Final 14th

8/8/2019 Final 14th

1/70

ICFAI BUSINESS SCHOOL, CHANDIGARH

PREFACE

MBA with specialization in finance is a stepping stone to carry out the financial management in

order to achieve practical, positive and concrete business objectives. The classroom learning

needs to be effectively suited to realities of the situation existing outside the classroom and it is

necessary that the theoretical knowledge must be submitted with exposure to real environment.

So I did my training in a professionally managed organization in Ranbaxy labs Ltd in their

finance department.

The summer internship program was all the more a learning experience for me. Apart from

working on my project, I worked with staff of the organization and got to understand the real

work time conditions and learnt them.

In the report, I will be explaining the Financial Analysis of Ranbaxy in comparison with its

immediate competitors and the Industry Standards. In addition to that a brief explanation of the

prominent activities performed where I contributed to the workings of the organization would be

given.

Studying these, I have attempted to make certain suggestions for the improvements in the

system which I feel if implemented can go a long way in improvising the procedures thereby

enhancing the efficiency.

RANBAXY LABORATORIES LIMITEDFINANCIAL ANALYSIS Page 1

8/8/2019 Final 14th

2/70


EXECUTIVE SUMMARY:

As a part of the SIP, I have been working in the Accounts department at Ranbaxy Labs i.e. the

Payables Department.

Basically, the project work is concentrating on the Financial Analysis of the Company. It is the

study of financial position of the company ascertained through calculating their financial ratios

and their interpretations. The first assignment of the summer internship program was the job of

Invoice Verification assigned to me. Therefore, apart from the project work, an additional

assignment has been included in this Final report.

Payables: At the payables section of the CMA department, I learnt the complete Procurement

process of goods and worked on Invoice verification for three months. It is a SAP based

integrated system and here at the CMA, Ranbaxy releases payments to the vendors for their

plants country-wide, so it was essential to understand how payments are made to the vendors

after invoice verification. The process starts from running the MRP by the Purchase department,

procuring goods till the final payment is released for the vendors.

Invoice Verificationbroadly deals with the matching of the Invoice details with that of the PO

(Purchase Order) details. The PO details are reflected in the liabilities for expenses as they

appear in the SAP system. When original invoices reach the CMA (Centralized Manufacturing

Accounts) department at the Mohali plant, they are taken for invoice verification provided theconsignment clears the Quality Testing stage.

As regards the benefits of using SAP for IV (Invoice verification), they are apparently clear

when we go through the process of IV.

After learning the Creditors management at Ranbaxy, I decided to take up a project of

analyzing the Financial Analysis at Mohali Plant which is into API Business (Business Area

1000). I have practically understood and worked upon the creditors management of the Bulk

drug business concentrating mainly on the Mohali Plant.


8/8/2019 Final 14th

3/70


ACKNOWLEDGEMENT

I would take the opportunity to thank my Faculty guide, Prof. Kewal Raj whose valuable

guidance time to time helped me in deciding upon the direction and target of the Internship.

I am grateful to Ranbaxy Laboratories Ltd., team Mohali for the successful completion of the 3

months Summer Internship Program at the CMA (Centralized Manufacturing Accounts)department at the Registered Office of their organization.

I dotingly thankMr. P.N.Singla, General Manager - Accounts and my company

guide for his valuable guidance for the completion of the summer Internship. He assigned me

the jobs which were contributing to my project work and gave me practical learning about the

workings at the department as well.

I am deeply thankful to Mr. Ravinder Chauhan (Sr. Manager) and Mr. Rajiv

Soni (Manager) for their guidance and help in procurement of the required information for

my project and the jobs Iwas assigned.

I also express my deep gratitude to the Human Resources department of the organization with

thecooperation of which I got the opportunity to take up the Summer Internship in their

esteemedorganization.

In the CMA department, it was the extreme cooperation of the staff members that I was able to

learn a lot about the practical aspects and got an opportunity to work for the regular affairs and

get a real time experience. The completion of the project was a not an individual but indeed a

joint effort of all the staff members.


8/8/2019 Final 14th

4/70


ContentsPREFACE.......................................................................................................................................1

EXECUTIVE SUMMARY:...........................................................................................................2

ACKNOWLEDGEMENT..............................................................................................................3

INTRODUCTION..........................................................................................................................5

CORPORATE PROFILE OF THE COMPANY............................................................................6

TEN YEARS AT GLANCE.........................................................................................................13

OBJECTIVES OF THE PROJECT..............................................................................................15

LIMITATIONS OF THE PROJECT............................................................................................15

DETAILED DESCRIPTION OF THE PROJECT:......................................................................16

FINANCIAL ANALYSIS:...........................................................................................................16

RATIO ANALYSIS......................................................................................................................18

1. LIQUIDITY RATIOS........................................................................................................18

2. ACTIVITY RATIOS:............................................................................................................23

3. SOLVENCY RATIOS.......................................................................................................30

4. PROFITABILITY RATIOS..................................................................................................41

OBJECTIVE:................................................................................................................................48

INVENTORY MANAGEMENT.................................................................................................49

ROLE OF SAP BASED ERP IN THE INVOICE VERIFICATION:..........................................53

INVOICE VERIFICATION.........................................................................................................54


8/8/2019 Final 14th

5/70


PROCESS OF INVOICE VERIFICATION:................................................................................57

LIMITATIONS & SHORT-COMINGS.......................................................................................69

RECOMMENDATIONS..............................................................................................................70

Freight Clearing:...........................................................................................................................67

ANNEXURES..................................................................................................................................

References:........................................................................................................................................

Freight Clearing:

INTRODUCTION

INTRODUCTION TO THE PHARMACEUTICAL INDUSTRY

Pharmaceutical is one of the most intense knowledge driven industries, which is continuously

in a state of dynamic transition. Driven as complex matrix of processes, operations and

organizations involves in the discovery, development and manufactures of drugs and

medications, the pharmaceutical industry is a life line industry which plays a very crucial role in

building a strong human capital of a country and is a very for economic growth and

development. Indian pharmaceutical industry is mounting up the value chain. From a being pure

reverse engineering industry focused on the domestic market. The industry is moving towards

basic research driven, export oriented global presence, providing wide range of value added

quality products and services.

TheIndian pharmaceutical industry is a success story providing employment for millions and

ensuring that essential drugs at affordable prices are available to the vast population of this

sub-continent.

The Indian pharmaceutical industry today is in the front rank of Indias science based

industries with wide ranging capabilities in the complex field of drug manufacture and

technology. A highly organized sector, the Indian Pharma Industry is estimated to be the worth$4.5 billion, growing at about 8 to 9 percent annually. It ranks very high in the third world, in

terms of technology, quality and range of medicines manufactured.


8/8/2019 Final 14th

6/70


Playing a key role in promoting and sustaining development in the vital field of medicines,

Indian Pharma Industry boasts of quality producers and many units approved by regulatory

authorities in USA and UK. International companies associated with this sector have stimulated,

assisted and spearheaded this dynamic development in the past 53years and helped to put India

on the pharmaceutical map of the world.

The Indian Pharmaceutical sector is highly fragmented with more than 20,000 registered units. It

has expanded drastically in the last two decades. The leading 250 pharmaceutical companies

control 70% of the market with market leader holding nearly 7% of the market share. It is an

extremely fragmented market with severe price competition and government price control.

CORPORATE PROFILE OF THE COMPANYRanbaxy Laboratories Limited, India's largest pharmaceutical company, is an integrated,

research based, international pharmaceutical company, producing a wide range of quality,

affordable generic medicines, trusted by healthcare professionals and patients across

geographies. It is ranked among the top 10 global generic pharma companies; Ranbaxy todayhas a presence in 23 of the top 25 pharma markets of the world. The Company has a global

footprint in 49 countries, world-class manufacturing facilities in 11 countries and serves

customers in over 125 countries.

Earlier in June 2008, Ranbaxy entered into an alliance with one of the largest Japanese innovator

companies, Daiichi Sankyo Company Ltd., to create an innovator and generic pharmaceutical

powerhouse. The transformational deal will place Ranbaxy in a higher growth trajectory. The

ranking of the combined entity will be catapulted to the No. 15th position in the global

pharmaceutical space and it will emerge stronger in terms of its global reach and in its

capabilities in drug development and manufacturing.

