profit max vs wealth max
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A
PROJECT REPORT ON
“PROFIT MAXIMIZATION
V/S
WEALTH MAXIMIZATION”
Submitted to
In requirement of partial fulfillment of Master of
Business Administration (MBA)
Submitted on
Submitted by
PREFACE
As a part of the curriculum of the MBA Program of the _________________, the
students are required to undergo project work in addition to their theoretical study
so as to enable them to have the knowledge of theoretical aspects taught in the
class room with its practical application.
As students of management it is learning experience to analyze an industry. It is
the most essentials tools for us to expose our skill as a future responsible
managerial post. The preparation of this project report is based on the financial
analysis of annual reports consecutive years of five public limited companies,
using Ratio analysis and other tools.
The scope of the project report is limited to the study of financial position and
analysis of the financial objectives of the companies on the basis of published data
available.
My work in this project is therefore a humble attempt towards this end.
I have tried my best to get the necessary information for project which includes
secondary. In spite of my best efforts there may be errors of omissions and
commissions, which may be please excused.
ACKOWLEDGEMENT
This report has been submitting in partial fulfillment of the requirement of the
award of M.B.A. from _____________________________________
It is a universal fact that for study of a project in depth, I need the support of many
people right from the stage of conceiving the idea to completion of report. It is
difficult for a single person to do the job efficiently without interaction &
involvement of others.
I take this opportunity to thank ________________________our director
____________ and our inspiration our guides, _______________________ For
giving me Valuable Guidance and providing facilities to successfully complete my
Grand Project.
I am grateful to other faculty members of ___________for their support whenever
required. Discussions with friends also have served to provide sought after
information. I am thankful to all our batch mates.
Finally I am thankful to my parents and Lord Almighty without whose blessings
tasks are incomplete.
4
TABLE OF CONTENT
SR. No. PARTICULAR PAGENO.
1 INTRODUCTION 6-8
2 THEORETICAL APPROACH
( A) PROFIT MAXIMIZATION
Meaning 10
Definition 11
Characteristics 12
Merits 13
Demerits 14
Factors affecting 15
(B) WEALTH MAXIMIZATION
Introduction 16
Meaning 18
Definition 18
Characteristics 19
Merits 21
Demerits 23
Critics and defense of Wealth Maximization 24
( C) IS PROFIT MAXIMIZATION BETTER
THAN WEALTH MAXIMIZATION
25
3 ANALYTICAL APPROACH 27
(A) METHODOLOGY
Objective of study
Methodology
Scope of the Study
Limitations
5
(C ) DATA ANALYSIS 30
HINDUSTAN UNILEVER LIMITED
Profitability 31-32
Wealth 33
Analysis 34
IDEA CELLULAR
Profitability 35-36
Wealth 37
Analysis 38
RANBAXY PHARMA LTD.
Profitability 39-40
Wealth 41
Analysis 42
WIPRO LIMITED
Profitability 43-44
Wealth 45
Analysis 46
AXIS BANK
Profitability 47-48
Wealth 49
Analysis 50
4 FINDINGS AND CONCLUSION 51
5 BIBLIOGRAPHY 52
6
INTRODUCTION
The field of finance rests heavily on the work of economists and uses many economic
tools.
The academic discipline of financial management may be viewed as being made of
five specialized field. In each field financial manager is dealing with the management
of money and claims against money.
Distinctions arise because different organizations pursue different objectives and do
not face the same basic set of problems.
There are five generally areas of finance:
1. PUBLIC FINANCNE
2. SECURITIES AND INVESTMENT ANALYSIS
3. INTERNATIONAL FINANCE
4. INSTITUTIONAL FINANCE
5. FINANCIAL MANAGEMENT
7
Objectives of Financial Management
To make wise decision clear understanding of the objectives sought to be achieved
necessarily. The objectives provide framework for optimum financial decision-
making. In other words, they are concern with designing method of operating internal
investment and financing of the firm. In this section the alternative approaches in the
financial literature is discussed.
