LIQUIDITY ANALYSIS OF PHARMACEUTICALS …indicates that Cipla maintain higher current ratio than Dr....

© 2018 JETIR November 2018, Volume 5, Issue 11 www.jetir.org (ISSN-2349-5162)

JETIR1811968 Journal of Emerging Technologies and Innovative Research (JETIR) www.jetir.org 466

LIQUIDITY ANALYSIS OF PHARMACEUTICALS

COMPANIES

Hawa Singh

Assistant Professor, JB Knowledge Park, Faridabad

[email protected]

Bhanwar Singh

Senior Research Fellow, Institute of Management Studies & Research,

Maharshi Dayanand University, Rohtak, India;

Email: [email protected]

http://www.jetir.org/



Abstract

Indian Pharmaceutical market is one of the highest growing industries in the world. This

research study is conducted to know and analysis the liquidity of NSE Pharma Index based

companies. A sample of three pharmaceuticals companies draw from NSE Pharma Index by

convenience sampling. The study is conducted from the financial year 2010-11 to 2014-15.

To measure the liquidity of selected companies’ ratio analysis is used and to test the

hypothesis one-ANOVA is employed with SPSS. Study confirms selected NSE Pharma index

based companies maintain the ideal liquidity.

Keyword: Pharma companies, Liquidity analysis, Liquidity Ratio.




1. Introduction

Indian Pharmaceutical market is one of the highest growing industries in the world.

According to ITPD1 the Indian pharmaceutical market is third and thirteenth largest in the

world in term of volume and value respectively. India pharmaceutical market enjoys a

paramount position in world pharma Industry. Presently India pharmaceutical industry is able

to supply pharma market independently (Singh, 2017).

Indian pharmaceutical market has achieved a CAGR of 17.24 in 2015 from the year 2005.

And according to Investment and Technology Promotion Division sector will be expand at

CAGR of 15.92% upto 2020.

2. Related studies

Jyoti Nair (2013) performed a study to know the solvency of indian pharma companies.

Researcher draw a sample of 23 pharma companies based on a turnover raging from Rs 500

Cr to 1000 Cr and she used Altman's Z score model to know the financial distress livel in

1 Investment and Technology Promotion Division, Ministry of External Affairs, Government of India




selected firms. Researcher analyzed the data with linear regression. Research study confirms

that financial ratios can be used to know and predict distress level in companies.

Vijayalakshmi and Srividya (2014) studied and analyzed the financial performance of

pharmaceutical industry from the financial year 2010 to 2014 through ratio analysis using

statistical techniques like descriptive statistics, co-efficient of variance, ANOVA, regression

analysis. There study is based on largest pharmaceutical companies which including in BSE

index. There study confirmed that profitability have significant relationship with profit ratio,

operating ratio. EPS, return on equity.

Another study conducted to analyze the liquidity of Sun pharma by Gaglani and Rao (2015).

They argue companies should keep Trade-off between adequate liquidity and profitability.

They used liquidity indicators like Current Ratio, Absolute Ratio for liquidity and Quick

Ratio. They used the statistical Altman's Z-Score Test for measure the liquidity. They found

that moderate correlation between liquidity and risk.

Further liquidity and profitability performance of pharmaceutical companies is analyzed by

Mohmad Mushtaq Khan and Syed Khaja Safiuddin (2016). They used the well known

standard ratio to analyze and compared the liquidity of selected companies. Their study

indicates that Cipla maintain higher current ratio than Dr. Reddys and they confirm that Cipla

has enough funds to meet the all short term needs of company. Their study also confirms

Cipla is generating more profit than its rival Dr Reddys. Study point out that liquidity and

profitability of companies is different.

3. Objective of study

To study the liquidity position of selected pharmaceuticals companies.

To compare and analysis the liquidity position of selected companies.

4. Hypothesis of the study

H0.1: Current ratio of selected pharmaceuticals companies is uniform.

H1.1: Current ratio of selected pharmaceuticals companies is not uniform.

H0.2: Quick ratio of selected pharmaceuticals companies is uniform.




H1.2: Quick ratio of selected pharmaceuticals companies is not uniform.

H0.3: Inventory turnover ratio of selected pharmaceuticals companies is uniform.

H1.3: Inventory turnover ratio of selected pharmaceuticals companies is not uniform.

H0.4: Dividend payout ratio of selected pharmaceutical is uniform.

H1.4: Dividend payout ratio of selected pharmaceutical is not uniform.

H0.5: Earnings retention ratio of selected pharmaceutical is uniform.

H1.5: Earnings retention ratio of selected pharmaceutical is not uniform.

