A PROJECT REPORT ON

FINANCIAL STATEMENT ANALYSIS

Submitted in partial fulfilment of the requirements For the award of Master Degree

In BUSINESS ADMINISTRATION By SWATHI.V (11141E0005) Carried out

At
DR.REDDYS LABORATORIES PVT LIMITED Under the esteemed guidance of Mr.N.Vardha raju sir M.com
Department of Management Studies, S.R.T.I.S.T, Nalgonda.

DEPARTMENT OF MANAGEMENT STUDIES

SWAMI RAMANANDA TIRTHA INSTITUTE OF SCIENCE & TECHNOLOGY (Affiliated to J.N.T.U, Hyderabad) Ramananda Nagar,Post.SLBC, Nalgonda.

CONTENTS
CHAPTER 1 INTRODUCTION OBJECTIVE OF THE STUDY NEED AND IMPORTANCE OF STUDY SOURCE OF THE DATA METHODOLOGY SCOPE OF THE STUDY LIMITATIONS OF THE STUDY CHAPTER 2 COMPANY PROFILE CHAPTER 3 THEORETICAL FRAMEWORK OF FINANCIAL STATEMENT ANALYSIS CHAPTER 4 DATA ANALYSIS AND INTERPRETATION CHAPTER 5 FINDINGS CONCLUSION AND SUGGESTIONS BIBILOGRAPHY

INTRODUCTION
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 being drawn. By financial statements by means of two statements Profit and loss account or Income Statement Balance Sheet or Position Statement These are prepared at the end of a given period of time. They are the indicators of profitability and financial soundness of the business concern. The term financial analysis is also known as analysis and interpretation of financial statements. It refers to the establishing meaningful relationship between various items of the two financial statements i.e. Income statement and Position statement. It determines financial strength and weakness of the firm. Analysis of financial statements is an attempt to assess the efficiency and performance of an enterprise. Thus, the analysis and interpretation of financial statements is very essential to measure the efficiency, profitability, financial soundness and future prospects of the business units. Financial analysis serves the following purposes. Measuring the Profitability The main objective of a business is to earn a satisfactory return on the funds invested in it. Financial analysis helps in ascertaining whether adequate profits are being earned on the capital invested in the business or not. It also helps in knowing the capacity to pay the interest.

Indicating the trend of achievements Financial statements of the previous years can be compared and the trend regarding various expenses, purchases, sales, gross profits and net profit etc can be ascertained. Value of assets and liabilities can be compared and the future prospects of the business can be envisaged. Assessing the growth potential of the business The trend and other analysis of the business provide information indicating the growth potential of the business. Comparative position in relation to other firms The purpose of financial statements analysis is to help the management to make a comparative study of the profitability of various firms, engaged in similar businesses. Such comparison also helps the management to study the position of their firm in respect of sales expenses, profitability and utilising capital, etc. Assess overall financial strength The purpose of financial analysis is to assess the financial strength of the business. Analysis also helps in taking decisions, whether funds required for the purchase of the new machines and equipments are provided from internal sources of the business or not if yes, how much? And also to assess how much funds have been received from external sources.

OBJECTIVES OF THE STUDY:

To understand the theoretical framework of financial statement analysis and its tools. To assess the performance of Reddys on the basis of earnings and also to evaluate the solvency position of the company through ratio analysis. To understand the financial movement at Dr.Reddys Laboratories using funds flow statement.

NEED AND IMPORTANCE OF STUDY

Financial performance of an enterprise will affect other types of performance and also the productivity of finances is good, the productivity of men and material would be good. Moreover the study of non-economic and qualitative performance, which studies the non economic factors like customer satisfaction, citizen satisfaction etc.

SOURCE OF DATA
The data is collected from the following sources. Three year annual report of Reddys from 2007-2010 Interaction with the related finance department.

METHODOLOGY
The study carried with the cooperation of the management who permitted to carry on the study and provided the requisite data collected from the following sources. Primary data Secondary data

PRIMARY DATA
The information collected directly without any reference is primary data. In the study it is mainly through conversation with concerned officers or staff members either individually or collectively. The data includes: 1. Conducting personal interview with the officers of the company. 2. Individual observation and inferences. 3. From the people who are directly involved with the transaction of the firm.

Secondary data
Study has been taken from secondary sources i.e. published annual reports of the company editing, classifying and tabulation of the financial data. For this purpose performance data of DR.REDDYS LABORATORIES for the years 2007-2008 to 2009-2010 has been used.

SCOPE OF STUDY:
The scope and period of the study is being restricted to the following. The scope is limited to the operations of the Reddys. The information is obtained from the primary and secondary data was limited to the Reddys. The study is based on the profit and loss a/c, the balance sheets of the last four years.

LIMITATIONS OF STUDY:
1. The study is confined to a period of last 4 years. 2. Not all tools of financial statement analysis are used. 3. The duration of the study was limited to period of two months so that the extensive and deep study could not be possible.

INDUSTRY PROFLE
THE INDIAN PHARMACEUTICAL INDUSTRY
The Indian pharmaceutical sector has come a long way, being almost non-existent before1970 to a prominent provider of healthcare products, meeting almost 95 per cent of the countrys pharmaceuticals needs. The Industry today is in the front rank of Indias science-based industries with wide ranging capabilities in the complex field of drug manufacture and technology. 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 Pharma 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 with severe price competition and government price control. It has expanded drastically in the last two decades. There are about 250 large units that control 70 per cent of the market with market leader holding nearly 7 per cent of the market share and about 8000 Small Scale Units together 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 in India is the world's third-largest in terms of volume and stands 14th in terms of value. According to Department of Pharmaceuticals, Ministry of Chemicals and Fertilizers, the total turnover of India's pharmaceuticals industry between 2008 and September 2009 was US$21.04 billion.[2] While the domestic market was worth US$12.26 billion. Sale of all types of medicines in the country is expected to reach around US$19.22 billion by 2012. Exports of pharmaceuticals products from India increased from US$6.23 billion in 2006-07 to US$8.7 billion in 2008-09 a combined annual growth rate of 21.25%.[2] According to PricewaterhouseCoopers (PWC) in 2010, India joined among the league of top 10 global pharmaceuticals markets in terms of sales by 2020 with value reaching US$50 billion. The government started to encourage the growth of drug manufacturing by Indian companies in the early 1960s, and with the Patents Act in 1970. However, economic

liberalization in 90s by the former Prime Minister P.V. Narasimha Rao and the then Finance Minister, Dr. Manmohan Singh 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.

INTRODUCTION TO PHARMACEUTICAL INDUSTRY

The Indian Pharmaceutical industry has been witnessing phenomenal growth in recent years, driven by rising consumption levels in the country and strong demand from export markets. The pharmaceutical industry in India is estimated to be worth about US$ 10 bn, growing at an annual rate of 9%. In world rankings, the domestic industry stands fourth in terms of volume and 13th in value terms. The ranking in value terms may also be a reflection of the low prices at which medicines are sold in the country.

The industry has seen tremendous progress in terms of infrastructure development, technology base and the wide range of products manufactured. Demand from the exports market has been growing rapidly due to the capability of Indian players to produce cost-effective drugs with world class manufacturing facilities. Bulk drugs of all major therapeutic groups, requiring complicated manufacturing processes are now being produced in India. Pharma companies have developed Good Manufacturing Practices (GMP) compliant facilities for the production of different dosage forms.

Industry Trends A highly fragmented industry, the Indian pharmaceutical industry is estimated to have over 10,000 manufacturing units, as given by the Organization of Pharmaceutical Producers of India. The organized sector accounts for just 5% of the industry with around 300 players, while a huge 95% is in the unorganized sector. A large number of players in the unorganized segment are small and medium enterprises and this segment contributes 35% of the industrys turnover.

Bulk drug

The Bulk Drug Manufacturers Association (India) was formed in 1991 with Hyderabad as its Head Quarters. This is an all India body representing all the Bulk Drug Manufacturers of India. The Association works for the consolidation of gains of the industry and serves as a catalyst between the government and the industry on the various issues for the growth of the industry

Bulk drug manufacturing is largely concentrated in Andhra Pradesh, which accounts for more than one-third of the countrys total bulk drug production, followed by Gujarat. The Indian bulk drug industry has lately been gaining signify cant presence in the global market as foreign and multinational companies are looking to sourcing APIs and intermediates from Indian manufacturers. Factors favoring the industry are a vast resource of technical people, state of- theart manufacturing facilities, low cost and the advantage of the English language. As part of governments support to increase exports, duty free zones have been set up and several manufacturers of bulk drugs have been shifting their facilities to these areas. As a result, the diverse spread has now started getting consolidated and concentrated in certain regions across the country.

