JOB SATISFACTION:The father of scientific management Taylor's (1911) approach to job satisfaction was based on a most pragmatic & essentially pessimistic philosophy that man is motivation by money alone. That the workers are essentially 'stupid & phlegmatic' & that they would be satisfied with work if they get higher economic benefit from it. But with the passage of time Taylor's solely monetary approach has been changed to a more humanistic approach. It has come a long way from a simple explanation based on money to a more realistic but complex approach to job satisfaction. New dimensions of knowledge are added every day & with increasing understanding of new variables & their inter play, the field of job satisfaction has become difficult to comprehend. The term job satisfaction was brought to limelight by Hoppock (1935). He reviewed 32 studies on job satisfaction conducted prior to 1933 & observed that job satisfaction is a combination of psychological, physiological & environmental circumstances that cause a person to say. 'I am satisfied with my job'. Locke defines job satisfaction as a "pleasurable or positive emotional state resulting from the appraisal of one's job or job experiences". To the extent that a person's job fulfils his dominant need & is consistent with his expectations & values, the job will be satisfying.
Job Satisfaction - Theory
One way to define satisfaction may be to say that it is the end state of feeling. The word 'end' emphasises the fact that the feeling is experienced after a task is accomplished or an activity has taken place whether it is highly individualistic effort of writing a book or a collective endeavour of constructing a building. These activities may be minute or large. But in all cases, they satisfy a certain need. The feeling could be positive or negative depending upon whether need is satisfied or not & could be a function of the effort of the individual on one hand & on the other the situational opportunities available to him. This can be better understood by taking example of a foreman in an engineering industry. He has been assigned the task to complete a special order by a certain, deadline. Person may experience positive job satisfaction because he has been chosen to complete the task. It gives him a special status & feeling that he has been trusted and given a special task, he likes such kind of rush job and it may get him extra wages. The same could be the sources of his dissatisfaction if he does not like rush
work, has no need for extra wages. Each one of these variables lead to an end state of feeling, called satisfaction. Sinha (1974) defines job satisfaction an 'a reintegration of affect produced by individual's perception of fulfillment of his needs in relation to his work & the situations surrounding it'. Theories of Job - Satisfaction : There are 3 major theories of job satisfaction. (i) Herzberg's Motivation - Hygiene theory. (ii) Need fulfilment theory. (iii) Social reference - group theory. Herzberg's Motivation - Hygiene Theory : This theory was proposed by Herzberg & his assistants in 1969. On the basis of his study of 200 engineers and accountants of the Pittsburgh area in the USA, he established that there are two separate sets of conditions (and not one) which are responsible for the motivation & dissatisfaction of workers. When one set of conditions (called 'motivator') is present in the organisation, workers feel motivated but its absence does not dissatisfy them. Similarly, when another set of conditions (called hygiene factors) is absent in the organisation, the workers feel dissatisfied but its presence does not motivate them. The two sets are unidirectional, that is, their effect can be seen in one direction only. According to Herzberg following factors acts as motivators:
• Achievement, • Recognition, • Advancement, • Work itself,
• Possibility of growth, & • Responsibility.
Hygiene factors are :
• Company policy & administration, • Technical supervision, • Inter-personal relations with supervisors, peers & Subordinates, • Salary. • Job security, • Personal life, • Working Conditions, & • Status.
Herzberg used semi-structured interviews (the method is called critical incident method). In this technique subjects were asked to describe those events on the job which had made them extremely satisfied or dissatisfied. Herzberg found that events which led people to extreme satisfaction were generally characterised by 'motivators' & those which led people to extreme dissatisfaction were generally characterized by a totally different set of factors which were called 'hygiene factors'. Hygiene factors are those factors which remove pain from the environment. Hence, they are also known as job - environment or job - context factors. Motivators are factors which result in psychological growth. They are mostly job - centered. Hence they are also known as job - content factors. The theory postulated that motivators and hygiene factors are independent & absence of one does not mean presence of the other. In pleasant situations
motivators appear more frequently than hygiene factors while their predominance is reversed in unpleasant situations. Need Fulfillment Theory : Under the need-fulfillment theory it is believed that a person is satisfied if he gets what he wants & the more he wants something or the more important it is to him, the more satisfied he is when he gets it & the more dissatisfied he is when he does not get it. Needs may be need for personal achievement, social achievement & for influence. a) Need for personal achievement : Desires for personal career development, improvement in one's own life standards, better education & prospects for children & desire for improving one's own work performance. b) Need for social achievement : A drive for some kind of collective success is relation to some standards of excellence. It is indexed in terms of desires to increase overall productivity, increased national prosperity, better life community & safety for everyone. c) Need for influence : A desire to influence other people & surroundings environment. In the works situation, it means to have power status & being important as reflected in initiative taking and participation in decision making. In summary, this theory tell us that job satisfaction is a function of, or is positively related to the degree to which one's personal & social needs are fulfilled in the job situation. Social References - Group Theory : It takes into account the point of view & opinions of the group to whom the individual looks for the guidance. Such groups are defined as the 'referencegroup' for the individual in that they define the way in which he should look at
the world and evaluate various phenomena in the environment (including himself). It would be predicted, according to this theory that if a job meets the interest, desires and requirements of a person's reference group, he will like it & if it does not, he will not like it. A good example of this theory has been given by C.L. Hulin. He measures the effects of community characteristics on job satisfaction of female clerical workers employed in 300 different catalogue order offices. He found that with job conditions held constant job satisfaction was less among persons living in a wellto-do neighborhood than among those whose neighborhood was poor. Hulin, thus provides strong evidence that such frames of reference for evaluation may be provided by one's social groups and general social environment. To sum up, we can say, Job satisfaction is a function of or is positively related to the degree to which the characteristics of the job meet with approved & the desires of the group to which the individual looks for guidance in evaluating the world & defining social reality. Relationship among motivation, attitude and job satisfaction : Motivation implies the willingness to work or produce. A person may be talented and equipped with all kinds of abilities & skills but may have no will to work. Satisfaction, on the other hand, implies a positive emotional state which may be totally unrelated to productivity. Similarly in the literature the terms job attitude and job satisfaction are used interchangeably. However a closer analysis may reveal that perhaps, they measure two different anchor points. Attitudes are predispositions that make the individual behave in a characteristic way across the situations. They are precursors to behaviour & determine its intensity and direction. Job satisfaction, on the other hand is an end state of feeling which may influence subsequent behaviour. In this respect, job attitude and job satisfaction may have something in common. But if we freeze behaviour, attitude would initiate it which job satisfaction would result from it. Relationship Between Morale & Job Satisfaction :
According to Seashore (1959), morale is a condition which exists in a context where people are :
a) motivated towards high productivity. b) want to remain with organization. c) act effectively in crisis. d) accept necessary changes without resentment or resistance. e) actually promote the interest of the organization and f) are satisfied with their job.
According to this description of morale, job satisfaction is an important dimension of morale itself. Morale is a general attitude of the worker and relates to group while job satisfaction is an individual feeling which could be caused by a variety of factors including group. This point has been summarized by Sinha (1974) when he suggests that industrial morale is a collective phenomenon and job satisfaction is a distributed one. In other words, job satisfaction refers to a general attitude towards work by an individual works. On the other hand, morale is group phenomenon which emerges as a result of adherence to group goals and confidence in the desirability of these goals. Relationship Between job satisfaction and work behaviour : Generally, the level of job satisfaction seems to have some relation with various aspects of work behaviour like absenteeism, adjustments, accidents, productivity and union recognition. Although several studies have shown varying degrees of relationship between them and job satisfaction, it is not quite clear whether these relationships are correlative or casual. In other words, whether work behaviour make him more positively inclined to his job and there would be a lesser probability of getting to an unexpected, incorrect or uncontrolled event in which either his action or the reaction of an object or person may result in personal injury.