H0.6: Cash earnings retention ratio of selected pharmaceutical is uniform.

H1.6: Cash earnings retention ratio of selected pharmaceutical is uniform.

5. Research methodology

5.1 Research Design

Present study based on descriptive research design that describe the liquidity position of

pharma companies.

5.2 Data source

To accomplishment of objective of research data set is required. Present study based on

purely on secondary data which collected from authentic sources. Secondary data is

collected form annual report of companies, moneycontrol.com and NSE website. Data for

study is arranged for the year 2010-11 to 2014-15.

5.3 Variables.

To measure the liquidity position of pharma companies following standard ratio is

employed:

I. Current Ratio

II. Quick Ratio

III. Inventory Turnover Ratio




IV. Dividend Payout Ratio

V. Earnings Retention Ratio

VI. Cash Earnings Retention Ratio

5.4 Sample Unit

NSE Pharma Index is based on ten pharmaceuticals companies

i. Aurobindo Pharma

ii. Cadila Health

iii. Cipla

iv. Divis Laboratories

v. Dr Reddys Laboratories

vi. GlaxoSmithKline Pharmaceuticals

vii. Glenmark Pharma

viii. Lupin

ix. Piraml

x. Sun Pharmaceutical Industries

To conduct the study, three index based companies is selected for sample unit.

i. Cipla

ii. Divis Laboratories

iii. Dr Reddys Laboratories

5.5 Statistical Tools

For data analysis and to test hypothesis one-way ANOVA is used through SPSS and Excel

statistical package

6. Data analysis and interpretation

Table 1: Current Ratio of selected pharma companies

Current Ratio

Pharma Companies

Cipla Divis Laboratories Dr Reddys Laboratories

2010-11 2.84 3.76 1.61

2011-12 4.07 3.18 1.63




2012-13 3.02 3.40 2.17

2013-14 2.11 3.68 2.22

2014-15 1.83 3.62 2.10

Table 1 show the current ratio of Cipla, Divis Laboratories and Dr Reddys Laboratories from

the financial year 2010-11 to 2014-15.

Table 1.1: ANOVA

Current Ratio

Sum of Squares Df Mean Square F Sig.

Between Groups 6.261 2 3.131 10.261 .003

Within Groups 3.661 12 0.305

Total 9.922 14

Table 1.1 shows the result of sample statistics (ANOVA). Value of sample statistics

F=10.261. Table show the p value 0.003 which is less than level of significance 0.05(α). P

value < α give enough statistical evidence to reject null hypothesis “H0.1: Current ratio of

selected pharmaceuticals companies is uniform” and accept alternate hypothesis “H1.1:

Current ratio of selected pharmaceuticals companies is not uniform”. Rejection of null

hypothesis indicates that one of the current ratio of selected pharma companies is not same

with others.

Table 1.2: Multiple Comparisons

Dependent Variable: Current Ratio

(I) Pharma

Companies

(J) Pharma

Companies

Mean

Difference

(I-J)

Std.

Error Sig.

95% Confidence Interval

Lower

Bound

Upper

Bound

Tukey HSD

Cipla

Divis Laboratories -.75400 .34934 .120 -1.6860 .1780

Dr Reddys

Laboratories .82800 .34934 .084 -.1040 1.7600

Divis Laboratories

Cipla .75400 .34934 .120 -.1780 1.6860

Dr Reddys

Laboratories 1.58200* .34934 .002 .6500 2.5140




Dr Reddys

Laboratories

Cipla -.82800 .34934 .084 -1.7600 .1040

Divis Laboratories -1.58200* .34934 .002 -2.5140 -.6500

Dunnett t (2-

sided)a

Cipla Dr Reddys

Laboratories .82800 .34934 .063 -.0462 1.7022

Divis Laboratories Dr Reddys

Laboratories 1.58200* .34934 .001 .7078 2.4562

*. The mean difference is significant at the 0.05 level.

a. Dunnett t-tests treat one group as a control, and compare all other groups

against it.

Table 2: Quick ratio of selected pharma companies

Quick Ratio

Pharma Companies


2010-11 1.66 2.43 1.17

2011-12 2.52 2.00 1.25

2012-13 1.98 1.94 1.78

2013-14 1.07 2.25 1.86

2014-15 0.91 2.18 1.75

Table 2 shows the quick ratio of Cipla, Divis Laboratories and Dr Reddys Laboratories from

the financial year 2010-11 to 2014-15.