MILESTONES OF RANBAXY


8/8/2019 Final 14th

7/70


The company was incorporated in the year 1961.

In 1973, the company went public and a multi-purpose plant was installed in Mohali for

the production of APIs

In 1977, Ranbaxy entered into its first joint venture in Lagos(Nigeria)

A modern plant for Dosage Form was established in Dewas (M.P)

The Research foundation of Ranbaxy was established in 1985

The new Research Centre at Gurgaon, (near Delhi), became fully Operational in1994

In 1998, Ranbaxy entered USA, Worlds largest pharmaceutical market, with products

under its own name

In 2008, Japan's Daiichi Sankyo co. took the majority (50.1%) stake in Ranbaxy, with a

deal valued at about $4.6 billion

VISION

The company is driven by its vision to achieve significant business in proprietary prescription

products by 2012 with a strong presence in developed markets. It aspires to be amongst the top 5

global generic players and aims at achieving global sales of US $5 Billion by 2012.

STRATEGYRanbaxy is focused on increasing the momentum in the generics business in its key markets

through organic and inorganic growth routes. It continues to evaluate acquisition opportunities

in India, emerging and developed markets to accentuate its business and competitiveness. The

Companys growth is well spread across geographies with near equal focus on developed and

emerging markets. Ranbaxy has entered into new specialty therapeutic segments like

biosimilars, oncology, peptides and limuses. These new growth areas will add significant depth

to its existing product pipeline.

RESEARCH AND DEVELOPMENT


8/8/2019 Final 14th

8/70


Ranbaxy views its R&D capabilities as a vital component of its business strategy that will

provide the company with a sustainable, long-term competitive advantage. The Company today

has a pool of over 1,200 scientists engaged in path-breaking research.

Ranbaxy is among the few Indian pharmaceutical companies in India to have initiated its

research program in the late 70s. To support its global ambition, a first of its kind world class

R&D centre was commissioned in 1994. Today, the Companys multi-disciplinary R&D centre

at Gurgaon, in India, houses dedicated facilities for generics research and innovative research.

The Companys robust R&D environment for both drug discovery & development reflects the

Companys commitment to be a leader in the generics space and offer value added formulations

based on its Novel Drug Delivery System (NDDS) and New Chemical Entity (NCE) research

outcomes.

Ranbaxy has enhanced its focus on NCE research with the proposed De-merger of its New DrugDiscovery Research (NDDR) unit into a separate entity, Ranbaxy Life Science Research Ltd,

subject to requisite approvals. This significant step will open up new growth opportunities and

provides a platform for increased collaboration.

The new drug research areas at Ranbaxy include anti-infectives, inflammatory / respiratory,

metabolic diseases, oncology, urology and anti-malaria. Presently, the Company has 8-10

programs comprising one anti-malaria molecule in Phase-II clinical trials. The Company has

two programs in Phase I and the remaining in the pre-clinical stage. This includes a

collaborative research program with GSK.

The company's NDDS focus is mainly on the development of NDA/ANDAs of oral controlled-release products for the regulated markets. The Companys first significant international success

using the NDDS technology platform came in September 1999, when Ranbaxy out-licensed its

first once-a-day formulation to a multinational company.

MANUFACTURING FACILITIES

RANBAXY possesses the manufacturing strengths that have established it as a producer of

world-class generics, branded genericsand a major supplier of its range ofActive

Pharmaceutical Ingredientsfor pharmaceutical products of companies worldwide.

Ranbaxy has world-class manufacturing facilities in 11 countries namely:

1. Brazil

2. China


8/8/2019 Final 14th

9/70

8/8/2019 Final 14th

10/70


BOARD OF DIRECTORSAt the helm of the entire operations is the experience and able direction of the people who make

it all happen. Ranbaxy acknowledges their inspiring stewardship and indefatigable work.

Board of Directors

Standing (left to right) :Mr Ramesh Adige, Mr Vinay K Kaul, Mr

Ravi Mehrotra, Dr Brian W Tempest, Mr Vivek Bharat Ram, Dr P S

Joshi, Mr Malvinder M Singh, Mr Surendra Daulet-Singh, Mr

Shivinder M Singh, Mr Atul Sobti

Sitting (left to right) : Mr Nimesh Kampani, Mr Harpal Singh, Mr

Tejendra Khanna*, Mr Vivek Mehra, Mr Gurcharan Das


8/8/2019 Final 14th

11/70


Mr. Harpal Singh, Non-executive

Chairman

Dr. Brian W. Tempest

Mr. Malvinder Mohan Singh

Mr. Atul Sobti

Mr. Ramesh L. Adige

Mr. Vinay. K. Kaul

Mr. Shivinder Mohan Singh

Dr. P. S. Joshi

Mr. Surendera Daulet-Singh

Mr. Vivek Bharat Ram

Mr. Nimesh N Kampani

Mr. Vivek Mehra

Mr. Gurcharan Das

Mr. Ravi Mehrotra

Mr. Sunil Godhwani

* Mr. Tejendra Khanna has been appointed as the Lt. Governor

http://www.ranbaxy.com/aboutus/team_dispnew.aspx?id=7&flag=http://www.ranbaxy.com/aboutus/team_dispnew.aspx?id=7&flag=http://www.ranbaxy.com/aboutus/team_dispnew.aspx?id=7&flag=http://www.ranbaxy.com/aboutus/team_dispnew.aspx?id=1&flag=http://www.ranbaxy.com/aboutus/team_dispnew.aspx?id=1&flag=http://www.ranbaxy.com/aboutus/team_dispnew.aspx?id=2&flag=http://www.ranbaxy.com/aboutus/team_dispnew.aspx?id=2&flag=http://www.ranbaxy.com/aboutus/team_dispnew.aspx?id=58&flag=http://www.ranbaxy.com/aboutus/team_dispnew.aspx?id=58&flag=http://www.ranbaxy.com/aboutus/team_dispnew.aspx?id=3&flag=http://www.ranbaxy.com/aboutus/team_dispnew.aspx?id=3&flag=http://www.ranbaxy.com/aboutus/team_dispnew.aspx?id=21&flag=http://www.ranbaxy.com/aboutus/team_dispnew.aspx?id=21&flag=http://www.ranbaxy.com/aboutus/team_dispnew.aspx?id=54&flag=http://www.ranbaxy.com/aboutus/team_dispnew.aspx?id=54&flag=http://www.ranbaxy.com/aboutus/team_dispnew.aspx?id=13&flag=http://www.ranbaxy.com/aboutus/team_dispnew.aspx?id=13&flag=http://www.ranbaxy.com/aboutus/team_dispnew.aspx?id=14&flag=http://www.ranbaxy.com/aboutus/team_dispnew.aspx?id=14&flag=http://www.ranbaxy.com/aboutus/team_dispnew.aspx?id=15&flag=http://www.ranbaxy.com/aboutus/team_dispnew.aspx?id=15&flag=http://www.ranbaxy.com/aboutus/team_dispnew.aspx?id=16&flag=http://www.ranbaxy.com/aboutus/team_dispnew.aspx?id=16&flag=http://www.ranbaxy.com/aboutus/team_dispnew.aspx?id=18&flag=http://www.ranbaxy.com/aboutus/team_dispnew.aspx?id=18&flag=http://www.ranbaxy.com/aboutus/team_dispnew.aspx?id=19&flag=http://www.ranbaxy.com/aboutus/team_dispnew.aspx?id=19&flag=http://www.ranbaxy.com/aboutus/team_dispnew.aspx?id=55&flag=http://www.ranbaxy.com/aboutus/team_dispnew.aspx?id=55&flag=http://www.ranbaxy.com/aboutus/team_dispnew.aspx?id=67&flag=http://www.ranbaxy.com/aboutus/team_dispnew.aspx?id=67&flag=http://www.ranbaxy.com/aboutus/team_dispnew.aspx?id=7&flag=http://www.ranbaxy.com/aboutus/team_dispnew.aspx?id=7&flag=http://www.ranbaxy.com/aboutus/team_dispnew.aspx?id=1&flag=http://www.ranbaxy.com/aboutus/team_dispnew.aspx?id=2&flag=http://www.ranbaxy.com/aboutus/team_dispnew.aspx?id=58&flag=http://www.ranbaxy.com/aboutus/team_dispnew.aspx?id=3&flag=http://www.ranbaxy.com/aboutus/team_dispnew.aspx?id=21&flag=http://www.ranbaxy.com/aboutus/team_dispnew.aspx?id=54&flag=http://www.ranbaxy.com/aboutus/team_dispnew.aspx?id=13&flag=http://www.ranbaxy.com/aboutus/team_dispnew.aspx?id=14&flag=http://www.ranbaxy.com/aboutus/team_dispnew.aspx?id=15&flag=http://www.ranbaxy.com/aboutus/team_dispnew.aspx?id=16&flag=http://www.ranbaxy.com/aboutus/team_dispnew.aspx?id=18&flag=http://www.ranbaxy.com/aboutus/team_dispnew.aspx?id=19&flag=http://www.ranbaxy.com/aboutus/team_dispnew.aspx?id=55&flag=http://www.ranbaxy.com/aboutus/team_dispnew.aspx?id=67&flag=

