1. PROFITS- FLOW CHART SALES – COST OF SALES = EBITDA EBITDA – DEPRECIATION = EBIT or PBIT EBIT – INTEREST PAID = EBT or PBT EBT - TAX = EAT or PAT EAT – DIVIDEND = RETAINED EARNINGS

2. Profitability- DU PONT ANALYSIS Net Profit X Sales=ROI/ROA Sales Total Assets Observation:- ROI/ROA is the central measure of overall profitability. It shows the interaction between profitability and activity ratios.

3. Profitability- DU PONT ANALYSIS- ROA It means that performance can be improved either by:- (a) generating more sales volume per rupee of investment. OR (b) increasing the profit margin per rupee of sales.

4. Profitability - ROE ROE = PAT / Owners Fund x 100 shows what company can deliver Shareholders Value. ROE (before Tax) = ROTA + (Rota-interest paid) x D/E Earnings Yield = EPS/ Price x 100 shows what market demands. ROE / EY = Market to Book-Value ratio

5. ----------------------------------------------------------------------- ----------------------------------------------------------------------- ----------------------------------------------------------------------- ----------------------------------------------------------------------- ----------------------------------------------------------------------- --45------------------------------------------------------------------ --40------------------------------------------------------------------ --35------------------------------------------------------------------ --30------------------------------------------------------------------ --25------------------------------------------------------------------ --20------------------------------------------------------------------ --15------------------------------------------------------------------ --10------------------------------------------------------------------ --- 5------------------------------------------------------------------ -------------25--------50--------75--------100-------------- rate Amt in Lacs) equity debt Rota ROE Inter-relation between ROTA and ROE-Effect of Debt:Equiy

6. LEVERAGES ACTIVITY LEVERAGE STRUCTURAL LEVERAGE OPERATING LEVERAGE FINANCIAL LEVERAGE DEBT- EQUITY FUNDED DEBT -EQUITY

7. PROFITABILITY- LEVERAGE RATIOS OPERATING LEVERAGE:- CONTRIBUTION OPERATING PROFIT(EBIT) Shows how EBIT changes with changes in quantum of sales Higher Operating Leverage denotes higher fixed costs lading to lesser profitability MEASURE OF BUSINESS RISK

8. PROFITABILITY- LEVERAGE RATIOS FINANCIAL LEVERAGE:- OPERATING PROFIT(EBIT) EBIT - FIXED FIN. CHARGES SHOWS THE EFFECT ON PROFIT BY EMPLOYMENT OF DEBT Higher the debt, higher the profit but higher the risk. Hence net return to be considered MEASURE OF FINANCIAL RISK

9. PROFITABILITY- LEVERAGE RATIOS COMBINED LEVERAGE:-( O/L X F/L) CONTRIBUTION PROFIT BEFORE TAX Shows effect of sales volume on the EPS of the firm e.g. If Combined Leverage is 3, percentage increase in sales to increase in taxable income is 1:3 MEASURE OF TOTAL RISK

10. CALCULATE THE DEGREE OF OPERATING LEVERAGE, FINANCIAL LEVERAGE AND COMBINED LEVERAGE FROM THE FOLLOWING DATA AND INTERPRET FIRM-AFIRM-BFIRM-C OUTPUT( UNITS)6000015000100000 FIXED OPTG. COSTS7000140001500 VARIABLE COST P.U.0.201.500.02 INTEREST ON BORROWED CAPITAL 40008000NIL SELLING PRICE P.U.0.605.000.10

11. SUMMARY OF INTERPRETATION Operating Leverage Financial Leverage Reveal that the business is High Risky HighLowAdvantage of debt is foregone LowHighIdeal Low cautious