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Analysis of Financial Performance: A Study of Selected Pharmaceutical

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 Analysis of Financial Performance:
A Study of Selected Pharmaceutical Companies
ABSTRACT
A firm’s performance measurement has been the subject matter of
discussion for decision makers as managers, planners, economists
and academic staff since long many years. It is the process of
measuring the results of a firm's policies and operations in monetary
terms. Financial performance analysis includes analysis and
interpretation of financial statements in such a way that it undertakes
Dr. Ashok Kumar full diagnosis of the profitability and financial soundness of the
Panigrahi, business. This term is also used as a general measure of a firm's
overall financial health over a given period of time, and can be used
NMIMS University, to compare similar firms across the same companies or to compare
Shirpur. companies or sectors in aggregation. Financial analysts often assess
firm's production and productivity performance, profitability
Mail ID – performance, liquidity performance, leverage performance, asset
ashok.panigrahi@nmims. utilisation performance and growth performance. The financial
performance analysis identifies the financial strengths and
edu
weaknesses of the firm by properly establishing relationships
between the items of the balance sheet and profit and loss
Mob. - 8888810975 account. In this paper an attempt has been made to analyse the
profitability position of five leading pharmaceutical companies of
India with the help of mean, standard deviation, co-efficient of
variation, multiple regression, and analysis of variance. The results
match with the earlier studies and the established theory of finance
that the increase in profitability will not only yield greater efficiency
but also improve financial performance in future. The study is
conducted by taking into account of the data for five years from
2011-2012 to 2015-2016. The Pharmaceutical companies selected
for study are Lupin, Wochkardt, Glenmark, Abott and Torrent. The
financial performance of these companies are evaluated and found
that the profitability of the selected pharmaceutical companies in
India during the study period is satisfactory.
Keywords: Financial Analysis, Ratio, Pharmaceutical companies,
Profitability, Liquidity.

GLOBAL MANAGEMENT HORIZON, Annual Referred Journal 2019, Volume - VIII, Page - 47-56
INTRODUCTION
Financial performance is a subjective measure of how well a firm can use assets from its
primary mode of business and generate revenues. This term is also used as a general measure
of a firm's overall financial health over a given period of time, and can be used to compare
similar firms across the same industry or to compare industries or sectors in aggregation.
There are many different ways to measure financial performance, but all measures should be
taken in aggregation. Line items such as revenue from operations, operating income or cash
flow from operations can be used, as well as total unit sales. Furthermore, the analyst or
investor may wish to look deeper into financial statements and seek out margin growth rates
or any declining debt. Various types of financial analysis includes:

1. Working capital Analysis

2. Financial structure Analysis

3. Activity Analysis

4. Profitability Analysis

Financial analysts often assess firm's production and productivity performance, profitability
performance, liquidity performance, working capital performance, fixed assets performance,
fund flow performance and social performance. The financial performance analysis identifies
the financial strengths and weaknesses of the firm by properly establishing relationships
between the items of the balance sheet and profit and loss account. In this context researcher
has undertaken an analysis of financial performance of pharmaceutical companies to
understand how management of finance plays a crucial role in the growth.
REVIEW OF LITERATURE

A brief review of the different researches in the field is attempted in the following
paragraphs.
Elijelly (2004) in the study on “Liquidity – profitability trade-off: An empirical investigation
in an emerging market” empirically examined the relation between profitability and liquidity,
as measured by current ratio and cash gap (cash conversion cycle) on a sample of joint stock
companies in Saudi Arabia. The study found significant negative relation between the firm’s
profitability and its liquidity level, as measured by current ratio.”

Beneda (2006) investigated returns, bankruptcies and firm distress for new US public
companies that issued IPOs from 1995 through 2002. Beneda found that the average first year
returns for IPO companies underperformed the market and that Ohlson's model was effective
in identifying companies that had a higher probability of bankruptcy and financial distress
and earned lower than average returns.

