STUDY ON COMPARATIVE RATIO ANALYSIS OF CIPLA AND LUPIN

EXECUTIVE SUMMARY

Ratio analysis is an important tool for analyzing the company’s financial performance. Ratio
analysis is a useful management tool that assists in effective planning and running a financially
successful business.

Ratios on the other hand, help greatly in summarizing the large amount of financial data by
making the interpretation of financial statements easier; they enable to make qualitative judgment
about a business firm’s financial performance on the other. The Interrelationship that exists
among the different items in the Financial Statements are revealed by accounting ratios.

Thus they are equally useful to the Internal Management, Prospective Investors, Creditors and
outsiders etc. Besides Ratios are the best tool for measuring liquidity, Solvency, Profitability and
management efficiency of a firm. This is why the role of accounting ratios are very significant to
increase the efficiency of the management, to reduce the expenditure arid to increase the rate of
profit etc. Ratio analysis has various angles of Interpretation like Historical comparison,
Projected Ratios, Industry Comparison, and Inter-firm comparison. And investment ratios in this
study.

The various information regarding “Ratios” such as Classification, meaning of ratio relating to
Cipla Company of India ltd and Lupin ltd has been discussed in the project. The study is carried
out for last financial year’s i.e.2018-2019, by taking into consideration financial statements for
the particular years of Cipla and Lupin. The whole study is focused on performance of Cipla with
comparison to Lupin Ltd.

The ratios are as follows:-

Liquidity Ratio: Consist of Current Ratio, Quick Ratio and Cash Ratio.

Profitability Ratio: Covers Gross Profit, Net Profit, Return on Assets and Return on Total
Income.

Solvency Ratio which consist of Debt-Equity Ratio, Interest Coverage Ratio.

Activity Ratio which consist of Debtors Turnover Ratio, Fixed Asset Turnover and Total
Asset Turnover.
LITERATURE REVIEW

Financial ratios are widely used for the purpose to calculate the profitability and financial
condition of a bank or firm. The firm involves many interested parties, like the owners,
management, personnel, customers, suppliers, competitors and academics, each having their
views in applying financial statement analysis in their evaluations. Practitioners use financial
ratios, for instance, to forecast the future success of companies, while the researchers' main
interest has been to develop models exploiting these ratios.

Barnes (1982) shows how the non-normality of financial ratios can result from the underlying
relationships of the constituents of the financial ratios. He is thus able to tie in the ratio format
aspects with the distributional properties of financial ratios (to be discussed later in this
review). In the discussion on Barnes's paper (Horrigan, 1983, Barnes, 1983), Horrigan puts
forward that financial ratio research should be more interested in the role of the financial ratios
themselves than in "the nature of the ratios' components or to the ratios' incidental role as data
size deflators".
Justin (1924) argued that the method of gathering industry data and calculates averages were
called "Scientific ratio analysis". The word "scientific" in this title was not entirely correct
because no evidence had been found that the hypothesis formulation and hypothesis testing
actually carried out.
Horrigan (1968) says ratios analysis has come into existence since early ages and the main
reason of the development of ratio analysis was its use in the analysis of the properties of ratios
in 300 B.C. in recent time it is used as a standard tool for the analysis of financial statement. In
nineteenth century main reasons of using ratio analysis are power of financial institutions and
shifting of management to professional managers. Ratio analysis used for two purposes that are
credit and managerial. In managerial approach profitability and in credit approach capacity of
firm to pay debts is the main point of focus. Generally, ratio analysis is used credit analysis.
There was rapid expansion of financial knowledge in nineteenth century and to study this
rapidly expanding knowledge analyst first compared similar items then moved further and
compared current assets and liabilities as well with other ratios. In that period current ratio was
the most significant ratio among all other available ratios. To analyze the operating results
DuPont analysis is also used. The result divided into three parts and then compared with other
companies to point out the problem and strong areas of business.
OBJECTIVES OF THE STUDY

The major objective of the recent study is to know about financial strengths and
weakness of Cipla through FINANCIAL RATIO ANALYSIS.

The other objectives of study are aimed as follow:

1. To study the present financial system at Cipla
2. To determine the Profitability, Liquidity Ratios.
3. To analyse the capital structure of the company with the help of Leverage ratio.
4. To offer appropriate suggestions for the better performance of the Organization.

RESEARCH METHODOLOGY:

The Study is considered as analytical research. Analytical Research is defined as the research in
which, researcher has to use facts or information already available, and analyse these to make an
evaluation of the facts, figures, data or material.

SECONDARY DATA:

The secondary data are those which have already collected and stored. Secondary data has been
collected from records, annual reports of the company, website etc. The major source of data for
this project was collected through annual reports and financial statements of the company’s i.e.
Cipla. Also some more information collected from internet and text sources as well.
SECTORAL OVERVIEW:

India is the largest provider of generic drugs globally with the Indian generics accounting for
20 per cent of global exports in terms of volume. Of late, consolidation has become an important
characteristic of the Indian pharmaceutical market as the industry is highly fragmented.

India enjoys an important position in the global pharmaceuticals sector. The country also has a
large pool of scientists and engineers who have the potential to steer the industry ahead to an
even higher level. Presently over 80 per cent of the antiretroviral drugs used globally to combat
AIDS (Acquired Immune Deficiency Syndrome) are supplied by Indian pharmaceutical firms.

Indian pharmaceutical sector is estimated to account for 3.1 – 3.6 per cent of the global
pharmaceutical industry in value terms and 10 per cent in volume terms. It is expected to grow to
US$100 billion by 2025. The market is expected to grow to US$ 55 billion by 2020, thereby
emerging as the sixth largest pharmaceutical market globally by absolute size. Branded generics
dominate the pharmaceuticals market, constituting nearly 80 per cent of the market share (in
terms of revenues). The sector is expected to generate 58,000 additional job
opportunities by the year 2025.

India’s pharmaceutical exports stood at US$ 16.8 billion in 2016-17 and are expected to grow by
30 per cent over the next three years to reach US$ 20 billion by 2020, according to the
Pharmaceuticals Export Promotion Council of India (PHARMEXCIL). Export of
pharmaceutical items reached Rs. 696.84 billion (US$ 10.76 billion) during April 2017 –January
2018.

