ALEMBIC PHARMACEUTICALS LTD.

1. “FINANCIAL ANALYSIS OF
A Project report submitted in the partial fulfillment of the requirement for the degree
Submitted by:
Nawaz Gazi (A
Ashutosh Jha (A
IInd year
SCHOOL OF PHARMACY AND TECHNOLOGY MANAGEMENT
A PROJECT REPORT
ON
ANALYSIS OF Alembic Pharmaceutical
A Project report submitted in the partial fulfillment of the requirement for the degree
(MBA Pharma tech)
by: Submitted to:
Nawaz Gazi (A-004) Dr. ASHOK PANIGRAHI
Ashutosh Jha (A-015) Associate Professor
SPTM
SVKM’s NMIMS
SCHOOL OF PHARMACY AND TECHNOLOGY MANAGEMENT
(Shirpur Campus)
Page | 1
ceutical LTD”
A Project report submitted in the partial fulfillment of the requirement for the degree of
Submitted to:
Dr. ASHOK PANIGRAHI
Professor
SCHOOL OF PHARMACY AND TECHNOLOGY MANAGEMENT

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CERTIFICATE
This is certify that Mr. Nawaz Gazi & Mr Ashutosh Kumar worked during the period
w.e.f. 10.03.2014 to 21.03.2014 on the development of the project “Financial analysis of
Alembic Pharmaceutical Limited”, in the partial fulfillment of the requirement for the
degree of MBA Pharma Tech under my guidance & supervision. To the best of my
knowledge, the matter represented in this project is a bonafide & genuine piece of work.
During his association with the project I found him to be sincere & motivated
individual. He has shown keen interest in this project & him conduct was excellent.
I wish him all success in his career.
Place: Mumbai
Date: 21-3-2014 Dr Chirayu R. Amin
MANAGING DIRECTOR
Alembic Pharmaceutical Ltd. Vadodara

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DECLARATION
We, Nawaz Gazi & Ashutosh Kumar are bonafied students of M.B.A.Pharma Tech at
NARSEE MONJEE INSTITUTE OF MANAGEMENT STUDIES. Our enrollment number
are A004 &A015. I hereby declare that present summer internship report titled Account of
assets is my original work. I conducted this study at Alembic Pharmaceutical LTD”
during 10 March to 21March, 2014. This report has not been submitted earlier either with
NARSEE MONJEE INSTITUTE OF MANAGEMENT STUDIES and any other educational
organization as an essential requirement for the award of any Diploma/ Degree.
Date- 21/03/2014 Signature: -
Nawaz Gazi
Ashutosh Kumar

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PREFACE
Someone has rightly said that practical knowledge is far better than
classroom teaching. During this project I fully realized this and I came to know
about how a retailer chooses among a varied range of products available to him.
The subject of my study is Financial Analysis of Alembic Pharmaceutical
Ltd., which has slowly but steadily evolved from a beginner to a corporate giant
earning laurels and kudos throughout.
The report contains first of all brief introduction about the company.
Finally there comes data presentation and analysis in the end of my project
report. I also put forward some of my suggestion hoping that they will help
Alembic Pharmaceutical Ltd. Move a step forward to being the very best.

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ACKNOWLEDGEMENT
We have taken efforts in this project. However, it would not have been possible without the kind
support and help of many individuals and organizations. I would like to extend my sincere thanks
to all of them. we are highly indebted to Ashok Panigrahi for their guidance and constant
supervision as well as for providing necessary information regarding the project & also for their
support in completing the project.
we would like to express my gratitude towards my parents & member of SPTM for their kind co-
operation and encouragement which help us in completion of this project.
Our thanks and appreciations also go to my colleague in developing the project and people who
have willingly helped us out with their abilities.

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CONTENTS:
1. Introduction
• Company profile
• History
• Future plans
• Milestones
• Board of directors
2. Awards
3. Achievements and Recognition
4. SWOT Analysis
5. STP and Competitors
6. Product Profile
• Formulations
• Others- API
7. Research and Development
8. Annual Report (2012-2013)
• Balance Sheet
• Profit and loss sheet
9. Financial Analysis
• Introduction
• Nature of financial analysis
• Objective of financial analysis
• Type of financial analysis
10. Ratio Analysis
• Financial ratios
• Utility of financial ratios
• Advantages

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• Role of financial ratios
11. Classification of Ratios
• Liquidity ratios
• Leverage ratios
• Turnover ratios
• Profitability ratios
• Profitability ratios based on investment
12. Conclusion

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INTRODUCTION
Company Profile:
Established in 1907,Alembic pharmaceutical LTD is leading pharmaceutical company in india. The
company is vertically integrated with the ability to develop,manufacture and market pharmaceutical
products,pharmaceutical substances and intermediates.Alembic is the market leader in the macrolides
segment of anti-infective drugs in india.Alembic pharmaceuticals is asia’s most respected and
integrated,commited to improving the quality of life and healthcare in over 75 countries.
Alembic's manufacturing facilities are located in Vadodara and Baddi in Himachal Pradesh. The
plant at Vadodara has the largest fermentation capacity in India. The Panelav facility houses the API
and formulation manufacturing (both US FDA approved) plants. The plant at Baddi, Himachal
Pradesh manufactures formulations for the domestic and non-regulated export market. The company
has a state of the art Research Centre at Vadodara.