Table 2.1: ANOVA

Quick Ratio


Between Groups 1.075 2 .537 2.773 .102

Within Groups 2.326 12 .194

Total 3.401 14

Table 2.1 shows the result of sample statistics (ANOVA). Value of sample statistics F=2.773.

Table show the p value 0.102 which is more than level of significance 0.05(α). P value > α

give enough statistical evidence to accept null hypothesis “H0.2: Quick ratio of selected

pharmaceuticals companies is uniform.” and reject alternate hypothesis “H1.2: Quick ratio of




selected pharmaceuticals companies is not uniform”. Acceptance of null hypothesis indicates

that quick ratio of all selected pharma companies is identical.


Dependent Variable: Quick Ratio

(I) Pharma

Companies

(J) Pharma

Companies

Mean

Difference

(I-J)

Std.

Error Sig.


Lower

Bound

Upper

Bound

Tukey HSD

Cipla


Dr Reddys

Laboratories .06600 .27842 .970 -.6768 .8088

Divis Laboratories

Cipla .53200 .27842 .178 -.2108 1.2748

Dr Reddys

Laboratories .59800 .27842 .122 -.1448 1.3408

Dr Reddys

Laboratories

Cipla -.06600 .27842 .970 -.8088 .6768


Dunnett t (2-

sided)a

Cipla Dr Reddys

Laboratories .06600 .27842 .960 -.6307 .7627


Laboratories .59800 .27842 .093 -.0987 1.2947


against it.

Table 3: Inventory Turnover ratio of selected pharma companies

Inventory Turnover Ratio

Pharma Companies


2010-11 3.36 2.42 5.08

2011-12 3.82 2.83 5.53

2012-13 3.50 2.64 6.11

2013-14 3.74 2.81 5.81

2014-15 3.08 2.77 6.01

Table 3 show Inventory Turnover Ratio of Cipla, Divis Laboratories and Dr Reddys

Laboratories from the financial year 2010-11 to 2014-15.




Table 3.1: ANOVA

Inventory Turnover Ratio

Sum of Squares df Mean Square F Sig.

Between Groups 24.348 2 12.174 125.832 .000

Within Groups 1.161 12 .097

Total 25.509 14


F=125.832. Table show the p value 0.000 which is lower than level of significance 0.05(α). P

value < α give enough statistical evidence to reject null hypothesis “H0.3: Inventory turnover

ratio of selected pharmaceuticals companies is uniform.” and accept alternate hypothesis

“H1.3: Inventory turnover ratio of selected pharmaceuticals companies is not uniform”.

Rejection of null hypothesis indicates that one of the inventory turnover ratios of selected

pharma companies is different from others.


Dependent Variable: Inventory Turnover Ratio

(I) Pharma

Companies

(J) Pharma

Companies

Mean

Difference

(I-J)

Std.

Error Sig.


Lower

Bound

Upper

Bound

Tukey HSD

Cipla

Divis Laboratories .80600* .19672 .004 .2812 1.3308

Dr Reddys

Laboratories -2.20800* .19672 .000 -2.7328 -1.6832

Divis Laboratories

Cipla -.80600* .19672 .004 -1.3308 -.2812

Dr Reddys

Laboratories -3.01400* .19672 .000 -3.5388 -2.4892

Dr Reddys

Laboratories

Cipla 2.20800* .19672 .000 1.6832 2.7328

Divis Laboratories 3.01400* .19672 .000 2.4892 3.5388

Dunnett t (2-

sided)a

Cipla Dr Reddys

Laboratories -2.20800* .19672 .000 -2.7003 -1.7157


Laboratories -3.01400* .19672 .000 -3.5063 -2.5217






Dependent Variable: Inventory Turnover Ratio

(I) Pharma

Companies

(J) Pharma

Companies

Mean

Difference

(I-J)

Std.

Error Sig.


Lower

Bound

Upper

Bound

Tukey HSD

Cipla

Divis Laboratories .80600* .19672 .004 .2812 1.3308

Dr Reddys

Laboratories -2.20800* .19672 .000 -2.7328 -1.6832

Divis Laboratories

Cipla -.80600* .19672 .004 -1.3308 -.2812

Dr Reddys

Laboratories -3.01400* .19672 .000 -3.5388 -2.4892

Dr Reddys

Laboratories

Cipla 2.20800* .19672 .000 1.6832 2.7328

Divis Laboratories 3.01400* .19672 .000 2.4892 3.5388

Dunnett t (2-

sided)a

Cipla Dr Reddys

Laboratories -2.20800* .19672 .000 -2.7003 -1.7157


Laboratories -3.01400* .19672 .000 -3.5063 -2.5217


against it.

