A PROJECT ON

“RATIO ANALYSIS
WITH REFERENCE TO
SREE BHAVANI SURGICALS & MEDICAL
AGENCIES,KAKINADA”
A Project Report Submitted to the Department of Management Studies,
Adikavi Nannaya University, Rajamahendravaram
In a Partial Fulfilment for the Award Of The Degree Of

BACHELOR OF BUSINESS ADMINISTRATION.

BY
NAGARAMANI APARNA
Reg.No - 150378300125
Under the Esteemed guidance of
Mr.P. SATYA BALARAM

M.Com, MBA,M.Phil,PGDFM

ADITYA DEGREE COLLEGE

KAKINADA
AFFILIATED TO ADIKAVI NANNAYA UNIVERSITY, RAJAMAHENDRAVARAM.

(ACCREDITED BY NAAC WITH B++ GRADE)2015-2018.

 Chapter-1

 Introduction

 Functions of Finance Management

 Ratio Analysis

 Need of the study

 Objectives of the study

 Scope of the study

 Methodology

 Limitations of the study

 Industrial profile

 Company profile
INTRODUCTION

One needs money to make money. Finance is the life-blood of business and there must be
a continuous flow of funds in and out of a business enterprise. Money makes the wheels
of business run smoothly. Sound plans, efficient production system and excellent
marketing network are all hampered in the absence of an adequate and timely supply of
funds.

Sound financial management is as important in business as production and marketing. A

business firm requires finance to commence its operations, to continue operations and for
expansion or growth. Finance is, therefore, an important operative function of business.

A large business firm has to raise funds from several sources and has to utilize those funds
in alternative investment opportunities. In order to ensure the most judicious utilization of
funds and to provide a reasonable rate of return on the investment, sound financial
policies and programmes are required. Unwise financing can drive a business into
bankruptcy just as easily as a poor product, inept marketing or high production costs.

On the other hand, adequate and economical financing can provide the firm a differential
advantage in the market place. The success of a business enterprise is largely determined
by the way its capital funds are raised, utilized and disbursed. In the modern money-using
economy, the importance of finance has increased further due to increasing scale of
operations and capital intensive techniques of production and distribution.

In fact, finance is the bright thread running through all business activity. It influences and
limits the activities of marketing, production, and purchasing and personnel management.
The success of a business is measured largely in financial terms. The efficient
organization and administration of the finance function is thus vital to the successful
functioning of every business enterprise.

Meaning of Financial Management:

 Financial management may be defined as planning, organizing, directing and controlling
the financial activities of an organization. According to Guttmann and Douglas, financial
management means, “the activity concerned with the planning, raising, controlling and
administering of funds used in the business.” It is concerned with the procurement and
utilization of funds in the proper manner.

Financial activities deal with not only the procurement and utilization of funds but also
with the assessing of needs for funds, raising required finance, capital budgeting,
distribution of surplus, financial controls, etc.

Ezra Solomon has described the nature of financial management as follows: “Financial
management is properly viewed as an integral part of overall management rather
than as a staff specially concerned with funds raising operations.

In this broader view, the central issue of financial policy is the wise use of funds and
the central process involved is a rational matching of the advantage of potential uses
against the cost of alternative potential sources so as to achieve the broad financial
goals which an enterprise sets for itself.

In addition to raising funds, financial management is directly concerned with

production, marketing and other functions within an enterprise whenever decisions
are made about the acquisition or distribution of funds.”

Functions of Finance management:

Finance function is the vital part of a business system. The need for money is perpetual.
Hence it is not possible to separate this entity from business. The firm requires fund for its
survival of business and future expansion. Finance management should manage to raise funds
from various sources and effectively utilize in order to meet the objectives of the company.
The term finance function can be defined as “Procurement of fund and their effective
utilization in the business”.

Finance function may be broadly classified into two types:

1.Managerial functions:

a) Investment decision
Investment decision involves the type and volume of assets to be accuired
b) Financial decision

Investment decision involves the decision about the various sources and the extent of funds to
be obtained

c) Dividend decision
Dividend decision involves the extent to profit to be allocated and extent of profit to
be allocated and the extent of profit to be retained.

2.Routine finance functions:

. a) supervision of cash receipts and payments and safeguarding of cash balances.

b) custody and safeguarding of securities policies and other valuable documents

c) Record keeping of financial transactions and reporting

In modern day enterprises,the managerial finance function are managed by the chief
financial officer (CFO) and the routine finance functions are managed by people at the
operation level

RATIO ANALYSIS
A Ratio analysis is a quantitative analysis of information contained in a company’s
financial statements. Ratio analysis is based on line items in financial statements like the
balance sheet, income statement and cash flow statement; the ratios of one item-or a
combination of items-to another item or combination are then calculated. Ratio analysis is
used to evaluate various aspects of a company’s operating and financial performance such
as its efficiency, liquidity, profitability and solvency. The trend of these ratios over time is
studied to check whether they are improving r deteriorating. Ratios are also compared
across different companies in the same sector to see how they stack up, and to get an idea
of comparative valuations. Ratio analysis is a cornerstone of fundamental analysis.

Ratio analysis refers to the analysis and interpretation the figures appearing in the
financial statements (i.e., profit and loss account, Balance sheet and fund flow statement
etc.).

It is a process of comparison of one figure against another. It enables the users like
shareholders, investors, creditors, government, and analysis etc. to get better
understanding of financial statements.

Khan and jain define the term ratio analysis as “the systematic use of ratios to interpret the
financial statements so that the strengths and weaknesses of a firm as well as its historical
performance and current financial conditions can be determined”

Ratio analysis is a very powerful analytical tool useful for measuring performance of an
organization. Accounting ratios may just be used as symptom like blood pressure, pulse
rate, body temperature etc. the physician analysis these information to know the causes of
illness. Similarly, the financial analyst should also analyse the accounting ratios to
diagnose the financial health of an enterprise.

Generally, ratio analysis involves four steps:

i. Collection of relevant accounting data from financial statements

ii. Constructing ratios of related accounting figures.
 iii. Comparing the ratios thus constructed with the standard ratios which
may be the corresponding past ratios of the firm or industry average
ratios of the firm or ratios of competitors.
iv. Interpretation of ratios to arrive at valid conclusions.

NEED OF THE STUDY:

Effective planning and financial management are the keys to running a

financially successful small business. Ratio analysis is critical for helping me
understand financial statements, for identifying trends over time and for measuring
the overall financial state of business. In addition, lenders and potential investors often
rely on ratio analysis when making lending and investing decisions.

Ratio analysis is a useful management tool that will improve my understanding

of financial results and trends over time, and provide key indicators of organizational
performance. Managers will use ratio analysis to pinpoint strengths and weaknesses from
strategies and initiatives can be formed.

Ratio analysis is important:

 To give meaning to absolute figure

 For planning and forecasting
 As a basis of decision making
 To compare the results and performance
 For analysis of strengths and weakness
 For analyzing change in the form of trend

OBJECTIVES OF THE STUDY

 To measure the profitability of the company.

 To determining the operational efficiency of the company.

  To measure the financial position of the company.

 To Facilitate the comparative analysis of the company.

 To know the solvency of the company.

 To assess the Earning position of the company.

 To indicate the overall efficiency of the company.

 To calculate the increasing profit of every year of the company

 To analyze the working conditions of the company.

 To get the differences between each year profits and losses of the company.

 To compare the internal benchmarks and goals.

SCOPE OF THE STUDY

The study covers the area of ratio analysis covered by “SREE BHAVANI SURGICALS &
MEDICAL AGENCIES,KAKINADA”. The study has been conducted with the help of data
obtained from audited from financial records. The audited financial records are the company
annual reports pertaining to past 3 years from march 2014 to march 2017 and the audited
financial records are
 The scope of the study includes the data of key financial ratios, working capital
statements and profit/loss statements and balance sheet which are necessary for evaluating the
financial performance of “SREE BHAVANI SURGICALS & MEDICAL AGENCIES,
KAKINADA.

METHODOLOGY

Methodology is scientific and systematic search for pertinent information topic. The
reliability of management decisions depends upon the quality of data.

Methodology

Research methodology is a way to systematically solve the research problem.

Data collection: -

For the study regarding Ratio analysis of sree Bhavani surgicals & medical agencies,
both the primary and secondary sources of data are used.

Primary data: -

Primary data is information that you collect specifically for the purpose of your research
project. An advantage of primary data is that it is specifically tailored to your research needs.
A disadvantage is that it is expesive to obtain

Examples:

1.Interacting with company employees.

2.Interacting with company official.

3.By asking some questionnaire

The present project is related to ratio analysis of the company hence for collecting
data there are some formal questionnaire is prepared and also I have observed the
organization thoroughly and held the discussion with the officials of the organization.

Secondary data: -

Secondary data refers to the data that was collected by someone other than the user. Common
sources of secondary data for social science include censuses, information collected by
government departments, organizational records and data that was originally collected for
other research purposes.

Examples:

1. Collecting data from journals, manuals

2. Collecting data from internet

The secondary data is collected from the various manuals and journals available in the
organization and also from the concern people of the firm. The financial data relating to the
organization has been collected for the years 2014 to 2017 from official website and from
annual reports of the company. These data had been analaysed by using financial tools.

Area and period of study

Project study is for 45 days i.e., from 08-05-2017 to 22-06-2017. The area of project study is
in SREE BHAVANI SURGICALS & MEDICAL AGENCIES,KAKINADA.

LIMITATIONS OF THE STUDY

1.The period of the study limited

2.As the manager of the organization is busy with his work schedule, it was difficult to collect
detailed data.

3.Authorities were reluctant to reveal full information about the working of the company.

4.My study is restricted to analyze the financial statements through annual reports.
 INDUSTRIAL PROFILE

World Health Organization (WHO), Pan American Health Organization (PAHO), World
Trade Organization (WTO), International conference on Harmonization (ICH),world
Intellectual Property Organization (WIPO) are some of the international regulatory agencies
and organizations which also play essential role in all aspects of pharmaceutical regulations
relations related to drug product registration, manufacturing, distribution , price control,
marketing, research and development and intellectual property protection.

Drug regulation means to promote various activities to ensure the efficacy and safety, quality
of drug. Pharmaceutical drugs are available from a large number of sources. People and
governments willing to spend on drugs for many reasons so, it must be safe, effective and
good quality of drugs as well as accuracy and appropriateness of the drug information
available to the public. Every country has its own regulatory authority, which is responsible to
enforce the rules and regulations and issue guidelines for drug development, licensing,
registration, manufacturing, marketing, and labeling of pharmaceutical products. The
production, import, storage, distribution, sales and supply of drug must be regulated.
Effective regulation of drug requires a variety of functions:

 Guaranteeing the safety, efficacy and quality of drugs,

 Licensing of premises, persons and practices.
 Inspection of manufacturing facilities and distribution channels.
 Product assessment and registration.
 Adverse drug promotion and advertisement.
 Quality control.
 Control of drug promotion and advertising.

Most importantly, the process of drug regulation.

The drug regulation consists of:

1.Drug laws

2.Drug regulatory agencies

3.Drug regulatory boards

4.Quality control

5.Drug information centres

Drug regulatory agencies in India:

India has emerged as one of the leading markets for pharmaceutical products.increase in the
private healthcare infrastructure, widening rural markets, and inclusion of newer technologies
have placed healthcare as an independent sector in India. With privatization of healthcare, the
medical devices sector is growing too.

In order to regulate the import, manufacture, distribution and sale of drugs and cosmetics, the
drugs and cosmetics act, 1940 (“D&C, Act) was introduced in India in 1940.However, no
separate regulation has been enacted for regulating the import, manufacture, distribution or
sale of medical devices in India till date by the government of India.Drugs and health is in
concurrent list of India constitution.
 Organisational structure

Ministry of Health

CDSCO

Drug controller general India(DCGI)

Deputy Drugs Controller(India)

Assistant Drugs Controller (India)

 Medical device division Diagnostic Division

Technical data
Drug Inspectors
Drug Inspect Drug
associates
inspectors Technical Data
Associates

COMPANY PROFILE

The sree Bhavani surgicals and medical agencies was started in the year 2004 in Kakinada
with the small initial investment of one lakh rupees and it’s business is Wholesale trade in
Medicines. It is located in D.No.29-9-66, Lakhmi Narayana company street, Surya Narayana
puram, Kakinada-533001. The status of the business is individual and the proprietor of the
business is Nandam Sudha Ramya D/O K.Ramalingeswara rao It is a sole trading business
which is running by a husband and wife. In the year 2004 it just started as a small firm with a
small amount of capital and then year by year it started to expansion of their business. Firstly
it stated to deal with Drugs(Medicines) and it when it comes to expansion of the business the
company started to with surgical goods and then Equipment. It started business through
opening other branches. It already started more than 3 branches in Kakinada. Which they are
using to store their stock in one or two goodowns and other branches are using as a office the
head office of their company is in lakhmi Narayana company, Kakinada. It also uses to send
their goods and equipment to many cities which are near to Kakinada. The company is
running by chinni nandam as a managing director who is the husband of proprietor Sudha
ramya nandam. The company has more than 100 employees and an internal auditor who
audits their accounting records. Their yearly income is more than ten lakhs and it also pays
their yearly tax. The company distributes their medicines and equipment to not only retail
medical shops but also to many hospitals in Kakinada and also to outside of the Kakinada.
The company also sells the medicines as a retail base also.

