“FINANCIAL ANALYSIS OF

A Project report submitted in the partial fulfillme nt of the requirement for the degree

Submitted by:

Nawaz Gazi (A

Ashutosh Jha (A

IInd year

SCHOOL OF PHARMACY AND TECHNOLOGY MANAGEMENT

A PROJECT REPORT

ON

ANALYSIS OF Alembic Pharmaceutical

A Project report submitted in the partial fulfillme nt of the requirement for the degree

(MBA Pharma tech)

by: Submitted to:

Nawaz Gazi (A-004) Dr. ASHOK PANIGRAHI

Ashutosh Jha (A-015) Associate Professor

SPTM

SVKM’s NMIMS

SCHOOL OF PHARMACY AND TECHNOLOGY MANAGEMENT

(Shirpur Campus)

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ceutical LTD”

A Project report submitted in the partial fulfillme nt of the requirement for the degree of

Submitted to:

Dr. ASHOK PANIGRAHI

Professor

SCHOOL OF PHARMACY AND TECHNOLOGY MANAGEMENT

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CERTIFICATE

This is certify that Mr. Nawaz Gazi & Mr Ashutosh Kumar worked during the period

w.e.f. 10.03.2014 to 21.03.2014 on the development of the project “Financial analysis of

Alembic Pharmaceutical Limited ”, in the partial fulfillment of the requirement for the

degree of MBA Pharma Tech under my guidance & supervision. To the best of my

knowledge, the matter represented in this project is a bonafide & genuine piece of work.

During his association with the project I found him to be sincere & motivated

individual. He has shown keen interest in this project & him conduct was excellent.

I wish him all success in his career.

Place: Mumbai

Date: 21-3-2014 Dr Chirayu R. Amin

MANAGING DIRECTOR

Alembic Pharmaceutical Ltd. Vadodara

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DECLARATION We, Nawaz Gazi & Ashutosh Kumar are bonafied students of M.B.A.Pharma Tech at

NARSEE MONJEE INSTITUTE OF MANAGEMENT STUDIES. Our enrollment number

are A004 &A015. I hereby declare that present summer internship report titled Account of

assets is my original work. I conducted this study at Alembic Pharmaceutical LTD”

during 10 March to 21March, 2014. This report has not been submitted earlier either with

NARSEE MONJEE INSTITUTE OF MANAGEMENT STUDIES and any other educational

organization as an essential requirement for the award of any Diploma/ Degree.

Date- 21/03/2014 Signature: -

Nawaz Gazi Ashutosh Kumar

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PREFACE

Someone has rightly said that practical knowledge is far better than

classroom teaching. During this project I fully realized this and I came to know

about how a retailer chooses among a varied range of products available to him.

The subject of my study is Financial Analysis of Alembic Pharmaceutical

Ltd., which has slowly but steadily evolved from a beginner to a corporate giant

earning laurels and kudos throughout.

The report contains first of all brief introduction about the company.

Finally there comes data presentation and analysis in the end of my project

report. I also put forward some of my suggestion hoping that they will help

Alembic Pharmaceutical Ltd. Move a step forward to being the very best.

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ACKNOWLEDGEMENT We have taken efforts in this project. However, it would not have been possible without the kind

support and help of many individuals and organizations. I would like to extend my sincere thanks

to all of them. we are highly indebted to Ashok Panigrahi for their guidance and constant

supervision as well as for providing necessary information regarding the project & also for their

support in completing the project.

we would like to express my gratitude towards my parents & member of SPTM for their kind co-

operation and encouragement which help us in completion of this project.

Our thanks and appreciations also go to my colleague in developing the project and people who

have willingly helped us out with their abilities.

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CONTENTS:

1. Introduction

• Company profile

• History

• Future plans

• Milestones

• Board of directors

2. Awards

3. Achievements and Recognition

4. SWOT Analysis

5. STP and Competitors

6. Product Profile

• Formulations

• Others- API

7. Research and Development

8. Annual Report (2012-2013)

• Balance Sheet

• Profit and loss sheet

9. Financial Analysis

• Introduction

• Nature of financial analysis

• Objective of financial analysis

• Type of financial analysis

10. Ratio Analysis

• Financial ratios

• Utility of financial ratios

• Advantages

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• Role of financial ratios

11. Classification of Ratios

• Liquidity ratios

• Leverage ratios

• Turnover ratios

• Profitability ratios

• Profitability ratios based on investment

12. Conclusion

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INTRODUCTION Company Profile:

Established in 1907,Alembic pharmaceutical LTD is leading pharmaceutical company in india. The

company is vertically integrated with the ability to develop,manufacture and market pharmaceutical

products,pharmaceutical substances and intermediates.Alembic is the market leader in the macrolides

segment of anti-infective drugs in india.Alembic pharmaceuticals is asia’s most respected and

integrated,commited to improving the quality of life and healthcare in over 75 countries.

