pend ya la

8/6/2019 Pend Ya La

1/26

Financial analysis

Financial analysis refers to an assessment of the viability, stability and profitability of abusiness, sub-business orproject.

It is performed by professionals who prepare reports using ratios that make use ofinformation taken from financial statements and other reports. These reports are usuallypresented to top management as one of their bases in making business decisions. Basedon these reports, management may:

A. Continue or discontinue its main operation or part of its business;B. Make or purchase certain materials in the manufacture of its product;C. Acquire or rent/lease certain machineries and equipments in the production of its

goods;D. Issue stocks or negotiate for a bankloan to increase its working capital.

E. other decisions that allow management to make an informed selection on variousalternatives in the conduct of business

Goals

Financial analysts often assess the firm's:

1. Profitability- its ability to earn income and sustain growth in both short-term andlong-term. A company's degree of profitability is usually based on the income statement,which reports on the company's results of operations;

2. Solvency- its ability to pay its obligation to creditors and other third parties in thelong-term;3. Liquidity- its ability to maintain positive cash flow, while satisfying immediateobligations;

4. Stability- the firm's ability to remain in business in the long run, without having tosustain significant losses in the conduct of its business. Assessing a company's stabilityrequires the use of both the income statement and the balance sheet, as well as otherfinancial and non-financial indicators.

Methods

Financial analysts often compare financial ratios

Past Performance: Across historical time periods for the same firm Future Performance: Using historical figures and certain mathematical and

statistical techniques, including present and future values, This extrapolation
http://en.wikipedia.org/wiki/Businesshttp://en.wikipedia.org/wiki/Projecthttp://en.wikipedia.org/wiki/Financial_statementshttp://en.wikipedia.org/wiki/Stockshttp://en.wikipedia.org/wiki/Loanhttp://en.wikipedia.org/wiki/Working_capitalhttp://en.wikipedia.org/wiki/Income_statementhttp://en.wikipedia.org/wiki/Cash_flowhttp://en.wikipedia.org/wiki/Financial_ratioshttp://en.wikipedia.org/wiki/Businesshttp://en.wikipedia.org/wiki/Projecthttp://en.wikipedia.org/wiki/Financial_statementshttp://en.wikipedia.org/wiki/Stockshttp://en.wikipedia.org/wiki/Loanhttp://en.wikipedia.org/wiki/Working_capitalhttp://en.wikipedia.org/wiki/Income_statementhttp://en.wikipedia.org/wiki/Cash_flowhttp://en.wikipedia.org/wiki/Financial_ratios

8/6/2019 Pend Ya La

2/26

method is the main source of errors in financial analysis as past statistics can bepoor predictors of future prospects.

Comparative Performance: Comparison between similar firms

We are Comparing the balancesheets of two pharmaceutical companies

8/6/2019 Pend Ya La

3/26

COMPARISON OF BALANCE SHEETS OF CIPLA & RANBAXY

Balance Sheet : Cipla

Source of Funds

Dec ' 06

Equity share capital59.97

Share application money

Preference share capital -

Reserves & surplus1,913.98

Secured loans 51.27

Unsecured loans 417.64

Total 2,442.86

Gross block 1,366.67

Less : revaluation reserve 9.32

Less : accumulated depreciation 310.06

Net block 1,047.29Capital work-in-progress 87.01

Investments 22.43

Current assets, loans & advances 2,292.28

Less : current liabilities & provisions 1,006.15

Total net current assets 1,286.13

Miscellaneous expenses not written -

Total 2,442.86

Book value of unquoted investments 22.43

Market value of quoted investments -

Contingent liabilities 1,600.75

Number of equity sharesoutstanding (Lacs) 2998.70

8/6/2019 Pend Ya La

4/26

Ratios:

Per Share Ratios Dec ' 06Adjusted EPS (Rs) 17.79

Adjusted cash EPS (Rs) 20.46

Reported EPS (Rs) 20.26

Reported cash EPS (Rs) 22.94

Dividend per share 2.00

8/6/2019 Pend Ya La

5/26

Operating profit per share (Rs) 23.14

Book value (excl rev res) per share (Rs) 65.83

Book value (incl rev res) per share (Rs.) 66.14

Net operating income per share (Rs) 99.42

Free reserves per share (Rs) 63.82 Profitability ratios

Operating margin (%)23.27

Gross profit margin (%) 20.58

Net profit margin (%) 20.12

Adjusted cash margin (%) 20.32

Adjusted return on net worth (%) 27.02

Reported return on net worth (%) 30.78

Return on long term funds (%)

