1.

1 INTRODUCTION TO THE STUDY Indian Banking has seen many changes in the last decade like imposition of prudential standards, greater competition among banks, entry of new private banks, etc. This paradigm shift in the Indian banking sector can be seen in terms of two dimensions: One relates to operational aspect especially performance and risk-management system and the second dimension relates to structural and external environment or exogenous aspects. Is evaluating Indian banks performance a rather straight forward issue? The answer is no. One might say that like a corporate, even banks can be judged from the behaviour of their stock prices. However, as bank stocks have not been very active on exchanges, barring few on few occasions, should we conclude that Indian banks have by and large failed to add values to their shareholders wealth. The answer is once again no, as one needs to evaluate private and public sector banks in a more dynamic manner than just looking at their stock prices, non-performing assets (NPAs), C/D ratios and others. Some may also argue that the general slowdown in lending by banks and their eternal problem of recovery of non performing assets (NPAs) has led to the sufferings of Indian banks. Many Indian banks are discovering that the key to their long-term growth does not lie in products and services alone but in assets that can never be replicated, that is, their unique relationship with customers, employees, suppliers and distributors, investors and the communities they serve. One of the most fateful errors bankers usually commit relates to their belief that merely reducing NPAs and thereby maximizing profit would solve the problem of banking industry. Not only is this belief still held by most of the bankers in India - and therefore professionally unacquainted by the changing profile of their shareholders and the capital market- it is held by virtually large number of myopic captains of the industry. That things are not going as well as they ought to be going for such banks could be due to economic recession, poor demand for credit, rising manpower costs, political uncertainty, inefficient ways of doing business. Or is it something else? In order to help management understand their own economics and arrive at value creating investment decision that adequately satisfies the two sensitive factors mentioned earlier, bankers must understand the concept and relevance of Economic Value Added (EVA)., a period based measure of value creation. EVA provides a unique insight into value creation and links theory of finance with the competitive strategy framework as enumerated by Michael Porter. EVA is also a quantifiable 1

driver of value creation for the stock markets. Large number of International banks (such as Citibank, Deutsche Bank, Barclays, ABN AMRO) use value based frameworks such as EVA to run their banking operations. Although EVA an a yardstick in India may be at an evolving stage, banks like HDFC Bank, ICICI Bank etc. have gradually started adapting such measure to cater to the increasingly discerning investor base. A banks management creates value when it takes decisions that provide benefits, in excess of costs. These benefits may come to banks in the near or distant future depending on the strategies involved in decision making process. The bankers of todays world therefore must be sensitive to two fundamental drivers that drive shareholders wealth. First, there must be an unrelenting focus to ensure that funds mobilized by the banks (whether through depositors, equity or debt issues) generate returns in excess of the cost of capital (or can reasonably be expected to do so) with an eye toward returning non productive capital back to providers of the capital or shareholders. Second, bankers should constantly seek to invest in technology that increases their reach and also be open to strategic alliances, mergers and acquisitions and restructuring. EVA is the invention of Stern Stewart and Co., a global consulting firm, which launched EVA in 1989. EVA is Economic Value Added, a measure of economic profit. It is calculated as the difference between the Net Operating Profit after Tax and the opportunity cost of invested Capital. This opportunity cost is determined by the weighted average cost of Debt and Equity Capital (WACC) and the amount of Capital employed. What separates EVA from other performance metrics such as EPS, EBITDA, and ROIC is that it measures all of the costs of running a businessoperating and financing. This makes EVA the soundest performance metric, and the one most closely aligned with the creation of shareholder value. In fact, EVA and Net Present Value arithmetically tie, so companies can be assured that increasing EVA is always a good thing for its investorscertainly not the case with EPS or Free Cash Flow. Many even argue that EVA is a better decision tool than NPV because it captures the period-by-period value creation or destruction of a given firm or investment, and makes it easy to audit performance against management projections. Given the usefulness of the measure, many companies have adopted it as part of a comprehensive management and incentive system that drives their decision processes. They strive to increase their EVA by: Increasing the NOPAT generated by existing Capital 2

 Reducing the WACC( WEIGHTED AVERAGE COST OF CAPITAL) Investing in new projects where the Return exceeds the WACC Divesting Capital where the Return is below the WACC Such focus on value creation has served the shareholders of these companies well. A banks invested capital multiplied by WACC gives the minimum level of operating profits the bank should generate to satisfy shareholders. EVA measures how much net operating profit (adjusted for tax and also called NOPAT) exceeds the capital charge. Mathematically, EVA can be estimated focusing both on Management of Capital as well as the Management of Profits. A banks present value should equal its invested capital plus the present value of future EVA and if the banks present value is lower, the stock is undervalued and vice versa. Value of a banks share is also said to equal the market value of assets and the sum of EVAs of all future periods discounted back to the present. A bank once it reaches a period when it no longer earns a return on its incremental investments greater than its cost of capital, from this period onward no EVA is added or destroyed from new investments. While competitive forces are likely to drive returns to WACC for Indian banks, the emergence of indifference vary from bank to bank and is determined by several factors such as industry structure, a banks position in the industry, capital spending for strategic investments etc. A banks invested capital multiplied by WACC gives the minimum level of operating profits the bank should generate to satisfy shareholders. EVA measures how much net operating profit (adjusted for tax and also called NOPAT) exceeds the capital charge. Mathematically, EVA can be estimated focusing both on Management of Capital as well as the Management of Profits. EVA - (As a measure of Value creation through Management of Profits) EVA - (As a measure of value creation through Management of Capital) The use of this formula will produce either a positive or negative EVA number. A positive EVA reflects that the company is increasing its value to its shareholders, whereas a negative EVA reflects that it is diminishing its value to its shareholders. EVA is based on the principle that since 3

a companys management employs equity capital to earn a profit; it must pay for the use of this equity capital. Including a cost for the use of equity capital sets EVA apart from more popular measures of bank performance, such as return on assets (ROA), return on equity (ROE) and the efficiency ratio, which do not consider the cost of equity capital employed. As a result, these measures may suggest a bank is performing well, when in fact it may be diminishing its value to its shareholders. Until a business returns a profit that is greater than its cost of capital, it operates at a loss... The enterprise still returns less to the economy than it devours in resourcesUntil then it does not create wealth; it destroys it - Peter Drucker

