DATA ANALYSIS & INTERPRETATION

Analysis of Data

Research is a foundation of knowledge. Hudson Maxin says, ―All progress is born of inquiry. Doubt is
better than overconfidence, for it leads to inquiry, and inquiry leads innovation. which shows the
importance of research. Today, the role of research is not limited to any one field, but it is applied in
different fields like,

 Economics
 As a base of government policies
 In different industries for decision making
 For solving operation and planning related problems
 In social sciences

Research provides a good guideline for solving problems. For making decisions, for establishing some
facts and further more increased amounts of research make progress possible. Research inculcates
scientific and inductive thinking and promotes the development of logical habits of things.

Problem definition is the most important research. Problem definition includes stating the problem
and identifying the specific components of research problem.

Tools of analysis:

(A) Economic Value Added Statement:

Economic value Added is a basic and important measurement to judge the performance of the
enterprise. It can be prepared by subtracting the weighted average cost of capital from the NOPAT.

(B)Statistical techniques:

T-test:

t-test is based on t-distribution and is considered an appropriate test for judging the significance of a
sample mean or for judging the significance of the difference between the means of two samples in
case of small sample(s). When population variance is not known (in which case we use variance of
the sample as an estimate of the population variance). In case two samples are related, we use
paired t-test (what is known as difference test) for judging the significance of the mean difference
between two related samples

T-test:
paired for two samples for means: This analysis for tool and its formula a paired two sample
student‘s t-test to determine whether a sample‘s mean are distinct. This t- test form does not
assume that the variances of both populations are equal. You can use a paired test when there is a
natural pairing of observations in the samples, such as when sample group is tested twice-before and
after an experiment. The statistical hypothesis for the ―t‖ test is stated as Null hypothesis
concerning differences. There is no significant difference in achievement between group 1 and group
2 on the welding test

Mean (u) or (X) Arithmetical mean:

A number having an intermediate value between several other numbers in a group from which it was
derived and of which it expressed the average value. It is the simple average formed by adding the
numbers together and dividing by the number of numbers in the group.

Beta: Beta measure the systematic risk, it shows how prices of securities respond to the market
forces. Beta is calculated by relating the return on a security with return for market. Market will have
beta1. If beta is greater than 1 the stock is said to be riskier than market and vice-versa. If the value
of beta is zero than the it is less risky.

Karl Pearson‟s correlation coefficient: Karl Pearson‘s coefficient of correlation is the best measure for
representing the relationship between the two variables. The degree and direction of relationship
between the variables can be obtained by it. Karl Pearson is the most accurate and it is very widely
used. By this method the amount of relationship between two variables can be numerically
measured. The formula for finding out correlation coefficient is-
Analysis of Variance (ANOVA)When analysis of only a single unit or upto two units are required than
t-test is applicable but if the analysis of more than two units are required than it is necessary to apply
ANOVA.

There are two ways of application of ANOVA

1. One way ANOVA.

And this research analysis of profitability for more than two pharmacuetical companies is applicable
so the method of ANOVA F-test is applicable for this research.

Data Analysis on the basis of Accounting Ratios

Profitability Ratios:
1. Gross Profit Ratio
2. Operating Ratio
3. Net Profit Ratio
4. Earning before Interest and tax
5. Return on capital employed
6. Return on net worth
7. Return on assets
8. Return on long term funds
9. Debt equity Ratio
10. Financial charges coverage ratio
11. Investment Turnover ratio
12. Cash profit margin Ratio
13. Fixed assets turnover Ratio
14. Total assets turnover ratio
15. Earning per share.
Profitability analysis of pharmacueritcal companies.

The profitability of pharmacueritcal companies in India has been analyzed from the point of view of
financial management and shareholders. Profitability can be measured in terms of different
components of profit and loss account and balance sheet. A financial manager is very much
interested to locate and pinpaint the causes which are responsible for low or high profitability. The
Financial Manager should continuously evaluate the efficiency of its company in terms of profit. In
analyzing the profitability of hospitals in India from the point of view of financial management. To
judge the Profitability of Corporate Hospitals in this study the following profitability ratios are
applicable.

[Link] Profit Ratio

Gross Profit Ratio: = Gross Profit / Net Sales *100.

This ratio shows the rate at which gross profit is earned on sales. The gross profit margin ratio tells us
the profit a business makes on its cost of sales, or cost of goods sold. It is a very simple idea and it
tells us how much gross profit per Re.1 of turnover our business is earning. Gross profit is the profit
we 105 earn before we take off any administration costs, selling costs and so on. So we should have a
much higher gross profit margin than net profit margin.