Sree Bhavani surgicals and Medical Agencies by an experience of 13 years is kakinada’s

most and prominent retailers and distributors of medical/surgical equipments. Hospital
furnitures, Medical/surgical disposables and orthopedic aids like wheel chairs. They believe
in giving quality of highest level. Infact they are in a business which is directly linked to the
Health & well bing of the people makes them more responsible company.

BHAVANI SURGICALS make three promises to every customer

Quality:

They will ensure that every product supplied is fully checked by our quality control
department and meets the highest possible standards. We also promise to provide you with an
exceptional level of service. Wherever possible, all sales and technical enquires will be
answered immediately.

Price:

We will do our utmost to provide the best possible price on all products. All quoted prices
will be held for 60 days from the date of the quote.

Delivery:

They gurantee that all products held in stock will normally be dispatched within 24 hours of
your order being processed at sree Bhavani surgicals.
VISION

 Quality products.
 My customer first
 First in customer satisfaction

MISSION

 We will be prompt, polite and proactive with our customers.

 We will speak the language of young India.
 We will create products and services that help our customers.
 We will go beyond the call of duty to make our customers feel valued.

VALUES

 We will always be honest, transparent and ethical.

 We will respect our customers and fellow associates.
 We will be knowledge driven.

SERVICES PROVIDED BY SREE BHAVANI SURGICALS &

MEDICAL AGENCIES:
 Door Delivery of Products.
 Price discounts on bulk purchases
 Providing both retail & wholesale trading.
 CHAPTER-2
INDUSTRIAL PROFILE
 CHAPTER – 2

INDIAN PHARMACEUTICAL INDUSTRY - AN OVERVIEW

Introduction:

The Indian pharmaceutical sector has emerged as a prominent provider for healthcare
products catering to more than 95% pharmaceutical needs of the country with a population of
1.1 billion (FICCI Report 2005). There has been a paradigm shift in the policies and programs
governing Indian pharmaceutical industry resulting in this industry, almost non existent till
1970, transforming to a 6 billion USD industry growing at a Compound Annual Growth Rate
(CAGR) of 13.7% (ibid). It currently ranks 4th and 13th in terms of global pharmaceutical
business volume and value, respectively (ibid). The Indian pharmaceutical industry has
progressed significantly by moving from traditional business models and exploring and
adapting to emerging new business models including: Contract research (drug discovery &
clinical trials), Contract manufacturing and Co-marketing alliances. The Indian
pharmaceutical companies have gained the desired competence in their manufacturing
capabilities and have also started fulfilling the Current Good Manufacturing Practices
(CGMP) compliance requirements stipulated by International regulatory agencies like United
States Food and Drug Administration (USFDA) and Medicine Control Council (MCC)
(Report of the Technical Expert Group on Patent Law Issues 2006). The Indian
pharmaceutical industry is at the crossroads: on the one hand, opportunities are emerging in
the developed markets, while on the other, the domestic market is becoming increasingly
challenging following the introduction of the product patent regime. In developed markets,
the focus on reducing healthcare costs has been increasing, with the result that there is
pressure on the authorities to allow early introduction of low-cost generic drugs. This in turn
points to large opportunities for Indian drug manufacturers with approved facilities and sound
knowledge of patent/regulatory issues. Besides, the impending expiry of significant drug
patents in the near term also offers opportunities for lower-cost Indian generic manufacturers
in terms of greater market access. However, even as there are opportunities, the challenges are
many: drawing up appropriate distribution strategies, selecting the right products, and
anticipating competition, among others. 44 Historically, in the domestic market, the option to
reverse engineer new molecules and come up with alternative drugs meant that investments in
product development were generally low while at the same time competition was intense,
given the low entry barriers. However, with the product patent regime having been introduced
this calendar, domestic players, to augment their product baskets, would need to focus more
on R&D and enter into alliances with innovator MNCs. The pharmaceutical industry is one of
the success stories of Indian manufacturing sector. Favourable Government policies along
with industry/firm level initiatives have helped the industry to experience high growth rates
over the years. Many Indian pharmaceutical companies have not only shown good
performance domestically but have also been able to establish their foothold in overseas
markets. Despite challenges posed by the WTO regime, the growth momentum has continued
in this sector. The strategies being adopted by the industry are however to be strengthened
along with an appropriate policy framework for shaping the future of the Indian
pharmaceutical industry (EXIM Bank Report 2007). Today, the industry is in the front rank of
India‘s science-based industries with wide ranging capabilities in the complex field of drug
manufacture and technology. A highly organized sector, the Indian pharmaceutical industry is
estimated to be worth 4.5 billion USD, growing at about 8 to 9 % annually. It ranks very high
in the third world, in terms of technology, quality and range of medicines manufactured. From
simple headache pills to sophisticated antibiotics and complex cardiac compounds, almost
every type of medicine is now made indigenously. Playing a key role in promoting and
sustaining development in the vital field of medicines, Indian pharmaceutical industry boasts
of quality producers and many units approved by regulatory authorities in USA and UK.
International companies associated with this sector have stimulated, assisted and spearheaded
this dynamic development in the past 53 years and helped to put India on the pharmaceutical
map of the world. The Indian pharmaceutical sector is highly fragmented with more than
20,000 registered units. It has expanded drastically in the last two decades. The leading 250
pharmaceutical companies control 70% of the market with market leader holding nearly 7%
of the market share. It is an extremely fragmented market with severe price competition and
government price control. 45 The pharmaceutical industry in India meets around 70% of the
country's demand for bulk drugs, drug intermediates, pharmaceutical formulations, chemicals,
tablets, capsules, orals and injectables. There are about 250 large units and about 8000 small
scale units, which form the core of the pharmaceutical industry in India (including 5 Central
Public Sector Units). These units produce the complete range of pharmaceutical formulations,
i.e., medicines ready for consumption by patients and about 350 bulk drugs, i.e., chemicals
having therapeutic value and used for production of pharmaceutical formulations. Following
the de-licensing of the pharmaceutical industry, industrial licensing for most of the drugs and
pharmaceutical products has been done away with. Manufacturers are free to produce any
drug duly approved by the Drug Control Authority. Technologically strong and totally self-
reliant, the pharmaceutical industry in India has low costs of production, low R&D costs,
innovative scientific manpower, strength of national laboratories and an increasing balance of
trade. The pharmaceutical industry, with its rich scientific talents and research capabilities,
supported by Intellectual Property Protection regime is well set to take on the international
market. India currently represents just 6 billion USD of the 550 billion USD global
pharmaceutical industry but its share is increasing at 10 %, compared to 7 % annual growth
for the world market overall (360 Global Pharmaceutical Perspectives, 2004). Also, while the
Indian sector represents just 8 % of the global industry total by volume, putting it in fourth
place worldwide, it accounts for 13 % by value (Organisation of Pharmaceutical Producers of
India, 2004), and its drug exports have been growing 30 % annually (Indian Government
National Pharmaceuticals Policy, January 2006). The ―organised‖ sector of the industry
consists of 250 to 300 companies, which account for 70 % of products on the market, with the
top 10 firms representing 30 %. However, the total sector is estimated at nearly 20,000
businesses, some of which are extremely small. Approximately 75% of India's demand for
medicines is met by local manufacturing (Pharma Review 2005). The per capita consumption
of drugs in India, stands at 3 USD, is amongst the lowest in the world, as compared to Japan-
412 USD, Germany- 222 USD and USA- 191 USD. India's 9.4 billion USD pharmaceutical
industries are growing at the rate of 14 % per year. It is one of the largest and most advanced
among the developing countries. The Indian pharmaceutical industry can reach a market size
of 11.6 billion USD by end of 2009.

SIGNIFICANCE OF PHARMACEUTICAL INDUSTRY:

India‘s pharmaceutical sector is receiving a major boost from population growth.