1.2 ABOUT BANKING INDUSTRY

The Indian banking system is financially stable and resilient to the shocks that may arise due to higher non-performing assets (NPAs) and the global economic crisis, according to a stress test done by the Reserve Bank of India (RBI). Significantly, the RBI has the tenth largest gold reserves in the world after spending US$ 6.7 billion towards the purchase of 200 metric tonnes of gold from the International Monetary Fund (IMF) in November 2009. The purchase has increased the country's share of gold holdings in its foreign exchange reserves from approximately 4 per cent to about 6 per cent. Following the financial crisis, new deposits have gravitated towards public sector banks. According to RBI's 'Quarterly Statistics on Deposits and Credit of Scheduled Commercial Banks: September 2009', nationalised banks, as a group, accounted for 50.5 per cent of the aggregate deposits, while State Bank of India (SBI) and its associates accounted for 23.8 per cent. The share of other scheduled commercial banks, foreign banks and regional rural banks in aggregate deposits were 17.8 per cent, 5.6 per cent and 3.0 per cent, respectively. With respect to gross bank credit also, nationalised banks hold the highest share of 50.5 per cent in the total bank credit, with SBI and its associates at 23.7 per cent and other scheduled commercial banks at 17.8 per cent. Foreign banks and regional rural banks had a share of 5.5 per cent and 2.5 per cent respectively in the total bank credit. The report also found that scheduled commercial banks served 34,709 banked centres. Of these centres, 28,095 were single office centres and 64 centres had 100 or more bank offices. The confidence of non-resident Indians (NRIs) in the Indian economy is reviving again. NRI fund inflows increased since April 2009 and touched US$ 45.5 billion on July 2009, as per the RBI's February bulletin. Most of this has come through Foreign Currency Non-resident (FCNR) accounts and Non-resident External Rupee Accounts. India's foreign exchange reserves rose to US$ 284.26 billion as on January 8, 2010, according to the RBI's February bulletin. Major Developments The State Bank of India (SBI) has posted a net profit of US$ 1.56 billion for the nine months ended 5

December 2010, up 14.43 per cent from US$ 175.4 million posted in the nine months ended December 2009. The SBI is adding 23 new branches abroad bringing its foreign-branch network number to 160 by March 2010. This will cement its leading position as the bank with the largest global presence among local peers. Amongst the private banks, Axis Bank's net profit surged by 32 per cent to US$ 115.4 million on 21.2 per cent rise in total income to US$ 852.16 million in the second quarter of 2009-10, over the corresponding period last year. HDFC Bank has posted a 32 per cent rise in its net profit at US$ 175.4 million for the quarter ended December 31, 2009 over the figure of US$ 128.05 million for the same quarter in the previous year. Government Initiatives In its platinum jubilee year, the RBI, the central bank of the country, in a notification issued on June 25, 2009, said that banks should link more branches to the National Electronic Clearing Service (NECS). Ideally, all core-banking-enabled branches should be part of NECS. NECS was introduced in September 2008 for centralised processing of repetitive and bulk payment instructions. Currently, a little over 26,000 branches of 114 banks are enabled to participate in NECS. In the Third Quarter Review of Monetary Policy for 2009-10, the RBI observed that the Indian economy showed a degree of resilience as it recorded a better-than-expected growth of 7.9 per cent during the second quarter of 2009-10. In its Third Quarter Review of Monetary Policy for 2009-10, the RBI hiked the Cash Reserve Ratio (CRR) by 75 basis points (bps) to 5.75 per cent, while keeping repo and reverse repo rates unchanged. According to the RBI, the stance of monetary policy for the remaining period of 2009-10 will be to:

Anchor inflation expectations and keep a vigil on inflation trends and respond swiftly through policy adjustments, Actively manage liquidity to ensure credit demands of productive sectors are met adequately, Maintain an interest rate environment consistent with financial stability and price stability.

The money supply (M3) growth on a year-on-year basis at 18.9 per cent as on October 9, 2010, remained above the indicative projection of 18.0 per cent set out in the First Quarter Review of July 2010. The main source of M3 expansion was bank credit to the government, reflecting large market borrowings of the Government. Meanwhile, outstanding bank credit in the 15 days up to January 29 2010 rose by US$ 4.32 billion, pointing to a revival in credit growth. This is the highest year-on-year growth recorded since August 14, 2010.

LVB profile.

Date of Establishment Revenue Market Cap Corporate Address Managemen t Details

03-11 1926 238.806 ( USD in Millions ) 8587.150212 ( Rs. in Millions ) Salem Road,,Kathaparai,, Karur-639006, Tamil Nadu www.lvbank.com Chairperson MD - P R Somasundaram Directors - B K Manjunath, B Murali Nair, D L N Rao, E Sreedhar, G Sudhakara Gupta, K Balaji, K R Pradeep, K Ravindrakumar, Ksr Anjaneyulu, Kusuma R Muniraju, M P Shyam, M Palaniappan, N Saiprasad, Naganna Prabhakaran, P R Somasundaram, R Mohan, R Sridharan, Rajat Baldhi, S Dattathreyan, S G Prabhakharan, S L Sivashanmugam, S Narayan, S Venkateswaran, V Prakash, V S Reddy

Business Operation Background

Bank Private Lakshmi Vilas Bank (LVB) was founded eight decades ago in 1926 by seven people of Karur under the leadership of VSN Ramalinga Chettiar, mainly to cater to the financial needs of varied customer segments. The bank was incorporated on November 03, 1926 under the Indian companies act, 1913 and obtained the certificate to commence business on November 10, 1926, the bank obtained its license from Reserve Bank

Financials Total Income - Rs. 12018.514 Million ( year ending Mar 2011) Net Profit - Rs. 1011.368 Million ( year ending Mar 2011) Company Secretary Bankers 9 S Venkateswaran