There are two widely discussed approaches.
1. Profit Maximization
2. Wealth Maximization
It should be noted at the outset that the ‘term’ objective is to be used in the sense of
goal and decision criterion for the three decisions involved in the financial
management. It implies that what is important is not overall objective of goal of
business but an operationally useful criterion by which to judge a specific set of
mutually interrelated business decisions, namely investment, financing and dividend
policy.
The second point that should ne noted that the term ‘objective’ provides a normative
framework. That is the focus in the financial literature on what a firm should try to
achieve and on policies that should be if certain goals are to be achieved.
8
The implication is that these are not necessarily followed by firms in actual practice.
They are rather employed to serve as a basis of theoretical analysis and do not reflect
contemporary empirical industry practices.
Thus, the term is used rather in narrow sense of what a firm should attempt to achieve
with its investments, financing and dividend policy decisions.
9
THEORETICAL APPROACH
10
PROFIT MAXIMIZATION
Meaning:
PROFIT:
The term profit is a deep rooted in terms in financial management; it implies
different connotation as interpreted variedly.
For a layman:
It is revenue less expenditures. It is a simple mathematics of what has come
and what has gone.
For an accountant:
It is sales and other revenue less the expenses incurred exclusively for
business for particular financial year.
For management:
It is interested in profit centers to arrive at proper decision whether to
discontinue production at particular site or product itself etc… it is interested
in fixing responsibility.
For economist:
They takes in to account the concept of opportunity cost, implicit cost etc. to
arrive profit and thus it is far less than what is profit by their point of and of
accountancy’s point of view.
11
Simply, profit can be defined as the amount a business earns after subtracting
all expenses necessarily for its sales.
Profit = Sales - Expenses
Definition
Profit Maximization:
It means maximizing the rupee income of firms.
According to this approach.
The actions, which increase the profit, are to undertaken and those decreases the profit
is to avoid.
If we want to maximize the profit, there are two ways to do it…
1. You reduce your expenses
2. Increase the sales
But both of them have their own challenges to achieve.
12
Characteristics of Profit Maximization
1. Increase in owner’s Wealth
Its main aim is to increase owner’s wealth. The firm is not pay dividends to
the shareholders or for employees of organization.
2. Short Term Profitability
This objective is for short term because if the promoter is trying to increase
their wealth, it will be adversely affected to the market price of shares and so
market value will decrease in long term.
3. Risky Objective
It is mainly focused on the owner’s wealth, which is after all risky for
shareholders, nation and industry,
4. In Interest of Economy
As firm’s profit will increase… it increase in industrial growth and then
national growth.
5. Utilization of Resources
The firm in this goal tries to utilize all required resources in full strength such
as labor, machinery and etc…
6. No concentration of Shareholder’s wealth
13
The firm is always trying to achieve owner’s profit and wealth but not have
shareholders.
Merits: Profit Maximization
Efficient Allocation of Resources
Profit Maximization is signal to manufacturing firm. Buying and selling
activities of consumers, competitors price and thereby it affects the allocation
of resources. As the profits are to be maximized, every resource is utilized in
the most economic manner.
Various Theories To explain profit making
o Innovation Theory
o Risk bearing Theory
o Monopoly Theory
o Friction Theory
o Managerial Efficiency Theory
On the Grounds of Economic Rationality
Any economic institutions earn to make profit is the main and natural
objective. It is the generally accepted measure for efficiency criterion and
common rational behind any economy.
Achieving Social Upliftments
14
“MILLERE” explain that, it is an invisible hand in attaining his own interest,
the management frequently promotes that society and that too more affected
and there by business also secures society.
Demerits: Profit Maximization:
It is Vague
The problem is the meaning of term ‘Profit’.
Profit is in the short run is different from the profit is in the long run.
Example:
If a firm continue to operate an instrument without proper maintenance. It may
be able to reduce current year’s expenditure, but in the long run, it may loose
its real efficiency, which after all increase the depreciation cost.
