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PROJECT REPORT
ON
WORKING CAPITAL MANAGEMENT
BY
ANKIT GARG
11PBA011
A Study conducted at RANBAXY PARMACE!TICALS LT"
!nde# t$e %u&dance o' ASSTT( PRO)( POONAM BASSI
In *a#t&a+ 'u+'&++,ent o' t$e
MASTER "EGREE O) B!SINESS A"MINISTRATION -MBA.
AT
BA""I !NI/ERSITY O) EMERGING SCIENCES AN"
TECNOLOGY
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"ECLARATION
I, Ankit Garg student of Baddi University of Emerging Sciences and
Technology, School of Management Studies, hereby declare that ro!ect reort
on WORKING CAPITAL MANAGEMENT is the record of original "ork
carried out by me and the information rovided in the study is authentic to the
best of my kno"ledge# This reort has not been submitted to any other
University or Institution for the a"ard of any degree# $othing is coied in this
ro!ect, if anything is found to be coied, I "ill be solely resonsible for that#
ANKIT GARG
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PRE)ACE
Businesses face ever increasing ressure on costs and gro"ing %inancing
re&uirements as a result of intensive cometition in globali'e markets# Many of
them are therefore considering "ays of making themselves more efficient# In
identifying ossible otions it is imortant not to focus e(clusively on income
and e(ense items, but also to take the balance sheet into account#
Imrovements to the e(isting caital structure can free u valuable resources
and bring increased efficiency# Active "orking caital management is an
e(tremely effective "ay to increase enterrise value# )timi'ing "orking
caital results in a raid release of li&uid resources and contributes to an
imrovement in free cash flo" and to a ermanent reduction in inventory and
caital costs#
The attemt is aimed to analy'e the various asects of "orking caital
management of *anba(y and comare it "ith that of +r *eddys and "ith
industry standards#
By adoting various calculation and analysis and then making interretation
"ith the solution of secific roblem, best efforts on giving aroriate
suggestion to the comany have been made#
To this conte(t various methods and techni&ues like ratio analysis, statistical
tool and "orking to"ards the otimal level of "orking caital, estimation of
"orking caital and various ratios have been used to dra" an e(act icture of
comany#
ABSTRACT
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A ro!ect "ork is a mandatory re&uirement for the Business Management
-rogram# This tye of study aims at e(osing the young rosective e(ecutive
to the actual business "orld#
This ro!ect gives me kno"ledge about the "orking caital of the comany#
.orking caital refers to the funds re&uired for day to day oerations of the
organi'ation# It is very effective "ay to !udge a comanys cash flo" rosects,
as cash is like blood life for any comany#
The reort initially begins "ith the comany rofile, follo"ed by the detailed
analysis of comany, like businesses of the comany, roducts offered by the
comany, financials of the comany, etc
The reort involves a lot of research to understand "hat e(actly "orking caital
is, "hy comanies re&uire "orking caital, "hat are the ideal ratios for
.orking /aital a /omany should maintain, etc(
T$e *u#*o2e &2 to de3e+o* an act&on *+an t$at c#eate2 2uc$ a 4o#5&n%
ca*&ta+ t$at 4&++ u*%#ade2 and 2tanda#d&6e t$e 7ua+&ty o' 8u2&ne22 ana+y2&2(
0arious tools, including financial tools, are used in this ro!ect to calculate and
comare the financial osition of the comany, e#g# ratio analysis, S.)T
analysis, etc#
TABLE O) CONTENTS
/1A-TE*23
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Introduction 45
Industry -rofile 46
)rgani'ational rofile 34
.orking caital 35
/1A-TE*27
$eed and Scoe of study 78
)b!ective of study 79
/1A-TE*28
:iterature revie" 7;
/1A-TE*29
Methodology 76
/1A-TE*2;
)&nanc&a+ *e#'o#,ance o' Ran8a9y
:i&uidity *atios 83
-rofitability *atios 8;
:i&uidity Analysis 86
*atio Analysis 94
/redit Analysis < -olicies 9;
/1A-TE*25
:imitations ;3
%inding of Study ;7
*ecommendations and Suggestions ;9
/onclusion ;=
/1A-TE*26
Bibliograhy 54
Aendices 53
CAPTER:1
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INTRO"!CTION
A firm is re&uired to maintain a balance bet"een li&uidity and rofitability
"hile conducting its day to day oerations# :i&uidity is a recondition to ensure
that firms are able to meet its short2term obligations and its continued flo" can
be guaranteed from a rofitable venture#
The imortance of cash as an indicator of continuing financial health should not
be surrising in vie" of its crucial role "ithin the business# This re&uires that
business must be run both efficiently and rofitably# In the rocess, an asset2
liability mismatch may occur "hich may increase firms rofitability in the
short run but at a risk of its insolvency#
The urose of this ro!ect is to e(amine the trends in "orking caital and its
imact on firms erformance# The trend in "orking caital needs and
rofitability of firm is e(amined to identify the causes for any significant
differences#
The rest of the reort is organi'ed as follo"s> It starts "ith the Industry rofile
< then a detailed introduction of the comany# The follo"ing section of the
reort looks briefly at the theoretical underinnings and the relevant literature"hich attemts to e(lain the link bet"een oor erformance and "orking
caital management#
After that, the analysis art covers in deth analysis of "orking caital of
*anba(y# %inally the conclusion is made < it has been observed that the overall
structure of "orking caital of the co# is good and it is a gro"ing concern# The
comany uses various techni&ues to maintain its "orking caital# Some
suggestions have been given on the basis of the conclusion#
IN"!STRY PRO)ILE
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Industry Definition
“The Indian pharmaceutical industry is a success story providing employment for millions and ensuring that essential drugs at
affordable prices are available to the vast population of this sub-
continent.”
Richard Gerster
The Ind&an P$a#,aceut&ca+ Indu2t#y today is in the front rank of Indias
science2based industries "ith "ide ranging caabilities in the comle( field of
drug manufacture and technology#
)act2 a8out t$e Ro+e o' P$a#,aceut&ca+ Indu2t#y &n Ind&an G#o22 "o,e2t&c
P#oduct -G"P.;
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• Indian -harmaceutical Industry ranks fourth in the "orld, ertaining to
the volume of sales#
• The estimated "orth of the Indian -harmaceutical Industry is !S< =
8&++&on#
• The gro"th rate of the industry is about 1>? *e# yea##
• Almost most @0? of the domestic demand for bulk drugs is catered by
the Indian -harma Industry#
• The -harma Industry in India roduces around 0? to ? of the global
Generic drugs#
• The Indian -harmaceutical Industry is one of the biggest roducers of the
Act&3e P$a#,aceut&ca+ In%#ed&ent2 ?A-I@ in the international arena#
• The Indian -harma sector leads the science2based industries in the
country#
• Around 0? of the total harmaceutical roduce is e(orted#
• ? of the total e(orts constitute of formulations and the other ?
comrises of bulk drugs#
• The Indian -harma Industry includes small scaled, medium scaled, large
scaled layers, "hich totals nearly >00 different comanies#
• As er the resent gro"th rate, the Indian -harma Industry is e(ected to
be a !S< 0 8&++&on industry by the year 743;#
• The multinational comanies, investing in research and develoment in
India may save u to >0? to 0? of the e(enses incurred
• The cost of hiring a research chemist in the US is '&3e t&,e2 higher than
its Indian counterart#
%ollo"ing the de2licensing of the harmaceutical industry, industrial
licensing for most of the drugs and harmaceutical roducts has been done
a"ay "ith# Manufacturers are free to roduce any drug duly aroved by the
+rug /ontrol Authority# Technologically strong and totally self2reliant, the
harmaceutical industry in India has lo" costs of roduction, lo" *
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)ver 74,444 registered harmaceutical manufacturers e(ist in the country# The
domestic harmaceuticals industry outut is e(ected to e(ceed *s754 billion
in the financial year 7433, "hich accounts for merely 3#8C of the global
harmaceutical sector# )f this, bulk drugs "ill account for *s ;9 billion ?73C@
and formulations, the remaining *s 734 billion ?6=C@# In financial year 7437,
imorts "ere *s 74 billion "hile e(orts "ere *sD6 bn#
The above grah sho"s the ercentage of harmaceutical roducts e(ort by
various countries#
INTRO"!CTION TO RANBAXY
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“Ranbaxy Laboratories Limited (Ranbaxy) is
a research based international
pharmaceutical company serving customers
in over 150 countries. For more than 50years, e have been providing high !uality,
a"ordable medicines trusted by healthcare
pro#essionals and patients across
geographies.”