8/8/2019 Final 14th

12/70


of Delhi (India). As a consequence, he stepped down from the

position of the Chairman and Director on the Board of the

Company on April 8, 2007. Subsequently Mr. Harpal Singh has

been appointed as the Chairman w.e.f April 27, 2007.

VALUES

Achieving customer satisfaction is fundamental to their business.

Practice dignity and equity in relationships and provide opportunities for

people to realize their full potential. Ensure profitable growth and enhance wealth of shareholders.

Foster mutually beneficial relationships with all their business partners.

Manage their operations with company for safety and environment.

OBJECTIVES OF RANBAXY

LABORATORIES

To be a leader in Pharmaceutical industry.

To be a profitable company with a steady gowth in earnings.

To set an example as a socially responsible company.

To diversify in health care related areas.

To strive for excellence and continuous improvement in all spheres.

To improve the quality of life of people by providing better services and

quality products.

To provide a harmonious environment at the work place this helps in

developing the potential of the employees.


8/8/2019 Final 14th

13/70


FINANCIAL

POSITION

TEN YEARS AT GLANCE


8/8/2019 Final 14th

14/70


SOURCE: Data from annual report (Balance Sheet), 2003-07


Though the sales of the company had been on a constant increase over the last 10 years, there

was a sudden fall in Profit After Tax (PAT-Profit available to the Equity holders and the

organization itself) in 2004 & 2005. The key reason for the sudden fall in PAT can be attributed

to the sudden hike in Selling &Administration costs.

OBJECTIVES OF THE PROJECT

(1)To study the Financial Analysis of Ranbaxy in comparison with its immediate competitors

and the industry standards.

(2)To find factors responsible for the changes in the financial position of the company


8/8/2019 Final 14th

15/70


(3) To analyze the various functions and procedures followed by the company in Centralized

Manufacturing Accounts (CMA) department by various accounting officials in dealing with the

accounting process

4) To learn the System Application Products (SAP), computer software adopted by the company

specifically for the purpose integrated accounting system.

LIMITATIONS OF THE PROJECT

1) Restrictive analysis is conducted due to the shortage of the time allotted to the study period.

2) Lack of inadequate information as the company cannot allow a trainee to undertake its

accounts work as it is a matter of financial information of the company

DETAILED DESCRIPTION OF THE PROJECT:


8/8/2019 Final 14th

16/70


FINANCIAL ANALYSIS:

Financial analysis is the process of identifying the financial strengths and weaknesses of the

company by properly establishing relationships between the items of the balance sheet and the

profit and loss account.

Management should be particularly interested in knowing financial strengths of the company to

make their best use and to be able to spot out financial weaknesses of the company to take

suitable corrective actions. Thus, financial analysis is the starting point for making plans, before

using any sophisticated forecasting and planning procedures. In this manual Ratio Analysis of

Ranbaxy Laboratories Ltd. is been calculated to analyze companys past performance and to

assess its present financial strengths. Ratio analysis is considered as a widely used technique to

evaluate the financial position and performance of a business.


8/8/2019 Final 14th

17/70


TYPES OF RATIOS

RATIO ANALYSIS

1. LIQUIDITY RATIOS

Liquidity refers to the ability of a company to meet its current obligations. These are the ratios

which measure the short term solvency or financial position of a company. A company should

ensure that it does not suffer from lack of liquidity. To measure the liquidity of a company, the

following ratios can be calculated.

1.1CURRENT RATIO

Current ratio is defined as a relationship between the current assets and the current liabilities. It

is also known as the working capital ratio and it is a measure of general liquidity and is used to


TYPES OF RATIOS

8/8/2019 Final 14th

18/70


make the analysis of a short term financial position or liquidity of the company. A ratio equal or

near to the rule of thumb of 2:1 i.e., current assets double the current liabilities is considered to

be satisfactory.

SOURCE: Data from www.moneypore.com and calculationsdone in annexure


INTERPRETATION

The current ratio of Ranbaxy has been compared with the stop three pharmaceutical

organizations for the year 2007 and the Current Ratio of Ranbaxy itself has been compared with

its own for the last five years. As per the above inter firm comparison, we can see that

Ranbaxys current ratio is not near to the rule of thumb i.e., 2:1 and its having the lowest of the

Current Ratio in the above selected top four Indian Pharmaceutical companies. The major reason

for depleting of Ranbaxys current ratio is due to their increase in current liabilities. Their

increase in current liabilities is more than their increase in current asset.

The ideal current ratio to be maintained by the pharmaceutical cannot be accurately assessed

because the scale of operations and the inventory size has been different for all the companies in

the industry. The current ratio of Ranbaxy has thus been compared with the industry standards.

The industry standards have been calculated taking the average of top 4 pharmaceuticals of

India.

Note: Calculations attached in the annexure

Asper the above comparison, the Current ratio maintained by Ranbaxy is although near a

general notion of an ideal Current ratio but way below the normal Industry standards. The

reason for a lower Current ratio is the heavy amount of Current liabilities incurred mainly due to

the Creditors resulting from a long payables deferral period.

http://www.moneypore.com/http://www.moneypore.com/

8/8/2019 Final 14th

19/70


1.2QUICK RATIO

Quick Ratio is also known as the Acid Test Ratio. It is a more conservative measure of liquidity.

Quick ratio measures those assets which are immediately converted into cash without much loss.

Quick assets include all current assets except inventories and prepaid expenses.



INTERPRETATIONA high ratio indicates under stocking and low ratio indicates over stocking. Stock is excluded

because it may take time to be converted into cash. Quick ratio measures those assets, which are

immediately converted into cash without much loss, though there is no way to measure an ideal

quick ratio but as a rule of thumb, it should be at least 1:1.


8/8/2019 Final 14th

20/70


For the same reason that different pharmaceuticals in the industry cannot be compared on

common grounds, an industry average has been calculated for the top 4 companies (ranked by

their sales).


From the above comparison, it can be inferred that a comparatively heavy

amount of investment has been made in the inventories. This is because

although the Quick Ratio maintained by Ranbaxy is very near a said ideal

ratio of 1:1 but that way below the Industry standards. On comparative

terms Quick Ratio is lower than the Industry standards than Current ratio is

below the Industry Standards. Moreover, it can be clearly viewed from the

Balance Sheet the Current Assets has always been invested in Stock (Copyof Balance Sheet attached in the Annexure).

2. ACTIVITY RATIOS:Activity ratios are calculated to measure the efficiency with which the resources of a company

have been employed. These ratios are also called the turnover ratios because they indicate the

speed with which assets are being turned over into sales. The various turnover ratios are:

2.1 TRADE RECEIVABLES TURNOVER RATIO

It is also known as Debtors turnover ratio. It indicates the velocity of debt collection of

company. The shorter the average collection period, the better the quality of debtors, as a shortcollection period implies the prompt payments by debtors.


8/8/2019 Final 14th

21/70


SOURCE: Data from www.moneypore.com and calculations done in annexure


INTERPRETATION

Debtors velocity indicates the number of times the debtors are turned over during a year. There

is no rule of thumb which may be used as a norm to interpret the ratio as it is different from

company to company, depending upon the different receivable period policies of the business.


common grounds, an industry average has been calculated for the top 4 companies (Ranked by

their turnovers).


