Working capital

INTRODUCTION TO WORKING CAPITAL

Working capital, also known asnet working capitalor NWC, is a financial metric which representsoperating liquidityavailable to a business. Along with fixed assets such as plant and equipment, working capital is considered a part of operating capital. It is calculated ascurrent assetsminuscurrent liabilities. If current assets are less than current liabilities, an entity has aworking capital deficiency, also called aworking capital deficit.

Working Capital = Current Assets − Current Liabilities

Current assets and current liabilitiesincludethree accountswhich are of special importance. These accounts represent the areas of the business where managers have the most direct impact:

* accounts receivable(current asset)

* inventory(current assets), and

* accounts payable(current liability)

The current portion ofdebt(payable within 12 months) is critical, because it represents a short-term claim to current assets and is often secured by long term assets. Common types of short-term debt are bank loans and lines of credit.

An increase in working capital indicates that the business has either increasedcurrent assets(that is received cash, or other current assets) or has decreasedcurrent liabilities,for examplehas paid off some short-term creditors.

Implications onM&A:The common commercial definition of working capital for the purpose of a working capital adjustment in an M&A transaction (i.e. for a working capital adjustment mechanism in a sale and purchase agreement) is equal to:

Current Assets - Current Liabilities excluding deferred tax assets/liabilities, excess cash, surplus assets and/or deposit balances.

Cash balance items often attract a one-for-one purchase price adjustment.

Working capital management

Decisions relating toworking capitaland short term financing are referred to asworking capital management. These involve managing the relationship between a firm'sshort-term assetsand itsshort-term liabilities. The goal of working capital management is to ensure that the firm is able to continue itsoperationsand that it has sufficient cash flow to satisfy both maturing short-term debt and upcoming operational expenses.

Decision criteria

By definition, working capital management entails short term decisions - generally, relating to the next one year period - which is "reversible". These decisions are therefore not taken on the same basis as Capital Investment Decisions (NPV or related, as above) rather they will be based on cash flows and / or profitability.

* One measure of cash flow is provided by thecash conversion cycle- the net number of days from the outlay of cash forraw materialto receiving payment from the customer. As a management tool, this metric makes explicit the inter-relatedness of decisions relating to inventories, accounts receivable and payable, and cash. Because this number effectively corresponds to the time that the firm's cash is tied up in operations and unavailable for other activities, management generally aims at a low net count.

* In this context, the most useful measure of profitability isReturn on capital(ROC). The result is shown as a percentage, determined by dividing relevant income for the 12 months byemployed; Return(ROE) shows this result for the firm's shareholders. Firm value is enhanced when, and if, the return on capital, which results from working capital management, exceeds thecost of capital, which results from capital investment decisions as above. ROC measures are therefore useful as a management tool, in that they link short-term policy with long-term decision making.

Management of working capital

Guided by the above criteria, management will use a combination of policies and techniques for the management of working capital. These policies aim at managing thecurrent assets(generallycashand cash,inventoriesanddebtors) and the short term financing, such that cash flows and returns are acceptable.

* Cash management.

Identify the cash balance which allows for the business to meet day to day expenses, but reduces cash holding costs.

* Inventory management.

Identify the level of inventory which allows for uninterrupted production but reduces the investment in raw materials - and minimizes reordering costs - and hence increases cash flow; seeSupply chain management;Just In Time(JIT);Economic order quantity(EOQ);Economic production quantity

* Debtor's management.

Identify the appropriatecredit policy, i.e. credit terms which will attract customers, such that any impact on cash flows and the cash conversion cycle will be offset by increased revenue and hence Return on Capital (orvice versa); seeDiscounts and allowances.

* Short term financing.

Identify the appropriate source of financing, given the cash conversion cycle: the inventory is ideally financed by credit granted by the supplier; however, it may be necessary to utilize a bankloan(or overdraft), or to "convert debtors to cash" through "factoring"

Working capital management

IT involves the relationship between a firm's short-term assets and its short-term liabilities. The goal of working capital management is to ensure that a firm is able to continue its operations and that it has sufficient ability to satisfy both maturing short-term debt and upcoming operational expenses. The management of working capital involves managing inventories, accounts receivable and payable, and cash.

The Importance of Good Working Capital Management

Working capital constitutes part of the Crown's investment in a department. Associated with this is an opportunity cost to the Crown. (Money invested in one area may “cost” opportunities for investment in other areas.) If a department is operating with more working capital than is necessary, this over-investment represents an unnecessary cost to the Crown. From a department's point of view, excess working capital means operating inefficiencies. In addition, unnecessary working capital increases the amount of the capital charge which departments are required to meet further activities. Approaches to Working Capital Management The objective of working capital management is to maintain the optimum balance of each of the working capital components. This includes making sure that funds are held as cash in bank deposits for as long as and in the largest amounts possible, thereby maximizing the interest earned. However, such cash may more appropriately be “invested” in other assets or in reducing other liabilities.

