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INTRODUCTION

LUPIN PHARMACEUTICAL

Mandideep I Mandideep II

Ankleshwa r Aurangabad

Tarapur

Goa

Jammu

The chairman of Lupin pharmaceutical is Dr. Desh Bandhu Gupta. Lupin ltd was founded on 9 th April 1968. In India Lupin have 20 brands in the TOP 3 of their respective products segments. The company is named after Roussel Hybrid, an Australian plant which has for centuries, served man and the environment. There are different branches of Lupin spread all over India. These branches are producing different product. The product wise location is given bellow :-

Mandideep I-: this branch is working on APIS and formulation. Mandideep II-: This branch is producing herbal products. Ankleshwar-: This branch is producing APIS.

Aurangabad-: This branch is working on formulation.


Tarapur-: this is for APIS. Jammu-: This branch is for formulation. Goa-: This is producing Non Cephalosporin Dosage forms.

FORMULATION
This is production of capsules, tablets and syrup with the help of APIS. A branch which is producing APIS will send this for formulation. In India Lupin have 20 brands in the TOP 3 of their respective products segments. Global leader in anti-tuberculosis products and cephalosporin. Lupin products sold in over 70 countries. When it comes to reliability and quality, Lupins name is amongst in the mind of specialists. More and more specialists such as chest physicians, consulting physicians, general surgeons, pediatricians, cardiologists and diabetologists are choosing its products everyday. Despite the fact that the Indian urban prescription market showed stagnation with only 0.1% of growth, Lupin has bucked the trend by recording a strong growth of 8.2% during the year.

Note:- APIS:- This is the active pharmaceutical ingredient. This is in the form of
powder and this is generally using in the formulation of medicine. It is the kind of production.

AAMLA (Asia, Africa, Middle East & Latin America) -:


In its pursuit to be an innovation led translation pharmaceutical company, Lupin has ventured penetrated into chosen markets represented by its AAMLA division. The AAMLA geographic provide unique challenge and opportunity. On one hand, there are highly regulated markets such as Japan, Australia, South Korea, Mexico, U.A.E., Saudi Arabia etc. while, on the there, there are less regulated markets such as Myanmar, Nigeria, Kenya and Peru.
1200 1000 800 600 400 200 0 2002-03 2003-04 2004-05 2005-06

INDIA PHARMACEUTICAL MARKETToday, the pharmaceutical industry in India is estimated to be over a US $5 billion. 2005 marked the beginning of an era in the Indian pharmaceutical industry with the introduction product patent regime. The bill not only provided the confidence to multinational companies to bring in their research molecule but, it also gave Indian companies reason to focus on developing brands and exploring in-licensing and marketing alliances. The Indian pharmaceutical market continued to grow in size, powered by 9% value and 7%volume growth respectively.

FINANCIAL OVERVIEW-: In financial year 2005-06, the net sales of the company increased by 38% from Rs. 11611.3 million to Rs. 16061 million in net profit, a 117% increase over the previous years Rs. 843.6 million. Higher sales volume, especially in the high value market of US and in formulations in the domestic markets triggered the higher profitability. These entire factors contributed to the growth in earning before interest, tax, depreciation and amortization (EBITDA) by 106%, from Rs. 1457.9 million. During the year EBITDA constituted 19% of net sales. The company registered strong export sales constituted 46% of gross sales.
3500 3000 2500 2000 1500 1000 500 0 2004-05 2005-06

On the strength of the various ANDAs filled by the company in the previous year, the company, the company was able to launch 7 new products in the US, from which sales of Rs. 2233 million were added to the companys top line. In particular, Ceftriaxone has been a major success for the company, for which it now enjoys around 25% market share. The price drop for the product was about 70% in hospital market, being less intense, with fewer competitors participating in this high-end niche generic product. Domestically, the companys strong performances within the recently entered Anti-Asthma segment and its overall market penetration of its multitude of leading products in other therapeutic areas have generated significant revenues additions. In terms of other product, Lupin has been able to maintain optimal cost positioning and quality maintenance, the keys to success in this industry. Despite price drops in various products, the company has been able to maintain and grow its market share to make strong margins from these products, contributed to the strong financial performance of the company.

45 40 35 30 25 20 15 10 5 0 2004-05 2005-06

As a result of these factors, the profit after tax recorded was Rs. 1827.2 million, with cash profits amounting to Rs. 2230.7 million. The earning per share was Rs. 44.59. The Board recommended a dividend of 65%, absorbing a sum of Rs. 297.5 million, inclusive of tax on dividend.
8000 7000 6000 5000 4000 3000 2000 1000 0 2000-01 2001-02 2002-03 2003-04 2004-05 2005-06

FINANCIAL OVERVIEW (2004-05)-: In financial year 2004-05, the net sales of the company by 4% from Rs.11192.8 million to Rs.11611.3 million. The net profit after extraordinary items was Rs.843.6 million as against Rs.987.1 million in the previous year. The company made a strategic decision to significantly increase investment in intellectual capital, marketing and R&D. The company witnessed a dip in margin in its Pen G based API product and faced market uncertainty in the last quarter owing to the introduction of VAT. These entire factors contributed to the reduction of the Earning before tax, Depreciation and Amortization (EBITDA) from Rs.2801.7 million in the previous year to Rs.1457.9 million.
2500 2000 1500 1000 500 0 2004-05 2005-06

The company registered strong export sales worth Rs.5619.1 million, thereby constituting 48% of the net sales. The company expanded its product pipe line, R&D Company investing substantially higher amount in R&D (Rs.760.1 million in revenue, Rs.76 million in capex). The R&D expenditure increased to7.2% of net sales in the previous financial year 2004-05 up from 4.11% in the previous year.

90 80 70 60 50 40 30 20 10 0 2004-05 2005-06

--REGULATED MARKETS -- SEMI REGULATED MARKET Ratio Analysis: Introduction

A ratio is a quantity that denotes the proportional amount or magnitude of one quantity relative to another Ratio Analysis is the most commonly used analysis to judge the financial strength of a company. A lot of entities like research houses, investment bankers, financial institutions and investors make use of this analysis to judge the financial strength of any company.
Fundamental Analysis has a very broad scope. One aspect looks at the general (qualitative) factors of a company. The other side considers tangible and measurable factors (quantitative). This means crunching and analyzing numbers from the financial statements. If used in conjunction with other

methods, quantitative analysis can produce excellent results. Ratio analysis isn't just comparing different numbers from the balance sheet, income statement, and cash flow statement. It's comparing the number against previous years, other companies, the industry, or even the economy in general. Ratios look at the relationships between individual values and relate them to how a company has performed in the past, and might perform in the future. Financial ratios are calculated from one or more pieces of information from a company's financial statements. For example, the "gross margin" is the gross profit from operations divided by the total sales or revenues of a company, expressed in percentage terms. In isolation, a financial ratio is a useless piece of information. In context, however, a financial ratio can give a financial analyst an excellent picture of a company's situation and the trends that are developing. A ratio gains utility by comparison to other data and standards. Taking our example, a gross profit margin for a company of 25% is meaningless by itself. If we know that this company's competitors have profit margins of 10%, we know that it is more profitable than its industry peers which is quite favorable. If we also know that the historical trend is upwards, for example has been increasing steadily for the last few years, this would also be a favorable sign that management is implementing effective business policies and strategies. This analysis makes use of certain ratios to achieve the above-mentioned purpose. There are certain benchmarks fixed for each ratio and the actual ones are compared with these benchmarks to judge as to how sound the company is. The ratios are divided into various categories, which are mentioned below: Financial ratio analysis groups the ratios into categories which tell us about different facets of a company's finances and operations. An overview of some of the categories of ratios is given below. Leverage Ratios which show the extent that debt is used in a company's capital structure.

Liquidity Ratios which give a picture of a company's short term financial situation or solvency. Operational Ratios which use turnover measures to show how efficient a company is in its operations and use of assets. Profitability Ratios which use margin analysis and show the return on sales and capital employed. Solvency Ratios which give a picture of a company's ability to generate cash flow and pay it financial obligations.

CLASSIFICATION OF RATIOS The use of ratio analysis is not confined to financial manager only. There are different parties interested in the ratio analyses for knowing the financial position of a firm for different purposes. In vies of various users of ratios, there are many types of ratio which can be calculated from the information given in the financial statements. The particular purpose of the user determines the particular ratios that might be used for financial analysis. Similarly the interests of the owners and the management also differ. The shareholders are generally interested in the profitability or dividend position of a firm while management requires information on almost all the financial aspects of the firm to enable it to protect the interests of all parties.
RATIOS (A)
TRADITIONAL CLASSIFILCATION OR STATEMENT RATIOS

(B)
FUNCTIONAL CLASSIFICATION OR SIGNIFICANCE RATIOS OR

(C)

CLASSIFICATION ACCORDING TO TESTS

RATIOS ACCORDING TO IMPORTANCE

1. BALANCE SHEET RATIOS POSI TION STATEMENT RATIOS 2. PROFIT AND LOSS A/C RATIOS OR REVENUE/INCOME STATEMENT RATIOS 3.COMPOSITE/MIXED RATIOS OR INTER STATEMNT RATIOS

1.LIQUIDITY RAT IOS 2.LEVERAGE RATIOS 3.ACTIVITY RATIOS 4.PROFITABILITY

1.PRIMARY RATIOS 2.SECONDARY RATIOS

(A)TRADITIONAL CLASSIFICATION OR STATEMNT RATIOS


Traditional classification or classification according to statement, from which these ratios are calculated, is as follows. TRADITIONAL CLASSIFICATION OR STATEMENT RATIOS
(A) BALANCE SHEET RATIOS OR POSITON STATEMENT RATIOS RATIOS 1. CURRENT RATIO 2. LIQUID RATIO (ACID TEST OR QUICK RATIO) 3. ABSOLUTE LIQUIDITY RATIO 4. DEBT EQUITY RATIO 5. PROPRIETORY RATIO 6. CAPITAL GEARING RATIO 7. ASSETS-PROPRIETORSHIP RATIO 8. CAPITAL INVENTORY TO WORKING CAPITAL RATIO 9. RATIO OF CURRENT ASSETS TO FIXED ASSETS (B) PROFIT AND LOSS A/C RATIOS OR REVENUE/INCOME STATEMENT RATIOS COMPOSITE/MIXED OR INTER-STATEMENT

1.GROSS PROFIT RATIO 2.OPERATING RATIO 3. OPERATING PROFIT RATIO 4.NET PROFIT RATIO 5.EXPENSE RATIO 6.INTEREST COVERAGE RATIO

1. STOCK TURNOVER RATIO 2. DEBTORS TURNOVER 3. PAYABLE TURNOVER RATI0 4. FIXED ASSET TURNOVER RATIO 5. RETURN ON EQUITY 6. RETURN ON SHAREHOLDERS FUNDS 7. RETURN ON CAPITAL CAPITAL EMPLOYED 8. CAPITAL TURNOVER RATIO 9. WORKING CAPITAL TURNOVER RATIO. 10. RETURN ON TOTAL 11. TOTAL ASSETS TURNOVER

