# Accounting ratios are used for profit and loss account

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The information that is used by both external and internal users, including investors, creditors, managers and executives are called financial statements. For understanding financial statements and to take business decisions this information is used. Mainly accounting ratios are used for profit and loss account, balance sheet and any part of the accounting organization.

## FINANCIAL RATIOS

The financial Ratios mainly calculated the comparison purposes

Between companies

Between industries

Between different time periods for one company

Between a single company and its industry average

Financial Ratios can be further classified in to four types. They are

Liquidity ratios

Solvency ratios (or) Leverage ratios

Profitability ratios

Deficiency (or) Activity ratios

## Liquidity Ratios:

Are those ratios calculated to measure the ability of a firm to meet its current or short obligations.

CURRENT RATIO = Current Assets ÷ Current Liabilities.

QUICK RATIO = Liquid or Quick Assets ÷ Current Liabilities.

Liquid Assets = Current Assets - (Stock + Prepared Expenses).

## Solvency Ratios:

Are those ratios calculated to measure the firm's ability to meets its interest costs and repayment of its long term obligations.

DEBT EQUITY RATIO = Outsiders Funds ÷ Shareholders Funds.

PROPRIETARY RATIO = Shareholders Funds ÷ Total Assets

Shareholder Funds = Share Capital + Reserves.

## Profitability Ratios:

Are those ratios calculated to measure the results of business operations .i.e. profit earning capacity.

GROSS PROFIT RATIO = (Gross Profit ÷ Net Sales) * 100

NET PROFIT RATIO = (Net Profit ÷ Net Sales)* 100

OPERATING PROFIT RATIO= (Operating Profit ÷ Net Sales) * 100

ROI = (Net Profit before Interest, Tax and Dividend ÷ Capital Employed) * 100

## HORIZONTAL AND VERTICAL ANALYSIS

In this mainly shows the profit and loss account, balance sheet, cash flows. Mainly horizontal and vertical analysis shows the comparing of certain information.

## Horizontal analysis

Comparing specific items with in a specific period of time.

## Vertical analysis

Comparing each separate figure to one specific figure in the financial statement.

## PHARMACEUTICAL INDUSTRY

The Indian pharmaceutical industry ranks 3 in the world, technologically quality and the range o medicines being manufactured. The worth of Indian pharmaceutical industry is around \$4.5 billion and is growing at a wide rate of 8 to 9 % annually.

The pharmaceutical industry develops, produces, and markets drugs licensed for use as medications .Pharmaceutical companies can deal in generic  and/or brand  medications

In the year 1984 ANJI REDDY established Dr. Reddy's laboratories which are emerging as global pharmaceutical company at present it is spread over 115 nations. Mainly invented drugs for cancer.

## Strengths:

It is operating joint ventures in South Africa and china

Good research and development team

Following social responsibility

Developing innovative and product formulation

Low cost base

It is contributing as its best in developing anti cancer drugs

## Weakness:

Generic drugs small focus

Over reliance on partnerships

High amount of revenues from overseas

Lack of dependent on chemicals

## Opportunities:

For any reason take the drug all the way to market

Domestic generic drugs market

## Threats:

Competition from other companies

Need to approval FDA approval

FDA approval is time consuming

Aware of the generic drug

## Balance Sheet:

Liabilities

2009

2010

Assets

2009

2010

Sources of funds:

Total share capital

Share application money

Preference share capital

Reserves

Revolution reserves

Secured Loans

Unsecured loans

Current Liabilities:

Provisions

Total

84.20

0

0

5174.90

0

2.60

637.70

1163.30

294.80

7357.50

84.40

0

0

5830.20

0

0.80

562.40

1543.80

339.40

8361.00

Gross Block

Less: Accumulator Depreciation

Investments

Current Assets:

Inventories

Sundry Detors

Cash& Bank balance

Fixed deposits

Miscellaneous expenses

Capital working progress

2157.30

946.50

1865.10

735.10

1419.70

84.30

1331.20

300.10

0

411.20

7357.50

2425.70

1110.10

2652.70

897.40

1060.50

47.90

1321.40

320.10

0

745.40

8361.00

## Profit Loss Account:

Debit

2009

2010

Credit

2009

2010

Expenditure

Raw materials

Depreciation

Interest

Equity Dividend

Preference Dividend

Power and fuel

Corporate Dividend Tax

Reported Net Profits

Transfer to capital account

To Net profit

1534.00

942.80

27.40

105.30

0

90.00

17.80

560.90

5158.9

8437.1

1599.40

1326.50

16.00

190.00

0

104.10

31.60

846.10

5196.8

9310.5

Income:

Sales turnover

Excise duty

Net sales

Other income

4080.40

80.90

3999.50

212.20

64.10

8437.1

4469.60

74.00

4395.60

254.00

117.30

9310.5

## Cash Flow

SOURCES

2009

2010

Applications

2009

2010

Cash Opening Balance

Cash from Operations

Net Cash from Investment activities

Net Cash from Financing activities

Total

541.10

481.30

-743.60

105.60

384.80

378.10

1253.20

-1111.10

-152.20

368.80

Closing Cash Equivalent

384.80

384.80

368.00

368.80

## Owner's fund

Equity share capital

84.40

84.20

38.35

Share application money

## -

Preference share capital

## -

Reserves & surplus

5,830.20

5,174.90

2,223.79

Secured loans

0.80

2.60

145.13

Unsecured loans

562.40

637.70

778.74

## Fixed assets

Gross block

2,425.70

2,157.30

1,052.90

Less : revaluation reserve

## -

Less : accumulated depreciation

1,110.10

946.50

491.08

Net block

1,315.60

1,210.80

561.82

Capital work-in-progress

745.40

411.20

112.92

Investments

2,652.70

1,865.10

911.36

## Net current assets

3,647.30

3,870.40

2,398.87

Less : current liabilities & provisions

1,883.20

1,458.10

798.95

Total net current assets

1,764.10

2,412.30

1,599.92

Miscellaneous expenses not written

## Notes:

Book value of unquoted investments

2,652.40

1,864.80

911.05

Market value of quoted investments

360.10

53.00

1.16

Contingent liabilities

2,016.10

1,934.80

2,409.27

Number of equity shares outstanding (Lakhs)

1688.45

1684.69

766.95

Operating income

4,395.60

3,999.50

## Expenses

Material consumed

1,482.10

1,469.90

Manufacturing expenses

221.40

195.90

Personnel expenses

516.40

412.50

Selling expenses

443.80

448.70

643.40

714.50

Expenses capitalised

## -

Cost of sales

3,307.10

3,241.50

Operating profit

1,088.50

758.00

Other recurring income

181.30

249.70

1,269.80

1,007.70

Financial expenses

16.00

27.40

Depreciation

222.40

193.60

Other write offs

19.30

19.70

1,012.10

767.00

Tax charges

238.70

168.60

773.40

598.40

Nonrecurring items

72.70

-37.50

-0.10

-0.10

Reported net profit

846.00

560.80

Earnings before appropriation

2,860.30

2,218.30

Equity dividend

190.00

105.30

Preference dividend

## -

Dividend tax

31.60

17.80

Retained earnings

2,638.70

2,095.20

## Mar ' 09

Profit before tax

1,084.80

729.50

Net cash flow-operating activity

1,253.20

481.30

Net cash used in investing activity

-1,111.10

-743.60

Net cash used in fin. Activity

-152.20

105.60

Net inc/dec in cash and equivalent

-10.10

-156.70

Cash and equivalent begin of year

378.10

541.10

Cash and equivalent end of year

368.00

384.40

Current ratio

Quick ratio

## Solvency ratios:

Debt equity ratio

Proprietary ratio

## Profitability ratios:

Gross profit ratio

Operating profit ratio

Net profit ratio

Return on investment ratio

1.94

1.45

0.09

19.70

24.76

18.48

17.36

2.65

2.13

## -

0.12

14.11

18.95

13.20

15.08

In the year 1986 P.V.Ramaprasad Reddy and K.Nityananda Reddy established the aurobindo pharmacy. Aurobindo Pharmacy had gone public in 1995 by listing its shares in various stock exchanges in the country.

The Company is the market leader in the semi-synthetic penicillin drugs. It has a presence in key therapeutic segments like SSPs, cephalosporins, antiviral, CNS, cardio-vascular, gastroenterology; etc.It is one of the top manufactures of semi synthetic penicillin.

## Strengths:

The world health organization approved Aurobindo's products.

It is operating joint ventures in South Africa and china

Good research and development team

Developing innovative and product formulation

Low cost base

## Weakness:

Generic drugs small focus

Over reliance on partnerships

High amount of revenues from overseas

Lack of dependent on chemicals

## Opportunities:

For any reason take the drug all the way to market

Domestic generic drugs market

## Threats:

Competition from other companies

Need to approval FDA approval

FDA approval is time consuming

Aware of the generic drugs

## Balance sheet

Liabilities

2009

2010

Assets

2009

2010

Sources of funds:

Total share capital

Share application money

Preference share capital

Reserves

Revolution reserves

Securied Loans

Unsecuried loans

Current Liabilities:

Provisions

Total

26.88

0

0

1293.95

0

813.02

1301.66

595.02

30.77

4012.28

27.86

0

0

1886.50

0

702.25

1242.53

719.94

39.37

4618.48

Gross Block

Less: Accumulator Depreciation

Investments

Current Assets:

Inventories

Sundary Deters

Cash& Bank balance

Fixed deposits

Miscellaneous expenses

Capital working progress

1258.70

385.33

277.74

735.52

1105.67

1920.22

696.60

7.91

0

285.96

4012.28

1526.88

481.54

379.24

944.82

1151.35

2100.19

593.67

0.54

0

499.47

4618.48

## Profit loss account

Debit

2009

2010

Credit

2009

2010

Expenditure

Raw materials

Depreciation

Interest

Equity Dividend

Preference Dividend

Power and fuel

Corporate Dividend Tax

Reported Net Profits

Transfer to capital account

To Net Profit

1750.75

82.41

81.20

24.20

0

118.32

4.11

128.54

3461.35

5605.88

2010.02

95.46

62.58

27.74

0

135.48

4.67

525.76

4037.19

6898.9

Income:

Sales turnover

Excise duty

Net sales

Other income

2885.25

90.35

2794.90

-193.56

28.94

5605.88

3319.60

67.54

3252.06

112.22

147.48

6898.9

## Cash flow

SOURCES

2009

2010

Applications

2009

2010

Cash Opening Balance

Cash from Operations

Net Cash from Investment activities

Net Cash from Financing activities

Total

209.22

4.88

-301.73

160.97

73.74

79.79

344.66

-406.21

-14.15

4.09

Closing Cash Equivalent

73.74

4.09

## Owner's fund

Equity share capital

27.86

26.88

26.63

Share application money

## -

0.04

Preference share capital

## -

Reserves & surplus

1,886.50

1,293.95

878.78

Secured loans

702.25

813.02

644.12

Unsecured loans

1,242.53

1,301.66

561.10

## Fixed assets

Gross block

1,526.88

1,258.70

913.64

Less : revaluation reserve

## -

Less : accumulated depreciation

481.54

385.83

195.22

Net block

1,045.34

872.87

718.42

Capital work-in-progress

499.47

285.96

145.45

Investments

379.24

277.74

174.16

## Net current assets

2,694.40

2,624.73

1,465.28

Less : current liabilities & provisions

759.31

625.79

392.64

Total net current assets

1,935.09

1,998.94

1,072.64

Miscellaneous expenses not written

## Notes:

Book value of unquoted investments

370.87

269.39

174.12

Market value of quoted investments

0.05

0.02

0.04

Contingent liabilities

139.04

90.03

130.82

Number of equity sharesoutstanding (Lacs)

557.29

537.65

532.70

Operating income

3,252.06

2,794.90

## Expenses

Material consumed

1,862.54

1,721.81

Manufacturing expenses

194.62

164.40

Personnel expenses

232.62

177.18

Selling expenses

122.27

127.29

82.73

87.35

Expenses capitalised

## -

Cost of sales

2,494.78

2,278.03

Operating profit

757.28

516.87

Other recurring income

15.17

30.67

772.45

547.54

Financial expenses

62.58

81.20

Depreciation

95.46

82.41

Other write offs

## -

614.41

383.93

Tax charges

184.09

35.45

430.32

348.48

Nonrecurring items

97.05

-224.23

-1.61

4.29

Reported net profit

525.76

128.54

Earnings before appropriation

1,175.08

690.48

Equity dividend

27.74

24.20

Preference dividend

## -

Dividend tax

4.67

4.11

Retained earnings

1,142.67

662.17

## Mar ' 09

Profit before tax

710.15

157.04

Net cash flow-operating activity

344.66

4.88

Net cash used in investing activity

-406.21

-301.73

Net cash used in fin. Activity

-14.15

160.97

Net inc/dec in cash and equivalent

-75.70

-135.88

Cash and equivalent begin of year

79.79

209.22

Cash and equivalent end of year

4.09

73.34

Current ratio

Quick ratio

## Solvency ratios:

Debt equity ratio

Proprietary ratio

## Profitability ratios:

Gross profit ratio

Operating profit ratio

Net profit ratio

Return on investment ratio

3.55

2.28

0.43

1.02

20.35

23.28

16.09

24.57

4.19

2.99

0.85

1.60

15.54

18.49

14.54

18.94

## Conclusion:

In the pharmaceutical drugs mainly the drugs are manufactured in the form of generic drugs. Due to avoid this FDA can implement the strict rules. Due to making of the pharmaceuticals pollution will be occurred. Its causes harm to our health. Maintaining of the pharmaceuticals is not easy one. It is difficult task to maintain. In the olden days all of them are used in ayurvedic for the medicine. Now everyone is used in the drugs then the drugs are most powerful and sometimes its causes harmful to our health and society.

In the pharmaceutical industry all of them are concentrated in the anti-biotic drugs. In this industry the procurement of the raw material is most difficult task and the utilisation of the raw material is very important. In this industry research and development and the innovation of the product is more important.

With the pressure of increasing healthcare costs serving to drive up volumes in the generics business across markets, this segment is becoming increasingly relevant for all players in the industry, including the large innovator companies. In this context, markets like India are especially attractive, given their potential for higher growth. The pharmacy industry in India has over the last few years have seen some large inorganic investments by pharmacy MNCs and these acquisitions are likely to play a significant role in expanding the generic footprints of the MNCs concerned both in India and in other major markets. Going forward, most pharmacy MNCs are likely to maintain their focus on the Indian market, strengthening their product basket and sales network.

company

Last price

Market cap

Sales turn over

Net profit

Total assets

Dr.Reddy's

1830.10

30970.29

4553.21

846.08

6477.80

Aurobindo

1272.50

7408.69

3252.27

525.76

3859.14

I finally concluded that Dr.REDDY'S having the more business compare to the AUROBINDO. Because it is more innovative and good research and development team and good financial resources.