financial statment analysis - project(21!06!2013)

7/28/2019 Financial Statment Analysis - Project(21!06!2013)

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CONTENTS

CHAPTER 1

INTRODUCTION

OBJECTIVE OF THE STUDY

NEED AND IMPORTANCE OF STUDY

SOURCE OF THE DATA

METHODOLOGY

SCOPE OF THE STUDYLIMITATIONS OF THE STUDY

CHAPTER 2

COMPANY PROFILE

CHAPTER 3

THEORETICAL FRAMEWORK OF

FINANCIAL STATEMENT ANALYSIS

CHAPTER 4

DATA ANALYSIS AND INTERPRETATION

CHAPTER 5

FINDINGS

CONCLUSION AND SUGGESTIONS

BIBILOGRAPHY


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INTRODUCTION

OBJECTIVE OF THE STUDY


SOURCE OF THE DATA

METHODOLOGY

SCOPE OF THE STUDY

LIMITATIONS OF THE STUDY


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Indicating the trend of achievements

Financial statements of the previous years can be compared and the trend regarding

various expenses, purchases, sales, gross profits and net profit etc can be ascertained. Value of

assets and liabilities can be compared and the future prospects of the business can be envisaged.

Assessing the growth potential of the business

The trend and other analysis of the business provide information indicating the

growth potential of the business.

Comparative position in relation to other firms

The purpose of financial statements analysis is to help the management to make a

comparative study of the profitability of various firms, engaged in similar businesses. Such

comparison also helps the management to study the position of their firm in respect of sales

expenses, profitability and utilising capital, etc.

Assess overall financial strength

The purpose of financial analysis is to assess the financial strength of the business.

Analysis also helps in taking decisions, whether funds required for the purchase of the new

machines and equipments are provided from internal sources of the business or not if yes, how

much? And also to assess how much funds have been received from external sources.


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OBJECTIVES OF THE STUDY:

To understand the theoretical framework of financial statement analysis and its tools.

To assess the performance of Reddys on the basis of earnings and also to evaluate the

solvency position of the company through ratio analysis.

To understand the funds movement at Dr.reddys Laboratories using funds flow

statement.


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Financial performance of an enterprise will affect other types of performance and also the

productivity of finances is good, the productivity of men and material would be good.

Moreover the study of non-economic and qualitative performance, which studies the

non economic factors like customer satisfaction, citizen satisfaction etc.


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RESEARCH & METHODOLOGY:

Research design or research methodology is the procedure of collecting, analyzing and

interpreting the data to diagnose the problem and react to the opportunity in such a way wherethe costs can be minimized and the desired level of accuracy can be achieved to arrive at a

particular conclusion.

The methodology used in the study for the completion of the project and the fulfillment

of the project objectives, is as follows:

Collection of Data:

1. Secondary data.

Secondary data:

Study has been taken from secondary sources i.e. published annual reports of the

company editing, classifying and tabulation of the financial data. For this purpose performance

data of DR.REDDYS LABORATORIES for the years 2007 -2008 to 2009-2010 has been used.

Methods of data analysis

The data collected were edited, classified and tabulated for analysis. The analytical tools used in

this study are:

ANALYTICAL TOOLS APPLIED:

The study employs the following analytical tools:

1. Comparative statement.

2. Trend Percentage.

3. Ratio Analysis.

4. Cash Flow Statement .


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SCOPE OF STUDY:

The scope and period of the study is being restricted to the following.

The scope is limited to the operations of the Reddys.

The information is obtained from the secondary data was limited to the Reddys.

The study is based on the profit and loss a/c, the balance sheets of the last four years.


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LIMITATIONS OF STUDY:

1. The study is confined to a period of last 4 years.

2. Not all tools of financial statement analysis are used.

3. The duration of the study was limited to period of 45 days. So that the extensive and deep

study could not be possible.


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INDUSTRY PROFILE

COMPANY PROFILE


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Following the de-licensing of the pharmaceutical industry, industrial licensing for most of

the drugs and pharmaceutical products has been done away with. Manufacturers are free to

produce any drug duly approved by the Drug Control Authority. Technologically strong and

totally self-reliant, the pharmaceutical industry in India has low costs of production, low R&D

costs, innovative scientific manpower, strength of national laboratories and an increasing balance

of trade.

The Pharmaceutical industry in India is the world's third-largest in terms of volume and

stands 14th in terms of value. According to Department of Pharmaceuticals, Ministry of

Chemicals and Fertilizers, the total turnover of India's pharmaceuticals industry between 2008

and September 2009 was US$21.04 billion .[2] While the domestic market was worth US$12.26

billion. Sale of all types of medicines in the country is expected to reach around US$19.22

billion by 2012. Exports of pharmaceuticals products from India increased from US$6.23 billion

in 2006-07 to US$8.7 billion in 2008-09 a combined annual growth rate of 21.25% .[2] According

to PricewaterhouseCoopers (PWC) in 2010, India joined among the league of top 10 global

pharmaceuticals markets in terms of sales by 2020 with value reaching US$50 billion.

The government started to encourage the growth of drug manufacturing by Indian

companies in the early 1960s, and with the Patents Act in 1970. However, economic

liberalization in 90s by the former Prime Minister P.V. Narasimha Rao and the then Finance

Minister, Dr. Manmohan Singh enabled the industry to become what it is today. This patent act

removed composition patents from food and drugs, and though it kept process patents, these

were shortened to a period of five to seven years.
http://en.wikipedia.org/wiki/Pharmaceutical_industryhttp://en.wikipedia.org/wiki/Pharmaceutical_industryhttp://en.wikipedia.org/wiki/Indiahttp://en.wikipedia.org/wiki/Indiahttp://en.wikipedia.org/wiki/Ministry_of_Chemicals_and_Fertilizers_%28India%29http://en.wikipedia.org/wiki/Ministry_of_Chemicals_and_Fertilizers_%28India%29http://en.wikipedia.org/wiki/Pharmaceutical_industry_in_India#cite_note-cci-1http://en.wikipedia.org/wiki/Pharmaceutical_industry_in_India#cite_note-cci-1http://en.wikipedia.org/wiki/Pharmaceutical_industry_in_India#cite_note-cci-1http://en.wikipedia.org/wiki/Pharmaceutical_industry_in_India#cite_note-cci-1http://en.wikipedia.org/wiki/Pharmaceutical_industry_in_India#cite_note-cci-1http://en.wikipedia.org/wiki/Pharmaceutical_industry_in_India#cite_note-cci-1http://en.wikipedia.org/wiki/PricewaterhouseCoopershttp://en.wikipedia.org/wiki/Government_of_Indiahttp://en.wikipedia.org/wiki/P.V._Narasimha_Raohttp://en.wikipedia.org/wiki/Financehttp://en.wikipedia.org/wiki/Minister_%28government%29http://en.wikipedia.org/wiki/Dr._Manmohan_Singhhttp://en.wikipedia.org/wiki/Patenthttp://en.wikipedia.org/wiki/Patenthttp://en.wikipedia.org/wiki/Dr._Manmohan_Singhhttp://en.wikipedia.org/wiki/Minister_%28government%29http://en.wikipedia.org/wiki/Financehttp://en.wikipedia.org/wiki/P.V._Narasimha_Raohttp://en.wikipedia.org/wiki/Government_of_Indiahttp://en.wikipedia.org/wiki/PricewaterhouseCoopershttp://en.wikipedia.org/wiki/Pharmaceutical_industry_in_India#cite_note-cci-1http://en.wikipedia.org/wiki/Pharmaceutical_industry_in_India#cite_note-cci-1http://en.wikipedia.org/wiki/Ministry_of_Chemicals_and_Fertilizers_%28India%29http://en.wikipedia.org/wiki/Ministry_of_Chemicals_and_Fertilizers_%28India%29http://en.wikipedia.org/wiki/Indiahttp://en.wikipedia.org/wiki/Pharmaceutical_industry


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INTRODUCTION TO PHARMACEUTICAL INDUSTRY

The Indian Pharmaceutical industry has been witnessing phenomenal growth in recent

years, driven by rising consumption levels in the country and strong demand from export

markets. The pharmaceutical industry in India is estimated to be worth about US$ 10 bn,

growing at an annual rate of 9%. In world rankings, the domestic industry stands fourth in terms

of volume and 13th in value terms. The ranking in value terms may also be a reflection of the

low prices at which medicines are sold in the country.