EXPLAINATION

BALANCE SHEET OR POSITION STATEMENT RATIOS: Balance sheet ratios deal with the relationship between the two balance sheet items. Both its items must however, pertain to the same balance sheet. PROFIT AND LOSS A/C OR REVENUE/INCOME STATEMENT RATIOS: These ratios however deal with the relationship between two profit and loss A/C items. Both the items must however belong to the same profit and loss A/C. COMPOSITE/MIXED RATIOS OR INTER STATEMNT RATIOS: These ratios exhibit the relation between a profit and loss A/C of income statement item and a balance sheet item.
(B)

FUNCTIONAL CLASSIFICATION OR CLASSIFICAITON ACCORDING TO TESTS

In view of the financial management or according to the tests satisfied, various ratios have been classified as below:

FUNCTIONAL CLASSIFICATION IN VIEW OF FINANCIAL MANAGEMENT OR CLASSIFICATION ACCORDING TO TESTS


LIQUIDITY RATIOS LONGTERM SOLVENCY AND LEVERAGE RATIOS (a)1.CURRENT RATIO FINANCIAL OPERATING 2.LIQUID RATIO(ACID COMPOSITE TEST OR QUICK RATIOS 1.DEBT EQITY RATIO 3.ABSOLUTE LIQUID 2.DEBT TO TOTAL CAPITAL OR CASH RATIO 3.INTEREST COVERAGE 4. INTERNAL MEASURE 4.CASH FLOW/DEBT 5. CAPITAL GEARING (b)1. DEBTORS TURNOVER RATIO 2. CREDITOR TURNOVER RATIO 3. INVENTORY TURNOVER RATIO ACTIVITY RATIOS PROFITABILITY RATIOS 1.INVENTORY TURNOVER (a)IN RELATION TI SALE RATIO 1.GROSS PROFIT 2.DEBTORS TURNOVER RATIO 3.FIXED ASSET TURNOVER 2.OPERATING RATIO 4.TOTAL ASSET TURNOVER 3.OPERATING PROFIT RATIO RATIO 5.WORKING CAPITAL 4.NET PROFIT RATIO TURNOVER RATIO 5.EXPENSE RATIO 6.PAYABLE TURNOVER (b)IN RELATION TO RATIO INVESTMENTS 7.CAPITAL EMPLOYED 1. RETURN ON TURNOVER INVESTMENTS 2. RETURN ON CAPITAL 3. RETURN ON EQITY CAPITAL 4. RETURN ON TOTAL RESOURCES 5. EARNING PER SHAR 6. PRICE EARNING RATIO

EXPLAINATION

LIQUIDITY RATIOS: There are ratios, which measure the short-term solvency or financial position of a firm. These ratios are calculated to comment upon the short term paying capacity of a concern or the firm ability to meet its current obligations. LONG TERM SOLVENCY AND LEVERAGE RATIOS: Long-term solvency ratios convey a firms ability to meet the interest cots and repayments schedules of its long term obligations. ACTIVITY RATIOS: Activity ratios are calculated to measure the efficiency with which the resources of a firm have been employed. These ratios are also called turnover ratios because they indicate the speed with which assets are being turned over into sales. PROFITABILITY RATIOS: These ratio measures the results of business operations or overall performance and effectiveness of the firm. There are two type of profitability ratios 1.in relation to sales 2.in relation to investments. (C) CLASSIFICATION ACCORDING TO SIGNIFICANCE OR IMPORTANCE The ratios have also been classified according to their significance or importance. Some ratios are more important then others and the firm may classify them al primary and secondary ratios. The British Institute of management has recommended the classification of the ratios according to importance for inter firm comparison. For inter-firm comparisons the ratios may be classified as Primary and Secondary ratios. The primary ratios is one of which is of the prime importance to a concern; thus return on the capital is employed is named as primary ratio. The other ratios, which support the other ratios, are called secondary ratios.

IMPORTANT FORMULA USED IN RATION ANALYSIS

Quick Assets Quick Ratio = ---------------------Quick Ratio

Current Assets
Liquidity Analysis Ratios Current Ratio Current Ratio = ------------------------

Current Liabilities

Profit Margin

Net Income
Average Common Stockholders' Equity = (Beginning Common Stockholders' Equity + Ending Common Stockholders' Equity) / 2 Return on Common Equity (ROCE)

Net Working Capital Net Working Capital = Current Inventories QuickWorking Capital Ratio = -Assets - Current Liabilities Net Assets = Current Assets -------------------------Current Liabilities Profitability Capital Ratios Net WorkingAnalysis Ratio Total Assets Return on Assets (ROA) Net Income Return on Common Equity (ROCE) = -------------------------------------------Average Common Stockholders' Equity

Average Stockholders' Equity = (Beginning Stockholders' Equity + Ending Stockholders' Equity) / 2

Earnings Per Share (EPS) =

Net Income --------------------------------------------Number of Common Shares Outstanding

Sales Accounts Receivable Turnover Ratio = ----------------------------------Average Accounts Receivable

Profit Margin = ----------------Earnings Per Share (EPS) Sales Activity Analysis Ratios Assets Turnover Ratio Accounts Receivable Turnover Ratio

Average Total Assets = (Beginning Total Assets + Ending Total Assets) / 2

Assets Turnover Ratio =

Sales ---------------------------Average Total Assets

Total Liabilities Debt to Equity Ratio = ---------------------------------Total Stockholders' Equity

Capital Structure Analysis Ratios Debt to Equity Ratio

Average Accounts Receivable = (Beginning Accounts Receivable + Ending Accounts Receivable) / 2

Inventory Turnover Ratio Cost of Goods Sold --------------------------Average Inventories

Inventory Turnover Ratio =

Average Inventories = (Beginning Inventories + Ending Inventories) / 2

Market Price of Common Stock Per Share Price Earnings (PE) Ratio = -----------------------------------------------------Earnings Per Share Market to Book Ratio Capital Market Analysis Ratios Price Earnings (PE) Ratio Book Value of Equity Per Common Share = Book Value of Equity for Common Stock / Number of Common Shares Income Before Interest and Income Tax Expenses ------------------------------------------------------Interest Expense

Interest Coverage Ratio = Interest Coverage Ratio Dividend Yield

Annual Dividends Per Common Share


Income Before Interest and Income Tax Expenses = Income Before Income Taxes + Interest Expense Market Price of Common Stock Per Share Market to Book Ratio = ------------------------------------------------------Book Value of Equity Per Common Share

Profit Margin = Net Income / Sales Assets Turnover Ratio = Sales / Averages Total Assets

Net Income ROA = ------------------------ = Average Total Assets

Net Income -------------- X Sales

Sales -----------------------Average Total Assets

ROA = Profit Margin X Assets Turnover Ratio ROA = Profit Margin X Assets Turnover Ratio Dividend Yield = -----------------------------------------------Market Price of Common Stock Per Share

Dividend Payout Ratio

Cash Dividends Dividend Payout Ratio = -------------------Net Income

Book Value of Equity Per Common Share = Book Value of Equity for Common Stock / Number of Common Shares

INTERPRETATIONS THEORY OF THE RATIOS The interpretations of the ratios are an important factor. Though calculation of the ratios is important but it is only a clerical task whereas interpretation needs skill, intelligence and foresightedness. The inherent limitations of the ratio analysis should be kept in mind while interpreting them. The impact of the factors such as price level changes, change in accounting policies, window dressing etc., should be also be kept in mind when attempting to interpret ratios. The interpretation of the ratios can be made in the following ways. SINGLE ABSOLUTE RATIOS: the single ratios can be studied in relation to certain rules of thumb, which are based upon well-proven conventions. GROUP OF RATIOS: Ratios may be interpreted by calculating a group of related ratios. A single ratios supported by a group of related ratios become more understandable and meaningful. HISTORICAL COMPARISION: one of the earliest and most popular ways of evaluating the performance of the firm is to compare its present ratios with the past ratios called comparision overtime. PROJECT RATIOS: Ratios can be also calculated for future standards based upon the projected or perform financial statements. These future ratios may be taken as standard for comparison and the ratios calculated on actual financial statements can be compared with the standard ratios to find out variances. INTER FIRM COMPARISION: Ratios of one firm can also be calculated with the ratios of the other selected firm in the same industry at the same point of time. This kind of comparison helps in evaluating relative financial position and performance of the firm.

GUIDELINES OR PRECUATIONS FOR THE USE OF RATIOS The calculation of the ratios may not be a difficult task but their use is not easy. The information on which these are based, the constraints of the financial statements, objective for using them, the caliber of the analyst, etc. are the important factors which influence the use of ratios. Following are the guidelines for interpreting ratios. ACCURACY OF THE FINANCIAL STATEMENTS: The reliability of the ratios are linked with the data available in the financial statements. Before calculating the ratios one should see whether the proper conventions have been used for preparing financial statements or not. OBJECTIVE OF THE PURPOSE OF ANALYSIS: The type of ratios to be calculated will depend upon the purpose for which these are required. If the purpose is to study the financial position then the ratios of current assets and liabilities will be studied. The purpose of user is important for the analysis of ratios. SELECTION OF RATIOS: another precaution in ratio analysis is the proper selection of appropriate ratios. The ratios should match
the purpose for which these are required. USE OF STANDARDS: The ratios will give an indication of financial position only when discussed with the reference to certain standards. Unless otherwise these ratios are compared with certain standards one will not be able to reach at conclusions. CALIBER OF THE ANALYST: The ratios are only the tools of the analysis and their interpretation will depend upon the caliber and competence of the analyst. He should be familiar with the various financial statements and significant changes etc. RATIOS PROVIDE ONSY A BASE: The ratios are only guidelines for there analyst, he should not base his decisions entirely on them. He should study any other relevant information, situation in concern, other economic environment. USE AND SIGNIFICANCE OF RATIO ANALYSIS The ratio analysis is one of the most powerful tools of financial analysis. It is used as a device to analyze and interpret the financial health of enterprise. Just like the doctor examines the patient by recording his body temperature, blood pressure, and etc. before making his conclusion regarding the illness and before giving his treatment. The use of ratios is not confined to financial managers only but there are different parties also which are interested in the ratio analysis for knowing the financial position of a firm for different purposes like supplier of goods on credit, financial institutions, invertors, shareholders etc. With the use of ratio analysis one can measure the financial condition of a firm and can point our whether the condition is strong, good, poor etc. Applications of the ratio analysis are:

MANAGERIAL USES OF RATIO ANALYSIS HELPS IN DECISION MAKING: Financial statements are prepared primarily for decision-making. Ratio analysis helps in making decisions from the information provided in these financial statements. HELPS IN FINANCIAL FORECASTING AND PLANNING: Ration analysis is of much help in financial forecasting and planning. Planning is looking ahead and the ratios calculated for a number of years work as a guide for the future. Meaningful conclusions can be drawn from these ratios. HELPS IN COMMUNICATING: The financial strengths and weakness of the firm are communicated in a more easy and understandable manner by the use of these ratios. The ratios help in communication and enhance the value of the financial statements. HELPS IN COORDINATION: Ratios even help in coordination, which is of utmost importance in effective business management. Better communication of efficiency and weakness of an enterprise results on better coordination in the enterprise. HELPS IN CONTROL: Ratio analysis even helps in making effective control of the business. Standard ratios can be based upon Performa of financial statements and variance or deviations, if any, helps in comparing the actual with the standards so as to take a corrective action at the right time. OTHER USES: There are so many other uses of the ratio analysis. It is an essential part of the budgetary control and standard costing. Ratios are of immense importance in the analyses and interpretation of financial statements as they bring the strength or weakness of the firm UTILITY TO SHARE HOLDERS AND INVESTORS The investor in the company will like to assess the financial position of the concern where he is going to invest. Firstly the investor will try to ass3ess the value of fixed assets and the loans raised against them. The investor will feel satisfied only if the concern has sufficient amount of assets. Long-term solvency ratios will help him in assessing the financial position of the concern. Profitability ratios, on the other hand, will be useful to determine profitability position. Ratio analysis will be useful to the investor in making up his mind whether present financial position of the concern warrants further investment or not.