According to UN estimates, the population total looks set to rise from 1.1 bn at present to
1.4 bn in 2020. Up until 2020 India will see as many children being born as there are people
living in Germany, France, the UK and Italy together. By 2025, India will probably have
overtaken China as the world's most populous country. Its population growth results not least
from higher life expectancy. This is attributable, among other things, to improved preventive
healthcare. Of course, though, average life expectancy in India is still markedly lower than in
western countries. While the figure is 64 years for men and 66 years for women in India, life
expectancy in Germany is 76 years for men and 82 years for women. The ageing of the
population in India offers considerable market opportunities. According to a UN estimate, the
share of people over the age of 65 in the total population will rise from 5% currently to 8% in
2025. This would mean roughly 55 million more people aged 65 and over than today. As a
result, typical age-related illnesses such as cancer and cardio-vascular diseases will be more
wide-spread. The pharmaceutical sector will also receive a boost from the gradual spreading
of civilisation diseases such as obesity and diabetes. According to Price water house Coopers
(PwC), the number of Indians with diabetes will reach approximately 74 mn in 2025
(currently 34 mn); this is roughly the population of Turkey today. In developing countries as a
whole, there could be just fewer than 230 mn diabetes patients. This development should
benefit India‘s generics manufacturers. For the next 15 years we expect average annual
growth in India of 6-7% (Bergheim et al 2005). Strong income growth will broaden the
middle class, an important group for foreign drugs manufacturers, as it has considerably
higher incomes at its disposal than average Indians. Already today, nearly 60 m people in
India‘s middle class, with disposable incomes of EUR 3,500 to EUR 17,000 p.a., can afford
western-produced medicines. Until 2025 their number looks set to rise to approximately 580
mn (+12% p.a.), according to McKinsey estimates. Over a space of ten years, a four-member
middle-class family has seen spending on pharmaceuticals grow five times over, to
approximately EUR 170 p.a. People‘s improved income situation has also led to a growing
desire to insure against illness. 47 At this juncture, only 4% of all Indians have health
insurance, but this share should rise strongly over the medium term. This will have a positive
impact on the demand for drugs as people with health insurance are usually more likely to
obtain prescriptions than those without cover. Globalisation has not caused traditional
medicine to be abandoned but with higher education, rising income and a change in lifestyle,
western medical treatment is gaining in importance. At present the population especially in
rural areas still sees western medicine as a stop-gap cure which is unlikely, though, to provide
a lasting solution to health problems. Today, about 70% of the population on the Indian
subcontinent depend entirely or at least in part on traditional Indian medicine which is
cheaper and more easily available than western drugs (Uwe Perlitz 2008). Compared to the
general price index, drug prices have risen much less in the last 15 years and remain far below
average. Worldwide, India is a country of very low drug prices while producing high quality
medicines. Self-sufficiency with regard to pharmaceutics exceeds 90 % – in spite of the
policy of a more open economy pursued by India since 1991. The secret of this success is the
Indian Patents Act 1970. India had entered independence with the patent system of the British
colonial masters, enacted in 1911. This secured the Indian market for the British industry.
Prior to 1970, multinational companies dominated the Indian market with a share of 85 %;
pharmaceutics were largely imported whereas local production remained minimal. Section 83
of the Patents Act 1970 states "that patents are granted to encourage inventions and to secure
that the inventions are worked in India on a commercial scale and to the fullest extent and not
to enable patentees to enjoy a monopoly for the importation". At the turn of the century, the
share of multinationals had declined to a share of 40 % of India‘s market, including a
substantial share of local processing by multinationals. About 45 of the larger scale
production units belong to multinational companies (Medicus Bulletin 2002). Firms based in
India and China could be among the first to bring bio generics (generic versions of biological
products) to the regulated markets and faster than expected. The first bio generic product was
approved by the European Medicines Agency (EMEA) which refers to these products as
―biosimilars‖, in April 2006. 48 3.3. EVOLUTION OF THE INDUSTRY The Indian
pharmaceutical industry has come a long way since the time of independence when
multinational corporations dominated the industry. Over the years, under a favourable policy
regime, the industry has grown phenomenally and has established itself as a major supplier of
not only generic products but also new formulations. The industry, in addition to meeting
domestic demand, is in a position to export significant volume of pharmaceutical products to
various destinations, including the developed markets of USA, EU and Japan. Evolution of
Indian pharmaceutical industry can be classified into the following four periods: Pre-1970s:
The first Indian pharmaceutical company, Bengal Chemicals and Pharmaceutical Works,
which still exists today as one of 5 government-owned drug manufacturers, appeared in
Calcutta in 1930. For the next 60 years, most of the drugs in India were imported by
multinationals either in fully-formulated or bulk form. The government started to encourage
the growth of drug manufacturing by Indian companies in the early 1960s, and with the
Patents Act in 1970, enabled the industry to become what it is today. This patent act removed
composition patents from food and drugs, and though it kept process patents, these were
shortened to a period of five to seven years. The lack of patent protection made the Indian
market undesirable to the multinational companies that had dominated the market, and while
they streamed out, Indian companies started to take their places. They carved a niche in both
the Indian and world markets with their expertise in reverse-engineering new processes for
manufacturing drugs at low costs. Although some of the larger companies have taken baby
steps towards drug innovation, the industry as a whole has been following this business model
until the present (EXIM Bank Report 2007). During this period, the size of Indian
pharmaceutical industry was small, both in terms of number of firms and volume of
production. MNCs dominated the market, both in terms of volume of production and patent
holdings, in India. The patent regime, based on Indian Patents and Designs Act, 1911,
recognized both product and process patents. Due to monopoly status enjoyed by the MNCs,
drug prices remained high during this period. 49 1970 – 1995: Up until the 1970s, India‘s
pharmaceuticals market was mainly supplied by large international corporations. Only cheap
bulk drugs were produced domestically by state-owned companies founded in the 1950s and
60s with the help of the World Health Organisation (WHO). These state-run firms provided
the foundation for the sector‘s growth since the 1970s. Back then, India‘s government aimed
to reduce the country‘s strong dependence on pharmaceutical imports by flexible patent
legislation and to create a self-reliant sector. In addition, it introduced high tariffs and limits
on imported medicines and demanded that foreign pharmaceutical companies reduce their
shares in their Indian subsidiaries to two fifths. This made India a less attractive location for
international companies, many of which left the country as a consequence. Especially India
Drugs and Pharmaceutical Ltd. (IDPL) are credited with speeding up the development of a
national pharmaceutical industry. Several IDPL staff has successfully founded their own
firms, which now belong to the top group among India‘s pharmaceutical companies. In the
1980s, however, the decline of state-run companies began − among other things because of
increasing central government bureaucracy and insufficient corporate governance. Today,
there are no (entirely) state-owned pharmaceutical companies left. By contrast, the weakening
of the patent system and numerous protectionist measures sped up the development of a major
national pharmaceutical industry on a private-sector basis, which made it possible to provide
the population with a large number of drugs (Uwe Perlitz 2008). Government of India
introduced a new Patent Act, which came into effect in 1972, recognizing only process patent
and not product patent. The Act enabled Indian firms to use ‗reverse engineering process, to
manufacture drugs, without paying royalty to the original patent holder. The Act, along with
Drug Price Control Order, provided little incentive for MNCs to introduce new
pharmaceutical products in India. During this period, the number of domestic pharmaceutical
firms increased considerably, from around 2000 units in 1970 to 24,000 units in 1995.
Production of bulk drugs increased from Rs. 18 crores in 1965-66 to Rs. 1518 crores in 1995,
while that of formulations increased from Rs. 150 crores to Rs. 7935 crores during this
period. The increase in production was more pronounced in case of formulations due to large-
scale production of generics by domestic firms. Low cost and high volume production has
helped the Indian pharmaceutical industry in opening export channels to explore many
developed and developing countries. Share of exports as a Percentage of total production has
shown significant increase from 3.22% in 1980-81 to 24% in 1994-95. 50 1995-2005: As
there was no efficient patent protection between 1970 and 2005, many Indian drug producers
copied expensive original preparations by foreign firms and produced these generics by
means of alternative production procedures. This proved more cost-efficient than the
expensive development of original preparations as no funds were required for research, which
contained the financial risks. This spending block may come to as much as EUR 600 mn for
only one drug. This kind of money could previously only be raised by large corporations in
the industrial countries. The competitiveness of generics producers is based on cost efficient
production. In this field, Indian companies are currently in top position. At one-fifth, India‘s
share in the global market for generic drugs is considerably higher than its share in the overall
pharmaceuticals market (approximately 2%). At the same time, India‘s pharmaceutical
companies gained know-how in the manufacture of generic drugs. Hence, the name
―pharmacy of the poor‖ is frequently applied to India. This is of significance not least for the
domestic market as disposable income is as little as EUR 1,900 per year for roughly 140
million of the total of 192 million Indian households (Just et al 2006) which means the
majority of Indians cannot afford expensive western preparations. India‘s pharmaceutical
industry has been in transition for several years now. This is the result mainly of the changes
to drug patent legislation in 2005. Prior to the Patent Amendment Bill, not the substance itself
but merely the manufacturing process was protected for a period of seven years. India‘s patent
legislation had frequently been the reason for legal disputes with large western drug firms,
especially from the US. In line with international standards, the sector is now subject to
product and process patents valid for a period of 20 years. Indian companies seeking to copy
drugs before the patent expires are forced to pay high licence fees. This became necessary
following the signing by India's government of the TRIPS Agreement (Agreement on Trade-
Related Aspects of Intellectual Property Rights). So Indian drug firms could no longer simply
copy medicines with foreign patents by using alternative manufacturing processes and offer
them on the domestic market. As a consequence of these major changes to India‘s drug patent
legislation, the country‘s pharmaceutical industry is undergoing a process of re-orientation. Its
new focus is increasingly on self-developed drugs and contract research and/or production for
western drug companies. 51 Between 1996 and 2006, nominal sales of pharmaceuticals on the
Indian subcontinent were up 9% per annum and thus expanded much faster than the global
pharmaceutical market as a whole (+7% p.a.). Indian companies strongly expanded their
capacities, making the country by and large self-sufficient. Nonetheless, with total sector sales
of roughly EUR 10 bn, India commands a less than 2% share in the world‘s pharmaceutical
market (1966: 1.5%). This puts the country in twelfth place internationally, even behind
Korea, Spain and Ireland and before Brazil, Belgium and Mexico. Among the Asian
countries, India‘s pharmaceuticals industry ranks fourth at 8%, but has lost market share to
China, as sales growth there was nearly twice as high and sales volumes nearly four times
higher than in India. The year 1995 recorded another milestone for the Indian pharmaceutical
industry. One of the Agreements under the World Trade Organisation was complying with the
Trade Related Intellectual Property Rights (TRIPS) provisions. The TRIPS Agreement
reintroduced product patent in India. Further, during this period, tariff and non-tariff measures
have come down. Such developments have worked in favour of Indian pharmaceutical
industry to undertake activities such as clinical research and new drug development.
Indigenous producers dominated the market accounting for more than 70% of the market
share. Exports also continued to increase during this period, due to strong R&D process and
low manufacturing cost. POST-2005: India's new product patent regime is the result of the
WTO's Doha Round of negotiations in 2001. Final agreement was reached on TRIPs ground
rules for patent protection among WTO member countries, stating that both processes and
products should be protected. Subsequently, on March 22, 2005, India's parliament approved
the Patents (Amendment) Act 2005, bringing in a system of product patents backdated to
January 1, 2005. The new regime protects only products arriving on the market after January
1, 1995, abolishing the previous process patent system established by the 1970 Patent Act.
Since the introduction of product patents the MNCs have largely returned, the most recent
being Merck & Co, which inaugurated its wholly owned subsidiary MSD India Pvt Ltd in
July 2005 after being absent for approximately 20 years. Assocham believes the new patent
regime will enable the development of innovative new drugs, which will increase profitability
for MNCs. It will also force domestic players to focus on R&D, which, for those who can
afford to do so, will have long-term beneficial effects (Associated Chambers of Commerce
and Industry of India Report to Government, 2005).

PORTER‟S Competitive Forces Porter‘s five forces analysis is a framework for the industry
analysis and business strategy development developed by Michael E Porter of Harvard
Business School in 1979. It uses concepts developed in Industrial Organization (IO)
economics to derive five forces which determine the competitive intensity and therefore
attractiveness of a market. Attractiveness in this context refers to the overall industry
profitability. Porter referred to these forces as the micro environment, to contrast it with the
more general term macro environment. They consist of those forces close to a company that
affect its ability to serve its customers and make a profit. A change in any of the forces
normally requires a company to re-assess the marketplace. The overall industry attractiveness
does not imply that every firm in the industry will return the same profitability. Firms are able
to apply their core competences, business model or network to achieve a profit above the
industry average. By applying unique business models have been able to make a return in
excess of the industry average.

Industry competition:

Pharma industry is one of the most competitive industries in the country with as many
as 10,000 different players fighting for the same pie. The rivalry in the industry can be gauged
from the fact that the top player in the country has only 6% market share, and the top five
players together have about 18% market share. Thus, the concentration ratio for this industry
is very low. High growth prospects make it attractive for new players to enter in the industry.
Another major factor that adds to the industry rivalry is the fact that the entry barriers to
pharma industry are very low. The fixed cost requirement is low but the need for working
capital is high. The fixed asset turnover, which is one of the gauges of fixed cost
requirements, tells us that in bigger companies this ratio is in the range of 3.5 to 4 times. For
smaller companies, it would be even higher. Many smaller players that are focused on a
particular region have a better hang of the distribution channel, making it easier to succeed,
albeit in a limited way. An important fact is that pharma is a stable market and its growth rate
generally tracks the economic growth of the country with some multiple. Though volume
growth has been consistent over a period of time, value growth has not followed in tandem.
The product differentiation is one key factor, which gives competitive advantage to the firms
in any industry. However, in pharma industry product differentiation is not possible since
India has followed process patents, with laws favouring imitators. Consequently, product
differentiation is not the driver, cost competitiveness is. However, companies like Pfizer and
GlaxoSmithKlineBeecham have created big brands in over the years, which act as product
differentiation tools. This will enhance over the long term, as product patents come into play
from 2005. 3.4.2. Bargaining power of buyers The unique feature of pharma industry is that
the end user of the product is different from the influencer (read doctor). The consumer has no
choice but to buy what the doctor says. However, when we look at the buyer's power, we look
at the influence they have on the prices of the product. 54 In pharma industry, the buyers are
scattered and they as such do not wield much power in the pricing of the products. However,
government with its policies plays an important role in regulating pricing through the NPPA
(National Pharmaceutical Pricing Authority). 3.4.3. Bargaining power of suppliers the pharma
industry depends upon several organic chemicals. The chemical industry is again very
competitive and fragmented. The chemicals used in the pharma industry are largely a
commodity. The suppliers have very low bargaining power and the companies in the pharma
industry can switch from their suppliers without incurring a very high cost. However, what
can happen is that the supplier can go for forward integration to become a pharma company.
Companies like Orchid Chemicals and Sashun Chemicals were basically chemical companies,
who turned themselves into pharmaceutical companies. 3.4.4. Barriers to entry Pharma
industry is one of the most easily accessible industries for an entrepreneur in India. The
capital requirement for the industry is very low; creating a regional distribution network is
easy, since the point of sales is restricted in this industry in India. However, creating brand
awareness and franchisee amongst doctors is the key for long-term survival. Also, quality
regulations by the government may put some hindrance for establishing new manufacturing
operations. Going forward, the impending new patent regime will raise the barriers to entry.
But it is unlikely to discourage new entrants, as market for generics will be as huge. 3.4.5.
Threat of substitutes this is one of the great advantages of the pharma industry. Whatever
happens, demand for pharma products continues and the industry thrives. One of the key
reasons for high competitiveness in the industry is that as an ongoing concern, pharma
industry seems to have an infinite future. 55 However, in recent times, the advances made in
the field of Biotechnology, can prove to be a threat to the synthetic pharma industry

SCENARIO OF PHARMACEUTICAL INDUSTRY:

The annual turnover of the Indian pharmaceutical industry is over 11 billion USD.
Globally it ranks 4th in terms of volume with a share of 8% in the world pharmaceutical
market. In terms of value, it ranks 14th. Key therapeutic segments of Indian pharmaceutical
industry include anti-infective, gastrointestinal and cardiovascular. Acute therapies make up
about 60% of the market. However, it is expected that with the changing lifestyle and aging
population, sales of chronic therapies (i.e. diabetes, cardiovascular) are growing rapidly. The
pharmaceutical industry is also showing good performance in terms of exports. It is one of the
top export items from India accounting for more than 4% of India‘s total exports in 2006-07.
Exports, which constitute around 50% of the industry‘s total production, have grown at a
CAGR of 14% in the last decade. Major export markets include highly regulated markets such
as USA, Germany, UK and Canada. Europe is the biggest export destination for Indian
pharmaceuticals accounting for more than 30% of the total exports, followed by the Americas
region (25%). Government policies, viz., Drugs and Cosmetics Act (1940), Drugs Policy
(1986), Indian Patents Act (1970), Drug Price Control Order (1995), Pharmaceutical Policy
(2002), Indian Patents (Amendment) Act (2005), have played a major role in the growth of
Indian pharmaceutical Industry. The Government has also formulated a Draft National
Pharmaceutical Policy (2006), which will be finalised after consultation with the stakeholders.
Besides, the Government has also facilitated the growth of the Indian pharmaceutical industry
through institutional framework and encouraging investments in R&D (EXIM Bank Report
2007). India‘s pharmaceutical industry currently comprises about 20,000 licensed companies
employing approximately 5,00,000 staff. Besides many very small firms these also include
internationally well-known companies such as Ranbaxy, Cipla or Dr. Reddy‘s. With sales of
roughly EUR 1 bn, Ranbaxy is currently the world‘s seventh largest generics manufacturer.
Currently the most important segment on the domestic market is anti-invectives, they account
for one-quarter of total turnover. Next in line, and accounting for one-tenth each, are cardio-
vascular preparations, cold remedies and pain-killers. By contrast, medicines against
civilisation diseases (such as 56 diabetes, asthma and obesity) or so-called lifestyle drugs
(anti-depressants, drugs to help smokers to quit and anti-wrinkle formulations) are of little
significance at present. All in all, the Indian pharmaceutical industry produces about 70,000
different drugs, which is higher than the number produced in Germany (60,000) (Uwe Perlitz
2008). India gained its foothold on the global scene with its innovatively-engineered generic
drugs and active pharmaceutical ingredients (API), and it is now seeking to become a major
player in outsourced clinical research as well as contract manufacturing and research.