Table 4: Dividend payout ratio of selected pharma companies

Dividend Payout Ratio (NP) (%)

Pharma Companies


2010-11 23.40 30.44 25.54

2011-12 14.28 31.60 20.13

2012-13 10.65 32.56 15.84

2013-14 11.56 33.53 20.29

2014-15 13.59 31.34 25.13

Table 4 shows the Dividend Payout Ratio of Cipla, Divis Laboratories and Dr Reddys





Table 4.1: ANOVA

Dividend Payout Ratio (NP) (%)


Between Groups 149.187 2 74.594 3.297 .072

Within Groups 271.531 12 22.628

Total 420.718 14

Table 4.1 shows the result of sample statistics (ANOVA). Value of sample statistics F=3.297.

Table show the p value 0.72 which is greater than level of significance 0.05(α). P value > α

give enough statistical evidence to accept null hypothesis “H0.4: Dividend payout ratio of

selected pharmaceuticals companies is uniform.” and reject alternate hypothesis “H1.4:

Dividend payout ratio of selected pharmaceuticals companies is not uniform”. Acceptance of

null hypothesis indicates that dividend payout ratio of all selected pharma companies is same.


Dependent Variable: Dividend Payout Ratio (NP) (%)

(I) Pharma

Companies

(J) Pharma

Companies

Mean

Difference

(I-J)

Std.

Error Sig.


Lower

Bound

Upper

Bound

Tukey HSD Cipla Divis Laboratories .00000 3.00849 1.000 -8.0263 8.0263

Dr Reddys

Laboratories -6.69000 3.00849 .107 -14.7163 1.3363

Divis Laboratories Cipla .00000 3.00849 1.000 -8.0263 8.0263

Dr Reddys

Laboratories -6.69000 3.00849 .107 -14.7163 1.3363

Dr Reddys

Laboratories

Cipla 6.69000 3.00849 .107 -1.3363 14.7163

Divis Laboratories 6.69000 3.00849 .107 -1.3363 14.7163

Dunnett t (2-

sided)a

Cipla Dr Reddys

Laboratories -6.69000 3.00849 .082 -14.2184 .8384


Laboratories -6.69000 3.00849 .082 -14.2184 .8384


against it.




Table 5: Earning retention ratio of selected pharma companies

Earnings Retention Ratio (%)

Pharma Companies


2010-11 76.60 69.56 74.46

2011-12 85.72 68.40 79.87

2012-13 89.35 67.44 84.16

2013-14 88.44 66.47 79.71

2014-15 86.41 68.66 74.87

Table 5 shows the Earning retention ratio of Cipla, Divis Laboratories and Dr Reddys


Table 5.1: ANOVA

Earnings Retention Ratio (%)

Sum of Squares df Mean Square F Sig.

Between Groups 751.576 2 375.788 25.946 .000

Within Groups 173.798 12 14.483

Total 925.374 14



value < α give enough statistical evidence to reject null hypothesis “H0.5: Earning retention

ratio of selected pharmaceuticals companies is uniform.” and accept alternate hypothesis

“H1.5: Earning retention ratio of selected pharmaceuticals companies is not uniform”.

Rejection of null hypothesis indicates that one of the earning retention ratios of all selected

pharma companies is different from others.


Dependent Variable: Earnings Retention Ratio (%)

(I) Pharma

Companies

(J) Pharma

Companies

Mean

Difference

(I-J)

Std.

Error Sig.


Lower

Bound

Upper

Bound




Tukey HSD Cipla Divis Laboratories 17.19800* 2.40692 .000 10.7767 23.6193

Dr Reddys

Laboratories 6.69000* 2.40692 .041 .2687 13.1113

Divis Laboratories Cipla -17.19800* 2.40692 .000 -23.6193 -10.7767

Dr Reddys

Laboratories -10.50800* 2.40692 .002 -16.9293 -4.0867

Dr Reddys

Laboratories

Cipla -6.69000* 2.40692 .041 -13.1113 -.2687

Divis Laboratories 10.50800* 2.40692 .002 4.0867 16.9293

Dunnett t (2-

sided)a

Cipla Dr Reddys

Laboratories 6.69000* 2.40692 .030 .6670 12.7130


Laboratories -10.50800* 2.40692 .002 -16.5310 -4.4850



against it.

