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Financial analysis

Financial analysis refers to an assessment of the viability, stability and profitability of a business, sub-business or project. It is performed by professionals who prepare reports using ratios that make use of information taken from financial statements and other reports. These reports are usually presented to top management as one of their bases in making business decisions. Based on these reports, management may: A. Continue or discontinue its main operation or part of its business; B. Make or purchase certain materials in the manufacture of its product; C. Acquire or rent/lease certain machineries and equipments in the production of its goods; D. Issue stocks or negotiate for a bank loan to increase its working capital. E. other decisions that allow management to make an informed selection on various alternatives in the conduct of business

Goals
Financial analysts often assess the firm's: 1. Profitability- its ability to earn income and sustain growth in both short-term and long-term. A company's degree of profitability is usually based on the income statement, which reports on the company's results of operations; 2. Solvency- its ability to pay its obligation to creditors and other third parties in the long-term; 3. Liquidity- its ability to maintain positive cash flow, while satisfying immediate obligations; 4. Stability- the firm's ability to remain in business in the long run, without having to sustain significant losses in the conduct of its business. Assessing a company's stability requires the use of both the income statement and the balance sheet, as well as other financial and non-financial indicators.

Methods
Financial analysts often compare financial ratios Past Performance: Across historical time periods for the same firm Future Performance: Using historical figures and certain mathematical and statistical techniques, including present and future values, This extrapolation

method is the main source of errors in financial analysis as past statistics can be poor predictors of future prospects.

Comparative Performance: Comparison between similar firms We are Comparing the balancesheets of two pharmaceutical companies

COMPARISON OF BALANCE SHEETS OF CIPLA & RANBAXY Balance Sheet : Cipla Source of Funds
Dec ' 06 Equity share capital Share application money Preference share capital Reserves & surplus Secured loans Unsecured loans Total Gross block Less : revaluation reserve Less : accumulated depreciation Net block Capital work-in-progress Investments Current assets, loans & advances Less : current liabilities & provisions Total net current assets Miscellaneous expenses not written Total Book value of unquoted investments Market value of quoted investments Contingent liabilities Number of equity sharesoutstanding (Lacs) 1,913.98 51.27 417.64 2,442.86 1,366.67 9.32 310.06 1,047.29 87.01 22.43 2,292.28 1,006.15 1,286.13 2,442.86 22.43 1,600.75 2998.70 59.97

Ratios:
Per Share Ratios Adjusted EPS (Rs) Adjusted cash EPS (Rs) Reported EPS (Rs) Reported cash EPS (Rs) Dividend per share Dec ' 06 17.79 20.46 20.26 22.94 2.00

Operating profit per share (Rs) Book value (excl rev res) per share (Rs) Book value (incl rev res) per share (Rs.) Net operating income per share (Rs) Free reserves per share (Rs) Profitability ratios Operating margin (%) Gross profit margin (%) Net profit margin (%) Adjusted cash margin (%) Adjusted return on net worth (%) Reported return on net worth (%) Return on long term funds (%)

23.14 65.83 66.14 99.42 63.82 23.27 20.58 20.12 20.32 27.02 30.78 27.24 Leverage ratios

long term debt / Equity Total debt/equity Owners fund as % of total source Fixed assets turnover ratio Liquidity ratios Current ratio Current ratio (inc. st loans) Quick ratio Inventory turnover ratio Payout ratios Dividend payout ratio (net profit) Dividend payout ratio (cash profit) Earning retention ratio Cash earnings retention ratio Coverage ratios Adjusted cash flow time total debt Financial charges coverage ratio Fin. charges cov.ratio (post tax) Component ratios Material cost component (% earnings) Selling cost Component Exports as percent of total sales Import comp. in raw mat. consumed

0.21 0.23 80.80 2.18

0.76 45.54 43.80 52.46 6.29 52.51 39.28

Long term assets / total Assets Bonus component in equity capital (%)

