3.

1 RESEARCH METHODOLOGY

MEANING OF RESEARCH

Research in common parlance refers to a search for knowledge. One can slow
defined scientific and systematic research for pertinent information on a specific
topic, in fact, research is an art of scientific investigation. It can also be defined
as "a careful investigation or inquiry specially through search for new facts in
any branch of knowledge. It is a systemized effort to gain new knowledge. We
all possess the vital instinct of inquisitiveness for, when the unknown confront
us, we wonder and our inquisitiveness make an probe and attain full
understanding.

Research is an academic activity and as such the term should be used in a

technical sense Research comprises defining and redefining problems,
formulating hypothesis or suggesting solutions, collecting, organising and
evaluating data, making deductions and reaching conclusions and at last
carefully testing the conclusions to determine whether they fit the formulating
hypothesis. It is also the manipulation of things, concepts or symbols for the
purpose of generalising to extend, correct or verify knowledge, whether that
knowledge aids in construction of theory or in the practise of an art. The
systematic approach concerning the generalisation and the formulation of a
theory is also a research. As such the term research refers to the systematic
method consisting of enunciating the problem, formulating the hypothesis,
collecting the facts or data, analysing the facts and reaching certain conclusions
either in the form of solutions towards the concerned problem or in certain
generalisations for some theoretical formulations.

OBJECTIVES OF RESEARCH

The purpose of research is to discover answers to questions through the

application of scientific procedures. The main aim of research is to find out the
truth which is hidden and which has not been discovered as yet. Though each
research study has its own specific purpose, we may think of research objectives
as falling into a number of following broad groupings
1. To gain familiarity with a phenomenon or to achieve new insights into
(studies with this object in view are termed as exploratory or formulative
research studies.)

2. To portray accurately. The characteristics of a particular individual situation

or a group (studies with this object in view are known as descriptive research
studies)

3. To determine the frequency with which something occurs or with which it is

associated with something else (studies with this object in view are known as
diagnostic studies)

4. To test a hypothesis of a casual relationship between variables (such studies

are known as hypothesis testing research studies.

SIGNIFICANCE OF RESEARCH

All progress is born of inquiry. Doubt is often better than overconfidence, for it
leads to inquiry and inquiry leads to invention is a famous Hudson Maxim in
context of which the significance of research can well be understood. Increased
amounts of research make progress possible. Research inculcates scientific and
inductive thinking and it promotes the development of logical habits of thinking
and organisation.

The role of research in several fields of applied economics, whether related to

business or to the economy as a whole, has greatly increased in modern times.
The increasingly complex nature of business and government has focussed
attention on the use of research in solving operational problems. Research, as an
aid to economic policy, has gained added importance, both for government and
business

Research provides the basis for nearly all government policies in our economic
system. For instance, government's budgets rest in part on an analysis of the
needs and desires of the people and on the availability of revenues to meet these
demands. The cost of needs has to be equated to probable revenues and this is a
field where research is most needed. Through research we can devise alternative
policies and can as well examine the consequences of each of these alternatives.
Decision making may not be part of research, but research certainly facilitates
the decisions of the policy maker. Government has also to chalk out
programmes for dealing with all facets of a country's existence and most of
these will be related directly or indirectly to economic conditions. Research is
considered necessary with regard to the allocation of a nation's resources,
collecting statistical information is by no means a routine task, but it involves a
variety of research problems.

Research has its special significance in solving various operational and planning
problems of business and industry. Operations research and market research,
along with motivational research are considered crucial and their results assist,
in more than one way, in taking business decisions. Market research is the
investigation of the structure and development of a market for the purpose of
formulating efficient policies for purchasing production and sales. Operations
research refers to the application of mathematical, logical and analytical
techniques to the solution of business problems of cost minimisation or of profit
maximisation or what can be termed as optimisation problems. Research is the
fountain of knowledge for the sake of knowledge and an important source of
providing guidelines for solving different business, governmental and social
problems.

TYPES OF RESEARCH

● Descriptive research: It is used to describe characteristics of a population

or phenomenon being studied. It does not answer questions about
how/when/why the characteristics occurred.

● Analytical research: In this type of research, the researcher has to use

facts or information already available and analyse these to make a critical
evaluation of the materials.