Working capital management takes place on two levels:

➢ Ratio analysis can be used to monitor overall trends in working capital and to identify areas requiring closer management.

➢ The individual components of working capital can be effectively managed by using various techniques and strategies.

When considering these techniques and strategies, departments need to recognize that each department has a unique mix of working capital components. The emphasis that needs to be placed on each component varies according to department. For example, some departments have significant inventory levels; others have little if any inventory. The working capital requirement of a firm depends, to a great extent upon the operating cycle of the firm. The operating cycle may be defined as the time duration starting from the procurement of the goods and raw materials and ending with the sales realization of the finished product (after going through the various stages of production). There is the time gap between the happening of the first event and the happening of the last event. This time gap is called ‘operating cycle'. Thus the operating cycle of a firm consists of the time required for the completion of the chronological sequence of the following:

➢ Procurement of raw material and service.

➢ Conversion of raw material into work in progress.

➢ Conversion of work in progress into finished goods.

➢ Sale of finished goods.

➢ Conversion of receivable into cash.

Operating Cycle Period:

The length of time duration of the operating cycle of any firm can be defined as

The sum of its inventory conversion period and the receivable conversion period.

INVENTORY CONVERSION PERIOD:

Inventory:

The raw materials, work-in-process goods and completely finished goods that are considered to be the portion of a business's assets that are ready of will be ready for selling. Inventory represents one of the most important assets that most businesses possess, because the revenue generation and subsequent earnings for the companies' shareholders/owners. Possessing a high amount of inventory for long periods of time is not usually good for a business, because there are inventory storage, obsolescence and spoilage costs. However, possessing not enough inventory isn't good either because the business runs the risk of losing out on potential sales and potential market share as well. Inventory management forecasts and strategies, such as a justin- time inventory system, can help minimize inventory costs because goods are created or received as inventory only when needed.

Need to hold inventories

Holding inventories involves typing up of company's funds storage and handling costs. There are three general motives for holding inventories:

1. The transaction motive emphasizes the need to maintain inventories to facilitate smooth production and sales operation.

2. The precautionary motive

3. The speculative motive.

Under Working Capital Management, we calculate:

Gross Operating Cycle (GOC)

The firm's gross operating cycle(GOC) can be determined as inventory conversion period(ICP) plus debtors conversion period(DCP).

GOC = ICP + DCP

Inventory conversion period(ICP)

It is the sum of:

Raw material conversion period (RMCP),

Work-in-process conversion period (WIPCP),

Finished goods conversion period (FGCP)

Debtors conversion period (DCP)

It is the average time taken to convert debtors into cash.

DCP represents the average collection period.

Gross working capital (GWC)

GWC refers to the firm's total investment in current assets.

Current assets are the assets which can be converted into cash within an accounting year (or operating cycle) and include cash, short-term securities, debtors, (accounts receivable or book debts) bills receivable and stock (inventory).

Net working capital (NWC). NWC refers to the difference between current assets and current liabilities. Current liabilities (CL) are those claims of outsiders which are expected to mature for payment within an accounting year and include creditors (accounts payable), bills payable, and outstanding expenses.

NWC can be positive or negative.

Positive NWC = CA > CL

Negative NWC = CA < CL

GWC focuses on

Optimization of investment in current Financing of current assets

NWC focuses on Liquidity position of the firm

Judicious mix of short-term and long-tern financing

Permanent or fixed working capital:

A minimum level of current assets, which is continuously required by a firm to carry on its business operations, is referred to as permanent or fixed working capital.

Fluctuating or variable working capital:

The extra working capital needed to support the changing production and sales

activities of the firm is referred to as fluctuating or variable working capital.

Determinants of Working Capital:

✔ Nature of business

✔ Market and demand

✔ Technology and manufacturing policy

✔ Credit policy

✔ Supplies' credit

✔ Operating efficiency

✔ Inflation

Gross operating cycle (GOC)

The total of inventory conversion period and debtors conversion period is referred to as gross operating cycle (GOC).

Net operating cycle (NOC)

NOC is the difference between GOC and CDP.

Cash conversion cycle (CCC)

CCC is the difference between NOP and non-cash items like depreciation.

Working Capital Finance Policies

✔ Long-term

✔ Short-term

✔ Spontaneous

Short-term vs. Long-term financing

Cost

Flexibility

Risk

Significance of Working Capital Management

In a typical manufacturing firm, current assets exceed one-half of total assets. Excessive levels can result in a substandard Return on Investment (ROI). Current liabilities are the principal source of external financing for small firms. Requires continuous, day-to-day managerial supervision. Working capital management affects the company's risk, return, and share price.