*anba(y :aboratories :td# "as incororated in une 3=53, in the name of MFS
:E-ITIT *A$BAH :AB)*AT)*IES :T+ and it commenced its business in
MA*/1 3=57, in technical and financial collaboration "ith an international
comany named :E-TIT S-A, MI:A$, ITA:H#
*anba(y :aboratories -vt# :td# merged "ith :etit *anba(y :aboratories -vt#
:td#J in 3=57 *anba(y and comany also merged "ith this comany in 3=55#
The collaboration arrangement "ith MFS :E-TIT "as terminated in 3=55K after
"hich Indian nationals ac&uired the entire share caital of the comany#
Therefore the "ord :etit "as removed from the name of the comany# The
name is kno"n as *A$BAH :AB)*AT)*IES :IMITE+# In 3=68 the
comany issued shares to the general ublic and became a full fledged -UB:I/
:IMITE+ /)M-A$H
#
At resent *anba(y have four lants for the manufacture of bulk drugs t"o at
Mohali, one at +e"as ?M#-@ A$+ Another at Toansa near *)-A*# At resent,
*anba(y is the second most Indian comany engaged in the manufacturing of -harmaceuticals, Bulk +rugs and %ine /hemicals#10
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$ission
%&nriching lives globally,
ith !uality and a"ordable
pharmaceuticals'
ision"Achieve signifcant business in
proprietary
prescription products
With a strong presence in developed markets"
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/AL!ES
O)
RANBAXY LABORATORIES LIMITE"
1. Achieving cu2to,e# 2at&2'act&on is fundamental to our business
2. -rovide roducts and 2e#3&ce2 o' t$e $&%$e2t 7ua+&ty
3. -ractice d&%n&ty and e7u&ty &n #e+at&on2$&*2 and rovide oortunities
for our eole to reali'e their full otential
4. Ensure *#o'&ta8+e %#o4t$ and enhance "ealth of the shareholders
5. %oster mutually beneficial #e+at&on2 4&t$ a++ ou# 8u2&ne22 *a#tne#2
6. Manage our oerations "ith high concern for 2a'ety and en3on,ent
7. Be a resonsible co#*o#ate c&t&6en
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OBJECTI/ES
O)
RANBAXY LABORATORIES LT"(
3# To be a leader in the -harmaceutical industry#
7# To be a rofitable comany "ith a steady gro"th in earnings#8# To set an e(amle as a socially resonsible comany#
9# To diversify in health care related areas#
;# To strive for e(cellence and continuous imrovement in all sheres#
5# To imrove the &uality of life of eole by roviding better services and
&uality roducts#
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JOINT /ENT!RE O) TE COMPANY(
7444 *anba(y files I$+ Alication for Asthma Molecule2*B(958D, after successful comletion of re2clinicalstudies# *anba(y ac&uires Bayers Generics business?trading under the $ame of Basics@ in Germany#*anba(y forays into Bra'il, the largest harmaceuticalmarket in South America and achieves global sales of
U#S# 7#; million in this market#
7443 *anba(y took a significant ste for"ard in 0ietnam by initiating the Setting u of a ne" manufacturingfacility "ith an investment of U#S# 34 million#*anba(y achieved a turnover of U#S# ;47 millionfor the year 7447 and moved closer to achieving atarget of 3 billion dollar by 7449#
7447 *eceives aroval from %+A to market Mida'olam1ydrochloride Syru 7 Mg baseF ml# *anba(yreceives and aroval from %+A to manufacture andmarket /efodo(ime -ro(etil for )ral Susension,:isinoril L 1ydrochlorothia'ide Tablets Us,Tera'osin 1ydrochloride /asules and Amo(cillin)ral susension US-#1eralding the comanys entryinto the Indian )T/ market#
7448 *anba(y received the economic times a"ard for cororate e(cellence2for the comany for year#*anba(y signed an agreement to ac&uire *-G?Aventis@ SA along "ith its fully o"ned subsidiary,)-I1 SA*:, in %rance
7449 *anba(y launched its first range of herbal ro!ects#
744; Ac7u&2&t&on o' add&t&ona+ 2ta5e &n Ran8a9y P$a#,aceut&ca+ Ltd(DB#a6&+ *anba(y announced the ac&uisition of Be2Tabs
-harmaceuticals ?-ty@ :imited
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744D Ac&uired by the aanese giant, the =#57 billion+aiichi Sankyo, ranked $o# 8 in aan
BRIE) INTRO O) RANBAXY PLANTS IN IN"IA
In the chemical division, various bulk drugs are manufactured# The
chemical division had three units in -un!ab# )ne is located at Toansa, t"o are
located at Mohali and one unit is located at +e"as near Indore in Madhya
-radesh, "here /iroflo(acine is manufactured# In the lant of the chemical
division, various drugs like Antibiotics, Anti2malarial, Antibacterial and Anti2
ulcer are manufactured# )ne of the older lants of *anba(y "as closed after the
accident in une 7448#the second one is still "orking
The 3==3, the Toansa lant started functioning in 3==7 and the +e"as lant
started functioning in 3===# 0arious lant heads indeendently manage all these
lants#
In each unit, searate facilities "ith resect to the manufacture of drugs, along
"ith their manufacturing areas have been rovided# This is re&uired to reduce
the chances of any cross contamination under the drug la"s and to comly "ith
good manufacturing ractices#
At Mohali lant, searate blocks have been rovided for the rearation of each
drug #The Toansa, Mohali and +e"as lants are lanned in such a "ay that their
system, facilities, manufacturing ractices and standards meet the re&uirements
of %+A# Mohali -lant also mainly in the manufacturing of Active
-harmaceutical Ingredients ?A-I@# The -lant is divided into t"o lant areas AD
and A=
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WORKING CAPITAL MANAGEMENT
INTRO"!CTION
As levers of financial management go, none bears more "eight than "orking
caital# The viability of every business activity rests on daily changes in
receivables, inventory and ayables# Its the lifeblood of the business, and
every managers rimary task to kee it moving and ut shareholders caital to
"ork efficiently and effectively#
.orking /aital is the caital used for the day2to2day oerations in the
organi'ation# It denotes the money that circulates in the organi'ation for smooth
functioning of the organi'ation#
Good management of "orking caital "ill generate cash, hel to imrove the
rofits, solidify the relationshis "ith suliers and customers, and reduce risks#
This ro!ect "as undertaken to analy'e the "orking caital olicies, "orking
caital management of the comany and to reduce do"n their roblems and
finding the solutions "ith resect to the "orking caital management of the
comany#
.orking in an organi'ation, esecially "ith a brand like *A$BAH the main
ob!ective is to learn ma(imum from the intellectually stimulating mentors and
multi2dimensional colleagues in the organi'ation#
• To 2tudy and co,*a#e t$e 4o#5&n% ca*&ta+ o' RANBAXY 4&t$ &t2
co,*et&to#2 &n t$e &ndu2t#y
• To 2ee 4$et$e# t$e co,*any &2 *#e*a#ed 4&t$ enou%$ 4o#5&n%
ca*&ta+ to 'ace any 5&nd o' cont&n%enc&e2(
• To a22e22 L&7u&d&ty *o2&t&onD Lon% te#, 2o+3encyD o*e#at&ona+
e''&c&encyD and o3e#a++ *#o'&ta8&+&ty o' RANBAXY
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/a+ue Add&t&on 'o# t$e co,*any
A "ell designed and imlemented "orking caital management is e(ected to
contribute ositively to the creation of a firms value The urose of this ro!ect
is to e(amine the trends in "orking caital management and its imact on
firms erformance#
This ro!ect "ould hel *anba(y in comaring its financial status "ith its
cometitors# The in deth analysis might bring out some key issues that may be
ignored but may rove significant for the comany# 0arious analyses conducted
for analy'ing the "orking caital "ill rove beneficial to the comany#
Wo#5&n% Ca*&ta+;
Wo#5&n% Ca*&ta+ &nc+ude2 t$e cu##ent a22et2 and cu##ent +&a8&+&t&e2 a#ea2
o' t$e 8a+ance 2$eet( Wo#5&n% Ca*&ta+ can 8e ca++ed 8y &t2 a+te#nat&3e na,e
: Net Cu##ent A22et2F(
.orking /aital Management is the rocess of lanning and controlling thelevel and mi( of current assets of the firm as "ell as financing these assets# It
may be regarded as a life blood of a businessK its effective rovision can do
much to ensure the success of a business, "hile its efficient management may
lead not only to loss of rofits but loss to ultimate do"nfall in a going concern#
Analysis of "orking caital is of ma!or imortance to internal and e(ternal
analysis because it is closely related to the current day2to2day oerations#
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WORKING CAPITAL INCL!"ES )O!R
BALANCE SEET ITEMS
• Stoc5 2 stocks of ra" materials, artly comleted roduction and finished
goods a"aiting sale#
• "e8to#2 2 amounts o"ed to the comany, mainly from customers in
resect of sales made on credit#
• C#ed&to#2 2 amounts o"ed BH the comany, mainly to suliers of ra"
materials, services ?electricity, "ater, telehone, rent, etc#@ but also,
ossibly, unaid ta( demands, unaid dividends and other items#
• Ca2$ 2 bank balances, cash holdings and short2term investments#
T$e t$#ee ,ao# c$a#acte#&2t&c2 o' cu##ent a22et2 a#e;
• They have a short life san#
