1.1 INDUSTRY SCENARIO
As per the sences of 2009, India is the fourth largest in power making, oil products, the fourth biggest merchant of coal and unrefined petroleum in the world. Coal and oil is together utilizing for producing 66 per cent of energy in India. In India, oil saves met 25 per cent of the nation’s household oil request. During the 2009, India demonstrated oil holds remained at 775 million metric tons while gas saves remained at 1074 billion cubic meters. Oil and normal gas fields are found seaward at Mumbai High, Krishna Godavari Basin and the Cauvery Delta, and coastal mostly in the conditions of Assam, Gujarat and Rajasthan. India is the fourth biggest purchaser of oil on the planet and imported $82.1 billion worth of oil in the initial seventy five percent of 2010, which adverse affected its present record shortfall. The petroleum business in India generally comprises of open area organizations, for example, Oil and Natural Gas Corporation (ONGC), Hindustan Petroleum Corporation Limited (HPCL) and Indian Oil Corporation Limited (IOCL). There are some significant private Indian organizations in the oil part, for example, Reliance Industries Limited (RIL) which works the world s biggest oil refining complex. As of December 2011, India had an introduced power generation limit of 185.5 Giga Watts (GW), of which warm power contributed 65.87 per cent, hydroelectricity 20.75 per cent, different wellsprings of renewable energy 10.80 per cent, and atomic force 2.56 per cent. India meets the vast majority of its local energy demand request through its 106 billion tones of coal stores. India is likewise rich in certain renewable energy sources with noteworthy future potential; for example, sun oriented, wind and bio-powers. India s immense thorium holds – around 25 per cent of world’s saves are required to fuel the nation s yearning atomic energy program over the long haul. India’s diminishing uranium saves stagnate the development of atomic energy in the nation for some years. However, the Indo-US atomic arrangement has made ready for India to import uranium from in different nations.
The Indian Power Industry is one of the biggest and most imperative commercial industries in India as it satisfies the energy prerequisites of different businesses. It is one of the most basic parts of base that influences financial development and the prosperity of our country. India has the world's fifth biggest electricity generation capacity and it is the sixth biggest vitality shopper representing 3.4 per cent of worldwide energy utilization. In India, force is created by State utilities, Central utilities and Private players. The offer of introduced limit of force accessible with each of the three divisions can be found in the pie-graph underneath: according to the most recent Report of Central Electricity Authority (CEA) i.e., as on 31-03-2011, the Total Installed Capacity of Power in India is 173626.40 MW. Of this, more than 75 per cent of the introduced limit is with people in general segment (state and central), the state area having the biggest offer of 48 per cent.
Thermal Power: – In India, significant extent of force is produced from thermal sources where the primary crude material utilized is coal. Around 83 per cent of warm power is created utilizing coal as a crude material while 16 per cent of thermal power is produced with the assistance of Gas and 1 per cent of warm power is produced with the assistance of Oil.
Hydro Power: – Hydroelectric force or hydroelectricity is electrical force which is created through the energy of falling water. India has hydro power era potential worth 1, 50,000 MW, of which just 25 per cent has been saddled till date.
Atomic Power: – A Nuclear Power Plant is a warm power station in which the warmth source is one or more atomic reactors. An atomic reactor is a gadget to start and control a managed atomic chain response. Simultaneously, warmth is produced which is then used to create power.
Renewable Energy Sources: – The energy acquired from renewable sources like sun, wind, biomass can be changed over into force. Renewable energy sources can possibly add to enhancing energy security of India and reducing green-house gas emissions. India is among the five largest wind power generators in the world.
BACKGROUND AND INCEPTION KREDL
Karnataka is the eighth largest states in India, rich in natural resources. It is bestowed with high potential of Renewable Energy Resources especially Wind, Small Hydro, Biomass, Cogeneration and Solar which offer great possibilities of exploiting energy without polluting the environment and is effectively implemented in all parts of the State, thereby improving economic condition of the farmers and creating employment opportunities too.
Electricity is one of the most vital energy sources for economic development activities. The economic development of a country by and large depends on its efficient supply of power which can help in transforming the many people and work.
Karnataka Renewable Energy Development Limited (KREDL) was formed on 8th March, 1996 as a nodal agency of the government of Karnataka to facilitate the development of non conventional energy sources. According to the companies’ act 1956.