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History:
Alembic Pharmaceuticals Limited ( the Resulting C ompany ) was originally incorporated on
16th June, 2010 in the name and style 'Alembic Pharma Limited', under the Companies Act,
1956 and had received the Certificate of Commencement of business on 1st July, 2010.
The company changed its name from Alembic Pharma Limited to Alembic Pharmaceuticals
Limited and the Registrar of Companies, Gujarat has approved the change of name and issued a
fresh certificate of incorporation consequent upon change of name on 12th March,
2011.
2012
Alembic and Breckenridge Announce Paragraph IV ANDA Litigation with
Pfizer on Desvenlafaxine (Pristiq®).
Alembic Pharmaceuticals Limited enters into a product development and
license agreement with Accu-Break Pharmaceuticals, Inc, USA.

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Future plans:
To keep growth above the industry average rate is one of their targets. Like the entire industry,
Alembic has to deal with threats like recession, slowing demand but this young brigade have the
solutions.
At Alembic we are focusing our efforts to improve processes and be more optimal in the way we
work. Our goal is to increase the efficiency and curtail wasteful expenditure. We are quite
confident that we will pass this global economic crisis without much problem and emerge much
stronger."
Group companies
• Alembic Limited
• Year Glass
• Shreno Ltd.
• Paushak Ltd.
• Alchemy Real Estate

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Milestones:
• 1907 - Started manufacturing tinctures and alcohol at Vadodara.
• 1940 ? Started manufacturing cough syrup, vitamins, tonics and sulphur drugs.
• 1961 ? Lal bahadur Shastri inaugurates the Penicillin plant.
• 1967 ? Bulk manufacturing of Vitamin B12.
• 1971 ? Erythromycin manufactured for the first time in India.
• 1972 ? Althrocin a brand of Erythromycin launched.
• 1997 --Althrocin becomes top selling brand in India.
• 1999 ? Alembic starts production of synthetic organic API.
• 2000- gets ISO 14000 certification for its facilities at Vadodara.
• 2001 ? Starts manufacturing of Cephalosporin C.
• 2007 ? Acquisition of non ?oncology business of Dabur Pharma Ltd.
• 2009 ? Addressed chronic therapies through multiple marketing divisions.
• 2010 ? ANDA?s total filed 38. DMF total filed to 53 and get approval for 15.
• 2013 ? Receives approval from the USFDA for its NDA, Desvenlafaxine Base
Extended Release (ER) Tablets.

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Board Of Directors:
Name Designation
Chirayu R Amin CEO
Chirayu R Amin Chairman & Managing Director
K G Ramanathan Director
Milin Mehta Director
Paresh Saraiya Director
Pranav Amin President & Director
Pranav N Parikh Director
R K Baheti Dir-President & Com.Secretary
R K Baheti Secretary
R K Baheti Dir-President & Com.Secretary
Shaunak Amin President & Director

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AWARDS:
FP APPROVAL FACILITY
Audited
On :
Jan, 2008
May , 2010
Therapeutic Product
Directorate (TPD)
Audited
On :
Sep,Oct -
2004
Audited
On :
Sep, Oct -
2004
May , 2010
March -
2010
Audited
On :
July - 2007 Audited
On :
May - 2004
API-P1 APPROVAL

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Audited
On :
Nov, Dec -
2004
March -
2008
Audited
On :
Jan - 2005
Jan - 2008
Audited
On :
May - 2005
German Regulatory
authority
Audited
On :
Dec - 2006 Audited
On :
May - 2004

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SWOT Analysis:
SWOT Analysis
Strength
1. Strong growth in emerging market business
2. Azithral and Roxid are famous branded formulations of this
company
3.Total no. of employes are near about 7000
5. Strong brand presence in India
Weakness
1. It is heavily dependent upon generics for its revenue generation
2. Constantly regulated policies by the govt means operational
efficiency is affected
Opportunity
1. They can leverage their acquisitions to further increase the
growth
2. They can increase their presence in contract manufacturing
3. Increasing healthcare awareness in India
Threats
1. There is growing competition in generics market
2. Stringent patent regulations
3. High price sensitivity of consumers