Raheman and Nasr (2006) discussed working capital management and its effect on liquidity
as well as on profitability of the firm. They have studied the effect of different variables of
working capital management including the Average collection period, Inventory turnover
in days, Average payment period, Cash conversion cycle and Current ratio on the net
operating profitability of Pakistani firms. Debt ratio, size of the firm (measured in
terms of natural logarithm of sales) and financial assets to total assets ratio have been

1
used as control variables. The results found that there is a strong negative relationship
between variables of the working capital management and profitability of the firm. It
means that the cash conversion cycle increases it will lead to decreasing profitability of
the firm, and managers can create a positive value for the shareholders by reducing the
cash conversion cycle to a possible minimum level. They found that there is a significant
negative relationship between liquidity and profitability. They also found that there is a
positive relationship between size of the firm and its profitability. There is also a significant
negative relationship between debt used by the firm and profitability.

Singh and Pandey (2008) suggested that, for the successful working of any business
organization, fixed and current assets play a vital role, and that the management of working
capital is essential as it has a direct impact on profitability and liquidity. They studied the
working capital components and found a significant impact of working capital management
on profitability for Hindalco Industries Limited.

Kevin and Young (2009) in their article, “Need Cash? Look Inside Your Company” had
taken a hard look at the way company manages its working capital. He identified that a lot of
capital tied up in receivables and inventory could be turned into cash by challenging the
working capital practices and policies of the company. He had explored six common mistakes
that companies make in managing working capital. He says that the simple act of correcting
them could free up enough cash to make the difference between failure and survival in the
current recession.

James Clausen (2009) in his article briefly expressed about the liquidity ratios. Investors and
lending institutions will often use ratio analyses of the financial statements to determine a
company’s profitability and liquidity. If the ratios indicate poor performance, investors may
be reluctant to invest. Therefore, the current ratio or working capital ratio, measures current
assets against current liabilities. The current ratio measures the company’s ability to pay back
its short-term debt obligations with its current assets. He thinks a higher ratio indicates the
company is better equipped to pay off short-term debt with current assets. Therefore, the acid
test ratio or quick ratio, measures quick assets against current liabilities. Quick assets are
considered assets that can be quickly converted into cash. Generally they are current assets
less inventory.

Gopinathan Thachappilly(2009) stated that even if a business has high profitability, it can
face short-term financial problems and its funds are locked up in inventories and receivables
not realizable for months. Any failure to meet the obligations can damage its reputation and
creditworthiness and in extreme cases even lead to bankruptcy. In addition to, liquidity ratios
are work with cash and near-cash assets of a business on one side, and the immediate
payment obligations (current liabilities) on the other side. The near-cash assets mainly
include receivables from customers and inventories of finished goods and raw materials.

Sherin (2010) in her article on “Liquidity v/s profitability - Striking the right balance” writes
about the implications of liquidity and profitability in a pharmaceutical company. A firm is
required to maintain a balance between liquidity and profitability while conducting its day to
day operations. Investments in current assets are inevitable to ensure delivery of goods or
services to the ultimate customers. A proper management of the same could result in the
desired impact on either profitability or liquidity.

2
Rohit and Vipin (2012) investigated on determinants of corporate liquidity in India for a
sample of 100 firms in Indian market over the period 1999-2008. It was found that size of
firm has no impact on liquidity.

Sandhar et.al (2013) examined the relationship between liquidity and profitability of
selected Indian cement companies using regression analysis and revealed that current ratio
and liquid ratio are negatively associated with return on assets (ROA), return on investment
(ROI) and cash turnover ratio is negatively associated with ROI and ROA.

Neeraj and Devesh (2013) studied liquidity position and impact on profitability of Tata Steel
and steel authority of India. The study found that liquidity position can be improved with the
help of low average collection period and average collection can be reduce by proper
coordination between sale, production and finance department, lastly conclude that study
found positive impact of liquidity position on profitability with the help of various
techniques.

Ashok Kumar (2013) studied liquidity position of five leading companies which cover
period of 10 years from 2000-2010. It has been found that the liquidity position of small
companies are better as compared to big ones .Lastly, it is concluded that companies should
maintain an ideal current and liquid ratio.

