financial statement analysis. trishit

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PROJECT REPORT
(Submitted for the Degree of B.COM HONOURS in accounting and finance
under the University of Calcutta)
TITLE OF THE PROJECT
SUBMITTED BY
Name of the Candidate: Trishit Dutta
Registration Number: 043-1121-0020-11
Roll Number: 21
Name of the College: Heramba Chandra College
SUPERVISED BY
Name of the Supervisor: Professor Amar Krishna Roy
Name of the College: Heramba Chandra Collage
MONTH AND YEAR OF SUBMISSION:
Submitted on 8th
March 2014

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Aknowledgement
I express my deep sense of gratitude and gratefully acknowledge the contributions of the
eminent professors on this project which has helped me to present this project in such an
articulating manner. I express my special thanks to Prof. for rendering valuable
suggestions and assistance in preparing this project.
I also want to thank other professors and lecturers of my college for rendering constant
encouragement and giving valuable feedback for the development of this project.
I express my indebtedness to my friends for giving me constant advice for the enrichment
of this project.
No formal thanks can compensate the sacrifice made by my parents. Gratitude is extended
to my mother for her constant striving to keep me away from all disturbances to the extent
possible and father for guiding me how to do this project in a constructive manner.

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ContentS
CHAPteR 1: IntRodUCtIon
PAge-5
 Background of subject matter
 Justification of Study
 Review of Literature
 Objective of study
 Research Methodology
 Limitation of Study
CHAPteR 2: ConCePtUAl FRAmewoRk
PAge-8
 Detailed discussion on Ratio Analysis
• Techniques of Ratio Analysis
• Three Caveats of Ratio Analysis
• Types of Users

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 Concept of Ratio Analysis
CHAPteR 3: AnAlYSIS & FIndIngS
PAge-17
CHAPteR 4: SUggeStIonS &
PAge-34
ConClUSIonS

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CHAPteR –I IntRodUCtIon
Background of the subject matter-After preparation of the financial statements, one may be
interested in knowing the position of an enterprise from different points of view. This can be done by
analyzing the financial statement with the help of different tools of analysis such as ratio analysis, funds
flow analysis, cash flow analysis, comparative statement analysis, etc. Here I have done financial analysis
by ratios. In this process, a meaningful relationship is established between two or more accounting
figures for comparison.
Before understanding the meaning of analysis of ratios, it is necessary to understand the meaning
of analysis and Ratio.
Analysis means establishing a meaningful relationship between various items of the two
financial statements with each other in such a way that a conclusion is drawn.
Ratio is a mathematical yardstick that measures the relationship between two figures or groups
of figures which are related to each other and are mutually interdependent. It can be expressed as
a pure ratio, percentage, or as a rate Ratio allow for better comparison through time or between
companies.
Ratio Analysis is a method or process by which the relationship of items or groups of items in
the financial statements are computed, and presented. It is important tool of financial analysis. It
is used to interpret the financial statements so that the strengths and weaknesses of a firm, its
historical performance and current financial condition can be determined.
Justification of Study :-The analysis of ratios has been undertaken by the management with a
view to:-

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1.) To assess the efficiency and performance of an enterprise.
2.) To help the management to make a comparative study of the profitability of various firms
engaged in similar business.
3.) To study the position of their firm In respect of sales expenses, profitability and using
capital.etc.
4.) To know that the financial policies adopted by the management are efficient or not.
5.) To analyze whether the firm has sufficient funds to meet its short-term and long-term
liabilities or not.
6.) To evaluate the inventory, receivable and cash management performance.
I choose ratio analysis because I think, that knowing about different ratios of a Company, Firm
etc. one can easily over look his performance throughout the year and also about his liquidity
position. It helps investors, stakeholders and all other interested parties to know about the
efficiency, profitability, availability of funds to meet the liability, use of capital and on what
sales company is operating. Ratio Analysis is the easiest way to analyze the financial statement.
This is a simplest way to present the financial statement in terms of
Ratios in a very small description.
Review of Literature :-
1.) The annual survey on top companies done by Sunday Times, Business Times, and the
Financial Mails gives me an idea about the risk and profitability of the concerned companies by
evaluating different ratios.
2.) The book by Jayanto Ghosh gives me an brief idea regarding the concept of ratio analysis and
its techniques, types and caveats.
3.) The book by Hanif & Mukharjee is helpful for analysis and findings, as there were lots of
illustration on ratio, it also gives a important interpretation of different ratios.
4.) A book by Amitabh Basu is a good source of understanding about different ratios, its
objectives, limitation, needs and its presentation.
5.) A Study on google.com on Financial Statement Analysis gives me a detail on the importance
of Ratio Analysis.
Objective of Study :-The objective of study of five year comparative ratio analysis of India’s
largest Automobile listed Company i.e. Tata Motors Ltd. are as follows:-
1.) Enable Comparison of the performance of the company in different years with its budgets and
forecast & with other companies in similar trades.
2.) Provide information of the company in respect of the liquidity, profitability, use of
assets and capital structure.
3.) To ascertain the ability of the company to meet its obligation in the short run.

