Final Prject on Working Capital Management-Neha Desai-09BS000681-IBS Ahmedabad

A

Final Report

On

THE STUDY OF

WORKING CAPITAL MANAGEMENT

&

COMPARATIVE ANALYSIS

At

(CADILA HEALTHCARE LIMITED)

Submitted to:

Faculty Guide: Company Guide:

Prof. Pankaj Madhani Mr. Kalpesh PatelFaculty of Finance Deputy General ManagerICFAI Business School Cadila Healthcare Limited Submitted By: Neha Desai

09BS000681 – Batch 2011Contact no - +91-9428508387

Email ID: [email protected]

A cknowledgement

Summer Internship Program 1

mailto:[email protected]

To get the water from the well, we need the help of the rope and bucket. Similarly, to learn so many practical aspects of such a large organization, without anybody’s help is not possible. I am thankful to all the employees of Zydus Cadila, who provided factual information technical notes and moral support.

I am obliged to Cadila Healthcare Limited for providing an opportunity to undergo training in their esteem organization for fourteen weeks. Summer training in Zydus Cadila has aided me to gain practical insight to develop a professional attitude. During my project, I got a tremendous co-operation from the whole Finance Department.

With an overwhelming sense of pride and obligation, I bestow my gratitude to my company guide, Mr. Kalpesh Patel and also to my faculty guide, Mr. Pankaj Madhani of ICFAI BUSINESS SCHOOL for their able guidance, constant encouragement, constructive and critical appraisal, generous help and vital suggestions. It was acumen of their supervision that saved me from the taste of several errors and placed me in right place at right times.

I extend my profound sense of gratitude to Mr. Jayesh K. Patel for his valuable and constant suggestions and guidance during the course of this project. I am even thankful to

Mr. Mitesh PandyaMr. Sanket AdeshraMr. Maulik Pandya Mr. Manish ShahMr. Manish MehtaMr. D. P. PatelMs. Laveena D’

for providing me with factual information, technical notes and moral support.

Last but not the least, I thank all those who knowingly and unknowingly, directly or indirectly have helped me in the fulfillment of this project.

ABSTRACT


The project undertaken by me at CADILA HEALTHCARE LIMITED is “THE STUDY OF WORKING

CAPITAL MANAGEMENT” for the duration of 14 weeks. Working capital management refers to all management decisions and actions that ordinarily influence the size and effectiveness of the working capital. It is concerned with the most effective choice of working capital sources and the determination of the appropriate levels of the current assets and their use.

The main areas that will be covered under this project are divided into six stages. The first phase is to determine the net working capital (operating) cycle that is the time duration required to convert sales, after the conversion of resources into inventories, into cash.

The second phase is to study about the Cash management, to accomplish various tasks of cash collection, payment of outstanding and arranging for deficit funding or surplus investment at a minimum cost or it should be at maximum returns. It assumes more importance than other assets because cash is the most significant and least productive asset that a firm holds. It aims to maintain adequate control over cash position to keep the firm sufficiently liquid and to use excess cash in some profitable way.

The third phase is to study the Inventory management that will have the emphasis on learning the methods which are used by the company for the ordering and purchase of inventory. Finally, inventories are held to obtain an optimum utilization of people, place, time and equipments.

The fourth phase is to study about the Receivables management which is a tool that acts as a bridge for the movement of goods through production and distribution stages to customers.

The fifth phase was of financial analysis that can be applied in a wide variety of situations to give business managers the information they need to make critical decisions. While Ratio Analysis is the main part of financial analysis which will help to compare the company with the other main players of the industry, in order to get an idea of its position in the industry.

The sixth phase is to learn about the following activities: 1.) To get an idea about the business processes by learning SAP R/3 – Finance module, 2.) Also to learn about a software Vision21 used by Dial for Health Ltd. (Subsidiary of Zydus), 3.) To learn about few topics in brief like sales tax, service tax, treasury control management, foreign exchange, supply chain management etc. as per the permission granted by the authorities.

Table of Content


Sr. No. Particulars Page No.

1 Acknowledgement 22 Abstract 33 Introduction

* Project Title 5

* Description of the project 5

* Objectives of the project 5

* Methodology 6

* Schedule 6

4 Overview of the industry* Global Pharma Industry 7

* Indian Pharma industry 8

5 Company Profile 126 Working Capital Management 15

* Net Working Capital (operating) Cycle 21

* Cash Management 29

* Inventory Management 51

* Receivable Management 67

* Ratio Analysis 88

7 Extra Learning* Auditing at Dial For Health’s Retail Shops 139

* VAT 140

* CST 141

* Concurrence 143

* Calculation of NRV and MPV 144

8 Practical work on SAP 1459 Practical work in Vision 16210 Learning 17111 Recommendation 17212 Conclusion 17213 References 174


Project title: Working Capital Management and Comparative Analysis

Description of Project in brief:

Analysis of the annual reports of the company for the year 2004-05, 2005-06, 2006-07, 2007-08,

2008-08 to get aware about the company’s products, its capital, sources of funds, borrowings,

creditors, debtors, expenses and revenue.

To compare the company’s position with help of finacial analysis (Ratio) and to suggest company,

how to improve their position over its competitors.

To gain the practical knowledge of the working capital management which includes:

MRP-material requirement planning

Raw material & packaging material

Inventory management

Cash & bank management

Debtors management

Disbursement (creditors) management

Transaction related to FOREX

To understand the policy adopted by the company for working capital management

To get an idea of the financial system of the company by working with the software SAP which

company has implemented since last 2-3 years.

To get an idea about the another software VISION 21, used by Dial for Health- subsidiary company

of the Zydus Cadila Healthcare Limited.

Objective of the Project:

Computation of Working Capital ManagementOperating Cycle of the firmFinancial plan estimationWorking capital credit limitsRatio analysisHow to handle working capitalWorking capital management’s application in corporate to learn routine operations of the corporate

finance.


Methodology:

The methodology to be adopted for the project is explained as under: The initial step of the project was studying about the company and then evaluating the financial

position of the company on the basis of ratio analysis. Comparing the firm’s financial position with respect to its competitors i.e., Sun pharma, Ranbaxy , Dr.reddy, Lupin, Nicholas Piramal with the help of following ratios-

1. Profitability Ratios, 2. Leverage Ratios, 3. Turn over ratios, 4. Liquid Ratios and many more.

The project will focus on the study of overall working capital management at the organizations, for which the following study and analysis will be undertaken:

1. This project is aimed to estimate the operating plan.2. This will also include the calculations and analysis of the operating Cycle for the day.3. It will also include the ratio analysis of the financial statement so that the profitability

and liquidity trade off can be analyzed.

Limitations of the Study: Some limitations, which have been identified, by me are:

1. Generalizations and calculated assumptions had to be made in some areas while analyzing the financial statements, ratios etc. due to non-availability of complete information.

2. The segment wise and product wise study of the various product segments and units of the company have been excluded from the scope of the project due to data and time constraints.

Schedule of the project:

Sr. No. Activity Duration1 Introduction to Company 23/02 to 28/022 Ratio Analysis of Company 02/ 03 to 08/033 Ration analysis of Industry 09/03 to 15/034 Practical work on SAP and VISION 16/03 to 04/045 Inventory management 06/04 to 12/046 Working capital and other topics 13/04 to 03/057 Cash Management 04/05 to 10/058 Receivables Management 11/05 to 18/059 Business Process and others 19/05 to 21/05

Overview of Industry:


The global pharma market

A pharmaceutical company, or drug company, is a commercial business, whose focus is to research, develop, market and/or distribute drugs, mostly in the context of healthcare. They can deal in generic and/or brand medications. They are subject to a variety of laws and regulations regarding the patenting, testing and marketing of drugs. The major stages of the pharmaceutical value chain comprise drug discovery, drug development, manufacturing, distribution, and sales and marketing. Improving efficiency for a speedy ROI in every stage has become a critical factor to ensure the success of the company.

Patents build fortresses around inventions, trademarks establish and identify brands, Copyrights provide protection to accompanying literature, and Designs Registrations cover novelties in shapes, forms and ornamentation which visually impact consumers. Globally, these tools of Intellectual Property Rights (IPR) are key components of strategy formulation and implementation by Pharmaceutical Corporations. Protected intellectual assets preserve exclusive markets, maintain profit margins, provide market access and give freedom to operate. IPR portfolio has now become an effective platform for benchmarking of intellectual assets and innovative capabilities of corporations, business entrepreneurs and researchers. This is extensively being used in today’s world of mergers, acquisitions, strategic alliances, and collaborations, licensing arrangements and Venture Capital Funding in Pharmaceutical and Allied Industries. Of the top 50 pharmaceutical companies, 18 are with their head offices in the USA, 21 in Europe, and the other 11 in Japan. Worlds patenting activities are also most intense in these regions.

Expected growth rate in 2010:

The global pharmaceutical market research has been done by many companies and almost all of the market reports indicate a significant growth of of pharma market in 2010. The forecasting indicates pharmaceutical market growth of about 4 - 6% in 2010.

If present industry overview is taken into consideration then the global pharmaceutical market in 2010 is projected to grow 4 - 6% exceeding $825 billion. The global pharmaceutical market sales are expected to grow at a 4 - 7% compound annual growth rate (CAGR) through 2013. This industry growth is driven by stronger near-term growth in the US market and is based on the global macro economy, the changing combination of innovative and mature products apart from the rising influence of healthcare access and funding on market demand. Global pharmaceutical market value is expected to expand to $975+ billion by 2013. Different regions of the world will influence the pharmaceutical industry trends in different ways.

The pharma market world over will experience significant shifts. Asia-Pacific region will emerge as the fastest growing pharmaceutical market over the recent past. The reason for this positive shift can be attributed to the low costs and favorable regulatory environment. This region has experienced important developments regarding contract manufacturing, especially in generics and APIs. Increased R&D activities in the region has helped Asia-Pacific pharmaceutical industry to achieve an estimated market size of around US$ 187 Billion in 2009. Here, the pharmaceutical industry is expected to grow at a CAGR of around


http://www.pharmaceutical-drug-manufacturers.com/articles/pharmaceutical-market-trends-2010.html

12.6% during 2010-2012. It can, in fact, become the global API production hub in next few years.

Pharmaceutical sales are growing at a fast rate in India, China, Malaysia, South Korea and Indonesia due to the rising disposable income, several health insurance schemes (that ensures the sales of branded drugs), and intense competition among top pharmaceutical companies in the region (that has boosted the availability of low cost drugs). China’s pharmaceutical market will continue to grow at a 20+ % annually, and will contribute 21% of overall global growth through 2013. India - 3rd Largest Producer of Pharmaceuticals Across the World- is already a US$ 8.2 Billion pharmaceutical market. The Indian pharmaceutical industry is further expected to grow by 10% in the year 2010.

Exports trends:

India exported drugs worth US$ 7.2 billion in 2007-08 to the US and Europe, followed by Central and Eastern Europe, Latin America and Africa. A report by industry research firm, RNCOS forecasts that pharmaceutical exports will grow at a CAGR of 18.5 per cent between 2007-08 and 2011-12. This growth will be fuelled by multi-billion dollar patent expirations and growth in the global generics market. Pharmaceuticals exports (valued in US dollar terms) registered an impressive growth rate at 30.7 per cent during April-October 2008 compared to the corresponding period last year.

Pharmaceutical retail:

India has 5.5 million chemists and druggists, and the organized retail market accounts for just 2 per cent of the industry but is posting a year-on-year growth of 30-40 per cent. The country's pharmaceutical retail market is expected to cross the US$ 10 billion mark in 2010 and be worth an estimated US$ 12 billion- US$ 13 billion by 2012.

Government initiative :

The Government has taken various policy initiatives for the pharmaceutical sector:

Government has offered tax-breaks to the pharmaceutical sector. Units are eligible for weighted tax deduction at 150 per cent for the R&D expenditure incurred.

Steps have been taken to streamline procedures covering development of new drug molecules, clinical research etc.

Government has launched two new schemes—New Millennium Indian Technology Leadership Initiative and the Drugs and Pharmaceuticals Research Program—specially targeted at drugs and pharmaceutical research.

The Indian Pharma Market :

The Indian pharmaceutical market is the world's fourth largest by volume (8% of global total) and thirteenth largest by value (less than 1% of global total). Although prices are the lowest in the world, 70% of the population does not have access to drug therapy and 2002 per capita consumption was only $3.33.


The lack of pharmaceutical patents means that there is an average of 200 brands for every molecule on the

market.

Advantages to Indian Pharma Industry:

Low-cost skill base Current Good Manufacturing Practice (CGMP) and U.S. FDA compliance level High visibility in generics High-quality, compliant manufacturing Strong financial position with ability to scale up Manufacturing capacity Access to new technologies Cost efficiency and track record Industry position Recognition of product patents

Disadvantages to Indian Pharma Industry:

Pricing Issues

Regulatory Reforms

R&D Spending

Role of Pharmaceutical Industry in India GDP-Facts

The Pharmaceutical Industry in India is one of the largest in the world. It ranks 4th in the world, pertaining to the volume of sales. The estimated worth of the Indian Pharmaceutical Industry is US$ 6 billion. The growth rate of the industry is 13% per year. Almost most 70% of the domestic demand for bulk drugs is catered by the Indian Pharma Industry. The Pharma Industry in India produces around 20% to 24% of the global generic drugs. The Indian Pharmaceutical Industry is one of the biggest producers of the active pharmaceutical

ingredients (API) in the international arena. The Indian Pharma sector leads the science-based industries in the country. The pharmaceutical sector has the capacity and technology pertaining to complex drug

manufacturing. Around 40% of the total pharmaceutical produce is exported. 55% of the total exports constitute of formulations and the other 45% comprises of bulk drugs. The Indian Pharma Industry includes small scaled, medium scaled, large scaled players, which

totals nearly 300 different companies. There are several other small units operating in the domestic sector.

Pharmaceutical Industry in India-Growth:


As per the present growth rate, the Indian Pharma Industry is expected to be a US$ 20 billion

industry by the year 2015. The Indian Pharmaceutical sector is also expected to be among the top ten Pharma based markets

in the world in the next ten years. The national Pharma market would experience the rise in the sales of the patent drugs. The sales of the Indian Pharma Industry would worth US$ 43 billion within the next decade. With the increase in the medical infrastructure, the health services would be transformed and it

would help the growth of the Pharma industry further. With the large concentration of multi national pharmaceutical companies in India, it becomes

easier to attract foreign direct investments. The Pharma industry in India is one of the major foreign direct investments encouraging sectors

Future of pharma industry:

The future of Indian pharmaceutical sector looks extremely positive. Indian pharma companies are vying for the branded generic drug space to register their global presence. Several Indian pharmaceutical companies have acquired companies in the US and Europe and many others are raising funds to do so.

The dream of Indian pharmaceutical companies for marking their presence globally and competing with the pharmaceutical companies from the developed countries like Europe, Japan, and United States is now coming true.

The new patent regime has led many multinational pharmaceutical companies to look at India as an

attractive destination not only for R&D but also for contract manufacturing, conduct of clinical trials and generic drug research. With market value of about US$ 45billion in 2005, the generic sector is expected to grow to US$ 100billion in the next few years.

The Indian companies are using the revenue generated from generic drug sales to promote drug discovery projects and new delivery technologies. Contract research in India is also growing at the rate of 20-25% per year and was valued at US$ 10-120million in 2005. India is holding a major share in world's contract research business activity and it continues to expand its presence.

Clinical Research Outsourcing (CRO), a budding industry valued over US$ 118 million per year in India, is estimated to grow to US$ 380 million by 2010, as MNCs are entering the market with ambitious plans. By revising its R&D policies the government is trying to boost R&D in domestic pharma industry. It is giving tax exemption for a period of ten years and relieving customs and excise duties of all the drugs and material imported or exported for clinical trials to promote innovative R&D.

SWOT Analysis of Pharma Industry:


Strengths: R&D innovation with a broad therapeutic coverage Marketing strength in major geographical and therapeutic areas Existing Patent protection for a number of years on key products

Opportunities: Decreasing development time through favorable R&D collaborations and internal efforts Emergence of integrated global markets and globalisation for new products Co-marketing agreements with companies wishing to capitalize on 's marketing Strengths, providing with strong products and therefore revenue growth.

Weaknesses: Discontinuation of products in the latter stages of development Co-marketing agreements can limit 's global presence Increased size and operational complexity makes a less agile company

Threats: Increased competition for core products like Viagra as its high cost encourages use of cheaper

alternative treatments Competition from products similar to in R&D that reach the market close to or

before products The new economic potential of emergent China, India and competition in diverse

Company Profile:


COMPANY MISSION

Zydus Cadila is dedicated to life… In all its dimensions. Our world is shaped by a passion for innovation, commitment to partners and concern for people in an effort to create healthier communities, globally.

COMPANY VISION

To be a leading global healthcare provider with a robust product pipeline and sales of over $1 bn by 2010; we shall achieve sales of over $3 bn by 2015 and be a research-based pharmaceutical company by 2020.

The Beginning:

The dawn of 50’s ushered in an era of awakening. Having broken free from the bondage of dormant history, a need arose for the country to be self-sufficient in all spheres. Healthcare at this time was the sole domain of a few pharmaceutical giants. Coupled to this was the enormous task fighting the myth and malady by cutting across the barriers of communication so as to reach out to people and to ensure the most effective cure in the shortest possible time? Under such circumstances with tenacity of purpose and unfailing zeal to achieve perfection in quality, Cadila was founded, in 1952.

At the time of India's independence in 1947 our Late Founder, Mr. Ramanbhai B. Patel was completing his graduation at the Baroda Science College. After completing his studies in pharmaceutical sciences, he went on to join L. M. College of Pharmacy, one of the oldest pharmacy colleges in India as a Lecturer. With the entire nation gearing up to make India self reliant, Mr. Ramanbhai B. Patel turned an entrepreneur, determined to contribute his share by setting up a pharmaceutical company. Emerging as a modest pharmaceutical company, Cadila in the early years came out with a wide range of innovative products. Zydus Cadila is an innovative global pharmaceutical company that discovers, develops, manufactures and markets a broad range of healthcare products. The group’s operations range from API to formulations, animal health products and cosmeceuticals. Headquartered in the city of Ahmedabad in India, the group has global operations in four continents spread across USA, Europe, Japan, Brazil, South Africa and 25 other emerging markets.


In its mission to create healthier communities globally, Zydus Cadila delivers wide ranging healthcare

solutions and value to its customers. With over 9,000 employees worldwide, a world-class research and development centre dedicated to discovery research and eight state-of-the-art manufacturing plants, the group is dedicated to improving people’s lives.

By the early 1990s, Cadila was ranked the third largest pharmaceutical company in India. (ORG – December 1991, 1992, 1993). This decade also marked the beginning of a new economic framework and a shift in government policies. To thrive in this evolving environment, it became imperative for Cadila to restructure and streamline its business operations. Thus in 1995, Cadila Laboratories emerged as Cadila Healthcare under the aegis of the Zydus groups. Moving beyond pharmaceuticals, the concept of total healthcare now forms the commercial heart of the group's operations and activities.

Management:

Board of directors

Mr. Pankaj R. Patel[Chairman & Managing Director]

Mr. Sharvil P Patel[Deputy Managing Director]

Mr. Mukesh M. Patel[Director]

Mr. Pranlal Bhogilal[Director]

Mr. H. K. Bilpodiwala[Director]

Mr. Humayun Dhanrajgir[Director]

Mr. Apurva S Diwanji[Director]

CADILA’S STRUCTURE:

Summer Internship Program 13 ZYDUS GROUP


CADILA HEALTH CARE LTD.

JOINT VENTURESUBSIDIARIES

* Zydus Nycomed Healthcare Private

Limited* Zydus Pharmaceuticals USA Inc.

* Zydus Hospira Oncology Private

Limited* Zydus BSV Pharma Private Limited

* Zydus Noveltech Inc., USA

* Zydus Technologies Limited

* Zydus Pharmaceuticals Limited, India

* German Remedies Limited, India* Dialforhealth India Ltd, India* Liva Healthcare Limited, India* Zydus Aminal Care Limited, India* Dialforhealth Unity Limited, India* Zydus Wellness Limited, India* Zydus Technologies Pvt. Ltd, India* Zydus International Pvt. Ltd,

Ireland* Zydus Healthcare SA (Pty) Ltd,

South Africa* Simalya Pharmaceutical [Pty]

Limited, South Africa* Laboratories Combix, Spain* Enta Biotech S.R.L. (Italy)* Zydus Healthcare (USA) LLC,

USA* Zydus Pharmaceuticals USA Inc,

USA* Zydus Noveltech Inc, USA* Zydus Netharlands B.V., the

Netherlands* Zydus Healthcare Brasil Ltda,

Brazil* Quimica E Farmaceutica NIKKHO

Do Brasil Ltda, Brazil* Zydus France SAS, France* Nippon Universal Pharmaceutical

Company Limited, Japan* Zydus IntRus Limited, Russia

Working Capital Management

Introduction:


Working capital management is concerned with the problems arise in attempting to manage the

current assets, the current liabilities and the inter relationship that exist between them. The term current assets refers to those assets which in ordinary course of business can be, or, will be, turned in to cash within one year without undergoing a diminution in value and without disrupting the operation of the firm. The major current assets are cash, marketable securities, account receivable and inventory. Current liabilities were those liabilities which intended at there inception to be paid in ordinary course of business, within a year, out of the current assets or earnings of the concern.The basic current liabilities are account payable, bill payable, bank over-draft, and outstanding expenses.

The goal of working capital management is to manage the firm’s current assets and current liabilities in such way that the satisfactory level of working capital is mentioned. The current should be large enough to cover its current liabilities in order to ensure a reasonable margin of the safety.

Definition:

The term working capital refers to the amount of capital, which is readily available to a company. That is, working capital is the difference between resources in cash or readily convertible into cash (Current Assets) and organizational commitments for which cash will soon be required (Current Liabilities).

Current Assets are the resources, which are in cash or will soon be converted into cash in “the ordinary course of business”.

Current Liabilities are commitments, which will soon require cash settlements in “the ordinary course of business”.

Thus, Working Capital = Current Assets – Current Liabilities

Need of working capital management:

The need for working capital gross or current assets cannot be over emphasized. As already observed, the objective of financial decision making is to maximize the shareholders wealth. To achieve this, it is necessary to generate sufficient profits can be earned will naturally depend upon the magnitude of the sales among other things but sales can not convert into cash. There is a need for working capital in the form of current assets to deal with the problem arising out of lack of immediate realization of cash against goods sold.

Therefore, sufficient working capital is necessary to sustain sales activity. Technically this is refers to operating or cash cycle. If the company has certain amount of cash, it will be required for purchasing the raw material may be available on credit basis. Then the company has to spend some amount for labour and factory overhead to convert the raw material in work in progress, and ultimately finished goods. These finished goods convert in to sales on credit basis in the form of sundry debtors. Sundry debtors are converting into cash after expiry of credit period. Thus some amount of cash is blocked in raw materials, WIP, finished goods, and sundry debtors and day to day cash requirements. However some part of current assets may be financed by the current liabilities also. The amount required to be invested

in this current assets is always higher than the funds available from current liabilities. This is the precise reason why the needs for working capital arise.


Working Capital signifies funds required for day to day operations of the firm. In financial literature there exist two concepts of working capital:

1. Gross working Capital2. Net working Capital

1) Gross working capital:

Gross working capital refers to the firm’s investment I current assets. Current assets are the assets which can be convert in to cash within year includes cash, short term securities, debtors, bills receivable and inventory.

2) Net working capital:

Net working capital refers to the difference between current assets and current liabilities. Current liabilities are those claims of outsiders which are expected to mature for payment within an accounting year and include creditors, bills payable and outstanding expenses.

Net working capital can be positive or negative. Efficient working capital management requires that firms should operate with some amount of net working capital, the exact amount varying from firm to firm and depending, among other things; on the nature of industries.net working capital is necessary because the cash outflows and inflows do not coincide. The cash outflows resulting from payment of current liabilities are relatively predictable. The cash inflow are however difficult to predict. The more predictable the cash inflows are the less net working capital will be required.

Type of working capital:

The operating cycle creates the need for current assets (working capital).However the need does not come to an end after the cycle is completed to explain this continuing need of current assets a destination should be drawn between permanent and temporary working capital.

1) Permanent working capital :

The need for current assets arises, as already observed, because of the cash cycle. To carry on business certain minimum level of working capital is necessary on continues and uninterrupted basis. For all practical purpose, this requirement will have to be met permanent as with other fixed assets. This requirement refers to as permanent or fixed working capital.

2) Temporary working capital:


Any amount over and above the permanent level of working capital is temporary, fluctuating or variable,

working capital. This portion of the required working capital is needed to meet fluctuation in demand consequent upon changes in production and sales as result of seasonal changes.

Determinants of working capital:

The amount of working capital is depends upon following factors:

1. Nature of business:

Some businesses are such, due to their very nature, that their requirement of fixed capital is more rather than working capital. These businesses sell services and not the commodities and that too on cash basis. As such, no founds are blocked in piling inventories and also no funds are blocked in receivables. E.g., public utility services like railways, infrastructure oriented project etc. there requirement of working capital is less. On the other hand, there are some businesses like trading activity, where requirement of fixed capital is less but more money is blocked in inventories and debtors.