• /ash balances are held only for a "eek or so#
• They are raidly transformed into other assets form#
So,e o' t$e dec&2&on2 ta5en &n 4o#5&n% ca*&ta+ ,ana%e,ent a#e;
• An ade&uate suly of ra" materials#
• /ash to meet the oerational ayments#
• The ability to grant credit to customers#
• Investment in various current assets#
• Aroriate sources of fund to finance current assets#
• -roortion of long term and short term funds to finance current assets#
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O8ect&3e o' Wo#5&n% Ca*&ta+ Mana%e,ent>
• T"o fold ob!ective of "orking caital management
• Maintenance of "orking caital, and
• Availability of amle funds at the times of need#
!2e2 o' Wo#5&n% Ca*&ta+;
• The tyical uses of "orking caital are as follo"s>
• Ad!usted net loss from oerations
• -urchase of non2current assets>
• *eayment of long2term debt ?debentures or bonds@ and short2term debt
?bank borro"ing@
• *edemtion of redeemable reference shares
• -ayment of cash dividend#
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A"/ANTAGES O) A"EH!ATE WORKING
CAPITAL
• Inc#ea2e &n de8t ca*ac&ty and %ood4&++> Ade&uate "orking caital
reresents the financial soundness of the comany# If one comany is
financially sound it "ould be able to ay its creditors timely and
roerly# It "ill increase comanys good"ill# Thus a firm "ith ade&uate
"orking caital can raise re&uisite funds from market, borro" short2term
credit from banks, and urchase inventories of ra" materials, etc#, for thesmooth oeration of its business#
• Inc#ea2e &n *#oduct&on e''&c&ency> .ith ade&uate "orking caital the
firm can smoothly carryout research and develoment activities and thus
adds to its roduction efficiency#
• E9*+o&tat&on o' 'a3o#a8+e o**o#tun&t&e2> In the resence of ade&uate
"orking caital, a comany can avail the benefits of favorableoortunities# Ade&uate "orking caital "ill hel the comany to have
bulk urchases, seasonal storage of ra" material etc#, "hich "ould
reduce the cost of roduction#
• Meet&n% cont&n%enc&e2 and ad3e#2e c$an%e2> A comany can easily
face certain business and economic crises# A comany having ade&uate
"orking caital can successfully meet contingencies such as business
oscillations, financial crisis arising from heavy losses etc#
• A3a&+a8+e ca2$ d&2count> Maintenance of ade&uate "orking caital
enables a comany to avail the advantage of cash discount by making
cash ayments for to the suliers of ra" materials and merchandise#
• Att#act&3e "&3&dend to S$a#e$o+de#2> It enables the comany to offer
attractive dividend to the shareholders so that sense of security and
confidence "ill increase among them# It also increases the market value
of its shares#20
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"ISA"/ANTAGE O) INA"EH!ATE WORKINGCAPITAL
• Lo22 o' %ood4&++ and c#ed&t4o#t$&ne22; As the firm fails to honor its
current liabilities it loses it good"ill and credit"orthiness among its
creditors#
• ), cant ,a5e u2e o' 'a3o#a8+e o**o#tun&t&e2> The firm fails to
undertake the rofitable ro!ects, "hich not only revent the firm from
availing the benefits of favorable oortunities but also stagnate its
gro"th#
• Ad3e#2e e''ect2 o' c#ed&t o**o#tun&t&e2; The firm also fails to avail the
attractive credit oortunities but also stagnate its gro"th#
• O*e#at&ona+ &ne''&c&enc&e2; It leads the comany to oerating
inefficiencies, as day2to2day commitments cannot be met#
• E''ect2 on '&nanc&a+ ca*ac&ty; Inade&uacy of "orking caital also
"eakens the shock2absorbing caacity of the firm because it cannot meet
the contingencies arising from business oscillations, financial losses, due
to shortage of "orking caital#
• Non:ac$&e3e,ent o' P#o'&t Ta#%et; The firm cannot imlement
oerational lans due to unavailability of fund, "hich "ill lead to non2
achievement of rofit targets#
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"an%e#2 o' Redundant 4o#5&n% ca*&ta+
• :o" rate of return on caital
• +ecline in /aital and Efficiency
• :oss of Good"ill and /onfidence
• Evils of )ver2/aitali'ation
• +estruction of Turnover *atio
/omany must have ade&uate "orking caital ursuant to its re&uirements# It
should neither be e(cessive nor inade&uate# Both situations are dangerous#.hile inade&uate "orking caital adversely affects the business oerations and
rofitability, e(cessive "orking caital remains idle and earns no rofits for the
comany# So comany must assure its "orking caital is ade&uate for its
oerations#
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CAPTER:
NEE" O) TE ST!"Y
.orking caital management lays a vital role in any organi'ation and one
should have a thorough kno"ledge about the "orking caital osition#
In vie" of this conte(t, I have undertaken this study and it "ould be a great
advantage to the comany also to kno" its "orking caital#
SCOPE O) TE ST!"Y
Scoe of the study "as confirmed to internal environment only# The study based on the secondary data collected from annual reort, internet etc# #
%inancial statement analysis is the rocess of identifying the financial ositionof the comany# After duly recogni'ing the imortance of financial statementanalysis of this toic has been chosen as the focus of the ro!ect#
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OBJECTI/ES O) TE ST!"Y
•
P#&,a#y o8ect&3e; o To find out the "orking caital osition of the comany for the last
five financial years#
• Seconda#y o8ect&3e;
o To kno" the li&uidity osition of the firm#
o To study the rofitability of the comany
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CAPTER:>
RE/IEW O) LITERAT!RE
.orking caital olicy refers to the firms olicies regarding
3@ target levels for each category of current oerating assets and liabilities, and
7@ ho" current assets "ill be financed#
Generally good "orking caital olicy ?i#e# under conditions of certainty@ is
considered to be one in "hich holdings of cash, securities, inventories, fi(ed
assets, and accounts ayables are minimi'ed# The level of accounts receivables
should be used as a means of stimulating sales and other income# -revious
literature on "orking caital management has found a negative association,
overall, bet"een level of "orking caital and oerating erformance as
measured by oerating returns and oerating margins ?-eterson and *a!an,
3==6@# Under conditions of certainty ?i#e# sales, costs, lead times, ayment
eriods, and so on, are kno"n@, firms have little reason to hold more "orking
caital than a minimum level# :arger amounts "ould increase the level of
oerating assets, increase the need for e(ternal funding, resulting in lo"er
return on assets and a lo"er return on e&uity, "ithout any increase in rofit#
1o"ever the icture changes "hen uncertainty ?i#e# uncertain gro"th@ is
introduced ?Brigham and 1ouston, 7444@# :arger amounts of cash, securities,
accounts receivables, marketable securities, inventories, and fi(ed assets "ill be
needed to suort increased sales *e&uired levels "ill be based on e(ected
sales levels and e(ected order lead times# Additional holdings may be needed
to enable the firm to deal "ith deartures from the e(ected values# %urther,firms "ill also attemt to increase their accounts ayable balances as a means of
financing increased levels of current oerating assets# %irms "hich are in high
gro"th stages "ill face the challenge of maintaining the necessary level of
oerating assets to suort subse&uent gro"th, "hile at the same time
attemting to maintain ade&uate erformance indicators#
This study focuses on understanding ho" I-) comanies manage their "orking
caital and other balance sheet items to suort subse&uent gro"th# This studysuorts the e(isting literature on "orking caital and contributes to the
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e(isting literature by e(amining a samle of firms ?i#e# recent I-) firms@ "hich
have a "ider range of gro"th levels than non2I-) firms# )ur study e(amines
the imact of "orking caital management on the oerating erformance and
gro"th of ne" ublic comanies# The study also e(amines these relationshis
under three categories of gro"th ?i#e# negative gro"th, moderate gro"th, and
high gro"th@# The study also e(amines other selected firm characteristics in
light of "orking caital management> firm oerating and financial risk, amount
of debt, firm si'e, and industry#
An underlying theme of this study is that high gro"th certainly does not ensure
high oerating erformance# /onsistent "ith rior research ?-eterson and
*a!an, 3==6@ this study rovides further evidence that good "orking caital
management is ositively associated "ith better oerating erformance# 1igher
levels of accounts receivable are associated "ith higher oerating erformance,in all three of the gro"th rate categories# The study also finds that maintaining
control over levels of cash, securities, inventory, fi(ed assets, and accounts