Key Drivers for the Pharmaceutical Industry Growing orientation towards Research and Development (R&D) The introduction of product patent in India has brought some fundamental changes in strategies of Indian pharmaceutical companies, with focus shifting more towards R&D.The original Indian patent law, which recognized only process patent, gave Indian companies the opportunity to produce products under patent in overseas markets, particularly regulated markets,

by adopting new processes. Consequently, companies were in advantageous position to produce drugs through reverse engineering at relatively very low cost that helped the domestic industry to grow faster during the initial stages of development. On the other hand, this discouraged multinational companies from launching their new products in India, fearing duplication of their new drug discovery through reverse engineering. As a result, MNCs market share declined from 70% prior to 1972 to 20% at present.

Growing exports Exports have been the major growth enabler of the Indian pharmaceutical industry in recent years. India exports pharmaceutical products, APIs and intermediates to more than 200 countries across the world. Traditionally, Russia, Germany, Nigeria and Indias neighboring countries like Sri Lanka, Nepal, and the Middle East were the major markets for Indian pharmaceutical exports. Most of these markets are not highly regulated and are considered to be low-value markets.

Expanding presence in regulated market Over the years, India has shown better regulatory awareness and superior technical skills, which has enabled Indian companies to penetrate the high-value markets like the US and EU. Exports of pharmaceutical products (finished products as classified under heading 30 of ITC-HS code) to the US grew by an impressive 33% to Rs 23 bn and by a whopping 62% to Rs 35 bn to the EU during FY04-FY06. Regulated markets, though difficult to penetrate due to stringent regulations, are known to give better value and margin to exporters

Formulations The administration of a medicine is a common but important clinical procedure. It is the manner in which a medicine is administered that will determine to some extent whether or not the patient gains any clinical benefit, and whether they suffer any adverse effect from their medicines. Routes of administration There are various routes of administration available, each of which has associated advantages and disadvantages. All the routes of drug administration need to be understood in terms of their implications for the effectiveness of the drug therapy and the patients experience of drug treatment. Routes of administration

Oral: Tablets, capsules, powders are taken internally. Topical: ointments, creams, liquids, aerosols that are applied on the skin Parenteral Intravenous, intramuscular, subcutaneous Others: such as eye-drops, pessaries, surgical dressings etc.

COMPANY PROFILE:
Established in 1984, Dr. Reddy's Laboratories (NYSE: RDY) is an emerging global pharmaceutical company. As a fully integrated pharmaceutical company, our purpose is to provide affordable and innovative medicines through our three core businesses: Pharmaceutical Services and Active Ingredients (PSAI), comprising our Active Pharmaceuticals and Custom Pharmaceuticals businesses; One of India's top drug makers, Dr. Reddy's Laboratories develops and manufactures branded and unbranded generic drugs and bulk pharmaceutical ingredients. Its stable of products includes ulcer medicines (branded product Omez is a leading seller), antibiotics, antidepressants (generic version of Eli Lilly's Prozac), pain relievers, diabetes treatments, and cardiovascular drugs. Dr. Reddy's Laboratories also makes generic biotech products. Its custom pharmaceutical services unit provides contract discovery, development, and manufacturing services to other drug makers. The firm sells its products in more than 100 countries through direct sales entities and third-party distribution partners. Global Generics, which includes branded and unbranded generics; and Proprietary Products, which includes New Chemical Entities (NCEs), Differentiated Formulations, and Generic Biopharmaceuticals. Our strong portfolio of businesses, geographies and products gives us an edge in an increasingly competitive global market and allows us to provide affordable medication to people across the world, regardless of geographic and socio-economic barriers. Our products are marketed globally, with a focus on India, US, Europe and Russia. Dr. Reddy's conducts NCE research in the areas of metabolic disorders, cardiovascular indications, anti-infective and inflammation.

We are: Among the leading global pharmaceutical companies from India 5th largest branded generic player in Germany , Ranked 7th in the retail segment in Russia, the largest player from India Among the Top Ten generic companies in India Among the Top 3 Active Pharmaceutical players globally Top 3 Abbreviated New Drug Application (ANDA) and Drug Master File (DMF) pipeline in the USA Among the largest players in the Custom Pharmaceutical Services (CPS) segment 4th on Environment & Social Governance Index, India Best Workplace in Pharma & Biotech - Great Place to Work 2008 and 2009 The fastest path to USD 1 billion in revenues amongst Indian Pharma companies

Dr. Reddys is an integrated global pharmaceutical company with strong brand presence established through 28 years of history. Dr. Reddys is listed on the New York Stock Exchange, headquartered in India, with annual sales of $1.7 billion and products marketed in more than 10 countries. Dr. Reddy's is committed to the manufacture of premium quality products in compliance with all regulatory requirements and customer expectations. We operate in accordance with cGMP requirements and the USFDA and ICH guidelines & regulations. All our manufacturing facilities are successfully inspected for several products by the USFDA and various other Agencies.

BOARD OF DIRECTORS

Dr. Anji Reddy, Chairman GV Prasad, Executive Vice Chairman & CEO Satish Reddy, Managing Director & COO Dr. Omkar Goswami, Independent & Non Whole Time Director Ravi Bhoothalingam, Independent & Non Whole Time Director Dr. Bruce LA Carter, Independent & Non Whole Time Director Anupam Puri, Independent & Non Whole Time Director Ms. Kalpana Morparia, Independent & Non Whole Time Director JP Moreau, Independent & Non Whole Time Director

CTO BUSINESS - MANUFACTURING FACILITIES

UNIT 1 Bollaram, Hyderabad. UNIT 2 Bollaram, Hyderabad. UNIT 3 Bollaram, Hyderabad. UNIT 4 Jeedimetla, Hyderabad. UNIT 5 Peddadevulapalli [-150 km from Hyderabad] UNIT 6 pydibeemavaram, [-750 km from Hyderabad]

CTO BU-HEAD

MARKETING

SUPPLY CHAIN MANAGEMENT

GLOBAL REGULATORY AFFAIRS AND COMPLIA

FINANCE

HRM

MANUFACTURING

UNIT 5 PLANT OUTLINE

Total area: 140 acres (567,000 sq.mt.) Manufacturing facility: 50 acres (202,000 sq.mt.) Green belt: 40 acres (162,000 sq.mt.) Future expansion: 50 acres (202,000 sq.mt.)

CTO UNIT 5 HR ORGANIZATION

SENIOR MANAGER HR

ASSISTANT MANAGER

ASSISTANT MANAGER

ASSISTANT MANAGER SECURITY & HOUSEKEEPING

DEPUTY MANAGERCONT.LABOUR &CANTEEN

DEPUTY MANAGERPAYROLL AND OTHER ADMIN

DEPUTY MANAGERANKUR AND GUEST HOUSE

Market
Dr. Reddys - India today is more than a 200 million dollar venture with presence in almost all major therapeutic areas. Our finished dosage business in India started in 1986 with launch of Norilet (norfloxacin). Our market penetration through nearly 3000 sales force who connect to more than 3,00,000 doctors on a regular basis has yielded us reaching all corners of the country and providing affordable and innovative medicines in all major therapeutic areas like gastrointestinal, oncology, pain management, cardiovascular, dermatology, diabetes, etc. Eight of our brands feature in the top-300 brands in India that include drugs like Stamlo, Reditux, Omez and Ketorol.

TOP BRANDS AND PRODUCTS

Top Brands & Products

GERMANY

INDIA

RUSSIA

NORTH AMERICA (Products) Sumatriptan AG Fexofenadine Glimepiride Oxaprozin Ondansetron Meprobamate

SIMVAS ALENDR OMEPRA OXYCOD TRAMAD RAMHCT

NISE OMEZ STAMLO STAMLO BETA ATOCOR OMEZ-D

OMEZ CIPROLET NISE ENAM KETOROL EXIFINE

IBUPRO GABAPE RAMIPR BISOPR

RAZO ENAM MINTOP CLAMP

CETRINE

Divalproex Spr. Capsules Simvastatin Finasteride Ciprofloxacin Tizanadine

The Bulk Activities Division, Unit 5 has 14 departments viz.