2. Length of production cycle:

In some business like machine tools industry, the time gap between the acquisition of raw material till the end of final production of finished products itself is quit high. As such amount may be blocked either in raw material or work in progress or finished goods or even in debtors. Naturally there need of working capital is high.

3. Size and growth of business:

In very small company the working capital requirement is quit high due to high overhead, higher buying and selling cost etc. as such medium size business positively has edge over the small companies. But if the business start growing after certain limit, the working capital requirements may adversely affect by the increasing size.

4. Business/ Trade cycle:

If the company is the operating in the time of boom, the working capital requirement may be more as the company may like to buy more raw material, may increase the production and sales to take the benefit of favorable market, due to increase in the sales, there may more and more amount of funds blocked in stock and debtors etc. similarly in the case of depressions also, working capital may be high as the sales terms of value and quantity may be reducing, there may be unnecessary piling up of stack without getting sold, the receivable may not be recovered in time etc.

Calculation of Working Capital:


particulars (2004-05) (2005-06) (2006-07) (2007-08) (2008-09)

Current AssetsInventory 2,211 2,475 3,896 4,729 6,012Sundry debtors 1,235 1,990 2,784 3,555 4,845Cash and Bank 612 438 990 9,26 2,517Loans & Advances 924 1,588 2,201 2,013 2,237Total [A] 4,992 6,491 9,871 11,223 15,611

Current LiabilitiesCurrent Liability 2,060 2,404 4,588 4,138 5,729Provisions 606 605 858 913 1,186(-) Buyer’s credit (231) (190) (399) (235) 0Total [B] 2,435 2,819 5,047 4,816 6,915

Working Capital [A-B] 2,557 3,672 4,824 6,407 8,696

2004-05 2005-06 2006-07 2007-08 2008-090

1000

2000

3000

4000

5000

6000

7000

8000

9000

10000

2557

3672

4824

6407

8696

Working Capital

Series 1

Year

Rs.

Interpretation:

In this case we can observe that the working capital requirement for the company is increasing rapidly 32% to 36% in both years 2007-08 and 2008-09, which means that it has sound financial position. This can easily attract the investors. But this leads to underutilization of funds as the amount of Cash & Bank maintained by the company is very high, that means the funds are remaining idle and thus reducing the profitability. Thus the company should plan out to utilize the funds efficiently and earn high profits.

Five main parts covered under working capital management:


1. Net working capital (operating) cycle: Operating cycle is the time duration required to convert sales,

after the conversion of resources into inventories, into cash. The operating cycle of a company involves three phases: * Acquisition of resources such as raw material, labor, power etc. * Manufacturing a product which includes conversion of raw materials into work-in-progress into

finished goods. * Sale of the product either for cash or on credit. Credit sales create accounts receivable for

collection.

2. Cash management: The main objective of cash management is to accomplish various tasks of cash collection, payment of outstanding and arranging for deficit funding or surplus investment at a minimum cost or it should be at maximum returns. It assumes more importance than other assets because cash is the most significant and least productive asset that a firm holds. It aims to maintain adequate control over cash position to keep the firm sufficiently liquid and to use excess cash in some profitable way.

3. Inventory management: The prime objective of maintaining proper inventory is to avoid unnecessary investment, loss of sales, loss of profit and reduction in costs. It can further reduce the chances of loss of liquidity. Finally, inventories are held to obtain an optimum utilization of people, place, time and equipments.

4. Receivables management: The main objective of receivables management is to increase sales because when a company sells goods on credit, it will be in a position to sell more goods and thereby increase profits. It is a tool acting as a bridge for the movement of goods through production and distribution stages to customers.

5. Financial Analysis: Ratio Analysis is the main part of financial analysis which will help to compare the company with the other main players of the industry, in order to get an idea of its position in the industry.


Net working Capital (Operating) Cycle

Introduction:


Working capital cycle is more popularly known as operating cycle. This title is more popularly known

as the operating cycle of Pharma Company starts with cash, go through the successive segment of the operating cycle, viz, raw material storage period, packing material storage period, conversion period, finished goods storage period and average collection period before getting back cash along with profit. The total duration of all the segments mentioned above is known as ‘gross operating cycle period’. In case the company is placed in advantageous position of being able to sell its product for cash then the segment of average collection period will disappear from the gross operating cycle period and to that extent the total duration of the cycle gets reduced. In case advanced payments are to be made for procuring materials, operating cycle will period increases. The purchase of raw materials, components etc., are usually made on the credit basis, thereby giving rise to the spontaneous current liability, viz, account payable. When the average payment period of the company to its supplier is deducted from gross operating cycle period the resultant period is called net operating cycle period or simply operating cycle period.

Definition:

The phrase operating cycle refers to the period of time that a company’s cash is tied up in inventory and/or receivables before recovering the initial investment.

Operating Cycle Applications:

The operating cycle concept indicates a company’s true liquidity. By tracking the historical record of the operating cycle of a company and comparing it to its peer groups in the same industry, it gives investors investment quality of a company. A short company operating cycle is preferable since a company realizes its profits quickly and allows a company to quickly acquire cash that can be used for reinvestment. A long business operating cycle means it takes longer time for a company to turn purchases into cash through sales. In general, the shorter the cycle, the better a company is since less time capital is tied up in the business process.

Impacts of operating cycle:

Short Operating cycle:

A short operating cycle is one in which the time between purchasing inventory and recovering the investment is brief. The company recovers its investment and/or realizes profits quickly.

Long operating cycle :

With a long operating cycle, cash may be tied up in inventory and/or receivables for an extended period of time before the business is able to recover its initial investment. Investments with a long operating cycle can be sound, as long as the organization has sufficient access to capital to meet its short-term obligations.


Operating cycle (working capital cycle) consists of the following event which continues throughout the

life of business.

Conversion of cash into raw-materials. Conversion of raw-materials into work-in-progress. Conversion of work-in-progress into finished stock. Conversion of finished stock into accounts receivables through sales Conversion of account receivables into cash.


Raw Material

Storage Period

Packaging

Material Storage

Period

Conversion

Period

FG Storage

Period

Average Collection

PeriodAverage Payment

Period

+

- +

++

Particulars 2009-10(Rs. in Million)

Annual Raw Material Consumed:

Opening Stock of Raw Material 1,503 (+) Purchases 7,806(-) Closing stock of Raw Material 1,811

Total of annual Consumption of Raw Material: 7,498

Particulars 2009-10

(Rs. in Million)Annual Cost of Production:

Opening work-in-progress 618(+)Consumption of Raw Material 7,498(+)Consumption of Packaging Material 1,672(+)Manufacturing Expenses: Stores and spare parts consumed 332 Power and fuel 660 Processing charges 369 Repairs on plant and machinery 164 1,525(+)Depreciation 8,734(-) Closing stock of work in progress 706

Total of annual Cost of production: 20,753


Annual Packaging Material Consumed:

Opening Stock of Packaging material 408 (+) Purchases 1,642(-) Closing stock of packaging material 378

Total of annual Consumption of Packaging Material: 1,672




Annual Cost of Sales:

Opening stock of finished goods 3,272(+)Cost of production 20,753(+)Administration Expenses: Personnel expenses 3,930 Insurance 87 Repairs: Building 41 Others 113 Rent 126 Rates and taxes 220 M.D.’s remuneration 326 Commission to directors 4 Travelling expenses 872 Legal and professional taxes 359 6,078

(+)Selling and distribution expenses: Commission on sales 839 Freight and forwarding on sales 931 Sales promotion expenses 1503 Advertisement 651 Seminar, conference and exhibition 236 Representative allowances incentives 625 Bad debts written off 4 Provision for doubtful debts 64 Other marketing expenses 1,092 5,945

(+)Customs and Excise duties 3(-) Closing stock of finished goods 4,153

Total of annual Cost of sales: 40,204

Particulars (Rs. in Million)(2008-09) (2009-10)

Annual Sundry Debtors:debts outstanding for a period exceeding 6 months: Considered goods 375 250 Considered doubtful 106 170 (-)Provision for doubtful debts 106 170other debts – Considered good 4,412 4,220Groups proportionate share in Sundry Debtors of J.V. 58 198

Total Sundry Debtors: 4,845 4,668

Raw Material & Packaging Material storage period:

Particulars (Rs. in Million)(2008-09) (2009-10)

Annual Sundry Creditors For Capital Goods 54 252 Others 5,201 5,894

Total Sundry Creditors: 5,255 6,146

Cash Management


Introduction:

Cash is common purchasing power or medium of exchange. As such, it forms the most important component of working capital. The term cash with reference to cash management is used in two senses, in narrow sense it is used broadly to cover cash and generally accepted equivalent of cash such as cheques, draft and demand deposits in banks. The broader view of cash also induce hear- cash assets, such as marketable sense as marketable securities and time deposits in banks. The main characteristics of this deposits that they can be really sold and convert in to cash in short term. They also provide short term investment outlet for excess and are also useful for meeting planned outflow of funds. We employ the term cash management in the broader sense. Irrespective of the form in which it is held, a distinguishing feature of cash as assets is that it was no earning power. Company have to always maintain the cash balance to fulfill the dally requirement of expenses. There are four primary motive for maintain the cash as flow.

Meaning of Cash :

There are two ways of viewing the term ‘Cash’. In a narrow sense it includes actual cash in the form of notes and coins and bank draft held by company and deposit withdrawable on demand. And in the broader sense it includes even marketable securities which can be immediately sold or convertible into cash.

Motive of holding cash:

There are four motives for holding cash as follow

1. Transaction motive2. Precautionary motive3. Speculative motive4. Compensating motive

(1) Transaction motive;

Cash balance is necessary to meet day-to-day transaction for carrying on with the operation of firms. Ordinarily, these transactions include payment for material, wages, expenses, dividends, taxation etc. there is a regular inflow of cash from operating sources, thus in case of CHL there will be two-way flow of cash- receipts and payments. But since they do not perfectly synchronize, a minimum cash balance is necessary to uphold the operations for the firm if cash payments exceed receipts. Always a major part of transaction balances is held in cash, a part may be held in the form of marketable securities whose maturity conforms to the timing of anticipated payments of certain items, such as taxation, dividend etc.

(2) Precautionary Motive:

Cash flows are somewhat unpredictable, with the degree of predictability varying among firms and industries. Unexpected cash needs at short notice may also be the result of following:

1. Uncontrollable circumstances such as strike and natural calamities.


2. Unexpected delay in collection of trade dues.

3. Cancellation of some order for goods due unsatisfactory quality. 4. Increase in cost of raw material, rise in wages, etc.

The higher the predictability of firm’s cash flows, the lower will be the necessity of holding this balance and vice versa. The need for holding the precautionary cash balance is also influenced by the firm’s capacity to have short term borrowed funds and also to convert short term marketable securities into cash.

(3) Speculative motive:

Speculative cash balances may be defined as cash balances that are held to enable the firm to take advantages of any bargain purchases that might arise. While the precautionary motive is defensive in nature, the speculative motive is aggressive in approach. However, as with precautionary balances, firms today are more likely to rely on reserve borrowing power and on marketable securities portfolios than on actual cash holdings for speculative purposes.

(4) Compensating Motive :

Yet another motive to hold cash balance is to compensate banks for providing certain services to company, such as clearance of cheques, supply of credit information transfer of funds and so on. While for some of these services banks charge a commission or fee, for other they seek indirect compensation. Usually clients are required to maintain a minimum balance of cash at the bank. Since this balance cannot be utilized by the company for transaction purpose, banks themselves can use the amount to earn a return. Such balances are compensating balance.

Objectives:

Securing solvency at all time.

Minimizing costs of cash management and financing

Optimization of currency positions.

Decrease downside risk.

Benefit from opportunities.

Maximization of investment revenues.

Advantages of cash management:

Cash does not enter in to the profit and loss account of an enterprise, hence cash is neither profit nor losses but without cash, profit remains meaningless for an enterprise owner.

1. A sufficient of cash can keep an unsuccessful firm going despite losses.2. An efficient cash management through a relevant and timely cash budget may enable a firm to

obtain optimum working capital and ease the strains of cash


Shortage, fascinating temporary investment of cash and providing funds normal growth.3. Cash management involves balance sheet changes and other cash flow that do not appear in the

profit and loss account such as capital expenditure.

Flow of cash management cycle:

From the above figure the cash management process shown that in starting information of business is given i.e. of trading of material for the payment and sales of goods for receiving the payment and accordingly cash collection and payment is done in the company. When cash is collected by the company from its debtors at that time if there is surplus cash held with the company than they invest the cash in some securities to get interest on it. When the company do payments to its creditor at that time if there is a deficit of cash than company borrow money from bank and pay interest on it. This is a ideal cycle of cash which is there in all organization.

Activities of collection system in CHL:


BusinessOperation

Information

Cash Collections

Cash Payment

Surplus Deficit

InvestBorrow

The collection system of this company is aimed at timely collection of the receivables.It mainly consist the following activities:

Monitoring the status of the receivables Dispatch of letter to customer whose due date is approaching, telegraphic and telephonic advice

to the customer around the due date Legal actions against the overdue accounts.

From the outstation parties, the collection of the receivables is done through CITI BANK. Company has made one contract with CITI BANK. The cheques are presented to CITI bank and the very next day the amount is received by the company. It doesn’t matter whether the bank has actually received it or not but it has to pay it to the company.

Company is using CAPS (Collection and Payment System) to ease the collection system.

Collection Procedure of the CHL: The bellow given collection procedure is only applicable and implementable for the domestic market.

There are almost 33 to 35 C&F (Carrying and forwarding) agents in Cadila Health Care ltd. through which the whole domestic selling process and collection process from the various part of the country are being carried out.

The collection system of the company is shown in the following diagram:


Collection System

From the above figure shows that company is having two types of selling : Direct selling and

Indirect selling.

Direct Selling:


DirectSelling

Sellin C&F

Agent

Fast CollectionSystem

Cheque collectionSystem

Outstation PartiesLocal Parties

Collection System

Credit period

Payment Mode

Cheque on Delivery

Days-7

Advance Cheque System

Days - 21

Here the goods are dispatched from the bond house to the destination concerned through roadways. Generally this type of selling can be seen in case of hospitals and charitable institutes. CHL sells its product directly to the local or outstation parties through Medical Representatives (MR), Area Business Manager (ARM) and Regional Branch Manager (RBM).

Indirect Selling:

In this type of selling the company sells the goods through C&F (Carrying and forwarding) Agents to the local as well as outstation parties.

There are two types of the collection system:-Fast Collection System and Cheque Collection System.

Fast Collection System:

The collection from the local parties is done through cheque on delivery and for the same FCS (fast collection system). In FCS, the party makes the payment on the spot of delivery i.e. cheque on delivery (COD). For local supply credit limit for the payment is 7 days from the date of delivery and the cheque date will also be 7th day from the delivery.

Cheque Collection System:

The collection from the outstation parties is on the Demand Draft, pay order or on the advanced cheques .The system adopted or outstation party’s collection is CCS (Cheque collection System). In CCS, the party gives an advance cheque to C&F agent and hence this system works on Advance Cheque System. For outstation stockiest due date will be 21st day from the day of LR.

Transactions between CHL, C&F (Carrying and forwarding) and CITI BANK:

Summer Internship Program 32Flow of

dispatchment of goods

Flow of Collection

C

In the above chart, the process goes in this way i.e. first CHL gives the goods to C&F agent who are around 33in the country. C&F is an agent of the company. Now, C&F agent delivered the goods to the stockiest, whole seller, etc. This is a process when company dispatches the goods.

Collection should be done in this way. The stockiest give blank cheques to the C&F agent and these

cheques are collected by the CITI BANK’s person i.e; CMS (Cash Management Service) agent.CMS

agents forward these cheques to CITIBANK MUMBAI and than the amount transferred into the account of the company according to the terms and condition of the company.

Procedure After Collection:

As per the below diagram, C&F agents get the sealed and signed Purchase order along with signed undated blank cheques from stockiest and enter the sales order in the Vision21 / S.A.P.


CHL

C&F Agent

Stockist

Stockiest

C&F Agent

CITI BANK’s Person

CITI BANK

MUMBAI

C&F Agent prepares the sales invoice and Payment Advice in favour of the stockiest after dispatch of

goods and also enters the Lorry Receipt date in the software.

C&F agents fill up the amount and date (7 days after the date of dispatch of goods in case of local sales and 20 days after the date of Lorry Receipt in case of outstation sales) in blank signed cheques as per Payment Advice & passes entry for advance collections.

C&F agent prints two copies of payment advice. Out of which one copy is sent to stockiest along with invoice and the other one is to be filed by him.

Pay in Forms (PIF) is prepared by the C&F agent including the PIF number and division at the back of the cheque so that it can be easily correlated when the cheque gets bounced.

Enter the PIF number against each payment received in the software and sort out the local and outstation cheques, date wise separately.

In case of local cheques, the cheque date and PIF date should be the same. Local clearing cheques are handed over to courier agencies a day in advance of the cheque date. Citibank will credit on the date of cheque.

In case of outstation cheques, cheque date should be one day prior to the date of PIF. Outstation cheques should be handed over to the courier agencies two working days prior to the date of the cheque.

One copy of the acknowledged PIF is sent to the HO at the end of the month.

The cheques of local parties are deposited in the Citibank on the 6th day and that of outstation parties are deposited on the 19th day of issuing the Lorry Receipt.

Everyday an employee of Citibank collects all the cheques from C&F agents located at different locations, between 11 a.m. and 12 noon.

All these cheques collected from different locations are transferred to Mumbai branch of Citibank on the same day.

Irrespective of the clearing of the cheques, Citibank will give credit to the cash management account of the company and on next day that amount is transferred to the current account. So the company gets all the funds immediately and can invest in some other areas or can make payments on time


C&F Agent CMS Agent

After Collection Procedure

Stockiest

.

After getting the opening balance and expected collection for the day from Citibank, the company transfers the amount leaving the balance of certain amount to Bank of Baroda account from the Citibank account.

Bank of Baroda acts as a payment agent for our company, as CITIBANK only collects the amount from the parties account and credit that in our account.

Company gets the collection files from Citibank on daily basis.

One collection file shows the total expected collection for the day. This file is verified with the collection figure taken from Citibank.


CITI BANK

Cheque Accepted

Charges to Bank

Bad Debt

LegalAction-30 days

CriminalAction-45 days

1 Day Credit

Transfer to other Bank

Another file is PIF wise collection file of the company. Division wise collection report showing

collection for the day and up to the day of the month is prepared. This is then compared with percentage to find out the target of the month.

The increase or decrease in collection as compared to the same date of the previous month is analyzed.

The C&F agents are informed by letter regarding the cheques deposited, but if unrealized for more than 60 days than such parties are kept on hold and this information is sent to the divisional heads and the credit control department.

After preparing debtors outstanding for more than 60 days, all divisional heads take up the matter with their RBMs (regional business managers) and give reasons for the outstanding cheques and the date by which the same would be recovered.

A legal notice is sent to the party within the 30 days of the cheque being bounced for the failure of payment and to make the payment as soon as possible i.e. within next 30 days.

The reasons of cheques being outstanding may be due to bank or due to the party. If it is due to party, the reasons can be like insufficient funds in the account, signature doesn’t match, or the arrangements of payments are not proper etc.

If cheques are outstanding for more than 90 days, then the cheque dishonor entry is to be passed. Hence, the further prosecution of the order is stopped. The same is informed to the divisional heads as well as to the credit control department.

Company gets the information from Citibank regarding the cheque dishonored for the day based on the file pass entries for cheque dishonored. The amount of the cheques dishonored along with the debtors will be debited and deducted from the next payment.

If the bounced cheque amount is up to Rs. 20000, then only legal notices could be issued but criminal complaints cannot be filed.

A criminal notice will be issued to the debtors, if payment is not received even after 45 days of the issuance of the legal notice; the company sends a note in this regard to all the divisional heads for taking up the matter with the stockists through the RBMs.

If the payment is not made, a legal case under section 138 (A) as a criminal is filed and legal department is given intimation about this.

If the outstanding amount is received, then the company inform about it to the legal department to withdraw the complaint, to divisional heads for information and to the credit control department for initiating further supplies.

If the outstanding amount is not received even after criminal notice than a Summon is sent with the police to the party by the court. And even after that the amount is not received than it should be entered into the software as BAD DEBTS.

It can be possible that the amount might be recovered after one year or so, and then the reverse entry of bad debts recovered has to be made. Sometimes such cases are observed.

Modes of collection: Summer Internship Program 36

(1) Bank(2) Lorry receipt(3) Cheque on delivery(4) Cheque system(5) Advanced Demand Draft / Cheque / Pay Order

Bank:

The company sends all documents like credit note, debit note, L.R., hundi copy, invoice of the goods to the party bank. The parties to whom the goods are sent pay the amount to the bank and release the documents of the goods from the bank. The bank sends the Demand Draft of that amount to the company. Bank takes the charge for that service.

Limitation: The company and the stockiest face many problems like both have to pay charges to the bank. The stockiest face the problem of collecting documents from the bank. In case of goods return the company face the problem of receiving the documents. So, the company does not prefer bank system.

Lorry Receipt:

The party sends the D.D. or cheques to the company in the system, On that basis the company sends the L.R. to the party. The party gives the L.R. to the transporter and releases the goods and documents.

Limitation: The company faces various problems in the system like if the goods are of large amount the transporters are not ready to hold the goods in that place and in case of rebooking the company faces the difficulties. The economic capability of the transporters is very low which disable them to hold the goods in the case of non acceptance of the goods from the stockiest.

Cheque On Delivery:

The party books an order to C&F(Carrying and forwarding) agent in the system. The C&F agent has to prepare an invoice, which he sends along with the goods to the party by their own person. The person has to deliver the goods and collect the cheque on behalf of the C&F agent, which is dated, 7 th day form the date of receiving the goods. But this is possible in only in same city where C&F has located. In out station it is not possible.

Cheque system:

The party sends an outstation blank cheque with order. For this the company prepares an invoice and sends goods through transporters and sends a L.R. copy by courier direct to party. The party takes the delivery of goods from the transporters against the L.R. the company tendency to deposit party cheque after 21 days from the date of L.R. so, stockiest get an easy delivery & goods credit time so, company sale will increase.

Advanced DD/ Cheque / Pay Order:


In all the system the most preferable system is goods sale on the advanced payments. In the system when company receives the D.D. or Pay Order then only it has to prepared an invoice and send to the party. In this system the main drawback is that party is not able to invest huge amount for company’s products, as he has to give on an advance payment to the company. So, we can say that company depends on the party’s capacity for its sales.

Commission charged by CITI BANK: Local Banks: For the local branches of the bank, no commission is to be charged.

Corresponding Banks: For those bank with whom company and CITI bank has tied up,bank charges

are X% per Rs. 10,000 of collection. But the charges vary according to the distance.

No corresponding bank: The bank with whom there is no tie up of Citibank or the company, then

(X+Y)% per Rs. 10,000 (approximately) is charged by that bank. Such transaction takes place when there is outstation party and there are no branches of CITIBANK in the nearby area.

Transferring Facility provided by the Bank:

Both facilities given below are introduced by the RBI (Reserve Bank of India) to facilitate the party.

(1) RTGS : (Real Time Gross Settlement): In RTGS System transfer of money takes place from one bank to another on the fastest possible basis.

Settlement in “real time” means payment transaction is not subjected to any waiting period. The transactions are settled as soon as they are processed. “Gross settlement” means the transaction is settled on one to one basis without bunching with any other transaction. The minimum amount to be remitted through RTGS is Rs.1 lakh.

(2) NEFT : (National Electronic Fund Transfer): This system is nation wide fund transfer system to facilitate transfer of funds from any bank branch to any other bank branch. The maximum amount can be remitted through NEFT is Rs. 1 lakh. This facility takes less than 2 days.

Difference between RTGS and NEFT


RTGS works on Gross settlement while NEFT works on net settlement and NEFT transfer funds from

one part of any country to any other part of the country unlike RTGS which is restricted to 15 centers where RBI offices are located.

Transfer of amount from CITI BANK:

The collection of the company is done from Citi Bank and then all the cash is further transferred according to the requirement of the company. The company has 2 more banks from which company deals i.e. Bank of Baroda and IDBI Bank. From Bank of Baroda, the company does all local payments and rest payments are

done from IDBI. All the collected amount of company is transferred into these banks.

Now every bank is giving the facility of Core Banking System. The reasons for still continuing the Citi Bank are,

CHL has made contract with CITI BANK in 2000-01.At that time CITI BANK was the only bank which had high-tech facility. So, they are company’s long term partners.

Collection of money timely from the parties. No minimum amount required in account. Less commission charged on cheques. There is very less probability of losing cheques and Demand Drafts. From 2000 till now, the amount

of lost cheques and Demand Draft by CITI BANK is zero. CITI BANK provides tailor made reporting and they are linked with S.A.P also.

International collection procedure:

Bank of Baroda, Standard chartered and SBI are the main banks of “Cadila” in international collection.

