A PROJECT REPORT ON

“FINANCIAL STATEMENT ANALYSIS”

By

SWATHI.V

(11141E0005)

Carried out

At

DR.REDDY’S LABORATORIES PVT LIMITED

Under the esteemed guidance of

Mr.K.Vardha raju sir MBA,MSA

INTRODUCTION

DEFINITIONS:

The term “financial analysis” is also known as “analysis and

interpretation of financial statements”. It refers to the process of determining financial

strengths and weaknesses of the firm by establishing strategic relationships between the

items of the balance sheet, profit and loss account and other operative data.

By financial statements by means of two statements

•Profit and loss account or Income Statement

•Balance Sheet or Position Statement

NEED AND IMPORTANCE OF STUDY

• Financial performance of an enterprise will affect other types of performance and

also the productivity of finances is good, the productivity of men and material would be

good.

• Moreover the study of non-economic and qualitative performance, which studies

the non economic factors like customer satisfaction, citizen satisfaction etc.

OBJECTIVES OF THE STUDY:

•To understand the theoretical framework of financial statement analysis and its

tools.

• To assess the performance of Reddy’s on the basis of earnings and also to evaluate

the solvency position of the company through ratio analysis.

• To understand the funds movement at Dr.reddy's Laboratories using funds flow

statement.

SCOPE OF STUDY:

The scope and period of the study is being restricted to the following.

•The scope is limited to the operations of the Reddy’s.

•The information is obtained from the secondary data was limited to the Reddy’s.

•The study is based on The profit and loss a/c, the balance sheets of the last four

years.

RESEARCH & METHODOLOGY:

Research design or research methodology is the procedure of collecting,

analyzing and interpreting the data to diagnose the problem and react to the opportunity in

such a way where the costs can be minimized and the desired level of accuracy can be

achieved to arrive at a particular conclusion.

The methodology used in the study for the completion of the project and the fulfilment of

the project objectives, is as follows:

Collection of Data:

1. Secondary data.

• Secondary data:

Study has been taken from secondary sources i.e. published annual reports of the

company editing, classifying and tabulation of the financial data. For this purpose

performance data of DR.REDDY’S LABORATORIES for the years 2007-2008 to 2009-

2010 has been used.

METHODS OF DATA ANALYSIS

The data collected were edited, classified and tabulated for analysis. The

analytical tools used in this study are:

ANALYTICAL TOOLS APPLIED:

The study employs the following analytical tools:

Comparative statement.

Trend Percentage.

Ratio Analysis.

Cash Flow Statement.

LIMITATIONS OF STUDY:

•The study is confined to a period of last 4 years.

• Not all tools of financial statement analysis are used .

•The duration of the study was limited to period of 45days.so that the extensive and deep

study could not be possible.

COMPANY PROFILE:

Established in 1984, Dr. Reddy's Laboratories (NYSE: RDY) is an emerging global

pharmaceutical company. As a fully integrated pharmaceutical company, our purpose is to

provide affordable and innovative medicines through our three core businesses:

Pharmaceutical Services and Active Ingredients (PSAI), comprising our Active

Pharmaceuticals and Custom Pharmaceuticals businesses;

COMPANY VISION, MISSION

VISION

A world class, innovation, Competitive and profitable Engineering Enterprise Providing

total business Solutions. “To be a top 20 global pharmaceutical company by 2020”

MISSION

To be the leading Engineering Enterprise providing Quality products System and

services in the field of Energy, Transportation, Industry, Infrastructure and other potential

areas.

 

REVIEW OF LITERATURE

FINANCIAL STATEMENT ANALYSIS:DEFINITIONS:

The term “financial analysis” is also known as “analysis and

interpretation of financial statements”. It refers to the process of determining financial

strengths and weaknesses of the firm by establishing strategic relationships between the

items of the balance sheet, profit and loss account and other operative data. FUNCTION:

The finance functions are:

•Investment or long term asset mix decision

•Financing or capital mix decision

•Dividend or profit allocation decision

•Liquidity or short term asset mix decision.

TYPES OF FINANCIAL STATEMENTS:

Financial statements primarily comprise two basic statements:

•The position statements of the balance sheet.

•The income statements or the profit and loss account.

Accounting principles specify that a complete set of financial statements must include:

•A balance sheet

•An income statement

•A statement of change in owners accounts.

•A statement of changes in financial position.