Prior to the creation of KREDL, the Karnataka State Council for Science and Technology (KSCST) the erstwhile Karnataka Electricity Board (KEB) and Karnataka Power Corporation Limited (KPCL) were looking after this sector as a subsidiary function to their main activity.
But each of the above agencies had their own priorities and limitations. While KSCST had research oriented, the KEB’s priority was management of power transmission and distribution. KPCL was involved in construction of large power projects and could not focus adequately on small power projects in the non conventional energy sector.
Therefore promotion of renewable energy projects as a supplement to conventional power generation to energy where in Karnataka. This persuaded the Government of Karnataka to set up a separate agency rendering hand holding project of support to renewable energy project development.
Thus, was born the Karnataka Renewable Energy Development Limited for Promotion of Renewable Energy and Renewable Energy projects development in Karnataka.
NATURE OF BUSINESS CARRIED
KREDL takes great opportunity to generate Renewable Energy power in Karnataka (As more power to remote areas). Today Karnataka has huge potential of renewable energy sources of more than 13000 megawatt primarily in the sectors of wind, small hydro, co-generation and biomass. During 10th five year plan (2002-2007) about 1450 megawatt of renewable energy power has been added to the state grid. KREDL is planned about 1500 megawatt (MW) of renewable energy power during the 11th five year plan (2012). To develop energy, MINISTRY OF NEW AND RENEWABLE ENERGY (MNRE) projects can take care to meet the challenges of the raising energy supply and demand in Karnataka.
Apart from KSCST, KEB, KPCL AND MNRE other agencies joining hands to give more power to Karnataka includes IREDA, KERC and KPTCL, along with departments of Government of Karnataka such as Irrigation, Finance, Revenue, Forest and Environment. PSU’s like BESCOM, MESCOM, HESCOM, GESCOM. Others in this line are Karnataka Solar Manufactures and consultants, wind Biomass and co-generation developers and consultants etc.
A dedicated of above professionals shares the vision of KREDL with technocrats, administrators and supporting staff joining hands to give more power to Karnataka.
Renewable Energies:-
The wind, sun, and biomass are the three Renewable Energy Sources in Karnataka. Renewable energy is for the most part characterized as energy that originates from assets which are normally recharged on a human timescale, for example, daylight, wind, downpour, tides, waves and geothermal warmth. Renewable energy assets exist over wide land zones, rather than other vitality sources, which are gathered in a predetermined number of nations. Quick arrangement of renewable energy and energy effectiveness is bringing about noteworthy energy security, environmental change alleviation, and monetary advantages. In global popular supposition reviews there is solid backing for advancing renewable sources, for example, sun oriented power and wind power. Numerous renewable energies have the ability to uplift the poorest nations.
Renewable energy is gotten from common procedures that are recharged always. In its different structures, it gets directly from the sun, or from heat produced deep inside the earth. Incorporated into the definition is power and heat produced from sun based, wind, sea, hydropower, biomass, geothermal assets, and bio energizes and hydrogen got from renewable assets.
Renewable Energy Sources: –
The energy obtained from renewable sources like sun, wind, biomass can be converted into power. Renewable energy sources have great potential to contribute to improving energy security of India and reducing green-house gas emissions. India is among the five largest wind power generators in the world. A picture of KREDL activities includes:
THEORITICAL BACKGROUND OF PROFITABILITY
On the subject of AMERICAN INSTITUTE OF CERTIFIED PUBLIC ACCOUNTANTS, Productivity statement reflect "A mixture of recorded facts, accounting conventions and personal decision and the judgments and conventions apply affect them materially."
Profitability affirmation identifies "the process of identifying financial strengths and weaknesses of the organization by establishing strategic relationship between the items of the balance sheet, and income and loss account and other operative data very well. The purpose of measuring trading performance, operational efficiency, profitability and financial position of a concern exposed by Trading, Profit and Loss Account and Balance Sheet. These financial transactions are prepared to determine the Gross Profit or Major Loss, Net Profit or Net Loss and financial soundness of an organization an entire for a particular period of time. From the management point of view, the performance details provided by these income statement functions effectively and efficiently. In the true sense they do not disclose the characteristics of all transactions. Managing , Creditors and Investors and many others. want to ascertain or evaluate the sources and application of funds utilized by the firm for the future course of action. Based upon these skills, it is essential to analyze the movement of assets, liabilities, funds from businesses and capital between the aspects of financial transactions . The analysis of financial Statements help to the management by providing additional information in a significant manner.