The gross profit margin is a measurement of a company‘s manufacturing and distribution efficiency
during the production process. The gross profit tells an investor the percentage of revenue / sales left
after subtracting the cost of goods sold. A company that boasts a higher gross profit margin than its
competitors and industry is more efficient. Investors tend to pay more for businesses that have
higher efficiency ratings than their competitors, as these businesses should be able to make a decent
profit as long as overhead costs are controlled [overhead refers to rent, utilities, etc.]

[Link] Ratio

Operating ratio: = Operating Costs / Net Sales

This ratio indicates the relationship between operating Profit and net sales in the form of Percentage.
Operating Profit arrived at by adjusting all non - operating expenses and incomes in net profit, in the
other words; we can say profits before depreciation and taxes. A consistently high ration tells us the
effective and efficient operation of the business. This ratio is related with cost. It is a ratio showing
relationship between cost of goods sold plus Operating expenses and Net Sales. It shows the
efficiency of the management. The higher the ratio, the less will be the margin available to
proprietors. This ratio is also usually expressed as a percentage. Hence the higher this ratio, the less
profitable it is, because it would prove insufficient to pay dividend and create necessary reserves.
Operating Profit shows profitability as well as efficiency of the company. Operating ratio deals with
operational style of company. It also concern with operation department of company.

[Link] Profit Ratio

Net Profit Ratio: = Net Profit / Net Sales *100

This ratio shows the rate at which net profit is earned on sales. The net profit 106 margin ratio tells
us the amount of net profit per £1 of turnover a business has earned. That is, after taking account of
the cost of sales, the administration costs, the selling and distributions costs and all other costs, the
net profit is the profit that is left, out of which they will pay interest,tax,dividends and so on.
[Link] before Interest and tax

An indicator of a company's profitability, calculated as revenue minus expenses, excluding tax and
interest. EBIT is also referred to as "operating earnings", "operating profit" and "operating income",
as you can re-arrange the formula to be calculated as follows:

Earnings before Interest & Tax=Revenue-operating expenses

In other words, EBIT is all profits before taking into account interest payments and income taxes. An
important factor contributing to the widespread use of EBIT is the way in which it nulls the effects of
the different capital structures and tax rates used by different companies. By excluding both taxes
and interest expenses, the figure hones in on the company's ability to profit and thus makes for
easier cross-company comparisons. EBIT was the precursor to the EBITDA calculation, which includes
depreciation and amortization expenses.

[Link] on Net Capital Employed:

The Return on Net Capital Employed is a guide to compare the profitability of business. It is also an
indicator of proper utilization of net capital employed towards achieving desirable profits. The ratio is
more appropriate for evaluating the efficiency of internal management.

Return on capital employed (ROCE) = EBIT/Capital employed

Capital employed = Average Debt liablities + Average Shareholder’s Equity

[Link] On Net Worth:

The Return on Net Worth indicates the profitability of the owner‘s investments as we know that
every business is established with a view to getting return in the form of profit on the amount
invested, so there should be a minimum of return on investment. It is also known as return on
shareholder‘s funds. The return on net worth has been computed with help of the following formula:

Return on Net worth = Net profit after Tax / total share holder‟s Funds * 100

[Link] Turnover Ratio. (Return on Assets)

An indicator of how profitable a company is relative to its total assets. ROA gives an idea as to how
efficient management is at using its assets to generate earnings. Calculated by dividing a company's
annual earnings by its total assets, ROA is displayed as a percentage. Sometimes this is referred to as
"return on investment".

The formula for return on assets is:

Return on Assets =Net Profit/Assets *100.

Note: Some investors add interest expense back into net income when performing this calculation
because they'd like to use operating returns before cost of borrowing.

[Link] on long term fund ratio.

This ratio indicates how a particular company give return on Long term Funds. In Long term funds
mostly it includes the funds which are used for more than one year or long term time period in the
company. The high rate of return on long term funds shows the efficiency of the company and vice
versa. Net Profit and Long term funds both are required to find this ratio.

Long term interest+PAT / Long term funds*100

A measure of a company's financial leverage calculated by dividing its total liabilities by stockholders'
equity. It indicates what proportion of equity and debt the company is using to finance its assets.

Debt to Equity Ratio = Total Liabilities / Shareholder’s Equity

Note: Sometimes only interest-bearing, long-term debt is used instead of total liabilities in the
calculation.

