View of A STUDY ON FINANCIAL PERFORMANCE OF PHARMACEUTICAL COMPANIES

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A STUDY ON FINANCIAL PERFORMANCE OF PHARMACEUTICAL COMPANIES Ms. Sunanda Narang

Assistant Professor, IMIRC Indore Ms. Shivangi Ameriya Assistant Professor, IMIRC, Indore

Abstract- A firm financial performance has been an important factor of discussion, not only for management perspective but also for investors, governments, stakeholders, employees, academic staff etc. Financial analysis is an important for every organization to enhance their financial performance to increase the profitability, it identifies the financial strength and financial weakness of the firm. In this paper the study is about to know the profitability position of five leading pharmaceutical companies of India, with the help of mean, median, standard deviation, coefficient of varraiace, multiple regression analysis and find out the financial ratios of companies from the 5 year data collected from 2015-16 to 2019-2020.

The secondary data is used in this study.

Keywords: Financial performance, profitability, pharmaceutical companies.

1 INTRODUCTION

The role of manufacturing unit is one of the major important for the economy development.

The Pharmaceutical companies are included in manufacturing sector and support the public health services and providing millions of job opportunities to the Indians and support health services, especially in covid-19 not only in India but all over the world. From the last 30 years pharmaceuticals companies has risen in drug manufacturing with the wide ranging, good technology, quality and range from headache pills to vaccines and antibodies and provide this in all over the world.

India pharmacy sector is the 3^rd largest sector in the world and more than 20,000 registration units in India. It has expanded rigorously from last two decades. India pharmacy companies produce almost 60% of the vaccines which is required by WHO.

Millions across the world use generic drugs which are produced by Indian Drugs manufacture companies. This industry plays an important role in fight against covid-19.

The pharmaceuticals companies are the pillars of health organization so it requires for us to study the financial stability, profitability and financial performance of companies. Financial performance assesses to know the financial profitability, stability and financial position of selected companies.

This study examines the regression analysis and financial ratio of selected companies from 2015- 2020. This study reveals the critical findings about the performance of selected companies which helps the organization, stakeholders, investors etc.

1.1 Rational of the study-

The financial statement i.e. profit and loss account and Balance sheet reveals us the result of profit and loss and financial position of the business at a point of ending the accounting period. No proper and meaningful inference can be drawn from simply looking at the absolute figures of accounting data, P&L and Balance Sheet. This data is mainly meaningful only when it is related to the ratio analysis. Thus the present study has been selected.

2 LITERATURE REVIEW-

 Ashok Kumar Panigrahi (2016), is the study on the financial performance of selected pharmaceutical comapnes. This study covers the period of five years from 2011- 2012 to 2015-2016. Their analysis was based on know the profitability of position of selected pharmaceutical companies and calculate the profitability ratio, Liquidity ratio and solvency ratio. This study shows the multiple regression analysis of dependent and independent variables.

 V. Vijayalakshmi (2014), this study tries to evaluate the financial performance of

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determine the factors that affect the profitability. This study suggest that the result that the companies should utilize the an innovative technology and it will increase the export sales.

 Endri (2020), Suggest the financial performance evaluating: Empirical of Pharmaceutical Company, reveals the Liquidity, Activity, Solvency, Profitability and Duopant system to evaluate the performance financially from the financial year 2014-2018.

 Sejal S. Purabiya, ‘A study on financial performance of Pharmaceutical company , this study shows the financial performance of companies and to analysis the profitability position and the factors that influence the performance of the business the financial year which is used are from 2014-15 to 2018-19.

2.1 Objective of the study

1. To analyze the profitability and financial position of selected Pharmaceutical Companies through various ratios.

2. To study the liquidity position of selected pharmaceutical companies through various related ratios for testing short term solvency of the firm

3. To analyze the solvency position through various related ratios to measure the long term solvency position of the firm.

4. To analyze the impact influencing the profitability of selected pharmaceutical companies in India.

Scope of the study- This current study helps to know the profitability position, financial performance of selected pharmaceutical companies. This study has taken secondary data from last 5 years of selected companies and helps the investors and managers to take initiative on certain measure which are suggested in this paper.

