Profit Maximization vs Wealth Maximization

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.

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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. 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 | | | METHODOLOGY | | | |Objective of study | | | |Methodology | | | |Scope of the Study | | | |Limitations | | | |(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 | 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 ? Objectives of Financial Management To make wise decision clear understanding of the o

ORETICAL APPROACH 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. Simply, profit can be defined as the amount a business earns after subtracting all expenses necessarily for its sales. Profit = Sales – Expenses DefinitionProfitability Ratio: (Rs. in crores) 1. Gross profitability ratio (GPR) = [pic] Table 2. 1 |Year |Gross Profit |Sales |Ratio (%) | |2005 |(206. 91) |1165. 52 |— | |2006 |26. 69 |1625. 42 |1. 64 | |2007 |118. |2007. 07 |5. 89 | |2008 |484. 24 |4366. 40 |11. 09 | |2009 |1007. 14 |6719. 99 |14. 99 | 2. Net Profitability ration (NPR) = [pic] Table 2. 2 |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. 5 |6719. 99 |13. 91 | [pic] 3. Return on Shareholder’s fund (ROSF) = [pic] Table 2. 3 |Year |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 | • Wealth Ratios: 1. Intrinsic value of shares = [pic] Table 2. 4 |Year |Net Assets |No. f 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 = [pic] Table 1. 5 |Year |LTD |Share Fund |Ratio (%) | |2005 |2263. 54 |1022. 63 |2. 21 | |2006 |2698. 03 |1046. 79 |2. 8 | |2007 |2915. 60 |1168. 53 |2. 49 | |2008 |4250. 51 |2179. 15 |1. 95 | |2009 |6514. 76 |3546. 03 |1. 84 | [pic] • Evaluation

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. 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 Profitability Ratio: (Rs. in crores) 1. Gross profitability ratio (GPR) = [pic] Table 2. 1 |Year |Gross Profit |Sales |Ratio (%) | |2005 |(206. 91) |1165. 52 |— | |2006 |26. 69 |1625. 42 |1. 64 | |2007 |118. |2007. 07 |5. 89 | |2008 |484. 24 |4366. 40 |11. 09 | |2009 |1007. 14 |6719. 99 |14. 99 | 2. Net Profitability ration (NPR) = [pic] Table 2. 2 |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. 5 |6719. 99 |13. 91 | [pic] 3. Return on Shareholder’s fund (ROSF) = [pic] Table 2. 3 |Year |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 | • Wealth Ratios: 1. Intrinsic value of shares = [pic] Table 2. 4 |Year |Net Assets |No. f 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 = [pic] Table 1. 5 |Year |LTD |Share Fund |Ratio (%) | |2005 |2263. 54 |1022. 63 |2. 21 | |2006 |2698. 03 |1046. 79 |2. 8 | |2007 |2915. 60 |1168. 53 |2. 49 | |2008 |4250. 51 |2179. 15 |1. 95 | |2009 |6514. 76 |3546. 03 |1. 84 | [pic] • EvaluationThis objective is for short term because if the promoter is trying to ncrease 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 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 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 operProfitability Ratio: (Rs. in crores) 1. Gross profitability ratio (GPR) = [pic] Table 2. 1 |Year |Gross Profit |Sales |Ratio (%) | |2005 |(206. 91) |1165. 52 |— | |2006 |26. 69 |1625. 42 |1. 64 | |2007 |118. |2007. 07 |5. 89 | |2008 |484. 24 |4366. 40 |11. 09 | |2009 |1007. 14 |6719. 99 |14. 99 | 2. Net Profitability ration (NPR) = [pic] Table 2. 2 |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. 5 |6719. 99 |13. 91 | [pic] 3. Return on Shareholder’s fund (ROSF) = [pic] Table 2. 3 |Year |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 | • Wealth Ratios: 1. Intrinsic value of shares = [pic] Table 2. 4 |Year |Net Assets |No. f 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 = [pic] Table 1. 5 |Year |LTD |Share Fund |Ratio (%) | |2005 |2263. 54 |1022. 63 |2. 21 | |2006 |2698. 03 |1046. 79 |2. 8 | |2007 |2915. 60 |1168. 53 |2. 49 | |2008 |4250. 51 |2179. 15 |1. 95 | |2009 |6514. 76 |3546. 03 |1. 84 | [pic] • Evaluationate 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. 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. 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 = [pic] Where, E = Size of future benefits available to the supplier of the input capital 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 = [pic] Where, A1, A2, A represents the stream of cash flowsProfitability Ratio: (Rs. in crores) 1. Gross profitability ratio (GPR) = [pic] Table 2. 1 |Year |Gross Profit |Sales |Ratio (%) | |2005 |(206. 91) |1165. 52 |— | |2006 |26. 69 |1625. 42 |1. 64 | |2007 |118. |2007. 07 |5. 89 | |2008 |484. 24 |4366. 40 |11. 09 | |2009 |1007. 14 |6719. 99 |14. 99 | 2. Net Profitability ration (NPR) = [pic] Table 2. 2 |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. 5 |6719. 99 |13. 91 | [pic] 3. Return on Shareholder’s fund (ROSF) = [pic] Table 2. 3 |Year |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 | • Wealth Ratios: 1. Intrinsic value of shares = [pic] Table 2. 4 |Year |Net Assets |No. f 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 = [pic] Table 1. 5 |Year |LTD |Share Fund |Ratio (%) | |2005 |2263. 54 |1022. 63 |2. 21 | |2006 |2698. 03 |1046. 79 |2. 8 | |2007 |2915. 60 |1168. 53 |2. 49 | |2008 |4250. 51 |2179. 15 |1. 95 | |2009 |6514. 76 |3546. 03 |1. 84 | [pic] • Evaluation 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. 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. 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 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. 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, 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. 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. Critics and Defense of Shareholder Wealth Maximization Goal: Critics |Defense | |The capital market skeptics argue that the stock market |Based on extensive empirical evidence financial economists | |displays myopic tendencies, often wrongly prices securities, |argue that in developed capital market, at least share prices | |and fails to reflect long-term values. |are the least biased Estimates. | |The strategic visionaries argue that the firm should pursue a |It is true that shareholders wealth is created only through | |product market share, or enhancing customer satisfaction, or |successful product market strategies. For example, Satisfied | |minimizing costs in relation to competitors or achieving a zero|and loyal customers are Essential for value creation. However, | |defect level. If the firm get success in implementing its |beyond a certain point customer satisfaction comes at the cost | |product market strategy, investors would Amply rewarded. 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 |Balancing the interest of various stakeholder is not a | |of various Shareholders, viz. customers, employees, |practical governing objectives. There is no way to figure out | |shareholders, creditors, suppliers, community, and others. |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|If as business firm engages itself in social programmers it may| |must view itself as a social responsive entity and assume wider|become vulnerable to competitive encroachment.