It ignores timing
It ignores timing as money receives today has higher value than money
received next year. A profit seeking organization must consider the timing of
cash flows and profits.
It overlook quality aspect of future activity
Business does not carry on their activities solely with an aim to achieving the
highest possible profits. Some business have place a high value on the growth
of sales and are willing to accept lower profits in order to gain the stability
provided by large volume of sales. It is widely observe that non-profit factors
influence the determination of corporate goals, even in firms professing to
maximize profits.
15
Factors Affecting Profit Maximization:
There are some factors, which affect the objective of “Profit Maximizaiton
to put it in the practical approach…
Factors are as under:
Requirement of Funds
As per the nature of business, every firm requires the constant flow of funds to
keep its activities running. So, to fulfill this requirement of regular funds,
firms are in need of profits.
Trend of Business
What is the value of firm’s business in the mind of consumers and other
parties will decide the future of firm’s profitability.
Management Policy
It is the best factor, which affects the firm’s profitability widely, as after all
management decided that up to what extent firm should maximize its profits.
Tax Implication
Tax implication is largely affects the profitability of firm as it varies from
different types of business.
16
WEALTH MAXIMIZATION
Introduction
The second frequently encountered objective of a firm is to maximize the value of
firm over the long run. This goal may also be stated as the maximization of wealth,
with wealth defines as the net present value of the firm. It is linked to long-term profit
of the firm.
Using Ezra Soloman’s symbols and methods, the net present worth can be calculated
as shown below:
1. W = V – C
Where, W = Net present Worth
V = Gross present Worth
C = Investment required to acquire the assets or to purchase the course
of action
2. V =
Where, E = Size of future benefits available to the supplier of the input capital
17
K = The capitalization (discount) rate reflecting the quality and timing
of benefits attached to E
3. E = G - (M+I+T)
Where, G = Average future flow of gross annual earnings Expected from the
course of action, before Maintenance charges, taxes and interest and other
prior charges like preference divided
M = Average annual re investment required to maintain G at the projected
level.
T = Expected annual outflow on account of taxes.
I = Expected flow of annual payments on account of interest, preference,
dividends.
W =
Where, A1, A2, A represents the stream of cash flows expected to occur from
a course of action over a period of time:
K = the appropriate discount rate to measure risk and timing
C = initial outlay to acquire that asset or Purchase the course of action.
Thus it can be inferred that in the value maximization decision criterion the
time value of money and handling of the risk as measured by the uncertainty
of the expected benefits is an integral part of the exercise. It is, moreover, a
practice and unambiguous concept, and therefore, an appropriate and
operationally feasible decision criterion for the financial management
decision.
18
Meaning
The wealth maximization is almost globally accepted as an appropriate Operational
decision criterion for financial management decision as it removes the technical
limitations, which characterized the earlier profit criterion.
The share holder’s wealth maximization goal gives us the best results because effects
of all the decision taken by the company and managers are reflected in it. In order to
employee use this goal, we do not have to consider every price changes of the shares
in the market as an interpretation of the worth of the decision that the company has
taken. What the company needs to focus on is the affect that hits decision should have
on the share price if every thin else was held constant. These conflicts of decisions
required by the owners are known as the agency problem.
Definition
Wealth maximization means maximization of the net present value or net worth of a
course of action. A financial action which has a positive net present value, creates
wealth and so, it is negative present value should be rejected.
19
Characteristics of Wealth Maximization
Long Term Objective
Wealth maximization is the long-term objective as in it, profit is not so much
maximized than that of the wealth of shareholders. So, in the long term, the
net worth of a firm and of shares is increasing.
In Interest of Shareholders and Employees
Wealth maximization objectives leads to increase shareholder’s wealth by
giving them dividend and increasing in labor welfare by providing them
proper education and safety measures so that the wealth of the share holders
and employees is increase in the long run.
Not for Economic Interest
Wealth maximization is not for economic interest because is wealth
maximization object, firm is not trying to maximize the profit but it is trying to
increase the wealth of shareholders, labor welfare, Social audit. So, overall
income of the country or industry will not increase or per capita income of the
people also not increases.
