Presentation by Teritree Technologies at Zensar TechShowcase - An iSPIRT ProductNation initiative
CHAPTER V Introduction -...
Transcript of CHAPTER V Introduction -...
CHAPTER V
Introduction
The question of determination of profit is of great importance because profit is
a very important aspect of business. The task of management is maximization of
profits and the efficiency of a business is measured by the amount of profit earned. A
business is considered to be more efficient only if it earns more profit. The profit of a
business may be measured by studying the profitability of investments in it.
Profitability is the ability of a given investment to earn a return from its use. This
ability is referred to as learning power or operating performance of the concerned
investment. Profitability is a relative term and its measurement can be achieved by
profit and its relation with the other objects by which the profit is affected. The
profitability is the most powerful motivational factor in any business. It is the test of
efficiency and the measure of control.
The main changes in the IT industry environment include variation in partial
decontrol, number of new entrants, substantial addition of capacity by existing
companies and changing technology, etc.
The profitability of a company is determined mainly by three factors, namely
structure of the company and the market, goals of the management and Government
policies and other external constraints. There are number of cross-sectional studies
which provide direct evidence about the determinants of profitability. These studies
broadly support the view that one variable, namely, growth rate of sales is important
determinants of the profitability. However, in addition to the above cited and
empirically tested variables, in addition, two more variables, namely, the current ratio
and operating expenses to sales ratio.
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TABLE NO. 5.1
GROSS PROFIT RATIO
Gross Profit Ratio of selected software companies in India from 1999-2000 to 2008-2009
(Rs.in Crores)
Year 3i InfoTech Siemens Hexaware Infosys NIIT Mphasis TCS Tech-
Mahindra Wipro Zensar
1999-2000 -132.8 352.7 365.5 218.3 156.2 326.5 186.0 136.6 168.9 -9.5
2000-2001 995.8 499.3 307.1 200.8 168.7 225.8 274.0 137.9 154.7 196.1
2001-2002 197.0 184.3 369.3 189.0 202.8 193.2 429.7 136.0 152.0 204.4
2002-2003 273.0 233.8 256.6 202.8 316.2 190.4 332.7 134.1 156.3 212.6
2003-2004 459.7 216.2 242.6 215.7 250.9 210.7 303.3 171.9 248.0 271.6
2004-2005 416.4 223.3 263.1 201.4 264.9 391.1 298.1 208.9 238.2 284.5
2005-2006 334.5 224.3 238.0 205.0 269.9 341.1 433.8 238.7 235.3 266.0
2006-2007 284.4 282.5 261.2 207.4 294.5 293.3 363.3 156.1 240.6 267.7
2007-2008 224.6 439.6 292.6 247.5 299.4 332.8 263.7 161.1 229.4 267.9
2008-2009 269.2 396.7 210.6 238.4 239.4 306.6 217.1 155.6 207.1 257.6
Mean 332.2 305.3 280.7 212.6 246.3 281.1 310.2 163.7 203.0 221.9
SD 282.7 109.4 53.0 18.0 54.8 70.9 82.1 34.8 40.4 87.2
CV(%) 85.1 35.8 18.9 8.5 22.2 25.2 26.5 21.3 19.9 39.3
CAGR (%) -1.14 1.39 -4.28 1.62 5.68 3.99 0.69 3.04 4.95 22.74
Compiled and calculated from the data published in CMIE
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Table 5.1 reveals the Gross profit ratio of selected software companies in India
from 1999-2000 to 2008-2009. This Gross Profit Ratio shows a fluctuating trend during
the study period. Gross Profit Ratio ranges between 163.7 percent and 332.2 percent. The
lowest Gross Profit Ratio is found in Tech Mahindra Ltd and the highest Gross Profit
Ratio is found in 3i InfoTech Ltd. The companies namely Tech Mahindra Ltd, Wipro
Ltd, show low Gross Profit Ratio when compared to other companies.
The Standard Deviation of Gross Profit Ratio ranges between 18.0 per cent and
282.7 percent. The lowest standard deviation is found in Infosys Ltd and the highest
standard deviation is found in 3i InfoTech Ltd. It shows a high variation in the Gross
Profit Ratio. The co-efficient variation of Gross Profit Ratio ranges between 8.5 percent
and 85.1 percent. The lowest co-efficient of variation is found in Infosys Ltd and the
highest co-efficient of variation is found in 3i InfoTech Ltd.
The Compound Annual Growth Rate of Gross Profit Ratio has been registered
from -4.28 to 22.74. Among the ten companies, 2 companies namely, Hexaware Ltd, 3i
InfoTech Ltd, indicate a negative annual growth rate.
Inference
It is inferred that the lowest Gross Profit Ratio is found in Tech Mahindra Ltd
which may lead to decrease in sales volume and high competition. On the other hand the
highest Gross Profit Ratio is found in 3i InfoTech Ltd may result in increase in selling
price without any proportionate.
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EXHIBIT NO. 4
GROSS PROFIT RATIO
Gross Profit Ratio of Selected Software Companies in India from 1999-2000 to 2008-2009
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TABLE NO. 5.2
NET PROFIT RATIO
Net Profit Ratio of Selected Software Companies in India from 1999-2000 to 2008-2009
(Rs.in Crores)
Year 3i InfoTech Siemens Hexaware Infosys NIIT Mphasis TCS Tech-
Mahindra Wipro Zensar
1999-2000 95.1 3086.0 717.5 301.3 404.3 27497.7 1706.5 374.2 971.7 8.7
2000-2001 151.5 1340.9 571.9 302.2 334.6 844.4 1278.9 400.8 477.4 615.5
2001-2002 1312.3 1787.2 -180.8 322.2 716.4 366.4 2768.4 413.1 402.8 627.2
2002-2003 1427.0 1573.4 1097.7 378.2 3849.2 306.8 1971.3 351.3 498.0 1185.2
2003-2004 1618.5 1084.1 509.6 382.9 917.7 289.6 1907.1 726.5 567.6 905.5
2004-2005 1175.6 1265.5 586.3 360.3 1771.6 493.8 2721.4 1297.8 486.9 469.0
2005-2006 704.0 1148.3 458.8 372.9 1251.5 499.4 2090.7 547.0 508.0 911.9
2006-2007 517.0 1331.5 347.8 347.7 1185.2 838.5 1598.5 2782.7 484.1 821.9
2007-2008 445.2 1350.8 -4356.9 350.1 1426.2 771.6 976.9 1053.4 576.4 740.1
2008-2009 285.7 1451.1 1362.8 348.8 1155.7 548.8 641.9 441.9 726.8 697.7
Mean 773.2 1541.9 111.5 346.7 1301.2 3245.7 1766.2 838.9 570.0 698.3
SD 563.4 578.9 1623.8 29.5 999.7 8523.8 686.4 754.1 165.3 313.2
CV(%) 72.9 37.5 1456.7 8.5 76.8 262.6 38.9 89.9 29.0 44.8
CAGR (%) 6.41 -0.46 13.50 1.62 12.46 -16.44 -7.53 12.72 -0.23 27.94
Compiled and calculated from the data published in CMIE
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Table 5.2 reveals the Net Profit Ratio of selected software companies in India
from 1999-2000 to 2008-2009. This Net Profit Ratio shows a fluctuating trend during the
study period. Net Profit Ratio ranges between 111.5 percent and 3245.7 percent. The
lowest Net Profit Ratio is found in Hexaware Ltd and the highest Net Profit ratio is found
in Mphasis Ltd. The companies namely Hexaware Ltd, Infosys Ltd, show low Net Profit
Ratio when compared to other companies.