Let shareholders| |responsibilities. |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. | 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. 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. 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) 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) = [pic] ? Net Profitability ratio (NPR) = [pic] ? Return on Shareholder’s fund (ROSF) = [pic] 2.

Wealth Ratios: ? Debt equity Ratio = [pic] ? Intrinsic value of shares = [pic] ? 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. 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 HINDUSTAN UNILEVER LTD. • Profitability Ratio: (Rs. in crores) 1. Gross profitability ratio (GPR) = [pic] Table 1. 1 Year |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) = [pic] Table 1. 2 |Year |P. A. Tax |Sales |Ratio (%) | |2005 |1771. 79 |11203. 14 |15. 82 | |2006 |1197. 34 |10996. 72 |10. 9 | |2007 |1408. 10 |12108. 86 |11. 63 | |2008 |1855. 37 |13189. 70 |14. 07 | |2009 |1769. 06 |14937. 88 |11. 84 | [pic] 3. Return on Shareholder’s fund (ROSF) = [pic] Table 1. 3 |Year |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. 8 | |2009 |1769. 06 |1438. 57 |1. 23 | • Wealth Ratios: 1. Intrinsic value of shares = [pic] Table 1. 4 |Year |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 = [pic] Table 1. 5 Year |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 | [pic] • 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. . 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. IDEA CELLULAR LTD. • Profitability Ratio: (Rs. in crores) 1. Gross profitability ratio (GPR) = [pic] Table 2. 1 |Year |Gross Profit |Sales |Ratio (%) | |2005 |(206. 91) |1165. 52 |— | |2006 |26. 69 |1625. 42 |1. 64 | |2007 |118. |2007. 07 |5. 89 | |2008 |484. 24 |4366. 40 |11. 09 | |2009 |1007. 14 |6719. 99 |14. 99 | 2. Net Profitability ration (NPR) = [pic] Table 2. 2 |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. 5 |6719. 99 |13. 91 | [pic] 3. Return on Shareholder’s fund (ROSF) = [pic] Table 2. 3 |Year |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 | • Wealth Ratios: 1. Intrinsic value of shares = [pic] Table 2. 4 |Year |Net Assets |No. f 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 = [pic] Table 1. 5 |Year |LTD |Share Fund |Ratio (%) | |2005 |2263. 54 |1022. 63 |2. 21 | |2006 |2698. 03 |1046. 79 |2. 8 | |2007 |2915. 60 |1168. 53 |2. 49 | |2008 |4250. 51 |2179. 15 |1. 95 | |2009 |6514. 76 |3546. 03 |1. 84 | [pic] • 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. RANBAXY PHARMACEUTICAL LTD. • Profitability Ratio: (Rs. in crores) 1. Gross profitability ratio (GPR) = [pic] Table 3. 1 |Year |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) = [pic]