Leverage ratios27.24

long term debt / Equity 0.21

Total debt/equity 0.23

Owners fund as % of total source 80.80

Fixed assets turnover ratio 2.18

Liquidity ratiosCurrent ratio

Current ratio (inc. st loans)

Quick ratio

Inventory turnover ratio

Payout ratiosDividend payout ratio (net profit)

Dividend payout ratio (cash profit)

Earning retention ratio

Cash earnings retention ratio

Adjusted cash flow timetotal debt

Coverage ratios0.76

Financial charges coverage ratio 45.54

Fin. charges cov.ratio (post tax) 43.80

Component ratiosMaterial cost component (% earnings) 52.46

Selling cost Component 6.29

Exports as percent of total sales 52.51

Import comp. in raw mat. consumed 39.28

8/6/2019 Pend Ya La

6/26

Long term assets / total Assets 0.33

Bonus component in equity capital (%) 97.36

Profit loss account Dec' 06

Operating income 2,981.35

Material consumed 1,469.76

Manufacturing expenses 233.71

Personnel expenses 150.76

Selling expenses 187.58

Adminstrative expenses 245.65

Expenses capitalized -

Cost of sales 2,287.46

Operating profit 693.89

Other recurring income 37.98

Adjusted PBDIT 731.87

Financial expenses 16.07

Depreciation 80.18

Other write offs -

Adjusted PBT 635.62

Tax charges 102.20

Adjusted PAT 533.42

Non recurring items 74.22Other non cash adjustments -

Reported net profit 607.64

Earnigs before appropriation 841.46

Equity dividend 155.46

Preference dividend -

Dividend tax 21.80

Retained earnings 664.20

CASH FLOW Dec ' 06

Profit before tax 709.84

Net cashflow-operating activity 277.16

Net cash used in investing activity -389.23

Netcash used in fin. activity 145.35

Net inc/dec in cash and equivlnt 33.28

8/6/2019 Pend Ya La

7/26

8/6/2019 Pend Ya La

8/26

Dec ' 06

8/6/2019 Pend Ya La

9/26

Adjusted EPS (Rs) 11.67

Adjusted cash EPS (Rs) 14.53

Reported EPS (Rs) 10.21

Reported cash EPS (Rs) 13.08

Dividend per share 8.50

Operating profit per share (Rs) 16.96

Book value (excl rev res) per share (Rs) 63.03

Book value (incl rev res) per share (Rs.) 63.03

Net operating income per share (Rs) 111.76

Free reserves per share (Rs) 57.48

Operating margin (%) 15.17

Gross profit margin (%) 12.61

Net profit margin (%) 9.07

Adjusted cash margin (%) 12.90

Adjusted return on net worth (%) 18.50

Reported return on net worth (%) 16.19

Return on long term funds (%) 12.23

Long term debt / Equity 0.93

Total debt/equity 1.35

Owners fund as % of total source 42.49

Fixed assets turnover ratio 2.12

Current ratio 1.74

Current ratio (inc. st loans) 0.96

Quick ratio 1.03

Inventory turnover ratio 4.66

Dividend payout ratio (net profit) 94.95

Dividend payout ratio (cash profit) 74.15

Earning retention ratio 16.89

Cash earnings retention ratio 33.28

Adjusted cash flow time total debt 5.87

Financial charges coverage ratio 11.33

Fin. charges cov.ratio (post tax) 9.34

Material cost component (% earnings) 41.01Selling cost Component 12.98

Exports as percent of total sales 66.16

Import comp. in raw mat. consumed 55.17

Long term assets / total Assets 0.61

Bonus component in equity capital (%) 78.80

(Rs crore)