Job satisfaction and productivity : Experiments have shown that there is very little positive relationship between the job satisfaction & job performance of an individual. This is because the two are caused by quite different factors. Job satisfaction is closely affected by the amount of rewards that an individual derives from his job, while his level of performance is closely affected by the basis for attainment of rewards. An individual is satisfied with his job to the extent that his job provides him with what he desires, and he performs effectively in his job to the extent that effective performance leads to the attainment of what he desires. This means that instead of maximizing satisfaction generally an organisation should be more concerned about maximizing the positive relationship between performance and reward. It should be ensured that the poor performers do not get more rewards than the good performers. Thus, when a better performer gets more rewards he will naturally feel more satisfied. Job Satisfaction and absenteeism : One can find a consistent negative relationship between satisfaction and absenteeism, but the correlation is moderate-usually less than 0.40. While it certainly makes sense that dissatisfied Sales Persons are more likely to miss work, other factors have an impact on the relationship and reduce the correlation coefficient. e.g. Organizations that provide liberal sick leave benefits are encouraging all their Sales Persons, including those who are highly satisfied, to take days off. So, outside factors can act to reduce the correlation. Job Satisfaction and Turnover : Satisfaction is also negatively related to turnover, but the correlation is stronger than what we found for absenteeism. Yet, again, other factors such as labour market conditions, expectations about alternative job opportunities, and length of tenure with the organization are important constraints on the actual decision to leave one's current job. Evidence indicates that an important moderator of the satisfaction-turnover relationship is the Sales Person's level of performance. Specifically, level of satisfaction is less important in predicting turnover for superior performers
because the organization typically makes considerable efforts to keep these people. Just the opposite tends to apply to poor performers. Few attempts are made by the organization to retain them. So one could expect, therefore, that job satisfaction is more important in influencing poor performers to stay than superior performers. Job Satisfaction and Adjustment : It the Sales Person is facing problems in general adjustment, it is likely to affect his work life. Although it is difficult to define adjustment, most psychologists and organisational behaviourists have been able to narrow it down to what they call neuroticism and anxiety. Generally deviation from socially expected behaviour has come to be identified as neurotic behaviour. Though it may be easy to identify symptoms of neuroticism, it is very difficult to know what causes. Family tensions, job tensions, social isolation, emotional stress, fear, anxiety or any such sources could be a source of neuroticism. Anxiety, on the other hand, has a little more clearer base. It is generally seen as a mental state of vague fear and apprehension which influences the mode of thinking. Anxiety usually shows itself in such mental state as depression, impulsiveness, excessive worry and nervousness. While everyone aspires for a perfect state of peace and tranquility, the fact is that some anxiety is almost necessary for an individual to be effective because it provides the necessary push for efforts to achieve excellence. Adjustment problems usually show themselves in the level of job satisfaction. For long, both theorists and practitioners have been concerned with Sales Persons' adjustment and have provided vocational guidance and training to them to minimise it's impact on work behaviour. Most literature, in this area, generally suggests a positive relationship between adjustment and job satisfaction. People with lower level of anxiety and low neuroticism have been found to be more satisfied with their jobs. Determinants of Job Satisfaction :
According to Abrahan A. Korman, there are two types of variables which determine the job satisfaction of an individual.These are : 1) Organisational variables ; and 2) Personal Variables. Organisational Variable : 1) Occupational Level : The higher the level of the job, the greater is the satisfaction of the individual. This is because higher level jobs carry greater prestige and self control. 2) Job Content : Greater the variation in job content and the less repetitiveness with which the tasks must be performed, the greater is the satisfaction of the individual involved. 3) Considerate Leadership : People like to be treated with consideration. Hence considerate leadership results in higher job satisfaction than inconsiderate leadership. 4) Pay and Promotional Opportunities : All other things being equal these two variables are positively related to job satisfaction. 5) Interaction in the work group : Here the question is : When is interaction in the work group a source of job satisfaction and when it is not ? Interaction is most satisfying when (a) It results in the cognition that other person's attitudes are similar to one's own. Since this permits the ready calculability of the others behaviour and constitutes a validation of one's self ;
(b) It results in being accepted by others ; and (c) It facilitates the achievements of goals. Personal Variables : For some people, it appears most jobs will be dissatisfying irrespective of the organisational condition involved, whereas for others, most jobs will be satisfying. Personal variables like age, educational level, sex, etc. are responsible for this difference. (1) Age : Most of the evidence on the relation between age and job satisfaction, holding such factors as occupational level constant, seems to indicate that there is generally a positive relationship between the two variales up to the preretirement years and then there is a sharp decrease in satisfaction. An individual aspires for better and more prestigious jobs in later years of his life. Finding his channels for advancement blocked, his satisfaction declines. (2) Educational Level : With occupational level held constant there is a negative relationship between the educational level and job satisfaction. The higher the education, the higher the reference group which the individual looks to for guidance to evaluate his job rewards. (3) Role Perception : Different individuals hold different perceptions about their role, i.e. the kind of activities and behaviours they should engage in to perform there job successfully. Job satisfaction is determined by this factor also. The more accurate the role perception of an individual, the greater his satisfaction. (4) Sex : There is as yet no consistent evidence as to whether women are more satisfied with their jobs than men, holding such factors as job and occupational level
constant. One might predict this to be the case, considering the generally low occupational aspiration of women. Some other determines of job satisfaction are as follows: (i) General Working Conditions. (ii) Grievance handling procedure. (iii) Fair evaluation of work done. (iv) Job security. (v) Company prestige. (vi) Working hours etc. How Sales Persons Can Express Dissatisfaction Sales Person dissatisfaction can be expressed in a number of ways. For example, rather than quit, Sales Persons can complain, be insubordinate, steal organisational property, or shirk a part of their work responsibilities. In the following figure, four responses are given along to dimensions : Constructiveness / Destructiveness and Activity / Passivity. These are defined as follow :
Exit : Behaviour directed towards leaving the organisation. Includes looking for a new position as well as resigning.
Active Exit Destructive neglect loyalty Passive Voice Constructive
Voice : Actively and constructively attempting to improve conditions includes suggesting improvements, discussing problems with superiors, and some forms of union activity. Loyalty : Passively but optimistically waiting for conditions to improve. Includes speaking up for the organisation in the face of external criticism and trusting the organisation and its management to 'do the right thing'. Neglect : Passively allowing the conditions to worsen. Includes chronic absenteeism or lateness, reduced effort, and increased error rate. Exit and neglect behaviours encompass our performances variables-productivity, absenteeism and turnover. But this model expands Sales Person response to include voice and loyalty, constructive behaviours that allow individuals to tolerate unpleasant situations or to revive satisfactory working conditions. The importance of high job satisfaction : The importance of job satisfaction is obvious. Managers should be concerned with the level of job satisfaction in their organisations for at least three reasons: (1) There is clear evidence that dissatisfied Sales Persons skip work more often and are more likely to resign ; (2) It has been demonstrated that satisfied Sales Persons have better health and live longer ; and (3) Satisfaction on the job carries over to the Sales Person's life outside the job. Satisfied Sales Persons have lower rate of both turnover and absenteeism. Specifically, satisfaction is strongly and consistently negatively related to an Sales Person's decision to leave the organisation. Although satisfaction and absence are also negatively related, conclusions regarding the relationship should be more guarded. An often overlooked dimension of job satisfaction is its relationship to Sales Person health. Several studies have shown that Sales Persons who are dissatisfied with their jobs are prone to health setbacks ranging from headaches to heart
disease. For managers, this means that even if satisfaction did not lead to less voluntary turn over and absence, the goal of a satisfied work force might be jutificable because it would reduced medical costs and the premature loss of valued Sales Persons by way of heart disease or strokes. Job satisfaction's importance is its spin off effect that job satisfaction has for society as a whole. When Sales Persons are happy with their jobs, it improves their lives off the job. In contrast, the dissatisfied Sales Person carries that negative attitude home. Some benefits of job satisfaction accure to every citizen in society. Satisfied Sales Persons are more likely to be satisfied citizens. These people will hold a more positive attitude towards life in general and make for a society of more psychologically healthy people. So job satisfaction is very important. For management, a satisfied work force translates into higher productivity due to fewer disruptions caused by absenteeism or good Sales Persons quitting, as well as into lower medical and life insurance costs. Additionally, there are benefits for society in general. Satisfaction on the job carries over to the Sales Person's off the job hours. So the goal of high job satisfaction for Sales Persons can be defended in terms of both money and social responsibility.
Project Description :
Title : Project Report on Job Satisfaction of Employees Project Description : MBA Project Report on Job Satisfaction of Employees Theory of Job Satisfaction, Relationship Between job satisfaction and work behaviour, productivity, absenteeism, Turnover, Adjustment & How Sales Persons Can Express Dissatisfaction Pages : 73 Category : Project Report for MBA
RATIO ANALYSIS Meaning of Ratio:- A ratio is simple arithmetical expression of the relationship of one number to another. It may be defined as the indicated quotient of two mathematical expressions. According to Accountant’s Handbook by Wixon, Kell and Bedford, “a ratio is an expression of the quantitative relationship between two numbers”. Ratio Analysis:- Ratio analysis is the process of determining and presenting the relationship of items and group of items in the statements. According to Batty J. Management Accounting “Ratio can assist management in its basic functions of forecasting, planning coordination, control and communication”. It is helpful to know about the liquidity, solvency, capital structure and profitability of an organization. It is helpful tool to aid in applying judgement, otherwise complex situations. Ratio analysis can represent following three methods. Ratio may be expressed in the following three ways : 1. Pure Ratio or Simple Ratio :- It is expressed by the simple division of one number by another. For example , if the current assets of a business are Rs. 200000 and its current liabilities are Rs. 100000, the ratio of ‘Current assets to current liabilities’ will be 2:1. 2. ‘Rate’ or ‘So Many Times :- In this type , it is calculated how many times a figure is, in comparison to another figure. For example , if a firm’s credit sales during the year are Rs. 200000 and its debtors at the end of the year are Rs. 40000 , its Debtors Turnover Ratio is 200000/40000 = 5 times. It shows that the credit sales are 5 times in comparison to debtors. 3. Percentage :- In this type, the relation between two figures is expressed in hundredth. For example, if a firm’s capital is Rs.1000000 and its profit is
Rs.200000 the ratio of profit capital, in term of percentage, is 200000/1000000*100 = 20% ADVANTAGE OF RATIO ANALYSIS 1. Helpful in analysis of Financial Statements. 2. Helpful in comparative Study. 3. Helpful in locating the weak spots of the business. 4. Helpful in Forecasting. 5. Estimate about the trend of the business. 6. Fixation of ideal Standards. 7. Effective Control. 8. Study of Financial Soundness. LIMITATIONS OF RATIO ANALYSIS 1. Comparison not possible if different firms adopt different accounting policies. 2. Ratio analysis becomes less effective due to price level changes. 3. Ratio may be misleading in the absence of absolute data. 4. Limited use of a single data. 5. Lack of proper standards. 6. False accounting data gives false ratio. 7. Ratios alone are not adequate for proper conclusions. 8. Effect of personal ability and bias of the analyst.