Table 3. 2 |Year |P. A. Tax |Sales |Ratio (%) | |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 | [pic] 3. Return on Shareholder’s fund (ROSF) = [pic] Table 3. 3 |Year |P. A. Tax |Share Fund |Ratio (%) | |2005 |794. 78 |2321. 77 |0. 4 | |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 | • Wealth Ratios: 1. Intrinsic value of shares = [pic] Table 3. 4 |Year |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. 2 |91. 48 | |2008 |5528. 61 |3726. 87 |148. 34 | |2009 |6041. 42 |3730. 71 |161. 94 | 2. Debt equity Ratio = [pic] Table 3. 5 |Year |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. 3 |2535. 40 |1. 38 | [pic] • 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. WIPRO LIMITED • Profitability Ratio: (Rs. in crores) 1. Gross profitability ratio (GPR) = [pic] Table 4. 1 Year |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) = [pic] Table 4. 2 |Year |P. A. Tax |Sales |Ratio (%) | |2005 |914. 88 |5134. 89 |17. 82 | |2006 |1494. 82 |7233. 16 |20. 7 | |2007 |2020. 48 |10227. 12 |19. 76 | |2008 |2842. 10 |13683. 90 |20. 77 | |2009 |3063. 30 |17492. 60 |17. 51 | [pic] 3. Return on Shareholder’s fund (ROSF) = [pic] Table 4. 3 |Year |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. 0 | |2009 |3063. 30 |11610. 70 |0. 26 | • Wealth Ratios: 1. Intrinsic value of shares = [pic] Table 4. 4 |Year |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 = [pic] Table 4. 5 Year |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 | [pic] • 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. AXIS BANK LTD. • Profitability Ratio: (Rs. in crores) 1. Gross profitability ratio (GPR) = [pic] Table 5. 1 |Year |Gross Profit |Sales |Ratio (%) | |2005 |432. 75 |2115. 52 |20. 45 | |2006 |568. 66 |2299. 23 |24. 73 | |2007 |865. 5 |3594. 46 |24. 06 | |2008 |1102. 46 |5461. 60 |20. 18 | |2009 |1890. 54 |8750. 68 |21. 60 | 2. Net Profitability ration (NPR) = [pic] Table 5. 2 |Year |P. A. Tax |Sales |Ratio (%) | |2005 |278. 31 |2115. 52 |13. 15 | |2006 |334. 58 |2299. 23 |14. 55 | |2007 |485. 08 |3594. 46 |13. 49 | |2008 |627. 23 |5461. 60 |11. 48 | |2009 |1071. 3 |8750. 68 |12. 24 | [pic] 3. Return on Shareholder’s fund (ROSF) = [pic] Table 5. 3 |Year |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 | • Wealth Ratios: 1. Intrinsic value of shares = [pic] Table 5. 4 |Year |Net Assets |No. f 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 = [pic] Table 5. 5 |Year |LTD |Share Fund |Ratio (%) | |2005 |20953. 90 |1138. 05 |18. 41 | |2006 |31712 |2421. 1 |13. 09 | |2007 |40113. 53 |2885. 63 |13. 90 | |2008 |58785. 60 |3402. 21 |17. 28 | |2009 |87626. 22 |8770. 69 |9. 99 | [pic] • 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. 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……… 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. [pic]

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