8/6/2019 Pend Ya La

10/26

Dec ' 06

Operating income 4,165.12

Material consumed 1,663.53

Manufacturing expenses 160.22

Personnel expenses 328.45

Selling expenses 540.91

Adminstrative expenses 839.94

Expenses capitalized -

Cost of sales 3,533.06

Operating profit 632.06

Other recurring income 30.33

Adjusted PBDIT 662.39

Financial expenses 58.44

Depreciation 106.75

Other write offs -

Adjusted PBT 497.20

Tax charges 62.43

Adjusted PAT 434.77

Non recurring items -58.98

Other non cash adjustments 19.34

Reported net profit 395.13

Earnigs before appropriation 451.16

Equity dividend 316.89

Preference dividend -

Dividend tax 44.44

Retained earnings 89.82

Cash flow

Dec ' 06

Profit before tax 442.98

Net cashflow-operating activity 315.49

Net cash used in investing activity -2,103.74Netcash used in fin. activity 1,739.65

Net inc/dec in cash and equivlnt -48.60

Cash and equivalnt begin of year 110.96

Cash and equivalnt end of year 62.36

Liquidity Ratios

8/6/2019 Pend Ya La

11/26

Liquidity ratios attempt to measure a company's ability to pay off its short-term debtobligations. This is done by comparing a company's most liquid assets i.e those that canbe easily converted to cash, its short-term liabilities.

In general, the greater the coverage of liquid assets to short-term liabilities the better as itis a clear signal that a company can pay its debts that are coming due in the near futureand still fund its ongoing operations. On the other hand, a company with a low coveragerate should raise a risk for investors as it may be a sign that the company will havedifficulty meeting running its operations, as well as meeting its obligations.

The biggest difference between each ratio is the type of assets used in the calculation.While each ratio includes current assets, the more conservative ratios will exclude somecurrent assets as they aren't as easily converted to cash.

. Current ratio: This ratio indicates the extent to which current liabilities are covered by

those assets expected to be converted to cash in the near future. Current assets normallyinclude cash, marketable securities, accounts receivables, and inventories. Currentliabilities consist of accounts payable, short-term notes payable, current maturities oflong-term debt, accrued taxes, and other accrued expenses.

The concept behind this ratio is to ascertain whether a company's short-term assets (cash,cash equivalents, marketable securities, receivables and inventory) are readily availableto pay off its short-term liabilities (notes payable, current portion of term debt, payables,accrued expenses and taxes).

Calculations of Ratio: Cipla

Current assets 2292.28Current ratio = ----------------- = ------------- = 2.28:1

Current Liabilities 1006.15

Calculations of Ratio: Ranbaxy

Current assets 2620.99Current ratio = ----------------- = ------------- = 1.73:1


Analysis -From the analysis, we can see that for CIPLA the current assets are 2.28 timesthan the current liabilities and in Ranbaxy the current assets are 1.73 times the currentliability. The current ratio of Cipla is Higher but both the companies can pay off theirloans since the current ratio is higher than the industry average i.e 1.63.. The reason for
http://www.investopedia.com/terms/l/liquidasset.asphttp://www.investopedia.com/terms/c/currentassets.asphttp://www.investopedia.com/terms/l/liquidasset.asphttp://www.investopedia.com/terms/c/currentassets.asp

8/6/2019 Pend Ya La

12/26

such stability in both the companies are that they are not investing remarkably on assetsand not making any huge loan or financing from outside.

.Quick Ratio is another name for the "Acid Test Ratio". It is used to measure how easily

a company could be liquidated, and therefore help financial institutions decide upon howcredit worthy the company is. It is a liquidity indicator that further refines the currentratio by measuring the amount of the most liquid current assets there are to cover currentliabilities. The quick ratio is more conservative than the current ratio because it excludesinventory and other current assets, which are more difficult to turn into cash. Therefore, ahigher ratio means a more liquid current position.


Current assets-Stocks 2292.28-706

1. Quick ratio = ---------------------------- = ------------------ = 2.28:1Current Liabilities 1006.15


Current assets-Stocks 2620.99 758.16Quick ratio = ---------------------------- = ----------------------- = 1.23:1


Analysis - From the analysis, we can see that for CIPLA the current assets are 2.28 timesthan the current liabilities and in Ranbaxy the current assets are 1.23 times the currentliability. The current ratio of Cipla is Higher but both the companies can pay off theirloans since the current ratio is higher than the industry average i.e 1.