The industry has seen tremendous progress in terms of infrastructure development,

technology base and the wide range of products manufactured. Demand from the exports market

has been growing rapidly due to the capability of Indian players to produce cost-effective drugs

with world class manufacturing facilities. Bulk drugs of all major therapeutic groups, requiring

complicated manufacturing processes are now being produced in India. Pharma companies have

developed Good Manufacturing Practices (GMP) compliant facilities for the production of

different dosage forms.

Industry Trends

A highly fragmented industry, the Indian pharmaceutical industry is estimated to have

over 10,000 manufacturing units, as given by the Organization of Pharmaceutical Producers of

India. The organized sector accounts for just 5% of the industry with around 300 players, while a

huge 95% is in the unorganized sector. A large number of players in the unorganized segment

are small and medium enterprises and this segment contributes 35% of the in dustrys turnover.


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Bulk drug

The Bulk Drug Manufacturers Association (India) was formed in 1991 with Hyderabad

as its Head Quarters. This is an all India body representing all the Bulk Drug Manufacturers of

India. The Association works for the consolidation of gains of the industry and serves as a

catalyst between the government and the industry on the various issues for the growth of the

industry

Bulk drug manufacturing is largely concentrated in Andhra Pradesh, which accounts for

more than one-third of t he countrys total bulk drug production, followed by Gujarat. The Indian bulk drug industry has lately been gaining signify cant presence in the global market as foreign

and multinational companies are looking to sourcing APIs and intermediates from Indian

manufacturers. Factors favoring the industry are a vast resource of technical people, state of- the-

art manufacturing facilities, low cost and the advantage of the English language. As part of

governments support to increase exports, duty free zones have been set up and several

manufacturers of bulk drugs have been shifting their facilities to these areas. As a result, the

diverse spread has now started getting consolidated and concentrated in certain regions across

the country.

Key Drivers for the Pharmaceutical Industry

Growing orientation towards Research and Development (R&D)

The introduction of product patent in India has brought some fundamental changes in

strategies of Indian pharmaceutical companies, with focus shifting more towards R&D.The

original Indian patent law, which recognized only process patent, gave Indian companies the

opportunity to produce products under patent in overseas markets, particularly regulated markets,


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by adopting new processes. Consequently, companies were in advantageous position to produce

drugs through reverse engineering at relatively very low cost that helped the domestic industry to

grow faster during the initial stages of development. On the other hand, this discouraged

multinational companies from launching their new products in India, fearing duplication of their

new drug discovery through reverse engineering. As a result, MNCs market share declined from

70% prior to 1972 to 20% at present.

Growing exports

Exports have been the major growth enabler of the Indian pharmaceutical industry in

recent years. India exports pharmaceutical products, APIs and intermediates to more than 200

countries across the world. Traditionally, Russia, Germany, Nigeria and Indias neighboring

countries like Sri Lanka, Nepal, and the Middle East were the major markets for Indian

pharmaceutical exports. Most of these markets are not highly regulated and are considered to be

low-value markets.

Expanding presence in regulated market

Over the years, India has shown better regulatory awareness and superior technical skills,which has enabled Indian companies to penetrate the high-value markets like the US and EU.

Exports of pharmaceutical products (finished products as classified under heading 30 of ITC-HS

code) to the US grew by an impressive 33% to Rs 23 bn and by a whopping 62% to Rs 35 bn to

the EU during FY04-FY06. Regulated markets, though difficult to penetrate due to stringent

regulations, are known to give better value and margin to exporters


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FormulationsThe administration of a medicine is a common but important clinical procedure. It is the

manner in which a medicine is administered that will determine to some extent whether or not

the patient gains any clinical benefit, and whether they suffer any adverse effect from their medicines.

Routes of administration There are various routes of administration available, each of which has associated

advantages and disadvantages. All the routes of drug administration need to be understood in

terms of their implications for the effectiveness of the drug therapy and the patients experience

of drug treatment.Routes of administration

Oral: Tablets, capsules, powders are taken internally.

Topical: ointments, creams, liquids, aerosols that are applied on the skin

Parenteral Intravenous, intramuscular, subcutaneous

Others: such as eye-drops, pessaries, surgical dressings etc.


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COMPANY PROFILE:

Established in 1984, Dr. Reddy's Laboratories (NYSE: RDY) is an emerging global

pharmaceutical company. As a fully integrated pharmaceutical company, our purpose is to

provide affordable and innovative medicines through our three core businesses: Pharmaceutical

Services and Active Ingredients (PSAI), comprising our Active Pharmaceuticals and Custom

Pharmaceuticals businesses;

One of India's top drug makers, Dr. Reddy's Laboratories develops and manufactures

branded and unbranded generic drugs and bulk pharmaceutical ingredients. Its stable of products

includes ulcer medicines (branded product Omez is a leading seller), antibiotics, antidepressants

(generic version of Eli Lilly's Prozac), pain relievers, diabetes treatments, and cardiovascular

drugs. Dr. Reddy's Laboratories also makes generic biotech products. Its custom pharmaceutical

services unit provides contract discovery, development, and manufacturing services to other drug

makers. The firm sells its products in more than 100 countries through direct sales entities and

third-party distribution partners.

Global Generics, which includes branded and unbranded generics; and Proprietary

Products, which includes New Chemical Entities (NCEs), Differentiated Formulations, and

Generic Biopharmaceuticals. Our strong portfolio of businesses, geographies and products gives

us an edge in an increasingly competitive global market and allows us to provide affordable

medication to people across the world, regardless of geographic and socio-economic barriers.

Our products are marketed globally, with a focus on India, US, Europe and Russia. Dr.

Reddy's conducts NCE research in the areas of metabolic disorders, cardiovascular indications,

anti-infective and inflammation.


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We are:

Among the leading global pharmaceutical companies from India

5th largest branded generic player in Germany ,

Ranked 7th in the retail segment in Russia, the largest player from India

Among the Top Ten generic companies in India

Among the Top 3 Active Pharmaceutical players globally Top 3 Abbreviated New Drug

Application (ANDA) and Drug Master File (DMF) pipeline in the USA

Among the largest players in the Custom Pharmaceutical Services (CPS) segment

4th on Environment & Social Governance Index, India

Best Workplace in Pharma & Biotech - Great Place to Work 2008 and 2009

The fastest path to USD 1 billion in revenues amongst Indian Pharma companies

Dr. Reddys is an integrated global pharmaceutical company with strong brand presence

established through 28 years of history. Dr. Reddys is listed on the New York Stock Exchange,

headquartered in India, with annual sales of $1.7 billion and products marketed in more than 10

countries.

Dr. Reddy's is committed to the manufacture of premium quality products in compliance

with all regulatory requirements and customer expectations. We operate in accordance with

cGMP requirements and the USFDA and ICH guidelines & regulations. All our manufacturing

facilities are successfully inspected for several products by the USFDA and various other

Agencies.


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BOARD OF DIRECTORS

GV Prasad,

Chairman and Chief Executive Officer

Satish Reddy ,

Vice Chairman and Managing Director

Saumen Chakraborty ,

M anaging Dir ector & COO

Dr. Omkar Goswami,

I ndependent & Non Whole Time Dir ector

Ravi Bhoothalingam,


Dr. Bruce LA Carter,


Anupam Puri,


Ms. Kalpana Morparia,


JP Moreau,



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CTO BUSINESS - MANUFACTURING FACILITIES

UNIT 1 Bollaram, Hyderabad.



UNIT 4 Jeedimetla, Hyderabad.

UNIT 5 Peddadevulapalli [-150 km from Hyderabad]

UNIT 6 pydibeemavaram, [-750 km from Hyderabad]

CTO BU-HEAD

MARKETINGSUPPLY CHAINMANAGEMENT

GLOBALREGULATORYAFFAIRS AND

COMPLIA

FINANCE HRM MANUFACTURING


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Market

Dr. Reddys - India today is more than a 200 million dollar venture with presence in almost all

major therapeutic areas. Our finished dosage business in India started in 1986 with launch of

Norilet (norfloxacin). Our market penetration through nearly 3000 sales force who connect to

more than 3,00,000 doctors on a regular basis has yielded us reaching all corners of the country

and providing affordable and innovative medicines in all major therapeutic areas like gastro-

intestinal, oncology, pain management, cardiovascular, dermatology, diabetes, etc. Eight of our

brands feature in the top-300 brands in India that include drugs like Stamlo, Reditux, Omez and

Ketorol.