Lakshmi Vilas Bank (LVB) was founded eight decades ago in 1926 by seven people of Karur under the leadership of VSN Ramalinga Chettiar, mainly to cater to the financial needs of varied customer segments. The bank was incorporated on November 03, 1926 under the Indian companies act, 1913 and obtained the certificate to commence business on November 10, 1926, the bank obtained its license from Reserve Bank of India (RBI) in June 1958 and in August 1958 it became a scheduled commercial bank. During 1961-65 LVB took over nine banks and raised its branch network considerably. To meet the emerging challenges in the competitive business world, the bank started expanding its boundaries beyond Tamil Nadu from 1974 by opening branches in the neighboring states of Andhra Pradesh, Karnataka, Kerala, Maharashtra, Madhya Pradesh, Gujarat, West Bengal, Uttar Pradesh, Delhi and Pondicherry. Mechanization was introduced in the head office of the bank as early as 1977. At present, with a network of 249 branches, 3 satellite branches and 6 extension counters, spread over 14 states and the union territory of Pondicherry, the banks focus is on customer delight, by maintaining high standards of customer service and amidst all these new challenges, the bank is progressing admirably. LVB has a strong and wide base in the state of Tamil Nadu, one of the progressive states in the country, which is politically stable and has a vibrant industrial environment. LVB has been focusing on retail banking, corporate banking and bank assurance. The banks business crossed Rs. 12,606 crores as on March 31, 2009. The bank earned a net profit of Rs. 50.30 crores. The net owned fund of the bank reaches Rs 453.70 crore. With a fairly good quality of loan assets the net NPA of the bank was pegged at 1.24 % as on March 31, 2009. Banking

Savings Bank Current Account No FRILLS SB A/C 10

Fixed Deposits Loans International Banking NRI Banking Net Banking SMS Banking

Services

Shop online Bill Payment Online RTGS SMS alerts NEFT RTGS ATM Network Forex Services Western Money Transfer 100 % CBS Branches. VISA Enabled International Debit Card. RTGS & NEFT enabled electronic funds transfer services. Internet Banking, Mobile Banking & SMS Alerts. Electronic Clearing Services (ECS). National Electronic Clearing Services (NECS).

Payment through mobile phone via, paymate coupled with all our existing recently launched innovative & attractive deposit schemes, and other loan schemes which suits large number of employees, comparable only with Best in the industry to-day. Total business volume grew with the deposits level at around Rs.12813 Crores and the credit 11

portfolio expanding to Rs.8183 Crores with a total Business mix of Rs.21625 Crores and registered growth at 37% for the year Half Year ended September 2011. The bank has a suite of products that are constantly innovated to suit the changing needs of the customers. To facilitate all the financial services under one roof, the bank has tied up for a bancassurance pact with Life Insurance Corporation of India for marketing life insurance products, Bajaj Allianz General Insurance Co. Ltd for General Insurance distribution business and arrangements for distributing the mutual fund products of 16 various reputed AMCs. The Bank believes in cost effective service delivery powered by appropriate technology to enhance value to customers. All our bank branches are in the state-of-the-art core banking software viz. Flex cube. The Bank has an ATM network of 502, in vital/Major locations. Consequent to the tie-up with Cash Tree Network and NFS for ATMs, over 81000 & above ATMs. In terms of service standards and operational efficiency, the bank has bench marked its practices with the best in the industry. The bank has taken great strides in reaching out to the various segments of the society through its innovative products delivered through multiple channels woven around branches in different geographies. True, life smiles where LVB serves.

VISION "To be a sound and dynamic banking entity providing financial services of excellence with Pan India presence." MISSION To develop a range of quality financial services and products to create value for customers, shareholders and the society; to motivate people to achieve excellence in performance leading to sustained profitable growth and build a vibrant organization. PRODUCT PROFILE 12

LVB offers a comprehensive range of Products & Services:

1. SAVINGS Savings Bank LVB Savings Bank is intended to promote the healthy habit of saving and for the steady growth of one's money in the bank. LVB recognizes that Savings Bank customers are the pulse of all banking activity and that a satisfied customer at the SB counter is the best advertisement to the bank. Savings Bank is the landing ground for all deposits and its customers are the opinion leaders. Hence LVB attaches a lot of importance to the efficient functioning of the savings department. No Frills SB Account It is available primarily to low income group people of the society, downtrodden men and women, students, senior citizens, weaker sections of the society, financially and economically backward people, who are mainly residing in rural and semi urban centres of our country. The main idea behind the NO-FRILLS SB ACCOUNT is to reach out a sizable section of the population, who have been deterred and discouraged in availing Banking services for one reason or the other. Lakshmi Savings Gold Lakshmi Savings Gold account offers special privileges to our customers who maintain an Average Monthly Minimum Balance of Rs. 10,000 and above.

13

Lakshmi Savings Star Gold Lakshmi Savings Gold account offers special privileges to our customers who maintain an Average Monthly Minimum Balance of Rs. 20,000 and above. Lakshmi Savings Balance Free Lakshmi Balance Free account is available in all the branches, specially meant for salaried persons.

The employer firm/organization should have account with the bank. Salary of the employees shall be credited directly to the employees account. It shall be a Zero balance account. ATM withdrawal of Rs.25000/- per day Free Net Banking

Lakshmi Savings Youth Power A savings account exclusively for children/youth. 2. CURRENT Lakshmi Supreme Multicity current account is termed as "Lakshmi Supreme". The current account will be for Business Organisations and Small & Medium Enterprises. Features of Multicity Cheque Facility Accounts. Lakshmi Current Diamond Lakshmi Current Diamond account offers special privileges to our customers who maintain an Average Monthly Minimum Balance of Rs. 5 Lacs and above. Lakshmi Current Diamond Plus 14

Lakshmi Current Diamond account offers special privileges to our customers who maintain an Average Monthly Minimum Balance of Rs. 10 Lacs and above. Lakshmi Current Silver Lakshmi Current Silver account offers special privileges to our customers who maintain an Average Monthly Minimum Balance (AMMB) of Rs. 1 Lakh and above. 3. FIXED RATE DEPOSITS Fixed Deposits Suitable for planned expenditure or savings Recurring Save in dribbles - receive a lump sum. Suitable for Tax planning, Annual payment commitments like Insurance premium, long-term requirements like purchase of consumer articles/ durables, house construction, children's education etc. Lakshmi Freedom Deposit (LFD) The scheme has several unique features, which are customer friendly and an attractive form of investment. Lakshmi Tax Saver Deposit The scheme has several unique features, which are customer friendly and an attractive form of investment.