0.33 97.36

Profit loss account


Dec' 06 Operating income Material consumed Manufacturing expenses Personnel expenses Selling expenses Adminstrative expenses Expenses capitalized Cost of sales Operating profit Other recurring income Adjusted PBDIT Financial expenses Depreciation Other write offs Adjusted PBT Tax charges Adjusted PAT Non recurring items Other non cash adjustments Reported net profit Earnigs before appropriation Equity dividend Preference dividend Dividend tax Retained earnings 2,981.35 1,469.76 233.71 150.76 187.58 245.65 2,287.46 693.89 37.98 731.87 16.07 80.18 635.62 102.20 533.42 74.22 607.64 841.46 155.46 21.80 664.20

CASH FLOW
Dec ' 06 Profit before tax Net cashflow-operating activity Net cash used in investing activity Netcash used in fin. activity Net inc/dec in cash and equivlnt 709.84 277.16 -389.23 145.35 33.28

Cash and equivalnt begin of year Cash and equivalnt end of year

11.20 44.48

Ranbaxy Laboratories Ltd Balance sheet


Dec ' 06 Equity share capital Share application money Preference share capital Reserves & surplus Secured loans Unsecured loans Total Gross block Less : revaluation reserve Less : accumulated depreciation Net block Capital work-in-progress Investments Current assets, loans & advances Less : current liabilities & provisions Total net current assets Miscellaneous expenses not written Total Book value of unquoted investments Market value of quoted investments Contingent liabilities Number of equity sharesoutstanding (Lacs) (Rs crore) 186.34 0.88 2,162.79 224.29 2,954.31 5,528.61 2,133.57 699.54 1,434.03 301.88 2,679.95 2,620.99 1,508.24 1,112.76 5,528.61 2,659.94 14.27 159.40 3726.87

Dec ' 06

Adjusted EPS (Rs) Adjusted cash EPS (Rs) Reported EPS (Rs) Reported cash EPS (Rs) Dividend per share Operating profit per share (Rs) Book value (excl rev res) per share (Rs) Book value (incl rev res) per share (Rs.) Net operating income per share (Rs) Free reserves per share (Rs) Operating margin (%) Gross profit margin (%) Net profit margin (%) Adjusted cash margin (%) Adjusted return on net worth (%) Reported return on net worth (%) Return on long term funds (%) Long term debt / Equity Total debt/equity Owners fund as % of total source Fixed assets turnover ratio Current ratio Current ratio (inc. st loans) Quick ratio Inventory turnover ratio Dividend payout ratio (net profit) Dividend payout ratio (cash profit) Earning retention ratio Cash earnings retention ratio Adjusted cash flow time total debt Financial charges coverage ratio Fin. charges cov.ratio (post tax) Material cost component (% earnings) Selling cost Component Exports as percent of total sales Import comp. in raw mat. consumed Long term assets / total Assets Bonus component in equity capital (%) (Rs crore)

11.67 14.53 10.21 13.08 8.50 16.96 63.03 63.03 111.76 57.48 15.17 12.61 9.07 12.90 18.50 16.19 12.23 0.93 1.35 42.49 2.12 1.74 0.96 1.03 4.66 94.95 74.15 16.89 33.28 5.87 11.33 9.34 41.01 12.98 66.16 55.17 0.61 78.80

Dec ' 06 Operating income Material consumed Manufacturing expenses Personnel expenses Selling expenses Adminstrative expenses Expenses capitalized Cost of sales Operating profit Other recurring income Adjusted PBDIT Financial expenses Depreciation Other write offs Adjusted PBT Tax charges Adjusted PAT Non recurring items Other non cash adjustments Reported net profit Earnigs before appropriation Equity dividend Preference dividend Dividend tax Retained earnings 4,165.12 1,663.53 160.22 328.45 540.91 839.94 3,533.06 632.06 30.33 662.39 58.44 106.75 497.20 62.43 434.77 -58.98 19.34 395.13 451.16 316.89 44.44 89.82