Table 6: Cash Earnings retention ratio of selected pharma companies

Cash Earnings Retention Ratio (%)

Pharma Companies


2010-11 81.40 72.88 80.80

2011-12 88.58 71.62 83.86

2012-13 91.13 71.08 86.77

2013-14 90.63 69.97 84.30

2014-15 90.06 73.00 83.01

Table 6 shows the Cash earnings retention ratio of Cipla, Divis Laboratories and Dr Reddys


Table 6.1: ANOVA



Between Groups 739.011 2 369.505 49.622 .000





Table 6.1: ANOVA



Between Groups 739.011 2 369.505 49.622 .000


Total 828.367 14



value < α give enough statistical evidence to reject null hypothesis “H0.6: Cash earnings

retention ratio of selected pharmaceuticals companies is uniform.” and accept alternate

hypothesis “H1.5: Cash earnings retention ratio of selected pharmaceuticals companies is not

uniform”. Rejection of null hypothesis indicates that one of the earning retention ratios of all

selected pharma companies is different from others.


Dependent Variable: Cash Earnings Retention Ratio (%)

(I) Pharma

Companies

(J) Pharma

Companies

Mean

Difference

(I-J)

Std.

Error Sig.


Lower

Bound

Upper

Bound


Dr Reddys

Laboratories 4.61200* 1.72585 .050 .0077 9.2163


Dr Reddys

Laboratories -12.03800* 1.72585 .000 -16.6423 -7.4337

Dr Reddys

Laboratories

Cipla -4.61200* 1.72585 .050 -9.2163 -.0077


Dunnett t (2-

sided)a

Cipla Dr Reddys

Laboratories 4.61200* 1.72585 .037 .2933 8.9307


Laboratories -12.03800* 1.72585 .000 -16.3567 -7.7193






Dependent Variable: Cash Earnings Retention Ratio (%)

(I) Pharma

Companies

(J) Pharma

Companies

Mean

Difference

(I-J)

Std.

Error Sig.


Lower

Bound

Upper

Bound


Dr Reddys

Laboratories 4.61200* 1.72585 .050 .0077 9.2163


Dr Reddys

Laboratories -12.03800* 1.72585 .000 -16.6423 -7.4337

Dr Reddys

Laboratories

Cipla -4.61200* 1.72585 .050 -9.2163 -.0077


Dunnett t (2-

sided)a

Cipla Dr Reddys

Laboratories 4.61200* 1.72585 .037 .2933 8.9307


Laboratories -12.03800* 1.72585 .000 -16.3567 -7.7193


against it.

7. Conclusion

Current ratio of pharma companies indicate that pharma companies current ratio is more than ideal

current ratio and Divis laboratories current ratio is more ideal among its competitors. Quick ratio of

pharma companies also comfortable and maintain by index companies. Here again Divis Laboratories

quick ratio is one of best model among its rivals. Inventory turnover ratio is also best tool to measure

the efficiency of management how it effective to convert its stock into sells. Dr Reddys Laboratories

is highly effective to convert stock into sells on other side Cipla also achieve comfortable ratio. Divis

Laboratories paying highest dividend out of its income compare to its rival while Cipla highly

retained its income for future expansion. Earnings retention ratio indicate future prospectus of

companies for expansion. Cipla maintain highest earning retention ratio for future opportunities while

Divis Laboratories maintain low earnings retention ratio. Cash earnings retention ratio indicates

company maintains high cash within for smooth functioning of company. Cipla maintain highest cash

earnings retention ratio among its rival followed by Dr Reddys Laboratories. It is concluded that NSE

Pharma index based maintain ideal liquidity.




8. Bibliography

Gaglani, H., & Smita, R. (2015). A study on the liquidity, profitability and financial health of

sun pharmaceutical industry Ltd. ZENITH International Journal of Business Economics &

Management Research , 229-245.

Joshi, L. K., & Ghosh, S. (2012). Working capital management of cipla limited: An empirical

study. International Journal of Marketing, Financial Services & Management Research ,

170-186.

Khan, M. M., & Safiuddin, S. K. (2016). Liquidity and Profitability Performance Analysis of

Select Pharmaceutical Companies. International Journal of Science Technology and

Management , 167-177.

Nair, J. (2013). Performance analysis and solvency prediction of India pharma companies.

International Journal of Marketing, Financial Services & Management Research , 34-43.

Singh, B. (2017). Whether NSE Pharma Index Companies Hold High Liquidity?

International Journal of Advance Research in Computer Science and Management Studies ,

19-33.

Swarnalatha, C., & Dhinesh, G. (2014). A study on ratio analysis of select CNX Pharma

Stocks. Indian Journal of Applied Research , 401-406.

Vijayalakshmi, V., & Srividya, M. (2014). A Study on Financial Performance of

Pharmaceutical Industry in India. Journal of Management and Science , 36-54.


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