ayables is associated "ith higher oerating erformance# .e find that firms
"hich are e(eriencing very high gro"th "ill hold higher levels of cash,
securities, inventory, fi(ed assets, and accounts ayable to suort the high
gro"th# The study suggests that these firms are sacrificing oerating
erformance ?acceting lo"er oerating returns@ to suort the high gro"th#
This, in turn, increases financial and oerating risk for these firms# -erhas I-)firms should stay more focused on their oerating erformance, "hile
maintaining more moderate gro"th levels
Another asect of this study is that it fills a void in the initial ublic offerings
literature# *ecent literature finds that ne" ublic comanies undererform the
market after going ublic# *itter in his 3==3 aer reorts substantially lo"er
stock returns for I-) firms bet"een 3=6; and 3=D9 than for a si'e2and2
industry2matched samle of seasoned firms# Since then there is a gro"ingliterature e(laining I-) undererformance as related to agency cost ?Smith,
3==4@, institutional holdings ?%ield, 3==;@, venture caital ?ain and Gomers,
3==6K ain and ini, 7444@, market timing of I-) ?Benninga, 7449@, and
earnings management ?Teho et al#, 3==DK Ahmad2'aluki et al#, 744D@# 1o"ever,
there is no study linking the "orking caital management and ost2I-)
erformance# )ur aer tries to fill the void# The findings of this study "ould
be interesting to investors and creditors of ne" ublic comanies#
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CAPTER:
RESEARC METO"OLOGY
A study by analy'ing the trends of "orking caital of the firm and to e(amine
the ossible causes for any significant differences# The data has been collected
from the financial statements# %or the urose of this study, rofitability is
measured by *eturn on Total Assets ?*)TA@, "hich is defined as rofit before
interest and ta( divided by total assets#
A comrehensive measure of rofitability is best catured 8y co,*ut&n% t$e
#etu#n on tota+ a22et2 4$&c$ &2 e7ua+ to t$e tota+ +&a8&+&t&e2 o' t$e ',2D
,ade u* ,a&n+y o' e7u&ty ca*&ta+ and cu##ent +&a8&+&t&e2(
All imortant ratios have been calculated to kno" the financial health of the
comany "ith the hel of ast trends, mainly rofitability < return ratios
considered in section I of analysis art#
All imortant comonents of "orking caital have been analy'ed in detail i#e#,
Inventory, /ash, and -ayables etc
T$e ,et$odo+o%y to 8e ado*ted &2 a2 'o++o42;
• /ollection of financial data of *A$BAH and +r *eddy from annual
reorts and comanys internal resources#
• /omutation of various financial ratios and comaring them "ith
standards and "ith each others#
• Analy'ing the trends of "orking caital of the firm and to e(amine the
ossible causes for any significant differences#
• 0arious tools of analysis like *atio analysis etc to be alied#
• All imortant comonents of "orking caital to be analy'ed in detail i#e#
*eceivables, Inventory, /ash, -ayables and )erating cycle#
• Making comarison of the above comutations "ith that of +r *eddys
and industry standards#
• Analysis of results, dra"ing conclusions and giving recommendations#
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CAPTER:
)INANCIAL PER)ORMANCE O) RANBAXY
P#o'&t a'te# Ta9 -PAT. : R2 &n c#o#e
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Sa+e2 -R2 &n c#o#e.
Though the Sales of the comany had been on a constant increase over the last9 years, there "as a sudden fall in the -rofit After Ta( in 7433# The key reason
for the sudden fall in -AT is Miscellaneous E(enses occurred in the comany #
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Co,*a#&2on 4&t$ t$e Indu2t#y Standa#d2
The follo"ing financial comarison has been made keeing in vie" the scale of
oerations of the comany and the Industry Standards# The Industry standards
have been taken from /entre for Monitoring Indian Economy ?/MIE@, March7437#
The follo"ing is the list of /omany taken for /omarison>
3# +r *eddys :aboratories
7# *anba(y :aboratories :td#
%or any comany functioning in the free market, its imortant ho" best it
oerates but this is e&ually imortant that ho" it erforms via2a2via its rivals i#e#other similar comanies in the market# 1ere, to find out about *anba(y, a
comarison has been made "ith +r *eddys :aboratories oerating on
comarable si'e to see "hether *anba(y is follo"ing industry norms or not or
"hether *anba(y is doing better ?or "orse@ comared to its rivals# Its li&uidity
osition has been comared by considering .orking /aital Turnover *atio,
/urrent *atio and Nuick *atio and further -rofitability of *anba(y "ith +r
*eddys :aboratories have been comared by considering *eturn on /aital
Emloyed and Earnings er share#
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L&7u&d&ty Rat&o2
The li&uidity refers to the availability of cash and cash convertible assets "ith
an organi'ation to meet its short2term obligations i#e# creditors and other
/urrent :iabilities# Any comanys li&uidity may vary due to seasonality, the
timing of sales, and the state of the economy# But li&uidity ratios can rovide
small business o"ners "ith useful limits to hel them regulate borro"ing and
sending#
1( Wo#5&n% Ca*&ta+ Tu#no3e# Rat&o
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It is a measurement comaring the deletion of "orking caital to the
generation of sales over a given eriod# This rovides some useful information
as to ho" effectively a comany is using its "orking caital to generate sales#
A comany uses "orking caital to fund oerations and urchase inventory #
These oerations and inventory are then converted into sales revenue for the
comany # The "orking caital turnover ratio is used to analy'e the relationshi
bet"een the money used to fund oerations and the sales generated from these
oerations# In a general sense, the higher the "orking caital turnover, the
better it is because it means that the comany is generating a great degree of
sales as comared to the money it utili'es#
%rom the Industry comarison, it is aarent that *anba(y is lo" than the
Industry standards in 7437 "hich imlies that the sales generated by *anba(y
:aboratories has been less than the cost incurred to generate those sales#
( Cu##ent Rat&o
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The current ratio of *anba(y has been comared "ith +r *eddys :aboratories
for the year 7437# A /urrent ratio measures the ability of an entity to ay its
near2term obligations# Though the ideal current ratio deends to some e(tent on
the tye of business, a general rule of thumb is that it should be at least 7>3# The
higher the current ratio, the greater the OcushionO bet"een current obligations
and a firms ability to ay them# A lo"er current ratio means that the comany
may not be able to ay its bills on time, "hile a higher ratio means that the
comany has money in cash or safe investments that could be ut to better use
in the business#
The ideal /urrent ratio to be maintained by the harmaceutical cannot be
accurately assessed because the scale of oerations and the inventory si'e has
been different for all the concerns in the Industry# According to /MIE Industry
Standards the current ratio for 7433 is 3#95
As er the above grah, the /urrent ratio maintained by *anba(y in 7437 is
above the normal industry standards#
>( Hu&c5 Rat&o
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Nuick *atio also kno"n as OAcid Test *atio‟ is an even conservative measure
of li&uidity# The ratio e(resses the degree to "hich a comanys current
liabilities are covered by the most li&uid current assets# 1ere Nuick assets
include all current assets e(cet inventories#
A high ratio indicates under stocking and lo" ratio indicates over stocking#
Stock is e(cluded because it may take time to be converted into cash# Nuick
ratio measures those assets, "hich are immediately converted into cash "ithout
much loss# Though there is no "ay to measure an ideal Nuick ratio but as a rule
of thumb, it should be at least 3>3#
%rom the above comarison, it can be inferred that a *anba(ys /urrent
liabilities is less than the +r *eddys :aboratories #
P#o'&ta8&+&ty Rat&o2
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-rofit is the difference bet"een revenue and e(enses over a eriod of time#
The rofitability ratios are calculated to measure the oerating efficiency of the
comany#
1( Retu#n on Ca*&ta+ E,*+oyed
A return on caital emloyed, also called earning o"er is a measure of
business erformance "hich is not affected by interest charges and ta(2burden#
It abstracts a"ay the effect of caital structure and ta( factor and focuses on
oerating erformance#
Retu#n on Ca*&ta+ e,*+oyed P#o'&t Be'o#e Ta9 Tota+ A22et2
As comared to +r *eddys :aboratories, *anba(y has less /aital emloyed#
( Ea#n&n%2 *e# S$a#e-EPS.
