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FM Assignment -
2
SUBMITTED BY: Iris Charu Gomes ( F11079) Neethu Thresa Jacob(F11096) Swarupa Rani Sahu(F11116) Divyanshi Gupta ( F11121)
Anu’s Laboratories Ltd and Divi’s
Laboratories Ltd.
INTRODUCTION
OVERVIEW OF INDIAN PHARMACEUTICAL INDUSTRY
The Indian pharmaceutical industry currently tops the chart amongst India's science-based
industries with wide ranging capabilities in the complex field of drug manufacture and technology. A
highly organized sector, the Indian pharmaceutical industry is estimated to be worth $ 4.5 billion,
growing at about 8 to 9% annually. It ranks very high amongst all the third world countries, in terms
of technology, quality and the vast range of medicines that are manufactured. It ranges from simple
headache pills to sophisticated antibiotics and complex cardiac compounds; almost every type of
medicine is now made in the Indian pharmaceutical industry. The Indian pharmaceutical sector is
highly fragmented with more than 20,000 registered units. It has expanded drastically in the last two
decades. The pharmaceutical and chemical industry in India is an extremely fragmented market with
severe price competition and government price control. The pharmaceutical industry in India meets
around 70% of the
country's demand for bulk drugs, drug intermediates, pharmaceutical formulations, chemicals, tablets,
capsules, orals and injectibles. There are approximately 250 large units and about 8,000 Small Scale
Units, which form the core of the pharmaceutical industry in India (including 5 Public Sector
Units).
Financial ratio:
A financial ratio (or accounting ratio) is a relative magnitude of two selected numerical values
taken from an enterprise's financial statements. Often used in accounting, there are many standard
ratios used to try to evaluate the overall financial condition of a corporation or other organization.
Financial ratios may be used by managers within a firm, by current and
potential shareholders (owners) of a firm, and by a firm's creditors. Security analysts use financial
ratios to compare the strengths and weaknesses in various companies. If shares in a company are
traded in a financial market, the market price of the shares is used in certain financial ratios.
Financial ratios quantify many aspects of a business and are an integral part of the financial
statement analysis. Financial ratios are categorized according to the financial aspect of the
business which the ratio measures. Liquidity ratios measure the availability of cash to pay
debt. Activity ratios measure how quickly a firm converts non-cash assets to cash assets. Debt
ratios measure the firm's ability to repay long-term debt. Profitability ratios measure the firm's use
of its assets and control of its expenses to generate an acceptable rate of return. Market
ratios measure investor response to owning a company's stock and also the cost of issuing stock.
Financial ratios allow for comparisons
between companies
between industries
between different time periods for one company
between a single company and its industry average
Ratios generally hold no meaning unless they are benchmarked against something else, likpast
performance or another company. Thus, the ratios of firms in different industries, which
face different risks, capital requirements, and competition are usually hard to compare.
ANU’S LABORATORIES LIMITED
Anu’s Laboratories Limited is a US $ 50 million public listed company established in
1996,and managed by experienced professionals engaged in manufacturing of Active Pharmaceutical
ingredients and Drug intermediaries. Anu’s Laba is the market leader across the world with over 60%
market share for three of its products in their addressable markets.For eight other products,Anu’s Labs
has established itself as the preffered source.The company has two state-of-the-art manufacturing
facilities located in Hyderabad,India.
1. Current Ratio: Current assets
Current liabilities
The current ratio indicates the extent to which current liabilities are covered by those assets expected
to be converted to cash in the near future.
Year Calculation of Current Ratio Current ratio
2010-11 1596.47
804.46
1.98
2009-10 1434.68
759.52 1.89
2008-09 531.97
429.61
1.24
2007-08 529.11
267.29
1.98
Average
2.13
Interpretation:-
CURRENT RATIO (IN TIMES) FOR:
2010-11 Average Industry
1.98 2.13 1.50
The current ratio of Anu’s for the year 2010-11 is better than the industrial average of 1.50. But the
average of the current ratio for the previous three years was better than the present value. So the
current ratio has come down when compared to the previous years.
2.Acid Test Ratio = Current Assets - Inventory
Current Liabilities
The acid test ratio is the ratio between quick current assets and quick liabilities. It is also called as
quick ratio.
Year Calculation of Acid Test Ratio Acid Test Ratio
2010-11 1596.47-691.93
804.46
1.12
2009-10 1434.68-744.95
759.52
0.91
2008-09 531.97 – 142.6
429.61
0.91
2007-08 529.11 – 168.96
267.29
1.35
Average 1.09
Interpretation:-
ACID TEST RATIO FOR :
2010-11 Average Industry
01.12 1.09 0.90
The quick ratio of the company is better than the industrial average as well as than the previous three
years average.
3.Cash Liquidity Ratio = (Cash and Bank Balances + Marketable Securities)
Current Liabilities
This ratio measures the relationship of a firm’s cash and other current assets to its current liabilities.
Year Calculation of Cash Liquidity Ratio Cash Liquidity Ratio
2010-11 67.97+284.57
804.46
0.44
.
2009-10 45.26+130.26
759.52 0.23
2008-09 7.52 + 3.06 - 20.22
429.61
-0.02
2007-08 12.76 + 3.06 - 62.13
267.29
-0.17
Average of 2008-09, = 0.28 - 0.02 - 0.17
2007-08 & 2006-07 3
0.03
Interpretation:-
2010-11 Average Industry
0.41 0.03 0.20
The cash liquidity ratio is better than the industry average. It is also better than the previous three
years. This shows that the company has more liquid cash in its hands than the previous three years.
4.Average Collection Period = Accounts Receivable
Net Sales/ 365
This ratio measures the liquidity of the firm’s debtors and shows the time taken in days to convert the
debtors into cash.
Year Calculation of Average Collection Period Average Collection Period (in
days)
2010-11 433.28 x 365
2694.14
58.70
2009-10 644.47x 365
2038.21
115.41
2008-09 352.66 x 365
730.67
176.17
2007-08 324.86 x 365
668.93
177.26
Interpretation:-
AVERAGE COLLECTION PERIOD FOR:
2010-11 Average Industry
144.92 174.07 141.00
Lower the debt collection period, the better it is. The debt collection period of Anu’s Laboratories Ltd.
has decreased as compared to average past performance. This is a positive aspect. The industry
average is less. The company takes a very long time to collect from the debtors. So the company has
to improve its average collection period.
5.Accounts Receivables Turnover Ratio = Net sales
Accounts Receivables
This ratio shows how quickly the receivables or debtors are converted into cash.
