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finance ratio
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A Project Report On
“Ratio Analysis”
Lupin Limited
Report submitted to
prof Mahesh Bendigeri
GEN’S
GLOBAL BUSINESS SCHOOL, HUBLI
By
Monica Thakur
MBA13007049
Dec -2013
GLOBAL BUISINESS SCHOOL, HUBLI-580025
GLOBAL BUISINESS SCHOOL, HUBLI-580025
EXECUTIVE SUMMARY
Financial ratio analysis as the name suggests, is the evaluation procedure of the performance
of the company. The evaluation is based on financial data and the data in the financial
statements is used for the financial performance analysis. Financial ratio analysis is the
process of evaluating the relationship between component parts of financial statement to
obtain a better understanding of the company’s position and performance. The financial
statements extremely useful information to the extent the balance sheet mirrors the financial
position on a particular date in terms of the structure of assets, liabilities and owners equity,
etc and the profit and loss account shows the results of operations during a certain period of
time in terms of the revenues obtained and the costs incurred during the year.
The first task in the financial analysis is to select the information relevant to the decision
under consideration from the total information contained in the financial statements.
The second step involved in this is to arrange the information in a way to establish the
relationship
The final step is interpretation and drawing of inferences and conclusions. In short it is the
process of selection, relation and evaluation.
Financial ratio analysis is an important tool. The other tools include the comparative analysis (i.e., inter- firm comparison). Time series analysis of ratios, common size statement analysis, indexed statement analysis, Du-point analysis.
Financial statements provide summarized view of the financial position and operation of the
company. Therefore, now a day it is necessary to all companies to know as well as to show
the financial soundness i.e. position and operation of company to their stakeholders. It is also
necessary to company to know their financial position and operation of the company.
In this report I made an effort to know the financial position of Indusind Bank, by using the
Annual Reports of the firm.
The Financial analysis of this report will show the Strength and weakness of the Indusind
Bank. Financial analysis will help the firm to take decision. Thus, we can say that, Financial
GLOBAL BUISINESS SCHOOL, HUBLI-580025
Analysis is a starting point for making plans before using any sophisticated forecasting and
planning.
TITLE OF THE PROJECT
A STUDY ON “FINANCIAL RATIO ANALYSIS” LUPIN LTD.
STATEMENT OF PROBLEMS
Management problem
As ratios provide a benchmark for company’s against their own performance in industry. The
company wants to study the ratio’s and compare its performance of past with the present
performance with the help of ratio analysis, various items of financial statement that ensure
their existence as well as their future progress.
Research Problem:
To know the Financial Position of the company and its Liquidity Performance through comparing
three years financial performance by applying different financial Ratios
NEED FOR THE STUDY
The need for the study is to know the overall financial performance of the company
since 3 years.
The financial plan represents a blueprint of what the company proposes to do in the
future.
The study reveals the use of various accounting ratios to explain the profitability
position.
OBJECTIVES OF STUDY
To know the LUPIN LTD financial performance based on ratios.
To find out the company efficiency based on past and present profitability ratios
To study the liquidity position of the bank
GLOBAL BUISINESS SCHOOL, HUBLI-580025
To improve its future performance by analyzing its financial statement
LIMITATIONS OF THE STUDY:
The most important limitation of the study is that the study slowly depends on the
published data and documents such as balance sheet and income statement.
It was difficult to obtain confidential data from the concern department with a view point of secrecy that the company would like to observe.
METHODOLOGY:
The project information is collected from secondary data.
Secondary Data:
The various sources that were used for the collection of secondary data are
Various text books were used to understand the concepts of financial analysis.
Websites
GLOBAL BUISINESS SCHOOL, HUBLI-580025
INDUSTRY PROFILE
INTRODUCTION
Pharmaceuticals is a knowledge-based, technology-intensive industry that is uniquely placed
to develop and commercialise the outcomes of Australia’s long term investment in medical
research.
The Australian pharmaceuticals industry comprises bio-medical research, biotechnology
firms, originator and generic medicines companies and service related segments including
wholesaling and distribution. The industry employed over 40,000 people (one third in
manufacturing) in 2007-08 and turned over approximately $22 billion in 2009-10. It spent
$1.02 billion on research and development in 2008-09 and exported $4.12 billion in the 2009-
10 financial year. There are over 150 separate firms listed as suppliers to the Pharmaceuticals
Benefits Scheme (PBS).
The Australian market for pharmaceuticals is small in the context of global demand. While
the PBS allows for universal access to prescription products, the size of the population means
that sales are small.
Australia's population represents around 0.3 per cent of the world yet consumes around one
per cent of total global pharmaceuticals sales. Thus in 2009 Australia was the 12th largest
pharmaceuticals market by sales, while being ranked 55th on population.
The expenditure on the PBS by Government has more than doubled over the last ten years,
from $3.2 billion in 1999-2000 to $8.3 billion (excluding patient contributions) in 2009-10.