From the above comparison, it can be inferred that Ranbaxys debtor turnover ratio has always

been higher than the required industry standards. This indicates that the company is very muchefficient in the management of its Debtors/Sales or, more liquid are the debtors.

2.2 INVENTORY TURNOVER RATIO

Inventory turnover ratio is also known as stock velocity. It would indicate whether inventory has

been efficiently used or not. The purpose is to see whether only the required minimum funds

have been locked up in inventory.


http://www.moneypore.com/http://www.moneypore.com/http://www.moneypore.com/http://www.moneypore.com/

8/8/2019 Final 14th

22/70



INTERPRETATION

Inventory turnover ratio measures the velocity of conversion of stock into sales. There is no

rules of thumb or standard inventory turnover ratio for interpreting the inventory turnover

ratio. The norms maybe different for different companies depending upon the nature of industry

and business conditions.


From the above comparison, we can conclude that Ranbaxys inventory turnover ratio is almost

near to the required Industry Standards. So we can say on the basis of above graph that the

company is efficiently managing its inventory because more frequently they sold their stocks so

the lesser amount of money is required to finance the inventory.

2.3 SALES TO WORKING CAPITAL RATIO:It is a measurement comparing the depletion of working capital to the generation of sales over agiven period. This provides some useful information as to how effectively a company is using its

Working Capital to generate sales.




8/8/2019 Final 14th

23/70


INTERPRETATION

A company uses working capital to fund its 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 ratio, the better it is because it means that the

company is generating a great degree of sales as compared to the money it utilizes to fund the

sales.


From the industry comparison, it is apparent that Ranbaxys Working Capital Turnover Ratio

has always been above Industry standards which implies that the sales generated by Ranbaxy

has always been much higher than the cost incurred to generate those sales as compared to other

pharmaceutical giants in the Industry.


8/8/2019 Final 14th

24/70


3. SOLVENCY RATIOS

The term leverage or solvency refers to the ability of a company to meet its

long term obligations. The long term indebtedness of a company includes debenture holders,financial institutions providing medium and long term loans and other creditors selling goods on

installment basis. Accordingly long term solvency ratios indicate a companys ability to meet

the fixed interest and costs and repayment schedule associated with its long term borrowings.

3.1DEBT EQUITY RATIO:

Debt-Equity ratio also known as External-Internal Equity Ratio is calculated to measure the

relative claims of outsiders and the owners against the companys assets. This ratio indicates the

relationship between the external equities or the outsiders funds and the internal equities or the

shareholders funds.



INTERPRETATION:

The Debt-Equity ratio is calculated to measure the extent to which debt has been used in a

business. A ratio of 1:1 may be usually considered to be satisfactory ratio although there cannot

be any rule of thumb or standard norm for all types of business.


common grounds, an industry average has been calculated for the top 4 companies (Ranked by

their turnovers).


8/8/2019 Final 14th

25/70



From the above comparison, it can be inferred that from the year 2003-05 the Debt equity ratio

maintained by the Ranbaxy was very low than the industry standards but later on from the year

2006 the Debt-equity ratio of Ranbaxy reached beyond the levels of the Industry standards. So

this indicates that the claims of outsiders are greater than those of owners.

3.2FUNDED DEBT TO TOTAL CAPITALIZATION RATIO

The ratio establishes a link between the long term funds raised from outsiders and total long

term funds available in the business.


8/8/2019 Final 14th

26/70




INTERPRETATION

Funded Debt is hat part of total capitalization which is financed by the outsiders. Though there

is no rule of thumb but still the lesser the reliance on the outsiders the better it will be. If this

ratio is smaller, better it will be, up to 50% or 55% this ratio may be tolerable and not beyond.


From the industry comparison, it is apparent that Ranbaxys funded debt to total capitalization

ratio is very much higher than the Industry standards in the past two financial years which is

against the norms of this ratio, so it would be advisable to the company that it should not relied

much on outside sources for raising long-term funds.

3.3 PROPRIETARY RATIO


8/8/2019 Final 14th

27/70


A variant to the debt-equity is the proprietary ratio also known as Equity Ratio. This ratio

establishes the relationship between the shareholders funds to total assets of the company.



INTERPRETATION

This ratio indicates the extent to which the assets of the company can be lost without affecting

the interest of creditors of the company. The general notion of this ratio is, higher the ratio or the

share of the shareholders in the total capital of the company, better is the long-term solvency

position of the company.

Note: Calculations attached in the annexureAs per the above comparison, we can reach to the conclusion that Ranbaxys share of owners is

not up to the required industry standards. So the company, instead of depending on outside

source for raising long term funds, should depend more on Shareholders funds.


8/8/2019 Final 14th

28/70


3.4 SOLVENCY RATIO:

This ratio is a small variant of equity ratio. The ratio indicates the relationship between the total

liabilities to outsiders to total assets of a company.



INTERPRETATION

Solvency ratio is the ratio of total liabilities to total assets. Generally, lower the ratio of total

liabilities to total assets, more satisfactory is the long term solvency position of a company.


From the above comparison, it is apparent that Ranbaxys solvency ratio is much higher than the

Industry standards, which is not a satisfactory one.


8/8/2019 Final 14th

29/70


3.5INTEREST COVERAGE RATIO:

Net income to interest coverage ratio or simply debt service ratio is used to test the debt-

servicing capacity of a company. The ratio is also known as Debt Service Ratio.



INTERPRETATION

Interest coverage ratio indicates the number of times interest is covered by the profits available

to pay the interest charges. Long term creditors are interested in knowing the companys ability

o pay the interest on their long-term borrowing. Generally, higher the ratios, safer are the long

term creditors because even if earnings of the company fall, the company shall be able to meet

its commitment of fixed interest charges.


8/8/2019 Final 14th

30/70



From the above comparison, it can be inferred that the companys Interest Coverage ratio is

much lower than the required Industry standards, which is not an acceptable position of the

company. So it is advisable to the company to reduce the level of amount of fixed charges they

incurring by reducing their long term debts.

4. PROFITABILITY RATIOS

Profit earning is considered essential for the survival of the business. A business needs profits

not only for its existence but also for expansion and diversification. Profits are thus, a useful

measure of overall efficiency of a business. Generally, profitability ratios are calculated either inrelation to sales or in relation to investment.

4.1GROSS PROFIT RATIO:

It measures the relationship of gross profit to net sales and is usually represented as a

percentage.



8/8/2019 Final 14th

31/70



INTERPRETATION

The gross profit ratio indicates the extent to which selling prices of goods per unit may decline

without resulting in losses on operations of a company. It reflects the efficiency with which a

company produces its products. The general notion is that higher the G.P. ratio, better the result.

Note: Calculations attached in the annexureFrom the above comparison, we can see that, from the last three years the Ranbaxys gross profit

ratio is not up to the level of Industry standards as it had been in the years 2003& 04. The low

gross profit ratio of the company generally indicating the high manufacturing expense incurred

during the last three years.

4.2OPERATING RATIO:It establishes the relationship of operating profit to net sales and this is also

usually represented in a percentage form.




8/8/2019 Final 14th

32/70


INTERPRETATION

Operating ratio indicates the percentage of net sales to operating profit. Operating profit ratio

considered to be a yardstick of operating efficiency of the company. There is no rule of thumb

for this ratio as it may differ from company to company depending upon the nature of its

business and its capital structure.

Note: Calculations attached in the annexureFrom the above comparison, we can conclude that in the past years the operating profitability of

the company is above the industry standards, the reason for this was due to the economies of

scale and increase in operations. But in the recent years it is below the industry standards, this isbecause the scale of operation were not profitable so the operating costs incurred on high basis

due to such inefficiencies.

4.3NET PROFIT RATIO:

This ratio indicates the efficiency of the management in manufacturing, selling, administrative

and other activities of the company.



INTERPRETATIONThe two basic elements of the ratio are net profits and sales. The ratio is very useful as if theprofit is not sufficient, the company shall not be able to achieve a satisfactory return on its

investment. This ratio also indicates the companys capacity to face adverse economic


8/8/2019 Final 14th

33/70


conditions such as price competition, low demand, etc. Obviously, higher the ratio, the better is

the profitability.


