CAPM and Ratios

Cipla
It is a pharmaceutical company incorporated in 1935 with over 25,000+ employees and a

turnover of USD 2.3 Billion. Founded by Dr. K.A. Hamied, currently headed by Dr. Y.K. Hamied
as the chairman of the company and Mr. M.K. Hamied as the vice-chairman of the company.
Cipla as an organization has been built on the foundation of care. Caring for life, has always and
countinous to remain the guiding purpose. Driven by the same purpose, they have their
presence in about 80+ countries and over 1500+ products with 50+ forms of dosage.
Cipla’s Listed
- Equity Shares: BSE (Bombay Stock Exchange) Limited and National Stock
Exchange of India Limited
- Global Depository Receipts: Luxembourg Stock
Exchange
CAPM (Capital Asset Pricing Model)
The Capital Asset Pricing Model (CAPM) describes the relationship between systematic risk
and expected return for assets, particularly stocks. CAPM is widely used throughout finance for
pricing risky securities and generating expected returns for assets given the risk of those assets
and cost of capital.
Formula
YEAR RF RISK PREMIUM BETA Valuation of Equity (RS)
[RH-RF]
Year 1 5.2397% 0.05 0.45 5.2622

Year 2 5.2397% 0.05 0.41 5.2602
Year 3 5.2397% 0.05 0.52 5.2657
Year 4 5.2397% 0.05 0.46 5.2627
Year 5 5.2397% 0.05 0.44 5.2617
Source:
https://www.topstockresearch.com/INDIAN_STOCKS/PHARMACEUTICALS/RiskPriceAndValuati
onOfCipla_Ltd.html
Average
Total Average = 5.2625%
Ratios
1. Total Debt/Equity Ratio

The debt-to-equity (D/E) ratio is calculated by dividing a company’s total liabilities by its
shareholder equity. These numbers are available on the balance sheet of a company’s financial
statements.
The ratio is used to evaluate a company's financial leverage. The D/E ratio is an important
metric used in corporate finance. It is a measure of the degree to which a company is financing
its operations through debt versus wholly-owned funds. More specifically, it reflects the ability
of shareholder equity to cover all outstanding debts in the event of a business downturn.
Year Total Liabilities’ Total Shareholders’ Debt/Equity

Equity
Year 1 – 2014-15 15191.82 11090.15 1.36
Year 2 – 2015-16 16019.46 12339.29 1.29
Year 3 – 2016-17 15607.02 12800.52 1.21
Year 4 – 2017-18 17092.97 14113.52 1.21
Year 5 – 2018-19 18418.81 15781.91 1.16
2. LTD/E Ratio
The long-term debt to equity ratio is a method used to determine the leverage that
a business has taken on. To derive the ratio, divide the long-term debt of an entity
by the aggregate amount of its common stock and preferred stock.
Long-term debt ÷ Total Equity = Long-term debt to equity ratio

Year Long Term Debt Total Equity LTD / E Ratio
Year 1 – 2014-15 522.93 11090.15 0.047
Year 2 – 2015-16 598.97 12339.29 0.048
Year 3 – 2016-17 250.88 12800.51 0.019
Year 4 – 2017-18 249.75 14113.52 0.017
Year 5 – 2018-19 268.82 15781.91 0.017
When the ratio is comparatively high, it implies that a business is at greater risk of
bankruptcy, since it may not be able to pay for the interest expense on the debt if
its cash flows decline. This is more of a problem in periods when interest rates are
increasing, or when the cash flows of a business are subject to a large amount of
variation, or when an entity has relatively minimal cash reserves available to pay
down its debt obligations.
3. STD/E Ratio
Short-term debt is the amount of a loan that is payable to the lender within one
year. In the balance sheet, this amount is classified as a short-term liability. All
other debts with longer repayment periods are classified as long-term debt on the
balance sheet.
The balance in the short-term debt account is a major consideration when

evaluating the liquidity of a business. If the proportion of this debt to the amount of
liquid assets is too high, an analyst might conclude that the firm is facing a liquidity
crisis and so will downgrade its credit rating.
Year Short Term Debt Total Equity STD/E Ratio
Year 1 – 2014-15 3578.74 11090.15 0.322
Year 2 – 2015-16 3081.2 12339.29 0.249
Year 3 – 2016-17 2555.83 12800.51 0.199
Year 4 – 2017-18 2731.7 14113.52 0.193
Year 5 – 2018-19 2368.08 15781.91 0.150

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Cipla

It is a pharmaceutical company incorporated in 1935 with over 25,000+ employees and a

CAPM (Capital Asset Pricing Model)

Year 1 5.2397% 0.05 0.45 5.2622

1. Total Debt/Equity Ratio

Year Total Liabilities’ Total Shareholders’ Debt/Equity

Long-term debt ÷ Total Equity = Long-term debt to equity ratio

The balance in the short-term debt account is a major consideration when

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