M.B.A. Sem-1

Prepared By:

Steven Thomas

1. Introduction

2. Financial Statement

3. Financial Analysis

1. Horizontal Analysis

2. Ratio Analysis

1. Liquidity Ratio

2. Solvency Ratio

3. Turn Over Ratio (Stability Ratio)

4. Profitability Ratio

4. Conclusion

5. Calculation of Ratios

• Founded : 1935

• Founded By : Khwaja Abdul Hamied

• Headquarters : Mumbai, India

• Key people : Y. K. Hamied Chairman

• Industry : Pharmaceuticals

• Product : Low cost drugs to treat HIV +ve patients, cardiovascular disease, arthritis, diabetes, weight control, depression and many other health conditions

• Market : 180+ Countries

• Revenue : ▲ Rs.37.6 billion (~939M USD) (2006)

• Net income : ▲ Rs. 9.1 billion (2006)

• Employees : 7,000+

• Website : www.cipla.com

1. Balance sheet of 2007,2008,2009

2. Profit & loss statements of 2007,2008,2009

Total Assets = Total Current Assets + Total Fixed Assets

Net Worth = Shared Capital + Reserves and Surplus

Increased significantly over years with an average rate of 15.9%

200920082007

• Income statement, also referred as profit and loss statement(P&L), earnings statement, operating statement or statement ofoperations is a company's financial statement that indicates how therevenue (money received from the sale of products and servicesbefore expenses are taken out) is transformed into the net income(the result after all revenues and expenses have been accounted for).

• It displays the revenues recognized for a specific period, and the costand expenses charged against these revenues, including write-offs(e.g., depreciation and amortization of various assets) and taxes.

• The purpose of the income statement is to show managers andinvestors whether the company made or lost money during the periodbeing reported.

Total Income has increased at an average rate of (22.3 %)

Total expenditure has increased at an average rate of ( 26.7 %)

Total operating profit has increased at an average by ( 9.5 %)

Total Income has increased at an average by ( 7.32 %)

• Financial analysis (also referred to as financial statement analysis

or accounting analysis) refers to an assessment of the viability,

stability and profitability of a business, sub-business or project.

• It is performed by professionals who prepare reports using ratios that

make use of information taken from financial statements and other

reports. These reports are usually presented to top management as

one of their bases in making business decisions.

• Types of Financial Analysis:

1. Horizontal Analysis

2. Ratio Analysis

• Financial analysts can also use percentage analysis which

involves reducing a series of figures as a percentage of some

base amount. When proportionate changes in the same figure

over given time period expressed as a percentage is know as

horizontal analysis.

• Factors considered while doing financial analysis:

1. Liquidity

2. Solvency

3. Stability (Turn Over Ratio)

4. Profitability

• Liquidity refers to a business's ability to meet its payment

obligations, in terms of possessing sufficient liquid assets.

• Money, or cash on hand, is the most liquid asset.

• Liquidity is measured using following ratios

I. Current Ratio

II. Quick Ratio

III. Working Capital

IV. Cash Ratio

• Liquidity (current ratio) had suddenlyfallen down to 2.9 in 2008 compared to3.01 of 2007.

• However current ratio increasedsignificantly in 2009 to around 3.14showing a good sign of liquidity and theability to meet current obligationseasily.

• Current ratio also satisfies the minimumrequired ratio that is 2:1 for better safetyprecautions.

• The current assets is almost 3 timesover current liabilities which issufficient to meet the current liabilitiesin case of any risk arises to repay theamount.

Current ratio =

current Asset / Current Liability

Company is having good Liquidity

compared to previous year.

• Absolute Liquidity (Quick ratio)have significantly increased in2009.

• It is a good sign of liquidity and theability to meet current obligationseasily.

• Quick ratio also satisfies theminimum required ratio that is 1:1for better safety precautions.

• It shows that company hassufficient amount of immediatefunds to deal with its totalliabilities in case of any emergency.

Quick Ratio =

[ Current Asset – ( Inventory + pre

loans or advances) ]/ Current

Liability

Company is having good Liquidity

compared to previous year.

• Working capital has increased

with time showing that company

has more current assets (liquid)

over current liability and the

substantial amount have shown

improvement with company’s

progress.

Working Capital =

Current Asset – Current Liability

Company is having good Liquidity

compared to previous year.

• The cash in the company has gone

down indicating that company is

not in the proper state to hold and

make any hard core transactions

immediately. More has to be done

on credit basis.

Cash Ratio =

Cash / Current liabilities

Company is not susceptible to any

immediate hard core cash transactions.

• Solvency is the ability of an entity or individual to pay debts.

• Solvency is measured using following ratios

I. Debt Equity Ratio

II. Long Term Debt Equity Ratio

III. Interest Coverage Ratio

Debt Equity Ratio =

Debt/ Net Worth

Long Term Debt Equity Ratio =

Long Term Debt/ Net Worth

• The increase in debt Ratio shows that the amount invested by the creditors in the business is more than the owners.

