[Music] [Music] welcome students so we were talking about in my previous part of discussion I was talking to you about the ratio analysis and we are in the process of analyzing the profitability position of the forms and then there I talked to you about that for analyzing the profitability position of the forms we will have to serve the twin purpose that one is that we should be knowing that existing level of the profitability of the form and the second thing is that you know the composition of the cost so that if we have to increase the profitability and reduce the cost we know that we had to put the effort so that the benefit is maximum so two steps now we have to complete one is that is a learning how to prepare the multi-step profitability statement and there is a second one is the is cost composition knowing about the cost of the products and then having that cost composition of the form so this is the weight we are going to learn about the overall profitability existing profitability and scope to improve the profitability of the firm's so when we talk about the scope to improve the profitability of the form will be first preparing the multi-step profitability statement multi-step profitability statement multi-step profitability statement multi-step profitability statement and this statement will automatically facilitate the analysis of the profit and loss position of the firm so when you take the prepare the multi-step profit statement first people take here into account the first thing which we are going to take here is the gross profit first thing will be gross profit will be calculating will have to calculate the gross profit for example now in this case gross profit is not calculated they have directly prepared the income statement so gross profit is not calculated so we have to calculate the gross profit of the form then the second step would be profit before depreciation preferred before depreciation in trust and tax which is called as Pvt PB preferred before depreciation interest and tax which is called as profit before depreciation interest and tax this is PB di T this is a stepwise profitability calculation gross profit we'll be able to find out by taking into account five items sales and closing stock - the raw material cost labor cost and the other direct expenses cost and then next thing we have to calculate is their from the gross profit if you subtract the depreciation interest cost that's the financial cost and then the next part so we'll be this next part you'll be able to find out that the PVD IT profit before depreciation interest in Texas this much then we'll be knowing about this these three components depreciation and Trust and tax part and then we can calculate the other things so then we'll be subtracting at this level the depreciation and we'll be calculating operating profit before interest and tax profit before interest and tax that is OPB IT operating profit before interest and tax if you subtract the depreciation artha say third step you will get the OPP IT and then at the first step will be four step will be calculating there is a preferred before if you know you subtract that interest also so it will be profit before tax and extra ordinary incomes will be calculating the next item next part that is the pivot II profit before tax if you take into consideration the your X rain comes now you will calculate the profit before tax next thing is the profit before tax we'll be calculating because when you add this extraordinary incomes and everything into it then you calculate the profit before tax and that the next step will be calculating the Pat that is a profit after tax so this as a whole is going to give us the overall profitability of the form but it is stepwise first is the gross profit then we are talking about that which is a profit before three items what is depreciation second is the financial expense and third is a tax and then we'll be calculating opera of the operating profit before interest and tax after subtracting depreciation then we'll subtract the interest also but Advent externally items and then we will arrive at the profit before tax that is after subtracting the interest component profit before tax will be calculated and once you subtract the tax also then you will look at the back that is a profit after tax so this is the means all the different items we are going to take into consideration and we are going to calculate the multi-step profitability of the firm and then you talk about the expenses part I told you in my previous discussion that at the same time means when you are calculating the profitability of the firm you are talking about the cost part also cost composition also so only one item which one ratio be calculators that is the raw material ratio and for calculating this raw material ratio we calculated in percentage terms so it means we calculate it the in a way that is a raw material consumed divided by the net sales raw material consumed divided by the net sales in 200 so this way we are going to calculate the raw material ratio or raw material as a cost because the raw material constitute about the 60 percent of the total cost of production this is always better and other cost compositions are like your wages than your other direct expenses and then the indirect expenses tax depreciation everything that is the remaining 40 percent of the cost and different components so if you concentrate on the one component that is raw material only and if you are able to reduce the raw material cost even by 10 percent we are going to able to reduce the total cost of the product by 6 percent so it means we should put maximum focus on the raw material and we should try to bring the cost of raw material as low as possible so one there should be calculated that is a raw material ratio and and in in percentage terms then the profitability are the different levels and at the different stages and by calculating the multi-step profitability statement we can easily try to find out that what is the profitability level of the firm and how the profit can be increased or decreased well we know about the cost component or the cost compositions now we will move further that and learning how to prepare the multi-step profit statement or for the Grasim industries that case which we are discussing and if you prepare the multi-step profitability statement for the Grasim industries you would come to know with very interesting information that how this different levels of profitability of the form at the different levels is getting affected and what we can do to improve the profitability so we will prepare that profit a multi-step profitability statement for the Grasim industries and here will be preparing it for that two years that is two thousand six and seven and here it is for that two