PATENTS:

As it expands its core business, the industry is being forced to adapt its business
model to recent changes in the operating environment. The first and most significant change
was the January 1, 2005 enactment of an amendment to India‘s patent law that reinstated
product patents for the first time since 1972. The legislation took effect on the deadline set by
the WTO‘s Trade-Related Aspects of Intellectual Property Rights (TRIPS) agreement, which
mandated patent protection on both products and processes for a period of 20 years. Under
this new law, India will be forced to recognize not only new patents but also any patents filed
after January 1, 1995 (The Economic Times 2005). Indian companies achieved their status in
the domestic market by breaking these product patents, and it is estimated that within the next
few years, they will lose 650 million USD of the local generics market to rightful patent-
holders (Singh et al 2004). In the domestic market, this new patent legislation has resulted in
fairly clear segmentation. The multinationals narrowed their focus onto high-end patients who
make up only 12% of the market, taking advantage of their newly-bestowed patent protection.
Meanwhile, Indian firms have chosen to take their existing product portfolios and target semi-
urban and rural populations (Unnikrishnan 2005). The new patent regime to have taken effect
at a time when Indian companies had recently started to aggressively pursue global
opportunities, so it is not clear whether the flurry of international activity surrounding the
enactment date is a result of the change in legislation. Mergers, acquisitions and alliances
have been taking place on an unprecedented scale, most notably with companies in the U.S.
and Europe. As stated in The Hindu Business Line, ―In the last 10-odd months, the Indian
pharmaceutical 57 industry has possibly seen the single largest number of global transactions
in its 50- year history‖. These transactions provide Indian companies with access to foreign
markets and facilitate the process of seeking regulatory approval for new products, which can
be quite daunting for a company that only has operations on Indian soil (Datta et al 2005)

PRODUCT DEVELOPMENT:
Companies are also starting to adapt their product development processes to the new
environment. For years, firms have made their ways into the global market by researching
generic competitors to patented drugs and following up with litigation to challenge the patent.
This approach remains untouched by the new patent regime and looks to increase in the
future. However, those that can afford it have set their sights on an even higher goal new
molecule discovery. Although the initial investment is huge, companies are lured by the
promise of hefty profit margins and the recognition as a legitimate competitor in the global
industry. Local firms have slowly been investing more money into their R&D programs or
have formed alliances to tap into these opportunities. 3.8. SMALL AND MEDIUM
ENTERPRISES As promising as the future is for a whole, the outlook for small and medium
enterprises (SME) is not as bright. The excise structure changed so that companies now have
to pay a 16% tax on the maximum retail price (MRP) of their products, as opposed to on the
ex-factory price. Consequently, larger companies are cutting back on outsourcing and what
business is left is shifting to companies with facilities in the four tax-free states - Himachal
Pradesh, Jammu & Kashmir, Uttaranchal and Jharkhand (D‘Silva et al 2005). As SMEs
wrestled with the tax structure, they were also scrambling to meet the July 1st deadline for
compliance with the revised Schedule M Good Manufacturing Practices (GMP). While this
should be beneficial to consumers and the industry at large, SMEs have been finding it
difficult to find the funds to upgrade their manufacturing plants, resulting in the closure of
many facilities. Others invested the money to bring their facilities to compliance, but these
operations were located in non-tax-free states, making it difficult to compete in the wake of
the new excise tax.

RESEARCH AND DEVELOPMENT:

Both the Indian central and state governments have recognised R&D as an important driver
in the growth of their pharmaceutical businesses and conferred tax deductions for expenses
related to research and development. They have granted other concessions as well, such as
reduced interest rates for export financing and a cut in the number of drugs under price
control. Government support is not the only thing in Indian pharma‘s favour, though;
companies also have access to a highly-developed IT industry that can partner with them in
new molecule discovery. 3.10. MANUFACTURING There are 74 U.S. FDA-approved
manufacturing facilities in India, more than in any other country outside the U.S, and in 2005,
almost 20 % of all Abbreviated New Drug Applications (ANDA) to the FDA were filed by
Indian companies. Growth in other fields’ not withstanding, generics is still a large part of the
picture. The focus of the Indian pharma companies is also shifting from process improvisation
to drug discovery and R&D. the Indian companies are setting up their own R&D setups and
are also collaborating with the research laboratories like CDRI, IICT, etc. The Government
policies, programs and initiatives enabled the industry a smooth transition from process patent
to product patent regime and resulted in its emergence as a global leader in generic
manufacturing field. Indian generic drug manufacturers have been manufacturing generic
versions of branded drugs. The generic drug manufacturers who had made significant
investment and were marketing the product prior to January 2005 are allowed to continue
marketing the product in the new patent regime and the Act granted them immunity from
infringement suits by patent holders. ‗Bolar‘ exception in Indian patent law allows the
generic manufacturers to carry out the mandatory tests necessary for regulatory approvals
without having to wait till the expiry period of the patent. It also ensures Indian generic
manufacturers to compete among themselves and provides continued availability of
medicines at low costs for domestic and international, consumers. There is increased
competition in the US and European generics market leading to considerable price reduction
of pharmaceutical products. Generic players are also finding it difficult to obtain Para IV wins
(India Packaging Show: Para IV Troopers 2007) to effectively compete in the market. 59 The
Act has maintained a reasonable balance between stringent Intellectual Property measures
while making use of some of the flexibilities that are inbuilt under TRIPS provisions. The
Indian generic manufacturing industry is strong despite pricing pressure exerted on it from the
generic markets of US and Europe. The Indian generic industry has a competitive advantage
due to relatively cheaper generics whose market demand may also increase due to increase in
ageing population in US and Europe and it is expected that such population of Europe is
expected to increase from 20% to 26% by 2025 and that of US from 16% to 25% (Yahoo
India Finance 2007). 3.11. PRODUCT CATEGORIES AND MARKET SHARE The
pharmaceutical industry can be divided on the basis of therapeutic application and on the
basis of foam. On the basis of application, the industry can be divided into therapeutic
segments, while on the basis of foam; the industry can be divided into bulk drugs and
formulations. On the basis of application, the key segments in the pharmaceuticals Industry
are as under, however some of the therapeutic segment are overlapping because of multiple
applications (ICRA Report 2002).

1. Anti-infective: (penicilium, sulphonamides Aminoglycosides tetracyclines, macrolides,

cepholsporins, auinolonesetc) anti –parasites (anti-protozoa, antimalarias, anti-fungals, anti-
helmintic etc), anti-tuberculosis and vaccines.

2. Antipyretics and analgesics: pain killers, non steroidal anti inflammatory drugs (NSAIDs)
and drugs for fevers.
3. Cardivascular (CVS) drugs: cardiac therapy, anti-hypertensives and antihypotensives.

4. Central Nervous system (CNS) drugs: analgesics, psycoleptics, anti-epilepsy, tranquilisers

and sedatives and anti-Parkinson‘s disease.

5. Dermatological preparations: topical corticosteroids, antiseptics and anti-fungals.

6. Gastrointestinal: antacids, anti-ulcerants, anti-helmintics, anti-flatulents and anti-

diarrhoeals.

7. Genitourinary and sex hormones: corticosteroids, sex hormones and stimulants.

8. Haematologicals: anti-anaemic preparations.

9. Muscular Drugs: anti-inflammatory and anti-rheumatics.

10. Respiratory Drugs: cough and cold preparations, anti-asthmatics, antihistamines, rubs and
anti-tuberculosis.

11. Other drugs: General nutrients, minerals and vitamins.

ANTIBIOTICS

an antibiotic is a chemical produced by or derived from micro-organisms (i.e. germs such as

bacteria and fungi) that kills bacteria or inhibits their growth (Dorland’s Medical Dictionary:
antibacterial, 2007). Antibiotics are among the most frequently prescribed medications in
modern medicine. Antibiotics cure disease by killing the bacteria or by bacterial reproduction
and growth inhibition. The term ‗antibiotic‘ was coined by Selman Waksman in 1942 to
describe any substance produced by a microorganism that is antagonistic to the growth of
other micro-organisms in high dilution (Waksman, 1947). Before bacteria can multiply and
cause symptoms of diseases, our immune system can usually destroy them. Even if symptoms
do occur, our immune system can usually cope and fight off the infection. There are
occasions, however, when it is all too much and our bodies need some help - from antibiotics.
Although there are a number of different types of antibiotics, they all work in one of the
following two ways: A bactericidal antibiotic kills the bacteria. Penicillin is a bactericidal. A
bactericidal usually either interferes with the formation of the bacterium's cell wall or its cell
contents. A bacteriostatic stops bacteria from multiplying. Antibiotics target microorganisms
such as bacteria, fungi and parasites. However, they are not effective against viruses. If an
individual has an infection, it is important to know whether it is caused by a bacteria or a
virus. Most upper respiratory tract infections, such as the common cold and sore throats are
generally caused by viruses - antibiotics do not work against these viruses. If antibiotics are
overused or used incorrectly there is a chance that the bacteria will become resistant - the
antibiotic becomes less effective against that type of bacterium.

CLASSIFICATION OF ANTIBIOTICS:

Antibiotics are commonly classified based on their mechanism of action, chemical structure,
or spectrum of activity. Most antibiotics target bacterial functions or growth processes
(Calderon et al, 2007). Antibiotics that target the bacterial cell 62 wall (penicillin‘s,
cephalosporin‘s), or cell membrane (polymixins), or interfere with essential bacterial enzymes
(quinolones, sulfonamides) are usually bactericidal in nature. Those that target protein
synthesis, such as the aminoglycosides, macrolides, and tetracyclines, are usually
bacteriostatic (Finberg et al, 2004). Further categorization is based on their target specificity:
"Narrow-spectrum" antibiotics target particular types of bacteria, such as Gram-negative or
Gram-positive bacteria, whereas broad-spectrum antibiotics affect a wide range of bacteria. In
the last few years, three new classes of antibiotics have been brought into clinical use. This
follows a 40-year hiatus in discovering new classes of antibiotic compounds. These new
antibiotics are of the following three classes: cyclic lipopeptides (daptomycin), glycylcyclines
(tigecycline), and oxazolidinones (linezolid) (Cunha, 2009). Tigecycline is a broad-spectrum
antibiotic, whereas the two others are used for Grampositive infections. These developments
show promise as a means to counteract the bacterial resistance to existing antibiotics.