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4.) To measure how rapidly debts are collected by using Debtors Turnover Ratio.
5.) The intent to which trade creditors are willing to wait for payment can be approximated by
the creditors’ turnover ratio.
6.) The use of debt finance long term solvency of the firm can be examined by using leverage or
capital ratios.
7.) Ascertaining the debt servicing of capacity of a firm in so far as fixed interest on long term
loan is concerned by Interest Coverage Ratio.
8.) To measures the overall efficiency of production, Administration selling, financing, pricing
and Tax Management.
Research Methodology :-Data that has been collected from first-hand-experience is known as
primary data. Primary data has not been published yet and is more reliable, authentic and
objective.
Data collected from a source that has already been published in any form is called as secondary
data. It Includes books, journals and periodicals. E-journals, general websites and weblogs.
My project is based on the analysis of a secondary data for the company. It includes the
information from the company annual reports which includes financial statements like balance
sheet and income statements and such other information form text books of financial
management and journals and magazines has also been collected.
Limitation of the Study:-
The study conducted and done is analytical, subject to the following limitations;-
1.) The study is mainly carried out based on the secondary data provided in the financial
statements.
2.) There may be some fractional differences in the calculated ratios.
3.) Different definitions of capital employed may cause confusion.
4.) Changes in price level will affect the comparability of the ratios between two financial
periods.
5.) Changes in external environment will affect the comparison.

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7.) Due to lack of availability of information all purchases and sales are considered to be made
on credit for calculation purpose.
CHAPteR–II: ConCePtUAl FRAmewoRk
FINANCIAL STATEMENT ANALYSIS
DEFINITION
An organized, systematic, simplified and summery statement prepared to assess business
efficiency, operational efficiency, business trends, short and long-term financial position, growth
potential, profitability, solvency position and static and dynamic analysis is known as statement
analysis. Financial statement analysis (or financial analysis) is the process of understanding the
risk and profitability of a firm (business, sub-business or project) through analysis of reported
financial information, particularly annual and quarterly reports. Putting another way, financial
statement analysis is a study about accounting ratios among various items included in the balance
sheet. These ratios include asset utilization ratios, profitability ratios, leverage ratios, liquidity
ratios, and valuation ratios. Moreover, financial statement analysis is a quantifying method for
determining the past, current, and prospective performance of a company.
FSA ” is the process of identifying the financial strengths & weaknesses of the firm by
properly establishing relationships between the items of the balance sheet & profit and loss
account”-G.FOSTER.
NATURE OR FEATURE OF FINANCIAL STATEMENT ANALYSIS

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 Analytical statements-It applies all analytical tools and techniques to general purpose,
financial statements and related data to derive estimates and inferences useful in effective
business decisions.
 Briefness and uniformity-The result of such analysis are expressed in a very brief manner
with the help of some charts, graphs, etc. and some uniformity in principles is always
maintained between different organizations
 Meaningful comparison -An effective, clear and meaningful comparison is done at the
time of critical analysis of financial statements.
 Storehouse of financial statistics-As a result of financial statement analysis, one can
know the detailed financial data and statistics. so, it becomes a rich and real storehouse of
financial statistics.
 Guard or protector of earnings-As it deals with sources of future earnings-growth,
profitability ratios, earnings in relation to fixed income-charges and also the estimated
future expenses etc., it can be called as a Guard or protector of earnings.
DETAILED DISCUSSION ON RATIO ANALYSIS:-
a )Techniques of Ratio Analysis : There are two techniques for ratio analysis.
1. Time-Series Analysis: Comparing a firm’s ratios across time. It facilitates the identification
of changes in performance and the detection of the underlying causes
2. Cross-Sectional Analysis : Comparing a firm’s ratios with the ratios of comparable firms. It
facilitates the identification of differences in performance and the detection of the underlying
causes.
b) Three Caveats of ratio Analysis:-
 There is no generally accepted set of rules for computing ratios.
 Ratios do not provide answers, they just help , direct us in our search for answer.

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 Managers know that investors fixate on certain ratios, many window dresses accordingly.
c) Types of users:
Investors- Look at the risk their investment , profitability and future growth.
Managers/ Employees- have access to more information and will want to know the stability of
the company and profitability.
Creditors- interested in the liquidity, as they just want to be paid on time.
Banks- Interested in the performance and liquidity of the organization for lending purpose.
NECESSITY OF FINANCIAL STATEMENT ANALYSIS
Measurement of profitability-it helps to measure profitability and financial health of the business
by using;
1) G.P ratio
2) N.P ratio
3) Return on investment
4) Operating profit ratio
5) Earnings per share
6) Dividend per share
 Interest of parties-It serves the interest of the shareholders, creditors, present investors, future
investors, debenture holders, bankers, journalists, legislators, politicians, financial
institutions, chamber of commerce.
 Accounting quality-It considers the following factors for maintaining the quality of financial
statements:
1) Overstatement/understatement of profits