CLASSIFICATION OF RATIO Ratio may be classified into the four categories as follows: A. Liquidity Ratio a. Current Ratio b. Quick Ratio or Acid Test Ratio B. Leverage or Capital Structure Ratio a. Debt Equity Ratio b. Debt to Total Fund Ratio c. Proprietary Ratio d. Fixed Assets to Proprietor’s Fund Ratio e. Capital Gearing Ratio f. Interest Coverage Ratio C. Activity Ratio or Turnover Ratio a. Stock Turnover Ratio b. Debtors or Receivables Turnover Ratio c. Average Collection Period d. Creditors or Payables Turnover Ratio e. Average Payment Period f. Fixed Assets Turnover Ratio
g. Working Capital Turnover Ratio D. Profitability Ratio or Income Ratio
(A) Profitability Ratio based on Sales : a. Gross Profit Ratio b. Net Profit Ratio c. Operating Ratio d. Expenses Ratio
(B) Profitability Ratio Based on Investment : I. Return on Capital Employed II. Return on Shareholder’s Funds : a. Return on Total Shareholder’s Funds b. Return on Equity Shareholder’s Funds c. Earning Per Share d. Dividend Per Share e. Dividend Payout Ratio f. Earning and Dividend Yield g. Price Earning Ratio
LIQUIDITY RATIO (A) Liquidity Ratio:- It refers to the ability of the firm to meet its current liabilities. The liquidity ratio, therefore, are also called ‘Short-term Solvency Ratio’. These ratio are used to assess the short-term financial position of the concern. They indicate the firm’s ability to meet its current obligation out of current resources. In the words of Saloman J. Flink, “Liquidity is the ability of the firms to meet its current obligations as they fall due”. Liquidity ratio include two ratio :a. Current Ratio b. Quick Ratio or Acid Test Ratio a. Current Ratio:- This ratio explains the relationship between current assets and current liabilities of a business. Formula: Current Assets:-‘Current assets’ includes those assets which can be converted into cash with in a year’s time. Current Assets = Cash in Hand + Cash at Bank + B/R + Short Term Investment + Debtors(Debtors – Provision) + Stock(Stock of Finished Goods + Stock of Raw Material + Work in Progress) + Prepaid Expenses. Current Liabilities :- ‘Current liabilities’ include those liabilities which are repayable in a year’s time. Current Liabilities = Bank Overdraft + B/P + Creditors + Provision for Taxation + Proposed Dividend + Unclaimed Dividends + Outstanding Expenses + Loans Payable with in a Year.
Significance :- According to accounting principles, a current ratio of 2:1 is supposed to be an ideal ratio. It means that current assets of a business should, at least , be twice of its current liabilities. The higher ratio indicates the better liquidity position, the firm will be able to pay its current liabilities more easily. If the ratio is less than 2:1, it indicate lack of liquidity and shortage of working capital. The biggest drawback of the current ratio is that it is susceptible to “window dressing”. This ratio can be improved by an equal decrease in both current assets and current liabilities. b. Quick Ratio:- Quick ratio indicates whether the firm is in a position to pay its current liabilities with in a month or immediately. Formula: ‘Liquid Assets’ means those assets, which will yield cash very shortly. Liquid Assets = Current Assets – Stock – Prepaid Expenses Significance :- An ideal quick ratio is said to be 1:1. If it is more, it is considered to be better. This ratio is a better test of short-term financial position of the company. LEVERAGE OR CAPITAL STRUCTURE RATIO (B) Leverage or Capital Structure Ratio :- This ratio disclose the firm’s ability to meet the interest costs regularly and Long term indebtedness at maturity. These ratio include the following ratios : a. Debt Equity Ratio:- This ratio can be expressed in two ways: First Approach : According to this approach, this ratio expresses the relationship between long term debts and shareholder’s fund.
Formula: Long Term Loans:- These refer to long term liabilities which mature after one year. These include Debentures, Mortgage Loan, Bank Loan, Loan from Financial institutions and Public Deposits etc. Shareholder’s Funds :- These include Equity Share Capital, Preference Share Capital, Share Premium, General Reserve, Capital Reserve, Other Reserve and Credit Balance of Profit & Loss Account. Second Approach : According to this approach the ratio is calculated as follows:Formula: Debt equity ratio is calculated for using second approach. Significance :- This Ratio is calculated to assess the ability of the firm to meet its long term liabilities. Generally, debt equity ratio of is considered safe. If the debt equity ratio is more than that, it shows a rather risky financial position from the long-term point of view, as it indicates that more and more funds invested in the business are provided by long-term lenders. The lower this ratio, the better it is for long-term lenders because they are more secure in that case. Lower than 2:1 debt equity ratio provides sufficient protection to long-term lenders. b. Debt to Total Funds Ratio : This Ratio is a variation of the debt equity ratio and gives the same indication as the debt equity ratio. In the ratio, debt is expressed in relation to total funds, i.e., both equity and debt. Formula: Significance :- Generally, debt to total funds ratio of 0.67:1 (or 67%) is considered satisfactory. In other words, the proportion of long term loans should not be more than 67% of total funds. A higher ratio indicates a burden of payment of large amount of interest charges periodically and the repayment of large amount of loans at maturity. Payment of
interest may become difficult if profit is reduced. Hence, good concerns keep the debt to total funds ratio below 67%. The lower ratio is better from the long-term solvency point of view. c. Proprietary Ratio:- This ratio indicates the proportion of total funds provide by owners or shareholders. Formula: Significance :- This ratio should be 33% or more than that. In other words, the proportion of shareholders funds to total funds should be 33% or more. A higher proprietary ratio is generally treated an indicator of sound financial position from long-term point of view, because it means that the firm is less dependent on external sources of finance. If the ratio is low it indicates that long-term loans are less secured and they face the risk of losing their money. d. Fixed Assets to Proprietor’s Fund Ratio :- This ratio is also know as fixed assets to net worth ratio. Formula: Significance :- The ratio indicates the extent to which proprietor’s (Shareholder’s) funds are sunk into fixed assets. Normally , the purchase of fixed assets should be financed by proprietor’s funds. If this ratio is less than 100%, it would mean that proprietor’s fund are more than fixed assets and a part of working capital is provided by the proprietors. This will indicate the long-term financial soundness of business. e. Capital Gearing Ratio:- This ratio establishes a relationship between equity capital (including all reserves and undistributed profits) and fixed cost bearing capital. Formula:
Whereas, Fixed Cost Bearing Capital = Preference Share Capital + Debentures + Long Term Loan Significance:- If the amount of fixed cost bearing capital is more than the equity share capital including reserves an undistributed profits), it will be called high capital gearing and if it is less, it will be called low capital gearing. The high gearing will be beneficial to equity shareholders when the rate of interest/dividend payable on fixed cost bearing capital is lower than the rate of return on investment in business. Thus, the main objective of using fixed cost bearing capital is to maximize the profits available to equity shareholders. f. Interest Coverage Ratio:- This ratio is also termed as ‘Debt Service Ratio’. This ratio is calculated as follows: Formula: Significance :- This ratio indicates how many times the interest charges are covered by the profits available to pay interest charges. This ratio measures the margin of safety for long-term lenders. This higher the ratio, more secure the lenders is in respect of payment of interest regularly. If profit just equals interest, it is an unsafe position for the lender as well as for the company also , as nothing will be left for shareholders. An interest coverage ratio of 6 or 7 times is considered appropriate. ACTIVITY RATIO OR TURNOVER RATIO
(C) Activity Ratio or Turnover Ratio :- These ratio are calculated on the bases of ‘cost of sales’ or sales, therefore, these ratio are also called as ‘Turnover Ratio’. Turnover indicates the speed or number of times the capital employed has been rotated in the
process of doing business. Higher turnover ratio indicates the better use of capital or resources and in turn lead to higher profitability.
It includes the following : a. Stock Turnover Ratio:- This ratio indicates the relationship between the cost of goods during the year and average stock kept during that year. Formula: Here, Cost of goods sold = Net Sales – Gross Profit Average Stock = Opening Stock + Closing Stock/2 Significance:- This ratio indicates whether stock has been used or not. It shows the speed with which the stock is rotated into sales or the number of times the stock is turned into sales during the year. The higher the ratio, the better it is, since it indicates that stock is selling quickly. In a business where stock turnover ratio is high, goods can be sold at a low margin of profit and even than the profitability may be quit high. b. Debtors Turnover Ratio :- This ratio indicates the relationship between credit sales and average debtors during the year : Formula: While calculating this ratio, provision for bad and doubtful debts is not deducted from the debtors, so that it may not give a false impression that debtors are collected quickly. Significance :- This ratio indicates the speed with which the amount is collected from debtors. The higher the ratio, the better it is, since it indicates that amount from debtors is being collected more quickly. The more quickly the debtors pay, the less the risk from bad- debts, and so the lower the expenses of collection and increase in the liquidity of the firm.
