CIPLA PHARMACEUTICAL INDUSTRY:
Today we have 31 world-class manufacturing facilities spared across the world, with dedicated plants for oncology products, hormones, inhalers, carbapenems, and cephalosporin's, among other. They more than meet the stringent international standards, such as that of US FDA, MHRA-UK, TGA Australia, BFarm-Germany MCC- South Africa, WHO, TPD- Canada our API manufacturing plants are today among sophisticated in the world, capable of comp able of complex multi-stage syntheses, and produce over 120 API's from high potency actives in grams to those made in several tones.
Obtaining the financial statement is a systematic and organized collection of data according to logical and consistent accounting procedures. The main purpose is to convey a clear understanding of some of the financial aspects of a business firm. It may show a position at a moment of time as in the case of a balance sheet, or it may Coney a series of activities over a given period of time, as in the case of income statement.
The financial data can be obtained from the following financial statements:
Income statement.
Balance sheet.
Statement of retained earnings.
Statement of changes in financial position in addition to the above two statement.
Income statement:
Income statement is also called as profit and loss account it is generally considered as a most useful of all the financial statements because it is very helpful to obtain the financial data. It explains what has happened to a business as a result of operations between two balance sheet dates. It shows the net profit earnings or loss suffered during the particular period.
Balance sheet:
It provides the data about the financial position of the business at a specific period of time . most important is that it also provides the data about all the assets owned by the business in a particular time and climes/equities of the of the owner and outsiders against those assets at that time.
Statement of retained earnings:
This statement is also called as profit and loss appropriation account in case of companies. It provides the information about the accumulated excess of earnings over losses and dividends.
Statement of changes in financial position:
For a better understanding of the business affairs it is essentials to identify the movement of working capital or cash in or out of the business, this type of information is available in the statement of changes in financial position. The statement emphasize the following aspects concern to the statement of changes in financial position:
Change in working capital position
Change in cash position
Change in overall financial position
Apply different types of analytical tools and techniques to a range of financial documents and formulate conclusions about performance levels and needs of stakeholders
Sol: The different types of analytical tools and techniques to a range of financial documents are:
Profitability Ratios
Liquidity Ratios
Efficiency Ratios
Investment ratios.
Profitability Ratios:
Profitability is an indication of the efficiency with which the operation of the business are carried on. A lower profitability may arise due to the lack of control over the operations and expenses. Bankers, financial intuition and other creditors look at the profitability ratio as an indicator whether or not the firm earns substantially more than it pays interest for the use of borrowed funds. Owners are always interested to know about the profitability as it shows the return on there investment on the business.
The following are the most important profitability ratio:
Overall profitability ratio
Earnings per share
Price earnings ratio
Gross profit ratio
Net profit ratio
Operating / expenses ratio
Payout ratio
Dividend yield ratio
Liquidity Ratios:
The Liquidity Ratios is also known as or termed as "working capital" or "short-term solvency ratio". The firm should have a sufficient working capital to run the day to day operation of the firm. Low working capital may leads to a grinding halt of the firm.
The important liquidity ratios are as follows:
Current ratio
Quick ratio
Super Quick ratio
Defensive interval ratio
Efficiency Ratios:
These ratios helps in ascertaining the long term solvency of a firm which depends the on three factors:
Whether the firm has sufficient resources it meet its long term fund required
Whether the firm has used an appropriate debt equity mix to raise long term funds
Whether the firm earns enough to pay interest and installment of long term loan in the time
The capacity of the firm to meet the last requirement can be ascertained by computing the various coverage ratio. The following ratios can be calculated:
Fixed asset ratio
Capital structure ratio.
Conduct comparative analysis of financial data
Sol:
Current ratio:
Current ratio is the ratio, which establishes the relationship between current assets and current liabilities. As per the conventional standards the ideal current ratio.
Current ratio=current assets/current liabilities
Analysis:
As per the conventional standard the ideal current ratio is 2:1 but according the analysis it is observed that in the year 2003-04 the current ratio was 2.11 in the year 2004-05 it was increased to 2.24.