In 2009-10, the largest firm by PBS sales was Pfizer. Its sales represent 14.4 per cent of the
value of total sales made to the PBS. The top 10 suppliers by sales contributed more than 67
per cent of the value of total sales made to the PBS. Alphapharm is the largest firm by
number of prescriptions on the PBS (accounting for 14.3 per cent of all prescriptions
dispensed under the PBS). The top 10 firms by the number of prescriptions account for a total
of just over 70 per cent of total prescriptions written. These data suggest that the Australian
market is serviced by a variety of suppliers which is consistent with the global industry
structure.
GLOBAL BUISINESS SCHOOL, HUBLI-580025
Australian industry developments have gained worldwide recognition. They include:
CSL's development of a Swine Flu (N1H1) vaccine
Developments in discovering the Gardasil vaccine for Human Papilloma Virus
through a partnership between Merck Sharp and Dohme and CSL
Australian biotechnology company Cytopia's $274 million deal with Novartis to
develop orally active, small molecule therapeutics targeting JAK3 kinase for the
prevention of transplant rejection and the treatment of multiple indications in autoimmune
diseases such as rheumatoid arthritis
The development by Biota Holdings of the flu drug Relenza.
Acrux's US$335 million deal (plus royalties) with Eli Lilly to market Acrux's US
FDA approved Axiron®.
The Department encourages the development of an internationally competitive
pharmaceuticals industry with policies which enhance the operating environment for the
industry by:
Providing policy advice to the Minister for Innovation, Industry, Science and
Research (Innovation) on developments in the global pharmaceuticals industry and how
they might impact on the Australian operating environment
Providing Secretariat support to the joint industry and Ministerial Pharmaceutical
Industry Working Group
Assisting in implementing the recommendations of the Pharmaceuticals Industry
Strategy Group, in relation to increasing pharmaceuticals R&D, clinical trials and
manufacturing in Australia
Contributing to the Pharmaceutical Benefits Pricing Authority’s (PBPA) work on the
pricing of pharmaceuticals for the PBS
Working with key industry stakeholders including the Pharmaceuticals Industry
Council.
The pharmaceuticals industry spans a spectrum of activity from the technology intensive
R&D segment associated with innovative drugs through to the production of generic and
over-the-counter medicines. The industry is dominated by horizontally and vertically
integrated multinational entities and is more research intensive than most other industries.
GLOBAL BUISINESS SCHOOL, HUBLI-580025
Worldwide industry sales are projected to grow strongly at 7.5 per cent per annum over the
next five years. Espicom Business Intelligence estimate that the annual sales of
pharmaceuticals will reach US$852 billion in 2009 and project it will reach US$1,158.5
billion in 2014. The markets driving this change will be:
Central/Eastern Europe, with 9.7 per cent growth per annum
The Americas, with 7.3 per cent growth per annum
Middle East and Africa, with 8.6 per cent growth per annum
Asia/Pacific, with 4.9 per cent growth per annum
Western Europe, with 6.8 per cent growth per annum.
These data show that the global market for drugs is large and growing, that pharmaceuticals
industry sales are concentrated in developed countries, that half of all sales are made by the
top 10 global companies, but that there is still a reasonable degree of international
competition at an industry level.
Industry R&D activity
Developing a new drug is expensive. Current estimates of the full cost of bringing a new
chemical or biological entity to market are around US$1.3 billion. Longer development and
approval times, larger and more complex clinical trials, increased expenditures on new
technologies, and shifts in product portfolios towards riskier, more expensive therapeutic
categories have contributed to a real increase in the development costs.
Pharmaceuticals R&D expenditure is rising. Over the past two decades, the percentage of
sales allocated to R&D has increased from 11.9 per cent in 1980 to an estimated 18 per cent
in 2006 (for American owned firms). The number of products in development and the
number of firms doing R&D are both rising; however R&D productivity continues to fall.
The industry spent $1.02 billion on R&D in Australia in 2008-2009. With 0.3 per cent of the
world’s population, Australia produces three per cent of global medical research and has a
proud history of seven Nobel laureates in medicine:
Howard Florey (1945: development of penicillin)
Frank Macfarlane Burnet (1960: research on organ transplantation)
John Eccles (1963: research on the transmission of nerve impulses)
Peter Doherty (1996: discoveries concerning the specificity of the cell mediated
immune defence)
GLOBAL BUISINESS SCHOOL, HUBLI-580025
Barry Marshall and J. Robin Warren (2005: discovery of the bacterium Helicobacter
pylori and its role in gastritis and peptic ulcer disease).
Elizabeth Blackburn (2009: research on telomeres, structures at the end of
chromosomes that protect the chromosome).