By comparing the debtors turnover ratio of the current year with the previous year, it may be assessed whether the sales policy of the management is efficient or not. c. Average Collection Period :- This ratio indicates the time with in which the amount is collected from debtors and bills receivables. Formula: Here, Credit Sales per day = Net Credit Sales of the year / 365 Second Formula :Average collection period can also be calculated on the bases of ‘Debtors Turnover Ratio’. The formula will be:
Significance :- This ratio shows the time in which the customers are paying for credit sales. A higher debt collection period is thus, an indicates of the inefficiency and negligency on the part of management. On the other hand, if there is decrease in debt collection period, it indicates prompt payment by debtors which reduces the chance of bad debts. d. Creditors Turnover Ratio :- This ratio indicates the relationship between credit purchases and average creditors during the year . Formula:Note :- If the amount of credit purchase is not given in the question, the ratio may be calculated on the bases of total purchase. Significance :- This ratio indicates the speed with which the amount is being paid to creditors. The higher the ratio, the better it is, since it will indicate that the creditors are being paid more quickly which increases the credit worthiness of the firm.
d. Average Payment Period :- This ratio indicates the period which is normally taken by the firm to make payment to its creditors. Formula:This ratio may also be calculated as follows : Significance :- The lower the ratio, the better it is, because a shorter payment period implies that the creditors are being paid rapidly. d. Fixed Assets Turnover Ratio :- This ratio reveals how efficiently the fixed assets are being utilized. Formula:Here, Net Fixed Assets = Fixed Assets – Depreciation Significance:- This ratio is particular importance in manufacturing concerns where the investment in fixed asset is quit high. Compared with the previous year, if there is increase in this ratio, it will indicate that there is better utilization of fixed assets. If there is a fall in this ratio, it will show that fixed assets have not been used as efficiently, as they had been used in the previous year. e. Working Capital Turnover Ratio :- This ratio reveals how efficiently working capital has been utilized in making sales. Formula :Here, Cost of Goods Sold = Opening Stock + Purchases + Carriage + Wages + Other Direct Expenses - Closing Stock Working Capital = Current Assets – Current Liabilities Significance :- This ratio is of particular importance in non-manufacturing concerns where current assets play a major role in generating sales. It shows the number of times working capital has been rotated in producing sales.
A high working capital turnover ratio shows efficient use of working capital and quick turnover of current assets like stock and debtors. A low working capital turnover ratio indicates under-utilisation of working capital. Profitability Ratios or Income Ratios (D) Profitability Ratios or Income Ratios:- The main object of every business concern is to earn profits. A business must be able to earn adequate profits in relation to the risk and capital invested in it. The efficiency and the success of a business can be measured with the help of profitability ratio. Profitability ratios are calculated to provide answers to the following questions: i. ii. iii. iv. v. Is the firm earning adequate profits? What is the rate of gross profit and net profit on sales? What is the rate of return on capital employed in the firm? What is the rate of return on proprietor’s (shareholder’s) funds? What is the earning per share?
Profitability ratio can be determined on the basis of either sales or investment into business. (A) Profitability Ratio Based on Sales : a) Gross Profit Ratio : This ratio shows the relationship between gross profit and sales. Formula : Here, Net Sales = Sales – Sales Return
Significance:- This ratio measures the margin of profit available on sales. The higher the gross profit ratio, the better it is. No ideal standard is fixed for this ratio, but the gross profit ratio should be adequate enough not only to cover the operating expenses but also to provide for deprecation, interest on loans, dividends and creation of reserves. b) Net Profit Ratio:- This ratio shows the relationship between net profit and sales. It may be calculated by two methods: Formula: Here, Operating Net Profit = Gross Profit – Operating Expenses such as Office and Administrative Expenses, Selling and Distribution Expenses, Discount, Bad Debts, Interest on short-term debts etc. Significance :- This ratio measures the rate of net profit earned on sales. It helps in determining the overall efficiency of the business operations. An increase in the ratio over the previous year shows improvement in the overall efficiency and profitability of the business. (c) Operating Ratio:- This ratio measures the proportion of an enterprise cost of sales and operating expenses in comparison to its sales. Formula: Where, Cost of Goods Sold = Opening Stock + Purchases + Carriage + Wages + Other Direct Expenses - Closing Stock Operating Expenses = Office and Administration Exp. + Selling and Distribution Exp. + Discount + Bad Debts + Interest on Short- term loans.
‘Operating Ratio’ and ‘Operating Net Profit Ratio’ are inter-related. Total of both these ratios will be 100.
Significance:- Operating Ratio is a measurement of the efficiency and profitability of the business enterprise. The ratio indicates the extent of sales that is absorbed by the cost of goods sold and operating expenses. Lower the operating ratio is better, because it will leave higher margin of profit on sales.
(d) Expenses Ratio:- These ratio indicate the relationship between expenses and sales. Although the operating ratio reveals the ratio of total operating expenses in relation to sales but some of the expenses include in operating ratio may be increasing while some may be decreasing. Hence, specific expenses ratio are computed by dividing each type of expense with the net sales to analyse the causes of variation in each type of expense. The ratio may be calculated as : (a) Material Consumed Ratio = Material Consumed/Net Sales*100 (b) Direct Labour cost Ratio = Direct labour cost / Net sales*100 (c) Factory Expenses Ratio = Factory Expenses / Net Sales *100 (a), (b) and (c) mentioned above will be jointly called cost of goods sold ratio. It may be calculated as: Cost of Goods Sold Ratio = Cost of Goods Sold / Net Sales*100 (d) Office and Administrative Expenses Ratio = Office and Administrative Exp./ Net Sales*100 (e) Selling Expenses Ratio = Selling Expenses / Net Sales *100 (f) Non- Operating Expenses Ratio = Non-Operating Exp./Net sales*100
Significance:- Various expenses ratio when compared with the same ratios of the previous year give a very important indication whether these expenses in relation to sales are increasing, decreasing or remain stationary. If the expenses ratio is lower, the profitability will be greater and if the expenses ratio is higher, the profitability will be lower.
(B) Profitability Ratio Based on Investment in the Business:These ratio reflect the true capacity of the resources employed in the enterprise. Sometimes the profitability ratio based on sales are high whereas profitability ratio based on investment are low. Since the capital is employed to earn profit, these ratios are the real measure of the success of the business and managerial efficiency. These ratio may be calculated into two categories: I. Return on Capital Employed II. Return on Shareholder’s funds I. Return on Capital Employed :- This ratio reflects the overall profitability of the business. It is calculated by comparing the profit earned and the capital employed to earn it. This ratio is usually in percentage and is also known as ‘Rate of Return’ or ‘Yield on Capital’. Formula: Where, Capital Employed = Equity Share Capital + Preference Share Capital + All Reserves + P&L Balance +Long-Term Loans- Fictitious Assets (Such as Preliminary Expenses OR etc.) – Non-Operating Assets like Investment made outside the business. Capital Employed = Fixed Assets + Working Capital Advantages of ‘Return on Capital Employed’:? Since profit is the overall objective of a business enterprise, this ratio is a barometer of the overall performance of the enterprise. It measures how efficiently the capital employed in the business is being used. ? Even the performance of two dissimilar firms may be compared with the help of this ratio. ? The ratio can be used to judge the borrowing policy of the enterprise.
? This ratio helps in taking decisions regarding capital investment in new projects. The new projects will be commenced only if the rate of return on capital employed in such projects is expected to be more than the rate of borrowing. ? This ratio helps in affecting the necessary changes in the financial policies of the firm. ? Lenders like bankers and financial institution will be determine whether the enterprise is viable for giving credit or extending loans or not. ? With the help of this ratio, shareholders can also find out whether they will receive regular and higher dividend or not. II. Return on Shareholder’s Funds :Return on Capital Employed Shows the overall profitability of the funds supplied by long term lenders and shareholders taken together. Whereas, Return on shareholders funds measures only the profitability of the funds invested by shareholders. These are several measures to calculate the return on shareholder’s funds: (a) Return on total Shareholder’s Funds :For calculating this ratio ‘Net Profit after Interest and Tax’ is divided by total shareholder’s funds. Formula: Where, Total Shareholder’s Funds = Equity Share Capital + Preference Share Capital + All Reserves + P&L A/c Balance –Fictitious Assets Significance:- This ratio reveals how profitably the proprietor’s funds have been utilized by the firm. A comparison of this ratio with that of similar firms will throw light on the relative profitability and strength of the firm. (b) Return on Equity Shareholder’s Funds:-
Equity Shareholders of a company are more interested in knowing the earning capacity of their funds in the business. As such, this ratio measures the profitability of the funds belonging to the equity shareholder’s. Formula: RATIO ANALYSIS Where, Equity Shareholder’s Funds = Equity Share Capital + All Reserves + P&L A/c Balance – Fictitious Assets Significance:- This ratio measures how efficiently the equity shareholder’s funds are being used in the business. It is a true measure of the efficiency of the management since it shows what the earning capacity of the equity shareholders funds. If the ratio is high, it is better, because in such a case equity shareholders may be given a higher dividend. (c) Earning Per Share (E.P.S.) :- This ratio measure the profit available to the equity shareholders on a per share basis. All profit left after payment of tax and preference dividend are available to equity shareholders. Formula: Significance:- This ratio helpful in the determining of the market price of the equity share of the company. The ratio is also helpful in estimating the capacity of the company to declare dividends on equity shares. (d) Dividend Per Share (D.P.S.):- Profits remaining after payment of tax and preference dividend are available to equity shareholders. But of these are not distributed among them as dividend . Out of these profits is retained in the business and the remaining is distributed among equity shareholders as dividend. D.P.S. is the dividend distributed to equity shareholders divided by the number of equity shares.