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E-S states a cororations rofits on a er share basis# It can be helful in
further comarison to the market rice of the stock# It is an inde( of rofitability
from shareholders oint of vie"# The higher the earning er share, the more
attractive "ill be the investment lan#
Ea#n&n%2 *e# 2$a#e P#o'&t a'te# ta9 Nu,8e# o' e7u&ty 2$a#e2
%rom the Industry comarison, it is clear that the earnings er share for the
E&uity Shareholders of *anba(y are negative# The main reason for the figure of
E-S being negative is the drastically lo" -rofits it has incurred in the year
7437#
LIH!I"ITY ANALYSIS O)
RANBAXY LABORATORIES LIMITE"
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:i&uidity of any comany is the indicator as to ho" the comany is laced "ith
reference to its caacity to meet its current financial obligation# This means that
here "e have to consider the current assets "hich can be easily converted into
cash to meet its immediate financial obligations or dues# :i&uidity osition of
*anba(y :aboratories :imited has been analy'ed in the follo"ing aragrahs
based on different measures#
Cu##ent A22et2
*anba(y has a gro"th of around 76;C in current assets over the eriod of five
years# %rom *s 7767#=7 crore in 744D comany has increased its current assets
to 5447#;4 crore#
Cu##ent L&a8&+&t&e2
%rom 744D to 7437, current liabilities for *anba(y :aboratories have increased
from *s 9;63#83 /r to *s 57D9#75 "ith average current liabilities over this eriod being *s ;945#56 /r# As "e see here, gro"th rate for current liabilities in
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this eriod has been 394 C "hich is half than the gro"th of current assets
"hich sho"s that current liabilities have increased at slo"er ace than its
corresonding assets#
Net Wo#5&n% Ca*&ta+
$et "orking caital is an imortant measure "hich itself indicate margin of
safety or cushion of rotection rovided to the creditors# As the follo"ing
diagram sho"s, the comany has negative net "orking caital in 744D and 744=and then net "orking caital start increasing# The greater the amount of net
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"orking caital, the greater the li&uidity of the firm# $./ of the comany
increased from *s 23;56#3= to *s 766;#75 /r# $et "orking caital in the year
744D is negative because increase in current liabilities is more than the current
assets "hich has let to decline in $et "orking caital#
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Rat&o Ana+y2&2
Even though above analysis based on comosition rovide some indicator to the
li&uidity osition of the comany, these do not sho" the e(tent of margin of
safety rovided for current creditors# %or this, ratio analysis has been done as
follo"s>
Cu##ent Rat&o
*elationshi bet"een current assets and current liabilities is sho"n by current
ratio# It basically measures comanys ability to meet its short term obligation
out of its short term resources# 1igher the current ratio, the greater is the
assurance of the ability to ay the current liabilities and vice versa# 1o"ever,even though a higher value of current ratio is good for the creditors against their
credit, it may not be good for the management as it "ill indicate oor financial
lanning and over caitali'ation# In normal circumstances, hyothetical norm of
7>3 is suosed to be a good current ratio and if the current ratio for the
comany is less than that, the solvency or li&uidity of the comany becomes
&uestionable#
As it is evident from the grah that the comany had an average current ratio of
3#7 over the eriod of five years from 744D to 7437# 1o"ever, as it is clear from
the data that it varied from 3#9 to 4#D "hich sho"s a variation over the years#
%urther, a current ratio of less than 7 is normally not suosed to be good as
such it can be considered the comany assed through a difficult hase of li&uidity#
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Hu&c5 Rat&o o# Ac&d Te2t Rat&o
/urrent assets sometime also include a high amount of slo" moving inventory
or "hich may not move at all "hich means that even though current ratio of a
comany is very high, even though it may not be in a osition to meet its
immediate liabilities# %or that, an analysis of &uick ratio is also needed "hich
sho"s the e(tent of cushion rovided from the &uick assets to the current
creditors# This ratio e(cludes the inventory and bank overdraft, "hich are
normally difficult to reali'e at short notice# Nuick ratio is defined as the ratio of
&uick assets to &uick liabilities# Under normal circumstance, an ideal &uick ratio
of 3>3 is suosed to be good enough "hich "ill reflect a satisfactory current
financial condition#
Above data for *anba(y :aboratories indicates that Acid Test *atio for the
eriod under study has consistently been belo" 3 e(cet for 7434 "here it "as
highest of 3#5# It sho"s that the comany has a healthy li&uidity osition in this
eriod# As such, considering the above data, it can be said that comanys
immediate ayment osition "as satisfactory and its li&uid assets "ere ade&uate
to meet its short term obligations#
In3ento#y to Sa+e2 Rat&o o# In3ento#y Tu#no3e# Rat&o41
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*elationshi bet"een the sales and average stock ket by the comany is
normally reflected by the Inventory to Sales *atio "hich is also called as
Inventory Turnover *atio# This is also an indicator for the li&uidity of the
concern as it "ill reflect the rate at "hich inventories are being converted into
sales and subse&uently cash# A higher inventory to sales ratio "ill sho" higher
efficiency on the art of the management and vice versa#
%ollo"ing grah sho"s that Inventory Sales *atio varied from 9#46 in 744D to
8#55 in 7437# )n an average, the value of Inventory Sales *atio remained 9#4
for this eriod, the inventory management of the comany can be said to be
satisfactory from 744D to 7437
"e8to#2 to Sa+e2 Rat&o o# "e8to#2 Tu#no3e# Rat&o
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A comany adots a olicy for credit and collection and this is imortant to find
out ho" the debtors are erforming over the year# +ebtors to Sales *atio or
+ebtors Turnover *atio is the indicator of number of times the debtors are
turned over during the year# Since debtors constitute a ma!or element of current
assets, the credit and collection olicy of a concern must be under continuous
"atch# The li&uidity of a firm deends uon the &uality of debtors to a great
e(tent# +ebtors Turnover *atio measures the raidity or slo"ness of debtors‟
collectability# Generally, the higher the value of the debtors‟ turnover ratio, the
more efficient is the management of assets#
As has been seen in the follo"ing grah, initially debtors to sales ratio for
*anba(y in 744D "as 9#DD and in 7437 it goes to 7#95# This sho"s that the
debtors turnover ratio in the *anba(y is not a good sign from the li&uidity oint
of vie"#
Cu##ent A22et2 to Sa+e2 Rat&o
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/urrent Assets Turnover *atio or /urrent assets to sales ratio is alied to
measure the turnover and rofitability of the total current assets emloyed to
conduct the oerations of a firm# This is calculated by dividing the amount of
sales by the amount o f current assets# This "ill give an overall imression of
ho" raidly the total investment in current assets is bring turned# :o"er the
turnover of the current assets, the "orse is the utili'ation of current assets and
vice2versa#
This is to say that analysis of current assets to sales ratio over a eriod of time
"ill sho" the overall efficiency of the "orking caital management of the