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2) Auditors qualifications
3) Method of income recognition
4) Depreciation policies
5) Inventory valuation methods
 Financial flexibility-The flexibility in financial functions are to be fulfilled and attained when
it considers the following key factors:
1) Alternative financial plans in time of stress or pressure
2) Ability to raise funds
3) Asset redeployment potentials, etc .
 Reduces uncertainty -It reduces our reliance on hunches, guesses and intuition & also
diminishes uncertainty in decision making.
 Screening tool-It is a screening tool in selecting investment or merges conditions and is a
forecasting tool of future financial conditions and consequences.
 Diagnostic tools-It is a Diagnostic tool in assessing financing, Investing and operating
activities and is a managerial and other business decisions.
 Analytical tool- It applies analytical tools and techniques to general purpose financial
statements and related data to derive estimates and inferences useful in effective decision
making.
 Analysis of environment-It analyses the financial statement environment in relation to
performance, profitability, liquidity, solvency, etc .
OBJECTIVES
 Business operation efficiency-it serves the basic purpose of business by assessing and
ascertaining managerial efficiency through comparing operating ratios of previous year.

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 Short-term financial position-it helps in measuring the short term liquidity ratio with the
help of current ratio, liquid ratio, absolute liquid ratio, overdue liquid ratio which are the
indicators of short-term financial soundness of a business.
 Long term financial position-it helps to determine the long-term soundness of a business by
measuring the following ratio:
Debt-Equity ratio
1) Equity ratio
2) Sweet equity ratio
3) Fixed asset to NW ratio
 Growth potential of a business-it assesses the growth potentiality of the business by trend
analysis of financial data and it predicts the remedial measures for any adverse business
condition.
 Profitability measurement-it measures the business profitability by means of performance
ratio, GP ratio, net profit ratio, operating ratio and return on interest ratio and takes
remedial actions for the cause of any adverse deviations,
 future prospects-it provides and indicated the trend of achievements of various expenses,
incomes, assets and liabilities can be compared and future prospect of the business can be
indicated.
 Human resource analysis-modern approach of financial statement analysis, being a part
of social science, determines the human factors and incentives in every business
decisions and actions.
ADVANTAGES OF FINANCIAL STATEMENT ANALYSIS
The different advantages of financial statement analysis are listed below:-
 The most important benefit if financial statement analysis is that it provides an idea to the
investors about deciding on investing their funds in a particular company.
 Another advantage of financial statement analysis is that regulatory authorities like IASB
can ensure the company following the required accounting standards.

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 Financial statement analysis is helpful to the government agencies in analyzing the
taxation owed to the firm.
 Above all, the company is able to analyze its own performance over a specific time
period.
LIMITATIONS OF FINANCIAL STATEMENT ANALYSIS
The different disadvantages of financial statement analysis are listed below:-
 Ignores human aspect- In most cases of such analysis, the human aspect of the concern is
ignored.
 Ignores quality aspect-in addition to that, sometimes, the qualitative aspect of the concern
is also ignored at the time of such kind of analysis.
 Limitation due to price-level changes at the time of financial statement analysis. The
price level changes are generally ignored.
 Preference of personal judgment-personal opinion and personal judgment get a
preference in case of financial statement analysis. And so, it becomes somewhat biased.
 Market price avoidance-such kind of analysis does not count the market price factor or
replacement cost factor.
 Avoidance of contingent liability-As the position Statement do not include contingent
liability within the amount of themselves, such analysis does not count for those
contingent liabilities.
 Difficulty in Comparison-Stable units are not always followed at the time of preparation
of final statements of different Firms and as such, there is always lack of uniformity in
these statements. So, comparison of analysis between them becomes very difficult.
TOOLS AND TECHNIQUES OF FINANCIAL STATEMENT ANALYSIS
Following are the most important tools and techniques of financial statement analysis:
1. Comparative Financial Statement
2. Common-Size Statement
3. Trend Analysis

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4. Cash flow statement
5. Fund flow statement
6. Ratio analysis
1. Comparative Balance Sheet:
A position sheet is prepared containing more than two years assets and liabilities for analysis and
interpretation of financial results for inter-firm and intra-firm comparison is called Comparative
Position Statement Or Comparative Balance Sheet .it is used to measure the short-term health
and long-term status and long-term financial risk of the business .it is used to measure the
distress position of the business by using univariate model and multivariate model.
2. Common-Size Financial Statement Analysis:
A technique of analysis of position sheet or balance sheet and revenue statement of income in
which all elements are expressed as a percentage of assets or net sales, this tool of Financial
statement analysis is called Common Sized Statement.
3. Trend Analysis ;
Financial statements that are analyzed over a number of years for comparative analysis of sales,
purchases, direct expenses, production, operating expenses, non- operating expenses,
components of selling expenses, gross profit, net profit, assets, liabilities and other items are
called Trend Analysis.
4. Cash flow statement:
Cash flow statement is a statement which gives an analytical information regarding the details of
the inflows and outflows of cash of an enterprise during a particular period of time distinctly
depicting their sources and uses.
5. Fund Flow Statement:
The transaction involving current assets and liabilities on the one hand and capital, long-term
liabilities and fixed assets on the other, may be held responsible for a change in the fund position
of an enterprise. the effects of these types of transactions fall directly on the fund of a firm. A
Fund Flow statements reports the effects of such transactions .A Fund Flow Statement is, thus, a
statement which gives us a detailed and analytical information about the flows in and flows out