The Standard Deviation of Net Profit Ratio ranges between 29.5 percent and
8523.8 percent. The lowest standard deviation is found in Infosys Ltd and the highest
standard deviation is found in Mphasis Ltd. It shows a high variation in the Net Profit
Ratio. The co-efficient of variation of Net Profit Ratio ranges between 8.5 percent and
1456.7 percent. The lowest co-efficient of variation is found in Infosys Ltd and the
highest co-efficient of variation is found in Hexaware Ltd.
The Compound Annual Growth Rate of Net Profit Ratio has been registered from
-16.44 to 27.94. Among the ten companies, 4 companies namely, Siemens Ltd, Mphasis
Ltd, TCS Ltd, Wipro Ltd indicate a negative annual growth rate.
Inference
It is inferred that the lowest Net Profit Ratio is found in Hexaware Ltd, which
may lead to low performance of the business. On the other hand the highest Net Profit
Ratio is found in Mphasis Ltd may result in high return to the shareholder.
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EXHIBIT NO. 5
NET PROFIT RATIO
Net Profit Ratio of Selected Software Companies in India from 1999-2000 to 2008-2009
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TABLE NO. 5.3
OPERATING PROFIT RATIO
Operating Profit Ratio of Selected Software Companies in India from 1999-2000 to 2008-2009
(Rs.in crores)
Year 3i InfoTech Siemens Hexaware Infosys NIIT Mphasis TCS Tech-
Mahindra Wipro Zensar
1999-2000 59.9 969.3 428.8 229.0 274.8 823.1 831.6 290.3 613.8 5.2
2000-2001 80.0 828.4 360.6 233.8 271.0 461.0 572.8 303.5 361.1 435.5
2001-2002 266.7 918.7 -239.2 234.2 465.2 286.7 853.1 277.5 311.7 288.4
2002-2003 311.0 816.6 481.3 266.6 564.1 249.7 512.4 264.3 371.9 547.6
2003-2004 419.5 678.0 346.5 279.7 450.2 258.0 878.8 526.5 428.3 508.3
2004-2005 474.8 793.1 428.6 274.5 730.8 433.8 934.5 789.2 375.0 351.3
2005-2006 381.9 745.7 365.6 286.3 573.9 413.1 848.1 433.1 384.5 549.1
2006-2007 338.8 871.9 296.7 278.1 519.0 574.9 834.0 1289.9 388.3 543.4
2007-2008 251.4 872.4 4564.8 263.6 511.7 519.6 558.0 728.7 431.2 478.5
2008-2009 173.9 897.3 783.7 270.1 454.9 402.5 391.6 363.2 497.2 491.3
Mean 275.8 839.1 781.7 261.6 481.6 442.2 721.5 526.6 416.3 419.9
SD 138.5 85.8 1352.7 21.3 136.9 172.1 191.4 327.3 85.2 169.6
CV(%) 50.2 10.2 173.0 8.1 28.4 38.9 26.5 62.2 20.5 40.4
CAGR (%) 12.46 -2.73 15.35 2.09 6.17 0.00 -3.17 11.43 0.23 30.92
Compiled and calculated from the data published in CMIE
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Table 5.3 reveals the Operating Profit Ratio of selected software companies in
India from 1999-2000 to 2008-2009. This Operating Profit Ratio shows a fluctuating
trend during the study period. Operating Profit Ratio ranges between 261.6 percent and
839.1 percent. The lowest Operating Profit Ratio is found in Infosys Ltd and the highest
Operating Profit Ratio is found in Siemens Ltd. The companies namely, Infosys Ltd, 3i
InfoTech Ltd, show low Operating Profit Ratio when compared to other companies.
The Standard Deviation of Operating Profit Ratio ranges between 21.3 percent
and 1352.7 percent. The lowest standard deviation is found in Infosys Ltd and the highest
standard deviation is found in Hexaware Ltd. It shows a high variation in the Operating
Profit Ratio. The co-efficient variation of Operating Profit Ratio ranges between 8.1
percent and 173.0 percent. The lowest co-efficient of variation is found in Infosys Ltd
and the highest co-efficient of variation is found in Hexaware Ltd.
The Compound Annual Growth Rate of Operating Profit Ratio has been
registered from -3.17 to 30.92. Among the ten companies, 2 companies namely, Siemens
Ltd, TCS Ltd, indicate a negative annual growth rate.
Inference
It is inferred that the lowest Operating Profit Ratio is found in Infosys Ltd which
may lead to high profitability. On the other hand the highest Operating Profit Ratio is
found in Siemens Ltd may result in low profit and inefficiency of management.
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EXHIBIT NO. 6
OPERATING PROFIT RATIO
Operating Profit Ratio of Selected Software Companies in India from
1999-2000 to 2008-2009
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TABLE NO. 5.4
RETURN ON CAPITAL EMPLOYED
Return On Capital Employed of Selected Software Companies in India from 1999-2000 to 2008-2009
(Rs.in.crores)
Year 3i InfoTech Siemens Hexaware Infosys NIIT Mphasis TCS Tech-
Mahindra Wipro Zensar
1999-2000 39.80 30.88 29.96 41.12 47.02 22.35 49.75 52.42 43.64 3.84
2000-2001 15.48 34.57 19.02 50.46 41.30 4.59 21.14 48.50 42.13 23.54
2001-2002 21.00 33.25 -18.41 45.32 18.14 6.92 13.61 50.65 42.66 28.71
2002-2003 21.09 37.46 8.39 40.78 7.70 8.47 24.33 52.67 31.33 19.77
2003-2004 14.47 24.87 18.86 38.36 29.45 27.26 22.01 27.50 27.13 25.19
2004-2005 11.24 19.98 20.16 41.59 10.58 9.46 26.91 21.51 35.41 33.73
2005-2006 9.78 25.31 28.40 37.22 12.95 15.51 8.21 34.32 34.53 24.34
2006-2007 9.31 27.45 18.80 39.06 14.95 20.57 8.62 20.05 34.31 24.32
2007-2008 8.92 32.99 1.45 36.81 17.34 29.72 13.90 31.27 24.33 29.16
2008-2009 12.11 25.39 10.32 37.53 17.48 27.53 22.28 57.71 22.44 28.93
Mean 16.3 29.2 13.7 40.8 21.7 17.2 21.1 39.7 33.8 24.2
SD 9.4 5.4 14.2 4.3 13.2 9.5 12.0 14.2 7.6 8.1
CV(%) 57.4 18.6 103.9 10.4 61.0 54.9 57.0 35.8 22.4 33.6
CAGR (%) -12.10 -3.17 -13.50 -2.28 -9.01 13.76 -9.01 -4.94 -6.03 12.72
Compiled and calculated from the data published in CMIE
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Table 5.4 reveals the Return on Capital Employed of selected software
companies in India from 1999-2000 to 2008-2009. This Return On Capital Employed
shows a fluctuating trend during the study period. Return On Capital Employed
ranges between 13.7 percent and 40.8 percent. The lowest Return on Capital
Employed is found in Hexaware Ltd and the highest Return on Capital Employed is
found in Infosys Ltd. The companies namely Hexaware Ltd, and 3i InfoTech Ltd,
show low Return On Capital Employed when compared to other companies.