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STP and Competitors:
STP
Segment
Antibiotics & Antibacterials, Cough & Cold Cardiovascular
Antihistamines Gynacological Ortho
Gastrointestial Anti Diabetic Ophthalmologicals
Urology Others
Target
Group Healthcare professionals, pharmacists
Positioni
ng
They are international specialty pharma company with strong presence in Indian ,US
and cannada
Competition
Competitors
1. Cipla
2. Lupin pharmaceuticals
3. Aurobindo Pharma
4. Dr. Reddy’s laboratories

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PRODUCT PROFILE:
Product profile
API's continue to make up a significant part of the operations for Alembic Pharmaceuticals
Limited.
The fermentation based APIs are manufactured at its main manufacturing facility exceeding 3
million sq.mt. This ISO-9002 & ISO14001 accredited facility also houses the central R&D
(microbial & Chemical) set-up and Quality Assurance activity.
Anti Infectives
• Azithromycin Dihydrate
• Azithromycin Monohydrate
• Clarithromycin
• Erythromycin base
• Linezolid
• Roxithromycin
Cardio-Vascular
• Bosentan Hcl • Metoprolol Succinate

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• Candesartan Cilexetil
• Clonidine Hydrochloride
• Clopidogrel Bisulphate
• Fenofibrate
• Fenofibric Acid
• Hydrochlorothiazide
• Irbesartan
• Lercanidipine Hcl
• Losartan Potassium
• Metoprolol Tartrate
• Mexiletine Hydrochloride
• Olmesartan Medoxomil
• Prasugrel Hcl
• Telmisartan
• Valsartan (VAE)
• Warfarin sodium amorphous
• Warfarin Sodium Clathrate
Central Nervous System
• Aripiprazole
• Bupropion Hydrobromide
• Bupropion Hydrochloride
• Des Venlafaxine Base
• Donepezil Hydrochloride
• Duloxetine Hydrochloride
• Lamotrigine
• Levetiracetam
• lloperidone
• Moclobemide
• Modafinil
• O-Desmethyl Venlafaxine Succinate
• Pramipexole Dihydrochloride monohydrate
• Pregabalin
• Quetiapine Fumarate
• Rivastigmine Tartrate
• Ropinirole Hydrochloride
• Topiramate

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• Memantine Hydrochloride
• Meprobamate
• Venlafaxine Hydrochloride (Form B) (VSB)
• Venlafaxine Hydrochloride (Form C)
Musculoskeletal
• Alendronate Sodium
• Celecoxib
• Leflunomide
Erectile Dysfunction
• Tadalafil
Gastro-Intestinal
• Rabeprazole Sodium

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Formulations:
extensive range of finished dosage formulations cover every aspect of human life.asket of
formulations contain more than 150 products in several forms belonging to diverse therapeutic
segments from anti-infective, cough & cold products to cardiovascular and oral anti-diabetics.
The manufacturing expertise is available for almost all dosage forms including sterile as well as
non sterile products. Formulations which account for 65% of the total business today has
manufacturing facility at three different places; namely Vadodara & Panelav at Gujarat in the
west & Baddi at Himachal Pradesh in the north. The facility at Panelav enjoys certifications from
international regulatory authorities like MHRA (UK), MCC (South Africa).
The formulation business has crossed the boundaries of India and is well spread to many other
countries in overseas. Thus, there are three wings of formulation business.
International
Spread over 75 countries, Alembic
Pharmaceuticals is one of the most integrated
and robust pharmaceutical companies across
the globe. The Company's international
network drives its mission of providing access
to the best healthcare products at competitive
prices to the people of most remote countries.
Domestic
Alembic Pharmaceuticals presents an
extensive range of branded and generic
formulations, in compliance with
international and national regulations, that
cater to diverse therapeutic segments.

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Herbal Nutraceuticals
Alembic Pharmaceuticals Limited has been in the Nutraceuticals business for 50 years. In order
to cater to the changing needs of world Nutraceuticals, the Company has constantly been adding
products with their improvised therapeutic profile.
Research and Development:
Research and Development is a part of their strategy to become an integrated pharmaceutical
industry. they believe R&D is of critical importance in our need to grow in the area of
biotechnology and original drug research.
Have very specific programs in
• Process Development (Synthetic Drug Development)
• Fermentation Research
• Formulations Development
• New Drug Delivery Systems

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Process Development (Synthetic Drug Development)
The key objectives has been to develop indigenous processes for new drugs introduced in the
developed countries, produce and introduce them in India and promptly supply them to non-
regulatory markets.
Secondly, their emphasis will be on the development and commercialization of generic Active
Pharmaceutical Ingredients in line with domestic and international regulatory and quality
requirements. their research efforts are geared to develop innovative (patentable/non-infringing)
and cost-effective process know-how for the production of leading APIs and intermediates that
are going off patent shortly. For which, they have identified semi-synthetic Macrolides, semi-
synthetic Cephalosporins and certain other products in non-antibiotic therapeutic areas.
Formulations Development
The aim here is to devise formulations and dosage forms for new drugs to be introduced and to
make variants of particular dosage forms. Another objective is to introduce drug combinations by
understanding the mechanism of the interaction and the combined effects in increasing intensity
of response, in decreasing untoward actions and in altering absorption. The therapeutic range
covers Antibiotics, Analgesics, Antihistamines, Antihypertensives, Antidiabetics, Vitamins,
Antioxidants, NSAIDs, Psychotropic and Nutritional products.