UTILITY TO THE CREDITORS The creditors or the suppliers extend short-term credit to the concern. They are interested to know whether financial position of the concern warrants their payments at a specified time or not. The concern pays short-term creditors out of its current assets. If the current assets are quiet sufficient to meet current liabilities then the creditor will not hesitate in extending credit facilities. Current and acid test ratios will give an idea about their current financial position of the concern. UTILITY TO THE EMPLOYEES The employees are also interested in the financial position of the concern especially profitability. Their wage increase and amount of fringe benefits are related to the volume of profits earned by the concern. The employees make use of information available in the financial statements. Various profitability ratios relating to gross profit, operating, net profit, etc., enable the employees to put forward their viewpoint for the increase of wages and other benefits. UTILITY TO GOVERNMENT Government is interested to know the overall strength of the industry. Various financial statements published by industrial units are used to calculate ratios for determining short-term. Long-term and overall financial position of concerns. Profitability indexes can also be prepared with the help of ratios. Government may base its future policies on the bases of industrial information available from various units. The ratios may be used as indicators of overall financial strength of public as well as private sector. In the absence of the reliable economic information, government plans and policies may not prove successful.
TAX AUDIT REQUIREMENTS The Finance Act, 1984, inserted section 44 AB in the Income Tax Act. Under this section every assessed engaged in any business and having turnover or gross receipts exceeding Rs. 40 lakh is required to get the accounts audited by a charted accountant and submit the tax audit report before the due date for filing the return of income under section 139(1). In case of a professional, a similar report is required if the gross receipts exceeds Rs. 10 lacks. Clause 32 of the income Tax Act t\requires that the following accounting ratios should be given: Gross Profit/turnover Net Profit/turnover Stock-in-trade/turnover Materials consumed/Finished Goods Produced

LIMITATIONS OF THE RATIO ANALYSIS LIMITED USE OF A SINGLE RATIO: A single ratio, usually, does not convey much of a sense. To make a better interpretation a number of ratios have to be calculated which is likely to confuse the analyst than help him in making any meaningful conclusion. LACK OF ADEQUATE STANDARDS: There are no well-accepted standards or rules of thumb for all ratios, which can accept as norms. It renders interpretation of the ratios difficult. INHERENT LIMITATIONS OF ACCOUNTING: like financial statements, ratios also suffer from the inherent weakness of accounting records such as their historical nature. CHANGES OF ACCOUNTING PROCEDRURE: Changes in accounting procedure by a firm often makes ratio analysis misleading e.g. Changes in the valuation of inventories. WINDOW DRESSING: Financial statements can easily be window dressed to present a better picture of its financial and profitability position to outsiders. Hence one has to be very careful from making a decisions from ratios calculated from such financial statements. PERSONAL BIAS: Ratios are only a means to financial analysis and not an end in itself. Ratios have to be interpreted and different people may interpret the same ratios in different ways. UNCOMPARABLE: Not only industries differ in their nature but also the firms of the similar business widely differ in their size and accounting procedures etc., It makes the comparison of ratios difficult and misleading. Moreover, comparisons are made difficult due to differences in definitions of various financial terms used in the ratio analysis. ABSOLUTE FIGURES DISTORTIVE: Ratios devoid of absolute figures may prove distractive as ratio analysis is primarily a quantitative analysis and not qualitative analysis. PRICE LEVEL CHANGES: While making ratio analysis, no consideration is made to the changes in price levels and this makes the interpretation of the ratios invalid. RATIOS NO SUBSTITUTE: Ratio analysis is merely a tool of financial statements. Hence, ratios become useless if separated from the statements from which they are computed.

CURRENT RATIO Current ratio may be defined as the relationship between current assets and current liabilities. This ratio is also known as working capital ratio, is a measure of general liquidity and is most widely used to make the analysis of the short-term position or liquidity of a firm. It is calculated by dividing the total of current assets by total of the current liabilities. Two basic components of this ratio are: current assets and current liabilities. Current assets include cash and those assets, which can be easily converted into cash within a short period of time generally, one year, such as marketable securities, bills receivable, sundry debtors etc. Current liabilities are those obligations which are payable within a short period of generally one year and include outstanding expenses, bills payable, sundry creditors, accrued expenses, dividend payable etc.

CURRENT RATIO = __CURRENT ASSETS__ CURRENT LIABILITIES

SIGNIFICANCE AND LIMITATIONS OF CURRENT RATIO Current ratio is a general and a quick measure of liquidity of a firm. It represents the margin of safety or cushion available t the creditors and current liabilities. It is most widely used for making short-term analyses of the financial position or short-term solvency of the firm. But one has to be careful while using current ratio as a measure of liquidity because it suffers from the following limitations: CRUDE RATIO: It is the crude ratio because it measures only the quantity but not the quality if the current assets. WINDOW DRESSING: Valuation of current assets and window dressing is another problem of the current ratio. Current assets and liabilities are manipulated in such a way that current ratio loses its significance.

TABLE IMPORTANT FACTORS FOR REACHING A CONCLUSION A number of factors should be taken into consideration before reaching a conclusion about short-term financial position. Sone of these factors is. TYPE OF BUSINESS TYPE OF PRODUCTS REPUTATION OF THE CONCERN SEASONAL INFLUENCE TYPE OF ASSETS AVAILABLE PRACTILCAL CALCULATION OF CURRENT RATIO CURRENT RATIO = CURRENT ASSETS : CURRENT LIABILITIES

YEAR
CONTENTS ASSETS LIABILITIES CURRENT RATIO

2004

2005

2006

4461.7 1967.3 2.267:1

5102.5 2396.4 2.111:1

11144.8 2995.4 3.720:1

GRAPH WORKING NOTES-: CURRENT ASSETS= INVENTORIES+SAUNDRY DEBTORS+CASH AND BANK BALANCES 2004 = 2153+2158.3+150.4 =4461.7 2005 = 2480.8+2353.9+177.8 = 5102.5 2006 = 3102.0+3483.9+4558.0 = 111444.8 CURRENT LIBILITIES 2004= 1967.3 2005 = 2396.4 2007 = 2995.4
4 3.5 3 2.5 2 1.5 1 0.5 0 2004 2005 2006 2.267 2.111
CURRENT RATIO

3.702

INTERPRETATION OF CURRERENT RATIO


In the year 2004 the current ratio of LUPIN LABORATORIES PVT (LTD) was satisfactory as the ratio was 2.26:1 which was more than the standard ratio 2:1 for the current ratio. This means that the firm was liquid and has the ability to pay its current obligations in time as and when they become due. In the year 2005 the current ratio of the company was 2.11:1, which was also satisfactory as was more than the standard ratio of 2:1. Thus the company at that time also was in the position to pay the current obligations as and when they become due. In the year 2006 the current ratio of the company was 3.72:1, which was, much more than the standard figure of the current ratio i.e. 2:1. This means that the firm was liquid but the cash and the bank balance was high which showed that the cash and the bank balance is lying idle due to many reasons. The current ratio in the year 2005 was less than the year 2004, which indicates that the liquidity of the company was reduced and that the liabilities were more than the paying capacity. The main reason of the reduction of the ratio was reduction in the bank balances. The current ratio in the year 2006 was more than the year 2005, which indicates that the liquidity of the company was increased and the capacity to pay the liabilities was more. The main reason of this was the increase in the bank balances, which increased drastically nearly 20% in the year 2006.

WEIGHTED CURRENT RATIO


(PART OF CURRENT RATIO) The two basic determinants pf current ratio as measure of liquidity are current assets and current liabilities. However all types of current assets are not equally liquid and all current liabilities are not repayable with the same degree of quickness. So the discrimination can be made among the different components of current assets and current liabilities, the former on the basis of relative quickness with which each individual item of current liabilities mature for payment. The discrimination can be expressed by assigning by assigning proper weight among each component of current assets and current liabilities. Weights to be assigned on each individual components of current assets and current liabilities, will depend upon the degree of their relative liquidity in case of current assets and relative urgency payments in case of current liabilities having due regard, however in each case the nature and types of business. For e.g. cash and bank balance being most liquid asset may be assigned a weightage of 100% followed by short-term securities 90% receivables 80% inventories 70%and so on. In the same manner, advances received from the customers, tax payable and proposed dividend may be assigned an weighted of 100% followed by trade creditors and accounts payable 90%, bank overdraft 80%. Formula of weighted current ratio:

WEIGTED CURRENT RATIO= TOTAL PRODUCT OF CURRENT RATIO PRODUCT OF CURRENT LIABILITY TOTAL

PRACTICAL CALCULATLION OF WEIGHTED CURRENT RATIO


WIGHTED CURRENT RATIO=TOTAL PRODUCT OS CURRENT ASSETS : TOTAL

PRODUCT OF CURRENT LIABILITIES

TABLE
YEAR

2004 309684

2005 354940

2006 920686

CONTENTS

PRODUCT OF CURRENT ASSETS

PRODUCT OF CURRENT LIABILITIES WEIGHTED CURRENT RATIO

157384

189944

204752

1.96

1.86

4.49

WORKING NOTES
TOTAL PRODUCT OF CURRENT ASSETS=(AMOUNT OF A PERTICULAR CURRENT ASSET) X (PERCENTAGE WEIGHT) 2004= CASH AND BANK BALANCES X 100% =150.4 X 100% = 15040 DEBTORS X 80% = 2158.3 X 80% = 172664 INVENTORIES X 60% = 2153.0 X 60% = 129180 TOTAL = 309684

SIMILARLY FOR YEARS 2005 AND 2006 AND ALSO CURRENT LIABILITIES
TOTAL PRODUCT OF CURRENT LIABILITIES=(AMOUNT OF A PETICULAR CURRENT LIABILITY) X (PERCENTAGE WEIGHT)

GRAPH

4.5 4 3.5 3 2.5 2 1.5 1 0.5 0 2004 2005 1.96 1.86

4.49

weighted current ratio

2006

ANALYSIS OF THE WEIGHTED CURRENT RATIO


The weighted current ratio is measured on the basis of the weightage given to the current assets and current liabilities so it is more reliable than the current ratio. In the year 2004 the weighted current ratio of Lupin Ltd. was 1.96:1 which indicates the satisfactory ratio and the liquidity of the company is more and that the company is at the capacity to pay the liabilities due as the current assets are more than the current liabilities. In the year 2005 the ratio was 1.86:1 which indicates that the company is in a good position as the current assets are more than the current liabilities and the company is in the position to pay all the current liabilities due to the company. In the year 2006 the ratio was 4.49:1 which was almost double than the standard ratio, which is 2:1. This is basically because of the increase in the bank balance and the cash in hand which increased almost 20 times to that of the 2005. But this is not a very good sign for the company as the cash in bank is so much that it is remaining idles after paying dues to the creditors and there are not many opportunities to invest that money. In the year 2005 the ratio was decreased as compared to the 2004 ratio basically because the more increase in the current liabilities less increase in the current assets (bank balance, inventories). In the year 2006 the ratio had increased drastically mainly due to the great increase in the bank balance in the current assets.