The Standard Deviation of Return on Capital Employed ranges between 4.3
percent and 14.2 percent. The lowest standard deviation is found in Infosys Ltd and
the highest standard deviation is found in Hexaware Ltd and Tech Mahindra Ltd. It
shows a high variation in the Return On Capital Employed. The co-efficient variation
of Return On Capital Employed ranges between 10.4 percent and 103.9 percent. The
lowest co-efficient of variation is found in Infosys Ltd and the highest co-efficient of
variation is found in Hexaware Ltd.
The Compound Annual Growth Rate of Return On Capital Employed has
been registered from -13.50 to 13.76. Among the ten companies, 8 companies namely,
3i InfoTech Ltd, Siemens Ltd, Hexaware Ltd, , Infosys Ltd, NIIT Ltd, TCS Ltd, Tech
Mahindra Ltd, and Wipro Ltd, indicate a negative annual growth rate.
Inference
It is inferred that the lowest Return On Capital Employed is found in
Hexaware Ltd which indicate that amount of capital employed in the firm was not
properly utilized. On the other hand the highest Return on Capital Employed is found
in Infosys Ltd, which may result in more efficiency in the utilization of capital
employed.
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TABLE NO. 5.5
CAPITAL TURNOVER RATIO
Capital Turnover Ratio of Selected Software Companies in India from 1999-2000 to 2008-2009
(Rs.in.crores)
Year 3i InfoTech Siemens Hexaware Infosys NIIT Mphasis TCS Tech-
Mahindra Wipro Zensar
1999-2000 0.24 2.99 1.28 0.94 1.29 1.84 4.14 1.52 2.68 0.00
2000-2001 0.12 2.86 0.69 1.18 1.12 0.21 1.21 1.47 1.52 1.03
2001-2002 0.56 3.05 0.44 1.06 0.84 0.20 1.16 1.41 1.33 0.83
2002-2003 0.66 3.06 0.40 1.09 0.43 0.21 1.25 1.39 1.16 1.08
2003-2004 0.61 1.69 0.65 1.07 1.33 0.70 1.93 1.45 1.16 1.28
2004-2005 0.53 1.58 0.86 1.14 0.77 0.41 2.51 1.70 1.33 1.18
2005-2006 0.37 1.89 1.04 1.07 0.74 0.64 0.70 1.49 1.33 1.34
2006-2007 0.32 2.39 0.56 1.09 0.78 1.18 0.72 2.59 1.33 1.32
2007-2008 0.22 2.88 0.66 0.97 0.89 1.54 0.78 2.28 1.05 1.40
2008-2009 0.21 2.28 0.81 1.01 0.80 1.11 0.87 2.10 1.12 1.42
Mean 0.4 2.5 0.7 1.1 0.9 0.8 1.5 1.7 1.4 1.1
SD 0.2 0.6 0.3 0.1 0.3 0.6 1.1 0.4 0.5 0.4
CV(%) 49.6 23.6 36.5 6.8 30.4 73.1 71.1 24.5 33.5 39.0
CAGR (%) -0.92 -2.50 0.00 -0.46 -3.17 13.50 -11.90 5.93 -5.81 47.57
Compiled and calculated from the data published in CMIE
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Table 5.5 reveals the Capital Turnover Ratio of selected software companies in
India from 1999-2000 to 2008-2009. This Capital Turnover Ratio shows a fluctuating
trend during the study period. Capital Turnover Ratio ranges between 0.4 percent and 2.5
percent. The lowest Capital Turnover Ratio is found in 3i InfoTech Ltd and the highest
Capital Turnover Ratio is found in Siemens Ltd. The companies namely 3i InfoTech Ltd,
Hexaware Ltd, show low Capital Turnover Ratio when compared to other companies.
The Standard Deviation of Capital Turnover Ratio ranges between 0.1 percent and
1.1 percent. The lowest standard deviation is found in Infosys Ltd and the highest
standard deviation is found in TCS Ltd. It shows a high variation in the Capital Turnover
ratio. The co-efficient of variation of Capital Turnover Ratio ranges between 6.8 percent
and 73.1 percent. The lowest co-efficient of variation is found in Infosys Ltd and the
highest co-efficient of variation is found in 3i InfoTech Ltd.
The Compound Annual Growth Rate of Capital Turnover Ratio has been
registered from -11.90 to 47.57. Among the ten companies, 6 companies namely, 3i
InfoTech Ltd, Siemens Ltd, Infosys Ltd, TCS Ltd, NIIT Ltd, Wipro Ltd, indicate a
negative annual growth rate.
Inference
It is inferred that the lowest Capital Turnover Ratio is found in 3i InfoTech Ltd
which indicates that the firm has not properly utilized the capital employed. On the other
hand the highest Capital Turnover Ratio employed is found in Siemens Ltd which may
result proper utilization of capital employed and efficient management
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TABLE NO. 5.6
RETURN ON SHAREHOLDERS FUND
Return on Shareholder Fund of Selected Software Companies in India from 1999-2000 to 2008-2009
(Rs.in.crores)
Year 3i InfoTech Siemens Hexaware Infosys NIIT Mphasis TCS Tech-
Mahindra Wipro Zenser
1999-2000 75.07 18.05 20.06 35.22 34.51 0.71 70.51 43.19 31.55 2.86
2000-2001 30.18 29.62 12.63 45.25 36.24 2.53 15.54 41.42 33.45 18.43
2001-2002 5.28 21.41 -28.36 38.84 13.79 5.46 9.17 38.16 34.20 14.67
2002-2003 6.02 22.80 3.99 33.49 1.35 6.98 16.29 45.34 24.42 10.08
2003-2004 5.67 28.38 13.32 38.22 17.71 25.29 21.25 22.50 26.08 15.43
2004-2005 8.35 24.97 16.56 36.32 5.84 8.75 17.78 14.72 30.55 30.65
2005-2006 10.53 32.63 23.79 35.10 9.35 14.31 3.68 36.82 31.43 17.70
2006-2007 13.93 33.13 16.69 33.88 10.64 15.73 4.80 11.29 30.49 19.80
2007-2008 15.58 37.50 -1.58 33.14 9.01 22.47 8.66 27.86 26.38 22.13
2008-2009 24.72 28.68 6.35 32.67 12.27 22.62 15.90 52.45 23.76 23.76
Mean 19.5 27.7 8.3 36.2 15.1 12.5 18.4 33.4 29.2 17.6
SD 21.2 6.0 15.0 3.8 11.6 8.9 19.2 13.7 3.8 7.6
CV(%) 108.7 21.5 179.7 10.5 76.8 71.2 104.7 41.0 12.9 43.4
CAGR (%) -4.57 5.57 -12.34 -2.07 -9.05 37.72 -14.26 -4.83 -2.32 15.80
Compiled and calculated from the data published in CMIE
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Table 5.6 reveals that the Return on Shareholder fund of selected software
companies in India from 1999-2000 to 2008-2009. This Return on Shareholder Fund
shows a fluctuating trend during the study period. Return on Shareholder Fund ranges
between 8.3 percent and 36.2 percent. The lowest Return on Shareholder Fund is found in
Hexaware Ltd and the highest Return on Shareholder Fund is found in Infosys Ltd. The
companies namely, Hexaware Ltd, Mphasis Ltd, show low Return on Shareholder Fund
when compared to other companies.