1. Ranitidine 2. Naproxen 3. Famotidine 4. Maintenance 5. Quality control 6. Quality assurance 7. TSD - R&D 8. SHE 9. Warehouse 10. SCM 11. HRD 12. RA 13. Liaison 14. Documentation

ABOUT PLANT
Having well equipped solvent recovery plant and recovery solvents are being used there

by reducing the inventory.

Environmental care is being taken by using the incineration and scrubbing systems

arresting the liberated gases in to the atmosphere.

Automation system is provided so that when the incinerator is stopped the feeding stops

automatically. Stand by scrubbers are provided for the alternate arrangement to the incinerator.
Having well equipped power charging, weighing and filling systems to reduce man

handling in the final stages.

Constantly striving to reduce the manufacturing cost of the products by reducing the

solvent losses and upgrading the systems.

COMPANY VISION, MISSION AND OBJECTIVE VISION A world class, innovation, Competitive and profitable Engineering Enterprise Providing total business Solutions. To be a top 20 global pharmaceutical company by 2020 MISSION To be the leading Engineering Enterprise providing Quality products System and services in the field of Energy, Transportation, Industry, Infrastructure and other potential areas.

VALUES Meeting commitments made to External and internal customers. Faster learning, Creativity and Speed of response. Respect for Dignity and potential of individuals. Loyalty and Pride in the Company Zeal to Excel Integrity and fairness in all matters.

OBJECTIVES GROWTH:
To ensure a steady growth by enhancing the competitive edge of DR.REDDYS LABORATORIES in exiting business, new areas and international operation so as to fulfil national expectations from DR.REDDYS LABORATORIES.

PROFITABILITY:
To provide a reasonable and adequate return on capital employed, primarily through improvements in operational efficiency, capacity utilization and productivity and generate adequate internal resources to finance the company growth. Confidence in providing increased value for this money through international standards of product, quality, performance and superior customer services.

TECHNOLOGY:
To achieve technology excellence in operations by development of indigenous technologies to and efficient absorption and adaptation of imported technologies to suit business needs and priorities and provide a competitive advantage of the company.

IMAGE:
To fulfil the expectation which stock holders like government as own employees, customers and the country at large have from DR.REDDYS LABORATORIES.

SWOT ANALYSIS OF DR.REDDYS LABORATORIES

The strength, weakness, opportunities and threats which are being experienced by DR.REDDYS LABORATORIES as a growing concern have been summarized up in the following lines.

STRENGTHS
1. Vast pool of trained man power. 2. Excellent state of art facilities. 3. Good working atmosphere 4. Rapport between management and union. 5. Product manufactured international quality 6. Low labour cost and low manufacturing cost.

 WEAKNESS
1. Excess man power 2. Slippage in delivery commitments 3. System implementation adequate 4. No financial package 5. Inadequate compensation package to employees.

OPPORTUNITIES
1. Growing power sector machinery 2. Liberalization has opened up the market 3. Dominant player in domestic market.

THREATS
1. Liberalizationentry of MNCS or private sector-more competition. 2. MNCS taking away good employees with attractive packages. 3. Government taxation policy-against manufacturing sector. 4. Poor infrastructure.

Quality We are dedicated to achieving the highest levels of the quality in everything we do to delight customers, internal & external, every time. Respect for the Individual We uphold the self esteem and diginity of each other by creating an open culture conductive for expression of views and ideas irrespective of the hierarchy. Innovation & Continuous Learning We create an environment of innovation and learning that fosters, in each one of us, a desire to excel and willingness to experiment. Collaboration & Teamwork We seek opportunities to build relationships and leverages knowledge, expertise and resource to create greater valve functions, business and locations. Harmony & Social Responsibility We take care to protect our natural environment and serve the communities in which we live and work AWARDS AND RECOGNITION During the companys Annual Celebrations the Chairman announces a set of awards to honour extraordinary individual and team initiatives that helped Dr. Reddys scale new heights during the year from across the organization. These awards are in the following categories:

Best Quality Driving Team Award Best Innovation Team Award Best Managed Team Award Operations Best Managed Team Award Non-Operations Best Business Development Deal Award

Best Team Awards for Execution Excellence

Best Team Awards for Customer Delight

Best Team Award for External Customer Delight Best Team Award for Internal Customer Delight

Best Safety & Health improvement Initiative Award

Best Team Awards for Sustainability

Best Environmental Initiative Award Best Corporate Social Responsibility Initiative Award

INTRODUCTION TO FINANCE:
Financial statement is that managerial activity which is concerned with the planning and controlling of the firm financial resources. Though it was a branch of economic till 1890 as a separate activity or discipline it is of recent origin. Still, as no unique body knowledge of its own, and draws heavily on economics for its theoretical concepts even today. The subject of financial management is of immense interest both academicians and practising manager. It is of great interest to academicians because the subject is still developing. And there are still certain areas where controversies exist for which no unanimous solutions have

been reached as yet. Practicing manager are interested in this subject because among the most crucial decision of the firm are those which relate to finance and an understanding of the theory of financial management provides them with conceptual and analytical insight to make those decision skilfully.

SCOPE:
Firms create manufacturing capacities for production of good, some provide services to customers. They sell their goods or services to earn profit. They fund to acquire manufacturing and other facilities. Thus the three most important activities of a business firm are:

PRODUCTION MARKETING FINANCE

FUNCTION:
The finance function form production, marketing and other functions. Yet the function themselves can be readily identified. The function of raising funds, inverting them in assets and distributing returns earned from assets to shareholder respectively. The finance functions are: Investment or long term asset mix decision Financing or capital mix decision

 Dividend or profit allocation decision Liquidity or short term asset mix decision.

INDEPTH ANALYSIS OF FINANCIAL ANALYSIS: (A)DEFINITIONS:

The term financial analysis is also known as analysis and interpretation of financial statements. It refers to the process of determining financial strengths and weaknesses of the firm by establishing strategic relationships between the items of the balance sheet, profit and loss account and other operative data.

ACCORDING TO Mr. HARRY GUTTMANN:

The first and most important functions of financial statements are of course to those who control and direct the business to the end of security the profits and maintaining sound financial conditions.

(B)NATURE OF FINANCIAL STATEMENTS:

The term financial statements refers to the balance sheet reflection the financial position of the assets, liabilities a capital of a particular company during a certain period and profit and loss account showing the operational results of the company during a certain period. Financial statements are plain statements of informed opinion uncompromising in their truthfulness. It is meant that within the limits of accepted accounting principles and the very human abilities of the persons preparing them they have to rely on judgements and estimated divorced of prejudice.

(C)CONVENTIONS:
According to the American institute of certified public accounts, financial statements reflect, a combination of recorded facts accounts conventions and personal judgements and the judgements and the conventions applied affect them materially, this implies that the exhibited in the financial statements are affected by recorded facts, accounting conventions personal judgements.

(D) USES AND IMPORTANCE OF FINANCIAL STATEMENTS:

The financial statements are mirrors which reflect the financial position and operating strengths or weaknesses of the concern. These statements are useful to management, investors, creditors, bankers, workers, government and public at large. George O May points of the following measure used of financial statements: As a basis for taxation. As a basis for price or rate regulation As a guide to the value of investment already made As a basis for granting credit.

(E)LIMITATIONS OF FINANCIAL STATEMENTS:

Financial statements are essentially interim reports and hence cannot be final because the actual gain or loss of a business can be determined only efface it has put down its shutters.

 They tend to give an appearance if finality and accuracy, because they are expressed in exact money amount. Any value to the amounts presented in the statement depends on the value standards of the person dealing with them. The balance sheet loses its functions as an index of current economic realities due to the fact the financial statements are compiled on the basis of historical costs while there is a market decline in the value of the monitoring unit and the resultant rise in prices. The problem has become more important especially during the war and the post war period. They do not give effort to many factors, which have a hearing on financial conditions and operating results because they cannot be stated in terms of money and are qualitative in nature. Such factors are reputation and prestige of the business with the public its credit rating the efficiency and loyalty of its employees and integrity of the management. Due to these limitations it is said that financial statements dont show the financial conditions of the business rather they show, the position of financial accounting for a business.