ABOUT SUN PHARMA

History

Established in 1983, Sun Pharma was a start-up company with five products. Since 1996, Sun has grown largely through a combination of internal growth, and acquisition of other pharmaceutical companies. For example, it bought US-based Caraco Pharm Labs, and ICN Hungary.

A planned acquisition of IsraeliTaro Pharmaceuticalsinitiated in March 2007 was terminated by the Taro board in May 2008;this was subsequently followed by an unsolicitedtender offerin June 2008, the outcome of which remains to be determined.

As of 2008, it has grown to become an international speciality pharma company with more than 8000 employees, 19 manufacturing locations worldwide, two research centers, and a presence in 30 countries. It is one of the leading Indian-based pharma companies in India.

Corporate structure

The company's overall management is the responsibility of its Board, whose members are Dilip S. Shanghvi, Chairman and Managing Director. Mr. Shanghvi founded the company in 1982.

Sudhir V. Valia Executive Director

Sailesh T. Desai Executive Director

Hasmukh S. Shah Non-Executive Independent Director

Keki M. Mistry Non-Executive Independent Director

Ashwin Dani Non-Executive Independent Director

S. Mohanchand Dadha Non-Executive Independent Director

Mergers and acquisitions

Acquisitions formed a major part of the company's growth, starting with the purchase of Knoll Pharma's bulk actives manufacturing business based in Ahmednagar in 1996. It was upgraded for approvals from regulated markets, with substantial capacity addition over the years. In that year, Sun also took a step to break into the important U.S. healthcare market, with its purchase of stake in Detroit-based Caraco Pharmaceutical Laboratories, which specialized in the manufacture of generic dosage form medications and gave Sun its first production plant approved by theU.S. Food and Drug Administration(USFDA). Also in 1996, Sun purchased a shareholding in Gujarat Lyka Organics, which brought Sun a USFDA-approved manufacturing facility.

The acquisition drive continued and in the same year it purchased a stake in MJ Pharmaceuticals Ltd., based in Halol. MJ Pharma brought Sun its strong insulin production, as well as a springboard for entry into the European market. In 1997, TDPL, a company with an extensive product offering (oncology, fertility, anesthesiology, pain management) got merged with Sun. TDPL's products offer a ready entry with known brands and customer equity into new high growth therapy areas like oncology and gynecology.

In 1998, the company expanded its line with the purchase of a number of brands from Natco Pharma, adding some Rs 500 million to its sales. The Natco brands gave the company new products in the gastroenterology, orthopedics, pediatrics, and other categories, as well as access to Natco's time-release technology. Sun bought Milmet Labs, enabling the company to enter the ophthalmology products market for the first time. At the end of 2001, the company merged its MJ Pharmaceuticals subsidiary into its core operation at the beginning of 2002.

By 2002, it had boosted its bulk actives business with the purchase of Madras-based Pradeep Drug Company Ltd. In 2004, Sun acquired a Cephalosporin Actives manufacturer, Phlox Pharma, with European approval for cefuroxime axetil amorphous. Niche brands are bought from the San Diego, US based Women's First Healthcare. In 2005, Sun bought a plant in Bryan, Ohio, US and the business of ICN, Hungary from Valeant Pharma.Sun acquired the intellectual property and assets of Able Labs from the US District Bankruptcy court in New Jersey in December 2005.In May 2007, Sun along with our subsidiaries, signed definitive agreements to acquire Taro. Pharmaceutical Industries Ltd., a multinational generic manufacturer with established subsidiaries, manufacturing and products across the U.S., Israel, and Canada for $454 million

BALANCE SHEET OF SUN PHARMA FOR THE LAST 5 YEARS(IN CRORES)