Indian companies received 304 Abbreviated New Drug Application (ANDA) approvals from the
US Food and Drug Administration (USFDA) in 2017. The country accounts for around 30 per
cent (by volume) and about 10% in the US$ 70-80 billion US generics market. India’s
biotechnology industry comprising bio-pharmaceuticals, bio-services, bio-agriculture,
bio-industry and bioinformatics is expected grow at an average growth rate of around 30% a year
and reach US$ 100 billion by 2025. Biopharma, comprising vaccines, therapeuticsand
diagnostics, is the largest sub-sector contributing nearly 62 per cent of the total revenues
at Rs 12,600 crore (US$ 1.89 billion).

Indian pharmaceutical sector accounts for about 3.1 – 3.6 per cent of the global pharmaceutical
industry in value terms and 10 per cent in volume terms and is expected to grow to US$ 100
billion by 2025. India contributes the second largest share of pharmaceutical and biotech
workforce in the world. In February 2018, the Indian pharmaceutical market grew at 7.
CHAPTER - I

COMPANY PROFILE

Cipla Limited is an Indian multinational pharmaceutical and biotechnology company,

headquarter in Mumbai, India. In 1935, Dr K A Hameed the founder, set up an enterprise with
thevision to make India self-sufficient in healthcare. One of the world’s most respected
pharmaceutical Company. Cipla primarily develops medicines to treat cardiovascular Diseases,
Diabetes, weight control and depression; other medical conditions.

Cipla is one of the world's largest generic pharmaceutical companies, and has a strong presence
in 170+ countries. Since then, it has emerged as one of India's leading pharmaceutical companies.

Cipla has 34 modern manufacturing facilities in India which are engaged in the manufacture of
Active Pharmaceutical Ingredients (APIs) and formulations. These manufacturing facilities have
been approved by major international Regulatory Agencies. The company manufactures 2000+
products in 65 therapeutic categories and 60+ dosage forms, covering communicable, non-
communicable, common and emerging diseases, and rare diseases.

The primary focus of Cipla's Research and Development (R&D) centre is to develop innovative
and affordable products and drug delivery systems. It has pioneered several formulations and
come up with many firsts - both in India and the world.
It has its headquarters in Mumbai, Maharashtra, and offices in Belgium, UK, and the United
States. Its current chairman is Dr. Yusuf K. Hameed.

Cipla has 34 manufacturing facilities in India that are cGMP compliant and conform to national
and major international standards. Its formulations are sold in 170+ countries including the
United States, Canada, Europe, Africa, Australasia, Latin America and Middle East. Cipla's
portfolio includes 2000+ products across multiple therapeutic categories, including treatment for
acute, chronic and rare conditions. The company makes affordable medicines and has played a
pioneering role in HIV/AIDS treatment.

It is among the leading manufacturers of ARV (anti-retroviral) drugs in the world, and was the
world's first pharmaceutical company to supply ARVs to countries at less than a dollar a day.
Cipla’s Turnover is USD 2.2 Billion.

Listing
Equity Shares: BSE Limited and National Stock Exchange of India Limited.
Global Depository Receipts: Luxembourg Stock Exchange.

The commitment to high quality standards has made Cipla the most trusted brand and top Indian
pharma company among healthcare professionals. Cipla today has 12 divisions reaching out to
more than 20 specialties from general-practioners to super-specialists. Cipla is a market leader in
three therapies — Respiratory, Urology and Antiretroviral (ARV) with seven brands in the top
100 list.

In the fiercely competitive Indian pharmaceutical industry environment, Cipla scores over with
strong brand equity, product range, unique dosage forms, pioneering work across therapeutic
areas, numerous medico-marketing initiatives, strong distribution network of distribution depots
catering to a network of over 3,000 stockists, reaching out to 7,00,000 chemists and more than
10,000 colleagues with can-do attitude.

Cipla’s approach is to understand unique patient requirements and develop solutions, and also
focus on enhancing patient awareness and medical education.
COMPANY PROFILE

Lupin Pharmaceuticals, Inc. is the U.S. wholly owned subsidiary of Lupin Limited, which is
among the top five pharmaceutical companies in India. Through our sales and marketing
headquarters in Baltimore, MD, Lupin Pharmaceuticals, Inc. is dedicated to delivering high-
quality, branded and generic medications trusted by healthcare professionals and patientsacross
geographies.

Lupin Limited, headquartered in Mumbai, India, is strongly research focused. It has a program
for developing New Chemical Entities. The company has a state-of-the-art R&D centre in Pune
and is a leading global player in Anti-TB, Cephalosporin’s (anti-infective) and Cardio vascular
drugs (ACE-inhibitors and cholesterol reducing agents) and has a notable presence in the areas of
diabetes, anti-inflammatory and respiratory therapy.

Vinita Gupta, CEO of Lupin Pharmaceuticals, Inc. says "founded on the strengths of our parent
company Lupin Limited, Lupin Pharmaceuticals, Inc. intends to bring a portfolio of generics as
well as branded products to the US market."

Lupin's mission is to become a transnational pharmaceutical company through the development

and introduction of a wide portfolio of branded and generic products in key markets Lupin
Pharmaceuticals, Inc. is committed to bringing innovative products for the healthcare
professional to improve the health and wellbeing of individuals.

Lupin Pharmaceuticals, Inc. is well positioned for growth in the US market. We can capitalize on
the strengths of our parent company, Lupin Limited:
 Scientific expertise to develop new and improved products and product line extensions;
 Manufacturing technology, expertise and infrastructure;
 Financial resources.
Headquartered in Mumbai, India, LUPIN limited today is an innovation led transnational
Pharmaceutical company producing a wide range of quality, affordable generic and branded
formulations and APIs for the developed and developing markets of the world.

Lupin first gained recognition when it became one of the world's largest manufacturers of
Tuberculosis drugs. The Company today has significant market share in key markets in the
Cardiovascular (perils and statins), Dialectology, Asthma, Paediatrics, CNS, GI, Anti-Infective
And NSAIDs therapy segments, not to mention global leadership positions in the Anti-TB and
Cephalosporin’s segments.

Lupin is the 7th and the 6th largest generics pharmaceutical company by market capitalization
The Company is the 4th largest pharmaceutical player in the US by prescriptions; the 2nd largest
Indian pharmaceutical company by total revenue; the 6th largest generic pharmaceutical player in
Japan. And the 6th largest company in Indian Pharmaceutical Market.