Cash flow
Dec ' 06 Profit before tax Net cashflow-operating activity Net cash used in investing activity Netcash used in fin. activity Net inc/dec in cash and equivlnt Cash and equivalnt begin of year Cash and equivalnt end of year 442.98 315.49 -2,103.74 1,739.65 -48.60 110.96 62.36

Liquidity Ratios

Liquidity ratios attempt to measure a company's ability to pay off its short-term debt obligations. This is done by comparing a company's most liquid assets i.e those that can be easily converted to cash, its short-term liabilities. In general, the greater the coverage of liquid assets to short-term liabilities the better as it is a clear signal that a company can pay its debts that are coming due in the near future and still fund its ongoing operations. On the other hand, a company with a low coverage rate should raise a risk for investors as it may be a sign that the company will have difficulty meeting running its operations, as well as meeting its obligations. The biggest difference between each ratio is the type of assets used in the calculation. While each ratio includes current assets, the more conservative ratios will exclude some current assets as they aren't as easily converted to cash. . Current ratio: This ratio indicates the extent to which current liabilities are covered by those assets expected to be converted to cash in the near future. Current assets normally include cash, marketable securities, accounts receivables, and inventories. Current liabilities consist of accounts payable, short-term notes payable, current maturities of long-term debt, accrued taxes, and other accrued expenses. The concept behind this ratio is to ascertain whether a company's short-term assets (cash, cash equivalents, marketable securities, receivables and inventory) are readily available to pay off its short-term liabilities (notes payable, current portion of term debt, payables, accrued expenses and taxes). Calculations of Ratio: Cipla Current assets Current ratio = ----------------= Current Liabilities Calculations of Ratio: Ranbaxy 2292.28 ------------- = 2.28:1 1006.15

Current assets 2620.99 Current ratio = ----------------= ------------- = 1.73:1 Current Liabilities 1508.24 Analysis -From the analysis, we can see that for CIPLA the current assets are 2.28 times than the current liabilities and in Ranbaxy the current assets are 1.73 times the current liability. The current ratio of Cipla is Higher but both the companies can pay off their loans since the current ratio is higher than the industry average i.e 1.63.. The reason for

such stability in both the companies are that they are not investing remarkably on assets and not making any huge loan or financing from outside. .Quick Ratio is another name for the "Acid Test Ratio". It is used to measure how easily a company could be liquidated, and therefore help financial institutions decide upon how credit worthy the company is. It is a liquidity indicator that further refines the current ratio by measuring the amount of the most liquid current assets there are to cover current liabilities. The quick ratio is more conservative than the current ratio because it excludes inventory and other current assets, which are more difficult to turn into cash. Therefore, a higher ratio means a more liquid current position. Calculations of Ratio: Cipla Current assets-Stocks 1. Quick ratio = ---------------------------Current Liabilities Calculations of Ratio: Ranbaxy Current assets-Stocks Quick ratio = ---------------------------Current Liabilities 2620.99 758.16 = ----------------------1508.24 = 1.23:1 2292.28-706 = ------------------ = 2.28:1 1006.15

Analysis - From the analysis, we can see that for CIPLA the current assets are 2.28 times than the current liabilities and in Ranbaxy the current assets are 1.23 times the current liability. The current ratio of Cipla is Higher but both the companies can pay off their loans since the current ratio is higher than the industry average i.e 1.