The Standard Deviation of Return on Shareholder Fund ranges between 3.8 per
cent and 21.2 percent. The lowest standard deviation is found in Infosys Ltd, and Wipro
Ltd, and the highest standard deviation is found in 3i InfoTech Ltd. It shows a high
variation in the Return on Shareholder Fund. The co-efficient variation of return on
Shareholder Fund ranges between 10.5 percent and 179.7 percent. The lowest co-efficient
of variation is found in Infosys Ltd and the highest co-efficient of variation is found in
Hexaware Ltd.
The Compound Annual Growth Rate of Return On Shareholder Fund has been
registered from -12.34 to 37.72. Among the ten companies, 7 companies namely, 3i
InfoTech Ltd, Hexaware Ltd, Infosys Ltd, NIIT Ltd ,TCS Ltd, Tech Mahindra Ltd, and
Wipro Ltd, indicate a negative annual growth rate.
Inference
It is inferred that the lowest Return On Shareholder Fund is found in Hexaware
Ltd which indicates that the firm has not properly utilized the capital employed. On the
other hand the highest Return on Shareholder Fund employed is found in Infosys Ltd
which may result proper utilization of capital employed and efficient management.
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TABLE NO. 5.7
OWNED CAPITAL TURNOVER RATIO
Owned Capital Turnover Ratio of Selected Software Companies in India from 1999-2000 to 2008-2009
(Rs.in.crores)
Year 3i InfoTech Siemens Hexaware Infosys NIIT Mphasis TCS Tech-
Mahindra Wipro Zensar
1999-2000 0.71 5.57 1.44 1.06 1.40 1.96 12.03 1.62 3.07 0.00
2000-2001 0.46 3.97 0.72 1.37 1.21 0.21 1.99 1.66 1.60 1.13
2001-2002 0.69 3.83 0.51 1.25 0.99 0.20 2.54 1.58 1.38 0.92
2002-2003 0.86 3.59 0.44 1.27 0.52 0.21 3.21 1.59 1.22 1.19
2003-2004 0.92 3.08 0.68 1.46 1.63 0.73 4.05 1.63 1.48 1.40
2004-2005 0.98 3.16 0.97 1.31 1.04 0.43 4.84 1.91 1.49 1.44
2005-2006 0.74 3.75 1.09 1.31 1.17 0.71 0.77 2.01 1.60 1.61
2006-2007 0.72 4.41 0.58 1.18 1.26 1.32 0.77 3.14 1.48 1.63
2007-2008 0.69 5.07 0.69 1.16 1.28 1.73 0.85 2.93 1.52 1.64
2008-2009 0.71 4.16 0.87 1.14 1.42 1.24 1.02 2.32 1.73 1.66
Mean 0.7 4.1 0.8 1.3 1.2 0.9 3.2 2.0 1.7 1.3
SD 0.1 0.8 0.3 0.1 0.3 0.7 3.4 0.6 0.5 0.5
CV(%) 19.4 19.4 37.8 9.5 25.2 74.3 106.8 28.4 31.1 40.3
CAGR (%) 1.61 -0.03 -0.72 -0.50 2.30 14.99 -20.75 7.25 -2.59 50.31
Compiled and calculated from the data published in CMIE
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Table 5.7 reveals the Owned Capital Turnover Ratio of selected software
companies in India from 1999-2000 to 2008-2009. This Owned Capital Turnover Ratio
shows a fluctuating trend during the study period. Owned Capital Turnover Ratio ranges
between 0.7 percent and 4.1 percent. The lowest Owned Capital Turnover Ratio is found
in 3i InfoTech Ltd and the highest Owned Capital Turnover Ratio is found in Siemens
Ltd.The companies namely 3i InfoTech Ltd, and Hexaware Ltd, show low Owned
Capital Turnover Ratio when compared to other companies.
The Standard Deviation of Owned Capital Turnover Ratio ranges between 0.1
percent and 3.4 percent. The lowest standard deviation is found in 3i InfoTech Ltd, and
Infosys Ltd and the highest standard deviation is found in TCS Ltd. It shows a high
variation in the Owned Capital Turnover Ratio. The co-efficient variation of Owned
Capital Turnover Ratio ranges between 9.5 percent and 106.8 percent. The lowest co-
efficient of variation is found in Infosys Ltd and the highest co-efficient of variation is
found in TCS Ltd.
The Compound Annual Growth Rate of Owned Capital Turnover Ratio has been
registered from -20.75 to 50.31. Among the ten companies, 5 companies namely,
Siemens Ltd, Hexaware Ltd, Infosys Ltd, TCS Ltd, and Wipro Ltd, indicate a negative
annual growth rate.
Inference
It is inferred that the lowest Owned Capital Turnover Ratio is found in 3i
InfoTech Ltd which indicates that the firm has not properly utilized the capital employed.
On the other hand the highest Owned Capital Turnover Ratio employed is found in
Siemens Ltd which may result proper utilization of capital employed and efficient
management
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TABLE NO. 5.8
EXPENSES RATIO
Expenses Ratio of Selected Software Companies in India from 1999-2000 to 2008-2009
(Rs.in.crores)
Year 3i InfoTech Siemens Hexaware Infosys NIIT Mphasis TCS Tech-
Mahindra Wipro Zensar
1999-2000 314.60 101.45 87.62 71.86 79.07 101.64 65.24 75.51 95.15 4183.33
2000-2001 195.32 97.81 84.46 70.33 73.01 90.24 89.37 77.31 81.16 93.16
2001-2002 95.96 100.91 161.16 71.82 91.58 77.52 97.26 79.08 79.60 104.82
2002-2003 98.34 99.94 94.68 76.83 103.36 70.20 96.03 75.53 83.41 94.87
2003-2004 107.00 100.77 97.01 76.57 98.34 70.22 96.14 89.46 84.99 95.09
2004-2005 101.26 99.64 87.83 74.78 97.37 85.19 97.02 93.64 80.84 92.97
2005-2006 93.28 100.31 82.23 75.92 96.36 82.40 96.58 84.44 82.37 90.64
2006-2007 138.03 98.46 90.58 75.09 96.08 88.26 100.31 98.92 82.02 90.41
2007-2008 105.17 99.78 114.14 77.66 100.78 88.37 90.60 93.82 85.60 91.16
2008-2009 133.88 98.16 96.87 77.15 98.98 84.84 86.14 78.37 88.88 87.74
Mean 138.3 99.7 99.7 74.8 93.5 83.9 91.5 84.6 84.4 502.4
SD 69.3 1.2 23.4 2.6 9.8 9.5 10.2 8.7 4.6 1293.3
CV(%) 50.1 1.2 23.5 3.4 10.5 11.3 11.1 10.3 5.5 257.4
CAGR (%) -6.14 -0.17 -0.24 0.91 2.64 -0.27 1.70 1.95 -0.11 -19.57
Compiled and calculated from the data published in CMIE
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Table 5.8 reveals the Expenses Ratio of selected software companies in India
from 1999-2000 to 2008-2009. This Expenses Ratio shows a fluctuating trend during the
study period. Expenses Ratio ranges between74.8 percent and 502.4 percent. The lowest
Expenses Ratio is found in Infosys Ltd and the highest Expenses Ratio is found in Zensar
Ltd. The companies namely Infosys Ltd, Mphasis Ltd show low expenses ratio when
compared to other companies.
