PROFITABILITY RATIOS

The profit after tax by 11% is mainly attributable to volume growth, favourable product mix
and effective cost controls. Gross Profit ratio and Net Profit to sales ratio remained at 38%
and 14% respectively. These have been sustained despite increases in operating costs. Return
on equity has no relationship with inventory turnover ratio.

There is no change in return on shareholder’s equity due to the change in inventory turnover
ratio. Return on equity has positive relationship with the sales growth ratio (Ratna
Mappanyuki and Meipita Sari, 1th January 2017).

The increase in profit after tax by 27% compared to prior year is mainly attributable to
volume growth, new product launches, effective cost controls and reduced taxation charge in
current year. Gross Profit ratio improved to 39% from 38% last year despite inflationary
pressures owing to improved product mix. Net Profit to sales ratio improved to 17% from
14% last year mainly on account of improved gross margins, effective cost controls and
reduced prior year taxation charge in current year.

Profit after Tax increased by 12.1% compared to prior year mainly driven by volume increase
and new product launches. Gross Profit ratio improved to 40.1% versus 38.9% from last year
despite inflationary pressures owing to improved product mix and effective cost control. Net
Profit to Sales ratio was 17.2%.

Profit after Tax increased by 4.6% compared to prior year mainly driven by volume increase.
Gross Profit ratio declined slightly to 38.7% from 40.1% last year mainly due to inflationary
impact. Net Profit to sales ratio was at 16.1% versus 17.2% during 2016.

Profitability ratios of the Company, in general, have declined versus last year, mainly on
account of currency devaluation, inflation, advertising and sales promotion expenditure and
inadequate price adjustments in the pharmaceutical segment. Profit after Tax decreased by
35.9% compared to prior year. Gross profit margin declined to 32.9% versus 38.7% last year.
Net profit margin declined to 9.1% versus 16.1% during 2017 in line with the reasons
mentioned above.
LIQUIDITY RATIOS

Operating cash flows generate by assets will affect continuing firm liquidity. It is not only
because of the value of liquidation (Soenen, 1993). The cashflows from operating activities is
mainly attributable to profitability and better working captial management which accordingly
resulted in increase in cash and cash equivalents by Rs 2,484 million as compared to prior
year end. Increase in cash & cash equivalents has resulted in increase in liquidity ratios such
as currrent ratio (2014: 3.86, 2013: 3.56), quick / acid test ratio (2014: 2.76, 2013: 2.27)
and cash to current liabilities (2014: 2.39, 2013: 1.76). Firms with fewer current assets will
having problem in continuing their operations while if the current assets are too much, it
shows the return on investment is not in perfect condition. (Horne and Wachowicz, 2000).

Improved profitability and better working capital management which accordingly resulted in
increase in cash and cash equivalents by Rs 1,939 million as compared to last year. Increase
in cash & cash equivalents has resulted in increase in liquidity ratios such as quick / acid test
ratio (2015: 2.81, 2014: 2.76) and cash to current liabilities (2015: 2.51, 2014: 2.39).

The decline in cashflows from operating activities is mainly attributable to increased

Increased payables which accordingly resulted in increase in cash and cash equivalents by Rs.
627 million as compared to last year. Current ratio (2017: 2.96, 2016: 4.61), quick / acid test
ratio (2017: 2.18, 2016: 3.31) and cash to current liabilities (2017: 1.84, 2016: 2.79) have
slightly declined versus last year mainly on account of higher payable balances..

Cash inflows from operating activities declined versus last year primarily on account of
decrease in profitability and working capital changes. The Company, however, remains
sufficiently liquid and has Rs. 5,678.14 million of cash and cash equivalents as of 31st
December 2018 to meet its investment and operational cash requirements.

Current ratio (2018: 1.96, 2017: 2.98), quick / acid test ratio (2018: 1.27, 2017: 2.19) and
cash to current liabilities (2018: 0.86, 2017: 1.86) have declined versus last year mainly on
account of higher payable balances. Firms with less current assets will having problem in
continuing operations while if the currents assets is too much, it shows the return on
investment for the company is not in perfect condition (Home and Wachowiz, 2000).