2.2 Research Methodology

Secondary data is used for the study; the given data is collected and compiled from money control, annual report of selected companies for the period of 205-16 to 2019-20, books and data have been collected from various websites. Solvency, profitability, liquidity ratios calculated after collecting data from various sources to find out the mean, standard deviation and drawing conclusions and suggestions from this.

2.3 This study explains-

 Inter-firm comparison is made on between five companies of Pharmacy which are Sun Pharmaceuticals, Dr. Reddy’s Laboratories, Divis Laboratories, Biocon Ltd., Cipla Ltd.

 Comparison has done to calculate the mean, median; standard deviation and variance of last five years data of five companies are also done.

 Categories of ratios to be calculated for analysis are-

After calculating the ratios, all are plotted in graphs to know the trend of each company.

2.4 Liquidity Ratio-

Current Ratio- Current ratios are helps to calculate the liquidity or current situation of the companies. It is the ratio of current Assets to Current Liabilities,

Current Ratio= Current Assets/Current Liabilities- Current Assets are those assets which are expected to converted into cash within one year like cash and cash equivalents, debtors, bills receivables, Inventories, Prepaid expenses etc. Current liabilities are those which are expected to pay within one month such as- Creditors, outstanding expenses, bills payables etc. Current ratio helps to measure the short term solvency or liquidity position of a particular company. The ideal or standard 2:1 current ratio is considered good. It means that if actual value of current liabilities double, the firm will not face any major issues. On the basis of following table and chart we are going to analyze the situation of current ratio of the five companies in last five years.

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Current Ratio (Table 1A)

2019-20 2018-19 2017-18 2016-17 2015-16

Sun Pharmaceuticals 2.02 1.79 1.59 1.84 2.28

Dr.Reddy’s Laboratories 1.75 1.83 1.52 1.15 1.86

Divis Laboratories 5.05 5.49 6.97 6.08 5.83

Biocon Ltd. 1.33 1.61 1.94 2.41 2.38

Cipla Ltd. 2.66 3.29 2.82 2.61 1.14

Statistics (Table 1B) Company Name Sun

Pharmaceuti cals

Dr. Reddy’s

Laboratories Divis

Laboratories Biocon Ltd.

Mean 1.9040 1.6220 5.8840 1.9340 2.5040

Std. Error of Mean .11630 .13219 .32183 .21158 .36151

Median 1.8400 1.7500 5.8300 1.9400 2.6600

Std. Deviation .26006 .29558 .71964 .47311 .80835

Variance .068 .087 .518 .224 .653

Range .69 .71 1.92 1.08 2.15

Minimum 1.59 1.15 5.05 1.33 1.14

Maximum 2.28 1.86 6.97 2.41 3.29

Table 1B reveals the current ratio of selected pharmaceutical companies from 2015- 16 to 2019-20, in this Dr. Reddy’s Laboratories have highest average current ratio, but the current ratio is too high, it suggest that there are more nonperforming assets or stocks. All the other companies have satisfactory current ratio.

Quick Ratio- Quick ratio helps to know the instant solvency of a firm, quick ratio also known as Acid test ratio.

Quick Ratio= Current Assets-(Stock +Prepaid Expenses)/Current Liabilities- Quick, as name suggest that cash which available very quickly to a firm, quick assets include debtors, bills receivables, cash, cash equivalents etc. Stock is not included in quick ratio as it is not convertible quickly as it takes long time to convert. The Ideal ratio 1:1 is considered as standard ratio. It is to be considered very highly liquid ratio.

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2019-20 2018-19 2017-18 2016-17 2015-16

Current Ratio

Sun Pharmaceuticals Dr. Reddy’s Laboratories Divis Laboratories

Biocon Ltd. Cipla Ltd.

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Quick Ratio(Table 2A)

2019-20 2018-19 2017-18 2016-17 2015-16

Dr. Reddy’s Laboratories 1.26 1.31 1.10 0.81 1.46

Biocon Ltd. 0.97 1.27 1.60 2.03 2.06

Cipla Ltd. 1.67 2.24 1.77 1.58 0.65

Statistics(Table 2B) Company Name Sun Pharmaceuticals Dr. Reddy’s

Laboratories Biocon Ltd. Cipla Ltd.