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New Drug Delivery Systems
The development of new delivery systems like liposomes, nanoparticles and controlled drug
delivery systems to ensure better compliance, less total drug, efficiency in treatment and
economy.
As the global economy is on a path of recovery, our thrust continues to be a research driven
company. Low product costs and intellectual property are going to be the most definitive drivers
in the international generics market for Alembic Pharmaceuticals. We have proven excellence in
this regard.
Based at Vadodara, India (250 miles north of Mumbai) Alembic Research Centre (ARC) is the
research and development division of Alembic Pharmaceuticals Limited, one of India's reputed,
well-established and integrated pharmaceuticals company.

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Alembic
ANNUAL REPORT
(2012-2013)
Balance Sheet of Alembic
Pharmaceuticals
------------------- in Rs. Cr. -------------------
Mar
'13
Mar '12 Mar '11
12
mths
12 mths 12 mths
Sources Of Funds
Total Share Capital 37.70 37.70 11.00
Equity Share Capital 37.70 37.70 11.00
Share Application Money 0.00 0.00 26.70
Preference Share Capital 0.00 0.00 0.00
Reserves 422.06 323.16 238.51
Revaluation Reserves 0.00 0.00 0.00
Networth 459.76 360.86 276.21
Secured Loans 70.11 99.89 181.85
Unsecured Loans 70.53 134.43 146.05
Total Debt 140.64 234.32 327.90
Total Liabilities 600.40 595.18 604.11

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Mar
'13
Mar '12 Mar '11
12
mths
12 mths 12 mths
Application Of Funds
Gross Block 572.46 462.89 433.52
Less: Accum. Depreciation 228.24 195.08 161.54
Net Block 344.22 267.81 271.98
Capital Work in Progress 32.26 62.19 26.50
Investments 3.35 3.35 3.35
Inventories 266.83 258.74 219.23
Sundry Debtors 232.38 186.83 201.97
Cash and Bank Balance 4.25 2.68 1.25
Total Current Assets 503.46 448.25 422.45
Loans and Advances 115.38 205.37 133.07
Fixed Deposits 0.00 23.05 0.04
Total CA, Loans & Advances 618.84 676.67 555.56
Deffered Credit 0.00 0.00 0.00
Current Liabilities 330.16 373.81 205.11
Provisions 68.12 41.05 48.18
Total CL & Provisions 398.28 414.86 253.29

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Net Current Assets 220.56 261.81 302.27
Miscellaneous Expenses 0.00 0.00 0.00
Total Assets 600.39 595.16 604.10
Contingent Liabilities 32.25 36.38 35.66
Book Value (Rs) 24.39 19.14 45.36

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Profit & Loss account of Alembic
Pharmaceuticals
------------------- in Rs. Cr. -------------------
Mar '13 Mar '12 Mar '11
12 mths 12 mths 12 mths
Income
Sales Turnover 1,501.39 1,380.82 1,169.52
Excise Duty 8.75 10.63 14.30
Net Sales 1,492.64 1,370.19 1,155.22
Other Income 3.93 8.78 6.20
Stock Adjustments -21.34 64.44 4.72
Total Income 1,475.23 1,443.41 1,166.14
Expenditure
Raw Materials 653.27 715.92 572.20
Power & Fuel Cost 26.66 29.57 24.58
Employee Cost 193.79 168.46 149.21
Other Manufacturing Expenses 5.10 24.96 22.05
Selling and Admin Expenses 0.00 266.53 223.53
Miscellaneous Expenses 348.72 16.62 13.41
Preoperative Exp Capitalised 0.00 0.00 0.00
Total Expenses 1,227.54 1,222.06 1,004.98
Mar '13 Mar '12 Mar '11

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12 mths 12 mths 12 mths
Operating Profit 243.76 212.57 154.96
PBDIT 247.69 221.35 161.16
Interest 14.57 37.55 29.25
PBDT 233.12 183.80 131.91
Depreciation 34.96 33.65 29.59
Other Written Off 0.00 0.00 0.00
Profit Before Tax 198.16 150.15 102.32
Extra-ordinary items 0.00 0.00 0.00
PBT (Post Extra-ord Items) 198.16 150.15 102.32
Tax 40.71 29.62 20.83
Reported Net Profit 157.44 120.54 81.51
Total Value Addition 574.26 506.14 432.78
Preference Dividend 0.00 0.00 0.00
Equity Dividend 47.13 26.39 18.85
Corporate Dividend Tax 8.01 4.28 3.06
Per share data (annualised)
Shares in issue (lakhs) 1,885.16 1,885.16 550.00
Earning Per Share (Rs) 8.35 6.39 14.82
Equity Dividend (%) 125.00 70.00 50.00
Book Value (Rs) 24.39 19.14 45.36

