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DECLARATION

I, R.BHASKAR, here by solemnly declare that the project report

titled A STUDY ONWORKING CAPITAL MANAGEMENT IN ORTIN

LABORATORIES LTD. HYDERABAD submitted by me is a bona fide

work done by me between 28th May 2007, 28th July 2007 and is not submitted to

any other University or published any time before. This project work is submitted

to S.V.University in partial fulfillment of the requirement for the award of

MASTER OF BUSINESS ADMINISTRATION by me.

PLACE: NELLORE, R.BHASKAR.

DATE:


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ACKNOWLEDGEMENT

The presentation of this project has given me the opportunity to expressmy profound gratitude to all those who have made it possible for me toaccomplish this project work. At the first instance I would like to thank theORTIN LABORATORIES LTD., Hyderabad, for giving me the opportunity todo the project work in esteemed organization.

I am especially thankful to Mr. SRINIVASLU, the Manager of Financein ORTIN LABORATORIES Ltd, Hyderabad for their valuable guidance.

I am especially thankful to Mr. Dr. N. THIRUPALU, Principal and alsoto Mr. SASIDHAR, Head of the department and other Faculty members ofJAGANS INSTITUTE OF MANAGEMENT STUDIES for supporting mein all my deeds during my curriculum.

I would like to express my sincere thanks to Mr. Dr.N.THIRUPALUinternal guide associate professor JAGANS INSTITUTE OFMANAGEMENT STUDIES for his kind guidance and support extended forcompletion of this project.

.R.BHASKAR.


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CONTENTS

CHAPTER TITLE PAGE

1 INTRODUCTION

Objectives for the Study

Need for the Study

Methodology and Limitations of the Study

7

2 INDUSTRY PROFILE 13

3 COMPANY PROFILE 33

4 WORKING CAPITAL MANAGEMENT

- A THEORETICAL BACK DROP.

59

5 ANALYSIS AND INTERPRETATION OF

DATA

77

6 FINDINGS AND SUGGESTIONS 877 BIBLIOGRAPHY 90


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INTRODUCTI

ON


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INTRODUCTION

Proper management of working capital is very important for

the success of an enterprise. It aims at protecting the purchasing

power assets and maximizing the return on investment.

The manner of administration of current assets to a very large

extent determines the success of operations of a firm. Constant

management is required to maintain appropriate levels and in the

various working capital accounts. Cash budget and financial

budget aid in establishing proper proportions. Sales expansion

dividend declaration, plant expansion, new product line increase

salaries and wages, rising price levels etc., put added stain on

working capital maintenance, failure of business is un doubt fully

due to poor management and absence of management skills.

Shortage of working capital, so often and advanced as the main

cause of failure of a industrial concerns, is nothing but the clearest

evidence if management which so concern.

Working capital management covers the administration of all

current assets namely cash in hand, cash at bank, marketable

securities, accounts receivable and inventories and also theadministration of current liabilities namely bank over drafts,

account payables and short term loans


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Thus at present working capital management has turned into the

field of specialist are known as financial executives.

OBJECTIVIES OF THE STUDY

The present study in ORTINLABORATORIES LTD is undertaken to evaluate the workingcapital strategy in the organization by establishing the followingobjectives:

To calculate the quantum of working capital and to highlight its

importance in the total investment of ortin laboratories ltd.

To examine the sources of financing the working capital.

To determine working capital policy.

To find out the correlation of working capital to variables likesales and fixed assets.

To compare the actual working capital with the estimated

working capital of the company with the help of componentswise analysis.

To calculate the duration of the operating cycle.

To analyze the profitability liquidity position of the company.

To examine and evaluate the cash, receivables and inventory

management performances.


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The various objectives are interrelated and it is clear that theanalysis and interpretation of these objectives are helpful todifferent users for different purposes.

NEED FOR THE STUDY:

Indian economy starts to globalize and enter the second phase

of reforms. Vast changes are taken place in business environment.

Pharmaceutical industry has effectively faced the globalization

wave. Indian pharmaceutical industry is now moving to innovation

from limitation and likely to become globosity dominant in few

years time.

Drug discovery process has undergone a radical change

because of the improvement in science/technology. The present

patent laws regime required give strategic form to focus new drug

discovery and their protection. Indian pharmaceutical firms have to

change their strategies to meet these challenges. This may need

quantum jumps in systems like quality manufacturing and

marketing and in R&D.


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SCOPE OF THE STUDY:

This study covers analysis of financial performance during

the period 2001-06 of ortin laboratories ltd, Hyderabad. Through

working capital and nation analysis.

RESEARCH METHODOLOGY:

When once the problem is identified, it must be determined

how to obtain the necessary information to solve the problem.

Generally there are two of data.

Primary Data:

It is the data, which is collected for the first time keeping the

objective in the mind. However collection of primary data inInternational/Domestic research is an expensive proposition in

terms of both money and time and gathering primary data in

international environment pose a variety of problems that are

related to social and cultural factors and level of economic

development. In preparation of this project report I depended more

on secondary data.


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Secondary Data:

It refers to information already collected by some one else,

either an individual or an organization for some other

purpose earlier.

The secondary data was gathered from Annual reports and otherinternational pharmaceutical magazines, besides this informationthe company annual reports brochures and computer data; bankdata has provided information about group, company activities.

LIMITATIONS:

Non-availability of primary data.

The major problem in completing the project is the time of

seven weeks. Which very less in order to know about the

overall objectives of the study.

Study has been restricted only to working capital analysis.

The schedule wise information is not available.

Data pertaining to 6 years only has been conferred of the

study.

More dependency on secondary data.


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PROFILE


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COMPANY PROFILE

ORTIN LABORATORIES LIMITED, a trusted source forQuality was established in 1986 as a GMP standards companymanufacturing the complete range of PharmaceuticalFormulations, which includes Tablets, Capsules, Syrups &Ointments.

Ortin has been certified as an ISO 9001: 2000 company by theinternationally recognized Quality Management Certification

Body, the National Quality Assurance, UK. Quality is the hallmarkof Ortin, highest standard of quality is ensured with the help ofmost modern equipment and experienced personnel. Our mottoright from the inception has been towards Quality.

We have spacious manufacturing unit at Hyderabad, A.P., India,equipped with technically modern manufacturing facilities to

produce complete range of Pharmaceutical Formulations (Tablets,Capsules, Syrups, Dry powders and Ointments).

We manufacture and supply several Branded & GenericPharmaceutical formulations, and interested to export high qualityformulation

ortin laboratories limited, a Trusted Reliance for Quality

established in the year 1986 as a Private Limited Company with a

nominal capital of One lakh rupees to offer QUALITY Drugs and

Medicines to the suffering mankind. Later, in the year 1994, this

Private Limited Company converted as a Public Limited Company

with 5,060 shareholders which received good subscription from the


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Public. These proceeds were utilized for constructing a Factory in

a spacious area of 25000 sq feet with all ultra-modern

infrastructure as per the WHO GMP Standards to manufacture the

complete range of Pharmaceutical Formulations of TABLETS,

CAPSULES, SYRUPS, DRY POWDERS & OINTMENTS. Due

to our concern for QUALITY, we stand as a leading and

predominant Pharmaceutical Manufacturer of Drugs and

Medicines of our country with turnover running in crores of

rupees.Ortin has been certified as an ISO 9001: 2000 Company by

the internationally recognized Quality Management Certification

Body, the National Quality Assurance, UK in pursuance of its

focus towards Quality with its Policy to enhance customer

satisfaction by providing Quality Pharmaceutical Formulations at

optimum cost and maintain profitability through continual

improvement of Quality Management Sytems and cGMP.

Ortin, a Public Limited Company, presently trading in the

Hyderabad & Madras Stock Exchanges shall shortly commence

their trading with the Bombay Stock Exchange.

Ortin is honored as a registered Supplier of Drugs &Medicines with the most reputed Central, State & Quasi-

Government Organizations & Institutions of our Country such as

the Railways, Health Ministry, Defence, Posts & Telegraph,


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Electricity Hospitals, Transport Organizations, Research

Institutions such as JIPMER, IICT etc.

Quality is the Hallmark of Ortin. At every stage of

Production from Raw Material to Finished Products, highest

standard of Quality is ensured with the help of most modern

equipment and experienced personnel. This unflinching

perseverance towards quality has helped the company to earn

enormous goodwill & trust, both from medical profession and

pharmaceutical trade.

Being in partnership with the world means respecting its resources

without compromise and so at Ortin, continuous process

evaluation and monitoring waste recoveries ensure that the focus is

maintained. Specialized facilities have helped us to earn a

reputation for the expert handling of hazardous materials in the

form of reactants and products. Teams from the Ministry of Health

regularly inspect our Plant. Every care is taken for treatment of

solid wasters, discharged liquids and atmospheric releases.