Profitability Ratios
Profitability ratios reflect the overall performance of the business. Profit must be compared with other information to evaluate the firms profitability. There are 2 types of profitability ratios Profit margin ratios, which indicate the relationship between profit and sales. The important profit margin ratios are: Gross profit margin ratio Net profit margin ratio

Rate of return ratios, which examine the relationship between profit and investment. The important rate of return ratios are: -

Return on total assets Earning power Return on equity

Gross Profit ratio This ratio computes the margin earned by the firm after incurring manufacturing costs. It measures the efficiency of the production process and pricing policy of the firm. It is calculated as Gross Profit x Net sales Where Gross profit is the difference between Net Sales and Cost of Goods Sold The cost of goods sold takes into account costs of labour, material and manufacturing overheads. 100 %

Calculations of Ratio: Cipla Gross Profit Gross Profit ratio = -------------- *100 Net Sales Calculations of Ratio: Ranbaxy Gross Profit Gross Profit ratio = -------------- *100 Net Sales 4165.12 -3533.06 = ------------*100 = 4165.12 2981.35-2287.46 = ------------*100 = 2981.35

23.37%

15.17%

Analysis The gross profit of Cipla is much higher than that of Ranbaxy. Gross profit is the profit we earn before we take off any administration costs, selling costs and so on. So we should have a much higher gross profit margin than net profit margin

Net profit margin ratio

The net profit margin ratio gives the earnings available for shareholders as a percentage of net sales. It is calculated as Net profit Net sales x 100 %

It measures the overall efficiency of the firm in relation to production, administration, selling, financing, pricing and tax management. The gross and net profit margin ratios taken together provide an understanding of the firms cost and profit structure. It also helps identify the sources of the firms efficiency or inefficiency. Calculations of Ratio: Cipla Net Profit . Net Profit ratio = -------------- *100 Net Sales Calculations of Ratio: Ranbaxy Net Profit Net Profit ratio = -------------- *100 Net Sales 377.77 = ------------- *100 = 4165.12 599.85 = ------------- *100 = 2981.35 20.12%

9.06%

Analysis The Net profit of Cipla is higher than that of Ranbaxy. The gross and net profit margin ratios taken together provide an understanding of the firms cost and profit structure. It also helps identify the sources of the firms efficiency or inefficiency.so we can say tha Cipla is more efficient

Operating Profit Ratio

The operating margin is another measurement of managements efficiency. It compares the quality of a companys operations to its competitors. A business that has a higher operating margin than its industrys average tends to have lower fixed costs and a better gross margin, which gives management more flexibility in determining prices. This pricing flexibility provides an added measure of safety during tough economic times. Calculations of Ratio: Cipla Opr Profit Operating Profit ratio = ------------------*100 Net Sales Calculations of Ratio: Ranbaxy Opr Profit Operating Profit ratio = -----------------*100 Net Sales 632.06 = ------------* 100 = 15.17% 41659.2 693.89 = ------------* 100 = 23.27% 2981.35

Analysis The Operating Margin of CIpla is Higher A business that has a higher operating margin than its industrys average tends to have lower fixed costs and a better gross margin, which gives management more flexibility in determining prices. This pricing flexibility provides an added measure of safety during tough economic times. So we can say that Cipla is more flexible and efficient than Ranbaxy Return On Capital Employed The return on capital employed (ROCE) ratio, expressed as a percentage, complements the return on equity (ROE) ratio by adding a company's debt liabilities, or funded debt, to equity to reflect a company's total capital employed. This measure narrows the focus to gain a better understanding of a company's ability to generate returns from its available capital base. By comparing net income to the sum of a company's debt and equity capital, investors can get a clear picture of how the use of leverage impacts a company's profitability. Financial analysts consider the ROCE measurement to be a more comprehensive profitability indicator because it gauges management's ability to generate earnings from a company'stotalpoolofcapital.

Formula:

Calculations of Ratio: Cipla Net Profit available on shareholders fund Return on capital employed = -------------------------------------------------Capital Employed = 607.69 ---------- * 100 = 24.87% 2442.86 Calculations of Ratio: Ranbaxy Net Profit available on shareholders fund Return on capital employed = -------------------------------------------------- * 100 Capital Employed = 37.82 ---------- * 100 = 16% 3407.10 Analysis The Return on Capital employed is higher for Cipla than Ranbaxy so we can say that Cipla has greater ability to generate earnings from a company's total pool of capital.
.

