A STUDY ON VARIOUS

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

Objective of the Study

The objective is to determine which ratio is the best determinant of
profit by using regression equation by considering 100 companies

Source of the Data

The data collected for the purpose is a secondary data
Secondary Data is basically a kind of data that has been collected through
secondary sources
It provides a basis for comparison for the data that is collected by the researcher
The required data for the study is collected from Prowess

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.

Prowess is an indispensable source to understand the performance of active

business enterprises in India.

Tools for Analysis

The required determination is done using regression analysis
The regression analysis is done with the help of the software SPSS
The interpretation is done from the output arrived from SPSS

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

Multiple regression models

By multiple regression, we mean models with just one dependent and
two or more independent (exploratory) variables
The variable whose value is to be predicted is known as the dependent
variable
The ones whose known values are used for prediction are known
independent (exploratory) variables
Y=a + 1X1 + 2X2 + 3X3

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

Debt Equity Ratio

The debt-equity ratio is a leverage ratio that compares
a company's borrowed capital to its owned capital. This is
a measurement of how much suppliers, lenders, creditors
and obligors have committed to the company versus
what the shareholders have committed.
Debt-Equity Ratio = Debt / Equity

Inventory Turnover Ratio

The inventory turnover ratio is an efficiency ratio that
shows how effectively inventory is managed by
comparing cost of goods sold with average inventory for
a period. This measures how many times average
inventory is "turned" or sold during a period.
Inventory Turnover Ratio = Cost of Goods sold / Average
inventory

Return on Total Asset

The return on assets ratio, often called the return on
total assets, is a profitability ratio that measures the net
income produced by total assets during a period by
comparing net income to the average total assets. In
other words, the return on assets ratio or ROA measures
how efficiently a company can manage its assets to
produce profits during a period.
Return on assets ratio = Net Income / Total Assets

Asset Turnover Ratio

The asset turnover ratio is an efficiency ratio that
measures a company's ability to generate sales from its
assets by comparing net sales with average total assets.
In other words, this ratio shows how efficiently a
company can use its assets to generate sales.
Asset Turnover Ratio = Net Sales / Total Assets

Market Capitalization Ratio

The capitalization ratio measures the debt component
of a company's capital structure, or capitalization (i.e.,
the sum of long-term debt liabilities and shareholders'
equity) to support a company's operations and growth.
Market capitalization ratio = Long term debt / Long term
debt + Equity

Analysis and Interpretations

With the help of Prowess, we have collected different ratios like current ratio,
Debt equity ratio, Inventory turnover ratio, Return on total asset, Asset turnover
ratio and market capitalization ratio
which are the determinant of profit for 100 companies
we have collected the profit after tax for all the 100 companies
All the datas collected from the Prowess are entered in SPSS
Since we need to know the determinant of profit

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