A feature of the Australian innovation system is the relatively high proportion of government
expenditure on R&D. In the health and medical area, this funding is allocated through a
variety of R&D providers and there is considerable interaction between these entities. The
bulk of the funding is provided through:
The National Health and Medical Research Council (NHMRC)
Specialised research institutes, eg. Baker, Garvan, Queensland Institute of Medical
Research
Universities
The Commonwealth Scientific and Industrial Research Organisation (CSIRO)
Hospitals
Cooperative Research Centres (CRCs).
GLOBAL BUISINESS SCHOOL, HUBLI-580025
Company Profile
Lupin Limited is an innovation led transnational pharmaceutical company producing
a wide range of quality, affordable generic and branded formulations and APIs for the
developed and developing markets of the world. The formation of Lupin in the year
1968 led to the vision and dream to fight life threatening infectious diseases and
manufacture drugs of highest national priority. Lupin is one of the fastest growing
Generic players globally. The company was named after the “Lupin” flower because of
the inherent qualities of the flower and what it personifies and stands for.
Lupin first gained recognition when it became one of the world’s largest manufacturers
of Tuberculosis drugs. Over the years, the Company has moved up the value chain
and has not only mastered the business of intermediates and APIs, but has also
leveraged its strengths to build a formidable formulations business globally.
Today, the Company has established global leadership position for its APIs and holds
a firm grip in the Cephalosporins, Cardiovascular and Anti-TB space.
Lupin first gained recognition when it became one of the world’s largest manufacturers
of Tuberculosis drugs. Over the years, the Company has moved up the value chain
and has not only mastered the business of intermediates and APIs, but has also
leveraged its strengths to build a formidable formulations business globally.
GLOBAL BUISINESS SCHOOL, HUBLI-580025
Today, the Company has established global leadership position for its APIs and holds
a firm grip in the Cephalosporins, Cardiovascular and Anti-TB space.
Lupin continues to enjoy global market leadership in Rifampicin, Pyrazinamide and
Ethambutol, as well as in Cephalosporins such as Cephalexin, Cefaclor and their
Intermediates. In FY 2010, the Company continued to record significant growth in the
7-ADCA and 7-ACCA family of products.
Lupin Ltd. is a key supplier of anti-TB formulations to the Global Drug Facility (GDF)
& maintained its premier position in the Anti-TB space during the current fiscal.
The Company has moved up the value chain since inception in terms of its products
and geographies. Currently, it commands a formulation business of over Rs 13,502
mn spread across the globe. Lupin has created a strong foothold in the Advanced
Markets of USA, Europe, Japan, Australia and Emerging markets of India and some
of the other Rest of World countries. It has onshore and offshore presence of its
products in 70 countries.
Today, Lupin is the 5th largest and fastest growing generics player in the US (by
prescriptions), the only Asian company to achieve that distinction. The company is
also the fastest growing top 10 pharmaceutical player in India, Japan & South Africa.
Its manufacturing units are located in Goa, Tarapur, Ankleshwar, Jammu,
Mandideep, Indore, Aurangabad and Kyowa in Japan. Benchmarked to International
standards, these facilities are approved by international regulatory agencies like US
FDA, UK MHRA, Japan’s MHLW, TGA Australia, WHO, and MCC South Africa
Business
In formulations it offers wide range of products for treatment of Cephalosporins, CVS,
GLOBAL BUISINESS SCHOOL, HUBLI-580025
CNS, Anti-Asthma, Anti-TB, Diabetology, Dermatology, GI, and many more. It
constitutes 84% of Lupin’s business. It has presence in USA, Europe, Japan,
Australia and emerging markets of India and some of the other rest of world
countries. Formulations make up 81% of our overall revenue composition.
In APIs segment it has a basket of product offerings for treatment of TB,
Cardiovasculars, Cephalosporins and many more.
FINANCIAL STATEMENT
A financial statement is a organized collection of data according to logical and
consistent accounting procedures. Its purpose is to convey understanding of some financial
aspects of business firm. It may show a position at a moment in time as in the case of b/s or
may reveal a series of activities over a given period of time as in case of income statement.
Financial statement are prepared for the management to deal with,
a. Status of investments.
b. Results achieved during a given period under review a financial statement generally
refers to the following;
1) Income Statement: The income statement also termed as (profit or loss account) is
generally considered to be the most useful of all financial statements. It explains what has
happened to a business as a result of operations between two balance sheet dates. It discloses
the revenue realized from the sale of goods and the costs incurred in the process of producing
the scheme. It tells the story of Progress or decline over given period and why and how an
indicated result was achieved.
2) Balance Sheet: it is statement of financial position of a business at particular moment
of time and the claims of the owners and outside against those assets at that time.
3) Statement of Retained Earnings: the term retained earnings means the accumulated
excess of earnings over losses and dividends. The balance shown income statement is
transferred to the balance through this statement. After making necessary appropriations. It is
GLOBAL BUISINESS SCHOOL, HUBLI-580025
thus a connecting link between the B/s and income statement. This statement is also termed
as project and loss appropriation account in case of companies.