The main classes of antibiotics include:

• Macrolides

• Aminoglycosides

• Cephalosporins

• Fluoroquinolones

• Penicillins

• Tetracyclines

• Carbapenems
ANTIBIOTIC RESISTANCE:

The emergence of antibiotic resistance is an evolutionary process that is based on selection of

organisms that have enhanced ability to survive doses of antibiotics that would have
previously been lethal (Levy SB, 1994). Antibiotics like Penicillin and Erythromycin, which
used to be one-time miracle cures are now less effective because bacteria have become more
resistant. Antibiotics themselves act as a selective pressure that allows the growth of resistant
bacteria within a population and inhibits susceptible bacteria (Levy SB, 1994). Antibiotic
selection of pre-existing antibiotic resistant mutants within bacterial populations was
demonstrated in 1943 by the Luria–Delbruck experiment (Luria SE et al, 1943). Survival of
bacteria often results from an inheritable 63 resistance (Witte W, 2003). Any antibiotic
resistance may impose a biological cost. Spread of antibiotic-resistant bacteria may be
hampered by reduced fitness associated with the resistance, which is disadvantageous for
survival of the bacteria when antibiotic is not present. Additional mutations, however, may
compensate for this fitness cost and aids the survival of these bacteria (Anderson DI, 2006).
The problem of resistance has been exacerbated by the use of antibiotics as prophylactics,
intended to prevent infection before it occurs. Indiscriminate and inappropriate use of
antibiotics for the treatment of the common cold and other common viral infections, against
which they have no effect, removes antibiotic sensitive bacteria and allows the development
of antibiotic-resistant bacteria. Although there are a number of different types of antibiotics,
they all work in one of the following two ways: A bactericidal antibiotic kills the bacteria.
Penicillin is a bactericidal. A bactericidal usually either interferes with the formation of the
bacterium's cell wall or its cell contents. A bacteriostatic stops bacteria from multiplying.
Antibiotics target microorganisms such as bacteria, fungi and parasites. However, they are not
effective against viruses. If an individual has an infection, it is important to know whether it is
caused by a bacteria or a virus. Most upper respiratory tract infections, such as the common
cold and sore throats are generally caused by viruses - antibiotics do not work against these
viruses. If antibiotics are overused or used incorrectly there is a chance that the bacteria will
become resistant - the antibiotic becomes less effective against that type of bacterium.

a population and inhibits susceptible bacteria (Levy SB, 1994). Antibiotic selection of pre-
existing antibiotic resistant mutants within bacterial populations was demonstrated in 1943 by
the Luria–Delbrück experiment (Luria SE et al, 1943). Survival of bacteria often results from
an inheritable 63 resistance (Witte W, 2003). Any antibiotic resistance may impose a
biological cost. Spread of antibiotic-resistant bacteria may be hampered by reduced fitness
associated with the resistance, which is disadvantageous for survival of the bacteria when
antibiotic is not present. Additional mutations, however, may compensate for this fitness cost
and aids the survival of these bacteria (Anderson DI, 2006). The problem of resistance has
been exacerbated by the use of antibiotics as prophylactics, intended to prevent infection
before it occurs. Indiscriminate and inappropriate use of antibiotics for the treatment of the
common cold and other common viral infections, against which they have no effect, removes
antibiotic sensitive bacteria and allows the development of antibiotic-resistant bacteria.

EMPLOYMENT GENERATION BY THE INDUSTRY:

Most pharmaceutical companies operating in India, even the multinationals, employ Indians
almost exclusively from the lowest ranks to high level management. Mirroring the social
structure, firms are very hierarchical. Home grown pharmaceuticals, like many other
businesses in India, are often a mix of public and private enterprise. Although many of these
companies are publicly owned, leadership passes from father to son and the founding family
holds a majority share. India‘s greatest strengths lie in its people. India also boasts a cheap,
well educated, English-speaking labour force that is the base of its competitive advantage.
Although molecular biologists are in short supply, there are a number of talented chemists
who are equally as important in the discovery process. In addition, there has been a reverse
brain-drain effect in which scientists are returning from abroad to accept positions at lower
salaries at Indian companies. Once there, these foreign trained scientists can transfer the
benefits of their knowledge and experience to all of those who work with them (Joshi et al
2003). India‘s wealth of people extends benefits to another part of the drug commercialisation
process as well. With one of the largest and most genetically diverse populations in any single
country, India can recruit for clinical trials more quickly and perform them more cheaply than
countries in the West (Wilkie et al 2004). Indian firms have just recently started to leverage.
64 The fact that despite the low level of unit labour costs India boasts a highly skilled
workforce has enabled the country's pharmaceutical industry at a relatively early stage to offer
quality products at competitive prices. Each year, roughly 1,15,000 chemists graduate from
Indian universities with a master‘s degree and roughly 12,000 with a Doctoral degree (Hajos
et al) . The corresponding figures for Germany – just fewer than 3,000 and 1,500, respectively
– are considerably lower. After many chemists from India migrated to foreign countries over
the last few years, they now consider their chances of employment in India to have improved.
As a result, a smaller number is expected to go abroad in the coming years; some may even
return.

PERFORMANCE INDICATORS OF THE INDUSTRY:

The pharmaceutical industry is characterized by low fixed asset intensity and high working
capital intensity (ICRA, 2002). The Material cost, Marketing and selling cost and Manpower
Cost constitute the three major cost elements for the Indian pharmaceutical industry,
accounting for close to 70% of the operating income. In the past 6-7 years, material costs,
which account for almost 50% of the operating cost have declined owing to the decrease in
prices of bulk drugs and intermediates, increase in exports which enabled procurement of raw
materials in large quantities and hence at low prices and finally due to increase in production
efficiencies. On the other hand, the marketing and selling expenses, comprising of
promotional expenses, trade discounts, advertising and distributing costs; and freight and
forwarding costs have increased in the past few years owing to the increase in emphasis on
sales of formulations. This increased focus on marketing partly lead to the increase in the
manpower costs of pharmaceutical companies during the last decade. The other factor for the
increase in the manpower costs, at least in case of a few companies might be due to an
increase in R&D efforts, which requires quality research personnel

Conclusion:

In this chapter, we have reviewed some of the important policy changes pertaining to the
pharmaceutical sector of India. We noticed that government policies played a pivotal role for
the growth and development of this sector over time. Particularly, the absence of product
patents, assured the market for life saving drugs, and protection from foreign competition,
helped the growth of this industry. We also notice that positive externalities from the public
sector and the research units enabled firms to gain competence in process engineering and
maintain a competitive edge in the international market.

The recent changes in government policy from protection to competition are also evident
from the review of policies. Aggregate indicators like concentration ratio, scale economies
etc. also suggest that the industry is highly competitive with a low level of concentration.
However, in spite of high competition, the pharmaceutical industry is one of the most
profitable industries. We traced the largeness in the size of the firm, R&D, marketing and
export intensity as the possible main sources for better performance of firms. However, the
analyses are not statistically rigorous. In the subsequent chapters of this book, we have done
an in-depth analysis of the performance of firms by examining their efficiency, productivity
and profitability and the factors that influence performance.

CHAPTER-3
COMPANY PROFILE
 COMPANY PROFILE

Name of the Company : Sri Bhavani Surgical & Medicals

Agencies

Founder of the company : Chinni Nandam

Proprietor of the company : Sudha Ramya Nandam

Type of the company : sole trading company

Business : Wholesale Trade in Medicines

Managing Director of the company : Chinni Nandam

Establishment Year : 2004

Auditor of the company : Bhanu Murthy Mylavarapu

No. of Branches : 3

Address of the company : 29-9-66,

Laxminarayana Company
Street,

Suryanarayana Puram,

Kakinada,

East Godavari district,

533001, Andhra Pradesh.

 COMPANY PROFILE

The sree Bhavani surgicals and medical agencies was started in the year 2004 in Kakinada
with the small initial investment of one lakh rupees and it’s business is Wholesale trade in
Medicines. It is located in D.No.29-9-66, Lakhmi Narayana Company Street, Surya Narayana
puram, Kakinada-533001. The status of the business is individual and the proprietor of the
business is Nandam Sudha Ramya D/O K.Ramalingeswara rao it is a sole trading business
which is running by a husband and wife. In the year 2004 it just started as a small firm with a
small amount of capital and then year by year it started to expansion of their business. Firstly
it stated to deal with Drugs(Medicines) and it when it comes to expansion of the business the
company started to with surgical goods and then Equipment. It started business through
opening other branches. It already started more than 3 branches in Kakinada. Which they are
using to store their stock in one or two good owns and other branches are using as a office the
head office of their company is in lakhmi Narayana company, Kakinada. It also uses to send
their goods and equipment to many cities which are near to Kakinada. The company is
running by chinni nandam as a managing director who is the husband of proprietor Sudha
ramya nandam. The company has more than 100 employees and an internal auditor who
audits their accounting records. Their yearly income is more than ten lakhs and it also pays
their yearly tax. The company distributes their medicines and equipment to not only retail
medical shops but also to many hospitals in Kakinada and also to outside of the Kakinada.
The company also sells the medicines as a retail base also.

Sree Bhavani surgicals and Medical Agencies by an experience of 13 years is kakinada’s

most and prominent retailers and distributors of medical/surgical equipments. Hospital
furnitures, Medical/surgical disposables and orthopedic aids like wheel chairs. They believe
in giving quality of highest level. In fact they are in a business which is directly linked to the
Health & well being of the people makes them more responsible company.

BHAVANI SURGICALS make three promises to every customer

Quality:

They will ensure that every product supplied is fully checked by our quality control
department and meets the highest possible standards. They also promise to provide you with
an exceptional level of service. Wherever possible, all sales and technical enquires will be
answered immediately.

Price:

They will do our utmost to provide the best possible price on all products. All quoted prices
will be held for 60 days from the date of the quote.

Delivery:

They guarantee that all products held in stock will normally be dispatched within 24 hours of
your order being processed at sree Bhavani surgicals.
VISION

 Quality products.
 My customer first
  First in customer satisfaction

MISSION

 We will be prompt, polite and proactive with our customers.

 We will speak the language of young India.
 We will create products and services that help our customers.
 We will go beyond the call of duty to make our customers feel valued.

VALUES

 We will always be honest, transparent and ethical.

 We will respect our customers and fellow associates.
 We will be knowledge driven.

SERVICES PROVIDED BY SREE BHAVANI SURGICALS & MEDICAL

AGENCIES:
 Door Delivery of Products.
 Price discounts on bulk purchases
 Providing both retail & wholesale trading.
2004:

This is the year of establishment of the company sree Bhavani surgical& Medical
Agencies. In this year they started the wholesale trading of medical products like medicines,
ointments, syrups and small medical requirements and equipments in a small room. The initial
investment of the company is 1, 00,000/- (one lakh rupees).

2005:

In this year they started improving themselves. In this year their investment was
increased due to some profits. They started giving medicines and other medical related
products to debtors. Their purchase has increased though their sales also increased. In this
year their company get good will within the period of one year. They started their expansion
in the supplying of medical goods and also their communication with the other retailers of
medical shops and hospitals.

2006:

This is the third year of the company and their expansion was very good and also their good
will was increased in between the retailers and the all medical agencies and also in hospitals.
Slowly their sales were increased. In this year they started supplying their products to the
people to their doors. That means they started door delivery of the products to the all retail
shops and also all hospitals.

2007:

In 2007 they had taken a good own for rent to store their products. They also build their office
and started supplying the products from the office and they started o taking orders and
delivering products and equipment according to their orders.

2008:

In this year they started auditing their accounts and report their audited statements to the
government and also they were used to pay tax to the government and also they appointed a
charted accountant for that purpose. They always satisfy their customers through their service
and always behave politely with their customers.
2009:

In the year 2009 they got the experience of 5 years and they usually enjoyed that experience
and they using that experience in a very good way and they improved the relations with all the
people and also they improved their communication with all the retailers and all the hospitals
where they are supplying.

2010:

In the year 2010 they started expanding their business through the electronic way. That means
it wants to create a page in internet and that was www.Bhavani surgical.com and also they
advertise themselves in the internet.

2011:

2011 is the year when they started another store in Kakinada and using that store as a good
own for storing the goods and medical products the store was located in the rangayyanaidu
street, Kakinada.

2012:

In 2012 they build their headquarters at laxminarayana Company Street and its door number
is 29-9-66.It build its headquarters with main office and also with main supplying stores. And
it started supplying their products from their headquarters.
2013:

They started supplying the medical products and goods to the towns and villages which are
around the city Kakinada. And they anonymously increased their business by their quality of
giving products and their time of discharging the products to their customer and retailers by
the end of the year their closing stock was 18, 80,811.00

2014:

In the year 2014 they started supplying not only medicines and drugs and also all
pharmaceutical products and equipment started from the child care to adult products they
cover all the products in the medical requirements

2015:

In the year 2015 they had taken a good own to store their products and equipment. Though it
is a small firm but it has its unique speciality in dealing with customers and also in the
supplying the goods to their customers.

2016:

In the year 2016 with the experience of 12 years in supplying the medical products to many
retailers and also to the hospitals they got much good will and trademark the Bhavani surgical
and medical agencies was its best for satisfying their customers and also its gives more
discounts many products.