Mar '05

Mar '06

Mar '07

Mar '08

Mar '09


12 mths

12 mths

12 mths

12 mths

12 mths

Sources Of Funds

Total Share Capital

94.16

94.27

98.07

103.56

103.56

Equity Share Capital

92.76

92.87

96.70

103.56

103.56

Share Application Money

0.01

0.00

0.00

0.00

0.00

Preference Share Capital

1.40

1.40

1.37

0.00

0.00

Reserves

1,011.28

1,370.67

2,351.42

4,104.06

5,047.86

Revaluation Reserves

0.00

0.00

0.00

0.00

0.00

Networth

1,105.45

1,464.94

2,449.49

4,207.62

5,151.42

Secured Loans

13.92

18.23

20.39

22.88

23.60

Unsecured Loans

1,800.73

1,727.59

1,047.76

79.64

0.00

Total Debt

1,814.65

1,745.82

1,068.15

102.52

23.60

Total Liabilities

2,920.10

3,210.76

3,517.64

4,310.14

5,175.02

Mar '05

Mar '06

Mar '07

Mar '08

Mar '09


12 mths

12 mths

12 mths

12 mths

12 mths

Application Of Funds

Gross Block

612.05

744.26

838.70

935.03

1,061.90

Less: Accum. Depreciation

172.90

208.07

249.41

304.99

362.64

Net Block

439.15

536.19

589.29

630.04

699.26

Capital Work in Progress

47.94

30.80

31.91

33.43

75.95

Investments

985.24

779.62

1,057.49

1,843.57

2,694.59

Inventories

186.62

263.41

333.38

389.63

486.74

Sundry Debtors

234.97

256.47

310.00

1,055.44

680.03

Cash and Bank Balance

4.01

11.26

35.69

23.29

20.17

Total Current Assets

425.60

531.14

679.07

1,468.36

1,186.94

Loans and Advances

445.55

509.25

345.82

394.13

311.42

Fixed Deposits

886.02

1,219.56

1,166.99

1,049.13

1,245.30

Total CA, Loans & Advances

1,757.17

2,259.95

2,191.88

2,911.62

2,743.66

Deffered Credit

0.00

0.00

0.00

0.00

0.00

Current Liabilities

224.95

273.30

345.23

845.73

696.34

Provisions

84.45

122.50

7.70

262.79

342.10

Total CL & Provisions

309.40

395.80

352.93

1,108.52

1,038.44

Net Current Assets

1,447.77

1,864.15

1,838.95

1,803.10

1,705.22

Miscellaneous Expenses

0.00

0.00

0.00

0.00

0.00

Total Assets

2,920.10

3,210.76

3,517.64

4,310.14

5,175.02

Contingent Liabilities

39.77

39.76

107.62

72.08

85.36

Book Value (Rs)

59.51

78.80

126.58

203.15

248.72

FINANCIAL RATIOS FOR LAST 5 YEARS

Mar '05

Mar '06

Mar '07

Mar '08

Mar '09

InvestmentValuation Ratios

Face Value

5.00

5.00

5.00

5.00

5.00

DividendPer Share

3.75

5.50

6.75

10.50

13.75

OperatingProfit Per Share (Rs)

6.47

0.81

-2.83

9.59

3.90

NetOperatingProfit Per Share (Rs)

54.30

69.54

85.96

114.36

133.97

Free Reserves Per Share (Rs)

52.32

71.65

119.51

196.16

241.72

Bonus in Equity Capital

87.12

87.01

83.57

78.03

78.03

Profitability Ratios

OperatingProfit Margin(%)

--

1.16

-3.28

8.38

2.91

Profit Before Interest And Tax Margin(%)

--

-1.43

-4.28

4.35

0.54

Gross Profit Margin(%)

--

27.81

26.73

6.01

0.79

Cash Profit Margin(%)

--

28.13

28.66

32.31

32.24

Adjusted Cash Margin(%)

26.62

26.28

26.24

32.31

32.24

Net Profit Margin(%)

24.78

25.85

26.69

31.01

31.43

Adjusted Net Profit Margin(%)

--

24.00

24.27

31.01

31.43

Return On Capital Employed(%)

--

14.53

16.83

24.21

24.57

Return On Net Worth(%)

27.65

31.49

25.68

24.09

24.56

Adjusted Return on Net Worth(%)

26.53

29.25

23.35

23.77

24.05

Return on Assets Excluding Revaluations

9.47

12.79

16.25

18.71

--

Return on Assets Including Revaluations

9.47

12.79

16.25

18.71

--

Return on Long Term Funds(%)