4) Statement of Changes in Financial Position: the balance sheet shows the financial
condition of the business at a particulars moment of time while the income statement
discloses the result of operations of business over a period of time. However for a better
understanding of the affairs of the business, it is essential to identify the movement of
working capital or cash in and out of the business. This information is available in the
statement of changes in financial position of the business.
FINANCIAL RATIO ANALYSIS
Ratio analysis is a study of figures appearing in financial statements (Balance sheet and Profit
and Loss statement). Such figures have accounting significance and related to each other in a
manner that makes them mutually relevant. This aspect of the relativity is the central theme
of ratio analysis. This stems from the fact that absolute numbers do not mean much unless
compared one with another. The financial ratios therefore are used to express significant
relationship which exists between accounting numbers obtaining on a financial statement.
Ratios recognize the interrelationship which exists.
The study of financial ratios is an invaluable guide to the management in analyzing the
operations and the financial state of affairs of a business unit. Those who are concerned with
the performance of a unit are interested in being informed about its profitability, liquidity and
solvency. The ratio analysis is an attempt to obtain reliable indications in this respect. Thus
viewed the ratio analysis, as a tool of financial statement analysis, has to be purposive and
user oriented. Over the years the technique of ratio analysis has acquired more and more
usefulness and has found, accordingly, more and more users.
It is widely recognized that ratio analysis is an immensely valuable tool to highlight sensitive
financial characteristics such as capital structure debt service, profitability, solvency, fund
and cash flows etc. The exercise of ratio analysis has other important uses in the areas of
audit, tax assessments, management control and budgeting and forecasting.
NEED FOR CAUTION IN INTERPRETATION OF RATIOS
GLOBAL BUISINESS SCHOOL, HUBLI-580025
Most of the ratios at best only give indications of a situation and as such they do not always
lead to precise evaluations. The analysis of ratios only acts as a pointer to a possible
disproportion. In order to avoid the possibilities of reaching unwarranted inferences it is
essential:
1. To select a proper ratio
2. Not to study a ratio in isolation i.e. indications from two or more ratios can be studied
in conjunction.
3. To subject the financial variables to further investigation where acute disproportion is
indicated by a ratio.
4. To call for further information relating to a financial data to verify its validity.
5. To be aware of the fact that it is not possible to state as to what constitutes, as a
general rule, normal or ideal positions.
NEED FOR COMPARATIVE STUDY OF RATIOS
As in case of any financial number, ratio does not convey much meaning unless it is compared with a similar ratio relating to a past period or to any other firm. Thus if a firm had an operating profit ratio of 10% to its sales in 1999 this information by itself does not convey much.
But it would become more meaningful if it was compared with the similar ratio in the year
1998 when it was 12% to its sales. One can then observe that the operating profit ratio has
dwindled in 1999 as compared to 1998. Therefore ratios relating to a firm can be studied in
comparison with similar ratios:
1) of the same firm relating to earlier periods
2) of another firm
3) representing industrial averages
4) projected in the budgets
5) set as targets
GLOBAL BUISINESS SCHOOL, HUBLI-580025
ADVANTAGES OF FINANCIAL RATIO ANALYSIS
i)The financial ratio analysis serves as an invaluable aid to the management in analyzing the
operations and state of affairs of a business enterprise,
ii)The financial ratio analysis being an important tool of financial statement analysis, various
groups of people interested in financial aspects an
iii)enterprise (such as investors, lenders, employees, government, stock exchange authorities
etc.,) use this with advantage for the purposes relevant to them,
iv)This technique of financial statement analysis can be used with good effect in preparing
budgets, forecasting and planning, projecting working capital requirements etc.,
v)It helps to analyze and reliably indicate financial health of a company by focusing on its
profitability, liquidity and solvency, debt-servicing, utilization of resources etc.,
vi)Proper evaluation of performance and position is possible by comparing financial ratios of
a firm with those of another firm or by comparing ratios of a firm for a period with those for
another period.
vii)It becomes easier to assign responsibilities to functional heads in a management team,
viii)It helps in presenting plethora of accounting data in a systematic and more comprehensible manner.