TOP BRANDS AND PRODUCTS

Top Brands & Products

GERMANY INDIA RUSSIANORTH AMERICA

(Products)

SIMVAS NISE OMEZ Sumatriptan AG

ALENDR OMEZ CIPROLET Fexofenadine

OMEPRA STAMLO NISE Glimepiride

OXYCOD STAMLO BETA ENAM Oxaprozin

TRAMAD ATOCOR KETOROL Ondansetron

RAMHCT OMEZ-D EXIFINE Meprobamate


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IBUPRO RAZO CETRINE Divalproex Spr. Capsules

GABAPE ENAM Simvastatin

RAMIPR MINTOP Finasteride

BISOPR CLAMP Ciprofloxacin

Tizanadine

The Bulk Activities Division, Unit 5 has 14 departments viz.

1. Ranitidine

2. Naproxen

3. Famotidine

4. Maintenance

5. Quality control

6. Quality assurance

7. TSD - R&D

8. SHE

9. Warehouse

10. SCM

11. HRD

12. RA

13. Liaison

14. Documentation


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ABOUT PLANT

Having well equipped solvent recovery plant and recovery solvents are being used there

by reducing the inventory. Environmental care is being taken by using the incineration and scrubbing systems

arresting the liberated gases in to the atmosphere.

Automation system is provided so that when the incinerator is stopped the feeding stops

automatically. Stand by scrubbers are provided for the alternate arrangement to the

incinerator.

Having well equipped power charging, weighing and filling systems to reduce man

handling in the final stages.

Constantly striving to reduce the manufacturing cost of the products by reducing the

solvent losses and upgrading the systems.

COMPANY VISION, MISSION AND OBJECTIVE

VISION

A world class, innovation, Competitive and profitable Engineering Enterprise Providing total

business Solutions. To be a top 20 global pharmaceutical company by 2020

MISSION

To be the leading Engineering Enterprise providing Quality products System and services in

the field of Energy, Transportation, Industry, Infrastructure and other potential areas.


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VALUES

Meeting commitments made to External and internal customers.

Faster learning, Creativity and Speed of response.

Respect for Dignity and potential of individuals.

Loyalty and Pride in the Company

Zeal to Excel

Integrity and fairness in all matters.

OBJECTIVES

GROWTH:

To ensure a steady growth by enhancing the competitive edge of DR.REDDYS

LABORATORIES in exiting business, new areas and international operation so as to fulfil

national expectations from DR.REDDYS LABORATORIES.

PROFITABILITY:

To provide a reasonable and adequate return on capital employed, primarily through

improvements in operational efficiency, capacity utilization and productivity and generate

adequate internal resources to finance the company growth. Confidence in providing increased

value for this money through international standards of product, quality, performance and

superior customer services.


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TECHNOLOGY:

To achieve technology excellence in operations by development of indigenous

technologies to and efficient absorption and adaptation of imported technologies to suit business

needs and priorities and provide a competitive advantage of the company.

IMAGE:

To fulfil the expectation which stock holders like government as own employees,

customers and the country at large have from D R.REDDYS LABORATORIES.

SWOT ANALYSIS OF DR.REDDYS LABORATORIES

The strength, weakness, opportunities and threats which are being experienced by DR.REDDYS

LABORATORIES as a growing concern have been summarized up in the following lines.

STRENGTHS

1. Vast pool of trained man power.

2. Excellent state of art facilities.

3. Good working atmosphere

4. Rapport between management and union.

5. Product manufactured international quality

6. Low labour cost and low manufacturing cost.


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WEAKNESS

1. Excess man power

2. Slippage in delivery commitments

3. System implementation adequate

4. No financial package

5. Inadequate compensation package to employees.

OPPORTUNITIES

1. Growing power sector machinery

2. Liberalization has opened up the market

3. Dominant player in domestic market.

THREATS

1. Liberalization entry of MNCS or private sector -more competition.

2. MNCS taking away good employees with attractive packages.

3. Government taxation policy-against manufacturing sector.

4. Poor infrastructure.


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Best Team Awards for

Execution Excellence

Best Quality Driving Team Award

Best Innovation Team Award

Best Managed Team Award Operations

Best Managed Team Award Non-Operations

Best Business Development Deal Award


Customer Delight

Best Team Award for External Customer Delight

Best Team Award for Internal Customer Delight


Sustainability

Best Safety & Health improvement Initiative

Award

Best Environmental Initiative Award

Best Corporate Social Responsibility Initiative

Award


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REVIEW OF LITERATURE:

THEORETICAL FRAMEWORK OFFINANCIAL STATEMENT

ANALYSIS


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REVIEW OF LITERATURE:

INTRODUCTION TO FINANCE:

Financial statement is that managerial activity which is concerned with the

planning and controlling of the firm financial resources. Though it was a branch of economic till

1890 as a separate activity or discipline it is of recent origin. Still, as no unique body knowledge

of its own, and draws heavily on economics for its theoretical concepts even today.

The subject of financial management is of immense interest both academicians and

practising manager. It is of great interest to academicians because the subject is still developing.

And there are still certain areas where controversies exist for which no unanimous solutions have

been reached as yet. Practicing manager are interested in this subject because among the most

crucial decision of the firm are those which relate to finance and an understanding of the theory

of financial management provides them with conceptual and analytical insight to make those

decision skilfully.

SCOPE:

Firms create manufacturing capacities for production of good, some provide services

to customers. They sell their goods or services to earn profit. They fund to acquire manufacturing

and other facilities. Thus the three most important activities of a business firm are:

PRODUCTION

MARKETING

FINANCE


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FUNCTION:

The finance function form production, marketing and other functions. Yet the

function themselves can be readily identified. The function of raising funds, inverting them in

assets and distributing returns earned from assets to shareholder respectively. The finance

functions are:

Investment or long term asset mix decision

Financing or capital mix decision

Dividend or profit allocation decision

Liquidity or short term asset mix decision.

INDEPTH ANALYSIS OF FINANCIAL ANALYSIS:

(A)DEFINITIONS:

The term financial analysis is also known as analysis and interpretationof financial statements. It refers to the process of determining financial strengths and

weaknesses of the firm by establishing strategic relationships between the items of the balance

sheet, profit and loss account and other operative data.

ACCORDING TO Mr. HARRY GUTTMANN:

The first and most important functions o f financial statements are of course

to those who control and direct the business to the end of security the profits and maintaining

sound financial conditions.


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(B)NATURE OF FINANCIAL STATEMENTS:

The term financial statements refers to the balance sheet reflection the

financial position of the assets, liabilities a capital of a particular company during a certain

period and profit and loss account showing the operational results of the company during acertain period. Financial statements are plain statements of informed opinion uncompromising in

their truthfulness. It is meant that within the limits of accepted accounting principles and the very

human abilities of the persons preparing them they have to rely on judgements and estimated

divorced of prejudice.

(C)CONVENTIONS:

According to the American institute of certified public accounts, financialstatements reflect, a combination of recorded facts accounts conventions and personal

judgements and the judgements and the conventions applied affect them materially, this implies

that the exhibited in the financial statements are affected by recorded facts, accounting

conventions personal judgements.

(D) USES AND IMPORTANCE OF FINANCIAL STATEMENTS:

The financial statements are mirrors which reflect the financial position and operating

strengths or weaknesses of the concern. These statements are useful to management, investors,

creditors, bankers, workers, government and public at large. George O May points of the

following measure used of financial statements:

As a basis for taxation.

As a basis for price or rate regulation

As a guide to the value of investment already made

As a basis for granting credit.


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(E)LIMITATIONS OF FINANCIAL STATEMENTS:

Financial statements are essentially interim reports and hence cannot be final

because the actual gain or loss of a business can be determined only efface it

has put down its shutters.