10.80

14.62

16.93

24.34

24.68

Liquidity And Solvency Ratios

Current Ratio

4.78

5.23

5.57

2.52

2.53

Quick Ratio

5.07

5.04

5.25

2.27

2.17

Debt Equity Ratio

1.64

1.19

0.44

0.02

--

Long Term Debt Equity Ratio

1.60

1.18

0.43

0.02

--

Debt Coverage Ratios

Interest Cover

--

41.57

67.31

206.27

459.14

Total Debt to Owners Fund

1.64

1.19

0.44

0.02

0.00

Financial Charges Coverage Ratio

32.06

45.20

72.57

217.36

480.39

Financial Charges Coverage Ratio Post Tax

30.52

45.70

77.73

212.49

479.03

Management Efficiency Ratios

Inventory Turnover Ratio

6.61

6.77

7.07

6.79

6.47

Debtors Turnover Ratio

5.54

5.26

5.87

3.47

3.20

Investments Turnover Ratio

6.02

5.53

5.62

6.79

6.47

Fixed Assets Turnover Ratio

2.52

2.67

3.02

2.66

2.73

Total Assets Turnover Ratio

--

0.41

0.48

0.56

0.54

Asset Turnover Ratio

1.76

1.85

2.09

2.66

2.73

Average Raw Material Holding

140.42

89.00

89.68

96.56

118.13

Average Finished Goods Held

18.36

17.48

19.08

14.19

13.78

Number of Days In Working Capital

517.43

519.57

398.19

274.06

221.25

Profit & Loss Account Ratios

Material Cost Composition

55.96

69.65

73.04

66.05

70.70

Imported Composition of Raw Materials Consumed

32.08

42.96

39.26

40.06

41.63

Selling Distribution Cost Composition

7.23

9.40

8.60

8.01

8.54

Expenses as Composition ofTotal Sales

28.45

31.34

28.98

37.79

29.84

Cash FlowIndicator Ratios

DividendPayout Ratio Net Profit

26.00

25.29

23.57

25.11

26.33

DividendPayout Ratio Cash Profit

23.31

23.24

21.96

23.79

25.16

Earning Retention Ratio

72.88

72.76

74.08

74.55

73.11

Cash EarningRetention Ratio

75.79

75.12

76.02

75.90

74.33

AdjustedCash Flow Times

5.53

3.72

1.73

0.10

0.02



Mar '05

Mar '06

Mar '07

Mar '08

Mar '09

Earnings Per Share

16.48

24.83

32.52

48.96

61.09

Book Value

59.51

78.80

126.58

203.15

248.72

* It can be seen that the working capital of the company is constantly improving,thus providing us the information of the better short term operations of the company.but in 2009 it has increased due to reduction in current assets and in current liabilities,but comparatively there is more reduction in current assets reducing the working capital if we compare it with last year.

But overall the postion of the company is better in short term operations which will ultimately be beneficial in the long run too.

ANALYSIS OF THE STATEMENTS

* Curent ratio saw an inclination in 2006 by 9.41% and 6.50%in the subsequent year.

This is due to the better position and performance of the company as the company was able to pay off the current liabilities and procure more current assets.

But in 2008,it declined to 2.52 and further to 2.50 demonstrating the reduced current assets and increase in the current liabilities of the company for day to day operations

* From the balance sheet we can see that current assets has increased over the no. of years but current liabilities has also increased to a rapid pace comparatively thus resulting in the reduction of current ratio of the company

* The performance of the company is good and earning high profits resulting in the payment of better dividends and there is increment in reserves and more of purchase of fixed assets.

* Even we can the performance of the company from the different short term ratios provided to us that the company is doing business efficiently and inventory and debtors management is also sufficient as debtors turnover ratio is decreasing in the subsequent years.

Working capital management

* Average raw material holding got reduced to 89 from 140.42 in 2006,a change of 36.43%,thud bettering the raw material efficiency as raw material is rapidly used to convert it into work in process(WIP) and finished goods signifying better operations.

* It remained same in 2007 and increased to 9% in 2008 and 22% in 2009 showing that holding of raw materials has increased which can be seen as a disadvantage to the company.

* Average finished goods held by the company has also reduced year by year,thus enhancing the efficiency of the company and bettering the working capital as there is reduction of cost and there are enhanced operations.

* No. of days of circulation of working capital has reduced rapidly over the years and is brought to 221.2,a 57.5% decrease,demonstrarting that there would be easy circulation of working capital.

And thus resulting in betterment of operations and profits.

CONCLUSION

Viewing the short term performance of the company,and the working capital and its management the performance of the company is good and satisfying over the years where in there is quick flow or circulation of money in operations as holding costs are less and even their respective periods are also lesser.payment to the creditors are regular and timely and even debtors are paying the debts well on time.the firm is maintaining a sound working capital position.

It has adequate working capital to run its business operations.

Thus considering the working capital management ,it is sound and resulting in better profits and more of dividends to investors and a base for building a good image of the company.

ABOUT CADILA

History

Cadila Laboratories was founded in 1952 by ShriRamanbhai Patel(1925-2001), formerly a lecturer in the L.M. College of Pharmacy, and his business partner Shri Indravadan Modi. The company evolved over the next four decades into one of India's established pharmaceutical companies.

In 1995 the Patel and Modi families split, with the Modi family's share being moved into a new company called Cadila Pharmaceuticals Ltd. and Cadila Healthcare became the Patel family's holding company. Cadila Healthcare did its IPO on theBombay Stock Exchangein 2000. Its stock code on the Bombay exchange is 532321.

In 2001 the company acquired another Indian pharmaceutical company called German Remedies. On June 25, 2007, the company signed an agreement to acquire 100 per cent stake in Brazils Quimica e Farmaceutica Nikkho do Brasil Ltda (Nikkho) for around 26 million dollars.

Active pharmaceutical ingredient plants

The company makesactive pharmaceutical ingredientsat three sites in India:

Ankleshwar plants- Zydus Cadila's plant complex atAnkleshwarinBharuch Districtof Gujarat, has been producing drug material since 1972. There are around 10 plants in the complex, which isISO 9002andISO 14001certified as well as FDA Approved. Total plant capacity at Ankleshwar is around 180 million tonnes.