Mean 1.4700 1.1880 3.7820 1.5860 1.5820

Std. Error of Mean .09203 .11061 .32346 .21229 .25930

Median 1.4600 1.2600 3.5000 1.6000 1.6700

Std. Deviation .20579 .24733 .72327 .47469 .57980

Variance .042 .061 .523 .225 .336

Range .54 .65 1.85 1.09 1.59

Minimum 1.25 .81 3.04 .97 .65

Maximum 1.79 1.46 4.89 2.06 2.24

Table 2 reveals the Quick ratio of selected Pharmaceutical company from 2015-16 to 2019- 20 to know the Quick ratio. Divis Laboratories has the highest average Quick ratio of 3.7820 and Dr. Reddy’s Laboratories has the lowest average Quick ratio of 1.1880. Highest quick ratio helps the company to easily pay of the debt and availability of liquidity. L Standard deviation less than 1 is always considered the ideal standard deviation it means that the data Is not deviate that much from the mean.

A ratio less than 1 cannot currently fully pay up the current liabilities easily.

The Divis Laboratories has the highest standard deviation of average gross profit of .72327 and the Sun Pharmaceutical has the lowest standard deviation of .20579. A quick ratio which is greater than 1 indicates the company has enough liquidity to pay its current obligations.

2.5 Gross Profit Ratio

Gross Profit Ratio= Gross Profit/ Net Sales × 100

Gross Profit Ratio is a financial ratio that helps to measure the financial performance use to assess company’s financial health. High gross profit margin means company is managing the sales and cost of sales. The gross profit margin may be improved by increase the sales or reduce the cost of sales.

0 2 4 6

2019-20 2018-19 2017-18 2016-17 2015-16

Quick Ratio

Sun Pharmaceuticals Dr. Reddy’s Laboratories Divis Laboratories Biocon Ltd.

Cipla Ltd.

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Gross Profit Ratio (Table 3A)

2019-20 2018-19 2017-18 2016-17 2015-16

Biocon Ltd. 19.08 22.01 14.27 21.41 21.79

Cipla Ltd. 12.71 12.70 11.01 8.49 12.52

Statistics (Table 3B) Sun Pharmaceuticals Dr. Reddy’s

Mean 18.6940 12.8040 34.8140 19.7120 11.4860

Std. Error of Mean 3.13599 1.66262 1.07211 1.45768 .81375

Median 15.2500 10.9400 34.3300 21.4100 12.5200

Std. Deviation 7.01229 3.71773 2.39731 3.25948 1.81960

Variance 49.172 13.822 5.747 10.624 3.311

Range 15.79 8.91 5.86 7.74 4.22

Minimum 13.10 9.45 31.64 14.27 8.49

Maximum 28.89 18.36 37.50 22.01 12.71

T

able 3B depicts that Divis had the highest gross profit margin on average basis, with moderate standard deviation. High gross profit shows as high sales with less cost of goods sold and low gross profit have low sales with high cost of goods sold. High COGS shows that company have unfaouvrable purchasing power, less inventory control etc. This table shows that the Divis have highest average Gross profit ratio of 34.8140 and the Cipla ltd. have lowest average Gross profit ratio of 11.4860.

The Sun pharmaceuticals ltd. has the highest standard deviation average Gross profit ratio of 7.01229 and the Cipla ltd. have the lowest standard deviation of 1.81960 and it is found stable.

2.6 Profitability Ratio Net Profit Ratio

Net Profit Ratio= Net Income/Total Sales

Net profit ratio reveals the remaining Net profit after tax; it is one of the best measures of the overall results of a firm. Net profit ratio is a short term measurement to evaluate the profitability efficiency. This ratio indicates the efficiency of management

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2019-20 2018-19 2017-18 2016-17 2015-16

Gross Profit Ratio

Cipla Ltd.

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Net Profit Ratio (Table 4A)

2019-20 2018-19 2017-18 2016-17 2015-16

Biocon Ltd. 14.13 18.16 10.47 17.26 17.54

Cipla Ltd. 9.02 9.22 9.36 7.24 10.11

Table 4B reveals the Net profit ratio of selected pharmaceutical company from 2015-16 to 2019-20. The Divis Laboratories has the highest average Net profit of 34.8140 and the Cipla Ltd. has the lowest average net profit of .8900.