GLOBAL BUISINESS SCHOOL, HUBLI-580025
Financial data of lupin ltd
Balance sheet
------------------- in Rs. Cr. -------------------Ma Mar'00 Mar '01
Mar '02
Mar '03
Mar '04
Mar '05 Mar '11 Mar '12 Mar '13
Sources Of FundsTotal Share Capital 33.54 14.83 47.14 40.14 40.14 40.14 89.24 89.33 89.51Equity Share Capital 33.54 2.83 40.14 40.14 40.14 40.14 89.24 89.33 89.51Share Application Money 0 37.31 0 0 0 0 0 0 0Preference Share Capital 0 12 7 0 0 0 0 0 0Reserves 32.65 308.68 292.31 342.23 407.89 460.36 3,063.42 3,645.08 4,757.20Revaluation Reserves 0 0 0 0 0 0 0 0 0Networth 66.19 360.82 339.45 382.37 448.03 500.5 3,152.66 3,734.41 4,846.71Secured Loans 51.27 506.54 504.51 487.85 286.55 380.63 637.46 580.82 411.3Unsecured Loans 27.88 110.5 123.46 99.64 90.56 60.01 342 411.83 143.99Total Debt 79.15 617.04 627.97 587.49 377.11 440.64 979.46 992.65 555.29Total Liabilities 145.34 977.86 967.42 969.86 825.14 941.14 4,132.12 4,727.06 5,402.00
Ma Mar '00 Mar '01
Mar '02
Mar '03
Mar '04
Mar '05 Mar '11 Mar '12 Mar '13
Application Of FundsGross Block 111.32 444.48 511.39 580.9 640.41 714.85 1,869.09 2,335.41 2,762.91Less: Accum. Depreciation 30 48.3 70.84 95.25 123.2 155.91 514.46 627.93 749.26Net Block 81.32 396.18 440.55 485.65 517.21 558.94 1,354.63 1,707.48 2,013.65Capital Work in Progress 5.32 40.97 21.21 10.72 17.17 69.81 442.09 357.33 240.12Investments 0.89 11.92 10.4 8.51 8.91 9.37 680.88 687.29 688.04Inventories 13.44 146.37 143.28 141.86 215.3 248.08 841.11 1,123.56 1,330.83
GLOBAL BUISINESS SCHOOL, HUBLI-580025
Sundry Debtors 35.58 299.68 325.74 338.78 215.83 235.39 1,234.28 1,490.80 1,874.27Cash and Bank Balance 1.59 6.88 13.03 7.99 4.83 13.33 37.46 19.2 20.12Total Current Assets 50.61 452.93 482.05 488.63 435.96 496.8 2,112.85 2,633.56 3,225.22Loans and Advances 24.85 233.08 251.94 300.84 201.14 174.81 621.32 773.05 878.7Fixed Deposits 0.92 8.42 6.6 6.8 10.21 4.45 0 0 0Total CA, Loans & Advances 76.38 694.43 740.59 796.27 647.31 676.06 2,734.17 3,406.61 4,103.92Deffered Credit 0 0 0 0 0 0 0 0 0Current Liabilities 14.01 147.09 233.48 273.72 296.21 333.06 880.29 1,193.81 1,332.67Provisions 5.87 18.55 11.85 57.57 69.25 39.98 199.36 237.84 311.06Total CL & Provisions 19.88 165.64 245.33 331.29 365.46 373.04 1,079.65 1,431.65 1,643.73Net Current Assets 56.5 528.79 495.26 464.98 281.85 303.02 1,654.52 1,974.96 2,460.19Miscellaneous Expenses 1.31 0 0 0 0 0 0 0 0Total Assets 145.34 977.86 967.42 969.86 825.14 941.14 4,132.12 4,727.06 5,402.00Key Financial Ratios
Mar '00 Mar '01Mar '02
Mar '03
Mar '04
Mar '05 Mar '11 Mar '12 Mar '13
Investment Valuation RatiosFace Value 10 10 10 10 10 10 2 2 2Dividend Per Share 1 3.5 5 5 6.5 6.5 3 3.2 4Operating Profit Per Share (Rs) 5.35 534.55 47.07 46.43 68.13 34.62 21.48 23.05 42.1Net Operating Profit Per Share (Rs) 17.34 2,958.56 222.86 256.56 293.25 289.5 100.74 120.56 159.15Free Reserves Per Share (Rs) 5.88 580 40.1 57.65 82.35 96.29 -- -- --Bonus in Equity Capital -- -- -- -- -- -- 44.99 44.94 44.85Profitability RatiosOperating Profit Margin(%) 30.84 18.06 21.12 18.09 23.23 11.95 21.32 19.11 26.45Profit Before Interest And Tax Margin(%) 23.42 15.81 18.49 15.63 20.67 9.01 18.93 16.65 24.26Gross Profit Margin(%) 15.38 11.14 14.31 12.29 19.2 10.44 19 16.66 24.34Cash Profit Margin(%) 9.83 9.35 10.63 9.5 14.8 10.02 20.25 14.91 19.73Adjusted Cash Margin(%) 11.18 10.16 11.32 10.08 14.69 10.03 20.25 14.91 19.73Net Profit Margin(%) 3.46 7.15 8.05 7.08 12.34 7.19 17.95 14.92 17.63Adjusted Net Profit Margin(%) 3.17 7.79 8.73 7.65 12.24 7.2 17.95 14.92 17.63Return On Capital Employed(%) 10.42 13.63 17.29 16.82 30.24 12.38 21.07 19.05 32.52Return On Net Worth(%) 3.15 16.64 21.26 19.11 32.58 16.86 25.69 21.53 26Adjusted Return on Net Worth(%) 2.94 20.6 23.21 20.52 32.3 16.87 25.67 17.99 26