Alembic's manufacturing facilities are located in Vadodara and Baddi in Himachal Pradesh. The

plant at Vadodara has the largest fermentation capacity in India. The Panelav facility houses the API

and formulation manufacturing (both US FDA approved) plants. The plant at Baddi, Himachal

Pradesh manufactures formulations for the domestic and non-regulated export market. The company

has a state of the art Research Centre at Vadodara.

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History: Alembic Pharmaceuticals Limited ( the Resulting C ompany ) was originally incorporated on

16th June, 2010 in the name and style 'Alembic Pharma Limited', under the Companies Act,

1956 and had received the Certificate of Commencement of business on 1st July, 2010.

The company changed its name from Alembic Pharma Limited to Alembic Pharmaceuticals

Limited and the Registrar of Companies, Gujarat has approved the change of name and issued a

fresh certificate of incorporation consequent upon change of name on 12th March,

2011.

2012

Alembic and Breckenridge Announce Paragraph IV ANDA Litigation with

Pfizer on Desvenlafaxine (Pristiq®).

Alembic Pharmaceuticals Limited enters into a product development and

license agreement with Accu-Break Pharmaceuticals, Inc, USA.

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Future plans:

To keep growth above the industry average rate is one of their targets. Like the entire industry,

Alembic has to deal with threats like recession, slowing demand but this young brigade have the

solutions.

At Alembic we are focusing our efforts to improve processes and be more optimal in the way we

work. Our goal is to increase the efficiency and curtail wasteful expenditure. We are quite

confident that we will pass this global economic crisis without much problem and emerge much

stronger."

Group companies

• Alembic Limited

• Year Glass

• Shreno Ltd.

• Paushak Ltd.

• Alchemy Real Estate

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Milestones:

• 1907 - Started manufacturing tinctures and alcohol at Vadodara.

• 1940 ? Started manufacturing cough syrup, vitamins, tonics and sulphur drugs.

• 1961 ? Lal bahadur Shastri inaugurates the Penicillin plant.

• 1967 ? Bulk manufacturing of Vitamin B12.

• 1971 ? Erythromycin manufactured for the first time in India.

• 1972 ? Althrocin a brand of Erythromycin launched.

• 1997 --Althrocin becomes top selling brand in India.

• 1999 ? Alembic starts production of synthetic organic API.

• 2000- gets ISO 14000 certification for its facilities at Vadodara.

• 2001 ? Starts manufacturing of Cephalosporin C.

• 2007 ? Acquisition of non ?oncology business of Dabur Pharma Ltd.

• 2009 ? Addressed chronic therapies through multiple marketing divisions.

• 2010 ? ANDA?s total filed 38. DMF total filed to 53 and get approval for 15.

• 2013 ? Receives approval from the USFDA for its NDA, Desvenlafaxine Base

Extended Release (ER) Tablets.

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Board Of Directors:

Name Designation

Chirayu R Amin CEO

Chirayu R Amin Chairman & Managing Director

K G Ramanathan Director

Milin Mehta Director

Paresh Saraiya Director

Pranav Amin President & Director

Pranav N Parikh Director

R K Baheti Dir-President & Com.Secretary

R K Baheti Secretary

R K Baheti Dir-President & Com.Secretary

Shaunak Amin President & Director

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AWARDS:

FP APPROVAL FACILITY

Audited On :

Jan, 2008 May , 2010

Therapeutic Product Directorate (TPD)

Audited On :

Sep,Oct - 2004

Audited On :

Sep, Oct - 2004 May , 2010 March - 2010

Audited On :

July - 2007

Audited On :

May - 2004

API-P1 APPROVAL

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Audited On :

Nov, Dec - 2004 March - 2008

Audited On :

Jan - 2005 Jan - 2008

Audited On :

May - 2005

German Regulatory authority

Audited On :

Dec - 2006

Audited On :

May - 2004

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SWOT Analysis:

SWOT Analysis

Strength

1. Strong growth in emerging market business

2. Azithral and Roxid are famous branded formulations of this company

3.Total no. of employes are near about 7000 5. Strong brand presence in India

Weakness

1. It is heavily dependent upon generics for its revenue generation

2. Constantly regulated policies by the govt means operational efficiency is affected

Opportunity

1. They can leverage their acquisitions to further increase the growth

2. They can increase their presence in contract manufacturing

3. Increasing healthcare awareness in India

Threats

1. There is growing competition in generics market

2. Stringent patent regulations

3. High price sensitivity of consumers

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STP and Competitors:

STP

Segment

Antibiotics & Antibacterials, Cough & Cold Cardiovascular

Antihistamines Gynacological Ortho

Gastrointestial Anti Diabetic Ophthalmologicals

Urology Others

Target Group Healthcare professionals, pharmacists

Positioning

They are international specialty pharma company with strong presence in Indian ,US and cannada

Competition

Competitors

1. Cipla 2. Lupin pharmaceuticals

3. Aurobindo Pharma

4. Dr. Reddy’s laboratories

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PRODUCT PROFILE:

Product profile

API's continue to make up a significant part of the operations for Alembic Pharmaceuticals

Limited.

