COGS Inventory Ratio (Times)

4)(A) Inventory Turnover Ratio=COGS/Inventory 1998-99 1999-2000 2000-01 2001-02 2275 2965 2801 3167 626 707 837 1057 3.63 4.19 3.35 3.00

2002-03 5577 1756 3.18

INDICATION: Inventory turnover ratio indicates the efficiency of the firm in producing and selling its products. It is calculated by dividing the cost of goods sold by the inventory. A high ratio is good from the viewpoint of liquidity and vice versa.

Inventory Turnover Ratio

4.50 4.00 3.50 TIMES 3.00 2.50 2.00 1.50 1.00 0.50 0.00 1998-99 1999-2000 2000-01 YEARS 2001-02 2002-03 3.63 4.19 3.35 3.00 3.18

Inventory Turnover Ratio

INTERPRETATION: Inventory turn over ratio is highest in year 1999-2000, i.e. 4.19 times is indicative of good inventory management. As Cadila Health Care ltd is pharmaceutical company Inventory turnover ratio should be kept high to avoid stock isolation. This ratio is lowest in year 2001-02, implies excessive inventory levels than warranted by production and sales activities or a slow moving or obsolete inventory. A high level of sluggish inventory amounts to unnecessary tied up of funds, reduced profit and increased cost. If the obsolete inventory has to be written off, this will adversely affect the liquidity position of the business.

4)(B) Inventory Holding Period =365/Inventory Turnover Ratio 1998-99 1999-2000 2000-01 2001-02 Days 365 365 365 365 Inventory Turnover Ratio 3.63 4.19 3.35 3.00 Ratio (Days) 100 87 109 122

2002-03 365 3.18 115

INDICATION: The reciprocal of inventory turnover gives average inventory holding in percentage term. When the number of days in a year is divided by inventory turnover. We obtain days of inventory holding.

140 120 100 TIMES 80 60 40 20 0 1998-99

100

Inventory Holding Period

122 109 87 115

1999-2000

2000-01 2001-02 YEARS

2002-03

Inventory Holding Period

INTERPRETATION: The inventory holding days should be less. If the company is holding the inventory for less time it means its turnover is more. Cadilas ratio shows fluctuation in it. It is decreasing from1999 to2000 and again increased to2002 and then decreased.