thousand five and six for two years will be preparing this ratio and will be taking two white columns will be making here one is in value in corrodes and then it is done ratio and then it will back will take again the value in corrodes and then it is the ratio so we will see that what is the ratio but is a change in the ratio that we will have to prepare this ratio so we will start with the first of all what we do here is we take the sales that is a net sales net sales is a common denominator and against the sales we try to compare the different types of the items and we try to get to know the different level of the profitability and then that different levels of the cost in the total cost composition and then we can easily find out that at what level the profitability is more or less and we have to improve the profitability how we can reduce the cost so here we will start with the so you can call it as particulars you can make this column as the particulars particulars and this is the column of amount this is the column of amount not kuru this is a mountain the bracket you can put it as corrodes and this is a ratio so we will be taking this put writing this as amount and this is in corrodes and we'll be calculating the ratio for this amount now so this is a multi-step profitability statement we are going to prepare so first we will take the gross sales first we will take the gauze sales and who take the gross sales for this form will be taking the gross sales and if you look at the gross sales no because income statement is of use to us so if you talk about the gross sales but at the level of Gracias it is 9607 point nine seven and it is seven six three eight point four one so let us take the gross sale figure and it is 9607 Oh point nine seven and then it is that in this case it is seven six is a ratio and then it is seven six three eight 0. 41 right and now we will have to subtract the less excise duty we will have to subtract the excise duty so if you subtract the excise duty how much is excise duty it is one thousand four point three eight the roots this 1000 4. 38 corrodes and then we are left with the figure so here in this case it is nine eight five point eight zero cores so we are left with this figure so finally we are here with the net sales net sales and their selves are eight six zero three eight six zero three point five nine and then it is six six five two point six one and this is how much it is if you take this into account and if we call it else this is the this we are calling it as the hundred percent this is the hundred percent this we are going to take it as 100 percent net sales is going to be one hundred percent so how much is the gross sales gross sales are 9607 and the net sales are eight six zero three so should eight six zero three is the hundred percent how much is the 9607 and this is again one one one point six seven one one one point six seven and if you drove the excise duty is eleven point six seven percent and then it is the one one four one one four point eight two and excise duties fourteen point eight two percent so now you can easily find out how interesting this information is going to be for all of us that we are having a comparative information and when you are having a comparative information we are going to find out that what is the level of profitability and how we are going to improve the profitability that statement is going to help us to learn so this is a net sales which is hundred percent gross sales were 111 point six seven percent in the year two thousand six and seven and in the year two thousand five and six it is 114 point eight two percent so excise duty is eleven point six seven percent and then it is fourteen point eight two percent this is the net sales will come down to the different items here and will be preparing like a statement where we can calculate the gross profit also we calculate the net profit and we take to account all the expense and the income items so now we will be taking the material cost material cost and if you calculate the material cost here material costs for us will be we will have to calculate the material cost I guess it's not given to us directly if you talk about the material different types of the materials are being used and if you talk about the material cost we will have to calculate the material cost here so when you talk about the material cost it is the constituting three things it is taking into account three things and these three things are due to 19.
3 two is the material consumed it is direct material then is the purchase of the finished goods 320 one point one six and third item you have to add into this is the sixteen point four four corrodes so three items will have to say add one is that is the raw material consumed is two to one nine point three two then it is the finished goods we purchase purchase from the market and sold in the market that is three twenty one point one six corrodes and then the say degrees in stocks that is sixteen point four four corrodes these three items are going to make us a material cost and this total material costs if you calculate this works out as two five five two five five six point nine two and for that other year this is going to walk us to one to 106. 3 - so what is the percentage of the material cost here now you calculate the material cost as a percentage of the sales and this material costs here total material costs here works out to be that is the twenty nine point seven two percent twenty nine point seven two percent is the material cost that is two five five six of the say sales is the common denominator net sales is a common denominator that is hundred percent so two point two thousand five hundred fifty six point nine two corrodes against eight thousand six hundred and three point five nine corrodes if you calculate the cost that is how about 30 percent cost of material in case of the textile industry is 30 percent in the current year that is six and seven and in the previous year this cost was little more this was 31 point six six percent this material cost was thirty six point at thirty one point six six percent this was little more into so little on the higher side so the total cost we have to calculate and there's a material cost you find it out that material cost is thirty percent around revolving around thirty percent this is one component then we take into consideration that manufacturing cost or the manufacturing expenses manufacturing expenses and if you try to find out the manufacturing expenses here the manufacturing expenses are what this figure is one seven four four point three three and one five eight zero point three four so this figure is manufacturing expenses is one seven four four and then it is the 33 three and next is one five eight zero one five eight zero 0.