Year Calculation of Accounts Receivables Turnover
Ratio
Accounts Receivables Turnover Ratio
(in times)
2010-11 2694.14
433.28
6.22
2009-10 2038.21
644.47 3.16
2008-09 730.67
352.66
2.07
2007-08 668.93
324.86
2.06
Average 2.12
Interpretation:-
ACCOUNTS RECEIVABLES TURNOVER RATIO (IN TIMES) FOR:
2010-11 Average Industry
2.52 2.12 2.59
The higher the accounts receivables turnover ratio, the better it is. There has been a significant
increase in the receivables turnover ratio indicating a higher conversion of debts into cash in the year
2009-10 but the industry average is way too high. The company has to still improve its receivables
turnover ratio.
6. Inventory Turnover Ratio = Cost of goods sold
Inventories
This ratio indicates the number of times inventory is replaced during the year. It measures the
relationship between the cost of goods sold and the inventory level.
Year Calculation of Inventory Turnover Ratio Inventories Turnover Ratio (in
times)
2010-11 2260.99
691.93
3.03
2009-10 1636.69
744.95
2.06
2008-09 661.99
142.60
4.64
2007-08 616.72
168.96
3.65
Average 3.33
Interpretation:-
INVENTORIES TURNOVER RATIO (IN TIMES) FOR:
2010-11 Average Industry
2.70 3.33 4.41
The inventory turnover ratio, an indicator of frequency of converting the present inventory into cash,
has decreased slightly from the previous three year’s average indicating low efficiency in selling of
inventories. The industry average is way too high and therefore they have to work towards moving the
inventories as fast as they can.
7.Fixed Assets Turnover Ratio = Net Sales
Fixed Assets
The fixed asset turnover measures how effectively the firm uses its plant and equipment.
Year Calculation of Fixed Assets Turnover
Ratio
Fixed Assets Turnover Ratio (in
times)
2010-11 2694.14
1158.0
2.33
2009-10 2038.21
812.14
2.51
2008-09 730.67
193.07
3.78
2007-08 668.93
126.74
5.28
Average 3.87
Interpretation:-
FIXED ASSETS TURNOVER RATIO (IN TIMES) FOR:
2010-11 Average Industry
2.68 3.87 2.54
The higher the fixed asset turnover ratio the better it is. The company’s fixed asset turnover ratio is
better than the industry ratio showing that the company is using the fixed assets in an efficient way
but the ratio has gone down when compared with the previous three years.
8.Total Assets Turnover Ratio = Net sales
Total assets
This ratio measures the turnover of all the firm’s assets.
Year Calculation of Total Assets
Turnover Ratio
Total Assets Turnover Ratio
(in times)
2010-11
2694.14
2303.723
1.00
2009-10 2038.21
2472.984
0.82
2008-09 730.67
663.09
1.10
2007-08 668.93
488.33
1.37
Average 1.12
Interpretation:-
2010-11 Average Industry
1.09 1.12 0.57
The total asset turnover indicates sales generated per rupee of asset employed in the company. The
ratio has gone down when compared to the previous years and it is lower than the industry average.
This is because of the low inventory turnover ratio. The company has to move its inventory in a faster
manner to improve the total asset turnover ratio.
9.Debt Ratio = Total Liabilities ( Current Liabilities + Loan Funds)
Total Assets
This ratio shows the percentage of funds provided by creditors.
Year Calculation of Debt Ratio Debt ratio
2010-11 804.46+494.71
2303.723
0.48
2009-10 759.52+397.32
2472.984
0.53
2008-09 426.36
663.09
0.64
2007-08 300.43
488.33
0.62
Average
0.65
Interpretation:-
2009-10 Average Industry
0.63 0.65 0.49
The higher the debt ratio, the better it is. The debt ratio has gone down a little when compared to the
average of the previous three years. This is evident from the decrease in current assets like cash as
interpreted from the previous ratios like current ratio and cash liquidity ratio.
10.Long term debt to Total Capitalization Ratio = Long term debt
Long term debt + shareholder’s equity
This ratio measures the extent to which long term debt is used for financing
Year Calculation of Long term debt to Total
Capitalization Ratio
Long term debt to Total Capitalization
Ratio
(in times)
2010-11 494.71
494.71+1619.8
0.23
2009-10 397.32
397.32+1610.29
0.20
2008-09 63.81
63.81 + 236.73
0.21
2007-08 31.81
31.81 + 187.90
0.16
Average of 2008-09, = 0.34 + 0.21 + 0.16
2007-08 & 2006-07 3
0.24
Interpretation:-
2009-10 Average Industry
0.33 0.24 NA
This ratio is good when it is high. The ratio has gone up when compared to the previous years which
show that the company has utilized the long term debts efficiently in the year 2009-10.
11.Debt Equity Ratio = Total liabilities
Shareholder’s equity
It measures debt relative to equity base in the capital structure.
Year Calculation of
Debt-Equity Ratio
Debt-Equity Ratio
(in times)
2010-11 1299.17
1619.8
0.80
2009-10 1156.84
1610.29
0.81
2008-09 426.36
236.73
1.80
2007-08 300.43
187.90
1.60
Average of 2008-09, = 2.27 + 1.80 + 1.60
2007-08 & 2006-07 3
1.89
Interpretation :-
2009-10 Average Industry
1.72 1.89 0.50
The higher the ratio the better it is. The debt equity ratio has gone down when compared to the
previous years but it is better than the industry average.
12.Times interest earned = Operating profit
Interest Expense
It measures how many times interest expense is covered by operating earnings. It is a measure of the
firm’s ability to meet its annual interest payment.
Year Calculation of
Times Interest Earned
Times Interest Earned
(in times)
2010-11 416.59
165.03
2.52
2009-10 365.57
105.87
3.45
2008-09 12.52
27.42
0.46
2007-08 9.71
19.36
0.50
Average 4.09
Interpretation:
2010-11 Average Industry
2.52 4.09 7.20
Higher the ratio the better it is. The ratio is less than the previous three years and it is quite low when
compared to the industry average. The company’s TIE is less which shows that the company has
lower returns when compared to the interest paid.
13.Fixed Charge coverage = Operating profit + lease payments
Interest Expense + lease payments
It measures coverage capability more broadly than times interest earned by including lease payments
as a fixed expense.