There are two modes of international collection:

1] Letter Of Credit

2] Packing Credit

Letter of Credit:

Letter Of Credit means “ an agreement, where by a bank(issuing bank), acting at the request and on the instructors of a customer (the applicant) or on its behalf. This is ‘Irrevocable L/C’ by nature, it means it can neither be amended nor cancelled without the agreement of all parties concerned.

We will try to understand the procedure of it with the help of following diagrams.


Export Ahmedabad(Beneficiary)

Import foreign country

(Applicant)Contract of Sale


Opening LOC and send it to

The Process is as under:

The transaction originates when the exporter in Ahmedabad and importer in foreign country enters into a contract of sale. The contract covers all important particulars such as the description, value and quantity of goods, the due date of shipment etc.

The importer applies to his bank requesting and authorizing the bank to open a letter of credit in favor of the exporter ‘Cadila’. The application would stipulate the conditions, especially with regard to the documents to be submitted by the exporter along with bill.

On the strength of the application form the importer, the bank issues a letter of credit. It is addressed to the exporter and contains an undertaking by the bank that bills drawn under the credit would be paid by it provided the conditions stipulated therein are met.

Though the letter of credit is addressed to the exporter, it would normally be sent to the Bank of Baroda with a request to forward it to the beneficiary.

Within the stipulated date of shipment, the exporter ‘Cadila’ ships the goods to a port in importer’s country from Mumbai port in and obtain bill of lading from the shipping company.






Obtain Reimbursement

Present Documents and Obtain Payment From

Recovers amount from

Ship Goods to

5

8

7

6

The exporter draws a bill of exchange on importer’s bank along with bill of lading and other documents required. Presents them for negotiation to his bank i.e. Bank of Baroda.

Bank of Baroda verifies the documents to make sure that they satisfy the conditions stipulated in the letter of credit and pay the amount to ‘Cadila’. Then the documents are forwarded to importer’s bank for payment.

On receipt of the documents and after verifying that they satisfy the requirements of the letter of credit, Importer’s bank makes payment to Bank of Baroda. The amount of the bill would be recovered by the bank from importer and the documents would be delivered to him.

Packing Credits:

Packing credits or Pre-shipment Finance is the advance granted to the exporter to procure process, manufacture, pack and prepare the goods for export. It is facility extended to the exporter before and till the goods are shipped for export. The pre-shipment credit can be granted to exporter on the strength of letter of credit establishment.

For this purpose company has tie-up with two banks:

Bank of Baroda: For Indian Currency

Standard chartered and SBI: For Foreign Currency.

In this way ‘Cadila’ manages its cash collection system without disturbing the day to day need of cash in the company.

Fund Management

Objectives of Fund Management: There are mainly two important objectives of Fund management:

(1) Try to minimize the cost of raising the fund.(2) To get the high return as much as possible from that raised fund.

Sources of funds:

Decision for the sources of funds is depended on the requirement of fund. There are mainly 2 sources for funds:


(A) Long Term funds: There are many long term funds which can be used in running our business smoothly but in CHL, they are using common long term funds along with the below long term funds.

(1) Rupee Term Loan(2) Foreign currency Loan

These loans are available on mortgaging some securities against the amount of loan same as other loans. For the same purpose some ratios are maintained.

(1) Rupee Term Loan: It is nothing but the same loan which we can avail from any Indian bank. It is available in rupee terms. Its rate of interest is called ‘Rupee rate of interest. Interest is to be paid quarterly, on standard due dates i.e. 15/4, 15/7, 15/10 and

15/1 every year.

(2) Foreign Currency Loan: The loan other than Rupee term loans is called Foreign Currency Loan. They are available foreign currency term. The interest rates offered are based on six months US Dollar LIBOR + spread (Fixed Margin Rate)

or LIBOR in any other currency. The margin over LIBOR is generally reset at the end of every 5 years.


Sources of Funds

Long Term Fund

Secured Fund

Unsecured Fund

Short Term Fund

Secured Fund

Unsecured Fund

What Is LIBOR?

LIBOR stands for London Interbank Offered Rate. Each day LIBOR rates are released, a 1 month US dollar LIBOR rate. LIBOR is the primary benchmark for interest rates around the world.

The interest structure for Foreign Currency Loan is

LIBOR + Spread = Interest Rate

Suppose;

Date LIBOR Spread Interest Rate01/01/2010 0.45 2.5 2.9501/06/2010 0.41 2.5 2.91

Note: - LIBOR can be charged on monthly, 3 monthly or 6 monthly bases.

-Spread is fixed margin which is decided by the negotiation of the bank and borrowed party.

(B) Short-term loans: Short term loans can mostly be taken for the purpose of working capital financing. They are available in both Rupees and foreign currency term. There are many short term loan options are available in the market which are used by CHL along with 3 new options. Those 3 options are sources for Short Term Loans.

Sources of short term loans used by CHL:

(1) Cash Credit Limit(2) Short Term Loans or WCDL-working Capital Demand Loans

(3) PCFC-Packing Credit in Foreign Currency(4) EPC – Export Packing Credit

(1) Cash Credit Limit:

Meaning :

Cash credit is an arrangement under which a customer of a bank or financial institution is allowed an advance up to certain limit against credit granted by bank. That means a loan may be granted say for Rs. 1 lakh however the customer/borrower of the loan may take the amount of loan to the extent required by him but not exceeding the limit of Rs. 1 lakh.

Minute Difference between overdraft and Cash credit


Available

Only in Rs.

Overdraft Cash Credit

An overdraft occurs when withdrawalsfrom a bank account exceed the availablebalance which gives the account a negativebalance - a person can be said to havegone "overdrawn".

Cash Credit is a short-term cash loan to a company. A bank provides this type of funding, but only after the required security is given to secure the loan. Security is in the form of hypothecation of goods and book debts. Depending upon the value of goods and book debts every month Drawing Power (D.P.) limit is decided. Once a security for repayment has been given, the business that receives the loan can continuously draw from the bank up to a certain specified amount. This type of financing is similar to a line of credit.

Advantages of Cash Credit Limit over Regular Loan:

The advantage of a line of credit over a regular loan is that interest is not usually charged on the part of the line of credit that is unused, and the borrower can draw on the line of credit at any time that he or she needs to. Depending on the agreement with the financial institution, the line of credit may be classified as a demand loan, which means that any outstanding balance will have to be paid immediately at the financial institution's request.

For Example; If the credit limit is 1 Lakh. Now, amount required by Company say on a particular day is Rs. 92,000 but they take entire amount Rs. 1,00,000 he will have to pay interest on entire amount of Rs. 1 lakh. However if he would have only taken Rs. 92,000 which he required he would have to pay interest on Rs. 92,000 only and not on Rs 1,00,000.

A line of credit, generally arranged before the funds are actually required, provides flexibility for the customer in that it ensures the ability to meet short-term cash needs as they arise.

Lenders:

Any banks and financial institutions are the main lenders of this facility.In CHL, there is one word is used for the group of the banks – ‘CONSORTIUM’. There are 7 banks in this group and there is one lead bank from whom we get the highest credit limit.

In CHL, BOB is the lead bank.CHL got overall 560cr. Credit limit from these banks in which 410 crores is Fund Base and 150 crores is Non Fund Base.

Cash Credit Limit Circulation:


Suppose,Rate of Interest on Cash Credit Limit is 10%.Credit limit is say Rs.10,00,000.

Sr.No. Date Debit Credit Balance Interest calculation Interest(Rs.)1 01/01/2010 ----- ----- 1,00,000 (Cr.) No int. as it’s open.bal. ----2 02/01/2010 2,00,000 ----- 1,00,000 (Dr.) [1,00,000*10%*(1/365)] 27.403 03/01/2010 3,00,000 ----- 4,00,000 (Dr.) [4,00,000*10%*(1/365)] 109.594 04/05/2010 ----- ----- 4,00,000 (Dr.) [4,00,000*10%*(1/365)] 109.595 05/05/2010 1,00,000 9,00,000 4,00,000 (Cr.) No interest ----6 06/05/2010 ----- ----- 4,00,000 (Cr.) No interest ----

Explanation:

In the first transaction, our opening balance in the bank is Rs.1,00,000. On the second day, I have utilized the facility of Cash Credit Limit of Rs. 2,00,000 so, my account in the bank is debited by Rs. 1,00,000 so it is called negative balance. Interest is only calculated only on negative balance that is the only amount which is utilized from credit limit and as per norms interest are charged only on the utilized amount rather than whole amount. Calculation of interest is done on daily bases in Cash Credit Limit facility. So, interest = 27.40 (as per above calculation). 3rd transaction is same as 2nd one. In the 4th the transaction, nothing is debited and credited so the interest for 1 day was calculated on the C/F amount which is 4,00,000. So now interest is 109.59 (as per above table calculation). In the 5 th transaction, I have utilized the facility of Rs.1,00,000 and credited Rs.9,00,000 to my account so now my credit balance is 4,00,000 (4,00,000 + 1,00,000 - 9,00,0000).Now no interest is calculated on the credited (Which is positive) amount.

(2) PCFC – Packing Credit in Foreign Currency:

Bank provides PCFC in the foreign currency to the exporters enabling them to fund their procurement, manufacturing/ processing and packing requirements. These loans are available at very competitive international interest rates covering the cost of both domestic as well as import content of the exports. The PCFC can be availed in US$, Euro, GBP and Japanese Yen.

This facility is available only in dollars and will also be liquidated in dollars only. Its interest structure will be the same as ‘Foreign Currency Term Loan’. i.e., LIBOR + Spread

This facility is available at very cheap rate compare to EPC.

(3) EPC – Export Packing Credit:


This facility is availed in rupee as money is transferred into rupees as per prevailing dollar rate but liquidated (repaid) in dollar term. When rupees are depreciated against dollar, EPC would be the best option and if rupee is appreciated at that time PCFC would be the desirable option.

Particulars Amount in Rs. Dollar / Rs. rate Amount in dollarLoan taken rate 10,00,000 50 $ / 1 Rs. 20,000 $(-) Loan is liquidated 10,00,000 40 $ / 1 Rs. 25,000 $

Foreign Currency Liquidation Loss: -5,000 $

Particulars Amount in Rs. Dollar / Rs. rate Amount in dollarLoan taken rate 10,00,000 50 $ / 1 Rs. 20,000 $(-) Loan is liquidated 10,00,000 55 $ / 1 Rs. 18,182 $

Foreign Currency Liquidation Gain: 1,818 $


Inventory Management

Introduction:


Inventory management refers to the process of managing the stocks of finished products, semi-

finished products and raw materials by a firm. Inventory management, if done properly, can bring down costs and increase the revenue of a firm.

The inventory management process begins as soon as one has started production and ordered raw materials, semi-finished products or any other thing from a supplier. If you are a retailer, then this process begins as soon you have placed your first order with the wholesaler.

Once orders have been placed, there is generally a short period of time available to a firm to put an inventory management plan in place before the supplies are delivered. Inventory management helps a firm to decide in advance where these supplies should be stored. If a firm is getting supplies of small-sized goods, it may not be much of a problem to store them, but in the case of large goods, one has to be careful so that the warehousing space is optimally utilized.

From invoices to purchase orders, there is lot of paperwork and documentation involved in inventory management. Several software programs are available in market, which help in inventory management.

The goal of effective inventory management is to minimize the total costs-direct and indirect – that are associated with holding inventories. However, the importance of inventory management of the company depends upon the extent of the investment in inventory. It is industry-specific.

The role of inventory in working capital:

The working capital management refers to the management of the levels of all these individual current assets. On the other hand, inventory, which is one of the important elements of current assets, reflects the investment of a firm’s fund. Hence, it is necessary to efficiently manage inventories in order to avoid unnecessary investments. A firm, which neglects the management of inventories, will have to face serious problems relating to long-term profitability and may fail to survive. With the help of better inventory management, a firm can reduce the levels of inventories to a considerable degree. The following are some characteristics of inventory which are important in working capital management.

1. Current assets : It is assumed that inventories will be converted to cash in the current accounting cycle.

2. Level of liquidity : Inventories are viewed as source of near cash. The liquidity aspect of inventory becomes highly important to the manager of working capital in the case of economic slowdown and changes in the market trend. The inventories are to be considered as the least liquid of current assets.

3. Liquidity Lags: Inventories are tied to the firm’s pool of working capital in a process that involves 3 specific lags namely;

(A) Creation Lag: Manufactured or purchased, the firm will hold inventories for a certain time period before the payment is made. This liquidity lag offers benefit to the firm.

(B) Storage Lag: Once goods are available for resale, they will not be immediately converted into cash. Thus, the firm will usually pay suppliers, workers, and overheads expenses before the goods are actually sold. This lag represents cost to the firm.


(C) Sale Lag : Once goods have been sold, they normally do not create cash immediately. The firm

must wait to collect its receivables. This lag also represents a cost to the firm.

4. Circulating Activity : Inventories are in a rotating pattern with other current assets. They get converted in to receivables which generate cash and invested again in inventory to continue operating cycle.

Source: ICFAI Business School/Finance Management

Motives of inventory management:

There are three motives for holding inventories:

a) Transaction Motive : It emphasizes on facilitating smooth production and sales operations.

b) P recautionary Motive : It protects against risk of unpredictable changes in demand and supply forces and other factors.

c) Speculative Motive : It influences the decision of movement of inventory levels to take the advantage of price fluctuations.


FirmHolding

Inventoryto

Purchase

Produce

Sell

Avoid losses of Sale

Gain quantity Discount

Reduce order cost

Achieve efficient production

Which

Helps

Purpose of Inventory Management:

The purpose of holding inventories is to allow the firm to separate the processes of purchasing, manufacturing, and marketing of its primary products. Within this statement of purpose, we can identify specific benefits that accrue from holding inventories:

To avoid the lost of sales. To gain quantity discounts. To reduce order cost. To achieve efficient production runs. To reduce risk of production shortage. To handle seasonal or cyclical fluctuations. To obtain optimum utilization of people, place, time and equipments. For customer Satisfaction. To gain the market share in key products

Types of Inventory Management:

In the era of industrialization and globalization inventories cover a very wide range. The range of inventory has become larger and more diversified. Inventories are maintained to widen the latitude in planning and scheduling successive operations. So inventories are classified into four main types in the pharmaceutical industry:

1. Raw material inventory:

This consists basic of raw material that has not yet been committed to production in a manufacturing firm. The purpose of maintaining the raw material inventory is to uncouple the production function from the purchasing function so that delays in a shipment of raw material do not cause production delays.

In cadila healthcare limited, Raw material inventory is maintained at the formulation and at API units. Raw material means any type of ingredient which is required to prepare formulations and convert the drugs into dosage form. There are basically two types of raw material:

(A) Active pharmaceutical ingredients (API): API, are the drugs that works to cure any kind of disease. These drugs are used by the company to produce pharmaceutical products and are also sold to other pharmaceutical companies in the form of final product without any further processing. It constitutes 85-90% of total raw material inventory.

(B) Expients: It consist of other chemical materials used in formulating the drugs like binding agents, preservatives, colors, etc. these materials are outsource by the company. It consists of 10-15% of total raw material inventory.

2. Packaging material:

Packaging Material is very important in the Pharma Company as each and every have to be packed with utmost care and in proper packing. There are two types of packing materials, which are outsourced by the company:


(A) Primary packing materials: It consists of capsule, labels, etc.

(B) Secondary packing materials: It consists of cartons, labels etc.

There is a packing development department at the factory which makes the sketches, layouts, colors and the entire art-work with specifications and gives it to the outsourced firm.

Some of the firms to which packing materials is outsourced are- Hindalco (aluminum foils), Gujarat Glass (Bottles), ARTO prints (printed packing material), etc

3. Working in process inventory:

This category includes those materials that have been committed to the production process but have not been completed. The more complex and lengthy the production process, the larger will be the investment in Working in process inventory. The quantity and the value of the work in progress depend upon the length of the operating cycle. Without work –in- process inventory, a bottleneck at any stage in the production process renders idle the machines and facilities at subsequent stages. This type of inventory in Zydus is maintained in its formulation units and at its API.

4. Finished goods inventory:

These are completed products awaiting sale. The purpose of finished goods inventory is to uncouple the productions and sales functions so that it no longer is necessary to produce the goods before a sale can occur. These kinds of inventory are maintained by the firm so that they can meet the customer demand and there is no loss of sale to the company. The basic motive behind finished goods inventory is to uncouple the production and the sales function so that it is not necessary to produce the goods before a sale can occur and therefore sales can be made directly out of inventory.

In case of Zydus the finished goods inventory is at the Hubs and at the C&F location.

The four formulation units of Zydus are situated at village Moraiya, Dist. Ahmedabad; Goa; Baddi, and Solan. The two API units are situated at Ankleshwar, Gujarat; and Dabhasa, Dist. Vadodara.

Costs associated with holding inventories:

Every company maintains some stock of raw materials, work in progress and finished goods inventory depending upon the requirements of the company. The company is benefited by holding the inventory but on the other hand there are various costs associated they are:

Material cost Ordering cost Carrying Cost Cost of funds tied up with inventory Cost of running out goods


1. Material Cost: These are the costs of purchasing the goods including transportation and handling the

costs.

2. Ordering Cost: The costs of ordering include the cost of acquisition of inventories. It is the cost of preparation and execution of an order, including cost of paper work and communicating with the supplier. Basically this category refers to those cost, which is incurred at the time of placing an order.

At the Hubs of Zydus inventories are ordered in bulk so that they can have various benefits of bulk orders and thus, try to minimize the cost.

3. Carrying Cost: This is the cost incurred in keeping or maintaining an inventory of one unit of raw material or work in progress or finished goods. Cost of storage and cost of financing are two basic costs associated with holding a unit in inventory.

Carrying cost is a very important portion in the total inventory cost of Zydus.

4. Cost of funds tied up with inventory: Whenever a firm commits its resources to inventory, it is using funds that otherwise might have been available for other purposes. The firm has lost the use of funds for other profit making purposes. This is its opportunity cost. Whatever the source of funds, inventory has a cost in terms of financial resources. Excess inventory represents unnecessary cost.

5. Cost of running out goods: A running out of stock is a situation in the firm when the firm is not having units of items in the stores but there is a demand for that either from the customer or from the production department. Normally the cost of stock outs is quite expensive for the company.

Zydus maintains sufficient amount of stock of finished stock as well as of raw materials to meet such contingencies.

Benefits of Inventory Management:

1) Inventory management can remove barriers between manufacturer and retailers and establish a closer relationship between them.

2) It helps in frequent analysis of purchases, sales and inventory records.

3) It gets the complete information about the value of inventory.

4) It gives complete knowledge of the exact size of merchandizing inventory.

5) Organization has full knowledge of its inventory.

6) Simple inventory management software functionality can range from almost free to high end systems costing millions of dollars.

Inventory Management Cycle

(1) Sales projection by marketing Department: Summer Internship Program 53

The cycle starts with the sales projection, which is done by the marketing department every month for

its existing and new products.

It is done after considering the following factors like demand of the product, financial aspects, economic environment, sales of previous month, current month, marketing feasibility etc.

Marketing people have monthly budget fixed and target set to sell the products and in order to meet the market demand the sales projection that is done by them has to be conveyed to the PPMC department.

(2) PPMC Department:

The PPMC stands for Production Planning and Material Control which refers to the planning of production, acquisition, quality control etc.

The need for this department exists in order to produce specific medicines, for which raw material has to be acquired well in advance.

It calculates the requirement of the raw material on the basis of the sales projection done and places an order to the purchase/procurement department.

This department plays a very crucial role in coordinating all the activities for proper inventory management as it is interlinked with all the three main departments i.e. Purchase, production and marketing department.

It also maintains the record of inventory received from all the departments for various types of material.

As pharmaceutical industry is a very sensitive sector, more emphasis is on the quality of material. Department caries stringent quality checks before any material is taken for production. The other

reason may be also that production cannot be started if all the ingredients are not available. Even packing materials like labels is not available, and then production cannot be started, so there is

a great need for PPMC. Now PPMC department gives order to purchase department.

(3) Purchase Department:

Purchase department places an order to the existing suppliers and as the company says to the “approved suppliers” on the basis of the credit terms as well as timely delivery of the raw material.

If the department thinks to deal with the new suppliers whose credit terms are more favorable to the existing ones then it first takes the permission from the top management and places a small order to them and if satisfied, they gradually increase the quantum of the order.

This department takes into consideration the information conveyed by the PPMC department for the amount of material to be ordered and also checks the production schedule, in order to verify that whether the quantity of material needed will be procured by them or not. If there is any problem, then this department informs about is to the PPMC department and further it is solved by them.


(4) Testing:

After receiving the order from the purchase department, the supplier dispatches the material to the store department of the company.

Than the physical verification of the material received is done. Now the testing process is conceded on the raw material in order to check whether the raw material

is as per the quality prescribed by the company at the time of placing an order. This process is undertaken by the QA & QC Department, which plays a very crucial role in this

pharmaceutical company as all the products are related to health of the people.

(5) Quality assurance & Quality control Department:

This department has an important role to play in all the three stages of inventory i.e. raw material, work-in-progress and finished goods. As the quality of the material should be checked at every stage of production.

The company follows Batch Production Process where unique batch number and lot number is

assigned to each raw material so that, if any problem occurs during the production or any later stage then, the fault can be easily detected.

Quality Assurance department is used to check the quality when the production is going on so that the wastage of material and energy is avoided.

Quality control department is used to examine whether the quality of finished product is as per the standards or not.

After quality assurance and quality control, the product is sent to the packing department and from there to the bond room.

(6) Production Department:

After the testing of the raw materials by the QA&C department, the production department converts it into semi-finished or finished goods.

Goods Receipt Number is made for each batch of finished goods and then transfer ticket is made as the product enters into the lobby.

Only finished goods with all the above process being completed is transferred to the bond room.


The inventory management cycle start from the marketing department which makes the sales projection based on past sales month.


Sales Projection

Duty PaidGodown

Testing

BondRoom

Sales

C & F agent

Quality control &Quality Assurance

Department

PPMCDepartment

PurchaseDepartment

ProductionDepartment

(7) Bond room:

Bond room is the centralized store house where finished goods are kept without paying excise duty till they are executed.

If the goods do not reach to the bond room, they are treated as W.I.P., even though they are finished goods.

Only when the goods reach to the bond room, they are treated as finished goods. Physical verification of the stock is done.

(8) Duty Paid Godown:

After bond room, the finished goods are transferred to the duty paid godown.

Only after paying excise duty, the goods are dispatched from the bond room and send to the C& S agent.

The payment of the excise duty is done on the 5th on next month except March. Here the part of excise ends.

(9) C & F Agents:

The company selects its C & F agents on the basis of the financial position, past records, location, etc of them.

The C & F agents receive the finished goods from the Bond Room of the company. There are 33 centralized C & F agents in almost all the states of the country. There are different base sales for different C & F agents on which the company pays commission of

1.18% on base sales and in case of the sales exceeding the base sales, the company pays a commission of 1% on the excess sales(apart from the base sales).

(10) Sales:

The last stage in the cycle is done by the sales department of selling the finished good and also keeps a constant eye on the schedule or the targets made by them.

And further continue with the sales projection for the future and thus the cycle goes on.

In Zydus, inventory is analyzed by bucket wise. This analysis is done on daily consumption of inventory. So,for the smooth analysis, Raw Material and Packaging Material are categorized into 3 groups. They are

Non – moving inventory: - No consumption of such inventories - It lies more than 200 days.


Slow – moving inventory : It lies 180 days to 200 days Moving inventory: Its lies not more than 180 days.

Company’s GDSO (Global demand and supply organization) has categorized their safety stock into 2 groups.


Safety Stock

Fixed Safety Stock:

For sensitive market like USA Demand is fixed.

Dynamic Safety Stock:

For critical API product Demand volume is high Availability is very less This safety stock varies by days, like 30

days of average consumption. This safety stock days calculation is

based on the lead time of the product.

GDSO Department:

After learning about the INVENTORY MANAGEMENT CYCLE AT CHL, given below is the brief description of how the material is being purchased by them. The purchase work is done by GDSO department. GDSO Department stand for global demand and supply organization.

This department is the come into existence as a recommendation of project SPEED (Supply Planning-

Effective Efficient to meet Demand). In the process the department has just completed nine months. The

motive behind having this department is to streamlining the whole supply chain of Cadila Healthcare. Some

of the associated objective of this department:

Cost optimization for every relevant supply chain processes.

Achieving growth both in size and scale.

More adaptive response to market with highest efficiency and effectiveness.

The department GDSO (Global Demand and Supply Organization) has been divided into five major

divisions.

1. Demand Planning

2. Supply Planning

3. Procurement

4. Distribution and Planning

5. Investment and controling

(1) Demand Planning :

Main focus of this division is on forecasting of saleable products. The forecast process, consensus,

consider every possible input to make it an effective one. This division is also the interface to sales front

with effective operational decision (S & OP). Through their activity they expected to come out with

accurate forecast data and thus the customer satisfaction.

(2) Supply planning:

Major feed for manufacturing department is the outcome of this supply planning. Transform the

Committed volume into required figure is the task of the division. Generating right procurement

schedule and cost effective inventory management are two major responsibility of this division.