Acid test ratio:
Acid test ratio is the ratio that established the relationship between the quick assets and current liadilities to supplement the informantion given by the current ratio.
Quick assets= sundry debtors + cash and bank balance+ marketable securities
Acid test ratio=quick assets / current liabilities
Analysis:
The ideal Acid test ratio is 1:1. The adove figures showea gragual improvement in the ratio. This is a good sign.
Super quick ratio:
Super quick ratio is the ratio of Super quick assets to the current liabilities of a firm. The Super quick assets are cash and marketable securities, it is the most rigorous and conservative test of a firm liquidity position.
Super quick assets=cash and balance balance + marketable securities
Super quick ratio= Super quick assets/current liabilities
Analysis:
It is observed that is an increasing trend, but it is not to the satisfactory level it has got a long way to reach the industrial standerds of 0.5. considerable need to put up to achieve this.
Current assets to total assets ratio:
This ratio espress the relationship between the amount of current assets to total assets. It helps assess the importance of current assets in the total assets of a concern.
Total assets=fixed assets + current assets
Current assets to total assets ratio=current assets/ total assets
Analysis:
From the above table it is clear that the current assets from a substantial portion in the total assets though, it shows a small decrease. It can be interpreted that majority of the total assets are for working capital needs. From the above tables it is observed that statistic value is lesser than the critical values at various significance levels.
Current assets turnover ratio:
This ratio indicates the efficiency with which working capital turns into sales. Low turnover ratio indicates under utilization of available stores and presence of ideal capacity.
Current assets turnover ratio=total sales/current assets
Analysis:
This ratio indicates the efficiency with which working capital turns into sales. A higher ratio implies by a large a effective use of funds.
Cash ratio:
Cash is the most liquid assets. This ratio measures the ability of cash for meeting the immediate commitment. It is also called as absolute liquid ratio.
Cast ratio=cash/ current liabilities .
Analysis:
Form the above analysis it is interpreted that most liquid assets that is cash is in sufficient and is in a increasing trend.
Fixed assets turnover ratio:
This ratio indicates the extent to which the investment in fixed assets contributes towards the sales.
Fixed assets turnover ratio=net sales/fixed assets (net)
Analysis:
There has been a decline in the Fixed assets turnover ratio though absolute figures of sales have gone up.
Debt equity ratio:
Debt equity ratio is determined to ascertain the soundness of the long term financial position of the firm or business. It is also known as "External equity ratio" .it is calculated as follows:
Debt equity ratio: external equities/internal equities
Analysis:
The ratio indicates the proportion of owner stake in the business. The ratio indicates the extent to which the company can depend on the external or outsider for its existence.
Pay Out ratio:
This ratio indicates what proportion of earnings per share has been used in paying dividends. The payout ratio can be calculated as follows:
Payout ratio=dividend per equity share/earning per equity share.
Dividend yield ratio:
This ratio is particularly useful for those investors who are interested only in the dividend income . it is calculated on the market value as follows:
Dividend yield ratio= Dividend per share/ market price per share*100
Review and question financial data
Sol:
It is viewed that the conventional standards of current, quick ratio, the short term liquidity is not up to the mark
Most of the customers have given first preference to quality, which is the sthength of the firm
To assess the working capital requirement the company uses the particulars of the exisiting/ proposed limits from the banking system.
There is a co-ordination between all the department and helps to reduce waste and proves to be a good.
Introduction of systematic monetary system
Globalization
Emergence of organized exchange rate system
Comparative Advantage
Support from export credit institutions
Scarcity of resources in one country and excess of the same resources in another country necessitates the requirement and growth of international trade
Growth and development of technology
Growth and development of transportation facilities
Growth of safe method of making international payments
LO2: Be able to assess budgets based on financial data to support organizational objectives.
Assessment Criteria
2.1 Identify how a budget can be produced taking into account financial constraints and achievement of targets, legal requirements and accounting conventions
Sol:
BUDGETING:
It is a long term investment decision concerned with long term financial projects.
