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A STUDY ON VARIOUS DETERMINANTS OF PROFITS
USING REGRESSION ANALYSIS
T E A M - 1 0
Bharaneedharan T.M.R. 1511021
Hari Prasad M 1511032
Maheswaran Selvaraj 1511052
Meenu Nivethitha S 1511056
Monika M.S. 1511060
Muthukaruppan K 1511061
Rohini M 1511082
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Introduction• Profit is a source of income for any business
• Profit is calculated by subtracting a company's total expenses from
total revenue, thus showing what the company has earned or lost in a
given period of time
• A business can only earn profit if it is managed efficiently
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Importance of Profit• Survival
• Expansion and Growth
• Index for Success
• Motivation to Businessman
• Helps to Gain Reputation
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Objective of the Study
The objective is to determine which ratio is the best determinant
of profit by using regression equation by considering 100 companies
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Source of the Data• The data collected for the purpose is a secondary data
• Secondary Data is basically a kind of data that has been collected through
secondary sources
• It provides a basis for comparison for the data that is collected by the researcher
• The required data for the study is collected from Prowess
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Data Collection
• The data required for the study is the profit of the companies
of various sectors and the financial ratios for those companies
• By using the financial ratios we determine the profit
determining factor for all the companies as a whole
• All the data required are collected in prowess
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Prowess• Prowess is a database of the financial performance of nearly 27,422 companies
• It includes all companies traded on:
• National Stock Exchange
• Bombay Stock Exchange
• Unlisted public limited companies
• Hundreds of private limited companies.
• Prowess is an indispensable source to understand the performance of active
business enterprises in India.
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Tools for Analysis
• The required determination is done using regression analysis
• The regression analysis is done with the help of the software SPSS
• The interpretation is done from the output arrived from SPSS
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Regression Analysis
• Regression is a statistical technique to determine the linear
relationship between two or more variables
• In its simplest form, regression shows the relationship between one
independent variable (X) and a dependent variable (Y), as in the
formula below:
Y=a +bX
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Multiple regression models• By multiple regression, we mean models with just one dependent and
two or more independent (exploratory) variables• The variable whose value is to be predicted is known as the dependent
variable• The ones whose known values are used for prediction are known
independent (exploratory) variables
• Y=a + β1X1 + β 2X2 + β 3X3
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Independent Variables• Current Ratio
• Debt – Equity Ratio
• Inventory Turnover
• Return on Total Asset
• Asset Turnover
• Market Capitalisation
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Current RatioThe current ratio is a liquidity ratio that measures a company's
ability to pay short-term and long-term obligations. The current ratio is an important measure of liquidity because short-term liabilities are due within the next year.
Current Ratio = Current Asset / Current Liability
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Debt – Equity RatioThe debt-equity ratio is a leverage ratio that compares a
company's borrowed capital to its owned capital. This is a measurement of how much suppliers, lenders, creditors and obligors have committed to the company versus what the shareholders have committed.
Debt-Equity Ratio = Debt / Equity
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Inventory Turnover RatioThe inventory turnover ratio is an efficiency ratio that shows how
effectively inventory is managed by comparing cost of goods sold with average inventory for a period. This measures how many times average inventory is "turned" or sold during a period.
Inventory Turnover Ratio = Cost of Goods sold / Average inventory
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Return on Total AssetThe return on assets ratio, often called the return on total assets,
is a profitability ratio that measures the net income produced by total assets during a period by comparing net income to the average total assets. In other words, the return on assets ratio or ROA measures how efficiently a company can manage its assets to produce profits during a period.
Return on assets ratio = Net Income / Total Assets
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Asset Turnover RatioThe asset turnover ratio is an efficiency ratio that measures a
company's ability to generate sales from its assets by comparing net sales with average total assets. In other words, this ratio shows how efficiently a company can use its assets to generate sales.
Asset Turnover Ratio = Net Sales / Total Assets
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Market Capitalization RatioThe capitalization ratio measures the debt component of a
company's capital structure, or capitalization (i.e., the sum of long-term debt liabilities and shareholders' equity) to support a company's operations and growth.
Market capitalization ratio = Long term debt / Long term debt + Equity
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Analysis and Interpretations• With the help of Prowess, we have collected different ratios like current ratio, Debt
equity ratio, Inventory turnover ratio, Return on total asset, Asset turnover ratio and
market capitalization ratio
• which are the determinant of profit for 100 companies
• we have collected the profit after tax for all the 100 companies
• All the data’s collected from the Prowess are entered in SPSS
• Since we need to know the determinant of profit
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FindingsRatio• Current ratio• Debt to equity ratio• Inventory turnover ratio• Return on total asset ratio• Asset turnover ratio• Market capitalisation ratio
Significance0.5320.8170.9330.2420.3170.000
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Recommendations• From our analysis, it is determined that in general, the inventory
turnover ratio has a great impact on profit and so the firm must concentrate on the turnover rate of inventory.
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Limitations• The conclusions drawn from the ratios can be no better than the
standards against which they are compared• When the two companies are of substantially different size, age and
diversified products,, comparison between them will be more difficult• If companies resort to ‘window dressing’, outsiders cannot look into
the facts and affect the validity of comparison• Ratios do not provide a definite answer to financial problems• Thus, one must rely upon one’s own good sense in selecting and
evaluating the ratios
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Conclusion• From our analysis, it is determined that in general, the inventory turnover ratio
has a great impact on profit and so the firm must concentrate on the turnover
rate of inventory
• each firm can concentrate individually on their determinant to maximize the
profit by knowing their factor which affects the profit
• The factor may vary from firm to firm so it is necessary for each firm to know
about their profit determinant
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THANK YOU…