From the above comparison, it can be inferred that the net profit ratio of the company is almost

near to the industry standards.


8/8/2019 Final 14th

34/70


OBJECTIVE:

At Ranbaxy Laboratories Ltd, In Centralized Manufacturing Accounts (CMA) department,

various tasks are performed pertaining to creation and maintenance of accounts processing of

various expenditures for investment purposes. I am taking up invoice verification under the

guidance of Mr. Gurmeet Wasan, Sr. Executive, Accounts in order to understand the complete

Procurement process of Ranbaxy and how the payments are released for the vendors.

This is related to the management of payables to the creditors i.e. the vendors of the

organization.

Invoice Verification is undertaken in the Payables section of the organization which would make

me understand the Financial Management for the organization apart from their Inventory

Management, a par which I will be taking up separately afterwards.

As a part of the same, I have worked on the Payables Management of the organization. Now, I

will try to understand the Inventory management by understanding the Inventory valuation

techniques.


8/8/2019 Final 14th

35/70


INVENTORY

MANAGEMENT


8/8/2019 Final 14th

36/70


In order to understand how inventory control is exercised in Ranbaxy, we need to understand the

complete procurement procedure of the Organization. The procurement of goods in Ranbaxy is

undertaken in the following manner:

Contacting vendors for conveying the Purchase requirements and finalizing the vendor.

Sending the Purchase order (PO) to the vendor.

Purchase order* contains:

The material requirements of the organization

Pricing details of the material to be procured and expenses to be incurred

The consignment as agreed upon by the consignor is sent and received at the warehouse

by the warehouse department of the organization.

The GRN (Goods receipt note) number is generated as soon as the goods (consignment)

are collected. The GRN number is like an entry gate identification code for a particular

batch of goods. This number is assigned by the warehouse in charge of the Purchase

department. The system immediately creates liabilities in the SAP taking up the details

from the Purchase Order as soon as the GRN number is created. Details picked from the

Purchase order refer to the list of pricing, specifications of goods and the relevant

expenses to be incurred for the procurement of goods.

Quality Testing: Goods after receipt and generation of the GRN number are sent forquality testing.


8/8/2019 Final 14th

37/70


The goods which are approved by the quality testing department are forwarded to the

plant premises for their usage in production. Invoice verification is performed for the

same goods.

Defective/Rejected goods are held at the warehouse by the Purchase department for

return. In case of Packing Material procured by the organization defective goods are

destroyed by the authorities so that such defective material cannot be used by any other

organization.


8/8/2019 Final 14th

38/70



8/8/2019 Final 14th

39/70


INVENTORY REPORT TO MANAGEMENT

Inventory management refers to managerial functions which are directed to ensure that required

quantity and quality of material is provided at the proper time with the minimum amount of

capital. Inventory control is affected by coordination and control activities relating to planning,

sourcing, purchasing, moving and storing of materials. For proper results, performance in the

field of Inventory control should be properly reported to management. Following points are

covered while reporting the Inventory position to the management:

Number of purchase order placed during the month, cumulative for the year up to the day

of sending the reports.

A calendar of returns should be prepared showing the various reports, time schedule and

the level of management where report is to be sent, periodicity of reports etc.

Separate reports for foreign and local orders.

Details of number of purchase requisitions order placed and number or requisition

pending.

Savings materialized by purchasing at price below market price.

Loss due to wastage, spoilage and obsolescence.

Cost of placing order.

Saving achieved vs. target savings in inventory control.

Cost of running the department.


8/8/2019 Final 14th

40/70


ROLE OF SAP BASED ERP IN THE INVOICE VERIFICATION:

An ERP system in a company is a software solution that addresses the enterprise needs taking

the process view of an organization to meet the organizational goal tightly integrating all

function of an enterprise.

Ranbaxy has incorporated well developed ERP system that uses the System Application Product

(SAP) software which helps the company to gain competitive edge by integrating all business

process and optimizing the resource available. It has adopted SAP R/3 version. System

Application Product (SAP) is a product of GERMANY that help in data processing.

NEED FOR AN ERP SYSTEM:

In todays dynamic and turbulent environment, there is a strong need for the organization to

become globally competitive. Enterprise Resource Planning (ERP) is a strategic tool, which

helps the company to gain competitive edge by integrating all business process and optimizingthe resource available.

SAP based ERP system has made the process of Invoice Verification all the more easy for the

CMA department. It is a very systematic auto-check system which verifies all the particulars of

the invoices and matches the same with those mentioned in the Purchase Order and Vice-Versa.


8/8/2019 Final 14th

41/70


INVOICE VERIFICATION

PAYABLE MANAGEMENT RANBAXY

Ranbaxy Laboratories Ltd separate Centralized Manufacturing Accounts (CMA) department in

Mohali location, which takes care of payments related to Creditors. The effective control ofdisbursement helps the company in conserving cash and reducing the financial requirements.

Disbursements arise due to trade credit, which is a source of Fund. The company should make

payments using credit terms to the fullest extent. There are two ways:

MIR6- Used for Mass Invoice Verification

MIRO- Used for Individual Invoice Verification for all Invoices

CREDIT TERMS:

Credit terms refer to the conditions under which the suppliers sell on credit to the buyer, and the

buyer is required to repay the credit. These condition include the due date and cash discount (ifany) given for prompt payment. The cash discount can be availed by the buyer if he pays a

certain date which is quite earlier than the due date.

Is trade credit a cost free source of finance?

It appears to be cost free since it does not involve explicit interest charges. But in practice, it

involves implicit cost. The cost of credit may be transferred to the buyer via the increased price

of goods supplied to him. The user of trade credit, therefore, should be aware of the costs of

trade credit to make its intelligent use. The supplier extending trade credit incurs cost in the

form of the opportunity cost.

CHECKING INWARD INVOICES AND PASSING THEM FOR

PAYMENTS


8/8/2019 Final 14th

42/70


Ranbaxy Laboratories Ltd has Centralized Manufacturing Accounts (CMA) at Mohali location

from which invoices are digitally checked and payments are made accordingly. Checking of

Inward Invoice (sellers invoice) is done digitally against quantity specified on the purchase

order and the quantity received as per goods received note. Terms and rate are checked against

the purchase order. If invoice is correct in all respects, the purchase officer will pass it on to

Centralized Manufacturing Section (CMA) section for payment.

INVOICE VERIFICATION

IF DETAILS IN THE VOICES ARE DIFFER FROM THAT OF THEPURCHASE ORDER:

CASE I

If the liabilities created in the SAP system is more than that appearing in the details of the goods

actually procured mentioned in the invoice.

The extra-ordinary liabilities appearing in the system are cleared in name of the organization

itself. This is because the liability towards the expenses is higher as compared to the paymentsactually made to the vendor.

When it comes to incurring the actual liabilities, there are some of the expenses which have been

included but not actually incurred during the procurement of the consignment. But such

expenses keep standing in the books of accounts as liabilities for the company. The debit

balance of such expenses is cancelled by crediting it with an equivalent amount. This credit is

done by the organization in its own name because the actual expenses incurred have already

been paid. The notional figures that are standing in the books of accounts of the company are to

be settled.

CASE II

If the liabilities created in the SAP system are less than the actual liabilities that are to be

incurred.


8/8/2019 Final 14th

43/70


The proposed terms in the invoice are negotiated the higher authorities authorized to make any

changes. These authorities can be negotiated with on terms of the rate of the material procured.

These rates can be altered only if agreed upon by the authorized signatories.

If the proposed terms are not agreed upon by the authorities, the invoices are passed on the rates

mentioned in the Purchase order. It may so happen that the vendor may propose for a hike in

prices and the request is agreed upon later on. Now, sometimes the vendor asks for a

retrospective effect but the liabilities generated in the SAP system cannot be altered because

once the liabilities are generated picking up details from the Purchase Order and such liabilities

cannot be altered because that amounts to alteration in the terms of the Purchase which is not

possible at this stage.

RETROSPECTIVE EFFECT:

We need to pass entries in the system manually in order to increase the liability of the vendor

and then debit the expenses by the requisite extra amount in order to meet the liability for

expenses and the balance the Vendor Account as well.