Also known as the Personal Debt/Equity Ratio, this ratio can be applied to personal financial
statements as well as corporate. A high debt/equity ratio generally means that a company has been
aggressive in financing its growth with debt. This can result in volatile earnings as a result of the
additional interest expense. If a lot of debt is used to finance increased operations (high debt to
equity), the company could potentially generate more earnings than it would have without this
outside financing. If this were to increase earnings by a greater amount than the debt cost (interest),
then the shareholders benefit as more earnings are being spread among the same amount of
shareholders. However, the cost of this debt financing may outweigh the return that the company
generates on the debt through investment and business activities and become too much for the
company to handle. This can lead to bankruptcy, which would leave shareholders with nothing.

The debt/equity ratio also depends on the industry in which the company operates. For example,
capital-intensive industries such as auto manufacturing tend to have a debt/equity ratio above 2,
while personal computer companies have a debt/equity of under 0.5.

[Link] charges coverage ratio

A measure of a company‘s ability to meet its financial obligations. In broad terms, the higher the
coverage ratio, the better the ability of the enterprise to fulfil its obligations to its lenders. The trend
of coverage ratios over time is also studied by analysts and investors to ascertain the change in a
company's financial position. Common coverage ratios include the interest coverage ratio, debt
service coverage ratio and the asset coverage ratio. While comparison of coverage ratios of
companies in the same industry or sector will provide valuable insights into their relative financial
positions, comparing ratios across companies in different sectors will not prove as useful, since it may
be tantamount to comparing apples and oranges. For example, the interest coverage ratio measures
the ability of a company to pay the interest expense on its debt. An energy producer may have an
interest coverage ratio of 5, while a utility may have a coverage ratio of 4. This does not automatically
imply that the energy producer is more solvent than the utility, since the energy producer may have
greater volatility in its earnings and cash flows than the utility, due to fluctuations in oil and gas
prices. As well, if the energy company's peers have an average interest coverage ratio of 7, while the
utility's peers have an average coverage ratio of 3, the utility may actually be in better shape than the
energy producer, especially in relation to their respective peers.

EBIT/Interest on debt*100

[Link] on Investment Ratio (Investment turnover Ratio.)

The Return on Investment (ROI) is a very useful technique to measure the profitability of all financial
resources employed in the business enterprises assets. ROI reveals a vital indication of the
profitability in term of employment of capital in the business Study, for computing the Return on
Investments operating Profits before depreciation, interest and tax has been taken as profit. Further
income from investment on outside business and nontrading activities are excluded from it. ROI is
calculated on the basis of the following formula:

ROI = Operation Profit (Before Depreciation, Interest And Tax)/Investment * 100

[Link] Profit Margin Ratio

A measure of the money a company generates from its core operations per dollar of sales. The
operating cash flow can be found on the company's cash flow statement, and the revenue can be
found on the income statement. A high operating cash flow margin can indicate that a company is
efficient at converting sales to cash, and may also be an indication for the same.

Cash profit/Net sales * 100

[Link] Assets Turnover Ratio

A financial ratio of net sales to fixed assets. The fixed-asset turnover ratio measures a company's
ability to generate net sales from fixed-asset investments - specifically property, plant and equipment
(PP&E) - net of depreciation. A higher fixed-asset turnover ratio shows that the company has been
more effective in using the investment in fixed assets to generate revenues. The fixed-asset turnover
ratio is calculated as: One of high earnings quality

Fixed assets Turnover = Net sales / Net property, plant and equipment

[Link] Assets Turnover Ratio

The amount of sales or revenues generated per dollar of assets. The Asset Turnover ratio is an
indicator of the efficiency with which a company is deploying its assets.

Asset Turnover = Sales or Revenues/Total Assets

Generally speaking, the higher the ratio, the better it is, since it implies the company is generating
more revenues per dollar of assets. But since this ratio varies widely from one industry to the next,
comparisons are only meaningful when they are made for different companies in the same sector.

The Asset Turnover ratio is also a key component of DuPont Analysis, which breaks down Return on
Equity into three parts, the other two being profit margin and financial leverage.

[Link] per Share

The portion of a company's profit allocated to each outstanding share of common stock. Earnings per
share serve as an indicator of a company's profitability. Weighted Earning Per Share Calculated as:
When calculating, it is more accurate to use a weighted average number of shares outstanding over
the reporting term, because the number of shares outstanding can change over time. However, data
sources sometimes simplify the calculation by using the number of shares outstanding at the end of
the period. Diluted EPS expands on basic EPS by including the shares of convertibles or warrants
outstanding in the outstanding shares number.