Year Calculation of
Fixed Charge coverage
Fixed Charge coverage
(in times)
2010-11 416.59+0
165.03+0
1.26
2009-10 365.57+0
105.87+0
1.73
2008-09 12.52 + 0.38
27.42 + 0.38
0.46
2007-08 9.71 + 0.09
19.36 + 0.09
0.50
Average 2.04
Interpretation:
2009-10 Average Industry
1.26 2.04 144.02
Higher the ratio the better it is. In this case, the ratio has decreased when compared to the previous
years. But it is very less when compared to the industry average..
14. Cash Flow Adequacy = Cash Flow From Operating Activities
Average Long Term Debt Maturities
It measures how many times average annual payments of long term are covered by operating debt
cash flows.
Year Calculation of
Cash Flow Adequacy
Cash Flow Adequacy
(in times)
2010-11 284.57
(62.51+99)/2
3.52
2009-10 130.26
(99+0)/2
2.63
2008-09 -
2007-08
-
-
Average 2.63
Interpretation:
2010-11 Average Industry
3.52 2.63 0.76
Year Calculation of Net profit margin Net profit margin(%)
2010-11 172.98 X 100
2694.14
6.42%
2009-10 211.65 X 100
2038.21
10.38%
2008-09 67.20 X100
730.67
9%
2007-08 54.90 X 100
668.93
8%
Average 11%
Higher the ratio the better it is. The current value ratio is higher than the industry average as well as
the last three years’ average.
15.Net Profit Margin= Net Profit X 100
Net Sales
Interpretation:-
2010-11 Average Industry
6.42% 11% 26%
The higher the net profit margin, the better it is. The net profit margin of the company is quite small
when compared to the industry and it has gone by a few notches when compared to the previous three
years.
16.Gross Profit Margin :- Gross Profit
Net sales
This is also known as gross margin. This ratio is the result of the relationship between prices, sales
volume and costs.
Year Calculation of Gross Profit Gross Profit Margin
2010-11 251.56
2694.14
0.09
2009-10 259.90
2038.21
0.13
2008-09 233.03
730.67
0.32
2007-08 265.48
668.93
0.40
Average 0.16
Interpretation:-
2010-11 Average Industry
.09 0.16 0.31
Company gross profit ratio has shown a decrease in value when compared to the previous three years
and it is much lower than the industrial average. So the company’s performance is poor in this respect.
17. Operating Profit Ratio :- Operating Profit
Net sales
Year Calculation of Operating Profit Operating Profit %
2010-11 416.59* 100
2694.14
15%
2009-10 365.57 *100
2038.21
18%
2008-09 12.52*100
730.67
2 %
2007-08 9.71* 100
668.93
1 %
Average 21 %
Interpretation:-
2010-11 Average Industry
15% 21 % 36%
The operating profit margin in the year 2010-11 has come down when compared to the previous three
years and it is less than even half of the industry average.
18. Cash Flow margin:- Cash flow from operating activities
Net sales
This ratio tells that how much cash profit has been earned by the company by selling the goods. This
ratio is very important to know the short run liquidity and solvency position of the company.
Year Calculation of Cash flow margin Cash flow margin %
2010-11 284.57*100
2694.14
10.56%
2009-10 130.26*100
2038.21
6.4%
2008-09 -20.22*100
730.67
-3%
2007-08 -62.13*100
668.93
-9%
Average -8.0%
Interpretation
2010-11 Average Industry
10.56% -8.0% 8.0%
The cash flow margin has gone up when compared to the previous three years. This is because the
company has more liquid cash in the current year and this is evident from the cash liquidity ratio.Also
the ratio has a higher value when compared with the industry average which shows that the company
hs more of liquid cash with it.
19. Return on investment = Net earnings
Total assets
This profitability ratio tells the relationship between net profits and assets. The return on investment
may also be called profit-to-asset ratio. This ratio told that how much company is earning by investing
that much amount in assets.
Year Calculation of Return on investment Return on investment
2010-11 172.98*100
2703.723
6.40%
2009-10 211.65*100
2472.984
8.56%
2008-09 67.20*100
663.09
10%
2007-08 54.90*100
488.33
11%
Average 10%
Interpretation
2010-11 Average Industry
6.4% 10% 15%
The return on investment has gone down when compared with the previous three years and it is also
lower than the industry average. This is evident from the increase in the total asset turnover ratio of
the company.
20. Return on Stockholder’s equity:- Net earnings
Stockholder equity
This ratio tells the profitability is measured by dividing the net profits after taxes by the shareholders
equity. This ratio reveals how profitably the owner’s funds have been utilized by the firm.
Year Calculation of Return on equity Return on equity
2010-11 172.98*100
1619.8
10.68%
2009-10 211.65*100
1610.29
13.14%
2008-09 67.20*100
236.73
28%
2007-08 54.90 *100
187.90
29%
Average 20%
Interpretation:-
2010-11 Average Industry
10.68% 20% 29%
The return on equity has decreased when compared to the previous three years and also it is lower
than the industry average. So, there is relatively lower return on the shareholder’s investments.
21. Cash return on assets:- Cash flow from operating activities
Total assets
This ratio explains that how much company has cash profit by having that much amount of total
assets. This ratio is very important for long run because it shows the cash position of the company
which helps to interpret the solvency position in the long run.
Year Calculation of Cash Return on asset Cash Return on asset
2010-11 284.57
2703.723
0.10
2009-10 130.26
2472.984
0.06
2008-09 -20.22
663.09
-0.03
2007-08 -62.13
488.33
-0.13
Average -0.06
Interpretation:-
2010-11 Average Industry
0.10 -0.06 4.26
The higher the cash return on assets, the better it is. The company’s cash return on assets has
increased when compared to the past three years and has become positive from a negative value
22. Earnings per share:- Amount available for equity share holders
Number of equity shares
This is a widely used ratio. This ratio measures the profit available to equity shareholders on a per
share basis, that is, the amount that they can get on every share held. It is calculated by dividing the
profits available to the equity shareholder by the number of outstanding shares.
Year Calculation of Earnings per share Earnings per
share(Rs)
2010-11 172980000
244459983
0.71
2009-10 211.65
241520000
0.876
2008-09 67.20
92861510
7.24
2007-08 54.90
30923650
17.75
Average 8.0
Interpretation:-
2010-11
Average Industry
0.71 8.0 16.15
Earnings per share are the ratio of profit available for equity share holder by the number of equity
shares. Company’s EPS has drastically gone down when compared with the previous three years and
is also very less when compared with the company average.
23. Price to earnings:- Market price of the share
EPS
This is closely related to the earnings yield/earnings ratio. It is actually the reciprocal of the latter.