(F)PARTIES INTERESTED IN FINANCIAL STATEMENTS:

Now days the ownership of capital of many public companies has become truly board based due to dispersal of shareholding, hence, the public in general evinces interest in the financial statements. Apart from the shareholders there are other persons and bodies who are also interested in financial results disclosed by the annual reports of the companies. As already mentioned, such persons and bodies include:

1. Potential investors 2. Creditors, potential suppliers or other doing business with the company. 3. Debenture holders 4. Credit institutions like bankers. 5. Employee customers who wish to make along standing contact with the company. 6. Economic and investment analysis 7. Members.

(G)ANALYSIS AND INTERPRETATION OF FINANCIAL STATEMENTS:

Analysis and interpretation of financial statements are and attempt to determine the significance and meaning of the financial statement data as so that a forecast can be made of the prospects for future earnings ability to pay interest, debt and maturities (current and long term) and profitability of a sound dividend policy. Financial analysis main function is pinpointing of the strengths and weaknesses of a business concerns by regrouping and analysis of figure contained in financial statements by making comparisons of various component and by examine their content. The financial manager uses this as the basis to plan future financial requirements by means of forecasting and budgeting procedures. The analysis of and interpretation of financial statements represents the lost of the four measure steps of accounting viz.

 Analysis of each transaction to determine the accounts to debited and credited and the measurements and the valuation of each transactions to determine the amounts involved. Recording of the information in the journals. Summarization in largest and preparation of work sheet. Preparation of financial statements. Analysis and interpretation of financial statements results in the presentation of information that assets business managers, creditors and investors. This requires a clear understanding of monitoring item of the items. The analysis must group that represents sound and unsound relationships reflected by the financial statements. Those, the data is more maintain full and it is placed in better perspective when it is provision and by means of measurement, its relationship with others is established in terms of if relative significance and it is ranked in terms of its relative

significance. One can achieve this by comparisons made between related items in the statements series of years.

(H)TYPES OF FINANCIAL STATEMENTS:

Financial statements primarily comprise two basic statements: 1. The position statements of the balance sheet. 2. The income statements or the profit and loss account. Accounting principles specify that a complete set of financial statements must include:

1. A balance sheet 2. An income statement 3. A statement of change in owners accounts. 4. A statement of changes in financial position.

BALANCE SHEET:
The balance sheet is one of the important statements depicting the financial strength of concern. It shows the properties that are owned on one hand and on the other hand the sources of the assets owned by the concern and all the liabilities and claims it owes to owners and outsiders. The balance sheet is prepared on a particular date. The right hand shows properties and assets and the left hand shows liabilities.

INCOME STATEMENT OR PROFIT AND LOSS ACCOUNT:

Income statement is prepared to determine the operation position of the concern. It is a statement of revenues. The income statement may be prepared in the form of manufacturing account to find out the cost of the production in the form of trading accounts to determine gross profit or loss, in the form of profit and loss account to determine net profit or net loss.

STATEMENT OF CHANGES IN OWNERS EQUITY:

The term owners equity refers in the claims of the owners of the business against the assets of the firm. It consists of two elements. 1. Paid up share capital i.e. the initial amount of funds invested by the shareholders. 2. Retained earnings/reserves and surplus representing undistributed profits.

The statement of changes in owners equity simply shows the beginning balance of each owners equity account, the reasons of increases and decreases in each, and its ending balance. However, in most cases the owners equity account changes significantly in retain earnings and hence the statement of changes in owners equity becomes merely a statement of retained earnings.

STATEMENT OF CHANGES IN FINANCIAL POSITION:

The basic financial statement i.e. the balance sheet and profit and loss account and income statement of a business reveals the net effect of various transactions on the operational position of the company. But there are many transactions that do not operate through profit and loss account. Those for a better understanding another statement of changes in financial position has to be prepared to show the changes in assets and liabilities from the end of another point of time. The statement of changes in financial position may take any of the two forms. They are: Funds statements Cash flow statements

TOOLS OF FINANCIAL ANALYSIS USED IN THE STUDY: MEANING OF COMPARATIVE STATEMENT:

The comparative financial statements are the statements of the financial position of different periods; the elements of financial positions are then in a comparative form to give idea of financial position of two or more periods. The comparative statement may show: Absolute figures

Changes in absolute figures i.e. increase or decrease in absolute figures. Absolute data in terms of percentage. Increase or decrease in terms of percentage.

COMPARATIVE BALACE SHEET:

It is a statement of financial position of a business at a specific movement of time. It represents all assets owned by the business at a particular movement of time and the claims of the owners and outsiders against those assets at the time. It is a way they shape the financial condition of the business at that time. The important distinction between an income statement and balance sheet is that the income statement is for a period where as balance sheet is on a particular date.

COMPARATIVE INCOME STATEMENT:

The comparative income statement gives the results of the operation of a business. The comparative income statement gives an idea of the program of a business over a period of time. The changes in absolute data in money values and percentages can be determined to analyze the profitability of the business.

GUIDELINES FOR INTERPRETATION OF INCOME STATEMENT:

The analysis and interpretation of income statement will involve the following steps: 1. The increase or decrease in sales should be compared with the increase or decrease in cost of goods sold. An increase in sales will not always mean an

increase in profit. The profitability will improve if increase in sales promotion and the control of operating expenses. 2. The second step of analysis should be the study of operation profit. The operating expenses such as office and administrative expenses. Selling and distribution expenses should be deducted from gross profit to find out operating profit which will result from the increase in sales position and control of operating expenses. 3. The increase or decrease in net profit give an idea about overall profitability of the concern, non-operating expenses such as interest paid, loss from sale of assets, writing off to deferred expenses or deducted from operational profit we get the figure of operating profit. 4. An opinion should be formed about profitability of the concern and it should be given at the end. This should be mentioned whether the overall profitability is good or not.

COMMON SIZE STATEMENTS:

The common size statement, balance sheet and income statement are shown in analytical percentages. The figures are shown as percentages of total assets, total liabilities and total sales. The total assets are taken as of and different assets are expressed as a percentage of the total.

1. Common size balance sheet: A statement in which balance sheet items are expressed as the ration of each asset to total assets and the ratio of each liability is expressed as a ratio of total liabilities is called common sized balance sheet. 2. Common size income statement: The items in income statement can be shown as percentage of sales to show the relation of each item to sales. A significant relationship can be established between item of income statement and value of the sales. The increase in sales will certainly increase selling expenses and not administrative are financial expenses.

TREND ANALYSIS: Trend percentages:

The method of trend percentages in useful analytical device for the management since y substitution of percentage for large amounts, the clarity and readability are achieved. Trend percentages are immensely helpful in making comparative study of the final statements for several years. The method of calculating trend percentages involves the calculation of percentage relationship that each item bears to the same item in the base year. The earliest year may be taken as base year. Each item of the base year is taken as 100 and on the basis the percentage for each of the item of each year is calculated.

Least Square Method:

This method is widely used in practised. It is a mathematical method and with the help of a trend line fitted to the data in such a manner by using the actual figures of the study period, we have to calculate the trend values for these periods. Based on this value we can easily forecast the values of the future period. The method of least square may be used either to fit a straight line trend or a parabolic trend. The straight line is represented by the equation Y(C)=A+B(X).

ANALYSIS AND INTERPRETATION OF FINANCIAL STATEMENT:

An attempt has been made to analyze and interpret the financial statements of DR.REDDYS LABORATORIES for the period of 2007-2010. These statements were prepared on the basis of the data in the balance sheets and profit and loss accounts of the DR.REDDYS LABORATORIES for the above period.

RATIO ANALYSIS:
A ratio is a simple mathematical expression. It is a number expressed in terms of another number, expressing the quantitative relationship between the two, ratio analysis is the technique of interpretation of financial statements with the help of various meaningful ratios. Ratios do not add to any information that is already available, but they show the relationship between two items in a more meaningful way. Ratio analysis is a very important tool of financial analysis. It is the process of establishing a significant relationship between the items of financial statements to provide a meaningful understanding of the performance and financial position of the firm. They

help us to draw certain conclusions. Comparison with related facts is the basis of ratio analysis. Ratios may be used for comparison in any of the following ways. 1. Comparison of a firm with its own performance in the past. 2. Comparison of one firm with its own performance in the past. 3. Comparison of one firm with another firm in the industry. 4. Comparison of one firm with the industry as a whole. 5. Comparison of an achieved performance with pre-determined standards. 6. Comparison of one department of a concern with other departments.

