finance project of ratio analysis of ranbaxy & glaxo

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Financial Management

Ratio Analysis

of

Ranbaxy Laboratories India Ltd.

&

Glaxo Smithkline PHARMACEUTICALS Ltd.

Submitted To:

Ms. Mishu Agarwal (Lecturer)

Submitted By:

Faraaz Zaidi|Navneet Kumar | Supraneet Arya

PGDM I – Year (Trimester II)

1

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Ajay Kumar Garg Institute of Management,

Ghaziabad.

ACKNOWLEDGEMENTWe would like to acknowledge and extend our heartfelt gratitude to Ms. Mishu Agarwal, lecturer, who always gave valuable suggestions and guidance for the completion of this project.

She helped us to understand and remember important details of the project that we would have otherwise lost. Our project has been a success only because of her guidance.

Most especially to AKGIM family, without whom, the completion of this report wouldn’t have been feasible.

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Introduction and details of the project

Title of the project:Ratio analysis of financial statements of Ranbaxy India Ltd. & Glaxo Smithkline Ltd.

Name of the students: Faraaz Zaidi Navneet Kumar Supraneet Arya

Roll numbers of students: PGDM/09/07 PGDM/09/18 PGDM/09/31

Objectives of the project:Comparison of both the companies by interpreting the financial statements of both the companies, using Ratio analysis

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Ranbaxy Laboratories Limited, IndiaCompany Profile

Ranbaxy Laboratories Limited, India’s largest pharmaceutical company, is an integrated, research based, international pharmaceutical company, producing a wide range of quality, affordable generic medicines, trusted by healthcare professionals and patients across geographies.

Ranbaxy is ranked 8th amongst the global generic pharmaceutical companies, Ranbaxy today has a presence in 23 of the top 25 pharmaceutical markets of the world. The company has a global footprint in 48 countries, world-class manufacturing facilities in 10 countries and serves customers in over 125 countries.

In June 2008, Ranbaxy entered into an alliance with one of the largest Japanese innovator companies, Daiichi Sankyo Company Ltd., to create an innovator and generic pharmaceutical powerhouse. The combined entity now ranks among the top 15 pharmaceutical companies, globally. The transformational deal will place Ranbaxy in a higher growth trajectory and it will emerge stronger in terms of its global reach and in its capabilities in drug development and manufacturing.

Vision & Aspirations

Ranbaxy is driven by its vision to achieve significant business in proprietary prescription products by 2012 with a strong presence in developed markets. The Company aspires to be amongst the Top 5 global generic players and aims at achieving global sales of US $5 Bn by 2012.

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Financials

Ranbaxy was incorporated in 1961 and went public in 1973. For the year 2008, the Company recorded Global Sales of US $ 1,682 Mn, reflecting a growth of 4%.

The Company has a balanced mix of revenues from emerging and developed markets that contribute 54% and 39% respectively.

In 2008, North America, the Company's largest market contributed sales of US $ 449 Mn, followed by Europe garnering US $ 330 Mn. Business in Asia has been going strong with India clocking sales of around US $ 300 Mn with market leadership in several business segments, backed by strong brand-building skills.

Strategy

Ranbaxy is focused on increasing the momentum in the generics business in its key markets through organic and inorganic growth routes. The Company continues to evaluate acquisition opportunities in India, emerging and developed markets to strengthen its business and competitiveness. Growth is well spread across geographies with focus on emerging markets. Ranbaxy has forayed into new specialty therapeutic segments like Bio-similars, Oncology, Peptides and Limuses. These new growth areas will add significant depth to the existing product pipeline.

People

The Company’s business philosophy based on delivering value to its stakeholders constantly inspires its people to innovate, achieve excellence and set new global benchmarks. Driven by the passion of its over 12,000 strong multicultural workforce comprising 50 nationalities, Ranbaxy continues to aggressively pursue its mission to become a Research-based International Pharmaceutical Company and attain a true global leadership position.

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Ratio Analysis of Ranbaxy Laboratories Ltd.An analysis of financial statements with the help of ratios may be termed as ratio analysis. It implies the process of computing , determining and

presenting the relationship of items and group of items in the statement.1. Liquidity ratios:

Liquidity means the ability of the firm to meet its current liabilities as they become due and current assets which presumably provides the source from which these obligations will be met. Since these ratios are used to assess the short term financial position of business enterprise, therefore they are also called as short term solvency ratios.