FEATURES OF PROFITABILITY:
1. Helpful in examination of Financial Statements.
2. Helpful in relative Study.
3. Helpful in finding the feeble spots of the business.
4. Helpful in Forecasting.
5. Estimate about the pattern of the business.
6. Fixation of perfect Standards.
7. Effective Control.
8. Study of Financial Soundness.
FINANCIAL STATEMENT ANALYSIS:
We know business is mainly worried with the financial activities. In order to determine the financial status of the organization every enterprise works on certain statements, known as financial statements. Financial transactions are mostly prepared for decision making purposes. Although the information as is provided in the financial statements is not effectively| attractive drawing significant conclusion. Thus, an efficient evaluation and interpretation of financial statements is essential.
Analysis of financial statements is an attempt to determine the efficiency and performance of an enterprise. Thus, the analysis and interpretation of financial statements is very essential to measure the efficiency, profitability, financial soundness and future prospects of the organization units. Financial evaluation serves the following purposes:
Measuring the profitability
Indicating the trend of Achievements
Assessing the increase prospective of the business
proportional position in relation to other firms
Assess overall financial strength
Assess solvency of the firm
TOOLS OF FINANCIAL STATEMENTS
Comparative financial statements
Common size statements
Trend analysis
Ratio analysis
Funds flow and cash flow analysis
MEANING OF SOLVENCY
Solvency, in finance or business, is the amount to which the current assets associated with an individual or entity go beyond the current liabilities of that individual or organization . Solvency can be described as the ability of a corporation to meet the long-term fixed expenses and accomplish long-term expansion and development. The ability of a company to meet its long-term obligations is called as solvency. Solvency is essential to outstanding in business, but a company also needs fluid to thrive. Liquidity is a company's ability to meet its short-term requirements . A company that is insolvent must enter individual bankruptcy; a company that falls short of liquidity can be forced to enter bankruptcy even if it is solvent.
INVESTOPEDIA EXPLAINS 'SOLVENCY'
Investors can use ratios to evaluate a company's solvency. The interest coverage ratio splits operating income by interest expense to exhibit an industry’s ability to pay the interest on its financial debt, with a higher consequence indicating a greater solvency. The debt-to-equity ratio splits a company's debt by its equity to show whether a company has taken on too much debt, with a reduced effect indicating a greater solvency. Solvency ratios vary by industry, so it's important to know what constitutes a good ratio for the company in question before drawing conclusions from the ratio calculations.
COMPARATIVE FINANCIAL STATEMENT
In brief, relative analysis study of financial transactions is the comparison of the financial statements of the business with the prior year's financial transactions. It permits identification of faults and applying further measures. For all intents and purposes, two monetary articulations (accounting report and wage proclamation) are all around arranged in similar structure for examination purposes.
COMMON SIZE STATEMENT
The regular size transactions Balance Sheet and Profits Statement are shown in analytical percentages. The numbers of these statements are shown as percentages of total assets, total financial obligations and total sales correspondingly. Take the example of "balance sheet". The total assets are accepted as 100 and different resources are expressed as a percentage of the total. Similarly, various liabilities are taken as a part of total liabilities.
TREND PERCENTAGE ANALYSIS (TPA)
The trend analysis is a technique of studying several financial statements over a number of years. In this evaluation fashionable percentages are determined for each and every item by taking the figure of that item for the bottom 12 months taken as 100. Generally the First year is accepted as a basic year. The analyst is able to see the trend of figures, whether moving upward or downwards.
RATIO ANALYSIS
Meaning of Ratio:
A ratio is a basic arithmetical expression and it demonstrates the relationship between one number to another. It can likewise be characterized as the showed remainder of two scientific expressions. As indicated by Accountant's Handbook by Wixon, Kell and Bedford, "a proportion is a declaration of the quantitative relationship between two numbers".
Proportion investigation is the procedure of deciding and displaying the relationship of things and gathering of things in the announcements. As indicated by Batty J. Administration Accounting "Proportion can help administration in its essential elements of determining, arranging coordination, control and correspondence".
It is useful to think about the liquidity, dissolvability, capital structure and gainfulness of an association. It is useful apparatus to help in applying judgment, generally complex circumstances.
Ratios might be communicated in the accompanying three ways:
Pure Ratio or Simple Ratio: – It is communicated by the straightforward division of one number by another. For instance, if the present resources of a business are Rs. 200000 and its present liabilities are Rs. 100000, the proportion of 'Current resources for current liabilities' will be 2:1.