ACTIVITY / TURNOVER RATIOS

Operating cycle is 44.17 days in 2014 is better inventory management which has resulted in
reduced number of days in inventory. Inventory is stock which hold by the organization to
meet future transactions (Ghosh & Kumar, 2003). Total assets turnover ratio is 1.58 in
2014 due to increase in cash & cash equivalents as explained above. Fixed assets turnover
ratio is 5.96 in 2014 due to decrease in capital expenditure from Rs. 973 million in 2013 to
Rs. 661 million in 2014 mainly due to Cogen plant acquisition last year. Inventory turnover
ratio has a positive relationship with sales growth ratio (Gaur, Fisher and Raman, 2005).

Operating cycle has declined overall from 44.17 days in 2014 to 30.96 days in 2015 due to
better inventory management which has resulted in reduced number of days in inventory.
Total assets turnover ratio declined from 1.58 in 2014 to

1.40 in 2015 due to increase in cash & cash equivalents as explained above. Fixed assets
turnover ratio declined from 5.96 in 2014 to 5.70 in 2015 due to increase in capital
expenditure from Rs. 661 million in 2014 to Rs. 1,174 million in 2015.

Operating cycle has increased from 30.96 days in 2015 to 34.72 days in 2016 due to higher
inventory and higher receivable balances on account of increased business activity. Total
assets turnover ratio (average assets) declined from 1.40 in 2015 to 1.37 in 2016 due to
increase in inventory as explained above. Fixed assets turnover ratio (average assets) slightly
declined from 5.70 in 2015 to 5.50 in 2016.

Operating cycle has decreased to 26.03 days in 2017 from 34.72 days in 2016 due to higher
payable balances as compared to last year. Total assets turnover ratio (average assets)
increased to 1.41 in 2017 from 1.37 in 2016 mainly due to increase in sales during the year.
Fixed assets turnover ratio (average assets) declined to 5.28 in 2017 from 5.50 in 2016
mainly due to capital expenditure.

Operating cycle has decreased to 8.24 days in 2018 from 31.82 days in 2017 mainly due to
higher payable balances as compared to last year. Total assets turnover ratio (average assets)
increased to 1.51 in 2018 from 1.42 in 2017 mainly due to increase in sales during the year.
Fixed assets turnover ratio (average assets) declined to 4.70 in 2018 from 5.28 in 2017
mainly due to significant capital expenditure during the year. There is no change in return on
shareholder’s equity due to the change in inventory turnover ratio. Return on equity has
positive relationship with the sales growth ratio (Ratna Mappanyuki and Meipita Sari, 1th
January 2017)

INVESTMENT / MARKET RATIOS

These Ratios indicates to the market value of a stock in terms of some measure of a
company’s fundamentals such as EP, book value, EPS, ROE, and dividends. These ratios are
the ones that investors tend to look at on a daily basis and they change whenever the price of
the stock changes Brigham (2005); Ross (1999).

Earnings per share is Rs 28.77 in 2014 as a result of the increase in profit after tax by 11%.
P/E ratio is 24.70 in 2014 and dividend yield ratio is 1.1% in 2014, mainly due to the
increase in market price per share from Rs 393.50 in 2013 to Rs 710.68 in 2014. Dividend
pay-out ratio remained same at 0.27 (times) in 2014, compared to previous year due to
increase in final dividend declared from Rs 4 per share from 2013 to Rs 4.8 per share in 2014.
Break-up value per share has increased from Rs 89.35 in 2013 to Rs 111.05 in 2014 due to
increase in total equity this year by 2,124 million as compared to prior year. Market
capitalization has increased from Rs 38,524 million in 2013 to Rs 69,576 million in 2014
due to increase in market price per share from Rs 393.50 in 2013 to Rs 710.68 in 2014.

Chen, Jorgensen and Yoo (2004), Ohlson and Juettner-Nauroth (2005) and Taboga (2011)
confirm the continued relevance of EPS and EPS growth in modern day share valuation
methodology. Adkins, Matchett and Toy (2010) attribute the obsession with EPS to the fact
that EPS neatly summarises the earnings generated for shareholders and the shareholder’s
view appeals to investors and management alike.