* 100

Return on Equity (ROE) measures how well a company uses the capital provided by its equity investors. Since equity investors are entitled to what profits remain after interest is paid to debtholders and taxes are paid to the government, net income is the appropriate measure of profit.

ROE = Net income Average total equity

Calculations of Ratio: Cipla

Return on shareholders fund =

Net Profit available on shareholders fund -------------------------------------------------- *100 Net worth of shares

= 607.69 ---------- * 100 = 30.78% 1973.95 Calculations of Ratio: Ranbaxy Return on shareholders fund = Net Profit available on shareholders fund -------------------------------------------------Net worth of shares *100

= 375.82 ---------- * 100 = 11.03% 2349.13 Analysis The Return on Equity is higher in case of Cipla than Ranbaxy.So Cipla uses the capital provided by its equity investors in a better manner than Ranbaxy. Since equity investors are entitled to what profits remain after interest is paid to debt holders and taxes are paid to the government, net income is the appropriate measure of profit.

Turnover ratio
A measure

of the number of times a company's inventory is replaced during a given time period. Turnover ratio is calculated as cost of goods sold divided by average inventory during the time period. A high turnover ratio is a sign that the company is producing and selling its goods or services very quickly. Stock Turnover Ratio To analyse stocks a little further it is possible to use ratio analysis. The STOCK TURNOVER RATIO shows how many times over the business has sold the value of its stocks during the year. The higher the stock turnover the better, because money is then tied up for less time in stocks. A quicker stock turnover also means that the firm gets to make its profit on the stock quicker, and so the firm should be more competitive. However, it will vary between industries and so it is important to compare within an industry.

Calculations of Ratio: cipla

Stock Turnover Ratio =

Cost of goods sold ---- ------------------Avg Stock = 2287.46 ----------= 3.24 706

Calculations of Ratio: Ranbaxy Stock Turnover Ratio = Cost of goods sold ---- ------------------Avg Stock = 3533.06 ----------= 4.66 758.16 Analysis - The Stock turnover Ratio of Ranbaxy is higher than Cipla so because money is then tied up for less time in stocks for Ranbaxy.Ranbaxy gets to make its profit on the stock quicker, and so the firm is more competitive Working capital turover Ratio A measurement comparing the depletion of working capital to the generation of sales over a given period. This provides some useful information as to how effectively a company is using its working capital to generate sales. A company uses working capital (current assets - current liabilities) to fund operations and purchase inventory. These operations and inventory are then converted into sales revenue for the company. The working capital turnover ratio is used to analyze the relationship between the money used to fund operations and the sales generated from these operations. In a general sense, the higher the working capital turnover, the better because it means that the company is generating a lot of sales compared to the money it uses to fund the sales.

Calculations of Ratio: Cipla Cost of goods sold ------------------------ * 100 Working Capital

Working capital turover Ratio=

= 2287.46 ---------- = 1.77 1286.13 Calculations of Ratio: Ranbaxy Cost of goods sold Working capital turover Ratio = ------------------------ * 100 Working Capital = 3533.06 ---------- = 3.17 1112.76 Analysis - Working capital turover Ratio is higher for Ranbaxy so it is better because it means that the company is generating a lot of sales compared to the money it uses to fund the sales, so the

The Fixed Asset Turnover is similar to Asset Turnover, which both measure a company's effectiveness in generating Net Sales revenue from investments back into the company. However, the Fixed Asset Turnover ratio evaluates only the Net Property, Plant, and Equipment investments. Manufacturing and other industries requiring major-investments will often spend heavily on properties, manufacturing plants, and equipment to push themselves ahead of the competition. Importance of Fixed Asset Turnover: The higher the Fixed Asset Turnover ratio, the more effective the company's investments in Net Property, Plant, and Equipment have become.