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or about the different sources and application of fund during a certain period ,or during an
accounting year.
6. Ratios Analysis:
Ratios calculated from various types of accounting data for establishing a logical relationship
between them and for explanation and analysis of various accounting information are called
accounting ratios. As a matter of fact, accounting data as reflected in the profit and loss account
and balance sheet are taken either from a single statement or both the statements and a
reasonable relation in between them is established with the help of accounting ratios.
The ratios analysis is the most powerful tool of financial statement analysis. Ratio simply means
one number expressed in terms of another. A ratio is a statistical yardstick by means of which
relationship between two or various figures can be compared or measured. Ratios can be found
out by dividing one number by another number. Ratios show how one number is related to
another.
Profitability Ratios:
Profitability ratios measure the results of business operations or overall performance and
effectiveness of the firm. Some of the most popular profitability ratios are as under:
*Gross profit ratio
*Net profit ratio
*Operating ratio
*Expense ratio
*Return on shareholders investment or net worth
*Return on equity capital
*Return on capital employed (ROCE) Ratio
*Dividend yield ratio
*Dividend payout ratio
*Earnings Per Share (EPS) Ratio

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*Price earning ratio
Liquidity Ratios:
Liquidity ratios measure the short term solvency of financial position of a firm. These ratios are
calculated to comment upon the short term paying capacity of a concern or the firm's ability to
meet its current obligations. Following are the most important liquidity ratios.
*Current ratio
* Liquid / Acid test / Quick ratio
Activity Ratios:
Activity ratios are calculated to measure the efficiency with which the resources of a firm have
been employed. These ratios are also called turnover ratios because they indicate the speed with
which assets are being turned over into sales. Following are the most important activity ratios:
* Inventory / Stock turnover ratio
* Debtors / Receivables turnover ratio
* Average collection period
* Creditors / Payable turnover ratio
* Working capital turnover ratio
* Fixed assets turnover ratio
* Over and under trading
Long Term Solvency or Leverage Ratios:

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Long term solvency or leverage ratios convey a firm's ability to meet the interest costs and
payment schedules of its long term obligations. Following are some of the most important long
term solvency or leverage ratios.
* Debt-to-equity ratio
* Proprietary or Equity ratio
* Ratio of fixed assets to shareholders funds
* Ratio of current assets to shareholders funds
* Interest coverage ratio
* Capital gearing ratio
* Over and under capitalization
NOTE: FROM THE GIVEN TOOLS & TECHNIQUES ,IN MY PROJECT I
HAVE DECIDED TO WORK WITH RATIO ANALYSIS.MY PROJECT WILL
DEAL WITH RATIO ANALYSIS REPORT OF A COMPANY NAMELY,
”DR. REDDY’S LABORATORIES LIMITED” UNDER THE TOPIC
FINANCIAL STATEMENT ANALYSIS.

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CHAPTER – III: ANALYSIS AND FINDINGS
CORPORATE PROFILE OF “DR.REDDY’S
LABORATORIES LIMITED”
Dr. Reddy’s began as an API manufacturer in 1984, producing high-quality APIs to first the
Indian, and later, the international markets. In 1987, they started their formulations operations
and, after becoming a force to reckon with in the Indian formulations market, went international
in 1991.
Today, their value proposition to their customers derives from an optimal operating system in
which operations, product development and marketing & sales are fully integrated. Operations
and the supply chain are aligned to ensure high availability, pull based replenishment of products
at the retail level and superior inventory turns to our customers. This advantage is combined with
a highly effective prescription generation detailing effort.
Dr. Reddy’s - India today is more than a 200 million dollar venture with presence in almost all
major therapeutic areas. their finished dosage business in India started in 1986 with launch of
NORILET(NORFLOXACIN). Their market penetration through nearly 3000 sales force who
connect to more than 3,00,000 doctors on a regular basis has yielded them reaching all corners of
the country and providing affordable and innovative medicines in all major therapeutic areas like
gastro-intestinal, oncology, pain management, cardiovascular, diabetes, etc. Eight of their brands
feature in the top-300 brands in India that include drugs like STAMLO, REDITUX, OMEZ and
KETEROL.