Ortin is contemplating an entry into the OTC Segment as

part of its long-term growth strategy. It is channeling its effortstowards building an overseas marketing network in order to

enhance exports to third world countries. Ortin proposes to be

certified as a WHO GMP Unit and to launch innovative


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Biotechnology products in Orthopedic and Dental Segments. The

success behind us is only the Reliance which we carry for our

Quality from the people all over the country. Our motto, right from

our inception has been towards Quality and we still maintain them

and continue to do so in future.

Manufacturing

Ortin has got a spacious unit of 2.5 acres at Patancheru

equipped with technically modern manufacturing facilities as per

WHO Norms to manufacture complete range of Pharmaceutical

Formulations of Tablets, Capsules, Syrups, Dry Powders and

Ointments.

QUALITY

Ortin adheres to various procedural checks and controls to

ensure that the Product is of the required Quality. This is by ourQuality Assurance Department which is well equipped with the

latest Analytical Instruments.

Ortin have laid down various in-house and Pharmacopoeial

Specifications for each step from the testing of Raw Materials to

Finished Products and also standardized and validated all our

systems like water supply, procurement of specific ingredients,

quality testing, manufacturing procedures, cleaning procedures etc.

All the crude drugs are tested for Microscopic &

Macroscopic specifications. Phytochemical Screenings for the


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presence of Activity Secondary Metabolites viz., Alkaloids,

Tannins, Flavonoids etc., and alcohol, water soluble extract, Ash

values and Volatile substances. Extracts are tested for description,

pH, water soluble extract etc.

All the finished products viz., Tablets, Capsules, Syrups,

Powders and Ointments are tested for average weights,

disintegration time, diameter, thickness, moisture, volume, color

sedimentation, taster, pH, clarity etc. We have separate

Microbiological Laboratory for testing the Microbialcontamination in all the Products.

To ensure quality, our Quality Assurance Department is well

equipped with most sophisticated, ultra-modern and state-of-the-art

instruments like:

Gas Chromatography, HPLC, FTIR, UV Spectrophotometer,

Photo Fluorometer, Dissolution Apparatus, Karl Fischer Titrator,

Humidity Control Oven, Colony Counter, D.T. Apparatus,

Fumigator, Friability Apparatus, I.R., Moisture Balance, Incubator,

Leakage Test Apparatus, Polarimeter, pH Meter, Refract meter,

Zone Reader, Autoclave, Centrifuge Machine etc.

As per GLP, all the stringent/strict quality control measuresare taken as per the specifications/measures of control taken by any

Government Lab.


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The quality of the Products as raw material, semi-finished

products, and finished products are checked at every possible step.

This will eliminate any error and high quality products are

produced. In fact, an average of 25 analytical procedures is carried

out before releasing any batch. The Quality Assurance Department

has technically qualified analytical professionals, who take utmost

care to ensure the quality of products as per GLP/GMP

specifications during the process of manufacturing as well as

during shelf life. All the facilities for quality control are availablein-house, so checking of quality is ensured at each step, in-house.

Maintaining the quality at all levels ensures the respect and

goodwill ofORTIN among the doctors and retail chemists.

R&D

Development of new brands is possible only with the help of

R & D Department. So a multi-faceted Research & Development

Department is supporting the development of new brands. This

Department is well supported by internet, latest equipments, books,

journals, extensive studies of journals, research paper are

conducted in-house as well as in leading medical libraries. Detailed

surveys of doctors & retail chemists are also done to know the

pulse of the market. What are the requirements of the market and

what are the deficiencies present in existing brands, are critically

analyzed.


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Various Formulations are then finalized and stability tests are

conducted at various temperatures, pH and other storage

conditions. Research & Development Departments is headed by

thorough professionals with vast experience in leading Companies

of India. The work is already on for various new brands which will

be coming into the market very soon.

The R & D Department is also improving the existing

products as far as appearance, taste, D.T., Stability etc is

concerned.

Marketing

Marketing is the most sophisticated part of business. The

specialized aggressive marketing ofOrtin, earned a separate niche

forORTIN, all over India. The initial launching of Ortin was done

with 20 strong Medical Representatives. They had intense desire to

excel in Pharma Selling. Their hard work had led to sowing of

seeds of success for Ortin. Within a short span of time, this small

team has expanded to 200 sharp-shooters, who believe in 100%

achievement of their assigned target. They believe in ACTION and

their action is lower than words. The sales turnover figure is

running in crores. Our Products are well accepted by medical

profession.


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Ortin enjoys a solid and strong network of leading

Distributors in all major cities in India. This ensures the

availability ofOrtin Products all over the country.

Ortin enjoys the reputation of being the registered Supplier

of Drugs & Medicines to most of the renowned Central, State and

Quasi-Government Institutions and Hospitals of our country.

Ortin lays great emphasis on timely delivery of drugs within

given time frames. Safeguarding the competitive interests of our

customers with the highest professional integrity has built up apartnership of trust to satisfy the needs of as many customers as

possible, we are working to enhance and strengthen our research

capabilities as well as to expand our manufacturing facilities.

Ortin maintains optimum stocks at our Unit which ensure

smooth and timely execution of the Order to our consignee agents.

Ortins Office equipped with experienced, hardworking

personnel updates the Distributors Accounts, issues all credit

notes, statements and correspondence promptly to the appreciation

of our consignee agents.

Ortin conducts continuous Development Programmers as

Back Up Mechanism to our Marketing Field Force. It organizes theScheme to its Marketing Field Force basing on the competitive

Feed Back and Product Wise Demand from the Market.


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BOARD OF DIRECTORS

1. MURALI KRISHNA MURTHY (CHAIRMAN)

2. MOHAN KRISHNA MURTHY

3. RAMA KRISHNA MURTHY

4. PANDARI KRISHNA MURTHY

5. RAMANA MURTHY


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INDUSTRY PROFILE

Pharmaceutical companies that are in top 500 companies of India

Rank06

Rank05

Company

Net sales Pat

PBDIT %OPM

M-CAP

Rs.Cr%CHG

Rs.Cr %CHG

74 49 Ranbaxy

Laboratories Ltd.,

3479.

9

16.6 212.04 -59.8 345.2 9.92 17066.34

83 93 Cipla Ltd., 2979.5

32.15 607.64 48.35 806.09 27.09 11493.66

108

122 Dr.ReddysLaboratories Ltd.,

2236.6

34.81 211.12 222.62 413.82 18.5 6930.51

139

163 Luoin Ltd., 1643 42.31 179 117.52 300.81 18.24 3002.2

154

142 GSPharamaceuticals

1494.9

8.23 502.08 50.73 698.22 46.71 80302.19

188

179 Aurobindo PharmaLtd.,

1397.9

28.66 69.38 97.78 206.31 14.78 2064.28

169

151 Nicholas pharmaLtd.,

1391.7

12.89 170.35 0.46 308.28 22.15 5272.95

185

173 Cadila Health careLimited

1276.1

17.58 164.9 25.46 270.8 21.22 3179.95

186

201 Sun PharmaceuticalLtd.,

1251.2

30.96 461.21 50.52 540.63 43.21 11496.01

249

228 Wockhardt Ltd., 881.32

4.24 238.47 14.77 308.45 35 9844.08

258

275 OrchidPharmaceuticalLtd.,

866.4 26 82.9 167.33 260.89 30.11 1385.16

265

260 Aventis PharmaLtd.,

839.21

10.37 145.08 -2.3 248.07 29.56 3454.4

267

291 Matrix LaboratoriesLtd.,

779.21

21.34 182.38 40 241.66 31.25 3113.37

291

273 iPCA LaboratoriesLtd.,

754.78

10.42 63.98 -20.73 115.11 15.25 982.65

312

286 Bicon Ltd., 649.79

6.66 133.48 -23.46 186.48 26.82 4563.42

313

361 TormatPharmaceuticalsLtd.,

693.46

41.56 65.83 24.4 111.66 16.1 1354.23

345

344 Alembic Ltd., 628.78

21.21 78.52 60.68 130.48 20.81 924.63


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350

308 Pizer Ltd., 618.82

8.58 68.12 49.65 125.93 20.35 1553.35

386

473 Pances BiotechLtd.,

540.23

62.86 60.91 102.66 127.46 23.59 1366.91

389

382 Grenmark Pharmaceuticals

Ltd.,

537.56

15.59 67.3 6.02 125.33 22.98 3490.41

391

373 Novaris India Ltd., 532.77

10.58 107.63 64.38 162.98 30.58 1697.47

412

369 Abbott India Ltd., 484.74

9.47 59.16 -42.14 92.93 19.03 1022.54

425

451 JB Chemicals Ltd., 480.92

28.16 70.96 19.92 99.5 21.59 771.17

430

429 UnichemLaboratories Ltd.,

454.35

17.77 81.85 81.53 107.35 25.35 834.04

468

437 Merck Ltd., 396.93

5.16 78.79 10.99 124.71 31.42 794.63

475

450 Divis Ltd., 387.46

7.32 70.47 6.72 127.93 33.02 1761.17

500 481 Shasun Drugs Ltd., 356.6 10.35 36.5 17.59 71.01 19.91 404.39

PAT = PAT is the measure of profit after the tax deduction.

