1

INTRODUCTION
LUPIN PHARMACEUTICAL

Mandideep

Ankleshwar

Tarapur

Goa

Mandideep

Aurangabad

Jammu

The chairman of Lupin pharmaceutical is Dr. Desh Bandhu Gupta. Lupin ltd was founded on 9th 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.

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. 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. 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

sales (rs. in million)

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

--EBITDA (Rs, in million)

1- 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. 2- 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. 3- 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

--EPS (Rs. In million) 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

--API SALES GROWTH

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

--PBT (Rs. In million) 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) (C)
TRADITIONAL RATIOS CLASSIFILCATION OR STATEMENT RATIOS TO FUNCTIONAL CLASSIFICATION OR CLASSIFICATION ACCORDING TO TESTS OR RATIOS ACCORDING IMPORTANCE

(B)
SIGNIFICANCE

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1. BALANCE SHEET RATIOS RATIOS POSI TION STATEMENT RATIOS 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 2.SECONDARY

(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 COMPOSITE/MIXED OR POSITON STATEMENT RATIOS

(B) PROFIT AND LOSS A/C RATIOS OR OR REVENUE/INCOME STATEMENT RATIOS INTERSTATEMENT

RATIOS

1. CURRENT RATIO RATIO 2. LIQUID RATIO (ACID TEST OR QUICK RATIO) RATI0 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 RATIO 9. RATIO OF CURRENT ASSETS TO FIXED ASSETS

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 2. DEBTORS TURNOVER 3. PAYABLE TURNOVER 4. FIXED ASSET TURNOVER RATIO 5. RETURN ON EQUITY 6. RETURN ON SHAREHOLDERS FUNDS 7. RETURN ON CAPITAL CAPITAL EMPLOYED 8. CAPITAL TURNOVER 9. WORKING CAPITAL TURNOVER RATIO.

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10. RETURN ON TOTAL RESOURCES 11. TOTAL ASSETS TURNOVER

EXPLAINATION 1. 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.
2. 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. 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.

3. COMPOSITE/MIXED

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:

(B)

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

LIQUIDITY RATIOS RATIOS LONGTERM SOLVENCY AND LEVERAGE RATIOS ACTIVITY RATIOS PROFITABILITY

(a)1.CURRENT RATIO SALE 2.LIQUID RATIO(ACID TEST OR QUICK RATIOS 3.ABSOLUTE LIQUID RATIO OR CASH RATIO PROFIT

FINANCIAL OPERATING COMPOSITE 1.DEBT EQITY RATIO 2.DEBT TO TOTAL CAPITAL 3.INTEREST COVERAGE

1.INVENTORY TURNOVER

(a)IN RELATION TI

RATIO 1.GROSS PROFIT 2.DEBTORS TURNOVER RATIO 3.FIXED ASSET TURNOVER 2.OPERATING 4.TOTAL ASSET TURNOVER 3.OPERATING

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4. INTERNAL MEASURE RATIO (b)1. DEBTORS TURNOVER RATIO 2. CREDITOR TURNOVER RATIO 3. INVENTORY TURNOVER RATIO 4.CASH FLOW/DEBT 5. CAPITAL GEARING RATIO 5.WORKING CAPITAL TURNOVER RATIO 6.PAYABLE TURNOVER RATIO 7.CAPITAL EMPLOYED TURNOVER CAPITAL 3. RETURN ON EQITY CAPITAL 4. RETURN ON TOTAL RESOURCES 5. EARNING PER SHAR 6. PRICE EARNING RATIO RATIO 4.NET PROFIT 5.EXPENSE RATIO (b)IN RELATION TO INVESTMENTS 1. RETURN ON INVESTMENTS 2. RETURN ON

EXPLAINATION 1. 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. 2. LONG TERM SOLVENCY AND LEVERAGE RATIOS: Longterm solvency ratios convey a firms ability to meet the interest cots and repayments schedules of its long term obligations. 3. 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. 4. 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

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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.

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.

1. SINGLE ABSOLUTE RATIOS: the single ratios can be studied in relation to certain rules of thumb, which are based upon well-proven conventions. 2. 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. 3. 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. 4. 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

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ratios calculated on actual financial statements can be compared with the standard ratios to find out variances. 5. 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. 1. 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. 2. 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. 3. 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. 4. 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.

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5. 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. 6. 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 1. 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.

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2. 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. 3. 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. 4. 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. 5. 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. 6. 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

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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

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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: 1. 2. 3. 4. Gross Profit/turnover Net Profit/turnover Stock-in-trade/turnover Materials consumed/Finished Goods Produced

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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 wellaccepted 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.

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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.

IMPORTANT FACTORS FOR REACHING A CONCLUSION

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A number of factors should be taken into consideration before reaching a conclusion about short-term financial position. Sone of these factors is.

I. II. III. IV. V.

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 TABLE
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

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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 GRAPH

4 3.5 3 2.5 2 1.5 1 0.5 0 2004 2005 2.267 2.111

3.702

CURRENT RATIO

2006

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I. INVENTORY/STOCK Management
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. a) It unnecessarily blocks capital which can otherwise be profitability used somewhere else. b) Over stocking will require more godown space, so more rent will be paid. c) There are chances of obsolescence of stocks. Consumers will prefer goods of latest design, etc. d) Slow disposal of stocks means slow delivery of cash also which will adverselu affect liquidity. e) 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

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PRACTICAL CALCUALTION ON INVENTORY/STOCK TURNOVER RATIO

INVENTORY TURNOVER RATIO = NET SALES__ AVERAGE INVENTORY AT COST

TABLE
YEAR CONTENTS

2004 11192.8 1785.8 6.26 : 1

2005 11611.3 2316.9 5.01 : 1

2006 16061.0 2791.85 5.75 : 1

NET SALES

AVERAGE INVENTORY AT COST INVENTORT TURNOVER RATIO

WORKING NOTES
NET SALES =

2004 = 11192.8 2005 = 11611.3 2006= 16061.0

AVERAGE INVENTORY AT COST=OPENING STOCK+CLOSING STOCK 2

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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 6.26 6 5 4 3 2 1 0 2004 2005 2006 Inventory turnover ratio 5.01 5.75

ANALYSIS OF THE INVENTORY/STOCK TURNOVER

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

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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.

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DEBTORS OR RECEIVIBLES TURNOVER

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

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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
RECEIVIBLES
=

SUNDRY DEBTORS + BILLS REVEIVIBLES & A/C

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 2

2004 = 8991.5+4194.5 / 2 = 6593

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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 1.6 1.55 2004 2005 2006 1.69 1.66 debtor turnover ratio 1.81

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.

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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.

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.

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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 2001 2002 2003 2004 2005 2006 2007
fixed assets Linear (fixed assets)

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

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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 it 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.

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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.

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18000 16000 14000 12000 10000 8000 6000 4000 2000 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.

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

total income Linear (total income)

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 are 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.

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16000 14000 12000 10000 8000 6000 4000 2000 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.

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3500 3000 2500 2000 1500 1000 500 0 2001 2002 2003 2004 2005 2006 2007 PBIT Linear (PBIT)

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 company have earned already very huge profit in 2006 so it will be possible that Lupin will again gain more profit.

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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)

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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.

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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.

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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.