This ratio reflects the price currently being paid by the market for each rupee of currently reported
EPS. In other words, the P/E ratio measures investors expectations and the market appraisal of the
performance of a firm. This ratio is popularly used by security analysts to assess a firm’s performance
as expected by the investors.
Year Calculation of price to earning Price to earning
2010-11 3.10
0.71
4.37
2009-10 6.59
0.88
7.48
2008-09 185.65
7.24
25.65
2007-08 366.75
17.75
20.66
Average 5.95
Interpretation:-
2010-11 Average Industry
4.37 5.95 30.72
Price earning ratio shows how much investors are willing to pay. It is the ratio of market price
by earning per share. The higher the ratio, the better it is. Here, there is a decrease in price earnings
ratio when compared to the previous years. And it is much below than the industry standard 0f 30.72
24. Dividend Pay-out ratio = Dividend per share X 100
EPS
It measures the relationship between the earnings belonging to the shareholder and dividend paid to
them. In other words, the D/P ratio shows what percentage share of the net profits after taxes and
preference dividend is paid out as dividend to equity shareholders.
Year Calculation of dividend pay-out ratio Dividend pay-out
ratio
2010-11 0 X 100
.71
-
2009-10 .10 X 100
1.08
11%
2008-09 1.5 X 100
7.24
21%
2007-08 1.5 X 100
17.75
8%
Average 8%
Interpretation:-
2010-11 Average Industry
- 8% 22%
Dividend Payout Ratio shows, how much percentage the company is paying on the basis of its
earning. In our case the company did not give away any dividends in the year 2010-11 hence no
comparison with the industry average is possible but if we can compare the average of the last three
years with the industry average and we see that it is quite less than the industry average.
This can affect the loyalty of the shareholders towards the company.
25. Dividend yield ratio = Dividend per share X 100
Market value per share
This ratio is closely related to DPS. While the DPS are based on book value per share, the yield is
expressed in terms of market value per share.
Year Calculation of dividend yield ratio Dividend yield ratio
2010-11 0 X 100
3.10
-
2009-10 0.1 X 100
6.59
2.0%
2008-09 1.5 X 100
185.65
1%
2007-08 1.5 X 100
366.75
0%
Average 4%
Interpretation:-
2010-11 Average Industry
- 4% 10%
Dividend Yield Ratio shows, how much percentage of dividend per share the company is paying in
comparison to its market price. The higher the percentage, better it is for the investors.In our case the
company did not give away any dividends in the year 2010-11 hence no comparison with the industry
average is possible but if we can compare the average of the last three years with the industry average
and we see that it is quite less than the industry average.
COMPARATIVE ANALYSIS
Comparison of current year ratios with Industrial averages.
Ratio 2011 Industry Average Score
Current Ratio 1.98 1.50 1
Acid test 1.12 0.90 1
Cash Flow Liquidity 0.44 0.20 1
Average Collection Period 58.7 141 1
Average Receivable turnover 6.22 2.59 -1
Fixed Assets turnover 2.33 2.54 -1
Total Assets Turnover 1.00 0.57 1
Debt Ratio 0.48 0.49 1
Long term Debt to total capitalization 0.23 0.53 -1
Debt to equity 0.80 0.50 1
Times interest earned 2.52 7.20 -1
Fixed charge changeover 1.26 144.02 -1
Cash flow adequacy 3.52 0.76 -1
Gross profit margin 0.09 0.31 -1
Operating profit margin 0.15 0.36 -1
Net profit margin 0.06 0.26 -1
Cash Flow Margin 0.11 0.08 1
Return on Investment 0.06 0.15 -1
Return on Equity 0.11 0.29 -1
Cash return on assets 0.11 4.26 -1
Earnings per share 0.71 16.15 -1
Price to earnings 4.38 30.72 -1
Dividend payout - 0.22 -
Dividend yield - 0.01 -
Inventory Turnover 3.03 4.41 -1
Net Score -7
Note: If the ratio shows a favourable change as compared to average performance of past three years,
the score of that particular ratio is +1. If the change is unfavourable, the ratio gets a -1.
Comparison of current year ratios with the industry average
Ratio 2011 Industry Average Score
Current Ratio 1.98 1.50 -1
Acid test 1.12 0.90 1
Cash Flow Liquidity 0.44 0.20 1
Average Collection Period 58.7 141 1
Average Receivable turnover 6.22 2.59 1
Fixed Assets turnover 2.33 2.54 -1
Total Assets Turnover 1.00 0.57 1
Debt Ratio 0.48 0.49 1
Long term Debt to total capitalization 0.23 0.53 1
Debt to equity 0.80 0.50 -1
Times interest earned 2.52 7.20 -1
Fixed charge changeover 1.26 144.02 -1
Cash flow adequacy 3.52 0.76 1
Gross profit margin 0.09 0.31 -1
Operating profit margin 0.15 0.36 -1
Net profit margin 0.06 0.26 -1
Cash Flow Margin 0.11 0.08 1
Return on Investment 0.06 0.15 -1
Return on Equity 0.11 0.29 -1
Cash return on assets 0.11 4.26 1
Earnings per share 0.71 16.15 -1
Price to earnings 4.38 30.72 -1
Dividend payout - 0.22 -
Dividend yield - 0.01 -
Inventory Turnover 3.03 4.41 1
Net Score -2
Note: If the ratio shows a favourable change as compared to industry average, the score of that
particular ratio is +1. If the change is unfavourable, the ratio gets a -1.
DIVI’S LABORATORIES
Established in the year 1990, with Research & Development as its prime fundamental, Divis
Laboratories focussed on developing new processes for the production of Active Pharma Ingredients
(APIs) & Intermediates. The company in a matter of short time expanded its breadth of operations to
provide complete turnkey solutions to the domestic Indian pharmaceutical industry.
With five years of experience, expertise and a proven track-record of helping many companies with
its turn-key and consulting strengths, Divis Laboratories established its first manufacturing facility in
1995.
RATIO ANALYSIS
1. Current Ratio: Current assets
Current liabilities
The current ratio indicates the extent to which current liabilities are covered by those assets expected
to be converted to cash in the near future
Year Calculation of Current Ratio Current ratio
2010-11 99621.76
40212.93
2.477356
2009-10 78625.04
25966.54 3.027937
2008-09 74500.08
21051.39
3.538963
2007-08 55532.91
19429.38
2.858192593
Average of previous 3 years = 2.858192593 + 3.538963 + 3.027937
3 3.141697275
Interpretation:-
CURRENT RATIO (IN TIMES) FOR:
2010-11 Average Industry
2.477356 3.141697275 1.50
The current ratio of Divi’s Labs Ltd for the year 2010-11 is better than the industrial average of 1.50.