Sarvanan and Abarna (2014) conducted study on liquidity analysis of selected automobile
companies in India using Anova and found that there is significant difference among the
absolute liquid ratios of the selected automobile companies.

V. Vijayalakshmi and M. Srividya (2014) in their study stated that the financial health plays
a significant role in the successful management of a company. The analysis practically
reveals that gross profit ratio, operating ratio, return on equity capital, and earnings per share,
have significant effect on the net profit ratio of the selected pharmaceutical companies during
the study period. However, profitability of the selected pharmaceutical companies in India
during the study period is satisfactory. During the period of study there were a few ups and
downs in the profitability but it did not affect the operations of the company to a great extent.
If the Pharmaceutical Industry has to perform well, it has to invest more capital and has to do
more sales, only then it will improve its performance level.

Mohmad and Dr. Syed (2016) analyzed the liquidity and profitability of selected companies
and more specifically it seeked the comparison between the liquidity and profitability
performance of selected companies. There is significant difference between the performances
of pharmaceutical companies on the basis of Quick Ratio. The performance of Cipla is better
than that of Dr. Reddy’s labs in terms of profitability

STATEMENT OF THE PROBLEM

The development of industries depends on several factors such as finance, personnel,

technology, quality of the product and marketing. Out of these, financial and operating
aspects assume a significant role in determining the growth of industries. All of the
company’s operations virtually affect its need for cash. Most of the data covering operational
areas are however outside the direct responsibility of the financial executive. Unless the top
management appreciates the value of a good financial and operating analysis, there will be

3
continuing problems for the financial executives to find the profitability position of the
concern.
In this context the researcher is interested in undertaking an analysis of the financial
performance of Pharmaceutical Companies. Hence, the present study entitled “An analysis of
financial performance of Indian pharmaceutical companies” has been undertaken.

OBJECTIVES OF THE STUDY

The following are the specific objectives of the study.

1. To analyse the profitability position of selected Pharmaceutical Companies in
India.
2. To analyse the factors influencing the profitability of selected Pharmaceutical
Companies in India.
3. To offer findings and suggestions and conclusion of this study.

SCOPE OF THE STUDY

The present study aims at assessing the profitability position of selected Pharmaceutical
companies in India. The study could help the company as well as the investors to understand
its financial efficiency. It aims to help the management to find out its financial problems at
present and the specific areas in the business, which might need some effort for more
effective and efficient utilization of its resources. The study is conducted for a period of five
years for selected companies.
SOURCES OF DATA

Secondary data is used for the study. The required data for the study is collected and
compiled from www.moneycontrol.com for the period from 2011-2012 to 2015-2016 which
is a reliable and empowered corporate database. In addition to this, supportive data is
collected from books, journals, annual reports and various news-papers.
RESEARCH METHODOLOGY
The methodology adopted to analyse is through ratio analysis, and interpret general financial
statements to assess the profitability position. Further a comprehensive analysis is carried by
applying statistical techniques namely mean, standard deviation, co-efficient of variance,
multiple regression analysis and analysis of variance.

SAMPLE DESIGN

As the complete source list of all the Pharmaceutical Companies is not available, the data for
this study is selected based on convenience sampling method. Among the companies listed
with major stock exchange of India namely, Bombay Stock Exchange and National Stock
Exchange of India, 5 companies with consistent financial data are selected. Certain
companies are excluded owing to irregular and/or inconsistent financial data support. The
following are the selected Pharmaceutical companies of this study.

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 1. Lupin
2. Glenmark
3. Wochkardt
4. Abott
5. Torrent

PERIOD OF THE STUDY

The study covers a period of five years from the financial year 2011-2012 to 2015-2016.