ONLINE SERVICES Open term deposit online Make donation Book Movie ticket Recharge Mobile Pay utility bills 15

 Shop online Recharge DTH Repay loan online Net banking ECS Apply online CUSTOMER SERVICES Branch locator map ATM map Grievance Redressal Customer care Cash tree and NFS MOBILE BANKING Enables Funds Transfer form one Bank A/C to another Bank A/C through Mobile Phone. Air Ticket Booking Train Ticket Booking Movie Ticket Booking Mobile/DTH recharge CORE BANKING Anytime, anywhere banking. Online statement of accounts from any ATM. Instant funds transfer between CBS branches. Single view for all accounts of customers. TECHNOLOGICAL PRODUCTS & SERVICES AT LVB

16

 Funds Transfer through NEFT/RTGS VISA ATM debit cards/VISA gold card Internet Banking Door step banking SMS alerts IMPS-Fund transfer through mobile phone up to Rs. 50,000 E-Tax payments Money transfer through Western Union Money, X-Press Money & Money Gram Bank assurance- Tie up with LIC General Insurance products through BAJAJ ALLIANZ ASSURANCE LTD Investment opportunity arrangements with top Mutual Funds In India

17

18

Competitors Sales Current Change Company HDFC Bank ICICI Bank Axis Bank Kotak Mahindra Bank (Rs.Million) 199282.12 259740.53 151548.06 Price 522.85 914.70 1213.10 (%) 1.47 6.22 4.07 P/E Ratio 25.39 17.53 12.57 Market 52-Week Cap.(Rs.Million) High/Low 1226178.86 540/400

1054314.37 1138/641 500857.22 1461/785

43035.58

558.55

1.19

39.86

413271.52

585/403

Indusind Bank

35893.57

316.65

1.75

19.70

147958.31

334/222

Yes Bank Centurion Bk of Punj Federal Bank ING Vysya Bank J&K Bank Karur Vysya Bank Bank of Raj South Indian Bank City Union Bank Karnataka Bank Standard Chartered

40417.47

365.10

8.07

14.17

128756.10

374/231

12685.30

41.40

0.00

52.93

78932.68

43/41

40520.28 26940.64 37131.32

415.10 329.35 843.80

2.77 1.21 3.20

9.99 11.76 5.58

71001.82 49427.40 40905.57

480/322 374/275 915/645

22176.95

373.00

0.47

8.51

40008.57

479/322

13594.89

212.10

1.80

0.00

34222.35

214/207

24460.17

25.30

2.02

7.94

28683.86

28/20

12184.08 23708.47

47.25 101.75

0.53 4.63 19

7.41 7.55

19247.54 19157.55

52/39 134/64

63524.25

79.10

0.76

0.92

18984.00

118/69

20

1.4 OBJECTIVES OF THE STUDY PRIMARY OBJECTIVE: The purpose of report is to use EVA as measure to evaluate the lakshmi vilas Bank and performance and also see which banks have been able to create (or destroy) shareholders wealth since 2006-2007 to 2010-2011 SECONDARY OBJECTIVE To learn about EVA and its applications to increase the shareholders wealth. To analyse the debt and equity utilized in the banks To study about the optimum utilisation of resources To analyse about the productivity of staff To measure a banks historical success in creating values

21

1.5 SCOPE OF STUDY The study aims to find out the ECONOMIC VALUE ADDED TOWARDS SHAREHOLDERS IN LVB, Coimbatore. This study helps to find out the usage of Economic value . This study helps the bank for the overall improvement from the suggestions given by the employees. The study can find out the changes that the bank should bring out in their product in future.

22

LIMITATIONS OF THE STUDY This study is limited to five years. The collected data has been analyses with the help of EVA (Economic Value added) and also through ratio analysis. So its limitation is also applicable Reliability of the results depends on reliability and accuracy of the secondary data.

23

2.0 REVIEW OF LITERATURE The study by Stewart (1991) is the first study, which showcases EVA as a proxy for MVA. Using a sample of more than 600 US companies for the period of 1987-88, the author has argued that the ability of change in EVA to explain the change in MVA is quite high. Stern, Stewart, and Chew (1995) reported that the change in EVA over a period of five years explained 50% of the change in MVA. Stern and Shiely (2001) mentioned in their book, that there is significant link between EVA growth and growth in MVA. There are other studies, which have shown the relationship between EVA and the firm values. OByrne (1996) studied the information content of EVA and NOPAT and argued that EVA, unlike other earnings measures like NOPAT, net income or earnings per share, is systematically linked to market value and concluded that the EVA outperforms earnings in explaining firms values. Grant (1996) calculates regression statistics between the MVA-to-capital and EVA-tocapital ratios from the data of 983 firms. He finds explanatory levels (r) of 32% with statistical significance. Milunovich and Tsuei (1996) review the correlation between MVA and several conventional performance measures in the computer industry. They find EVA to correlate somewhat better with MVA than the other measures. Victor (1996) observed that correlation between EVA and MVA is very high. He concluded that any effort to improve EVA would lead to increase in MVA. Lehn and Makhija (1997) studied the relationship between several performance measures and stock return and found that correlation between EVA and return is higher than that of other indicators. The relationship between EVA and MVA in the financial institutions was studied by Uyemura, Kantor, and Pettit (1996) and documented a strong relation between EVA and MVA. There are several studies, which do not support the strong relation between EVA and MVA. Dodd and Chen (1996) studied the ability of EVA to track stock returns and found that EVA accounts for only 20% in the variations in stock returns, whereas, ROA explains more than 24%. 24

Dodd and Chen (1997) found that the traditional measures, residual income and operating income display a greater ability to explain stock return than EVA. Biddle, Bowen, and Wallace (1997) studied the incremental content and concluded that earnings reflect stock returns better than EVA. The study did not find any evidence to support Stewarts (1991) claim that EVA dominates earnings in relative information content. Also Kramer and Pushner (1997), Easton and Harris (1991) arrived at similar conclusions. Karpik and Riahi-Belkaoui (1994) used the market model test value-added variables in explaining market risk, and found that the incremental information content given by value added variables is beyond that provided by accrual earnings and cash flows. Earlier work by Bannister and Riahi-Belkaoui (1991) also used the market model to explain a target firms abnormal returns during the takeover period. Their findings suggested that takeover targets have lower value-added ratios than other firms do in the year preceding completion of the takeover. Empirical studies relating EVA and MVA of the Indian corporate sector are conspicuous by absence. One of the reasons is the non-availability of EVA data for the Indian companies. BTStern Stewart Ltd published EVA and MVA data in the year 1999 for the first time. The latest one has been published in the month of April 2004. However, the BT-Stern Stewart study is predominantly anecdotal. Gandhok, Kulkarni, and Dwivedi (2002) claim that MVA is a function of a sustainable fundamental economic performance and EVA reflects the fundamental performance better than traditional metrics. Parasuraman (2000) used EVA to evaluate the performance of some Indian banks and concluded that EVA is an important measure to judge a banks performance. Sathish.R,Rao,S.S This paper highlights the awareness and applicability of Economic Value Added in Indian Banks on the basis of survey report. Indian Banks listed on the Mumbai Stock Exchange BSE were analyzed. It is further divided into sub-parts which include awareness and use of value-based financial performance, adaptability to Economic Value Added in select Indian Banks, ownership pattern-wise Economic Value Added, and discussion on such time-honoured statistical propensities. The Study concludes that Economic Value Added is slowly gaining an increased attention as a financial measure of business performance of banks. It holds up the

