UNVEILING FINANCIAL INSIGHTS: A STUDY USING DU PONT ANALYSIS IN INDIA'S PHARMA SECTOR

Abstract

This research paper undertakes a comprehensive analysis of the financial performance of Sun Pharma and Cipla, the leading companies in the pharmaceutical sector, by employing two prominent financial analysis tools: Return on Equity (ROE) and Return on Asset (ROA). In a manner similar to the Du Pont method, the components of ROE and ROA are dissected to facilitate a detailed examination of financial performance and achieve the research objective. The calculation of ROE and ROA will involve the utilization of key ratios, including the net profit ratio, total asset turnover ratio, and equity multiplier. Upon conducting a comprehensive analysis of the return on equity (ROE) and return on assets (ROA) ratios, specifically examining the net profit margin, total assets turnover ratio, and equity multiplier, our findings indicate that Sun Pharma Limited outperforms Cipla in terms of net profit margin and financial leverage. Conversely, Cipla demonstrates greater efficiency in utilizing its assets to generate revenue, thereby optimizing resource allocation. Our statistical analysis, which involved the application of the one-way ANOVA test, yielded a statistically significant correlation coefficient among the net profit ratio, total assets turnover ratio, and equity multiplier implying that these variables are interdependent. This correlation suggests a strong interdependence between these variables, implying that fluctuations in one variable are likely to have a ripple effect on the others. Specifically, changes in the net profit ratio may influence the total assets turnover ratio, which in turn may impact the equity multiplier, and vice versa.