2017:

This year it is planning to open another branch in Kakinada. And it got many customers and
gradually increasing their sales not only in Kakinada but also in other cities.
AUDITOR’S INFORMATION:

Name of the auditors : Bhanu murthy mylavarapu

Membership Number : 020141

FRN ( Firm Registration Number) : 04505

Address : 35-3-19,

Vemuri Vari Lane,

Dhigumarthi Vari Street,

Kakinada,

Andhra Pradesh,

533001.
Products with which they are dealing are as follows:

Orthopaedic Implants & Instruments:

 Interlocking Nails
 Nails, Wires and Pins
 Mini Fragment Implants
 Small Fragment-Standard
 Small Fragment-Locking
 Large Fragment-Standard
 Large Fragment-Locking
 Cannulated Screws
 DHS/DCS & Angled Blade
 Hip Prosthesis
 External Fixators
 General Instruments
 Surgical Power Tools

Medical Disposables:

 Transfusion Disposable Products

 Cardiology Disposable Products
 Infusion Disposable Products
 Surgical Medical Gloves
 Plastic Scissors
 Plastic Mouth Piece for Endoscopes
 Urology Disposables Products
 Anesthesia Disposable Products
 General Surgery
 Gynecology and Pediatric Disposable Products
 Non Woven Disposable Products
 Surgical Blades & Scalpels
 Blood Collection Tubes
 Plastic Vaginal Speculum
 Waste Management
 Plastic Sponge Holder
 Plastic Tweezers
 Gastro Entrology Disposables Products
 Surgical Dressings
 Laryngeal Mask
 Tube with Swab
 ECG Electrodes
 Maternity Pads
 Blood Bag Systems
 General Disposables

And all types of medicines are available in this wholesale trade. If they don’t have
any products which are ordered by the customers then they bring those products from
Industries to supply them to their customers.
 CHAPTER-4
THORETICAL FRAMEWORK
 CHAPTER 4
RATIO ANALYSIS
Meaning of Financial Statement Analysis:
The term ‘Analysis’ refers to rearrangement and simplification of data given in the financial
statement. The analysis is done by establishing the relationship between the items of the
Balance sheet and Profit and Loss Account. Financial analysis refers to an assessment of the
viability, stability and profitability of a business, or Company. It is a process of examining
and comparing financial data. Analysis refers to the proper arrangement of financial data.
Analysis of financial statements means an attempt to determine the significance and meaning
of data presented in financial statements. Such an analysis makes use of various analytical
tools and techniques to data of financial statements so as to derive from them certain
relationships that are significant and useful for decision making. It is performed by
professionals who prepare reports using ratios that make use of information taken from
financial statements and other reports. These reports are usually presented to top
management as one of their basis in making business decisions. Based on these reports,
management may:

 Continue or discontinue its main operation or part of its business.

 Make or purchase certain materials in the manufacture of its product.

 Acquire or rent/lease certain machinery and equipment in the production of its goods.

 Issue stocks or negotiate for a bank loan to increase its working capital.

 Other decisions that allow management to make an informed selection on various

alternatives in the conduct of its business.
Moore and Jaedicke have defined financial analysis as process of synthesis and
summarization of financial operative data with a view to getting an insight in to the operative
of a business enterprise.

Metcalt and Titard have defined financial analysis as process of evaluating the relationship
between component parts of financial statement to obtain a better understanding of a firm’s
position and performance.
 Definition of Ratio Analysis:

A Ratio analysis is a quantitative analysis of information contained in a company’s financial

statements. Ratio analysis is based on line items in financial statements like the balance sheet,
income statement and cash flow statement; the ratios of one item-or a combination of items-to
another item or combination are then calculated. Ratio analysis is used to evaluate various
aspects of a company’s operating and financial performance such as its efficiency, liquidity,
profitability and solvency. The trend of these ratios over time is studied to check whether they
are improving r deteriorating. Ratios are also compared across different companies in the same
sector to see how they stack up, and to get an idea of comparative valuations. Ratio analysis is a
cornerstone of fundamental analysis.

Ratio analysis refers to the analysis and interpretation the figures appearing in the financial
statements (i.e., profit and loss account, Balance sheet and fund flow statement etc.).

It is a process of comparison of one figure against another. It enables the users like
shareholders, investors, creditors, government, and analysis etc. to get better understanding of
financial statements.

Khan and jain define the term ratio analysis as “the systematic use of ratios to interpret the
financial statements so that the strengths and weaknesses of a firm as well as its historical
performance and current financial conditions can be determined”

Ratio analysis is a very powerful analytical tool useful for measuring performance of an
organization. Accounting ratios may just be used as symptom like blood pressure, pulse rate,
body temperature etc. the physician analysis these information to know the causes of illness.
Similarly, the financial analyst should also analyse the accounting ratios to diagnose the financial
health of an enterprise.

Generally, ratio analysis involves four steps:

i.Collection of relevant accounting data from financial statements

ii.Constructing ratios of related accounting figures.
iii.Comparing the ratios thus constructed with the standard ratios which may be the
corresponding past ratios of the firm or industry average ratios of the firm or ratios of
competitors.
iv.Interpretation of ratios to arrive at valid conclusions.
Importance of Ratio Analysis:
Helpful in assessing operating efficiency of the business:
The ratio can be used as the measuring rod of efficiency. With the help of this, the
evaluation of change during different period can be performed. In this way, the comparative
efficiency of company can be informed.

Helpful in measuring financial solvency:

Ratios are useful tools for evaluating the liquidity and solvency position of a concern.
They point out the liquidity position of an organization to meet its Ratios are useful tools for
evaluating the liquidity and solvency position of a concern. They point out the liquidity
position of an organization to meet its short and long obligations.

Helpful in future forecasting:

Ration analysis is very helpful in financial forecasting and planning. The ration
calculation of past years works guide line for the future.

Helpful in decision making:

Ratio analysis is also very helpful for decision making. The information provided by
ration analysis is very useful for making decision on any financial activity.

Helpful in corrective action:

Ratio analysis can also point out the deficiencies of the business so that corrective steps
may be taken accordingly.

Helpful in comparing inter firm performance:

Due to inter firm comparison, ratio analysis also serves as a stepping stone to remedial
measures. It helps management evolving future market strategies.

Helpful in communication:
Ratio is an effective means of communication. Different financial ratios communicate
the strength and financial standing of the firm to the internal and external parties.

Helpful in cost control:

From the use of ratio, it is possible to control the different costs of the concern.
Advantages of Ratio Analysis
Financial statements i.e., Profit and Loss account and Balance Sheet prepared at the end of the
year do not always convey to the reader the real profitability and financial health of the
business. They contain various facts and figures and it is for the reader to conclude, whether
these facts indicate a good or bad managerial performance. Ratio analysis is the most
important tool of analyzing these financial statements. It helps the reader in giving tongue to
the mute heaps of figures given in financial statements. The figures then speak of liquidity,
solvency, profitability etc. of the business enterprise. Some important objects and advantages
derived by a firm by the use of accounting ratios are: -

Helpful in Analysis of Financial Statements:- Ratio analysis is an extremely device for

analyzing the financial statements. It helps the bankers, creditors, investors, shareholders etc.
in acquiring enough knowledge about the profitability and financial health of the business. In
the light of the knowledge so acquired by them, they can take necessary decisions about their
relationships with the concern.

Simplification of Accounting Data:-

Accounting ratio simplifies and summarises a long array of accounting data and makes them
understandable. It discloses the relationship between two such figures, which have a cause
and effect relationship with each other.

Helpful in comparative study:-With the help of ratio analysis comparison of profitability

and financial soundness can be made between one firm and another in the same industry.
Similarly, comparison of current year figures can also be made with those of previous years
with the help of ratio analysis.

Helpful in locating the weak spots of the business:-Current year’s ratios are compared
with those of the previous years and if some weak spots are thus located, remedial measures
are taken to correct them.

Helpful in forecasting:-Accounting ratios are very helpful in forecasting and the plans for
the future.

Estimate about the trend of the business:-If accounting ratios are prepared for a number
of years, they will reveal the trend of costs, sales, profits and other important facts.
Fixation of Ideal Standards:-Ratios helps us in establishing ideal standards of the
different item of the business. By comparing the actual ratios calculated at the end of the year
with the ideal ratios, the efficiency of the business can be easily measured.

Effective Control:-Ratio analysis discloses the liquidity, solvency and profitability of the
business enterprise. Such information enables management to assess the changes that have
taken place over a period of time in the financial activities of the business. It helps them in
discharging their managerial functions e.g., planning, organizing, directing, communicating
and controlling more effectively

Limitations of Ratio Analysis

Ratio analysis is a very important tool of financial analysis. But despite it’s being
indispensable, the ratio analysis suffers from a number of limitations. These limitations
should be kept in mind while making use of the ratio analysis:-

False accounting data gives false ratios:-Accounting ratios are calculated on the basis of
given data given in profit and loss account and balance sheet. Therefore, they will be only as
correct as the accounting data on which they are based. For example, if the closing stock is
over-valued, not only the profitability will be overstated but also the financial position will
appear to be better. Therefore, unless the profit and loss account and balance sheet are
reliable, the ratios based on them will not be reliable. There are certain limitations of financial
statements as such, the ratios calculated on the basis of such financial statements will also
have the same limitations

Comparison not possible if different firms adopt different accounting policies:-

There may be different accounting policies adopted by different firms with regard to
providing depreciation, creation of provision for doubtful debts, method of valuation of
closing stock etc. For instance, one firm may adopt the policy of charging depreciation on
straight-Line basis, while other may charge on written-down value method. Such differences
make the accounting ratios incomparable.
Ratio analysis becomes less effective due to price level changes:-Price level over the
year goes on changing, therefore, the ratios of various years can not be compared. For e.g.,
one firm sells 1,000 machines for Rs 10 lacs during 1992, it again sells 1,000 machines of the
same type in year 1993 but owing to rising prices the sale price was Rs 15 lakhs. On the basis
of ratios it will be concluded that the sales have increased by 50 % whereas in actual, sales
have not increased at all. Hence, the figures of the past years must be adjusted in the light of
price level changes before the ratios for the years are compared.

Ratios may be misleading in the absence of absolute data:-For example, X company

produces 10 Lakh metres of cloth in 1992 and 15 Lakh metre in 1993, the progress is 50%. Y
Company raises its production from 10 thousand metres in 1992 to 20 thousand metres in
1993, the progress is 100%, and comparison of these two firms made on the basis of ratio will
disclose that the second firm is more active than the first firm. Such conclusion is quite
misleading because of the difference in the size of the two firms. It is, therefore, essential to
study the ratios along with the absolute data on which they are based.

Limited use of a Single Ratio:-The analyst should not merely rely on a single ratio. He
should study several connected ratios before reaching a conclusion. For example, the Current
Ratio of a firm may be quite satisfactory, whereas the Quick Ratio may be unsatisfactory.

Window Dressing:-Some companies in order to cover up their bad financial position resort
to window dressing i.e., showing a better position than the one, which really exists. They
change their balance sheet in such away that the important facts and truth may be concealed.

Lack of proper standards:-Circumstances differ from firm to firm hence no single

standard ratio can be fixed for all the firms against which the actual ratio may be compared.

Ratios alone are not adequate for proper conclusions:-Ratios derived from analysis
of statements are not sure indicators of good or bad financial position and profitability of a
firm. They merely indicate the probability of favorable or unfavorable position. The analyst
has to carry out further investigations and exercise his judgment in arriving at a correct
diagnosis.

Effect of personal ability and bias of analyst:-Another important point to keep in mind
is that different persons draw different meaning of different terms. One analyst may calculate
ratios on the basis of profit after interest and tax, whereas another analyst may consider
profits before interest and tax; a third may consider profits after interest but before tax.
Therefore, before making comparisons, one must be sure that the ratios have been calculated
on the same basis.

Although ratio analysis suffers from a number of limitations as enumerated above, yet it is a
very useful and widely used tool of analyzing the financial statements. Useful conclusions
may be arrived at by ratio analysis provided the above-mentioned limitations are kept in mind
while using the results obtained from ratio analysis.

Classification of Ratios:-

In ratio analysis the ratios may be classified into the four categories as follows;

(I) Liquidity Ratios

(II) Profitability Ratios

(III) Activity Ratios

(IV) Solvency Ratios

Liquidity Ratios:-

"Liquidity" refers to the ability of the firm to meet its current liabilities. The liquidity ratios,
therefore, are also called 'Short-term Solvency Ratios.' These ratios are used to assess the
short-term financial position of the concern. They indicate the firm's ability to meet its current
obligations out of current resources.

In the words of Salomon J. Flink, "Liquidity is the ability of the firm to meet its current
obligations as they fall due.

In the words of Herbert B. Mayo, "Liquidity is the ease with which assets may be converted
into cash without loss."