● Applied research: It aims at finding a solution for an immediate problem

facing a society or an industrial/business organisation.

● Fundamental research: Fundamental research is mainly concerned with

generalisations and with the formulation of a theory.
 ● Quantitative research: It is based on the measurement of quality or
amount. It is applicable to phenomenon that can be expressed in terms of
quantity.

● Qualitative research: It is concerned with qualitative phenomenon i.e

phenomena relating to or involving quality or kind. This type of research
is important in behavioural sciences where the aim is to discover the
underlying motives of human behaviour

● Conceptual research: Conceptual research is that related to some abstract

ideas or theory. It is generally used by philosophers to develop new
concepts.

● Empirical research: Empirical research relies on experience or

observation alone, often without due regard for system and theory. It is a
data based research coming up with some conclusions which are capable
of being verified by observation or experiment.

The type of research done here is analytical research. Analytical research

involves the in depth study of available information in an attempt to explain
complex phenomenon.

RESEARCH DESIGN

A research design is a systematic plan to study a scientific problem. The design

of a study defines the study type and sub type and if applicable data collection
methods and a statistical analysis plan.

The research design used here is analytical.

3.2 SOURCES OF DATA

The task of data collection begins after a research problem has been defined and
research design/plan chalked out. While deciding about the method of data
collection to be used for the study, the researcher should keep in mind two types
of data which is primary and secondary data

Primary data: the primary data are those which are collected afresh and for the
first time, and thus happen to be original in character.

Secondary data: the secondary data on the other hand are those which have
already been collected by someone else and which have already been passed
through the statistical process.

This study was undertaken purely with the help of secondary data. When the
researcher utilises secondary data, then he has to look into various sources from
where he can obtain them. Secondary data may either be published or
unpublished data. Usually published data are available in various publications
of foreign governments, technical and trade journals, books, magazines,
newspapers, reports, publications of various associations connected with
business and industry, reports prepared by research scholars, universities,
economists etc. Unpublished data are many, they may be found in diaries,
letters, unpublished biographies and autobiographies and also may be available
with scholars and research workers, trade associations, labour bureaus and other
public/private individuals and organisations.

The datas required for this study was collected from the past records which
included balance sheet, income statement and in general the annual report of the
previous five years.
3.3 TOOLS USED

1. RATIO ANALYSIS

A. Liquidity ratio

● Current ratio

● Quick ratio

● Absolute liquid ratio

B. Profitability ratio

● Return on assets

● Net profit ratio

● Debt asset ratio

● Debt equity ratio

● Return on capital employed

C. Activity ratios

● Working capital turnover ratio

● Fixed assets turnover ratio

● Net asset turnover ratio

● Current asset turnover ratio

● Inventory turnover ratio

2. COMMON SIZE BALANCE SHEET

3. COMPARITIVE BALANCE SHEET

4. TREND PROJECTION

LIQUIDITY RATIO

These ratios are also termed as working capital or short term solvency ratio. An
enterprise must have adequate working capital to run its day to day operations

Current ratio

This ratio is an indicator of the firm's commitment to meet its short term
liabilities. It is expressed as follows;

Current ratio current assets/current liabilities

Current assets means the assets that will either be used up or converted into cash
within a year's time or normal operating cycle of the business, whichever is
longer. Current liabilities payable within a year or operating cycle, whichever is
longer, out of the existing current assets or by creation of current liabilities.

Quick ratio

This ratio is also termed as acid test ratio or liquidity ratio. This ratio is
ascertained by comparing the liquid assets to current liabilities. Liquid assets are
which can be easily converted into cash without much loss.

Quick ratio liquid assets/current liabilities

Absolute liquid ratio

This ratio is also called as cash ratio or super quick ratio. This ratio is calculated
when liquidity is highly restricted in terms of cash and cash equivalents.
Therefore, absolute liquid ratio relates cash, bank, marketable securities to the
current liabilities.
Absolute liquid ratio cash + marketable securities/current liabilities

PROFITABILITY RATIO

profitability is an indication of the efficiency with which the operation of the

business are carried on. Poor operational performance may indicate poor sales
and hence poor profits. A lower profitability may arise due to the lack of control
over the expenses

Net profit ratio

Net profit ratio expresses the relationship between net profit after taxes and
sales. This ratio is a measure of the overall profitability or net profit that is
arrived at after taking into account both the operating and non operating items
of incomes and expenses. The ratio indicates what portion of the net sales is left
for the owners after all expenses have been met.