The fermentation based APIs are manufactured at its main manufacturing facility exceeding 3

million sq.mt. This ISO-9002 & ISO14001 accredited facility also houses the central R&D

(microbial & Chemical) set-up and Quality Assurance activity.

Anti Infectives

• Azithromycin Dihydrate

• Azithromycin Monohydrate

• Clarithromycin

• Erythromycin base

• Linezolid

• Roxithromycin

Cardio-Vascular

• Bosentan Hcl • Metoprolol Succinate

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• Candesartan Cilexetil

• Clonidine Hydrochloride

• Clopidogrel Bisulphate

• Fenofibrate

• Fenofibric Acid

• Hydrochlorothiazide

• Irbesartan

• Lercanidipine Hcl

• Losartan Potassium

• Metoprolol Tartrate

• Mexiletine Hydrochloride

• Olmesartan Medoxomil

• Prasugrel Hcl

• Telmisartan

• Valsartan (VAE)

• Warfarin sodium amorphous

• Warfarin Sodium Clathrate

Central Nervous System

• Aripiprazole

• Bupropion Hydrobromide

• Bupropion Hydrochloride

• Des Venlafaxine Base

• Donepezil Hydrochloride

• Duloxetine Hydrochloride

• Lamotrigine

• Levetiracetam

• lloperidone

• Moclobemide

• Modafinil

• O-Desmethyl Venlafaxine Succinate

• Pramipexole Dihydrochloride monohydrate

• Pregabalin

• Quetiapine Fumarate

• Rivastigmine Tartrate

• Ropinirole Hydrochloride

• Topiramate

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• Memantine Hydrochloride

• Meprobamate

• Venlafaxine Hydrochloride (Form B) (VSB)

• Venlafaxine Hydrochloride (Form C)

Musculoskeletal

• Alendronate Sodium

• Celecoxib

• Leflunomide

Erectile Dysfunction

• Tadalafil

Gastro-Intestinal

• Rabeprazole Sodium

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Formulations:

extensive range of finished dosage formulations cover every aspect of human life.asket of

formulations contain more than 150 products in several forms belonging to diverse therapeutic

segments from anti-infective, cough & cold products to cardiovascular and oral anti-diabetics.

The manufacturing expertise is available for almost all dosage forms including sterile as well as

non sterile products. Formulations which account for 65% of the total business today has

manufacturing facility at three different places; namely Vadodara & Panelav at Gujarat in the

west & Baddi at Himachal Pradesh in the north. The facility at Panelav enjoys certifications from

international regulatory authorities like MHRA (UK), MCC (South Africa).

The formulation business has crossed the boundaries of India and is well spread to many other

countries in overseas. Thus, there are three wings of formulation business.

International

Spread over 75 countries, Alembic

Pharmaceuticals is one of the most integrated

and robust pharmaceutical companies across

the globe. The Company's international

network drives its mission of providing access

to the best healthcare products at competitive

prices to the people of most remote countries.

Domestic

Alembic Pharmaceuticals presents an

extensive range of branded and generic

formulations, in compliance with

international and national regulations, that

cater to diverse therapeutic segments.

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Herbal Nutraceuticals

Alembic Pharmaceuticals Limited has been in the Nutraceuticals business for 50 years. In order

to cater to the changing needs of world Nutraceuticals, the Company has constantly been adding

products with their improvised therapeutic profile.

Research and Development:

Research and Development is a part of their strategy to become an integrated pharmaceutical

industry. they believe R&D is of critical importance in our need to grow in the area of

biotechnology and original drug research.

Have very specific programs in

• Process Development (Synthetic Drug Development)

• Fermentation Research

• Formulations Development

• New Drug Delivery Systems

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Process Development (Synthetic Drug Development)

The key objectives has been to develop indigenous processes for new drugs introduced in the

developed countries, produce and introduce them in India and promptly supply them to non-

regulatory markets.

Secondly, their emphasis will be on the development and commercialization of generic Active

Pharmaceutical Ingredients in line with domestic and international regulatory and quality

requirements. their research efforts are geared to develop innovative (patentable/non-infringing)

and cost-effective process know-how for the production of leading APIs and intermediates that

are going off patent shortly. For which, they have identified semi-synthetic Macrolides, semi-

synthetic Cephalosporins and certain other products in non-antibiotic therapeutic areas.