25

researchers view that the concept of Economic Value Added has been emerging in the brains of the top brass of the corporate world in India and has nurtured a remarkably excellent time ahead One key feature of the implementation of Stern Stewarts EVA system comprises a revised managerial compensation plan and an amended internal benchmark for corporate performance. There have been a number of studies that have also addressed this aspect of Value-relevance. Lehn and Makhija (1997) enter the debate by questioning which performance measure does the best job of predicting the turnover of chief executive officers (CEOs). Their results suggested that labour markets evaluate CEOs on the basis of EVA and MVA performances, rather than on the basis of more conventional accounting measures. From a slightly different perspective, Rogerson (1997) investigated the moral hazard that exists with managers to increase shareholder wealth and to thereby increase the firms cash flows so as to increase managerial compensation. They concluded that residual income (or EVA as a performance measure will ensure that managers will always make efficient investment decisions. Wallace (1996) also tested the ability of residual income plans to align managers actions with increasing shareholder wealth. He did this by selecting a sample of firms that began using a residual income performance measure in their compensation plans, and comparing their performance to a control sample of firms that continued to use traditional earnings-based incentives (Wallace, 1996). Wallace (1996) concluded that management actions after the adoption of the residual income compensation plan were consistent with the strong rate of return discipline associated with the explicit capital charge. Wallace (1996) also found weak evidence suggesting that capital market participants generally responded favourably to the adoption of residual incomebased compensation plans. Robertson and Batsakis (1999) empirically examined the role an organisations characteristics may play in determining the emphasis on executive share options within the compensation system. They found that share options are viewed from an organisational perspective to be an effective behavioural control mechanism (Robertson and Batsakis, 1999, 25). Robertson and Batsakis (1999) also found that investors respond favourably to the adoption of an EVA-based compensation plan, and that a flow-on effect would be that investors view increases in 26

EVA more favourably than improvements in traditional accounting-based performance measures. V. Charles, Roji George, R. H.H. Subramanian (2006) Statistical Model to Estimate Dividend in Indian Private Sector Banks, Proceedings of Third AIMS International Conference on Management conducted by AIMS International and IIM A during January 1-4, 2006The prime objective of any firm is considered as maximization of shareholders wealth. Dividend decision, also known as profit allocation decision is an imperative decision of financial management. Dividends are periodic cash payments by a firm to its shareholders. It is said that one of the most puzzling issues in corporate finance involves dividends. How firms decide their policy? What factors influence it? This study tries to find a solution for it in banking industry by considering all private sector banks in India. This paper addresses the estimation of dividend payments of twenty one Indian Private Banking Companies. Having considering various factors the above said goal has been achieved with the help of multiple regression analysis. EVA in Indian Banks, written by Roji George, analyses performance of 21 banks (8 public sector banks and 13 private sector banks) during the years 2000 to 2003. A comparative study of public sector and private sector banks is also furnished on various efficiency and competency parameters. The article presents the combined EVA of all banks, EVA for public sector banks and EVA for private Sector banks. It has also provided the ranking of EVA Creators. The article also attempts to establish a relationship between EVA and non-performing assets of the banks, EVA and Employee Productivity and EVA and Profitability and Cost of Equity of Indian Banks. The analysis has found that both private sector and public sector are successful in creating economic value and that there is a positive relationship between EVA and productivity and a negative relationship between EVA and non-performing assets. The article in the end reveals that public sector banks outperform private sector banks even though their cost of capital is higher than that of private banks. Evaluating Performance of Banks through CAMEL Model: A Case Study of SBI and ICICI Bank is written by B S Bodla and Richa Verma, whose prime objective is to describe the CAMEL (Capital Adequacy, Asset Quality, Management, Earnings and Liquidity) model of rating banking institutions so as to catch up the comparative performance of various banks. The ratings so developed would enable the Reserve Bank to identify those banks whose condition warrants 27

special supervisory attention, which has been explained with the help of a case study of SBI and ICICI. The basic motive behind choosing these two banks is the increasing global presence of SBI and ICICI. The secondary objective of the present paper is to study the performance of these two banks and to move in direction with the Indian Banking Association report Banking Industry Vision 2010 that some of the Indian banks would become global players in coming years. It was illustrated that the SBI had outperformed ICICI Bank on parameters like G-Sec to total investments, spread to total assets, interest income to total income, liquid assets to total assets, etc. On the other hand, ICICI Bank had an edge over SBI in regard to advances to assets, total advances to deposits, business per employee, profit per employee, non-interest income to total income, liquid assets to total deposits, etc. Thus, the study concludes that both SBI and ICICI Bank have been performing excellently since the beginning of the 21st century.

28

3.0 RESEARCH METHODOLOGY Research methodology is a way to systematically solve the research problem. It may be understood as a science of studying how research is done systematically .it not only tells about the research method used but also considers the logic behind them It involves steps that are adopted by the researcher in studying how research is done scientifically According to Reman andMory define research as a systematized effort to gain new knowledge According to Clifford woody research comprises defining and redefining problems formulating hypothesis or suggested solution; collecting, organizing andevaluating data; making decision andreaching conclusion andat last carefully testing the conclusion to determine whether they fit the formulating hypothesis. Research design: The study aims to analyse the operational efficiency of the banks through the EVA the analysis is based on the existing data available in annual reports and balance sheet .So the research design followed is analytical research In analytical research, the researcher has to use facts or information already available and analyse these to make a critical evaluation of the material.

Nature of data The statistical data may be classified under two categories, depending upon the sources utilized .These categories are Primary data Secondary data 29

Primary data Primary data are those data which are collected by the investigator himself for the purpose of a specific enquiry or study .Such data are original in character and are generated by surveys conducted by individuals or research institution Secondary data When an investigator uses data which have already been collected by others, such data are called secondary data .such data are primary data for the agency that collected hem and become secondary data for someone else who uses theses data for his own purpose .the secondary data can be obtained from journals reports government publication, publications of professional and research organisation etc In this study Secondary data was mainly used for the study. These data are PERIOD OF THE STUDY The period of study for the research work is five years from 2006-2007 to 2010-2011. TOOLS FOR ANALYSIS Ratio Analysis Trend Analysis Economic value added from published source of the bank and also from annual report, magazines, reports and from the various websites.