Profitability Ratios

Profitability ratios reflect the overall performance of the business. Profit must becompared with other information to evaluate the firms profitability. There are 2 types ofprofitability ratios

Profit margin ratios, which indicate the relationship between profit and sales. The

important profit margin ratios are: -

Gross profit margin ratio Net profit margin ratio

Rate of return ratios, which examine the relationship between profit and investment.The important rate of return ratios are: -
http://www.investopedia.com/terms/l/liquidasset.asphttp://www.investopedia.com/terms/l/liquidasset.asp

8/6/2019 Pend Ya La

13/26

Return on total assets Earning power Return on equity

Gross Profit ratio

This ratio computes the margin earned by the firm after incurring manufacturing costs. Itmeasures the efficiency of the production process and pricing policy of the firm. It iscalculated as

Gross Profit x 100 %Net sales

Where

Gross profit is the difference between Net Sales and Cost of Goods Sold

The cost of goods sold takes into account costs of labour, material and manufacturingoverheads.


Gross Profit 2981.35-2287.46Gross Profit ratio = -------------- *100 = ------------- *100 = 23.37%

Net Sales 2981.35


Gross Profit 4165.12 -3533.06Gross Profit ratio = -------------- *100 = ------------- *100 = 15.17%

Net Sales 4165.12

Analysis The gross profit of Cipla is much higher than that of Ranbaxy. Gross profit isthe profit we earn before we take off any administration costs, selling costs and so on. Sowe should have a much higher gross profit margin than net profit margin

Net profit margin ratio

8/6/2019 Pend Ya La

14/26

The net profit margin ratio gives the earnings available for shareholders as a percentageof net sales. It is calculated as

Net profit x 100 %Net sales

It measures the overall efficiency of the firm in relation to production, administration,selling, financing, pricing and tax management.

The gross and net profit margin ratios taken together provide an understanding of thefirms cost and profit structure. It also helps identify the sources of the firms efficiencyor inefficiency.


Net Profit 599.85. Net Profit ratio = -------------- *100 = ------------- *100 = 20.12%Net Sales 2981.35


Net Profit 377.77Net Profit ratio = -------------- *100 = ------------- *100 = 9.06%

Net Sales 4165.12

Analysis The Net profit of Cipla is higher than that of Ranbaxy. The gross and netprofit margin ratios taken together provide an understanding of the firms cost and profitstructure. It also helps identify the sources of the firms efficiency or inefficiency.so wecan say tha Cipla is more efficient

Operating Profit Ratio

8/6/2019 Pend Ya La

15/26

The operating margin is another measurement of managements efficiency. It comparesthe quality of a companys operations to its competitors. A business that has a higheroperating margin than its industrys average tends to have lower fixed costs and a bettergross margin, which gives management more flexibility in determining prices. Thispricing flexibility provides an added measure of safety during tough economic times.


Opr Profit 693.89Operating Profit ratio = ------------------*100 = ------------* 100 = 23.27%

Net Sales 2981.35


Opr Profit 632.06Operating Profit ratio = -----------------*100 = ------------* 100 = 15.17%

Net Sales 41659.2

Analysis The Operating Margin of CIpla is Higher A business that has a higheroperating margin than its industrys average tends to have lower fixed costs and a bettergross margin, which gives management more flexibility in determining prices. Thispricing flexibility provides an added measure of safety during tough economic times.So we can say that Cipla is more flexible and efficient than Ranbaxy

Return On Capital Employed

The return on capital employed (ROCE) ratio, expressed as a percentage, complementsthe return on equity (ROE) ratio by adding a company's debt liabilities, or funded debt, toequity to reflect a company's total capital employed. This measure narrows the focus togain a better understanding of a company's ability to generate returns from its availablecapital base.

By comparing net income to the sum of a company's debt and equity capital, investorscan get a clear picture of how the use of leverage impacts a company's profitability.Financial analysts consider the ROCE measurement to be a more comprehensiveprofitability indicator because it gauges management's ability to generate earnings from a

company'stotalpoolofcapital.