The Standard Deviation of Expenses Ratio ranges between 1.2 percent and 1293.3
percent. The lowest standard deviation is found in Siemens Ltd, and the highest standard
deviation is found in Zensar Ltd. It shows a high variation in the Expenses Ratio. The co-
efficient of variation of Expenses Ratio ranges between 1.2 percent and 257.4 percent.
The lowest co-efficient of variation is found in Siemens Ltd and the highest co-efficient
of variation is found in Zensar Ltd.
The Compound Annual Growth Rate of Expenses Ratio has been registered from
-19.57 to 2.64. Among the ten companies, 6 companies namely, 3i InfoTech Ltd ,
Siemens Ltd, Hexaware Ltd, Mphasis Ltd, Wipro Ltd, Zensar Ltd, indicate a negative
annual growth rate.
Inference
It is inferred that the lowest Expenses Ratio is found in Siemens Ltd and Infosys
Ltd which may lead to high rate of return .On the other hand the highest Expenses Ratio
employed is found in Zensar Ltd which may result in low Profitability of the company.
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TABLE NO. 5.9
ADMINISTRATION EXPENSES RATIO
Administration Expenses Ratio of Selected Software Companies in India from 1999-2000 to 2008-2009
(Rs.in.Crores)
Year 3i InfoTech Siemens Hexaware Infosys NIIT Mphasis TCS Tech-
Mahindra Wipro Zensar
1999-2000 175.30 70.50 70.46 53.41 28.05 68.02 46.00 25.74 35.97 1100.00
2000-2001 89.96 79.41 16.37 48.95 28.68 54.70 63.35 26.63 31.04 48.63
2001-2002 49.05 44.79 34.09 45.69 35.97 47.91 74.19 25.98 32.53 50.23
2002-2003 62.42 56.38 60.56 49.15 45.19 47.39 68.76 24.99 34.67 52.47
2003-2004 75.04 52.96 58.28 52.34 35.43 52.45 62.02 40.56 57.64 62.68
2004-2005 43.33 54.55 56.62 49.13 39.00 16.39 59.14 40.02 51.00 63.27
2005-2006 43.23 54.72 51.77 48.13 41.71 23.04 55.36 40.75 48.85 61.11
2006-2007 44.32 63.89 43.65 49.04 40.41 37.78 66.16 32.07 49.38 61.22
2007-2008 45.96 76.69 49.23 50.92 41.12 42.23 56.96 35.44 52.25 61.45
2008-2009 53.21 74.25 50.11 49.97 35.87 33.43 48.04 34.19 48.14 60.27
Mean 68.2 62.8 49.1 49.7 37.1 42.3 60.0 32.6 44.1 162.1
SD 40.7 11.8 15.1 2.2 5.5 15.3 8.8 6.5 9.6 329.6
CV(%) 59.7 18.8 30.8 4.4 14.9 36.2 14.7 19.9 21.7 203.3
CGR (%) -10.11 1.18 3.30 -0.06 3.19 -7.42 -0.98 4.37 5.77 -13.04
Compiled and calculated from the data published in CMIE
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Table 5.9 reveals the Administration Expenses Ratio of selected software
companies in India from 1999-2000 to 2008-2009. This Administration Expenses Ratio
shows a fluctuating trend during the study period. Administration Expenses Ratio ranges
between 32.6 percent and 162.1 percent. The lowest Administration Expenses ratio is
found in Tech Mahindra Ltd and the highest Administration Expenses ratio is found in
Zensar Ltd. The companies namely Tech Mahindra Ltd, and NIIT Ltd show low
expenses ratio when compared to other companies.
The standard deviation of Administration Expenses Ratio ranges between 2.2 per
cent and 829.6 percent. The lowest standard deviation is found in Infosys Ltd, and the
highest standard deviation is found in Zensar Ltd. It shows a high variation in the
administration expenses ratio. The co-efficient variation of Administration Expenses
Ratio ranges between 4.4 percent and 203.3 percent. The lowest co-efficient of variation
is found in Infosys Ltd and the highest co-efficient of variation is found in Zensar Ltd.
The Compound Annual Growth Rate of Administration Expenses Ratio has been
registered from -13.04 to 5.77. Among the ten companies, 5 companies namely, 3i
InfoTech Ltd, Infosys Ltd, Mphasis Ltd, TCS Ltd, Zensar Ltd, indicate a negative annual
growth rate.
Inference
It is inferred that the lowest Administration Expenses Ratio and standard
deviation is found in Tech Mahindra Ltd and Infosys Ltd which may lead to high rate of
return .On the other hand the highest Administration Expenses Ratio employed is found
in Zensar Ltd which may result in low Profitability of the company.
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TABLE NO. 5.10
SELLING AND DISTRIBUTION EXPENSES RATIO
Selling and Distribution Expenses Ratio of Selected Software Companies in India from 1999-2000 to 2008-2009
(Rs.in.Crores)
Year 3I InfoTech Siemens Hexaware Infosys NIIT Mphasis TCS Tech-
Mahindra Wipro Zensar
1999-2000 0.00 1.15 2.18 0.79 4.39 1.35 0.24 1.05 4.83 50.00
2000-2001 0.00 0.56 2.05 1.24 7.08 1.01 0.16 0.88 4.32 0.38
2001-2002 0.19 0.95 0.58 1.41 7.43 0.34 0.37 0.50 1.68 0.84
2002-2003 0.95 0.85 0.48 1.55 9.53 0.09 0.05 0.45 1.33 0.51
2003-2004 3.21 0.79 0.50 1.30 7.69 0.08 4.10 1.27 2.03 0.50
2004-2005 3.95 0.67 0.54 1.22 7.30 6.34 7.15 0.87 2.30 0.62
2005-2006 3.16 0.70 0.43 1.12 6.97 3.40 6.52 0.37 2.18 0.39
2006-2007 1.51 0.71 0.74 1.10 9.40 3.53 3.53 0.91 2.15 0.73
2007-2008 1.70 0.56 0.56 0.92 10.02 2.79 0.60 0.56 2.08 0.46
2008-2009 0.53 0.55 0.26 0.71 8.83 3.25 0.79 0.23 1.80 0.55
Mean 1.5 0.8 0.8 1.1 7.9 2.2 2.4 0.7 2.5 5.5
SD 1.5 0.2 0.7 0.3 1.7 2.0 2.8 0.3 1.1 15.6
CV(%) 96.0 25.6 82.6 23.4 21.1 90.6 117.6 47.2 46.5 284.4
CAGR (%) 97.70 -5.25 -15.18 -3.15 5.56 29.12 32.43 -8.57 -6.55 -21.66
Compiled and calculated from the data published in CMIE
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Table 5.10 reveals the Selling and Distribution Expenses Ratio of selected software
companies in India from 1999-2000 to 2008-2009. This Selling and Distribution Expenses
Ratio shows a fluctuating trend during the study period. Selling and Distribution Expenses
Ratio ranges between 0.7 percent and 7.9 percent. The lowest Selling and Distribution
Expenses Ratio is found in Tech Mahindra Ltd and the highest Selling and Distribution
Expenses Ratio is found in NIIT Ltd. The companies namely Tech Mahindra Ltd,Hexaware
Ltd, and Siemens Ltd, show low Selling and Distribution Expenses Ratio when compared to
other companies.
