NATIONAL INSTITUTE OF FINANCIAL MANAGEMENT

FARIDABAD

TERM PAPER ON
KEY PERFORMANCE INDICATORS
OF BUSINESS COMPANIES

SUBMITTED TO DR. K.P.KAUSHIK

PROGRAMME COORDINATOR
PGDM (FM) 18-20 BATCH
NIFM-FARIDABAD

SUBMITTED BY:-
GP CAPT AJAY SINGHAL
ROLL NO-M 201802

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 CONTENTS

SL. TOPICS PAGE

NO. NOS.
1 ACKNOWLEDEMENT 3
2 CHAPTER-1 KEY PERFORMANCE INDICATORS OF A BUSINESS 4
COMPANY
3 CHAPTER 2-LITRATURE REVIEW 7
4 CHAPTER 3 - STATEMENT OF OBJECTIVES,METHODOLOGY AND 10
CONCLUSION
5 REFERENCES/BIBLIOGRAPHY 13

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 ACKNOWLEDGEMENT

This is to place on record that this term paper could not have been completed without
help and guidance from our course coordinator, Dr. K.P. Kaushik of NIFM, Faridabad. I
want to extend my gratitude to Mr. Prabhakar of CMIE for imparting knowledge on
Prowess software and Mr. Ritesh from EBSCO. I would be failing in my duty if I don’t
acknowledge the unprecedented support from Computer lab and Library. Lastly I would
like to give a special mention of my colleagues and participants for the support
extended by them in completing this paper.

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 CHAPTER 1- KEY PERFORMANCE INDICATORS OF A BUSINESS COMPANY

INTRODUCTION

1. A Key Performance Indicator (KPI) is a measurable value that demonstrates

how effectively a company is achieving key business objectives. Organizations use key
performance indicators at multiple levels to evaluate their success at reaching targets.
High-level KPIs may focus on the overall performance of the enterprise, while low-level
KPIs may focus on processes or employees in departments such as sales, marketing or
a call center.

CATEGORIZING KEY PERFORMANCE INDICATORS

2. There are many types of KPIs that one can use any business. The common
thread is that all of these are objectives that make most sense for any business
strategy. Broadly the Financial KPIs are categorized here based upon Markets available
for the company, sales envisaged by it and Investments done by the company on the
business.

(a) Market based: - Marketing KPIs (Key Performance Indicators) are specific,

numerical marketing metrics that organizations track in order to measure their
progress towards a defined goal within the marketing channels. 

(b) Investment based: - Key business statistics such as return on investment

(ROI), which measure a firm's performance in quantifying the efficiency of returns
reaped by the company.

(b) Sales based: - Conventional wisdom holds that revenue-per-sales-rep is

the only metric that ultimately matters in sales management. In other words,
management is about coaching your sales team to success.

SCOPE OF STUDY OF KPI’s FOR THE TERM PAPER

3. The present term Paper is aimed towards analyzing and comparing the KPIs of
the company’s those have been allocated to individual participants. The Financial KPIs
those have been chosen for analysis are:-

(a) Return on Equity (ROE)(Investment based indicator)

(b) Net profit margin (Sale based indicator)

Return on Equity

4. Return on equity (ROE) is a measure of profitability that calculates how many

dollars of profit a company generates with each dollar of shareholders' equity. The
formula for ROE is: - ROE = Net Income/Shareholders' Equity

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ROE is sometimes called "return on net worth. ”Let's assume Company XYZ generated
$10 million in net income last year. If Company XYZ's shareholders' equity equaled $20
million last year, then using the ROE formula, we can calculate Company XYZ's ROE
as:
ROE = $10,000,000/$20,000,000 = 50%

5. This means that Company XYZ generated $0.50 of profit for every $1 of

shareholders' equity last year, giving the stock an ROE of 50%. ROE is more than a
measure of profit; it's a measure of efficiency. A rising ROE suggests that a company is
increasing its ability to generate profit without needing as much capital. It also indicates
how well a company's management is deploying the shareholders' capital. In other
words, the higher the ROE the better. Falling ROE is usually a problem. However, it is
important to note that if the value of the shareholders' equity goes down, ROE goes up.

6. Thus, write-downs and share buybacks can artificially boost ROE. Likewise, a
high level of debt can artificially boost ROE; after all, the more debt a company has, the
less shareholders' equity it has (as a percentage of total assets), and the higher its ROE
is. Some industries tend to have higher returns on equity than others. As a result,
comparisons of returns on equity are generally most meaningful among companies
within the same industry, and the definition of a "high" or "low" ratio should be made
within this context.