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FINANCIAL ANALYSIS
Introduction:
• Financial Analysis is the process of determining the operating & financial characteristics
of a firm from accounting data & financial statement. The goal of such analysis is to
determine efficiency & performance of the firm management, as reflected in the financial
records and reports. Its main aim is to measure the firm‟s liquidity, profitability and other
indications that business is conducted in a rational and orderly way.
• The basic financial statement -
Of the various reports that the companies issue to their shareholder, the annual report is
by far the most important. Two types of information are given in this report, first there is
a text that describes the firms operating results during the past year and discusses new
development that will affect future operations. Second there are few basic financial
statements –the income statement, the balance sheet, the statement of retained earnings
and the sources and uses of funds statements.
The financial statement taken together give an accounting picture of the firm‟s operation
and financial positions.
• “Financial statement analysis is largely a study of relationship among the various
financial factors in a business as disclosed by a single set of statements, and a study of
trends of these factors as shown in a series of statements”
--- John N. Myer

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• “The analysis and interpretation of financial statement are an attempt to determine the
significance and meaning of the financial statement data so that the forecast may be made
of the prospects for future earnings, ability to pay interest and debt maturities (both
current & long term) and profitability of a sound dividend policy”
--- R.D. and S. % Mc Muller
• Thus, analysis of financial statement means such a treatment of the information contained
in the financial statement as to afford a full diagnosis of the profitability and financial
position of the firm concerned.
Nature of financial statement:
• According to the American institute of certified public accountants
“……………… financial statement reflected a combination of recorded facts, accounting
conventions and personal judgments.
Objective of financial analysis:
• The number and types of people interested in financial statements have changed radically
over a period of time. They need varied information and fortunately such information
may be classified as relating to profitability, liquidity and solvency.
• The Project “ANALYSIS AND INTERPRETATION OF FINANCIAL
STATEMENTS” is undertaken to fulfill the following objectives.
To estimate the earning capacity
To gouge the financial position and financial performance of the firm
To determine the long terms liquidity of the funds as well as solvency

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To determine the debt capacity of the firm
To decide about the future prospective of the firm
Types of Financial Analysis
• Financial analysis may be classified into different categories dependency upon
The material used
The method of operation followed in the analysis
Graphical representation
Financial Analysis
The material used the method of operation followed
in the Analysis
Internal External Horizontal Vertical
Analysis Analysis Analysis Analysis

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Ratio Analysis
Financial ratio:
A ratio may be defined as a fixed relationship in degree or number between two numbers.
In finance, ratios are used to point out relationship that is not obvious from the row data.
Some uses financial ratios are following:
(1) To Compare Different Companies in Some Industry: ratio can high light the
factors association with successful and unsuccessful firms. They can reveal strong firms and
weak firms, overvalued undervalued firms.
(2) To Compare Different Industries: Every industry has its own unique set of
operating and financial characteristics. These can be identified with the help of ratios.
(3) To Compare Performance In The Different Time Periods: Over a period of years,
a firm or a industry develop certain forms that may indicate future success or failure. If
relationship changes in firms data over different time periods, the ratio may provide clues and
trends of future problems.
Utility of Financial Analysis:
Following are the advantages of Financial Analysis :
• With the help of ratios we can determine the ability of the firms to meet its current-
obligation.
• Overall operating efficiency and performance of the firm.
• Efficiency with which firms is utilizing its various assets in generating sales Revenue.
• Ratios help in inter-firm and intra-firm comparison.
• They help in determining the financial strength by highlighting the liquidity.
• They are useful in comparison of performance.

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• They are also useful in forecasting purpose.
Advantages Of Ratios:
• The ratio analysis is one of the most powerful tools of financial analysis. It is use as a
device to analysis and interprets the financial health of enterprise. Just like a doctor
examines his conclusion regarding the illness and before giving his treatment, a financial
analyst analyses the financial statement with various tools of analysis before commenting
upon the financial bearlth or weakness of an enterprise. „A ratio is known as a symptom
like blood pressure, the pulse rate or the temperature of the individual‟. It is with help of
ratios that the financial statements can be analyzed and decision made from such analysis.
• HELPS IN DIVISION MAKING: Financial statements are prepared primarily for
decision making, but the information provided in financial statements is not an end in
itself and no meaningful conclusions can be drawn from these statements alone. Ratio
analysis helps in making decisions from the information provided in these financial
statements.
• HELPS IN FINANCIAL FORCASTING AND PLANNING: Ratios analysis is of
much help in financial forecasting and planning. Planning is looking ahead and the ratios
calculated for a number of year‟s work as a guide for the future. Meaningful conclusions
can be drawn for future from these ratios. Thus, ratio analysis helps in forecasting and
planning.
• HELPS IN COMMUNICATING: The financial strength and weakness of a firm are
communicated in a more easy and understandable manner by the use of ratios the
information contained in a financial statements conveyed in a meaningful manner to the