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Alongside the presence of end-to-end pharmaceutical capabilities within the organization helps
them cater customer and patient needs much more effectively. Medicines like for any other
geography, they manufacture at their USFDA approved finished dosage facility with utmost
importance on quality and efficacy of the drugs.
SUSTAINABILITY
Sustainability is embedded in their DNA. Transparency, governance and ethical behavior are
inherent at Dr. Reddy’s and evident caring for community and providing affordable and
innovative medicines are the key ingredients of their business strategy.
Their Sustainability Framework comprises of six key material issues:
Providing Affordable and Innovative Medicines: From raising awareness, to
empowering them through training, to equipping them with technology and best practices, to
extending resource assistance, we proactively help our supply partners raise their sustainability
quotient.
Being an Employer of Choice: Their vibrant work environment allows their employees to
perform at peak potential, encourages transparent employee communication and policies,
provides ample growth opportunities and rewards merit and results.
Product Responsibility: The quality, benefits and safety - including reliable storage and
supply are integral to our drugs. All our products meet regulatory and safety standards and
approvals.
Environmental Management and Climate Change: They integrate environment
concerns right at the development and process design stage and analyze every decision through a
green prism.
Sustainable Sourcing
From raising awareness, to empowering them through training, to equipping them with
technology and best practices, to extending resource assistance, we proactively help our supply
partners raise their sustainability quotient.

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Caring for Communities
They go beyond episodic philanthropic assistance to create real opportunities for those who do
not have access to them. The focus is on three life-altering areas: patient care, education and
livelihood.
SHARE PRICE ANALYSIS
Since it’s their inception in 1984, Dr. Reddy's has chosen to walk the path of discovery and
innovation in health sciences. There has been a quest to sustain and improve the quality of life,
and we have had nearly two decades of creating safe pharmaceutical solutions with the ultimate
purpose of making the world a healthier place.
STOCK EXCHANGES
• New York Stock Exchange (NYSE) (ADR listed)
• National Stock Exchange (NSE)
• Bombay Stock Exchange (BSE)
Shares are also traded in other stock exchanges as permitted securities. Options being traded on
select international exchanges.
STOCK TICKERS
• Bombay Stock Exchange 500124
National Stock Exchange (NSE) DRREDDY
New York Stock Exchange (NYSE) RDY
Reuters REDY.BO
Bloomberg DRRD@IN
CUSIP number 256 135203

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STOCK PRICE UNDER BSE
STOCK PRICE UNDER NSE

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SOURCE: WWW.DRREDDY’SLABORATORIESLIMITED.COM
COMPARISON OF STOCK PRICE UNDER NSE WITH SENSEX
-10.00%
0.00%
10.00%
20.00%
30.00%
40.00%
50.00%
60.00%
70.00%
80.00%
2010 2011 2012 2013
Dr. Reddy's Laboratories
Sensex

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COMPARISON OF STOCK PRICE UNDER BSE WITH SENSEX
-10.00%
0.00%
10.00%
20.00%
30.00%
40.00%
50.00%
60.00%
70.00%
80.00%
2010 2011 2012 2013
Dr. Reddy's Laboratories
NIFTY
OBJECTIVE OF THE PROJECT
The objective of my project is to prove that “DR.REDDY’S LABORATORIES LIMITED” is
one of the best pharmaceutical company in India as there is a vast improvement in its financial
performance year after year (more preferably, day by day or month to month) from the investor’s
point of view. Thereby, satisfying the investor’s criterion .
An investor of a company should be aware of the financial performance of the company in which
he is investing .The investor must choose a safe sector for investment so that he can get proper
return against his investment. Thus, I want to show that “DR.REDDY’S LABORATORIES
LIMITED”, being a pharmaceutical company is treated as the safe bet for investment as it has
no connection with the growing inflation and it is taken for granted (more or less) that people
will consume drugs even at the time of financial crisis in the country. The main motive of my
project is to show that there is an enhancement in the financial performance of this company
every year with the help of “RATIO ANALYSIS“ and to highlight the fact that there is further
scope for improvement in the financial performance of this company.