TYPES OF RATIOS
Liquidity ratio Capital structure/leverage ratio Profitability ratio Activity ratio. LIQUIDITY RATIOS: it measures the short-term solvency of the firm. In a short period of a firm should be able to meet all its short-term obligation i.e. current liabilities and provisions. It is current assets that yield funds in the short period. Current assets are those, which the firm can convert it into cash within one year or short run. Current assets should not only yield sufficient funds to meet

current liabilities as they fall due but also to enable the firm to carry on its day-today activities.

The following are the important liquidity ratios:

1. Current ratio 2. Acid test/quick ratio. 3. Cash ratio 4. Net working capital ratio

1. Current ratio: Current ratio is the ratio of current assets to current liabilities. Current
assets are the assets that are expected to be realized in cash or sold or consumed during the normal operating cycle of the business or within one year, whichever is longer, they include cash in hand and bank, bills receivable, net sundry debtors, stock of raw materials, finished goods and working in progress, prepaid expenses, outstanding incomes, assured incomes and short term or temporary investments. Current liabilities are the liabilities that are to be repaid within a period of one year. They include bills payable, sundry creditors, bank overdrafts, outstanding expenses, income receivable in advance, proposed dividend, provision for taxation, unclaimed dividends and short term loans and advanced repayable within one year. Any instalment of long-term liability payable within the next 12 months is also current liability. CURRENT RATIO= CURRENT ASSETS/ CURRENT LIABILITIES Generally 2 : 1 ratio is considered ideal for the company. 2. ACID TEST/QUICK RATIO: the acid test ratio is the ratio between quick current assets and current liabilities and calculated by dividing the quick assets by current liabilities. Quick assets

mean those which can be converted into cash immediately by exclusion of inventory and prepaid expenses from current assets. Acid test Ratio=Quick assets/Current liabilities. Generally 1: 1 ratio is considered to be ideal for the company. 3. CASH RATIO: The cash ratio is the ratio of cash and bank balance; it is calculated dividing cash and bank balance by current liabilities. CASH RATIO= Cash and Bank balances/Current liabilities. Generally 1: 2 ratios are considered to be ideal for a company. 4. NET WORKING CAPITAL RATIO: Working capital ratio refers to comparing current assets to current liabilities and serve as the liquidity reserve avail. To satisfy contingencies and uncertainties. It is calculated by dividing net working capital by capital employed. Net Working Capital Ratio = net working capital/capital employed. Generally higher ratio is considered ideal for a company. CAPITAL STRUCTURE/LEVERAGE RATIO: These ratios indicate the relative interests of owners and creditors in a business by showing long term financial solvency and measure the enterprises ability to pay the interest regularly and to repay the principal on maturity or in pre-determined instalments at due dates. The significant leverage ratios are: 1. Debt Equity Ratio

2. Proprietary Ratio 3. Capital Gearing Ratio. 4. Fixed assets Ratio 5. Interest coverage Ratio 6. Dividend Coverage Ratio 7. Debt Service coverage Ratio. 1.Debt Equity Ratio : It reflects the relative claim of creditors and shareholders against the assets of the business. Debt usually refers to long-term liability. Equity includes equity and preference share capital and reserves. Debt Equity Ratio=long term liabilities/share holders funds. Ideal debt equity ratio is 2 : 1 2.Propreitary ratio: It expresses the relationship between the net worth and total assets. A high proprietary ratio is indicative of strong financial position of business. Proprietary ratio = Net worth/ Total Assets Net worth = Equity share capital + fictitious Assets Total assets= fixed assets + Current Assets Generally higher the ratio the ideal it is.

3. Capital Gearing Ratio: A company is said to be highly geared if it has a high capital gearing ratio and lowly geared if the capital gearing ratio is low. The extent of gearing determined the future financial structure of the business. A company that is highly geared will have to raise funds by issuing fresh equity shares, whereas a lowly geared company would find it attractive to raise funds by way of term loans and debentures. Capital . Gearing Ratio = funds bearing fixed interest and fixed dividend/equity

share holders funds

Funds bearing fixed interest and capital=Debentures + term loans +preference . . share capital.

Equity share holder funds=Equity share capital +reserves-fictitious funds. 4.Fixed Assets Ratio: This ratio indicates the mode of financial the fixed assets. It is calculated as Fixed assets Ratio= Fixed assets/capital employed Capital employed= equity share capital + preference share capital +reserves + long term Liabilities Fictitious Assets. Generally a ratio of 0.67 : 1 is considered ideal for a company. 5.Interest Coverage Ratio: This ratio is called as debt service ratio. This ratio indicates whether a business is earning sufficient profits to pay the interest charges. It is calculated as Interest coverage ratio=PBIT/Fixed interest charges PBIT=Profit before interest and taxes=PAT + Interest + Tax Generally a ratio of around 6 is normally considered as ideal for a company.

6.Dividend coverage ratio: It indicates the ability of a business to pay and maintain the fixed preference dividend to preference shareholders. Dividend coverage ratio=PAT/Fixed preference dividend. PAT= Profit After Taxes 7.Debt service coverage Ratio: It indicates whether the business is earning sufficient profits to pay not only the interest charges, but also the instalments due to the principal amount. It is calculated as Debt service Coverage Ratio =(PBIT/Interest + Periodic Loan Installation)/(1- Rate of income Tax) Generally greater the ratio, the better is the servicing ability of company. PROFITABILITY RATIO: Profitability ratios measure the profitability of a company. Generally they are calculated either in relation to sales or in relation to investments. The various profitability ratios are discussed under the following heads.

(A) GENERAL PROFITABILITY RATIOS: 1.Gross Profit Ratio: Gross profit is one of the most commonly used ratios. It reveals the result of trading operations of the business. In other words, it indicates to us the profitability of the business. It is calculated as Gross Profit Ratio=(Gross Profit/Net sales)*100 Gross Profit=net sales-cost of goods sold.

Net Sales=Total Sales- Sales Returns Cost of Goods Sold=Opening Stock + Purchases + Manufacturing expenses-closing Stock. Generally the higher the ratio, the better will be the performance of the company. 2.NET PROFIT RATIO: It indicates the results of overall operations of the firm. While the gross profit ratio indicates the extent of profitability of core operations. Net profit ratio tells us about overall profitability. It is called as Net Profit Ratio=(Net Profit after Tax/Net Sales)*100 Generally higher the ratio, the more profitable to the company. 3.OPERATING RATIO: It expresses the relationship between expenses incurred for running the business, and the resultant net sales. It is calculated as Operating Ratio=cost of goods sold + Office and Administrative expenses + selling and distribution Expenses. Generally lower the ratio, the better it is to the company. 4. OPERATING PROFIT RATIO: It establishes the relationship between operating profit and sales. It is calculated as Operating Profit Ratio=(Operating Profit/Net Sales)*100 Generally higher the ratio, the better it is to the company. 5. EXPENSES RATIO: Expenses ratios are the ratios that supplement the information given by the operating ratio. Each of the expense rations highlights the relationship given by the particular

expense and net sales. For example, factory expenses ratio is of factory expenses to net sales any expenditure can be shown as a ratio to sales. All such ratios fall under the broad head of expenses ratios. (B) OVERALL PROFITABILITY RATIOS: 1.RETURN ON CAPITAL EMPLOYED RATIO(ROCE) OR RETURN ON

INVESTMENT RATIO(ROD): This ratio reveals the earning capacity of the capital employed in the business. In other words, capital employed is permanent capital invested in the business. It is also called capital and hence, the ratio is also known as return on invested capital ROCE= (Profit before interest and taxes/capital employed) *100 2. RETURN ON NET WORTH(RONW): It indicates the return, which the shareholders are earning on their resources invested in the business. It is calculated as RONW=(Profit after Tax/Net Worth)*100 Generally higher the ratio, the better it is to the shareholders. 3. RETURN ON EQUITY CAPITAL: It expresses the return earned by the owners of the business, after adjusting for debt and preference capital. It is calculated as RETURN ON EQUITY= PAT- Preference dividend/equity shareholders funds. Generally higher the ratio, the better it is to the company.