QUICK OR ACID TEST OR LIQUID RATIO


Quick Ratio, also known as acid test or Liquid Ratio is more rigorous test of liquidity than the current ratio. The term liquidity refers t o the ability of a firm to pay its short-term obligations as and when they become due. The two determinants of current ratio, as a measure of liquidity are current assets and current liabilities. Current assets include inventories and prepaid expenses, which are not easily convertible into cash within a short period. Current assets include inventories and prepaid expenses, which are not easily convertible into cash within a short period. Quick ratio may be defined as the relationship between quick/liquid assets and current or liquid liabilities. An asset is said to be liquid if it can be converted into cash within a short period without loss of value. In that sense, cash in hand and cash art bank are most liquid assets. The other assets, which can be included in the liquid assets and sundry debtors, marketable securities and short-term or temporary investments. Inventories cannot be termed to be liquid asset because they cannot be converted into cash immediately without a sufficient loss of value. In the same manner, prepaid expense is also excluded from the list of quick/liquid assets because they are not expected to be converted into cash. The quick ratio can be calculated by dividing the total of the quick assets by total current liabilities. Thus:
QUICK/LIQUID OR ACID TEST RATIO=QUICK OR LIQUID ASSETS QUICK/LIQUID LIABILITIES

PRACTICAL CALCULATION OF THE LIQUID, ACID TEST OR QUICK RATIO


QUICK/LIQUID OR ACID TEST RATIO = QUICK OR LIQUID ASSETS______ LIQUID/CURRENT LIABILITIES

TABLE

YEAR CONTENTS

2004
2308.7 1967.3

2005
2531.7 2374.3

2006
8041.9 2995.4

LIQUID ASSETS
LIQUID LIABILITIES

LIQUID RATIO

1.17:1

1.06:1

2.68:1

WORKING NOTES

LIQUID ASSETS=CURRENT ASSETS-INVENTORIES 2004 = 4461.7 2153.0 = 2308.7 2005 = 5102.5 2480.8 = 2531.7 2006 = 11144.8 3102.9 = 8041.9
CURRENT LIABILITIES = REFER FROM ABOVE CALCULATION

GRAPH (REFERRING THE ABOVE TABLE)

3 2.5 2 1.5 1.17 1 0.5 0 2004 2005 1.06

2.68

LIQUID RATIO

2006

ANALYSIS OF QUICK, ACID TEST OR LIQUID RATIO


In the year 2004 the current ratio was 1.17:1 which indicates the high liquidity of the company and good ratio for paying the liabilities for lupin laboratories. The ratio is good as there are funds left after paying the liabilities to put in some more new emerging opportunities. In the year 2005 the liquid ratio of Lupin was 1.06:1 which indicates the satisfactory liquidity position of the company because during the payment of the dues of the creditors there will be hardly any funds left to use in any other opportunity as the funds left will be reserved for the next years liability. In the year 2006 the ratio was 2.68:1 which was more than double if the satisfactory ratio i.e. the company is in an a high liquidity position. But such high ratio is also not good for the company as the funds are left idle as they are not fully in the further opportunities due to many reasons The ratio was decreased in the year 2005 mainly because of the high increase in the liquid liabilities and less increase in the liquid assets. The ratio was increased in the year 2006 mainly because of the very high increase in the cash and bank balance and less increase in the liquid liabilities.

ABSOLUTE LIQUID RATIO OR CASH RATIO


Although receivables, debtors and bills receivables are generally more liquid than inventories, yet there may be doubts regarding their realization into cash immediately or in time. Hence, some authorities are of the opinion that the absolute liquid ratio should also be calculated together with current ratio and acid test ratio so as to exclude even receivables from the current assets and find our the absolute liquid assets. Absolute liquid assets include cash in hand and at bank and marketable securities or temporary investments. The acceptable norm for this ratio is 50% or .5:1 or 1:2 i.e. Re. 1 worth absolute liquid assets are considered are considered adequate to pay Rs. 2 worth current liabilities in time as ass the creditors are not expected to demand cash at the same time and then cash may also be realized from debtors and inventories. Thus

ABSOLUTE LIQUID RATIO=ABSOLUTE LIQUID ASSETS CURRENT LIABILITIES

CASH RATIO= CASH AND BANK+SHORT-TERM SECURITIES CURRENT LIABILITIES

PRACTICAL CALCULATION OF ABSOLUTE LIQUID RATIO OR CASH RATIO


CASH RATIO = CASH & BANK+SHORT TERM SECURITIES
CURRENT LIABILITIES

TABLE

YEAR CONTENTS

2004 604.7

2005 631.3

2006 5070

CASH & BANK + SHORT TERM SECURETIES CURRENT LIABILITIES

1967.3
0.30 : 1

2396.4
0.26 : 1

2995.4
1.62 : 1

CASH RATIO

WORKING NOTES:
CASH AND BANK + SHORT TERM SECURITIES

2004 = 150.4 + 454.3 = 604.7 2005 = 177.8 + 453.5 = 631.3 2006 = 4558 + 512 = 5070 CURRENT LIABILITIES= REFER FROM ABOVE CALCULATION GRAPH (REFERRING THE ABOVE TABLE)

1.8

1.62

1.6
1.4 1.2 1 0.8 0.6 0.4 0.2 0 2004 2005 2006 0.3 0.26
CASH RATIO

ANALYSIS OF THE CASH RATIO OR ABSOLUTE LIQUIDITY RATIO The absolute liquid ratio in 2004 was .30:1 which is less than the accepted norm i.e. .5:1. the ratio less than the standard ratio denotes that the liabilities for LUPIN is more and that its liquid assets are less but all the creditors do not ask for the cash at the same time so the situation can be handled. The absolute liquid ratio in 2005 was .26:1 which is very less than the accepted norm and thus the asset liquidity condition of LUPIN is not good and thus the creditors are more. The absolute liquid ratio in 2006 is 1.62:1 which is very favorable for LUPIN but it is advisable that the company should try to collect funds from public more to use its ideal liquid assets on other big projects. The absolute liquid ratio in 2006 is more favorable than 2004 and 2005 mainly because of the increase in the liquidity of the assets and decrease in the creditors for LUPIN.

CURRENT ASSETS MOVEMENT OR EFFICIENCY/ACTIVITY RATIOS Funds are invested in various assets in business to make sales and earn profits. The efficiency with which asserts are managed directly affect the volume of sales. The better the management of assets, the larger is the amount of sales and the profits. Activity ratios measure the efficiency or effectiveness with which a firm manages its resources or assets. These ratios are also called turnover ratios because they indicate the speed rate at which the funds invested in inventories are converted into sale. Depending upon the purpose a number of turnover ratios can be calculated as debtors turnover capital turnover, etc. There are 4 types of current assets movement or efficiency ratios:
INVENTORY OR STOCK TURNOVER RATIO. CREDITORS/PAYABLES TURNOVER RATIO. WORKING CAPITAL TURNOVER RATIO. DEBTORS/RECEIVIBLES TURNOVER RATIO.

EXPLAINATION

CREDITORS/PAYABLES TURNOVER RATIO


In the course of business operations, a firm has to make credit purchases and incur short-term liabilities. A supplier of goods i.e. creditor is naturally interested in finding out how much time the firm is likely to take in repaying its trade creditors. The analysis for creditors turnover is basically the same as of debtors turnover ratio except that in place of average daily sales, average daily purchases are taken as the other component of the ratio and in place of average daily sales; creditors turnover ratio can be calculated as:

CREDITORS/PAYABLE TURNOVER RATIO=NET CREDIT ANNUAL PURCHASES AVERAGE TRADE CREDITORS

If the information about the credit purchases is not available, the figure of total purchases may be taken as the numerator and the trade creditors include sundry creditors and bills payable. If opening and closing balances of the creditors are not known, the creditors are turned over in relation to purchase. Generally, higher the creditors velocity better it is or otherwise lower the creditors velocity less favorable are the results. PRACTICAL CALCULATLION ON CREDITORS/PAYABLES TURNOVER RATIO
CREDITORS TURNOVER RATIO=NET CREDIT ANNUAL PURCHASES AVERAGE TRADE CREDITORS

TABLE
YEAR

2004 846.2 1479.75 5.7times

2005 1192.2 2238.2 5.3times

2006 1861 2714.5 6.8times

CONTENTS
NET CREDIT ANNUAL PURCHASES AVERAGE TRADE CREDITORS CREDITORS TURNOVER RATIO

WORKING NOTES
TRADE CREDITORS=SUNDRY CREDITORS+BILLS PAYABLE+A/C PAYABLE

2004 = 2036.2+248.5=22847 2005 = 184.2+417.2=601.4 2006 = 1447.1+647.8=2094.9

AVERAGE TRADE CREDITORS=


OPENING TRADE CREDITORS+CLOSING TRADE CREDITORS
2

2004 = 674.8+284.7 /2 = 1479.75 2005 = 2284.7+601.4 / 2 = 2238.2 2006 = 601.4+2094.9 / 2 = 2714.5 NET CREDIT ANNUAL PURCHASES = REFER FROM EXCEL SHEET
7 6 5 4 3 2 1 0 2004 2005 2006
CREDITORS TURNOVER RATIO

6.8 5.7 5.3

ANALYSIS OF CREDITORS/PAYABLE TURNOVER RATIOS


The creditors turnover ratio in the year 2004 was 5.7 times which indicates that velocity with which the creditors are turned over in relation to purchases is in a satisfactory position. The creditors turnover ratio in the year 2005 was 5.3 times which indicate the velocity with which the creditors are turned over in relation to purchases is in a satisfactory position. Basically the ratio should be more than 5 times. The creditors turnover ratio in the year 2006 was 6.8 times which indicates that the velocity with which the creditors are turned over in relation to purchases is high which indicates a good sign for LUPIN. The creditors turnover ratio in the year 2004 was more that 2005 which indicates that the turn over of creditors rate had decreased which is not a good sign. This is mainly due to the increase in the net credit annual purchases. The creditors turnover ratio in the year 2006 had increased from 2005, which is a good sign for the liquidity position of LUPIN. This is mainly due to the increase in the net credit purchases.