Formula: (e) Dividend Payout Ratio or D.P. :- It measures the relationship between the earning available to equity shareholders and the dividend distributed among them. Formula: (f) Earning and Dividend Yield :- This ratio is closely related to E.P.S. and D.P.S. While the E.P.S. and D.P.S. are calculated on the basis of the book value of shares, this ratio is calculated on the basis of the market value of share (g) Price Earning (P.E.) Ratio:- Price earning ratio is the ratio between market price per equity share & earnings per share. The ratio is calculated to make an estimate of appreciation in the value of a share of a company & is widely used by investors to decide whether or not to buy shares in a particular company. Significance :- This ratio shows how much is to be invested in the market in this company’s shares to get each rupee of earning on its shares. This ratio is used to measure whether the market price of a share is high or low.
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doc_482319265.docx
Job Satisfaction - Theory
One way to define satisfaction may be to say that it is the end state of feeling. The word 'end' emphasises the fact that the feeling is experienced after a task is accomplished or an activity has taken place whether it is highly individualistic effort of writing a book or a collective endeavour of constructing a building. These activities may be minute or large. But in all cases, they satisfy a certain need. The feeling could be positive or negative depending upon whether need is satisfied or not & could be a function of the effort of the individual on one hand & on the other the situational opportunities available to him. This can be better understood by taking example of a foreman in an engineering industry. He has been assigned the task to complete a special order by a certain, deadline. Person may experience positive job satisfaction because he has been chosen to complete the task. It gives him a special status & feeling that he has been trusted and given a special task, he likes such kind of rush job and it may get him extra wages. The same could be the sources of his dissatisfaction if he does not like rush
work, has no need for extra wages. Each one of these variables lead to an end state of feeling, called satisfaction. Sinha (1974) defines job satisfaction an 'a reintegration of affect produced by individual's perception of fulfillment of his needs in relation to his work & the situations surrounding it'. Theories of Job - Satisfaction : There are 3 major theories of job satisfaction. (i) Herzberg's Motivation - Hygiene theory. (ii) Need fulfilment theory. (iii) Social reference - group theory. Herzberg's Motivation - Hygiene Theory : This theory was proposed by Herzberg & his assistants in 1969. On the basis of his study of 200 engineers and accountants of the Pittsburgh area in the USA, he established that there are two separate sets of conditions (and not one) which are responsible for the motivation & dissatisfaction of workers. When one set of conditions (called 'motivator') is present in the organisation, workers feel motivated but its absence does not dissatisfy them. Similarly, when another set of conditions (called hygiene factors) is absent in the organisation, the workers feel dissatisfied but its presence does not motivate them. The two sets are unidirectional, that is, their effect can be seen in one direction only. According to Herzberg following factors acts as motivators:
• Achievement, • Recognition, • Advancement, • Work itself,
• Possibility of growth, & • Responsibility.
Hygiene factors are :
• Company policy & administration, • Technical supervision, • Inter-personal relations with supervisors, peers & Subordinates, • Salary. • Job security, • Personal life, • Working Conditions, & • Status.
Herzberg used semi-structured interviews (the method is called critical incident method). In this technique subjects were asked to describe those events on the job which had made them extremely satisfied or dissatisfied. Herzberg found that events which led people to extreme satisfaction were generally characterised by 'motivators' & those which led people to extreme dissatisfaction were generally characterized by a totally different set of factors which were called 'hygiene factors'. Hygiene factors are those factors which remove pain from the environment. Hence, they are also known as job - environment or job - context factors. Motivators are factors which result in psychological growth. They are mostly job - centered. Hence they are also known as job - content factors. The theory postulated that motivators and hygiene factors are independent & absence of one does not mean presence of the other. In pleasant situations
motivators appear more frequently than hygiene factors while their predominance is reversed in unpleasant situations. Need Fulfillment Theory : Under the need-fulfillment theory it is believed that a person is satisfied if he gets what he wants & the more he wants something or the more important it is to him, the more satisfied he is when he gets it & the more dissatisfied he is when he does not get it. Needs may be need for personal achievement, social achievement & for influence. a) Need for personal achievement : Desires for personal career development, improvement in one's own life standards, better education & prospects for children & desire for improving one's own work performance. b) Need for social achievement : A drive for some kind of collective success is relation to some standards of excellence. It is indexed in terms of desires to increase overall productivity, increased national prosperity, better life community & safety for everyone. c) Need for influence : A desire to influence other people & surroundings environment. In the works situation, it means to have power status & being important as reflected in initiative taking and participation in decision making. In summary, this theory tell us that job satisfaction is a function of, or is positively related to the degree to which one's personal & social needs are fulfilled in the job situation. Social References - Group Theory : It takes into account the point of view & opinions of the group to whom the individual looks for the guidance. Such groups are defined as the 'referencegroup' for the individual in that they define the way in which he should look at
the world and evaluate various phenomena in the environment (including himself). It would be predicted, according to this theory that if a job meets the interest, desires and requirements of a person's reference group, he will like it & if it does not, he will not like it. A good example of this theory has been given by C.L. Hulin. He measures the effects of community characteristics on job satisfaction of female clerical workers employed in 300 different catalogue order offices. He found that with job conditions held constant job satisfaction was less among persons living in a wellto-do neighborhood than among those whose neighborhood was poor. Hulin, thus provides strong evidence that such frames of reference for evaluation may be provided by one's social groups and general social environment. To sum up, we can say, Job satisfaction is a function of or is positively related to the degree to which the characteristics of the job meet with approved & the desires of the group to which the individual looks for guidance in evaluating the world & defining social reality. Relationship among motivation, attitude and job satisfaction : Motivation implies the willingness to work or produce. A person may be talented and equipped with all kinds of abilities & skills but may have no will to work. Satisfaction, on the other hand, implies a positive emotional state which may be totally unrelated to productivity. Similarly in the literature the terms job attitude and job satisfaction are used interchangeably. However a closer analysis may reveal that perhaps, they measure two different anchor points. Attitudes are predispositions that make the individual behave in a characteristic way across the situations. They are precursors to behaviour & determine its intensity and direction. Job satisfaction, on the other hand is an end state of feeling which may influence subsequent behaviour. In this respect, job attitude and job satisfaction may have something in common. But if we freeze behaviour, attitude would initiate it which job satisfaction would result from it. Relationship Between Morale & Job Satisfaction :
According to Seashore (1959), morale is a condition which exists in a context where people are :
a) motivated towards high productivity. b) want to remain with organization. c) act effectively in crisis. d) accept necessary changes without resentment or resistance. e) actually promote the interest of the organization and f) are satisfied with their job.
According to this description of morale, job satisfaction is an important dimension of morale itself. Morale is a general attitude of the worker and relates to group while job satisfaction is an individual feeling which could be caused by a variety of factors including group. This point has been summarized by Sinha (1974) when he suggests that industrial morale is a collective phenomenon and job satisfaction is a distributed one. In other words, job satisfaction refers to a general attitude towards work by an individual works. On the other hand, morale is group phenomenon which emerges as a result of adherence to group goals and confidence in the desirability of these goals. Relationship Between job satisfaction and work behaviour : Generally, the level of job satisfaction seems to have some relation with various aspects of work behaviour like absenteeism, adjustments, accidents, productivity and union recognition. Although several studies have shown varying degrees of relationship between them and job satisfaction, it is not quite clear whether these relationships are correlative or casual. In other words, whether work behaviour make him more positively inclined to his job and there would be a lesser probability of getting to an unexpected, incorrect or uncontrolled event in which either his action or the reaction of an object or person may result in personal injury.