GLOBAL BUISINESS SCHOOL, HUBLI-580025
Return on Assets Excluding Revaluations 19.34 1,100.70 82.82 95.26 111.61 124.69 70.66 83.61 108.3Return on Assets Including Revaluations 19.34 1,100.70 82.82 95.26 111.61 124.69 70.66 83.61 108.3Return on Long Term Funds(%) 11.62 17.55 21.3 20.64 39.22 17.48 25.8 23.28 36.03Liquidity And Solvency RatiosCurrent Ratio 1.53 1.32 1.24 1.15 0.87 0.73 1.1 1.19 1.59Quick Ratio 3.16 3.31 2.43 1.97 1.18 1.14 1.75 1.59 1.69Debt Equity Ratio 1.2 2.02 1.91 1.54 0.84 0.88 0.31 0.27 0.11Long Term Debt Equity Ratio 0.97 1.44 1.36 1.07 0.42 0.33 0.07 0.04 0.01Debt Coverage RatiosInterest Cover 1.41 2.23 2.69 2.66 4.85 4.27 31.58 31.41 52.8Total Debt to Owners Fund 1.2 2.02 1.91 1.54 0.84 0.88 0.31 0.27 0.11Financial Charges Coverage Ratio 1.71 2.44 2.94 2.95 5.08 4.8 35.37 36.01 57.31Financial Charges Coverage Ratio Post Tax 1.59 2.27 2.47 2.54 4.19 4.77 34.16 33.65 43.38Management Efficiency RatiosInventory Turnover Ratio 4.48 5.73 6.25 7.27 5.49 4.73 5.34 4.79 5.35Debtors Turnover Ratio 1.18 4.99 2.86 3.1 4.24 5.15 4.18 3.95 4.23Investments Turnover Ratio 5.47 6.51 7.03 8.34 6.23 5.46 5.34 4.79 5.35Fixed Assets Turnover Ratio 0.66 3.2 1.99 2.15 2.28 2.01 2.42 2.32 2.59Total Assets Turnover Ratio 0.4 0.86 0.92 1.06 1.43 1.24 1.09 1.14 1.32Asset Turnover Ratio 0.38 1.49 0.92 1.06 1.31 1.32 1.19 1.22 1.41
Average Raw Material Holding 43.91 46.85 34.26 30.05 45.76 70.54 -- -- --Average Finished Goods Held 15.88 25.94 29.75 23.18 28.34 32.61 -- -- --Number of Days In Working Capital 233.03 227.36 199.3 162.54 86.2 93.87 139.32 138.55 126.07Profit & Loss Account RatiosMaterial Cost Composition 46.44 51.33 48.55 53.07 50.37 51.76 42.74 44.15 41.05Imported Composition of Raw Materials Consumed 22.23 41.29 41.83 42.71 57.76 52.9 42.58 38.86 38.35Selling Distribution Cost Composition 0.99 10.23 10.74 7.63 9.39 9.26 -- -- --Expenses as Composition 21.05 27.7 34.66 40.23 48.96 49 59.05 60.25 62.82
GLOBAL BUISINESS SCHOOL, HUBLI-580025
of Total SalesCash Flow Indicator RatiosDividend Payout Ratio Net Profit 196.42 26.81 29.85 31.2 20.16 35.34 19.21 20.65 16.61Dividend Payout Ratio Cash Profit 59.25 20.03 22.51 23.19 16.81 25.36 17.02 17.74 14.84Earning Retention Ratio -114.18 75.45 72.51 71.16 79.67 64.71 80.78 75.28 83.39Cash Earning Retention Ratio 39.23 81.26 78.86 78.14 83.07 74.67 82.98 79.34 85.16AdjustedCash Flow Times 11.75 7.23 6.19 5.65 2.17 3.74 1.07 1.23 0.39
Earnings Per Share 0.62 207.71 17.71 18.08 36.37 21.02 18.15 18.01 28.16Book Value 19.73 1,100.70 82.82 95.26 111.61 124.69 70.66 83.61 108.3
GLOBAL BUISINESS SCHOOL, HUBLI-580025
FINANCIAL RATIOS OR TYPES OF FINANCIAL RATIOS
Financial ratios quantify many aspects of a business and are an integral part of
financial statements analysis. Financial ratios are categorized according to the financial
aspect of the business which the ratio measures, financial ratio can be divided for
convenience into following different basic categories.
1. Liquidity Ratios
2. Leverage Ratios
3. Activity Ratios
4. Profitability Ratios
5. Other Ratios
LIQUIDITY RATIOS
Liquidity Ratios refers to the firm’s ability to satisfy its short term obligations or current
liabilities as they become due, liability will be usually of one year. It reflects the financial
strength/solvency of a firm.