• The company is more dependent on the creditors than its own net worth.

• Company is liable to pay more debts to creditors than before.

Company’s solvency has decreased than previous years.

• The decrease in interest coverage

ratio shows that the earning

before tax, interest and

depreciation is sufficient to what

extent to meet the interest

demand. Company’s extent to pay

interest over earnings have

decreased with time.

Interest Coverage =

EBIDTA/ Interest

Company’s solvency has decreased

than previous years.

• Turnover is the name for a measure of how quickly inventory is

sold. A high turnover means that goods are sold quickly, while

a low turnover means that goods are sold more slowly.

• Turnover ratio is measured using following ratios

I. Debtor Turnover Ratio

II. Collective Ratio

III. Stock Turnover Ratio

IV. Days of Inventory Holding

• Higher the debtor turnover ratio

means better is the management of

credit. The graphs shows that

management of credit has depraved

indicating more credit risk.

• However collective ratio shows the

average number of days for which

debtors remain outstanding

.Lesser is the number of

outstanding days more less is the

credit risk. But graph shows that

outstanding have increased , means

more risk in credit management.

Debtors Turnover =

Net Sales/ Average debtors

Collective days =

365/ Debtors Turnover Ratio

The company is having more credit

risk and hence is less stable.

• Higher the Stock turnover ratio meansbetter is the management sales and costmanagement. More is the ratio more is theefficiency in production and selling.

• The graphs shows that management ofsales has fallen down in 2009 leading toless sales over the average inventory.

• However Inventory Holding ratio shows the average number of days for which inventory remains outstanding in the company.

• More is the number of outstanding days more is the delay of conversion to liquid and more less is the efficiency. But inventory outstanding have increased in 2009 compared to 2008.

• The company is having less efficiency in productions and sales.

Stock Turnover =

Net Sales/ Average Inventory

Average inventory =

( Opening Stock +Closing Stock) / 2

Days of Inventory Holding =

365/ Stock Turnover

• Profit generally is the making of gain in business activity for the benefit of the owners of the business. The word comes from Latin meaning "to make progress", and is defined in two different ways, one for economics and one for accounting.

• Profitability is measured using following ratios:

I. Gross Profit Ratio

II. Net Profit ratio

III. Operating Profit ratio

IV. Return on Asset

V. Return on Equity

VI. Earning Per Share

• Gross profit increases consistently

from 2007 to 2009.

Gross Profit =

( sales – COGS )/ sales

Company is having more trading

income over the same sales value.

• Net profit decreases consistently

from 2007 to 2009 showing that

company is having less income over

the same sales value.

• Since the tax and differed tax have

increased in 2009 leading to less net

profit to previous year.

Net Profit = Profit After Tax/Sales

Profitability of the company has

degraded compared to previous year.

• Gross profit increases consistently

from 2007 to 2009.

Operating Profit =

( Sales – COGS – Operating

Expenses)/ sales

Company is having more operating

income over the same sales value.

• Return on Asset has consistently

degraded from 2007 to 2009 showing

that company is having less income

over the same sales value of assets.

Operating Profit =

( Sales – COGS – Operating

Expenses)/ sales

Profitability of the company has

degraded compared to previous year.

• Return on Equity has consistently

degraded from 2007 to 2009 showing

that company is having less income

over the same value of equity.

Return On Equity =

Profit after Tax/ Total Equity

Profitability of the company has

degraded compared to previous year.

• EPS per share is more indicating that

Price Earning ratio is reduced .

• Profitability of the company has

decreased.

EPS =

Profit After Tax/Number of share

Outstanding

PER( Price Earning Ratio) =

Market Value per share/ EPS

• Though overall liquidity condition of company have improved butsolvency ratio has gone down in 2009.

• The credit risk has become a major issue.

• The company’s efficiency upon sale and production havedepraved and company seems to be less stable in replaying thedebts and having more productivity over cost.

• The profitability of company has also degraded.

• So as a whole we come to the conclusion that company’s financialstatus is not that good in 2009 as it was suppose to be in 2007.

Liquidity Ratio 2007 2008 2009

Current Ratio 3.01 2.9 3.14

Quick Ratio 1.23 1.14 1.34

Cash Ratio 0.139 0.61 0.037

Solvency Ratio 2007 2008 2009

Debt Equity Ratio 0.038 0.143 0.216

Long Term Debt

Equity Ratio

0.035 0.14 0.215

Interest Coverage

Ratio

83.8 57.17 21.25

Turn Over Ratio 2007 2008 2009

Debt Turn Over

Ratio

27.9 7.4 5.27

Stock Turn Over

Ratio

3.51 3.56 3.54

Collective Days

Ratio

13 49 69

Profitability Ratio 2007 2008 2009

Gross Profit Ratio 3.77 4.18 4.71

Net Profit Ratio 0.194 0.175 0.156

Operating Profit

Ratio

3.72 4.11 4.48

Return on Assets

Ratio

0.198 0.163 0.146

Return on Equity

Ratio

0.206 0.186 0.178