Job satisfaction and productivity : Experiments have shown that there is very little positive relationship between the job satisfaction & job performance of an individual. This is because the two are caused by quite different factors. Job satisfaction is closely affected by the amount of rewards that an individual derives from his job, while his level of performance is closely affected by the basis for attainment of rewards. An individual is satisfied with his job to the extent that his job provides him with what he desires, and he performs effectively in his job to the extent that effective performance leads to the attainment of what he desires. This means that instead of maximizing satisfaction generally an organisation should be more concerned about maximizing the positive relationship between performance and reward. It should be ensured that the poor performers do not get more rewards than the good performers. Thus, when a better performer gets more rewards he will naturally feel more satisfied. Job Satisfaction and absenteeism : One can find a consistent negative relationship between satisfaction and absenteeism, but the correlation is moderate-usually less than 0.40. While it certainly makes sense that dissatisfied Sales Persons are more likely to miss work, other factors have an impact on the relationship and reduce the correlation coefficient. e.g. Organizations that provide liberal sick leave benefits are encouraging all their Sales Persons, including those who are highly satisfied, to take days off. So, outside factors can act to reduce the correlation. Job Satisfaction and Turnover : Satisfaction is also negatively related to turnover, but the correlation is stronger than what we found for absenteeism. Yet, again, other factors such as labour market conditions, expectations about alternative job opportunities, and length of tenure with the organization are important constraints on the actual decision to leave one's current job. Evidence indicates that an important moderator of the satisfaction-turnover relationship is the Sales Person's level of performance. Specifically, level of satisfaction is less important in predicting turnover for superior performers
because the organization typically makes considerable efforts to keep these people. Just the opposite tends to apply to poor performers. Few attempts are made by the organization to retain them. So one could expect, therefore, that job satisfaction is more important in influencing poor performers to stay than superior performers. Job Satisfaction and Adjustment : It the Sales Person is facing problems in general adjustment, it is likely to affect his work life. Although it is difficult to define adjustment, most psychologists and organisational behaviourists have been able to narrow it down to what they call neuroticism and anxiety. Generally deviation from socially expected behaviour has come to be identified as neurotic behaviour. Though it may be easy to identify symptoms of neuroticism, it is very difficult to know what causes. Family tensions, job tensions, social isolation, emotional stress, fear, anxiety or any such sources could be a source of neuroticism. Anxiety, on the other hand, has a little more clearer base. It is generally seen as a mental state of vague fear and apprehension which influences the mode of thinking. Anxiety usually shows itself in such mental state as depression, impulsiveness, excessive worry and nervousness. While everyone aspires for a perfect state of peace and tranquility, the fact is that some anxiety is almost necessary for an individual to be effective because it provides the necessary push for efforts to achieve excellence. Adjustment problems usually show themselves in the level of job satisfaction. For long, both theorists and practitioners have been concerned with Sales Persons' adjustment and have provided vocational guidance and training to them to minimise it's impact on work behaviour. Most literature, in this area, generally suggests a positive relationship between adjustment and job satisfaction. People with lower level of anxiety and low neuroticism have been found to be more satisfied with their jobs. Determinants of Job Satisfaction :
According to Abrahan A. Korman, there are two types of variables which determine the job satisfaction of an individual.These are : 1) Organisational variables ; and 2) Personal Variables. Organisational Variable : 1) Occupational Level : The higher the level of the job, the greater is the satisfaction of the individual. This is because higher level jobs carry greater prestige and self control. 2) Job Content : Greater the variation in job content and the less repetitiveness with which the tasks must be performed, the greater is the satisfaction of the individual involved. 3) Considerate Leadership : People like to be treated with consideration. Hence considerate leadership results in higher job satisfaction than inconsiderate leadership. 4) Pay and Promotional Opportunities : All other things being equal these two variables are positively related to job satisfaction. 5) Interaction in the work group : Here the question is : When is interaction in the work group a source of job satisfaction and when it is not ? Interaction is most satisfying when (a) It results in the cognition that other person's attitudes are similar to one's own. Since this permits the ready calculability of the others behaviour and constitutes a validation of one's self ;
(b) It results in being accepted by others ; and (c) It facilitates the achievements of goals. Personal Variables : For some people, it appears most jobs will be dissatisfying irrespective of the organisational condition involved, whereas for others, most jobs will be satisfying. Personal variables like age, educational level, sex, etc. are responsible for this difference. (1) Age : Most of the evidence on the relation between age and job satisfaction, holding such factors as occupational level constant, seems to indicate that there is generally a positive relationship between the two variales up to the preretirement years and then there is a sharp decrease in satisfaction. An individual aspires for better and more prestigious jobs in later years of his life. Finding his channels for advancement blocked, his satisfaction declines. (2) Educational Level : With occupational level held constant there is a negative relationship between the educational level and job satisfaction. The higher the education, the higher the reference group which the individual looks to for guidance to evaluate his job rewards. (3) Role Perception : Different individuals hold different perceptions about their role, i.e. the kind of activities and behaviours they should engage in to perform there job successfully. Job satisfaction is determined by this factor also. The more accurate the role perception of an individual, the greater his satisfaction. (4) Sex : There is as yet no consistent evidence as to whether women are more satisfied with their jobs than men, holding such factors as job and occupational level
constant. One might predict this to be the case, considering the generally low occupational aspiration of women. Some other determines of job satisfaction are as follows: (i) General Working Conditions. (ii) Grievance handling procedure. (iii) Fair evaluation of work done. (iv) Job security. (v) Company prestige. (vi) Working hours etc. How Sales Persons Can Express Dissatisfaction Sales Person dissatisfaction can be expressed in a number of ways. For example, rather than quit, Sales Persons can complain, be insubordinate, steal organisational property, or shirk a part of their work responsibilities. In the following figure, four responses are given along to dimensions : Constructiveness / Destructiveness and Activity / Passivity. These are defined as follow :
Exit : Behaviour directed towards leaving the organisation. Includes looking for a new position as well as resigning.
Active Exit Destructive neglect loyalty Passive Voice Constructive
Voice : Actively and constructively attempting to improve conditions includes suggesting improvements, discussing problems with superiors, and some forms of union activity. Loyalty : Passively but optimistically waiting for conditions to improve. Includes speaking up for the organisation in the face of external criticism and trusting the organisation and its management to 'do the right thing'. Neglect : Passively allowing the conditions to worsen. Includes chronic absenteeism or lateness, reduced effort, and increased error rate. Exit and neglect behaviours encompass our performances variables-productivity, absenteeism and turnover. But this model expands Sales Person response to include voice and loyalty, constructive behaviours that allow individuals to tolerate unpleasant situations or to revive satisfactory working conditions. The importance of high job satisfaction : The importance of job satisfaction is obvious. Managers should be concerned with the level of job satisfaction in their organisations for at least three reasons: (1) There is clear evidence that dissatisfied Sales Persons skip work more often and are more likely to resign ; (2) It has been demonstrated that satisfied Sales Persons have better health and live longer ; and (3) Satisfaction on the job carries over to the Sales Person's life outside the job. Satisfied Sales Persons have lower rate of both turnover and absenteeism. Specifically, satisfaction is strongly and consistently negatively related to an Sales Person's decision to leave the organisation. Although satisfaction and absence are also negatively related, conclusions regarding the relationship should be more guarded. An often overlooked dimension of job satisfaction is its relationship to Sales Person health. Several studies have shown that Sales Persons who are dissatisfied with their jobs are prone to health setbacks ranging from headaches to heart
disease. For managers, this means that even if satisfaction did not lead to less voluntary turn over and absence, the goal of a satisfied work force might be jutificable because it would reduced medical costs and the premature loss of valued Sales Persons by way of heart disease or strokes. Job satisfaction's importance is its spin off effect that job satisfaction has for society as a whole. When Sales Persons are happy with their jobs, it improves their lives off the job. In contrast, the dissatisfied Sales Person carries that negative attitude home. Some benefits of job satisfaction accure to every citizen in society. Satisfied Sales Persons are more likely to be satisfied citizens. These people will hold a more positive attitude towards life in general and make for a society of more psychologically healthy people. So job satisfaction is very important. For management, a satisfied work force translates into higher productivity due to fewer disruptions caused by absenteeism or good Sales Persons quitting, as well as into lower medical and life insurance costs. Additionally, there are benefits for society in general. Satisfaction on the job carries over to the Sales Person's off the job hours. So the goal of high job satisfaction for Sales Persons can be defended in terms of both money and social responsibility.
Project Description :
Title : Project Report on Job Satisfaction of Employees Project Description : MBA Project Report on Job Satisfaction of Employees Theory of Job Satisfaction, Relationship Between job satisfaction and work behaviour, productivity, absenteeism, Turnover, Adjustment & How Sales Persons Can Express Dissatisfaction Pages : 73 Category : Project Report for MBA
RATIO ANALYSIS Meaning of Ratio:- A ratio is simple arithmetical expression of the relationship of one number to another. It may be defined as the indicated quotient of two mathematical expressions. According to Accountant’s Handbook by Wixon, Kell and Bedford, “a ratio is an expression of the quantitative relationship between two numbers”. Ratio Analysis:- Ratio analysis is the process of determining and presenting the relationship of items and group of items in the statements. According to Batty J. Management Accounting “Ratio can assist management in its basic functions of forecasting, planning coordination, control and communication”. It is helpful to know about the liquidity, solvency, capital structure and profitability of an organization. It is helpful tool to aid in applying judgement, otherwise complex situations. Ratio analysis can represent following three methods. Ratio may be expressed in the following three ways : 1. Pure Ratio or Simple Ratio :- It is expressed by the simple division of one number by another. For example , if the current assets of a business are Rs. 200000 and its current liabilities are Rs. 100000, the ratio of ‘Current assets to current liabilities’ will be 2:1. 2. ‘Rate’ or ‘So Many Times :- In this type , it is calculated how many times a figure is, in comparison to another figure. For example , if a firm’s credit sales during the year are Rs. 200000 and its debtors at the end of the year are Rs. 40000 , its Debtors Turnover Ratio is 200000/40000 = 5 times. It shows that the credit sales are 5 times in comparison to debtors. 3. Percentage :- In this type, the relation between two figures is expressed in hundredth. For example, if a firm’s capital is Rs.1000000 and its profit is
Rs.200000 the ratio of profit capital, in term of percentage, is 200000/1000000*100 = 20% ADVANTAGE OF RATIO ANALYSIS 1. Helpful in analysis of Financial Statements. 2. Helpful in comparative Study. 3. Helpful in locating the weak spots of the business. 4. Helpful in Forecasting. 5. Estimate about the trend of the business. 6. Fixation of ideal Standards. 7. Effective Control. 8. Study of Financial Soundness. LIMITATIONS OF RATIO ANALYSIS 1. Comparison not possible if different firms adopt different accounting policies. 2. Ratio analysis becomes less effective due to price level changes. 3. Ratio may be misleading in the absence of absolute data. 4. Limited use of a single data. 5. Lack of proper standards. 6. False accounting data gives false ratio. 7. Ratios alone are not adequate for proper conclusions. 8. Effect of personal ability and bias of the analyst.
