Professional Documents
Culture Documents
DETERMINANTS OF PROFITS
USING REGRESSION ANALYSIS
TEAM - 10
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
Importance of Profi t
Survival
Expansion and Growth
Index for Success
Motivation to Businessman
Helps to Gain Reputation
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
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.
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
Independent Variables
Current Ratio
Debt Equity Ratio
Inventory Turnover
Return on Total Asset
Asset Turnover
Market Capitalisation
Current Ratio
The 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
Findings
Ratio
Current ratio
Debt to equity ratio
Inventory turnover ratio
Return on total asset ratio
Asset turnover ratio
Market capitalisation ratio
Significance
0.532
0.817
0.933
0.242
0.317
0.000
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.
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 ones own good sense in selecting and
evaluating the ratios
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
THANK YOU