PBIT = PBIT is the measure of profit before subtracting

depreciation, interest and tax

M-Cap = Market Capitalization figure is arrived by multiplying

the number of common shares

outstanding by adjusted closing price on October 30,2006

calculated backwards for 365 days M-Cap.

OPM = Operating Profit Margin is calculated as operating profit

(PBIT). Divided by net sales for a period.


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PHARMACEUTICALS

Wanted, a Pragmatic Policy

The industry meets around 86 percent of the countrys

demand for bulk drugs, drug intermediates and formulations

The INDIAN pharmaceutical industry today is among the

front ranks of the countrys science-based industries with wideranging capabilities in the complex field of drug manufacture and

technology. The highly organized sector is estimated to be worth

$6 billions in domestic. Sales and another $4 billion in exports.

The domestic segment is growing at 15-17 percent. It ranks very

high in the third worked, 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.


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Playing a key role in promoting and sustaining development

in the vital field of medicines, the industry boasts of quality

producers and many units approved by regulatory authorities in the

U.S. and Europe. International companies associated with this

sector have stimulated, assisted and spearheaded this dynamic

development and helped to put India on the global pharmaceutical

map.

Fragmented Market:

The pharmaceutical sectors have more than 10,000 registered

units. It has expanded dramatically in the last two decades. The

leading 10 companies control 35 percent of the market leader

holding only a 5.5 percent share. It is an extremely fragmented

market with intense competition and government price control.

The industry meets around 86 percent of the countrys

demand for bulk drugs, drug intermediates and pharmaceutical

formulations. There are about three hundred large and medium

units operating nationally, which form the core of the industry.These units produce the complete range of pharmaceutical

formulations, that is, medicines ready for consumption by patients,

and about 400 bulk drugs.


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Following the de-licensing of the industry, industrial

licensing for most drugs and pharmaceutical products has been

done away with. Manufactures are free to produce any drug duly

approved by the drug control authority, technologically strong and

totally self-reliant; the industry has low costs, innovative scientific

manpower, strength of national laboratories and an increasing

balance of trade. The industry, with its rich scientific talent and

research capabilities, supported by an intellectual propertyprotection regime, is well set to take on the international market.

Lowest prices:

Indian medicines are marketed at prices that are among the

lowest in the world in spite of maintaining the highest quality

standards.

In the world market, India has a share of 1.8 percent by value

and 8 percent by volume. In terms of global ranking, India is fourth

in volume but fourteenth in value terms. This is because Indianmedicines are marketed at prices that are among the lowest in the

world in spite of maintaining the highest quality standards. The


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table on the next page shows how low the prices of Indian

medicines are when compared to other countries.

Growth Enablers:

Intellectua

l

Property

Rights

Enforcement

Labour

Law

Reforms

Fiscal

Reforms

Regulatory

Reforms

Price

Decontrol


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Pharmaceutical Prices In Select Countries

Drugs,

Dosageformand strength

Pack

Price in

India

[Rs.] Price inPakistan

Price inIndonesia

Price inU.S.

Price inU.K.

Anti-

Invectives

1

Ciprofloxacin

HCL

500 mg tabs

10s 29.00 423.86 393.00 2352.35 1185.70

2Norfloxacin

400 mg tabs10s 2070 168.71 130.63 1843.66 304.78

3Ofloxacin

200 mg tabs10s 40.00 249.30 204.34 1937.39 818.30

4

Cefpodoxime

Proxetil 200

mg tabs

6s 114.00 357.32 264.00 1576.58 773.21

NSAIDs

1

Diclofenac

Sodium 50

mg tabs

10s 3.50 84.71 59.75 674.77 60.96

Anti-

Ulcerates

1Ranitidine

150 mg tabs10s 6.02 74.09 178.35 863.59 247.16

2Omeprazole

30 mg caps10s 22.50 578.00 290.50 2047.50 870.91

3Lansoprazole

30 mg caps10s 39.00 684.90 226.15 1909.64 708.08


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The Indian industry is on the threshold of a new knowledge

economy. One of the key drivers to the knowledge economy is

innovation. All stakeholders-the government, the medical

profession industry leaders and the public at large will have to

accept this inevitable truth, which calls for a change of mindset.

For the past few years, the industry has growth through imitation

by reverse engineering the innovative molecules launched by R&B

companies. While the public expects newer and between medicines

at affordable prices, the industry has to battle with high risks,increasingly long period to take a drug from discovery to market

due to stringent regulatory requirement and burgeoning R&B

costs. These can be the growth enables shown in the diagram.

IPR ENFORCEMENT:

The patent act 2005 has finally become has law of the land,

thanks to the perseverance and statesmanship of the UPA

Government which has honored its commitment to the world trade

organization.

The Act includes several provisions such as 20year product

patent period, ration will help bring in foreign direct investment in

the industry and contribute to improved healthcare.

However, the Organization of pharmaceutical products of

India feels there are a few areas where Indian will continues to lag


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behind in ushering in the world class IPR standards. The most

important is the issue of patentability. The OPPI recommends

that patent protection should be accorded to all inventions provided

they are novel, have an inventive step and have commercial

applicability. Existing provisions and the law appear to limit patent

protection only to New Chemical Entities (NCE). Thus, salts,

esters, ethers, pure form polymorphs, metabolites, particle size,

isomers, complexes, combinations and other derivatives of known

substance should also be allowed to be patented as the areas whereIndian companies have developed expertise.

Date protection:

The OPPI has also requested the government to provide date

protection to the safety and efficacy data developed by the

innovator through costly and time consuming clinical trials. All

over the world in countries such as the Y.S, Europe, China, Korea

and Singapore data protection is in force. The OPPI has

recommended to the government that at least 5years of data

protection is granted from the time of marketing approval. It isnecessary for the government IPR protection that fosters

innovation and stimulates launch of patented molecules that will

result in better healthcare for all.


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REGULATORY FORMS:

In the last couple of years, the DCGTs (Drug Controller

General of India), office has spearheaded several positive changes

in the regulatory environment such as Schedule Y, which deals

with new drug applications, up gradation of GM standards through

Schedule M, and strengthening the legal framework to curb

production of spurious drugs. One major reform required does the

Mashelkar Committee recommend the formation of a centralized

National Drug Authority as. Also required are clear and

unambiguous guidelines on OTC medicines and nutraceuticals.

The draft National Biotech Development Strategy announced by

the Department of Biotechnology is one of the most progressive

technology policies in the recent years and will provide stimulus

for R&D in this critical area.

Fiscal reforms:

While the industry at large has been burdened with anadditional tax, namely Fringe Benefit Tax (FBT), the

pharmaceutical industry has received some relief. If the

government is serious about making drugs more affordable to the


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masses, transaction cost is one area, which needs to be

rationalized. Multiple taxes such excise duty, VAT, octroi and

entry tax not only increase the final price significantly due to a

cascading effect but also result in a cumbersome administrative

burden. While import duties are coming down in a phased manner

they still have to reach ASEAN levels. To encourage investments

in R&D, the tax exemption given to indigenous R&B needs to be

extended to at least 10 years so that companies can plan ahead,

given the long gestation period involved in research. Internationalclinical trials carried out in India must be included for tax

exemption.

There is also a need to cut down on bureaucracy. The recent

report of the World Bank and international finance corporation,

Doing Business in 2006-Creating Jobs mentions that an Indian

businessman has to make 59 payments to discharge his tax

liabilities and takes 264 hours in a year. There cost the company

48.2% of its gross profits.

PRICE DECONTROL:

It is well known that severe price control has affected

availability of medicines as it becomes uneconomical for

manufacturers to produce, promote, distribute and sell such


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medicines with artificially fixed price parameters. Consequently,

such medicines do not get manufactured or if manufactured are not

actively promoted, there by causing patients to shift to alternative

therapies which, in many instances, can be more expensive than

the price controlled medicine. Decontrol has transformed the IT

(Information Technology) and telecom industries. Decontrol

encourages market forces and results in reduced prices. The

industry has represented that the country should move should from

price control to price monitoring.