The Cipla ltd. has the lowest standard deviation of 1.06156 and the Sun pharmaceutical has the highest standard deviation of 6.46785.

2.7 Inventory Turnover Ratio

This ratio is calculate by dividing cost of goods sold by the average inventory 2.8 Inventory turnover Ratio= Cost of goods sold/ Average Stock

This ratio helps to know that, how many times stock sold or consumed in a given period of time. Higher the ratio, more it is acceptable by the firm and ultimately generates high sales and higher production capacity. A low inventory ratio indicates weak sales of the firm.

0 5 10 15 20 25 30 35 40

2019-20 2018-19 2017-18 2016-17 2015-16

Net Profit Ratio

Mean 15.7260 10.4660 34.8140 15.5120 8.9900

Std. Error of Mean 2.89251 1.28001 1.07211 1.44069 .47474

Media 12.7500 11.2400 34.3300 17.2600 9.2200

Std. Deviation 6.46785 2.86219 2.39731 3.22149 1.06156

Variance 41.833 8.192 5.747 10.378 1.127

Range 15.05 7.15 5.86 7.69 2.87

Minimum 9.97 6.38 31.64 10.47 7.24

Maximum 25.02 13.53 37.50 18.16 10.11

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Inventory Turnover Ratio(Table 5A)

2019-20 2018-19 2017-18 2016-17 2015-16

Biocon Ltd. 4.43 5.35 5.71 6.12 6.17

Cipla Ltd. 3.91 4.13 3.75 4.13 3.62

Statistics (Table 5A) Sun

Pharmaceuticals Dr. Reddy’s

Laboratories Biocon Ltd. Cipla Ltd.

Mean 4.1440 5.1160 2.9540 5.5560 3.9080

Std. Error of Mean .16984 .25390 .06454 .31852 .10161

Median 4.1700 4.9800 2.8900 5.7100 3.9100

Std. Deviation .37978 .56774 .14433 .71224 .22720

Variance .144 .322 .021 .507 .052

Range .89 1.49 .34 1.74 .51

Minimum 3.69 4.60 2.79 4.43 3.62

Maximum 4.58 6.09 3.13 6.17 4.13

Table 5B depicts that Biocon Ltd. have highest average inventory turnover ratio of 5.5560 and the Cipla Ltd. have lowest average Inventory turnover ratio of 3.9080. An Ideal average inventory turnover ratio is between 5 to 10 for most of the industries, the more and less than ideal ratio indicates the poor inventory management control of industry. The inventory turnover ratio indicates the stock of resell and restocks in every 1-2 months.

In the analysis all the selected company’s performance are average. But the Divis laboratories have low inventory turnover ratio.

The Biocon Ltd. also has the highest standard deviation of Inventory turnover ratio of .71224 and the Divis Laboratories has lowest turnover ratio of 2.8900.

2.9 Operating Profit-

Operating Profit= Operating Profit/Sales × 100

Operating profit indicated the profitability of the firm financial position and financial performance. It is a profit that presents the prior profit of firm before taxes and interests.

Normally, the firm has an aim to increase the operating profit.

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2019-20 2018-19 2017-18 2016-17 2015-16

Inventory turnover ratio

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Operating Profit (Table 6A)

2019-20 2018-19 2017-18 2016-17 2015-16 Sun Pharmaceuticals 16.97 19.19 18.72 30.17 27.30 Dr. Reddy’s Laboratories 11.00 15.41 10.00 11.39 18.89 Divis Laboratories 33.84 37.57 31.67 34.38 36.98

Biocon Ltd. 19.08 22.01 14.27 21.41 21.79

Cipla Ltd. 13.86 13.73 12.28 9.59 14.02

Table 6B reveals the Operating profit of selected pharmaceutical companies from 2015-16 to 2019-20. This table shows that the Divis laboratories have highest operating profit of 34.8880 and Cipla Ltd. has lowest operating profit of 12.6960. For the industries an operating margin more than 15% is considered as good. Higher operating profit indicates that the company earns sufficient money from the business operations to pay all debts.

The Cipla Ltd. has the lowest standard deviation of Operating profit ratio of 1.87065 and the sun Pharmaceutical ltd. has the highest standard deviation of 5.86706 which is found to be unstable.