CHAPTER – II
INTRODUCTION TO RATIO ANALYSIS

Ratio analysis is a powerful tool of financial analysis. The term “Ratio” refers to the numerical
and quantitative relationship between two items or variables. This relationship can be exposed as
Percentages. Fractions and Proportion of numbers

Ratio analysis is defined as the systematic use of the ratio to interpret the financial statements. So
that the strengths and weaknesses of a firm, as well as its historical performance and current
financial condition can be determined.

Ratio reflects a quantitative relationship that helps to form a quantitative judgment. A ratio is
defined as “the indicated quotient of two mathematical expressions” and “the relationship
between two or more things”. In financial analysis, a ratio is used as a benchmark for evaluation
the financial position and performance of a firm.

The absolute accounting figures reported in the financial statements do not provide a meaningful
understanding of the performance and financial position of a firm. An accounting figure conveys
meaning when it is related to some other relevant information. For example, an Rs.5core net
profit may look impressive, but the firm’s performance can be said to be good or bad only when
the net profit figure is related to the firm’s Investment.

The relationship between two accounting figures expressed mathematically, is known as a

financial ratio (or simply as a ratio). Ratios help to summarize large quantities of financial data
and to make qualitative judgment about the firm’s financial performance. For example, consider
current ratio. It is calculated by dividing current assets by current liabilities; the ratio indicates a
relationship- a quantified relationship between current assets and current liabilities.

This relationship is an index or yardstick, which permits a quantitative judgment to be formed

about the firm’s liquidity and vice versa.

The point to note is that a ratio reflecting a quantitative relationship helps to form a qualitative
judgment. Such is the nature of all financial ratios understand the Liquidity position, Efficiency,
Profitability and Leverage proportion of the organization. The findings and analysis of the study
is as follow:
 MODELFOR PERFORMANCE EVALUATION OF BOTH PHARMACEUTICAL
COMPANIES

Model of performance evaluation of pharmaceutical company

Liquidity ratios

Selection of financial report

Asset management ratios

Identification of balance sheet, income statement and cash flow statement

Profitability ratio

Ratio analysis
Debt management ratios

Mathematical calculation
Market value ratios

Graphical analysis of both companies

Comparison of among both companies

Declaration of best one

among both companies
The Ratios are classified as:

 Liquidity Ratio
 Profitability Ratio
 Solvency Ratio
 Activity Ratio
(All the figures are rounded off to the nearest value).

LIQUIDITY RATIO:
S
T
A
C
R
Liquidity ratios measure a company's ability to pay debt obligations and its margin of safety
through the calculation of metrics including the current ratio, quick ratio and Cash ratio.
Current liabilities are analysed in relation to liquid assets to evaluate the coverage of short term
debts in an emergency. The most common ratios which indicate the extent of liquidity are as
follows:-




Current Ratio
Quick Ratio
Cash Ratio

Page 11 of 48
1) CURRENT RATIO:

The current ratio is a liquidity ratio that measures a company's ability to pay short term and
long-term obligations. To gauge this ability, the current ratio considers the total current assets
of a company (both liquid and illiquid) relative to those company’s total current liabilities.

The current ratio is an indication of a firm's liquidity. Acceptable current ratios vary from
industry to industry. In many cases, a creditor would consider a high current ratio to be better
than a low current ratio, because a high current ratio indicates that the company is more likely
to pay the creditor back.

A current ratio that is in line with the industry average or slightly higher is generally
considered acceptable. A current ratio that is lower than the industry average may indicate a
higher risk of distress or default. Similarly, if a company has a very high current ratio
compared to their peer group, it indicates that management may not be using their assets
efficiently.

The current ratio is called “current” because, unlike some other liquidity ratios, it incorporates
all current assets and liabilities. The current ratio is also called the capital ratio.

It is expressed as

Current Ratio = Current Assets/Current Liabilities.

YEAR CIPLA LUPIN

2018-2019 1.26 1.70

CURRENT RATIO
1.7

1.26

CIPLA LUPIN
YEAR 2018-19

Page 12 of 48
INTERPRETATION:-

 A relative high current ratio is an indication that the firm is liquid and has the ability topay
its current obligations in time as and when they become due. On the other hand, a relatively
low current ratio represents that the liquidity positions of a firm shall not be able to pay its
current liabilities in time without facing difficulties.

 As a rule, the current ratio with 2:1 (or) more is considered as satisfactory position ofthe
corporation.

 The liquidity position of Lupin in F.Y 2018-19 is 1.70 which is better when comparedwith
Cipla which has a current ratio of 1.26.

 The Current assets of Lupin has increased due to Trade Receivables and Cash and Cash
Equivalents. The Current Liabilities has decreased at the same time which includes
Current Borrowings such as Secured and Unsecured Loans from Bank and also Trade
Payables. The Lupin Company has a good position of Current Ratio because it has a
Satisfactory Assets.

 Whereas when compared to Cipla, the current ratio is 1.26 which is low due to the increase
in current Liabilities over Current Assets. The Current Liabilities such as Term Loans
from Banks and Trade Payables to Micro and Small Enterprises has increased. The
Current Assets such as Investment and Trade Receivables has decreased.

 Comparing both the Companies the Current Ratio of Lupin is better that Cipla.

Page 13 of 48
2) QUICK RATIO:

The quick ratio is an indicator of a company’s short-term liquidity position and measures a
company’s ability to meet its short-term obligations with its most liquid assets. Since it
indicates the company’s ability to instantly use its near-cash assets (assets that can be
converted quickly to cash) to pay down its current liabilities, it is also called the acid test
ratio.

A result of 1 is considered to be the normal quick ratio. It indicates that the company is
fully equipped with exactly enough assets to be instantly liquidated to pay off its current
liabilities. A company that has a quick ratio of less than 1 may not be able to fully pay off
its current liabilities in the short term, while a company having a quick ratio higher than 1
can instantly get rid of its current liabilities.

The quick ratio is more conservative than the current ratio because it excludes inventory
and other current assets, which generally are more difficult to turn into cash. It is
expressed as

Quick Ratio= (Current Assets-Inventory-Prepaid Expenses) / (Current Liabilities)

YEAR CIPLA LUPIN

2018-19 1.33 1.40

QUICK RATIO
1.4

1.33

CIPLA LUPIN
YEAR 2018-19

Page 14 of 48
 INTERPRETATION:-

 The Quick Ratio of Lupin in the Year 2018-19 is 1.40 which is better when compared to Cipla
which is 1.33.