Current Asset Liability Ratio

year current assets current liability Ratios

2001-02 155792 73129 2.13

2002-03 166669 74427 2.23

2003-04 155652 84990 1.83

2004-05 192697 116644 1.65

2005-06 235062 143200 1.64

2006-07 276062 208869 1.32

2007-08 310002 243220 1.27

2008-09 453597 376332 1.2

2009-10 580804 397574 1.46

2010-11 771519 502024 1.54

0

100000

200000

300000

400000

500000

600000

700000

800000

2001-02

2002-03

2003-04

2004-05

2005-06

2006-07

2007-08

2008-09

2009-10

2010-11

Current asset liabilities ratio CurrentAsset

Current asset liabilities ratio CurrentLiability

Current Asset Liability Ratio

Interpretation –The ideal ratio for the concern is 2:1 i.e. current assets doubled for the current liabilities considered to be satisfactory. The current ratio of DR.REDDY’S LABORATORIES is less than! .Thus it has to maintain its efficient current assets.

Acid Test Ratio  

Year Liquid assets Liquid liabilities Ratio2001-02 898 73129 0.0122002-03 1281 74427 0.0172003-04 472 84990 0.0052004-05 2094 116644 0.0182005-06 4643 143200 0.0322006-07 12 208869 0.000052007-08 14 243220 0.000032008-09 15 376332 0.000039862009-10 1475 397574 0.003712010-11 1415 502024 0.002818

0

100000

200000

300000

400000

500000

600000

2001-02

2002-03

2003-04

2004-05

2005-06

2006-07

2007-08

2008-09

2009-10

2010-11

Liquid Assets

Liquid Liabilities

Ratios

Acid Test Ratio – Current Assets – Inventory / Current LiabilitiesThe ideal quick ratio is 1:1 which is considered satisfactory for the concern. The company is maintaining the ratio above the standard norm, thus the management of DR.REDDY’S LABORATORIES is label to meet its current obligations.

FINDINGS

•The net working capital was Rs 91021 lac’s in 2000-2001. This decreased to Rs 82663

lac’s in the year 2001-2002. In the year 2006-2007 the net working capital is Rs 67193

lac’s.

•The current ratio of DR.REDDY’S LABORATORIES was 2.41 in the year 2000-2001.

There was decrease in the ratio up to the year 2007-2008. The ratio is decreasing year by

year. But the DR.REDDY’S LABORATORIES is maintaining current ratio more than the

standard norms of 2.

•The organization is able to maintain both current ratio and quick ratio above the standard

norms. i.e. the ideal current ratio for the concern is 2:1 and the quick ratio is 1:1 but the

cash ratio is fluctuating.

•The quick ratio of the organization is in decreasing trend year by year.

•Investment in current assets has been increasing from Rs 155302 lacs in 2000-2001 to

Rs 310002 in 2007-2008.

•The inventory turnover ratio of DR.REDDY’S LABORATORIES is fluctuating i.e.,

showing decreasing trend during the years 2000-2001 to 2003-2004. But there onwards it

has slowly increased till the financial year.

•The debtors turnover ratio has decreased from the year 2001-2002 to 2002-2003. It was

2.10 in the year 2003-2004. There was decrease in debtors turnover ratio till the financial

year.

CONCLUSIONS AND SUGGESTIONS:

•The current ratio of DR.REDDY’S LABORATORIES is decreasing year by year. In the

year 2000-2001 it was 2.41 and during the year 2008-2009 it has gone down to 1.2 later in

the next financial year 2009-2010 it has gone up to 1.46, so the company should

concentrate effectively on the management of Current Assets and Current Liabilities.

•The Net Working Capital of DR.REDDY’S LABORATORIES is good for almost in range

for each and every year. It is always in the ideal ratio for every organization.

•The DR.REDDY’S LABORATORIES is using the moving average method in valuation of

stock.

•The debtors constitute nearly 50% of the Total Current Assets. For the Company it is

difficult to manage the accounts receivables. The company should collect debts as quickly

as possible.

•The company has to exercise cost of control and cost of reduction techniques to increase

its profitability.

•The debtors’ turnover ratio in 2005-2006 is 1.97. The ratio has increased than previous

years except for 2003-2004, which had 2.10. The decreasing ratio shows the inefficient

management. They should concentrate more on the collection of the debts.

•The return on investment ratio of the DR.REDDY’S LABORATORIES is 59.40 in 2005-

2006. It has increased when compared to previous year’s ratios. It is beneficial to

investors who are interested to know the profits earned by the company.

•The investment in loans and advances should be minimized to possible extent.

•Effective internal control system should be established. So that it can have control over

all aspects of the company.

BIBILOGRAPHY:

•http://www.Dr.Reddy’sLaboratoriescom/financialinformation/index.php

•http://www.studyfinance.com/lessons/workcap

•www.bizsearchpapers.com

•http://www.Dr.Reddy’sLaboratorieshyderabad.com/Dr.Reddy’sLaboratories

_hyderabad_unit.htm

•http://en.wikipedia.org/wiki/Bharat_Heavy_Electricals_Limited

•Financial Management –I M Pandey.

•Accounting for Managers-Jelsy Joseph Kuppapally.

•Financial statement analysis - Gokul Sinha.