30

4.0 Analysis and interpretation 4.1 RATIO ANALYSIS YEAR Ratio analysis is a powerful tool of financial analysis. A ratio is defined as the indicated quotient of two mathematical expressions and as the relationship between two or more things. In financial analysis, a ratio is used as an index or yard stick for evaluating the financial position and performance of a firm .The absolute accounting figures reported in financial statements do not provide a meaningful understanding of the performance and financial position of a firm .An accounting figure conveys meaning when it is related in some other relevant information. The relationship between two accounting figures, expressed mathematically is known as financial ratios. Financial management theories provide various indexes for measuring a bank's performance. One of them is accounting ratios. The uses of the financial ratios are quite common in the literature. Bank regulators, for example, use financial ratios to help evaluate a bank's performance. Types of ratios : Various types of ratios used in this project are Current ratio Interest income to working funds Non interest income to working funds Operating profit to working funds Return on asset Business per employee Profit per employee Net profit ratio Operating profit ratio Expenses ratio Fixed asset turnover ratio EPS P/E Ratio ROI 31

 Loan to deposit ratio Staff productivity ratio Liquidity ratio: Liquidity refers to the ability of a concern to meet its current obligations as and when these become due. The short term obligations are met by realizing amounts from current, floating or circulating assets. The current assets should either be liquid or near liquidity. These should be convertible into cash for paying obligations of short-term nature.

The sufficiency or insufficiency of current assets should be assessed by comparing them with short-term (current) liabilities. If current assets can pay off current liabilities, then liquidity position will be satisfactory. On the other hand, if current liabilities may not be easily met out of current assets then liquidity position will be bad.

To measure the liquidity of a firm, the following ratios can be calculated. (i) (ii) Current Ratio Absolute Liquid Ratio or Cash Position Ratio

4.1.1 Current ratio Current Ratio may be defined as the relationship between current assets and current liabilities. This ratio, also known as working capital ratio, is a measure of general liquidity and is most widely used to make the analysis of a short-term financial position or liquidity of a firm. It is calculated by dividing the total of current assets by total of the current liability. Current Assets Current Ratio = 32

Current Liabilities As a convention the minimum of two to one ratio is refereed arbitrary standard of liquidity for a firm. A ratio equal or near to the rule of thumb of 2:1 i.e., current assets double the current liability is considered to be satisfactory. TABLE 1: Year 2007 2008 2009 2010 2011 Interpretation: Current asset 55634559 61673681 79902982 100945085 126398338 Current liabilities 54306927 61029265 78635388 97432731 124087481 Ratio 1.02 1.011 1.016 1.03 1.01

From the these table the current ratio of 2007 to 2011 is not good because the standard norm for current ratio is 2:1. But here all five years is less than norms.so it is not satisfactory CHART 1

33

4.1.2 Absolute liquid ratio Although receivables, debtors and bills receivable are generally more liquid than inventories, yet there may be doubts regarding their realisation into cash immediately or in time. Hence, some authorities are of the opinion that the absolute liquid ratio should also be calculated together with current ratio and acid and acid test ratio so as to exclude even receivable from the current assets and find out the absolute liquid assets. Absolute liquid ratio is calculated by using the following formula: Absolute Liquid Assets Absolute liquid ratio = Current Liabilities Where absolute liquid assets = Cash + Bank + marketable securities. Absolute liquid assets include cash in hand, cash at bank and marketable securities or temporary investments. the acceptable norm for this ratio is 50% or 0.5:1 or 1:2 TABLE 2 Year 2007 2008 2009 2010 2011 Interpretation : From the above table of absolute liquid ratio is much satisfactory because the standard norm of ratio is 0.5:1. But here from 2007 to 2011 ratio is more than 1. So here the ratio level is good. Absolute liquid asset 19507629 23085806 27444693 38170132 45454110 Current liabilities 54306927 61029265 78635388 97432731 124087481 Ratio 1.02 1.011 1.06 1.03 1.01

34

CHART 2

35

4.1.3 Profitability ratio A class of financial metrics that are used to assess a business's ability to generate earnings as compared to its expenses and other relevant costs incurred during a specific period of time. For most of these ratios, having a higher value relative to a competitor's ratio or the same ratio from a previous period is indicative that the company is doing well. Net profit: Net profit ratio (NP ratio) expresses the relationship between net profit after taxes and sales. This ratio is a measure of the overall profitability net profit 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 net profit = -------------------*100 Sales TABLE 3 Year 2007 2008 2009 2010 2011 Interpretation From the above table net profit ratio 2007 have good is higher . in 2008,2009,2010 its not satisfactory. Then in 2011 it rising the net profit ratio percentage for 8.42%. Net profit 586972 257065 505916 309564 1012957 Sales 4749858 5885351 7646004 5885351 12018514 Net profit Ratio 12.35 4.36 6.61 3.05 8. 42

CHART 3

36

4.1.4 Operating profit 37

TABLE 4 Year 2007 2008 2009 2010 2011 Operating profit 735831 901675 1088417 1662093 2738588 Sales 4749858 5885351 7646004 5885351 12018514 Operating Ratio 15.49 15.32 14.23 16.40 22.7

From the above table the year 2007 shows 15.49 is satisfactory.from next year 2008 ,2009 the ratio is reducing so its not satisfactory . CHART 4

4.1.5 Operating expenses ratio TABLE 5 Year Operating expenses Sales 38 Operating expenses

2007 2008 2009 2010 2011 Interpretation

1022229 1164427 1516869 1864779 22281482

4749858 5885351 7646004 5885351 12018514

ratio 21.52 19.78 19.83 18.4 18.5

From the above table operating expenses of 2011 and 2010 is low . so it is satisfactory. In the year 2007 the ratio of expenses is higher than 2011. So it is not satisfactory. CHART 5

4.1.6 Turnover ratio Fixed asset turnover ratio Fixed asset turnover ratio = Net fixed asset Sales 39

TABLE 6 Year 2007 2008 2009 2010 2011 Net fixed asset 355042 399405 539798 656707 1791314 Sales 4749858 5885351 7646004 5885351 12018514 Turn over 7.4 6.7 7 6.4 14.9

From the above table net fixed asset turnover ratio level is high in 2011 . It is around 15 times from turnover ratio, so the level is satisfactory. During the other year all the ratio is coming around 7. So it is under satisfactory level.