WORKING CAPITAL TURNOVER RATIO


Working capital of a concern is directly related to sales, the current assets like debtors, bills receivables, cash, and stock, etc. change with the increase or decrease in sales. The working capital is taken as: WORKING CAPITAL = CURRENT ASSETS-CURRENT LIABILITIES Working capital turnover ratio indicates the velocity of the utilization of net working capital. This ratio indicates the number of times the working capital is turned over in the course of a year. The ratio measures the efficiency with which the working capital is being used by the firm. The higher ratio indicated the efficient utilization of the working capital and low ration indicated otherwise. But a very high working capital turnover ratio is not good situation for any firm and hence care must be taken while interpreting the ratio. Making of comparative and trend analysis can use the ratio for different firms in the same industry and for various periods. The ratio can be calculated as:

Working capital turnover ratio =

Cost of Sales_____ Average working capital

Average working capital = Opening working capital + closing working capital 2 If the figure of the cost of sale is not given then the figure of sales can be used instead. On the other hand if opening working capital is not disclosed, then working capital at the year-end will be used, In that case the ratios will be:

WORKING CAPITAL TURNOVER RATIO= _________SALES________ NET WORKING CAPITAL

PRACTICAL CALCULATION ON WORKING CAPITAL TURNOVER RATIO


WORKING CAPITAL TURNOVER RATIO= COST OF SALES
AVERAGE WORKING CAPITAL

TABLE
YEAR CONTENTS

2004

2005

2006

COST OF SALES

11192.8
2638.2

11611.3
2627.15

16061
5517.75

AVERAGE WORKING CAPITAL WORKING CAPITAL TURNOVER RATIO

2.91 times

4.41 times

4.20 times

WORKING NOTES WORKING CAPITAL=CURRENT ASSETS-CURRENT LIABILITIES 2004 = 4461.7 - 1967.3 = 2494.4 2005 = 5102.5 - 2374.3 = 2728.2 2006 = 11144.8 - 2995.4 = 8149.4
AVERAGE WORKING CAPITAL= OPENING WOKING CAPITAL+CLOSING WORKING CAPITAL 2

2004 = 2242+2494.4 / 2 = 2638.2 2005 = 2494.4+2728.2 / 2 = 2627.15 2006 = 2728.2+8149.4 / 2 = 5517.75 NET CREDIT ANNUAL SALES = REFER FROM THE EXCEL SHEET

GRAPH
4.5 4 3.5 3 2.91
W.C TURNOVER RATIO

4.41

4.2

2.5
2 1.5 1 0.5 0 2004 2005 2006

ANALYSIS OF WORKING CAPITAL TURNOVER RATIO


The working capital turnover ratio in the year 2004 was 2.91 times, which is not a satisfactory ratio, and the company does not use which indicates that LUPIN is not in a good position and the working capital efficiently. The working capital turnover ratio in the year 2005 was 4.41 times which a satisfactory ratio for the company and which indicates that LUPIN is using efficiently the working capital and that the resources are efficiently being utilized. The working capital turnover ratio in the year 2006 was 4.20 times which indicates the satisfactory position of LUPIN and the working capital is being reutilized efficiently more and more times by the company. The working capital turnover ratio in the year 2004 was less than 2005 mainly because of the decrease in the cost of sales and the average working capital of LUPIN. The working capital turnover ratio in the year 2005 was more than the year 2006 mainly because of the increase in the working capital and the decrease in the cost of sales of the company.

INVENTORY/STOCK TURNOVER RATIO


Every firm has to maintain a certain level on inventory for finished goods so as to be able to meet the requirements of the business. But the level of inventory should neither to be too high or too low. But the level of inventory should neither be too high nor too low. It is harmful to hold more inventories for the following reasons. t unnecessarily blocks capital which can otherwise be profitability used somewhere else. Over stocking will require more godown space, so more rent will be paid. There are chances of obsolescence of stocks. Consumers will prefer goods of latest design, etc. Slow disposal of stocks means slow delivery of cash also which will adverselu affect liquidity. There are chances of deterioration in quality if the stock are held for more periods. Inventory turnover ratio also known as stock velocity is normally calculated as sales/average inventory. It would indicate whether inventory has been efficiently used or not. The purpose is to see whether only the required minimum funds have been locked up in inventory. Inventory turnover ratio (I.T.R.) indicates the number of times the stock has been turn over during the period and evaluates the efficiency with which a firm is able to manage the inventory.

Inventory turnover ratio = _cost of goods sold______ Average inventory at cost

PRACTICAL CALCUALTION ON INVENTORY/STOCK TURNOVER RATIO INVENTORY TURNOVER RATIO = NET SALES__ AVERAGE INVENTORY AT COST

TABLE
YEAR CONTENTS

2004 11192.8 1785.8

2005 11611.3 2316.9

2006 16061.0 2791.85

NET SALES

AVERAGE INVENTORY AT COST INVENTORT TURNOVER RATIO

6.26 : 1

5.01 : 1

5.75 : 1

WORKING NOTES
NET SALES =

2004 = 11192.8 2005 = 11611.3 2006= 16061.0


AVERAGE INVENTORY AT COST=OPENING STOCK+CLOSING STOCK 2

2004 = 1418.6+2153.0 = 1785.8 2

2005 = 2153.0+2480.8 = 2316.9 2 2006 = 2480.8+3102 = 2791.85 2

GRAPH
(REFERRING THE ABOVE TABLE)
7
6 5 4 3 2 1
Inventory

6.26 5.01

5.75

0 2004 2005 2006

ANALYSIS OF THE INVENTORY/STOCK TURNOVER RATIO


The inventory turnover ratio of the LUPIN in the year 2004 was 6.26:1, which is more than the standard ratio i.e. 5:1. The increased amount of ratio indicates that the sales are high but the stock is not sufficient in the company so as to meet the high demand which in turn decreases the market share.

The inventory turnover ratio in the year 2005 was 5.01:1, which was very accurate, and up to the mark of the standard ratio. This ratio indicates that there was a perfect balance in LUPIN of the sales and there the market demands were timely fulfilled and there was no shortage of goods. The inventory turnover ratio in the year2006 was 5.75:1, which indicates that the sales of LUPIN were good but the stock of sales was some less than required. The inventory turnover ratio decreased from 2004 to 2005 from 6.26:1 to 5.01:1, which indicates that the net sales were less and that the balance was gained between the sales and the stock in LUPIN. The inventory turnover ratio was increased from 2005 to 2006 from 5.01:1 to 5.75:1, which indicates that the the sales of the product has increased but the balance of the stocks in LUPIN has decreased.

DEBTORS OR RECEIVIBLES TURNOVER RATIO


A concern may sell goods on cash as well credit. Credit is one of the most important elements of sales promotion. The volume of sales can be increased but following a liberal credit policy. But the effect of a liberal credit policy may result in tying up substantial funds of a firm in the form of trade debtors (or receivables i.e. debtors plus bills receivables). Trade debtors are expected to be converted into cash within a short period and are included in current assets. Hence the liquidity position of a concern to pay its short-term obligations in time depends upon the quality of its trade debtors. Debtors turnover ratio indicates the velocity of debt collection of firm. In simple words, it indicates the number of times average debtors (receivables) are turned over during a year, thus:

DEBTORS(RECEIVIBLES)TURNOVER/VELOCITY=NET CREDIT ANNUAL SALE AVERAGE TRADE DEBTORS TRADE DEBTORS=SUNDRY DEBTORS+BILLS RECEIVIBLES AND ACCOUNTS RECEIVIBLES AVERAGE TRADE DEBTORS=OPENING TRADE DEBTORS+CLOSING TRADE DEBTOR 2

PRACTICAL CALCULATION ON DEBTORS/RECEIVIBLES TURNOVER RATIO


DEBTORS/RECEIVIBLES TURNOVER RATIO=
NET CREDIT ANNUAL SALES AVERAGE TRADE DEBTORS

TABLE
YEAR
CONTENTS

2004 11192.8 6593 1.69

2005 12611.4 7564.8 1.66

2006 16954.0 9364.8 1.81

NET CREDIT ANNUAL SALES AVERAGE TRADE DEBTORS DEBTORS TURNOVER RATIO

WORKING NOTES
TRADE DEBTORS = SUNDRY DEBTORS + BILLS REVEIVIBLES & A/C RECEIVIBLES

2004 = 2158.3 + 2036.2 = 4194.5 2005 = 2353.9 + 184.2 = 2538.1 2006 = 3483.9 + 1447.1 = 4931
AVERAGE TRADE DEBTORS =
OPENING TRADE DEBTORS+CLOSING TRADE DEBTORS

2004 = 8991.5+4194.5 / 2 = 6593 2005 = 4194.5+2538.1 / 2 = 7564.8 2006 = 4931+2538.1/2= 9364.8

NET CREDIT ANNUAL SALES= REFER FROM EXCEL SHEET


GRAPH
REFERRING THE ABOVE TABLE

1.85 1.8 1.75 1.7 1.65 1.69 1.66

1.81

debtor turnover ratio

1.6
1.55 2004 2005 2006

ANALYSIS OF THE DEBTORS TURNOVER RATIO


The ratios in the year 2004 indicate that the ratio turned over 1.69 times in a year which is satisfactory for LUPIN. The more times the ratio turnovers in a year the more efficient are it for the company. The ratio in the year 2005 indicates that the ratio turned over for 1.66 times in a year which is satisfactory for a company. The ratio in the year 2006 indicates that the ratio is turned over for 1.81 times in a year which is approximately equal to 2 times which is good for LUPIN which denotes that the management of the debtors is good as well as more liquid are the debtors.

ANALYSIS OF LONG TERM FINANCIAL POSITION OR LONG TERM SOLVENCY


The term solvency refers to the ability of a concern to meet its long-term obligations. The long-term in debt ness of a firm includes debentures holders, financial institutions providing medium and long-term loans and other creditors selling goods on installment bases. The long-term creditors of a firm are primarily interested in knowing the firms ability to pay regularly interested on long term borrowings, repayment of the principal amount at the maturity and the security of their loans. Accordingly, long-term solvency ratios indicate a firms ability to meet the fixed interest and costs and repayments schedules associated with its long-term borrowings. The following ratios serve the purpose of determining the solvency of the concern. DEBT-EQUITY RATIO. FUNDED DEBT TO TOTAL CAPIT ALISATION RATIO. PROPRIETORY RATIO OR EQUITY RATIO. SOLVENCY RATIO OR RATIO OF TOTAL LIABILITIES TO TOTAL ASSETS. FIXED ASSETS TO NET WORTH OR PROPRIETORS FUNDS RATIO. FIXED ASSETS TO LONG-TERM FUNDS OR FIXED ASSETS RATIO. RATIO OF CURRENT ASSETS TO PROPRIETORS FUNDS. DEBT SERVICE RATIO OR INTEREST COVERAGE RATIO. CASH TO DEBT SERVICE RATIO.