But the average of the current ratio for the previous three years was better than the present value. So
the current ratio has come down when compared to the previous years.
2.Acid Test Ratio = Current Assets - Inventory
Current Liabilities
The acid test ratio is the ratio between quick current assets and quick liabilities. It is also called as
quick ratio.
Year Calculation of Acid Test Ratio Acid Test Ratio
2010-11 99621.76 - 54306.55
40212.93
1.126882
2009-10 78625.04-47957.27
25966.54
1.18105
2008-09 74500.08-21051.39
39590.75
1.658291
2007-08 55532.91-27565.53
19429.38
1.439437594
Average of 2009-10, = 1.18105 + 1.658291 + 1.439437594
2008-09 & 2007-08 3
1.426259367
Interpretation:-
ACID TEST RATIO FOR :
2010-2011 Average Industry
1.126882 1.426259367 0.90
The quick ratio of the company is better than the industrial average. But, the quick ratio has come
down to some extent when compared to the previous three years.
3.Cash Liquidity Ratio = (Cash and Bank Balances + Marketable Securities)
Current Liabilities
This ratio measures the relationship of a firm’s cash and other current assets to its current liabilities.
Year Calculation of Cash Liquidity Ratio Cash Liquidity Ratio
2010-11 960.47+32595.79+0
40212.93
0.834464437
2009-10 979.87+36767.08+0
25966.54
1.453676539
2008-09 690.39+31551.47+0
21051.39
1.531579
2007-08
581.43+30210.8+0
19429.38
1.584828
Average of 2009-10, = 1.584828 + 1.531579 + 1.453676539
3
2008-09 & 2007-08
1.523361149
Interpretation:-
2010-11 Average Industry
0.834464 1.523361149 0.20
The cash liquidity ratio is better than the industry average. But it has decreased than the previous three
years. This shows that the company has less liquid cash in its hands than the previous three years.
4.Average Collection Period = Accounts Receivable
Net Sales/ 365
This ratio measures the liquidity of the firm’s debtors and shows the time taken in days to convert the
debtors into cash.
Year Calculation of Average Collection Period Average Collection Period (in
days)
2010-11 39495.39 x 365
130543.86
110.4289191
2009-10
23444.15 x 365
92928.25 92.08302911
2008-09 28349.95 x 365
119056
86.91481
2007-08 21424.51 x 365
103318.5
75.68779
Interpretation:-
AVERAGE COLLECTION PERIOD FOR:
2010-11 Average Industry
110.4289191 91.27863705 141.00
Lower the debt collection period, the better it is. The debt collection period of Divi’s Labs Ltd. has
increased as compared to average past performance. This is a negative aspect. The industry average is
more. The company takes a very less time to collect from the debtors. So the company has better
performance its average collection period compared to the industry.
5.Accounts Receivables Turnover Ratio = Net sales
Accounts Receivables
This ratio shows how quickly the receivables or debtors are converted into cash.
Year Calculation of Accounts Receivables Turnover
Ratio
Accounts Receivables Turnover Ratio
(in times)
2010-11 130543.86
39495.39
3.305293605
2009-10 92928.25
23444.15
3.963814001
2008-09 119056
28349.95
4.199514
2007-08 103318.5
21424.51
4.822442
Average of last 3 yrs. = 4.328590144
Interpretation:-
ACCOUNTS RECEIVABLES TURNOVER RATIO (IN TIMES) FOR:
2010-11 Average Industry
3.305293605 4.328590144 2.59
The higher the accounts receivables turnover ratio, the better it is. There has been a significant
decrease in the receivables turnover ratio indicating a lower conversion of debts into cash in the year
2010-11 but the industry average is way too low. The company performs better in receivables
turnover ratio as compared to the industry.
6. Inventory Turnover Ratio = Sales
Inventories
This ratio indicates the number of times inventory is replaced during the year. It measures the
relationship between the cost of goods sold and the inventory level.
Year Calculation of Inventory Turnover Ratio Inventories Turnover Ratio (in
times)
2009-10
130543.86
54306.55 2.403833
2008-09 92928.25
47957.27
1.93773
2007-08 119056
39590.75
3.007168
2007-08 103318.5 3.748103519
27565.53
Average of last 3 yrs. = 2.897667098
Interpretation:-
INVENTORIES TURNOVER RATIO (IN TIMES) FOR:
2010-11 Average Industry
2.403833
2.897667098 4.41
The inventory turnover ratio, an indicator of frequency of converting the present inventory into cash,
has decreased slightly from the previous three year’s average indicating low efficiency in selling of
inventories. The industry average is way too high and therefore they have to work towards moving the
inventories as fast as they can.
7. Fixed Assets Turnover Ratio = Net Sales
Fixed Assets
The fixed asset turnover measures how effectively the firm uses its plant and equipment.
Year Calculation of Fixed Assets Turnover
Ratio
Fixed Assets Turnover Ratio (in
times)
2010-11 130543.86
58972.86
2.213626065
2009-10 92928.25
58967.18
1.57593173
2008-09 119056
58967.07
2.019026
2007-08 103318.5
49687.02
2.079385
Average of last 3 yrs. = 1.891447528
Interpretation:-
FIXED ASSETS TURNOVER RATIO (IN TIMES) FOR:
2010-11 Average Industry
2.213626065 1.891447528 2.54
The higher the fixed asset turnover ratio the better it is. The company’s fixed asset turnover ratio is
lower than the industry ratio showing that the company is not using the fixed assets in an efficient
way but the ratio has gone up when compared with the previous three years.
8. Total Assets Turnover Ratio = Net sales
Total assets
This ratio measures the turnover of all the firm’s assets.
Year Calculation of Total Assets
Turnover Ratio
Total Assets Turnover Ratio
(in times)
2010-11
130543.86
230813.24
0.565582
2009-10 92928.25
188649.44
0.492598
2008-09 119056
157350.7
0.756629
2007-08 103318.5
119565.8
0.864113602
Average of last 3 yrs. = 0.704446619
Interpretation:-
2010-2011 Average Industry
0.565582 0.704446619 0.57
The total asset turnover indicates sales generated per rupee of asset employed in the company. The
ratio has gone down when compared to the previous years and it is lower than the industry average.
This is because of the low inventory turnover ratio. The company has to move its inventory in a faster
manner to improve the total asset turnover ratio.
9. Debt Ratio = Total Liabilities ( Current Liabilities + Loan Funds)
Total Assets
This ratio shows the percentage of funds provided by creditors.