This department is in the very heart of the whole organization being a major player in revenue

generation. It closely interacts with marketing and finance departments. On the other hand the

manufacture department is fully dependent as requirement generated by GDSO is the main feed for

them. Production schedule and raw material purchase decision is controlled by this department only. If

this department fails to take proper feedback from the market every process down the supply chain will

suffer the heat of lost sell.

(3) Procurement:

This division is the working ground of supply planner. The major activities involved are procurement

scheduling and vendor management.

The procurement group is further divided into 5 categories:

Raw Materials (RM) : There function is to carry purchase of raw materials that will be directly used in manufacturing the Pharma products.

Package Materials (PM) : This group carries out the function of purchasing of package materials that will indirectly help in packaging of the finished products.

Gift & Misc : The function of this group is to make the purchase of promotion materials like certain gift items that would be provided to the doctors and other free samples which are provided to the distributors.

API- Procurement :This includes the purchase of raw materials that would indirectly help in manufacturing of other raw materials. This means that CHL prepares some API products that would be used by other Pharma companies in development of other finished products.

Capital procurement : This includes the purchase of machineries as well as other necessary tools and equipments that are required for maintenance.


Procurement Process:

(4) Distribution and logistics:

The division is solely responsible for the integration of the whole distribution. Their major input comes

from demand team and supply planner commitments for various products to every C&S location. They

also take care of making the dispatch process more efficient. Cost optimization through proper planning

is also under the purview of this division.

(5) Inventory and controlling:

This division is started just 2 month back. The main purpose of this department is that whatever

investment has been done should not be wasted. For controlling purpose, there are various controlling

Machines into this division.


Order generation

Order goes to the lowest bidder; also try to pull rates down

Comparative statement is generated

Quotations from vendors received

Inquiry: by procurement dept

Indent received

Performance Parameters:

There are mainly 3 performance parameters: R, C, A which is mainly used for the management of the

supply chain.

R = Requirement

C = Commitment

A = Actual Production Delivery.

There is rigorous monitoring on R, C, A so that R, C, A can go higher and can reach at 100%. GDSO Department tries to maintain R to C’s ratio at 100% but it comes around 95%. And remaining 5% is considered as ‘Gap of R v/s C’.

Contract Manufacturing or EMO (External Manufacturing organization):

CHL manufactures its product into its plant. But there are some products which is not possible to produce by the CHL so they give contract to other pharmaceutical company. There are mainly 2 contracts which are used by CHL.

1. Loan licensing2. P2P (Principal to Principal OR Party to Party)

(1) Loan licensing: In this contract, CHL provides Raw Material and Packaging Material to other party. Other party

manufactures into their plant. So, manufacturing is done by other party but product is marketed by CHL.

(2) P2P(Principal to Principal OR Party to Party): In P2P, Raw Material and Packaging Material are of other party and it is also manufactured by

other party (who provides RM and PM) at its plant. Here, also manufacturing is done by other party but marketed by CHL.

The only difference between above 2 contracts is provision of inventory.


Forecasting Tool:

For forecasting the requirement of the inventory for current month and for next 2 month, GDSO Department uses the forecasting tool, named Rolling Sales Plan (RSP).Under this plan, they do forecasting of the next 4 months and assign version to each months and this tool provide them sales plan.

For example:Suppose, we are making forecasting for the month of August in the month of May (present month). Then what will be our requirement in August is called ‘version-4’, what will be our requirement in august when we will make forecasting in the month of June is called ‘Version – 3’ and so on.

Present month = MayForecasting Month = August

V1 = May to August = In the month of May and RSP gives the sales plan for August.

V2 = June to August = In the month of June and RSP gives the sales plan for August.

V3 = July to August = In the month of July and RSP gives the sales plan for August.

V4 = August to August = In the month of August and RSP gives the sales plan for August.


Receivable

Management


Introduction: Receivables or debtors are the one of the most important parts of the current assets which is created if

the company sells the finished goods to the customer but not receive the cash for the same immediately. Trade credit arises when firm sells its products and services on credit and dose not receive cash immediately. It is essential marketing tool, acting as bridge for the movement of goods through production and distribution stages to customers. Trade credit creates receivables or book debts which the firm is expected to collect in the near future. The receivable management includes three characteristics

1) It involve element of risk which should be carefully analysis.

2) It is based on economic value. To the buyer, the economic value in goods or services passes immediately at the time of sale, while seller expects an equivalent value to be received later on.

3) It implies futurity. The cash payment for goods or serves received by the buyer will be made by him in a future period.

Purpose of Receivable Management:

The objective of receivables management is to promote sales and profits until that point is reached where the returns that company gets from funding of receivable is less than the cost that the company has to incur in order to fund these receivables. Hence, purpose of the receivable is directly connected with the company’s objectives of making credit sales, which are:

To increase total sales of the company because when company gives goods on credit than there will be more sales.

To increase the profit of the company because when there is more sales than automatically profit will rise but company should take care about the credit period which is provided to suppliers. Company also have higher margin on credit sales than cash sales.

To be in the competitive market and for this company need to give better credit facilities than their competitors.

To promote sales and profit till that point where company returns from funding of receivables is more than the cost incurred by them. Then only it is profitable for the company.

Thus, the receivables bring some costs as well as benefits to the firm. Both the cost and the benefits are to be looked carefully and a trade-off between them should be attempted.

Cost of maintaining receivable management: If the receivables are implemented by the company, then it is beneficial to the company, but following are the cost involved in it:


1. Additional fund requirement of the company2. Administrative cost3. Collection cost4. Defaulting cost

1) Additional fund requirement of the company :

The credit sales delays at the time of receiving money from the customers and therefore the time gap between incurring the cost and the revenue receipts is extended. Thus the firm has to block its funds during that period of time. Thus, the company has to arrange funds to meet its own obligation towards payment to the supplier, employees, etc. These funds are to be procured at some explicit or implicit cost. This is known as the cost of financing the receivables.

2) Administrative cost :

A company incurs cost before and after the credit sales is done. Before credit sales, costs are incurred on obtaining information regarding credit worthiness of the customers, while after credit sales, the cost are incurred for maintaining the record of credit sales and collection in future.

3) Collection cost :

These are the cost which firm has to incur for collection of the amount at the appropriate time from the customers.

4) Defaulting cost :

If there is a default by a customer and the receivables becomes, partly or wholly, unrealizable, then this amount, known as bad debt, also becomes a cost for the company. This cost does not appear in case of cash sales.

Receivables Management basically includes four main aspects mentioned below:

a. Distribution Channel b. Credit Control Policy c. Collection Policy d. Claims Settlement


(A) Distribution Channel:

After the finished goods reach the Bond Room and then the duty paid godown, the goods are ready for sale and there comes the role of marketing and distribution channel of the company. Following diagram shows the basic marketing and distribution channel followed by CHL:

At Cadila Healthcare Ltd. Sales is done through different ways. And each of this type is described below:

Domestic Trade System (Distribution Channel) :


Steps for Marketing

Marketing Manager

Divisional Manager Head

Regional Business Manager

Area Business Manager

Medical Representative


CHL’s Distribution Channel

Direct Selling Indirect Selling Selling

C & F Agent

Depot

C & S Agent

Super Stockist

Local Parties

Out stationParties

Direct Supply

Retailer

CHL do the selling of goods in two ways-

Direct selling :

Direct selling means company does direct sell its goods to medical stores or final seller. Cadila do this kind of trading very less.

Cadila always have atleast one intermediary between them for trading. Sometimes, Direct selling is done in the case of exports of goods to the direct dealer. This is done by Medical representatives, Area Business Manager, and Regional Branch Manager.

Here the goods are dispatched from the bond house to the designation. For direct supply, orders are generally received and executed at head office.

For interstate supply 4% CST (Central Sales Tax) is applicable. 30 days credit period is allowed for outstation stockiest.

Generally the products are directly supplied to Government Institutions, Nourishing Homes and Hospitals.

Disadvantages:

This is a risky system because it is not possible for a big company to take care of its all debtors. This is a time consuming as there is lots of seller who takes the products of the company. Company cannot recover all the debts which are held for the company as the amount is less but there

is large number of customers from whom the money should be taken.

Indirect Selling:

Indirect selling is a selling which is done through various intermediaries, in this system 3 or more parties are involved. Here, selling is done by intermediary who takes commission for further selling of goods. They are the link between the manufacturers and shopkeepers. With the help of intermediary goods are transferred. There are various kinds of indirect seller which are as follows:

(A) Super Stockiest:

Super stockiest is an intermediary which takes order from shops and provides them the medicines according to their requirement. Generally, this kind of indirect selling does by Medium-Small enterprises. For the large enterprise it is not suitable. Super stockiest have a large amount of stock kept with them. There is no CST (Central Sales Tax), only local tax has been charged.

Super Stockiest is sending their order along with blank undated cheque to HO. Company has allowed 30 days credit period on each supply from the date of Lorry Receipt (LR). Company has to take security coverage by the way of deposits or bank guarantee. Company is not responsible for the outstanding of stockiest for onward sales. Super stockiest have to

recover their dues from the stockiest at their own.


Super Stockiest should pass the scheme and products to the stockiest as per the company norms and all

the expired goods are returned by them on monthly basis at Ahmedabad and the company issues the credit note for the goods received.

Disadvantages:

There is a monopoly of the stockiest in the market because the particular product which has a high demand, the stockiest will gave that product to their preferred shop either their own shop or most preferred shop which creates a monopoly in the market.

There is a partiality done by the stockiest to send the goods at preferred shop first than the rest of the shops.

This type of indirect selling is most suitable for the medium enterprise and as Cadila is large enterprise so this type does not suit to the company.

C & F Agent (carrying and forwarding agent):

Cadila has appointed C&F agent in every State of India, They store the goods and pass it on to the stockiest as per the instruction of the company. For rendering this kind of services. He charges rent for storage and commission based on the number of transactions entered. They are paid 1.18% service commission on base sales and 1% for additional sales i.e., above base sales He is supposed to collect cheque from both outstation parties and local parties. They are required to give security deposit for 30 days stock or sale and the second requirement is a well built infrastructure.

The business is carried on the sales tax number of the company then agents in the chain are referred as C&F and in case business is carried out on the sales tax number of the agent then that agents are termed as C & S.

This is the reason ZYDUS has formed a marketing company ZYDUS Pharmaceuticals limited and has taken number in its name and carries on its business in its name and further has appointed as C&F.

Why C&F agent:- In this type of agent are transferred and nit sold to them. It saves 4% CST. There will be ease in distribution. Company can deliver its goods as and when required, to the any remote area.

Criteria for selection of C&F Agents:

From all the above selling channels at CHL, C&F Agents plays very important role. Major sales are done through this channel only. So following steps are taken while selecting any C&F agent:

A. The guarantee offered by financial viability along with past records and reputation in the Market.

B. Banker Credit worthiness Certificate

C. Maintaining information of number of transaction done and value of goods sold in a consistent Summer Internship Program 70

manner.

D. Relations maintained with other stockiest.

Advantage:

This kind of system is secured as a company point to view. As all the collection is done under the name of the company ‘Cadila Healthcare Limited’. So the agent never deny for the payments.

The company gives a commission for sales of the goods so the more sales of goods more the commission is given to the agent. So they work hard to get more commission.

Disadvantage:

The main drawback is slow delivery of goods as the whole state is covered by 1 C&F agent so sometimes it is difficult for them to do fast delivery.

There is a high freight charge in this system. As according to the requirement the company has to send the goods immediately when and where required.

There are two ways for collection of the amount-for local parties and for outstation parties.

1. Local Parties : For local parties collection is done by C&F agent. After 7 days of delivery the cheque has been collected from them and submitted into the bank and the amount is directly credit into the company account.

To receive orders from stockiest. Entering of order Preparation of invoice and payment advice. Dispatch of goods. Collection of cheque from 7th day from delivery.

2. Outstation Parties: For the outside parties collection is done by C&F agent after 21 days from the delivery. Company takes advance cheques from the dealer and make invoice according to the cheque. The amount is directly credited to the company accounts.

C&F Agent Ranking:

Company gives ranking to the C&F Agents to encourage their work. This system also helps in providing efficient performance measure types of criteria’s which is decided by different departments like Finance, Servicing, Marketing, Distribution etc

Benefit from this C & F agents get on Quarterly and Yearly basis. Both the benefits respectively are shown below:


Ranking (Quarterly Basis):

1st = 15,000

2nd = 10,000

3rd = 5,000

Ranking (Yearly Basis):

Company invites on the annual day all C & F agent at H.O 100000/- cash prize is given to the C & F agent whose average results (average of Quarterly results)

is higher than all other C & F agents. Company even gives Certificate and Trophy to the C & F agent. Ranking of quarterly and yearly basis respectively are sending to all C & F agent.

Before grating the credit from debtors “Cadila” takes care of the following components:

*C haracter: This factor attempts to measure customer's willingness to pay.

*C apacity: This is a maximum credit purchaser will obtain. This information refers to the size of a buyer and expected level of sales.

*C apital: This factor refers to customer’s ability to pay. This aspect of the decision is often investigated using the

tools of financial statement analysis.

*C ollateral: This is simply the assets the customer can offer to secure debt.

*C onditions: This is the customer’s vulnerability to changes in business conditions, or other specific events.

Stockiest:

After the goods are transferred to the C&F Agent, further they are sold to the stockiest at 8% to 10% discounted rate as mentioned in the norms of the company. Here the stock is not transferred to the stockiest but actual sales are made and thus VAT or CST has to be paid depending on the type of transaction i.e. intrastate or interstate respectively. Basically there are two types of stockiest as mentioned below:


A. Local Stockiest : Here the transaction is within state and therefore only VAT of 4% or 12.5%

(according to the type of goods mentioned in the SALES TAX ACT) will be charged to the goods sold. After the receipt of goods, 7 days credit period is given to them for the payment.

B. Outstation Stockiest : Here the transaction is undertaken between two states and therefore 2% or 4% CST will be charged on the goods. While they are given 21days credit period for the payment.

Advantage:

There is fast delivery of goods is possible as there are many agent which is made in the country. Only company has to pay local taxes. ‘F’ form should be given. Tax liability is on the C&S agent which is benefit for the company.

Disadvantage:

This is more risky as collection is done in the favor of the agent not of the company. Late payment to the company is possible as cheques are not directly transferred to the company so

there is a possibility of delay in the payments.

C&S Agents:

In this type of distribution channel, the Consignment & sales Agent (C&S Agent) acts as a distributor where the goods are not transferred but sold to them.

Company has only 1 or 2 C&S agents, which are only for Generics. They further sell it to the local stockiest by charging only local tax and no CST, as all the transaction

are made within state only. Here they don’t have to obtain the drug license no., only the sales tax no. is needed and so the party

has to make payments in the name of C&S Agents and not the company. So the tax liability has to borne by the C&S Agents. Here there is high risk as the payments are received in the name of the agents, so they can do scam or

fraud with the company. They have to obtain “F- Form” from the government.

Disadvantages:

Highly risky, as the payments are received in the name of the agent and not the company. If the payments are not received by the agents then the payment to the company is delayed.

Depot: Company can arrange their own depot at various locations for smooth distribution of their products. So no service commission has to be given to them. It has to occupy godown, manpower and sell their products to distributors.

All the expenses are to be borne by the company.


All the services to supply the goods are to be rendered by the company depot and therefore there is no

chance of doing partially while supplying the goods and also for passing the benefits of various schemes to other stockiest.

The problem of high freight charges in case of C&F Agent is solved in this system.

Disadvantages:

Generally the company with huge turnover can afford to have a Depot as it involve high establishment cost.

There are many chances of scam as the manager is of the company.

Credit Control Policy:

(1) Order execution :

* Amount of goods ordered is entered in the computer and packing slip is generated.

* Send the packing slip to the stores and take out materials as mentioned.

* Invoice is generated on the same day or latest by the next day.

* Goods are dispatched to the stockiest within 48 hours.

* Order of goods received from the local parties should be properly sealed and signed.

* If the goods are to be dispatched outstation, then it has to be duly sealed and signed accompanied with blank undated cheques that are eligible for execution and all the documents are given to the transporter and LR receipt is obtained.

* In the LR receipt following items like consignees name, destination, number of packs and weight date etc. are verified.

* If a party has given cheque with the remark i.e. “not over Rs….. (Some amount)” then the order should be executed within the limit of that cheque amount and not more than that.

* If supply is done through bank all documents are send to the bank by register post.

* If any fax or telephonic orders are received during the month, then it should not be executed. But if the undated cheque is received in advanced before the last date of that month by the C&F Agent, then the order can be dispatched after confirmation with the party. If the confirmation is not received within 48 hours, then C&F Agent have to proceed to raise a “full invoice cancellation” credit note.

* C&F Agents should collect certain statutory forms from the stockiest within stipulated time i.e. C – Form should collected quarterly and F – Form should be collected every month and if the forms are not received from the party then it should be kept on hold.

* C&F Agents has to ensure that the cheques are drawn on Nationalized Bank only as the cheques drawn on co-operative banks are not acceptable

.


(2) Dispatch of the goods:

All the dispatches should be completed within 48 hours from the date of execution.

* For invoice raised on the last day of the month the dispatched should be completed within three days from the date of invoice.

* In case of local parties supply should be made only against cheques.

* Delivery of goods should not be made without collection of cheque from party.

* On the receipt of LR, C&F agents should prepare Payment Advice within 24 hours and dispatch it to the local parties.

* On 5th of every month not a single claim should be left pending for the settlement of the goods received by the C&F agents.

(3) Stockiest appointment:

* The main necessity to appoint the stockiest:

Reputed stockiest for increasing the sales

Need of expansion

Existing stockiest is default

* Three main items should be provided by the stockiest are annual reports of last 3 years in the same business, C&F recommendation and No Objection Certificate (NOC) from the association.

* Criteria for the new stockiest:

For the new stockiest the credit limit starts with Rs. 50000

And if the order is more than Rs. 50000, company asks for the reason for more requirements.

* Criteria for existing stockiest:

Stock provided should be two times of the average collection received in the last two months. No of cheque bounced should be bounced till that date. Unpaid goods return should not be more than Rs. 5000 or else the stockiest has to be kept on

hold till the receipt of H.O. approva

(4) Credit limit:

* Credit limit is the time period given by the company to its agents and the different stockiest to pay the amount due to them.

* The basic criteria followed in the company for fixing the credit limit is two times on average collection received in the last two months.

* It is generally fixed at 21 days for the C&F agents however if any variation required then the HO has the power to make the necessary changes in it. But for the variations certain things are needed to be checked as mentioned below:


The reason for increasing the credit limit. Headquarters credit limit is within limit of 2 times of headquarter target. Credit limit should not

be increased by exceeding this limit of that H.O. Past records of the party like number of cheques bounces, returned gods, unpaid interest debit

notes, average sales are to be checked.

Credit limit should not be increased for any party whose credit limit was reduced earlier due to any adverse circumstances.

Credit Days:

(5) Collection:

* The entries of collection are to be passed only for those Demand Drafts and Cheques which are physically received in advanced at the H.O.

* The collection should be credited only in the name of the party from whom the payment is received and in the name of concerned division.


Credit Period Lengthened Profit Increased

Sales Increased

Average collection period increased

Receivables Increased

Bad debts Increased

Local Stockiest 1 to 7 days as per agreed norms

Outstation Party 21 days

Doctors /Institution supply 21 days to 90 days on case to case basis as approved by H.O.

* After the receipt of DD, PIF (Pay in Form) should be prepared and draft should be deposited with the

bank immediately.

* C&F agent should be very vigilant in case of advanced payment received against the supply of goods, as the amount should be adjusted in the account of the stockiest who has paid the amount.

(6) Unrealized Cheque:

* On daily basis the company receives the report on details of each and every cheque received by the Bank and reconciliation is done by the company.

* If certain cheque gets bounced after that the day of reconciliation then the details of all that cheque is received at the end of every month.

* If the amount is not realized within 45 days then the party has to be put under hold and further no transaction is to be made with that company.

* Further explanation is done in detail in the CASH MANAGEMENT SYSTEM.

(7) Resumption of supply in case of Cheque Bounced Parties:

* If the cheque bounces for the 1st time and the party issues apology letter for the same, and if it bounces due to some other mistake by bank, then in both the cases no action will be taken against the party. Only if the mistake is done by the party or there is insufficient balance or some other reason, then only the action will be taken against party.

* If the cheque bounces for the 2nd time, then the party will be supplied the goods on advanced demand draft basis for the next two months and the supply is suspended for the two months. After this period gets over, the assurance of the cheque being honored is taken from the C&F agent and the supplier, by the company to get the original credit limit.

* If the cheque bounces for the 3rd time, then its supply is stopped for next four months and advanced demand draft is taken for next four months supply. And even the credit limit is reduced to Rs. 50000/-.

* Here, the no. of occasions will be considered and not the no. of instruments being dishonored. Finance department will inform about this to the marketing department.

* In all the above cases, if the cheque is not honored within 30 days of receipt of goods then the company will send legal notice to the party, and if the amount is not received yet, then criminal notice will be send to the party and lastly after 45 days, summon of the court will be send to the party and it will put on hold or in blacklist for further supply of the goods.

(8) MIS Reports:

Every month the C&F Agents should submit the following MIS Reports:

1.Unmatched transactions of Bank. Summer Internship Program 77

2.Payment advice not given to the party after the supply is made. 3.Pending Debit and credit note. 4.Late dispatch of goods. 5.Late deposition of cheque/demand draft.

6.Advanced cheque amount not recorded.7.Advanced cheque/ DD not received.8.Payment not received against the bounced cheques etc.

All the MIS report should have proper remarks and explanation of each and every transaction.

(9) Policy of return of saleable goods:

* If the goods of worth more than Rs.5000, are returned then the party should be kept at hold manually, the supply to the same will be made only after the approval of H.O.

* Marketing department will provide the reasons of the return of goods and the finance department will verify the reasons so mentioned and recover the expenses of C&F commission and freight from the defaulter that can be either field staff, C&F or the party.

Important dimensions of Credit Policy:

1. Credit standards:

A company has a wide range of choice in this respect. At the one end of spectrum, it may decide not to extend credit to any customer, however strong his credit rating may be. At the other end, it may decide to grant credit to all customers irrespective of their credit rating. In general, liberal credit standards tend to push sales up by attracting more customers. This is, however accompanied by a higher incidence of bad debt loss, a larger investment in receivables and a higher cost of collection. Stiff credit standards have the opposite effects. They tend to depress sales, reduce the incidence of bad debt loss, decrease the investment in receivables and lower cost of collection.

2. Credit period:

Credit period refers to the length of time customers are allowed to pay for their purchases. Lengthening of the credit period pushes sales up by inducing existing customers to purchase more and

attracting additional customers. This is however, accompanied by a large investment in debtors and a higher incidence of bad debt loss. Shortening of the credit period would have opposite influences.

3. Cash discount:

Company generally offers cash discounts to induce customers to make prompt payment. Liberalizing the cash discount policy may mean that the discount percentage is increased and/or the discount period is lengthened.


4. Collection effort:

The aim of the company for this is timely collection of receivables which may consist of legal actions against overdue accounts, monitoring the state of receivables. A rigorous collection programme tends to

decrease the sales, shorten the avg. collection period, reduce bad debt percentage, and increase the collection expense. A lax collection programme would push sales up, lengthen the avg.

Collection :

The collection of the cash is done in this way in the company. There are 33 C&F Agent in India. All the cheques which are received by the C&F Agent in previous day, they have to give in to the Citi Bank person on the next morning. Citi Bank person takes all the cheques to the bank and deposit it. Next day, the company gets the credit in the bank account. If there is any dishonor of cheque on the later dates than the company debit the account on that day. Citi Bank sends daily reports to the company about the receipt of cheques. In all the company receives around 40 reports daily. All collection done in Citi Bank

and then it is further transferred to the other banks i.e. Bank of Baroda and IDBI Bank according to the requirement of the company.

Claim Settlement:

For the settlement of the claims, CHL issues credit note for the settlement. There are several reasons for which credit notes are required to be generated. In this company, few credit notes are made manually while few are made automatically in SAP. The reason behind this is SAP has a drawback in making the credit note of some quantity of goods and therefore quantity based credit notes are to be made manually only.

Mainly credit notes are of two types which are shown in the below chart:

(A) Value Based Credit Note:

In this type, the credit notes are made for the price of total goods returned by the stockiest. The Value Based credit notes are made for the following type of goods:

1.Saleable Goods:

When the party returns saleable stock, the C&F Agent has to ask for the purchase invoice no and date, as he needs to enter those details in the credit note. If those things are not available then he will take the help of SAP or VISION 21 for its details. Credit note should be issued only after proper


authorization. It should be issued after 25th of every month. After credit note is prepared, the company mentions the quantity, amount and the reason of the goods returned on the invoice copy.