Fixed asset Turnover Ratio=

Cost of goods sold ------------------------ * 100 Fixed assets

= 316.89 ---------- = 21% 455.11 Calculations of Ratio:Ranbaxy Cost of goods sold ------------------------ * 100 Fixed assets = 316.89 ---------- *100 = 69% 455.11

Fixed asset Turnover Ratio=

Analysis -

The higher the Fixed Asset Turnover ratio, the more effective the company's investments

in Net Property, Plant, and Equipment have become.so Ranbaxy has higher Fixed Asset Turnover ratio so it is more effective in utilization of its fixed assets

Financial leverage The financial leverage ratio is also referred to as the debt to equity ratio. The financial leverage ratio indicates the extent to which the business relies on debt financing. Upper acceptable limit of the financial leverage ratio is usually 2:1, with no more than one-third of debt in long term. A high financial leverage ratio indicates possible difficulty in paying interest and principal while obtaining more funding. The financial leverage ratio is included in the financial statement ratio analysis spreadsheets highlighted in the left column, which provide formulas, definitions, calculation, charts and explanations of each ratio.

Calculations of Ratio: Cipla

Debt Equity ratio =

Total Debt (secloan+unsec loan) 468.91 ---------------------------= ----------- = 0.23 Equity + R&S (Shareholders funds) 1973.95

Calculations of Ratio: Ranbaxy Total Debt (secloan+unsec loan) Debt Equity ratio = ---------------------------= Equity + R&S (Shareholders funds) Calculations of Ratio: Cipla Long term debt Long TermDebt Equity ratio = ---------------------Shareholders funds Calculations of Ratio: Ranbaxy Long term debt Long TermDebt Equity ratio = ---------------------Shareholders funds = 2954.31 ---------- = 1.25 2349.13 = 417.64 ---------- = 0.2 1973.95 3178.6 ----------- = 1.35 2349.13

Analysis - A high financial leverage ratio indicates possible difficulty in paying interest and principal while obtaining more funding. So Ranbaxy will have difficulty in paying the interest

Leverage Ratio
.1Any ratio used to calculate the financial leverage of a company to get an idea of the company's methods of financing or to measure its ability to meet financial obligations. There are several different ratios, but the main factors looked at include debt, equity, assets and interest expenses. 2. A ratio used to measure a company's mix of operating costs, giving an idea of how changes in output will affect operating income. Fixed and variable costs are the two types of operating costs; depending on the company and the industry, the mix will differ. Debt-To-Capital Ratio

A measurement of a company's financial leverage, calculated as the company's debt divided by its total capital. Debt includes all short-term and long-term obligations. Total capital includes the company's debt and shareholders' equity, which includes common stock, preferred stock, minority interest and net debt. Companies can finance their operations through either debt or equity. The debt-tocapital ratio gives users an idea of a company's financial structure, or how it is financing its operations, along with some insight into its financial strength. The higher the debt-tocapital ratio, the more debt the company has compared to its equity. This tells investors whether a company is more prone to using debt financing or equity financing. A company with high debt-to-capital ratios, compared to a general or industry average, may show weak financial strength because the cost of these debts may weigh on the company and increase its default risk . Debt to total capital ratio = long term debt Permanent capital = 417.64 ------------ = 1.33 19405.44 Calculations of Ratio: Ranbaxy
2,954.31

---------186.34

= 15.85

Analysis Ranabaxy has higher Debt to capital Ratio so Ranbaxy has more debt compared to its equity The higher the debt-to-capital ratio, the more debt the company has compared to its equity. This tells investors whether a company is more prone to using debt financing or equity financing. A company with high debt-to-capital ratios, compared to a general or industry average, may show weak financial strength because the cost of these debts may weigh on the company and increase its default risk. Debt to total assets Total liabilities divided by total assets. The debt/asset ratio shows the proportion of a company's assets which are financed through debt. If the ratio is less than one, most of the company's assets are financed through equity. If the ratio is greater than one, most of the company's assets are financed through debt. Companies with high debt/asset ratios are said to be "highly leveraged," and could be in danger if creditors start to demand repayment of debt