A. Current Ratio or Working Capital Ratio: Current ratio shows the relationship between current assets and current liabilities.

Formula: Current Ratio = Current Assets/Current LiabilitiesWe know,Current Assets = Inventories +Sundry Debtors +Cash + Other current Assets

= 11,985.19 + 102, 45.35 +193, 49.39 + 1,345.53 = Rs. 42,925.46 Millions

Current Liability =Rs. 35, 414.02 MillionsTherefore,Current Ratio = 42,925.46/35,414.02

= 1.21

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B. Liquid Ratio or Quick Ratio or Acid Test Ratio: This ratio shows whether the firm is able to meet its current liabilities within a month or immediately.

Formula: Liquid Assets/Current LiabilitiesWe Know,Liquid Assets = Sundry Debtors + Cash + Other Current Assets

= 10,245.35+19,349.39+1345.53 =Rs. 32,680.11 Millions

Current Liability = Rs. 35,414.02 MillionsTherefore,Liquid Ratio = 32,680.11/35,414.02

= 0.92

2. Solvency Ratios :

These ratios are computed to judge the ability of firm to meet its long term liabilities.

It shows the proportion of the fund which is provided by the outsider creditors in comparison to owners.

A. Debt Equity Ratios: This ratio indicates the relationship between long term debts and the equity.

Formula: Debt Equity ratio = Debt/Equity(Net worth) = Long Term Loans/Shareholder’s Fund + Reserves We know,Long term loans = Secured Loans + Unsecured Loans = Rs. (1,620.72+35632.99)

= Rs. 37,253.71 MillionsShareholder’s fund + Reserves = Rs. (2,101.85 + 33,309.22) = Rs. 35,411.27 Millions

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Therefore,Debt equity ratio = 37,253.71/35,411.27 = 1.05

B. Proprietary Ratio: The relationship between owner’s or proprietor’s funds with total assets.

Formula: Proprietary Ratio = Shareholder’s Funds/Total Assets*100

We know,Shareholder’s Funds = Share Capital + Reserves and Surplus =Rs. (2,101.85+33,309.22)

=Rs. 35,411.07 Millions

Therefore,Total Assets = Fixed Assets + Investments + Current Assets – Current Liabilities

= Rs. (14,566.78 + 36,180.28 + 42,925.46 – 35,414.02) = Rs. 58,258.5 Millions

Proprietary Ratio = 35,411.07/58,258.5*100 = 60%

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GlaxoSmithkline Pharmaceuticals India Limited

Company Profile

Established in the year 1924 in India GlaxoSmithKline Pharmaceuticals Ltd. (GSK Rx India) is one of the oldest pharmaceuticals company and employs over 3500 people. Globally, it is a US $45 billion, leading, research-based healthcare and pharmaceutical company.

In India, it is one of the market leaders with a turnover of Rs. 1,880 crore and a share of 5.7 per cent*.

At GSK, their mission is to improve the quality of life by enabling people to do more, feel better and live longer. This mission drives us to make a real difference to the lives of millions of people with our commitment to effective healthcare solutions.

The GSK India product portfolio includes prescription medicines and vaccines. Our prescription medicines range across therapeutic areas such as anti-infectives, dermatology, gynaecology, diabetes, oncology, cardiovascular disease and respiratory diseases.

The company is the market leader in most of the therapeutic categories in which it operates. GSK also offers a range of vaccines, for the prevention of hepatitis A, hepatitis B, invasive disease caused by H, influenzae, chickenpox, diphtheria, pertussis, tetanus, rotavirus, cervical cancer and others.

With opportunities in India opening up, GSK India is aligning itself with the parent company in areas such as clinical trials, clinical data management, global pack management, sourcing raw material and support for business processes including analytics.

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GSK’s best-in-class field force, backed by a nation-wide network of stockists, ensures that the Company’s products are readily available across the nation.

GSK has two manufacturing units in India, located at Nasik and Thane as well as a clinical development centre in Bangalore. The state of art plant at Nasik makes formulations while bulk drugs and the active pharmaceutical ingredients are manufactured at Thane.

Being a leader brings responsibility towards the communities in which they operate. At GSK it has a Corporate Social Responsibility program, that works towards fulfilling basic healthcare, education and other developmental needs of 55 tribal villages near Nasik. They work with underprivileged children from the slums of Mumbai, taking care of their developmental and health needs. GSK also runs an HIV/AIDS helpline - considered to be a pioneering effort in India that supports those in distress and despair.