The standard deviation of Selling and Distribution Expenses Ratio ranges between 0.2
percent and 15.6 percent. The lowest standard deviation is found in Siemens Ltd, and the
highest standard deviation is found in Zensar Ltd. It shows a high variation in the Selling and
Distribution Expenses Ratio. The co-efficient variation of Selling and Distribution Expenses
Ratio ranges between 21.1 percent and 284.4 percent. The lowest co-efficient of variation is
found in NIIT Ltd and highest co-efficient of variation is found in zensar Ltd.
The Compound Annual Growth Rate of Selling and Distribution Expenses Ratio has
been registered from -21.66 to 97.70. Among the ten companies, 6 companies namely,
Siemens Ltd, Hexaware Ltd, Infosys Ltd, Tech Mahindra Ltd, Wipro Ltd, Zensar Ltd indicate
a negative annual growth rate.
Inference
It is inferred that the lowest Selling and Distribution Expenses Ratio and standard
deviation is found in Tech Mahindra Ltd and Siemens Ltd which may lead to high rate of
return. On the other hand the highest Selling and Distribution Expenses ratio employed is
found in NIIT Ltd which may result in low Profitability of the company.
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DETERMINANTS OF PROFITABILITY
The Models
The models to be estimated using firm specific cross-section data are proposed as follows:
1P̂ = b0 + b1GROS + b2CR + b3OPES
Where
1P̂ ratio of net profits to total sales
GROS the simple growth rates of sales revenue
CR Current Ratio
OPES Operating Expenses to Sales ratio
The models were estimated using the ordinary least squares method, while estimating, checks were made for model violations such as multi-co-linearity.
MODEL:
1P̂ = b0 + b1 GROS + + b2 CR + b3 OPE
Where, 1
P̂ = Net Profit to Total Sales
b0 = Constant
b1, b2, b3, = Regression Co-efficient.
e = error component
By using model, the following regression analysis was examined and presented. In
this model profitability is measured as net profit to total sales.
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TABLE NO. 5.11
DETERMINANTS OF PROFITABILITY - 3i INFOTECH LTD
S.No. Variables Beta
Co-efficient ‘t’ Value Result
Constant 2684.58
1 Growth rate of Sales -0.16
(0.08) -2.08 NS
2 Current Ratio -125.46
(68.70) -1.83 NS
3 Operating Expenses to Sales Ratio -8.08
(1.69) -4.78 S
R2 value 0.809
Adj. R2 value 0.714
Overall F 8.483
RESULTS
The profitability function 1P̂ is defined as
1P̂ = 2684.58 – 0.16 GROS – 125.46 CR – 8.08 OPES
The estimated regression coefficients, their standard error of the‘t’-values for 3i
InfoTech are presented in the Table No.5.11
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The value of the regression co-efficient of growth rate of sales is negative and its‘t’
value is not significant at 1 and 5 percent level. Therefore, the null hypothesis which states
that there is no relationship between growth rate of sales and profitability was accepted.
Hence, this variable does not influence the profitability of the company.
The second independent variable is current ratio. It is found from the results that the
current ratio has only a small effect on profitability although its co-efficient is not significant
at the 5 percent and 1 percent level. The co-efficient of current ratio where it is not significant
shows that for a 1 percent point increase in profitability, 68.70 percent point increase in
current ratio would be necessary.
The value of the regression co-efficient of operating ratio is negative and its‘t’ value
is significant at 1 per cent level. The null hypothesis of relationship between operating
expenses to sales ratio and profitability was rejected. It is apparent from the results that it is
the strongest structural determinant of profitability that appears to be operating ratio. The co-
efficient also shows that an increase of 1.69 percent points in the operating ratio can result in
a 1 percent point increase in profitability.
The overall explanatory power of the regression appears to be high. It is inferred from
the co-efficient of determination (R2), which is a measure of the extent of movement in the
dependent variable is explained by the independent variables. It is quite high i.e. 81 percent
and the adjusted explanation is around 71 percent which is highly significant.
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TABLE NO. 5.12
DETERMINANTS OF PROFITABILITY - SIEMENS LTD
S.No. Variables Beta
Co-efficient ‘t’ Value Result
Constant -22481.42
1 Growth rate of Sales -6.81
(5.99) -1.14 NS
2 Current Ratio -689.19
(516.91) -1.33 NS
3 Operating Expenses to Sales Ratio 252.05
(140.33) 1.80 NS
R2 value 0.656
Adj. R2 value 0.380
Overall F 2.379
The profitability function 1P̂ is defined as
1P̂ = -10814.35-258.49GROS-1257.04CR-94.84OPES
The estimated regression coefficients, their standard error of the‘t’-values for Siemens
Ltd are presented in the Table No. 5.12.
The value of the regression co-efficient of growth rate of sales is negative and its “t’
value is not significant at 1 and 5 percent level. Therefore, the null hypothesis which states
that there is no relationship between growth rate of sales and profitability was accepted.
Hence, this variable does not influence the profitability of the company.
The second independent variable is current ratio. It is found from the results that the
current ratio has only a small effect on profitability although its co-efficient is not significant
at the 5 per cent and 1 percent level. The co-efficient of current ratio where it is not
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significant shows that for a 1 percent point increase in profitability, 516.91 per cent point
increase in current ratio would be necessary.
The value of the regression co-efficient of operating ratio is negative and its”t’ value
is significant at 1 per cent level. The null hypothesis of no relationship between operating
expenses to sales ratio and profitability was accepted. It is apparent from the results that it is
the strongest structural determinant of profitability that appears to be operating ratio. The co-
efficient also shows that an increase of 140.33 percent points in the operating ratio can result
in a 1 percent point increase in profitability.
The overall explanatory power of the regression appears to be high. It is inferred from
the co-efficient of determination (R2), which is a measure of the extent of movement in the
dependent variable is explained by the independent variables. It is quite high i.e. 65 percent
and the adjusted explanation is around .38 percent which is highly significant.
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TABLE NO.5.13
DETERMINANTS OF PROFITABILITY - HEXAWARE LTD
S.No. Variables Beta
Co-efficient ‘t’ Value Result
Constant 4769.47
1 Growth rate of Sales
-17.89
(13.92)
-1.29 NS
2 Current Ratio
47.05
(74.09)
0.64 NS
3 Operating Expenses to Sales Ratio
-34.66
(25.36)
-1.37 NS
R2 value 0.352
Adj. R2 value 0.028
Overall F 1.086
Note : Figures in parentheses are standard errors.
Source : Computed
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The profitability function 1P̂ is defined as
1P̂ = 4769.47-17.89GROS-47.05CR-34.660PES
The estimated regression coefficients, their standard error of the‘t’-values for
Hexaware are presented in the Table No. 5.13.
The value of the regression co-efficient of growth rate of sales is negative and its “t
“value is not significant at 1 and 5 percent level. Therefore, the null hypothesis which states
that there is no relationship between growth rate of sales and profitability was accepted.
Hence, this variable does not influence the profitability of the company.
The second independent variable is current ratio. It is found from the results that the
current ratio has only a small effect on profitability although its co-efficient is not significant
at the 5 percent and 1 per cent level. The co-efficient of current ratio where it is not
significant shows that for a 1 percent point increase in profitability, 74.09 percent point
increase in current ratio would be necessary.
The value of the regression co-efficient of operating ratio is negative and its‘t’ value
is significant at 1 percent level. The null hypothesis of no relationship between operating
expenses to sales ratio and profitability was accepted. It is apparent from the results that it is
the strongest structural determinant of profitability that appears to be operating ratio. The co-
efficient also shows that an increase of 25.36 percent points in the operating ratio can result
in a 1 percent point increase in profitability.