DEBT-EQUITY RATIO = OUTSIDERS FUNDS SHARE HOLDERS FUNDS

(I) DEBT EQUITY RATIO Debt equity ratio is also known as External internal equity ratio is calculated to measure the relative claims of outsiders and the owners against the firms assets. These ratios indicates the relationship between the external equities or the outsiders funds and the internal equities or the share holders funds, thus:

The two basic components of the ratio are outsiders funds, i.e.., external equities and shareholders funds, i.e. internal equities. The outsiders funds include all debts/liabilities to outsiders, whether long-term or short term or whether in the form of debentures bonds, mortgage or bills. The shareholders funds consist of equity share capital, preference share capital, capital reserves, revenue for contingencies, sinking funds etc. the accumulated losses and differed expenses, if any, should be deducted from the total to find out shareholders funds. When the accumulated losses or differed expenses are deducted from the shareholders funds, it is called net worth and the ratio may be termed as the ratio ma be termed as debt to net worth ratio.
Funded debt or total capitalization ratio = Funded debt_____ Total capitalization

(II) FUNDED DEBT TO TOTAL CAPITALISATION RATIO The ratio establishes a link between the long-term funds raised from ortsiders and total long-term funds available in the business. The two words used in this ratio are Funded debt Total capitalization Funded debt is a part of total capitalization, which is financed by outsiders. Though there is no rule of thumb but still the lesser the reliance on outsiders the better it will be. If this ratio is smaller, better it will be, up to 50% or 55% this ratio may be to tolerable and not beyond.

FUNDED DEBT OR TOTAL CAPITALISATION RATIO=FUNDED DEBT TOTAL CAPITALISATION

PRACTICAL CALCULATION OF FUNDED DEBT TO TOTAL CAPITALISATION RATIO

FUNDED DEBT=DEBENTURE+MORTGAGE LOANS+BONDS+OTHER LONG TERM LOANS TOTAL CAPITALISATION=EQUITY SHARE CAPITAL+PREFERENCE SHARE CAPITAL+RESERVES AND
SURPLUS+ OTHER UNDISTRIBUTED RESERVES+DEBENTURES+FUNDED DEBT

2004
YEAR CONTENTS FUNDED DEBT

2005 4421 12720.1

2006 9128.5 19517

3777.3 11160.4

TOTAL CAPITALISATIO N FUNDED DEBT RATIO

.33 : 1

.34 : 1

.46 : 1

0.5 0.4 0.3 0.2 0.1 0 2004 2005 0.33 0.34

0.46

FUNDED DEBT RATIO

2006

ANALYSIS OF FUNDED DEBT TO TOTAL CAPITALISATION RATIO


The ratios in the year 2004-.33:1, 2005-.34:1, 2006-.46:1 indicate that LUPIN has not much relied on the outsiders for taking long-term funds and tried to raise all the finance from its own working capital. The ratio has constantly increased from 2004 to 2006 mainly due to increase in the long-term borrowings from the outsiders but in a small amount.

(III) PROPRIETORY RATIO OR EQUITY RATIO


The variant to the debt-equity ratio is the proprietary, which is also known as Equity Ratio or shareholders to total equities ratio or net worth to total assets ratio. The ratio establishes the relationship between shareholders funds to total assets of the firm. The ratio of proprietors funds to total funds is an important ratio for determining long-term solvency of a firm. The components of this ratio are shareholders funds or proprietors funds and total assets. The shareholders funds are equity share capital, preference share capital, undistributed profits, reserves and surpluses. Ort of this amount, accumulated losses should be deducted. The total assets on t he other hand denote total resources of the concern. The ratio can be calculated as under: PRACTICAL CALCULATION OF EQUITY OR PROPRIETORY RATIO

TABLE
YEAR 2005 CONTENTS SHAREHOLDE RS FUNDS TOTAL ASSETS EQUITY RATIO 2006 2004

5005

4480.3

6439.5

11300 .44:1

9805.5 .46:1

17820.9 .36:1

WORKING NOTES TOTAL ASSETS=CURRENT ASSETS+FIXED ASSETS

2004 = 4461.7 + 5343.8 = 6439.5 2005 = 5102.5 + 6287.5 = 5005 2006 = 11144.8 + 6676.1 = 4480.3
SHARE HOLDERS FUNDS=SHARE CAPITAL+RESERVE AND SURPLUS

2004 = 401.4+4078.9=4480.3 2005 = 401.4+4603.6 = 5005.0 2006 = 401.4+6038.1 = 6439.5

GRAPH
(REFERRING THE EQUITY RATIO TABLE)
0.5 0.45 0.4 0.44 0.46 0.36

0.35
0.3 0.25 0.2 0.15 0.1 0.05 0 2004 2005 2006
EQUITY RATIO

ANALYSIS OF THE PROPRIETORY RATIO OR EQUITY RATIO The long-term financial position of LUPIN the company in the year 2004 was not so good but it gradually increased in the year 2005 due to the decrease of the total assets. The ratio in the year 2006 was more than the year 2005 because of the more decreasing in the assets. The more is the equity ratio the more is the liquidity position of the company.

(IV) SOLVENCY RATIO OR THE RATIO OF TOTAL LIABILITIES TO TOTAL ASSETS


This ratio is a small variant of equity ratio and can be simply calculated as 100-equity ratio i.e., continuing the example taken for the equity ratio, solvency ratio = 100-66.7% or say 33.33%. The ratio indicates the relationship between the total liabilities to outsiders to total assets of a firm and can be calculated as follows: SOLVENCY RATIO=TOTAL LIABILITIES TO OUTSIDERS TOTAL ASSETS

SOLVENCY RAITO= TOTAL LAIBILITIES TO OUTSIDERS / TOTAL ASSETS

Generally, lower the ratio of total liabilities to total assets, more satisfactory or stale is the long-term solvency position of a firm. PRACTICAL CALCULATION FOR SOLVENCY RATIO OR THE RATIO IF TOTAL LIABILITIES TOTOTAL ASSETS

TABLE
YEAR
CONTENTS

2004

2005

2006

TOTAL 11404.8 LIABILITIES TO OUTSIDERS TOTOAL ASSETS 17820 SOLVENCY .54 RATIO

6328 11300 .44

6275.5 9805.5 .42

GRAPH
(REFERRING THE SOLVENCY RATIO TABLE)

0.6

0.54 0.44 0.42

0.5
0.4 0.3 0.2 0.1 0 2004

SOLVENCY RATIO

2005

2006

PRACTICAL CALCULATIO ON FIXED ANALYSIS OF SOLVENCY RATIOASSET TORATIO OF TOTAL LIABILITIES TO TOTAL ASSETS OR THE NET WORTH RATIO The solvency ratio in the year 2004 was .54 which is not sufficient for LUPIN to for the long-term solvency position of the firm. The solvency ratio in the year 2005 was less than the year 2004 mainly due to the decrease in the assets. Thus the ratio .44 in the year 2005 is satisfactory. The solvency ratio in the year 2006 was less than 2005 which indicates the great financial position of LUPIN.

(V) FIXED ASSETS TO NET WORTH RATIO OR FIXED ASSETS TO PROPRIETORS FUNDS
The ratio establishes the relationship between fixed assets and shareholders funds, i.e., share capital plus reserves, surpluses and retained earnings. The ratio f\can be calculated as follows: The ratio of the fixed assets to net worth indicates the extent to which shareholders funds are sunk into the fixed assets. Generally the purchase of fixed assets should be financed by shareholders equity including reserves, surpluses and retained earnings. FIXED ASSET TO NET WORTH RATIO=FIXED ASSETS SHAREHOLDERS FUNDS

FIXED ASSET TO NET WORTH RATIO=FIXED ASSET SHAREHOLDERS FUNDS

TABLE
YEAR CONTENTS FIXED ASSET

2004

2005

2006

5343.8

6287.5 5005

6676.1 4480.3

SHAREHOLDERS 6439.5 FUNDS

FIXED ASSET TO .82 NET WORTH RATIO

1.25

1.49

GRAPH OF THE FIXED ASSET TO NET WORTH RATIO

1.6
1.4 1.2 1 0.8 0.6 0.4 0.2 0 2004 2005 2006
fixed assets to net worth ratio

INTERPRETATION
The ratio in the year 2004, 2005 and 2006 indicates that the net worth ratio of the company is good and that the company has sufficient fixed assets and that the share holders are less than the fixed assets in the organization. The ratio in 2004 is .82:1 indicates that the there are sufficient fixed assets with the company. The ratio in 2005 is 1.25:1 indicates that the company does not have the sufficient fixed assets and the company has to depend more on the public funds for sufficient working capital. The ratio in 2006 is 1.45:1 which is not at all satisfactory and thus the company has to depend totally on the shareholders for sufficient working capital.

RATIO OF CURRENT ASSETS TO PROPRIETORYS FUNDS


The ratio is calculated by dividing the total of current assets by the amount of shareholders funds. The ratio indicates the extent to which proprietors funds are invested in current assets. There is no rule of thumb for this ratio and depending upon the nature of the business there may be different ratios for different firms.
RATIO OF CURRENT ASSETS TO PROPRIETORYS FUNDS = CURRENT ASSETS SHAREHOLDERS FUNDS

RATIO OF CURRENT ASSETS TO PROPRIETORYS FUNDS=CURRENT ASSET SHAREHOLDERS FUNDS

PRACTICAL CALCULATLION ON RATIO OF CURRENT ASSETS TO PROPRIETORY FUNDS

TABLE
YEAR CONTENTS CURRENT ASSETS

2004 4461.7

2005 5102.5 5005

2006 11144.8 4480.3

SHAREHOLDERS 6439.5 FUNDS NET RAITO WORTH .69 : 1

1.01 : 1

2.48:1

GRAPH
(REFERRING THE ABOVE TABLE OF CURRENT ASSETS TO PROPRIETORY FUNDS)
2.5
2 1.5

2.48

1.01
1 0.5 0 2004 2005 2006 0.69

NET

INTERPRETATION
The ratio in the year 2004 and 2005 is satisfactory as the main part of the proprietors funds are invested in the current asserts through which the production increases and thus the profit also increases. The ratio in 2006 indicates that the funds are invested in the current assets also but a large part of the assets are remaining idle and LUPIN has to use its own capital more as due to the less amount of public funds as compared to the current assets.

(VII) DEBT SERVICE RATIO OR INTEREST COVERAGE RATIO


Net income to debt service ratio or simple debt service ratio is used to test the debt servicing capacity of a firm. The ratio is also known as interest coverage ratio or coverage ratio or fixed charges cover or times interest earned. This ratio is calculated by dividing the net profit before interest and taxes by fixed interest charges: PRACTICAL CALCULATION OF DEBT SERVICE RATIO/INTEREST COVERAGE
DEBT SERVICE RATIO/INTEREST COVERAGE= __NET PROFIT________ FIXED INTEREST CHARGES

DEBT SERVICE RATIO/INTEREST COVERAGE= __NET PROFIT________ FIXED INTEREST CHARGES

TABLE
VALUES ARE FROM THE BALANCE SHEET
YEAR CONTENTS NET PEOFIT

2004

2005

2006

1481.1 515.1 2.87

578.9 273.1 2.11

2299 303 7.58

FIXED INTEREST CHARGES DEBT SERVICE RATIO

GRAPH
(REFERRING THE DEBT SERVICE TABLE)
7.58

8 6

4
2 0

2.67

2.11

DEBT

2004 2005 2006

INTERPRETATION
In the year 2004 and 2005 the ratio is satisfactory for the company as well as for the long-term creditors because even if the earnings of the firms earnings fall then also LUPIN will be in the position to pay the interest. In the year 2006 the ratio is not satisfactory for the company as well for the shareholders as it implies that LUPIN is not using debt as a source of finance so as to increase the earnings per share.