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PROFIT AND LOSS ACCOUNT [figures in million (rupees) ]
Profit loss account
(Rs crore)
Particulars Mar ' 13 Mar ' 12 Mar ' 11 Mar ' 10 Mar ' 09
Income
Operating income 8,434.00 6,686.30 5,188.50 4,395.60 3,999.50
Expenses
Material consumed 2,671.30 2,018.10 1,670.50 1,482.10 1,469.90
Manufacturing expenses 341.80 340.60 274.10 221.40 195.90
Personnel expenses 1,138.10 831.20 702.70 516.40 412.50
Selling expenses - 625.00 477.00 443.80 448.70
Adminstrative expenses 2,297.10 1,009.70 844.70 643.40 714.50
Expenses capitalised - - - - -
Cost of sales 6,448.30 4,824.60 3,969.00 3,307.10 3,241.50
Operating profit 1,985.70 1,861.70 1,219.50 1,088.50 758.00
Other recurring income 141.70 66.00 115.50 181.30 249.70
Adjusted PBDIT 2,127.40 1,927.70 1,335.00 1,269.80 1,007.70
Financial expenses 61.40 69.20 9.90 16.00 27.40
Depreciation 312.80 301.10 247.90 222.40 193.60
Other write offs - 40.30 26.80 19.30 19.70
Adjusted PBT 1,753.20 1,517.10 1,050.40 1,012.10 767.00
Tax charges 487.70 346.80 158.50 238.70 168.60
Adjusted PAT 1,265.50 1,170.30 891.90 773.40 598.40
Non recurring items - -257.90 1.50 72.70 -37.50
Other non cash adjustments - -0.30 -0.40 -0.10 -0.10
Reported net profit 1,265.50 912.10 893.00 846.00 560.80
Earnigs before appropriation 4,870.40 4,051.80 4,044.30 2,860.30 2,218.30

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Equity dividend 211.50 233.10 190.40 190.00 105.30
Preference dividend - - - - -
Dividend tax 43.30 37.80 115.20 31.60 17.80
Retained earnings 4,615.60 3,780.90 3,738.70 2,638.70 2,095.20
Balance sheet
(Rs crore)
Sources of funds
Owner's fund
Equity share capital 84.90 84.80 84.60 84.40 84.20
Share application money - - - - -
Preference share capital - - - - -
Reserves & surplus 7,698.50 6,633.00 5,935.60 5,830.20 5,174.90
Loan funds
Secured loans 3.50 0.50 0.70 0.80 2.60
Unsecured loans 1,585.60 1,532.90 1,444.10 562.40 637.70
Total 9,372.50 8,251.20 7,465.00 6,477.80 5,899.40
Uses of funds
Fixed assets

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Gross block 4,121.70 3,507.80 3,025.00 2,425.70 2,157.30
Less : revaluation reserve - - - - -
Less : accumulated depreciation 1,734.70 1,611.00 1,334.00 1,110.10 946.50
Net block 2,387.00 1,896.80 1,691.00 1,315.60 1,210.80
Capital work-in-progress 423.20 637.60 570.40 745.40 411.20
Investments 2,379.20 2,477.70 2,462.00 2,652.70 1,865.10
Net current assets
Current assets, loans & advances 6,799.70 5,410.60 4,563.70 3,647.30 3,870.40
Less : current liabilities & provisions 2,616.60 2,171.50 1,822.10 1,883.20 1,458.10
Total net current assets 4,183.10 3,239.10 2,741.60 1,764.10 2,412.30
Miscellaneous expenses not
written - - - - -
Total 9,372.50 8,251.20 7,465.00 6,477.80 5,899.40
Notes:
Book value of unquoted
investments 2,494.70 2,616.00 2,614.80 2,652.40 1,864.80
Market value of quoted
investments 203.50 210.50 3.30 360.10 53.00
Contingent liabilities 2,097.30 2,018.90 1,526.00 2,016.10 1,934.80
Number of equity
sharesoutstanding (Lacs) 1698.36 1695.60 1692.53 1688.45 1684.69
RATIO ANALYSIS
The ratios which determine the FINANCIAL PERFORMANCE of the company are:
 PROFITABILITY RATIO
 LIQUIDITY RATIO
 LEVERAGE RATIO`

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1. PROFITABILITY RATIOS
 GROSS PROFIT RATIO
G.P RATIO=[(GROSS PROFIT/SALES)*100]
(Rs crore)
Mar ' 13 Mar ' 12 Mar ' 11 Mar ' 10 Mar ' 09
19.83 23.34 18.72 19.70 14.11
COMMENT: It is seen that there is an increasing trend in the gross profit ratio. A high ratio of
gross profit to sales is a sign of good management as it implies that the of production of the firm
is relatively low .it is also showing that cost of sales have declined without a corresponding
decline in sales price. No specific norms can be laid down for this ratio. However , 20%-30%
margin may be considered normal.
 OPERATING PROFIT RATIO
O.P RATIO= [(OPERATING PROFIT/NET SALES)*100]
(Rs crore)
23.54 27.84 23.50 24.76 18.95

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COMMENT: It is seen that there is an increasing trend in the operating profit ratio. Though
there is no standard norm for judging the operating profit ratio, nevertheless high profit margin
would ensure adequate return to the owners.
 NET PROFIT RATIO
N.P RATIO= [(NET PROFIT /SALES)*100]
14.75 13.51 16.84 18.48 13.20
COMMENT: It is seen that from the year 2009-10 there is an increase in net profit ratio from
13% to 18%,and then it decreased till 2012 after which it is slowly on the rise again. This ratio is
important for measuring the profitability of a concern. No specific norms can be laid down for
this ratio.
 RETURN ON PROPRIETOR’S FUND (FOR EQUITY AND PREFERENCE
SHAREHOLDERS)
RETURN ON PROPRIETOR’S FUND = [(NET PROFIT AFTER TAX /PROPRIETOR’S
FUND)*100]
16.20 17.42 14.81 13.07 11.37
COMMENT: It is seen that the return on proprietor’s fund is on an average having an increasing
trend. It is increasing gradually from year to year. A high return on proprietor’s fund ensures
high profitability margin to the investors. It implies that it is a prospering concern.
2. LIQUIDITY /SOLVENCY RATIOS
 CURRENTRATIO