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one for the whom it is meant. Thus, ratios help in communicating and enhance the value
of financial statements.
• HELPS IN COORDINATION: Ratios even helps in coordinating, which is utmost
important in effective business management. Better communication of efficiency and
weakness of an enterprise results in better coordination in the enterprise.
• HELPS IN CONTROL: Ratio analysis even helps in making effective control of the
business. Standard ratios can be based upon Performa Financial Statements and variance
or deviations, if any, can be founded by comparing the actual with the standards so as to
take corrective action at the right time. The weakness or otherwise, if any, come to the
knowledge of the management which helps in effective control of the business.
Role Of Financial Ratio:
• Aid in financial forecasting: Ratio analysis is very helpful in financial forecasting. Ratio
relating to the past sales, profits & financial position from the basis for setting future
trends.
• Aid in comparison: With the help of ratio analysis ideal ratio can be composed & they
can be used for comparing a firm progress & performance. Inter firm comparison with
the industry averages is made possible by ratio analysis.
• Financial solvency of the firm: Ratio analysis indicates the trend in financial solvency
of the firm. Solvency has to dimensions:
Long-term Solvency

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Short-term Solvency
Long term solvency refers to the financial viability of the firm while Short-term solvency
is the liquidity position of the firm.
• Communication values: Different financial ratios communicate the strength & financial
standing of the firm to the internal & the external parties. They indicate overall
profitability of the firm
• Other uses: Financial ratios are very helpful in the diagnosis & financial health of a firm.
They highlight the liquidity, solvency, profitability & capital gearing etc. of the firm.
They are useful tools of analysis of financial performances.

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Classification of ratios:
Ratio analysis
Liquidity ratio
Current ratio Liquid ratio
Leverage ratio
Debt equity total assets Proprietary Capital Interest
Ratio to debt ratio Gearing coverage
Turnover ratio
Stock Debtors Creditors Fixed assets working capital
Turnover turnover turnover turnover turnover
Profitability ratio
Gross operating Net profit
profits ratio ratio
Profitability ratio based on investment
Return on Return on Return on equity Earning per
capital shareholder fund shareholder fund share
employed

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1. LIQUIDITY RATIOS:
Liquidity refers to the ability of the firm to meet its obligations inventory the short-run,
usually one year. Liquidity ratios are generally based on the relationship between current
assets and current liabilities (the sources for meeting short-term obligations). Example:
Current ratio, Acid test ratio.
I. Current ratio: also known as working capital ratio,this is used to evaluate
short term financial position of the business concern. It indicates the ability of
the firm to meet its short term obligations. It compares the current assets and
current liabilities of the firm. Current assets are those which are either in the
form of cash or cash equivalent.current Liabilities are those which are to be
discharged during the accounting period
Current ratio = current assets
current liabilities
Significance: Ideal current ratio is 2:1. A very high ratio indicates availinility of idle cash and is
not a good sign.
II. Quick ratio: it is very useful in measuring liquidity position of a firm. It
measures the firm’s capacity to pay off current obligations. It is used as
complimentary ratio to the current ratio.
Quick ratio = liquid assets
current liabilities.

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Significance: Liquid ratio of 1;1 is considered satisfactory. If quick assets are equal to current
liabilities, then the concerm maybe able to meet its short term obligations.
1. LEVERAGE RATIOS:
Leverage ratios analyze the long term solvency that help us judge the ability of a firm to
pay the interest regularly as well as repay the principal when due to debenture holders,
long term lenders.
I. Debt equity ratio: shows a relationship between long term debt and shareholder’s
fund. This ratio indicates the relation between outsider’s fund and shareholder’s fund.
Also called external internal equity ratio Debt equity ratio=
debt or long term debt
equity shareholder’s fund
Significance: A ratio of 1:1 is usually considered to be satisfactory. This ratio is calculated to
know about the organzation’s repayment capacity of long term debts.
II. Total asset to debt ratio: shows a relationship between total assets and the longterm
debts.
Total asset to debt ratio= total assets
long term debts

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III. Proprietory ratio: this establishes the relationship between shareholder’s funds to
assets of the firm. It is important for determining long term solvency of the term. Also
known as euity ratio or net worth to total assets ratio.
Proprietory ratio= equity
total assets
Significance: Higher the ratio, dependency on external sources and loans for working capital will
be less and financial condition of the organization will be sound.
IV. Capital gearing ratio: it shows relationship between equity capital ( including
reserves and undistributed profits) and fixed cost bearing capital ( preference sharing
capital, fixed interest bearing loans)
Capital gearing ratio= equity share capital+ reserves+ P&L balance
fixed cost bearing capital
Significance: A high gearing will be beneficial to equity shareholders when rate of
interest/dividend payable on fixed cost bearing capital is lower than the rate of return on
investment in business.
V. Interest coverage ratio: also known as debt service ratio. This is calculated by
dividing net profit before charging interest and income tax by ‘fixed interest charges’.