The overall explanatory power of the regression appears to be high. It is inferred from
the co-efficient of determination (R2), which is a measure of the extent of movement in the
dependent variable is explained by the independent variables. It is quite high i.e. 35 percent
and the adjusted explanation is around 1. 08 percent which is highly significant.
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TABLE NO. 5.14
DETERMINANTS OF PROFITABILITY - INFOSYS LTD
S.No. Variables
Beta
Co-efficient
‘t’ Value Result
Constant -549.37
1 Growth rate of Sales -
2
Current Ratio
-1.40
(1.62)
-0.87 NS
3 Operating Expenses to Sales Ratio
12.35
(2.71)
4.56 S
R2 value 0.858
Adj. R2 value 0.786
Overall F 12.04
The profitability function 1P̂ is defined as
1P̂ = -549.37-0.00GROS-1.40CR-12.350OPES
The estimated regression coefficients, their standard error of the‘t’-values for Infosys
Ltd are presented in the Table No. 5.14.
The value of the regression co-efficient of growth rate of sales is negative and its
“t”value is not significant at 1 and 5 percent level. Therefore, the null hypothesis which
states that there is no relationship between growth rate of sales and profitability was accepted.
Hence, this variable does not influence the profitability of the company.
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The second independent variable is current ratio. It is found from the results that the
current ratio has only a small effect on profitability although its co-efficient is not significant
at the 5 per cent and 1 percent level. The co-efficient of current ratio where it is not
significant shows that for a 1 percent point increase in profitability, 1.62 percent point
increase in current ratio would be necessary.
The value of the regression co-efficient of operating ratio is positive and its “t “value
is significant at 1 percent level. The null hypothesis of relationship between operating
expenses to sales ratio and profitability was rejected. It is apparent from the results that it is
the strongest structural determinant of profitability that appears to be operating ratio. The co-
efficient also shows that an increase of 25.36 percent points in the operating ratio can result
in a 1 percent point increase in profitability.
The overall explanatory power of the regression appears to be high. It is inferred from
the co-efficient of determination (R2), which is a measure of the extent of movement in the
dependent variable is explained by the independent variables. It is quite high i.e. 85 percent
and the adjusted explanation is around .78 percent which is highly significant.
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TABLE NO. 5.15
DETERMINANTS OF PROFITABILITY - NIIT LTD
S.No. Variables
Beta
Co-efficient
‘t’ Value Result
Constant -10814.35
1 Growth rate of Sales
-258.49
(88.37)
-2.93 S
2 Current Ratio
1257.04
(229.21)
5.48 S
3 Operating Expenses to Sales Ratio
94.84
(20.35)
4.66 S
R2 value 0.935
Adj. R2 value 0.882
Overall F 17.84
Note : Figures in parentheses are standard errors.
Source : Computed
The profitability function 1P̂ is defined as
1P̂ = -10814.35-258.49GROS-1257.04CR-94.84OPES
The estimated regression coefficients, their standard error of the‘t’-values for NIIT
Ltd are presented in the Table No. 5.15
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The value of the regression co-efficient of growth rate of sales is negative and its‘t’
value is not significant at 1 and 5 percent level. Therefore, the null hypothesis which states
that there is no relationship between growth rate of sales and profitability was accepted.
Hence, this variable does not influence the profitability of the company.
The second independent variable is current ratio. It is found from the results that the
current ratio has only a small effect on profitability although its co-efficient is not significant
at the 5 percent and 1 percent level. The co-efficient of current ratio where it is not significant
shows that for a 1 percent point increase in profitability, 229.21 percent point increase in
current ratio would be necessary.
The value of the regression co-efficient of operating ratio is positive and its”t’ value is
significant at 1 per cent level. The null hypothesis of relationship between operating
expenses to sales ratio and profitability was rejected. It is apparent from the results that it is
the strongest structural determinant of profitability that appears to be operating ratio. The co-
efficient also shows that an increase of 20.35 percent points in the operating ratio can result
in a 1 percent point increase in profitability.
The overall explanatory power of the regression appears to be high. It is inferred from
the co-efficient of determination (R2), which is a measure of the extent of movement in the
dependent variable is explained by the independent variables. It is quite high i.e. 93 percent
and the adjusted explanation is around .88 percent which is highly significant.
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TABLE NO. 5.16
DETERMINANTS OF PROFITABILITY - MPHASIS LTD
S.No. Variables
Beta
Co-efficient
‘t’ Value Result
Constant -53870.49
1 Growth rate of Sales - - -
2 Current Ratio
616.72
(1603.12)
0.38 NS
3 Operating Expenses to Sales Ratio
694.88
(243.27)
2.86 S
R2 value 0.612
Adj. R2 value 0.418
Overall F 3.152
The profitability function 1P̂ is defined as
1P̂ =-5387.49-616.72CR-694.88OPES
The estimated regression coefficients, their standard error of the‘t’-values for Mphasis
Ltd are presented in the Table No. 5.16.
The value of the regression co-efficient of growth rate of sales is negative and its
“t”value is not significant at 1 and 5 percent level. Therefore, the null hypothesis which
states that there is no relationship between growth rate of sales and profitability was accepted.
Hence, this variable does not influence the profitability of the company.
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The third independent variable is current ratio. It is found from the results that the
current ratio has only a small effect on profitability although its co-efficient is not significant
at the 5 percent and 1 percent level. The co-efficient of current ratio where it is not significant
shows that for a 1 percent point increase in profitability, 1603.12 percent point increase in
current ratio would be necessary.
The value of the regression co-efficient of operating ratio is positive and its “t”value
is significant at 5 percent level. The null hypothesis of relationship between operating
expenses to sales ratio and profitability was rejected. It is apparent from the results that it is
the strongest structural determinant of profitability that appears to be operating ratio. The co-
efficient also shows that an increase of 243.27 percent points in the operating ratio can result
in a 5 percent point increase in profitability.
The overall explanatory power of the regression appears to be high. It is inferred from
the co-efficient of determination (R2), which is a measure of the extent of movement in the
dependent variable is explained by the independent variables. It is quite high i.e. 61 per cent
and the adjusted explanation is around .41 percent which is highly significant.
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TABLE NO. 5.17
DETERMINANTS OF PROFITABILITY - TCS LTD
S.No. Variables
Beta
Co-efficient
‘t’ Value Result
Constant 864.11
1 Growth rate of Sales
-26.58
(13.86)
-1.92 NS
2
Current Ratio
-345.64
(187.75)
-1.84 NS
3 Operating Expenses to Sales Ratio
21.59
(15.81)
1.37 NS
R2 value 0.840
Adj. R2 value 0.713
Overall F 6.581
The profitability function 1P̂ is defined as
1P̂ = 864.11-26.58GROS-345.64CR-21.59OPES
The estimated regression coefficients, their standard error of the‘t’-values for Tata Ltd
are presented in the Table No. 5.17.
The value of the regression co-efficient of growth rate of sales is negative and its “t’
value is not significant at 1 and 5 per cent level. Therefore, the null hypothesis which states
that there is no relationship between growth rate of sales and profitability was accepted.
Hence, this variable turned out to be the variable is not influence the profitability of the
company.
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The second independent variable is current ratio. It is found from the results that the
current ratio has only a small effect on profitability although its co-efficient is not significant at
the 5 percent and 1 percent level. The co-efficient of current ratio where it is not significant
shows that for a 1 percent point increase in profitability, 187.75 percent point increase in
current ratio would be necessary.