Year Calculation of Debt Ratio Debt ratio
2010-11
48008.69
230813.24 0.207998
2009-10
34441.93
188649.44 0.182571
2008-09 31171.89
157350.7
0.198105
2007-08 32167.2
119565.8
0.269033385
Average of 3 yrs. =
0.21656969
Interpretation:-
2010-11 Average Industry
0.207998 0.21656969 0.49
The higher the debt ratio, the better it is. The debt ratio has gone down a little when compared to the
average of the previous three years. This is evident from the decrease in current assets like cash as
interpreted from the previous ratios like current ratio and cash liquidity ratio.
10. Long term debt to Total Capitalization Ratio = Long term debt
Long term debt + shareholder’s equity
This ratio measures the extent to which long term debt is used for financing
Year Calculation of Long term debt to Total
Capitalization Ratio
Long term debt to Total Capitalization
Ratio
(in times)
2010-11
7795.76
7795.76 +2651.91
0.746172
2009-10
8475.39
8475.39+2642.88 0.762294
2008-09
10120.5
10120.5+1295.16 0.886545
2007-08
12737.82
12737.82+1291.14 0.907966093
Average of last 3 yrs. = 0.852268457
Interpretation:-
2010-11 Average Industry
0.746172
0.852268457 0.53
This ratio is good when it is high. The ratio has gone down when compared to the previous years
which show that the company has not utilized the long term debts efficiently in the year 2010-11.
11. Debt Equity Ratio = Total liabilities
Shareholder’s equity
It measures debt relative to equity base in the capital structure.
Year Calculation of
Debt-Equity Ratio
Debt-Equity Ratio
(in times)
2010-11
48008.69
182804.55 0.262623
2009-10 34441.93
154207.51
0.223348
2008-09 31171.89
126178.8
0.247045
2007-08 32167.2
87398.63
0.368051536
Average of last 3 yrs. = 0.279481646
Interpretation :-
2009-10 Average Industry
0.262623 0.279481646 0.50
The higher the ratio the better it is. The debt equity ratio has gone down when compared to the
previous years but it is lower than the industry average.
12.Times interest earned = Operating profit
Interest Expense
It measures how many times interest expense is covered by operating earnings. It is a measure of the
firm’s ability to meet its annual interest payment.
Year Calculation of
Times Interest Earned
Times Interest Earned
(in times)
2010-11 50735.73
134.65
376.7971036
2009-10 40970.03
246.89
165.9444692
2008-09 55230.3
817.7
67.54348
2007-08 44424.7
794.53
55.91318
Average of 2009-10, 2008-09 & 2007-08 96.46704206
Interpretation:
2010-11 Average Industry
376.7971036 96.46704206 7.20
Higher the ratio the better it is. The ratio is better than the previous three years as well as the industry
average. This shows that the company has higher returns when compared to the interest paid.
13.Fixed Charge coverage = Operating profit + lease payments
Interest Expense + lease payments
It measures coverage capability more broadly than times interest earned by including lease payments
as a fixed expense.
Year Calculation of
Fixed Charge coverage
Fixed Charge coverage
2010-11 50789.73
188.65
269.2272992
2009-10 41021.46
298.32
137.5082462
2008-09 55271.66
859.06
64.3397
2007-08 44455.49
825.42
53.85814
Average of 2009-10, 2008-09 & 2007-08 85.23536267
Interpretation:
2010-11 Average Industry
0.58 269.2272992 144.02
Higher the ratio the better it is. In this case, the ratio has increased when compared to the previous
years as well as the industry average.
14. Cash Flow Adequacy = Cash Flow From Operating Activities
Average Long Term Debt Maturities
It measures how many times average annual payments of long term are covered by operating debt
cash flows.
Year Calculation of
Cash Flow Adequacy
Cash Flow Adequacy
(in times)
2010-11 32595.79
2037.92
15.99463669
2009-10 36767.08
1996.81
18.41290859
2008-09 31551.47
2067.45
15.26106
2007-08 30210.8
1365.84
22.11884
Average of 2009-10, 2008-09 & 2007-08 18.59760237
Interpretation:
2010-11 Average Industry
15.99463669 18.59760237 0.76
Higher the ratio the better it is. The current value ratio is much higher than industry average & higher
than the last three years’ average
15.Gross Profit Margin :- Gross Profit
Net sales
This is also known as gross margin. This ratio is the result of the relationship between prices, sales
volume and costs.
Year Calculation of Gross Profit Gross Profit Margin
2010-11 51558.25
130543.86
0.394949636
2009-10 41712.86
92928.25
0.448871683
2008-09 56118.73
119056
0.471364
2007-08 45248.96
103318.5
0.437956
Average of 2009-10, 2008-09 & 2007-08 0.45273065
Interpretation:-
2010-11 Average Industry
0.394949636 0.45273065 0.31
Company gross profit ratio has decreased when compared to the previous three years. So the company
has not performed very well this year. But comparing with the industry average company’
16. Operating Profit Ratio :- Operating Profit
Net sales
It measures the profit generated after consideration of cost of products sold.
Year Calculation of Operating Profit Operating Profit %
2010-11 50735.73
130543.86
0.388646
2009-10 40970.03
92928.25
0.440878
2008-09 55230.3
119056
0.463902
2007-08 44424.75
103318.5
0.429979
Average of 2009-10, 2008-09 & 2007-08 0.444919568
Interpretation:-
2010-11 Average Industry
0.388646 0.444919568 0.36
The operating profit margin in the year 2010-11 has gone down when compared to the previous three
years but it is quite high when compared with the industry average.
17.Net Profit Margin= Net Profit X 100
Net Sales
It measures profit generated after consideration of all expenses and revenues.
Year Calculation of Net Profit Margin Net Profit Margin
2010-11 43556.61 X 100 33.3654%
130543.86
2009-10 34420.46 X 100
92928.25
37.0398%
2008-09 42445.57 X100
119056
35.6518%
2007-08 35355.52 X 100
103318.5
34.219%
Average of 2009-10, 2008-09 & 2007-08 35.6371%
Interpretation:-
2010-11 Average Industry
33.3654% 35.6371% 26%
The higher the net profit margin, the better it is. The net profit margin of the company is higher than
the industry but it has gone down a little when compared to the previous three years.
18. Cash Flow margin:- Cash flow from operating activities
Net sales
This ratio tells that how much cash profit has been earned by the company by selling the goods. This
ratio is very important to know the short run liquidity and solvency position of the company.