Formula:
http://www.investopedia.com/terms/r/roce.asphttp://www.investopedia.com/terms/r/returnonequity.asphttp://www.investopedia.com/terms/r/roce.asphttp://www.investopedia.com/terms/r/returnonequity.asp

8/6/2019 Pend Ya La

16/26


Net Profit available on shareholders fundReturn on capital employed = -------------------------------------------------- * 100

Capital Employed

= 607.69---------- * 100 = 24.87%2442.86


Net Profit available on shareholders fundReturn on capital employed = -------------------------------------------------- * 100

Capital Employed

= 37.82---------- * 100 = 16%3407.10

Analysis The Return on Capital employed is higher for Cipla than Ranbaxy so we cansay that Cipla has greater ability to generate earnings from a company's total pool of

capital..

Return on Equity (ROE) measures how well a company uses the capital provided by itsequity investors. Since equity investors are entitled to what profits remain after interest ispaid to debtholders and taxes are paid to the government, net income is the appropriatemeasure of profit.

ROE = Net incomeAverage total equity


8/6/2019 Pend Ya La

17/26

Net Profit available on shareholders fundReturn on shareholders fund = -------------------------------------------------- *100

Net worth of shares

= 607.69---------- * 100 = 30.78%1973.95


Net Profit available on shareholders fundReturn on shareholders fund = -------------------------------------------------- *100

Net worth of shares

= 375.82

---------- * 100 = 11.03%2349.13Analysis The Return on Equity is higher in case of Cipla than Ranbaxy.So

Cipla uses the capital provided by its equity investors in a better manner than Ranbaxy.Since equity investors are entitled to what profits remain after interest is paid to debtholders and taxes are paid to the government, net income is the appropriate measure ofprofit.

Turnover ratio

Ameasure of the number oftimes a company'sinventory is replaced during a given timeperiod. Turnoverratio is calculated as cost of goods sold divided by average inventoryduring the time period. A high turnover ratio is a sign that the company is producing andselling its goods orservices very quickly.

Stock Turnover Ratio

To analyse stocks a little further it is possible to use ratio analysis. The STOCK

TURNOVER RATIO shows how many times over the business has sold the value of itsstocks during the year.

The higher the stock turnover the better, because money is then tied up for less time instocks. A quicker stock turnover also means that the firm gets to make its profit on thestock quicker, and so the firm should be more competitive. However, it will vary betweenindustries and so it is important to compare within an industry.
http://www.businessdictionary.com/definition/measure.htmlhttp://www.businessdictionary.com/definition/measure.htmlhttp://www.businessdictionary.com/definition/time.htmlhttp://www.businessdictionary.com/definition/company.htmlhttp://www.investorwords.com/2589/inventory.htmlhttp://www.businessdictionary.com/definition/time.htmlhttp://www.investorwords.com/3669/period.htmlhttp://www.investorwords.com/5094/turnover.htmlhttp://www.investorwords.com/4041/ratio.htmlhttp://www.businessdictionary.com/definition/cost.htmlhttp://www.investorwords.com/347/average.htmlhttp://www.investorwords.com/2306/high.htmlhttp://www.businessdictionary.com/definition/sign.htmlhttp://www.investorwords.com/992/company.htmlhttp://www.businessdictionary.com/definition/selling.htmlhttp://www.investorwords.com/2209/goods.htmlhttp://www.investorwords.com/6664/service.htmlhttp://www.businessdictionary.com/definition/measure.htmlhttp://www.businessdictionary.com/definition/time.htmlhttp://www.businessdictionary.com/definition/company.htmlhttp://www.investorwords.com/2589/inventory.htmlhttp://www.businessdictionary.com/definition/time.htmlhttp://www.investorwords.com/3669/period.htmlhttp://www.investorwords.com/5094/turnover.htmlhttp://www.investorwords.com/4041/ratio.htmlhttp://www.businessdictionary.com/definition/cost.htmlhttp://www.investorwords.com/347/average.htmlhttp://www.investorwords.com/2306/high.htmlhttp://www.businessdictionary.com/definition/sign.htmlhttp://www.investorwords.com/992/company.htmlhttp://www.businessdictionary.com/definition/selling.htmlhttp://www.investorwords.com/2209/goods.htmlhttp://www.investorwords.com/6664/service.html