4. RETURN ON ASSETS RATIO(ROA): Return on assets reflects the return earned by the firm for the company for the shareholders of the business on the investment of all the financial resources committed to the business. It is calculated as ROA=PAT/TOTAL SALES Generally higher the ratio, the better it is to the shareholders. 5. EARNINGS PER SHARE (EPS): It is the earning accruing to the equity shareholders on every share held by them. It is calculated as EPS= PAT-Preference dividend/number of equity shares. Generally the ratio, the better is the performance of the company. 6. Dividends per share (DPS): It is the amount of dividend payable to the holder of one equity share. It is calculated as DPS=Dividend on equity share capital/number of equity shares Generally from investors point of view, the higher the ratio, the happier the investor. 7. DIVIDEND PAY OUT RATIO: It is the ratio of dividend per share to earning per share. It is calculated as Dividend Pay Out Ratio=DPS/EPS 8. PRICE EARNING RATIO(P/E Ratio): It expresses the relationship between market price of one share of a company and earnings per share of that company. P/E Ratio=Market Price of Equity share/EPS There is no ideal P/E ratio.

9. DIVIDEND YIELD RATIO: It expresses the relationship between dividend earned per share and the market price per share. In other words, it expresses the return on investment by purchasing a share in the stock market, without accounting for any capital appreciation. It is calculated as DIVIDEND YIELD RATIO- Dividend per share/Market price of share. 10. BOK VALUE: It is the fraction of the net worth of the business as depicted in the balance sheet, which is attributable to one equity share of the business. it is calculated as BOOK VALUE=Equity share holders funds/number of equity shares. Generally higher the book value of the share, the more strong the business is assumed to be. ACTIVITY RATIO: Activity ratios measures the efficiency or effectiveness with which a firm managers its resources or assets. They calculate the speed with which various assets, in which funds are blocked up, get converted into sales. The significant activity or turnover ratios are 1. INVENTORY TURN OVER RATIO OR STOCK TURN OVER RATIO: Stock turnover ratio indicates the number of items the stock has turned over into sales in a year. It indicates to us the extent of stock required to be held in order to achieve a desired level of sales. Inventory Turn Over Ratio = Cost of Goods Sold/Average Stock Cost of Goods Sold=Sales-Gross Profit. Average Stock=(Opening Stock + Closing Stock)/2 Generally 8 is considered ideal ratio of the company.

2.DEBTORS TURN OVER RATIO: Debtors Turn over Ratio expresses the relationship between debtors and net credit sales. It is calculated as Debtors Turn Over ratio= Net Credit Sales/Average Debtors. Generally the ratio between 10-12 an ideal value for the company. 3. CREDITORS TURN OVER RATIO: Creditors turnover ratio expresses the relationship between creditors and net credit purchases. It is calculated as Creditors Turn Over Ratio= Net Credit Purchases/Average Creditors. Generally the ratio 12 is an ideal for the company. 4. WORKING CAPITAL TURNS OVER RATIO: This ratio is defined as Working Capital Turn over Ratio= Cost of Goods Sold/Working Capital Working Capital=Current Assets- Current Liabilities. Generally higher ratio indicates efficient utilization of firms funds. 5. Fixed Assets Turn Over Ratio: It is defined as ratio of Net Sales to the Fixed Assets. Generally the ratio of around 5 is considered ideal for the company. 6. TOTAL ASSETS TURN OVER RATIO: It is defined as ratio of Net Sales to the Total Sales. Generally higher the ratio, the greater is the ability of the firm to utilize the investments in the business.

Current Asset Liability Ratio year 2001-02 2002-03 current assets 155792 166669 current liability Ratios 73129 74427 2.13 2.23

2003-04 2004-05 2005-06 2006-07 2007-08 2008-09 2009-10 2010-11

155652 192697 235062 276062 310002 453597 580804 771519

84990 116644 143200 208869 243220 376332 397574 502024

1.83 1.65 1.64 1.32 1.27 1.2 1.46 1.54

800000 700000 600000 500000 400000 300000 200000 100000 0 2001- 2002- 2003- 2004- 2005- 2006- 2007- 2008- 2009- 201002 03 04 05 06 07 08 09 10 11 Current asset liabilities ratio Current Asset Current asset liabilities ratio Current Liability Current Asset Liability Ratio

Interpretation The ideal ratio for the concern is 2:1 i.e. current assets doubled for the current liabilities considered to be satisfactory. The current ratio of DR.REDDYS LABORATORIES is less than! .Thus it has to maintain its efficient current assets.

Acid Test Ratio Year Liquid assets Liquid liabilities Ratio 2001-02 898 73129 2002-03 1281 74427

0.012 0.017

2003-04 2004-05 2005-06 2006-07 2007-08 2008-09 2009-10 2010-11

472 2094 4643 12 14 15 1475 1415

84990 116644 143200 208869 243220 376332 397574 502024

0.005 0.018 0.032 0.00005 0.00003 0.00003986 0.00371 0.002818

600000 500000 400000 300000 200000 100000 0 2001- 2002- 2003- 2004- 2005- 2006- 2007- 2008- 2009- 201002 03 04 05 06 07 08 09 10 11 Liquid Assets Liquid Liabilities Ratios

Acid Test Ratio Current Assets Inventory / Current Liabilities

The ideal quick ratio is 1:1 which is considered satisfactory for the concern. The company is maintaining the ratio above the standard norm, thus the management of DR.REDDYS LABORATORIES is label to meet its current obligations.

Net working capital Net working year capital Capital employed Ratios

2001-02 2002-03 2003-04 2004-05 2005-06 2006-07 2007-08 2008-09 2009-10 2010-11

82663 92242 70662 76053 91862 67193 96410 77265 183230 269495

90522 99337 79114 85026 102462 79459 107986 96894 207051 305907

0.9131 0.93 0.8931 0.894 0.89 0.84 0.89 0.797 0.884 0.881

350000 300000 250000 200000 150000 100000 50000 0 2001- 2002- 2003- 2004- 2005- 2006- 2007- 2008- 2009- 201002 03 04 05 06 07 08 09 10 11 Net working capital Capital employed Ratios

NET WORKING CAPITAL = NET WORKING CAPITAL / CAPITAL EMPLOYED

A higher networking capital ratio indicates efficient utilization of working capital. Therefore the company should concentrate more on working capital management.

Debt equity ratio: year 2001-02 Total debt 497 Equity 3252 Ratios 0.15

2002-03 2003-04 2004-05 2005-06 2006-07 2007-08 2008-09 2009-10 2010-11

573 386 513 1053 607 587 2566 2034 2265

3252 3252 3252 3252 3252 3252 3252 3252 3252

0.17 0.11 0.15 0.32 0.18 0.18 0.789 0.62 0.70

3500 3000 2500 2000 1500 1000 500 0 2001-02 2002-03 2003-04 2004-05 2005-06 2006-07 2007-08 2008-09 2009-10 2010-11 Total debt Equity Ratios

Debt Equity Ratio:

The debt equity ratio has been increasing over the years and it has been maintained at a level of .62 for the financial year 2009-10

Fixed assets ratio year Fixed Assets Capital Ratios

employed 2001-02 2002-03 2003-04 2004-05 2005-06 2006-07 2007-08 2008-09 2009-10 2010-11 7859 7095 8360 8896 10600 12347 9909 17699 22595 31830 90522 99337 79114 85026 102462 79459 107986 96894 207051 305907 0.07 0.08 0.07 0.1 0.1 0.15 0.09 0.18 0.11 0.10

350000 300000 250000 200000 150000 100000 50000 0 2001- 2002- 2003- 2004- 2005- 2006- 2007- 2008- 2009- 201002 03 04 05 06 07 08 09 10 11 ` Fixed assets Capital employed Ratios

Fixed Assets Ratio = Fixed Assets / Capital Employed

Generally financially well managed company will have its fixed assets financed by long term funds. Therefore, the fixed assets ratio should never be more than!.A ratio of .67 is considered ideal. The results for DR.REDDYS LABORATORIES is much less at 0.11