In fact, over the last four years, on an average, prices of

medicines have consistently fallen and have been well below the

inflation rate. Labor law reforms. In todays globalized world, to

remain competitive, it is important that the labor laws are in tune

with global practices. While a social safety net is very much

required and that the legitimate interests of labor must be

protected, policies. Which a social safety net is very much required

and that the legitimate interests labor must be protected, policies

like reservation in the private sectors, classifying medical

representatives as workmen and lack of a clear exit policy will notonly make Indian industry uncompetitive, but will also reduce

employment opportunities in the long run. Apart from the above

growth drivers, accelerating the pace of economic reforms,


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providing world-class infrastructure roads, airports, technology

parks, special are areas, which urgently need focused attention and

priority.

Medicines form a small percentage of Health Expenditure

Doctors Fees 9%

Medicines 15%

Diagnostic Investigations & Pathological Tests 24%

Hospital 17%

Transport 20%

Miscellaneous 8%

Others 7%

NEW DRUG POLICY:

Any discussion of the prospects of the pharmaceutical

industry will be incomplete without a reference to drug policy.

While the pharmaceutical policy 2002 is still under judicial

review, fresh attempts are being made to revive the policy with

new pricing models and explore options other than price control to

achieve the objective of making life saving drugs available at

reasonable prices. It is paradoxical that medicines which form only


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15 percent of the total healthcare expenses (the bulk 85% being

hospitalization, doctors consultations, diagnostic tests, etc.,) get

maximum attention from the government and public at large.

The OPPI has made several representation to the government

for reducing the transaction costs by rationalizing taxes on

medicines, privatizing health insurance to get reimbursement and

moving from price control to price monitoring. Several interactive

meetings with government on this issue are in progress and it is

hoped that a pragmatic policy will be announced that will create anenabling environment for the growth of this lifeline industry and at

the same time improve access the medicines. The drug policy

should also have a long tenure of 5 to 10 years so that the

companies can operate in climate of certainty.

Even though Indian medicine price are among the lowest in

the world, only about 35% of the population has access to modern

medicines. To increase this access what is required is to improve

the healthcare infrastructure such as hospitals, primary healthcare

centers, availability of doctors and pharmacists, particularly in

rural areas. Today healthcare expenditure accounts for less than

5% of the GDP and 80% of all spending is out of the pocket, ifhealth insurance is aggressively privatized, reimbursement of

medical expenses will reduce the burden on patients and increase

access to health care.


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The governments healthcare outlays have dropped from

3.3% in the first plan and there is a need to increase the outlay. The

government has accepted the OPPI/IDMA recommendation of a

healthcare cuss that will generate to below the poverty line families

totally free through government-managed channels.

EMERGING TRENDS:

The new patent regime opens up vast opportunities for Indian

pharmaceutical firms. Large companies like Ranbaxy, Nicholas,

Dr.Reddys etc., are investing heavily in R&D and in a few years

should be able to launch their own patented molecules all over the

world. A recent report states that the R&D spend of the top 12

Indian pharma companies in 2004-05 had grown by 41.5% and is

7.7% of sales compared to 4% in the previous year. Fiscal

incentives for research should be provided on a long-term basis of

around 10 years. Also, international clinical trials carried out inIndia should be considered part of R&D so that MNCs migrate a

large amount of their clinical trail work to India.


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The global pharmaceutical industry is under tremendous

pressure to reduce costs. While drug discovery costs have

ballooned to $1 billion per new chemical entity, R&D productivity,

therefore, is looking for cost containment through outsourcing and

India offers a tremendous opportunity in the area of contract R&D,

manufacturing clinical trials, bio-informatics, custom synthesis and

technical services.

ADVANTAGE IN CLINICAL TRIALS:

Clinical trails alone account for over 50% of the overall

budget for new drug development

A major cost of drug development is in clinical trials.

Conducting global trials in India will offer three benefits. First, the

cost of such trials in India is almost half that in U.S and other

developed countries. Second, India has a huge genetically diverse

patient pool, which is drug nave (Not taken other drugs for their

condition in the past). And third, there are many qualified doctors

with expertise to conduct and supervise clinical trials according to

good clinical practices, a globally recognized standard.


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The OPPI is happy that the ministry of Health has issued a

revised schedule Y to the Drugs and Cosmetics Act, which gives

these guidelines. Pfizer, Glaxo, Novartis, Roche, Wyeth, and some

others have started carrying out international clinical trials in India.

India has also the largest number of US FDA approved

manufacturing facilities outside the U.S. in 2003-04, Indian

companies filed highest number of DMF (Drug Master File)

applications with US FDA, with the almost $60 billion worth of

medicines coming off patents in the next few years, India is poisedto emerge as a significant player in the area of generics. However,

a recent decision of the US Federal Appeals Court on authorized

generic which allows the innovator to produce the generic version

of a drug going off patent will make it increasingly difficult for

Indian companies to penetrate the US generic market.

Annual Drug Expenditure Per Capita 2004:

Country ExpenditureUSA 636

Japan 375


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Germany 216

Singapore 59

Malaysia 13

Thailand 13

China 6

Pakistan 6

India 5

With the new schedule M for good manufacturing practices

having been implemented, Indian manufacturing facilities will

conform to international quality standards. This conductive

environment will prompt international pharma companies to enter

into alliances with domestic companies for generic drugs sourcing

to be marketed in overseas markets. Again, the local

manufacturing units of MNC subsidiaries can be utilized to

manufacture bulk drugs and formulations for global supply to other

affiliates.

Indian will emerge as a leading country in the global

pharmaceutical market. Indian companies like Ranbaxy,

Dr.Reddys and Wockhardt have begun international operations as


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well as acquisitions, which will make a significant contribution to

their turnover.

Exports will be the major thrust of the industry, in the post

product patent era. In the past tow years, Indian companies have

acquired companies overseas to the tone of $500 millions.

The bio-pharmaceutical market is also evolving very fast and

the Indian market is flooded with biogenetics like erythropoietin,

filgrastim, TPA, interferon, human insulin and vaccines. The fact,

India is likely to emerge as one of the largest producers of vaccines

in a few years. The biotech market is estimated to reach $5 billion

by 2010 and almost 70% of this will be biopharmaceuticals.

The prospects of the Indian pharmaceutical industry look

very promising. But the government will have to provide a

conductive regulatory environment with forward looking policies

while the industry will have to proactively implements strategies to

take advantage of the growth opportunities.


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R&D IN PHARMACEUTICALS

Government funding vital

It must be said to the credit of the national pharmaceutical

companies that their investment so far has been both

productive and cost effective.

The discovery and development research in the

pharmaceutical industry is very expensive and time consuming.

Western pharmaceutical companies claim that it costs over Rs.


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4500 crore($ 1000 million) and about 10 years to bring a new

molecule to market, on the other hand, Indian companies believe

that with their creativity, productivity and efficiency, they can

bring a new molecule to market for about Rs.900 crore ($200

million). However, in spot of ten-fold increase in their R&D spend

from Rs. 150 crore in 1995 to Rs. 1,500 crore in 2005 they are not

in a position to fund discovery and development research on their

own.

According to one estimate, the national pharmaceutical

companies have invested Rs.4500 crore in R&D over the past

seven-year, but it is not enough. They need more funds to invest in

R&D on on-going basis for viable and serious work. It must

however be said to the credit of the national companies that their

investment so far has been both productive and cost effective. The

Bernstein report of August 2004 on R&D in Indian pharmaceutical

industry notes 43 new molecules in the pipeline at various stages

of development. There are some obvious omissions, such as Sun,

Dabur, Glenmark and Nicholas Primal in the report, if they too are


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considered, the number of molecules in the pipelines will exceed

50. it is indeed creditable for an industry that started investing in

discovery and development research just eight years ago. However,

their inability to augment and accelerate funding for R&D will not

only deprive them of commercial opportunity, but also prevent

India from emerging as major knowledge player in the world.

The product patent regime has not only forced the national

companies to invest in discovery and development research for

their survival but also made the a country dependent on western

products will beyond the reach of the majority of Indians. Products

launched be them after January 1, 2005 are priced 10 to 25 times

higher than the equivalent multi-source products of national

companies. For example, Pfizer launched its Viagra at Rs. 596 per

20 mg tab as against the national companies price of Rs. 20 for a

tab. In the given situation, if the national companies, which have

capabilities, are not encouraged to invest more in R&D, the

country will have to pay unaffordable prices for drugs.


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The national companies need to invest not only in discovery

research, but also in process development for non-infringing

process. This is essential for India to maintain its leadership

position in the global generic market. Besides investment in non-

infringing processes to steer clear of IPRs, the national companies

also need to invest in product differentiation (NDDS and choral

research) for commercial success in the global market.

The growing dominance of national companies is projected

to capture about 20% present share of the global generic market by

2010. This will rush exports of pharmaceutical from about Rs.

17,000 crores in 2005 to Rs. 90,000 crore by 2010. The

consequential benefits of supporting R&D in the pharmaceutical

industry are as follows.