"Rate" or 'so Many Times: – In this write, it is ascertained how frequently a figure is, in contrast with another figure. For instance , if a company's credit deals amid the year are Rs. 200000 and its account holders toward the end of the year are Rs. 40000 , its Debtors Turnover Ratio is 200000/40000 = 5 times. It demonstrates that the credit deals are 5 times in contrast with indebted individuals.
Percentage: – In this write, the connection between two figures is communicated in hundredth. For instance, if a company's capital is Rs.1000000 and its benefit is Rs.200000 the proportion of benefit capital, in term of rate, is 200000/1000000*100 = 20 for each penny
CLASSIFICATION OF RATIOS :
Ratio may be classified into the three categories as follows:
A. Liquidity Ratio
• Current Ratio
• Quick Ratio or Acid Test Ratio
B. Leverage or Capital Structure Ratio
• Debt Equity Ratio
• Debt to Total Fund Ratio
• Proprietary Ratio
• Fixed Assets to Proprietor’s Fund Ratio
• Capital Gearing Ratio
• Interest Coverage Ratio
C. Profitability Ratio
1. Return on Capital Employed
2. Return on Shareholder’s Funds:
a. Return on Total Shareholder’s Funds
b. Return on Equity Shareholder’s Funds
c. Earnings Per Share
d. Dividend Per Share
e. Dividend Payout Ratio
f. Earnings and Dividend Yield
g. Price Earnings Ratio
LIQUIDITY RATIO
(A) Liquidity Ratio:- It refers to the limit of the firm to meet its present liabilities. The liquidity ratio is used to determine a companys ability to pay of its short term debts. These extents are used to review the momentary cash related position of the organization. They demonstrate the affiliation's ability to meet its present duty out of current resources.
In the outflows of Saloman J. Flink, "Liquidity is the limit of the associations to meet its present responsibilities as they fall due".
Liquidity ratio includes two ratios:-
a. Current Ratio
b. Quick Ratio or Acid Test Ratio
a. Current Ratio: – The current ratio shows the relationship between current assets and current liabilities of a company.
Formula:
Current Ratio = Current Asset/ Current Liabilities
Current Assets:-‘Current assets’ include those assets which can be easily converted into cash with in a year.
Current Assets = Cash in Hand + Cash at Bank + B/R + Short Term Investment + Debtors (Debtors – Provision) + Stock(Stock of Finished Goods + Stock of Raw Material + Work in Progress) + Prepaid Expenses.
Current Liabilities: – ‘Current liabilities’ include those liabilities which are repayable in a year’s time.
Current Liabilities = Bank Overdraft + B/P + Creditors + Provision for Taxation + Proposed Dividend + Unclaimed Dividends + Outstanding Expenses + Loans Payable within a Year.
Significance: –
According to the accounting standards, the present extent of current ratio is 2:1 and it is a perfect ratio .
It infers that current assets of a business should, be twice of its current liabilities. The maximum ratio shows the better liquidity position, of the firm and it will have the ability to pay its present liabilities more easily. If the extent is under 2:1, it demonstrates nonappearance of liquidity and insufficiency of working capital.
The disadvantage of the present ratio is that it is feeble to "window dressing". This extent can be upgraded by a comparable reducing in both current assets and current liabilities.
b. Quick Ratio:- Quick ratio indicates that whether the firm is in a position to pay back its current liabilities within a month or immediately. It states the immediate payment of debts
Formula:
Quick Ratio = Liquid Assets/ Current Liabilities
‘Liquid Assets’ means those assets, which will yield cash very shortly.
Liquid Assets = Current Assets – Stock – Prepaid Expenses.
Significance: – A perfect quick ratio is said to be 1:1. In the event that it is more, it is thought to be better. This proportion is a superior test of fleeting financial position of the organization.
LEVERAGE OR CAPITAL STRUCTURE RATIO
(B) Leverage or Capital Structure Ratio: – This proportion reveals the company's capacity to meet the interest costs frequently and Long term obligation at development.
These proportions incorporate the accompanying proportions
a. Debt Equity Ratio: – This proportion can be communicated in two ways:
Initially Approach: According to this approach, this proportion communicates the relationship between long term debts and shareholder's asset.
Formula:
Debt Equity Ratio=Long term Loans/Shareholder’s Funds or Net Worth
Long Term Loans: – These refres to long term liabilities which develop following one year. These incorporate Debentures, Mortgage Loan, Bank Loan, Loan from Financial establishments and Public Deposits and so on.