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CURRENT RATIO=[CURRENT ASSETS/CURRENT LIABILITIES]
2.60 2.49 2.50 1.94 2.65
COMMENT: It is seen that from 2010 to 2011, there is a sharp increase in the current ratio.It is
expected that it that in future also the current ratio will increase. Current ratio implies the short
term solvency position of a firm. It indicates the firm’s ability to meet the current liabilities and
indicates greater safety of funds of short-term creditors. But a high current ratio does not a
company is adequately meeting its short term liabilities. It should be seen in relation to the
components of current assets and liquidity.
 STOCK TURNOVER RATIO
STOCK TURNOVER RATIO=[(AVERAGE INVENTORY/COST OF GOODS SOLD)]
5.53 5.54 5.36 5.39 6.09
NOTE: In absence of any information, we may use closing inventory instead of average
inventory.
COMMENT: There is no standard norm for this ratio, as it depends on the nature of the
product .This ratio indicates the velocity or the movement of the stock and measures how quickly
the inventory is sold. It can be said that this stock turnover ratios are relatively at par with the
normal one.
 DEBTORS TURNOVER RATIO
DEBTORS TURNOVER RATIO=[(AVERAGE DEBTORS INCLUDING BILLS
RECEIVABLES/AVERAGE ANNUAL CREDIT SALES)]
3.44 3.60 3.67 3.54 3.45

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COMMENT: An accounting measure used to quantify a firm's effectiveness in extending credit
as well as collecting debts. The receivables turnover ratio is an activity ratio, measuring how
efficiently a firm uses its assets. The debtors turnover ratio here varies in between 3.45-3.67
which is too low implies the company should re-assess its credit policies in order to ensure the
timely collection of imparted credit that is not earning interest for the firm.
 CREDITORS TURNOVER RATIO
CREDITORS TURNOVER RATIO= [(AVERAGE CREDITORS INCLUDING BILLS
PAYABLES/AVERAGE ANNUAL CREDIT PURCHASES)]
5.53 5.54 5.36 5.39 6.09
COMMENT:. An extra ordinarily high ratio implies delay in the payment to creditors. Any
unusual delay may affect the credit reputation of the firm. here, it can be seen that there is a
volatile nature in the credit turnover ratio. Thus, further inspection is needed.
3. LEVERAGE RATIO
 DEBT-EQUITY RATIO (DEBT=LONG-TERM FUND)
DEBT-EQUITY RATIO= [LONG-TERM DEBT/PROPEITOR’S FUND]
- 0.07 0.08 - -
DEBT-EQUITY RATIO (DEBT=LONG-TERM FUND+ SHORT-TERM FUND)

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0.20 0.22 0.23 0.09 0.12
COMMENT: It show the relationship between debt and equity in the capital structure of a
business. If the debts are more, the business too much depend on the loan capital and it causes
regular drainage of profit through interest payments. It is seen that there is a decrease in debt
capital from year after year. Thus, the company mainly depends on its own capital rather than the
loan capital and regular drainage of profit through interest payment is saved.
EARNINGS PER SHARE
EARNINGS PER SHARE= EARNINGS AVAILABLE TO THE EQUITY
SHAREHOLDERS / TOTAL NUMBER OF EQUITY SHARES
74.51 53.81 52.78 50.11 33.29
COMMENT: The net profit that a company has earned over the course of a quarter (i.e.: three
months) or year for each share of its stock that is outstanding, as follows: total company net
profit / number of shares of the company outstanding is called EPS. EPS is the most important
determinant of a company’s stock price. Rising EPS means that a company is generating more
profit on behalf of its owners, making the shares more valuable. It is seen that the EPS is
increasing to a huge extent every year. It can be concluded that it is a prospering concern and it is
expected that the EPS will continue to increase in the future. Thus, the investors can invest in
this company because of its attractive returns.
VERTICAL COLUMN = EPS IN (RS.)
HORIZONTAL ROW = YEARS

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Diagram showing the increase in EARNINGS PER SHARE of the following years 2009,
2010, 2011, 2012 and 2013 of DR.REDDY’S LABORATORIES
SOURCE: WWW.DR REDDY’S LABORATORIES LIMITED.COM
COMPARISON WITH OTHER TOP PHARMACEUTICAL
COMPANIES [EPS is given in rupees and net sales in Cr. (rupees)]
NAME OF T HE COMPANY
EARNINGS PER
SHARE
NET SALES
2011 2012 2013 2011 2012 2013
1. RANBAXY LABORATORIES
LIMITED
2. DR.REDDY’S LAB LTD.
52.78 53.81 74.51 7349.20 9761.10 11895.60
6.33 65.22 84.11 7027.7 7469.30 9673.70