They tend to give an appearance if finality and accuracy, because they are

expressed in exact money amount. Any value to the amounts presented in the

statement depends on the value standards of the person dealing with them.

The balance sheet loses its functions as an index of current economic realities

due to the fact the financial statements are compiled on the basis of historical

costs while there is a market decline in the value of the monitoring unit and the

resultant rise in prices. The problem has become more important especially

during the war and the post war period.

They do not give effort to many factors, which have a hearing on financial

conditions and operating results because they cannot be stated in terms of

money and are qualitative in nature. Such factors are reputation and prestige of

the business with the public its credit rating the efficiency and loyalty of its

employees and integrity of the management.

Due to these limitations it is said that financial statements dont show the

financial conditions of the business rather they show, the position of financial

accounting for a business.

(F)PARTIES INTERESTED IN FINANCIAL STATEMENTS:

Now days the ownership of capital of many public companies has become truly

board based due to dispersal of shareholding, hence, the public in general evinces interest in the

financial statements. Apart from the shareholders there are other persons and bodies who are also

interested in financial results disclosed by the annual reports of the companies. As already

mentioned, such persons and bodies include:


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1. Potential investors

2. Creditors, potential suppliers or other doing business with the company.

3. Debenture holders

4. Credit institutions like bankers.

5. Employee customers who wish to make along standing contact with the company.

6. Economic and investment analysis

7. Members.

(G)ANALYSIS AND INTERPRETATION OF FINANCIAL STATEMENTS:

Analysis and interpretation of financial statements are and attempt to determine the

significance and meaning of the financial statement data as so that a forecast can be made of the

prospects for future earnings ability to pay interest, debt and maturities (current and long term)

and profitability of a sound dividend policy.

Financial analysis main function is pinpointing of the strengths and weaknesses

of a business concerns by regrouping and analysis of figure contained in financial statements by

making comparisons of various component and by examine their content. The financial manager

uses this as the basis to plan future financial requirements by means of forecasting and budgeting

procedures.

The analysis of and interpretation of financial statements represents the lost of the

four measure steps of accounting viz.


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Analysis of each transaction to determine the accounts to debited and credited and the

measurements and the valuation of each transactions to determine the amounts involved.

Recording of the information in the journals. Summarization in largest and preparation of

work sheet.

Preparation of financial statements.

Analysis and interpretation of financial statements results in the presentation of

information that assets business managers, creditors and investors. This requires a clear

understanding of monitoring item of the items.

The analysis must group that represents sound and unsound relationships reflected

by the financial statements. Those, the data is more maintain full and it is placed in better

perspective when it is provision and by means of measurement, its relationship with others is

established in terms of if relative significance and it is ranked in terms of its relative

significance. One can achieve this by comparisons made between related items in the statements

series of years.

(H)TYPES OF FINANCIAL STATEMENTS:

Financial statements primarily comprise two basic statements:

1. The position statements of the balance sheet.

2. The income statements or the profit and loss account.

Accounting principles specify that a complete set of financial statements must include:


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1. A balance sheet

2. An income statement

3. A statement of change in owners accounts.

4. A statement of changes in financial position.

BALANCE SHEET:

The balance sheet is one of the important statements depicting the financial

strength of concern. It shows the properties that are owned on one hand and on the other hand the

sources of the assets owned by the concern and all the liabilities and claims it owes to owners

and outsiders. The balance sheet is prepared on a particular date. The right hand shows properties

and assets and the left hand shows liabilities.

INCOME STATEMENT OR PROFIT AND LOSS ACCOUNT:

Income statement is prepared to determine the operation position of the concern. It is a

statement of revenues. The income statement may be prepared in the form of manufacturing

account to find out the cost of the production in the form of trading accounts to determine gross

profit or loss, in the form of profit and loss account to determine net profit or net loss.

STATEMENT OF CHANGES IN OWNERS EQUITY:

The term owners equity refers in the claims of the owners of the business against the

assets of the firm. It consists of two elements.

1. Paid up share capital i.e. the initial amount of funds invested by the shareholders.

2. Retained earnings/reserves and surplus representing undistributed profits.


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The statement of changes in owners equity simply shows the beginning

balance of each owners equity account, the reasons of increases and decreases in each,

and its ending balance. However, in most cases the owners equity account changes

significantly in retain earnings and hence the statement of changes in owners equity

becomes merely a statement of retained earnings.

STATEMENT OF CHANGES IN FINANCIAL POSITION:

The basic financial statement i.e. the balance sheet and profit and loss account and

income statement of a business reveals the net effect of various transactions on the operational

position of the company. But there are many transactions that do not operate through profit and

loss account. Those for a better understanding another statement of changes in financial position

has to be prepared to show the changes in assets and liabilities from the end of another point of

time. The statement of changes in financial position may take any of the two forms. They are:

Funds statements

Cash flow statements

TOOLS OF FINANCIAL ANALYSIS USED IN THE STUDY:

MEANING OF COMPARATIVE STATEMENT:

The comparative financial statements are the statements of the financial position

of different periods; the elements of financial positions are then in a comparative form to give

idea of financial position of two or more periods. The comparative statement may show:

Absolute figures


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Changes in absolute figures i.e. increase or decrease in absolute figures.

Absolute data in terms of percentage.

Increase or decrease in terms of percentage.

COMPARATIVE BALACE SHEET:

It is a statement of financial position of a business at a specific movement of time.

It represents all assets owned by the business at a particular movement of time and the claims of

the owners and outsiders against those assets at the time. It is a way they shape the financial

condition of the business at that time.

The important distinction between an income statement and balance sheet is that

the income statement is for a period where as balance sheet is on a particular date.

COMPARATIVE INCOME STATEMENT:

The comparative income statement gives the results of the operation of a business.

The comparative income statement gives an idea of the program of a business over a period of

time. The changes in absolute data in money values and percentages can be determined to

analyze the profitability of the business.

GUIDELINES FOR INTERPRETATION OF INCOME STATEMENT:

The analysis and interpretation of income statement will involve the following

steps:

1. The increase or decrease in sales should be compared with the increase or

decrease in cost of goods sold. An increase in sales will not always mean an


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increase in profit. The profitability will improve if increase in sales promotion and

the control of operating expenses.

2. The second step of analysis should be the study of operation profit. The operating

expenses such as office and administrative expenses. Selling and distribution

expenses should be deducted from gross profit to find out operating profit which

will result from the increase in sales position and control of operating expenses.

3. The increase or decrease in net profit give an idea about overall profitability of the

concern, non-operating expenses such as interest paid, loss from sale of assets,

writing off to deferred expenses or deducted from operational profit we get the

figure of operating profit.

4. An opinion should be formed about profitability of the concern and it should be

given at the end. This should be mentioned whether the overall profitability is

good or not.

COMMON SIZE STATEMENTS:

The common size statement, balance sheet and income statement are shown in

analytical percentages. The figures are shown as percentages of total assets, total liabilities and

total sales. The total assets are taken as of and different assets are expressed as a percentage of

the total.


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1. Common size balance sheet: A statement in which balance sheet items are expressed as

the ration of each asset to total assets and the ratio of each liability is expressed as a ratio

of total liabilities is called common sized balance sheet.

2. Common size income statement: The items in income statement can be shown as

percentage of sales to show the relation of each item to sales. A significant relationship

can be established between item of income statement and value of the sales. The increase

in sales will certainly increase selling expenses and not administrative are financial

expenses.

TREND ANALYSIS:

Trend percentages:

The method of trend percentages in useful analytical device for the

management since y substitution of percentage for large amounts, the clarity and readability are

achieved.

Trend percentages are immensely helpful in making comparative study of

the final statements for several years. The method of calculating trend percentages involves the

calculation of percentage relationship that each item bears to the same item in the base year. The

earliest year may be taken as base year. Each item of the base year is taken as 100 and on the

basis the percentage for each of the item of each year is calculated.


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Least Square Method:

This method is widely used in practised. It is a mathematical method and

with the help of a trend line fitted to the data in such a manner by using the actual figures of the

study period, we have to calculate the trend values for these periods. Based on this value we can

easily forecast the values of the future period. The method of least square may be used either to

fit a straight line trend or a parabolic trend. The straight line is represented by the equation Y(C)

=A+B(X).