 Quick assets are those assets which can be converted into cash within a short period of time,
say to six months. A quick ratio of 1:1 is considered satisfactory.

 Lupin has the capacity to pay off current obligations immediately and can also converts its
Quick Asset i.e. Cash and bank balance, sundry debtors, loans and advances to meet
its current liabilities.

 Lupin has enough cash and bank balance to recover the debts.

 Cipla has less Quick ratio because it has less cash in current and deposits Accounts and cant
repay its debts on time.

 Thus, Lupin has the ability to meet its current obligation with readily convertible quickfunds
on hand.

Page 15 of 48
3. CASH RATIO
It shows the relationship between absolute liquid or super quick current assets and liabilities.
Absolute liquid assets include cash, bank balances, and marketable securities. Cash ratio is the
ratio of cash and cash equivalents of a company to its current liabilities. It is an extreme
liquidity ratio since only cash and cash equivalents are compared with the current liabilities. It
measures the ability of a business to repay its current liabilities by only using its cash and cash
equivalents and nothing else.

The cash ratio is most commonly used as a measure of a company's liquidity. If the company is
forced to pay all current liabilities immediately, this metric shows the company's ability to do
so without having to sell or liquidate other assets.

A cash ratio is expressed as a numeral, greater or less than 1. Upon calculating the ratio, if the
result is equal to 1, the company has exactly the same amount of current liabilities as it does
cash and cash equivalents pay off those debts.

If a company's cash ratio is less than 1, there are more current liabilities than cash and cash
equivalents. It means insufficient cash on hand exists to pay off short-term debt

It is calculated as: Cash Ratio= Cash + Cash Equivalent/Current Liabilities

YEAR CIPLA LUPIN

2018-19 0.18 0.11

CASH RATIO
0.18

0.11

CIPLA LUPIN
YEAR 2018-19

Page 16 of 48
 INTERPRETATION:-

 The Cash Ratio of Cipla in the Year 2018-2019 is 0.18 and that of Lupin is 0.11

 A Cash Ratio of 0.5:1 or higher is generally considered as ideal. But both companies’ ratios are
below the Standard Ratio which indicates it has less cash.

 Although receivables and debtors are generally more liquid than inventories, yet there may be
doubts regarding their realization into cash immediately or in time. So Cash ratio should be
calculated together with current ratio and quick ratio so as to exclude even receivables from the
current assets and find out the absolute liquid assets.

 A ratio of 1 means that the company has the same amount of cash and equivalents as it has
current debt. In other words, in order to pay off its current debt, the company would have to
use all of its cash and equivalents.

 When compared the Cipla Company has more Cash as compared to Lupin. It has an advantage
of Liquidity over Lupin.

Page 17 of 48
N
E
N
P
R
O
T
A
F
IS
B
Y
L
PROFITABILITY RATIO:

G R
E TS
NE
The profitability ratios are calculated to measure the operating efficiency of the company.
Besides management of the company, creditors and owners are also interested in the

PROFI
profitability of the firm. Creditors want to get interest and repayment of principal regularly.
Owners want to get a required rate of return on their investment. This is possible only when the
company earns enough profits
Generally, the ratio which indicate the profitability of the company are as follows:-

PRO



U RN
L TY
Gross Profit.

Net Profit.

Return on Assets.

RA TI
Return on Total Income

1. GROSS PROFITRATIO:
Page 18 of 48
Gross profit ratio (GP ratio) is a profitability ratio that shows the relationship between gross
profit and total net sales revenue. It is a popular tool to evaluate the operational performance
of the business. In accounting, gross profit or sales profit or gross margin is the difference
between revenue and the cost of making a product or providing a service, before deducting
overhead, payroll, taxation, and interest payments. This is different from operating profit.

The ratio provides a pointer of the company’s pricing policy. Certain businesses aim at a
faster turnover through lower prices. Such businesses would have a lower gross profit
percentage but a larger volume of sales. Some businesses that have higher fixed (or indirect
costs) need to have a greater gross profit margin to cover these costs. Such businesses aim to
cover their fixed costs and have a reasonable return on equity through larger gross profit
margin from a smaller sales base.

It is expressed as
Gross Profit = Gross Profit/Net Sales*100

YEAR CIPLA LUPIN

2018-19 7.87 20.61

GROSS PROFIT RATIO

20.61

7.87

CIPLA LUPIN

YEAR 2018-19

Page 19 of 48
INTERPRETATION:-

 This is the ratio between Gross Profits earned on Net sales during the year.

 The Gross Profit of Cipla is 7.87 and that of Lupin is 20.61.

 Highers the Gross profit indicates the cost of production is under control.

 The Gross Profit of Lupin is greater as compared to Cipla. To increase the gross profit we
should decrease the cost of goods sold.

 The Loss for the Current Year for Cipla is due to Purchase of Raw and Packing Materials.

 The Operating Cycle of Lupin is better than Cipla.

Page 20 of 48
2. NET PROFIT RATIO:

Net profit ratio establishes a relationship between net profit and sales and indicates and
management’s in manufacturing, administrating and selling the products. This ratio is the
overall measure of the firm’s ability to turn each rupee sales into net profit.

Net profit ratio is one of the most important indicators of a company's financial health. By
tracking increases and decreases in its net profit ratio, a company can assess whether
current practices are working and forecast profits based on revenues.

Investors can assess if a company's management is generating enough profit from its sales
and whether operating costs and overhead costs are being contained. For example, a
company can have growing revenue, but if it’s operating costs are increasing at a faster rate
than revenue, its net profit margin will shrink.

It can be expressed as

Net Profit= (Net Profit after Tax/Net Sales)* 100

YEAR CIPLA LUPIN

2018-19 6.87 14.72

NET PROFIT
14.72

6.87

CIPLA LUPIN
YEAR 2018-19

Page 21 of 48
INTERPRETATION:-
 This is the ratio between Net Profit after tax on Net sales. This is the ratio indicates Net
Profits earned (Profit available for distribution to owners/shareholders) on Net sales during
the year. It measures overall profitability of the business.

 The Net Profit for Cipla is 6.87 whereas for Lupin it is 14.72. Higher the ratio better is the
profitability.

 The Net Profit for Cipla is low due to increase in the expenses incurred on Consumption of
Raw and Packing Materials and purchases ofmaterials.