The Table shows that Divis laboratories have remarkable growth in Divis laboratories which is double than Cipla ltd which is very poor as compared to other selected companies taken as sample.

2.10 Return on Equity-

Return on equity= Net Income/Shareholder’s Equity

Return on Equity helps to know the profitability of the firm, it helps to measure the efficiency how the management use the shareholder fund in the business to generate more and more revenue. An Industries expert says that 15% to 20% is considered good.

0 5 10 15 20 25 30 35 40

2019-20 2018-19 2017-18 2016-17 2015-16

Cipla Ltd.

Laboratories Biocon Ltd. Cipla Ltd.

Mean 22.4700 13.3380 34.8880 19.7120 12.6960

Std. Error of Mean 2.62383 1.66615 1.07892 1.45768 .83658

Median 19.1900 11.3900 34.3800 21.4100 13.7300

Std. Deviation 5.86706 3.72562 2.41254 3.25948 1.87065

Variance 34.422 13.880 5.820 10.624 3.499

Range 13.20 8.89 5.90 7.74 4.43

Minimum 16.97 10.00 31.67 14.27 9.59

Maximum 30.17 18.89 37.57 22.01 14.02

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Return on Equity (Table 7A)

2019-20 2018-19 2017-18 2016-17 2015-16

Dr. Reddy’s Laboratories 12.98 13.90 7.53 10.53 16.95 Divis Laboratories 18.83 19.44 14.80 19.79 26.22

Biocon Ltd. 11.15 14.84 7.18 12.65 13.64

Cipla Ltd. 9.81 10.17 9.91 8.02 11.80

Mean 10.6380 12.3780 19.8160 11.8920 9.9420

Std. Error of Mean 2.52590 1.58903 1.83420 1.32428 .60069

Median 8.3100 12.9800 19.4400 12.6500 9.9100

Std. Deviation 5.64808 3.55318 4.10139 2.96118 1.34319

Variance 31.901 12.625 16.821 8.769 1.804

Range 13.33 9.42 11.42 7.66 3.78

Minimum 5.67 7.53 14.80 7.18 8.02

Maximum 19.00 16.95 26.22 14.84 11.80

Table 7B, reveals the Return on Equity of selected Pharmaceuticals Company in India from 2015-16 to 2019-20. Divis laboratories has the highest average Return on Equity ratio of 19.8160 as compared to other selected Pharmaceutical Company and the cipla ltd.

has the lowest average return on Equity ratio of 9.9420. High ROE indicates that company is utilizing shareholders investment fund efficiently.

Return on Capital Employed- It measure the overall efficiency and profitability of the organization by,

2.11 ROCE= Earnings before Interest and Tax/Capital Employed

Earnings before Interest and Tax also known as Operating Profit of the firm, it shows that how much company earns profit without taking interest and tax as consideration. EBIT is calculated by subtracting COGS and Operating Expenses from Revenues. Capital Employed is calculated by subtracting Total Assets from Current Liabilities, which ultimately give result Shareholder’s equity plus Long term debts.

This ratio is an important indicator of company’s performance; it indicates the 0

5 10 15 20 25 30

2019-20 2018-19 2017-18 2016-17 2015-16

Return on Equity

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institutions. If the rate of return is very poor, it would be very difficult to reward the investor for the investment. So always firm have to take action to improve the rate of return.

Return on Capital Employed (Table 8A)

2019-20 2018-19 2017-18 2016-17 2015-16

Biocon Ltd. 11.61 11.91 4.74 7.93 8.80

Cipla Ltd. 12.32 11.13 9.78 7.82 14.48

Mean 14.7120 12.5560 24.2040 8.9980 11.1060

Std. Error of Mean 2.24057 1.05744 1.07699 1.31554 1.12726

Median 11.7800 12.0700 25.4100 8.8000 11.1300

Std. Deviation 5.01007 2.36450 2.40822 2.94163 2.52063

Variance 25.101 5.591 5.800 8.653 6.354

Range 11.10 6.04 5.74 7.17 6.66

Minimum 10.60 9.13 20.10 4.74 7.82

Maximum 21.70 15.17 25.84 11.91 14.48

The table 8B reveals the Ratio of Return on capital employed of selected pharmaceutical companies from 2015-16 to 2019-20. Divis laboratories have the highest average return on capital employed of 24.2040 and Cipla Ltd. has the lowest average return on capital employed of 8.9980.