ANALYSIS AND INTERPRETATION OF FINANCIAL STATEMENT:

An attempt has been made to analyze and interpret the financial statements

of DR.REDDYS LABORATORIES for the period of 2007-2010. These statements were

prepared on the basis of the data in the balance sheets and profit and loss accounts of the

DR.REDDYS LABORATORIES for the above period.

RATIO ANALYSIS:

A ratio is a simple mathematical expression. It is a number expressed in

terms of another number, expressing the quantitative relationship between the two, ratio analysis

is the technique of interpretation of financial statements with the help of various meaningful

ratios. Ratios do not add to any information that is already available, but they show the

relationship between two items in a more meaningful way.

Ratio analysis is a very important tool of financial analysis. It is the

process of establishing a significant relationship between the items of financial statements to


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provide a meaningful understanding of the performance and financial position of the firm. They

help us to draw certain conclusions. Comparison with related facts is the basis of ratio analysis.

Ratios may be used for comparison in any of the following ways.

1. Comparison of a firm with its own performance in the past.

2. Comparison of one firm with its own performance in the past.

3. Comparison of one firm with another firm in the industry.

4. Comparison of one firm with the industry as a whole.

5. Comparison of an achieved performance with pre-determined standards.

6. Comparison of one department of a concern with other departments.

TYPES OF RATIOS

Liquidity ratio

Capital structure/leverage ratio

Profitability ratio

Activity ratio.

LIQUIDITY RATIOS: it measures the short-term solvency of the firm. In a

short period of a firm should be able to meet all its short-term obligation i.e.

current liabilities and provisions. It is current assets that yield funds in the short

period. Current assets are those, which the firm can convert it into cash within one

year or short run. Current assets should not only yield sufficient funds to meet


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current liabilities as they fall due but also to enable the firm to carry on its day-to-

day activities.

The following are the important liquidity ratios:1. Current ratio

2. Acid test/quick ratio.

3. Cash ratio

4. Net working capital ratio

1. Current ratio: Current ratio is the ratio of current assets to current liabilities. Current

assets are the assets that are expected to be realized in cash or sold or consumed during the

normal operating cycle of the business or within one year, whichever is longer, they include cash

in hand and bank, bills receivable, net sundry debtors, stock of raw materials, finished goods and

working in progress, prepaid expenses, outstanding incomes, assured incomes and short term or

temporary investments. Current liabilities are the liabilities that are to be repaid within a period

of one year. They include bills payable, sundry creditors, bank overdrafts, outstanding expenses,

income receivable in advance, proposed dividend, provision for taxation, unclaimed dividends

and short term loans and advanced repayable within one year. Any instalment of long-term

liability payable within the next 12 months is also current liability.

CURRENT RATIO= CURRENT ASSETS/ CURRENT LIABILITIES

Generally 2 : 1 ratio is considered ideal for the company.

2. ACID TEST/QUICK RATIO : the acid test ratio is the ratio between quick current assets and

current liabilities and calculated by dividing the quick assets by current liabilities. Quick assets


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mean those which can be converted into cash immediately by exclusion of inventory and prepaid

expenses from current assets.

Acid test Ratio=Quick assets/Current liabilities.

Generally 1: 1 ratio is considered to be ideal for the company.

3. CASH RATIO : The cash ratio is the ratio of cash and bank balance; it is calculated dividing

cash and bank balance by current liabilities.

CASH RATIO= Cash and Bank balances/Current liabilities.

Generally 1: 2 ratios are considered to be ideal for a company.

4. NET WORKING CAPITAL RATIO: Working capital ratio refers to comparing current

assets to current liabilities and serve as the liquidity reserve avail. To satisfy contingencies and

uncertainties. It is calculated by dividing net working capital by capital employed.

Net Working Capital Ratio = net working capital/capital employed.

Generally higher ratio is considered ideal for a company.

CAPITAL STRUCTURE/LEVERAGE RATIO: These ratios indicate the relative

interests of owners and creditors in a business by showing long term financial solvency

and measure the enterprises ability to pay the interest regularly and to repay the principal

on maturity or in pre-determined instalments at due dates.


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The significant leverage ratios are:

1. Debt Equity Ratio

2.

Proprietary Ratio

3. Capital Gearing Ratio.

4. Fixed assets Ratio

5. Interest coverage Ratio

6. Dividend Coverage Ratio

7. Debt Service coverage Ratio.

1.Debt Equity Ratio : It reflects the relative claim of creditors and shareholders against the

assets of the business. Debt usually refers to long-term liability. Equity includes equity and

preference share capital and reserves.

Debt Equity Ratio=long term liabilities/share holders funds.

Ideal debt equity ratio is 2 : 1

2.Propreitary ratio: It expresses the relationship between the net worth and total assets. A high

proprietary ratio is indicative of strong financial position of business.

Proprietary ratio = Net worth/ Total Assets

Net worth = Equity share capital + fictitious Assets

Total assets= fixed assets + Current Assets

Generally higher the ratio the ideal it is.


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3. Capital Gearing Ratio: A company is said to be highly geared if it has a high capital gearing

ratio and lowly geared if the capital gearing ratio is low. The extent of gearing determined the

future financial structure of the business. A company that is highly geared will have to raise

funds by issuing fresh equity shares, whereas a lowly geared company would find it attractive to

raise funds by way of term loans and debentures.

Capital Gearing Ratio = funds bearing fixed interest and fixed dividend/equity

. share holde rs funds

Funds bearing fixed interest and capital=Debentures + term loans +preference .

. share capital.

Equity share holder funds=Equity share capital +reserves-fictitious funds.

4.Fixed Assets Ratio: This ratio indicates the mode of financial the fixed assets. It is calculated

as

Fixed assets Ratio= Fixed assets/capital employed

Capital employed= equity share capital + preference share capital +reserves + long term

Liabilities Fictitious Assets.

Generally a ratio of 0.67 : 1 is considered ideal for a company.

5.Interest Coverage Ratio: This ratio is called as debt service ratio. This ratio indicates

whether a business is earning sufficient profits to pay the interest charges. It is calculated as

Interest coverage ratio=PBIT/Fixed interest charges

PBIT=Profit before interest and taxes=PAT + Interest + Tax

Generally a ratio of around 6 is normally considered as ideal for a company.


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6.Dividend coverage ratio: It indicates the ability of a business to pay and maintain the fixed

preference dividend to preference shareholders.

Dividend coverage ratio=PAT/Fixed preference dividend.

PAT= Profit After Taxes

7.Debt service coverage Ratio: It indicates whether the business is earning sufficient profits to

pay not only the interest charges, but also the instalments due to the principal amount. It is

calculated as

Debt service Coverage Ratio =(PBIT/Interest + Periodic Loan Installation)/(1- Rate of income

Tax)

Generally greater the ratio, the better is the servicing ability of company.

PROFITABILITY RATIO: Profitability ratios measure the profitability of a company.

Generally they are calculated either in relation to sales or in relation to investments. The

various profitability ratios are discussed under the following heads.

(A) GENERAL PROFITABILITY RATIOS:

1.Gross Profit Ratio: Gross profit is one of the most commonly used ratios. It reveals the result

of trading operations of the business. In other words, it indicates to us the profitability of the

business. It is calculated as

Gross Profit Ratio=(Gross Profit/Net sales)*100

Gross Profit=net sales-cost of goods sold.


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Net Sales=Total Sales- Sales Returns

Cost of Goods Sold=Opening Stock + Purchases + Manufacturing expenses-closing Stock.

Generally the higher the ratio, the better will be the performance of the company.

2.NET PROFIT RATIO: It indicates the results of overall operations of the firm. While the

gross profit ratio indicates the extent of profitability of core operations. Net profit ratio tells us

about overall profitability. It is called as

Net Profit Ratio=(Net Profit after Tax/Net Sales)*100

Generally higher the ratio, the more profitable to the company.

3.OPERATING RATIO: It expresses the relationship between expenses incurred for running

the business, and the resultant net sales. It is calculated as

Operating Ratio=cost of goods sold + Office and Administrative expenses + selling and

distribution Expenses.

Generally lower the ratio, the better it is to the company.