Vadodara plant- Zydus Cadila's plant at Dhabhasa, inVadodara District'sPadrataluka (in the eastern part of the district) in Gujarat, was commissioned in 1997 by a company called Banyan Chemicals, and acquired by Zydus Cadila in 2002. The plant has a 90 million tonne capacity. It is an FDA-approved facility that is also approved toWHOGMPguidelines.

Patalganga plant-Zydus Cadila acquired an API plant at Patalganga inMaharashtrastate, 70km fromMumbai, in the 2001 German Remedies deal. This plant operates to WHOGMPstandards.

Formulation plants

The company operates formulation plants at six locations:

Moraiya plant- Zydus Cadila's formulation plant at Moraiya inSanandtaluka on the outskirts of Ahmedabad is the largest formulation plant in India. It plant becameFood and Drug Administration(FDA)-approved in 2004/2005. The plant makestablets, capsules, and soft gel capsules as well as injectable drugs in both sterile liquid and lyophilized form. Zydus Cadila also runs a large R&D operation at Moraiya;

Vatwa plant- Zydus Cadila's plant at Vatwa, an industrial suburb of Ahmedabad, makes nutraceuticals. The plant was acquired Remedies;

Changador plant- Zydus Cadila's plant at Changodar, 20 kilometres from Ahmedabad on the city's outskirts, manufacturesfine chemicals. Zydus is current constructing a facility at Changodar to make vaccines forhepatitis Bandrabies.

Navi Mumbai plant- This operation, atNavi Mumbaiin Maharashtra, is a 50/50 joint venture with Germany's Altana Pharma AG, makes intermediates of the drugpantoprazole.

Goa plants- The company's plants atPondain the southern Indian state ofGoado formulation work as well as manufacture oncology drugs and a herbal laxative brandedAgiolaxbased onPsylliumseeds.

Baddi plant- In 2004 Zydus commissioned at formulation plant atBaddi, inHimachal Pradeshstate of northern India. The Baddi plant makes solid oral pharmaceuticals. plant at mumbai where tablets are made from hands of labours.

Corporate control

Zydus Cadila's major shareholder remains the Patel family.Pankaj Patel(1951 - ), son of the founder, is CEO. In 2004 Pankaj Patel was included by Forbes magazine in its annualList of India's richest people. Forbes estimated Patel's net worth at US$510m, making him India's 26th richest person.[3]However in 2005 Patel dropped off the Forbes list due to a fall in the stock price of Cadila Healthcare. Moreover, there is a team of 9 Senior level executives - Known as The Executive Committee, who are heads of different operations look after the overall management processes. None of the members except Pankaj Patel are on Board of Directors. Recently, in September 2007 Cadila in a joint venture opened a pharmaceutical plant in Ethiopia.

VISION

"Our vision is to be a leading pharmaceutical company in India and to become a significant global player by providing high quality, affordable and innovative solutions in medicine and treatment."

MISSION

"We will discover, develop and successfully market pharmaceutical products to prevent, diagnose, alleviate and cure diseases.

We shall provide total customer satisfaction and achieve leadership in chosen markets, products and services across the globe, through excellence in technology, based on world-class research and development. We are responsible to the society. We shall be good corporate citizens and will be driven by high ethical standards in our practices."