The bar graph shows that the Divis laboratories have the highest Return on capital employed which is near about 25% on the other side Sun pharmaceuticals, Cipla and Dr.

Reddy’s Laboratories shows average result and Biocon Ltd. have the poor return capital employed.

2.12 Assets Turnover Ratio

Total Assets Turnover Ratio= Net Sales/Total Average Assets

This ratio indicates the degree of managerial efficiency, how the firm utilizes the resources that deployed in the firm. A high turnover ratio indicates that the firm have higher sales with the respect of given amount of total sales. On the contrary, a low turnover ratio indicates the inefficiency of utilization of Assets, those firms unable to utilize the resources properly. It suggest problem with high production capacity, unused assets, Poor inventory

0 5 10 15 20 25 30

2019-20 2018-19 2017-18 2016-17 2015-16

Return on Capital Employed

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management, unproductive expenses, idle time of assets etc. A too high ratio indicates the overtrading the resources.

Assets Turnover Ratio(Table 9A)

2019-20 2018-19 2017-18 2016-17 2015-16 Sun Pharmaceuticals 48.11 44.92 41.07 50.98 51.30 Dr. Reddy’s Laboratories 75.42 68.76 63.34 65.07 76.37 Divis Laboratories 63.19 61.53 57.36 65.99 77.03

Biocon Ltd. 44.08 45.22 41.27 41.42 39.57

Cipla Ltd. 72.40 68.28 66.29 68.42 65.26

Statistics(Table 9B) Sun

Mean 47.2760 69.7920 65.0200 42.3120 68.1300

Std. Error of Mean 1.93226 2.64514 3.31199 1.02426 1.22397

Median 48.1100 68.7600 63.1900 41.4200 68.2800

Std. Deviation 4.32067 5.91471 7.40584 2.29032 2.73688

Variance 18.668 34.984 54.846 5.246 7.490

Range 10.23 13.03 19.67 5.65 7.14

Minimum 41.07 63.34 57.36 39.57 65.26

Maximum 51.30 76.37 77.03 45.22 72.40

Table 10 reveals the Asset turnover ratio of selected pharmaceutical company from 2015-16 to 2019-20. Dr. Reddy’s Laboratories has the highest average Asset turnover ratio of 69.7920 and the Biocon Ltd has the lowest average Asset turnover ratio.

The table shows that Dr. Reddy’s Laboratories have a good asset turnover ratio with respect to other companies in our sample. The data which shows is fluctuating and chages year to year. On the other hand Biocon have a lower asset turnover ratio with respect to other compnies and have poor performance for utilizing proper use of assets.

2.13 Total Debt/Equity Ratio

Total Debt/Equity Ratio = (Short term Debt + Long term debt + other fixed payments)/ Shareholder’s Equity

Debt – to- Equity ratio is a financial ratio indicating the financial performance of management, it shows the proportion of shareholder’s equity and debt used in a firm to fiancé a company’s assets. The optimal debt – to- Equity is fluctuating in general it should not be more than 2.0. The debt equity ratio shows financial risk, if the company will not perform up to the standard then the company will face the problem in payment of interest

0 20 40 60 80 100

2019-20 2018-19 2017-18 2016-17 2015-16

Assets Turnover Ratio

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Total Debt/Equity Ratio(Table 10A)

2019-20 2018-19 2017-18 2016-17 2015-16

Biocon Ltd. 0.28 0.29 0.37 0.46 0.61

Cipla Ltd. 0.18 0.29 0.29 0.33 0.45

Statistics (Table 10B) Sun

Mean .2280 .2840 .0100 .4020 .3080

Std. Error of Mean .01594 .05446 .00316 .06127 .04341

Median .2400 .2700 .0100 .3700 .2900

Std. Deviation .03564 .12178 .00707 .13700 .09706

Variance .001 .015 .000 .019 .009

Range .09 .29 .02 .33 .27

Minimum .17 .11 .00 .28 .18

Maximum .26 .40 .02 .61 .45

Table 10B reveals the Earning per share of selected pharmaceuticals company form 2015- 16 to 2019-20. Biocon Ltd has the highest average Total Debt to Equity Ratio of .4020 and the Divis Laboratories has the lowest average Total debt to equity ratio of .100. Total debt to equity ratio is the proportion of finance, which company used.