Calculations of Ratio: Cipla . Debt to total assets = Total debt Total assets = 468.91 -------2442.86 Calculations of Ratio: Ranbaxy 1029.9 --------= 0.30 3407.10 Analysis If the ratio is less than one, most of the company's assets are financed through equity.. Companies with high debt/asset ratios are said to be "highly leveraged," and could be in danger if creditors start to demand repayment of debt Propietary ratio A test of Credit Strength. Is also a test of capitalization and a high or low ratio may indicate low or high earnings respectively per share. 1 .The higher this Proprietary ratio denotes that the shareholders have provided the funds to purchase the assets of the concern instead of relying on other sources of funds like bank borrowings, trade creditors and others

= 0.19

2. However, too high a proprietary ratio say 100% means that management has not effectively utilize cheaper sources of finance like trade and long term creditors. As these sources of funds are cheaper, the inability to make use of it might lead to lower earnings and hence a lower rate of dividend payout.

3. This ratio is a test of credit strength as too low a proprietary ratio would mean that the enterprise is relying a lot more on its creditors to supply its working capital.

Calculations of Ratio: Cipla Proprietary ratio = Share Holders Funds * -----------------------Total assets employed 100 = ESC+PSC+R&S * 100 -----------------Total Assets

1973.95 ------------- *100 = 80.80% 2442.86 Calculations of Ratio: Ranbaxy Share Holders Funds * 100 ESC+PSC+R&S * 100 Proprietary ratio = ----------------------= -----------------Total assets employed Total Assets 2349.13 ------------- *100 = 68.94% 3407.10 Analysis - Cipla has higher Proprietary Ratio so shareholders have provided the funds to purchase the assets of the concern instead of relying on other sources of funds like bank borrowings, trade creditors and others so here

Expense Ratio . An expense ratio is "annual operating expenses divided by average annual net assets." That is, you take the costs of running the fund and divide them by the value of the assets under the purview of the fund's managers. The result is expressed as a percentage

Calculations of Ratio: Cipla Expenses Ratio = Cost of goods sold + Fin Exp + Dep ----------------------------------------Net Sales = 17.7

2287.46 ------------1286.13 Calculations of Ratio: Ranbaxy

Cost of goods sold + Fin Exp + Dep Expenses Ratio = ----------------------------------------Net Sales 3394.75 ------------4165.12 = 8.8

Analysis - An expense ratio is "annual operating expenses divided by average annual net assets." That is, you take the costs of running the fund and divide them by the value of the assets under the purview of the fund's managers. The result is expressed as a percentage

Earnings per share (EPS) is a way to relate income to ownership on a per share basis, and is used in evaluating share price. Calculations of Ratio: Cipla Earning Per Share = Net Profit available to equity Share fund ----------------------------------------No of Equity Shares 607.69 ------------2998.70 Calculations of Ratio: Ranbaxy Earning Per Share = Net Profit available to equity Share fund ----------------------------------------No of Equity Shares

= 20.26

375.82 ------------- = 8.8 3726.87 Analysis - income to ownership on a per share basis is more for Cipla Dividend Payout Ratio The payout ratio provides an idea of how well earnings support the dividend payments. More mature companies tend to have a higher payout ratio Calculations of Ratio: cipla Divident Payout Ratio = Equity divident ---- -------------------* 100 Net Profit = 155.46 ----------* 100 = 29.14 % 533.42 Calculations of Ratio: Ranbaxy Dividend Payout Ratio = Equity divident ---- -------------------* 100 Net Profit = 316.89 ----------* 100 = 10.08% 455.11 Analysis - Cipla can give more dividends to its shareholders than Ranbaxy