CHART 6

40

4.1.7 ROI 41

ROI

OPERATING PROFIT = ------------------------------CAPITAL EMPLOYED TABLE 7

Year 2007 2008 2009 2010 2011 Interpretation:

Operating profit 735831 901675 1088417 1662093 2738588

Capital employed 3960887 4176776 4537159 7389974 8924349

ROI 18.5 21.5 23.9 22.4 30.68

From the above table the investment level of the 2011 is much satisfactory than other years. During the year 2007 to 2010 the level of the return on investment is satisfactory . CHART 7

4.1.8 Interest income as a percentage to working funds The ratio measures the income from lending operation as a percentage of total income generated by in the year. Interest income includes income on advances, interest on deposits with bank. 42

Interest income to working funds

Interest income = ----------------------Working funds TABLE 8

Year 2007 2008 2009 2010 2011 Interpretation :

Interest income 42917.89 50605.76 65761.11 90932.39 106483.55

Working funds 537973.73 619743.38 707630.80 941008.33 1106051.45

Ratio 7.98 8.17 9.29 9.66 9.63

From the above table shows 2010 and 2011th year of income is more satisfactory. And in 2008 and 2007th year of the income levels are under than satisfaction. So the year 2010 is More good than other years. CHART 8

4.1.9 Non interest income as a percentage to working funds There are two common measures of the income banks generate from sources other than interest: the non-interest income level and the fee income level.

43

Different banks have very different sources of income. This in turn means they have different profit drivers. Interest income is influenced by both the economic cycle and the level of interest rates. Fee income is cyclical. Non-interest income other than fees (primarily bank charges) is comparatively defensive. Non interest income to working fund Non interest income = ----------------------------Working funds TABLE 9 Year 2007 2008 2009 2010 2011 Non interest income 4580.69 8247.76 10698.93 16620.93 13701.59 Working funds 537973.73 619743.38 707630.80 941008.33 1106051.45 Non interest income Ratio 0.85 1.33 1.51 1.10 1.24

From the above table shows non interest income level percentage is satisfactory in 2009. But 2007 is not satisfactory level.and other years 2008,2010,2011 are better level in non interest income.

CHART 9

44

4.1.10 Operating profit as a % to working funds

45

Operating net profit ratio is calculated by dividing the operating net profit by sales. This ratio helps in determining the ability of the management in running the business. Operating profit ratio = (Operating profit / Net sales) 100 Operating profit = Gross profit - Operating Expenses OR Operating profit = Net sales - Operating cost OR Operating profit= Net sales - (Cost of goods sold + Administrative and office expenses + Selling and distribution exp.) TABLE 10 Year 2007 2008 2009 2010 2011 Operating profit 7358.31 9016.75 10884.17 16620.93 27385.88 Working funds 537973.73 619743.38 707630.80 941008.33 1106051.45 Operating profit to workingRatio 1.37 1.45 0.54 1.77 2.48

From the above table shows the operating profit as a percentage is good level in 2011. The level of the 2007,2008,2010 is better level in these year. During 2009 the position of operating profit was not satisfactory level.

CHART 10

46

4.1.11 Return on asset 47

Its is an indicator informing the user about the how profit a company is relative to its total asset.it tells the user how effective a business has been putting It asset to work.in other words ,ROA, is assett of capital utilization that is how much profit before earned on the total capital used to make the profit. ROA Net profit =--------------Working funds TABLE 11 Year 2007 2008 2009 2010 2011 Net profit 1758.43 2526.90 5029.33 3066.80 10113.68 Working funds 537973.73 619743.38 707630.80 941008.33 1106051.45 ROA 0.33 0.41 0.71 0.33 0.91

From the above table shows net profit and working funds ratio is less than 1 in all the year. Comparing to other year 2011 is better than other years .itz was coming nearly to 1 %. So 2011 is little satisfactory. CHART 11

4.1.12 Business per employee

48

Business ratio is calculated in monetary terms by dividing total amount of business (deposits and advances) by total number of employees. It is also calculated by using various formula ,Here the formula is Business ratio = Deposits + loans Number of employees TABLE 12 Year 2007 2008 2009 2010 2011 Business 8285.89 9423.17 12387.09 15159.39 18888.70 No of employee 1926 2078 2433 2705 2626 Ratio 4.30 4.53 5.09 5.60 7.19

From the above table we found business per employee is good in all the year. In 2011 the ratio is 7.19 was good. And before four year all the level of business per ratio is satisfactory. CHART 12

4.1.13 Profit per employee

49

A financial benefit that is realized when the amount of revenue gained from a business activity exceeds the expenses, costs and taxes needed to sustain the activity. Any profit that is gained goes to the business's owners, who may or may not decide to spend it on the business Profit per employee Net profit = ------------------No.of employees TABLE 13 Year 2007 2008 2009 2010 2011 Net profit 1758.43 2526.90 5029.33 3066.80 10113.68 No of employee 1926 2078 2433 2705 2626 PROFIT PER Ratio 0.91 1.22 2.07 1.13 3.85

From the above table shows the ratio of 2011was 3.85 is much satisfactory than other years. During the year 2007 the ratio of profit is 0.91 .from next year the profit ratio is increasing till 2009. CHART 13

4.1.14 EARNINGS PER SHARE 50

Earnings per share are generally considered to be the single most important variable in determining a share's price. It is also a major component used to calculate the price-to-earnings valuation ratio Earnings per share = Net profit

Number of equity shareholders 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. TABLE 14 Year NPAT No of equity shares Eps 2007 1758.43 48789555 3.60 2008 2526.91 48772189 5.18 2009 5029.53 48776176 10.31 2010 3066.80 6996027 4.95 2011 10113.65 97517320 10.37 F rom the above table shows the earning per share of employee have a good level in 2011 and 2009(10.37 and 10.31) and for 2007,2008,2009 was below satisfactory level.