Net profit margin

7. Net profit margin is the percentage of revenue left after all expenses have been
deducted from sales.  The measurement reveals the amount of profit that a business
can extract from its total sales. The net sales part of the equation is gross sales minus
all sales deductions, such as sales allowances. The formula is:

(Net profits ÷ Net sales) x 100 = Net profit margin

8. This measurement is typically made for a standard reporting period, such as a

month, quarter, or year. The net profit margin is intended to be a measure of the overall
success of a business. A high net profit margin indicates that a business is pricing its
products correctly and is exercising good cost control. It is useful for comparing the
results of businesses within the same industry, since they are all subject to the same
business environment and customer base, and may have approximately the same cost
structures. Generally, a net profit margin in excess of 10% is considered excellent,
though it depends on the industry and the structure of the business. When used in
concert with the gross profit margin, you can analyze the amount of total expenses
associated with selling, general, and administrative expenses (which are located on
the income statement between the gross margin and the net profit line items). However,
the net profit margin is subject to a variety of issues, which include:

a) Comparability. A low net profit margin in one industry, such as groceries, might
be acceptable, because inventory turns over so quickly. Conversely, it may be

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 necessary to earn a high net profit margin in other industries just in order to
generate enough cash flow to buy fixed assets or pay for working capital.

b) Leveraged situations. A company may prefer to grow with debt, instead of equity
funding, in which case it will incur significant interest expenses, which will drive
down its net profit margin. Thus, a financing decision impacts the net profit
margin.

c) Accounting compliance. A company may accrue revenue and expense items to

be in compliance with various accounting standards, but this may give an
incorrect picture of its cash flows. Thus, a large depreciation expense may result
in a low net profit margin, even though cash flows are high.

d) Non-operating items. The net profit margin can be radically skewed by the
presence of unusually large non-operating gains or losses. For example, a large
gain on the sale of a division could create a large net profit margin, even though
the operating results of the company are poor.

e) Short-term focus. Company management could deliberately cut back on those

expenses that impair the ability of the business to compete over the long term,
such as equipment maintenance, research and development, and marketing, in
order to increase the net profit margin. These expenses are known
as discretionary expenses.

f) Taxes. If a company can apply a net operating loss carry forward to its before-tax
profits, it can record a larger net profit margin. Alternatively, management might
attempt to accelerate the recognition of non-cash expenses in order to minimize
the amount of tax liability that it must record in the current period. Thus, a specific
tax-related scenario can significantly impact the margin.

Example of Net Profit Margin

9. ABC International has a net profit of $20,000 in its most recent month of
operations. During that time, it had sales of $160,000. Thus, its net profit margin is:

($20,000 net profit ÷ $160,000 net sales) x 100 = 12.5% net profit margin

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 CHAPTER 2-LITRATURE REVIEW

IMPACT OF GENDER DIVERSITY IN CORPORATE BOARDS TOWARDS

PROFITABILITY OF FIRMS

1. World over, organizations are aiming for more profitability year over years, so,
there is a continuous endeavor by companies towards achieving new goals. The legal
needs of having woman on corporate board of directors has attracted attention all kinds
of firms in terms of deploying exceedingly talented and experienced women in the field
of corporate governance to reap dual benefits, one to fulfill the legal responsibility and
second to give boost to the profitability of the company.

2. According to Lehobo, (2011)1 found from a study on 100 top companies listed
on JSE Limited (Johannesburg Stock Exchange)there exists a positive relationship
between gender diversity in board room and corporate profitability & a negative
relationship for gender diversity in executive suite. A company excels on all three
measures of profitability: return on assets, return on equity and return on sales; if it has
one or more female directors on board whereas the same company with one or more
female executive show lower average profitability.

3. Yasir Shafique, Saba Idress and Hina Yousaf (2014) 2 concluded that average
number of women on board is 33.3% in a sample comprising of six banks in Pakistan.
Moreover percentage of women on board (WOBP) is 7.29%. Only 16% women are
CEOs. Findings also show that WOBP is significant and positively correlated with the
ROA of the bank meaning that by increasing the number of women on banks board, the
financial performance of the bank i.e. ROA can improve. Whereas WOBP and CEOs
have negative correlation with the performance of the firm i.e. ROA and the relationship
is not significant.