LIMITATIONS
We would like to make it clear that, mainly there are three limitations of this study, which are
as under:
 The study is confined to five years data only, i. e. from 2011–2012 to 2015-2016,
therefore, a detailed analysis covering a lengthy period, which may give slightly
different results has not been made.
 The study is based on secondary data collected from the website
www.moneycontrol.com and the websites of sample companies; therefore the quality
of the study depends purely upon the accuracy, reliability and quality of the secondary
data source. Approximation, and relative measures with respect to the data source
might impact the results.
 The study is based on five companies of the Pharmaceutical Industry in India that are
also drawn from the companies listed in BSE. Therefore, the accuracy of results is
purely based on the data of sample units. If one takes more sample units the results
may go slightly differently.

ANALYSIS OF PROFITABILITY
The profitability of the selected companies are measured with the help of the
following ratios, and the results are interpreted:
 Gross Profit Ratio
 Net Profit Ratio
 Operating Profit Ratio
 Return on Equity
 Earnings Per Share

Table 1 shows the gross profit ratios of Pharmaceutical Companies in India during the period
from 2011-2012 to 2015-2016

Table 1
Gross Profit Ratio (Rs. in crores)
Company Name Mean S.D C.V
Lupin 73.8256 3.09429 4.191
Abott 86.0372 0.836767 2.586

5
 Glenmark 73.4242 6.17525 8.410

Torrent 70.2570 4.84057 6.889

Wochkardt 63.6988 6.70756 10.530

 Source: Compiled and Calculated from the data published in

www.moneycontrol.com
 Table 1 reveals the gross profit ratio of selected Pharmaceutical Companies in India
from 2011-2012 to 2015-2016. This gross profit ratio shows a fluctuating trend during
the study period. It implies the high cost of goods sold due to unfavourable
purchasing policies and lesser sales. The Abott Ltd has the highest average gross
profit ratio of 86.0372 per cent and the Wochkardt Ltd has the lowest average gross
profit ratio 63.6988 per cent.
 The Wochkardt Ltd has the highest standard deviation of gross profit ratio of 6.70756
per cent. The Abott Ltd with lowest standard deviation of gross profit ratio of
0.836767 per cent and it is found to be stable in gross profit ratio.
 Table 2 shows the Net profit ratios of Pharmaceutical Companies in India during the
period from 2011-2012 to 2015-2016.

Table 2
Net Profit Ratio (Rs. in crores)

Company Name Mean S.D C.V

Lupin 21.752 5.08858 23.39
Abott 9.064 0.83676 9.2317

Glenmark 19.884 2.58427 12.996

Torrent 21.56 6.70918 31.11

Wochkardt 12.484 9.2067 73.74

Source: Compiled and Calculated from the data published in www.moneycontrol.com

 Table 2 reveals the net profit ratio of selected Pharmaceutical Companies in India
from 2011-2012 to 2015-2016. The net profit ratio shows the fluctuating trend during
the study period. This fluctuation indicates the firm’s capacity to face adverse
economic condition such as price competition, low demand etc. The Glenmark
Pharma Ltd has the highest average net profit ratio of 21.756 per cent and the Abott
has the lowest average net profit ratio of 9.064 per cent.

 The Wochkardt pharmaceutical Ltd has the highest standard deviation of net profit
ratio of 9.206716 per cent. The Abott Ltd with lowest standard deviation of net profit
ratio of 0.836767 per cent and it is found to be stable in net profit ratio.

6
  The Wochkardt Pharmaceuticals Ltd has the highest co-efficient variance of net profit
ratio of 73.74 per cent. The Abott Pharma Ltd has the lowest co-efficient variance of
net profit ratio of 9.2317percent.