CLASSIFICATION OF RATIO Ratio may be classified into the four categories as follows: A. Liquidity Ratio a. Current Ratio b. Quick Ratio or Acid Test Ratio B. Leverage or Capital Structure Ratio a. Debt Equity Ratio b. Debt to Total Fund Ratio c. Proprietary Ratio d. Fixed Assets to Proprietor’s Fund Ratio e. Capital Gearing Ratio f. Interest Coverage Ratio C. Activity Ratio or Turnover Ratio a. Stock Turnover Ratio b. Debtors or Receivables Turnover Ratio c. Average Collection Period d. Creditors or Payables Turnover Ratio e. Average Payment Period f. Fixed Assets Turnover Ratio
g. Working Capital Turnover Ratio D. Profitability Ratio or Income Ratio
(A) Profitability Ratio based on Sales : a. Gross Profit Ratio b. Net Profit Ratio c. Operating Ratio d. Expenses Ratio
(B) Profitability Ratio Based on Investment : I. Return on Capital Employed II. Return on Shareholder’s Funds : a. Return on Total Shareholder’s Funds b. Return on Equity Shareholder’s Funds c. Earning Per Share d. Dividend Per Share e. Dividend Payout Ratio f. Earning and Dividend Yield g. Price Earning Ratio
LIQUIDITY RATIO (A) Liquidity Ratio:- It refers to the ability of the firm to meet its current liabilities. The liquidity ratio, therefore, are also called ‘Short-term Solvency Ratio’. These ratio are used to assess the short-term financial position of the concern. They indicate the firm’s ability to meet its current obligation out of current resources. In the words of Saloman J. Flink, “Liquidity is the ability of the firms to meet its current obligations as they fall due”. Liquidity ratio include two ratio :a. Current Ratio b. Quick Ratio or Acid Test Ratio a. Current Ratio:- This ratio explains the relationship between current assets and current liabilities of a business. Formula: Current Assets:-‘Current assets’ includes those assets which can be converted into cash with in a year’s time. Current Assets = Cash in Hand + Cash at Bank + B/R + Short Term Investment + Debtors(Debtors – Provision) + Stock(Stock of Finished Goods + Stock of Raw Material + Work in Progress) + Prepaid Expenses. Current Liabilities :- ‘Current liabilities’ include those liabilities which are repayable in a year’s time. Current Liabilities = Bank Overdraft + B/P + Creditors + Provision for Taxation + Proposed Dividend + Unclaimed Dividends + Outstanding Expenses + Loans Payable with in a Year.
Significance :- According to accounting principles, a current ratio of 2:1 is supposed to be an ideal ratio. It means that current assets of a business should, at least , be twice of its current liabilities. The higher ratio indicates the better liquidity position, the firm will be able to pay its current liabilities more easily. If the ratio is less than 2:1, it indicate lack of liquidity and shortage of working capital. The biggest drawback of the current ratio is that it is susceptible to “window dressing”. This ratio can be improved by an equal decrease in both current assets and current liabilities. b. Quick Ratio:- Quick ratio indicates whether the firm is in a position to pay its current liabilities with in a month or immediately. Formula: ‘Liquid Assets’ means those assets, which will yield cash very shortly. Liquid Assets = Current Assets – Stock – Prepaid Expenses Significance :- An ideal quick ratio is said to be 1:1. If it is more, it is considered to be better. This ratio is a better test of short-term financial position of the company. LEVERAGE OR CAPITAL STRUCTURE RATIO (B) Leverage or Capital Structure Ratio :- This ratio disclose the firm’s ability to meet the interest costs regularly and Long term indebtedness at maturity. These ratio include the following ratios : a. Debt Equity Ratio:- This ratio can be expressed in two ways: First Approach : According to this approach, this ratio expresses the relationship between long term debts and shareholder’s fund.
Formula: Long Term Loans:- These refer to long term liabilities which mature after one year. These include Debentures, Mortgage Loan, Bank Loan, Loan from Financial institutions and Public Deposits etc. Shareholder’s Funds :- These include Equity Share Capital, Preference Share Capital, Share Premium, General Reserve, Capital Reserve, Other Reserve and Credit Balance of Profit & Loss Account. Second Approach : According to this approach the ratio is calculated as follows:Formula: Debt equity ratio is calculated for using second approach. Significance :- This Ratio is calculated to assess the ability of the firm to meet its long term liabilities. Generally, debt equity ratio of is considered safe. If the debt equity ratio is more than that, it shows a rather risky financial position from the long-term point of view, as it indicates that more and more funds invested in the business are provided by long-term lenders. The lower this ratio, the better it is for long-term lenders because they are more secure in that case. Lower than 2:1 debt equity ratio provides sufficient protection to long-term lenders. b. Debt to Total Funds Ratio : This Ratio is a variation of the debt equity ratio and gives the same indication as the debt equity ratio. In the ratio, debt is expressed in relation to total funds, i.e., both equity and debt. Formula: Significance :- Generally, debt to total funds ratio of 0.67:1 (or 67%) is considered satisfactory. In other words, the proportion of long term loans should not be more than 67% of total funds. A higher ratio indicates a burden of payment of large amount of interest charges periodically and the repayment of large amount of loans at maturity. Payment of
interest may become difficult if profit is reduced. Hence, good concerns keep the debt to total funds ratio below 67%. The lower ratio is better from the long-term solvency point of view. c. Proprietary Ratio:- This ratio indicates the proportion of total funds provide by owners or shareholders. Formula: Significance :- This ratio should be 33% or more than that. In other words, the proportion of shareholders funds to total funds should be 33% or more. A higher proprietary ratio is generally treated an indicator of sound financial position from long-term point of view, because it means that the firm is less dependent on external sources of finance. If the ratio is low it indicates that long-term loans are less secured and they face the risk of losing their money. d. Fixed Assets to Proprietor’s Fund Ratio :- This ratio is also know as fixed assets to net worth ratio. Formula: Significance :- The ratio indicates the extent to which proprietor’s (Shareholder’s) funds are sunk into fixed assets. Normally , the purchase of fixed assets should be financed by proprietor’s funds. If this ratio is less than 100%, it would mean that proprietor’s fund are more than fixed assets and a part of working capital is provided by the proprietors. This will indicate the long-term financial soundness of business. e. Capital Gearing Ratio:- This ratio establishes a relationship between equity capital (including all reserves and undistributed profits) and fixed cost bearing capital. Formula:
Whereas, Fixed Cost Bearing Capital = Preference Share Capital + Debentures + Long Term Loan Significance:- If the amount of fixed cost bearing capital is more than the equity share capital including reserves an undistributed profits), it will be called high capital gearing and if it is less, it will be called low capital gearing. The high gearing will be beneficial to equity shareholders when the rate of interest/dividend payable on fixed cost bearing capital is lower than the rate of return on investment in business. Thus, the main objective of using fixed cost bearing capital is to maximize the profits available to equity shareholders. f. Interest Coverage Ratio:- This ratio is also termed as ‘Debt Service Ratio’. This ratio is calculated as follows: Formula: Significance :- This ratio indicates how many times the interest charges are covered by the profits available to pay interest charges. This ratio measures the margin of safety for long-term lenders. This higher the ratio, more secure the lenders is in respect of payment of interest regularly. If profit just equals interest, it is an unsafe position for the lender as well as for the company also , as nothing will be left for shareholders. An interest coverage ratio of 6 or 7 times is considered appropriate. ACTIVITY RATIO OR TURNOVER RATIO
(C) Activity Ratio or Turnover Ratio :- These ratio are calculated on the bases of ‘cost of sales’ or sales, therefore, these ratio are also called as ‘Turnover Ratio’. Turnover indicates the speed or number of times the capital employed has been rotated in the
process of doing business. Higher turnover ratio indicates the better use of capital or resources and in turn lead to higher profitability.
It includes the following : a. Stock Turnover Ratio:- This ratio indicates the relationship between the cost of goods during the year and average stock kept during that year. Formula: Here, Cost of goods sold = Net Sales – Gross Profit Average Stock = Opening Stock + Closing Stock/2 Significance:- This ratio indicates whether stock has been used or not. It shows the speed with which the stock is rotated into sales or the number of times the stock is turned into sales during the year. The higher the ratio, the better it is, since it indicates that stock is selling quickly. In a business where stock turnover ratio is high, goods can be sold at a low margin of profit and even than the profitability may be quit high. b. Debtors Turnover Ratio :- This ratio indicates the relationship between credit sales and average debtors during the year : Formula: While calculating this ratio, provision for bad and doubtful debts is not deducted from the debtors, so that it may not give a false impression that debtors are collected quickly. Significance :- This ratio indicates the speed with which the amount is collected from debtors. The higher the ratio, the better it is, since it indicates that amount from debtors is being collected more quickly. The more quickly the debtors pay, the less the risk from bad- debts, and so the lower the expenses of collection and increase in the liquidity of the firm.