4. Sven-Olov Daunfeldt and Niklas Rudholm(2014)3 investigated whether

increasing gender diversity on the board of directors improves firm performance, using a
data-set of 20,487 limited companies in Sweden during 1997-2005. More gender
diversity in the boardroom is found to have a negative impact on returns on total assets
after two years. Thus, legal requirements to increase gender diversity on the board of
directors might carry a cost in lower profitability.

5. Arunima Haldar, Reeta Shah & S.V.D. Nageswara Rao (2015) 4 suggest that
gender diversity may be associated with effectiveness in the oversight function of board
of directors. This function can enhance from the diverse perspectives which allows for
contemplation of broader range of opinions. Governance advocates that CEO‘s
influence to the board of directors is immense and requires independent oversight .This
necessitates the board to have conflicting views which are common among diverse
group dynamics. This helps in understanding the nuances of gender diversity and
provides the basis for bringing a more effective gender representation at the strategic

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level of corporate world which builds the business case for having independent women
directors on the board room.

6. Remus Valsan (2015)5 concluded how gender diversity contributes to the

effective performance of board’s main roles. Stereotypic perceptions about female
leaders affect stakeholders’ expectations about the added value of having women in in
the board of directors. Although recent research has called into question the existence
of significant differences between male and female leadership styles, there is a
persisting tendency for market actors to rely on gender stereotypes in defining their
expectations from a company’s management team and board of directors. These
perceptions allow the board to appoint more female directors as they are perceived to
be more risk averse.

7. Cammarata (2016)6 established a positive correlation between gender diversity

and financial performance through a study conducted on 40 Top companies listed on
FTSE MIB stock market index for Italian National stock exchange. The study reveals a
statistical significance between the presences of female directors in a company’s Return
on Asset (ROA) in two different periods. The analysis led to the existence of a statistical
significance between ROE and the percentage of female directors in administration
boards. Finally no significant relation between Profit Margin and a diverse board could
be found.

8. Sulphey M.M.& Shaha Faisal(2017)7analysed that Indian Companies Act of

2013 mandates appointment of a minimum of one woman director in the Board. The
Securities and Exchanges Board of India (SEBI), has also revised Clause 49 to add
suitable provisions regarding Board composition. The researchers concluded that
present position of the women in the Board of Directors of BSE 30 (Bombay Stock
Exchange) companies’ is far below the required minimum standards set globally. It is
highly unlikely that India will be able to achieve Board diversity even by 2027. If Indian
companies are to be at par with global corporate with respect to diversity, lots need to
be done. The study was a modest attempt which limited itself to the BSE Sensex
companies.

9. Yap, I. L.-K., Chan S.-G., & Zainudin, R. (2017) 8 studied to investigate the
relationship between gender diversity in a firm’s board of directors and financial
performance of firms listed on Bursa Malaysia for the period between 2009 and
2013.This study concluded that a higher degree of female representation on the board
increases a firm’s financial performance. Positive discrimination favoring female
boardroom appointment is therefore likely to persist as a feature of the corporate
governance landscape in Malaysia.

10. Nida Zahoor Alfalah (2017)9 examined the relationship between gender
diversity in top management teams and firm profitability in manufacturing sector of
Pakistan. It was revealed that firms with gender diverse top management teams are
much more profitable as compared to the firms without gender diversity. Higher the
gender diversity more will be the firm profitability. However higher percentage of male

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top managers will lower the firm profitability. Relationship between female top managers
and firm profitability is found to be two ways. Hence it was understood that females tend
to serve on highly profitable firms and increases the firm profitability considerably.

11. CATHERINE H. TINSLEY, JAMES B. WADE, BRIAN G. M. MAIN, AND

CHARLES A. O’REILLY(2017)10 examined archival board data (for more than 3,000
U.S. publicly traded firms) from 2002 to 2011 and found that a female is most likely to
be appointed to a corporate board when a woman has just withdrew the position. A
similar propensity occurs to reappoint a male when a man leaves, although the effect is
smaller than for women. They concluded with evidence that people use a gender-
matching heuristic when selecting new corporate board members. This gender
matching was unstated for the vast majority of participants and is likely one important
reason why, despite repeated calls for more gender parity on corporate boards, the
representation of women on corporate boards has increased at a very slow rate over
the past 20 years. What works for increasing selection of females is increasing their
proportional representation in the candidate pool.