Interest coverage ratio

year 2001-02 2002-03 2003-04 2004-05 2005-06 2006-07 2007-08 2008-09 2009-10 2010-11

PBIT 13500 13420 15821 33122 60867 63290 68916 68478 86438 130330

Interest 3054 258 48 1105 682 2300 5870 6826 7101 8583

Ratios 4.42 52.01 329.6 29.97 89.24 27.51 11.74 10.03 12.17 15.18

140000 120000 100000 80000 60000 40000 20000 0 200102 200203 200304 200405 200506 2006- 200707 08 200809 200910 201011 PBIT Interest Ratio

Interest Coverage Ratio.= PBIT/INTREST

Interest coverage ratio of DR.REDDYS LABORATORIES is not constant, from 2008-09 the ratio is10 as in 2009 -10 the ratio is 12.17, There is a random fluctuation in the ratio

Gross profit

year 2001-02 2002-03 2003-04 2004-05 2005-06 2006-07 2007-08 2008-09 2009-10 2010-11

Gross profit 13500 13420 15821 33122 60867 63290 68916 68478 86483 130330

Net sales 153205 137838 174490 174668 267217 289241 310235 414816 500342 665323

Ratios 0.088 0.097 0.07 0.189 0.227 0.218 0.2224 0.165 0.172 0.196

700000 600000 500000 400000 300000 200000 100000 0 2001- 2002- 2003- 2004- 2005- 2006- 2007- 2008- 2009- 201002 03 04 05 06 07 08 09 10 11 Gross profit Net sales Ratio

Gross Profit = Gross /net sales

Generally the higher gross profit ratio, the better for the performance of the concern .In DR.REDDYS LABORATORIES , the company has started to increase from the year on year which is a very good sign for the company.

Operating ratio year 2001-02 2002-03 2003-04 2004-05 2005-06 2006-07 2007-08 2008-09 2009-10 2010-11 Operating cost Net sales 131006 116708 149823 136630 201962 221227 234677 338382 404647 524531 153205 137838 174490 174668 267217 289491 310235 414816 500342 665323 Ratios 0.85 0.84 0.85 0.78 0.75 0.76 0.76 0.81 0.8 0.79

700000 600000 500000 400000 300000 200000 100000 0 2001-02 2002-03 2003-04 2004-05 2005-06 2006-07 2007-08 2008-09 2009-10 2010-11 Operating cost Net sales Ratios

Operating Ratio: Operating Cost / Net Sales

Generally the lower the Operating Cost, the better for the concern. The ratio should be below1 which is satisfactory for the concern.

Return on capital employed Capital year 2001-02 2002-03 2003-04 2004-05 2005-06 2006-07 2007-08 2008-09 2009-10 2010-11 PBIT 13500 13420 15821 33122 60867 63290 68916 68478 86438 130330 employed 90522 99337 79114 85026 102462 79459 107986 96894 207051 305907 Ratios 0.149 0.135 0.199 0.389 0.594 0.796 0.638 0.706 0.417 0.426

350000 300000 250000 200000 150000 100000 50000 0 2001- 2002- 2003- 2004- 2005- 2006- 2007- 2008- 2009- 201002 03 04 05 06 07 08 09 10 11 PBIT Capital employed Ratios

Return on Capital Employed = PBIT/Capital Employed

The higher the ROCE ratio, the better for the concern. The company has been keeping up the good performance is increasing at the rapid phase which in turn is a good sign for the company.

Debtors turnover ratio Average year 2001-02 2002-03 2003-04 2004-05 2005-06 2006-07 2007-08 2008-09 2009-10 2010-11 Net credit sales debtors 153205 137838 174490 174668 267217 289491 310235 414816 500342 665323 85001 81237 82829 112238 135322 177301 215291 287414 328201 537364 Ratios 1.8 1.69 2.1 1.55 1.97 1.63 1.44 1.44 1.53 1.24

700000 600000 500000 400000 300000 200000 100000 0 2001- 2002- 2003- 2004- 2005- 2006- 2007- 2008- 2009- 201002 03 04 05 06 07 08 09 10 11 Net credit sales Average debtors Ratio

Debtors Turnover Ratio = Net Credit Sales / Average Debtors

The DR.REDDYS LABORATORIES `s debtor turnover ratio was below 2 .Its has bee increasing since 2008-09 from 1.44 to 1.53 in 2009-10, the increasing trend Implies the efficient management of Debtor and credit sales

Creditors turnover ratio Net credit year 2001-02 2002-03 2003-04 2004-05 2005-06 2006-07 2007-08 2008-09 2009-10 2010-11 purchases 12060 16646 16350 16727 19656 21772 25459 31900 60293 65700 Average creditors 29738 27610 20467 24225 39495 46452 54586 Ratios 0.4 0.6 0.79 0.81 0.49 0.48 0.4664

58078 0.54926 88228 103305 0.68 0.64

120000 100000 80000 60000 40000 20000 0 2001- 2002- 2003- 2004- 2005- 2006- 2007- 2008- 2009- 201002 03 04 05 06 07 08 09 10 11 Net credit purchases Average creditors Ratio

Creditors Turnover Ratio: Net Credit Purchases /Average Creditors

Interpretation: The DR.REDDYS LABORATORIES `s creditors Turn Over Ratio is at 0.68 , it has been on the increasing trend since past two financial years. The management should try to reduce this by adopting proper payment policies.

Fixed asset turnover ratio year 2001-02 2002-03 2003-04 2004-05 2005-06 2006-07 2007-08 2008-09 2009-10 2010-11 Net sales 153205 137838 174490 174668 267217 289491 310235 414816 500342 665323 Fixed assets 7859 7095 8360 8896 10600 12247 9909 17699 22595 31830 Ratios 19.49 19.42 20.87 19.63 25.2 23.63 31.3 23.43 22.14 20.90

700000 600000 500000 400000 300000 200000 100000 0 2001-02 2002-03 2003-04 2004-05 2005-06 2006-07 2007-08 2008-09 2009-10 2010-11 Net sales Fixed assets Ratio

Fixed Assets Turnover Ratio. = Net Sales / Fixed Assets

At high fixed assets turnover ratio indicates better utilization of the firms fixed assets. A ratio around 5 is considered ideal for the concern .In DR.REDDYS LABORATORIES it is more than 22.This is a very good sign for the company.

Total asset turnover ratio year 2001-02 2002-03 2003-04 2004-05 2005-06 2006-07 2007-08 2008-09 2009-10 2010-11 Total debt 497 573 386 513 1054 607 587 2566 2034 2265 Equity 3252 3252 3252 3252 3252 3252 3252 3252 3252 3252 Ratios 0.15 0.17 0.11 0.15 0.32 0.18 0.18 0.78 0.62 0.70

3500 3000 2500 2000 1500 1000 500 0 200102 200203 200304 200405 200506 200607 200708 200809 200910 201011 Total debt Equity Ratio

Total Assets Turnover Ratio: Net Sales / Total Assets The Total Assets turnover ratio of the DR.REDDYS LABORATORIES is below 1 . This shows greater ability of the firm to utilize the investment in the business

Comparative income statement 2009-2010 and 2010-11

DESCRIPTION 2009-10 2010-11 increase/decrease increase/decrease

TURNOVER- DR.REDDYS 1106 LABORATORIES - NONDR.REDDYS LABORATORIES TOTAL TURNOVER CHANGES IN WIP CHANGES IN FG EXPORT INCENTIVES GROSS TURNOVER EXCISE DUTY GTO LESS ED DIRECT MATERIALS SUB-CONTRACT PAYMENT POWER AND FUEL TRANSFER IN SERVICE TOTAL OF `C' VALUE ADDED 500342 49447 -9622 690 540857 16859 523998 340315 1356 1746 806 344223 179775 499236 664923 165687 665323 164981 -25439 -74886 -9622 669 -422 640553 99696 33288 16429 607265 83267 342167 1852 1682 378 1693 -53 681 -125 346223 2000 261042 81267 -21.00% 18.43% 97.44% 15.89% 0.544% 24.04% -3.04% -15.51% 0.58% 42.20% 33.19% 32.97% -151.45% 400 -706 -63.83%