8/6/2019 Pend Ya La

18/26

Calculations of Ratio: cipla

Cost of goods sold

Stock Turnover Ratio = ---- -------------------Avg Stock

= 2287.46----------= 3.24706


Cost of goods soldStock Turnover Ratio = ---- -------------------

Avg Stock

= 3533.06----------= 4.66758.16

Analysis - The Stock turnover Ratio of Ranbaxy is higher than Cipla so because money

is then tied up for less time in stocks for Ranbaxy.Ranbaxy gets to make its profit on thestock quicker, and so the firm is more competitive

Working capital turover Ratio

A measurement comparing the depletion of working capital to the generation of salesover a given period. This provides some useful information as to how effectively acompany is using its working capital to generate sales.

A company uses working capital (current assets - current liabilities) to fund operationsand purchase inventory. These operations and inventory are then converted into salesrevenue for the company. The working capital turnover ratio is used to analyze therelationship between the money used to fund operations and the sales generated fromthese operations. In a general sense, the higher the working capital turnover, thebetter because it means that the company is generating a lot of sales compared to themoney it uses to fund the sales.

8/6/2019 Pend Ya La

19/26


Cost of goods sold

Working capital turover Ratio= ------------------------ * 100

Working Capital= 2287.46

---------- = 1.771286.13


Cost of goods soldWorking capital turover Ratio = ------------------------ * 100

Working Capital

= 3533.06---------- = 3.171112.76

Analysis - Working capital turover Ratio is higher for Ranbaxy so it is better because itmeans that the company is generating a lot of sales compared to the money it uses to fundthe sales, so the

The Fixed Asset Turnover is similar to Asset Turnover, which both measure a company's effectiveness

in generatingNet Sales revenue from investments back into the company. However, the Fixed Asset

Turnover ratio evaluates only theNet Property, Plant, and Equipment investments. Manufacturing and

other industries requiring major-investments will often spend heavily on properties, manufacturing

plants, andequipment to push themselves ahead of the competition.

Importance of Fixed Asset Turnover:

The higher the Fixed Asset Turnover ratio, the more effective the company's investments in Net

Property, Plant, and Equipment have become.

Cost of goods soldFixed asset Turnover Ratio= ------------------------ * 100

Fixed assets
http://www.spireframe.com/docs/financial_ratio_total_asset_turnover.aspxhttp://www.spireframe.com/docs/financial_statement_net_sales.aspxhttp://www.spireframe.com/docs/financial_statement_net_property_plant_equipment.aspxhttp://www.spireframe.com/docs/financial_ratio_total_asset_turnover.aspxhttp://www.spireframe.com/docs/financial_statement_net_sales.aspxhttp://www.spireframe.com/docs/financial_statement_net_property_plant_equipment.aspx

8/6/2019 Pend Ya La

20/26

= 316.89

---------- = 21%455.11

Calculations of Ratio:Ranbaxy

Cost of goods soldFixed asset Turnover Ratio= ------------------------ * 100

Fixed assets

= 316.89---------- *100 = 69%

455.11

Analysis -The higher the Fixed Asset Turnover ratio, the more effective the company's investments

in Net Property, Plant, and Equipment have become.so Ranbaxy has higher Fixed Asset Turnover

ratio so it is more effective in utilization of its fixed assets

Financial leverage

The financial leverage ratio is also referred to as the debt to equity ratio.

The financial leverage ratio indicates the extent to which the business relies on debtfinancing.

Upper acceptable limit of the financial leverage ratio is usually 2:1, with no morethan one-third of debt in long term.

A high financial leverage ratio indicates possible difficulty in paying interest andprincipal while obtaining more funding.

The financial leverage ratio is included in the financial statement ratio analysisspreadsheets highlighted in the left column, which provide formulas, definitions,calculation, charts and explanations of each ratio.