Net profit ratio = net profit/sales

Debt equity ratio

The debt equity ratio is determined to ascertain the soundness of the long term
financial policies of the company. It is also known as external-internal equity
ratio. The term external equities refers to total outside liabilities and the term
internal equity refers to net worth. It can be calculated as

Debt equity ratio = total long term debt/net worth

Debt asset ratio

This ratio indicates total debts divided by total assets. The debt asset ratio shows
the proportion of a company's assets which are financed through debt. If the
ratio is less than one, most of the company's assets are financed through equity.
If the ratio is greater than one, most of the company's assets are financed
through debt. This ratio can be calculated as:;
Debt asset ratio = total debts/total assets

Return on capital employed

Is a measure of the returns that a company is realizing from its capital.

Calculated as profit More interest and tax, it is divided by the difference
between total assets and current abilities

Return on capital employed profit before interest and tax/total assets-current

liabilities

Return on assets

It is an indicator of how profitability of a company is relative to its total assets.

Return on gets gives us 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. Sometimes return on assets is referred to as return on
investment.

Return on assets = net income/total assets*100

TURNOVER RATIOS

The turnover ratios indicate the efficiency with which the capital employed is
rotated in the business. The overall profitability of the business depends on two
factors, the rate of return on capital employed and the speed at which the capital
employed rotates in the business.

Working capital turnover ratio

This ratio is also known as working capital leverage ratio. It indicates whether
or not working capital has been effectively utilised in making sales. The ratio is
calculated as

Working capital turnover ratio = net sales/working capital

Fixed assets turnover ratio

This ratio indicates the extent to which the investments in fixed assets
contribute towards sales If compared with a previous period, it indicates
whether the investment in fixed assets has been judicious or not. The ratio is
calculated as

Fixed assets turnover ratio =net sales fixed assets

Current asset turnover ratio

This ratio indicates the efficiency of the firm to use its current assets which
would enable them to generate more revenues. The formula for current asset
turnover ratio is as follows

Current asset turnover ratio= net sales/current assets*100

Net asset turnover ratio

The net asset turnover ratio measures the efficiency of a company's use of its
assets in generating sales revenue or sales income of the company. The formula
for this ratio is a s follows:

Net asset turnover ratio = net sales/total assets* 100

Inventory turnover ratio

This ratio indicates whether investment in inventory is efficiently used or not. It

explains whether investment in inventories is within proper limits or not. The
ratio is calculated as Follows;

Inventory turnover ratio = total sales average inventory

COMPARITIVE BALANCE SHEET

A comparative balance sheet is an account designed to serve as a financial

comparison between several accounting periods. It is useful as a business can
instantly compare profits and losses between different time periods and this
helps increase profits and functionality of a company. It helps us in comparing
the financial position of an organisation as it stands at the end of the period.
They show the effect business decisions have on a company's bottom line.
Analysts can identify trends and evaluate the performance of mangers, new
lines of business and new products on one statement instead of having to flip
through individual financial statements from different periods of time. When
comparing different companies, a comparative statement can show how
businesses react to market conditions affecting an entire industry.

COMMON SIZE BALANCE SHEET

A balance sheet that displays both the numeric value of all entries and the
percentage each entry is relative to the total value of related entries. On a
common size balance sheet, an asset is compared to total assets, a liability to
total liabilities and stockholder equity to total stockholder equity. It makes it
easier to analyze changes that occur in a company's balance sheet over multiple
time period.

TREND PROJECTION

Trend projection through least square method exhibits a linear trend and is used
to determine a trend line for future forecasts. Least squares also used in
regression analysis determines the unique trend line forecast which minimizes
the mean square error between the trend line forecasts and the actual observed
values for the time series.

Under the least square method, the formula for the trend projection is:

Y-bo+bit.where,

Yr-trend forecast for time period t

bi slope of the trend line

bo-trend line projection for time 0

ηΣ - (Σε)

where: Yt= observed value of the time series at time period t

= average of the observed values for Yt

= average time period for the n observation