Molecules in PipelineCompany Preclin Phi Phi Phil Philb

Phi

ll

IND

FiledTotal

Bicon - - - 5 1 - - 6

Cadila

Healthcare3 - - - - - - 3


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Dr. Reddys

Lab8 3 - 2 - - - 13

Lupin - - - 1 - - 1 2

Ranbaxy 4 1 - 2 - - 2 9

Torrent 7 - - - - - - 7

Wockhardt 1 1 - - - - 1 3

Total 23 5 - 10 1 - 4 43

Incremental investment of Rs. 20,000 crore by 2010 in

the manufacturing sector by the national companies;

New employment opportunities for educated youths

and scientist;

Significant increase in revenue form excise duty and

income tax from the five-fold growth in sales; Access to affordable medicines, not only for the people

of India but also for the developing world; and

Opportunity to leverage economic relations with the G-

21 and other developing countries in the WTO

negotiations.

The pharmaceutical is one of the very few industries in which

India has an edge both in manufacturing and R&D over china. Not

with standing its higher cost of power, higher rates of customer


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duty on basic raw materials and inadequate infrastructure. But the

Chinese industry is moving up very and central governments.

If India wishes to maintain its lead over China in this sector,

it is imperative that the government funds a part of the private

expenditure on R&D. It is thus a strategic investment and cannot

be measured in terms of return on investment only. The current

package of incentive contributes less that Rs. 100 crore per yea,

which constitutes less than eight percent of the private investment

in R&D in 2004. All major countries (the US, Canada, UK,Germany, Switzerland) provide R&D support to pharmaceutical

companies by way of grants or tax credit amounting to millions of

dollars.

India missed the industrial revolution, but if it does not want

to miss the knowledge revolution, the government should seriously

rethink its support for R&D.

WTO:

Due to pressure from the developed countries, across the

world uniformity in patent laws is being implemented under WTO

(World Trade Organization). Presently, different countries have

different parent life of 20 years in all countries.

However, to ensure a smooth transition and provide local

player in the developing countries, ample time from gearing


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themselves, a moratorium up to the year 2005 has been provided.

So, new product i.e., drugs introduced in the interim period will all

continue to be reversed engineered in nations which do not have

product patent laws.

Pharmaceuticals:

Pharmaceutical are medicinally effective chemicals, which

are converted to dosage forms suitable for patients to imbibe. In its

basic chemical forms are known as formulation. Usage of

pharmaceuticals is governed by the underlying medical science.

The four primary medical sciences are as under

Allopathy or modern medicine has gained global popularity.

Ayurveda, an ancient Indian science, mainly uses herbal

remedies.

Unani, having Chinese, is prevalent in South East Asia.

Homeopathy, founded by German Physician, was fairly

popular in the early 19th century.

World-over, the pharmaceuticals industry is focuses on

Allopathy, the most modern medical science. Other modes of


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medical treatment such as Homeopathy, Ayurveda and Unani are

more prevalent in third world countries.

Bulk drugs:

Bulk drugs are medicinally effective chemicals. They are

derived from 4 types intermediates. Namely

1. Plant derivatives (herbal products).

2. Animal derivative e.g.: Insulin extracted from bovinepancreas.

3. Synthetic chemicals.

4. Biogenetic (Human) derivatives.

Bulk drug discovery requires intensive and expensive research,

so new drugs are patented by the innovator to ensure commercial

gains on his R&D investment. When a drug goes off patent it

becomes generic. Bulk drugs can be broadly categorized as


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1. Under patent

2. Generic or off patent.

A patent provides exclusivity of manufacturing/licensing to the

discoverer i.e., patent holder for a stipulated time period.

FORMULATIONS:

Doctors, post-diagnosis to cure a disease or disorder in the

patient primarily prescribes formulations. To prevent

misuse/incorrect administration, most formulations are disbursed

by pharmacies only under medical prescription and these are called

ethical products. However, some formulations such as pain balms,health tonics etc can also be purchased by the users directly. These

are called over-the-counter (OTC) products. Formulations can be

categorized as per the route of administration to patients, viz.,

1. Oral i.e., tablets, syrups, capsules, powders etc., taken

internally.

2. Topical i.e., ointment, creams, liquids, aerosols that are

applied on the skin.


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3. Parenterals i.e., sterile solutions injected in an intravenous or

intramural fashion.

4. Other such as eye-drops, peccaries, surgical dressing etc.,

MANUFACTURING PROCESS:

Bulk drugs are prepared by appraise chemical reactions of

natural/synthetic intermediates under controlled conditions.

Formulations manufacture is a batch mixing process. Right dosageof the bulk drug (active ingredient) is compounded with

compatible wastages, to make the formulations palatable. Packed

as per the physical form-bottle, blister strips or ampoules. Each

formulation pack has the exercised at all stages therapeutic

segments.

For ease of prescription, bulk drugs and their formulations

are classified as per their end use i.e., therapeutic effectiveness

against a particular disease or ailment. For e.g., medicines are

categorized as anti-ulcer, anti-tuberculosis etc. The major

therapeutic categories and the key drugs therein are detailed later.


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CONCEPTUAL FRAME WORK

Working capital management

Meaning of working capital:

To receivables, receivables into cash.

Every business needs funds for two purposes for its establishment

and to carry out its day-to-day operations.

Capital required for a business can be classified under two

main categories viz,

i) Fixed capital


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ii) Working capital

Long term funds are required to create production facilities

through purchase of fixed assets such as plant and machinery, land,

building, furniture etc., investments in these assets represents that

part of firms capital which is blocked on a permanent or fixed

basis and is called fixed capital.

Funds are also needed for short-term-purposes for thepurchase of raw materials, payment of wages and other day-to-day

expenses etc., these funds are known as working capital. In simple

words working capital refers to that part of the firms capital, which

is required for financing short term or current assets such as cash,

marketable securities, debtors and inventories. Funds thus invested

in current assets keep revolving fast and are being consistently

converted into cash flows out again in change for other current

assets. Hence it is also known as revolving or circulating capital or

short-term capital.

In the words of shubin working capital is the amount offunds necessary to cover the cost of operating the enterprise


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According to genestenberg circulating capital means current

assets of a company that are changed in the ordinary course of

business from one from to another, as for example from cash to

inventories, inventories

Concepts of working capital:

There are two concepts of working capital,

i) Gross working capital

Current assets = gross working capital

ii) Net working capital


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Current assets-current liabilities = net working

capital

In the broad sense, the term working capital refers to the

gross working capital and represents the amount of funds invested

in current assets. Thus, the gross working capital is the capital

invested in total current assets of the enterprise. Current assets arethose assets, which in the ordinary course of business can be

converted into cash with in a short period of normally one

accounting year.

CONSTITUENTS OF CURRENT ASSETS:

CONSTITUENTS OF CURRENT ASSETS

1 Cash in hand and blank balances.

2 Bills receivables.

3 Sundry debtors (less provision for bad debts.)

4 Short-term loans and advances.

5 Inventories of stock as:

a) Raw materials.

b) Work-in-process.


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c) Stores and spares.

d) Finished goods.

6 Temporary investments of surplus funds.

7 Prepaid expenses8 Accrued incomes.

In a narrow sense the term working capital refers to the net

working capital. Net working capital is the excess of current assets

over current liabilities, or say

Net working capital = current assets current liabilities.

Net working capital may be positive or negative. When the

current assets exceed the current liabilities, the working capital is

positive and the negative working capital results when the current

liabilities are more than the current assets. Current liabilities which

are intended to be paid in the ordinary course of business with in a

short period of normally one accounting year out of the current

assets or the income of the business.

CONSTITUENTS OF CURRENT LIABILITIES:


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CONSTITUENTS OF CURRENT LIABILITIES

1 Bills payable.

2 Sundry creditors or accounts payable.

3 Accrued or out standing expenses.4 Short-term loans, advances and deposits.

5 Dividends payable.

6 Bank over draft.

7 Provision for taxation, if it does not amount to appropriation of profit.

CLASSIFICATION OR KINDS OF WORKING CAPITAL:

Working capital may be classified in two ways:

a) On the basis of concept.

b) On the basis of time.

On the basis of concept, working capital is classified as gross

working capital and net working capital as discussed earlier.

This classification is important from the point of view of the

financial manager. On the basis of time, working capital may

be classified as:

1) Permanent or fixed working capital.

2) Temporary or variable working capital.


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1. Permanent or fixed working capital:

Permanent or fixed working capital is the minimum amount,

which is required to ensure effective utilization of fixed facilities

and for maintaining the circulation of current assets. There is

always a minimum level of current assets, which is continuously

required by the enterprise or carry out its normal business

operations.