Short-term creditors of the firm are primarily interested in the liquidity ratios of the firm as
they want to know how promptly or readily the term can meet its current liabilities. If the
term wants to take a short-term loan from the bank, the bankers also study the liquidity ratios
of the firm in order to assess the margin between current assets and current liabilities.
Liquidity ratios include two ratios: -

o Current Ratio

o Quick Ratio

Profitability Ratios: -

The main object of all the business concerns is to earn profit. Profit is the measurement of the
efficiency of the business. Equity shareholders of the company are mainly interested in the
profitability of the company.

Profitability ratios include the following: -

2.1Gross Profit Margin Ratio

2.2Operating Profit Margin Ratio

2.3Net Profit Margin Ratio

2.4Return on Capital Employed Ratio

2.5Return on Net worth Ratio

2.6Earning per share ratio.

Activity Ratios: -

These ratios are calculated on the basis of 'cost of sales' or ‘sales’; therefore, these ratios are
also called as 'Turnover Ratios'. Turnover indicates the speed or number of times the capital
employed has been rotated in the process of doing business. In other words, these ratios
indicate how efficiently the capital is being used to obtain sales; how efficiently the fixed
assets are being used to obtain sales; and how efficiently the working capital and stock is
being used to obtain sales. Higher turnover ratios indicate the better use of capital or
resources and in turn lead to higher profitability. Turnover ratios include the following

1. Inventory Turnover Ratio

 2. Debtors Turnover Ratio

3. Fixed Assets Turnover Ratio

4. Investment Turnover Ratio

Solvency Ratios: -

These ratios are calculated to assess the ability of the firms to meet its long-term liabilities as
and when they become due. Long term creditors including debenture holders are primarily
interested to know whether the company has ability to pay

regularly interest due to them and to repay the principal amount when it becomes due.
Solvency ratios disclose the firm’s ability to meet the interest costs regularly and long-term
indebtedness at maturity. Solvency ratios include the following ratios; -

1. Debt-Equity Ratio

2. Interest Coverage Ratio

Liquidity Ratios: -

Current Ratio
The ratio is used to assess the firm's ability to meet its short-term liabilities on time. It is
generally believe that 2:1 ratio shows a comfortable working capital position. However this
rule should not be taken as a hard and fast rule, because ratio that is satisfactory for one
company may not be satisfactory for other. It means that current assets of a business should,
at least be twice of its current liabilities. The reason of assuming 2: 1 as the ideal ratio is that
the current assets includes such assets as stock, debtors etc, from which full amount cannot be
realized in case of need. Hence, even if half the amount is realized from the current assets on
time, the firm can still meet its current liabilities in full.

Current Assets = Cash & Bank Balance + Stock + Debtors + Bills Receivable + Prepaid
Expenses + Investments readily convertible into cash + Loans and Advances Current
Liabilities = Creditors + Bills Payable + Bank Overdraft + Unclaimed dividend + Provision
for Taxation + Proposed Dividend.

Quick Ratio
Quick or Acid Test indicates whether the firm is in a position to pay its current liabilities
within a month or immediately.

An ideal acid test ratio is said to be 1:1. The idea is that for every rupee or current liabilities,
there should at least be one rupee of liquid assets. This ratio is better test for short-term
financial position of the company than the current ratio. Liquid assets are obtained by
deducting stock-in-trade and prepaid expenses from current assets. Stock is not treated as a
liquid asset because it cannot be readily converted into cash

as and when required. The current ratio of a business does not reflect the true liquid position,
if its current assets consist largely of stock-in-trade.

The liquid liabilities are obtained by deducting bank overdraft from current liabilities. Bank
overdraft is not included in liquid liabilities because bank overdraft is not likely to be called
on demand and is treated as a sort of permanent mode of financing. Hence, it is not treated as
a quick liability. If the liquid assets are equal to or more than liquid liabilities, the condition
may be considered as satisfactory. Liquid ratio can be calculated as follows
Profitability Ratios
The main object of every business concern is to earn profits. A business must be able to earn
adequate profit In relation to the capital Invested in It. The following are the important
profitability ratio:

Gross Profit Margin Ratio: - This ratio measures the margin of profit available on sales.
The higher the gross profit ratio, the better it is. No ideal standard is fixed for this ratio; but
the gross profit ratio should be adequate enough not only to cover the operating expenses but
also to provide for depreciation, Interest on loans, dividends and creation of reserves.

Operating Profit Margin Ratio: - This ratio measures the proportion of an enterprise’s.
Cost of sales and operating expenses in comparison to its sales"

EBIT = Earning Before Interest and Taxes.

Operating Ratio is a measurement of the efficiency and profitability of the business

enterprise. The ratio indicates the extent of sales that is absorbed by the cost of goods sold
and operating expenses. Lower the operating ratio, the better it is, because it will leave higher
margin of profit on sales.
Net Profit Margin Ratio:-This ratio measures the rate of net profit earnedon sales. It helps
in determining the overall efficiency of the business operation. An increase in the ratio over
the previous year shows improvement in the overall efficiency of the business.

Return on Capital Employed Ratio: - This ratio reflects the overall profitability of the
business. It is calculated by comparing the profit earned and the capital employed to earn it.
This ratio is usually in percentage. And is also known as “Rate of Return” or “Rate on
capital Employed".

Since the capital employed includes shareholders' funds and long-term loans, interest paid
on long-term loans will not be deducted from profits while calculating this ratio.

Capital Employed = Equity Share Capital +Preference Share Capital +All Reserves+ P & L
A/C Balance + Long term Loans- Fictitious Assets.

Or
Capital Employed =Fixed Assets + Working Capital. OR [FA + (C.A-C.L)]
This ratio measures how efficiently the capital employed in the business is being used.

Return on Net Worth Ratio: - While there is no doubt that the reference shareholders are
also owners of a firm. The real owners are the ordinary shareholders who bear all the risk,
participate in management and are entitled to all the profit remaining after all outside claims
including preference dividends are met in full. The profitability of a firm from the owners
point of view should therefore in the fitness of things be assessed in terms of the return to
the ordinary shareholders. The ratio under reference serves this purpose. It is calculated by
dividing the profits after taxes and preference dividends by the average equity of the
ordinary shareholders thus,
Earning per Share Ratio:- It measures the profit available to the equityshare holders on a
per share basis, i.e. the amount that they can get on every share held. It is calculated by
dividing the profits available to the equity shareholders by the number of the outstanding
shares. The profits available to the ordinary shareholders are represented by net profits after
taxes and preference dividend. Thus,

As a profitability ratio, the EPS can be used to draw inferences on the basis of
i) Its trend over a period of time, ii) comparison of the EPS of the other firms, iii)
comparison with the industry average.

Activity Ratios: -
These ratios measure how well the facilities at the disposal of the concern are being utilized.
These ratios are known as turnover ratios as they indicate the rapidity with which the
resources available to the concern are being used to produce sales. These ratios are generally
calculated on the basis of sales or cost of sales. Some of the important activity ratios are
discussed below:

Inventory Turnover Ratio: - It is computed by dividing the cost of goodssold by average

inventory. Thus,

The cost of goods sold means sales minus gross profit. The average inventory refers to the
simple average of the opening and closing inventory. The ratio indicates how fast inventory
is sold. A high ratio is good from the view point of liquidity and vice versa. A low ratio
would signify that inventory does not sell fast and stays on the shelf or in the warehouse for
a long time. This ratio indicates the number of times inventories replaced during the year. It
measures the relationship between the cost of goods sold and the inventory level.
Debtors Turnover Ratio: - This ratio indicates the relationship between credit sales and
average debtors during the year.

Bill receivable is added in debtors for the purpose of calculation of this ratio. This ratio
indicates the speed with which the amount is collected from debtors. The higher the ratio,
the better it is, since it indicates that amount from debtors is being collected more quickly.
The more quickly the debtors pay, the less the risk from bad debts, and so the lower the
expenses of collection and increase in the liquidity of the firm. A lower debtor turnover ratio
will indicate the inefficient credit sales policy of the management.

This ratio shows the time in which the customer is paying for credit sales. Increase in this
ratio indicates the excessive blockage of funds with debtors, which increases the chances of
bad debts.

Fixed Asset Turnover Ratio: - This ratio is also known as the investment turnover ratio. It
is based on the relationship between the cost of goods sold and assets of a firm. A reference
to this was made while working out the overall profitability of a firm as reflected in its
earning power.

Investment Turnover Ratio: - It is based on relationship between the cost of goods sold
and investments of firm. A reference to this was made while working out the overall
profitability of the firm as reflected in its earning power. Depending upon the different
concepts of assets employed, there are many variance of this ratio. Thus,
Here, the total assets and fixed assets are net of depreciation and the assets are exclusive of
fictitious assets like debit balance of profit and loss account and deferred expenditure and so on.
The assets turnover ratio, however defined, measure the efficiency of a firm in managing and
utilizing its assets. The higher the turnover ratio, the more efficient is the management and
utilization of the assets while low turnover ratios are indicative of under utilization of available
resources and presence of idle capacity.

Solvency Ratios: -
These ratios are calculated to assess the ability of the firms to meet its long-term liabilities as and
when they become due. Long term creditors including debenture holders are primarily interested
to know whether the company has ability to pay regularly interest due to them and to repay the
principal amount when it becomes due. Solvency ratios disclose the firm’s ability to meet the
interest costs regularly and long-term indebtedness at maturity. Solvency ratios include the
following ratios: -

Debt- Equity Ratio: - This, ratio establishes relationship between the outsidelong-term
liabilities and owners' funds. It shows the proportion of long-term External Equities and Internal
Equities i.e. proportion of funds provided by long-term creditors and that provided by
shareholders or proprietors. A higher ratio means that outside creditors has a larger claim than
the owners of the business. The company with high-debt position will have to accept stricter
conditions from the lenders while borrowing money. If this ratio is lower, it is not profitable
from the viewpoint of equity shareholders, as benefit of trading on equity is not availed of and
the rate of equity dividend will be comparatively lower.

External Equities = All Long term liabilities+ Current Liabilities

Internal Liabilities= Equity share+ Preference share + Reserves & Surplus + P & L A/c-
Intangible or Fictitious Assets
External Equities = All Long term liabilities+ Current Liabilities

Internal Liabilities= Equity share+ Preference share + Reserves & Surplus + P & L A/c-
Intangible or Fictitious Assets

Interest Coverage Ratio: - It is also known as ‘time-interest-earned ratio’.This ratio measures

the debt servicing capacity of a firm in so far as fixed interest on long-term loan is concerned. It
is determined by dividing the operating profits or earning before interest and taxes (EBIT) by the
fixed interest charges on loans. Thus,

It should be noted that this ratio uses the concept of net profits before taxes because interest is
tax-deductible so that tax is calculated after paying interest on long-term loan. This ratio, as the
name suggests, indicates the extent to which a fall in EBIT is tolerable in that the ability of the
firm to service its interest payments would not be adversely affected

Composite Ratio obtained from Weighted Mean: -

The weighted mean is similar to an arithmetic mean (the most common type of average), where
instead of each of the data points contributing equally to the final average, some data points
contribute more than others. The notion of weighted mean plays a role in descriptive statistics
and also occurs in a more general form in several other areas of mathematics.

If all the weights are equal, then the weighted mean is the same as the arithmetic mean. While
weighted means generally behave in a similar fashion to arithmetic means, they do have a few
counterintuitive properties, as captured for instance in Simpson's paradox.

The term weighted average usually refers to a weighted arithmetic mean, but weighted versions
of other means can also be calculated, such as the weighted geometric mean and the weighted
harmonic mean.

Definition of Weighted Mean

Formally, the weighted mean of a non-empty set of data with

non-negative weights is the quantity which

means:
Therefore data elements with a high weight contribute more to the weighted mean than do
elements with a low weight. The weights cannot be negative. Some may be zero, but not all of
them (since division by zero is not allowed).

Weighted Mean Ratio

When a representative ratio is to be worked out for certain purposes on the basis of more than
one such ratios and the weights associated with such ratios are different the representative ratio
can be the mean of such ratios. However, when ratios to be combined have different weights, the
representative ratio should be weighted mean of such ratios and such a weighted mean of the
ratios may be called Weighted Mean Ratio.

Suppose Ri ( i = 1,2,.....,n ) is ratio for the ith company and wi ( i = 1,2,.....,n ) is the weight (
paid-up capital ) for the ith company. Then the composite ratio Rc can be obtained as follows

where wi (i=1,2…..n) are paid-up capital as weight, Ri are ratios, ( i= 1,2,…n).

We have discussed various ratios and their importance. Starting with introduction to
ratio analysis and classification of ratios, we have explained the importance of using
various ratios and the formulae of how they are calculated. This blog post gives you the
formulae for the ratios that we have discussed in this series.