Formulations Development

The aim here is to devise formulations and dosage forms for new drugs to be introduced and to

make variants of particular dosage forms. Another objective is to introduce drug combinations by

understanding the mechanism of the interaction and the combined effects in increasing intensity

of response, in decreasing untoward actions and in altering absorption. The therapeutic range

covers Antibiotics, Analgesics, Antihistamines, Antihypertensives, Antidiabetics, Vitamins,

Antioxidants, NSAIDs, Psychotropic and Nutritional products.

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New Drug Delivery Systems

The development of new delivery systems like liposomes, nanoparticles and controlled drug

delivery systems to ensure better compliance, less total drug, efficiency in treatment and

economy.

As the global economy is on a path of recovery, our thrust continues to be a research driven

company. Low product costs and intellectual property are going to be the most definitive drivers

in the international generics market for Alembic Pharmaceuticals. We have proven excellence in

this regard.

Based at Vadodara, India (250 miles north of Mumbai) Alembic Research Centre (ARC) is the

research and development division of Alembic Pharmaceuticals Limited, one of India's reputed,

well-established and integrated pharmaceuticals company.

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Alembic

ANNUAL REPORT

(2012-2013)

Balance Sheet of Alembic Pharmaceuticals

------------------- in Rs. Cr. -------------------

Mar '13

Mar '12 Mar '11

12 mths

12 mths 12 mths

Sources Of Funds

Total Share Capital 37.70 37.70 11.00

Equity Share Capital 37.70 37.70 11.00

Share Application Money 0.00 0.00 26.70

Preference Share Capital 0.00 0.00 0.00

Reserves 422.06 323.16 238.51

Revaluation Reserves 0.00 0.00 0.00

Networth 459.76 360.86 276.21

Secured Loans 70.11 99.89 181.85

Unsecured Loans 70.53 134.43 146.05

Total Debt 140.64 234.32 327.90

Total Liabilities 600.40 595.18 604.11

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Mar '13

Mar '12 Mar '11

12 mths

12 mths 12 mths

Application Of Funds

Gross Block 572.46 462.89 433.52

Less: Accum. Depreciation 228.24 195.08 161.54

Net Block 344.22 267.81 271.98

Capital Work in Progress 32.26 62.19 26.50

Investments 3.35 3.35 3.35

Inventories 266.83 258.74 219.23

Sundry Debtors 232.38 186.83 201.97

Cash and Bank Balance 4.25 2.68 1.25

Total Current Assets 503.46 448.25 422.45

Loans and Advances 115.38 205.37 133.07

Fixed Deposits 0.00 23.05 0.04

Total CA, Loans & Advances 618.84 676.67 555.56

Deffered Credit 0.00 0.00 0.00

Current Liabilities 330.16 373.81 205.11

Provisions 68.12 41.05 48.18

Total CL & Provisions 398.28 414.86 253.29

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Net Current Assets 220.56 261.81 302.27

Miscellaneous Expenses 0.00 0.00 0.00

Total Assets 600.39 595.16 604.10

Contingent Liabilities 32.25 36.38 35.66

Book Value (Rs) 24.39 19.14 45.36

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Profit & Loss account of Alembic Pharmaceuticals

------------------- in Rs. Cr. -------------------

Mar '13 Mar '12 Mar '11

12 mths 12 mths 12 mths

Income

Sales Turnover 1,501.39 1,380.82 1,169.52

Excise Duty 8.75 10.63 14.30

Net Sales 1,492.64 1,370.19 1,155.22

Other Income 3.93 8.78 6.20

Stock Adjustments -21.34 64.44 4.72

Total Income 1,475.23 1,443.41 1,166.14

Expenditure

Raw Materials 653.27 715.92 572.20

Power & Fuel Cost 26.66 29.57 24.58

Employee Cost 193.79 168.46 149.21

Other Manufacturing Expenses 5.10 24.96 22.05

Selling and Admin Expenses 0.00 266.53 223.53

Miscellaneous Expenses 348.72 16.62 13.41

Preoperative Exp Capitalised 0.00 0.00 0.00

Total Expenses 1,227.54 1,222.06 1,004.98

Mar '13 Mar '12 Mar '11

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12 mths 12 mths 12 mths

Operating Profit 243.76 212.57 154.96

PBDIT 247.69 221.35 161.16

Interest 14.57 37.55 29.25

PBDT 233.12 183.80 131.91

Depreciation 34.96 33.65 29.59

Other Written Off 0.00 0.00 0.00

Profit Before Tax 198.16 150.15 102.32

Extra-ordinary items 0.00 0.00 0.00

PBT (Post Extra-ord Items) 198.16 150.15 102.32

Tax 40.71 29.62 20.83

Reported Net Profit 157.44 120.54 81.51

Total Value Addition 574.26 506.14 432.78

Preference Dividend 0.00 0.00 0.00

Equity Dividend 47.13 26.39 18.85

Corporate Dividend Tax 8.01 4.28 3.06

Per share data (annualised)