CHART 14

51

52

4.1.15 P/E RATIO P/E RATIO = Market value EPS TABLE 15 Year 2007 2008 2009 2010 2011 M.V 1662.28 2503.88 2867.50 EPS 3.60 5.18 9.93 4.95 10.37 P/E RATIO 167.37 505.83 276.51

From the above table there is no market value of the company.so they start from 2009 . During these years the profit earning ratio is more than 100. So it is satisfactory. In the year 2010 the P/E ratio crossed more than 500. This is much satisfactory. CHART 15

4.1.16 Staff productivity ratio:

53

Staff productivity ratio is calculated in monetary terms by dividing total amount of business (deposits and advances) by total number of employees. It is also calculated by using various formula ,Here the formula is Staff productivity ratio = Deposits + loans Number of employees TABLE 16 Year 2007 2008 2009 2010 2011 Loans+deposits 8285.89 9423.17 12387.09 15159.39 18888.70 No of employee 1926 2078 2433 2705 2626 Staff productivity Ratio 4.30 4.53 5.09 5.60 7.19

From the above table we found business per employee is good in all the year. In 2011 the ratio is 7.19 was good. And before four year all the level of business per ratio is satisfactory. CHART 16

4.1.17 Loans to Deposits This ratio indicates how much of the advances lent by banks is done through deposits. It is the proportion of loan-assets created by banks from the deposits received. The higher the ratio, the 54

higher the loan-assets created from deposits. Deposits would be in the form of current and saving account as well as term deposits. Loan to deposit ratio: Loans Deposits The outcome of this ratio reflects the ability of the bank to make optimal use of the available resources the most basic liquidity ratio is loans-to-deposits. This ratio is simply an institution's total deposit base divided by net loans (total loans less loan loss reserve). As a general rule-of-thumb there is an inverse relationship between loan-to-deposit ratio and liquidity. A loan-to-deposit ratio of 70-75% was considered a good balance between liquidity and allocation of funds in the loan portfolio TABLE 17 Year 2007 2008 2009 2010 2011 Loans 3679.18 3931 5319.78 6350.40 8187.67 Deposits 4606.71 5492.08 7067 8808.99 10701.03 Loan to deposit Ratio 79 71 75 72 76

From the above table shows all the year of liquidity and allocation of funds in the portfolio have a good balance. The standard norm for loans to deposit ratio is 70-75%. During the year 2007 the ratio is 79% so it is much satisfactory .

CHART 17

55

4.2 TREND ANALYSIS

56

The financial statements may be analysed by computing trends of series of information. This method determines the direction upwards or downwards and involves the computation of the percentage relationship that each statement item bears to the same item in base year .The information for a number of years is taken up and one year, generally the first year ,is taken as a base year .The figures of the base year are taken as 100 and trend ratios for other years are calculated on the basis of base year Trend analysis current year = --------------------------- *100 Base year. Trend analysis is used to measure the performance of both the banks 4.2.1 SALES : TABLE 18 Year Sales Trends 2007 4749858 100 2008 5885351 123.93 2009 7646004 160.97 2010 10128810 213.24 2011 12018514 253.02 From the above table shows the trend level is increasing by year. All the are coming more than 100. So in the bank sales level is high.

CHART 18

57

4.2.2 OPERATING EXPENSES 58

TABLE 19 Year 2007 2008 2009 2010 2011 Operating expenses 1022229 1164427 1516869 1864779 22281482 Operating expenses Trends 100 113.9 148.3 182.42 217.44

From the above table the operating expenses is increasing year by year. So the expenses in LVB is too high. It is not satisfactory . CHART 19

4.2.3 OPERATING PROFIT: TABLE 20

59

Year 2007 2008 2009 2010 2011

Operating profit 735831 901675 1088417 1662093 2738588

Operating profit Trends 100 122.50 147.91 225.88 372.17

From the above table shows operating profit all the year is increasing from base year. In trend operating profit of 2007 to 2011 is much satisfactory. CHART 20

4.2.4 FIXED ASSET: TABLE 21 Year 2007 2008 2009 Fixed asset 355042 399405 539798 Fixed asset Trend 100 112.49 152.03 60

2010 2011

656707 1791317

184.96 504

From the above table shows fixed asset of the LVB is increasing year by year. So they earning more asset by trend. During the period of 2007 to 2011 is much satisfactory. CHART 21

Table 22 4.2.5 Year 2007 2008 2009 2010 CAPITAL EMPLOYED: TABLE 22 Capital employed 3960887 4176776 4537159 7389974 Trends 100 105.45 114.54 186.57 61

2011

8924349

225.31

From the above table shows the capital and reserve and surplus of trend is very high. So the capital of the LVB is the satisfactory Chart 22

4.3.1 ECONOMIC VALUE ADDED EVA is Economic Value Added, a measure of economic profit. It is calculated as the difference between the Net Operating Profit after Tax and the opportunity cost of invested Capital. This opportunity cost is determined by the weighted average cost of Debt and Equity Capital (WACC) and the amount of Capital employed FORMULA FOR EVA 62

EVA=NOPAT-COST OF CAPITAL EMPLOYED COST OF CAPITAL EMPLOYED=WACC*CAPITAL EMPLOYED WACC=COST OF DEBT+COST OF EQUITY NOTE: WACC: WEIGHTED AVERAGE COST OF CAPITAL Table 23 EVA Year 2007 2008 2009 2010 2011 NOPAT 175843 252691 502953 306680 1011365 COCE 39608.87 41767.76 45371.59 73899.74 89243.49 EVA 136234 237923 457581 232780 922121

From the above table shows economic value added is high in 2011.so it is satisfactory in 2011. From the year 2007 it is increasing till 2009. But in 2010 the EVA is falling and next year it is rised very high.

Chart 23

63

64

5.1 Findings: Current asset The current ratio of 2007 to 2011 is not good because the standard norm for current ratio is 2:1. But here all five years is less than norms.so it is not satisfactory. Absolute liquid asset Absolute liquid ratio is much satisfactory because the standard norm of ratio is 0.5:1. But here from 2007 to 2011 ratio is more than 1. So here the ratio level is good. Net profit ratio: Net profit ratio 2007 have good is higher . in 2008,2009,2010 its not satisfactory. Then in 2011 it rising the net profit ratio percentage for 8.42%. Operating profit ratio; The year 2007 shows 15.49 is satisfactory.from next year 2008 ,2009 the ratio is reducing so its not satisfactory . Operating expenses: operating expenses of 2011 and 2010 is low . so it is satisfactory. In the year 2007 the ratio of expenses is higher than 2011. So it is not satisfactory. Fixed asset turnover ratio: Net fixed asset turnover ratio level is high in 2011 . It is around 15 times from turnover ratio, so the level is satisfactory. During the other year all the ratio is coming 65 around 7. So it is under satisfactory level. ROI

66