Liquidity Ratios
S. No. RATIOS FORMULAS

1 Current Ratio Current Assets/Current Liabilities

2 Quick Ratio Liquid Assets/Current Liabilities

3 Absolute Liquid Ratio Absolute Liquid Assets/Current Liabilities

Profitability Ratios
S. RATIOS FORMULAS
No.

1 Gross Profit Ratio Gross Profit/Net Sales X 100

2 Operating Cost Ratio Operating Cost/Net Sales X 100

3 Operating Profit ratio Operating Profit/Net Sales X 100

4 Net Profit Ratio Operating Profit/Net Sales X 100

5 Return on Investment Net Profit After Interest And Taxes/ Shareholders

Ratio Funds or Investments X 100

6 Return on Capital Net Profit after Taxes/ Gross Capital Employed X

Employed Ratio 100

7 Earnings Per Share Net Profit After Tax & Preference Dividend /No of
Ratio Equity Shares

8 Dividend Pay Out Ratio Dividend Per Equity Share/Earning Per Equity Share
X 100

9 Earning Per Equity Net Profit after Tax & Preference Dividend / No. of
Share Equity Share
10 Dividend Yield Ratio Dividend Per Share/ Market Value Per Share X 100

11 Price Earnings Ratio Market Price Per Share Equity Share/ Earning Per
Share X 100

12 Net Profit to Net Worth Net Profit after Taxes / Shareholders Net Worth X
Ratio 100

Working Capital Ratios

S. RATIOS FORMULAS
No.

1 Inventory Ratio Net Sales / Inventory

2 Debtors Turnover Ratio Total Sales / Account Receivables

3 Debt Collection Ratio Receivables x Months or days in a year / Net Credit

Sales for the year

4 Creditors Turnover Ratio Net Credit Purchases / Average Accounts Payable

5 Average Payment Average Trade Creditors / Net Credit Purchases X

Period 100

6 Working Capital Net Sales / Working Capital

Turnover Ratio

7 Fixed Assets Turnover Cost of goods Sold / Total Fixed Assets

Ratio
8 Capital Turnover Ratio Cost of Sales / Capital Employed

Capital Structure Ratios

S. RATIOS FORMULAS
No.

1 Debt Equity Ratio Total Long Term Debts / Shareholders Fund

2 Proprietary Ratio Shareholders Fund/ Total Assets

3 Capital Gearing Equity Share Capital / Fixed Interest Bearing Funds

ratio

4 Debt Service Ratio Net profit Before Interest & Taxes / Fixed Interest
Charges

Overall Profitability Ratio

S. No. RATIOS FORMULAS

1 Overall Profit Ability Ratio Net Profit / Total Assets

 CHAPTER-5
DATA ANALYSIS
 CHAPTER-5

DATA ANALYSIS

 Net profit after tax

 Cash

 Bank

 Current Assets

 Current liabilities

 Fixed assets

 Share holder Funds

 Net profit ratio

 Debt equity ratio

 Debtor Turnover

 Creditor Turnover

 Inventory Turnover

 Proprietor Ratio

 Return on capital employed

Net profit after tax of the company:

Net Operating profit after tax (NOPAT) is a measure of profit that excludes the costs and
tax benefits of debt financing. Put another way, NOPAT is earnings before interest and taxes
(EBIT) adjusted for the impact of taxes.

Year 2014-2015 2015-2016 2016-2017

Current Net profit 5,45,238.21 4,53,809.46 7,53443.75

after tax

Chart:

Net profit after tax

800,000

700,000
Net profit after tax

600,000

500,000

400,000

300,000

200,000

100,000

0
2014-2015 2015-2016 2016-2017

No. Of years

Interpretation:

The statement can be drawn in the form of a chart as mentioned on above. It shows
clearly about decrease in net profit after tax in the year 2015-2016. And again increased in the
year 2016-2017. It shows there was highly increased net profit after tax when compared to the
last 2 years.
 Cash in hand:

In Finance, Cash is current assets comprising currency or currency equivalent that can
be accessed immediately or near-immediately.

Year 2014-2015 2015-2016 2016-2017

Cash 12,683.17 16,986.80 1,52,698.80

Chart:

Cash
180000
160000
140000
120000
Cash in hand

100000
80000
60000
40000
20000
0
2014-2015 2015-2016 2016-2017

No. Of Years

Interpretation:

From the above chart it is clear that there was highly increase in the cash of the
company. In the year 2015-2016 there was a small increase in cash when compared to the
previous but we can see that there was highly increase in the cash in 2016-2017.
 Cash at Bank:

A Bank is a financial institution that accepts deposits from the public and creates credit
lending activities can be performed either directly or indirectly.

Year 2014-2015 2015-2016 2016-2017

Bank 1,204.42 1,01,771.22 2,414.21

Chart:

Bank
120000

100000
Cash at bank

80000

60000

40000

20000

0
2014-2015 2015-2016 2016-2017

No. Of years

Interpretation:

Presentation of information in the form of a chart shows easy interpretation to

all types of investors. It is observed that there was more cash at bank in the year 2015-2016 when
compared to the both 2014-2015 and 2016-2017.
 Current Assets:

Current Assets are balance sheet accounts that represent the value of all assets that can
reasonably expect to be converted into cash within one year current assets include cash and cash
equivalent, accounts receivable, inventory, marketable securities, prepaid expenses and other.
Liquid assets that can be readily converted to cash.

Year 2014-2015 2015-2016 2016-2017

Current Assets 48,90,235.85 68,12,889.21 1,38,01,396.47

Chart:

Current Assets
16000000

14000000
Current assets

12000000

10000000

8000000

6000000

4000000

2000000

0
2014-2015 2015-2016 2016-2017

No. Of Years

Interpretation:

The statement can be drawn in the form of a chart as mentioned on above. It shows
clearly about gradually increasing in currents assets from last three financial years.
 Fixed Assets:

A fixed asset is a long term tangible piece of property that a firm owns and uses in
the production of its income and is not expected to be consumed or converted into cash any
sooner than at least one year’s time fixed assets are sometimes collectively referred to as plant.

Year 2014-2015 2015-2016 2016-2017

Fixed Assets 2755199.6 4212751 3632451

Chart:

Fixed Assets
4500000

4000000

3500000

3000000
Fixed Assets

2500000

2000000

1500000

1000000

500000

0
2014-2015 2015-2016 2016-2017

No. Of Years

Interpretation:

From the above chart it is clear that there was increased in fixed assets in the year
2015-2016 when compared to the financial years 2014-2015. And again decreased in the year
2016-2017.
 Current Liabilities:

Current liabilities are a company’s debts or obligations that are due within one
year, appearing on the company’s balance sheet and include short term debt, accounts payable,
accrued liabilities and other debts.

Year 2014-2015 2015-2016 2016-2017

Current Liabilities 30,83,648.09

Chart:

Current Liabilities
9000000

8000000

7000000
Current liabilities

6000000

5000000

4000000

3000000

2000000

1000000

0
2014-2015 2015-2016 2016-2017

Current Assets

Interpretation:

Presentation of information in the form of a chart shows easy interpretation to all

types of Investors. It is observed that there was slightly decreased in the year 2015-2016. But it
was highly increased in 2016-2017 when compared to previous 2 years.
 Share Capital:

Share capital consists of all funds raised by a company in exchange for shares of
either common or preferred shares of stock. The amount of share capital or equity financing a
company has can change over time. A company that wishes to raise more equity can obtain
authorization to issue and sell additional shares, thereby increasing its share capital.

Year 2014-2015 2015-2016 2016-2017

Share Capital 19,32,838.95 22,87,236.41 23,84,436.33

Cash:

Share Capital
3,000,000.00

2,500,000.00

2,000,000.00
Share capital

1,500,000.00

1,000,000.00

500,000.00

0.00
2014-2015 2015-2016 2016-2017

No. Of years

Interpretation:

The statement can e drawn in the form of a chart as mentioned on above. It shows
clearly about increase in the year 2015-2016 and also slightly increased in 2016-2017 from
previous year.

Net Profit Ratio:

 Net Profit Ratio is a popular profitability ratio that shows relationship between net
profit after tax and net sales. It is computed by diving the net profit (after tax) by net sales.

Year 2014-2015 2015-2016 2016-2017

Net Profit Ratio 2.4 2.055 3.344

Chart:

Net Profit Ratio

4

3.5

3
Net profit ratio

2.5

1.5

0.5

0
2014-2015 2015-2016 2016-2017

No. Of Years

Interpretation:

From the above chart it is clear that there was high net profit ratio in the year 2014-
2015 but it was decreased in the year 2015-2016. And again it was increased highly in the year
2016-2017.

Debt Equity Ratio:

Debt/Equity Ratio is a debt ratio used to measure a company’s financial leverage,

calculated by dividing a company’s total liabilities by its stockholders’ equity. The D/E ratio
 indicates how much debt a company is using to finance its assets relative to the amount of value
represented in shareholders’ equity.

Year 2014-2015 2015-2016 2016-2017

Debt Equity Ratio 1.178 2.981 2.830

Chart:

Debt Equity Ratio

4

3.5

3
Debt Equity Ratio

2.5

1.5

0.5

0
2014-2015 2015-2016 2016-2017

No. of years

Interpretation:

Presentation of information in the form of a chart shows easy interpretation to all

types of investors. It is observed that there was gradually increase in debt equity ratio from the
last three finance years.

Debtors Turnover:
 An accounting measure used to quantify a firm’s effectiveness in extending credit
and in collecting debts on that credit. The receivables turnover ratio is an activity ratio measuring
how efficiently a firm uses its assets.

Years 2014-2015 2015-2016 2016-2017

Debtors Turnover 10.678 11.463 3.490

Chart:

Debtor Turnover
14

12

10
Debtor Turnover

0
2014-2015 2015-2016 2016-2017

No. Of years

Interpretation:

The statement can be drawn in the form of a chart as mentioned on above form of a
chart as mentioned on above. It shows clearly about increase in the year 2015-2016 when
compared to 2014-2015. But it was highly decreased in the year 2016-2017.

Creditors Turnover:

The accounts payable turnover ratio is a short term liquidity measure used to
quantify the rate at which a company payoff its suppliers.
 Year 2014-2015 2015-2016 2016-2017

Creditors Turnover 8.239 8.986 3.827

Chart:

Creditors Turnover
10
9
Creditors Turnover

8
7
6
5
4
3
2
1
0
2014-2015 2015-2016 2016-2017

No. Of years

Interpretation:

Presentation of information in the form of a chart shows easy interpretation to all

types of investors. It is observed that there was slightly increasing in creditors turnover in the
year 2015-2016 when compared to 2014-2015. But it was highly decreased in the year 2016-
2017 when compared to previous 2 years.

Inventory Turnover:

Inventory turnover is a ratio showing how many times a company’s inventory is sold
and replaced over a period of time. The days in the period can then be divided by the inventory
 turnover formula to calculate the days it takes to sell the inventory on hand. It is calculated as
sales divided by average inventory.

Year 2014-2015 2015-2016 2016-2017

Inventory Turnover 11.874 6.792 4.560

Chart:

Inventory Turnover
Inventory Ratio

14

12

10

0
2014-2015 2015-2016 2016-2017

No. Of years

Interpretation:

From the above chart it is clear that there was gradually decreasing in the inventory
turnover from the last 3 years. Inventory turnover is very high in the year 2014-2015 when
compared to both the 2015-2016 and 2016-2017.

Proprietary Ratio:
The Proprietary ratio (also known as the equity ratio) is the proportion of
shareholders’ equity to total assets and as such provides a rough estimate of the amount of
capitalization currently used to support a business.
 Year 2014-2105 2015-2016 2016-2017

Proprietary Ratio 1.425 1.841 1.523

Chart:

Proprietary Ratio
2
1.8
1.6
Proprietary Ratio

1.4
1.2
1
0.8
0.6
0.4
0.2
0
2014-2015 2015-2016 2016-2017

No. Of years

Interpretation:

The statement can be drawn in the form of a chart as mentioned on above. It shows
clearly about increase in the year 2015-2016 when compared to the previous financial year and
again decreased in the year 2016-2017.

Return On Capital Employed:

Year 2014-2015 2015-2016 2016-2017

 Return on Capital 11.952 5.622 8.392 Return
on Employed capital

employed (ROCE) is a financial ratio that measures a company’s profitability and the efficiency
with which its capital is employed.

Chart:

Return On Capital Employed

14

12

10
Return on Capital

6
Employed

0
2014-2015 2015-2016 2016-2017

No. Of years

Interpretation:

Presentation of information in the form of a chart shows easy interpretation to all

types of investors. It is observed that there was high return on capital employed when compared
to both the 2015-2016 and 2016-2017. There was highly decreased of return on capital employed
in 2015-2016 and again increased in 2016-2017.