Shares in issue (lakhs) 1,885.16 1,885.16 550.00

Earning Per Share (Rs) 8.35 6.39 14.82

Equity Dividend (%) 125.00 70.00 50.00

Book Value (Rs) 24.39 19.14 45.36

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FINANCIAL ANALYSIS

Introduction:

• Financial Analysis is the process of determining the operating & financial characteristics

of a firm from accounting data & financial statement. The goal of such analysis is to

determine efficiency & performance of the firm management, as reflected in the financial

records and reports. Its main aim is to measure the firm‟s liquidity, profitability and other

indications that business is conducted in a rational and orderly way.

• The basic financial statement -

� Of the various reports that the companies issue to their shareholder, the annual report is

by far the most important. Two types of information are given in this report, first there is

a text that describes the firms operating results during the past year and discusses new

development that will affect future operations. Second there are few basic financial

statements –the income statement, the balance sheet, the statement of retained earnings

and the sources and uses of funds statements.

� The financial statement taken together give an accounting picture of the firm‟s operation

and financial positions.

• “Financial statement analysis is largely a study of relationship among the various

financial factors in a business as disclosed by a single set of statements, and a study of

trends of these factors as shown in a series of statements”

--- John N. Myer

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• “The analysis and interpretation of financial statement are an attempt to determine the

significance and meaning of the financial statement data so that the forecast may be made

of the prospects for future earnings, ability to pay interest and debt maturities (both

current & long term) and profitability of a sound dividend policy”

--- R.D. and S. % Mc Muller

• Thus, analysis of financial statement means such a treatment of the information contained

in the financial statement as to afford a full diagnosis of the profitability and financial

position of the firm concerned.

Nature of financial statement:

• According to the American institute of certified public accountants

“……………… financial statement reflected a combination of recorded facts, accounting

conventions and personal judgments.

Objective of financial analysis:

• The number and types of people interested in financial statements have changed radically

over a period of time. They need varied information and fortunately such information

may be classified as relating to profitability, liquidity and solvency.

• The Project “ANALYSIS AND INTERPRETATION OF FINANCIAL

STATEMENTS” is undertaken to fulfill the following objectives.

� To estimate the earning capacity

� To gouge the financial position and financial performance of the firm

� To determine the long terms liquidity of the funds as well as solvency

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� To determine the debt capacity of the firm

� To decide about the future prospective of the firm

Types of Financial Analysis

• Financial analysis may be classified into different categories dependency upon

� The material used

� The method of operation followed in the analysis

Graphical representation �

Financial Analysis

The material used the method of operation followed

in the Analysis

Internal External Horizontal Vertical

Analysis Analysis Analysis Analysis

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Ratio Analysis

Financial ratio:

� A ratio may be defined as a fixed relationship in degree or number between two numbers.

In finance, ratios are used to point out relationship that is not obvious from the row data.

Some uses financial ratios are following:�

(1) To Compare Different Companies in Some Industry: ratio can high light the

factors association with successful and unsuccessful firms. They can reveal strong firms and

weak firms, overvalued undervalued firms.

(2) To Compare Different Industries: Every industry has its own unique set of

operating and financial characteristics. These can be identified with the help of ratios.

(3) To Compare Performance In The Different Time Periods: Over a period of years,

a firm or a industry develop certain forms that may indicate future success or failure. If

relationship changes in firms data over different time periods, the ratio may provide clues and

trends of future problems.

Utility of Financial Analysis:

Following are the advantages of Financial Analysis :

• With the help of ratios we can determine the ability of the firms to meet its current-

obligation.

• Overall operating efficiency and performance of the firm.

• Efficiency with which firms is utilizing its various assets in generating sales Revenue.

• Ratios help in inter-firm and intra-firm comparison.

• They help in determining the financial strength by highlighting the liquidity.

• They are useful in comparison of performance.

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• They are also useful in forecasting purpose.

Advantages Of Ratios:

• The ratio analysis is one of the most powerful tools of financial analysis. It is use as a

device to analysis and interprets the financial health of enterprise. Just like a doctor

examines his conclusion regarding the illness and before giving his treatment, a financial

analyst analyses the financial statement with various tools of analysis before commenting

upon the financial bearlth or weakness of an enterprise. „A ratio is known as a symptom

like blood pressure, the pulse rate or the temperature of the individual‟. It is with help of

ratios that the financial statements can be analyzed and decision made from such analysis.

• HELPS IN DIVISION MAKING: Financial statements are prepared primarily for

decision making, but the information provided in financial statements is not an end in

itself and no meaningful conclusions can be drawn from these statements alone. Ratio

analysis helps in making decisions from the information provided in these financial

statements.

