Core Concepts of DI

We will start with the basic concepts:

Growth Rates

All figs. are in Rs. 000s	2000	2001	2002
Sales	300	350	380
Profit	100	150	160

Growth refers to the increase in the underlying value. In the above chart the growth in sales for the year 2001 to 2002 is Rs.30,000. The growth in sales over the years would be Rs.80,000.

Growth rate refers to the % increase, if not specifically mentioned the previous year is usually taken as the base, thus for 2002 growth rate will go by:

(380 - 350)/350 * 100% = 8.37%.

For a date range like 2000 - 2002 , the year 2000 will be taken as the base.

Annual Growth rate

• Simple Annual Growth Rate(SAGR) or Average Annual Growth Rate:

SAGR is the constant growth rate over a period of time, the formula comes from the theory of S.I. It is given by the formula: (F - I)/I * 100 * 1/n, where F is the final value, I is the initial value, and n is the time period.

[In S.I, F = I + I * r * n/100, here r becomes the SAGR]

• Compounded Annual Growth Rate(CAGR) or Annualised Growth Rate:

The formula comes from the theory of C.I. It is given by the formula:{(F/P)1/n-1}* 100, where F is the final value, I is the initial value, and n is the time period.

[In C.I, F = P(1 + r/100)n, here r becomes the CAGR]

Profit %

The profit % of the year 2000 in the above table is: 100/(300 - 100) * 100% = 50%. Remember that the profit % is calculated on Cost Price not on sales.

For the year 2001 profit % is 150/200 * 100% = 75%. Thus the % change in profit in the year 2001 over that of 2000 is 25/50 * 100 % = 50%. Thus the profit increased by 50 percentage points.

Profit Margin = Profit/S.P * 100%

Market Share: Value & Volume

Sales figures can be in either value(Rs.) or volume terms (no.s, kgs, etc.)

Company	Sales in Rs. Cr	Sales(in 000s)	Avg. Price/unit in Rs.
KKR	130	40	32500
RCB	150	30	50000
RR	240	30	80000
CSK	180	50	36000
Total	700	150	46666

Avg. price per PC for KKR is 130 * 107/40000 = 32500

Thus sales in value terms is = (sales in volume terms) * (price/unit)

Market share for any company is the % of the total market that the company accounts for, since the market itself can be specified in either value terms or volume terms hence the market share for any company can also be specified in both value and volume terms.

Here the market share of KKR will be 130/700 * 100% = 18.57% in value terms and 40/150 * 100% = 26.66% in volume terms.Since the total is 100%, hence the total market share after adding up each market share will be 100%.

Company	Mkt share of value	Mkt share of volume	Avg. Price/unit in Rs.
KKR	18.57%	26.66%	32500
RCB	21.42%	20%	50000
RR	34.28%	20%	80000
CSK	25.71%	33.33%	36000
Total	100%	100%	46666

An important thing to note is that companies which have Avg Price/unit greater than market average( like RCB, CSK) will have greater market share in value terms than in volume terms and viceversa. This is obvious as the company which earns more money by selling less products must be doing so because it is selling the products at a greater price.

sales of KKRvalue            total salesvalue * market share of KKRvalue

------------------------------------------   =  ---------------------------------------------------------------------------------------------------------

sales of KKRvolume        total salesvolume * market share of KKRvolume

=> price/unit of KKR = price/unit of Market * market share of KKRvalue/market share of KKRvolume

=> (price/unit of KKR) / (price/unit of Market) = market share of KKRvalue/market share of KKRvolume

Revenue is the total money received by the company after selling its products/services. Profit is just the money remaining after (revenue - cost)

Break Even Point(BEP) is the production level at which the company is in a no-profit, no-loss situation:

BEP = (Fixed Cost)/ (Sales Price - Variable Cost/unit)

Source:

1. CL materials
2. Erudite materials