BALANCE SHEET OF CADIAL FOR LAST 5 YEARS

Mar '05

Mar '06

Mar '07

Mar '08

Mar '09


12 mths

12 mths

12 mths

12 mths

12 mths

Sources Of Funds

Total Share Capital

31.40

31.40

62.80

62.80

68.20

Equity Share Capital

31.40

31.40

62.80

62.80

68.20

Share Application Money

0.00

0.00

0.00

0.00

0.00

Preference ShareCapital

0.00

0.00

0.00

0.00

0.00

Reserves

583.00

704.90

819.50

991.00

1,164.60

Revaluation Reserves

0.00

0.00

0.00

0.00

0.00

Networth

614.40

736.30

882.30

1,053.80

1,232.80

Secured Loans

287.40

312.50

362.70

559.30

636.70

Unsecured Loans

84.10

120.70

85.00

179.60

183.20

Total Debt

371.50

433.20

447.70

738.90

819.90

Total Liabilities

985.90

1,169.50

1,330.00

1,792.70

2,052.70

Mar '05

Mar '06

Mar '07

Mar '08

Mar '09


12 mths

12 mths

12 mths

12 mths

12 mths

Application Of Funds

Gross Block

950.50

1,015.10

1,129.20

1,241.00

1,358.50

Less: Accum. Depreciation

272.10

329.10

387.70

457.10

521.60

Net Block

678.40

686.00

741.50

783.90

836.90

Capital Work in Progress

40.00

58.90

52.10

96.40

117.30

Investments

136.80

185.10

292.80

442.70

595.40

Inventories

193.90

212.80

328.70

331.00

349.00

Sundry Debtors

108.80

185.10

238.60

282.50

381.90

Cash and Bank Balance

2.00

1.80

8.20

7.70

9.90

Total Current Assets

304.70

399.70

575.50

621.20

740.80

Loans and Advances

153.90

228.20

249.70

357.00

274.10

Fixed Deposits

24.40

0.50

4.20

11.30

15.70

Total CA, Loans & Advances

483.00

628.40

829.40

989.50

1,030.60

Deffered Credit

0.00

0.00

0.00

0.00

0.00

Current Liabilities

302.30

329.20

511.50

421.50

452.60

Provisions

57.50

59.70

74.30

98.30

105.30

Total CL & Provisions

359.80

388.90

585.80

519.80

557.90

Net Current Assets

123.20

239.50

243.60

469.70

472.70

Miscellaneous Expenses

7.50

0.00

0.00

0.00

30.40

Total Assets

985.90

1,169.50

1,330.00

1,792.70

2,052.70

Contingent Liabilities

117.70

64.30

63.30

73.40

523.70

Book Value(Rs)

97.82

117.23

70.24

83.89

90.32

FINANCIAL RATIOS FOR THE LAST 5 YEARS

Mar '05

Mar '06

Mar '07

Mar '08

Mar '09

InvestmentValuationRatios

Face Value

5.00

5.00

5.00

5.00

5.00

Dividend Per Share

6.00

6.00

4.00

4.50

4.50

OperatingProfit Per Share (Rs)

29.90

37.85

20.68

21.69

18.32

NetOperatingProfit Per Share (Rs)

173.55

203.26

115.46

133.89

127.72

Free Reserves Per Share (Rs)

87.19

110.53

64.79

78.61

68.44

Bonus inEquity Capital

23.70

23.70

61.85

61.85

56.95

ProfitabilityRatios

OperatingProfit Margin(%)

17.22

18.61

17.91

16.19

14.34

Profit Before Interest And Tax Margin(%)

11.48

13.28

12.66

11.09

8.38

Gross Profit Margin(%)

19.47

20.31

20.23

11.83

9.60

Cash Profit Margin(%)

16.43

17.08

17.79

16.70

20.05

Adjusted Cash Margin(%)

17.52

18.27

18.19

16.70

20.05

Net Profit Margin(%)

11.49

12.43

13.42

13.17

13.31

AdjustedNet Profit Margin(%)

12.58

13.63

13.82

13.17

13.31

Return On Capital Employed(%)

18.74

19.25

20.14

17.31

20.52

Return On Net Worth(%)

21.39

22.40

23.20

22.41

22.11

Adjusted Return on Net Worth(%)

23.71

24.54

23.89

21.46

26.43

Return on Assets Excluding Revaluations

9.76

10.58

10.68

10.21

10.19

Return on Assets Including Revaluations

9.76

10.58

10.68

10.21

10.19

Return on Long Term Funds(%)