4. OPERATING PROFIT RATIO: It establishes the relationship between operating profit and

sales. It is calculated as

Operating Profit Ratio=(Operating Profit/Net Sales)*100

Generally higher the ratio, the better it is to the company.

5. EXPENSES RATIO: Expenses ratios are the ratios that supplement the information given by

the operating ratio. Each of the expense rations highlights the relationship given by the particular


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expense and net sales. For example, factory expenses ratio is of factory expenses to net sales any

expenditure can be shown as a ratio to sales. All such ratios fall under the broad head of

expenses ratios.

(B) OVERALL PROFITABILITY RATIOS:

1.RETURN ON CAPITAL EMPLOYED RATIO(ROCE) OR RETURN ON

INVESTMENT RATIO(ROD):

This ratio reveals the earning capacity of the capital employed in the business. In

other words, capital employed is permanent capital invested in the business. It is also called

capital and hence, the ratio is also known as return on invested capital

ROCE= (Profit before interest and taxes/capital employed) *100

2. RETURN ON NET WORTH(RONW): It indicates the return, which the shareholders are

earning on their resources invested in the business. It is calculated as

RONW=(Profit after Tax/Net Worth)*100

Generally higher the ratio, the better it is to the shareholders.

3. RETURN ON EQUITY CAPITAL : It expresses the return earned by the owners of the

business, after adjusting for debt and preference capital. It is calculated as

RETURN ON EQUITY= PAT- Preference dividend/equity shareholders funds.

Generally higher the ratio, the better it is to the company.


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4. RETURN ON ASSETS RATIO(ROA): Return on assets reflects the return earned by the

firm for the company for the shareholders of the business on the investment of all the financial

resources committed to the business. It is calculated as

ROA=PAT/TOTAL SALES

Generally higher the ratio, the better it is to the shareholders.

5. EARNINGS PER SHARE (EPS): It is the earning accruing to the equity shareholders on

every share held by them. It is calculated as

EPS= PAT-Preference dividend/number of equity shares.

Generally the ratio, the better is the performance of the company.

6. Dividends per share (DPS): It is the amount of dividend payable to the holder of one equity

share. It is calculated as

DPS=Dividend on equity share capital/number of equity shares

Generally from investors point of view, the higher the ratio, the happier the investor.

7. DIVIDEND PAY OUT RATIO: It is the ratio of dividend per share to earning per share. It is

calculated as

Dividend Pay Out Ratio=DPS/EPS

8. PRICE EARNING RATIO(P/E Ratio): It expresses the relationship between market price

of one share of a company and earnings per share of that company.

P/E Ratio=Market Price of Equity share/EPS

There is no ideal P/E ratio.


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2.DEBTORS TURN OVER RATIO: Debtors Turn over Ratio expresses the relationship

between debtors and net credit sales. It is calculated as

Debtors Turn Over ratio= Net Credit Sales/Average Debtors.

Generally the ratio between 10-12 an ideal value for the company.

3. CREDITORS TURN OVER RATIO: Creditors turnover ratio expresses the relationship

between creditors and net credit purchases. It is calculated as

Creditors Turn Over Ratio= Net Credit Purchases/Average Creditors.

Generally the ratio 12 is an ideal for the company.

4. WORKING CAPITAL TURNS OVER RATIO: This ratio is defined as Working CapitalTurn over Ratio= Cost of Goods Sold/Working Capital

Working Capital=Current Assets- Current Liabilities.

Generally higher ratio indicates efficient utilization of firms fu nds.

5. Fixed Assets Turn Over Ratio: It is defined as ratio of Net Sales to the Fixed Assets.

Generally the ratio of around 5 is considered ideal for the company.

6. TOTAL ASSETS TURN OVER RATIO: It is defined as ratio of Net Sales to the Total

Sales.

Generally higher the ratio, the greater is the ability of the firm to utilize the investments in the

business.


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Current Asset Liability Ratio

year current assets current liability Ratios

2001-02 155792 73129 2.13

2002-03 166669 74427 2.232003-04 155652 84990 1.83

2004-05 192697 116644 1.65

2005-06 235062 143200 1.64

2006-07 276062 208869 1.32

2007-08 310002 243220 1.27

2008-09 453597 376332 1.2

2009-10 580804 397574 1.46

2010-11 771519 502024 1.54

Interpretation The ideal ratio for the concern is 2:1 i.e. current assets doubled for the current

liabilities considered to be satisfactory. The current ratio of DR.REDDYS LABORATORIES is

less than! .Thus it has to maintain its efficient current assets.

0

100000

200000

300000

400000

500000

600000

700000

800000

2001-02

2002-03

2003-04

2004-05

2005-06

2006-07

2007-08

2008-09

2009-10

2010-11

Current asset liabilities ratio Current Asset

Current asset liabilities ratio CurrentLiability

Current Asset Liability Ratio


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Acid Test RatioYear Liquid assets Liquid liabilities Ratio2001-02 898 73129 0.0122002-03 1281 74427 0.0172003-04 472 84990 0.0052004-05 2094 116644 0.0182005-06 4643 143200 0.0322006-07 12 208869 0.000052007-08 14 243220 0.000032008-09 15 376332 0.000039862009-10 1475 397574 0.003712010-11 1415 502024 0.002818

Acid Test Ratio Current Assets Inventory / Current Liabilities

The ideal quick ratio is 1:1 which is considered satisfactory for the concern. The company is

maintaining the ratio above the standard norm, thus the management of DR.REDDYS

LABORATORIES is label to meet its current obligations.

0

100000

200000

300000

400000

500000

600000

2001-02

2002-03

2003-04

2004-05

2005-06

2006-07

2007-08

2008-09

2009-10

2010-11

Liquid Assets

Liquid LiabilitiesRatios


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Net working capital

year

Net working

capital

Capital

employed Ratios

2001-02 82663 90522 0.91312002-03 92242 99337 0.93

2003-04 70662 79114 0.8931

2004-05 76053 85026 0.894

2005-06 91862 102462 0.89

2006-07 67193 79459 0.84

2007-08 96410 107986 0.89

2008-09 77265 96894 0.797

2009-10 183230 207051 0.884

2010-11 269495 305907 0.881

NET WORKING CAPITAL = NET WORKING CAPITAL / CAPITALEMPLOYED

A higher networking capital ratio indicates efficient utilization of working capital.

Therefore the company should concentrate more on working capital management.

0

50000

100000

150000

200000

250000

300000

350000

2001-02

2002-03

2003-04

2004-05

2005-06

2006-07

2007-08

2008-09

2009-10

2010-11

Net working capital

Capital employed

Ratios


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Debt equity ratio:

year Total debt Equity Ratios

2001-02 497 3252 0.15

2002-03 573 3252 0.172003-04 386 3252 0.11

2004-05 513 3252 0.15

2005-06 1053 3252 0.32

2006-07 607 3252 0.18

2007-08 587 3252 0.18

2008-09 2566 3252 0.789

2009-10 2034 3252 0.62

2010-11 2265 3252 0.70

Debt Equity Ratio:

The debt equity ratio has been increasing over the years and it has been maintained at a level of

.62 for the financial year 2009-10

0

500

1000

1500

2000

2500

3000

3500

2001-02 2002-03 2003-04 2004-05 2005-06 2006-07 2007-08 2008-09 2009-10 2010-11

Total debt

Equity

Ratios


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Fixed assets ratio

year Fixed Assets

Capital

employed Ratios

2001-02 7859 90522 0.072002-03 7095 99337 0.08

2003-04 8360 79114 0.07

2004-05 8896 85026 0.1

2005-06 10600 102462 0.1

2006-07 12347 79459 0.15

2007-08 9909 107986 0.09

2008-09 17699 96894 0.18

2009-10 22595 207051 0.11

2010-11 31830 305907 0.10

Fixed Assets Ratio = Fixed Assets / Capital Employed

Generally financially well managed company will have its fixed assets financed by long term

funds. Therefore, the fixed assets ratio should never be more than!.A ratio of .67 is considered

ideal. The results for DR.REDDYS LABORATORIES is much less at 0.11

0

50000

100000

150000

200000

250000300000

350000

2001-02

2002-03

2003-04

2004-05

2005-06

2006-07

2007-08

2008-09

2009-10

2010-11

Fixed assets

Capital employed

Ratios`


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Interest coverage ratio

year PBIT Interest Ratios

2001-02 13500 3054 4.42

2002-03 13420 258 52.012003-04 15821 48 329.6

2004-05 33122 1105 29.97

2005-06 60867 682 89.24

2006-07 63290 2300 27.51

2007-08 68916 5870 11.74

2008-09 68478 6826 10.03

2009-10 86438 7101 12.17

2010-11 130330 8583 15.18

Interest Coverage Ratio.= PBIT/INTREST

Interest coverage ratio of DR.REDDYS LABORATORIES is not constant, from 2008-09 the

ratio is10 as in 2009 -10 the ratio is 12.17, There is a random fluctuation in the ratio