Kinds of Working Capital

On the basis of concept On the basis of time

Gross Working

Capital

Net Working

Capital

Permanent or fixed

Working Capital

Temporary or

variable working

Regular

working capital

Reserve

working capital

Seasonal working

capital

Special working

capital


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2. Temporary or variable working capital:

Temporary or variable working capital is the amount of

working capital, which is required to meet the seasonal demands

and some special exigencies. Variable working capital can be

further classified as seasonal working capital and special working

capital. Most of the enterprises have to provide additional working

capital to meet the seasonal and special needs.

Importance or Advantages of Adequate Working Capital:

Working capital is the lifeblood and nerve center of a

business. Just a circulation of blood is essential in the human body

for maintaining life; working capital is very essential to maintainthe smooth running of a business. Number of business can run

successfully without an adequate amount of working capital. The

main advantages of maintaining adequate amount of working

capital are as follows.

Solvency of the Business

Good will

Easy loans

Cash discounts


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Regular supply of raw material;

Regular payment of salaries, wages and other day-to-day

commitments

Exploitation of favorable market conditions

Ability to face crisis

Quick and regular return on investments

High morals

The need or objects of working capital:

The need for working capital cannot be over emphasized.

Every business needs some amount of working capital. The need

for working capital arises due to the time gap between production

and realization of cash from sales. There is an operating cycle

involved in the sales and realization of cash. There are tine gaps in

purchase of raw materials and production; production and sales

and sales and realization of cash. The amount of working capital

needed goes on increasing with the growth and expansion of

business till it attains maturity. At maturity the amount of working


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capital needed of called normal working capital. There are many

other factors, which influence the need of working capital in a

business.

Factors determining working capital requirements:

Factors

1 Nature or Character of Business

2 Size of Business/Scale of Operations

3 Production policy

4 Manufacturing process/ length of production cycle

5 Seasonal variations

6 Working capital cycle

7 Rate of stock turnover

8 Credit policy


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9 Business cycle

10 Rate of growth of business

11 Earning or capacity and dividend policy

12 Price level changes13 Other factors

Working capital/Operating Cycle of manufacturing concern:

Debtors (receivables)

CashFinished Goods

Raw materials Work-in-process


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Principles of Working Capital Management:

Statements of Working Capital Requirements

Particulars AmountRs.

Amount

Rs.

Current Assets:

i) Stock of raw material (for months consumption)

ii) Work-in-process (for months)

a) Raw materials

b) Direct Labor

c) Overheads

iii) Stock of finished goods (for months sale)

a) Raw materials

b) Labor

c) Overheads

iv) Sundry debtors or receivables

a) Raw materials

b) Labor

c) Overheads

v) Payment in advance (if any)

vi) Balance of cash (required to meet day-to-day

expenses)

vii) Any other (if any)

Less:

xx

xx

xx

xx

xx

xx

xx

xx

xx

xxx

xxx

xxx

xxx

xxx

xxx

xxx

Principles of Working Capital Management

Principlesof riskvariation

Principlesof cost ofcapital

Principlesof equityposition

Principlesof maturityof payment


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Current Liabilities:

i) Creditors (for months purchases of raw materials)

ii) Lag in payment of expenses (outstanding expenses)

iii) Other (if any)

Working capital (CA-CL)

Add:

Provision/Margin for contingencies

Net Working Capital Required

xx

xx

xx xxx

xxx

xxxx

RATIO ANALYSIS

Introduction:

We have already studied that there are various methods or techniques

used in analyzing financial statements, such as inoperative statements, trend

analysis, common size statements, schedule changes in working capital,

funds flow and cash flow analysis, cost-volume-profit analysis and ratio

analysis.

The ratio analysis is one of the most powerful tools of financial

analysis. It is the process of establishing and interpreting various ratios. It is

with the help of ratios that the financial statements can be analyzed more

clearly and decision made from such analysis.

Meaning of ratio:


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A ratio is a simple arithmetical expression of the relationship of one

number to another. It may be defined as indicated quotient of two

mathematical expressions.

According to accountants handbook by Wixon, Kelt and Bedford, a

ratio is an expression of the quantitative relationship between two numbers.

According to Kohler a ratio is the relation of the amount a to

another b expressed the ratio or a to b; a:b or as a simple fraction,

integer, decimal, fraction or percentage.

Use and significance of ratio analysis:

The ratio analysis is one of the most powerful tools of financial

analysis. It is used as a device to analyze and interpret the financial health of

enterprise. Just like a doctor examines his patient by recording his body

temperature, blood pressure etc.,

The use of ratios is not confined to financial mangers only. As

discussed earlier, there are different parties interested in the ratio analysis for

knowing the financial position of a firm for different purposes.

Thus ratios have wide applications and are of immense use today.

a) Managerial uses of ratio analysis are as follows

1. Helps in decision making

2. Helps in financial forecasting and planning


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3. Helps in communicating

4. Helps in co-ordination

5. Helps in control

6. Budgetary control and standard costing

b) Utility to share holders/investors

c) Utility to creditors

d) Utility to employees

e) Utility to Government

f) Tax audit requirements

Limitations of ratio analysis:

1. Limited use of a single ratio

2. Lack of adequate standards

3. Inherent limitations of accounting

4. Change of accounting procedure

5. Window dressing

6. Personal bias

7. Incomparable

8. Absolute figures distractive

9. Price level changes

10.Ratios no substitutes


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Classification of ratios:

Ratio

Traditional Classification Functional Classification SignificanceRatioOr Or Or

Statement Ratios Classification According Ratio According

To tests to importance

1. Balance sheet ratios 1. Liquidity ratios 1. Primary ratiosor

Position statement ratio

2. Profit & Loss a/c ratio 2. Leverage ratios 2. Secondary ratios

or

Revenue / Income

Statement ratios

3. Composite / mixed 3. Activity ratios


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or

Inter statement ratios 4. Probability ratios


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DATA

ANALYSIS


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PROPORTION OF WORKING CAPITAL RATIO:

Particulars

2006-2005 2005-2004 2004-2003 2003-2002

CA

36118470 31303274 31029358 29343187

TA 66880923 127460595 62190467 58559409

% OF CA to TA 0.54 0.25 0.50 0.50

CA TO TA RATIO

0

0.1

0.2

0.3

0.4

0.5

0.6

YEARS

RATIO % OF CA to TA

Inference:

The above diagram shows that the composition of the average oftotal

Assets and current assets during the study period of 5 years. Fixedassets occupied only 35% of the total assets where as current assets occupied

65% of total assets.


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CURRENT RATIO:

Particulars

2006-2005 2005-2004 2004-2003 2003-2002

CA

36118470 31303274 31029358 29343187

CL 7551639 40080400 10740696 9533701

CR 4.78 7.81 2.88 3.08

Inference:

It measures the short-term solvency of the firm is its ability to meet

short-term obligations. It indicates the rupees of current assets available for each

rupee of current liability. A ratio of greater than 1 means that the firm has more

current assets than current liabilities.

CURRENT RATIO

0

2

4

6

8

10

1 2 3 4

YEARS

RATIO


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WORKING CAPITAL TURNOVER RATIO:

Particulars

2006-2005 2005-2004 2004-2003 2003-2002

TURNOVER

127104986 51082467 73312383 35709531

NWC 28566831 27294874 20288662 19809486

Net working Capital

Turnover ratio 4.45 1.87 3.61 1.80

Inferences:

From the above table, we conclude that the firm not utilizingworking capital well for sales maximization.

Based on the above table, it can be observed that the ratio isincreasing. This indicates that the company is increasing trading. It is

pertinent to note that the increase in the trend shows that there is lowinvestment in working capital which is necessarily blocked either in the

0

1

2

3

4

5

ratio

2006-2005 2005-2004 2004-2003 2003-2002

years

NWC Turnover Ratio


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form f stock or debt collection. Remedial measures to be taken so that theimprove trading could be dispensed with.

CASH TO CURRENT ASSETS RATIO:

Particulars

2006-2005 2005-2004 2004-2003 2003-2002

CA

36118470 31303274 31029358 29343187

CASH & BANKBALANCE 1708054 370912 894447 1375268

% OF CASH TO

CA

4.72 1.18 2.88 4.69

Inference:

From the above table, it can be found that, the average percentage ofcash is relation to current assets is 33.68%.

Cash to CA Ratio

0

1

2

3

4

5

2006-2005 2005-2004 2004-2003 2003-2002

years

Ratio


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CASH TO CURRENT LIABILITIES RATIO:

Particulars

2006-2005 2005-2004 2004-2003 2003-2002

Cl

7551639 4008400 10740696 9533701

CASH & BANK

BALANCE 1708054 370912 894447 1375268

% OF CASH TO

Cl

22.62 9.25 8.33 14.43

Inferences:

There is a progressive increase in percentage from 14.43 in2003-2002 to 22.62% in 2006 - 2005. The average percentage is reasonablygood.