Credit Note

Value Based Credit Notes

Claim Settlement

Quantity Based Credit Notes

Saleable Goods

Non-Saleable Goods

Others

*Expiry

*Full Invoiced return

*Part Invoiced Return

*Short of goods

*Free product

*Octroi

*Rate of difference

*Scheme

* Interest

*Discount & Special

discount

*Special Rebate

*Commission

*Service charges

*ST & CST claims

*Freight

*Reimbursement of

2. Non - saleable goods :

Issuing credit note for non-saleable goods is totally different from the issuing credit note for saleable goods. *C&S agents are supposed to check the goods that are returned by the party and then GRN (Goods

Return Note) is prepared for goods returned. The copy of GRN is to be put in the checked carton.

* In the absence of purchase details C&S will take the help of invoice of given product batch no. available in query menu for getting the correct purchase details. This will help issuing the correct credit note to the party.

*Deduction of the scheme as mentioned above if party had returned the goods in loose pack.

*Credit note should be issued only after proper authorization. It should be issued after 25th of every month on the basis of GRN and then C&S forward one copy to finance department in binding with every month.

*Credit note should be adjusted with next supply of the party.

*Non-saleable goods are sent to distribution department by the C&S agent. Value based credit note is made only in BIOGEN DIVISION. In such cases updating of stock is not done. In the Csdila, ALIDAC, MEDICA etc. quantity based settlements are done which is known as RP to RP (replacement against replacement).

Some of the major reasons are as follows:

1. Expiry:

CHL gives the products to its C&F agents for further selling and they take the amount pertaining to these sales from these C&F agents. Now there is possibility that these agents are unable in selling these products and meanwhile these products had expired. So the C&F agent returns these products back to the CHL and the latter will pay that amount back and thus will prepare the credit notes. If the goods are returned within 6 months from the date of purchase along with the Lorry Receipt, 100% value is allowed and if the goods are returned after 6 months.

2. Parts returned :

There is every possibility that certain portions of these products are defective i.e. there is some leakage in syrup bottle or the medicine had come out of strip. In such cases the agent returns these defected products and thus CHL prepares credit notes and thereby pays certain amount to agent.

3. Full Invoice returned :


There are certain chances that complete consignment gets returned because of certain reasons like

defects or order cancellation. In such cases credit notes of full amount are prepared to pay the party. The amount required to be paid is decided before carrying out this transaction.

Others:

1. Short of goods:

Similarly if the goods supplied is short then the actual order, the company needs to make the credit note of the difference amount as the party must have paid full amount in advance through cheque or DD. So credit note of the short of goods will be made.

2. Free product :

Marketing department requires free samples for promotional purposes. In case of goods given free of charge with other products, the company incurs cost for those goods given as free. The C&F agents are supposed to make an invoice for such products given free of cost. They will keep the invoice copy and another copy is sent to the head office to maintain record. All the details of the product are to be maintained by them. So the finance department prepares credit notes in order to provide these samples.

3. Octroi :

Octroi charges are different for different states, generally ranging from 1.5 %-2%. Now if CHL in its invoice had levied more Octroi charges for particular agent than CHL have to pay back part of this Octroi for which finance department had to prepare the credit notes.

4. Rate Difference :

CHL provides additional discounts to certain institutions (e.g.: Government institutions). Now when agents take the products from CHL they have to pay the actual (non-discounted) price of the product. Now if he sells these products to approved institutions at discounted prices then he is eligible to get the additional amount back. So after providing necessary proofs, the agent gets this amount back for which finance department prepares the credit notes. These credit notes are issued from the finance department at the H.O.

5. Scheme :

Occasionally CHL announces the schemes in order to boost up its sales. E.g. If CHL decides to have a scheme of providing 3 units free for every 10 units. Now the agent has to sell the products according to this scheme to its parties. So the agent in that case gets its money back for every free unit that he had sold. These credit notes are issued from the finance department at the H.O.

There are two types of scheme are given:


1. On percentage base: E.g., 10% at every 100 Rs. purchase2. On quantity base: E.g., 1 strip with purchse of every 10 strips.

* Every month scheme is added in Master of its monthly based skill.* If goods are sold without scheme then credit note is issued for the same.

Scheme is given as under:

For example; If there is a scheme of 10% on Rs. 100 then on purchase of every Rs. 150, scheme is given as under:

For 100 + 10 =110

110…….10 150…… (?)

Deduction from TP = 150 * 10 / 110 = 13.64So, company is not giving directly 10% of 150 which is 15.

6. Interest :

If an agent is able to pay advance Demand draft (DD), then he will receive 1.5% interest on this advanced amount paid within 60 days. Generally such benefit is given to the C&F Agent in Jammu only.

7. Discount and Special Discount :

Every party gets some credit days for making its payment. Now if the party pays it early i.e. before the credit limit then that particular party gets 8% to 10% discount. While special discount is given when the agent does bulk purchases and avail the benefits of huge discounts.

8. Special Rebate :

Credit notes for special rebate are prepared very rarely. E.g.- CHL introduces a scheme in which for every 5 empty strips collected and provided to the distributor, the party gets 2 strips of that particular product free. So for every free product sold by distributor, CHL rebates him by providing similar product for free.

9. Commission :

For the sales, which are made by agents, they get fixed commissions decided on the basis of prescribed norms. So credit notes are prepared for paying the amount of commission paid less to these parties.

10. Service charge :


Similarly, if the service charge paid by the agent is more than the actual amount to be paid, the company

has to make credit note for the amount left to be paid.

11. ST and CST claims :

Generally such types of credit notes are made when the amount of ST and CST is not paid at an actual rate i.e. 3.84% based on MRP and 4% no based without MRP. Thus that amount is to be paid back to the agents, which requires formation of credit notes.

12. Freight :

Here the credit notes are made when fewer amounts is paid as freight. As the rate of freight varies from state to state.

13. Reimbursement of claims :

There are certain expenses that are borne by different department like marketing expenses and distribution expenses for which credit notes are required to be made. Generally certain amount is borrowed by the individual or department in advanced for some purpose, but whole withdrawn amount is utilized and more expense is incurred, in such case credit notes are to be made.

(B) Quantity based notes:

Product to product (Retail Price to Retail Price) claims :

If the agent returns certain products to CHL for certain reason than CHL gives same product against the defected products for which credit notes is required to be paid. In case of the party wants to replace the goods for the other products, the amount or cost of the goods i.e. the Retail Price must be the same . The company provides the claim for the boxes and not for the strips. Thus the products which are to be replaced must cost same, so as the replacement transaction is eased. The products that are to be replaced can be different but the cost matters a lot so as to reduce adjustments. All calculations are done at RP, while schemes, sales tax, discounts are not considered.


RatioAnalysis


Introduction:

Financial ratio analysis is the calculation and comparison of ratios which are derived from the information in a company's financial statements. The level and historical trends of these ratios can be used to make inferences about a company's financial condition, its operations and attractiveness as an investment. Ratio analysis can also help us to check whether a business is doing better this year than it was last year; and it can tell us if our business is doing better or worse than other businesses doing and selling the same things. It is an arithmetical relation between two related or inter-dependent items. Ratio Analysis is the process of determining and interpreting numerical relationship between figures of the financial statements. An absolute figure often does not convey much meaning. In other words, business results and situations are understood properly only when the relevant figures are considered together. Thus the ratio analysis is an important technique of financial analysis as it is a means of judging the financial health of the concern.

(1) Liquidity Ratio:

1.1 Current ratio:

Current ratio=current assets / current liability

The current ratio measures the number of times that the short term assets can cover the short term debts. In other words, it indicates an ability to meet the short term obligations as & when they fall due.

Benchmark: 2:1

Cadila Healthcare Limited (Consolidated) (Rs. In million)

Particulars (2004-05) (2005-06) (2006-07) (2007-08) (2008-09)

Current AssetsInventory 2,211 2,475 3,896 4,729 6,012Sundry debtors 1,235 1,990 2,784 3,555 4,845Cash and Bank 612 438 990 9,26 2,517Loans & Advances 924 1,588 2,201 2,013 2,237Total 4,992 6,491 9,871 11,223 15,611

Current LiabilitiesCurrent Liability 2,060 2,404 4,588 4,138 5,729Provisions 606 605 858 913 1,186(-) Buyer’s credit (231) (190) (399) (235) 0


Total 2,435 2,819 5,047 4,816 6,915

Current Ratio 2.05 2.30 1.96 2.33 2.26

2004-05 2005-06 2006-07 2007-08 2008-091.7

1.8

1.9

2

2.1

2.2

2.3

2.4

2.05

2.3

1.96000000000002

2.332.26

Current Ratio

Series 1

Years

Ratios

Interpretation:

From the above data we can conclude that current ratio in the year 2004-05 and 2006-07 is very closer to benchmark ratio i.e. 2:1; while in the rest of the year current ratio is almost nearer to standard ratio, so we can say that short term financial position of the company is very good. But in 2006-07, CHL is having low ratio compares to other years because there is proportionate increase in current liabilities is 91% which is the highest increase in among all years. There is a steep increase in current assets of 52% which is also highest among all years but here denominator is bigger so ratio comes lower. While in 2008-09, the ratio is slightly higher than the standard ratio and also higher than last year because there is an increase in inventories and debtors. Such higher inventory shows that our fund is idly blocked.

Particulars Sun Pha. Ranbaxy Dr.Reddy Lupin Piramal CHL

Cuurent AssetsInventory 9,757 19,643 13,250 9,572 4,834 6,012Sundry debtors 8,811 13,310 14,406 10,349 4,866 4,845Cash and Bank 16,690 23,956 5,623 778 946 2,517Other Current Assets 441 2,283 0 0 102 0Loans & Advances 6,983 7,729 5,519 2,780 4,161 2,237Total 42,683 66,922 38,798 23,478 14,908 15,611

Current LiabilitiesCurrent Liability 3,767 39,719 15,118 11,504 6,307 5,729Provisions 3,431 7,720 1,994 1,827 1,909 1,186(-) Buyer’s credit (0) (121) (0) (1,265) (0) (0)Total 7,198 47,318 17,112 12,066 8,215 6,915

Current Ratio(2008-09) 5.93 1.41 2.27 1.95 1.81 2.26 (2007-08) 6.33 2.10 2.64 3.30 1.98 2.33 (2006-07) 9.81 2.34 3.34 3.80 2.16 1.96

Inter firm ratio analysis:


Sun Pharma

Ranbaxy Dr.Reddy Lupin Piramal CHL0

1

2

3

4

5

65.93

1.41

2.271.950000000000011.81

2.26

Current Ratio (2008-09)

Series 1

Companies

Ratios

Interpretation (2008-09):-

Sun Parma: Here the ratio is the highest in the industry which is very far away from the standard ratio. Its C.A. is very higher than its C.L. Sun Parma has huge cash fund due to which their C.A. are high. This cash fund may be used for some other beneficial purposes.

Ranbaxy: Here there is not much difference between its C.A. and C.L. Its C.L is much higher than others while Ranbaxy is having higher amount of cash on hand which should be used behind the payment of this liabilities.

Dr. Reddy: here the ratio is nearer to the standard ratio. Company has invested much into its inventory so its cash on hand is very less vis-à-vis its current liabilities are also much high.

Lupin & Piramal: Here both company’s ratio is closer to standard ratio which is a very good sign for the company.

Recommendation:

CHL: Our company should reduce the amount of its liabilities which is increasing year by year and reduce the amount of debtors for which we can reduce our average collection period.

Industry: Our company has very sound position for short term financing and is very consistent in maintaining its current ratio as compared to other competitors.

1.2 Quick- ratio:

Quick ratio = [current assets – inventories] / current liability

Quick ratio indicates the ability to meet short term payments using the most liquid assets. This ratio is more conservative than the current ratio because it excludes inventory and other current assets, which are more difficult to turn into cash.

Benchmark: 1:1


Cadila healthcare limited (consolidated) (Rs. In million)

Particulars (2004-05) (2005-06) (2006-07) (2007-08) (2008-09)

Cuurent AssetsInventory 2,211 2,475 3,896 4,729 6,012Sundry debtors 1,235 1,990 2,784 3,555 4,845Cash and Bank 612 438 990 926 2,517Loans & Advances 924 1,588 2,201 2,013 2,237(-) Inventories 2,211 2,475 3,896 4,729 6,012Total 2,771 4,016 5,975 6,494 9,599

Current LiabilitiesCurrent Liability 2,060 2,404 4,588 4,138 5,729(-) Buyer’s credit (231) (190) (399) (235) 0Total 1,829 2,214 4,189 3,903 5,729

Quick Ratio 1.52 1.81 1.43 1.66 1.68

Interpretation:

The ratio for the year 2006-07 is better among the all, because the proportionate increase in C.L. is 89% that is more than the proportionate increase in the liquid assets i.e. 49%. While in 2008-09, the ratio is higher than standard ratio and other years as well. In this year the amount of debtors is very high so our cash sales might be very low and due to this our requirement for working capital will be high.

2004-05 2005-06 2006-07 2007-08 2008-090

0.20.40.60.8

11.21.41.61.8

21.52

1.81

1.43

1.66 1.67

Quick Ratio

Series 1

Years

Ratios

I nter Firm Ratio Analysis:

Particulars Sun Pharma Ranbaxy Dr.Reddy Lupin Piramal CHL

Cuurent AssetsInventory 9,757 19,643 13,250 9,572 4,834 6,012Sundry debtors 8,811 13,310 14,406 10,349 4,866 4,845Cash and Bank 16,690 23,956 5,623 778 946 2,517


Other Current Assets 441 2,283 0 0 102 0Loans & Advances 6,983 7,729 5,519 2,780 4,161 2,237(-) Inventories 9,757 19,643 13,250 9,572 4,834 6,012Total 32,926 47,279 25,548 13,906 10,074 9,599

Current LiabilitiesCurrent Liability 3,767 39,719 15,118 11,504 6,307 5,729(-) Buyer’s credit (0) (121) (0) (1265) (0) (0)Total 3,767 39,598 15,118 10,239 6,307 5,729

Quick Ratio (2008-09) 8.74 1.19 1.69 1.36 1.60 1.68 (2007-08) 8.77 2.09 1.87 2.65 1.64 1.66 (2006-07) 7.84 2.07 3.05 3.29 1.34 1.43

Sun Pharma


8.74

1.191.69 1.36 1.6 1.68

Quick Ratio (2008-09)

Series 1

Companies

Ratios

Interpretation (2008-09):

Sun Parma: Here the ratio is very high, because the company has high amount of liquidity because of cash and bank and very lower amount for liabilities.

Ranbaxy: Here the ratio of the company is best among the all. There is very low difference between its C.L. and L.A. which makes ratio closer to standard ratio. Here L.A. is higher due to debtors and cash and bank.

Dr. Reddy: Here the ration is highest among the all, as the company has very high amount of liquidity which is not a good sign for the company’s growth. Here amount of debtor’s is very high as its average collection period is 77days which is quite higher.

Lupin: We can say that its ratio is nearer to the benchmark. Though its debtor’s amount is high but company’s C.L. is also higher which pulls this ratio nearer to benchmark.

Piramal: Here the condition is very fair enough as its debtor’s amount is low along with its liabilities.

Recommendation:

CHL: Our company should maintain enough cash fund for its liquidity positions and for working capital.

Industry: Sun Parma should minimize their amount of debtors along with its average collection period and our company should try to raise their liquid assets so that our ratio can come closer to benchmark.


(2) Profitability Ratio:

1.1 Gross Profit Ratio:

Gross profit ratio = [GP/sales] * 100

The Gross Profit Ratio is that ratio which tells about the profit earned from the business with related to the sales of the company. Gross Profit only considers cost of goods sold (direct expenses) but does not include other cost (indirect cost). It tells about the gross profit contributed by one rupee of gross sales revenue.


Particulars (2004-05) (2005-06) (2006-07) (2007-08) (2008-09)

gross profit:sales 12,779 14,845 18,288 23,229 29,275(-)consumption of RM and FG 4,840 5,688 6,372 7,903 9,566(-)processing charges 83 99 211 328 304(-)store and spare parts consumed 122 167 209 240 208(-)power and fuel 227 309 348 447 499(-)repairs on P/M 46 34 41 46 131Total: 7,461 8,548 11,107 14,265 18,567sales: 12,779 14,845 18,288 23,229 29,275

Gross Profit Ratio 58.38 57.58 60.73 61.41 63.42

2004-05 2005-06 2006-07 2007-08 2008-0955

56

57

58

59

60

61

62

63

64

58.38 58.58

60.7361.41

63.42

Gross profit ratio

Series 1

Years

Ratios

Interpretation:

From the above data, we can observe that GP ratio is increasing year by year, because the direct cost to produce goods is quite less. So it can be said that company has control over direct expenses.



Particulars Sun Ranbaxy Dr.Reddy Lupin Piramal CHL

Gross Profit:sales 42,723 74,214 67,904 38,666 32,448 29,275(-)cons. of RM & FG 8,556 30,335 23,223 16,043 12,792 9,566(-)processing charges 0 19 387 372+(-2.2) 230 304(-)store & spare Parts Cons. 525 748 0 899 268 208(-)power and fuel 978 1,204 1,227 1,391 811 499(-)manu. & con.charges 513 3,695 1,158 0 0 0(-)repairs on P/M 314 172 871 235 398 131Total: 31,838 38,041 41,038 19,725 17,950 18,567

Sales: 42,723 74,214 67,904 38,666 32,448 29,275

Gross Profit Ratio(2008-09) 74.52 51.26 60.44 51.01 55.32 63.42(2007-08) 73.89 53.58 58.33 51.39 56.02 61.41(2006-07) 67.06 53.80 53.49 44.92 55.60 60.73

Sun Pharma


10

20

30

40

50

60

70

8074.52

51.2660.44

51.0155.32

63.42

Gross Profit Ratio (2008-09)

Series 1

Companies

Ratios


Sun Parma: Here the ratio is the highest among all. As there is not huge difference between GP and net sales.

Ranbaxy & Lupin: Here the ratio is very moderate compare to others. Dr. Reddy & Piramal: Here the ratio is nearer to CHL. So it can be said that company has control over

direct expenses.

Recommendation:

CHL: Our Company should first use the existing stock and then only order new inventory, so that its proper utilization will reduce the closing stock and thereby help to increase the gross profit.

Industry: From this table, we can conclude that our company has good % of GP ratio when compared to other competitors but still it should try to reduce its direct expenses and thereby increases its GP ratio.


2.2 Net Profit Ratio:

Net profit margin = [net profit (inclusive exceptional items) / net sales] * 100

Net profit ratio is determines the overall efficiency of the business. Higher the net profit ratio, better the business. This ratio helps in determining the operational efficiency of the business.


Particulars 2004-05 2005-06 2006-07 2007-08 2008-09

Net Profit (Incl. Exceptional Items)Net Profit 1,199 1,524 2,338 2,576 3,031Exceptional Items 125 115 0 69 241Total: 1,324 1,639 2,338 2,645 3,272

Net Sales (Including Operational) 12,779 14,845 18,288 23,229 29,275

Net Profit Margin: 10.36 11.04 12.78 11.39 11.18

2004-05 2005-06 2006-07 2007-08 2008-090

2

4

6

8

10

12

14

10.3611.04

12.7811.39 11.18

Net Profit ratio

Series 1

Years

Ratios

Interpretation:

We can observe that our company has achieved good % of NP ratio in the year 2006-07 because in this year % increase in NP is more than the % increase in net sales. In 2008-09, operating efficiency of the company is good but try to sell goods at higher prices in case of domestic market.



Net Profit (Incl. Except. Items)Net Profit 18,177 -9,512 -9,172 5,015 6,829 3,031Exceptional Items 0 0 14,628 0 446 241Total: 18,177 -9,512 5,456 5,015 7,275 3,272


Net Sales (Incl. Operational) 42,723 74,214 67,904 38,666 32,448 29,275

Net Profit Margin (2008-09) 42.55 -12.82 8.04 12.97 22.42 11.18(2007-08) 44.30 11.09 8.92 14.12 24.12 11.39(2006-07) 36.78 8.31 15.01 15.32 20.45 12.78

Sun Pharma

Ranbaxy Dr.Reddy Lupin Piramal CHL

-20

-10

0

10

20

30

40

50

42.55

-12.82

8.0412.97

22.42

11.18

Net Profit Margin (2008-09)

Series 1

Companies

Ratios


Sun Parma: The NP ratio of this company is the best in whole industry, as the NP of the company is almost 4times more than that of CHL while net sales is 46% more than that of CHL. So this means that this company has very sound operating efficiency.

Ranbaxy: Here the NP ratio is negative which is not good sign for the company as their operating expenses are very high compare to its sales or income.

Dr. Reddy: Here the company’s net profit is very low compare to its net sales, so its NP ratio is lower than others.

Piramal: Here the ratio is double than CHL, because the net sales are almost double than CHL.

Recommendations:

CHL: The Company has a NP ratio is low which means that company has high indirect expenses which had reduced the profit. So the company needs to reduce the expenses which ultimately increase the profit of the company.

Industry: our company needs to increase the ratio by reducing the cost and increasing the sales of the company. This will help the company long run and will have a good competition in the market.

2.3 Return on Capital employed:

Return on capital employed = Net profit before exceptional items (net of tax) / Average adjusted capital employed


Return on capital employed is profitability indicator because it gauges management's ability to generate earnings from a company's total pool of capital. It is commonly used as a measure for comparing the performance between business and for assessing whether a business generates enough returns to pay for its cost of capital.


Particulars 2003-04 2004-05 2005-06 2006-07 2007-08 2008-09

NPBEI (Net of Tax)Net Profit ----- 1,215 1,524 2,338 2,576 3,031Exceptional Items (net of tax) ----- 108 100 -236 69 203

Total: ----- 1,323 1,624 2,102 2,633 3,234

Average Capital Employed:Net Worth 5,211 5,856 6,989 8,655 10,622 11,914(+)exceptional items [net of tax] 107 108 100 -236 57 203Debt 4,376 3,834 4,432 4,535 8,377 12,674Buyer's Credit Acceptance 166 231 190 399 235 0Differed Tax Liability 972 1,010 1,097 1,137 1,234 1,316

Total: 10,832 1,1039 12,808 14,490 20,525 26,107Avg.adjusted Capital Employed: ----- 10,935.5 11,923.5 13,649 17,507.5 23,316

Return on Capital Employed ----- 12.10 13.62 15.40 15.04 13.87

2004-05 2005-06 2006-07 2007-08 2008-090

2

4

6

8

10

12

14

16

12.113.62

15.4 15.0413.87

Net Profit ratio

Series 1

Years

Ratios

Interpretation:

In 2008-09, ROCE of our company is lower compare to 2006-07’s ROCE. So, we can conclude that higher the ROCE, lower would be company’s borrowing rate. Here company is not using their capital. and highly dependent on borrowings. In 2008-09, the company is having higher debt amount compare the 2006-07 and that is the only reason behind its lower ROCE.



Particulars Sun Ranbaxy Dr.Reddy Lupin Piramal CHLNPBEI (net of tax)Net Profit 18,177 -9,512 -9,172 5,015 3,163 3,031Exceptional Items (net of tax) 0 0 9,069 0 409 203

Total: 18,177 -9512 -103 5,015 3,571 3,234

Average Capital Employed:Net Worth 70,499 41,205 35,261 14,248 13,171 11,914(+)exceptional items [net of tax] 0 0 9,069 0 409 203Debt 1,789 43,114 19,976 12,232 13,391 12,674Buyer's Credit Acceptance 0 121 0 1,265 0 0Differed Tax Liability 1,228 247 914 1,387 1,275 1,316

Total: 43,466 84,688 65,220 29,133 28,245 26,107Avg.adjusted Capital Employed: 62,454 48,456 65,432 28,242 23,851 23,316

ROCE (2008-09) 29.10 -19.63 -0.16 17.76 14.97 13.87 (2007-08) 32.60 19.52 6.66 17.70 19.21 15.04 (2006-07) 20.78 8.92 16.29 17.16 13.57 15.40

Sun Pharma


-20

-15

-10

-5

0

5

10

15

20

25

30

29.1

-0.16

17.7614.97 13.87

ROCE (2008-09)

Series 1

Companies

Ratios


Sun Parma: Here the company is quite high ratio compare to others, because company is maintaining good amount in profit. So company S.H. will get good amount of return for investment and for providing funds to company.

Ranbaxy: Here company is incurring loss which leaves very bad impact on their S.H. , Investors, funders, because their ROC will come into negative that means company is not able to give

return to their stakeholders. The company has reserved very huge amount for their reserved and surplus and debt is quite high so that we can say that company is not in condition to pay returns on their S.H.’s capital and not able to repay their debt.


Dr. Reddy: here also the company’s ROC comes into negative which is not good sign for their

stakeholders. Here also they have retained much amount into their reserves and then borrowed from outsides.

Lupin & Piramal: Here both companies ratio is very closer to each other and here the companies’ profit amount is reasonable along with its equity funds and borrowings.

Recommendation:

CHL: Our company should try to increase the operating profit and try to reduce the reliance on borrowed funds. They should utilize their capital (net worth) for financial trading.

Industry: Ranbaxy and Lupin are highly dependent on borrowings; therefore they are getting their ROCE in negative. Ranbaxy has enough amount of capital (net worth).They should utilize their capital into their financial trading and minimize their dependence on borrowings so that they can reduce their payment behind debt and interests as well.