0

20000

40000

60000

80000

100000

120000

140000

2001-

02

2002-

03

2003-

04

2004-

05

2005-

06

2006-

07

2007-

08

2008-

09

2009-

10

2010-

11

PBIT

Interest

Ratio


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Gross profit

year Gross profit Net sales Ratios

2001-02 13500 153205 0.088

2002-03 13420 137838 0.0972003-04 15821 174490 0.07

2004-05 33122 174668 0.189

2005-06 60867 267217 0.227

2006-07 63290 289241 0.218

2007-08 68916 310235 0.2224

2008-09 68478 414816 0.165

2009-10 86483 500342 0.172

2010-11 130330 665323 0.196

Gross Profit = Gross /net sales

Generally the higher gross profit ratio, the better for the performance of the concern .In

DR.REDDYS LABORATORIES , the company has started to increase from the year on year

which is a very good sign for the company.

0

100000

200000

300000

400000

500000

600000

700000

2001-02

2002-03

2003-04

2004-05

2005-06

2006-07

2007-08

2008-09

2009-10

2010-11

Gross profit

Net sales

Ratio


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Operating ratio

year Operating cost Net sales Ratios

2001-02 131006 153205 0.85

2002-03 116708 137838 0.842003-04 149823 174490 0.85

2004-05 136630 174668 0.78

2005-06 201962 267217 0.75

2006-07 221227 289491 0.76

2007-08 234677 310235 0.76

2008-09 338382 414816 0.81

2009-10 404647 500342 0.8

2010-11 524531 665323 0.79

Operating Ratio: Operating Cost / Net Sales

Generally the lower the Operating Cost, the better for the concern. The ratio should be below1

which is satisfactory for the concern.

0

100000

200000

300000

400000

500000

600000

700000

2001-02 2002-03 2003-04 2004-05 2005-06 2006-07 2007-08 2008-09 2009-10 2010-11

Operating cos t

Net sales

Ratios


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Return on capital employed

year PBIT

Capital

employed Ratios

2001-02 13500 90522 0.1492002-03 13420 99337 0.135

2003-04 15821 79114 0.199

2004-05 33122 85026 0.389

2005-06 60867 102462 0.594

2006-07 63290 79459 0.796

2007-08 68916 107986 0.638

2008-09 68478 96894 0.706

2009-10 86438 207051 0.417

2010-11 130330 305907 0.426

Return on Capital Employed = PBIT/Capital Employed

The higher the ROCE ratio, the better for the concern. The company has been keeping up the

good performance is increasing at the rapid phase which in turn is a good sign for the company.

0

50000

100000

150000

200000

250000

300000

350000

2001-02

2002-03

2003-04

2004-05

2005-06

2006-07

2007-08

2008-09

2009-10

2010-11

PBIT

Capital employed

Ratios


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Debtors turnover ratio

year Net credit sales

Average

debtors Ratios

2001-02 153205 85001 1.82002-03 137838 81237 1.69

2003-04 174490 82829 2.1

2004-05 174668 112238 1.55

2005-06 267217 135322 1.97

2006-07 289491 177301 1.63

2007-08 310235 215291 1.44

2008-09 414816 287414 1.44

2009-10 500342 328201 1.53

2010-11 665323 537364 1.24

Debtors Turnover Ratio = Net Credit Sales / Average Debtors

The DR.REDDYS LABORATORIES `s debtor turnover ratio was below 2 .Its has bee

increasing since 2008-09 from 1.44 to 1.53 in 2009-10, the increasing trend Implies the efficient

management of Debtor and credit sales

0

100000

200000

300000

400000

500000

600000

700000

2001-02

2002-03

2003-04

2004-05

2005-06

2006-07

2007-08

2008-09

2009-10

2010-11

Net credit sales

Average debtors

Ratio


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Creditors turnover ratio

year

Net credit

purchases

Average

creditors Ratios

2001-02 12060 29738 0.42002-03 16646 27610 0.6

2003-04 16350 20467 0.79

2004-05 16727 24225 0.81

2005-06 19656 39495 0.49

2006-07 21772 46452 0.48

2007-08 25459 54586 0.4664

2008-09 31900 58078 0.54926

2009-10 60293 88228 0.68

2010-11 65700 103305 0.64

Creditors Turnover Ratio: Net Credit Purchases /Average Creditors

Interpretation: The DR.REDDYS LABORATORIES `s creditors Turn Over Ratio is at 0.68 ,

it has been on the increasing trend since past two financial years. The management should try to

reduce this by adopting proper payment policies.

0

20000

40000

60000

80000

100000

120000

2001-02

2002-03

2003-04

2004-05

2005-06

2006-07

2007-08

2008-09

2009-10

2010-11

Net credit purchases

Average credito rs

Ratio


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Fixed asset turnover ratio

year Net sales Fixed assets Ratios

2001-02 153205 7859 19.49

2002-03 137838 7095 19.422003-04 174490 8360 20.87

2004-05 174668 8896 19.63

2005-06 267217 10600 25.2

2006-07 289491 12247 23.63

2007-08 310235 9909 31.3

2008-09 414816 17699 23.43

2009-10 500342 22595 22.14

2010-11 665323 31830 20.90

Fixed Assets Turnover Ratio. = Net Sales / Fixed AssetsAt high fixed assets turnover ratio indicates better utilization of the firms fixed assets. A ratio

around 5 is considered ideal for the concern .In DR.REDDYS LABORATORIES it is more than

22.This is a very good sign for the company.

0

100000

200000

300000

400000

500000

600000

700000

2001-02 2002-03 2003-04 2004-05 2005-06 2006-07 2007-08 2008-09 2009-10 2010-11

Net sales

Fixed assets

Ratio


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Total asset turnover ratio

year Total debt Equity Ratios

2001-02 497 3252 0.15

2002-03 573 3252 0.172003-04 386 3252 0.11

2004-05 513 3252 0.15

2005-06 1054 3252 0.32

2006-07 607 3252 0.18

2007-08 587 3252 0.18

2008-09 2566 3252 0.78

2009-10 2034 3252 0.62

2010-11 2265 3252 0.70

Total Assets Turnover Ratio: Net Sales / Total Assets

The Total Assets turnover ratio of the DR.REDDYS LABORATORIES is below

1 . This shows greater ability of the firm to utilize the investment in the business

0

500

1000

15002000

2500

3000

3500

2001-02

2002-03

2003-04

2004-05

2005-06

2006-07

2007-08

2008-09

2009-10

2010-11

Total debt

Equity

Ratio


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Comparative income statement 2009-2010 and 2010-11

DESCRIPTION

2009-10 2010-11 increase/decrease increase/decrease

TURNOVER- DR.REDDYS

LABORATORIES1106 400

-706 -63.83%

- NON-

DR.REDDYS

LABORATORIES

499236 664923

165687 33.19%

TOTAL TURNOVER 500342 665323 164981 32.97%

CHANGES IN WIP 49447 -25439 -74886 -151.45%

CHANGES IN FG -9622 -9622

EXPORT INCENTIVES 690 669 -422 -21.00%

GROSS TURNOVER 540857 640553 99696 18.43%

EXCISE DUTY 16859 33288 16429 97.44%

GTO LESS ED 523998 607265 83267 15.89%

DIRECT MATERIALS 340315 342167 1852 0.544%

SUB-CONTRACT PAYMENT 1356 1682 378 24.04%

POWER AND FUEL 1746 1693 -53 -3.04%

TRANSFER IN SERVICE 806 681 -125 -15.51%

TOTAL OF `C' 344223 346223 2000 0.58%

VALUE ADDED 179775 261042 81267 42.20%


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PERSONNEL PAYMENTS 62236 69941 7795 12.38%