It is clear from the table that companies are using more own (share) capital than debt ratio. In 2019-20 the debt of all the selected pharmaceutical companies decrease and they are more inclined towards the own capital or share capital.

2.14 Earnings per Share (EPS)

Earnings per share = Total earnings/Outstanding Shares

EPS is the indicator of company’s profitability, how much a company makes for each share of its stock. A higher EPS indicates greater because investors will pay more for a company’s share as the shares are rises as they think the company has higher profits in future relative to its shares generate prospective investors and a low EPS shows less trust to the investors.

0 0.1 0.2 0.3 0.4 0.5 0.6 0.7

2019-20 2018-19 2017-18 2016-17 2015-16

Total Debt Equity Ratio

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Earnings per Share (Table 11A)

2019-20 2018-19 2017-18 2016-17 2015-16

Biocon Ltd. 6.32 7.65 6.31 10.39 28.04

Cipla Ltd. 19.19 18.97 17.53 12.52 16.93

Earnings per share = Total earnings/Outstanding Shares

Statistics (Table 11B) Sun

Pharmaceuticals

Dr. Reddy’s Laboratories

Divis

Mean 16.7400 99.8580 43.6420 11.7420 17.0280

Std. Error of Mean 3.51974 13.72855 3.52474 4.14187 1.20477

Median 15.7000 117.5300 42.4100 7.6500 17.5300

Std. Deviation 7.87039 30.69797 7.88155 9.26150 2.69394

Variance 61.943 942.365 62.119 85.775 7.257

Range 20.00 67.85 18.81 21.73 6.67

Minimum 9.00 57.08 33.04 6.31 12.52

Maximum 29.00 124.93 51.85 28.04 19.19

 Table 11B reveals the Earning per share of selected pharmaceutical companies from 2015-16 to 2019-20. The Dr. Reddy’s Laboratories shows the highest average earning per share ratio of 99.8580 and the Biocon Ltd. shows the lowest average earning per share of 11.7420. High EPS shows that the company is more valuable. A good EPS should have positive growth rate as compared to the competitor. It shows the consistent growth rate in EPS that is considered as good or sound.

 The graph shows that Dr. Reddy’s and Divis Laboratories show good EPS but the performance of Biocon Ltd. is very poor due to weak performance from top management. The good EPS helps the firm to grow and show the actual performance of the company and have the positive impact on market price of shares.

 The Dr. Reddy’s Laboratories has the highest standard deviation of Earning per share of 30.69797 and the Cipla Ltd. has lowest standard deviation of 2.69394.

Multiple Regression analysis

Company Name R R

Square Adjusted

R Square Std. Error of the Estimate

Sun Pharmaceuticals .999 .999 .995 .43591

Dr. Reddy’s Laboratories .992 .984 .937 .72041 Divis Laboratories 1.000 1.000 1.000 .0000

Biocon Ltd. .992 .984 .967 .58175

Cipla Ltd. .971 .942 .770 .50957

Table 13 represents the multiple regression analysis of Selected Pharmaceutical

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2019-20 2018-19 2017-18 2016-17 2015-16

Earning Per Share

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variable that is gross profit, Operating profit and Return on equity have influence on the dependent variable of net profit ratio.

 In this regression analysis of Sun Pharmaceutical has stated that the Independent variables have 99.5% i.e. gross profit, operating profit and return on equity have impact on dependent variable i.e.Net Profit. It means that all the independent variables have contributes 99.5% on dependent variable of net profit which is significant at 5 percent level.

 The Dr. Reddy’s Laboratories is statistically significant at 5 percent level. The R² value at .937 states that the three independent variables that is gross profit, operating profit and return on equity capital have 87.32 percent influence on the dependent variable that is net profit.

 Divis laboratories are statistically significant at 5 percent level. The R²value at 1.00 states that the three independent variables that is gross profit, operating profit and return on equity capital have 100 percent influence on the dependent variable that is net profit.