comany#
%ollo"ing grah sho"s that the comany over the eriod of time has reduce its
efficiency as it is reflected by the figures that /urrent Assets to Sales *atio has
decline from 7#39 in 744D to 4#=6 in 7437# It sho"s that the decreased volume
of current assets in relation to sales "as ut in a commercially cautious manner#
CRE"IT ANALYSIS
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Besides establishing credit standard, a firm should develo rocedures for
evaluating credit alicants# The second asect of credit olicy of a firm is
credit analysis and investigation#
There are t"o stes involved in the credit investigation#
• )btaining /redit Information
• Analysis of /redit Information
O8ta&n&n% o' c#ed&t &n'o#,at&on
The first ste in credit analysis is obtaining credit information on "hich to the
base evaluation of a customer# The sources of information are>
Inte#na+ Sou#ce2> Usually comany re&uires their customers to fill various
forms and documents giving details about financial oerations# Some times
comany also asks for references# Another source of internal information is the
records of the firm contemlating an e(tension of credit#
E9te#na+ Sou#ce2> Some of the e(ternal sources of information are
• %inancial Statements
• Bank *eferences
• Trade *eferences
• /redit Bureau *eorts
Ana+y2&2 o' c#ed&t &n'o#,at&on
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)nce the credit information has been collected from different sources, it should
be analy'ed to determine the credit "orthiness of customer# The analysis should
cover t"o asects# Nuantitative Analysis The assessment of the &uantitative
asects is based on the factual information available from the financial
statements, ast records of the firm and so on#
%irst ste in this assessment is to reare an aging schedule to calculate
average age of accounts ayable# Another method is ratio analysis, i#e#
calculation of li&uidity, rofitability and debt caacity ratios, of the alicant#
These ratios "ill hel to find out financial strength of alicant#
Nualitative Analysis This tye of assessment is based on sub!ective !udgment# It
covers &uality of management, references from suliers, banks and other
reorts reared by secial credit bureaus# )n the basis of all these things
analysis "ill be dra"n under &ualitative analysis#
CRE"IT TERMS
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)ther imortant decision in receivables management is related to terms of
credit# The stiulations under "hich goods are sold on credit are referred as
credit terms# These are relates to the reayment of the amount under the credit
sale#/redit terms have three comonents>
• /redit -eriod
• /ash +iscount
• /ash +iscount -eriod
C#ed&t Pe#&od
It is the duration of time for "hich trade credit is e(tended P during this eriod
the overdue amount must be aid by the customer#
Ca2$ "&2count
This is the amount for "hich the customer can take advantage of by making
early ayment# Sometimes comany offer its customer a condition that if they
"ill ay amount early than the scheduled the time than they "ill get some
discount# This is called cash discount# /ash discount rovided by the comany
can affect the sales volume, average collection eriod and rofits of the
comany#
Ca2$ "&2count Pe#&od
It refers as duration during "hich the cash discount can be availed of# It is
directly related to sales generally# %or instance, if comany increases its cashdiscount eriod than its average collection eriod "ill also increase# .ith the
increase in average collection eriod sales level is also increases#
CRE"IT POLICIES
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/ollection olicies refer to the rocedures follo"ed to collect the account
receivables "hen, after the e(iry of the credit eriod they become due# It
includes t"o asects>
?i@ +egree of collection efforts and
?ii@ Tye of collection efforts#
"e%#ee o' Co++ect&on e''o#t2
It refers "hat degree of effortsK comany is using to collect its receivables# If
comany use strict efforts than bad debts costs "ill decline, and average
collection eriod "ill also reduce# But cost involved in this kind of strategy iscomaratively high# Also sales volume can be decline "ith this olicy# )n the
other hand, lenient efforts are !ust oosite to strict efforts# So comany has to
decide that method in "hich overall cost is lo" and revenue is high#
Ty*e o' co++ect&on e''o#t2
The methods available are
• Telehone calls for ersonal contacts
• :etters including reminders
• -ersonal 0isits
• 1el of /ollection agencies
• :egal Action
CRE"IT POLICY O) RANBAXY
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As "e kno" that a manufacturing comany is fre&uently deals "ith debtors and
most of its sales are credit sales# A huge amount of caital is blocked in to
receivables# Therefore to make an effective credit olicy is very imortant for
the comany# *anba(y is, like many other comanies, involves in both kinds of
sales i#e# domestic as "ell as e(orts# It have different credit olicies for both
domestic and e(ort customers#
)o# do,e2t&c cu2to,e#2> Most of the domestic sales of *anba(y are based on
advance ayment# Some art of contract money is received in advance and then
sale is made# *emaining amount is received later on# Generally, the credit
eriod allo"ed by *anba(y is u to 9; days but sometimes it "ent u to 54
days also ?only via rior aroval of management@# /omany also doesnt lan
for any bad debts losses, but if any bad debt haen than it has to be "ritten off
fully#
%or obtaining information related to the ne" alicants only internal sources are
used# As comany generally deals "ith blue chi comanies or old customers, it
is not a difficult !ob to obtain information about them# $o e(ternal source is
used by *anba(y#
And for the analysis art, comany use both &ualitative and &uantitative tools#
As er &ualitative tool, comany generally go for market reutation and ast
record of customer and for &uantitative tool, comany use the si'e of order,
financial osition of customer etc#
As far as collection efforts are concerned, comany generally uses lenient
efforts# But in some cases comany also go for strict methods# *anba(y
normally uses all tyes of collection efforts like letters including reminders,
telehone calls, ersonal visits < legal actions# But comany doesnt take hel
of collection agencies#
The collection cost is very nominal in domestic sales and difficult to determine#
.hereas caital cost is e&ual to the cost of "orking caital "hich is not
determined because of confidentiality#
)o# E9*o#t Sa+e2> %rom the sale data of *anba(y it "as found that around 55C
of sales are based on e(orts# Therefore it is very imortant area for lanning#49
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E(orts are based on letter of credit# A foreign comany "ho "ant to urchase
the material from *anba(y sent an :/ first# Than on the basis of that :/, e(ort
order is made# /oy of that order is sent to cororate office and head office at
Gurgaon and $e" +elhi resectively## %rom the manufacturing lants, the
material is disatched as er the e(ort order and :/ is sent to bank for
collection# Banks collects the amount and transfers it to *anba(ys account# $o
other credit olicy is resent for e(ort sale of *anba(y#
/ollection cost is around 4#; P 3 C of e(ort order# /aital cost is here also
e&ual to the "orking caital cost#
CAPTER:=
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LIMITATIONS O) ST!"Y
• Availability of the financial data "as very limited "hich is not disclosed
due to sensitive nature for the comany#
• The year ended for *anba(y is +ecember, and that of +r *eddys is
March# So figures taken are ast 9 years but 8 months difference is there