Worth of the Firm Maintained
20
Wealth Maximization objective leads to maintain the value of shares and of
firm in the long run. As its main objective is to survive for the Shareholder and
for the employees.
Social Audit Objective
The main objective of the wealth maximization is welfare of the general
public. For example, established schools, gardens, charitable hospitals etc..
firm is not concentrating on maximization of profit but trying to utilize the
wealth of the people.
21
Merits : Wealth Maximization:
Operationally Feasible
The wealth maximization is based on the concept of cash flow statement is
generated by the decision and which is a definite connotation.
Consistent with Ultimate Object of Financial Management
The main objective of the wealth maximization is in consistent with aim of
maximizing if the owner economic welfare. The wealth of the owner of the
company, the shareholders, as is reflected by the market value of the
economies shares so wealth maximization objective with ultimate objective of
financial management.
Encouragement to Shareholder’s wealth
Its main objective is to increase the shareholders wealth by giving them higher
rates of dividends rather than retains earns with firms so this is for advantage
of share holder in increasing their wealth, so, shareholders wealth is
encouraged.
Increase in Value of Shares and Firm
As the increase in wealth of the shareholders is the main objective of wealth
maximization, it leads to increase the investment of shareholders in our firm,
22
which automatically increase the value of shares. By this approach firm’s
worth is also increases.
Easy to Get Public Capital
As wealth maximization is always concentrating on the wealth of society and
shareholders. Then, it is automatically, authenticity of the firm is increased
and so it is easy to get income from the public.
23
Demerits: Wealth Maximization:
Seek Growth
The firm having objective of wealth maximization needs to grow rapidly, as
the firm is paying higher dividends to share holders, spend money for social
audit. And so, firm is not retaining earnings for the future expansion.
High Payment of Dividend
Shareholder’s wealth maximization is the main goal of the firm so, firm will
pay more dividend to them and not retain earnings for future expansion. By
this way dividend will become forcible liability.
Resources are not fully Utilized
This objective is also believed in the welfare of the labor. And gives the right
to work free in the organization, which may misuse by employees. And this
will be greater loss of the firm.
Economic Interests not achieved
As firm is more concentrating on its shareholders and laborers, it may
decrease in the overall increment of industry, which requires lots of efforts of
achieve economic interest.
24
Critics and Defense of Shareholder Wealth Maximization Goal:
Critics DefenseThe capital market skeptics argue that the stock market displays myopic tendencies, often wrongly prices securities, and fails to reflect long-term values.
Based on extensive empirical evidence financial economists argue that in developed capital market, at least share prices are the least biased Estimates.
The strategic visionaries argue that the firm should pursue a product market share, or enhancing customer satisfaction, or minimizing costs in relation to competitors or achieving a zero defect level. If the firm get success in implementing its product market strategy, investors would Amply rewarded.
It is true that shareholders wealth is created only through successful product market strategies. For example, Satisfied and loyal customers are Essential for value creation. However, beyond a certain point customer satisfaction comes at the cost of shareholders value, when this happens, the conflict should be resolved in favor of share holders to enhance long term viability and competitiveness of the firm.
The balancers argue a firm should seek to balance the interest of various Shareholders, viz. customers, employees, shareholders, creditors, suppliers, community, and others.
Balancing the interest of various stakeholder is not a practical governing objectives. There is no way to figure out what the right balance is. When managers confront problems involving numerous tradeoffs, they will have no clear guidelines on how to resolve the differences. Each manager would be left to his own judgments. In a large organization this can lead to confusion and even chaos.
Advocates of social responsibilities Argue that a business firm must view itself as a social responsive entity and assume wider responsibilities.
If as business firm engages itself in social programmers it may become vulnerable to competitive encroachment. Let shareholders decide in their personal capacity what they want to contribute to various social programs. This role should not be arrogated by corporate managements whose mandate is economic.
25
IS PROFIT MAXIMIZATION IS BETTER THAN
WEALTH MAXIMIZATION?