2.4 Return on equity:

Return on equity = [net profit before exceptional items (net of tax) / Average adjusted equity] * 100

Return on equity measures how much the shareholders earned for their investment in the company. The company with the higher return on equity will be favored by the investors. In addition to this, a greater market valuation will be placed on its shares.


Particulars 2003-04 2004-05 2005-06 2006-07 2007-08 2008-09

NPBEI (net of tax) ------- 1,323 1,624 2,102 2,633 3,234

Average adjusted EquityNet worth 5,211 5,856 6,989 8,655 10,622 12,352Exceptional items (net of tax) 107 108 100 -236 57 203(-)FCMITDA unmortised 0 0 0 0 0 438Total adjusted equity 5,318 5,964 7,089 8,419 10,679 12,117Average adjusted equity ------ 5,641 6,526.5 7,754 9,549 11,398

Return on equity ------ 23.45 24.88 27.11 27.57 28.37


2004-05 2005-06 2006-07 2007-08 2008-090

5

10

15

20

25

3023.45

24.8827.11 27.57 28.37

Return On Equity

Series 1

Years

Ratios

Interpretation:

Here we can say that through out the all years ROE is increasing which is the positive sign for investors. In 2008-09.there is higher amount in net worth which means shareholders are investing good amount in the company shares and also getting good amount for return.


Particulars Sun Phar. Ranbaxy Dr. Reddy Lupin Piramal CHL

NPBEI (net of tax) 18,177 -9,512 -103 5,015 3,572 3,234

Average adjusted EquityNet worth 70,449 41,206 35,261 14,248 13,171 12,352Exceptional items (net of tax) 0 0 9,069 0 409 203(-)FCMITDA unmortised 0 0 0 0 0 438Total adjusted equity 70,449 41,206 44,330 14,248 13,580 12,117Average adjusted equity 60,181.9 34,614 44,649 13,522.5 12,399.35 11,398

Return on equity (2008-09) 30.20 -27.48 -0.23 37.09 28.80 28.37 (2007-08) 38.30 28.75 10.32 37.94 32.83 27.57 (2006-07) 35.95 20.29 31.85 41.24 21.04 27.11

Sun Pharma


-30

-20

-10

0

10

20

30

40

30.2-0.23

37.09

28.8 28.37

ROE (2008-09)

Series 1

Companies

Ratios


Interpretation(2008-09):

Sun Parma: This company’s ROE is better than CHL, as it has good amount of profits and better operating efficiency.

Ranbaxy & Dr. Reddy: Here both company are getting their ROE in negative which is not good sign for their investors. Company keeps high amount of profit into reserves and surplus and thus it provides very less amount of returns to its S.H.

Lupin: Here the company maintains low amount into reserves and surplus compare to others. That is why company has highest ROE.

Piramal: this company and CHL’s ROE are very closer to each other.

Recommendations:

CHL: Our company should try to increase the amount of profit by decreasing operating expenses and should reduce amount of R&S so that S.H. fund increases and thereby reduces ROE.

Industry: While comparing with the competitors, CHL’s return is not so good but Company need to improve the return by reducing the reserves so that S.H. will be more satisfied.

2.5 Return on total assets:

Return on total assets = [Net profit before exceptional items (net of tax) / Average adjusted total assets] * 100

ROA is considered a measure of how effectively assets are used to generate a return. (This ratio is not very useful for most businesses.).This ratio is an indicator of how efficiently the company manages its assets.


Particulars 2003-04 2004-05 2005-06 2006-07 2007-08 2008-09

NPBEI (net of tax) ------- 1,323 1,624 2,102 2,633 3,234

Average adjusted Total assets:Total assets 13,091 13,365 15,534 19,915 25,478 33,485Exceptional items (net of tax) 107 108 100 -236 57 203(-)FCMITDA unmortised 0 0 0 0 0 438Total adjusted assets 13,198 13,473 15,634 19,679 25,535 33,250Average adjusted total assets ------ 13,335.5 1,45,553.5 17,656.5 22,607 29,392.5

Return on total assets ------ 9.92 11.16 11.91 11.65 11.00


2004-05 2005-06 2006-07 2007-08 2008-090

2

4

6

8

10

129.92

11.1611.91 11.65

11

Return On Total Assets

Series 1

Years

Ratios

Interpretation:

In 2008-09, company is earning 11% on 1Rs. Invested in assets. Year 2006-07 is considered very beneficial to this ratio because in this year we are getting high return on what we have invested behind assets. in 2008-09 our profit is high with our total investment in assets. So we can say that in 2008-09 our company is not more capital intensive.


Particulars Sun Ranbaxy Dr. Reddy Lupin Piramal CHLNPBEI (net of tax) 18,177 -9,512 -103 5,015 3,572 3,234

Average adjusted total assetsTotal assets 82,634.5 1,34,437 73,263 41,342 36,126 33,485Exceptional items (net of tax) 0 0 9,069 0 409 203(-)FCMITDA unmortised 0 0 0 0 0 438Total adjusted Assets 82,634.5 1,34,437 82,332 41,342 36,535 33,250Average adjusted Total Assets 71,167.9 1,14,256 79,742 37,489.9 30,964.9 29,392.5

Return on total assets (2008-09) 25.54 -8.33 -0.13 13.34 11.53 11.00 (2007-08) 28.88 8.65 5.68 14.51 14.94 11.65 (2006-07) 18.94 6.93 13.75 14.44 10.59 11.90

Sun Pharma


-10

-5

0

5

10

15

20

25

30 25.54

-8.33

-0.13

13.34 11.53 11

Return on Total Assets (2008-09)

Series 1

Companies

Ratios



Sun Parma: This company has better ration than CHL, because company’s profit and amount of total assets are higher compare to others.

Ranbaxy & Dr. Reddy: This company’s ROA comes into negative. That means we are loosing our money behind investing 1Rs. behind investment. we can say that in those years we are getting our profit less than total assets then in those years company is more capital intensive.

Lupin & Piramal: Both company’s ratio is higher than CHL because of high amount in profit and total assets.

Recommendations:

CHL: Our company should try to increase the amount of investment to get proper returns on it and thereby improve the profits in order to increase ROA.

Industry: We can conclude that our company has good returns on the total assets but still it should try to reduce its operating expenses so that profit can be increased and there by improve its ROA.

2.6 Profit before tax margin:

PBT margin = [PBT (exclusive exceptional items) / net sales] * 100

This measure combines all of the company's profits before tax, including operating, non-operating, continuing operations and non-continuing operations. PBT exists because tax expense is constantly changing and taking it out helps to give an investor a good idea of changes in a company's profits or earnings from year to year.


Particulars 2004-05 2005-06 2006-07 2007-08 2008-09

PBT (xclusive exceptional items)PBT 1,371 1,768 2,739 3,234 3,698(+) Exceptional Items 125 115 0 69 241Total PBT: 1,496 1,883 2,739 3,303 3,939

Net Sales: 12,779 14,845 18,288 23,229 29,275

PBT Margin 11.71 12.68 14.98 14.22 13.46


2004-05 2005-06 2006-07 2007-08 2008-090

2

4

6

8

10

12

14

16

11.7112.68

14.9814.22

13.46

PBT Margin

Series 1

Years

Ratios

Interpretation:

As we can see from the above graph that trend of the PBT margin is not consistent, in initial years it increases and then suddenly starts decreasing. In 2008-09 it is 13 which is moderate PBT margin compare to other years. In the same year its profit is high along with its net sales.



PBT(exclusive exception items)PBT 19,492 -15,000 -6,564 6,060 3,408 3,698(+)exceptional items 0 0 14,628 0 446 241Total: 19,492 -15,000 8,064 6,060 3,854 3,939

Net sales: 42,723 74,214 67,904 38,666 32,448 29,275

PBT margin (2008-09) 45.62 -20.21 11.88 15.67 11.88 13.46 (2007-08) 47.65 14.30 11.09 18.68 14.28 14.22 (2006-07) 39.09 10.60 19.27 20.23 11.22 14.98

Sun Pharma


-30

-20

-10

0

10

20

30

40

5045.62

-20.21

11.88

15.6711.88 13.46

PBT Margin (2008-09)

Series 1

Companies

Ratios

Interpretation (2008-09) :


Sun Parma: This company’s ratio is the best in whole industry. Its PBT and net sales are also higher than others. So we can say that this company has very sound operating efficiency.

Ranbaxy: Here the PBT margin is in negative due to negative PBT. Here net sales of the company is very higher even though company is incurring loss. As per financial analysis, it is not sound condition for the company in the market.

Dr. Reddy & Piramal: Here both company is having very PBT margin among all because of lower amount of profit. Here the net sales are at sound still its profit is very low. On the basis of this data we can say that company may have high amount of credit sales or their operating expenses are higher than their operating income.

Lupin: This company’s PBT margin is good compare to CHL due to healthy net profit and net sales.

Recommendation:

CHL: Our company should increase the amount of PBT and also net sales with proper planning so that PBT margin of our company can be increased.

Industry: Ranbaxy should improve their net operating cycle so that they can achieve the point of profit and so their PBT margin comes into positive.

2.7 EBITDA margin:

EBITDA margin = [EBITDA / net sales] * 100


Particulars 2004-05 2005-06 2006-07 2007-08 2008-09

EBITDANet Sales 12,779 14,845 18,288 23,229 29,275(-)consumption of RM and FG 4,840 5,688 6,372 7,903 9,566(-)general expenses 4,773 5,483 7,051 9,408 12,087(-)research expenses 736 797 1,344 1,336 1,564Total EBITDA: 2,430 2,877 3,521 4,582 6,058

Net Sales: 12,779 14845 18,288 23,229 29,275

EBITDA Margin: 19.02 19.38 19.25 19.73 20.69


2004-05 2005-06 2006-07 2007-08 2008-090

2

4

6

8

10

12

14

16

11.7112.68

14.9814.22

13.46

EBITDA Margin

Series 1

Years

Ratios



EBITDAnet sales 42,723 74,214 67,904 38,666 32,448 29,275Cons. of RM and FG 8,556 30,335 23,223 16,043 12,792 9,566Conversion charges 0 0 1,158 0 0 0ED and other duties and taxes 0 0 387 0 0 0Manufacturing 0 3,695 0 10,359 0 0Foreign ex. Loss (Gain) 0 3,362 0 0 0 0Indirect Taxes 890 0 0 0 0 0Personnel Cost 34,010 9,670 9,920 4,872 5,010 0General & opratin exp. 8,138 20,469 17,205 0 8,774 12,087Inc / Dec. in W-I-P / FG 0 0 0 0 -426 0(-)research expenses 3,099 4,314 4,093 0 849 1,564Financial charges 0 0 972 0 0 0Fair valuation loss on derivative 0 7,702 1 0 0 0Total EBITDA: 18,640 -5,332 10,945 7,393 5,451 6,058

Net Sales: 42,723 74,214 67,904 37,759 32,448 29,275

EBITDA (2008-09) 43.63 -7.19 16.12 19.58 16.80 20.69 (2007-08) 46.21 13.10 13.54 22.95 18.16 19.73 (2006-07) 31.54 14.37 21.94 14.51 13.71 19.25


Sun P

harm

a

Ranbaxy

Dr.Red

dy

Lupin

Pir

am

al

CH

L-10

0

10

20

30

40

50 43.63

-7.19

16.12 19.58 16.820.69

EBITDA Margin (2008-09)

Series 1

Companies

Ratios

(3) Leverage Ratio

3.1 Debt – Equity ratio:

Debt-equity ratio = debt (deducting cash &bank but including buyer’s credit) / equity adjusted

The ratio measures how the company is leveraging its debt against the capital employed by its owners. If the liabilities exceed the net worth then in that case the creditors have more stake than the shareowners.


Particulars 2004-05 2005-06 2006-07 2007-08 2008-09

Debt(Deducting cash and inclu. Buyer’s credit) 3,834 4,432 4,535 8,377 12,674(+) Buyer’s credit 231 190 399 235 0(-) cash and bank 612 438 990 926 2,517Total: 3,453 4,184 3,944 7,686 10,157

Equity Adjusted:Shareholder’s fund 5,933 6,989 8,655 10,622 12,352(-)FCMID 78 0 0 0 438Total: 5,855 6,989 8,655 10,622 11,914

Debt – Equity ratio 0.59 0.60 0.46 0.72 0.85


2004-05 2005-06 2006-07 2007-08 2008-090

0.10.20.30.40.50.60.70.80.9

0.590.60000000000000

1

0.46

0.720000000000001

0.850000000000001

Debt -Equity Ratio

Series 1

Years

Ratios

Interpretation:

In 2008-09, debt-equity ratio is increased significantly due to huge increase in debt compare to increase in share equity. High debt-equity ratio means less protection for creditors and less debt-equity means more protection for creditors as creditors feel that the owner’s funds can help to absorb possible losses of income and capital. Ratio is lowest in 2007-08 because bonus shares are issued in 1:1 proportion due to which owner’s capital has increased.


Particulars Sun Ranbaxy Dr. Reddy Lupin Piramal CHLDebt(Deducting cash and inclu.

Buyer’s credit)1,789 4,3114 19,976 12,233 13,391 12,674

(+) Buyer’s credit 0 121 0 1,265 0 0(-) cash and bank 16,690 23,956 5,623 778 946 2,517Total: -14,901 19,279 14,353 1,22,720 12,445 10,157

Equity Adjusted:Shareholder’s fund 70,449 41,206 35,261 14,248 13,171 12,352(-)FCMID 0 0 0 0 0 438Total: 70,449 41,206 35,261 14,248 13,171 11,914

Debt – Equity ratio (2008-09) -0.21 0.47 0.41 0.89 0.94 0.85 (2007-08) -0.24 1.32 0.27 0.83 0.61 0.72 (2006-07) -0.096 1.42 0.16 0.59 0.54 0.46


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-0.2

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0.2

0.4

0.6

0.8

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-0.21

0.47 0.41

0.89

0.9400000000000010.85000000000000

1

Debt - Equity Ratio (2008-09)

Series 1

Companies

Ratios

Interpretation:

Sun Parma: Here the company’s debt is very low and its cash fund is high so total debt can be pay out of the company’s cash fund only and its equity shareholder enjoys the high amount of benefits (incase of liquidation).

Ranbaxy: Here the company has high amount of leverage as it highly depends on borrowings but its shareholder’s fund is very high so it comes very lower compare to others.

Dr. Reddy: Here the company’s debt is high and cash balance is very less to pay all the debt while co. is having high shareholder’s fund which is higher than debt, so here also equity shareholder enjoys the high amount of benefits (incase of liquidation).

Lupin: Here company’s borrowed fund is high while its available cash fund is low and shareholder’s capital is higher in company. Under these circumstances chances of S.H.’s benefits would be less.

Piramal: here debt is higher than the S.H.’s fund, so company can not avail the benefit of trading on equity.

Recommendation:

We can conclude that our company has very good debt-equity ratio, so it will be able to give better returns to its S.H.

3.2 Debt-assets ratio:

Debt-assets ratio = debt (incl. Buyer’s credit) / total assets This ratio indicates what proportion of equity and debt that company is using to finance its assets. If this ratio is greater than one means assets are mainly financed with debt and less than one means equity provides a majority of financing.


Particulars 2004-05 2005-06 2006-07 2007-08 2008-09Debt ( including Buyer’s credit) 3,834 4,432 4,535 8,377 12,674(+) Buyer’s credit 231 190 399 235 0Total: 4,065 4,622 4,535 8,377 12,674


Total assets (incl. FCMID) 13,365 15,534 19,915 25,478 33,485

Debt – assets ratio 0.30 0.30 0.25 0.34 0.38

2004-05 2005-06 2006-07 2007-08 2008-090

0.05

0.1

0.15

0.2

0.25

0.3

0.35

0.4

0.3 0.3

0.25

0.34

0.380000000000001

Debt -Assets Ratio

Series 1

Years

Ratios

Interpretation:

As we can observe that ratio of the company is very consistent and amount of the debt is also less than the total assets, hence company has good amount of liquidity to pay off the debt.


Particulars Sun Ranbaxy Dr.reddy Lupin Piramal CHL

Debt ( including Buyer’s credit)Debt 1,789 43,114 19,976 828 13,391 12,674(+) Buyer’s credit 0 121 0 0 0 0Total: 1,789 43,235 19,976 828 13,391 12,674

Total assets (incl. FCMID) 82,635 1,34,437 73,262 41,342 36,126 33,485

Debt – assets ratio (2008-09) 0.022 0.32 0.28 0.05 0.37 0.38 (2007-08) 0.024 0.44 0.26 0.062 0.29 0.34 (2006-07) 0.26 0.47 0.32 0.399 0.28 0.25

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0.25

0.3

0.35

0.4

0.022

0.320000000000001

0.28

0.05

0.37

0.380000000000001

Debt - Assets Ratio (2008-09)

Series 1

Companies

Ratios



Sun Parma: Here the ratio of the company is lower than competitors, so it is better. As it has less amounts of borrowed funds.

Ranbaxy & Piramal: Here the ratio is ratio is lower than CHL, so these companies have less risk than CHL.

Dr. Reddy: Here the ratio of the company is lower than the CHL, so it is better. As it has less amount of borrowed funds and assets are in good proportion.

Lupin: Here also the ratio is very lower. It is the best company among all ,as its debt fund is very less compare to its assets.

Recommendation:

CHL: Our company should try to reduce the amount of loan fund, so as to reduce the risk of paying the liabilities from the total assets.

Industry: We can conclude that our company has high ratio, and so it needs high amount of liquidity and also it depends on outside funds for smooth functioning of its business.

3.3 Proprietor’s Fund OR Net Worth Ratio:

Proprietor's Ratio/Net Worth Ratio=(Proprietor's Fund / Total Assets)

Proprietary Ratio represents the proportion of Proprietors’ Equity to Total Assets. It is a test of capitalization and a high or low ratio may indicate low or high earnings respectively per share. The higher this Proprietary ratio denotes that the shareholders have provided the funds to purchase the assets of the concern instead of relying on other sources of funds like bank borrowings, trade creditors and others. This ratio is a test of credit strength as too low a proprietary ratio would mean that the enterprise is relying a lot more on its creditors to supply its working capital.

Cadila healthcare limited (consolidated) (Rs. in Millions)

particulars (2004-05) (2005-06) (2006-07) (2007-08) (2008-09)

Proprietor's FundCapital 314 314 628 628 682Reserve & Surplus 5,619 6,675 8,027 9,994 11,670Total 5,933 6,989 8,655 10,622 12,352

Total assetsfixed assests 7,906 8,329 9,783 14,001 17,187capital W-I-P 0 0 0 0 0Goodwill on Consolidation 0 0 0 0 0investments 467 714 261 254 249current assests 4,992 6,491 9,871 11,223 15,611deffered assests 0 0 0 0 0FCMI Diff. a/c OR Misc. Exp. 0 0 0 0 438Total 13,365 15,534 19,915 25,478 33,485


Proprietor's Ratio/Net Worth Ratio 0.44 0.45 0.43 0.42 0.37

2004-05 2005-06 2006-07 2007-08 2008-090

0.050.1

0.150.2

0.250.3

0.350.4

0.45

0.44 0.45 0.43 0.420.37

Proprietor / Net Worth Ratio

Series 1

Years

Ratios

Interpretation:

Here the company’s ratio is decreasing continuously, as the amount of fixed assets goes on increasing and thereby the shareholders fund increases slowly. This means that creditors don’t need to supply the working capital and are safe as the total assets are high.

Industry Firm Analysis:

Particulars Sun Ranbaxy Dr.Reddy Lupin Piramal CHLProprietor's FundCapital 1,036 2,102 842 828 418 682Reserve & Surplus 69,414 39,104 34,419 13,420 12,753 11,670Total 70,450 41,206 35,261 14,248 13,171 12,352

Total assetsfixed assests 14,625 44,900 29,270 12,012 19,464 17,187capital W-I-P 1,571 4,707 4,296 2,240 927 0Goodwill on Consolidation 3,253 0 0 3,174 0 0investments 18,595 5,432 523 216 278 249current assests 42,683 66,922 38,798 23,478 14,908 15,611deffered assests 1,907 12,476 376 223 549 0FCMID a/c OR misc.expenditure 0 0 0 0 0 438

Total 82,634 1,34,437 73,263 41,343 36,126 33,485

Proprietor/NetWorthRatio (2008-09) 0.85 0.31 0.48 0.34 0.36 0.37 (2007-08) 0.84 0.30 0.58 0.38 0.44 0.42 (2006-07) 0.64 0.30 0.52 0.39 0.47 0.43


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0.850000000000001

0.310000000000001

0.48

0.34 0.36 0.37

Proprietor / Net Worth Ratio (2008-09)

Series 1

Companies

Ratios


Sun Pharma: Here the ratio of this company is higher than CHL, so the shareholders have provided the funds to purchase the assets of the concern instead of relying on other sources of funds like bank borrowings, trade creditors and others.

Ranbaxy:This company’s ratio and CHL’s ratio are almost the same and they are also at moderate level sowe can say that they are not highly dependent on their shareholders for financing their assets.

Dr.Reddy: Here the ratio of this company is better than our company; as the amount of total assets and shareholder’s fund are higher than our company.

Lupin and Piramal: This companies’s ratio and CHL’s ratio are almost the same and they are also at moderate level sowe can say that they are not highly dependent on their shareholders for financing their assets.

Recommendation:

CHL: Here also our company should try to increase the amount of reserves and surplus so the proprietors fund increases and thereby the creditors will be on safer side.

Industry: We can conclude that our company has lower ratio, and so it should increase its reserves and surplus to make the creditors safe.

(4) Turnover Ratio:

4.1 Stock Turnover Ratio:

Stock turnover ratio = COGS / average turnover

Stock Turnover indicates whether the inventory is efficiently used or not. This ratio checks that the required minimum amount has been invested or not. It tells about the number of times the average stock has turned over during the period of one year.

Cadila healthcare limited (consolidated) (Rs. In million) Summer Internship Program 111

particulars (2004-05) (2005-06) (2006-07) (2007-08) (2008-09)

Cost of goods sold:Cons. of RM and FG 4,840 5,688 6,372 7,903 9,566Stores and spare parts consumed 122 167 209 240 208Power and fuel 227 309 348 447 499Processing charges 83 99 211 328 304Excise Duty 0 0 0 0Manufacturing charges 0 0 0 0 0Repairs on P/M 46 34 41 46 131Total of COGS: 5,318 6,297 7,181 8,964 10,708

Total of average inventory: 1,994.5 2,348 3,185.5 4,312.5 5,370.5

Stock turnover ratio 2.67 2.68 2.25 2.08 1.99

2004-05 2005-06 2006-07 2007-08 2008-090

0.5

1

1.5

2

2.5

3 2.67 2.68

2.252.08 1.99

Stock Turnover Ratio

Series 1

Years

Ratios

Interpretation:

From the above data we can conclude that stock T/O ratio is decreasing day by day, because consumption of raw material, finished goods and spare parts are increasing along with inventory.


Particulars Sun Ph. Ranbaxy Dr.Reddy Lupin Piramal CHL

Cost of goods sold:Cons. of RM and FG 8,566 30,335 23,223 16,043 12,792 9,566Stores and spare parts consumed 525 748 0 899 268 208Conversion charges 0 0 1,158 0 0 0Power and fuel 978 1,204 1,227 1,391 811 499Processing charges 0 0 0 372 230 304Excise Duty 0 19 387 -2.2 0 0Manufacturing charges 513 3,695 0 0 0 0Repairs on P/M 314 172 871 235 398 131Total of COGS: 10,885 36,172 26,866 18,942 14,498 10,708


Total of average inventory: 8,742 18,026 12,134 8,732.5 4,433 5,370.5

Stock turnover ratio (2008-09) 1.25 2.01 2.00 2.17 3.27 1.99(2007-08) 1.22 1.99 2.22 2.31 2.97 2.08(2006-07) 1.19 1.91 4.23 2.87 2.99 2.25

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1.5

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3.5

1.25

2.01 2 2.17

3.27

1.99

Stock Turnover Ratio (2008-09)

Series 1

Companies

Ratios


Sun Parma: Here the ratio is lower than CHL due to more utilization of inventory, but unable to generate high amount of gross sales.

Ranbaxy & Dr. Reddy: Here the ratios are higher than CHL because there is noticeable increase in the COGS and inventory.

Lupin: Here the ratio is higher than CHL, Ranbaxy & Dr. Reddy, but increase in COGS is lesser than the Ranbxy & Dr. Reddy and inventory is also decreasing.

Piramal: This company’s ratio is higher than others because there is huge amount of difference between its COGS and its inventory. we can say that their expenses behind inventory is lesser than its consumption of inventory.

Recommendations: CHL: Our company should not spend their funds behind purchase of inventory instead of these they

should utilize the opening stock of inventory so that stock does not remain idle and thus it is possible to company to generate high gross sales.

Industry: While comparing with the competitors, the company has a good ratio but company needs to maintain that ratio by increasing the sales and by keeping minimum inventory as possible.