Page 22 of 48
3. RETURN ON TOTAL ASSETSRATIO:

The return on total assets (ROTA) is a ratio that measures a company's earnings before interest
and taxes (EBIT) against its total net assets. The ratio is considered to be an indicator of how
effectively a company is using its assets to generate earnings before contractual obligations
must be paid.

Return on total assets (ROTA) is a ratio that measures a company's earnings before interest and
taxes (EBIT) relative to its total net assets. It is defined as the ratio between net income and
total average assets, or the amount of financial and operational income a company receives in a
financial year as compared to the average of that company's total assets.

The ratio is considered to be an indicator of how effectively a company is using its assets to
generate earnings. EBIT is used instead of net profit to keep the metric focused on operating
earnings without the influence of tax or financing differences when compared to similar
companies.

It is expressed as

Return on Total Assets= EBIT/ Total Net Assets *100

Year Cipla Lupin

2018-2019 4.94 9.63

RETURN ON TOTAL ASSETS

9.63

4.94

Cipla Lupin

Page 23 of 48
INTERPRETATION:-

 This is the ratio between return on Total Assets (both Current & Non-Current). This is the
ratio between net profits earned on Total Assets Operated. The ratio is generally calculated
as percentage multiplying with100.

 TheReturnonTotalAssetsofCiplais4.94whencomparedtoLupinitis9.63.

 Lupin has been providing greater returns on assets of capital in comparisons to its
competitors.Higheristheratio,greateristheintensiveutilizationofthefixedassets.

 There is a huge difference of ROA between Cipla and Lupin, hence cipla has less assets as
compared to Lupin.

 Profitability of the Cipla has degraded as compared to Lupin. Cipla has not been
successful in utilising its fixed assets.

Page 24 of 48
4. RETURN ON TOTAL INCOME:

This is the ratio between return on total income of the entity available for distribution to the
shareholders or owners. This ratio indicates return on total revenue received after considering
all expenses. This is key ratio for analyzing trend to arrive at net margin received by
shareholders or owner of the equity.

This ratio can help the management in controlling the expenses. It can give indications of
rising expenses. If a decrease in return on revenue is observed, the management should know
that the expenses are not being managed as efficiently as in the past. The management should
find out why the expenses are rising and then take steps to reduce them. An increase in the
ROR is an indication that the expenses of the company are being facilitated efficiently.

It is expressed as
Return on Total Income= NPAT/Total Income *100

Year Cipla Lupin

2018-19 6.96 14.57

RETURN ON TOTAL INCOME

14.57

6.96

Cipla Lupin
YEAR 2018-19

Page 25 of 48
 INTERPRETATIONS:-

 This is the ratio between return on total income of the entity available for distribution to
the shareholders or owners.

 This ratio indicates return on total revenue received after considering all expenses. This is
key ratio for analysing trend to arrive at net margin received by shareholders or owner of
the equity.

 The Return on Total Income Ratio of Cipla is 6.96 where as compared to Lupin it is 14.57.

 Lupin has a high Return on total Income Ratio because the sale of goods and Export is high
as well as Investments.

 Cipla has a low Return on total income ratio as compared to Lupin because there was less
of sale of goods and providing services to clients.

 The performance is good of lupin as compared to cipla.

SOLVENCY RATIO:

Page 26 of 48
 Solvency ratio is a key metric used to measure an enterprise’s ability to meet its debt and other
obligations. The solvency ratio indicates whether a company’s cash flow is sufficient to meet
its short-term and long-term liabilities. The lower a company's solvency ratio, the greater the
probability that it will default on its debt obligations.

Solvency ratio is one of the various ratios used to measure the ability of a company to meet its
long term debts. Moreover, the solvency ratio quantifies the size of a company’s after tax
income, not counting non-cash depreciation expenses, as contrasted to the total debt
obligations of the firm.

The Solvency Ratio are as follows:-

 Debt-Equity Ratio.

 Interest Coverage Ratio

1) DEBT-EQUITY RATIO:

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Debt to equity ratio is a long term solvency ratio that indicates the soundness of long- term
financial policies of a company. It shows the relation between the portion of assets financed by
creditors and the portion of assets financed by stockholders. As the debt to equity ratio
expresses the relationship between external equity (liabilities) and internal equity
(stockholder’s equity), it is also known as “external-internal equity ratio”. Evaluates the capital
structure of a company. A D/E ratio of more than 1 implies that
thecompanyisaleveragedfirm;lessthan1impliesthatitisaconservativeone.

The ratio is used to evaluate a company's financial leverage. The D/E ratio is an important
metric used in corporate finance. It is a measure of the degree to which a company is financing
its operations through debt versus wholly-owned funds. More specifically, it reflects the ability
of shareholder equity to cover all outstanding debts in the event of a business downturn.

Debt-equity ratio- Total Liabilities/Total Equity.

Year Cipla Lupin

2018-2019 0.39 0.61

DEBT EQUITY RATIO

0.61

0.39

Cipla Lupin
YEAR 2018-19

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INTERPRETATION:-
The debt-equity ratio is calculated to measure the extent to which debt financing has been used
in a business. The ratio indicate the proportionate claims of owners and the outsiders against
the firm’s assets.

 A ratio of 1:1 may be considered to be satisfactory ratio

 The debt to equity ratio for Cipla is 0.39 where as for Cipla it is0.61.

 The debt to equity ratio for lupin is high as compared to cipla.

 The increase in the debt-equity ratio for Lupin shows that the amount invested by the

creditors in the business is more than the owners.

 Cipla ratio indicates that they use own funds and have a good business

 Investors usually prefer the ratio which is low so that the interests are protected.

2) INTEREST COVERAGERATIO:

The interest coverage ratio is used to determine how easily a company can pay their interest
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expenses on outstanding debt. The ratio is calculated by dividing a company's earnings before
interest and taxes (EBIT) by the company's interest expenses for the same period. The lower
the ratio, the more the company is burdened by debt expense. The interest coverage ratio is a
debt ratio and profitability ratio used to determine how easily a company can pay interest on its
outstanding debt.

The Interest coverage ratio is also called “times interest earned.” Lenders, investors, and
creditors often use this formula to determine a company's riskiness relative to its current debt
or for future borrowing.