in the corresonding figures#
• The main comonent of "orking caital is cost of caital, "hich is notdescribed in the ro!ect because of confidential nature#
• E(ternal environment influence "as not considered "hile doing the
theoretical standard rather than the industrial standard because of
unavailability of any such secific standard#
• :ack of availability of lant related data to finance deartment "hich
acted as a limitation for the ro!ect#
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)IN"INGS O) ST!"Y
• There is a huge investment in "orking caital at *anba(y :aboratories
:imited, as it has a large roduction cycles# The comany follo"s a
steady roduction olicy and hence there are no seasonal variations#
Aggressive olicy of more rofitability, more risk is follo"ed, "hich is
an ideal situation as far as the strategy for "orking caital financing is
concerned# *anba(y has a good earning recordK thus it en!oys great
confidence of the suliers, as it is looked uon favorably#
• As far as comonents of "orking caital are concerned, on the domestic
front, sales have increased as "ell as the finished goods inventory has
also increased#
• The increase in the current ratio of 7437 as comared to that of the
revious year indicates that the li&uidity osition of the comany is
imroving# The inventory turnover ratio of the comany is not very high#
It should try to achieve a &uicker movement of stock into sales# There is
an inverse relationshi bet"een sales and "orking caital at *anba(y
:aboratories :imited#
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WORKING CAPITAL T!RNO/ER RATIO
• In general higher the ratio, more efficient is the management# Since
*anba(y :aboratories :imited has a lo" "orking caital ratio, it should
look carefully into this area to ensure its effective utili'ation#
"EBTORS T!RNO/ER RATIO
• After analysis of the debtors turnover ratio, it "as found out that
*anba(y :aboratories :imited has a lo" debtors turnover ratio, "hich
may be a result of a liberal and inefficient credit and collection olicy#
This involves the risk of bad debts and the burden of high interests# Thisis another area that should be looked into#
IN/ENTORY T!RNO/ER RATIO
• After analysis of this ratio, "e can conclude that *anba(y :aboratories
:imited is holding an unfavorable &uantity of inventory# Since, the
inventory turnover ratio is not very high, "e can conclude that the
management of inventory is not very efficient because the stocks are notsold very fre&uently, as a result of "hich a large amount of money is
re&uired to finance the "orking caital re&uirement#
H!ICK RATIO
• *anba(y has a satisfactory li&uidity osition#
C!RRENT RATIO
• A current ratio of 7>3 is considered to be a satisfactory# If the current ratio
is 7 or more, it means that the comany is ade&uately li&uid and has the
ability to meet its current obligations# A lo"er current ratio indicates that
the comany may be trading beyond its caacity# *anba(y :aboratories
:imited has a satisfactorily high current ratio but at same time it may
mean that the comany has idle cash "hich "hen invested can yield
returns to the comany#
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RECOMMEN"ATIONS AN" S!GGESTIONS
Pe#ta&n&n% to Wo#5&n% Ca*&ta+ Mana%e,ent;
• Management of the comany "ould be interested in every asect of the
financial analysis# It is their overall resonsibility to see that the firms
resources are most effectively and efficiently utili'ed to ensure a sound
financial osition of the comany#
• The financial olicy of "orking caital management olicy of the
comany has to be revised# The firm follo"s an aggressive olicy as far
as "orking caital management is concerned# According to this olicy,
*isk and -rofitability should be increased and the li&uidity should be
reduced# Though the comany has increased risk and reduced li&uidity,
the rofitability has not increased# This is an area into "hich the
management needs to look# %uture forecasts of cash should also be made
effectively in order to meet une(ected re&uirements#
• As far as the inventory osition is concerned, the comany doesnt have a
sound osition# Better the &uality, lesser "ould be the "ork2in2rocess#
The re!ected stock has to go through further modifications until the
&uality deartment aroves it# This therefore remains as "ork2in2rocess
and increases the value of the "ork2in2rocess# Seeding u the &uality
checks can reduce the holding time of finished goods#
• Efforts should be made to kee the norms u to date# Thus a &uarterly
revie" is suggested# $orms should be as realistic as ossible as to give a
correct estimate of the inventory levels# The firm should make consistent
efforts to increase its earnings in order to move to"ards the ath of
gro"th#
• It is suggested that the firm should neither have too high nor too lo"
debtor turnover ratio#
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• There is an increase in the current ratio suggesting that there may be idle
funds "ith the comany# It is therefore recommended that the comany
should invest the e(cess cash in marketable securities# This "ould be
more rofitable than holding idle cash#
• It may also be mentioned that there is no rule of thumb or standard ratio#
The norms may be different deending uon the nature of the industry
and business condition#
• *anba(y should focus on maintaining its consistency or increasing it as
there is a decline in their )erating -rofit from last 8 years# It can be
done by increasing its sales and decreasing its oerating costs# If
comanys oerating rofit "ill increase, then it "ill hel in increasing itsoverall rofitability#
• /omanys return ratios also need a check# Turnover ratios are
decreasing but not u to that e(tent# +r# *eddys, its nearest cometitor
have better turnover ratios "hich mean that *anba(y has scoe to lo"er
do"n its assets to maintain the same level of sales or increase its sales on
the same level of assets#
• As it "as clear that comany have high li&uidity in its caital structure, it
means a close observation is re&uired for the benefits of share holders# It
should channeli'e its investments to"ards those areas "here returns
"ould be higher#
• The comany should try to reduce its inventory holding to lo"er do"n
the holding cost < increase its *a" Material Turnover# It can also hel in
lo"er do"n the oerating cycle#
• The comany should also try to reduce its Average collection eriod to It
can also hel in lo"er do"n the oerating cycle#
• /omany can make some imrovements in their credit olicy# /urrently
they take advance before delivering the consignment# They can increase
the credit eriod as "ell, currently it is 9; to 374 days deending uon
different arties and their credit"orthiness#
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• As far as the cash management is concerned, its difficult to suggest
anything because I believe that comanys cash lanning is very good#
All the time comany looks for ne" investment oortunities in the
market on a reasonable rate of return#
• The reduction in inventory holding eriod can be done by more outsource
manufacturing#
• As comanys international sales are high ?55C@ and comany should
focus the domestic markets as "ell, as demand for healthcare roducts is
increasing in Indian market# Also it is their social resonsibility to
rovide ma(imum benefits to its domestic customers#
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Pe#ta&n&n% to Wo#5 Cu+tu#e and Wo#5&n% Cond&t&on2;
• Besides imroving the "orking efficiency of the emloyees, it is
imortant that the morale of the emloyees at "ork should be ket uthrough the follo"ing methods>