Every firm has their own decision criterion regarding their growth, future and market.
It depends on the industry of business, nature of business, nature of owners and
capital requirement that which objective is between than that of another.
According to the above details and interpretation of both firm’s objective.
Profit maximization
Wealth Maximization
And after taking into consideration the “THEORETICAL APPROACH”. Wealth
Maximization is better than Profit Maximization.
These are some points which distinguished both and prove Wealth maximization is
more optimal and better than Profit Maximization.
In the Profit Maximization, only Owner’s wealth is given concentration, while
in the Wealth Maximization not only shareholders but employee’s wealth
would also give importance.
Wealth Maximization never brings problems for any parties but under Profit
Maximization, the shareholders and employees are suffering a lot.
26
Profit Maximization covers only Owner’s benefits and firm’s profit. While
wealth maximization covers the wealth of shareholders, employees, social
responsibilities and for all public.
So, these are the reasons why Wealth Maximization is better than Profit
maximization.
But practically, Most of the companies are concentrating on Profit Maximization.
Let us have practical approach, to prove this belief.
27
ANALYTICAL APPROACH
Methodology
Objectives of the Study:
Here, I have taken leading corporate groups (companies) for the purpose of study,
rather to take one industry. The main objective to choose such different corporate
from different industries is to compare their objectives and way of business.
The study is purely academic in nature and the main objectives of study are as under:
1) To investigate profitability status of the selected companies.
2) To undertake comparison within the companies for profitability.
3) To undertake comparison of profitability amongst selected companies.
4) To investigate wealth position of selected companies.
5) To undertake comparison within the companies on wealth maximization
objective.
6) To undertake the comparison of wealth maximization goal amongst the
selected companies
Sample Selection
Only Five Companies of different industries are selected for the study.
Hindustan Unilever Limited (FMCG Industry)
28
IDEA Cellular Limited (Tele-Communication Industry)
Ranbaxy Pharma Limited (Pharmaceutical Industry)
Wipro Limited (I.T. Industry)
AXIS Bank (Banking Industry)
Duration
The study is conducted on the basis of last five years from the current year.
Collection of data
Only secondary data has been used for the purpose of analysis and mainly collected
from annual reports of the companies.
Data analysis
We used different profitability and wealth ratios for studies. The formulae for ratio
which used, are as under:
1. Profitability Ratios:
Gross profitability ratio (GPR) =
Net Profitability ratio (NPR) =
Return on Shareholder’s fund (ROSF) =
29
2. Wealth Ratios:
Debt equity Ratio =
Intrinsic value of shares =
Scope of the Study:
The scope of the study is limited to the analysis of five companies above stated). The
data for the five years from the current year (available) of each of them has been
considered for the study.
Limitations of the Study:
1. The scope of the study is of different industries.
i.e. FMCG, Tele-communications, Pharmaceutical, I.T., banking industry.
2. Only secondary data is used for the study.
i.e. From the annual reports of the companies and companies url.
3. Only Five years data from current year (which are available) is taken in to
consideration.
4. Due to lack of availability and accessibility of only some basic Financing
decisions are taken into consideration. For the profit Maximization goal.
5. Only debt-equity and intrinsic value of shares is taken into consideration for
investigation of Wealth Maximization goal.
30
DATA ANALYSIS
In order to investigate the Profit Maximization goal of Financial Management and the
wealth Maximization goal of Financial management and the comparison between
them.
The Profit maximization goal posits that investment, Financing and Dividend policy
decisions of a firm should be oriented to the maximization of profits. Thus, in order to
study the practical applicability of this goal the financing and investment decisions of
the stated companies have been analyzed. To understand the financing decision
following formulae are taken on to consideration.
1. Gross Profitability ratio (GPR)
2. Net Profitability ratio (NPR)
3. Return on Shareholder’s Fund ratio (ROSF)
The Wealth Maximization goal is known as Value Maximization or Net Present worth
Maximization goal. It can be studied by investigating market value of shares and
intrinsic value of shares. It can also evaluate by taking into consideration the load of
debts of the company on company’s equity. Following formulae are to be considered:
1. Intrinsic Value of shares
2. Debt-equity ratio
31
HINDUSTAN UNILEVER LTD.