ANALYSIS OF PROFITABILITY OR PROFITABILITY RATIOS

The primary objective of the business undertaking is to earn profit. Profit earning is considered essential for the survival of the business. In the works of Lord Kenyes, Profit is the engine that drives the business enterprise. A business needs profits not only for its existence but also for expansion and diversification. The investors want an adequate return on their investments, workers want higher wages, creditors want higher security for their interest and loan and so on. A business enterprise can discharge its obligations to the various segments of the society only through earning of profits. Profits are thus a useful measure of overall efficiency of a business. Profits to the management are the test of efficiency and a measurement of control; to owners, a measure of worth of their investment to the creditors etc. Generally, the profitability ratios are calculated either in the relation of their sales or in relation to investment. The various profitability ratios are discussed.

GENERAL PROFITABILITY RATIO


GROSS PROFIT RATIO OPERATING RATIO OPERATING PROFIT RATIO EXPENSES RATIO NET PROFIT RATIO

OVERALL PROFITABLITY RATIOS


1.RETURN ON SHAREHOLDERS INVESTMENT OR NET WORTH RATIO 2.RETURN ON EQUITY CAPITAL RATIO 3.EARNING PER SHARE RATIO 4.RETURN ON CAPITAL EMPLOYED RATIO 5.CAPITAL TURNOVER RATIO 6.DIVIDEND YIELD RATIO 7.DIVIDEND PAYOUT RATIO 8.PRICE EARNING RATIO GROSS PROFIT RATIO =GROSS PROFIT X 100 NET SALES

GROSS PROFIT RATIO =GROSS PROFIT X 100 NET SALES

GROSS PROFIT RATIO


Gross profit ratio measures the relationship of gross profit to net sales and is usually represented as percentage. Thus it is calculated by dividing the gross profit by sales PRACTICAL CALCULATION ON GROSS PROFIT RATIO

TABLE
YEAR CONTENTS

2004

2005

2006

GROSS PROFIT

NET SALES GROSS PROFIT RATIO(%)

1996.2 11192.8 17.83%

852 11611.3 7.33%

2302 16061 14.33%

GRAPH
(REFERRING THEGROSS PROFIT TABLE)
18 17.83 14.33

16
14 12 10 8 6 4 2 0 2004 2005

7.33

GROSS PROFIT RATIO(%)

2006

INTERPRETATION
The ratio in 2004 and 2006 are satisfactory as the company is in the position to sell its product at a low price without resulting in losses on operations of a firm. But the ratio in 2005 is not at all satisfactory for LUPIN and a low ratio indicates that the high cost of goods sold due to unfavorable purchasing policies, lesser sales, lower selling prices, excessive competition, over-investment in plant and machinery, etc.

OPERATING RATIO= OPERATING COST X 100 NET SALES OPERATING RATIO= OPERATING COST X 100 NET SALES

OPERATING RATIO
Operating ratio establishes the relationship between cost of goods sold and other operating expenses on the one hand and the sales on the other. In other words, it measures the cost of the operating per rupee of sales. The ratio is calculated by dividing operating costs with the net sales and its generally represented as a percentage. The two basic elements of this ratio are operating cost and net sales. Operating cost can be founded by adding operating expenses to the cost of goods.
PRACTICAL CALCULATION ON OPERATING RATIO
OPERATING COST= OPERATING EXPENSES+COST OF GOODS SOLD NET SALES=GROSS SALES-EXISE DUTY

TABLE
YEAR CONTENTS OPERATING COST NET SALES

2004

2005

2006

10196.4 11648.3

10522.6 11799

14263.1 16061.0

OPERATING RATIO(%)

87.53%

89.18%

88.80%

GRAPH
(PREFERRING THE TABLE OF OPERATING RATIO)

89.5 89 88.5 88 87.53 87.5 87 86.5 2004

89.18 88.8

OPERATING RATIO (%)

2005

2006

INTERPRETATION
The ratios in 2004, 2005 and 2006 are satisfactory as the favorable rations are considered between 80 to 90%. This shows that the operating efficiency of LUPIN in these three years is good and that it has the margin to cover the interest, income tax, dividend and reserves. The ratio in 2004 is the most favorable operating ratio in all the three years.

OPERATING PROFIT RATIO


This ratio is calculated by dividing the operating profit by sales. Operating profit is calculated as:
OPERATING PROFIT=NET SALES-OPERATING COST

PRACTICAL CALCULATION ON OPERATING PROFIT RATIO


OPERATING PROFIT RATIO=OPERATING PROFIT X 100 NET SALES

OPERATING PROFIT RATIO=OPERATING PROFIT X 100


NET SALES

TABLE
YEAR CONTENTS

2004

2005

2006

OPERATING PROFIT SALES

987.1

843.6

1827.2

11192.8

11611.3

16061.0

OPERATING PROFIT RATIO(%)

8.81%

7.26%

11.37%

GRAPH
(REFERRING TO THE TABLE OF OPERATING RATIO) 12 10 8 6 4 2 0 2004 2005 2006 8.81 7.26
OPERATING PROFIT RATIO

11.37

INTERPRETATION
The operating profit ratio is considered as a yardstick for measuring profits. The more the ratio the more favorable it is for LUPIN. In the year 2004 and 2005 the ratios are satisfactory but in 2006 the ratio is good and indicates that LUPIN is in a profitable position and can face adverse economic conditions.

EXPENSES RATIO
Expenses ratio indicate the relationship on various expenses to net sales. The operating ratio reveals the average total variations in expenses. But some of the expenses may be increasing while some may be falling. Hence expense ratios are calculated by dividing each item of expenses or groups of expenses with the net sales to analyses the causes of variation of the operating ratio. The ratio can be calculated for each individual expense ratio, selling expense ratio, material consumed ratio, and etc.the lower the ratio the greater is the profitability and higher the ratio, lower is the profitability. While interpreting the ratio, it must be remembered that for a fixed expense like rent, the ratio will fall if the sales increase and for a variable expense, the ratio in proportion to sales shall remain nearly the same.
EXPENSE RATIO = TOTAL EXPENSES X 100 NET SALES

PRACTICAL CALCULATION ON PARTICULAR RATIO


EXPENSE RATIO = TOTAL EXPENSES X 100 NET SALES

TOTAL EXPENSES=COST OF GOODS SOLD+ADMINISTRATIVE AND OFFICE EXPENSE+SELLING AND DISTRIBUTION


EXPENSE+NON OPERAING EXPENSE

TABLE
YEAR CONTENTS PARTICULAR EXPENSE NET SALES

2004 9652.1 11192.8 86%

2005 8946.3 11611.3 77.08%

2006 10484.1 16061.0 65.27%

EXPENSE RATIO(%)

GRAPH
(REFERRING THE TABLE OF EXPENSE RATIO)

100 80 60 40 20 0 2004 2005 2006


EXPENSES RATIO(%)

INTERPRETATION
The percentage of expense ratios in the year 2004, 2005, 2006 are satisfactory as the expense ratios should be between 70 to 80%. The ratio in the year 2006 is better than the ratios in 2004 and 2005 because the lower the expense ratio, the greater is the profitability. Thus the ratio in the year 2006 is good as well as profitable to LUPIN.

NET PROFIT RATIO


Net profit ratio establishes a relationship between net profit and sales and indicates the efficiency of the management in manufacturing, selling, administration and other activities of the firm. This ratio is the overall measure of firms profitability and is calculated. OR
NET PROFIT RATIO = NET PROFIT AFTER TAX X 100 NET SALES

PRACTICAL CALCULATION ON NET PROFIT RATIO

NET PROFIT RATIO = NET PROFIT AFTER TAX X 100 NET SALES

NET PROFIT RATIO = NET OPRATING PROFIT X 100 NET SALES

TABLE
YEAR CONTENTS

2004

2005

2006

NET PROFIT AFTER TAX NET SALES NET PROFIT RATIO(%)

843.6 11192.8 7.53

987.1 11611.3 8.50

1827.2 16061.0 11.37

GRAPH
(REFERRING TO THE TABLE OF NET PROFIT RATIO)

12

11.37 8.5

10
8 6 4 2 0 2004 7.53

NET PROFIT

2005

2006

INTERPRETATION
The ratios in the year 2004, 2005 are satisfactory as the ratios are low and thus LUPINS profitability and return on investment are also low. The ratio in the year 2006 is good and better than the years 2004 and 2005 as the firm has more capacity to face adverse economic conditions such as price competitions, low demand, etc. The higher the ratio the better is the profitability.

CASH PROFIT RATIO


The net profit of the firm is affected by the amount of depreciation charged. Further depreciation being a non-cash expense it is better to calculate cash profit ratio. This ratio measures the relationship between cash generated from operation and the net sales. Thus:
CASH PROFIT RATIO = = CASH PROFIT X 100 CASH PROFIT RATIO CASH PROFIT X 100 NET SALES NET SALES

PRACTICAL CALCULATION ON CASH PROFIT RATIO CASH PROFIT= NET PROFIT+DEPRICIATION

TABLE
YEAR CONTENTS
CASH PROFIT

2004

2005

2006

987.1 11192.8 8.81%

843.6 11611.3 7.26%

1827.2 16061.0 11.37%

NET SALES

CASH PROFIT RATIO(%)

GRAPH
(REFERRING TO THE TABLE OF CASH PROFIT RATIO)
11.37 8.81 7.26
CASH PROFIT

12 10 8 6 4 2 0

2004

2005

2006

INTERPRETATION
The cash profit ratio in the years 2004, 2005 and 2006 are satisfactory as it shows that the condition of LUPIN is in a satisfactory position and that the depreciation is also less.

WHAT WOULD BE LUPIN IN 2007?


Particulars Fixed Assets Net Current Assets Gross Sales Net Sales Total Income Total Expenses PBIT PBT Net Profit 2001 4371.5 5769.0 7500.3 6855.0 6965.1 5508.6 1456.5 650.2 600.2 2002 4617.6 6427.3 8062.0 7505.4 7612.5 5773.1 1839.4 963.8 721.8 2003 4963.7 6179.7 9683.9 9168.8 9298.9 7444.7 1854.2 970.6 766.8 2004 5343.8 3760.2 11679.3 11192.8 11648.3 8846.6 2801.7 1996.2 987.1 2005 6287.5 3964.6 12122.7 11611.3 11799.0 10341.1 1457.9 852.7 843.6 2006 6676.1 9750.5 16610.4 16061.0 16786.1 13777.6 3008.5 2302.0 1827.2

TREND LINES FOR LUPINS PHARMACEUTICALS


FIXED ASSETS-: The fixed assets of lupin pharmaceuticals was Rs. 4371.5 ml. in 2001 and it is increasing from 2001 to 2006 at the end of financial year 2006 it was Rs. 6676.1 ml. so the fixed assets of the company is increasing continuously. If we predict the fixed assets of the company for 2007 then it will be more than Rs.7000 ml. according to the trend line of fixed assets it is going up from the fixed assets of 2006. So the fixed assets will increase in 2007.