PERSONNEL PAYMENTS INDIRECT MATERIALS OTHER EXPENSES DR.REDDYS LABORATORIES OTHER EXPENSES - NON DR.REDDYS LABORATORIES PROVISIONS PROV.EXCH.VAR. LESS:MISC.INCOME TOTAL OF `E' GROSS MARGIN (PBIDT) DEPRECIATION DRE ON VRS GROSS PROFIT (PBIT) INTEREST PROFIT BEFORE TAX GTO LESS ED

62236 3902

69941 7795 5861 2059

12.38% 52.76%

7101

8583 1482 20.87%

26301

27410 1109 4.22% % % 102.71% 41.49% 48.82% 13.57%

-226 894 11522 88686 91089 4606

38565 -1523 23356 11834 125481 36795 135561 44472 5231 625 0

86483 -7101 93584 523998

130330 43847 -2905 -10006 133235 39651 607265 83267 0

50.70% -140.91% 42.37% 15.90%

OPERATING COST

404647

524531 119884

Comparative income statement 2008-09 & 2009-10

DESCRIPTION 2008-09 TURNOVER- DR.REDDYS LABORATORIES - NONDR.REDDYS LABORATORIES TOTAL TURNOVER CHANGES IN WIP CHANGES IN FG EXPORT INCENTIVES GROSS TURNOVER EXCISE DUTY GTO LESS ED DIRECT MATERIALS SUB-CONTRACT PAYMENT POWER AND FUEL TRANSFER IN SERVICE TOTAL OF `C' VALUE ADDED PERSONNEL PAYMENTS 414816 10637 4938 1112 431503 24537 406966 259592 978 1925 1347 263842 143124 58365 414037 499236 85199 500342 85526 49447 38810 -9622 690 -422 540857 109354 16859 -7678 523998 117032 340315 86723 1356 20.58% 20.62% 364.86% % -37.95% 25.34% -31.29% 28.76% 33.41% 2009-10 Increase/Decrease Increase/Decrease%

779

1106

327

41.98%

378

38.65% -8.78% -40.16% 30.46% 25.61% 6.63%

1746 -169 806 -541 344223 80381 179775 36651 62236 3871

INDIRECT MATERIALS OTHER EXPENSES DR.REDDYS LABORATORIES OTHER EXPENSES - NON DR.REDDYS LABORATORIES PROVISIONS PROV.EXCH.VAR. LESS:MISC.INCOME TOTAL OF `E' GROSS MARGIN (PBIDT) DEPRECIATION DRE ON VRS GROSS PROFIT (PBIT) INTEREST PROFIT BEFORE TAX GTO LESS ED

4560

3902 -658

-14.43%

6436

7101 665 10.33%

15402

26301 10899 70.76%

142 -324 13913 70668 72456 3978

-226 894 11522 -2391 88686 18018 91089 18633 4606 628 0 -17.18% 25.50% 25.72% 15.79%

68478 -6826 75304 406966

86483 18005 -7101 93584 18280 523998 117032 0

26.29%

24.27% 28.76%

OPERATING COST

338382

404647 66265

Comparative income statement 2007-2008 and 2008-09 comparative income statement DESCRIPTION 200708 TURNOVER- DR.REDDYS LABORATORIES - NONDR.REDDYS LABORATORIES TOTAL TURNOVER CHANGES IN WIP CHANGES IN FG EXPORT INCENTIVES GROSS TURNOVER EXCISE DUTY GTO LESS ED DIRECT MATERIALS SUB-CONTRACT PAYMENT POWER AND FUEL TRANSFER IN SERVICE TOTAL OF `C' VALUE ADDED PERSONNEL PAYMENTS 310235 17781 4591 2283 334890 27236 307654 183845 790 1840 1394 187869 119785 36001 309568 414037 104469 414816 104581 10637 -7108 4938 347 1112 -1171 431503 96613 24537 -2699 406966 99312 259592 75747 978 33.74% 33.71% -39.97% 7.56% -51.29% 28.85% -9.91% 32.28% 41.20% 2008-09 Increase / Decrease Increase / decrease %

667

779

112

16.79%

188

23.80% 4.62% -11.93% 40.44% 19.48% 62.12%

1925 85 1347 -47 263842 75973 143124 23339 58365 22364

INDIRECT MATERIALS OTHER EXPENSES DR.REDDYS LABORATORIES OTHER EXPENSES - NON DR.REDDYS LABORATORIES PROVISIONS PROV.EXCH.VAR. LESS:MISC.INCOME TOTAL OF `E' GROSS MARGIN (PBIDT) DEPRECIATION DRE ON VRS GROSS PROFIT (PBIT) INTEREST PROFIT BEFORE TAX GTO LESS ED

4039

4560 521

12.90%

6125

6436 311 5.08%

12848

15402 2554 19.88% -92.13% % 18.96% 48.63% 0.303% 19.78%

1805 -1524 11746 47548 72237 3321

142 -1663 -324 13913 2227 70668 23120 72456 219 3978 657 0

68916 -5870 74786 307654

68478 -438 -6826 75304 518 406966 99312 0

-0.64% % 0.69% 32.28%

OPERATING COST

234677

338382 103705

44.19%

FINDINGS
1. The net working capital was Rs 91021 lacs in 2000-2001. This decreased to Rs 82663 lacs in the year 2001-2002. In the year 2006-2007 the net working capital is Rs 67193 lacs. 2. The current ratio of DR.REDDYS LABORATORIES was 2.41 in the year 2000-2001. There was decrease in the ratio up to the year 2007-2008. The ratio is decreasing year by year. But the DR.REDDYS LABORATORIES is maintaining current ratio more than the standard norms of 2. 3. The organization is able to maintain both current ratio and quick ratio above the standard norms. i.e. the ideal current ratio for the concern is 2:1 and the quick ratio is 1:1 but the cash ratio is fluctuating. 4. The quick ratio of the organization is in decreasing trend year by year. 5. Investment in current assets has been increasing from Rs 155302 lacs in 2000-2001 to Rs 310002 in 2007-2008. 6. The inventory turnover ratio of DR.REDDYS LABORATORIES is fluctuating i.e., showing decreasing trend during the years 2000-2001 to 2003-2004. But there onwards it has slowly increased till the financial year. 7. The debtors turnover ratio has decreased from the year 2001-2002 to 2002-2003. It was 2.10 in the year 2003-2004. There was decrease in debtors turnover ratio till the financial year.

CONCLUSIONS AND SUGGESTIONS:

1. The current ratio of DR.REDDYS LABORATORIES is decreasing year by year. In the year 2000-2001 it was 2.41 and during the year 2008-2009 it has gone down to 1.2 later in the next financial year 2009-2010 it has gone up to 1.46, so the company should concentrate effectively on the management of Current Assets and Current Liabilities. 2. The Net Working Capital of DR.REDDYS LABORATORIES is good for almost in range for each and every year. It is always in the ideal ratio for every organization. 3. The DR.REDDYS LABORATORIES is using the moving average method in valuation of stock. 4. The debtors constitute nearly 50% of the Total Current Assets. For the Company it is difficult to manage the accounts receivables. The company should collect debts as quickly as possible. 5. The company has to exercise cost of control and cost of reduction techniques to increase its profitability. 6. The debtors turnover ratio in 2005-2006 is 1.97. The ratio has increased than previous years except for 2003-2004, which had 2.10. The decreasing ratio shows the inefficient management. They should concentrate more on the collection of the debts. 7. The return on investment ratio of the DR.REDDYS LABORATORIES is 59.40 in 20052006. It has increased when compared to previous years ratios. It is beneficial to investors who are interested to know the profits earned by the company.

8. The investment in loans and advances should be minimized to possible extent. 9. Effective internal control system should be established. So that it can have control over all aspects of the company.

BIBILOGRAPHY: http://www.Dr.ReddysLaboratoriescom/financialinformation/index.p
hp

http://www.studyfinance.com/lessons/workcap www.bizsearchpapers.com http://www.antiessays.com/free-essays/9076.html

http://www.Dr.Reddys Laboratories hyderabad.com/Dr.Reddys Laboratories _hyderabad_unit.htm http://en.wikipedia.org/wiki/Bharat_Heavy_Electricals_Limited

Financial Management I M Pandey. Accounting for Managers-Jelsy Joseph Kuppapally.

Financial statement analysis - Gokul Sinha.