4.2 Working capital turnover ratio:

Working capital turnover ratio = net sales / working capital


Note: In Piramal, we are not considering excise duty because in schedule – 18, excise duty is given with rates and we don’t know the rates of excise duty,

A company uses working capital (current assets - current liabilities) to fund operations and purchase inventory. These operations and inventory are then converted into sales revenue for the company. The working capital turnover ratio is used to analyze the relationship between the money used to fund operations and the sales generated from these operations. In a general sense, the higher the working capital turnover, the better because it means that the company is generating a lot of sales compared to the money it uses to fund the sales.


particulars (2004-05) (2005-06) (2006-07) (2007-08) (2008-09)

Cuurent AssetsInventory 2,211 2,475 3,896 4,729 6,012Sundry debtors 1,235 1,990 2,784 3,555 4,845Cash and Bank 612 438 990 9,26 2,517Loans & Advances 924 1,588 2,201 2,013 2,237

Total [A] 4,992 6,491 9,871 11,223 15,611

Current LiabilitiesCurrent Liability 2,060 2,404 4,588 4,138 5,729Provisions 606 605 858 913 1,186(-) Buyer’s credit (231) (190) (399) (235) 0

Total [B] 2,435 2,819 5,047 4,816 6,915

Working Capital [A-B] 2557 3672 4824 6407 8696

Total Net Sales 12779 14845 18288 23229 29275

Working Capital Ratio: 5.00 4.04 3.79 3.63 3.37

2004-05 2005-06 2006-07 2007-08 2008-090

0.51

1.52

2.53

3.54

4.55

5

4.043.79 3.63

3.37

Working Capital Turnover Ratio

Series 1

Years

Ratios

Interpretation:


From the above data we can conclude that trend of the ratio is negative that means year by year ratio is

decreasing which is not good sign for the company. When working capital ratio is decreasing, the company is generating a very lower amount of sales compared to the money it uses to fund the sales.

Inter firm analysis:

Particulars Sun Ph. Ranbaxy Dr.Reddy Lupin Piramal CHL

Cuurent AssetsInventory 9,757 19,643 13,250 9,572 4,834 6,012Sundry debtors 8,811 13,310 14,406 10,349 4,866 4,845Cash and Bank 16,690 23,956 5,623 778 946 2,517Other Current Assets 441 2,283 0 0 102 0Loans & Advances 6,983 7,729 5,519 2,780 4,161 2,237

Total 42,683 66,922 38,798 23,478 14,908 15,611

Current LiabilitiesCurrent Liability 3,767 39,719 15,118 11,504 6,307 5,729Provisions 3,431 7,720 1,994 1,827 1,909 1,186(-) Buyer’s credit (0) (121) (0) (1,265) (0) (0)

Total 7,198 47,318 17,112 12,066 8,215 6,915

Working Capital 35485 19604 21686 5102 6692 8696

Total net sales: 42723 74214 67904 38666 32448 29275

Working Capital Ratio (2008-09) 1.20 3.77 3.13 7.58 4.85 3.37 (2007-08) 0.99 2.97 2.44 2.67 4.91 3.63 (2006-05) 0.79 2.61 2.45 1.87 4.30 3.79

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2

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4

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1.2

3.37 3.13

7.58

4.85

3.37

Working Capital Turnover Ratio (2008-09)

Series 1

Companies

Ratios



Sun Parma: Here the ratio of the company is lower than other competitors that mean the company is

very slow to meet its current liabilities with the help of its current assets. Ranbaxy & Dr. Reddy: Here the ratio of our company is better than this company, as the working

capital is higher than ours. So company can more easily pay off their liabilities with the help of their assets than us.

Lupin: The turnover ratio of the company is the highest in the industry as their working capital is very lower. Here the higher ratio indicates that the company can generate a lot of sales compared to the money it uses to fund the sales.

Piramal: Here the ratio of this company is higher than ours as working capital is more due to current liabilities and current assets.

Recommendation:

CHL: Here the company should try to decrease the current assets so as to reduce liquidity and thereby increase the profitability so that co. can invest the funds in some other profitable plans.

Industry: Sun Parma is having the least working capital ratio so they should try to maintain their working capital compare to their sales.

4.3 Debtor’s turnover ratio:

Debtor’s turnover ratio = credit sales / average debtors

Debtor’s turnover ratio indicates the number of times the debtors are turned over a year. The higher the value of debtor’s turnover the more efficient is the management of debtors or more liquid the debtors are. Similarly, low debtors turnover ratio implies inefficient management of debtors or less liquid debtors. It is the reliable measure of the time of cash flow from credit sales. There is no rule of thumb which may be used as a norm to interpret the ratio as it may be different from firm to firm.


particulars (2004-05) (2005-06) (2006-07) (2007-08) (2008-09)

Total credit sales: 12,779 14,845 18,288 23,229 29,275

Average of debtors 1623.5 1612.5 2387 3169.5 4200

Debtor’s turnover ratio 7.87 9.21 7.66 7.33 6.97


2004-05 2005-06 2006-07 2007-08 2008-090123456789

107.87

9.21

7.66 7.33 6.97

Debtor's Turnover Ratio

Series 1

Years

Ratios

Interpretation:

From the above data, we can observe that in 2008-09, debtor’s ratio is lower than other financial years which is very bad sign for the company. The company is inefficient in managing his debtors because in 2008-09 company’s debtors are turned over 6 times in a year.


Particulars Sun Ranbaxy Dr. Reddy Lupin Piramal CHL

Total credit sales: 42,723 74,214 67,904 38,666 32,448 29,275

Average of debtor's 11493.8 14,120 10,464 8,894 4,658 4,200

Debtor’s turnover ratio (2008-09) 3.72 5.26 6.49 4.35 6.97 6.97 (2007-08) 3.20 4.56 6.86 5.04 7.01 7.33 (2006-07) 4.10 4.53 9.96 5.63 7.93 7.66

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5.26

6.49

4.35

6.97 6.97

Debtor's TurnoverRatio (2008-09)

Series 1

Companies

Ratios



Sun Parma: The ratio of the company is lowest in the whole industry due to high amount of debtors

with fewer amounts of credit sales. Ranbaxy: Here the ratio of collection is lower than our company as Ranbaxy collects the cash against

its debtors only 5 times in a year. Dr. Reddy: The ratio of the company is considered good amongst all other company as here company

collects their receivable 6 times in a year. Lupin: Lupin’s collection period is lower than others. So we can say that collection policy is very

liberal. Piramal : Here the ratios of both the company are similar and are the highest in the industry as their

debtors are quite low and their credit sale is higher than debtors.So on the basis of lower amount of debtors, we can say that their the collection policy of both the company is very strict.

Recommendations:

CHL: Company does not require any recommendation as their credit control policy is very strict and that’s why company maintains lower debtor’s turnover ratio.

Industry: Sun Parma and Lupin are having very low debtor’s turnover ratio, so only recommendation to them to make better and stricter credit policy so that cash conversion cycle moves faster.

4.4 Creditor’s turnover ratio:

Creditor’s turnover ratio = credit purchase / average creditors

The average payment period ratio represents the number of days by the firm to pay its creditors. A high creditor’s turnover ratio signifies that the creditors are being paid promptly. This situation enhances the credit worthiness of the company. However a very favorable ratio to this effect also shows that the business is not taking the full advantage of credit facilities allowed by the creditors.


particulars (2004-05) (2005-06) (2006-07) (2007-08) (2008-09)

Credit Purchase:raw material 2,256 2,568 4,186 4,508 5,730packing materials 341 496 781 1,050 1,291finished goods 2,392 2,553 2,447 2,954 3,337total of credit purchase: 4,989 5,617 7,414 8,512 10,358

Average of creditors: 1,589.50 1,801.50 2,908.50 3,742.50 4,448.00

Creditor's turnover ratio 3.14 3.12 2.55 2.27 2.33


2004-05 2005-06 2006-07 2007-08 2008-090

0.5

1

1.5

2

2.5

3

3.5 3.14 3.12

2.552.27 2.33

Creditor's Turnover Ratio

Series 1

Years

Ratios

Interpretation: In 2008-09, company’s creditor’s turnover ratio is lower than other financial years which is not good

sign for the company. It maens that company takes time in the payment of their creditors. It could be adversely affect our company’s credit worthiness and in some cases it can be happened that CHL will not get huge amount of credit while purchasing their materials.



Credit purchase:Rraw Material 10,025 19,689 16,749 11,602.9 8,874 5,730Packing Mmaterials 0 3,365 3,853 0 0 1,291Finished goods & traded goods 569 10,515 4,344 5,875.3 4,037 3,337Total of credit purchase: 10,594 33,569 24,946 17,478 12,911 10,358

Average of creditors: 2,468 8,370 12,665 5,686.25 3,955.30 4,448

Creditor's T/O (2008-09) 4.29 4.01 1.97 3.07 3.26 2.33 (2007-08) 5.01 3.31 0.94 3.86 3.26 2.27 (2006-07) 6.84 3.16 3.09 3.76 3.47 2.55

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1.97

3.07 3.26

2.33

Creditor's TurnoverRatio (2008-09)

Series 1

Companies

Ratios



Sun Parma: The ratio of the company is the highest among all other competitors’ ratio which is good sign for the company as the company pays out their creditors 4times in a year.

Ranbaxy: here the ratio of this company is better than our company as they are paying their creditors 4 times in a year.

Dr. Reddy: the ratio of this company is quite lower than others which is not good sign for the company. Company pays out their creditors only 2 times in a year.

Lupin & Piramal: Here the ratio of the company is higher than our company so we can say that the payment policy of this company is stricter than our company.

Recommendations:

CHL: We can conclude that our company should try to increase their payment cycle in a year so that they can increase the credit period and can use credit facilities as much as possible.

Industry: Dr. Reddy is very strict when it comes to collection of dues from the debtors but when it comes to the payment to its supplier, it delays a lot. It may affect the credibility of the company in the market and company should try to pay their suppliers as many times as possible in a year.

(5) Market Based Ratio:

5.1 Earning Per Share:

Earning Per Share = Net Profit / No. Of Equity Shares

Earnings per Share (EPS) indicates the profit available to the ordinary shareholders. This ratio helps in evaluating the prevailing market price of the share in the light of profit earning capacity. Higher the earning per share, better are the performance and prospects of the company. Generally 10-20 times of EPS are considered as a justified market price of share.

Cadila healthcare limited (consolidated) ( Rs.In Millions)

particulars (2004-05) (2005-06) (2006-07) (2007-08) (2008-09)

Net Profit 1,199 1,524 2,338 2,576 3,031

No. of equity sharesESC 628 628 628 628 682Face Value 5 5 5 5 5No. of equity shares=(ESC/Face Value) 125.6 125.6 125.6 125.6 136.4


Earning Per Share 9.55 12.13 18.61 20.51 22.22

2004-05 2005-06 2006-07 2007-08 2008-090

5

10

15

20

25

9.5512.13

18.6120.51

22.22

Earning Per Share

Series 1

Years

Ratios

Interpretation:

As we can see that our EPS is increasing year by year so it means that our company will give good return to their shareholder on their investment. In 2004-05 and 2005-06, company has issued bonus shares so their EPS was reduced.



Net Profit 18,177 9,512 -9,172 5,015 6,829 3,031

No. of equity sharesESC 1,036 2,102 842 828.2 418 682Face Value 5 5 5 10 2 5No. of equity shares 207.2 420.4 168.4 82.82 209 136.4

EPS (2008-09) 87.73 22.63 -54.47 60.55 32.67 22.22 (2007-08) 71.76 20.76 26.08 49.74 31.24 20.51 (2006-07) 40.55 13.70 57.49 38.41 23.47 18.61


In 2004-05 and 2005-06, company has issued bonus shares on 1:1 ratio. So, actual no. of shares without bonus share is 6, 28, 06, 854. Now, adding bonus shares into actual Equity shares, we will get total equity shares of 12,56,13,708.

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22.63

-54.47

60.55

32.6722.22

EPS (2008-09)

Series 1

Companies

Ratios


Sun Pharma: Here the earning per share of the company is the highest in the whole industry, as it has high amount of profits and their no. of equity shares are lower. This company is able to give high returns to its equity shareholders and thus have high potential to grow.

Ranbaxy: This company’s EPS and CHL’s EPS are almost the same but compare to their profit and their no. of equity shares, they are distributing less amount to their shareholders.

Dr.Reddy: Here company is incurring loss so that their EPS is negative. A negative cash EPS means the company has more operating cash outflows than inflows. This requires extra financing either from shareholders' money or banker's loans.

Lupin: Here the earning per share of the company is almost 2.5 times more than that of CHL, as there is not any huge difference in their profits but Lupin no. of shares is lesser than CHL

Piramal: This company’s EPS is 1.5 times of CHL’s EPS because their profitability is higher than us and they are also providing good returns to their S.H. inspite of higher no. of equity shares than CHL.

Recommendation:

CHL: Our company should make some positive changes towards their profit only because their no. of equity shares are at moderate level. Our Company should try to decrease the operating expenses, so that the profit increases, but along with that our company should to reduce the amount of other research expenses and thereby increase the earning per share.

Industry: We can conclude that our company should try to increase its profit and even the no. of shares, as it has very acute competition in the industry. Most of the competitors are earning high amount of profit and are able to give better returns to their shareholders.

5.2 Dividend Per Share[DPS]:

Dividend Per Share = Dividend / No. Of Equity Shares

Dividend per Share reveals the amount of dividend paid to the ordinary shareholders.

Cadila healthcare limited (consolidated) (Rs. In Millions)

particulars (2004-05) (2005-06) (2006-07) (2007-08) (2008-09)

dividends:(from standalone B*S)


prposed dividends 377 377 502 565 614

No. of equity sharesESC 628 628 628 628 682Face Value 5 5 5 5 5No. of equity shares 125.6 125.6 125.6 125.6 136.4

Dividend Per Share 3.00 3.00 4.00 4.50 4.50

2004-05 2005-06 2006-07 2007-08 2008-090

0.51

1.52

2.53

3.54

4.5

3 3

44.5 4.5

Dividend Per Share

Series 1

Years

Ratios

Interpretation:

As we can observe that our company is able to give good dividend per share to their shareholders.DPS of the company is increasing year by year due to high rate of dividend. In 2004-05 and 2005-06 company has issued bonus shares in 1:1 ratio so their equity share capital was reduced and in the same years dividend was less compare to other years, so their ratio will definitely come down.so in those years inplace of distributing their profit among their stakeholders, they would have preferred to issue bonus shares so on one side company got cash fund from their shares and on the other side they increase their profit.

Inter firm analysis:



In 2004-05 and 2005-06, company has issued bonus shares on 1:1 ratio. So, actual no. of shares without bonus share is 6, 28, 06, 854. Now, adding bonus shares into actual Equity shares, we will get total equity shares of 12,56,13,708.

Dividends:(from standalone B*S)proposed dividends[total] 614 Preference Shares ------ ------ ------ ------ ------ ------ Equity shares 2,848 0 1053 1035 878 ------

Equity Shares-Final (P.Y.) ------ ------ ------ ------ ------ ------Equity Shares-Interim - paid ------ ------ 1 0.1 ------ ------

Total Dividends 2848 0 1054 1035.1 878 614

No. of equity shares and pref. shares

ESC 1036 2102 842 828 418 682PSC ------ ------ ------ ------ ------ ------Face Value of ES 5 5 5 10 2 5Face Value of PS ------ ------ ------ ------ ------ ------No. of ES[A] 207.2 420.4 168.4 82.8 209 136.4No. of PS[B] ------ ------ ------ ------ ------ ------Total no. of shares[A+B] 207.2 420.4 168.4 82.8 209 136.4

Dividend Per Share (2008-09) 13.74 0 6.26 12.50 4.20 4.50 (2007-08) 10.50 2.50 3.76 4.90 4.26 4.50 (2006-07) 6.28 8.50 3.75 3.25 2.80 4.00

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6

8

10

12

14

13.74

0

6.26

12.5

4.2 4.5

Dividend per Share (2008-09)

Series 1

Companies

Ratios


Sun Pharma: This Company’s DPS is highest among all other competitors due to high dividend distribution and lower no. of equity shares. Their DPS is 4 times than CHL due to their high earning capacity.

Ranbaxy: Here company is not distributing their profit among their shareholders which will adversely affect their image in the market.If company does not want to declare dividend then they should have distributed bonus shares among their shareholders.

Dr.Reddy: Inspite of incurring loss in 2008-09, company has declared to distribute dividend. That means company may utilizing their reserves.


Lupin:In this company, dividend is almost 1.5 times of CHL’s dividend and their EPS is very less

than others so that DPS will be definitely higher than CHL Piramal: Here the company is distributing very less amount as dividend but their dividend is higher

than our CHL’s dividend.

Recommendation:

CHL: Our company should increase the amount of their dividend rather than increasing the amount of the reserves. For distribution of more profit, CHL should reduce their operating expenses along with R&D expenses.

Industry: Inspite of earning higher profit, our company is giving very less dividend to their stakeholders. Our company should try to increase their amount of the dividend as there is very acute competition in the pharma industry and some of the competitors are earning less amount of the profit and still they are declaring good amount of dividend for their shareholders

5.3 Dividend payout ratio:

Dividend payout ratio = [dividend / net profit] * 100

Dividend payout ratio is the fraction of net profit a firm pays to its stockholders in dividends.


particulars (2004-05) (2005-06) (2006-07) (2007-08) (2008-09)

dividends:(from standalone B*S)prposed dividends 377 377 502 565 614Corporate dividend 53 53 85 96 105Total dividend: 430 430 587 661 719

Net profit: 1,199 1,524 2,338 2,576 3,031

Dividend Payout Ratio 35.86 28.22 25.11 25.66 23.72


2004-05 2005-06 2006-07 2007-08 2008-090

5

10

15

20

25

30

35

40 35.86

28.2225.11 25.66

23.72

Dividend Pay Out Ratio

Series 1

Years

Ratios

Interpretation:

In CHL the dividend payout ratio is decreasing year by year, so we can say that they pay a dividend to its shareholders but at decreasing rate. They may use their profit by reinvesting in the firms activities rather than as a cash payout to shareholders.



dividends:(from standalone B*S)proposed dividends[total] 614Preference Shares ------ ------ ------ ------ ------ ------Equity shares 2,848 0 1053 1035 878 ------Equity Shares-Final (P.Y.) ------ ------ ------ ------ ------ ------Equity Shares-Interim - paid ------ ------ 1 0.1 ----- ------Corporate dividend on tax 484 0 178 176 147 105Total Dividend: 3,332 0 1,232 1,211 1,027 719

Net Profit: 18,177 -9,512 -9,172 5015 3,163 3,031

Dividend Payout Ratio (2008-09) 18.33 0 -13.43 24.15 32.47 23.72 (2007-08) 17.13 47.91 16.85 15.23 31.22 25.66 (2006-07) 18.91 70.80 7.63 17.23 34.26 25.11

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-15-10

-505

101520253035

18.33

0

-13.43

24.15

32.47

23.72

Dividend Pay Out Ratio (2008-09)

Series 1

Companies

Ratios



Sun Parma: Here the dividend payout ratio is low compare to other competitors. From the above

table, we can see that this company pays higher dividend to their shareholders compare to their net profit.

Ranbaxy: Ranbaxy’s dividend payout ratio is zero, in other words they do not pay a dividend to its shareholders. This is the case for most high growth firms, their profits are better spent by reinvesting in the firms activities rather than as a cash payout to shareholders.

Dr. Reddy: Here this company’s ratio is negative as company is incurring loss and under such condition also, they are paying dividend to their stakeholders.

Lupin: This company’s DPR is very moderate as their net profit and total dividend both are at moderate level.

Piramal: This company has highest DPR in the whole industry, so we can see that this company is very safe from the investors point of view to invest as they will get good amount of returns on their investments.

Recommendation: CHL: Our company should try to distribute dividends from their net earnings rather investing them

because at the end it will increase our goodwill in the market. Industry: Ranbaxy’s dividend payout ratio is zero, in other words they do not pay a dividend to its

shareholders. This is the case for most high growth firms, their profits are better spent by reinvesting in the firms activities rather than paying dividends to their shareholders.

(6) Others

6.1 Average Collection Period:

Average Collection Period = [(Debtors + B/R) / Credit Sales] * 365

The average collection period means the approximate amount of time that it takes for a business to receive payments owed, in terms of receivables, from its customers and clients. Higher the ratio, better it is for the company as it means that the company is able to collect the dues from its debtors in a short time period. While if the ratio is lower, it means that the collection policy of the company is very liberal and high credit facilities are granted to its customers.

Cadila healthcare limited (consolidated) (Rs. in Millions)

particulars (2004-05) (2005-06) (2006-07) (2007-08) (2008-09)

debtors 1,235 1,990 2,784 3,555 4,845

credit salesnet sales 12,430 14,453 17,855 22,660 28,624other income from operations 349 392 433 569 651toatl credit sales: 12,779 14,845 18,288 23,229 29,275


Average Collection Period 35.27 48.93 55.56 55.86 60.41

2004-05 2005-06 2006-07 2007-08 2008-090

5

10

15

20

25

30

35

40 35.86

28.2225.11 25.66

23.72

Average Collection Period

Series 1

Years

Ratios

Interpretation:

As we can see that the average collection period of our company is increasing year by year, which means that the collection from the debtors are delayed as the debtors are increasing at a rapid rate than the net sales due to liberal collection policy.


particulars Sun Ranbaxy Dr.Reddy Lupin Piramal CHL

debtors 8,811 13,310 14,406 10,349 4,866 4,845

credit salesnet sales 42,723 74,214 67,904 37759 32,448 28,624other income from operations 0 0 0 908 0 651toatl credit sales: 42,723 74,214 67904 38,666 32,448 29,275

Average Collection Period(2008-09) 75.28 65.46 77.44 97.69 54.74 60.41(2007-08) 154.16 78.05 48.44 93.90 57.02 55.86(2006-07) 116.22 93.38 44.30 73.20 55.40 55.56


Sun P

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102030405060708090

10075.28

65.46

77.44

97.69

54.7460.41

Average Collection Period (2008-09)

Series 1

Companies

Ratios


Sun Pharma & Dr.Reddy: Here the duration of our company is slightly better than this company as the dues from the debtors are collected only within 2 months while this company collects after 2.5 months.

Ranbaxy:Here the ACP ratio is almost similar to our company both are giving only 2 months credit due to tight credit policy.

Lupin: The collection period of this company is the highest in the whole industry due to high amount of debtors with fewer amounts of net sales. This means that the credit period given to the debtors is almost one quarter.

Piramal: This compant’s ratio is little bit lower than our company.They collect payment from their debtors within 2 months.

Recommendation:

We can conclude that our company has better average collection period than almost all the companies in the industry except Piramal, as the collection policy of this company is conservative and therefore the no. of debtors are very less and thus this company has high creditability in the industry. So the only suggestion for our company is to make a better and stricter collection policy so that the cash conversion cycle moves faster and thus increase the goodwill in the market.

6.2 Average Payment Period:

Average Payment Period = [(Creditors + B/P) / Credit Purchase] * 365

Average Payment Period means prompt employment of capital being one part of good management working capital one should ascertain whether the firm is enjoying actually the credit promised by suppliers. If suppliers allow credit period of one month but if, as per calculations a firm is taking 2 months credit period of one month but if, as per calculations, a firm is taking 2 months credit period, it may seem either that the facilities given by creditors are not being fully utilized or that the firm is unnecessarily damaging its credit in the markets.

Cadila healthcare limited (consolidated) ( Rs. In Millions)

particulars (2004-05) (2005-06) (2006-07) (2007-08) (2008-09)

Creditors Summer Internship Program 129

For small scale industrial undertakings 13 20 38 0 0For capital goods 50 59 123 83 54Others 1567 1894 3683 3558 5201Total of creditors: 1630 1973 3844 3641 5255

Credit Purchase:Raw material 2256 2568 4186 4508 5730Packing materials[note:1] 341 496 781 1050 1291Finished goods 2392 2553 2447 2954 3337Total of credit purchase: 4989 5617 7414 8512 10358

Average Payment Period: 119.25 128.21 189.24 156.13 185.18

2004-05 2005-06 2006-07 2007-08 2008-090

20406080

100120140160180200

119.25128.21

189.24

156.13

185.18

Average Payment Period

Series 1

Years

Ratios

Interpretation:

From the above chart we can see that, APP is fluctuating.But it is increasing in the most of the years. this means that the payment to the creditors is delayed as the creditors are increasing at a rapid rate than the net purchases. Thus our company is enjoying the full benefits of the credit facilities provided by the suppliers.


particulars Sun Ranbaxy Dr.Reddy Lupin Piramal CHL

CreditorsFor small scale industrial undertakings 2 ----- ----- 66 0 0For capital goods 0 ----- ----- 0 0 54Others 2,541 ----- ----- 6,941 4,237 5,201Total of creditors: 2,543 8,183 15,056 7,007 4,237 5,255

Credit Purchase:Raw material 10,025 19,689 16,749 11,603 8,874 5,730Packing materials[note:1] 0 3,365 3,853 0 0 1,291Finished goods / Traded goods 569 10,515 4,344 5875 4,036 3,337total of credit purchase: 10,594 33,569 24,946 17,478 12,910 10,358


Average Payment Period (2008-09) 87.55 88.97 220.29 146.32 119.78 185.18(2007-08) 103.85 113.51 399.55 110.78 122.35 156.13(2006-07) 49.67 112.52 126.72 110.26 110.76 189.24

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50

100

150

200

250

87.55 88.97

220.29

146.32119.78

185.18

Average Payment Period (2008-09)

Series 1

Companies

Ratios

Interpretation:

Sun Pharma & Ranbaxy : The duration of this company is less than our company as the payment policy of this company is very bit stricter than our company. As this company has high net sales, we can say that it has better goodwill in the whole industry.