GSK is committed to developing new and effective healthcare solutions. The values on which the group was founded have always inspired growth and will continue to do so in times to come.

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Ratio Analysis of GlaxoSmithkline Pharmaceuticals Ltd.

An analysis of financial statements with the help of ratios may be termed as ratio analysis. It implies the process of computing, determining and presenting the relationship of items and group of items in the statement.

1. Liquidity Ratios :

Liquidity means the ability of the firm to meet its current liabilities as they become due and current assets which presumably provides the source from which these obligations will be met. Since these ratios are used to assess the short term financial position of business enterprise, therefore they are also called as short term solvency ratios.

A. Current Ratio or Working Capital Ratio: Current ratio shows the relationship between current assets and current liabilities.

Formula: Current Ratio = Current Assets/Current LiabilitiesWe know,

Current Assets = Inventories +Sundry Debtors +Cash + Other Assets = Rs. (19,560.70 + 8,192.55 + 14,055.97 + 519.95) = Rs. 42329.17 Lacs.

Current Liability = Rs. 20,383.15 Lacs.

Therefore,Current Ratio = 42,329.17/20,383.15

= 2.07

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B. Liquid Ratio or Quick Ratio or Acid Test Ratio:

This ratio shows whether the firm is able to meet its current liabilities within a month or immediately.

Formula: Liquid Ratio = Liquid Assets/Current Liabilities

We know,Liquid Assets = Sundry Debtors + Cash + Other Current Assets

= Rs. (8192.55 + 14055.97 + 519.95) = Rs. 22,768.47 Lacs.

Current liability = Rs. 20,383.15 Lacs.

Therefore,Liquid ratio = 22,768.47/20,383.15

= 1.11

2. Solvency Ratios:

These ratios are computed to judge the ability of firm to meet its long term liabilities. It shows the proportion of the fund which is provided by the outsider creditors in comparison to owners.

A. Debt Equity ratios:

This ratio indicates the relationship between long term debts and the equity.Formula: Debt Equity ratio = Long Term Loan/ Shareholder’s FundWe know,

Long Term Loans = Secured + Unsecured = Rs. (0 + 1,98.38) = Rs. 1,98.38 Lacs.

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Shareholder’s Fund = Share Capital + Reserves and Surplus = Rs. (74,47.50 + 504,79.96) = Rs. 579,27.46 Lacs.

Therefore,

Debt Equity Ratio = 1,98.38/579,27.46 = 3.42

B. Proprietary Ratio: This ratio shows the relationship between owner’s Funds and total assets of the enterprise.

Formula: Proprietary Ratio = Shareholder’s Funds/Total Assets*100

We Know,Shareholder’s Fund = Share Capital + Reserves and Surplus = Rs. (74,47.50 + 504,79.96) = Rs. 579,27.46 Lacs.

Total Assets = (Fixed Assets + Investment + Current Assets – Current Liabilities) = Rs. (110,24.75 + 162,00.09 + 42,329.17-203,83.15) = Rs. 89,937.16 Lacs.

Therefore, Proprietary Ratio = 57927.46/89937.16*100 = 64%

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ComparisonHere are some of the calculated ratios of both

Ranbaxy Laboratories Ltd. & GlaxoSmithkline Pharmaceuticals Ltd.

S. No Ratios Ranbaxy Laboratories

GlaxoSmithkline Pharmaceuticals

1. Liquidity Ratio:

Current Ratio Quick Ratio

1.21

0.92

2.07

1.11

2. Solvency ratio:

Debt Equity Ratio Proprietary Ratio

1.05

0.60

3.42

0.64

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GSK is having current ratio and quick ratio more than that of Ranbaxy. The higher the ratio, the more liquid the company is. It shows that the GlaxoSmithkline is having a good short term financial strength.

Now if we consider solvency ratios, then it can be seen that both GlaxoSmithkline and Ranbaxy got its assets financed with debt,

As we know that a ratio under 1 means a majority of assets are financed through equity, above 1 means they are financed more by debt.

If we compare the proprietary ratio, GSK contributes 64% of proprietors fund for having its assets while Ranbaxy contributes only 60% of it.

Both companies are recording good profits and competing each other in the market.

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References www.google.com Financial Management, M Y Khan. P K Jain

http://www.google.com/

finance project of ratio analysis of ranbaxy & glaxo

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