2373 The GOC and NOC values are continuously increasing over the year indicating that thecompany requires more time to convert its sales to cash. The debt conversion cycle is consequentlyincreasing. This is an indication of poor performance of the company in terms of credit managementas well as inventory managementAnu’s laboratoriesYEARS 2010-11 2009-10 2008-09 2007-08
  73. 73. GOC(in days) 7.994412 11.72771 15.11399 9.966986NOC(in days) 7.174945 9.441557 12.69496 8.281791The GOC and NOC of the Anus’s laboratories is low compared to the previous years. This depictsimprovement in the company’s debt conversion cycle. The sales are getting converted into cashcomparatively at a faster rate.ConclusionThe entire analysis has been performed on both the companies and the required ratios have beencalculated with regard to the last 3 years average and all the industry average. A score of +1 has beenawarded for the ratios that have met the criteria and a score of -1 for the ratios that has failed to meetthe criteria. Based on the analysis it has been recommended to the investor to invest in Divi’slaboratories. Also the company is considered safe to lend money compared to Anu’s laboratories. Butthe GOC and NOC of Anu’s laboratories is decreasing by year showing better debt conversion cycle.Whereas for Divi’s laboratories it is continuously increasing which is not advisory.

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