The interest coverage ratio is used to see how well a firm can pay the interest on outstanding
debt.
Also called the times-interest-earned ratio, this ratio is used by creditors and prospective
lenders to assess the risk of lending capital to a firm. A higher coverage ratio is better, although
the ideal ratio may vary by industry.

Companies need to have more than enough earnings to cover interest payments in order to
survive future (and perhaps unforeseeable) financial hardships that may arise. A company’s
ability to meet its interest obligations is an aspect of its solvency and is thus a very important
factor in the return for shareholders.

Interest Coverage Ratio- EBIT/Interest Expense.

Year Cipla Lupin

2018-2019 7.62 24.23

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 INTEREST COVERAGE RATIO
24.23

7.62

Cipla Lupin
YEAR 2018-19

INTERPRETATION:-
 The Interest coverage Ratio for Cipla is 7.62 and for Lupin it is 24.23 in the year 2018-
2019.

 The lower the interest coverage ratio, the higher the company's debt burden and the greater
the possibility of bankruptcy or default. A lower ICR means less earnings are available to
meet interest payments and that the business is more vulnerable to increases in interest
rates. When a company's interest coverage ratio is only 1.5 or lower, its ability to meet
interest expenses may be questionable. An interest coverage ratio below 1.0 indicates the
business is having difficulties generating the cash necessary to pay its interest obligations
(i.e. interest payments exceed its earnings (EBIT).
 A higher ratio indicates a better financial health as it means that the company is more
capable to meeting its interest obligations from operating earnings. On the other hand, a
high ICR may suggest a company is "too safe" and is neglecting opportunities to magnify
earnings through leverage.

 Cipla’s Interest Coverage Ratio Indicates that it has high interest burden as compared to
Lupin .The Lupins Ratio is high showing that the Company is capable of meeting its
Interest Obligations.

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O
B
E
TD
F
IU
X
S
R
L
A
V
N
ACTIVITY RATIO:

Activity ratios are financial analysis tools used to gauge the ability of a business to convert
various asset, liability and capital accounts into cash or sales. The faster a business is able to
convert its assets into cash or sales, the more efficient it runs.
Activity ratios become more meaningful when compared to industry-average activity ratios.
Different industries have different industry-average activity ratios and pitting your ratios
against those of peer businesses allows you to know if your ratios are better or worse.
Following are the Different types of Activity Ratio-


Debtors Turnover Ratio

Fixed Asset Turnover

Total Asset Turnover

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1. DEBTORS TURNOVERRATIO:

Receivable Turnover Ratio or Debtor's Turnover Ratio is an accounting measure used to

measure how effective a company is in extending credit as well as collecting debts. The
receivables turnover ratio is an activity ratio, measuring how efficiently a firm uses its assets.

A high receivables turnover ratio can indicate that a company’s collection of accounts
receivable is efficient and that the company has a high proportion of quality customers that pay
their debts quickly.
A low receivables turnover ratio might be due to a company having a poor collection process,
bad credit policies, or customers that are not financially viable or creditworthy.

A company’s receivables turnover ratio should be monitored and tracked to determine if a

trend or pattern is developing over time.
For investors, it's important to compare the accounts receivable turnover of multiple companies
within the same industry to get a sense of what's the normal or average turnover ratio for that
sector. If one company has a much higher receivables turnover ratio than the other, it may
prove to be a safer investment.

It is expressed as

Debtors Turnover Ratio- Net Credit Sales/ Average Accounts Receivable

Year Cipla Lupin

2018-
6.03 3.95
2019

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 DEBTORS TURNOVER RATIO
6.03

3.95

Cipla Lupin
YEAR 2018-19

Interpretation:-
 The debtor’s turnover ratio for the Year 2018-2019 for Cipla is 6.03 and that of Cipla is
3.95.

 In case firm sells goods on credit, the realization of sales revenue is delayed and the
receivables are created. The cash is realised from these receivables later on. The ratio
generally, requires higher percentage for efficient use of its resources.

 Moreover, the speed with which these receivables are collected affects the liquidity position
of the firm. The debtor’s turnover ratio throws light on the collection and credit policies of
the firm.

 The higher the value of debtor’s turnover the more efficient is the management of
debtors/sales or more liquid are the debtors. Low debtors turnover implies inefficient
management of debtors/sales and less liquid debtors.

 Cipla has good collection of accounts receivable as compared to Lupin as cipla has high
ratioCiplahastheabilitytorealizeproceedsearlyagainstgoodssoldoncreditbasis.

2. FIXED ASSET TURNOVER RATIO:

Fixed-asset turnover is the ratio of sales (on the profit and loss account) or total income to
the value of fixed assets (on the balance sheet). It indicates how well the business is using

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its fixed assets to generate sales. The helps the firm to know its efficiency of utilizing fixed
assets separately. This ratio measures sales in rupee of investment in fixed assets.

A higher ratio implies that management is using its fixed assets more effectively. A high
FAT ratio does not tell anything about a company's ability to generate solid profits or cash
flows.

A higher turnover ratio is indicative of greater efficiency in managing fixed-asset

investments, but there is not an exact number or range that dictates whether a company has
been efficient at generating revenue from such investments. When the business is
underperforming in sales and has a relatively high amount of investment in fixed assets,
the FAT ratio may be low.

This is especially true for manufacturing businesses that utilize big machines and facilities.
Although not all low ratios are bad, if the company just made some new large purchases of
fixed assets for modernization, the low FAT may have a negative connotation.

A declining ratio may also suggest that the company is over-investing in its fixed assets. A
low turnover, on the other hand, indicates that the company isn’t using its assets to their
fullest extent. This could be due to a variety of factors

It is expressed as

Fixed Asset Turnover Ratio- Net Sales/Fixed Assets-Accumulated

Depreciation.

Year Cipla Lupin

2018-2019 1.36 1.62

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 FIXED ASSET TURNOVER RATIO
1.62

1.36

Cipla Lupin
YEAR 2018-19

INTERPRETATION:-

 This is the ratio between Total Income and Fixed Assets. This is the ratio indicates Total
Income earned by investing in Fixed Assets. The ratio generally, requires higher
percentage is better.

 A high fixed assets turnover ratio indicates efficient utilisation of fixed assets in generating
sales. A firm whose plant and machinery are old may show a higher
fixedassetsturnoverratiothanthefirmwhichhaspurchasedthemrecently.