• HELPS IN FINANCIAL FORCASTING AND PLANNING: Ratios analysis is of

much help in financial forecasting and planning. Planning is looking ahead and the ratios

calculated for a number of year‟s work as a guide for the future. Meaningful conclusions

can be drawn for future from these ratios. Thus, ratio analysis helps in forecasting and

planning.

• HELPS IN COMMUNICATING: The financial strength and weakness of a firm are

communicated in a more easy and understandable manner by the use of ratios the

information contained in a financial statements conveyed in a meaningful manner to the

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one for the whom it is meant. Thus, ratios help in communicating and enhance the value

of financial statements.

• HELPS IN COORDINATION: Ratios even helps in coordinating, which is utmost

important in effective business management. Better communication of efficiency and

weakness of an enterprise results in 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 Financial Statements and variance

or deviations, if any, can be founded by comparing the actual with the standards so as to

take corrective action at the right time. The weakness or otherwise, if any, come to the

knowledge of the management which helps in effective control of the business.

Role Of Financial Ratio:

• Aid in financial forecasting: Ratio analysis is very helpful in financial forecasting. Ratio

relating to the past sales, profits & financial position from the basis for setting future

trends.

• Aid in comparison: With the help of ratio analysis ideal ratio can be composed & they

can be used for comparing a firm progress & performance. Inter firm comparison with

the industry averages is made possible by ratio analysis.

• Financial solvency of the firm: Ratio analysis indicates the trend in financial solvency

of the firm. Solvency has to dimensions:

� Long-term Solvency

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� Short-term Solvency

� Long term solvency refers to the financial viability of the firm while Short-term solvency

is the liquidity position of the firm.

• Communication values: Different financial ratios communicate the strength & financial

standing of the firm to the internal & the external parties. They indicate overall

profitability of the firm

• Other uses: Financial ratios are very helpful in the diagnosis & financial health of a firm.

They highlight the liquidity, solvency, profitability & capital gearing etc. of the firm.

They are useful tools of analysis of financial performances.

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Classification of ratios:

Ratio analysis

Liquidity ratio

Current ratio Liquid ratio

Leverage ratio

Debt equity total assets Proprietary Capital Interest

Ratio to debt ratio Gearing coverage

Turnover ratio

Stock Debtors Creditors Fixed assets working capital

Turnover turnover turnover turnover turnover

Profitability ratio

Gross operating Net profit

profits ratio ratio

Profitability ratio based on investment

Return on Return on Return on equity Earning per

capital shareholder fund shareholder fund share

employed

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1. LIQUIDITY RATIOS:

Liquidity refers to the ability of the firm to meet its obligations inventory the short-run,

usually one year. Liquidity ratios are generally based on the relationship between current

assets and current liabilities (the sources for meeting short-term obligations). Example:

Current ratio, Acid test ratio.

I. Current ratio: also known as working capital ratio,this is used to evaluate

short term financial position of the business concern. It indicates the ability of

the firm to meet its short term obligations. It compares the current assets and

current liabilities of the firm. Current assets are those which are either in the

form of cash or cash equivalent.current Liabilities are those which are to be

discharged during the accounting period

Current ratio = current assets

current liabilities

Significance: Ideal current ratio is 2:1. A very high ratio indicates availinility of idle cash and is

not a good sign.

II. Quick ratio: it is very useful in measuring liquidity position of a firm. It

measures the firm’s capacity to pay off current obligations. It is used as

complimentary ratio to the current ratio.

Quick ratio = liquid assets

current liabilities.

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Significance: Liquid ratio of 1;1 is considered satisfactory. If quick assets are equal to current

liabilities, then the concerm maybe able to meet its short term obligations.

1. LEVERAGE RATIOS :

Leverage ratios analyze the long term solvency that help us judge the ability of a firm to

pay the interest regularly as well as repay the principal when due to debenture holders,

long term lenders.

I. Debt equity ratio: shows a relationship between long term debt and shareholder’s

fund. This ratio indicates the relation between outsider’s fund and shareholder’s fund.

Also called external internal equity ratio Debt equity ratio=

debt or long term debt

equity shareholder’s fund

Significance: A ratio of 1:1 is usually considered to be satisfactory. This ratio is calculated to

know about the organzation’s repayment capacity of long term debts.

II. Total asset to debt ratio: shows a relationship between total assets and the longterm

debts.

Total asset to debt ratio= total assets

long term debts

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III. Proprietory ratio: this establishes the relationship between shareholder’s funds to

assets of the firm. It is important for determining long term solvency of the term. Also

known as euity ratio or net worth to total assets ratio.

Proprietory ratio= equity

total assets

Significance: Higher the ratio, dependency on external sources and loans for working capital will

be less and financial condition of the organization will be sound.