A firm should ensure that it does not suffer from lack of liquidity and also that it does not
have excess liquidity. A failure of company to meet its obligation due to lack of sufficient
liquidity, will result in poor credit worthiness. A very high degree of liquidity is also bad
because, idle asset earn nothing. The firm funds will be unnecessary tide up in current assets.
Therefore, it is in necessary to strike a proper balance between high liquidity and lack of
liquidity.The ratios which indicate the liquidity of a firm are i. Current Ratio, ii. Quick Ratio,
iii. Interval Ratio, iv Net Working Capital Ratio, v. Absolute Liquidity Ratio.
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Current ratio:
Measures the ability of an entity to pay its near-term obligations usually as within one year. Though the ideal current ratio depends to some extent on the type of business, a general rule of thumb is that it should be at least 2:1. A lower current ratio means that the company may not be able to pay its bills on time, while a higher ratio means that the company has money in cash or safe investments that could be put to better use in the business. The current ratio is the ratio of the current assets and current liabilities. It is calculated by dividing current assets by current liabilities.
Current Ratio= Current assets Current liabilities
Year Current assets Current liabilty Total
2011 145.34 145.34 290.682012 977.86 977.86 1955.722013 967.42 967.42 1934.84
LEVERAGE OR CAPITAL STRUCTURE RATIOS:
Leverage ratios look at the extent that a company has depended upon borrowing to finance its operations. As a result, these ratios are reviewed closely by bankers and investors. Most leverage ratios compare assets or net worth with liabilities. A high leverage ratio may increase a company's exposure to risk and business downturns, but along with this higher risk
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also comes the potential for higher returns. Some of the major measurements of leverage include:
Debt-Equity Ratio:
This ratio shows the relationship between the borrowed capital and owner’s capital. This ratio
shows relative claim of the creditors and shareholders against the assets of the company.
Debt Equity Ratio =Long Term Debt Shareholders Equity
Year Debt Equity Ratio 2011 1.22012 2.022013 1.91
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Debt Ratio:
Debt Ratio= Total Debt Total Assets
Year Debt Ratio
2011 1.2
2012 2.02
2013 1.91
Proprietary Ratio:
Proprietary Ratio= Proprietor’s Funds Total Assets
Year Proprietary ratio Total
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2011 866.06 18488.58
2012 1056.79 22028.6
2013 1349.21 24668.54
PROFITABILITY RATIOS
There are many measures of profitability. As group, these measures enable the analyst to evaluate the firm’s profits with respect to a given level of sales, a certain level of assets, or the owner’s investment. Owners, creditors and management pay close attention to boosting profits. The management of the firm is naturally eager to measures its operating efficiency. Similarly the owners invest their funds in the expectation of reasonable returns. Profitability ratio measures the firm’s use of its assets and control of its expenses in order to generate an acceptable rate of return. Following are the ratio designed to provide answers to questions such as,
i. Is the profit earned by the firm adequate?
ii. What rate of return does it represents?
iii. What is the rate of profit for various divisions and segment of firm
iv. What is the amount paid in dividends?
v. What is the earning per share?
vi. What is the rate of return to equity shareholders and so on.
Profitability ratios can be determined on the basis of either sales or investment. The profitability ratios in relation to sales are
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i. Gross Profit Margin
Gross profit is the difference between sales and the manufacturing cost of goods sold. The
gross profit margin reflects the efficiency with which management produces each unit of
product. This ratio indicates the average spread between the cost of goods sold and the sales
revenue. A high gross profit margin ratio is a sign of good management.
Sales – Cost of Goods Sold Gross Profit Margin = -------------------------------------- Sales
Gross Profit = Sales – Cost Of Goods Sold.
Year Gross profit2011 21.322012 19.112013 26.45
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ii. Operating Profit Margin
The operating profit margin measures the percentage of each sales rupee remaining after all
costs and expenses other than interest, taxes and preferred stock dividends are deducted. It
shows the pure profit earned on each sales rupee. A high operating profit margin is preferred.
Operating profit Operating Profit Margin = ---------------------------- Sales
Year Operating Profit Margin
2011
2012
2013
iii. Net Profit Margin
The net profit margin measures the percentage of each sales rupee remaining after all cost
and expenses, including taxes and preferred stock dividend, have been deducted, the higher
the firm’s net profit margin, the better.
Profit After TaxNet Profit Margin = ------------------------- Sales
year Net Profit Margin
2011 17.952012 14.922013 17.63
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iv. Operating Expenses
Operating expenses ratio explains the changes in the profit margin (EBIT to sales) ratio.
A higher operating expenses ratio is unfavorable since it will leave a small amount of income
to meet interest, dividends, etc. the operating expenses ratio is a yardstick of operating
efficiency, but it should be used cautiously. It is affected by number of factors such as
external uncontrollable factor, internal factor, employee and managerial efficiency all of
which are difficult to analyze.