Dr. Reddy : This company’s ratio is the highest amongst all due to its high credit purchase and less creditors which is not good sign for the company because they are paying their supplier’s almost after 7 months.

Lupin: Here the ratio of this company is better than our company as the dues to the creditors are paid by us after 4.5months while this company pays after 6 months.

Piramal: Here the ratio of this company is better than our company as the dues to the creditors are paid by us after 4 months while this company pays after 6 months.

Recommendation:

We can conclude that our company is very strict when it comes to collection of dues from the debtors but when it comes to the payment to its suppliers, it delays a lot. So this means that it enjoys the credit facilities provided by the suppliers to its best. But this might affect it creditability and goodwill in the market and thus company should pay their suppliers almost for the same no. of times as the dues are collected from the debtors.


Ranbaxy: Piramal:note:1 Note:1con. of RM = opening + pur.of RM - closing con. of RM = opening + pur. of RM – closing

(2006)15229.11 = 4433.22+pur.-5079.93 (2006) 6267.9 = 1138.2 + pur. - 1926.0 pur. = 15875.82 pur. = 7055.7

(2007)16339.32 = 5079.93+pur.-5328.82 (2007) 8196.5 = 1926 + pur. - 1760.3 Pur. = 16588.21 Pur. = 8030.8

(2008)18328.78 = 5328.82+pur.-6689.18 (2008) 8755.4 = 1760.3 + pur. – 1879.2

Pur. = 19689.14 pur. = 8874.3

Intra - Firm Ratio Analysis for the last 5 financial Years (Consolidated Balance Sheet)

Particulars 2004-05 2005-06 2006-07 2007-08 2008-09

1)Liquidity Ratio:

1.1Current Assets 2.05:1 2.30:1 1.96:1 2.33:1 2.26:1

1.2Quick Ratio 1.52:1 1.81:1 1.43:1 1.66:1 1.68:1

2)Profitability Ratio:


Ranbaxy: Piramal:note:1 Note:1con. of RM = opening + pur.of RM - closing con. of RM = opening + pur. of RM – closing

(2006)15229.11 = 4433.22+pur.-5079.93 (2006) 6267.9 = 1138.2 + pur. - 1926.0 pur. = 15875.82 pur. = 7055.7

(2007)16339.32 = 5079.93+pur.-5328.82 (2007) 8196.5 = 1926 + pur. - 1760.3 Pur. = 16588.21 Pur. = 8030.8

(2008)18328.78 = 5328.82+pur.-6689.18 (2008) 8755.4 = 1760.3 + pur. – 1879.2

Pur. = 19689.14 pur. = 8874.3

2.1Gross Profit Ratio 58.38% 57.58% 60.73% 61.41% 63.42%

2.2Net Profit Ratio 10.36% 11.04% 12.78% 11.39% 11.18%

2.3Retorn on Capital employed 12.10% 13.62% 15.40% 15.04% 13.87%

2.4Return on Equity 23.45% 24.88% 27.11% 27.57% 28.37%

2.5Return on Total Assets 9.92% 11.16% 11.91% 11.65% 11.00%

2.6PBT Margin 11.71% 12.68% 14.98% 14.22% 13.46%

2.7EBITDA Margin 19.02% 19.38% 19.25% 19.73% 20.69%

3)Leverage Ratio

3.1Debt-Equity Ratio 0.59 0.60 0.46 0.72 0.85

3.2Debt-Assets Ratio 0.30 0.30 0.25 0.34 0.38

3.3Net Worth / Proprietor’s Ratio 0.44 0.45 0.43 0.42 0.37

4)Turn over Ratio

4.1Stock Turnover Ratio(In times) 2.67 2.68 2.25 2.08 1.99

4.2Working Capital Turnover Ratio (In times)

5.00 4.04 3.79 3.63 3.37

4.3Debtor’s Turnover Ratio(In times) 7.87 9.21 7.66 7.33 6.97

4.4Creditor’s Turnover Ratio(In times) 3.14 3.12 2.55 2.27 2.33

5)Market Based Ratio

5.1Earning Per Share 9.55 12.13 18.61 20.51 22.22

5.2Dividend Per Share 3.00 3.00 4.00 4.50 4.50

5.3Dividend Payout Ratio 35.86% 28.22% 25.11% 25.66% 23.72%

6)Others

6.1Average Collection Period 35.27 48.93 55.56 55.86 60.41

6.2Averege Payment Period 119.25 128.21 189.24 156.13 185.18

Inter Firm Ratio Analysis for the year 2008-09

Particulars SunPharma

Ranbaxy Dr. Reddy Lupin Piramal

1)Liquidity Ratio:

1.1Current Assets 5.93:1 1.41:1 2.27:1 1.95:1 1.81:1

1.2Quick Ratio 8.74:1 1.19:1 1.69:1 1.36:1 1.60:1

2)Profitability Ratio:

2.1Gross Profit Ratio 74.52% 51.26% 60.44% 51.01% 55.32%


2.2Net Profit Ratio 42.55% -12.82% 8.04% 12.97% 22.42%

2.3Retorn on Capital employed 29.10% -19.63% -0.16% 17.76% 14.97%

2.4Return on Equity 30.20% -27.48% -0.23% 37.09% 28.80%

2.5Return on Total Assets 25.54% -8.33% -0.13% 13.34% 11.53%

2.6PBT Margin 45.62% -20.21% 11.88% 15.67% 11.88%

2.7EBITDA Margin 43.63% -7.19% 16.12% 19.58% 16.80%

3)Leverage Ratio

3.1Debt-Equity Ratio -0.21 0.47 0.41 0.89 0.94

3.2Debt-Assets Ratio 0.022 0.32 0.28 0.05 0.37

3.3Net Worth / Proprietor’s Ratio 0.85 0.31 0.48 0.34 0.364)Turn over Ratio

4.1Stock Turnover Ratio(In times) 1.25 2.01 2.00 2.17 3.27

4.2Working Capital Turnover Ratio (In times) 1.20 3.77 3.13 7.58 4.854.3Debtor’s Turnover Ratio(In times)

3.72 5.26 6.49 4.35 6.97

4.4Creditor’s Turnover Ratio(In times) 4.29 4.01 1.97 3.07 3.26

5)Market Based Ratio

5.1Earning Per Share 87.73 22.63 -54.47 60.55 32.675.2Dividend Per Share 13.74 0 6.26 12.50 4.20

5.3Dividend Payout Ratio 18.33% 0 -13.43% 24.15% 32.47%6)Others

6.1Average Collection Period 75.28 65.46 77.44 97.69 54.746.2Averege Payment Period 87.55 88.97 220.29 146.32 119.78


Extra Learning

Some Extra Learning:

I was able to learn about certain financial and accounting topics like DuPont Analysis, Value Added tax and Central sales Tax, Consolidation of the Balance Sheets, costing, Export Licenses and some practical work of preparing cash reconciliation at Dial for Health which help me to know about the financial soundness of the company.

(1) Auditing at Dial For Health’s retail shop

About Dial for Health:


Dial for Health is the subsidiary of Cadila healthcare limited (CHL). DFH is a pharmacy retail store

network. There are 15 stores in Ahmedabad, 7 stores in Baroda and 7 stores in Mumbai. In layman language we can say that DHL is modified version of chemist shop.

Objective:

For internal control on all retail shops. For transparency. For close examination of the petty cash balance. To gauge the efficiency of retailers (who is handling store for time being). To maintain petty cash account properly on monthly basis. To reduce expenses, losses, malpractice of money.

Findings:

Company is using SAP not only as an internal system but also it is linked with its retails outlet. They are using this system for its inventory and accounting (petty cash) management.

Retailers have to submit reports of cash, sales, purchases and inventory on daily basis to their respective departmental head.

The retailers are trained in such a way that if there is a shortage of a particular product in their particular retail outlet, they can get the same product from the nearest outlet immediately.

Retail outlet provides facilities like; home delivery of products, payments through electronic cards, credit sales to their trustworthy customers.

This retail outlets have products of other pharma companies along with zydus’ products. They also allow 10% discount only on all medicated products which does not include cosmetic

products. The departmental head of the particular outlet makes surprise visits by sending his/her representative

in disguise of a customer to scrutinize the atmosphere of the outlet and the response from the retailers.

Conclusion:

Due to this internal system of management, there is very less chances of malaccounting of money as well as inventory.

The system of maintenance of petty cash account is stable and accurate so that their transparency level is very high.

Before appointing the retailer for particular store, company gives him/her training for the system of maintenance. So now the responsibilities of DH are reduced.

Recommend:

Here, I would recommend that,

There should be regular/daily deposition of cash to the nearest bank. Petty cash account for outlet expenses should be regularly maintained with their respective bills of

expenses.


During the day time when customers are not coming, they should save their electricity expenses by

switching off extra lights, fans and A.C.

(2) VAT:

A type of consumption tax that is placed on a product whenever value is added at a stage of production and at final sale. The amount of VAT that the user pays is the cost of the product less any of the costs of materials used in the product that have already been taxed.

VAT is applicable within state transaction.

For example;

When a medicine is built by a company in Ahmedabad, the manufacturer is charged a VAT on all of the supplies they purchase for producing the medicine. Once the television reaches the shelf, the consumer who purchases it must pay the VAT that applies to him or her.

Assume that,

CHL= manufacturer

XYZ=seller

CHL purchases RM of Rs. 100.there is 4% vat is applicable on TP. Our material cost will be 104Rs. [100+ (100*4%)].Here 4Rs. is our ITC and 100Rs. Is our actual material cost.

Now we have made finished goods [medicines] from the above RM and sold it to our stockiest at Rs.200. Here also 4% VAT is applicable and we are receiving 208 Rs. From which we will suppose to pay 8 Rs. Government, but actually we will pay only 4 Rs. to government. Since government has 4 Rs. Credit in the name of CHL which is the amount of VAT, we have paid in the first (purchasing) transaction.

Now stockiest will sell the same medicines to retailer at 300 Rs. and retailer will pay 312 Rs. with the payment of VAT on 300 Rs. Now stockiest will pay only 4 Rs. to government as he has 8 Rs. credit with government.

Conclusion:

From the above transaction medicine will be sold at 300 Rs. and government will receive net 4 % VAT on it i.e., 12 Rs.

Amount of the product

VAT In Rs.(2)

VAT paid in Rs. (3)

VAT Receivable inRs.(4)

Actual amt. payableto govt. (In Rs.)

(3-4)100 4% 4 0 4

200 4% 8 4 4


Party in USA

CHL in Guj.

Agent inMumbai

imum.bai

Export

FORM –H for sale

300 4% 12 8 4

Total: 12

(3) Central sales Tax:

Registration for CST and VAT are done seperataly.CST is mainly applicable for interstate and international transactions. For the payment of CST, we have to make application to the government in filling up the forms like FORM-C, FORM-H and FORM-F etc.

FORM – C:

Form-c is applicable for interstate transaction. Current rate for FORM-C is 2%. And if party is not considering FORM-C, its rate is 4% that is called local tax without FORM-C.

It is issued on Quarterly basis.

FORM – H:

FORM – H will be applicable for export transactions .Here no tax is levied on transaction amount because of export.

FORM – H is submitted on quarterly basis.

CHL is selling some goods to USA by appointing one agent who is in the Mumbai.


FORM – H will be presented along with Airway bills and receipts in which there is no name of our

USA’s party.

FORM – H: In which CHL will not pay CST because finally transaction is considered as ‘Export’ and there is no tax on export.

FORM – F:

FORM – F will be applicable for interstate transaction but it has to be between same company’s units i.e., (1) CHL Uttar Pradesh to CHL Gujarat. (2) Hub to C&F Agent.

It is presented on monthly basis.

Why no tax?

In the bellow chart, we can see that goods are transferred from one hub to C&F. Here we are transferring goods from one pocket to another.

When should ‘Return’ be submitted?

If we have made sales in February, we have to submit our return within 30 days of the next month i.e., 30th March and tax should be paid within 22 days of the next month i.e., 22nd April.

If any case there is failure of not submitting of return on due date, penalty will be of Rs. 100 for first seven days and in such a way penalty can be paid at the most 10,000 Rs.

(4) Concurrence System:

1. Concurrence system means budget vs. actual expense summary.2. Budgeted expenses will be given to concurrence department to add up in the system.3. Concurrence will allow expense in limit of the budget.


CHL A’ bad

CHL UP

CHL DelhiCHL MP

4. If any department wants to incur more expense than budget than required permission of

CFO/CMD for the same.5. Concurrence system has a lock in period concordance system of 90 days.6. Every division has to use that fund within 90 days after that it got to be locked.And if any division

head wants it after the lock in period has to ask for the permission of Budget cell and CMD.7. In case of excess money after the lock in period money would be transferred into the company’s

fund.8. After all the actual expenses are occurred all the entries of expenses with their bills being entered

in SAP system under account department.

(5) Calculation of NRV And MRP (Costing Structure):

Here NRV stand for Net Realistion Value and MPV stand for Maximum Retail Price.

* NRV is the price of CHL.* TP is the price of stockiest.* MRP is the price of Retailer.

MRP includes all expenses like VAT, Excise Duty.

For Example;

Here, VAT is 4% and Excise Duty (ED) is 4.12% (4% + 3%) .Here, we are taking non-scheduling drugs. So, Exemption from the excise duty to wholesaler is 10% and to retailer is 20%.Excise Duty is calculated on 65% of MRP’s amount as per the government norms.

Particulars Price

MRP 205.28VAT (205.28 * 4 / 104) 7.90ED (205.28 * 65% * 4.12%) 5.5Trade price 159.01NRV 143.66

Calculation for Trade Price:


Trade Price (20% exemption):

TP = (MRP –VAT – ED) 0.8 + ED = (205.28 – 7.9 – 5.5) 0.8 + 5.5 = 159.01

TP to NRV (10% exemption):

NRV = (TP – ED) 0.9 + ED = (159.01 – 5.5) 0.9 + 5.5 = 143.66

(6) Practical work done in sap software

SAP is the software which is used by the company for maintaining the books of accounts. This software has started before 2-3 years back. Before this software all the entries are done in the VISION software which is also used by the company. Still some work is done in VISION but soon company will try to do all the entries in the SAP software. It covers all the entries related to expenses, credit note, debit note, purchases of the goods and many more. There are the snap shots of the SAP on which I had worked on. There are the following steps to work on it-

SAP LOG IN Window:


User ID and Password Window:

Window Pop_UP after entering ID and PASSWORD:

Enter the t-code (transaction code):

Click on the particular menu in which u want to work. Here, I have clicked on ZTL OR U can enter the t-code in the above blank place. T-Code means Transaction code. It varies by transaction to transaction.I have entered mir6. Mir6 is the T-code for Invoice overview.


OR click on mir6.

The first window open after clicking on T-code:


After entering into this window, accounting year and company code will automatically come up. Zydus has total 29 subsidiaries and Joint ventures so that they have given different code to their companies. Here 2100 id for ZTL (Zydus technology Limited).

Now click on ‘Get Variant Button’:

Variant window will pop-up and now in this window click on ZTL.


Now enter the Document No .

Now in the nxt task click on execute to see the details about the the above doc. No.


Click on the doc. No. to open one particular doc.

Now match the invoice date, amount and VAT code with physical invoice and also watch that posting date is correct or not.


Posting date should be today’s date on which date we are doing posting.

Now write down business place and Text.In Text, we need to write about the invoice no. or reference no.


Check Details option:


Click on TAX and compare the particulars with Basic data's tax statement

Check the quantity and amount with physical bill.


Check Tax code, it should be as per tax code which is given in the Basic Data.

Click on Purchase order no of the item:


Next window:

Item no. and item name come


Click on one item and check out its quantity and amount with physical help

There are 3 options :Header, item overview , Item details


Open header. In it, the final amount, vendor name and his code should be matched.


Item Overview Option:

Click on PRINT PREVIEW

Purchase order will be opened. On this window Next, previous page options are given so that we can move to other pages.


This is the second page of Purchase order;

Now click on Back And then click on Simulate


Now we are heading towards the posting


Now click on POST and that will generate the Document no. and new window pop-up

Now click on FOLLOW ON DOCS :

This is the data entry view.


Practical work done in vision software

VISION 21 is software which is used by the company for doing the entries. It is started before so many years and all the entries done in this software only. Before 2-3 years new software called SAP is started. But still company is using this software for many kinds of entries. It covers all the entries related to expenses, credit note, debit note, purchases of the goods and many more. There are the snap shots of the VISION on which I had worked on.

There are following steps that should be worked on:

There is an icon on the screen for “VISION 21”. When we click on the icon one screen appear where we have to fill the user name and password. There is no unique user name and the password. For different departments, even for different work there are different user name and the password which is made by the employee. So when we give user name and password than the below screen appears-


This step is a common step to proceeds further in the VISION software for any kind of entries. This is the first screen for the VISION software. This screen appears after giving the user name and password. There are different codes for different types of entries like for claims, debit note, credit note, etc. There are separate code and description over there and according to that we can do the entries in it.

Suppose we want to do the entries of PURCHASE (Domestic) so for that we need to go in File menu and in Open button. One screen is appears ‘Vision21 Menu’. In that we have to go in transaction and in PURCHASE BILL (DOMESTIC). So we have to click on that and in bottom finance and give OK button.


Here select the doc. Series. I have selected PB code which is used for the entry of purchase bill of Baroda.

Then press TAB and automatically Doc. No., Doc. Date and Party Code will come.


Now enter bill Date and Party’s name, due date and Number in Bold –next to Party code, pur.Type will automatically generate.

Then enter department code and DOC. Narration.


Now enter General Ledger code, Sub A/C code and press TAB.


Press TAB to reach the TAX Code Place.

Then enter Tax code


Now enter the amount of Excise Duty , sales tax or VAT and Adv. TAX.



Then Click on OK and then Click on Accounting effect. In the below small window both debit and credit amount should be matched. If both are matched then click on OK.

Then save (alt+s) or click short cut bar on save purchase entery for baroda cash


Learning

And

Conclusion

Learning:

From the current project:


*First and foremost, I learnt about the actual scenario of the pharmaceutical industry in India along with

the various key issues and regulations of the industry, some concepts, main businesses and the profitability of the five major pharmaceutical players and many other vital things.

* I was able to learn about how to read the Balance sheet and Annual Reports of the company and gather all the financial terms and some new concepts which is very new to me.

* In the annual reports and in the balance sheet all the informations are not given i.e., percentage of taxation. So, with the help of my mentor I have found out those items which are not given but very vital in the calculation of ratios.

* In order to judge the financial position of the company, I calculated the ratios of CHL standalone and consolidated along with its five main competitors.

* I was able to learn about how the working capital is managed at CHL and also able to work upon the working capital requirement of the company by calculating the net operating cycle.

* I learnt about the inventory management system of the company, regarding how the company is able to judge about the requirement of various products in the market

*The inventory planner that is made by the GDSO department and also about the procurement cycle for the goods.

*Also learnt about the credit control system functions and activities performed by the credit control department. The entire operation of the distribution and marketing channel from factory to customer, including the concepts of stockiest and C&F agents.

*The method of claim settlement opted by the company for the various types of claims of local as well as outstation parties.

*The Domestic Cash management system and International Collection system followed by CHL. * I also learnt about the various topics in brief like the calculation of sales tax, service tax, about the TDS,

some briefing regarding the FOREX market, and also an overview about the process of making the Cost Sheet and consolidation of balance sheet.

* I got a thorough understanding of the entire export procedure followed by the company as well as how these exports are financed.

* I also learnt about the practical work of entries that is done in SAP R/3 and VISION 21, which should be done with utmost care as the entries are not reversible and cannot be cancelled. If any mistake is done than it affects till the end of transaction.

* I had a practical exposure to the plant about how actual inventory (raw material, packing material and finished goods) is stored, processed and manufactured by the company.

* I was able to learn about certain financial tools like DuPont Analysis, sustainable growth rate, which help me to know about the financial soundness of the company.

Other than project:

*During my free hours, I used to visit the retail shop of Dial For Health and monitored its petty cash accounts, cleanliness of the store, response from the chemist, its inventory stock.

* I learned to adjust to different working places and conditions and also learned the importance of being assertive and not aggressive.

* I was a bit impulsive by nature in the initial period of SIP but this training proved to be very profitable for me as I learned two very important skills - patience and tolerance.


*During my training, interpersonal skills is one of the most important learning that I have gained. As this

skill can either make or break the career. We are a social being and the virtue of humility and mutual cooperation is a must in making.

* It also leveraged on my creative approach in the problem solving and decision making situations. There were some situations in which we have to give some new idea to our mentors.

*Apart from these, Discipline, Punctuality, humanity are the other values that have to be imbibed in us for a successful career and a person.

*Above all my vision and focus towards my career path has also improved. I got one new area of work which I was considered as only the world of medicines but in Pharmaceutical industry also finance is very much important.

* In CHL, I learnt that no work is big or small, every work should be given equal weightage. * In CHL, they are offering every month body-check up facility for all the employees so I have also

undergone the same procedure of the body check up and then only realized that physical body check up is very vital in this corporate world where we are piled of work.

Recommendation:

*CHL is very strict about giving credit to their debtors but they should also be very vigilant in the payment to their suppliers. So that they can improve their credit worthiness and also goodwill of the company in market.

*Study each Product’s Life Cycle, understand which stage it is and make some addition to that product depending on the requirement of the customer with additional combinations & formulations. This will help in improving the net operating cycle.

* Increase the profitability and market share by expanding the foreign market shares. *Study some market nationally and internationally and introduce some product depends on the

requirement of the market. *CHL should take the advantage of Trading on Equity and can easily mobilize by way of issuing shares

or debentures or public deposits or debt from financial institutions or FDIs or FIIs as it has a reputed value in the national and international market.

Conclusion:

This is very much known to all the individuals that a company value cannot be maximized in the long run until unless it cannot survive in short run. If the working capital dips low, the business risk running out of cash. Any profitable business can go into trouble if there short term obligation cannot be fulfilled. Sound working capital is requisite for a company to survive in the competitive market. Understanding about the working capital management of a company and analysis of its financial components of the company with other companies has brought into the light.

While studying and understanding about the project, it has made clear that:

*The company has strong system from order execution to collection which makes the company competitive in the pharmaceutical industry.

*Collection system is very well built that there is less chance of bad debts which is a profitable for the company.

*Even company is having strong inventory control which is hardly have any stock out in the company.


*As it is a Pharma company, the sales forecast should be done accurately, as this sector has high growth

rate, so the production should be done according. And CHL is successful in inventory management with

the help of their two main department PPMC and GDSO which co-ordinates all the procedure of rest of the departments.

*The company has very strong and wide spread distribution channel all over the world which helps them to meets the market demand and thereby get good revenue through high turnover.

*Cash management initiative with Citibank had helped CHL in faster transfer of cash and thereby achieving higher liquidity. Thus the cash conversion cycle is very fast as the payment system accepted is through advanced demand draft or cheque. Therefore the working capital requirement will be less and so that cash can be invested in other projects of the company.

* Industry analysis helped me know the position of our company by analyzing the strength and weakness of it through comparison of ratios of other competitors.

*Ratio analysis help me to determine the significance and meaning of financial statement data and thereby making me understand how each and every ratio has its own significance regarding the future prospect for the company.

*The calculation of net operating cycle helped me to know about the storage period stages for the particular product in the Pharma Company and also at which point changes should be made, so that the operating cycle period is minimum, which will convert the cash rapidly and thereby reduce the working capital requirement.


References:

Annual Reports of the company – ZYDUS CADILA HEALTHCARE LTD: *For the year 2004-05

*For the year 2005-06



*For the Year 2008-09

“Analysis of Financial Statements” and “Working Capital management” by Dr. Prasanna Chandra- Tata McGraw Hill Publishing Co. Ltd.

www.investopedia.com www.google.com http://en.wikipedia.org/wiki/ www.zyduscadila.com www.sunpharma.com www.ranbaxy.com www.lupin.com www.drreddy.com www.piramal.com www.invstopedia.com www.managementparadise.com www.ucobank.com www.rbidocs.rbi.org.in www.accountingformanagement.com


http://www.accountingformanagement.com/

http://www.rbidocs.rbi.org.in/

http://www.ucobank.com/

http://www.managementparadise.com/

http://www.invstopedia.com/

http://www.piramal.com/

http://www.drreddy.com/

http://www.lupin.com/

http://www.ranbaxy.com/

http://www.sunpharma.com/

http://www.zyduscadila.com/

http://en.wikipedia.org/wiki/

http://www.google.com/

http://www.investopedia.com/