Shareholder's Funds: – The shareholder fund is incorporated Equity Share Capital, Preference Share Capital, Share Premium, General Reserve, Capital Reserve, Other Reserve and Credit Balance of Profit and Loss Account.
Second Approach: According to this approach the proportion is ascertained as takes after:-
Formula: Debt Equity Ratio=External Equities/internal Equities
Debt equity ratio is calculated for using second approach.
Significance: – This Ratio is measured to overview the limit of the firm to meet its long term liabilities. Generally, commitment is the debt equity ratio is seen as secured. In the event of debt equity ratio is more than that, it exhibits a genuinely risky financial position from the long term viewpoint, as it demonstrates that inexorably sponsors place assets into the business are given by long term credit authorities.
The lower the ratio, the better it is for long term loan experts since they are more secure things being what they are. Lower than 2:1 commitment equity ratio gives sufficient confirmation to whole deal advance experts.
b. Debt to Total Funds Ratio:
This Ratio is a distinction of the debt equity ratio and gives the same sign as the debt equity ratio. In the extent, debt is conveyed in association with total assets, i.e., both equity and debt.
Formula:
Debt to Total Funds Ratio = Long-term Loans/Shareholder’s funds + Long-term Loans
Significance: – Generally, debt to total assets extent of 0.67:1 (or 67 for each percent) is seen as acceptable. In other words, the degree of long debt advances should not be more than 67 for each percent of aggregate resources.
A higher extent shows a weight of portion of broad measure of interest charges infrequently and the repayment of incomprehensible measure of advances at improvement. Portion of interest may get the chance to be troublesome if advantage is diminished. From this time forward, awesome concerns keep the obligation to aggregate resources extent underneath 67 for every percent. The lower extent is better from the long term debt dissolvability viewpoint.
c. Proprietary Ratio: – This ratio indicates the proportion of total funds provide by owners or shareholders.
Formula:
Proprietary Ratio = Shareholder’s Funds/Shareholder’s Funds + Long term loans
Significance: – This extent should be 33 for each per penny or more than that. By the day's end, the degree of shareholders resources for total resources should be 33 for each per penny or more.
A higher prohibitive extent is generally treated a pointer of sound budgetary position from long term viewpoint, since it suggests that the firm is less dependent on external wellsprings of record. If the extent is low it exhibits that long term loans are less secured and they go up against the peril of losing their sum.
d. Fixed Assets to Proprietor’s Fund Ratio: – This ratio is also known as fixed assets to net worth ratio.
Formula:
Fixed Asset to Proprietor’s Fund Ratio = Fixed Assets/Proprietor’s Funds (i.e., Net Worth)
Significance:- The ratio demonstrates the extent to which proprietor's (Shareholder's) resources are sunk into fixed assets. Frequently, the purchase of fixed assets should be financed by proprietor's advantages. If this extent is under 100 for each percent, it would infer that proprietor's benefit are more than settled assets and a bit of working capital is given by the proprietors. This will exhibit the long term monetary soundness of business.
e. Capital Gearing Ratio: – This ratio establishes a relationship between equity capital (including all reserves and undistributed profits) and fixed cost bearing capital.
Formula:
Capital Gearing Ratio = Equity Share Capital+ Reserves + P&L Balance/ Fixed cost Bearing Capital
Whereas, Fixed Cost Bearing Capital = Preference Share Capital + Debentures + Long Term Loan
Significance: – If the measure of capital gearing ratio is more than the worth offer capital including spares an undistributed advantages), it will be called high capital gearing and it is less, it will be called low capital gearing.
The high gearing will be profitable to equity shareholders when the rate of interest/profit payable on altered cost bearing capital is lower than the rate of rate of return in business. The principle focus of using Fixed cost bearing capital is to build the advantages available to equity shareholders.
f. Interest Coverage Ratio:- This ratio is also termed as ‘Debt Service Ratio’. This ratio is calculated as follows:
Formula:
Interest Coverage Ratio = Net Profit before charging interest and tax / Fixed Interest Charges
Significance: – This ratio demonstrates how regularly the interest charges are secured by the advantages open to pay interest charges. This ratio measures the edge of security for long term loans.