22.62

9.25 8.33

14.43

0

5

10

15

20

25

RATIO

2006-2005 2005-2004 2004-2003 2003-2002

YEARS

CASH TO CL RATIO


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DEBT TURNOVER RATIO:

Particulars

2006-2005 2005-2004 2004-2003 2003-2002

SALES 127104986 51082467 73312383 35709531

DEBTORS 21399413 20992436 19815565 18600100

DEBTORS

TURNOVERRATI

O

5.94 2.43

3.70 1.92

Inference:

The above table reveals that debtors turnover ratio is increasedfrom year to year. This indicates increase in sales and proportionatelyincreased in avg. debtors leads to higher than the DTR. The increased DTR

5.94

2.43

3.7

1.92

012345

6

RATIO

2006-2005 2005-2004 2004-2003 2003-2002

YEARS

DEBT TURNOVER RATIO

DEBTORS TURNOVERRATIO


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it will effect the company well efficiency of recovery of debt from theduring the financial year.

DEBT COLLECTION PERIOD:

Particulars

2006-2005 2005-2004 2004-2003 2003-2002

DAYS 365 365 365 365

DTR 5.94 2.43

3.70 1.92

DEBT

COLLECTION

PERIOD

61.45 150.21 98.65 192.11

Inference:

The above table reveals that debtors average collection period is125.61. This ratio measures, how rapidly debts are collected. A high ratio

0

50100

150

200

RATIO

2006-

2005

2005-

2004

2004-

2003

2003-

2002

YEARS

DEBT COLLECTION PERIOD


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indicates the shorter time lag between credit sales and cash collection. Debtcollection period is showing fluctuating trend during study period. However, the recovery efficiency of the company is considered good because, theratio has shown a decline trend from 192.11 month in 2003-02 to 61.45month in 2006-05.

SIZE OF RECEIVABLES:

Particulars

2006-2005 2005-2004 2004-2003 2003-2002

CA

36118470 31303274 31029358 29343187

SALES 127104986 51082467 73312383 35709531

RECEIVABLES 21399413 20992436 19815565 18600100

% of Receivables

to CA

59.25

67.06 63.86 63.39

% of Receivables

to sales 0.168 0.410 0.270 0.520

Inference:

The average percentage of receivables to sales works out to13.68%.

Receivables to current assets indicate the percentage of current

assets. Which are in the form of receivables. It also indicates the size ofreceivables outstanding, A higher ratio is favorable for the concern if thequality of the receivables reliable.

The ratio of receivables to CA shows the firm has largest share

of its working capital blocked in receivables.


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SIZE OF INVENTORY:

Particulars

2006-2005 2005-2004 2004-2003 2003-2002

CA

36118470 31303274 31029358 29343187

INVENTORY 12565450 9978502 9103900 9367804

% OF

INVENTORYTO

CA

2.87 3.14 3.41 3.13

% of CA to Inventory

2.6

2.8

3

3.2

3.4

3.6

years

ratio

Inference:

The average ratio of inventory to CA is 0.00. The company ismaintaining fluctuating inventory during the period of study. This may bedue to the nature of business and fluctuating demand. From the above tablewe conclude that the company is maintaining optimum level of inventory intotal CA during the period.


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CURRENT ASSETS TO SALES:

Particulars

2006-2005 2005-2004 2004-2003 2003-2002

CA

36118470 31303274 31029358 29343187

SALES 127104986 51082467 73312383 35709531

% OF CA TO

SALES

0.28 0.61 0.42 0.82

INFERENCE:

0

0.2

0.4

0.60.8

1

RATIO

2006-2005 2005-2004 2004-2003 2003-2002

YEARS

CURRENT ASSETS TO SALES

% OF CA TO SALES


77/99

From the above table it can be interpreted that proportions of currentassets of sales have fallen from 82% in 2003-2002 to 28% in 2006-2005.The ratio of current assets to sales ratio is generally inversely related to

profitability of the company. Therefore, it can be concluded that thecompany is using it current assets properly for improving profits.

CURRENTASSETS TO FIXED ASSETS RATIO:

PARTICULARS 2006-2005 2005-2004 2004-2003 2003-2002

CA

36118470 31303274 31029358 29343187

FA 27746113 26741947 27279798 27264260

% OF CA to FA 1.3 1.17 1.14 1.08

1.31.17 1.14 1.08

0

0.5

1

1.5

RATIO

2006-2005 2005-2004 2004-2003 2003-2002

YEARS

CA TO FA RATIO

% OF CA to FA


78/99

0

5000000

10000000

15000000

20000000

25000000

30000000

35000000

40000000

2006-2005 2005-2004 2004-2003 2003-2002

CA FA % OF CA to TA

1.3

1.17 1.14 1.08

0

0.2

0.4

0.6

0.8

1

1.2

1.4

2006-2005 2005-2004 2004-2003 2003-2002

% OF CA to TA


79/99

SOURCE OF FINANCE:

Particulars

2006-2005 2005-2004 2004-2003 2003-2002

CA

36118470 31303274 31029358 29343187

STF 7551639 4008400 10740696 9533701

% OF STF to CA 0.21 0.13 0.35 0.32

Inferences:

The above table shows that the percentage of short term funds inrelation to current assets. With this we can know that, to what extent thecurrent assets are financed by short-term funds and long-term funds. Theaverage percentage of short-term funds to current assets is . it means theentire short-term funds available to the company are used to finance thecurrent assets.

00.05

0.1

0.15

0.2

0.25

0.3

0.35

RATIO

2006-2005 2005-2004 2004-2003 2003-2002

YEARS

SOURCE OF FINANCE

% OF STF to CA


80/99

PERCENTAGE OF STF TO LTF:

Particulars

2006-2005 2005-2004 2004-2003 2003-2002

STF 7551639 4008400 10740696 9533701

LTF 16331429 14722458 9675769 7703956

% OF STF to LTF 0.46 0.27 1.11 1.24

Inference:

The average percentage of short-term funds to long-term funds is77% . which infers the company follows a conservatives current assetfinancing policy.

0

0.5

1

1.5

RATIO

2006-2005 2005-2004 2004-2003 2003-2002

YEARS

% OF STF TO LTF

% OF STF to LTF


81/99

QUICK RATIO:

Particulars

2006-2005 2005-2004 2004-2003 2003-2002

QA

23553020 21324772 21925458 19975383

QL 7551639 40080400 10740696 9533701

QR 3.12 5.32 2.04 2.10

0

2

4

6

RATIO

2006-2005 2005-2004 2004-2003 2003-2002

YEARS

QUICK RATIO

QR


82/99

Inference:

From the above table it is clear that the firm is maintainingsatisfactory quick assets.

The acid test ratio is decreasing in 2006 when compare to the year 2005. It

implies that the company has strengthening its liquidity position in the current year

and it can utilize the funds by investing in some projects where higher return may

be expected.

NET WORKING CAPITAL:

Particulars

2006-2005 2005-2004 2004-2003 2003-2002

CA

36118470 31303274 31029358 29343187

CL 7551639 40080400 10740696 9533701

NWC 28566831 27294874 20288662 19809486

NWC

0

5000000

10000000

15000000

20000000

25000000

30000000

2006-2005 2005-2004 2004-2003 2003-2002

YEARS

RS.


83/99

Inferences:

It is clear that the net working capital of the company is atcomfortable level.

GROSS PROFIT RATIO:

(Rs. In Lacs)

Particulars

2006-2005 2005-2004 2004-2003 2003-2002

Sales 127 51 73 35

Gross profit 62.9 39.28 32.87 25.69

Gross Profit ratio 48.88 77.01 45.02 73.4

GP ratio

0

10

20

30

40

5060

70

80

90

1 2 3 4

years

ratio Series1


84/99

Inference:

From the above table it is clear that the firm is maintainingsatisfactory gross profit ratio.

The gross profit ratio is decreasing in 2006 when compare to the year 2005.

NET PROFIT RATIO (Rs. In lacs)

Particulars

2006-2005 2005-2004 2004-2003 2003-2002

Sales 127 51 73 35

Net profit 11.50 .75 4.52 -5.36

Net Profit ratio 9.05 1.47 6.19 -15.31

net profit ratio

-20

-15

-10

-5

0

5

10

15

years

ratio

Net Profit ratio


85/99

Inference:

From the above table it is clear that the firm is decreasing netprofit ratio.

The Net profit ratio is decreasing in 2006 when compare to the year 2005.

OPERATING PROFIT RATIO (Rs. In lacs)

Particulars

2006-2005 2005-2004 2004-2003 2003-2002

EBIT 127 51 73 35

Operating Profit 3.5 1.4 1 0.11

Operating Profit

ratio

2.7 2.7 1.36 0.3

Operating Profit ratio

0

0.5

1

1.5

2

2.5

3

1 2 3 4

years

ratio Operating Profit ratio


86/99

Inference:

From the above table it is clear that the firm is operating profitratio.