12. Almudena Barrientos Báeza, Alberto Javier Báez-Garcíab, Francisco

Flores-Mu˜nozc, Josué Gutiérrez-Barrosod (2018) 11 aimed to explore the status of
gender diversity in corporate governance and its implications to corporate performance
and emotional intelligence. While analyzing employability of women in corporate world,
it appears that they tend to be focused primarily on several corporate tasks related to
human resources management, along with auxiliary roles and to marketing. This bias,
which in a first view can be considered an additional manifestation of gender gap, is at
the same time an opportunity to link modern corporations to a new style of management
in which approaches like emotional intelligence could play a most prominent role.

GAPS IN RESEARCH

13. Above studies have by and large indicated positive vibes about having gender
diversity on corporate boards leading to better profitability of the firm. The studies cover
varieties of nations from very orthodox to very modern like Pakistan to US. The world
over trends still suggests that legal targets are well below the mark in all countries. The
limitations of studies although suggests small sample size but tremendous efforts are
needed to achieve the target figures.

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 CHAPTER 3 - STATEMENT OF OBJECTIVES

1. This paper is being generated to learn the importance and advantage of

statistical tools in taking some vital decisions in business companies so as to improve
its profitability and enhance shareholder’s wealth. In following few paras we will try to
understand the role of statistics in business firms.

2. One role of statistics in business is informing a manager working on employee

performance management. A manager collects data about employee productivity, such
as the number of tasks completed or the number of units produced. He or she must
analyze data to find ways in which an employee should improve to achieve maximum
productivity. Many companies also collect data about employee engagement and
happiness on the job, which can be tracked to not only keep workers motivated but
ensure they don't leave for other positions elsewhere. For example, if a manager finds
that an employee's number of finished outputs drops by 20 percent every Friday, he or
she should communicate with the employee, setting the expectation that his or her
output will remain above a minimum level every day of the work week.

3. Many companies will also compile aggregate statistics about employee

performance. If a company finds that employees overall are doing less work right before
or after the weekend, its managers will want to consider ways to either motivate
employees or, if it turns out to be due to external factors, provide them with alternative
tasks they can do during downtimes. Companies may want to avoid collecting too much
data about employee activities, however, since it may come off as creepy to workers.

Evaluating Alternative Scenarios

4. Beyond managing the performance of her own workers, a manager participates

in joint decision making with other managers. Statistics help the managers to compare
alternative scenarios and choose the best option for the company. The team must
decide which software to use for automating the customer ordering process. They
consider which software products have been successfully used by competitors and
choose the most popular one, or they might find how many orders that an ordering
system can process on average daily. The team collects performance data from
software makers and independent sources, such as trade magazines, to inform their
purchasing decisions.

The Importance of Data Collection

5. Collecting data to use in statistics, or summarizing the data, is only an advantage

in business if a manager uses a logical approach and collects and reports data in an
ethical manner. For example, he might use statistics to determine if sales levels the
company achieved for the last few products launched were even close to projected
sales levels. He might decide that the least-performing product needs extra investment
or perhaps the company should shift resources from that product to a new product. In
some cases, it might be necessary to secure customer data or strip out unimportant

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confidential parts to reduce the risk of a data breach or abuses by employees or data
consultants. Privacy laws also increasingly govern how companies can use or store
personal data, so it's important to make sure your business follows the rules in
jurisdictions where it's active.

Statistics in Research and Development

6. A company also uses statistics in market research and product development,

using different surveys, such as random samples of consumers, to gauge the market for
a proposed product. A manager conducts surveys to determine if there is sufficient
demand among target consumers. Survey results might justify spending on developing
the product. A product launch decision might also include a break-even analysis, such
as finding out what percentage of consumers must try a new product for it to be
successful.