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Interest coverage ratio= net profit before charging interest and income tax
‘fixed interest charges’
Significance: This shows how many times the interest charges are covered by profits available to
pay interest charges. It is helpful in finding out whether the business will earn sufficient
2. Turnover ratios/Activity ratios: These ratios measures how well the resources at the
disposal of concern are being utilized.they are known as turnover ratios as they indicate
the rapidity with which the resources available to the concern are being used to produce
sales. In other words, they measure the efficiency and rapidity of resources of the
company like stock, debtors, fixed assets, working capital, etc. They are generally
calculated on the basis of sales or cost of sales.
I. Stock turnover ratio: a.k.a inventory ratio. This ratio indicates relationship
between cost of goods sold during the year and average stock kept during that
year.
Stock turnover ratio= cost of goods sold
Average stock
Significance: This ratio indicates whether stock has been efficiently used or not. It shows the
speed with which the stock is rotated into sales or the number of times the stock is turned into
sales during the year. The higher the ratio, the better it is, since it indicates that stock is selling
quickly. In business, where the STR is high, goods can be sold at a low margin of profit and even
then, the profitability may be quite high.

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II. Debtors turnover ratio: a.k.a receivable turnover ratio. This ratio indicates
relationship between credit sales and average debtors during the year.
Debtors turnover ratio= net credit sales
Average debtors + Average B/R
Significance: This ratio indicates the speed with which the amount is collected from debtors. The
higher the ratio, the better it is, since it indicates that the amount from debtors are being collected
quickly. A lower DTR will indicate the inefficient credit sales policyof the management.
III. Creditors turnover ratio: This ratio indicates relationship between credit
purchases and average creditors during the year.
Creditors turnover ratio= net credit purchases
Average creditors + Average B/P
Significance: This ratio indicates the speed with which the amount is being paid to the creditors.
The higher the ratio, the better it is, since it will indicate that the creditors are being paid more
quickly which increases the credit worthiness of the firm.
IV. Fixed assets turnover ratio: This ratio indicates relationship between cost of
goods sold and fixed assets during a year.
Fixed assets turnover ratio= cost of goods sold
Net fixed assets
Significance: This ratio reveals how efficiently the fixed assets are being utilized. If there is
increase in ratio, it indicates that there is better utilization of fixed assets and vice versa.

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V. Working capital turnover ratio: This ratio indicates relationship between sales
and working capital.
Working capital turnover ratio= cost of goods sold or sales
Working capital
Significance: This ratio reveals how efficiently working capital has been utilized in making sales.
In other words, it shows the number of times working capital has been rotated in producing sales.
A high working turnover ratio shows efiicient use of working capital and quick turnover of
current assets like stock and debtor.
3. Profitability ratios: These ratios measure the profit earning capacity of the company.
Generally, profitability ratio is calculated in percentage (%).
I. Gross profit ratio: It shows relationship between gross profit and sales. It shows
margin of profit on sales.
Gross profit ratio= gross profit X 100
Net sales
Significance: It reveals profit earning capacity of business w.r.t. its sales. Increase in gross profit
ratio indicates reduction in cost while decrease in gross profit ratio will indicate increase in cost
or sales at a lesser price.
II. Operating ratio: This ratio indicates the proportion that the cost of goods sold
bears to sales.

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Operating ratio= cost of goods sold + operating exp. X 100
Net sales
Significance: It is the measure of efficiency and profitability of the business. The lesser is the
ratio, the better it is because less operating ratio means higher net profit.
III. Net profit ratio: This ratio indicates relationship between net profit and net sales
Net profit ratio= Net profit X 100
Net sales
Significance: It shows the operational efficiency of the business. Decrease in the ratio indicates
managerial inefficiency and excessive selling and distribution expenses. Increase in it shows
better performance.
4. Profitability ratios based on Investment: These ratios reflect the true earning capacity
of the resources employed in the enterprise.
I. Return on capital employed: It reflects the overall profitability of the business.
It is calculated by comparing the profit earned and the capital employed to earn
it.
Rate on capital = Profit before interest, tax and dividends X 100
Employed Capital employed
Significance: This ratio is a barometer of the overall performance which measures how
efficiently the capital employed in the business is being used.