8/6/2019 Pend Ya La

21/26

Total Debt (secloan+unsec loan) 468.91 Debt Equity ratio = ---------------------------- = ----------- = 0.23

Equity + R&S (Shareholders funds) 1973.95


Total Debt (secloan+unsec loan) 3178.6 Debt Equity ratio = ---------------------------- = ----------- = 1.35

Equity + R&S (Shareholders funds) 2349.13Calculations of Ratio: Cipla

Long term debt 417.64Long TermDebt Equity ratio = ---------------------- = ---------- = 0.2

Shareholders funds 1973.95


Long term debt 2954.31Long TermDebt Equity ratio = ---------------------- = ---------- = 1.25

Shareholders funds 2349.13

Analysis - A high financial leverage ratio indicates possible difficulty in payinginterest and principal while obtaining more funding. So Ranbaxy will have difficultyin paying the interest

Leverage Ratio

.1Any ratio used to calculate the financial leverage of a company to get an idea of thecompany's methods of financing or to measure its ability to meet financial obligations.There are several different ratios, but the main factors looked at include debt, equity,

assets and interest expenses.

2. A ratio used to measure a company's mix of operating costs, giving an idea of howchanges in output will affect operating income. Fixed and variable costs are the two typesof operating costs; depending on the company and the industry, the mix will differ.

Debt-To-Capital Ratio

8/6/2019 Pend Ya La

22/26

A measurement of a company's financial leverage, calculated as the company's debtdivided by its total capital. Debt includes all short-term and long-term obligations. Totalcapital includes the company's debt and shareholders' equity, which includes commonstock, preferred stock, minority interest and net debt.Companies can finance their operations through either debt or equity. The debt-to-

capital ratio gives users an idea of a company's financial structure, or how it is financingits operations, along with some insight into its financial strength. The higher the debt-to-capital ratio, the more debt the company has compared to its equity. This tellsinvestors whether a company is more prone to using debt financing or equity financing. Acompany with high debt-to-capital ratios, compared to a general or industry average, mayshow weak financial strength because the cost of these debts may weigh on the companyand increase its default risk

. Debt to total capital ratio = long term debtPermanent capital

= 417.64------------ = 1.33

19405.44


2,954.31

---------- = 15.85186.34

Analysis Ranabaxy has higher Debt to capital Ratio so Ranbaxy has more debtcompared to its equity The higher the debt-to-capital ratio, the more debt the companyhas compared to its equity. This tells investors whether a company is more prone to usingdebt financing or equity financing. A company with high debt-to-capital ratios, comparedto a general or industry average, may show weak financial strength because the cost ofthese debts may weigh on the company and increase its default risk.

Debt to total assetsTotal liabilities divided by total assets. The debt/asset ratio shows the proportion of acompany'sassets which are financed through debt. If the ratio is less than one, most of

the company's assets are financed through equity. If the ratio is greater than one, most ofthe company's assets are financed through debt. Companies with high debt/asset ratios aresaid to be "highly leveraged," and could be in dangerifcreditors start to demandrepayment of debt
http://www.investorwords.com/5911/liabilities.htmlhttp://www.investorwords.com/5975/total_assets.htmlhttp://www.businessdictionary.com/definition/ratio.htmlhttp://www.businessdictionary.com/definition/company.htmlhttp://www.investorwords.com/273/asset.htmlhttp://www.investorwords.com/1313/debt.htmlhttp://www.investorwords.com/1726/equity.htmlhttp://www.investorwords.com/992/company.htmlhttp://www.investorwords.com/2306/high.htmlhttp://www.investorwords.com/4041/ratio.htmlhttp://www.businessdictionary.com/definition/danger.htmlhttp://www.investorwords.com/1207/creditor.htmlhttp://www.investorwords.com/1396/demand.htmlhttp://www.investorwords.com/5911/liabilities.htmlhttp://www.investorwords.com/5975/total_assets.htmlhttp://www.businessdictionary.com/definition/ratio.htmlhttp://www.businessdictionary.com/definition/company.htmlhttp://www.investorwords.com/273/asset.htmlhttp://www.investorwords.com/1313/debt.htmlhttp://www.investorwords.com/1726/equity.htmlhttp://www.investorwords.com/992/company.htmlhttp://www.investorwords.com/2306/high.htmlhttp://www.investorwords.com/4041/ratio.htmlhttp://www.businessdictionary.com/definition/danger.htmlhttp://www.investorwords.com/1207/creditor.htmlhttp://www.investorwords.com/1396/demand.html

8/6/2019 Pend Ya La

23/26

Calculations of Ratio: Cipla. Debt to total assets = Total debt

Total assets

= 468.91-------- = 0.19

2442.86


1029.9--------- = 0.303407.10

Analysis If the ratio is less than one, most of the company's assets are financed throughequity.. Companies with high debt/asset ratios are said to be "highly leveraged," andcould be in dangerifcreditors start to demand repayment of debt

Propietary ratio

A test of Credit Strength. Is also a test of capitalization and a high or low ratio mayindicate low or high earnings respectively per share.