This higher the ratio, more secure the moneylenders is in appreciation of portion of premium as often as possible. In the occasion that advantage just reciprocals interest, it is a risky position for the credit pro and what's more for the association furthermore, as nothing will be left for shareholders. An interest scope extent of 6 or 7 times is seen as reasonable. Efficiency Ratios or Income Ratios
(D) Profitability Ratios: – The main object of every business concern is to earn profits. A business must be able to earn adequate profits in relation to the risk and capital invested in it. The efficiency and the success of a business can be measured with the help of profitability ratio.
Profitability ratios are calculated to provide answers to the following questions:
Is the firm earning adequate profits?
What is the rate of gross profit and net profit on sales?
What is the rate of return on capital employed in the firm?
What is the rate of return on proprietor’s (shareholder’s) funds?
What is the earning per share?
Profitability ratio can be determined on the basis of either sales or investment into business.
I. Return on Capital Employed
II. Return on Shareholder’s fundss
I. Return on Capital Employed: – This ratio reflects the overall profitability of the business. It is calculated by comparing the profit earned and the capital employed to earn it. This ratio is usually in percentage and is also known as ‘Rate of Return’ or ‘Yield on Capital’.
Formula:
Return on Capital Employed = Profit before interest, tax and dividends/
Capital Employed *100
Where, Capital Employed = Equity Share Capital + Preference Share Capital + All Reserves + P&L Balance +Long-Term Loans- Fictitious Assets (Such as Preliminary Expenses OR etc.) – Non-Operating Assets like Investment made outside the business.
Capital Employed = Fixed Assets + Working Capital
Advantages of ‘Return on Capital Employed:-
As benefit is the general focus of a business organization|, this ratio is an indicator of the general execution of the association. It quantifies how effectively the capital used in the business is being utilized.
However, execution of two unique associations might be thought about by making utilization of this rate.
The ratio can be utilized to judge the acquiring strategy of the endeavor.
This ratio can be valuable for taking choices with respect to capital interest in new assignments. The new tasks will be started just if the rate of returning on capital used in such activities should be more than the rate of getting.
This can be valuable for influencing the essential changes in the money related approaches of the stable.
Lenders like investors and money related foundation will be figure out if the |organization is practical for giving credit or augmenting loaning choices or not.
With the assistance of this ratios, shareholders can likewise see if they will get consistent and higher profit or not.
II. Return on Shareholder’s Funds:-
Return on Capital Employed Shows the complete benefit of the assets gave by permenant moneylenders and shareholders taken together Although, Return on shareholders' cash in hand measures only the proficiency of the advantages used by shareholders.
These are a couple measures to choose the entry on shareholder's advantages:
(a) Return on total Shareholder’s Funds:-
For calculating this ratio ‘Net Profit after Interest and Tax’ is divided by total shareholder’s funds.
Formula:
Return on Total Shareholder’s Funds = Net Profit after Interest and Tax / Total Shareholder’s Funds
Where, Total Shareholder’s Funds = Equity Share Capital + Preference Share Capital + All Reserves + P&L A/c Balance –Fictitious Assets
Significance:- This ratio shows how gainfully the proprietor's asset have been used by the firm. An examination of this ratio with that of comparative firms will toss light on the relative productivity and quality of the firm.
(b) Return on Equity Shareholder’s Funds:-
Equity Shareholders of an organization are more keen on knowing the procuring limit of their assets in the business. All things considered, this ratio measures the profitability of the assets having a place with the equity shareholder's.
Formula:
Return on Equity Shareholder’s Funds = Net Profit (after int., tax & preference dividend) / Equity Shareholder’s Funds *100RATIO ANALYSIS
Where, Equity Shareholder’s Funds = Equity Share Capital + All Reserves + P&L A/c
Balance – Fictitious Assets
Significance: – This ratio measures how effectively the equity shareholder's assets are being utilized as a part of the business. It is a genuine measure of the management of the administration since it indicates what the acquiring limit of the equity shareholders reserves. In the event that the ratio is high, it is better, in fact that in such a case equity shareholders might be given a higher profit. s
(c) Earnings Per Share (E.P.S.):- This ratio measure the benefit accessible to the equity shareholders on a per share basis. All benefit left after payment of tax and preference dividends are available to equity shareholders.
Formula:
Earnings Per Share = Net Profit – Dividend on Preference Shares / No. of Equity Shares
Significance:- This ratio supportive in the deciding of the business sector cost of the value offer of the organization. The ratio is additionally useful in evaluating the limit of the organization to announce profits on value offers.