DATA ANALYTICS FOR THE COMPANIES ALLOTTED

7. Following six companies were allotted from various sectors for studying the
performance indicators using the statistical tools:-

(a) KOLTE PATIL - INFRASTRUCTURE

(b) LAURUS LABS-PHARMA
(c) KEI CABLES-ELECTRICAL CABLES
(d) LA OPALA-GLASS WARE
(e) LAXMI MACHINE WORKS-MACHINE TOOLS
(f) KWALITY LTD. - DAIRY PRODUCTS

8. The following statistical tools were used to analyse three performance indicators
namely net profitability ratio (sale based indicator), return on equity (market based ratio)
and various other ratios:-

(a) Descriptive Statistics

(b) Correlation Analysis
(c) Regression Analysis
(d) ANOVA

METHODOLOGY

9. Past six year’s annual reports of above allotted companies were downloaded and
studied. The variables desired for statistical analysis were separately stored in a format
that was provided. For analyzing the selected performance indicators and various ratios
from the variables of choice, following parameters and ratios was extracted from the
financial reports:-

(a) Sales
(b) Net Profit

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 (c) Shareholder’s Fund
(d) Dividend payout
(e) Operating Profit Margin
(f) Current Ratio
(g) ROCE
(h) ROA

10. MS-Excel software tool was been used to calculate the various statistical results
of the allocated six companies for six consecutive financial years. All the relevant files
are placed as annexures to this paper. Following board related attributes were extracted
through the Director’s report of the companies.

(a) No of Directors in the Company

(b) No. of independent, dependent, Executive and Non-executive directors.
(c) No of committees.
(d) No of meetings held
(e) Remuneration of Directors

11. The objectives set are as follows:-

(i) Conduct descriptive analysis between NPR and ROE the two performance
indicators using MS-excel

(ii) Find correlation between various variables of choice for all six consecutive
years and plot the results.

(iii) Conduct regression analysis of NPR and ROE of all six companies and
predict a trend on these two Indicators.

(iv) Carry out ANOVA for all six companies on variables of choice for 5
groups.

(v) Conduct descriptive statistics on a consolidated data of Board Related

Attributes, Variables of Choice and Performance Indicators.

CONCLUSION

Soft copies of all relevant results are annexed as MS-Excel sheets with appropriate file
names. Four kinds of statistical Analysis namely descriptive statistics, correlation
analysis ,regression analysis and ANOVA has been found on variables of choice,
performance indicators and board related attributes of companies allocated. The
objective of this exercise was to learn the usage of various statistical tools in business
firms for prediction of better profitability and enhancement of wealth of the shareholders.

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Bibliography/References:

1. The relationship between gender diversity and corporate profitability the top 100
Companies on JSE Ltd by LINEO LEHOBO (2011)-paper for Masters in Financial
Management at University of Johannesburg, at Faculty of Economics and Financial
Sciences. Oct 2011.

2. Yasir Shafique, Saba Idress and Hina Yousaf (2014), Impact of Boards Gender
Diversity on Firms Profitability: Evidence from Banking Sector of Pakistan. Army
Public College of Management and Sciences (APCOMS), Khadim Hussain Road,
Rawalpindi Cantt, Pakistan.

3. Does Gender Diversity in the Boardroom Improve Firm Performance? by Sven-

Olov Daunfeldt and Niklas Rudholm(2014), Department of Economics, Dalarna
University, SE-781 88 Borlänge, Sweden; and HUI Research, SE-103 29 Stockholm,
Sweden.
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Diversity in the Boards of Directors: A Corporate Governance Perspective Remus
Valsan, Ph.D.University of Edinburgh,School of Law.

6. Cammarata (2016) NOVA SCHOOL OF BUSINESS AND ECONOMICS,

TOPIC: Gender Diversity in Corporate Governance and its Effect on Financial
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7. Sulphey M.M.& Shaha Faisal(2017) The position of gender diversity in Indian

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8. Asian Academy of Management Journal of Accounting and Finance, GENDER

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9. Relationship between Gender Diversity in Top Management Teams and

Profitability of Pakistani Firms-Nida Zahoor Alfalah Institute of Banking and Finance,
Bahauddin Zakariya University, Pakistan.

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10. GENDER DIVERSITY ON U.S. CORPORATE BOARDS: ARE WE RUNNING IN
PLACE? CATHERINE H. TINSLEY, JAMES B. WADE, BRIAN G. M. MAIN, AND
CHARLES A. O’REILLY*ILR Review, 70(1), January 2017, pp. 160–189 DOI:
10.1177/0019793916668356. _ The Author(s) 2016 Journal website: ilr.sagepub.com
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emotional management.(2018),Corporate governance Gender diversity Emotional
intelligence Corporate performance-Almudena Barrientos Báeza, Alberto Javier Báez-
Garcíab, Francisco Flores-Mu˜nozc, Josué Gutiérrez-Barrosod , Tourism, Iriarte
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15. ANNUAL REPORTS OF THE ALLOTTED COMPANIES

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