IV. Capital gearing ratio: it shows relationship between equity capital ( including

reserves and undistributed profits) and fixed cost bearing capital ( preference sharing

capital, fixed interest bearing loans)

Capital gearing ratio= equity share capital+ reserves+ P&L balance

fixed cost bearing capital

Significance: A high gearing will be beneficial to equity shareholders when rate of

interest/dividend payable on fixed cost bearing capital is lower than the rate of return on

investment in business.

V. Interest coverage ratio: also known as debt service ratio. This is calculated by

dividing net profit before charging interest and income tax by ‘fixed interest charges’.

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Interest coverage ratio= net profit before charging interest and income tax

‘fixed interest charges’

Significance: This shows how many times the interest charges are covered by profits available to

pay interest charges. It is helpful in finding out whether the business will earn sufficient

2. Turnover ratios/Activity ratios: These ratios measures how well the resources at the

disposal of concern are being utilized.they are known as turnover ratios as they indicate

the rapidity with which the resources available to the concern are being used to produce

sales. In other words, they measure the efficiency and rapidity of resources of the

company like stock, debtors, fixed assets, working capital, etc. They are generally

calculated on the basis of sales or cost of sales.

I. Stock turnover ratio: a.k.a inventory ratio. This ratio indicates relationship

between cost of goods sold during the year and average stock kept during that

year.

Stock turnover ratio= cost of goods sold

Average stock

Significance: This ratio indicates whether stock has been efficiently used or not. It shows the

speed with which the stock is rotated into sales or the number of times the stock is turned into

sales during the year. The higher the ratio, the better it is, since it indicates that stock is selling

quickly. In business, where the STR is high, goods can be sold at a low margin of profit and even

then, the profitability may be quite high.

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II. Debtors turnover ratio: a.k.a receivable turnover ratio. This ratio indicates

relationship between credit sales and average debtors during the year.

Debtors turnover ratio= net credit sales

Average debtors + Average B/R

Significance: This ratio indicates the speed with which the amount is collected from debtors. The

higher the ratio, the better it is, since it indicates that the amount from debtors are being collected

quickly. A lower DTR will indicate the inefficient credit sales policyof the management.

III. Creditors turnover ratio: This ratio indicates relationship between credit

purchases and average creditors during the year.

Creditors turnover ratio= net credit purchases

Average creditors + Average B/P

Significance: This ratio indicates the speed with which the amount is being paid to the creditors.

The higher the ratio, the better it is, since it will indicate that the creditors are being paid more

quickly which increases the credit worthiness of the firm.

IV. Fixed assets turnover ratio: This ratio indicates relationship between cost of

goods sold and fixed assets during a year.

Fixed assets turnover ratio= cost of goods sold

Net fixed assets

Significance: This ratio reveals how efficiently the fixed assets are being utilized. If there is

increase in ratio, it indicates that there is better utilization of fixed assets and vice versa.

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V. Working capital turnover ratio: This ratio indicates relationship between sales

and working capital.

Working capital turnover ratio= cost of goods sold or sales

Working capital

Significance: This ratio reveals how efficiently working capital has been utilized in making sales.

In other words, it shows the number of times working capital has been rotated in producing sales.

A high working turnover ratio shows efiicient use of working capital and quick turnover of

current assets like stock and debtor.

3. Profitability ratios: These ratios measure the profit earning capacity of the company.

Generally, profitability ratio is calculated in percentage (%).

I. Gross profit ratio: It shows relationship between gross profit and sales. It shows

margin of profit on sales.

Gross profit ratio= gross profit X 100

Net sales

Significance: It reveals profit earning capacity of business w.r.t. its sales. Increase in gross profit

ratio indicates reduction in cost while decrease in gross profit ratio will indicate increase in cost

or sales at a lesser price.

II. Operating ratio: This ratio indicates the proportion that the cost of goods sold

bears to sales.

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Operating ratio= cost of goods sold + operating exp. X 100

Net sales

Significance: It is the measure of efficiency and profitability of the business. The lesser is the

ratio, the better it is because less operating ratio means higher net profit.

III. Net profit ratio: This ratio indicates relationship between net profit and net sales

Net profit ratio= Net profit X 100

Net sales

Significance: It shows the operational efficiency of the business. Decrease in the ratio indicates

managerial inefficiency and excessive selling and distribution expenses. Increase in it shows

better performance.

4. Profitability ratios based on Investment: These ratios reflect the true earning capacity

of the resources employed in the enterprise.

I. Return on capital employed: It reflects the overall profitability of the business.

It is calculated by comparing the profit earned and the capital employed to earn

it.

Rate on capital = Profit before interest, tax and dividends X 100

Employed Capital employed

Significance: This ratio is a barometer of the overall performance which measures how

efficiently the capital employed in the business is being used.