INDIRECT MATERIALS 3902 5861 2059 52.76%

OTHER EXPENSES -

DR.REDDYS

LABORATORIES

7101 8583

1482 20.87%

OTHER EXPENSES - NON

DR.REDDYS

LABORATORIES

26301 27410

1109 4.22%

PROVISIONS -226 38565 %

PROV.EXCH.VAR. 894 -1523 %

LESS:MISC.INCOME 11522 23356 11834 102.71%

TOTAL OF `E' 88686 125481 36795 41.49%

GROSS MARGIN (PBIDT) 91089 135561 44472 48.82%

DEPRECIATION 4606 5231 625 13.57%

DRE ON VRS 0

GROSS PROFIT (PBIT) 86483 130330 43847 50.70%

INTEREST -7101 -2905 -10006 -140.91%

PROFIT BEFORE TAX 93584 133235 39651 42.37%

GTO LESS ED 523998 607265 83267 15.90%

0

OPERATING COST 404647 524531 119884


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Comparative income statement 2008-09 & 2009-10

DESCRIPTION2008-09 2009-10 Increase/Decrease Increase/Decrease%

TURNOVER- DR.REDDYS


327 41.98%

- NON-

DR.REDDYS


85199 20.58%

TOTAL TURNOVER 414816 500342 85526 20.62%

CHANGES IN WIP 10637 49447 38810 364.86%

CHANGES IN FG 4938 -9622 %


GROSS TURNOVER 431503 540857 109354 25.34%

EXCISE DUTY 24537 16859 -7678 -31.29%

GTO LESS ED 406966 523998 117032 28.76%


SUB-CONTRACT

PAYMENT978 1356

378 38.65%

POWER AND FUEL 1925 1746 -169 -8.78%

TRANSFER IN SERVICE 1347 806 -541 -40.16%

TOTAL OF `C' 263842 344223 80381 30.46%

VALUE ADDED 143124 179775 36651 25.61%



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INDIRECT MATERIALS 4560 3902 -658 -14.43%

OTHER EXPENSES -

DR.REDDYS

LABORATORIES

6436 7101

665 10.33%OTHER EXPENSES - NON

DR.REDDYS

LABORATORIES

15402 26301

10899 70.76%

PROVISIONS 142 -226

PROV.EXCH.VAR. -324 894

LESS:MISC.INCOME 13913 11522 -2391 -17.18%TOTAL OF `E' 70668 88686 18018 25.50%


DEPRECIATION 3978 4606 628 15.79%

DRE ON VRS 0

GROSS PROFIT (PBIT) 68478 86483 18005 26.29%

INTEREST -6826 -7101


GTO LESS ED 406966 523998 117032 28.76%

0

OPERATING COST 338382 404647 66265


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Comparative income statement 2007-2008 and 2008-09

comparative income statement

DESCRIPTION

2007-

082008-09

Increase /

Decrease

Increase /

decrease %

TURNOVER- DR.REDDYS

LABORATORIES667 779

112 16.79%

- NON-

DR.REDDYS

LABORATORIES

309568 414037

104469 33.74%

TOTAL TURNOVER 310235 414816 104581 33.71%

CHANGES IN WIP 17781 10637 -7108 -39.97%

CHANGES IN FG 4591 4938 347 7.56%


GROSS TURNOVER 334890 431503 96613 28.85%EXCISE DUTY 27236 24537 -2699 -9.91%

GTO LESS ED 307654 406966 99312 32.28%


SUB-CONTRACT

PAYMENT790 978

188 23.80%

POWER AND FUEL 1840 1925 85 4.62%TRANSFER IN SERVICE 1394 1347 -47 -11.93%

TOTAL OF `C' 187869 263842 75973 40.44%

VALUE ADDED 119785 143124 23339 19.48%


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INDIRECT MATERIALS 4039 4560 521 12.90%

OTHER EXPENSES -

DR.REDDYS

LABORATORIES

6125 6436311 5.08%

OTHER EXPENSES - NON

DR.REDDYS

LABORATORIES

12848 15402

2554 19.88%

PROVISIONS 1805 142 -1663 -92.13%

PROV.EXCH.VAR. -1524 -324 %LESS:MISC.INCOME 11746 13913 2227 18.96%

TOTAL OF `E' 47548 70668 23120 48.63%


DEPRECIATION 3321 3978 657 19.78%

DRE ON VRS 0

GROSS PROFIT (PBIT) 68916 68478 -438 -0.64%

INTEREST -5870 -6826 %


GTO LESS ED 307654 406966 99312 32.28%

0

OPERATING COST 234677 338382 103705 44.19%


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FINDINGS

1. The net working capital was Rs 91021 lacs in 2000 -2001. This decreased to Rs 82663

lacs in the year 2001 -2002. In the year 2006-2007 the net working capital is Rs 67193lacs.

2. The current ratio of DR.REDDYS LABORATORIES was 2.41 in the year 2000-2001.

There was decrease in the ratio up to the year 2007-2008. The ratio is decreasing year by

year. But the DR.REDDYS LABORATORIES is maintaining current ratio more than

the standard norms of 2.

3. The organization is able to maintain both current ratio and quick ratio above the standard

norms. i.e. the ideal current ratio for the concern is 2:1 and the quick ratio is 1:1 but the

cash ratio is fluctuating.

4. The quick ratio of the organization is in decreasing trend year by year.

5. Investment in current assets has been increasing from Rs 155302 lacs in 2000-2001 to Rs

310002 in 2007-2008.

6. The inventory turnover ratio of DR.REDDYS LABORATORIES is fluctuating i.e.,

showing decreasing trend during the years 2000-2001 to 2003-2004. But there onwards it

has slowly increased till the financial year.

7. The debtors turnover ratio has decreased from the year 2001-2002 to 2002-2003. It was

2.10 in the year 2003-2004. There was decrease in debtors turnover ratio till the financial

year.


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CONCLUSIONS AND SUGGESTIONS:

1. The current ratio of DR.REDDYS LABORATORIES is decreasing year by year. In the

year 2000-2001 it was 2.41 and during the year 2008-2009 it has gone down to 1.2 later in the next financial year 2009-2010 it has gone up to 1.46, so the company should

concentrate effectively on the management of Current Assets and Current Liabilities.

2. The Net Working Capital of DR.REDDYS LABORATORIES is good for almost in

range for each and every year. It is always in the ideal ratio for every organization.

3. The DR.REDDYS LABORATORIES is using the moving average method in valuation

of stock.

4. The debtors constitute nearly 50% of the Total Current Assets. For the Company it is

difficult to manage the accounts receivables. The company should collect debts as

quickly as possible.

5. The company has to exercise cost of control and cost of reduction techniques to increase

its profitability.

6. The debtors turnover ratio in 2005-2006 is 1.97. The ratio has increased than previous

years except for 2003-2004, which had 2.10. The decreasing ratio shows the inefficient

management. They should concentrate more on the collection of the debts.

7. The return on investment ratio of the DR.REDDYS LABORATORIES is 59.40 in 2005-

2006. It has increased when compared to previous years ratios. It is beneficial to

investors who are interested to know the profits earned by the company.


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8. The investment in loans and advances should be minimized to possible extent.

9. Effective internal control system should be established. So that it can have control over

all aspects of the company.


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BIBILOGRAPHY:

http://www.Dr.Reddys Laboratoriescom/financialinformation/index.p

hp http://www.studyfinance.com/lessons/workcap

www.bizsearchpapers.com

http://www.antiessays.com/free-essays/9076.html

http://www. Dr.Reddys Laboratories hyderabad.com/ Dr.Reddys

Laboratories _hyderabad_unit.htm

http://en.wikipedia.org/wiki/Bharat_Heavy_Electricals_Limited

Financial Management I M Pandey.

Accounting for Managers-Jelsy Joseph Kuppapally.

Financial statement analysis - Gokul Sinha.

financial statment analysis - project(21!06!2013)

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