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II. Return on total shareholder’s fund: To calculate this, net profit after interest
and tax is divided by shareholder’s fund
Return on total = net profit after interest and tax
shareholder’s fund Total shareholder’s funds
Significance: It reveals how profitably the proprietor’s funds have been utilized by the firm
III. Return on Equity Shareholder’s funds: This ratio measures the profitability of
the funds belonging to the equity shareholders.
Return on Equity Shareholders funds
= Net profit (after interest, tax & preference dividend X 100
Equity Shareholders funds
Significance: It measures how efficiently the equity shareholders funds are being used in the
business. The higher the ratio, the better it is, because in such case, equity shareholders may be
given a higher dividend.
IV. Earning per share: This ratio measures the profit available to the equity
shareholders on per share basis. All profits left after payment of tax and
preference dividend are available to equity shareholders.
Earning per share= Net profit – Dividend on preference share
Number of equity shares
Significance: It is helpful in the determination of the market price of the equity share of the
company. It is also helpful in estimating the capacity of the company to declare dividends in
equity shares.

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Financial Ratios
Liquidity Ratios
Year 2012 2013
Current ratio = 676.67/414.8
6 = 1.69
618.84/398.2
8 = 1.59
Quick Ratio = 676 –
258.74/414.8
6 =1.01
618.84 –
266.83/398.2
8 = 0.88
Interpretation:
Current Ratio: An ideal current ratio should be 2:1, which denotes that the current assets of a
business should at least be twice of its current liabilities. Current ratio of Alembic is not
satisfactory but still for year 2012 is better than 2013.
Quick Ratio: An ideal liquid ratio should be 1:1, which is usually considered satisfactory. Quick
ratio of Alembic Ltd. is satisfactory for year 2012.

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Activity ratios (Efficiency Ratios)
Year 2012 2013
Proprietary Ratio
=
360.86/595.16 = 0.61 459.76/600.39 = 0.76
Capital Gearing
Ratio =
676.67/414.86 = 1.69 618.84/398.28 = 1.59
Net Profit Ratio
=
120.54/1370.19 = 0.08 157.44/1492.64 =
0.105
Interest on
Coverage Ratio =
150.15+37.55/37.55 =
4.99
198.16+14.57/14.57 =
14.60
Return on
Capital
Employed =
150/294.32+360.86 =
0.25
198.16/140.64+459.76
= 0.33
Fixed Asset
Turnover Ratio =
1370.19/462.89 = 2.96 1492.64/572.46 = 2.60
Interpretations:
Proprietary Ratio: An ideal value of this ratio should be 1:1, here for Alembic Ltd. proprietary
ratio is not satisfactory but still for year 2013 is better than 2012.
Capital Gearing Ratio: An ideal value of capital gearing ratio should be 1:1, which means it
establishes ideal relation between equity capital and fixed cost bearing capital. Here for
Alembic Ltd. this ratio is satisfactory and 2012 is better than 2013.
Net Profit Ratio: The increase in net profit ratio shows better performance of the company
and here for year 2013 is 10.50% where for year 2012 is 8% so 2013 is better.

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Interest on Coverage Ratio: An interest coverage ratio of 6 to 7 times is considered
appropriate. Here for Alembic in year 2013 is approx 15 times so it is more than satisfactory.
Return On Capital Employed: Efficiently the capital employed in the business is being used and
the higher value shows better performance of company and here for Alembic Ltd. in year
2013 is 33% which is higher than 2012 (25%), and shows satisfactory performance than 2012.
Fixed Asset Turnover Ratio: For Alembic Ltd. this ratio is approx. 3 times for both the year and
it shows satisfactory condition. It’s value shows increase or decrease shows how efficiently
fixed assets used.
Debt Ratios (Leveraging Ratios)
Year 2012 2013
Debt Equity = 234.32/360.86 = 0.64 140.64/459.76 = 0.30
Total Assset to Debt = 595.16/234.32 = 2.54 600.39/140.64 = 4.26
Interpretations:
Debt Equity Ratio: An ideal debt equity ratio should be 1:1, which is considered as
satisfactory. Here of Alembic Ltd. company ratio is not satisfactory but still for year 2012 is far
better than 2013.
Total Assets to Debt: An ideal total asset to debt ratio should be 1:1, The higher the level of
long term debt, the more important it is for a company to have positive revenue and steady
cash flow. Here for Alembic Ltd. this ratio is more than satisfactory in year 2013 than 2012.

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Conclusion
From the various study of balance sheet, profit loss account and different ratios
we can conclude that company’s both short term and long term financial health
is in good condition.
Thus from the above study we can say that company’s financial condition is
optimum and it is expected to rise in the future as company is expanding day by
day with new tie-ups.
Hence company’s future holds good and is expected to reach new heights in the
future.