Earnings per share increased from Rs 28.77 in 2014 to Rs 36.64 in 2015 as a result of the
increase in profit after tax by 27% compared to prior year as mentioned above. P/E ratio
declined from 24.70 in 2014 to 17.33 in 2015, mainly due to decline in market price per share
from Rs 710.68 in 2014 to Rs 635.00 in 2015. Dividend yield ratio increased from 1.1% in
2014 to 4.7% in 2015 and Dividend pay-out ratio increased from 0.27 (times) in 2014 to 0.82
(times) in 2015, on account of increased dividend payout in the current year from Rs 7.8 to
Rs 30.00 per share. Break-up value per share has increased from Rs 111.05 in 2014 to Rs
132.27 in 2015 due to increase in total equity this year by Rs 2,078 million as compared to
prior year. Market capitalization has declined from Rs 69,576 million in 2014 to Rs 62,167
million in 2015 due to decline in market price per share from Rs 710.68 in 2014 to Rs 635.00
in 2015.

Earnings per share improved from Rs. 36.64 in 2015 to Rs. 41.08 in 2016 as a result of the
increase in profit after tax by 12.1% compared to prior year as mentioned above. P/E ratio
improved from 17.33 in 2015 to 23.30 in 2016, mainly due to increase in market price per
share from Rs. 635.00 in 2015 to Rs. 957.09 in 2016. Dividend yield ratio declined from
4.7% in 2015 to 4.2% in 2016 despite increase in dividend on account of higher increase in
market price per share versus increase in dividend. Dividend pay-out ratio increased from
0.82 (times) in 2015 to 0.97 (times) in 2016, on account of increased dividend payout in the
current year from Rs. 30.00 per share to Rs. 40.00 per share. Break-up value per share has
increased from Rs. 132.27 in 2015 to Rs. 149.06 in 2016 due to increase in total equity this
year by Rs. 1,644 million as compared to prior year. Market capitalization has increased from
Rs. 62,167 million in 2015 to Rs. 93,699 million in 2016 due to increase in market price per
share from Rs. 635.00 in 2015 to Rs. 957.09 in 2016.

Earnings per share improved to Rs. 42.95 in 2017 from Rs. 41.08 in 2016 as a result of the
increase in profit after tax by 4.6% compared to last year as mentioned above. P/E ratio
declined to 16.24 in 2017 from 23.30 in 2016, mainly due to decrease in market price per
share to Rs. 697.61 in 2017 from Rs. 957.09 in 2016. Dividend yield ratio improved to 5.7%
in 2017 from 4.2% in 2016 due to decrease in market price per share. Dividend pay-out ratio
decreased to 0.93 (times) in 2017 from 0.97 (times) in 2016, on account of increase in profit
after tax. Break-up value per share has decreased to Rs 146.64 in 2017 from Rs 149.06 in
2016 due to decrease in total equity by Rs 237 million as compared to prior year on account
of final and interim dividends and actuarial losses. Market capitalization has decreased to Rs.
68,296 million in 2017 from Rs. 93,699 million in 2016 due to decrease in market price per
share to Rs. 697.61 in 2017 from Rs. 957.09 in 2016.

Earnings per share declined to Rs. 27.52 in 2018 from Rs. 42.95 in 2017 as a result of
decrease in profit after tax by 35.9% as mentioned above. Price Earnings ratio improved to
22.93 in 2018 from 16.24 in 2017, mainly due to decrease in earnings per share. Dividend
yield ratio declined to 3.2% in 2018 from 5.7% in 2017 due to decrease in dividend per share.
Dividend pay-out ratio decreased to 0.73 (times) in 2018 from 0.93 (times) in 2017, on
account of decrease in dividend per share partially offset by decrease in profit after tax.
Break-up value per share has decreased to Rs. 135.19 in 2018 from Rs. 146.64 in 2017 due to
decrease in total equity by Rs. 1,121 million as compared to prior year on account of final
(2017) and interim (2018) dividends and decrease in profitability. Market capitalisation has
decreased to Rs. 61,780 million in 2018 from Rs. 68,296 million in 2017 due to decrease in
market price per share to Rs. 631.05 in 2018 from Rs. 697.61 in 2017.

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