 The Fixed Asset Turnover Ratio for Cipla in the Year 2018-2019 is 1.36 whereas for
Lupin it is1.62.

 The Increase in the Fixed Asset Turnover for Lupin is due to investment in plant, Property
and Equipment and other Fixed Assets.

 Lupin’s Ratio indicated how well they use fixed assets to generate sales. High ratio
indicates the business has less money tied up in fixed assets for each rupee of sales
revenue.

 Ciplageneratessalesrevenueof1.36foreveryrupeeinvestedinfixedasset

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3. TOTAL ASSET TURNOVER RATIO:

The asset turnover ratio is an efficiency ratio that measures a company's ability to generate
sales from its assets by comparing net sales with average total assets. In other words, this
ratio shows how efficiently a company can use its assets to generate sales.

This metric helps investors understand how effectively companies are using their assets to
generate sales. Investors use the asset turnover ratio to compare similar companies in the
same sector or group. A company's asset turnover ratio can be impacted by large asset
sales as well as significant asset purchases in a given year.

Typically, the asset turnover ratio is calculated on an annual basis. The higher the asset
turnover ratio, the better the company is performing, since higher ratios imply that the
company is generating more revenue per dollar of assets. Also, it indicates that a company has
more effectively utilized its investment in fixed assets to generate revenue. The asset turnover
ratio tends to be higher for companies in certain sectors than in others.

A lower ratio indicates poor efficiency, which may be due to poor utilization of fixed
assets, poor collection methods, or poor inventory management.

It is expressed as

Total Asset turnover ratio- Net Sales/ Average Total Assets.

Year Cipla Lupin

2018-2019 0.84 0.84

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 TOTAL ASSET TURNOVER RATIO
0.84

Cipla Lupin
Year 2018-19

Interpretation:-
 The total Asset Turnover Ratio for Cipla in the Year 2018-2019 is 0.84 and it is same for
Lupin.

 Total Assets Turnover Ratio of the Company is rotating their assets for the Business
purpose.

 Boththecompaniesareefficientinusingtheoveralltotalassetsforgeneratingsales.

 The total Asset turnover ratio generally measures how efficiently the company is using its
assets. This gives the investors and creditors an idea of how a company is managed and
uses its assets to produce products and sales.

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SWOT ANALYSIS OF CIPLA

STRENGTHS:

 Strong R&D:

Cipla has focused on developing new products as well as on improving drug delivery
systems and expanding product applications. Cipla has set up strong Research and
Development department for the same. The strong R&D facilities are well supported by
many manufacturing plants across the cities.

 The wide range of Products:

Cipla has a broad product portfolio includes APIs and formulations for humans and animal
healthcare products. Cipla has over 2000 products in over 65 categories and is constantly
looking for expansion of its product portfolio.

 Social and technological initiatives:

Cipla provides and supports to cancer patients by providing them low-cost medicines and
it also initiated a “No touch Breast Scan” which is a step forward to screening technology
in India.

 Well recognised by various regulatory authorities:

Cipla’s products are well recognised by regulatory authorities of India, USA, Germany
and the UK etc. this provides credibility to the products of Cipla

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 WEAKNESS:

 Lack of significant presence in developed countries:

India is Cipla’s major market for revenue generation. Although, Cipla has the presence in
over 100 other countries but it has low significance in other developed markets and hence
is highly dependent on the Indian market.

 Negative campaigning:

AIDS healthcare foundation had challenged Cipla over pricing of its drug for AIDS,
which keep the drugs out of reach of many in need. This brought a negative publicity for
Cipla.

 Limited market share:

High competition from local as well as multinational pharmaceutical companies limits

market share for Cipla and doesn’t allow rapid growth

OPPORTUNITIES:

 Strategic Expansion:

In the recent past, Cipla has been expanding its business through initiatives such as
investments, partnerships and acquisitions in India as well as in the international market.
For instance, Cipla invested in a biotech manufacturing facility in South Africa. It also
acquired InvaGen pharmaceuticals in the USA etc.

 Treatment of HIV:

Cipla offers a wide range of ARV products through C-GA for the treatment of HIV/AIDS
in both children and adults. The growing number of patients can be provided cure by
Cipla’s medicines.

 Grow in Emerging markets:

Cipla should look forward to growing in emerging markets, especially places where
medical infrastructure is improving and hence pharmaceutical is also expected to grow.

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 THREATS:

 Drug Pricing control methods in India:

Governments have influence over pricing of a drug through national health organisations.
In India, a new pricing policy under Drug price control has been proposed which can have
a negative impact on the industry. Changes in pricing policy affect pharmaceutical
companies.

 Intense competition in generics industry:

There is intense competition in the Indian generics industry from major competitors such
as Lupin, Sun Pharma etc.  This affects growth potential as well as limits the market share
for Cipla.

 Fluctuation in Exchange rates:

Any changes in the exchange rates affect the company’s financial agreement with other
countries and thus can affect profitability

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SWOT ANALYSIS OF LUPIN:

STRENGTHS:

 Market leadership in various drug categories:

The company is a market leader in anti-tuberculosis drugs and cephalosporin. The

company also has a significant presence in Central Nervous System (CNS), Oncology,
Cardiovascular, diabetes, asthma, pediatrics, geriatrics, NSAID, and anti-Infectives.

 Market leadership in various markets:

The company is ranked at number 2 in the pharma industry in India. It is the 4th largest
company in the USA in terms of prescriptions with a market share of 5.3 % and the 6 th
largest pharma company selling generic drugs in Japan.

 Focus on strategy:

Lupin Limited was set up with the vision of making drugs affordable to all so that world
would be free of diseases. The company continues to be focused on its vision and could
churn out a pipeline of healthy drugs accessible to all.

 Series of successful acquisitions:

Lupin made a series of acquisitions the past financial year out of which the most
significant one was that of the branded product portfolio from Shionogi in Japan which
gave them complete control of more than 21 long-listed drugs in Central Nervous System
(CNS), Oncology, Cardiovascular and Anti-Infective. Other recent acquisitions include
Gavis, Medquimica and Temmler have also helped the company widen their portfolio of
drugs.

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WEAKNESS:

Weaknesses are used to refer to areas where the business or the brand needs improvement.
Some of the key weaknesses of Lupin are:

 Higher dependence on foreign markets:

Lupin Limited looks up to the US for almost 84 percent of its revenue and in the country,
there is a sharp decline in same of generic drugs which is the key ingredient of Lupins
portfolio.