Operating Expenses Operating Expenses Ratio = ------------------------------- Sales
Year Operating Expenses Ratio
2011 21.482012 23.052013 42.1
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Profitability in relation to investments is measured by following ratios.
v. Return on Investment / Return on Total Assets
The term investment may be refer to total assets or net assets, the funds employed in net
assets is known as capital employed which is equal to net worth + total debt.
ROI = ROTA (Rate on Total Assets) RONA (Rate on Net Assets)
EBIT ROI = ROTA = ---------------------------- Capital Employed
Year ROI
2011 70.662012 83.61
2013 108.3
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vi. ROE (Return on Equity)
The return on common equity measures the return earned on the common stockholders investment in the firm. Generally, higher the return, the better.
PAT ROE = ----------------- Net WorthYear ROE
2011 21.072012 19.052013 32.52
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Return on Total Assets:
This measures the profitability in terms of relationship between net profit and the total assets.
Return on Total Assets = Profit after Tax x 100 Average Total Assets
Year Return on Total Assets
2011 70.662012 83.61
2013 108.3
Return on Equity:
In this ratio profitability is measures by dividing the net profit after taxes by the average
shareholders / equity. The average shareholders equity includes equity, reserves and surplus
excluding miscellaneous expenditure.
Return on Equity =Net Profit after Taxes x 100 Average Net WorthYear Return on Equity
2011 25.672012 17.992013 26
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DEBT TO TOTAL CAPITALIZATION RATIO:
This ratio determines the proportion of total capitalization, which is the firm’s
permanent financing, that long term represents. Generally, firms with lower debt- total
capitalization ratios are considered better credit risks because a larger equity cushion exists to
protect creditors.
Debt To Total Capitalization Ratio = Long Term Debt Long Term Debt+ Stockholders Equity Year Debt To Total Capitalization Ratio
201120.25
2012 14.91
2013 19.73
INTERPRETATION
The graph indicates that there is no more fluctuation in ratio i.e 0.648, 0.649 and 0.648 and it is same for the year 2011 and2013
Dividend per Share:
This ratio shows how much dividend is paid per share to the ordinary shareholders.
Dividend per Share =Actual Dividend Paid To the Equity Shareholders Number of Ordinary Equity Shares
Year Dividend per Share
2011 32012 3.22013 4
This shows how much is retained in the business and how much is distributed amongst he
shareholder
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Earnings per Share (E.P.S.):
Earnings per share gives the profitability from the point of view of the ordinary shareholders. It measures the profit available to the equity shareholders on per share basis. It is calculated by dividing the profits available to the equity shareholders by the total number of shares
Earnings per Share = Net Profit Available To the Equity Shareholders Number of Ordinary Equity Shares
Year Earnings per Share
2011 18.15
2012 18.01
2013 28.16
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Dividend Payout Ratios:
It measures the relationship between the earnings belonging to the ordinary shareholders and
the dividend paid to them. This is calculated by dividing the actual dividend paid by the net
profit available to them. Alternatively, it can be found out by dividing the dividend per share
by the earnings per share.
Dividend Payout Ratio = Actual Dividend Paid to the Equity Shareholders Net profit available to the equity shares holderYear Dividend Payout Ratio
2011 19.212012 20.652013 16.61
Cost of deposits ratio
Cost of deposits ratio = Interest paid on deposits Average deposits
Year Cost of deposits ratio
2011 42.582012 38.862013 38.35
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Suggestion
Lupin ltd must thoroughly study the accounts of the company where there is a chance of manipulation.
The current assets to total assets is increased which means the company is paying
more attention to its current assets. They should improve the utilization of current
assets as it will be required for day to day business.
Lupin ltd should have the schemes to entertain the demand for financial assistance
from the businesses which are in need of small amount of loan facilities.
Increase manpower (with credit and recovery skills) at the sector.
It must follow some rules to improve it financial strength
Accoriding return on total assets ratio the company is utilizing its total assets at
optimum level to get higher profitability so it is advised to carry in same level.
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CONCLUSION
It has been an excellent opportunity for me to carry out the study on Ratio Analysis at
Lupin ltd. It has helped to a great extent to have an insight into the practical realities of the
subject. The project carried out Lupin ltd has provided me with an in depth knowledge
insight into it also provided me an opportunity to study and analyze the various ratios.
Though thisr has coin to coin competition t tis is providing a satisfied service to their
customers and with the latest technology as well as the new strategies, it is coming up with
new products keeping in mind about customers as a lay man and providing service to them , it
is growing rapidly
Findings and suggestions made in the report, if taken care of, will result in better performances of Lupin ltd.
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BIBLIOGRAPHY
Annual report of the company
Financial Management M.Y Khan & P. K Jain
Financial Management Battacharaya
www.Google.com
www.lupin.com
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