Profitability Ratio:
(Rs. in crores)
1. Gross profitability ratio (GPR) =
Table 1.1Year Gross Profit Sales Ratio (%)
2005 2212.42 11203.14 19.74
2006 1461.78 10996.72 13.29
2007 1658.08 12108.86 13.69
2008 2177.4 13189.70 16.51
2009 2340.94 14937.88 15.67
2. Net Profitability ration (NPR) =
Table 1.2Year P.A. Tax Sales Ratio (%)
2005 1771.79 11203.14 15.82
2006 1197.34 10996.72 10.89
2007 1408.10 12108.86 11.63
2008 1855.37 13189.70 14.07
2009 1769.06 14937.88 11.84
32
3. Return on Shareholder’s fund (ROSF) =
Table 1.3Year P.A. Tax Share Fund Ratio (%)
2005 1771.79 2138.06 0.82
2006 1197.34 2092.04 0.57
2007 1408.10 2304.96 0.61
2008 1855.37 2722.82 0.68
2009 1769.06 1438.57 1.23
33
Wealth Ratios:
1. Intrinsic value of shares =
Table 1.4Year Net Assets No. of Shares Ratio (%)
2005 3843.03 22012.44 17.45
2006 3563.82 22012.44 16.19
2007 2362.56 22012.44 10.73
2008 2796.09 22067.76 12.67
2009 1527.76 21774.63 7.02
2. Debt equity Ratio =
Table 1.5Year LTD Share Fund Ratio (%)
2005 1704.31 2138.06 0.8
2006 1471.12 2092.04 0.7
2007 56.94 2304.96 0.02
2008 72.60 2722.82 0.03
2009 88.53 1438.57 0.06
34
Evaluation
As per the ratio of profitability,
I find that, the gross profit percentage is comparatively decreased in 2006, 2007. But
then after it is stabilized in the year 2008 and 2009 i.e. 16.57% and 15.67%.
The same is happen in the net profit percentage of the company.
Return on shareholder’s fund is stabilized and consistent.
In the Wealth Maximization criterion,
The intrinsic value of a company is decreased consecutively.
While the debt-equity ratio shows positive strength.
35
IDEA CELLULAR LTD.
Profitability Ratio:
(Rs. in crores)
1. Gross profitability ratio (GPR) =
Table 2.1Year Gross Profit Sales Ratio (%)
2005 (206.91) 1165.52 ---
2006 26.69 1625.42 1.64
2007 118.4 2007.07 5.89
2008 484.24 4366.40 11.09
2009 1007.14 6719.99 14.99
2. Net Profitability ration (NPR) =
Table 2.2
36
Year P.A. Tax Sales Ratio (%)
2005 --- 1165.52 ---
2006 --- 1625.42 ---
2007 115.50 2007.07 5.75
2008 477.25 4366.40 10.93
2009 934.65 6719.99 13.91
3. Return on Shareholder’s fund (ROSF) =
Table 2.3Year P.A. Tax Share Fund Ratio (%)
2005 --- 1022.63 ---
2006 --- 1046.79 ---
2007 115.50 1168.53 0.098
2008 477.25 2179.15 0.219
2009 934.65 3546.03 0.263
37
Wealth Ratios:
1. Intrinsic value of shares =
Table 2.4Year Net Assets No. of Shares
(in lacs)Ratio (%)
2005 3286.16 27425.27 11.98
2006 3744.83 27425.27 13.65
2007 4084.14 22595.27 18.08
2008 6429.66 25928.61 24.80
2009 10060.79 26353.61 38.17
2. Debt equity Ratio =
Table 1.5Year LTD Share Fund Ratio (%)
2005 2263.54 1022.63 2.21
2006 2698.03 1046.79 2.58
2007 2915.60 1168.53 2.49
2008 4250.51 2179.15 1.95
2009 6514.76 3546.03 1.84
38
Evaluation:
As per the ratio of profitability,
I find that, the gross profit percentage of a company shows negative effects, and again
it has very worst effect in the net profitability, too.