8/8/2019 Final 14th

44/70


PROCESS OF INVOICE VERIFICATION:

The process of Invoice verification is an auto-check system for the release of payments to the

respective vendors. The process goes on as follows:

The purchase department updates the details about the status of the goods during their

quality check. These updating are made in the SAP system. Updating refers to which

goods have been passed, which are under test and which have been rejected. The

complete details are mentioned in the SAP and the same can be accessed from the

Accounts department.

Now, we at CMA department, download the current status of the goods on a daily basis.

This status sheet is downloaded as a text file and then later on converted to an excel

spreadsheet. This spreadsheet contains the details of the goods along with their GRN

number. These details include: Date of Posting

Date of invoice

Invoice number


8/8/2019 Final 14th

45/70


Location

Business Area Code

PO number

Vendor code

Vendor name

Delivery Challan number (Excise invoice number). If the goods are excise duty

exempted, the Delivery Challan number is the same as the Invoice number.

Quantity received

Quantity approved

Quantity under test

Quantity rejected

Material name

Material code*

*Material code refers to the coding which is done by the Purchase department to a particular

kind of Material e.g. Material code starting with 2 or 3 refers to the raw material, starting with 4

refers to the engineering products and the codes starting with 5 refer to the Packing Material.

From the lot of the pending invoices, the invoices of which the goods have been passed after the

quality check are forwarded for uploading. This is done by mentioning the total amount of

invoice as mentioned by the vendor.

The line items which have been recently passed are uploaded in the SAP system. This is done bymoving the data of one particular excel spreadsheet to another and then the line items for which

the amounts have been recently updated are sorted and the rest of items are deleted. Now, this

data is set in a particular format in which the ERP system is able to pick up the data. This stage

is crucial because a single error in the format of the data of line items can upload wrong data, no

data or redundant data.

The coding used for the uploading of the recently updated line items is MIRA. The system with

regular supervision uploads all the entries in the ERP system.

After updating, the data is posted in the SAP system using MIR6 code. All the uploaded entries

are posted which the system further carries for verification.


8/8/2019 Final 14th

46/70


Now, here at this stage the SAP system tallies the details which are existing in the itself since

the instance of GRN generation with that of the details of invoices uploaded and posted recently

in the system.

If the difference of the two details is less than Rs. 10, the SAP system passes the invoice and

releases the same for payment. On the contrary, if the difference exceeds Rs. 10, the SAP system

blocks the entry and does not post the same. Such entries are taken for verification manually and

differences are reconciled.

If goods are partially approved:

In case, the goods after test are partially approved i.e. a certain lot of goods is rejected, the goods

are returned to the vendor in case of Raw Material (In case of packing material, defectivematerial is destroyed in order to prevent misusage). When goods are returned to the vendor,

payment to the vendor is made on the basis on the information as per the PO as regards the rate

per unit of the material or line item.

As regards the excise duty chargeable, the liability for the excise duty payable gets reduced as

soon as a reverse entry is passed for the return of goods. Along with reduction in the liability of

creditors, all the corresponding expenses also get reduced.

ACCOUNTING PERSPECTIVE

At the time of the procurement of the goods when the GRN number is generated inside the

system, the following accounting entries are passed:

At the time of the procurement:


8/8/2019 Final 14th

47/70


Inventory A/C.dr.

To GRIR A/C

At the time when are goods are drawn for consumption:

Consumption A/C.dr.

To Inventory A/C

At the time of Invoice Verification:

GRIR A/C.dr.

To Vendor A/C

At the time of payment to the Vendor

Vendor A/C..dr.

To Bank A/C

Note: If there is any variation in the rate mentioned in the Purchase order and the rate at which

payment has to be actually made to the vendor, then in the third journal, system makes necessary

changes and adjusts the same to the Consumption A/c and Inventory A/c respectively.

PAYMENT TERMS:


8/8/2019 Final 14th

48/70


The payment terms are defined in terms of payment term codes. These codes refer to the

payment term of a vendor exceeding which time limit, the buyer is required to pay 3 times the

interest of RBI (Reserve Bank of India) on the Bill amount.

Z-032: 30 days

Z-033: 45 days

Z-036: 90 days

Z-037: 120 days

The typical way of expressing credit terms is for example, as follows: 2/45, net 90. This implies

that a 2 percent discount is available if the credit is repaid on or before the 45th day and in case

the discount is not taken, the payment is due by the 90th

day.


8/8/2019 Final 14th

49/70


The Initial screen for the start up procedure for updating and posting is as follows:

The Updating and posting can be started in the background by using the last option of

ZMIVBACK.

For mass verification use transaction code ZMIVBACK and save the file in the name of

mirainv. The SAP has Standard format through which system verify the invoice in mass. The

standard format of SAP consists of nine columns which are given below:


8/8/2019 Final 14th

50/70


Invoice

Date

Posting

Date

Bill

No.

Bill

Amt.

GR

No AssignmeBusiness

Area

Challa

No

Vendor

code

After mass verification through System Application Product (SAP) support, same is posted

through mira posting. After this, individual verification is done of those file which SAP hasnot passed in mass verification. After rectifying as per purchase order bill is passed for payment.

IF THE ENTRIES ARE POSTED:

The SAP system gives the details of the entries posted and a list of the same can be displayed

and a hard copy of the same is taken. Now, the 10-digit document number of different invoices

on which they have been posted is marked on the original invoices. This document number is

mentioned so that the details of the invoices can be easily viewed in case there is anydiscrepancy at a later stage. The following screen can be viewed if we enter the FB03

Financial Accounting


8/8/2019 Final 14th

51/70


Entering the document number in the space provided will display the details of the document.

This document number can be entered into the system in order to open the entry details anytime.

After that, the invoices are sent for binding and sent to the record room.

There are statutory requirements by the regulatory authority for Ranbaxy to maintain their

records for last 10 years.

If the entries are not posted due to some discrepancy:


8/8/2019 Final 14th

52/70


The pending invoices are opened up in the SAP system in order to find out the reasons for

mismatch. I came across some of the following cases while going through the invoices:

Difference in rates per unit charged by the vendor and that mentioned in the Purchase Order.

Discrepancy in the Tax code.

Difference in the Quantity mentioned in the invoice and that uploaded in the system.

Difference in Cenvat actually availed and that mentioned in the invoice.

If the difference in rates is minor and can ignorable, the same is rectified and the invoice is

passed. If the rate quoted by the vendor is higher, the same is rectified in the invoice and a brief

message indicating the same discrepancy is sent to the vendor so that he can identify the reason

for difference in the amount of payment asked for and actually received and makes required

changes in his books of accounts.

On the contrary, if the rated quoted by the vendor in the invoice is lower than that mentioned in

the system, the records in the system are adjusted and such lower amount is released for

payment to the vendor.

Such discrepant invoices are displayed in the list displayed of the posted but not passed invoices.

The following two is the stage of displaying the list:


8/8/2019 Final 14th

53/70


After displaying the list, each file can be separately viewed in detail and discrepancies can be

resolved.

In case there is a major discrepancy in the rates quoted by the vendor and those mentioned in the

Purchase Order or if there is a discrepancy in tax code, such cases are noted down in a PO

Discrepancy file. This file is prepared by the CMA department on a daily basis in order to bring

the reasons of mismatch, if any, to the notice of the Purchase department.

Discrepancies about the quantity, if any, can be clarified by viewing the Goods receipt note by

entering the GRN number in the following screen:


8/8/2019 Final 14th

54/70


Generally, tax code discrepancies occur due to the fact that there are different tax implications

for different goods and the excise rates applicable to different goods are different respectively.

This file reports the following information to the Purchase department:

Location

Vendor Name

Purchase Order number

Ownership Manager (the person who has created the Purchase Order)

Reference / Bill number

Challan number


8/8/2019 Final 14th

55/70


Pricing conditions as per Purchase Order (PO)

Prices as charged by the Vendor

Purchase Department remarks

RELEASE OF PAYMENTS:

As per a rule, payment run is executed twice a week i.e. every Monday and Thursday which

displays the vendors to whom the payments are due by the mentioned dates along with their

payment terms.

The payments are then processed rectifying the actual amount due to the creditors i.e. it may so

happen that some advance payments have been received from the vendor or any prior amount isdue towards him. Such adjustments are made before releasing the final payments through the

Bankers of the company.