It refers to investment decision on fixed assets concerned with foreign projects.
It is the process by which the financial manager decides whether to invest in specific capital projects or assets across the boundaries of the domestic country.
IMPORTANCE OF BUDGETING:
Heavy expenditure
Long duration
Irreversible of decision making
Complexity of decision making
Direct impact on organization
Currency fluctuation
TECHNIQUES BUDGETING:
There are two techniques or methods of Capital Budgeting:
Methods which do not consider time value of money.
Methods which do consider time value of money.
Methods which do not consider time value of money:
1. PAY BACK PERIOD:
It is a period within which we get our initial investment.
PBP = initial investment
uniform annual cash inflow
2. PAY BACK RECIPROCAL:
It is a reciprocal of pay back period
PBR = uniform cash inflow * 100
initial investment
Interpretation: higher the pay back reciprocal, better the proposal
3. POST PAY BACK PERIOD:
Life of project - pay back period
Interpretation: higher the PPBP, better the proposal.
4. POST PAY BACK PERIOD:
ARR = Average Profit * 100
Initial Investment
Average profit= Total PATAD
life of project
Interpretation: higher the ARR, better the proposal.
Methods which do consider time value of money:
1. NET PRESENT VALUE METHOD:
NPV = Total of PV of Cash Inflows - Total of PV of Cash Outflows.
Higher the NPV better the proposal.
2. INTERNAL RATE OF RETURN:
It is at that rate of return at which the PV of total cash inflows = the PV of total cash outflows.
It is at that rate of return at which NPV = Zero.
If IRR is > Cost of Capital accept the project or else reject it.
3. PROFITABILITY INDEX OR BENEFIT COST RATIO:
PI = Total of Discounted Cash Inflows
Total of Discounted Cash Outflows
PI of 1 or above 1 shall be preferred.
Higher the PI, better the proposal.
4. DISCOUNTED PAY BACK PERIOD:
DPBP = Discounted Annual Cash Inflows
Initial Investment
Lower the DPBP better the proposal.
DPBP is same as PBP except it considers time value of money which is not considered by PBP.
2.2 Analyse the budget outcomes against organization objectives and identify alternatives.
Sol: The budget outcomes against organization objectives and identify alternatives.
There are five possible types
Synthetic
Analytical
Intermittent
Repetitive
Non Repetitive
The Type Of The Product
The physical and chemical properties of the products its deigns, size, form, weight volume are to decide the pattern of plant layout. Even other characteristics such as supplementary and suppliant and complexity of its fabrication, costlier and cheaper, solid or liquid, small quantity or large quantity requirements luxury item or bare necessary terms all determine the type of layout
The Employee Requirements
Employees on the factory floor are integral part of manufacturing process who works on materials and machines, equipments, appliances and hand tools. Therefore, their requirements do have bearing on plant layout
The Managerial Policies
Managerial poleis finally decide the plant layout as to its vicarious aspects
These managerial policies which are designed to achieve predefined goals haven around the following points
Quality and quantity of out put
Sage of the plant and the ester of its integration
Raking or buying a particular component part of the main product
Plant expansion in the long-run
Production Planning:
Planning is the process of thinking before doing anything good or bad, right or wrong. If is a pre-operation activity. A good panning is that smells the problems before they occur and provide with possible and viable solutions to eliminate them or combat them effectively
Production Controlee:
Controlee is the terminal function of management that aims at everything goes on as per the pans. In Case of production activities production controlee tries to see that the actual manufacturing activities and achievements are conforming to the predetermined norms or standards and schedules.
Quality Control:
Quality of products has been given top priority by society. The quality speafication are described in terms of size color, shape, taste, same, weight, destiny durability and so on. The quality control is the task of testing and inspection department of a manufacturing organization.
Inventory Control:
Inventories are the stocks held in the form of pure -raw-materials, semi finished parts and totally products. Is also includes stores supplies and tools. Procurement or purchase of raw materials and supplies is of top importance where the purchases are made in right quantity of right quality, in right time from right source and at right time. These five Rs constitute scientific purchasing of inputs.