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II. Return on total shareholder’s fund: To calculate this, net profit after interest

and tax is divided by shareholder’s fund

Return on total = net profit after interest and tax

shareholder’s fund Total shareholder’s funds

Significance: It reveals how profitably the proprietor’s funds have been utilized by the firm

III. Return on Equity Shareholder’s funds: This ratio measures the profitability of

the funds belonging to the equity shareholders.

Return on Equity Shareholders funds

= Net profit (after interest, tax & preference dividend X 100

Equity Shareholders funds

Significance: It measures how efficiently the equity shareholders funds are being used in the

business. The higher the ratio, the better it is, because in such case, equity shareholders may be

given a higher dividend.

IV. Earning per share: This ratio measures the profit available to the equity

shareholders on per share basis. All profits left after payment of tax and

preference dividend are available to equity shareholders.

Earning per share= Net profit – Dividend on preference share

Number of equity shares

Significance: It is helpful in the determination of the market price of the equity share of the

company. It is also helpful in estimating the capacity of the company to declare dividends in

equity shares.

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Financial Ratios

Liquidity Ratios

Year 2012 2013

Current ratio =

676.67/414.8

6 = 1.69

618.84/398.2

8 = 1.59

Quick Ratio =

676 –

258.74/414.8

6 =1.01

618.84 –

266.83/398.2

8 = 0.88

Interpretation:

Current Ratio: An ideal current ratio should be 2:1, which denotes that the current assets of a

business should at least be twice of its current liabilities. Current ratio of Alembic is not

satisfactory but still for year 2012 is better than 2013.

Quick Ratio: An ideal liquid ratio should be 1:1, which is usually considered satisfactory. Quick

ratio of Alembic Ltd. is satisfactory for year 2012.

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Activity ratios (Efficiency Ratios)

Year 2012 2013

Proprietary Ratio

=

360.86/595.16 = 0.61 459.76/600.39 = 0.76

Capital Gearing

Ratio =

676.67/414.86 = 1.69 618.84/398.28 = 1.59

Net Profit Ratio

=

120.54/1370.19 = 0.08 157.44/1492.64 =

0.105

Interest on

Coverage Ratio =

150.15+37.55/37.55 =

4.99

198.16+14.57/14.57 =

14.60

Return on

Capital

Employed =

150/294.32+360.86 =

0.25

198.16/140.64+459.76

= 0.33

Fixed Asset

Turnover Ratio =

1370.19/462.89 = 2.96 1492.64/572.46 = 2.60

Interpretations:

Proprietary Ratio: An ideal value of this ratio should be 1:1, here for Alembic Ltd. proprietary

ratio is not satisfactory but still for year 2013 is better than 2012.

Capital Gearing Ratio: An ideal value of capital gearing ratio should be 1:1, which means it

establishes ideal relation between equity capital and fixed cost bearing capital. Here for

Alembic Ltd. this ratio is satisfactory and 2012 is better than 2013.

Net Profit Ratio: The increase in net profit ratio shows better performance of the company

and here for year 2013 is 10.50% where for year 2012 is 8% so 2013 is better.

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Interest on Coverage Ratio: An interest coverage ratio of 6 to 7 times is considered

appropriate. Here for Alembic in year 2013 is approx 15 times so it is more than satisfactory.

Return On Capital Employed: Efficiently the capital employed in the business is being used and

the higher value shows better performance of company and here for Alembic Ltd. in year

2013 is 33% which is higher than 2012 (25%), and shows satisfactory performance than 2012.

Fixed Asset Turnover Ratio: For Alembic Ltd. this ratio is approx. 3 times for both the year and

it shows satisfactory condition. It’s value shows increase or decrease shows how efficiently

fixed assets used.

Debt Ratios (Leveraging Ratios)

Year 2012 2013

Debt Equity = 234.32/360.86 = 0.64 140.64/459.76 = 0.30

Total Assset to Debt = 595.16/234.32 = 2.54 600.39/140.64 = 4.26

Interpretations:

Debt Equity Ratio: An ideal debt equity ratio should be 1:1, which is considered as

satisfactory. Here of Alembic Ltd. company ratio is not satisfactory but still for year 2012 is far

better than 2013.

Total Assets to Debt: An ideal total asset to debt ratio should be 1:1, The higher the level of

long term debt, the more important it is for a company to have positive revenue and steady

cash flow. Here for Alembic Ltd. this ratio is more than satisfactory in year 2013 than 2012.

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Conclusion From the various study of balance sheet, profit loss account and different ratios

we can conclude that company’s both short term and long term financial health

is in good condition.

Thus from the above study we can say that company’s financial condition is

optimum and it is expected to rise in the future as company is expanding day by

day with new tie-ups.

Hence company’s future holds good and is expected to reach new heights in the

future.