Year Calculation of Cash flow margin Cash flow margin %
2010-11 32595.79 *100
130543.86
24.96922%
2009-10 36767.08*100
92928.25
39.56501%
2008-09 31551.47*100
119056
26.5014%
2007-08 30210.8*100
103318.5
29.2405%
Average of 2009-10,2008-09 & 2007-08 31.76895%
Interpretation
2010-11 Average Industry
24.96922% 31.76895% 8%
The cash flow margin has gone down when compared to the previous three years. This is because the
company has less liquid cash in the current year and this is evident from the cash liquidity ratio.
19. Return on investment = Net earnings
Total assets
This profitability ratio tells the relationship between net profits and assets. The return on investment
may also be called profit-to-asset ratio. This ratio told that how much company is earning by investing
that much amount in assets.
Year Calculation of Return on investment Return on
investment
2010-11 43556.61*100
230813.24
24.9692%
2009-10 34420.46*100
188649.44
39.565%
2008-09 42445.57*100
157350.7
26.5014%
2007-08 35355.52*100
119565.8
29.5699%
Average of 2009-10, 2008-09 & 2007-08 24.9302%
Interpretation
2010-11 Average Industry
24.9692% 24.9302% 15%
The return on investment has gone up slightly when compared with the previous three years and it is
also higher than the industry average.
20. Return on Stockholder’s equity:- Net earnings
Stockholder equity
This ratio tells the profitability is measured by dividing the net profits after taxes by the shareholders
equity. This ratio reveals how profitably the owner’s funds have been utilized by the firm.
Year Calculation of Return on equity Return on equity
2010-11 43556.61*100
48008.69
23.8269%
2009-10 34420.46*100
34441.93
22.3209%
2008-09 42445.57*100
31171.89
33.639%
2007-08 35355.52*100
32167.2
40.45317%
Average of 2009-10, 2008-09 & 2007-08 32.1377%
Interpretation:-
2010-11 Average Industry
23.8269% 32.1377% 29%
The return on equity has decreased when compared to the previous three years and it is also lower
than the industry average. There is low return on the shareholder’s investments.
21. Cash return on assets:- Cash flow from operating activities
Total assets
This ratio explains that how much company has cash profit by having that much amount of total
assets. This ratio is very important for long run because it shows the cash position of the company
which helps to interpret the solvency position in the long run.
Year Calculation of Cash Return on asset Cash Return on asset
2010-11 32595.79
230818.24
0.141221491
2009-10 36767.08
188649.44
0.194896311
2008-09 31551.47
157530.7
0.200517
2007-08 30210.8
119565.8
0.252671
Average of 2007-08,2008-09 & 2009-10 0.216028
Interpretation:-
2010-11 Average Industry
0.141221491 0.216028 4.26
The higher the cash return on assets, the better it is. The company’s cash return on assets has
decreased when compared to the past three years.
22. Earnings per share:- Amount available for equity share holders
Number of equity shares
This is a widely used ratio. This ratio measures the profit available to equity shareholders on a per
share basis, that is, the amount that they can get on every share held. It is calculated by dividing the
profits available to the equity shareholder by the number of outstanding shares.
Year Calculation of Earnings per share Earnings per
share(Rs)
2010-11 43556.61*100000
132595110
32.84933358
2009-10 34420.56*100000
132144145
26.04766182
2008-09 42445.57*100000
65000000
65.30088
2007-08 35355.52*100000
65000000
54.39311
Average of 2009-10, 2008-09 & 2007-078 48.58054881
Interpretation:-
2010-11 Average Industry
32.84933358 48.58054881 16.15
Earnings per share are the ratio of profit available for equity share holder by the number of equity
shares. Company’s EPS has gone down when compared with the previous three years and is high
compared to the company average.
23. Price to earnings:- Market price of the share
EPS
This is closely related to the earnings yield/earnings ratio. It is actually the reciprocal of the latter.
This ratio reflects the price currently being paid by the market for each rupee of currently reported
EPS. In other words, the P/E ratio measures investors’ expectations and the market appraisal of the
performance of a firm. This ratio is popularly used by security analysts to assess a firm’s performance
as expected by the investors.
Year Calculation of price to earning Price to earning
2010-11 675.9
32.8493
20.575
2009-10 662.45 25.4322
26.047
2008-09 476.8
65.3008
7.30158
2007-08 634.5
54.393
11.66508
Average of 2009-10, 2007-08 & 2008-09 14.799
Interpretation:-
2010-11 Average Industry
20.575 14.799 30.72
Price earning ratio shows how much investors are willing to pay. It is the ratio of market price
by earning per share. The higher the ratio, the better it is. Here, there is a increase in price earnings
ratio when compared to the previous years. But compared to the industry average it is low.
24. Dividend Pay-out ratio = Dividend per share X 100
EPS
It measures the relationship between the earnings belonging to the shareholder and dividend paid to
them. In other words, the D/P ratio shows what percentage share of the net profits after taxes and
preference dividend is paid out as dividend to equity shareholders.
Year Calculation of dividend pay-out ratio Dividend pay-out
ratio
2010-11 10 X 100
32.8493
30.442%
2009-10 6 X 100
26.047 23.03%
2008-09 6 X 100
65.3008
9.18%
2007-08 4 X 100
54.39311
7.35%
Average of 2008-09,2009-10 & 2007-08 13.19%
Interpretation:-
2010-11 Average Industry
30.442% 13.19% 22%
Dividend Payout Ratio shows, how much percentage the company is paying on the basis of its
earning. The dividend payout ratio of the company is very high when compared with the industry
average and is also better than the past three years. This will lead to the better loyalty of the
shareholders but the company has to consider using these funds for the reinvestments
.
25. Dividend yield ratio = Dividend per share X 100
Market value per share
This ratio is closely related to DPS. While the DPS are based on book value per share, the yield is
expressed in terms of market value per share.
Year Calculation of dividend yield ratio Dividend yield ratio
2010-11 10 X 100
675.9
1.479%
2009-10 6 X 100
662.45
0.9057%
2008-09 6 X 100
476.8
1.258%
2007-08 4 X 100
634.5
0.6304%
Average of 2009-10, 2008-09 & 2007-08 0.9315%
Interpretation:-
2010-11 Average Industry
1.479% 0.9315% 1%
Dividend Yield Ratio shows, how much percentage of dividend per share the company is paying in
comparison to its market price. The higher the percentage, better it is for the investors. The percentage
has increased compared to the average of the previous three years. Also it is quite high with respect to
the industry.
