Impact of financial ratios on profitability- an analysis of select pharmaceutical companies in India

Abstract

Profitability ratios manifest an enterprise’s ability to spawn earnings relative to sales, assets and equity. These ratios gauge the ability of an enterprise to yield earnings, profits and cash flows relative to any indicator, often the capital invested. The current paper studies the impact of financial ratios such as Liquidity ratios, Leverage ratios & Managerial Efficiency ratios on Profitability ratios. For the analysis, data of past 5 financial years from 2012 to 2016 was considered and the following six companies Auraobindo Pharma Ltd, Cadila Health Care, Cipla Ltd, Divis Laboratories Ltd, Dr Reddys Laboratories and Glenmark Pharmaceutical Ltd were chosen from Nifty 50 companies, these companies represent pharmaceutical sector which contribute 7.5% to the overall weight-age of the index. The results conclude that Current Ratio, Total Assets Turnover Ratio were positively correlated and also influencing Net Profit Margin, Return on Capital Employed & Return on Net Worth.