20.60

21.84

22.43

20.80

24.66

Liquidity And SolvencyRatios

Current Ratio

0.97

1.06

1.02

1.00

0.93

Quick Ratio

0.76

1.02

0.82

1.23

1.16

Debt Equity Ratio

0.60

0.59

0.51

0.70

0.67

Long TermDebt Equity Ratio

0.46

0.40

0.35

0.42

0.39

Debt CoverageRatios

Interest Cover

9.94

12.87

10.30

7.96

6.54

Total Debt to Owners Fund

0.60

0.59

0.51

0.70

0.67

Financial Charges Coverage Ratio

11.02

13.34

11.19

8.82

6.91

Financial Charges Coverage Ratio Post Tax

9.58

11.53

10.08

8.12

5.78

Management EfficiencyRatios

Inventory Turnover Ratio

5.90

6.23

4.64

5.78

5.76

Debtors Turnover Ratio

7.94

8.69

6.85

6.45

5.25

Investments Turnover Ratio

6.29

6.86

5.02

5.78

5.76

Fixed Assets Turnover Ratio

2.26

2.37

2.54

1.62

1.51

Total Assets Turnover Ratio

1.38

1.31

1.29

1.06

0.94

Asset Turnover Ratio

1.44

1.55

1.56

1.62

1.51

Average Raw Material Holding

82.55

82.27

97.79

92.69

107.03

Average Finished Goods Held

40.79

37.17

41.70

37.38

34.68

Number of Days In Working Capital

40.69

67.54

60.47

100.54

97.61

Profit & Loss AccountRatios

Material Cost Composition

43.35

41.58

42.63

38.68

37.23

Imported Composition of Raw Materials Consumed

40.36

37.35

36.81

33.08

26.52

Selling Distribution Cost Composition

11.76

11.93

12.45

12.46

13.76

Expenses as Composition of Total Sales

12.73

17.15

21.35

26.03

42.13

Cash Flow IndicatorRatios

Dividend Payout Ratio Net Profit

32.72

26.07

28.67

27.98

27.04

Dividend Payout Ratio Cash Profit

22.88

18.98

21.62

21.35

20.63

Earning Retention Ratio

70.12

76.21

72.16

70.78

77.39

Cash Earning Retention Ratio

78.55

82.26

78.85

77.94

82.05

AdjustedCash Flow Times

1.85

1.79

1.61

2.47

2.05



Mar '05

Mar '06

Mar '07

Mar '08

Mar '09

Earnings Per Share

20.92

26.26

16.30

18.80

19.48

Book Value

97.82

117.23

70.24

83.89

90.32

Ø It can be illustrated that the working capital and its management was very weak and it was hardly present in 2006.but slowly and gradually the company is gaining momentum and has increased its working capital to a significant level.

Ø But still the performance of the company is not up to the mark as current assets shpuld be increased so as to increase the working capital of the company.

ANALYSIS OF THE STATEMENTS

Ø Current ratio of the company saw a slight inclination in 2005 but decreased in the subsequent years.even current ratio is not as per the thumb rule ratio of 2:1

Ø This is mainly because the current assets has increased but the current liabilities has also increased of the company.

Ø So,the short term position of the company is not up to the mark.

Ø The performance of the company is unsatisfactory resulting in reduction of dividend payout,net operating profits and return on investment and net worth.

WORKING CAPITAL MANAGEMENT

Ø Average raw material holding has increased subsequently in each year showing and demonstrating the poor performance of the management to keep track of a sound working capital position.

Ø Increase in average raw material holding leads to increase in costs and reduction in the efficiency of the operations of the business.it got reduced at a minute level in 2006 and then increased to 18% in 2007 and again reduced by 5% in 2008 and then increased significantly by 20% in 2009 which is very disadvantageous for the company causing reduction in profits and an increase in the operational costs.

Ø Average finished goods held by the company has reduced but not to an extent or at a significant level.there has been a very less change and there has been a reduction of only 10% over the 5 years.so the company should make more effort to further reduce the holding of average finished goods for better efficiency and better operations of the company.

Ø No. of days of circulation of working capital has increased rapidly over the yearsshowing poor performance of the company and weak working capital management.the working capital is not easily circulated as the time is very long thus effecting the operations of the business and overall profitability of the company.

CONCLUSION

The performance of the company is not satisfactory over the years and a very weak working capital management of the company leads to the reduction of profits and poor management of the operations,thus dismantling the image of the company by paying reduced dividends per share and reduced net profits and return on investments. It has adequate working capital to run its business operations.

COMPARISON OF SUN PHARMA AND CADILA

Ø First of all about the short term performance of two companies from same sector.Current ratio of sun pharma was far more better than that of cadila.current ratio of sun pharma was far ahead the rule of thumb.but for cadila,the short term position is not likely to be a favourable one,moreover it lacks to reach the rule of thumb as well.

Ø The performance of sun pharma was better and was earning high profits resulting in payment of better dividend and increment in reserves but of cadila the performance is unsatisfactory and thus resulting in reduction of dividend payout,net operating profits and return on investment.

Ø About the average holding of raw material.in case of sun pharma it got reduced over subsequent years representing the better performance of the company in case of its operations and working capital management,but in case of cadila average raw material holding got increased subsequently in each year showing the poor performance of the management.

Ø Average finished goods held by sun pharma also reduced year by year thus increasing the efficiency of the business and bettering the working capital but in case of cadila it got reduced but at a very minute level.

Ø No. of days of circulation of working capital got reduced rapidly over the years in case of sun pharma demonstrating the stront working capital base in the organization but in case of cadila no of days of circulation of working capital got increased rather showing the poor performance of the company and a weak working capital management.

CONCLUSION

After viewing the performance of both the companies that are sun pharma and cadila, I conclude that the performance of sun pharma is far more better than cadila not in the short run but in the long run as well.there is no concept of working capital management in cadila as no importance is given to holding of raw materials, work in process or finished goods, moreover its short term profitability and inventory management is not adhered to. But if we take sun pharma into consideration, there seems to be management of working capital as prime importance is given to working capital for day to day operations which play an important role in the success of the enterprise.

Even there is reduction in the net profits, dividend payout and return on investment in case of Cadila, thus exhibiting the poor performance of the company and compromising with the reputation of the Company and playing with the emotions of the investors, who will never invest money again, if this is the performance of a company. But in case of sun pharma due to their proper management they are ripping .The profits and enhancing the reputation of the company.So, the performance of sun pharma is far better than that of cadila considering working capital management.

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