 Bioco Ltd. are statistically significant at 5 percent level. The R²value at .967 states that the three independent variables that is gross profit, operating profit and return on equity capital have 96.7 percent influence on the dependent variable that is net profit.

 Cipla Ltd. is statistically significant at 5 percent level. The R²value at .770 states that the three independent variables that is gross profit, operating profit and return on equity capital have 77 percent influence on the dependent variable that is net profit.

3 LIMITATIONS-

 The data is collected from money control, all the data which is used to analysis financial performance is secondary data. The accuracy, reliability and validity of data is depend on this study.

 The data which is used in this study are up-to the 2020.

4 CONCLUSION AND SUGGESTIONS

In today’s scenario the financial health plays an important role in the growth of the company financially. This study reveals that gross profit, operating

4.1 From the above analysis we can conclude that-

 Debt equity ratio of the selected pharmaceutical companies are not as per the standard which is 2:1, the company’s capital structure is more inclined towards shareholder’s fund not on debt capital.

 In this study current ratio found to be satisfactory in all the companies except in Divis laboratories because the current ratio is too high as compared to standard current ratio.

 In Quick ratio or acid test ratio, mean value of all the selected pharmaceuticals companies is very efficient except Divis laboratories; it is too high which means that the current assets are non performing.

 Gross profit of all the selected companies is satisfactory except Cipla Ltd. or Dr.

Reedy’s Laboratories, Which may be due to high cost or low demand and sale of their product.

 In case of Net profit, Divis Laboratories have highest Net profit as compared to other companies and Sun Pharmacetical and Biocon Ltd have moderate net profit and Cipla Ltd.and Dr. Reedy’s have poor net profit due to high cost and low sales.

 Inventory turnover ratio is satisfactory in almost all the companies, itr signifies that the company are efficiently managing the stock or using its production sufficiently.

 In the study we find that operating profit of Cipla Ltd. is very low, its just half than Sun pharmaceutical and much difference between with Divis Laboratories.

 In the case of Return on Equity, maximum result is generated by Divis Laboratories that they are using shareholders fund efficiently to generate more and more profit.

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 In this study, we found that assets turnover ratio is very satisfactory for all the companies, that the companies are using their resources efficiently to generate maximum sales especially, in Dr. Reedy’s Laboratories, Cipla and Divis Laboratories.

 In Divis, ROCE is very excellent as compared to other selected companies and ROCE ratio is poor in Biocoin Ltd. due to higher amount of debt capital or lower earning capacity.

 Due to covid situation, that all the investors are now looking forwards towards this companies and ready to invest in this.

 India’s Pharmaceuticals companies has expected to grow to $100 billion by 2025.

 As per economic times, Biocon Ltd has spent more amounts on research and development that shall reduce the liquidity of the company.

 In recent scenario, Pharmaceutical sectors shows for the supply of more than 50%

of global demand for various vaccines, which shows the major growth in upcoming years.

REFERENCE

1. V.Vijayalakshmia and M.Srividya (2014) A Study on Financial Performance of Pharmaceutical Industry in India, Journal of Management and science, (3),ISSN: 2249-1260

2. Dr.J.P.Kumar1 Mrs. S. Vimala, (2014), A Study on Impact of Cost Structure on Financial Performance of Selected Pharmaceutical Companies in India, IISTE 6(1), ISSN 2224-6096.

3. Sejal S. Purabiya, (2018), A Study on Financial Performance of Pharmaceutical Company, International Journal of science and Research (IJSR),ISSN: 2319-7064.

4. Frederick Nsiah and Prince Aidoo (2015), Financial Performance of Listed Pharmaceutical Companies on Ghana Stock Exchange, Research Journal of Finance and Accounting 6(2 )ISSN 2222-1697.

5. Sinha Mintibahen Bijendra1 , Dr Deepika Singhvi (2017), Research Paper on Liquidity & Profitability Analysis of the Pharmaceutical Companies of India, International Journal of Scientific Research and Management (IJSRM), 5(8).

6. Dr. Ashok Kumar Panigrahi, Analysis of Financial Performance: A Study of Selected Pharmaceutical Companies (2019), Global Management Horizon.