The value of the regression co-efficient of operating ratio is negative and its”t’ value is
not significant at 1 per cent level. The null hypothesis of no relationship between operating
expenses to sales ratio and profitability was accepted. It is apparent from the results that it is
the strongest structural determinant of profitability that appears to be operating ratio. The co-
efficient also shows that an increase of 15.81 percent points in the operating ratio can result in a
1 percent point increase in profitability.
The overall explanatory power of the regression appears to be high. It is inferred from
the co-efficient of determination (R2), which is a measure of the extent of movement in the
dependent variable is explained by the independent variables. It is quite high i.e. 0.84 percent
and the adjusted explanation is around .71 percent which is highly significant.
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TABLE NO. 5.18
DETERMINANTS OF PROFITABILITY - TECH-MAHINDRA LTD
S.No. Variables
Beta
Co-efficient
‘t’ Value Result
Constant -4640.38
1 Growth rate of Sales
-0.05
(0.32)
-0.17 NS
2 Current Ratio
-89.79
(148.23)
-0.61 NS
3 Operating Expenses to Sales Ratio
68.72
(20.28)
3.39 S
R2 value 0.540
Adj. R2 value 0.313
Overall F 4.521
The profitability function 1P̂ is defined as
1P̂ = -1945.57-2.01GROS-39.52CR-31.14OPES
The estimated regression coefficients, their standard error of the‘t’-values for tech
Mahindra Ltd are presented in the Table No.5.18.
The value of the regression co-efficient of growth rate of sales is negative and its”t’
value is not significant at 1 and 5 per cent level. Therefore, the null hypothesis which states
that there is no relationship between growth rate of sales and profitability was accepted.
Hence, this variable does not influence the profitability of the company.
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The second independent variable is current ratio. It is found from the results that the
current ratio has only a small effect on profitability although its co-efficient is not significant
at the 5 percent and 1 percent level. The co-efficient of current ratio where it is not significant
shows that for a 1 per cent point increase in profitability, 19.27 percent point increase in
current ratio would be necessary.
The value of the regression co-efficient of operating ratio is positive and its “t’ value
is significant at 5 percent level. The null hypothesis of relationship between operating
expenses to sales ratio and profitability was rejected. It is apparent from the results that it is
the strongest structural determinant of profitability that appears to be operating ratio. The co-
efficient also shows that an increase of 2.54 percent points in the operating ratio can result in
a 1 percent point increase in profitability.
The overall explanatory power of the regression appears to be high. It is inferred from
the co-efficient of determination (R2), which is a measure of the extent of movement in the
dependent variable is explained by the independent variables. It is quite high i.e. 0.54 percent
and the adjusted explanation is around 0.31 percent which is highly significant.
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TABLE NO. 5.19
DETERMINANTS OF PROFITABILITY - WIPRO LTD
S.No. Variables
Beta
Co-efficient
‘t’ Value Result
Constant -1945.57
1 Growth rate of Sales
2.01
(1.12)
1.79 NS
2 Current Ratio
-39.52
(19.27)
-2.05 NS
3 Operating Expenses to Sales Ratio
31.14
(2.54)
12.27 S
R2 value 0.989
Adj. R2 value 0.979
Overall F 107.756
The profitability function 1P̂ is defined as
1P̂ = -1945.57-2.01GROS-39.52CR-31.14OPES
The estimated regression coefficients, their standard error of the‘t’-values for Wipro Ltd
are presented in the Table No. 5.19
The value of the regression co-efficient of growth rate of sales is negative and it’s’ value
is not significant at 1 and 5 percent level. Therefore, the null hypothesis which states that there
is relationship between growth rate of sales and profitability was rejected. Hence, this variable
does not influence the profitability of the company.
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The second independent variable is current ratio. It is found from the results that the
current ratio has only a small effect on profitability although its co-efficient is not significant at
the 5 per cent and 1 percent level. The co-efficient of current ratio where it is not significant
shows that for a 1 percent point increase in profitability, 19.27 percent point increase in current
ratio would be necessary.
The value of the regression co-efficient of operating ratio is positive and its”t’ value is
significant at 1 per cent level. The null hypothesis of relationship between operating expenses
to sales ratio and profitability was rejected. It is apparent from the results that it is the strongest
structural determinant of profitability that appears to be operating ratio. The co-efficient also
shows that an increase of 2.54 percent points in the operating ratio can result in a 1 percent point
increase in profitability.
The overall explanatory power of the regression appears to be high. It is inferred from
the co-efficient of determination (R2), which is a measure of the extent of movement in the
dependent variable is explained by the independent variables. It is quite high i.e. 0.98 percent
and the adjusted explanation is around 0.97 percent which is highly significant.
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TABLE NO. 5.20
DETERMINANTS OF PROFITABILITY - ZENSAR LTD
S.No. Variables
Beta
Co-efficient
‘t’ Value Result
Constant 2792.17
1 Growth rate of Sales - -
2 Current Ratio
-490.58
(194.04)
-2.53 S
3 Operating Expenses to Sales Ratio
-0.54
(0.15)
-3.71 S
R2 value 0.807
Adj. R2 value 0.711
Overall F 8.387
The profitability function 1P̂ is defined as
1P̂ = 864.11-26.58GROS-345.64CR-21.59OPES
The estimated regression coefficients, their standard error of the‘t’-values for Zensar Ltd
are presented in the Table No. 5.20
The value of the regression co-efficient of growth rate of sales is negative and its”t’
value is not significant at 1 and 5 per cent level. Therefore, the null hypothesis which states that
there is no relationship between growth rate of sales and profitability was accepted. Hence, this
variable does not influence the profitability of the company.
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The second independent variable is current ratio. It is found from the results that the
current ratio has only a small effect on profitability although its co-efficient is not significant at
the 5 per cent and 1 percent level. The co-efficient of current ratio where it is not significant
shows that for a 1 percent point increase in profitability, 194.04 percent point increase in current
ratio would be necessary.
The value of the regression co-efficient of operating ratio is negative and its”t’ value is
significant at 1 percent level. The null hypothesis of relationship between operating expenses to
sales ratio and profitability was rejected. It is apparent from the results that it is the strongest
structural determinant of profitability that appears to be operating ratio. The co-efficient also
shows that an increase of 0.15 percent points in the operating ratio can result in a 1 percent point
increase in profitability.
The overall explanatory power of the regression appears to be high. It is inferred from the
co-efficient of determination (R2), which is a measure of the extent of movement in the
dependent variable is explained by the independent variables. It is quite high i.e. 0.80 percent
and the adjusted explanation is around 0.71 percent which is highly significant.
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Conclusion
The above regression analysis shows that growth rate of sales, current ratio and
operating expenses to sales are prominent variables in explaining profitability of firms in this
company. The non- significance of operating expenses ratio with a negative co-efficient that
firms which are operationally inefficient. It is important to note that efficiency in current
assets is important to improve profitability. The four independent variables are able to
account for over 81 per cent of the variation in the observed values of profitability. And the
majority of the company like 3i InfoTech Ltd, Infosys Ltd, Mphasis Ltd, NIIT Ltd, Tech
Mahindra Ltd, and Wipro Ltd and Zensar Ltd are significant in 1 percent and 5 percent level.
In a nutshell, it can be noted that the software company has to consider all these possible
determinants while considering its profitability.
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