Financial Performance of Pharmaceutical Industry in India using DuPont Analysis

Abstract

This study attempts basically to measure the financial performance of the Pharmaceutical Industry taking top three companies like Cipla, Dr. Reddy’s Laboratories, Ranbaxy for the period 2003-2012. In order to achieve our goals in this paper we have  measured  the  ratios  of  ROE,  ROA  applying  the  DuPont  analyses, which have been demonstrated with the aim of tables to show the change periodically. DuPont analysis (ROI and ROE)) is an important tool for judging the operating financial performance. It is an indication of the earning power of the firm.

DuPont Model which is based on analysis of Return on Equity (ROE) & Return on Investment (ROI). The return on equity disaggregates performance into three components: Net Profit Margin, Total Asset Turnover, and the Equity Multiplier. Return on Investment consists of Assets Turnover and Profit Margin. The return on investment consists of Assets Turnover (Operating Income X Total Assets) and Profit Margin (EBIT X Operating Income).

From the study it if found that Cipla pharmaceutical Financial performance is high followed by Dr.Reddy’s Laboratories and then Ranbaxy Pharmaceutical. The three companies are significant at their level. In conclusion, ROE & ROI is the most comprehensive measure of profitability of a firm. It considers the operating and investing decisions made as well as the financing and tax-related decisions

Keywords: DuPont Analysis, Return on equity, Return on Investment, Financial Performance, Pharmaceutical Industry.