 Adherence to regulation:

The Company is in a sector which is subject to a very strict regulatory framework with the
result that adhering to this can be a costly and challenging affair. There is also an added
risk of dealing with prohibited compositions.

 Labour overheads:

The pharma business is a research-intensive domain and therefore labour intensive. The
core team comprises a group of highly qualified professionals and managing them is no
easy task.

 Excessive importance to low growth segments:

Most of the drugs of Lupin are in low-growth areas such as Central Nervous System
(CNS), Cardiovascular and Anti-Infective. The company was also into TB research where
the market has slowed down as many countries have almost eradicated the disease through
mass vaccination drives.

OPPORTUNITIES:

Opportunities refer to those avenues in the environment that surrounds the business on
which it can capitalize to increase its returns. Some of the opportunities include:

 Policy reform:

Donald Trump has put the Patient Protection and Affordable Care Act (ACA Act) under
review and experts believe that the new set of reforms will favor pharma companies
dealing with generic drugs. If this speculation is true, it could open up a whole new gamut
of avenues for Lupin whose prime market is the USA.

 Growing demand for bio similar:

There will be a growth spurt for bio similar which will catapult the focus from smaller

Page 43 of 48
 molecules to bio similar. This is an opportunity that can be used in the company’s favour
if adequate research is undertaken.

 Patient-driven health care:

Technology trends indicating that medical treatment will start being more patient-centric
with the growth in demand for wearable biometric devices and telemedicine. This will
empower the patients with the right information and this, in turn, will increase their
engagement levels as well as their role in the treatment process prescribed by the doctor.

THREATS;

Threats are those factors in the environment which can be detrimental to the growth of the
business. Some of the threats include:

 Competition:

With lowered barriers to entry, the pharma industry is growing by leaps and bounds and
the company faces stiff competition from Ranbaxy and Cipla in the Indian market.

 Change of government policy:

With every new government, regulatory framework and policies change, with the result
that pharma companies have to readjust their research norms as well as drug compositions.
This creates a lot of monetary challenges.

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EMERGING TRENDS AND TECHNOLOGIES IN PHARMA INDUSTRY

 Prescription digital therapeutics (DTx) might represent a completely new way to think
about a pharmaceutical product. They are devices claimed to provide new treatment
modalities and carrying indications and disease-specific treatment effectiveness claims in
their prescribing labels. The number of mobile apps of this category submitted to the FDA
for clearance or approval (under the De Novo pathway) is increasing.

 Artificial intelligence, machine and deep learning will continue to be major areas of
interest for investments, as they may support the identification and development of new
breakthrough treatments, particularly in the areas of pre-clinical validation.
Real world evidence will be increasingly used to generate additional information to
support the approval of new indications for already marketed medicinal products.

 Ageing has a great impact on the increasing number of patients suffering for chronic
diseases. This area, together with those of complex and rare diseases, is the target of
specialty medicines. A market that will represent around 50% of the total in 2023, when
spending for specialty products is expected to reach $475–505 billion. Oncology,
autoimmune, immunology, HIV and multiple sclerosis are the most interesting therapeutic
areas, says IQVIA, covering 74% of the expected growth in developed countries.

 New antibiotics discovery antibiotics discovery has been an unattractive area for
pharmaceutical research, compared to developing more ‘economically feasible’ drugs. It is
probably the key reason behind a drying up of the pipeline of novel antibiotic classes, with
the last one, introduced more than thirty years ago.

 Nowadays the discovery of the antibiotics is becoming a more attractive area due to some
beneficial changes in regulatory legislature, stimulating pharma to pour money into

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 antibiotics discovery programs, and venture investors -- into biotech start-ups developing
promising antibacterial medicines.

RECOMMENDATION AND SUGGESTIONS

From all the Analysis of the Ratio’s some important Points needs to be suggested to
improve the Profitability of the Company.

 Overall the company is in a good condition and it has a good amounts of assets. As
comparedtoCipla,Lupinisinabetterpositionandhasagoodpositionintheindustry.

 Lupin should see that the debtors should be collected within a specified time by the
company. So, that they can discharge some of its creditors or current liabilities and avoid
payment of interest as the debt to equity is high for lupin. Investors see where the ratio is
low so that they can invest init.

 Ratio analyses are immensely helpful in making a comparative of the financial statement
for several years.

 In the current scenario, where about 4% appreciation in rupee against dollar, this will lead
a problem to the pharma industry. The large Pharma companies like Lupin consists of 40%
in US business. They need to carry out activities carefully.

 Cipla and Lupin needs to make proper decisions in future regarding investments and also
should maintain proper inventories.

 The analysis of ratio of Cipla and Lupin is stable in some conditions and the companies
needtotakeadequatedecisionsregardingthesalesandgrossprofitfortheyear.

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 LIMITATIONS OF THE PROJECT

 The findings of the study are solely based on the information retrieved from the company
website, annual report and financial statement like Profit and loss account and balance
sheet.

 The data collected is only for the study purpose

 The analysis is limited to only one competitor and for one year of data i.e. 2018-2019 for
financial analysis.

 Since the study focuses on competitor analysis, other angles are ignored like analysis of
the company as with respect to historical performance.

 The purpose of this project is to understand the profitability and liquidity of the company
and its competitor.

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 CONCLUSION

 Ratio analysis are immensely helpful in making a comparative of the financial statement
for several years. The in-depth analysis of key financial ratios in this project helps in
measuring the financial strength, liquidity conditions and operating efficiency of the
company. It also provides valuable interpretations separately for each ratio that helps
organizations implementing the finding that would help the organization to increase its
efficiency.

 We can observe that in some cases Lupin was better than Cipla and in other vice versa. In
can be observed that Lupin is performing better in the Liquidity and Profitability Ratios.
On the other hand, Cipla is performing better in Solvency and Activity Ratio. Both the
companies are efficient.

 The Solvency Ratio of Cipla is better as compared to Lupin because they don’t have much
of debt burden as much as Lupin as they rely more on their own funds. Due to self-reliance
they are able to be more financially stable and increase their credit worthiness.

 The company must try to improve its profit margins as they are below industry levels. This
improvement may also bring up its return on investment and overall efficiency to the
company.

 To conclude, the financial status of Lupin is better than Cipla. The company’s liquidity
position is good with regard to investments in current assets.

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