8000 7000 6000 5000 4000 3000 2000 1000 0


fixed assets Linear (fixed assets)

2001 2002 2003 2004 2005 2006 2007

NET CURRENT ASSETS-: The net current assets of lupin was Rs.5769.0 ml. In 2001 but after three year at the end of financial year 2004 it diminished at Rs. 3760.2 ml. so the graph line for net current assets is not constant line. It goes up for the year 2001, 2002 and 2003 but for the year 2004 and 2005 it goes down then again it increases from Rs. 3964.6 ml. to Rs. 9750.5 ml. at the end of financial year 2006. So the trend line shows that it will decrease at the end of financial year 2007 and it will be Rs. 7500 ml. approximately it can be increase but due to some up and down in the graph line of net current assets it will be decrease. At the end of financial year 2007 may net current assets decrease because the net current assets increased so randomly at the end of FY 2006 from Rs. 3964.6 ml. to Rs. 9750.5 ml. It increased Rs.5785.9 ml. from FY 2005.

12000

10000
8000 6000 4000 2000 0 2001 2002 2003 2004 2005 2006 2007
net current assets Linear (net current assets)

GROSS SALES-: Gross sales of lupin pharmaceutical was Rs. 7500.3 ml. at the end of financial year 2001. the graph line of gross sales is increasing continuously I t was Rs.7500.3 ml in 2001 and in 2002 it was Rs. 8062.0 ml. but from the FY 2005 to FY 2006 it increases so quickly from Rs. 12122.7 ml. to Rs. 16610.4 ml. It increased Rs. 4487.8 ml. So we can predict that the gross sales of lupin pharmaceutical will increase for the year 2007 and it will be around Rs. 17100 ml. So the gross sales of Lupin pharmaceutical will increase it will be good symbol for the Lupin that the profit will also increase. The trend line of gross sales of Lupin pharmaceutical shows improvement in gross sales because the gross sales is increasing continuously. It was increasing during the years 2001 to 2006.

18000 16000 14000 12000 10000 8000 6000 4000 2000 0 2001 2002 2003 2004 2005 2006 2007

gross sales Linear (gross sales)

NET SALES-: The net sales of the company is also high at the end of FY 2006. The net sales is Rs. 16061.0 ml. The company net sales graph is also progressive because excise duty is decreasing regularly and a gross sale is increasing year per year. So the graph of net sales is progressive. Net sales in the end financial year 2001 was Rs. 6855.0 ml. in these five year from 2001 to 2005 it was increasing slowly but in the end of 2006 company recorded good increment in net sales. At the end of FY 2005 it was Rs. 11192.8 ml. and in the end of FY 2006 it is Rs 16061.0 ml. so the difference is Rs. 4868.2 ml. So the trend line of net sales shows that in the year of 2007 it will record good net sales. The net sales will increase in the end of financial year 2007 and it will be Rs.16500 ml. (aprx) because the net sales is increasing year by year and on the basis of past experience it may be possible that the net sales can be more than Rs.16500 ml. as it recorded Rs. 4868.2 ml. hike in the end of year 2006.

20000 15000 10000 5000 0 2001 2002 2003 2004 2005 2006 2007
net sales Linear (net sales)

TOTAL INCOME -: The total income of the company was Rs.5508.6 ml. in the end of financial year 2001. The graph of total income is shows that total income is increasing. In the end of FY 2006 it is Rs.16786.1 ml. So the total income for Lupin pharmaceutical is good. Other income is also included in the total income and the other income is also increasing from the 2001 to 2006. So the total income is also increasing. The graph shows that in the year of 2001 it starts and during the year of 2005 it increases constantly. But at the end of FY 2006 it increased Rs 4987.1 ml. which is very high in comparison with other years. Trend line of the total income shows that the total income will increase because it is increasing from the last six years. So the total income of Lupin pharmaceutical will be Rs 17000 ml. in the end of FY 2007.
20000

15000
10000 5000 0

total income Linear (total income)

2001

2002

2003

2004

2005

2006

2007

TOTAL EXPENSES-: The graph shows that total expenses is increasing year by year from the year 2001 to 2006. It was Rs.5508.6 mn. in the end of financial year 2001. In this total expenses cost of material, personnel expenses and manufacturing expenses re including. These expenses are also increasing year by year. So the Lupin pharmaceutical is being expensive but the profit is also increasing comparatively. The year 2006 was much expensive in comparison of other years. At the end of year 2005 total expenses were Rs.10341.1 mn. but at the end of financial year 2006 it is Rs.13777.6 mn. it is Rs. 3436.5mn. difference between the years which is largest difference during the years 2001 to 2006. The trend line of total expenses shows that total expenses will increase in the coming years. It will be around Rs.14500mn. because it is increasing regularly from the last six years. So it is good indication for Lupin that the profit will also increase. But it would be better for Lupin pharmaceutical that they should decrease total expenses in this way the total profit would be increase.
15000 10000 5000 0 2001 2002 2003 2004 2005 2006 2007
Total expenses Linear (Total expenses)

PROFIT BEFORE TAX AND INTREST (PBIT) The graph of PBIT is very zigzag. The PBIT was increasing constantly in the years 2001 to 2003 but in the end of year 2004 it increased Rs.947.5 mn. this is more than other years PBIT. In the end of FY 2003 it was Rs.1854.2 mn. and it became Rs.2801.1 mn in the end of year 2004. If we take a look of year 2005 then we find that it diminished in the end of FY 2005. In the year 2004 it was Rs.2801.1 mn but at the end of FY 2005 it became

Rs.1457.9 mn. So it decreased Rs.1343.2 mn. this is huge difference in PBIT. But it increased so quickly in the end of financial year 2006. It is Rs.3008.5 mn. in the end of FY 2006. So it increased Rs.1550.6 mn. So if we analysis the graph then it is clear that the year 2006 is good for Lupin pharmaceuticals. In the year 2006 Lupin pharmaceuticals performed well. The trend line of PBIT shows that it will decrease in the year 2007 because the past performance is not constantly for PBIT. The PBIT can be increase or can be decrease. Trend line shows that the PBIT of lupin would be Rs.2700 mn.
3500 3000 2500 2000 1500 1000 500
PBIT Linear (PBIT)

0
2001 2002 2003 2004 2005 2006 2007

PROFIT BEFORE TAX (PBT)-; Lupin is getting more profit in 2006 as compare to other FY. It is Rs. 2302 mn which is very high in comparison 2005 profit. At the end of FY 2005 it was Rs. 852.7 mn. and suddenly it increased Rs 1449.3mn. The profit before tax in the end of FY 2002 and 2003 it was very constant near about Rs 970 mn. and again one more time it increased from Rs 970 mn to Rs 1996.2 mn. If we take a look of trend line graph then it is similar as PBIT trend line graph. So it is predicted that if the PBT will increase in 2007 then it would be not more because in 2005 the PBT is very low. In the year 2005 it was too less thats why trend line is showing little increment in PBT. So it would be near about Rs 2500 mn. So it is clear from the graph that the PBT will decrease in 2007 because of the past performance of the company in 2005. But we know that

2500
2000 1500 1000 500 0 2001 2002 2003 2004 2005 2006 2007
PBT Linear (PBT)

NET PROFIT-: The net profit of the Lupin pharmaceutical is good enough at the end of FY 2006. It is 1827.2 mn raised from Rs 843 mn last year. So the net profit increased Rs 983.6 mn in the year 2006. From the year 2001 to 2004 it was constantly increasing but at the end of FY 2005 it decreased. The net profit of the Lupin at the end of FY 2006 is very high in compare with other financial year. So if we analysis the graph then it is clear that the net profit of the Lupin will increase but due to past performance trend line is not showing good increment in net profit but it will increase. On the other hand the profit of the Lupin in 2006 is very high so it could be possible that the profit decrease because the distance between profit in 2005 and 2006 is very high so it would be possible that Lupin would not able to increase its profit.
2000 1500 1000 500 0 2001 2002 2003 2004 2005 2006 2007
Net profit Linear (Net profit)

SUGGESTIONS
There are certain ratios which are unsatisfactory in the year 2006 which should be improved for the year 2006-2007. There are certain suggestions after studying the ratios of LUPIN LTD for the ratios which need improvement. The suggestions are as follows:THE CURRENT RATIO: the current ratio in 2006 is 3.72:1 which is very high and indicates that the funds are lying idle so the company should decrease the public raising of funds and first utilize the idle lying funds so as to prevent the loss due to them in business. WEIGHTED CURRENT RATIO: The weighted current assets ratio being 4.40:1 in 2006 being the double of standard ratio thus the company should try to utilize the current assets efficiently and not make the assets to remain idle. LIQUID RATIO: The liquid ratio being 2.68:1 in 2006 the company should try to increase the use of the current assets remaining idle so as to avoid the loss from them to the business. INVENTORY TURNOVER RAITO: The ratio being 5.75:1 in 2006 the company should try to decrease this ratio to 5:1 by increasing the stock reserve for sales. FUNDED DEBT TO TOTAL CAPITALISATION RATIO: Due to the ratio .46:1 in 2006 the company has enough scope for the more long-term borrowings from the outsiders as its current ratio is also good and has a sufficient amount of current assets. CURRENT ASSETS TO PROPRIETORY FUNDS RATIO: Due to the ratio 2.48:1 in 2006 which is not satisfactory, the company should try to increase the shareholders funds so that his capital could remain safe and due to the increase in the rate of shares the goodwill of the shares would also increase.

DEBT SERVICE RATIO: The ratio 7.58:1 in 2006 is not good for the company so the company should try to decrease this ratio by using debt as the source of finance. GROSS PROFIT RATIO: the ratio 14.33:1 in 2006 can be improved by increasing the gross profit and the factors decreasing the gross profit ratio should be thoroughly checked timely whither they are operating factors or any misleading factors.

OBJECTIVES OF THE STUDY


The basic objective of studying the ratios of the company is to know the financial position of the company. Another reason is to study that the company is going in profit or loss. To know the borrowings of the company as well as the liquidity position of the company. To study the current assets and current liabilities so as to know weather the shareholders could invest in Lupin Ltd or not. To study the profits of the business and net sales of the business and to know the stock reserve for sales of the business. To know the solvency of the business and the capacity to give interest to the long term loan lenders (debenture holders) and dividend to the share holders. To study the balance of cash and credit in the organization.

CONCLUSION
LUPIN Ltd has been able to maintain optimal cost positioning. Despite price drops in various products, the company has been able to maintain and grow its market share to make strong margins in market, contributing to the strong financial position of the company. The company was able to meet its entire requirements for capital expenditures and higher level of working capital commitment with higher volume of operations and from its operating cash flows.

Thank You