Table 3
Operating Profit Ratio (Rs. in crores)
Company Name Mean S.D C.V
Lupin 5.638 2.146280 38.068
Abott 2.618 1.006121 39.669

Glenmark 5.638 1.326039 25.229

Torrent 3.43 1.464394 42.693

Wochkardt 5.988 3.732850 62.338

Source: Compiled and Calculated from the data published in www.moneycontrol.com

 Table 3 reveals the operating profit ratio of selected Pharmaceutical Companies in
India from 2011-2012 to 2015-2016. The operating profit ratio shows a fluctuating
trend during the study period. This fluctuation implies inability to keep operating
expenses properly controlled for level of sales achieved. The Wochkardt has the
highest average operating profit ratio of 5.988 per cent and Torrent Pharma Ltd has
the lowest average operating profit ratio of 3.43 per cent.
 The Wochkardt Ltd has the highest standard deviation of operating profit ratio of
3.732850 per cent. The Abott has the lowest standard deviation of operating profit
ratio of 1.006121 per cent and it is found to be stable in operating profit ratio.
 The Wochkardt Pharma Ltd has the highest co-efficient variance of operating profit
ratio of 62.338 per cent. The Glenmark has the lowest co-efficient variance of
operating profit ratio of 25.229 per cent and it is found that there is a consistency in
operating profit ratio than the other Pharmaceutical Companies.

Table 4 shows the return on equity capital profit ratios of Pharmaceutical Companies in India
during the period from 2011-2012 to 2015-2016.

Table 4
Return on equity capital profit ratio (Rs. in crores)
Company Name Mean S.D C.V
Lupin 26.452 4.295529 16.238
Abott 23.502 1.311266 5.579

Glenmark 16.568 3.573453 21.568

Torrent 32.218 10.001085 31.041

Wochkardt 56.862 60.142904 105.7699

7
  Source: Compiled and Calculated from the data published in
www.moneycontrol.com

 Table 4 reveals the return on equity capital ratio of selected Pharmaceutical

Companies in India from 2011-2012 to 2015-2016 The return on equity capital ratio
shows fluctuating trend during the study period. This fluctuation indicates profit
earned by the company and those profits which can be made non-available to pay
dividends to equity shareholders. The Wochkardt Pharma Ltd has the highest average
return on equity capital ratio of 56.862 per cent and Glenmark has the lowest average
return on equity capital ratio of 16.568 per cent.

 The Wochkardt Ltd has the highest standard deviation of return on equity capital ratio
of 60.142904 per cent. The Abott has the lowest standard deviation of return on equity
capital ratio of 1.3112665 per cent and it is found to be stable in equity capital ratio.

 The Wochkardt Ltd has the highest co-efficient variance of return on equity capital
ratio of 105.769 per cent. Abott has the negative co-efficient variance of return on
equity capital ratio of 5.579 per cent and it is found that there is a consistency in
equity capital ratio than the other Pharmaceutical Companies.

 Table 5 shows the earnings per share profit ratios of Pharmaceutical Companies in
India during the period from 2011-2012 to 2015-2016.

Table 5

Earnings Per Share (Rs. in crores)

Company Name Mean S.D C.V
Lupin 50.116 13.215344 26.3695
Abott 89.618 27.168618 30.316

Glenmark 25.906 18.138462 70.016

Torrent 57.49 28.4700003 49.521

Wochkardt 24.986 20.26739 81.114

Source: Compiled and Calculated from the data published in www.moneycontrol.com

 Table 5 reveals the earnings per share ratio of selected Pharmaceutical Companies in
India from 2011-2012 to 2015-2016. The earnings per share ratio show a fluctuating
trend during the study period. This fluctuation indicates whether or not the earning
power of the company has decreased. The Abott Pharma Ltd has the highest average
earnings per share is 89.618 per cent and Glenmark has the lowest average earnings
per share is 25.906per cent.

8
  The Torrent Ltd has the highest standard deviation of earnings per share ratio of
28.470003 per cent. The Lupin has the lowest standard deviation of earnings per share
ratio of 13.215344 per cent and it is found to be stable in earnings per share ratio.
 The Wochkardt Ltd has the highest co-efficient of earnings per share ratio of 81.114
per cent. The Lupin has the lowest co-efficient variance of earnings per share ratio of
26.3695 per cent and it is found that there is a consistency in earnings per share ratio
than the other Pharmaceutical Companies.

MULTIPLE REGRESION ANALYSIS

Table.6 shows the Multiple Regression Analysis of Pharmaceutical Companies in India

during the period of 2011-2012 to 2015-2016.