They could be rovided "ith rigorous training eriodically so that
they can be "ell versed "ith the technology rather than confining
their kno"ledge to their domain only#
They could be rovided "ith regular incentives both monetary and
non2monetary so that they have a ositive attitude to"ards their "ork# )n the contrary, this negative attitude becomes a bottleneck
for the emloyees and the s"iftness of the system as a "hole#
Emloyees are re&uired to give outut rather than utting in time
at their "orklace# Measures should be adoted to measure their
erformance rather than measuring their "ork hours# They can be
given deadlines both for a "ork and the time# %or this, timingscould be made fle(ible#
It is the inter2deendency of the emloyees "hich makes their "orking rigid
and lo"ers their efficiency# This could be removed or at least minimi'ed by
regular training and imroving the "orking conditions for the staff#
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Pe#ta&n&n% to Tec$no+o%y;
The follo"ing changes need to be inculcated in the rovision of technology to
the emloyees> The machines rovided to the emloyees are not u to the mark# There is
no uniformity in the seed and comatibility of systems# The systems
should be regularly ugraded# This "ould have an imact on the "orking
efficiency of the emloyees#
The number of machines on the floor at accounts deartment needs to be
increased because the e(isting systems are not able to do the needful#
The SA- system is over2loaded due to e(haustive usage# This needs to
be corrected by taking the re&uired measures# It can be rectified by
changing or adding a server for suorting SA- in *anba(y#
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CONCL!SION
The study taught me the ractical imlementation of .orking /aital
techni&ues# The "orking caital management in *anba(y -harmaceutical -vt#:td# is done on very e(tensive scale# +ue to imlementation of ratio analysis, it
has become easy to do the "orking caital management# The recorder level
system "as also follo"ed earlier but due to busy schedule, they could not
revie" it so "e did this !ob for them#
+ecisions related to "orking caital are taken rimarily by e(ecutives in sales, urchase and finance deartments# Usually, ra" material olicies are shaed by
urchasing and roduction e(ecutives, "ork in rogress are influenced by the
decision of roduction e(ecutives, and finished goods inventory are evolved by
roduction and marketing e(ecutives#
In *anba(y -harmaceutical, "orking caital management is racticed on
regular basis# The manager and e(ecutives are "ell versed "ith "orking caital
management#
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CAPTER:@
BIBLIOGRAPY
Boo52 Re'e##ed;:
I M -andey, %inancial ManagementJ, $inth Edition, 0ikash -ublishing
1ouse -vt :td#
+r#S#$#Mahesh"ari, %inancial ManagementJ, Second Edition, Sultan
/hand < Sons#
*avi M# ishore, /ost AccountingJ,744D Edition, Ta(mann Allied
Servises -vt# :td
RE)ERENCES;:
• htt>FF"""#moneycontrol#comFfinancialsFranba(ylaboratoriesFbalance2sheetF*:
• htt>FF"""#ranba(y#comFabout2usFovervie"F
• htt>FF"""#moneycontrol#comFstocksFcomanyQinfoFrintQmain#h
• htt>FF"""#moneycontrol#comFfinancialsFdrreddyslaboratoriesFbalance2sheetF+*:
60
http://www.moneycontrol.com/financials/ranbaxylaboratories/balance-sheet/RLhttp://www.ranbaxy.com/about-us/overview/http://www.moneycontrol.com/stocks/company_info/print_main.phphttp://www.moneycontrol.com/financials/drreddyslaboratories/balance-sheet/DRLhttp://www.moneycontrol.com/financials/ranbaxylaboratories/balance-sheet/RLhttp://www.ranbaxy.com/about-us/overview/http://www.moneycontrol.com/stocks/company_info/print_main.phphttp://www.moneycontrol.com/financials/drreddyslaboratories/balance-sheet/DRL
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A**end&ce2
Ba+ance S$eet O' Ran8a9y
Standalone Balance Sheet ------------------- in Rs. Cr. -------------------
Dec '12 Dec '11 Dec '10 Dec '09 Dec '08
12 mths 12 mths 12 mths 12 mths 12 mths
Sources Of Funds
Total Share Capital 211.46 211.00 210.52 210.21 210.19
Equity Share Capital 211.46 211.00 210.52 210.21 210.19
Share Application oney 1.11 0.6! 6.60 1!5."5 1!5.66
#re$erence Share Capital 0.00 0.00 0.00 0.00 0.00
%eser&es 1'!09.51 1'!1(.16 4'915.2" ('!4".54 ('((0.92
%e&aluation %eser&es 0.00 0.00 0.00 0.00 0.00
Netorth 1!922.08 1!92".8# $!1#2."0 "!1#".%0 #!&1%.&&
Secure) *oans 944.1" 229.59 195.(9 1!5."( 162.0!
+nsecure) *oans ('"19.4( 4'10(.94 4'065.(( ('1!2.55 ('56(.(0otal De(t "!&%#.%1 "!###.$# "!2%0.&2 #!#"8.#8 #!&2$.#&
otal )ia(ilities %!%8$.%9 %!2$8.#% 9!#9#.12 &!"82.98 &!""2.1"
*++lication Of Funds
,ross -loc ('11".22 ('094.0! 2'"5!.6( 2'620.92 2'("6.!5
*ess/ Accum. epreciation 1'124.69 1'222.0! 1'145.52 1'02!.52 9(0.0!
Net Bloc, 1!99#.$# 1!8&2.00 1!&12.11 1!$9#."0 1!"$%.%8
Capital or in #roress 159.60 222.62 ((0.1" 414.92 42".!!
nest/ents #!1#1.1& #!"10.&9 #!80"."" #!8##.%9 #!%18.0#
3n&entories 1'!(1."4 1'655.2( 1'4"9.91 1'2(0.4" 1'19".52
Sun)ry etors 1'4(5."9 ('6"9.95 1'292.6( 1'5(4.65 1'024.54
Cash an) -an -alance 2'"(4.!! 66.90 22.44 25.56 49."6
Total Current Assets 6'002.50 5'412.0" 2'"04.9" 2'!90.69 2'2!2.92
*oans an) A)&ances 1'6"(.14 2'("2.!2 1'4!0.45 1'96!.65 2'(51.9"
ie) eposits 0.00 1'"!1.14 2'6"9."5 !2".56 1'""5.0"
Total CA' *oans 7 A)&ances !'6"5.64 9'665.94 6'965.2" 5'4"6.90 6'509.9"
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e$$ere) Cre)it 0.00 0.00 0.00 0.00 0.00
Current *iailities ('22!.24 5'15!.6" 2'491.0" ('0"2."9 ('"40.11
#ro&isions ('05!.02 ('!55.(1 92!."2 !6(.0( !(1.20
Total C* 7 #ro&isions 6'2"4.26 "'912.99 ('41".90 ('"45.92 4'5!1.(1
Net Current *ssets 1!"01.#8 &$2.9$ #!$"%.#8 1!%"0.98 1!9#8.%&
iscellaneous Epenses 0.00 0.00 0.00 0.00 0.00
otal *ssets %!%8$.%8 %!2$8.#% 9!#9#.11 &!"82.99 &!""2.1$
Continent *iailities (41.45 29!.50 2!6.1( 261.05 252."5
-oo 8alue %s: 45.42 45.60 121.!4 94.16 "4.24
P#o'&t Lo22 Ac O' Ran8a9y
Standalone rofit )oss account ------------------- in Rs. Cr. -------------------
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Dec '12 Dec '11 Dec '10 Dec '09 Dec '08
12 mths 12 mths 12 mths 12 mths 12 mths
nco/e
Sales Turno&er 6'((1.46 !'!09.1! 5'6"!.(( 4'!9!.49 4'6!6.21
Ecise uty 2!.91 22.5" 40.96 15.90 24.1!
;et Sales 6'(0(.55 !'6"6.59 5'646.(! 4'!"1.59 4'652.04
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Stoc A)>ustments 49.25 1(5.!2 161.4( ((.96 115.59
otal nco/e %!228. #!8#1.&" %!#&0.2$ $!#01.21 #!1&9.99
3+enditure
%a? aterials 2'45(.09 2'52(.0" 2'1"1.22 1'916.5" 2'049.(0
#o?er 7 uel Cost 2(0.91 194.9" 1(2.!5 109.5! 10"."(
Employee Cost 1'019.59 "45.24 60".2" 5"2.50 4!2.65
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er share data 5annualised6
Shares in issue lahs: 4'229.14 4'220.00 4'210.41 4'204.1! 4'20(.!0
arnin4 er Share 5Rs6 -#.8" -&2.#2 2&.28 1#.%1 -2".8$
Equity i&i)en) @: 0.00 0.0( 40.00 0.00 0.00
-oo 8alue %s: 45.42 45.60 121.!4 94.16 "4.24
7e FinancialRatios
Dec '12 Dec '11 Dec '10 Dec '09 Dec '08
nest/ent aluation Ratios
ace 8alue 5.00 5.00 5.00 5.00 5.00
i&i)en) #er Share == 0.00 2.00 == ==
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;et #ro$it arin@: =2.4! =(9.11 19.!4 11.!2 =22.02
A)>uste) ;et #ro$it arin@: =2.4! =(9.11 19.!4 11.!2 =22.02
%eturn
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Cash Flo ndicator Ratios
i&i)en) #ayout %atio ;et #ro$it == == ".54 == ==
i&i)en) #ayout %atio Cash #ro$it == == !.1( == ==
Earnin %etention %atio == == "6.64 100.00 ==
Cash Earnin %etention %atio 100.00 100.01 "9."1 100.00 100.00
A)>uste)Cash lo? Times 11.!6 (.2" 4.42 15.1( 4."(
Dec '12 Dec '11 Dec '10 Dec '09 Dec '08
Earnins #er Share =(."4 =!2.(2 2!.2" 1(.61 =24."5
-oo 8alue 45.42 45.60 121.!4 94.16 "4.24