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3.CIPLA
4. SUN PHARMA INDUSTRIES
5. AUROBINDO PHARMA
6. LUPIN
7. CADILA HEALTHCARE
13.47
43.39
94.34
18.01
32.11
11.96
13.36
20.40
18.15
29.81
14.00
18.62
-1.46
72.96
36.87
5605.69
1845.09
3252.06
5,364.37
3,152.20
6319.35
1933.39
4130.45
4,487.36
2,179.10
6977.50
4015.56
4284.63
3,690.09
1,885.60
SOURCE: WWW.MONEYCONTROL.COM & WWW.DR.REDDY’SLABLTD.COM

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Diagram showing the increase in NET SALES of the following years 2009, 2010, 2011, 2012
and 2013 of DR.REDDY’S LABORATORIES
SOURCE: WWW.DR REDDY’S LABORATORIES LIMITED.COM
ANALYSIS: It is seen that DR.REDDY’S LABORATORIES LIMITED has performed well or
rather better than other top pharmaceutical companies in the past three years.This company is
able to increase it’s sales year after year and as a result of which EPS is also increasing.EPS is
considered as one of the most important yardstick or tool to evaluate the firm’s performance for
the investors.An increasing EPS implies greater return to the shareholders,thereby creating
wealth maximisation. It can be said that there is a proper combination of OPERATING and
FINANCIAL LEVERAGE,which maximise the effect of change in sales volume on the EPS of
the firm.This company employs high level of OPERATING & FINANCIAL LEVERAGE
because even a small change in the level of sales has a wide increasing fluctuation in EPS.In
respect of other companies there is a fluctuating/ volatile nature in respect of EPS and SALES,
but this company has a steady growth both in SALES and EPS.
Thus, it can be Concluded that the objective of this project is verified that there is a steady
increase in the financial performance of this company.Hence,the investors can invest in this
company because of its future earning capability and positive prospectives of the company.

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CHAPTER- IV: SUGGESTIONS AND
CONCLUTION
SUGGESTIONS:
1) The company’s return on capital employed is not increasing in a constant way so it
should be managed well to earn more on amount of capital used
2) Organization can conduct some of the motivational programs like conducting some
competitions among the employees which will motivate them to take part actively and
help them to reduce their stress.
3) Collaborating with your customers instead of being focused only on your own operations
will also yield good results. If feasible, helping them to plan their inventory requirements
efficiently to match your production with their consumption will help reduce inventory
levels. This can be done with suppliers also.
CONCLUSIONS: Ratio analysis in view of its several limitations should be considered only as a
tool for analysis rather than as an end in itself. The reliability and significance attached to ratios will
largely hinge upon the quality of data on which they are based. They are as good or as bad as the
data itself. Nevertheless, they are an important tool of financial analysis.

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BIBLIOGRAPHY/REFERENCES
WWW.GOOGLE.COM
WWW.MONEYCONTROL.COM
WWW.DRREDDY’SLABORATORIESLIMITED.COM
WWW.REDIFF.COM
WWW.RANBAXYLABORATOORIESLIMITED.COM
WWW.WIKIPEDIA.ORG
CNBC TV-18 CHANNEL
AN INTRODUCTION TO FINANCIAL MANAGEMENT( MAZUMDAR,ALI,NESHA)
FINANCIAL STATEMENT ANALYSIS( DEBARSHI BHATTACHARYYA)

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Annexure-I
SUPERVISOR’S CERTIFICATE
This is to certify that Mr. Trishit Dutta a Student of B.COM. HONOURS in Accounting
and Finance of Heramba Chandra College under the University of Calcutta has worked
under my supervision and guidance for her project work and prepared a project report
with the title FINANCIAL STATEMENT ANALYSIS.
The project report,which she is submitting,is her genuine and original work to the best of
my knowledge.
Prof. AMAR KRISHNA ROY
Heramba Chandra College

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Annexure-II
STUDENT’S DECLARATION
I hereby declare that the project work with the title FINANCIAL STATEMENT
ANALYSIS submitted by me for the partial fulfilment of the degree B.COM. Honours in
Accounting and Finance under the University of Calcutta is my original work and has not
been submitted earlier to any University/Institution for the fulfilment of the requirement
for any course of study.
I also declare that no chapter of this manuscript in whole or in part has been incorporated
in this report from any earlier work done by others or by me. However,extracts of any
literature which has been used for this report has been duly acknowledged providing
details of such literature in the references.
Date: 08-03-2014 Name: Trishit Dutta
Place: Address: 48, S.P Chatterjee Road.
Kolkata-700061
Registration no: 043-1121-0020-11
Roll no. : 21

financial statement analysis. trishit

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