Table.6
Multiple Regression Analysis of Pharmaceutical Companies in India
R Adjusted Std. Error
Company Name Square R of the
Square Estimate
Model R

Lupin 1 .934468 .87323 .49292 3.62356

Abott 1 .954716 .911482 .64593 .497909

Wochkardt 1 .983637 .967541 .870163 3.317444

Glenmark 1 .960596 .922745 .69098 1.436587

Torrent 1 .999616 .999232 .996929 .3717971

Table.6 represents the multiple regression analysis of Pharmaceutical Companies in India

statistical significance of the model. The R2 values states that all the four independent
variables that is gross profit ratio, operating profit ratio and return on equity capital ratio have
influence on the dependent variable of net profit ratio.
The Lupin Ltd statistical significance of the model. The R2 value at .87323 states that the
three independent variables that is gross profit ratio, operating profit ratio, and return on
equity capital have 87.32 per cent influence on the dependent variable of net profit ratio
which is significant at 5 per cent level.
The Glenmark Ltd statistical significance of the model. The R2 value at .922745 states that
the three independent variables that is gross profit ratio, operating profit ratio, and return on
equity capital have 92.27 per cent influence on the dependent variable of net profit ratio
which is significant at 5 per cent level.
The Abott Ltd statistical significance of the model .The R2 value at .911482 states that the
three independent variables that is gross profit ratio, operating profit ratio, and return on
equity capital have 91.14 per cent influence on the dependent variable of net profit ratio
which is significant at 5 per cent level.

9
The Wochkardt statistical significance of the model .The R2 value at .967541 states that the
three independent variables that is gross profit ratio, operating profit ratio, and return on
equity capital have 96.75 per cent influence on the dependent variable of net profit ratio
which is significant at 5 per cent level.
The Torrent Ltd statistical significance of the model. The R2 value at .999232 states that the
three independent variables that is gross profit ratio, operating profit ratio, and return on
equity capital have 99.92 per cent influence on the dependent variable of net profit ratio
which is significant at 5 per cent level.
ONE-WAY ANOVA
Table 7 exhibits the One Way ANOVA of the Lupin Ltd during the study period from 2011-
2012 to 2015-2016.
Table 7
One Way ANOVA of the Lupin Ltd
Sum of
Squares Df Mean Square F Sig.
Between Groups 14,225.379 4 3,556.345 76.261 .000
Within Groups 932.682 20 46.634
Total 15,158.061 24

Table 7 shows the one way ANOVA of the Lupin Ltd calculated F value of the variables such
as 76.261 which are more than the table value of 2.866 at 5 per cent significant level. So there
is significant relationship between profitability ratios.
Table 8 exhibits the one way ANOVA of the Glenmark Ltd during the study period from
2012 to 2016.
Table 8
One Way ANOVA of the Glenmark Ltd
Sum of
Squares df Mean Square F Sig.
Between Groups 13,906.884 4 3,476.721 44.764 .000
Within Groups 1,553.366 20 77.668
Total 15,460.251 24

Table 8 shows the one way ANOVA of the Glenmark Ltd calculated F value of the variables
such as 44.764 which are more than the table value of 2.866 at 5 per cent significant level. So
there is significant relationship between profitability ratios.
Table 9 exhibits the one way ANOVA of the Abott Ltd during the study period from 2011-
2012 to 2015-2016

10
Table 9
One Way ANOVA of the Abott Ltd
Sum of
Squares df Mean Square F Sig.
Between Groups 35,922.530 4 8,980.633 60.145 .000
Within Groups 2,986.337 20 149.317
Total 38,908.867 24