LO3: Be able to evaluate financial proposals for expenditure submitted by others.
Assessment Criteria
3.1 Identify criteria by which proposals are judged
Sol: The essential criteria by which proposals are judged four ways to deal with each :
Reject the financial proposal - Rejecting financial is the head-in-the-sand approach. Some managers tend to ignore difficult challenges with the hope that they will simply disappear. This approach will rarely result in a successful defense against financial incidents.
Accept the financial proposal - A common action to take is to accept the stated financial proposal . For example, if the controls necessary to eliminate key vulnerabilities are a greater financial burden than the actual risk impact, then it's probably a good idea to use the security budget dollars in other areas.
Transfer the financial proposal - An alternative to accepting higher than reasonable risk when the cost of controls is too high is to purchase insurance to lower the business impact of an incident. This is also a common risk management step.
Mitigate the financial proposal - financial proposal mitigation typically focuses on vulnerability management. The reasonable and appropriate implementation of administrative, technical, and physical controls can serve to significantly reduce business risk.
3.2 Analyse the viability of a proposal for expenditure
Sol: The viability of a proposal for expenditure are:
Accounting and Control Function:
Accounting and Control Function include:
1. External Reporting.
2. Financial & Management Accounting.
3. Tax Planning and Management.
4. Budget Planning and Control.
5. Management Information System.
3.3 Identify the strengths and weaknesses and give feedback on the financial proposal
Sol:
Thefixed-cost proposals are generally preferable to variable-cost proposals. Adequate justificationmust be provided for any parts of the work for which a variable-cost proposal is given.
Fixed costs must provide sufficient breakdown in the itemization to demonstrate that costs are carefully considered and justifiable.
Variable costs must be itemised within each category in a precise manner which provides a basis for the number of units, and consequent costs, to be quantified in invoices. The expected number of units should be an estimate of how many units you consider is reasonable to do the initial development work, given theknowledge you have currently. The maximum number of units should be the maximum number, taking into account what you consider to be the level of uncertainty.
The strengths and weaknesses and give feedback on the financial proposal are:
STRENGHTS:
Most of the customers have given first preference to quality, which is the sthength of the firm
To assess the working capital requirement the company uses the particulars of the exisiting/ proposed limits from the banking system.
There is a co-ordination between all the department and helps to reduce waste and proves to be a good.
Nationwide Network of branches.
Renowned brand name in product distribution.
Multi product activities in products.
Strong brand recall among retail investor.
Reach (mass marketing).
Good research team.
Dedicated employees.
WEAKNESS:
It is viewed that the conventional standards of current, quick ratio, the short term liquidity is not up to the mark
Investments in both equity capital and mutual fund schemes are subjected to market
risk.
Now a day.s investments in equity and mutual fund schemes are increases because
of falling interest rates and awareness of equity capital and mutual fund schemes in the
minds of investors.
All employees lack in multi product skill despites being multi ProductCompany.
Systems (infrastructure facility) up graduation still not up to the mark.
Not enough advertisement
Increased competition from contemporaries in the market.
Decreasing margins by way of commission.
Financial uncertainty.
Broad economic factors like inflation etc.
3.4 Evaluate the impact of the proposal on the strategic objectives of the organization
Sol: The impact of the proposal on the strategic objectives of the organization For the most part, these methods consist of the following elements, performed, more or less, in the following order.
Identify, characterize, and assess threats
Assess the vulnerability of critical assets to specific threats
Determine the risk (i.e. The expected consequences of specific types of attacks on specific assets)
Identify ways to reduce those risks
Prioritize risk reduction measures based on a strategy
All techniques to manage the risk fall into one or more of these four major categories:
Avoidance (eliminate)
Reduction (mitigate)
Sharing (outsource or insure)
Retention (accept and budget)
To evaluate whether the previously selected financial controls are still applicable and effective, and To evaluate the possible risk level changes in the business environment. For example, information risks are a good example of rapidly changing business environment.