BANKERS: ABN AMRO Bank NV. Standard Chartered Bank, Bank of America NA, Citibank

NA, Deutsche Bank AG, Hong Kong & Shanghai Banking Corporations, Punjab National Bank,

credit Lyonnais.

Freight Clearing:

Apart from invoice verification, I also dealt with a bit of freight clearing in my organization.

Freight clearing means clearing freight, as sometimes some unnecessary expenses do occur in

the system which have to be eliminated therein and then to avoid any further liability on the part

of the organization.


8/8/2019 Final 14th

56/70


Ill be explaining this concept with the help of an example:

For example the company is purchasing a fridge, so first of all purchase order will be raised.

The total costs of fridge will be as follows:

Basic Cost 100

Freight 5

Octroi 2

Insurance 1

Other Expenses 5

Total - 113 (+CST/VAT whichever is applicable)

Now when the order has been raised the goods receipt come in the factory premises. And the

following entry is passed:

Inventory A/c Dr. 113

To liability for expenses A/c Cr. 100

To Freight A/c Cr. 5

To Octroi A/c Cr. 2

To Insurance A/c Cr. 1

To other expenses A/c Cr. 5

When the bill payment is made to the vendor, the following entry is passed:

Liability for expenses A/c Dr. 100

Freight A/c Dr. 5

Octroi A/c Dr. 2

To Vendor A/c Cr. 107

Now, initially the PO was raised was raised for 113 but the payment to the vendor has been

made for 107, so there lies a difference of 6Rs.


8/8/2019 Final 14th

57/70


So difference of 6Rs. becomes our dummy liability for expenses. And the followingentries are

passed:

Other cost/freight/Octroi/Insurance A/c Dr. 6

To Dummy Vendor A/c Cr. 6

Dummy Vendor A/c Dr. 6

To Consumption A/c Cr. 6

The difference amount sometimes comes because the Purchase Departments who are making the

POs are fully not aware of the conditions.

The regular POs are written off with full value as done in the above example; however the

capex POs are written off with zero value.


8/8/2019 Final 14th

58/70


LIMITATIONS & SHORT-COMINGS

While working in the payables section at CMA department-Ranbaxy, I came across thefollowing limitations and bottle necks in the process of Invoice verification:

There is lack of uniformity or synchronization between the Purchase department and thepayables section (where the process of Invoice verification is carried on) i.e. many ithappens that there are errors on part of the Purchase department while uploading theterms fixed up with the Vendors which have to be rectified by the Payables staff in orderto release the payments if all the details are in conformity with the Purchase Order. Incase there are errors, such information has been to be sent to the Purchase departmentagain after preparing a PO discrepancy file and the Purchase department reverts back.This delays the payment approval for vendors even if their Invoice terms are fair.

There is lack of information on part of the vendors resulting from which there are errorsin the preparation of Invoices and which further hinders the process of InvoiceVerification e.g. Generally, it happens in the organization that the tax codes applicablefor trading with a trader are not taken care of and mentioned wrongly on the invoices.Such errors lead to delay in Invoice verification and the re-consideration of invoices incase the vendor asks for a retrospective effect of the tax payments afterwards.

Efficiency falls to a great extent due the technical errors in the system. These errors referto the following:

The SAP server goes low due to the exhaustive load on a single server. There is lack of machines at disposal because of which the speed of work goes down. The hardware provided to the staff is not up to the mark which adversely affects the

efficiency to a great extent.

The employees performing Invoice verification are over-loaded with work. It includessmall jobs that could be performed at one stage before the Invoice verification.

The Tax codes could not be mentioned as it against the Privacy policy of theorganization.


8/8/2019 Final 14th

59/70


RECOMMENDATIONS

The following suggestions if found practically feasible and technically applicable by the

management could be implemented in order to remove the bottlenecks and enhance the

efficiency of the process:

The payment terms should be intimated to the vendor very well in advance in a written

form failing to abide by which the vendor could be penalized in form of lower amount ofpayment or non-payment. This would help in reducing errors on part of the vendors

while preparing the invoices.

A detailed note of all the payment terms fixed up at the time of negotiations with the

respective vendors of different plant locations should be sent to the companied person so

that in case of discrepancy, the differences could be sorted there and then. This note

needs a careful verification so that the details included are authenticated and do not

intricate the procedure further when a discrepancy arises.

There can another stage added to the process where invoices can be properly sorted. This

sorting should include:

Plant wise Material code wise

Party wise

The machines provided to the staff should be increased in number and improved in

quality.

By this, I want to stress upon their regular upgrading so the working efficiency of the employees

could be improved.


8/8/2019 Final 14th

60/70


ANNEXURES


8/8/2019 Final 14th

61/70


RANBAXY

YEARS DEC'07 DEC'06 DEC'05 DEC'04 DEC'03

Fixed Assets 1469.5 1434 1200 877.58 717.52

Current Assets 2830.1 2509 2270.4 2308.22 2452.8

Current Liab 1572.4 1246.9 1142.6 1361.53 1122.5

Inventory 976.07 954.91 890.93 896.33 704.73

Debtors 882.91 1013.8 806.62 784.68 482.94

Loans& Advances 790.65 469.18 456.23 589.94 1166.6

Share capital 186.54 186.34 186.22 185.89 185.54

Reserves 2350.7 2162.8 2190.8 2320.79 2134.2

Secured loans 365.06 224.29 353.49 133.37 30.5

Usecured loans 3138 2954.3 676.31 2.49 3.76

total assets 6040.2 5527.7 3406.8 2642.55 2354

PBIT/operating profit 970.84 593.29 303.78 699.88 1019.8

Fixed interest charges 93.43 58.45 26.41 10.98 8.08

Gross profit 877.41 534.84 277.37 688.9 1011.7PAT 617.72 380.54 223.69 528.47 794.78

Sales 4428.6 4047.2 3575.4 3706.3 3637.6


8/8/2019 Final 14th

62/70


DEC'07 DEC'06 DEC'05 DEC'04 DEC'03

current ratio 1.7998 2.0122 1.9871 1.69531 2.1851

quick ratio 1.1791 1.2464 1.2073 1.03699 1.5573debtor turnovr 5.0159 3.9923 4.4326 4.72333 7.5322

inventory turnovr 4.5371 4.2383 4.0132 4.13497 5.1617

sales to workig capital 3.5213 3.2067 3.1702 3.91501 2.7344

debt equity ratio 1.3807 1.3531 0.4332 0.0542 0.0148

funded debt to total capitalization 57.995 57.503 30.228 5.14127 1.4554

proprietory ratio 0.4201 0.425 0.6977 0.94859 0.9854

solvency ratio 0.5799 0.575 0.3023 0.05141 0.0146

fixed assets to net worth ratio 0.5792 0.6105 0.5048 0.3501 0.3093

interest coverage ratio 10.391 10.15 11.502 63.7413 126.21

G.P.Ratio 19.813 13.215 7.7576 18.5873 27.812

operating profit ratio 21.922 14.659 8.4963 18.8835 28.034

Net profit Ratio 13.949 9.4027 6.2563 14.2587 21.849

Cipla

Years Mar-08 Mar-07 Mar-06 Mar-05 Mar-04 Mar-03

Fixed Assets1661.3

61388.0

71056.6

1 738.91 547.56 371.05

Current Assets3743.9

82834.6

82292.2

91749.0

41436.2

3 1291.1

Current Liab1247.7

1 941.26 908.21 778.44 679.59 596.61

Inventory1120.4

9 978.6 957 745.68 568.94 589.23

Debtors1393.9

11028.7

8 875.96 587.32 498.23 355.37

Loans& Advances 1150.3 695.81 414.85 404.84 362.82 333.38

Share capital 155.46 155.46 59.97 59.97 59.97 59.97

Reserves 3600.36 3080.81 1923.3 1493.66 1204.08 1010.11

Secured loans 16.98 7.25 51.27 41.24 30.6 28.89

Usecured loans 563.55 116.31 417.64 149.96 179.98 65.89Total Assets 4336.3 3359.8 2452.1 1744.8 1474.8 1164.8