By comparing the debtors turnover ratio of the current year with the previous year, it may be assessed whether the sales policy of the management is efficient or not. c. Average Collection Period :- This ratio indicates the time with in which the amount is collected from debtors and bills receivables. Formula: Here, Credit Sales per day = Net Credit Sales of the year / 365 Second Formula :Average collection period can also be calculated on the bases of ‘Debtors Turnover Ratio’. The formula will be:
Significance :- This ratio shows the time in which the customers are paying for credit sales. A higher debt collection period is thus, an indicates of the inefficiency and negligency on the part of management. On the other hand, if there is decrease in debt collection period, it indicates prompt payment by debtors which reduces the chance of bad debts. d. Creditors Turnover Ratio :- This ratio indicates the relationship between credit purchases and average creditors during the year . Formula:Note :- If the amount of credit purchase is not given in the question, the ratio may be calculated on the bases of total purchase. Significance :- This ratio indicates the speed with which the amount is being paid to creditors. The higher the ratio, the better it is, since it will indicate that the creditors are being paid more quickly which increases the credit worthiness of the firm.
d. Average Payment Period :- This ratio indicates the period which is normally taken by the firm to make payment to its creditors. Formula:This ratio may also be calculated as follows : Significance :- The lower the ratio, the better it is, because a shorter payment period implies that the creditors are being paid rapidly. d. Fixed Assets Turnover Ratio :- This ratio reveals how efficiently the fixed assets are being utilized. Formula:Here, Net Fixed Assets = Fixed Assets – Depreciation Significance:- This ratio is particular importance in manufacturing concerns where the investment in fixed asset is quit high. Compared with the previous year, if there is increase in this ratio, it will indicate that there is better utilization of fixed assets. If there is a fall in this ratio, it will show that fixed assets have not been used as efficiently, as they had been used in the previous year. e. Working Capital Turnover Ratio :- This ratio reveals how efficiently working capital has been utilized in making sales. Formula :Here, Cost of Goods Sold = Opening Stock + Purchases + Carriage + Wages + Other Direct Expenses - Closing Stock Working Capital = Current Assets – Current Liabilities Significance :- This ratio is of particular importance in non-manufacturing concerns where current assets play a major role in generating sales. It shows the number of times working capital has been rotated in producing sales.
A high working capital turnover ratio shows efficient use of working capital and quick turnover of current assets like stock and debtors. A low working capital turnover ratio indicates under-utilisation of working capital. Profitability Ratios or Income Ratios (D) Profitability Ratios or Income Ratios:- The main object of every business concern is to earn profits. A business must be able to earn adequate profits in relation to the risk and capital invested in it. The efficiency and the success of a business can be measured with the help of profitability ratio. Profitability ratios are calculated to provide answers to the following questions: i. ii. iii. iv. v. Is the firm earning adequate profits? What is the rate of gross profit and net profit on sales? What is the rate of return on capital employed in the firm? What is the rate of return on proprietor’s (shareholder’s) funds? What is the earning per share?
Profitability ratio can be determined on the basis of either sales or investment into business. (A) Profitability Ratio Based on Sales : a) Gross Profit Ratio : This ratio shows the relationship between gross profit and sales. Formula : Here, Net Sales = Sales – Sales Return
Significance:- This ratio measures the margin of profit available on sales. The higher the gross profit ratio, the better it is. No ideal standard is fixed for this ratio, but the gross profit ratio should be adequate enough not only to cover the operating expenses but also to provide for deprecation, interest on loans, dividends and creation of reserves. b) Net Profit Ratio:- This ratio shows the relationship between net profit and sales. It may be calculated by two methods: Formula: Here, Operating Net Profit = Gross Profit – Operating Expenses such as Office and Administrative Expenses, Selling and Distribution Expenses, Discount, Bad Debts, Interest on short-term debts etc. Significance :- This ratio measures the rate of net profit earned on sales. It helps in determining the overall efficiency of the business operations. An increase in the ratio over the previous year shows improvement in the overall efficiency and profitability of the business. (c) Operating Ratio:- This ratio measures the proportion of an enterprise cost of sales and operating expenses in comparison to its sales. Formula: Where, Cost of Goods Sold = Opening Stock + Purchases + Carriage + Wages + Other Direct Expenses - Closing Stock Operating Expenses = Office and Administration Exp. + Selling and Distribution Exp. + Discount + Bad Debts + Interest on Short- term loans.
‘Operating Ratio’ and ‘Operating Net Profit Ratio’ are inter-related. Total of both these ratios will be 100.
Significance:- Operating Ratio is a measurement of the efficiency and profitability of the business enterprise. The ratio indicates the extent of sales that is absorbed by the cost of goods sold and operating expenses. Lower the operating ratio is better, because it will leave higher margin of profit on sales.
(d) Expenses Ratio:- These ratio indicate the relationship between expenses and sales. Although the operating ratio reveals the ratio of total operating expenses in relation to sales but some of the expenses include in operating ratio may be increasing while some may be decreasing. Hence, specific expenses ratio are computed by dividing each type of expense with the net sales to analyse the causes of variation in each type of expense. The ratio may be calculated as : (a) Material Consumed Ratio = Material Consumed/Net Sales*100 (b) Direct Labour cost Ratio = Direct labour cost / Net sales*100 (c) Factory Expenses Ratio = Factory Expenses / Net Sales *100 (a), (b) and (c) mentioned above will be jointly called cost of goods sold ratio. It may be calculated as: Cost of Goods Sold Ratio = Cost of Goods Sold / Net Sales*100 (d) Office and Administrative Expenses Ratio = Office and Administrative Exp./ Net Sales*100 (e) Selling Expenses Ratio = Selling Expenses / Net Sales *100 (f) Non- Operating Expenses Ratio = Non-Operating Exp./Net sales*100
Significance:- Various expenses ratio when compared with the same ratios of the previous year give a very important indication whether these expenses in relation to sales are increasing, decreasing or remain stationary. If the expenses ratio is lower, the profitability will be greater and if the expenses ratio is higher, the profitability will be lower.
(B) Profitability Ratio Based on Investment in the Business:These ratio reflect the true capacity of the resources employed in the enterprise. Sometimes the profitability ratio based on sales are high whereas profitability ratio based on investment are low. Since the capital is employed to earn profit, these ratios are the real measure of the success of the business and managerial efficiency. These ratio may be calculated into two categories: I. Return on Capital Employed II. Return on Shareholder’s funds I. Return on Capital Employed :- This ratio reflects the overall profitability of the business. It is calculated by comparing the profit earned and the capital employed to earn it. This ratio is usually in percentage and is also known as ‘Rate of Return’ or ‘Yield on Capital’. Formula: Where, Capital Employed = Equity Share Capital + Preference Share Capital + All Reserves + P&L Balance +Long-Term Loans- Fictitious Assets (Such as Preliminary Expenses OR etc.) – Non-Operating Assets like Investment made outside the business. Capital Employed = Fixed Assets + Working Capital Advantages of ‘Return on Capital Employed’:? Since profit is the overall objective of a business enterprise, this ratio is a barometer of the overall performance of the enterprise. It measures how efficiently the capital employed in the business is being used. ? Even the performance of two dissimilar firms may be compared with the help of this ratio. ? The ratio can be used to judge the borrowing policy of the enterprise.
? This ratio helps in taking decisions regarding capital investment in new projects. The new projects will be commenced only if the rate of return on capital employed in such projects is expected to be more than the rate of borrowing. ? This ratio helps in affecting the necessary changes in the financial policies of the firm. ? Lenders like bankers and financial institution will be determine whether the enterprise is viable for giving credit or extending loans or not. ? With the help of this ratio, shareholders can also find out whether they will receive regular and higher dividend or not. II. Return on Shareholder’s Funds :Return on Capital Employed Shows the overall profitability of the funds supplied by long term lenders and shareholders taken together. Whereas, Return on shareholders funds measures only the profitability of the funds invested by shareholders. These are several measures to calculate the return on shareholder’s funds: (a) Return on total Shareholder’s Funds :For calculating this ratio ‘Net Profit after Interest and Tax’ is divided by total shareholder’s funds. Formula: Where, Total Shareholder’s Funds = Equity Share Capital + Preference Share Capital + All Reserves + P&L A/c Balance –Fictitious Assets Significance:- This ratio reveals how profitably the proprietor’s funds have been utilized by the firm. A comparison of this ratio with that of similar firms will throw light on the relative profitability and strength of the firm. (b) Return on Equity Shareholder’s Funds:-
Equity Shareholders of a company are more interested in knowing the earning capacity of their funds in the business. As such, this ratio measures the profitability of the funds belonging to the equity shareholder’s. Formula: RATIO ANALYSIS Where, Equity Shareholder’s Funds = Equity Share Capital + All Reserves + P&L A/c Balance – Fictitious Assets Significance:- This ratio measures how efficiently the equity shareholder’s funds are being used in the business. It is a true measure of the efficiency of the management since it shows what the earning capacity of the equity shareholders funds. If the ratio is high, it is better, because in such a case equity shareholders may be given a higher dividend. (c) Earning Per Share (E.P.S.) :- This ratio measure the profit available to the equity shareholders on a per share basis. All profit left after payment of tax and preference dividend are available to equity shareholders. Formula: Significance:- This ratio helpful in the determining of the market price of the equity share of the company. The ratio is also helpful in estimating the capacity of the company to declare dividends on equity shares. (d) Dividend Per Share (D.P.S.):- Profits remaining after payment of tax and preference dividend are available to equity shareholders. But of these are not distributed among them as dividend . Out of these profits is retained in the business and the remaining is distributed among equity shareholders as dividend. D.P.S. is the dividend distributed to equity shareholders divided by the number of equity shares.
Formula: (e) Dividend Payout Ratio or D.P. :- It measures the relationship between the earning available to equity shareholders and the dividend distributed among them. Formula: (f) Earning and Dividend Yield :- This ratio is closely related to E.P.S. and D.P.S. While the E.P.S. and D.P.S. are calculated on the basis of the book value of shares, this ratio is calculated on the basis of the market value of share (g) Price Earning (P.E.) Ratio:- Price earning ratio is the ratio between market price per equity share & earnings per share. The ratio is calculated to make an estimate of appreciation in the value of a share of a company & is widely used by investors to decide whether or not to buy shares in a particular company. Significance :- This ratio shows how much is to be invested in the market in this company’s shares to get each rupee of earning on its shares. This ratio is used to measure whether the market price of a share is high or low.
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