Table 9 shows the one way ANOVA of the Abott Ltd calculated F value of the variables such
as 60.145 which are more than the table value of 2.866 at 5 per cent significant level. So there
is significant relationship between profitability ratios.
Table 10 exhibits the one way ANOVA of the Torrent Ltd during the study period from 2011-
2012 to 2015-2016.
Table 10
One Way ANOVA of the Torrent Ltd
Sum of
Squares df Mean Square F Sig.
Between Groups 29,995.917 4 7,498.979 50.222 .000
Within Groups 2,986.337 20 149.317
Total 32,982.254 24
Table 10 shows the one way ANOVA of the Abott Ltd calculated F value of the variables
such as 50.222 which are more than the table value of 2.866 at 5 per cent significant level. So
there is significant relationship between profitability ratios.
Table 11 exhibits the one way ANOVA of the Wochkardt Ltd during the study period from
2011-2012 to 2015-2016

Table 11
One Way ANOVA of the Wochkardt Ltd
Sum of
Squares
df Mean Square F Sig.
Between Groups 13,631.987 4 3,407.997 2.310 0.093
Within Groups 29,512.104 20 1,475.605
Total 43,144.091 24

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Table 11 shows the one way ANOVA of the Wochkardt Ltd calculated F value of the
variables such as 2.310 which are more than the table value of 2.866 at 5 per cent significant
level.
Contributions of the Study
This paper makes several contributions in multiple fields. First and foremost, the paper
addresses how to analyse the financial health of the companies and how performance
measurement is carried out with special reference to pharmaceutical companies. This may
give valuable insight about how the pharmaceutical companies in India are preforming and
whether they are likely to be exposed to financial distress or not.

Limitations of the Study

Perhaps the most important weakness of the paper is that the paper has a geographic
limitation, in the sense that the findings related to the enterprises chosen purposefully as five
Indian pharmaceutical companies for five years, might not be directly applicable to other
settings. For instance, it may be that certain conditions in India and particularly the
pharmaceutical industry are decisive for the findings. Testing the validity for some of the
results on broader aspect may help to clarify this potential restriction.

Managerial Implications and Importance of the Study

The research will be useful to investors in making informed decisions by analysing the
financial ratios of a company before deciding on which shares to buy and which ones to
dispose of. Managers will find the research useful in making timely responses to financial
distress to avoid further losses and avert the situation, by analysing the financial performance
of the selected companies. The regulators will apply the findings in designing and
implementing appropriate policies in ensuring an efficient market system. The government
will use the findings in designing strategies to avoid tax losses which are brought about by
financial distress. This research will form a basis for further research and scholars will find
the information useful in contributing to the pool of knowledge. The fashion of managing the
show with negative working capital is gaining popularity in today's corporate world for the
sake of earning more profit, which is regarded as managerial efficiency. But here is a word of
caution to all finance managers - they need to ensure that 'managerial efficiency' must not
lead to financial bankruptcy of the organisation. In India, negative working capital is as
popular as it is with global companies such as McDonalds, Amazon.com, etc. Negative
working capital indicates non-liquidity or less liquidity within the firm, which is
unfavourable at each and every stage of business. Many companies operating in India are
able to manage with negative working capital efficiently, creating shareholder value by way
of higher EPS and higher market capitalisation. At the same time, companies with higher
working capital have sufficient liquidity, are more successful because of liquidity and can
expand business optimally.

CONCLUSION
Financial management has great importance in making management decisions. The financial
soundness of a company can be achieved maintaining liquidity and profitability of the company. The
purpose of this study was to measure the financial performance i.e. profitability of the selected

12
 pharmaceutical companies. The analysis practically reveals that gross profit ratio, operating
ratio, return on equity capital, and earnings per share, have significant effect on the net profit
ratio of the selected pharmaceutical companies during the study period. However,
profitability of the selected pharmaceutical companies in India during the study period is
satisfactory. During the period of study there were a few ups and downs in the profitability
but it did not affect the operations of the companies to a great extent. If the Pharmaceutical
Companies has to perform well, it has to invest more capital and has to do more sales, only
then it will improve its performance level. The importance of analysing performance ratios,
to make comparisons with the companies from the same field of activity, to detect new
tendencies and to make profitable changes require the use of advanced specific tools for
multidimensional analysis, equipment’s performance, qualified personal for interpreting the
analysis and the strengths to take important decisions for the prosperity of the company.
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