8/8/2019 Final 14th

63/70


5 3 8 3 3 6

PBIT/OP Profit 987.09 922.51 806.09 581.32 448.19 345.34

Fixed interest charges 18.05 11.16 16.07 11.66 13.47 4.49Gross profit 969.04 911.35 790.02 569.66 434.72 340.85

PAT 701.43 668.03 607.64 409.61 306.69 247.74

Sales 3997.93438.2

42891.3

62181.2

61842.2

41437.2

8


current ratio3.0006

83.0115

82.5239

62.2468

52.1133

82.1640

6

quick ratio

2.1026

4

1.9719

1

1.4702

4

1.2889

4 1.2762

1.1764

3

debtor turnovr2.8681

23.3420

63.3007

93.7139

23.6975

74.0444

6

inventory turnovr3.5679

93.5134

33.0212

7 2.92523.2380

22.4392

5

sales to workig capital1.6015

51.8158

92.0890

12.2473

32.4347

62.0695

5

debt equity ratio0.1545

70.0381

80.2364

30.1230

70.1665

90.0885

7funded debt to totalcapitalization

13.3875

3.67757

19.1222

10.9581

14.2802 8.1366

proprietory ratio0.8661

20.9632

20.8087

80.8904

20.8570

80.9186

3

solvency ratio0.1338

80.0367

80.1912

20.1095

80.1427

80.0813

7

fixed assets to net worth ratio0.4423

40.4289

10.5327

6 0.47560.4331

80.3467

5

interest coverage ratio54.686

482.662

250.161

249.855

933.273

276.913

1

G.P.Ratio24.238

726.506

327.323

526.116

123.597

423.714

9

operating profit ratio

24.690

2

26.830

9

27.879

3

26.650

7

24.328

5

24.027

3

Net profit Ratio 17.54519.429

421.015

718.778

616.647

717.236

7


8/8/2019 Final 14th

64/70


Dr.Reddy


Fixed Assets 987.42 682.04 561.81 562.54 458.1 395.76

Current Assets3329.3

63987.6

42380.9

71948.1

71321.6

31547.7

8

Current Liab1132.1

3 1019.5 638.4 560.82 349.53 273.57

Inventory 640.93 487.58 443.1 303.81 258.01 240.11

Debtors 897.71 1055.7 581.21 417.64 444.05 432.45

Loans& Advances1253.3

8 987.65 705.72 335 211.49 186.82

Share capital 84.09 83.96 38.35 38.26 38.26 38.26

Reserves4727.7

2 4289.42223.7

92035.8

22008.7

61768.6

6

Secured loans 3.4 1.92 145.13 3.27 35.64 4.29

Usecured loans 458.91 327.98 778.74 269.97 22.58 24.47

Total Assets4336.3

53359.8

32452.1

81744.8

31474.6

31164.8

6

PBIT/OP Profit 760.781551.3

1 399.71 149.56 379.3 498.05

Fixed interest charges 14.69 51.96 24.62 12.74 4.23 6.05

Gross profit 746.09

1499.3

5 375.09 136.82 375.07 492

PAT 475.221176.8

6 211.12 65.46 283.2 392.09

Sales 3365.23955.6

62005.8

51549.9

81661.2

21513.6

1


current ratio2.9407

93.9113

73.7295

93.4737

93.7811

65.6577

1

quick ratio2.3746

73.4331

13.0355

12.9320

6 3.0434.7800

2

debtor turnovr3.7486

53.7469

53.4511

63.7112

83.7410

73.5000

8

inventory turnovr 5.25058.1128

44.5268

65.1018

16.4385

96.3038

2


8/8/2019 Final 14th

65/70


sales to workig capital1.5315

61.3327

11.1510

91.1172

2 1.70891.1878

8

debt equity ratio

0.0960

8

0.0754

3

0.4084

1

0.1317

4

0.0284

4

0.0159

2funded debt to totalcapitalization

8.76563

7.01428

28.9977

11.6405

2.76548

1.56672

proprietory ratio1.1096

51.3016

6 0.9225 1.18871.3881

61.5511

9

solvency ratio0.1066

10.0981

90.3767

5 0.15660.0394

80.0246

9

fixed assets to net worth ratio0.2052

10.1559

50.2483

50.2712

20.2237

90.2190

2

interest coverage ratio 51.78929.855

916.235

211.739

4 89.66982.322

3

G.P.Ratio22.170

737.903

918.699

88.8272

1 22.57832.505

1

operating profit ratio22.607

339.217

519.927

29.6491

622.832

632.904

8

Net profit Ratio14.121

629.751

310.525

24.2232

817.047

725.904

3

Lupin


Fixed Assets 863.07 713.81 642.4 558.94 517.21 485.65

Current Assets 1727.95 1475.53 1314.17 673.87 646.15 858.59

Current Liab 438.37 355.67 299.54 239.64 196.73 183.05

Inventory 625.85 402.07 310.29 248.08 215.3 141.86

Debtors 632.26 479.3 348.39 235.39 215.83 402.22

Loans& Advances 254.76 241.38 199.69 172.62 199.98 299.72

Share capital 82.08 80.34 40.14 40.14 40.14 40.14

Reserves 1234.97 808.07 603.81 460.36 407.89 342.23Secured loans 560.88 390.91 428.65 380.63 286.55 550.92

Usecured loans 404.67 473.64 483.95 60.01 90.56 100.01

Total Assets 2282.6 1752.96 1556.55 941.14 825.14 1033.3


8/8/2019 Final 14th

66/70


PBIT/OP Profit 648.14 480.21 300.85 145.79 229.28 185.42

Fixed interest charges 34.39 37.09 30.3 27.31 51.51 63.32

Gross profit 613.75 443.12 270.55 118.48 177.77 122.1PAT 443.38 302.06 182.72 84.36 98.71 73.07

Sales 2523.63 1962.96 1596.54 1155.76 1147.25 939.05

YearsMAR'08

MAR'07

MAR'06

MAR'05

MAR'04

MAR'03

CURRENT RATIO 3.94 4.15 4.39 2.81 3.28 4.69

quick ratio 2.51409 3.01813 3.35141 1.77679 2.19006 3.91549

debtor turnovr 3.99144 4.09547 4.58262 4.90998 5.31553 2.33467

inventory turnovr 4.03232 4.88213 5.14532 4.65882 5.32861 6.61955

sales to workig capital 1.95694 1.75286 1.57352 2.66163 2.55273 1.39007debt equity ratio 0.73312 0.97314 1.41719 0.8804 0.84171 1.70236funded debt to totalcapitalization 42.3004 49.3194 58.6297 46.8198 45.7025 62.9953

proprietary ratio 0.577 0.50681 0.4137 0.5318 0.54297 0.37005

solvency ratio 0.423 0.49319 0.5863 0.4682 0.45703 0.62995

fixed assets to net worth ratio 0.65531 0.80347 0.99759 1.11676 1.15441 1.2701

interest coverage ratio 18.8468 12.9472 9.92904 5.33834 4.45117 2.9283

G.P.Ratio 24.3201 22.5741 16.946 10.2513 15.4953 13.0025

operating profit ratio 25.6828 24.4636 18.8439 12.6142 19.9852 19.7455

Net profit Ratio 17.5691 15.388 11.4447 7.29909 8.60405 7.78127


8/8/2019 Final 14th

67/70



8/8/2019 Final 14th

68/70



8/8/2019 Final 14th

69/70



8/8/2019 Final 14th

70/70


References:

Balance sheet 2003-07

Profit & loss Account, 2003-07

Files, books and journals of Ranbaxy &SAP literature

Shashi K. Gupta, R.K. Sharma, Management Accounting(12th edition), Kalyani Publishers

ICMR, Financial Management, ICFAI University

www.ranbaxy.com

www.google.com

www.anagram.co.in

www.pharmaceutical-drug-manufacturers.com

Wikipedia.org

Balance sheets and Income Statements of Cipla, Dr,Reddy, Lupin and Ranbaxy for the last five

years i.e. 2003-07
http://www.ranbaxy.com/http://www.google.com/http://www.anagram.co.in/http://www.pharmaceutical-drug-manufacturers.com/http://www.ranbaxy.com/http://www.google.com/http://www.anagram.co.in/http://www.pharmaceutical-drug-manufacturers.com/

Final 14th

Documents

Transcript of Final 14th