The same is happen in the net profit percentage of the company.
Return on shareholder’s fund is decreasing and consistent.
In the Wealth Maximization criterion,
The intrinsic value of a company is increased consecutively.
While the debt-equity ratio shows positive strength as it decreased.
39
RANBAXY PHARMACEUTICAL LTD.
Profitability Ratio:
(Rs. in crores)
1. Gross profitability ratio (GPR) =
Table 3.1Year Gross Profit Sales Ratio (%)
2005 954.19 3816.94 24.99
2006 604.60 3791.28 15.95
2007 179.95 3640.49 4.94
2008 438.43 4165.12 10.53
2009 753.56 4293.02 17.55
2. Net Profitability ration (NPR) =
Table 3.2Year P.A. Tax Sales Ratio (%)
40
2005 794.78 3816.94 20.82
2006 527.52 3791.28 13.91
2007 212.04 3640.49 5.82
2008 380.54 4165.12 9.13
2009 617.72 4293.02 14.39
3. Return on Shareholder’s fund (ROSF) =
Table 3.3Year P.A. Tax Share Fund Ratio (%)
2005 794.78 2321.77 0.34
2006 527.52 2509.51 0.21
2007 212.04 2377.30 0.09
2008 380.54 2350.01 0.16
2009 617.72 2538.40 0.24
41
Wealth Ratios:
1. Intrinsic value of shares =
Table 3.4Year Net Assets No. of Shares (in lacs) Ratio
(%)2005 2356.03 1855.44 126.98
2006 2645.38 1858.91 142.31
2007 3407.10 3724.42 91.48
2008 5528.61 3726.87 148.34
2009 6041.42 3730.71 161.94
2. Debt equity Ratio =
Table 3.5Year LTD Share Fund Ratio (%)
2005 34.25 2321.77 0.014
2006 135.86 2509.51 0.05
2007 1029.80 2377.30 0.43
2008 3178.86 2350.01 1.35
2009 3503.03 2535.40 1.38
42
Evaluation
As per the ratio of profitability,
I find that, the gross profit percentage of a company shows negative effects. And
again, it has very worst effect in the net profitability, too.
The same is happen in the net profit percentage of the company.
Return on shareholder’s fund is decreasing and balancing.
In the Wealth Maximization criterion,
The intrinsic value of a company is increased consecutively.
While the debt-equity ratio shows negative strength as it increased.
43
WIPRO LIMITED
Profitability Ratio:
(Rs. in crores)
1. Gross profitability ratio (GPR) =
Table 4.1Year Gross Profit Sales Ratio (%)
2005 1075.39 5134.89 20.94
2006 1739.15 7233.16 24.04
2007 2302.10 10227.12 22.51
2009 3176.20 13683.90 23.21
2008 3469.70 17492.60 19.83
2. Net Profitability ration (NPR) =
Table 4.2Year P.A. Tax Sales Ratio (%)
2005 914.88 5134.89 17.82
44
2006 1494.82 7233.16 20.67
2007 2020.48 10227.12 19.76
2008 2842.10 13683.90 20.77
2009 3063.30 17492.60 17.51
3. Return on Shareholder’s fund (ROSF) =
Table 4.3Year P.A. Tax Share Fund Ratio (%)
2005 914.88 3507.59 0.26
2006 1494.82 4893.65 0.30
2007 2020.48 6427.94 0.31
2008 2842.10 9320.40 0.30
2009 3063.30 11610.70 0.26
45
Wealth Ratios:
1. Intrinsic value of shares =
Table 4.4Year Net Assets No. of Shares
(in lacs)Ratio (%)
2005 3608.28 2327.59 155.02
2006 4955.74 7035.71 70.44
2007 6478.10 14257.54 45.44
2008 9558.40 14590 65.51
2009 15433.10 14615 105.59
2. Debt equity Ratio =
Table 4.5Year LTD Share Fund Ratio (%)
2005 100.69 3507.59 0.03
2006 62.09 4893.65 0.01
2007 50.16 6427.94 0.007
2008 238.00 9320.40 0.025
2009 3822.40 11610.70 0.33
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Evaluation:
As per the ratio of profitability,
I find that, the gross profit percentage of a company shows balancing and neutral
effects. And again it has very good effect in the net profitability too.