The operating profit ratio is decreasing in 2006 when compare to the year

2005.

OPERATING EXPENSES RATIO (Rs. In lacs):

Particulars

2006-2005 2005-2004 2004-2003 2003-2002

sales 127 51 73 35

Administration

&selling expenses

13 10.04 10.7 10.10

Operating

Expenses Ratio

48.14 19.68 14.65 28.85

Operating Expenses Ratio

0

10

20

30

40

50

60

years

ratio

Operating Expenses Ratio


87/99

Inference:

From the above table it is clear that the firm is maintaining satisfactoryopering expenses ratio. These operating expenses ratio is increasing in 2006when compare to the year 2005


88/99

BALANCE SHEETS FROM 2000-2001 TO 2005-2006

PARTICULARS 31.03.2006 31.03.2005 31.03.2004 31.03.2003Rs. Inlakhs

Rs. Inlakhs

Rs. Inlakhs

Rs. Inlakhs

sources of funds

share capital 33054000 33054000 33054000 33054000reserves and surplus 11460000 11460000 11460000 11460000

Loan funds

Secured loans 10867684 11342816 9487769 7515958

Unsecured loans 2210000 508000 188000 188000

Application of funds 57591684 56364816 54189769 52217958

Fixed assets:

Gross block 36379557 33984295 33102909 31770819

less depreciation 8633444 7242348 5823111 4506559Net block 27746113 26741947 27279798 27264260

Investments: 159337 203000 199000 199000

Current assets,loans&advances

Inventories 12565450 9978502 9103900 9367804

Sundry debtors 21844966 20953860 21031011 18600118

Cash and bank balances 1708054 370912 894447 1375268

Loans and advances 2857003 2331451 3682311 1752959

111893924 101806315 101116487 94836787

less Current Liabilities &provisions 7551639 4008400 10740696 9533701

Deferred tax liability 3253743 2871642 2378165 1901912

Profit & Loss Account 3273795 2124751 2049938 1597689

TOTAL

31.03.2006 31.03.2005 31.03.2004 31.03.2003Rs. Inlakhs

Rs. Inlakhs

Rs. Inlakhs

Rs. Inlakhs

CURRENT ASSETS

INVENTORIES:

Raw Materials 1268027 970989 1243087 859744

Work-in-Progress 1888853 2676886 2345351 2288775

Finished Goods 868033 767787 871897 1076295

TOTAL 4024913 4415662 4460335 4224814

Sundry Debtor: 98032333 8227597 7445631 6398448


89/99

TOTAL 98032333 8227597 7445631 6398448

Cash & Bank Balance

Cash in hand 100603 160356 87035 147048

Bank Balances(scheduled Banks

on current account 18578 34005 111498 258920TOTAL 119181 194361 198533 405968

Loans & Advances(unsecure)

considered good 1216067 2035317 1961345 1437373

1216067 2035317 1961345 1437373

less Provision for doubtful debts 0 0 0 0

1216067 2035317 1961345 1437373

deposits with Govt. 393330 391371 383509 373470

Other deposits 26900 5545 545 545

Advance tax 0 0 0 0

TOTAL 1636267 2432233 2345399 1811388

Gross Current Assets 13947327 12837620 14449898 12840618

Current Liabilities & Provisions

Sundry Creditors

for goods 8497482 6164544 6302681 5647341

for expenses 488697 702029 805047 1084388

Interest accrued but not due 0 0 0 0

Advances from Customers 0 55680 10000 82369

Provisions:

provision for Retirement benefits 207845 319711 286488 250476

provision for excise duty 101122 71598 69299 58320

TOTAL CURRENT LIABILITIES 9291146 7313562 7473515 7123494

NET CURRENT ASSETS 6292478 7956291 6976383 5717124

(NET WORKING CAPITAL)

loan funds

secured loans:

Term loans from APIDC LTD 0 0 0 0

Interest accrued and due 0 0 0 0

from banks

cash credit from bank of baroda 6474564 6168661 6124304 6317645

other accounts

samithra credit ltd 0 215658 215658 215658

ICICI Bank (vehicle hire purchase) 136165 0 136862 304430

TOTAL6610729 6384319 6476825 6837733


90/99

SOURCES FOR CALCULATING LEVERAGERATIOS:

PARTICULARS 31.03.2006 31.03.2005 31.03.2004 31.03.2003Rs. Iacs Rs.lacs Rs. In lacs Rs.In lacs

Share capital

Authorised share capital 57500000 57500000 57500000 57500000

Equity share capital 54580000 54580000 54580000 54580000

(45865 equity shares @ Rs.100) 33054000 33054000 33054000 33054000

TOTAL 33054000 33054000 33054000 33054000

Reserves and Surplus

Share premium 5000000 5000000 325300 325300

capital reserve 1210000 1210000 48810 48810share forfeiture reserve 5250000 5250000 652049 351914

profit and loss a/c 3273795 2124751

TOTAL 14733795 13584751 1026159 409304

LOAN FUNDS:

Secured Loans

Term loan (new) 123101 143512 378964 0

Term loan from karnataka bank ltd 142117 532080 884553 12330681

Cash Credit 9754417 10008630 7709583 6170057

Vechicle loan 165937 218000 - -

Vechicle loan from K.B.L. 375331 4117 35867 0

Loan from bajaj auto finance 42082 0 15277Car loan from KBL 306781 394395 478802 0

TOTAL 10867684 11342816 9487769 7515956

UNSECURED LOANS

From Directors 799550 615583 371101 396101

From Share holders 4720992 4720992 4720972 4728972

From Others 3069024 3549024 3110690 3281024

From Body Corporates 711541 3212635 4171923 3645766

Interest free sales tax loan 0 1302400

Deposit record from dealers 663000 633000 133000 133000

TOTAL 9964087 12731214 12507686 12315263

Long-Term Debt 799550 615583 371101 396101

Total Liabilities 22722869 23702033 24597170 24148800

Networth 6148052 5129683 5612659 4995804

Fixed Assets:(Net Block)


91/99

land free hold 60596 60596 60596 60596

factory building 288396 320440 356044 395604

other buildings 15960 17733 19703 21892

plant and machinery 1339507 1691888 2137107 2699638

furniture and fixtures 240164 287672 234311 285710

offfice equipment 157622 192172 353734 422636

vechicles 939538 254243 343062 462909Net Fixed Assets 3042323 2824744 3504557 4348985

INVESTMENTS

Trade-in-shares 300000 300000 300000 300000


92/99

FINDINGS


93/99

In the chapter some of the important conclusions drawn fromthe study of Performance analysis ofOrton Laboratories Ltdwithreference to working management are summed up. Further somecompany, are also suggested for bettering its performance.

During the period of study, on average the proportion of current

assets in relation to the total assets of the company is 0.00%.

Entire short-term funds are used to finance the working capital

policy.

The firm is following the conservative current assets or working

capital policy.

The firm has maintaining satisfactory current ratio and the trend

in current ratio is increasing. Also the firm is maintainingsatisfactory quick assets ratio.

Net working capital is showing increasing trend during the

period of study.

Sales are showing increasing trend during the period of study.

Most of the current assets are in the form debtors.

Debtors are showing declining. The company is maintaining

adequate cash and bank balance when compared with totalcurrent assets.


94/99

Cash to current assets and cash to sales ratio shows that the firm

has better control over cash.

Working capital turnover ratio is showing increasing trend. This

indicates proper utilization of available resources.

The company has its largest share of the working capital

blocked in receivables. The utilization of investment inreceivables is not satisfactory.

The study of the composition of receivables point out that the

company invested much of amount of receivables in debts.

Debt collection period of study, an average only 125.61% of

current assets are on the form of inventory.

The quick ratio is more 1:1 in all the years. It indicates that firm

is maintaining adequate quick cash reserves to meets its currentliabilities obligation.

The return on equity showing increasing trend.

The overall profitability of the company is showing increasing

trend.

The EPS of the company is showing an increasing trend.


95/99

SUGGESTIONS


96/99

It would be appropriate to offer some useful suggestions in thelight of the above conclusions drawn from the analysis of thedifferent aspects of the working capital management of thecompany. They may be of great use to improve the liquidity

position of the company. The following are the suggestions offeredfor consideration.

The average proportion of working capital in relation to the total

assets of the company is 00.0% during the period of study.CompanyShould take further steps to improve this proportion.

At present the company is following conservative workingcapital policy. It should be maintain in further also.

Inventories and receivables constitute the major proportions of

current assets. So, company should take necessary steps toimprove receivables as well as inventory turnover.

Though the company carries reasonable amount of cash and

bank balances, it would be appropriate to the company tomaintain good quantity cash and bank balances.

The ratios like assets turnover, stock turnover and debtors

turnover of the company are showing consider

full prjct

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