COMPARATIVE ANALYSIS
Comparison of current year ratios with average performance of previous three years
Ratio 2011 Average of last 3 years Score
CURRENT RATIO 2.477356 3.141697275 -1
QUICK RATIO 1.126882 1.426259367 1
CASH FLOW LIQUIDITY 0.834464 1.523361149 -1
AVERAGE COLLECTION PERIOD 110.4289 84.8952116 -1
ACCOUNTS RECIEVABLE
TURNOVER 3.305294 4.328590144 -1
INVENTORY TURNOVER 2.403833 2.897667098 -1
FIXED ASSET TURNOVER 2.213626 1.891447528 1
TOTAL ASSETS TURNOVER RATIO 0.565582 0.704446619 -1
DEBT RATIO 0.207998 0.21656969 1
LONG TERM DEBT TO TOTAL
CAPITALIZATION 0.746172 0.852268457 1
DEBT TO EQUITY 0.262623 0.279481646 1
TIMES INTEREST EARNED 376.7971 96.46704206 1
FIXED CHARGE COVERAGE 269.2273 85.23536267 1
CASH FLOW ADEQUACY 15.99464 18.59760237 -1
GROSS PROFIT MARGIN 0.39495 0.45273065 -1
OPERATING PROFIT MARGIN 0.388649 0.444919568 -1
NET PROFIT MARGIN 0.333655 0.356371772 -1
CASH FLOW MARGIN 0.249692 0.317689502 1
ROI 0.188709 0.249302645 -1
ROE 0.238269 0.321377603 -1
CASH RETURN ON ASSETS 0.141221 0.216028032 -1
EARNINGS PER COMMON SHARE 32.84933 48.58054881 -1
PRICE TO EARNINGS 20.57576 14.79963083 1
DIVIDEND PAYOUT 0.30442 0.131922693 1
DIVIDEND YIELD 0.014795 0.009315119 1
Net score -3
Note: If the ratio shows a favorable change as compared to average performance of past three years,
the score of that particular ratio is +1. If the change is unfavorable, the ratio gets a -1.
Comparison of current year ratios with the industry average
Ratio 2011 Industry average Score
CURRENT RATIO 2.477356 1.50 1
QUICK RATIO 1.126882 0.90 1
CASH FLOW LIQUIDITY 0.834464 0.20 1
AVERAGE COLLECTION PERIOD 110.4289 141.00 1
ACCOUNTS RECIEVABLE
TURNOVER 3.305294 2.59 1
INVENTORY TURNOVER 2.403833 4.41 -1
FIXED ASSET TURNOVER 2.213626 2.54 -1
TOTAL ASSETS TURNOVER RATIO 0.565582 0.57 -1
DEBT RATIO 0.207998 0.49 1
LONG TERM DEBT TO TOTAL
CAPITALIZATION 0.746172 0.53 -1
DEBT TO EQUITY 0.262623 0.50 -1
TIMES INTEREST EARNED 376.7971 7.20 1
FIXED CHARGE COVERAGE 269.2273 144.02 1
CASH FLOW ADEQUACY 15.99464 0.76 1
GROSS PROFIT MARGIN 0.39495 0.31 1
OPERATING PROFIT MARGIN 0.388649 0.36 1
NET PROFIT MARGIN 0.333655 0.26 1
CASH FLOW MARGIN 0.249692 0.08 1
ROI 0.188709 0.15 1
ROE 0.238269 0.29 -1
CASH RETURN ON ASSETS 0.141221 4.26 -1
EARNINGS PER COMMON SHARE 32.84933 16.15 1
PRICE TO EARNINGS 20.57576 30.72 1
DIVIDEND PAYOUT 0.30442 0.22 1
DIVIDEND YIELD 0.014795 0.01 1
Net score 9
Note: If the ratio shows a favourable change as compared to industry average, the score of that
particular ratio is +1. If the change is unfavourable, the ratio gets a -1.
IF SOMEBODY HAS TO INVEST, WHICH COMPANY AND WHY?
Results of comparison with industry averages
Divi’s
laboratories
Anu’s
laboratories
Return on Investment 1 -1
Return on Equity -1 -1
Dividend payout Ratio 1 -
Earnings per common share 1 -1
We infer from the above table that Divi’s laboratories is performing well compared to Anu’s
laboratories hence it would be advisable to invest only in Divi’s laboratories. Although the return on
equity is low compared to the industry average, as seen the company is performing well regard to
other ratios we can expect that the company’s return on equity may improve in future. As shown
clearly the performance of Anu’s laboratories is poor in all ratios it is not advisable to invest in the
company
IF SOMEBODY HAS TO LEND, WHICH COMPANY WOULD HE LEND AND WHY?
Results of comparison with previous years’
Divi’s
laboratories
Anu’s
laboratories
Debt to Equity 1 1
Times interest earned 1 -1
Fixed charge coverage 1 -1
Cash flow adequacy -1 -1
The debt-equity ratio is favorable in both the companies but when comparing the ratios Divi’s
laboratories has better performance when compared to Anu’s laboratories, it would influence the
lender to lend the loan to Divi’s laboratories, rather than Anu’s laboratories.
ANALYSIS OF GOC AND NOC
Divi’s laboratories
YEARS 2010-11 2009-10 2008-09 2007-08
GOC(in days) 40.44462 27.63752 24.76941 14.58577
NOC(in days) 35.83315 23.05418 21.6295 11.2373
The GOC and NOC values are continuously increasing over the year indicating that the
company requires more time to convert its sales to cash. The debt conversion cycle is consequently
increasing. This is an indication of poor performance of the company in terms of credit management
as well as inventory management
Anu’s laboratories
YEARS 2010-11 2009-10 2008-09 2007-08
GOC(in days) 7.994412 11.72771 15.11399 9.966986
NOC(in days) 7.174945 9.441557 12.69496 8.281791
The GOC and NOC of the Anus’s laboratories is low compared to the previous years. This depicts
improvement in the company’s debt conversion cycle. The sales are getting converted into cash
comparatively at a faster rate.
Conclusion
The entire analysis has been performed on both the companies and the required ratios have been
calculated with regard to the last 3 years average and all the industry average. A score of +1 has been
awarded for the ratios that have met the criteria and a score of -1 for the ratios that has failed to meet
the criteria. Based on the analysis it has been recommended to the investor to invest in Divi’s
laboratories. Also the company is considered safe to lend money compared to Anu’s laboratories. But
the GOC and NOC of Anu’s laboratories is decreasing by year showing better debt conversion cycle.
Whereas for Divi’s laboratories it is continuously increasing which is not advisory.