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


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.


EXHIBIT NO. 4

GROSS PROFIT RATIO

Gross Profit Ratio of Selected Software Companies in India from 1999-2000 to 2008-2009


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)



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



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


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.


EXHIBIT NO. 5

NET PROFIT RATIO

Net Profit Ratio of Selected Software Companies in India from 1999-2000 to 2008-2009


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)



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



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.


EXHIBIT NO. 6

OPERATING PROFIT RATIO

Operating Profit Ratio of Selected Software Companies in India from

1999-2000 to 2008-2009


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)



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



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.


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)



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



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


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


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)


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



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


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.


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)



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



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


TABLE NO. 5.8

EXPENSES RATIO

Expenses Ratio of Selected Software Companies in India from 1999-2000 to 2008-2009

(Rs.in.crores)



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



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.


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)



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



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


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.


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-


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



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.


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.


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


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.


TABLE NO. 5.12

DETERMINANTS OF PROFITABILITY - SIEMENS LTD



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


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’






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, 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


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.




and the adjusted explanation is around .38 percent which is highly significant.


TABLE NO.5.13

DETERMINANTS OF PROFITABILITY - HEXAWARE LTD



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



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





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


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








and the adjusted explanation is around 1. 08 percent which is highly significant.


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


12.35

(2.71)

4.56 S

R2 value 0.858

Adj. R2 value 0.786

Overall F 12.04


1P̂ = -549.37-0.00GROS-1.40CR-12.350OPES

The estimated regression coefficients, their standard error of the‘t’-values for Infosys


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.





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


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










TABLE NO. 5.15

DETERMINANTS OF PROFITABILITY - NIIT LTD

S.No. Variables

Beta

Co-efficient


Constant -10814.35


-258.49

(88.37)

-2.93 S

2 Current Ratio

1257.04

(229.21)

5.48 S


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


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


The value of the regression co-efficient of growth rate of sales is negative and its‘t’









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










TABLE NO. 5.16

DETERMINANTS OF PROFITABILITY - MPHASIS LTD

S.No. Variables

Beta

Co-efficient


Constant -53870.49

1 Growth rate of Sales - - -

2 Current Ratio

616.72

(1603.12)

0.38 NS


694.88

(243.27)

2.86 S

R2 value 0.612

Adj. R2 value 0.418

Overall F 3.152


1P̂ =-5387.49-616.72CR-694.88OPES

The estimated regression coefficients, their standard error of the‘t’-values for Mphasis


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.



The third independent variable is current ratio. It is found from the results that the





The value of the regression co-efficient of operating ratio is positive and its “t”value








dependent variable is explained by the independent variables. It is quite high i.e. 61 per cent



TABLE NO. 5.17

DETERMINANTS OF PROFITABILITY - TCS LTD

S.No. Variables

Beta

Co-efficient


Constant 864.11


-26.58

(13.86)

-1.92 NS

2

Current Ratio

-345.64

(187.75)

-1.84 NS


21.59

(15.81)

1.37 NS

R2 value 0.840

Adj. R2 value 0.713

Overall F 6.581


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


Hence, this variable turned out to be the variable is not influence the profitability of the

company.



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



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



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.



dependent variable is explained by the independent variables. It is quite high i.e. 0.84 percent



TABLE NO. 5.18

DETERMINANTS OF PROFITABILITY - TECH-MAHINDRA LTD

S.No. Variables

Beta

Co-efficient


Constant -4640.38


-0.05

(0.32)

-0.17 NS

2 Current Ratio

-89.79

(148.23)

-0.61 NS


68.72

(20.28)

3.39 S

R2 value 0.540

Adj. R2 value 0.313

Overall F 4.521


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







shows that for a 1 per cent point increase in profitability, 19.27 percent point increase in


The value of the regression co-efficient of operating ratio is positive and its “t’ value




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.




and the adjusted explanation is around 0.31 percent which is highly significant.


TABLE NO. 5.19

DETERMINANTS OF PROFITABILITY - WIPRO LTD

S.No. Variables

Beta

Co-efficient


Constant -1945.57


2.01

(1.12)

1.79 NS

2 Current Ratio

-39.52

(19.27)

-2.05 NS


31.14

(2.54)

12.27 S

R2 value 0.989

Adj. R2 value 0.979

Overall F 107.756


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.




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.






TABLE NO. 5.20

DETERMINANTS OF PROFITABILITY - ZENSAR LTD

S.No. Variables

Beta

Co-efficient


Constant 2792.17

1 Growth rate of Sales - -

2 Current Ratio

-490.58

(194.04)

-2.53 S


-0.54

(0.15)

-3.71 S

R2 value 0.807

Adj. R2 value 0.711

Overall F 8.387


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.




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




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.


chapter v introduction -...

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