The same is happen in the net profit percentage of the company.
Return on shareholder’s fund is balancing and consistent.
In the Wealth Maximization criterion,
The intrinsic value of a company is increased first, then correction comes and then it
is stabilized consecutively.
While the debt-equity ratio shows negative strength as it increased.
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AXIS BANK LTD.
Profitability Ratio:
(Rs. in crores)
1. Gross profitability ratio (GPR) =
Table 5.1Year Gross Profit Sales Ratio (%)
2005 432.75 2115.52 20.45
2006 568.66 2299.23 24.73
2007 865.05 3594.46 24.06
2008 1102.46 5461.60 20.18
2009 1890.54 8750.68 21.60
2. Net Profitability ration (NPR) =
Table 5.2Year P.A. Tax Sales Ratio (%)
2005 278.31 2115.52 13.15
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2006 334.58 2299.23 14.55
2007 485.08 3594.46 13.49
2008 627.23 5461.60 11.48
2009 1071.23 8750.68 12.24
3. Return on Shareholder’s fund (ROSF) =
Table 5.3Year P.A. Tax Share Fund Ratio (%)
2005 278.31 1138.05 0.24
2006 334.58 2421.61 0.14
2007 485.08 2885.63 0.17
2008 627.23 3402.21 0.18
2009 1071.23 8770.69 0.12
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Wealth Ratios:
1. Intrinsic value of shares =
Table 5.4Year Net Assets No. of Shares
(in lacs)Ratio (%)
2005 7593.55 2315.81 327.90
2006 15036.08 2737.96 549.17
2007 19724.02 2786.91 707.73
2008 23588.62 2816.31 837.57
2009 29855.57 3577.10 834.63
2. Debt equity Ratio =
Table 5.5Year LTD Share Fund Ratio (%)
2005 20953.90 1138.05 18.41
2006 31712 2421.61 13.09
2007 40113.53 2885.63 13.90
2008 58785.60 3402.21 17.28
2009 87626.22 8770.69 9.99
50
Evaluation:
As per the ratio of profitability,
I find that, the gross profit percentage of a company shows balancing and neutral
effects. And again it has very good effect in the net profitability too.
The same is happen in the net profit percentage of the company.
Return on shareholder’s fund is balancing and consistent.
In the Wealth Maximization criterion,
The intrinsic value of a company is increased consecutively, which is a good growth
shine.
While the debt-equity ratio shows positive strength as it decreased.
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FINDINGS AND CONCLUSION
From the all of above Tables and Graphs, it is clear that the companies have been
moving towards achieving their goals of financial management.
The objective of the study is to investigate the profitability status of the company, by
making comparison of its years and with the other companies and industry. Most of
the company has more concentration on Profit Maximization goal, although it is clear
that some of them have to face an huge loss in the initial stage due to one or another
reason.
Even these random sample of five different companies of five different industries,
shows us the real picture of the market where, companies also have to maintained
their Wealth due to one or another reasons.
According to me………
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Wealth maximization is better objective than that of Profit Maximization, as it covers
wealth increment of all the persons related to companies such as equity shareholders,
competitors, employees, society and nation as whole.
BIBLIOGRAPHY
Books referred to:
1. Financial Management
Prasana Chandra
Seventh Edition
2. Financial Management
I M Pandey
Ninth Edition
3. Financial Decision-Making
John J Hampton
Fourth Edition
Other Sources:
Annual Reports of respective companies
Internet as source of information.
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