1 .The higher this Proprietary ratio denotes that the shareholders have provided thefunds to purchase the assets of the concern instead of relying on other sources offunds like bank borrowings, trade creditors and others

2. However, too high a proprietary ratio say 100% means that management has noteffectively utilize cheaper sources of finance like trade and long term creditors. Asthese sources of funds are cheaper, the inability to make use of it might lead tolower earnings and hence a lower rate of dividend payout.
http://www.investorwords.com/1726/equity.htmlhttp://www.investorwords.com/992/company.htmlhttp://www.investorwords.com/2306/high.htmlhttp://www.investorwords.com/4041/ratio.htmlhttp://www.businessdictionary.com/definition/danger.htmlhttp://www.investorwords.com/1207/creditor.htmlhttp://www.investorwords.com/1396/demand.htmlhttp://www.investorwords.com/1726/equity.htmlhttp://www.investorwords.com/992/company.htmlhttp://www.investorwords.com/2306/high.htmlhttp://www.investorwords.com/4041/ratio.htmlhttp://www.businessdictionary.com/definition/danger.htmlhttp://www.investorwords.com/1207/creditor.htmlhttp://www.investorwords.com/1396/demand.html

8/6/2019 Pend Ya La

24/26

3. This ratio is a test of credit strength as too low a proprietary ratio would mean thatthe enterprise is relying a lot more on its creditors to supply its working capital.


Share Holders Funds * 100 ESC+PSC+R&S * 100Proprietary ratio = ------------------------ = ------------------

Total assets employed Total Assets

1973.95------------- *100 = 80.80%2442.86


Share Holders Funds * 100 ESC+PSC+R&S * 100Proprietary ratio = ----------------------- = ------------------

Total assets employed Total Assets

2349.13------------- *100 = 68.94%3407.10

Analysis - Cipla has higher Proprietary Ratio so shareholders have provided the funds

to purchase the assets of the concern instead of relying on other sources of fundslike bank borrowings, trade creditors and others so here

Expense Ratio

.An expense ratio is "annual operating expenses divided by average annual net assets."That is, you take the costs of running the fund and divide them by the value of the assetsunder the purview of the fund's managers. The result is expressed as a percentage

8/6/2019 Pend Ya La

25/26


Cost of goods sold + Fin Exp + DepExpenses Ratio = -----------------------------------------

Net Sales

2287.46------------- = 17.71286.13


Cost of goods sold + Fin Exp + DepExpenses Ratio = -----------------------------------------

Net Sales

3394.75

------------- = 8.84165.12

Analysis - An expense ratio is "annual operating expenses divided by average annual netassets." That is, you take the costs of running the fund and divide them by the value ofthe assets under the purview of the fund's managers. The result is expressed as apercentage

Earnings per share (EPS) is a way to relate income to ownership on a per share basis,and is used in evaluating share price.


Net Profit available to equity Share fundEarning Per Share = -----------------------------------------

No of Equity Shares

607.69------------- = 20.262998.70


Net Profit available to equity Share fundEarning Per Share = -----------------------------------------

No of Equity Shares

8/6/2019 Pend Ya La

26/26

375.82------------- = 8.83726.87

Analysis - income to ownership on a per share basis is more for Cipla

Dividend Payout Ratio Thepayout ratio provides an idea of how well earnings supportthe dividend payments. More mature companies tend to have a higher payout ratio

Calculations of Ratio: ciplaEquity divident

Divident Payout Ratio = ---- -------------------* 100Net Profit

= 155.46----------* 100 = 29.14 %

533.42Calculations of Ratio: Ranbaxy

Equity dividentDividend Payout Ratio = ---- -------------------* 100

Net Profit

= 316.89----------* 100 = 10.08%455.11

Analysis - Cipla can give more dividends to its shareholders than Ranbaxy

pend ya la

Documents